2015 (4) TMI 306 - Commission - Indian Laws

Discriminatory conditions in franchisee agreement for sale of premium sports goods - Contravention of provisions of Section 4 of the Competition Act - Denial to collect unsold goods - Held that - The Commission finds two fundamental flaws in the allegations made by the Informant. Firstly, 'the Agreement' which was termed as unfair and arbitrary was entered into in 2003 when the alleged dominant group had not even come into existence. Secondly, even if the submission of the Informant regarding dominance of the Adidas AG Group is accepted post the formation of group in 2005, the conduct of the Adidas AG Group vis-a-vis the Informant remained same (as 'the Agreement' was said to be continued on same terms and conditions). Further, as per Informant's own submissions, the agreement with M/s Neelkanth Traders was more favourable than the one with it which fact goes against the allegation of abuse by the Adidas AG Group. The Commission further notes that the allegation of the Informant regarding the Opposite Party No. 3 not taking back the dead stock lying in the custody of the Informant which allegedly inflicted financial harm on it, prima facie does not raise any competition concern. Otherwise also, the Informant did not provide any correspondence sent to the Opposite Party No. 3 regarding the dead stock lying at its store between February, 2009 (when the last sale of the Opposite Party No. 3's products from the Informant's Franchise was being made) and 16 January, 2014 when allegedly a request was made to take back the dead stock. Based on the foregoing, the Commission is of the considered opinion that the conduct of the Adidas AG Group, prima facie, does not amount to any contravention of the provisions of Section 4 of the Act. Therefore, even though the Adidas AG Group appears to be a dominant group in the relevant market defined supra, the facts available on record show no violation of provisions of Section 4 of the Act in the present matter. - Case closed down.

Issues Involved:
1. Whether the Opposite Parties can be treated as a 'group' for the applicability of the provisions of Section 4 of the Competition Act, 2002.
2. Delineation of the relevant market.
3. Assessment of dominance in the relevant market.
4. Examination of alleged abusive conduct by the Adidas AG Group.

Issue-wise Detailed Analysis:

1. Whether the Opposite Parties can be treated as a 'group':
The Commission examined whether the Opposite Parties, i.e., M/s Adidas AG, M/s Reebok International Limited, and M/s Reebok India Company, could be considered a 'group' under Section 4 of the Competition Act, 2002. As per Explanation (b) of Section 5 of the Act, a 'group' includes enterprises that can exercise twenty-six percent or more of the voting rights, appoint more than fifty percent of the board of directors, or control the management or affairs of the other enterprise. The Commission observed that M/s Adidas AG acquired 100% equity in M/s Reebok International Limited on 02.08.2005, and M/s Reebok International Limited, through its wholly-owned subsidiary Reebok (Mauritius) Company Limited, owns 93.15% equity in M/s Reebok India Company. Thus, all the Opposite Parties can be treated as a 'group' for the purpose of Section 4 of the Act.

2. Delineation of the relevant market:
The Commission needed to delineate the relevant market to assess the dominance of the Adidas AG Group. The Informant contended that the market for premium branded sports goods, including footwear, sports apparel, and sports-specific equipment, constitutes a separate product market. The Commission noted that demand-side substitutability is crucial, as consumers would not consider non-branded sports goods as substitutes for premium branded sports goods due to different intended end-usage and substantial price differences. Therefore, the relevant product market was determined to be 'the market of premium sports goods.'

Regarding the relevant geographic market, the Informant suggested Noida as the relevant area. According to Section 2(s) of the Act, the relevant geographic market comprises an area where conditions of competition for supply or demand of goods or services are distinctly homogeneous. The Commission agreed that the territory of Noida is the relevant geographic market, as consumers prefer to purchase such products from easily accessible locations. Thus, the relevant market was defined as 'the market of premium sports-goods in Noida.'

3. Assessment of dominance in the relevant market:
The Informant claimed that the Adidas AG Group held a dominant position in the relevant market, supported by an ICRIER study report stating that Reebok held 50% market share and Adidas held between 20%-25% in the premium branded sportswear market in India. Although the Informant did not provide specific market share data for Noida, the Commission inferred that the market share distribution in Noida would likely follow a similar pattern to the national level. Thus, the Commission prima facie viewed that the Adidas AG Group appeared to be in a dominant position in the relevant market.

4. Examination of alleged abusive conduct:
The Informant alleged that the terms of the franchisee agreement with the Opposite Party No. 3 were unfair and discriminatory compared to another franchisee agreement with M/s Neelkanth Traders. The differences included varying commission rates, minimum guaranteed payments, monthly rent payments, unilateral termination power, and no liberty to return unsold goods. The Informant argued that these acts contravened sections 4(2)(a)(i) and 4(2)(a)(ii) of the Act.

The Commission found two fundamental flaws in the allegations. Firstly, the agreement in question was entered into in 2003, before the alleged dominant group existed. Secondly, even if the dominance of the Adidas AG Group is accepted post-2005, the conduct remained the same as the agreement continued on the same terms and conditions. The Commission noted that differences between franchisee agreements entered into at different times do not necessarily constitute abuse. Furthermore, the Informant did not provide evidence of correspondence regarding dead stock between February 2009 and January 2014, raising doubts about the legitimacy of the claim.

Conclusion:
The Commission concluded that the conduct of the Adidas AG Group did not amount to any contravention of Section 4 of the Act. Despite the Adidas AG Group's dominant position in the relevant market, the facts did not show any violation of the provisions of Section 4. Therefore, the case was closed under Section 26(2) of the Act.

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