Jurisdiction - India
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India – COMPAT Overturns CCI’s Decision On Abuse Of Dominance Against Schott India.

17 April, 2014

 

 

Introduction


On April 2, 2014, the Competition Appellate Tribunal (‘COMPAT’), upheld an appeal by Schott Glass India Private Limited (‘Schott India’)1, against an earlier decision2 of the Competition Commission of India (‘CCI’) whereby the CCI had found Schott guilty of abuse of dominance in within the meaning of Section 4 of the Competition Act, 2002 (‘Competition Act’ or ‘the Act’).


On 25 May 2010, Kapoor Glass Private Limited (‘Kapoor Glass’), an Indian glass container (ampoules, vials, cartridges, syringes etc.) manufacturing enterprise, had approached the CCI alleging abuse of dominance by Schott in the Indian market for “neutral USP-I borosilicate glass tubes” and “ampoules” made of such tubes. Kapoor Glass’s key contentions were that Schott had abused its dominant position by: (a) imposing unfair and discriminatory prices (including predatory prices) and conditions on ampoule manufacturers (such as Kapoor Glass) through its discount policies, which were inconsistent with Section 4(2)(a)(i) & (ii) of the Competition Act; (b) leveraged its dominance in the upstream market for “neutral USP-I borosilicate glass tubes” to protect its market presence in the downstream market for “ampoules” by favouring Schott Kaisha Private Limited (‘Schott-Kaisha’) which was a Joint Venture (‘JV’) floated by another Schott group company3, which was inconsistent with Section 4(2)(e)of the Competition Act; (c) engaged in tied in sales of two different varieties (clear and amber) of “neutral USP-I borosilicate glass tubes”, which was inconsistent with Section 4(2)(d)of the Act; (d) refused to deal with Kapoor Glass which resulted in denial of market within the meaning of Section 4(2)(c) of the Competition Act; and (e) indulged in exclusionary behaviour which limited and restricted the market in violation of Section 4(2)(b)(i) of the Act.


The CCI had found Schott India guilty of abusing its dominant position in the Indian market for “neutral USP-I borosilicate glass tubes” by: (a) indulging in discriminatory pricing in contravention of Section 4(2)(a)(i) & (ii) of the Competition Act; (b) indulging in exclusionary policies and restricting the market for ampoules, in violation of Section 4(2)(b)(i) of the Competition Act; (c) engaging in tied-in in sales of clear and amber varieties of “neutral USP-I borosilicate glass tubes” in contravention of section 4(2)(d) of the Competition Act; and (d) leveraging dominance in the market for “neutral USP-I borosilicate glass tubes” to protect the downstream market for glass ampoule.


Aggrieved by the CCI’s decision Schott filed an appeal to the COMPAT seeking annulment of the CCI’s order as far as it had found Schott guilty of abusing its dominant position. Kapoor Glass also preferred an appeal to the COMPAT, praying that the CCI’s decision to not find Schott guilty on the ground of refusal to deal be reversed. The COMPAT clubbed the two appeals and passed a common order, upholding Schott’s contentions on all counts and dismissing Kapoor Glass’s appeal in entirety. The key aspects of the COMPAT’s decision are provided below.


A. Sections 4(2)(a)(i) & (ii) (Discriminatory Conditions And Prices)


The COMPAT alluded to the legal position in the European Union (‘EU’) (under Article 102 of the Treaty on the Functioning of the European Union (‘TFEU’) and the Robinson-Patman Act in the United States and held that for prices/conditions to be discriminatory, 2 (two) conditions need to be met: (i) dissimilar treatment to equivalent transactions; and (ii) harm or likely harm to competition. The COMPAT emphasized that for a discount policy to be discriminatory, it must be different for ‘equivalent transactions’. Consequently, the COMPAT held that different prices and conditions on sale of different quantities of a product can not be considered discriminatory because a transaction involving sale of a large quantity of a product can not be treated to a transaction involving sale of smaller quantity. Further, the COMPAT recognized that it was fair practice to grant favourable terms to large purchasers who provide much needed certainty of demand and allow manufacturers to make large capital investments. On the alleged preferential sale terms offered by Schott to the Schott-Kaisha JV, the COMPAT recognized the fact that Schott-Kaisha was by far the largest purchaser of Schott India’s products and it was hence fair for Schott to offer preferential sale terms to Schott-Kaisha.


The COMPAT also did not find any harm/likely harm to competition emanating from Schott India’s discount policies, particularly as the cost differential in input prices (prices of “neutral USP-I borosilicate glass tubes”) across downstream ampoule manufacturers did not result in any price differential in final products (ampoules). The prices offered by Schott-Kaisha, the alleged beneficiary of Schott India’s discount policy, were more than or equal to (and never lesser than) the prices offered by the competitors in the downstream ampoule market. The COMPAT also noted that the market for ampoules had grown over the years and that most of the manufacturers had also experienced growth in absolute numbers.

 

On the issue of functional discounts (discounts dependent on the purchaser agreeing to certain conditions such as (i) not using inferior quality Chinese tubes and providing all proof/information in this regard; (ii) granting Schott India the right to inspect premises and unilaterally determine breach of the conditions for supply of tubes; and (iii) impose penalties for noncompliance with such conditions. The COMPAT did not find the functional discount conditions unfair as the conditions were aimed at legitimately minimizing the risk of Schott India’s products being illegally mixed or the Schott India brand being misused (especially as Kapoor Glass had admitted to such mixing and false labeling) and promoting the Schott India brand.


The COMPAT also took a dim view of the CCI’s total reliance on the statements of interested witnesses without providing an opportunity for their cross-examination and held that CCI ought to have provided Schott India the opportunity to cross-examine the interested witnesses on whose testimony the CCI relied.


B. Sections 4(2)(b)(i) and 4(2)(c) (Exclusionary Policies And Denial Of Market Access)


The COMPAT found no merit in CCI’s finding that Schott India’s discount policies coupled with certain other agreements constituted an exclusionary policy denying market access to Schott-Kaisha’s competitors. It based its decision on: (i) lack of any exclusivity condition in the discount policies and relevant agreements; and (ii) Schott India having a legitimate claim to securing its brand value and image.


C. Section 4(2)(d) (Tying-In)


The CCI had held that Schott India had insisted upon purchase of amber variety of “neutral USPI borosilicate glass tubes” with any purchase of clear variety tubes and thus, violated Section 4(2)(d) of the Competition Act. The COMPAT rejected the CCI’s finding on the grounds that: (i) clear and amber tubes cannot be said to be un-connected to each other as the two products are not entirely different from each other; (ii) Schott India had no reason to push the sales of amber tubes where it had a market share of 90%; and (iii) lack of any documentary evidence establishing such tying-in and over-reliance on untested oral testimonies of interested parties.


D. Section 4(2)(e) (Leveraging Dominance To Protect Downstream Market)


The COMPAT rejected the finding of the CCI where it had held Schott India to be in violation of Section 4(2)(e) of the Competition Act on the grounds that Schott India was not even present in the downstream market for ampoules. COMPAT observed that since Schott India was absent from the downstream market, there was no question of Schott India leveraging its dominance in the upstream market to protect the downstream market. This was further buttressed by the fact that Schott-Kaisha was never made a party to the proceedings.


E. Section 4(2)(c) (Schott India’s Refusal To Deal With Kapoor Glass Denying It Market Access)


Kapoor Glass had appealed4 against the CCI exonerating Schott India from the allegation that it denied market access to Kapoor Glass by refusing to deal with it. The COMPAT had clubbed the appeal by Schott India and Kapoor Glass together for common disposal.
The COMPAT found no merit in Kapoor Glass’s contentions and dismissed the appeal on the following grounds: (i) No supplier is obliged to supply to any entity; (ii) Kapoor Glass had tried to manufacture forged/fake labels of Schott India. As Kapoor Glass had breached Schott India’s trademark earlier, the COMPAT held that it was entirely within Schott India’s rights not to deal with an entity when it invites the risk of trademark breach and threat to its brand value.


F. Conclusion


In light of the above, the COMPAT upheld Schott India’s appeal on all counts, rejected Kapoor Glass’s appeal and in the process overturned the CCI’s decision where it had found Schott India guilty of abusing its dominant position. The COMPAT also imposed costs of INR 100,000 on Kapoor Glass for approaching the CCI and subsequently the COMPAT in appeal, for total lack of bona fides. AZB & Partners represented Schott India before the COMPAT, with Percival Billimoria, Senior Partner, as the counsel.

 

End Notes:

 

1 Order dated April 2, 2014 in Schott Glass v. CCI & Kapoor Glass, Appeal No. 91/2012.
2 Order dated 29 March 2012, Kapoor Glass v. Schott Glass, Case No. 22 of 2010.
3 Schott India and Schott Pharmaceutical Packaging GmbH (the JV Partner in Schott-Kaisha) both belong to the global Schott group whose ultimate parent company is Schott AG.

4 Appeal No. 92/2012

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
[email protected]

 

Abhijit Joshi, AZB & Partners 
[email protected]


Shuva Mandal, AZB & Partners 
[email protected]

 

Samir Gandhi, AZB & Partners
[email protected]


Percy Billimoria, AZB & Partners 
[email protected]

 

Aditya Bhat, AZB & Partners 
[email protected]

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