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India – CCI Closes Investigation Against Intel.

7 February, 2014

 


On January 16, 2013, the Competition Commission of India (‘CCI’) closed its investigation into allegations of anti-competitive vertical agreements and abuse of dominant position by Intel Corporation, Intel Semiconductors Limited, Hong Kong and Intel Technology India Private Limited (collectively referred to as ‘Intel’). ESYS Information Technologies Private Limited (‘Informant’), a former distributor of Intel products in India, alleged that Intel terminated their distribution agreement (‘Agreement’) after it started selling AMD microprocessors, along with Intel microprocessors.

 
The Informant alleged that the Agreement amounted to an anti-competitive vertical agreement under the Competition Act, 2002 (‘Act’). Specifically, it was alleged that by compelling the Informant to sell Intel’s low demand products with its high demand products, Intel had entered into a tie-in arrangement and an exclusive supply agreement. Intel also allegedly indulged in resale price maintenance with respect to the price of microprocessors. It was also alleged that conditions in the Agreement, such as the restriction to deal with the products of competitors and fixing unreasonable targets, amounted to an abuse of dominant position. Finally, Intel was accused of price discrimination between Original Equipment Manufacturers (‘OEMs’) and distributors.

 
Anti-Competitive Agreement

 
Agreeing with the Directorate General’s (‘DGs’) report, CCI did not find merit in the allegations made by the Informant in relation to an anti-competitive agreement. Specifically, CCI held the following on each of the factors set out below:

 
Tie in arrangement: CCI did not find any evidence of Intel conditioning the sale of its high-demand products on the purchase of low-demand products. Accordingly, it held that there was no tie-in arrangement. Although Intel communicated targets to distributors, which targets were based on a product ratio that contained both high demand and low demand products, and distributors who met such targets through higher sales of low demand products received better incentives; this was held to be a legitimate business model and not a tie-in arrangement.

 
Exclusive supply agreement: The Agreement mandated that a distributor intimate Intel before dealing in competing products, although there was a no bar on the same. In fact, CCI found several instances where distributors of Intel were dealing with other brands/products.

 
Resale price maintenance: CCI observed that although Intel did monitor prices downstream at a macro level, it was justified for an enterprise to be interested in knowing the downstream price of its products. Further, the Agreement allowed Intel to recommend prices, but the prices of microprocessors were fixed by the distributors themselves.

 
Abuse Of Dominant Position

 
CCI agreed with DG’s approach of dividing the market for microprocessors in terms of their end-use by defining the relevant product market as the market for microprocessors for (i) desktop PCs, (ii) mobile/ portable PCs such as laptops, (iii) servers, and (iv) tablets. CCI defined the relevant geographical market as India. According to CCI, Intel’s contention that the relevant geographic market should be worldwide could not be accepted as Intel’s distributors and OEMs operated in India alone. CCI also observed that the demand and supply conditions in India are different from the rest of the world on account of import duties, exchange rates etc.

 
CCI found Intel to be dominant in three of the four relevant markets, i.e. the markets for microprocessors for (i) desktop PCs, (ii) mobile/ portable PCs, and (iii) servers. CCI found Intel to have high market shares, coupled with high barriers to entry on account of the extent of Intel’s intellectual property.

 
As stated above, CCI found that the Agreement allowed distributors to deal with competitor’s products, subject to intimation to Intel. Further, CCI did not find Intel’s incentive scheme to be linked to market share or its competitors.

 
CCI did find a price difference for OEMs (who are bulk customers) and distributors. However, this was on account of differences in packaging costs because OEMs place large orders, and it is common business practice to have a lower price for OEMs on account of volumes or business relationships. CCI observed that as long as a discount did not impede the ability of a reseller to compete, no competition concern would arise. Accordingly, CCI held that Intel’s pricing policy did not amount to secondary line price discrimination and did not result in market foreclosure of downstream customers.

 
Accordingly, CCI closed the investigation against Intel.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com


Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com


Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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