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TMI Blog2015 (4) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice their cars are not made available by the OPs to independent repair workshops - contravention of sections 3(3)(a) and 3(3)(b) of the Competition act - violation of section 3(4)(d), section 4(2)(a), 4(2)(b) and 4(2)(c) of the Act. Jurisdiction of commission to inquire the conduct of those OPs which were not named specifically in the information filed by the Informant - Held that:- Commission is a statutory body, established under the Act with the legislative mandate inter alia to prevent the practices having adverse effect on competition, to promote and sustain competition in the markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in the markets, in India. To perform the above mentioned functions, under the scheme of the Act, the Commission is vested with inquisitorial, investigative, regulatory, adjudicatory and advisory jurisdiction. The Commission is entitled to evolve its own procedure under section 36(1) of the Act for conducting inquiry as contemplated under the provisions of the Act. Further, the said inquiry is set into motion before the Commission in accordance with the provisions of section 19 of the Act, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., a market for primary products and separate markets for the secondary product(s) associated with each primary product (e.g. one market for all cars, individual markets for spare parts and repair and maintenance services. The Commission is of the view that the primary basis for determination of the existence of a 'systems market', as argued by the OEMs, do not exist in the present case. The Commission is of the view that in the current case compatibility between the primary market products and secondary market products are of primary importance. - a 'systems market' does not exist in the present case and that the relevant product market consists of the primary market for the sale of automobiles and the secondary markets for the sale of spare parts and repair and maintenance services. The Commission is of the opinion that for the purpose of this case, in order to correctly determine the relevant product market, the delineation of the primary market into separate automobile segments is not necessary. Whole life cost analysis - OEMs themselves do not have the data regarding the future maintenance/service costs of their own brand of vehicles. Even in instance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inth Circuit]. The circuit court held that there could be a relevant market for Kodak photocopier replacement parts, notwithstanding lack of substitutability, because both independent service organizations and customers needed "all parts" in order to service or use their image machines. - From the consumer's perspective the technical differentiation between a gear box and an anti-lock system does not necessarily put such spare parts in different relevant product markets; since from the perspective of the consumer; "commercial reality" requires that she focuses on the aggregation of such products in order to service and use her Honda car. Therefore, under section 2(t); such aggregated class of products would be the appropriate relevant product market. The Commission is of the opinion that there exist three separate relevant markets; one for manufacture and sale of cars, another for sale of spare parts and another for 'sale of repair services'; although the market for 'sale of spare parts' and 'sale of repair services' are inter-connected. Further the Commission is of the opinion that a 'clusters market' exists for all the spare parts for each b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o further strengthen their dominant position and abuse it. - It is the opinion of the Commission that in such cases a violation of section 4(2)(c) of the Act is clearly established - OEMs have submitted that the spare parts and diagnostic tools, workshop manuals are their proprietary materials and therefore accessible only to the authorized dealers network of each OEM. The Commission notes that unlike section 3(5) of the Act, there is no exception to section 4(2) of the Act. Therefore, if an enterprise is found to be dominant pursuant to Explanation (a) to section 4(2) and indulges in practices that amount to denial of market access to customers in the relevant market; it is no defence to suggest that such exclusionary conduct is within the scope of intellectual property rights of the OEMs. On the basis of aforesaid, the Commission is of the opinion that the OEMs have denied market access to independent repairers and other multi brand service providers in the aftermarket without any commercial justification. Unfair Price - Fact that the OEMs are the only source of genuine spare parts compatible to its brand of automobiles in the aftermarket allows such OEMs to use the opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easing number of car owners are using the services of independent service providers in the post-warranty period, then there would have been no reason for the multi-brand service providers to allege their inability to service their customers in the post-warranty period. - Commission finds the OEMs (OPs) to be indulging in anti-competitive practices resulting in contravention of section 4(2)(a)(i), 4(2)(a)(ii), 4(2)(c) and 4(2)(e) of the Act. Whether the opposite parties have violated the provisions of section 3 as has been alleged - Held that:- The mere selling of spare parts and diagnostic tools in the aftermarket by the OESs does not violate the intellectual property rights in such spare parts. Additionally, the OEMs can through its contractual agreements with the OESs ensure that its intellectual property rights are not compromised and are protected. The OEMs can contractually require the OESs to produce the finished spare parts (which are meant to be sold in the open market) in compliance with the applicable industry standards and other consumer laws of India ensuring that the safety of consumers purchasing such spare parts is not compromised. It is opined that there is a req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the expansion of spare parts and independent repairers segment of the economy to its full potential, at the cost of the consumers, service providers and dealers. The directions of the Commission will be complied with by the opposite parties in letter and spirit. Each OP is directed to file individual undertakings, within 60 days of the receipt of their order, about compliance to cease and desist from the present anti-competitive conduct, and initiation of action in compliance of other directions. This will be followed by a detailed compliance report on all directions within 180 days of the receipt of the order. The amount of penalty will be paid by the OP within 60 days of the receipt of the order. - Decided in favour of appellant. - CASE NO. 03 OF 2014 - - - Dated:- 25-8-2014 - ASHOK CHAWLA, V., ANURAG GOEL AND M.L. TAYAL, JJ. Sudhindar, R. Narain, Samir Gandhi and Vipin Singhania for the Opposite Party. ORDER UNDER SECTION 27 OF THE ACT 1. Factual Background The present information has been filed by Shri Shamsher Kataria (hereinafter, referred to as the Informant ) under Section 19 (1)(a) of the Competition Act, 2002 (hereinafter, referred to as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts and the technological tools required to repair and maintain a Maruti Suzuki vehicle were freely made available by the company in the open market. 1.3 It has been further alleged that the OPs 1-3, by restricting the sale and supply of the genuine spare parts, diagnostic tools/equipment, technical information required to maintain, service and repair the automobiles manufactured by the respective OPs, have effectively created a monopoly over the supply of such genuine spare parts and repair/maintenance services and, consequently, have indirectly determined the prices of the spare parts and the repair and maintenance services. Additionally, the Informant has alleged, that such restrictive practice carried out by the OPs in conjunction with their respective authorized dealers, amounts to denial of market access to independent repair workshops. 1.4 The Informant has stated that the cost of getting a car repaired in an independent workshop is cheaper by 35-50% as compared to the authorized service centers of the OPs. The Informant has alleged that the OPs charge arbitrary and high prices to the consumers who are forced to avail the services of the authorized dealers of the OPs f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Informant has stated that effective competition at each level of automotive aftermarket is essential for fostering innovation and keeping mobility affordable. It has been contended that if a consumer is given a choice of getting his vehicle serviced/repaired at a workshop of his choice, it will foster competition among service providers which will in turn will not only lead to improvement in quality of service and a competitive pricing policy by the OPs, but also encourage innovation in the market. The Informant has alleged that due to the restrictive trade practices of the OPs, effective competition at each level of the Indian automotive industry is getting adversely affected. 1.8 The Informant has also alleged that the anti-competitive practices by the OPs have resulted in denial of market access to independent workshops which are usually micro, small and medium enterprises (MSMEs). The Informant has stated that MSMEs give employment to 45% of industrial workers. Furthermore, on the one hand the Government has introduced several policies and initiatives to encourage and support the MSMEs and on the other hand the current practices of the OPs are adversely affecting the sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been alleged that such practices amount to limiting and controlling production and supply of components/spares in the Indian automobile aftermarket and are in violation of section 4(2)(d) of the Act. As per the informant the European Commission has effectively tackled the abovementioned restrictive practice aspect under their block exemption regulations by affording a statutory right to OESs to sell vehicle parts in the open market. 1.13 The informant has also alleged in the supplementary information that the restriction by the OPs on their authorized dealers from taking up dealerships of other competing vehicle manufacturers is in contravention to the provisions of section 4(2)(a), 4(2)(b) and 4(2)(c) of the Act. 1.14 The Informant has sought the following reliefs: (a) hold an enquiry into the trade practices of the Respondents and/ or any other vehicle manufacturer and their authorized dealers/ service centers indulging in similar activities as detailed herein and give a finding that such parties have committed restrictive and/ or unfair trade practices in contravention of the Act; (b) order the Respondents to cease and desist from such restrictive, unfair, mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r restrictive trade practices in the areas of aftersales service, procurement and sale of spare parts from the OESs, setting up of dealership etc. In view of the fact that these practices may not be confined to the OPs (1-3) and considering that the case involved the larger issue related to prevalent anti-competitive conduct of the players in the Indian automobile sector and its implications on the consumers at large, the DG realized that the investigation should not be restricted to the OPs (1-3) mentioned above. Accordingly it was proposed by the DG that the investigation may be allowed to examine the alleged anti-competitive trade practices of all car manufacturers in India, as per the list maintained by the Society of Indian Automobile Manufacturers ( SIAM ). The DG, therefore, requested the Commission for direction to initiate investigations against all car manufacturers in India. 3.3 The Commission considered the abovementioned request of the DG to include within the scope of its investigations all automobile manufacturers in India as per the list maintained by SIAM and, vide order dated 26.04.2011, allowed the request to initiate investigation against other automobile man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has filed a main report (containing the DG's overall findings) and seventeen (17) sub-reports (each sub-report contains the findings of the DG's investigation with respect to the alleged anti-competitive trade practices of each of the 17 OEMs mentioned above). 3.8 The Commission makes it clear at this stage that the present order governs the alleged anti-competitive practices and conduct of OPs (1-14) only. The Commission shall pass separate order in respect of three car manufacturers, viz., Hyundai, Reva and Premier after affording them reasonable opportunity to make their submissions in respect of the findings of the DG report and queries raised by the Commission. Keeping this in mind, the findings of the DG report and contentions raised, if any, in respect of these three OPs have not been dealt with in this order. 3.9 After investigation the DG has found that the conduct and practices of the OPs are in violation of the provisions of section 3 and section 4 of the Act. The findings of the DG report, in brief, are discussed as under: Relevant Product Market 3.9.1 The DG Report has identified following two separate product markets for the passenger vehicle sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factured by another producer (OEM); and (b) If it was possible for the consumer to switch to another primary product to avoid a price increase on the market for spare parts. 3.9.6 Regarding the first question, whether a consumer could switch to the spare parts produced by another OEM, the DG concluded that, based upon the submissions of the OEMs, most of the spare parts other than a few generic spare parts like tyres, batteries were manufactured specifically for the respective models of the cars. Moreover, even within the models of the same OEMs interchangeability of spare parts was limited. Hence substitutability of spare parts across OEMs is drastically diminished. The DG further found that for spare parts that are manufactured in-house by the OEMs there is almost nil interchangeability and for those body parts that are procured from local OESs and other overseas suppliers there is limited substitutability. In this context the DG noted that the practice of the OEMs to consider only those spare parts as genuine which are purchased from the OEMs or the OESs specified by them and which bear the OEMs logo or trademark which further diminishes the possibility of a consumer, incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices over the lifetime of usage constitutes a significant amount. However, the DG viewed that such costs in the secondary market could not be efficiently compared with the costs of the products of the primary market as the choice of the consumers to choose a particular product in the primary market was based upon a variety of factors which differed amongst various users. (b) The DG then analyzed the ability of the consumers to factor in the aftersale service and maintenance costs while purchasing the products of the primary market and whether such information was ascertainable and made available by the OEMs to the consumers. The DG after examining statements made by representatives of various OEMs, concluded that it was not possible to estimate the cost of aftersale service and maintenance over the years during which a consumer intends to use a car and that such costs varies depending upon the average run of the vehicle, the make and model, age of the vehicle, road condition, driving habits, regularity of maintenance services etc. Further, several OEMs claimed that such data were confidential in nature thereby indicating that such data was not shared with consumers. (c) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are parts in the aftermarket. The DG also identified that the OEMs which source their spare parts from OESs restrict the ability of the OESs through restrictive agreements/contracts to sell spare parts in the open market. The over seas suppliers of spare parts also in fact does not sell such spare parts in the open market. Additionally, the dealers are required to source the spare parts only from the OEMs or their authorized vendors. Further, in India there is no concept of certification of matching quality and in the absence of such mechanism of quality confirmation for spare parts manufactured by alternate sources, the consumers have no means of ascertaining the compatibility of spare parts sourced from other sources. The DG further noted that due to the fact that the overseas suppliers are not selling the spare parts to entities apart from the respective OEM, each OEM becomes the only source of supply of these spare parts for aftermarket requirement and acquires a position of dominance. The DG report elucidated in detail the restrictive agreements/contracts between OEMs OESs, OEMs Overseas Suppliers and OEMs and their authorized dealers while dealing with contravention under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diagnostic tools etc. are not available in the open market particularly to the independent repairers and in the absence of availability of genuine spare parts, diagnostic tools, technical manuals etc. in the open market the ability of the independent repairers to undertake repairs and service of the vehicle of such brands of cars and effectively compete with the authorized dealers of the OEMs is severely impeded. The DG concluded that such conduct amounts to an imposition of unfair condition and denial of market access to independent repairers in terms of section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. The DG further states that on account of the restrictions, the users of the cars are not in a position to choose between the independent repairers and the authorized dealers for their aftermarket requirements which amounts to imposition of unfair condition in violation of section 4(2)(a)(i) of the Act. Further, the DG also opined that OEMs use their dominant position in market for the supply of its spare parts to protect their position in the market for repair and maintenance services which amounts to violation of section 4(2)(e) of the Act. 3.9.18 The DG states that in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to compete effectively with the authorized dealers of the OEMs. Additionally, as explained above, the DG has found each OEM to be dominant with respect to its brand of automobiles and the spare parts of each brand of automobile is unique and cannot be replicated by the independent repairers from alternate sources. Therefore, based upon such considerations, the DG has concluded that the essential facilities doctrine is applicable to the restrictive practices of the OEMs, since the DG's investigation has revealed that by not making such material available to the independent repairers, the OEMs have put such repairers at a distinctly disadvantageous position and jeopardized their ability to undertake repairs of the automobiles manufactured by the OEMs. 3.9.21 The DG's investigation also shows that each OEM has substantially escalated the price of spare parts, for their respective brands of automobiles, from the price at which such spare parts have been sourced to the price at which such spare parts are available to the customers. There are also wide variations in the extent of escalation across spare parts which are an indication of the extent of discretion available with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) of the Act, respectively. Further, the DG stated that its investigation has not revealed a single instance where an OEM has granted permission to the OESs to supply spare parts directly into the aftermarket. 3.9.26 The DG has also observed that a large number of OEMs particularly those having foreign affiliations are sourcing large number of spare parts from overseas suppliers. The DG has undertaken a review of the import agreements/purchase order/letters of intent executed between the OEMs and the foreign suppliers of spare parts. The DG has reported that although no clause exists in such agreements which specifically restrict overseas suppliers from supplying such spare parts to independent repairers in the aftermarket of spare parts in India, the investigation reveals that even such overseas suppliers are not supplying spare parts to any entities apart from the OEMs. The DG has further found out that in most cases the overseas suppliers are a group company or a parent company of the OEMs or has some linkages with the OEMs which indicates the possibility of an unwritten arrangement between the OEMs and the overseas suppliers for ensuring that such entities only supply th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the intellectual property right itself. Consequently, the DG concluded that such OEMs could not avail of the exemption provided in section 3(5)(i) of the Act. 3.9.29 During investigation before the DG, OEMs also claimed protection in the form of copyrights over the drawings, designs, specifications etc. for every spare part manufactured on their behalf by the respective OESs. The DG after a thorough study of several judgments relating to the Indian copyright law has concluded that the copyright protection claimed by several of the OEMs over the designs, drawings and specifications of their respective spare parts are not available to the OEMs. The DG has come to this conclusion based upon the fact that though there are no requirements to register the copyright over a design of a spare part under the [Indian] Copyright Act, 1957, the right has been limited by the Copyright Act, which mandates that the copyright over the designs registered under the [Indian] Design Act, 1911 or such designs which are capable of being registered under the Designs Act, but not registered, shall cease to exists once the concerned design has been applied more than 50 times by industrial process by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gements pursuant to which the authorized dealers of the OEMs sell cars and provide after sale services to the consumers of the OEMs. The DG reviewed such agreements and has made the following observations. (a) In certain cases, the agreements between the OEMs and their dealers specifically restricted the sale of spare parts over the counter which were in the nature of exclusive distribution agreements and such practices also amounted to refusal to deal under the terms of section 3(4)(c) and 3(4)(d) of the Act. (b) Certain agreements between the OEMs and the authorized dealers did not contain specific terms restricting the sale of spare parts in the open market, however, the DG gathered that there existed some kind of unwritten understanding or arrangement between such dealers and the respective OEMs pursuant to which the dealers in fact did not sell spare parts in the open market to prevent consumers from shifting to the independent repairers. Based on the factual situation, the DG has concluded that such practices are also in contravention of sections 3(4)(c) and 3(4)(d) of the Act. (c) Most of the OEMs and the authorized dealers have clauses in their agreements requiring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rized suppliers restricts the ability of the OESs to sell directly in the aftermarket. These restrictions therefore create entry barriers for the OES who could produce matching quality spare parts, eliminates direct access by OES to an OEM's aftermarket and in the process foreclose competition in the supply of genuine spare parts. Further the DG has also found out that there is a substantial markup in most of the top 50 spare parts of each of the OEM from the price at which it has been sourced from the OESs and the price at which it is made available to the consumers. The ability of the OEMs to price the spare parts without being subject to any constraints does not safeguard the interests of the automobile consumer in the Indian automobile aftermarket. Based upon the above facts and circumstances, the DG opined that the agreements/arrangements of an OEM which have been analyzed foreclose competition in the market for supply of spare parts of that OEM, create entry barriers for OES to explore after market opportunities directly, driving existing competitors out of the market and have other implications such as ability of OEMs to price spare parts without being subject to competi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and to hedge risks of continuing with a single OEM but are unable to pursue such opportunities because of the one-sided nature of the relationship between the OEM and the exclusive dealers. The dealers have contended that there are huge sunk costs involved in exiting a dealership, e.g., the dealers would be left with a huge inventory which is not bought back, have guarantees deposited with the OEM which may not be refunded. Hence, the DG has concluded that the vertical agreements entered into between the OEMs and their authorized dealers cause AAEC based upon the conditions set forth in section 19(3) of the Act. 4. Findings of the DG with respect to Honda Honda Siel Cars India Ltd. ( HSCIL ) is engaged in the manufacturing and marketing of Honda branded cars in the territories of India, Sri Lanka, Bhutan, Nepal and Bangladesh and was incorporated on 5th December 1995. HMC presently holds around 95% of the shareholding of HSCIL. HSCIL is a joint venture between Honda Motors Co. Ltd (Japan) ( HMC ) and Usha International and HSCIL has technical collaboration agreement with HMC. HSCIL has a subsidiary in the name of Honda Motor India Ltd ( HMI ) which takes cars of spar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Honda restricts the availability of diagnostic tools to its authorized dealers, Honda imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, Honda is in violation of section 4(2)(a)(ii) for imposing unfair prices on the consumers. 4.10 Honda uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of section 4(2)(e) of the Act. 4.11 The DG has also found Honda in violation of section 3(4)(c) and 3(4)(d) of the Act for not allowing its authorized dealers to deal in competing brands of car and for not allowing them to sell spare parts and diagnostic tools to the independent repairers. 4.12 Agreements with the authorized dealers have restrictive clauses requiring dealers to source the spare parts only from the Honda or its approved dealers. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act. 5. Findings of the DG with respect to Fiat 5.1 Fiat India Automobiles Ltd ( Fiat India ) was incorporated on 4th Fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rictions are being imposed upon OESs. 5.2.9 As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an essential facility and amounts to abuse of dominant position of Fiat. 5.2.10 Since Fiat does not allow over the counter sale of spare parts and since diagnostic tools are not available to the independent repairers, Fiat imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, Fiat is in violation of section 4(2)(a)(ii) for imposing unfair prices on consumers. 5.2.11 Fiat uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of section 4(2)(e) of the Act. 5.2.12 Fiat is in violation of provisions of sections 3(4)(c) and 3(4)(d) of the Act because of imposition of unreasonable restrictions with respect to its agreements with local OESs and agreements with authorized dealers. 5.2.13 Agreements with the authorized dealers have restrictive clauses requiring dealers to source the spare parts only from Fiat or its approved dealers. The DG h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India and applications for grant of patents over 30 body parts in India. However, Ford does not have patent rights over all the body parts over which restriction spare currently being imposed by Ford. 6.2.9 As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an essential facility and amounts to abuse of dominant position of Ford. 6.2.10 Since Ford does not allow over the counter sale of spare parts and since diagnostic tools are not available to the independent repairers, Ford imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, Ford is in violation of section 4(2)(a)(ii) for imposing unfair prices. 6.2.11 Ford uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of section 4(2)(e) of the Act. 6.2.12 Ford is in violation of provisions of sections 3(4)(c) and 3(4)(d) of the Act with respect to its agreements with local OESs and agreements with authorized dealers for imposing absolute restrictive covenants and completely foreclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility and amounts to abuse of dominant position of BMW. 7.2.9 Since BMW does not allow over the counter sale of spare parts and since diagnostic tools are not readily available to the independent repairers, BMW imposes unfair terms and also denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, BMW is in violation of section 4(2)(a)(ii) for imposing unfair prices. 7.2.10 BMW uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of section 4(2)(e) of the Act. 7.2.11 BMW is in violation of provisions of sections 3(4)(c) and (d) of the Act with respect to its agreements with local OESs and agreements with authorized dealers for imposing absolute restrictive covenants and completely foreclosing the aftermarket for supply of spare parts and other diagnostic tools. 7.2.12 Agreements with the authorized dealers have restrictive clauses requiring dealers to source the spare parts only from BMW or its approved dealers. The DG has found these agreements in the nature of exclusive supply agreements in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to abuse of dominant position of Mercedes. 8.2.10 Since Mercedes restricts the availability of diagnostic tools to its authorized dealers, it imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, Mercedes is in violation of section 4(2)(a)(ii) for imposing unfair prices. 8.2.11 Mercedes uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of section 4(2)(e) of the Act. 8.2.12 Mercedes is in violation of provisions of sections 3(4)(c) and (d) of the Act with respect to its agreements with local OESs and agreements with authorized dealers for imposing absolute restrictive covenants and completely foreclosing the aftermarket for supply of spare parts and other diagnostic tools. 8.2.13 Agreements with the authorized dealers have restrictive clauses requiring dealers to source the spare parts only from Mercedes or its approved dealers. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act. 9. Findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % (Q1, 2010-11); (-)20.33% - 764.08% (Q2, 2010-11); 3.39%- 764.08% (Q3, 2010-11); 28.64%-545.16% (Q3, 2010-11) 9.2.8 Technology transfer agreements between GM Korea and GMI do not specify the technologies and IPRs covered under such agreements. It does not stand established that GMI possesses valid IPRs in India, with respect to all spare parts for which restrictions are being imposed upon OESs. 9.2.9 As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an essential facility and amounts to abuse of dominant position of GMI. 9.2.10 Since: (a) GMI allows over the counter sale of spare parts only to actual GMI customers and not to independent repairers and (b) GMI restricts the availability of diagnostic tools to its authorized dealers only, GMI imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, GMI is in violation of section 4(2)(a)(ii) for imposing unfair prices. 9.2.11 GMI uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind any clauses dealing with the rights of the authorized dealers to undertake over the counter sales of spare parts in the open market in India. The submissions of the company, the authorized dealers and the independent repairers indicate that spare parts of MSIL brand are readily available in the market. 10.2.4 Diagnostic tools are only available to authorized dealers of the OEM. However, Maruti has contended that independent repairers can repair about 99.5% of Maruti branded cars without the help of Maruti's diagnostic tools, manual etc. 10.2.5 Warranty conditions are invalidated if a Maruti branded car is repaired by independent repairers. 10.2.6 There are no restrictions on the ability of Maruti's dealers to deal in other brands of cars. 10.2.7 Price markup for top 50 spare parts by revenue generated is: -77.98% - 433.59%. Price markup of top 50 spare parts on the basis of consumption is: -16.94% - 650%. 10.2.8 Technology transfer agreements between MSIL and Suzuki do not specify the technologies and IPRs covered under such agreements. It does not stand established that MSIL possesses valid IPRs in India, with respect to all spare parts for which restric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter sale of spare parts of M M branded cars in the aftermarket. 11.2.4 Diagnostic tools are only available to authorized dealers of the OEM. 11.2.5 Warranty conditions are invalidated if an M M branded car is repaired by independent repairers. 11.2.6 Ability of M M's authorized dealers to deal in competing brands is restricted. However, M M has submitted that certain M M dealers have been dealing in competing brands. 11.2.7 Price markup for top 50 spare parts by revenue generated is: 65.80%- 462.50%. Price markup of top 50 spare parts on the basis of consumption is: -108.58%-890.99% 11.2.8 M M's dealers are not permitted to deal in competing products in any manner without prior permission of M M. It does not stand established that M M possesses valid IPRs with respect to its top 50 spare parts. 11.2.9 As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an essential facility and amounts to abuse of dominant position of M M. 11.2.10 Since M M does not allow over the counter sale of spare parts and since diagnostic tools are not available to the independent repairers, the DG concluded that M M imposes unfair terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ler agreement of Nissan expressly restricts over the counter sale of spare parts of Nissan branded cars in the aftermarket. 12.2.4 Diagnostic tools are only available to authorized dealers of the OEM. 12.2.5 Warranty conditions are invalidated if a Nissan branded car is repaired by independent repairers. 12.2.6 Ability of Nissan's authorized dealers to deal in competing brands is restricted. However, Nissan has submitted that certain Nissan dealers have been dealing in competing brands. 12.2.7 Price markup for top 50 spare parts by revenue generated is: 84.96% - 201.98%. Price markup of top 50 spare parts on the basis of consumption is: 85.81%-258.78%. 12.2.8 The Manufacturing License Agreement between NML Japan and Nissan does not grant any license to Nissan to use any of the registered IPRs of NML Japan. Nissan has contended before the DG that it does not have any IPRs registered in India. 12.2.9 As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an essential facility and amounts to abuse of dominant position of Nissan. 12.2.10 Since Nissan does not allow over the counter sale of spare parts and since diagnostic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imports spare parts from Skoda Auto a.s. (a group company). Importer agreement of Skoda expressly restricts its overseas suppliers from accessing the Indian automobile aftermarket. As per DG since Skoda's overseas suppliers is a part of the Volkswagen group and infact does not supply to the Indian aftermarket. 13.2.2 OES's are restricted from accessing the aftermarket for protecting the OEM's IPRs. 13.2.3 The authorized dealer agreement of Skoda expressly restricts over the counter sale of spare parts of Skoda branded cars in the aftermarket. 13.2.4 Diagnostic tools are only available to authorized dealers of the OEM. 13.2.5 Warranty conditions are invalidated if a Skoda branded car is repaired by independent repairers. 13.2.6 Ability of Skoda's authorized dealers to deal in competing brands is restricted. However, Skoda has submitted that certain Skoda dealers have been dealing in competing brands. 13.2.7 Price markup for top 50 spare parts by revenue generated is: 85.06- 265.88% (Q1, 2010-11); 79.15- 280.75% (Q2, 2010-11);76.29 - 248.54%(Q3, 2010-11); -0.92-260.40% (Q3, 2010-11). Price markup of top 50 spare parts on the basis of consumption is: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engineering and automotive solutions, manufacturing of construction equipment and automotive vehicle components, supply chain activities, machine tools and factory automation solutions, high precision tooling and plastic and electronic components for automotive and computer applications and automotive retailing and service operations. Tata also conducts after sale services and distribution of spare parts through its authorized dealers, authorized distributors and authorized service centers. Tata also has a joint venture with Fiat India Automobiles (P) Ltd for selling and providing after sale services of Fiat branded cars. Tata exports its Indica, Safari. Indigo and Sumo models of cars to Sri Lanka, Nepal, Italy, Spain, Poland, Turkey, South Africa, Ghana, Nigeria, Congo, Tanzania and Bhutan etc. Tata has manufacturing facilities at Sanand (Gujarat), Pune (Maharashtra) and Pantnagar (Uttarkhand) for manufacturing passenger cars. Tata has approximately 800 service centers under various models to cater to the company brand of vehicles. Further the company has 250 dealers and 22 wholesale distributors catering to approximately 2000 retailers. 14.2 The specific findings of the DG aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spare parts only from Tata or its approved dealers. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act. 15. Findings of the DG with respect to Volkswagen India Private Limited ( Volkswagen ) 15.1 Volkswagen is a fully owned subsidiary of the Volkswagen a.g., Germany. Volkswagen was incorporated in India on 6th February 2007. Volkswagen is engaged in the manufacturing activity of the 'Volkswagen' and 'Skoda' brand of cars. Volkswagen Group Sales India Pvt. Ltd ( VGSIL ) is also a fully owned subsidiary company of the Volkswagen a.g., Germany. VGSIL was incorporated in India on 7th March 2007. VGSIL is in the business of sales, marketing and after sales services of both Volkswagen and Audi branded cars. VGSIL through various contracts purchases cars (Passat and Jetta models of Volkswagen branded cars and certain models of Audi brand of cars) from Skoda Auto India Pvt Ltd ( SAIPL ) and (Polo and Vento models of Volkswagen) from Volkswagen. VGSIL has entered into contracts with dealers from both the brands across India for the sales and servicing of cars. The manufacturing activities of Volksw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for its business operations in India. 15.2.10 As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an essential facility and amounts to abuse of dominant position of Volkswagen. 15.2.11 Since Volkswagen restricts the availability of spare parts and diagnostic tools to its authorized dealers, it imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, Volkswagen is in violation of section 4(2)(a)(ii) for imposing unfair prices. 15.2.12 Volkswagen uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of section 4(2)(e) of the Act. 15.2.13 Volkswagen is in violation of provisions of sections 3(4)(c) and (d) of the Act with respect to its agreements with local OESs and agreements with authorized dealers for imposing absolute restrictive covenants and completely foreclosing the aftermarket for supply of spare parts and other diagnostic tools. 15.2.14 Agreements with the authorized dealers have restrictive clauses requiring dealers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a matter of fact supply spare parts in the Indian aftermarket, an arrangement could be presumed. 16.2.2 OES' are restricted from accessing the aftermarket for protecting the OEM's IPRs. 16.2.3 Based upon the submissions of multi-brand retailers and independent repairers, the DG has concluded that although the agreement between Toyota and its authorized dealers does not contain any clause dealing with the right of the authorized dealers to sell spare parts over the counter, but in practice the sale of such spare parts are not permitted. 16.2.4 Diagnostic tools are only available to authorized dealers of the OEM. 16.2.5 Warranty conditions are invalidated if a Toyota branded car is repaired by independent repairers. 16.2.6 Ability of dealers to deal in competing brands is restricted. 16.2.7 Price markup for top 50 spare parts by revenue generated is: 79.61%-1305.85% Price markup of top 50 spare parts on the basis of consumption is: 38.26% -510.43%. 16.2.8 It does not stand established that Toyota possesses valid IPRs in India, with respect to all spare parts for which restrictions are being imposed upon OESs. 16.2.9 As per DG, denial to access diagnos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar information was provided by HML for its Tamilnadu and Madhya Pradesh plants. 17.2 The specific findings of the DG against the alleged anti-competitive practices of HML are summarized below: 17.2.1 HML imports parts for its Mitsubishi branded cars from MMC, a technical collaborator under a license agreement. HML does not import any parts for its Ambassador brand of cars. The license agreement between MMC and HML does not contain any clauses dealing with the rights of MMC to supply spare parts directly to Indian aftermarket. Since MMC is also in a license agreement with HML, the DG drew presumption of a restrictive arrangement between them. 17.2.2 OESs dealing in HML's Mitsubishi branded cars are restricted from accessing the aftermarket for protecting the OEM's IPRs. OES agreements for Ambassador branded cars were not provided to the DG for review. 17.2.3 Based upon the submissions of multi-brand retailers and independent repairers, the DG has concluded that although the agreement between HML and its authorized dealers does not contain any clause dealing with the right of the authorized dealers to sell spare parts over the counter, but in practice the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by the DG, decided to forward copies thereof to all the concerned parties for filing their replies/objections thereto vide its order dated September 4, 2012. 18.2 All OPs filed their replies/objections to findings of the DG and appeared before the Commission for making oral submissions. The counsel for the Informant also made oral submissions before the Commission. 18.3 The Commission also sought additional replies/submission from the parties, with respect to certain specific questions/issues; vide orders dated March 5, 2013 and May 28, 2013. OPs provided additional submissions/replies to the queries raised by the Commission. 18.4 The replies of such parties have been summarized in the following paragraphs. The Commission notes that 14 OPs have made detailed submissions. Although, the Commission has considered in detail the submissions/replies of OEM, only the relevant common and specific submissions of the OPs have been summarized below. 18.5 Common Replies of all OEMs 18.6 The OPs have taken following common pleas in their submissions before the Commission: (i) The relevant market is a 'systems market' 18.7 The OEMs have submitted that the DG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those of rival brands. 18.10 Further, the OEMs have submitted that for durable products like cars, where 'reputation effects' mean that setting a supra-competitive price for the secondary product would significantly harm a OEM's profits on future sales of the primary product, it would not be economically prudent for the OEMs to set such supra-competitive prices for spare parts and repair services in the aftermarket and hamper their reputation in the robust primary market for the sale of cars. Further, there is a high probability that an increase in prices in the aftermarket for cars i.e., the market for spare parts will be accompanied by a decrease in profits in the primary market i.e. the market for sale of cars. Hence, a unified market consisting of both the primary product as well as its aftermarket may be considered as one unified systems market. 18.11 OEMs further submitted that the aftermarket i.e. the market for spare parts cannot be separated from the primary market i.e. the sale of cars and that applying the test of interchangeability and substitutability as the DG has done, will lead to absurd results where every unique nut and bolt of a car will consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (market share, market structure and market size, size and importance of competitors, dependence of consumers on the enterprise and countervailing buying power) laid out in Section 19(4) of the Competition Act, makes it abundantly clear that the OEMs are not in a dominant position in the relevant systems market. Thus, the OEMs' conduct and business practices cannot be considered as an abuse of dominant position, since dominance is a sine qua non to establish an infringement of section 4 of the Competition Act. OEMs have further supported their submissions with past decisions of the CCI in cases like Consumer Online Foundation and Automobile Dealers Association to support the proposition that if an enterprise is not dominant in the primary market, it cannot be held as a dominant player in the aftermarket. 18.16 OEMs have also submitted that they encourage their respective customers to only purchase genuine parts from the respective OEM authorized dealers and that such a requirement is entirely in consumer interest and cannot be said to result in imposition of unfair or discriminatory conditions in the sale of goods and services under Section 4(2)(a)(i) of the Competition Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncapable of practically or reasonably duplicating the essential facility. OEMs have submitted that it does not prevent anyone from developing spare parts and tools which are compliant with the spare parts of their respective branded cars and the only restriction is imposed upon OESs who use OEM's proprietary information to manufacture the spare parts. Thirdly, it needs to be shown that the monopolist has denied the access to the essential facility. OEMs have submitted that it does not deny access of spare parts to any independent repairers. Finally, it needs to be shown that it is feasible for the monopolist to make the essential facility available to competitors. OEMs have submitted that it is not feasible for it to make spare parts available in the open market through other distribution channels. Therefore, as per the OEMs in the light of the above submission, the DG's analysis regarding the applicability of the 'essential facility doctrine' to the OEMs business practices is completely baseless. (iv) Submissions of the OEMs with respect to their agreements with overseas supplier 18.20 OEMs have relied upon a decision of the Commission in Exclusive Motors cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the OESs and the OEMs' authorized dealers, on the other, impose exclusivity conditions or are in the nature of refusal to deal, such agreements, based upon the factors mentioned in section 19(3) of the Competition Act, do not cause an AAEC on competition within India. The aftermarket of cars in India is flooded with cheap and spurious spare parts and there are no 'matching quality' legislations in India, unlike in other developed jurisdictions which regulate the standard and quality of spare parts to be used by independent repairers. Thus, OEMs by imposing certain reasonable restrictions in its agreements with OESs and authorized dealers ensure that spare parts that carry its trademark are procured only from its authorized dealers, are genuine, have passed rigorous safety checks to ensure the safety of their customers and the reputation of their brands. As per the OEMs, restrictions imposed in their respective OESs and authorized dealer agreements ensure customer safety by restricting the ability of unskilled independent repairers, to repair such OEM branded cars, without being aware of the sophisticated technology used in manufacturing such cars. The OEMs have claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Competition Act, expressly permits a person or enterprise to impose reasonable restrictions as may be necessary for protecting any of his IPRs which have been or may be conferred upon him under the provisions of the statutes specified in the section. As per the OEMs, the restrictions imposed in their contracts with their respective OESs and authorized dealers are permissible under Section 3(5) of the Competition Act, wherein a person may be allowed to impose conditions that are reasonable and necessary for protecting its IPRs in its commercial dealings with other enterprises. OEMs have submitted that such restrictions are further justified under the provisions of section 3(5) of the Competition Act inter alia, to: (a) safeguard the buyers from purchasing spurious and counterfeit spares; (b) to maintain the quality of the spare parts; (c) to ensure that the spare parts meet the quality standards through quality and safety tests carried out by the OEM; (d) to ensure organized system of warranty support to end-consumers. 18.26 OEMs have stated that even if they are not the actual owner of certain IPRs, their respective parent company are the owners of the same and they ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Act. As per the OEMs, they have authorized dealers whose promoters have dealerships of competing OEMs and that the restrictions placed on the authorized dealers are only of taking prior approval. OEMs have submitted that such restrictions are reasonable and allow the OEMs to assess the risk appetite of the dealer and to protect the brand of the OEM from being diluted. OEMs have stated that in situations where the same dealer is dealing in multiple brands, it is difficult for an OEM to assess the performance of the dealer and also assess the demand in relation to each vehicle as well as the sale of spares and repair and maintenance. Therefore, as per the OEMs, the single branding clauses of their authorized dealer agreements are merely reducing the risk of brand erosion and losses in the existing dealership structure. As per the OEMs prior consent requirement for competing dealerships is necessary to prevent other OEMs from free-riding on the significant investments made to develop an authorized dealer network. (viii) Distinctness of the Indian automobile market has not been considered by the DG 18.29 OEMs have submitted that the DG while preparing its report(s) have erroneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecutive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). M M categorized its various models in the abovementioned categories and has submitted that most of its cars (based on ex-showroom price in Delhi) would fall primarily under the category of Medium-range (Rs.5 -10 lakh). Some variants of M M cars, such as Scorpio VLX and XyloE9 , XUV 500 (F12) and Rexton fall within the executive-range (Rs.10-20 lakh). Another variant of Rexton would fall under the luxury range (above ₹ 20 lakh). 18.30.3 M M provided its response to the queries raised by the Commission in the course of hearing. Such queries related to broad customer profile of M M car owners, based upon educational background, occupation, income level, age and gender. The M M also submitted its response regarding percentage of customers who seek M M services in the post warranty period in each of the abovementioned segments. It was claimed that M M invests regularly in the growth of its service network ensuring that its customers are largely satisfied and that M M has not received any complaints about the inadequacy of its service network. 18.30.4 Further, M M during their oral submissions before the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scope of the investigation with the prior permission of the Commission is an instance of 'excessive delegation', which is ultra vires to the provisions of the Act and in violation to the principles of natural justice. 18.30.7 MSIL has submitted that the DG has fundamentally misconstrued the nature of MSIL's relationship with its OESs. MSIL's agreements with its OESs are 'sub-contracting' arrangements. Such sub-contracting agreements have created a new industry and have inherent pro-competitive efficiencies. MSIL further stated that the DG has failed to appreciate that, in absence of such exclusivity; MSIL would either shift the production of spare parts in-house or cease its investments in developing OESs which would result in the OESs having to make these investments themselves. Either scenario would result in higher prices of spare parts. 18.30.8 MSIL has further stated that in the absence of any regulatory regime for matching quality certification for spare parts in India, in contrast with the European Union, there is no positive duty to allow OESs to sell spare parts in the open market. Such a lacuna, as per MSIL, can only be remedied through le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod. MSIL has submitted such details regarding MSIL vehicles out of the warranty period for the years 2010-11, 2011-12 and 2012-13. However, MSIL has claimed confidentiality over the contents of such submissions. Regarding the question if the current service network was adequate to handle all aftermarket requirements (service/repairs) of the car owners, MSIL has submitted that 99.5% of all repair/maintenance functions on an MSIL vehicle can be carried out by third-party manufactured diagnostic tools and as a result independent repairers could easily repair an MSIL branded vehicle. Consequently, MSIL has submitted that its current service network for all MSIL cars is more than adequate to meet the aftermarket requirements. Reply of GMI 18.30.12 Pursuant to the Commission's order dated May 28, 2013, GMI has submitted additional information in response to certain queries raised by the Commission. The Commission had asked GMI to indicate which of its cars fall under the following categories: low-end (price below ₹ 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). GMI has categorized its various models in the abovemention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Medium range (Rs. 5.10 lakh) No car Executive (Rs.10 -20 lakh) No car Luxury (above ₹ 20 lakhs) Audi A4, A6, A7, A8 Audi Q3, Q5, Q7 Audi RS5, TT, R8,S4 S6 Volkswagen brand: Segmentation of Products Name of Model Low-end (price below ₹ 5 lakh) Polo TL Petrol Medium range ₹ 5-10 lakh) Polo CL Petrol, Polo HL Petrol, Polo TL Diesel, Polo CL Diesel, Polo HL Diesel, Vento TL Petrol, Vento CL Petrol, Vento HL Petrol AT MT, Vento TL Diesel, Vento CL Diesel Vento HL Diesel. Executive (Rs.10 -20 lakhs) Jetta (all models) Passat Luxury (above ₹ 20 lakh) VWIPL was further asked to provide a broad profile of its car owners in each segment, based upon educational qualifications, occupation, income level age and gender. VWIPL has submitted such information, but VWIPL has claimed confidentiali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es) of cars owners. Reply of Nissan 18.30.18 Nissan has submitted that it had started commercial production in May 2010 and all of its cars are under the warranty period. Nissan has further submitted that since April 1, 2012, it is engaged only in distribution of cars and sale of spare parts (after sale services) and from the aforementioned date Nissan is no longer acting as an OEM or car manufacturer, it should not be treated at par with the other OEMs. 18.30.19 Further, pursuant to the Commission's order dated May 28, 2013, Nissan has submitted additional information in response to certain queries raised by the Commission. The Commission had asked Nissan to indicate which of its cars fall under the following categories: low-end (price below ₹ 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). Nissan categorized its various models in the abovementioned categories, in the following manner. Models of Nissan cars falling in the range of low-end vehicles include few models of Micra, those under the medium range vehicles (Rs.5-10 lakh) include, some models of Micra, Sunny and Evalia. Those models of Nissan cars falling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details regarding what percentage of BMW's customers seek the services of its authorized dealers post-warranty and what percentage of its customers are repeat customers. BMW has submitted that such data is not available, however, approximately 78% of BMW branded automobiles have availed post-warranty services from BMW authorized workshops. BMW has submitted that no separate data is available regarding repeat customers. The Commission has further asked BMW if its current service network is adequate to handle all its aftermarket requirements (service/spares) of car owners. BMW has submitted that its current service network is adequate enough to handle all after market requirements (service and spares) of cars owners. Reply of Hindustan Motors 18.30.23 Pursuant to the Commission's order dated May 28, 2013, Hindustan Motors has submitted additional information in response to certain queries raised by the Commission. The Commission had asked Hindustan Motors to indicate which of its cars fall under the following categories: low-end (price below ₹ 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakhs and above). Hindustan Motors cat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... large number of such part directly to the aftermarket. Tata has submitted that most of the spare parts that are supplied by OESs to Tata are also supplied directly by OESs to the aftermarket and are available in abundance in the aftermarket. 18.30.26 Pursuant to the Commission's order dated May 28, 2013, Tata has submitted additional information in response to certain queries raised by the Commission. The Commission had asked Tata to indicate which of its cars fall under the following categories: low-end (price below ₹ 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). Tata has categorized its various models in the abovementioned categories, in the following manner. Price range Segment referred to in the query Cars falling under the respective price ranges Price below ₹ 5.00 lakh Low-End Nano, Indica and Venture Price (Rs.5 laks-10 lakh) Medium range Indica, Vista, Indigo, CS, Indigo, Manza, Sumo, Sumo Grande, Safari Price (Rs.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is order. 18.30.29 Skoda was further asked by the Commission to submit details regarding what percentage of Skoda's customers seek the services of its authorized dealers post-warranty and what percentage of its customers are repeat customers. Skoda has submitted that: Group Customer Retention Segment 1 (0-4 years from the date of sale) 68% Segment 2 (5-7 years from the date of sale) 34% Segment 3 (8 and above years from the date of sale) 14% 18.30.30 The Commission has further asked Skoda if its current service network is adequate to handle all its aftemarket requirements (service/spares) of car owners. Skoda has submitted that its current service network is adequate to handle all aftermarket requirements (service and spares) of cars owners. Regarding the scope of bringing the informal sectors into the fold of authorized network, Skoda has submitted that presently the informal sector is not regulated by any legislation, roles, regulations or guidelines. The cars are technologically advanced and it is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l justice by DG while conducting the investigation. Ford has noted that during the course of investigation, the DG had collected material and other alleged evidences, which are indicative from the Report of the DG. Ford has submitted that the material collected by the DG has not been provided to Ford that any such material/evidences is being obtained or recorded against the Ford. Ford has submitted that for the purpose of investigation, it was the duty of the DG to provide/furnish all such material/evidences, which the DG has obtained against Ford, if the same was to be relied upon and used against Ford. Ford has submitted that no material has been shared and only the factum of there being such evidence is recorded in the DG's Reports and that no opportunity has been provided to Ford to clarify/rebut the said material or evidences collected by the DG during its investigation. 18.30.34 Further, pursuant to the Commission's order dated May 28, 2013, Ford, through the affidavit of Mr. Dushyanth Jayakumar, authorized signatory of Ford, has submitted additional information in response to certain queries raised by the Commission. The Commission had asked Ford to indicate which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt consumer preferences, characteristics of the cars etc. Honda was further asked to provide a broad profile of its car owners in each segment, based upon educational qualifications, occupation, income level age and gender. Honda has submitted such details, but has claimed confidentiality over the contents of such submissions. 18.30.37 Honda was further asked by the Commission to submit details regarding what percentage of Honda's customers seek the services of its authorized dealers post-warranty and what percentage of its customers are repeat customers. Honda has submitted such details but has claimed confidentiality on the contents of such submissions. The Commission has further asked Honda if its current service network is adequate to handle all its aftermarket requirements (service/spares) of car owners. Honda has submitted that its current service network is sufficient in terms of quality, space, infrastructure and customer satisfaction to handle all after market requirements. Reply of Mercedes 18.30.38 Pursuant to the Commission's order dated May 28, 2013, Mercedes has submitted additional information in response to certain queries raised by the Commission. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , occupation, income level age and gender. Toyota has submitted such information; but has claimed confidentiality over the contents of such disclosures. 18.30.42 Toyota was further asked by the Commission to submit details regarding what percentage of Toyota's customers seek the services of its authorized dealers post-warranty and what percentage of its customers are repeat customers. Toyota has submitted such information but has claimed confidentiality over the contents of such disclosures. The Commission has further asked Toyota if its current service network is adequate to handle all its aftermarket requirements (service/spares) of car owners. Toyota has submitted such information; but has claimed confidentiality over the contents of such disclosures. 19. Oral Submissions of the Informant 19.1 The counsel to the Informant submitted that about 95% of workshops (over 3 lakh) are operating in Indian automobile aftermarket which work outside the authorized dealer network and spare parts/ diagnostic tools are not made available to such independent repairers in the aftermarkets. This has resulted in the development of an industry of spurious spare parts in aftermarkets, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the 'relevant market' the counsel reiterated his earlier submission that since life cycle costing of a car could not be effectively worked out by the car users, therefore, the submissions of the OPs suggesting a unified systems market do not stand. 19.6 Lastly, the counsel argued that IPRs do not have absolute overriding effect on competition law. In this regard, it was also highlighted that the OPs have already admitted before the Commission that their agreements contain restrictions and have tried to justify such restrictions under section 3(5) of the Competition Act. 20. Decision of the Commission 20.1 The Commission has carefully gone through information, report of the DG and averments of the parties in the present case. The Commission notes that in addition to substantive issues involved in the matter, some of the Opposite Parties have also raised objections regarding jurisdiction of the Commission to inquire the conduct of those OPs which were not named specifically in the information filed by the Informant. 20.2 Before determination of the substantive issues, therefore, the Commission deems it proper to deal first with the objections raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.3.3 Placing reliance on the order of the Hon'ble Supreme Court passed in CCI v. Sail case (2010 Comp LR 0061 (Supreme Court)), the Commission has held in number of cases that considering the nature of the proceedings before the Commission (largely inquisitorial in nature), the Commission is not required to confine the scope of inquiry to the parties whose names figure in the information. The purpose of filing information before the Commission is only to set the ball rolling as per the provisions of the Competition Act, 2002. The scope of inquiry is much broader and the Commission is not restricted in its inquiry to consider the material placed by the parties only. Even if the informant subsequently does not participate in the proceedings or does not furnish any evidence during investigation or inquiry or seeks to withdraw the matter it is not the requirement of law that proceedings should be dropped or closed and the Commission may continue with the proceedings to take it to logical conclusion. This is so because being an expert body clothed with a duty to prevent practices having adverse effect on competition in the markets, the Commission is mandated by law to examine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April 26, 2011 which was passed after considering the request of the DG when he found, at that stage that alleged anti-competitive conduct was not confined to the named entities in the information but was prevalent across the industry. Further, while directing the DG to investigate against those car manufacturers also who were not specifically named in the information, the Commission treated the almost similar conduct of all car manufacturers equally and gave mandate to the DG that he can investigate the matter against not only the named car manufacturers but against other car manufacturers as well. 20.3.7 In the present case the DG brought the matter to the Commission and thereafter exercising its power under the Act, the Commission allowed the request in order to achieve the objectives of the Act, as mentioned in the preamble and in discharge of its functions under section 18 of the Act. The Commission, therefore, cannot be said to have committed any irregularity by allowing the request of DG for doing thorough and complete investigation as mandated under the Act for achieving its objectives. It is also noted that all OPs were given ample opportunity by the DG to present thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stics of the products or services, their prices and intended use; The conditions to determine relevant market have been elaborately dealt in sub-section (5) (6) and (7) of section 19 of the Act, are reproduced below: Section 19 19(5) For determining whether a market constitutes a relevant market for the purposes of this Act, the Commission shall have due regard to the relevant geographic market'' and relevant product market . 19(6) The Commission shall, while determining the relevant geographic market , have due regard to all or any of the following factors, namely: (a) regulatory trade barriers; (b) local specification requirements; (c) national procurement policies; (d) adequate distribution facilities; (e) transport costs; (f) language; (g) consumer preferences; (h) need for secure or regular supplies or rapid after-sales services. 19(7) The Commission shall, while determining the relevant product market , have due regard to all or any of the following factors, namely: (a) physical characteristics or end-use of goods; (b) price of goods or service; (c) consumer preferences; (d) exclusion of in-house production; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termarkets and systems market as concepts of competition law, which shall help in a better understanding of our analysis of the related issues in this case. 20.5.5 In the first instance it is important to discuss the two relevant market concepts: (a) a unified systems market and (b) aftermarket. An aftermarket is a special kind of antitrust market consisting of unique replacement parts, post warranty service or other consumables specific to some primary product. The term, therefore, refers to markets for complementary goods and services such as maintenance, upgrades, and replacement parts that may be needed after the consumer has purchased a durable good. 20.5.6 A typical allegation is that the durable goods producer (i.e. the OEM or the car manufacturer in the present case) behaves in a fashion that stops alternative producers from offering the complementary good (restrictions imposed on the OESs) or service with the result that the original durable goods producer monopolizes the aftermarket. This is the core allegation of the Informant in this case. This monopoly behaviour and the concomitant abuse of such monopoly market power allow the monopolist in the primary mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st in every instance where a primary and a secondary product are involved. For example, a Gillette razor and its blades, a printer and its cartridge an apartment and its maintenance costs, may not necessarily be in an aftermarket market structure. 20.5.11 For example, if Gillette increases the price of the blades of a particular razor and a Gillette consumer cannot use any other brand of blades with the particular Gillette razor, the question we need to ask is if the razor owner can switch to another razor brand, say Phillips, without incurring substantial switching costs. The Commission is of the view that one of the criteria in deciding whether the primary and secondary products form part of one systems market or two separate markets is the cost of the primary product. If the owner of the primary product can easily switch to another competing primary product, the primary product and secondary product may be clubbed to form a systems market. Since this is not so the case in automobile sector, the Commission is of the opinion that 'sale of cars' and 'sale of spare less parts' and 'repair and maintenance services' do not form part of a systems market. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f specific durable consumer goods is different from competition issues at other markets. Therefore, it is pertinent to understand if the durable goods and the related consumable goods form a part of the same relevant market. 20.5.16 It is observed that one of the parameters to consider the issue of interchangeability / substitutability is to determine the compatibility between the secondary products vis- -vis the various brands of primary products. From the point of view of the present case in order to gauge compatibility/substitutability between the primary markets and the secondary markets it needs to be ascertained whether the owner of a particular brand of car is capable of substituting the use of the spare parts of his brand of car with that of another brand of car, manufactured by a different OEM or is his choice of spare parts limited to that of his own brand of car. Therefore, a consumer of the automobile market in India, e.g., the owner of a Maruti Alto cannot switch to using the spare parts of a Honda Brio. Further, the Maruti Alto owner has very limited ability to use the spare parts of Maruti Ertiga. Such limited interchangeability, is primarily due to technical diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a device that blends air and fuel for an internal combustion engine) without the services of a technician, capable of effectively fitting or repairing the existing engine of an automobile with the new spare parts. In the same way, the repair services of an automobile technician are of no use unless such technician is provided with the applicable spare parts or diagnostic tools to conduct the repair job, except in a few instances where the repair work does not require replacement of depreciated or workout spare parts. Therefore, spare parts and repair services may be demanded simultaneously or concurrently and in a few instances car owners may only access one segment of the aftermarket, where they either themselves provide the repair services or where repair services do not involve replacement of spare parts. Therefore, in view of the Commission the two segments of the Indian automobile aftermarket are different, yet inter-linked and inter-connected. 20.5.19 In the context of defining markets in the present case, a reference may also be made to the European Union's Notice on the Definition of the Relevant Market. Relevant extract of Point 56 of the Notice is reproduced below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an automobile, buts its intended use, characteristics and price, under section 2(t) and 19 of the Act. The OEMs have submitted that a luxury car cannot meant to be interchangeable or substitutable with any other automobile model in the midsegment cars as the characteristics, features, price, etc., of such luxury automobiles would be different from those in the midmarket or the economy segment of automobiles. The OEMs have submitted that the relevant product market would be various product markets in the Indian automotive sector based on various segments of automobiles, viz., small or economy car segment, mid market car segment and the luxury car segment. Keeping in view of such submissions, the Commission in an order dated May 28, 2013, had asked the OEMs to indicate which of its cars fall under the following categories: low-end (price below ₹ 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). OPs have submitted their response to the aforesaid query of the Commission and have divided their various models of cars as per the abovementioned categories. Their submissions have been reproduced in the relevant part of this order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the task of the Commission is to identify that relevant market where the dominance of the enterprise is being felt. As per the allegations of the Informant and the investigation of the DG, the OEMs are restricting the sale and supply of spare parts and technical information, diagnostic equipments and tools to independent automobile service providers and indirectly determining the purchase or sale prices of both the price of automobile spare parts as well as the price of repair and maintenance costs due to the monopoly maintained by the OEMs in the supply of their respective brand of spare parts, diagnostic tools and technical information. Therefore, it is in the aftermarket of spare parts, diagnostic tools and technical manuals and not in the primary market of sale of cars where the alleged dominance of the OEMs is being felt. It is in the aftermarket for automobile spare parts and repair services, where each OEM are being alleged to operate independently of competitive constraints allowing them to affect their competitors, i.e., independent repairers and their customers. Consequently the aftermarket thus constituted by the market of the OEMs' spare parts, diagnostic t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar he owns is locked-in the same aftermarket. Therefore, if a Honda consumer needs to repair or service his car, he will have to avail the services provided by Honda's authorized dealers irrespective of the brand of car he owns. Therefore, the competitive constraints which a Honda car owner faces is in the aftermarket where he is locked-in and is forced to avail the services and the spare parts specific to Honda branded cars. Therefore, the assessment of the boundaries within which the competitive constraints needs to be analysed in the Indian automobile sector is in the automobile aftermarket and not the primary market for the sale of cars. Consequently, the need to delineate the primary market into separate car segments based upon each car's characteristics, price or intended use is unnecessary to determine the issues raised in the current case. 20.5.26 The OEMs have submitted that the relevant market is the unified market for the sale of cars and that there is no separate market for the sale of spare parts or the provision of after sale services. The OEMs have submitted that the car market is in fact a complete 'systems market' which consists of a durable prim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of after sale services of users of their respective brands of cars have been summarized in the table below: Table 1 Name of OEMs Summary of Response BMW The Company vide reply dated February 6, 2012, submitted that the cost of aftersale service for any car user depends upon various factors such as age, mileage, driving habits of the user etc. Hence it is difficult to indicate maintenance cost figure of car. Fiat The company expressed inability to furnishing such details stating that the after sales activity of Fiat cars are handled by Tata Motors Limited. Ford The company stated that this data is not available to them. General Motors The company vide letter dated February 13, 2012, submitted a list containing estimate of annual cost of routine aftersale services on kilometer basis. Hindustan Motors Hindustan Motors stated that most of the cars come to their dealers/services center during the warranty period. They do not have data outside the warranty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court held that: Lifecycle pricing of complex, durable equipment is difficult and costly. In order to arrive at an accurate price, a consumer must acquire a substantial amount of raw data and undertake sophisticated analysis The necessary information would include data on price, quality, and availability of products needed to operate, upgrade, or enhance the initial equipment, as well as service and repair costs, including estimates of breakdown frequency, nature of repairs, price of service and parts, Much of this information is difficult - some of it impossible - to acquire at the time of purchase As is evident from the paragraph above, the more complex equipment becomes, the more difficult it would be for a consumer to undertake a life-cost analysis. For example, in the case of a razor and blades; where the razor is the primary product and the blades the secondary consumable product; the only information that the consumer require is about the blade. There is no need to collect any raw data and no need to perform any analysis. Such a consumer knows how many times he needs to shave a week and by inquiring the current price of the blades, he is able to determine h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the primary market product and the number of variables that one would need to consider to undertake a life-cost analysis, the Commission is of the view that a prospective car owner is incapable of performing such analysis. 20.5.32 The U.S. Supreme Court in the Kodak case held that lifetime costing by the consumer was not a feasible test as, given the high cost of information gathering and the possibility that a seller could discriminate between a sophisticated and unsophisticated consumers; it made little sense to assume that equipment purchasing decisions were based on an accurate assessment of total cost of equipment, service and parts over the lifetime of the machine [Eastman Kodak, p. 473-474]. It is pertinent to note that if the consumer of the secondary product is a sophisticated consumer, for example, if the consumer of the secondary product is an industrial consumer which regularly makes bulk purchases of such consumable products for the primary market equipment, the analysis of life-cost by such sophisticated industrial user would have been different from that of a unsophisticated car owner. The industrial user would have more effective means of information gathering an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, driving patterns including mileage etc. The submissions of the OEMs themselves reiterate the understanding of the Commission that consumers do not properly account for lifecycle costs when purchasing and automobile and even if they are desirous of performing such an analysis, the amount of variable information that they will need to consider are either impossible to obtain or are simply not available. Name of OEMs Excerpts of Submissions of OEMs on Life Cycle Cost Analysis of automobiles MSIL MSIL has submitted that even if the exact life cycle costs cannot be calculated, the information available in the public domain enables a sufficient number of Indian consumers to make a broad estimate and rough comparison between the lifecycle costs of different models of cars. BMW With respect to the query relating to the calculation of the life cycle cost of an automobile, BMW has submitted that the life cycle cost of a car is calculated by dividing the cost of ownership by the ownership period. Where cost of ownership comprises of the capital cost of the car, interest on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s summarized in the table above), the Commission is of the view that in most instances even the OEMs themselves do not have the data regarding the future maintenance/service costs of their own brand of vehicles. Even in instances where the OEM does possess such internal estimates, the same is considered confidential and is not shared with the consumers. If the OEMs are themselves not in possession of the basic data, to expect that an average prospective owner of a car will be able to overcome the hurdle of the high cost of information gathering and thereafter successfully engage in analyzing such data, given the various future variables to successfully undertake a whole life cost analysis would be unreasonable. Therefore, the whole life costing theory is not a feasible test for an average unsophisticated consumer in the Indian automobile market. Therefore, the Commission is not in agreement with the submissions of the OEMs that the average car owner undertakes a life cycle cost analysis before purchasing a car in the primary market. 20.5.36 The OEMs have submitted that a large number of websites, automobile magazines and various other television programmes enable consumers to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onding aftermarket, thus incentivizing the primary market manufacture to exploit its consumers in the locked-in aftermarket. In such instances the possibility of a loss of reputation in aftermarket (with the corresponding diminution of the manufacturer's profits on future sales in the primary product market) does not deter the primary market manufacturer from setting a supra-competitive price for the products in the secondary market. This is specifically true in a situation (as in the present case) where due to information asymmetry (lack of whole life cost analysis) and high switching costs (discussed below), the demand from potential customers in the primary market does not decrease and the existing locked-in consumers of the primary product are unable to switch to competing products in the aftermarket. 20.5.39 In order to analyze if the consumer of an automobile in the primary automobile market is locked-in the aftermarket for spares and repair services, we need to analyze, if: (a) it is possible for a consumer to switch to spare parts manufactured by another OEM. (b) it is possible for the consumer to switch to another primary product to avoid a price increase on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only of the new cartridge, but also that of buying a new console able to interoperate with that cartridge. (para 37) 20.5.41 Therefore, the likelihood of a car owner to switch to another car in the primary market due to a rise in the price of spare parts or service costs is even more remote, given the substantial financial burden of purchasing a car in the primary market and thereafter paying for spare parts and repair services compatible for such brand of car in the secondary market. The Commission also notes that due to certain characteristics of an automobile, as a durable consumer product, any attempt to switch to another automobile, necessarily involves the incurring of substantial switching costs. Automobile is an example of a consumer product whose price necessarily depreciates post registration of the vehicle. Therefore, anytime post registration of an automobile, the selling price of such an automobile shall be lower than that at which it had been bought in the primary market. Therefore, a locked-in automobile owner cannot switch to another primary market product, i.e., another automobile from a competing OEM, without bearing substantial switching costs or financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... literature that OEMs would not charge high prices in the aftermarket due to reputational concerns in the primary market stands rebutted in the light of the evidence tabularized below and is not acceptable. Table 2 OEM Price Markup of top 50 spare parts based on Revenue Generated Price markup of top 50 spare parts on the basis of Consumption Nissan 84.96%-201.98% 85.81%-258.78% Reva -66.74% - 797.33% (38 out of top 50 spare parts) -66.74%-l180.42% (42 out of 50 spare parts) Maruti -77.98% - 433.59% -16.94% - 650% Mahindra 65.80%-462.50% 108.58%-890.99% Volkswagen 54.36% -995.55 (Ql, 2010-11); 61.41%- 995.55% (Q2, 2010-11) 58.17%- 995.55% (Q3, 2010-11) 58.17%- 995.55% (Q3, 2010-11) 62.27%-995.55% (Q1.2010-11); 62.27%-995.55% (Q2, 2010-11); 22.54%-995.55% (Q3; 2010-11); 62.27%-995.55% (Q4, 2010-11) Toyota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the aftermarkets. Given the above mentioned findings of the DG, the submissions of the OEMs that they are disincentivized from charging higher prices in the aftermarket due to reputational concerns in the primary market are moot. Further, the high ratio of locked-in to new customers reduces the penalty in the primary product market of increasing aftermarket prices. As per the Road Transport Year Book, July 2012, the total number of existing cars, jeeps and taxis stood at 192.3 lakh as on March 31, 2011, while the total production of passenger motor vehicles (cars and multi-utility vehicles) in India for the year 2010-11 is approx 30 lakh vehicles. Therefore, the number of existing locked-in consumers for the year 2010-11 (who have already bought a car in the primary market) was 192.3 lakh vehicles, while the number of prospective consumers in the primary market for the year 2010-11 is a mere 30 lakh cars. The average lifespan of a consumer car being 13 years (ACMA Report) it would be an incentive to the OEMs to charge exploitative aftermarket prices to approximately 192.3 lakh consumers than securing the reputation of its brand for 30 lakh new customers. Therefore, reputational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit only in FY 2010-2011. However, it is making significant profits from sale of spare parts. Therefore, even if we assume the economic theories put forward by the OEMs with respect to the existence of a systems market in the Indian automobile sector, the DG has discovered instances in case of each OEM ,where the OEM have increased the price in the aftermarkets. Therefore, it is no longer a theoretical possibility whether consumers may be subjected to exploitative price abuse in the aftermarkets. Cluster Markets 20.5.47 One of the arguments that have been submitted by the OEMs is that section 2(t) of the Act provides that the relevant product market means a market comprising of all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products, their prices and intended use. The OEMs have submitted that each automobile consists of thousands of spare parts and each spare part is not interchangeable or substitutable with another. For example a gear box is not substitutable for the clutch-plate of the same brand of car. The OEMs have argued that under section 2(t) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs v. Eastman Kodak Co., 125F.3d 1195, 1203 (9th Cir. 1997). The circuit court held that there could be a relevant market for Kodak photocopier replacement parts, notwithstanding lack of substitutability, because both independent service organizations and customers needed all parts in order to service or use their image machines. The court held that: The commercial reality faced by service providers and equipment owners is that a service provider must have ready access to all parts to compete in the service market. As the relevant market for service from the Kodak equipment owner's perspective is composed of only those companies that service Kodak machines, id., the relevant market for parts from the equipment owners' and service providers' perspective is composed of all parts that are designed to meet Kodak photocopier and micrographics equipment specifications. Therefore, if a Honda customer's car meets with a road accident and such a customer is desirous of repairing such a Honda car, he would just take the car to a repair shop to get the car repaired. So the service that she requires from the repair shop (authorized dealer or independent repairer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined as separate relevant markets using the smallest market principle, the Agencies may elect to employ a broader market definition that encompasses many products or geographic areas to avoid redundancy in presentation . Therefore, when the Commission is analyzing the anti-competitive issues of the entire automobile industry, it should not define the relevant market using the smallest market principle. The U.S. Horizontal Merger Guidelines provide that in the case of a merger analysis, where the anti-competitive effect of a proposed combination has to be reviewed from the perspective of an entire wider industry, a broader relevant market definition should be employed to better understand the anti-competitive effects of the proposed merger. In the same way, in the present case, the Commission needs to understand the alleged anti-competitive behaviour of the OEMs at the level of the macro-automobile industry of India. Employing a narrow market definition would lead to redundancy and hamper the Commission's effective analysis of the competitive constrains faced by the Indian automobile industry. 20.5.52 For example, an average car has approximately 25,000 spare parts. Each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropean Communities (C-22/78) [1979] ECR 1869, Volvo AB v. Erik Veng (UK) Ltd (C-238/87) [1988] ECR 6211; CEAHR v. European Commission (Case T-427/08); the Commission has treated all spare parts of a cash register; an automobile and Swiss watches as part of the same relevant product market; even though various spare parts of a cash register or a watch are technically not interchangeable with each other, yet a consumer and a repairer requires such spare parts together in order to effectively repair or service the primary market product. The Commission is of the view that since the definition of relevant product market; under which the abovementioned case have been decided is exactly the same as under section 2(t) of the Act; a similar interpretation of cluster market may be possible constituting of all the spare parts for each brand of cars manufactured by the OEMs in the Indian automobile aftermarket. 20.5.54 Therefore, the Commission concludes that the automobile primary market and the aftermarket for spare parts and repair services does not consist of a unified systems market since: (a) the consumers in the primary market (manufacture and sale of cars) do not undertake whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, this Commission is of the view that the relevant geographic market, as defined under section 2(s) of the Act, consists of the entire territory of India. 20.5.57 In conclusion, on this issue, the Commission is of the opinion that there exist two separate relevant markets; one for manufacture and sale of cars and the other for the sale of spare parts and repair services in respect of the automobile market in the entire territory of India. Assessment of Dominance of OEMs 20.5.58 Having defined the relevant product market consisting of two separate relevant markets; the primary market one for manufacture and sale of cars and the other for the sale of spare parts and repair services, the issue before the Commission is if the OEMs are in a dominant position in such relevant market. Explanation (a) to section 4(2) provides that a dominant position means a position of strength, enjoyed by an enterprise, in the relevant market, to: (a) operate independently of competitive forces or (b) affect its competitors or consumers or the relevant market in its favour. The definition of 'dominant position' under section 4(2) of the Act, is similar to that under Article 102 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of time. This means that the undertaking's decisions are largely insensitive to the actions and reactions of competitors, customers and, ultimately, consumers. 20.5.62 In order to understand if the OEMs are subject to any effective degree of competitive constraints in the Indian automobile aftermarket, the Commission needs to consider that each OEM controls almost the entire production and supply of spare parts which can be used in repairing and maintaining the various brands of cars manufactured by each OEM. Due to the technical specificity of the cars manufactured by each OEM, the spare parts of a particular brand of an automobile cannot be used to repair and maintain cars manufactured by another OEM. The DG, has discovered, that due to the high degree of technical specificity even intra-brand substitutability of spare parts are greatly diminished. Therefore, an owner of a Maruti Alto cannot use the spare parts of a Honda Brio. Even interchangeability of spare parts within different brands of Maruti cars is greatly limited. Therefore, from the perspective of Maruti's consumer's, they are locked-in in the aftermarket for Maruti's spare parts, diagnostic tools ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigation, has discovered that most of the OEMs have restricted their authorized dealers from selling spare parts and diagnostic tools over the counter. Further, the agreement between the OEMs and their authorized dealers require that such dealers source all the spare parts from the OEMs themselves. Therefore, each OEM is the sole supplier in the aftermarket for supply of spare parts and diagnostic tools for their own brand of automobiles. 20.5.65 Section 19(4) of the Act, provides the factors which the Commission shall take into account by the Commission, to determine if an enterprise is dominant under section 4 of the Act. One such factor is market share of the enterprise. Market shares provide a useful first indication of the market structure and of the relative importance of the various undertakings active on the market (Hilti v. Commission [1991] ECR II-1439, paras 90, 91 and 92; Case T-340/03 France T l com v. Commission [2007] ECR II-107, para 100). As discussed above, each OEM is a monopolist player and owns a 100 per cent share of the market share of the spare parts and repair services aftermarket for their own brand of cars. The customers of the automobiles manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et the spare parts from the authorized dealers of the OEM after opening a job card without actually getting the car service, in order to retain the customer. Hence, the DG has concluded that the practice of the OEM acts as an entry barrier for independent repairers to undertake repairs of the cars of the OEM and practically forecloses the market even for established and credible independent repairers who are equipped with the facilities required to cater to the after service requirement of all kinds of cars. The Informant has submitted that he approached certain independent repairers for servicing his cars. The submissions of the various independent repairers to Informant are summarized below: Table 4 Name of Independent Repairer Submissions Standard Automobiles An undated letter stating their' inability to service his cars of the brands of Honda, Fiat and Volkswagen companies as their spare parts are not sold to them by the manufacturers or authorized dealers. Jaipal Motors An undated letter stating that they do not have the spare parts for these brands of cars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position, pursuant to the provisions of Explanation (a) to section 4(2) of the Act. In the view of the Commission, such submissions are misleading. The informant in the present case did not allege that the OEMs held market power in the primary market for manufacture and sale of automobiles; he alleged market power only in the aftermarket consisting of those customers that had already purchased the automobiles manufactured by the OEMs that needed replacement parts and services for after sale maintenance and repair that particular OEM branded automobile. The antitrust theory was that each OEM was engaging anti-competitive practices to prevent independent service repairers from competing with the authorized dealers of such OEMs in the aftermarket for maintenance and repair service of such OEM manufactured automobiles. Therefore, even if Mercedes-Benz holds 0.26% of the market share of the Indian automobile market, as discussed above, it is a monopolistic player in the supply of the spare parts and diagnostic tools of its own branded cars. 20.5.69 The Commission has held in MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd. (Case No.13/2009), as follows: In terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a position of strength which enables it to affect its competitors in the secondary market, i.e., independent service providers in its favour, thereby limiting consumer choice and forcing the consumers to react in a manner which is beneficial to each OEM, but detrimental to the interests of the consumers. Whether the dominant enterprise(s) as established above has abused its position. 20.5.72 The DG, during the course of its investigation has discovered that in case of several OEMs in the absence of availability of the genuine spare parts, diagnostic tools, technical manuals, etc. in the open market the ability of independent repairer to undertake repairs and service of the vehicles of such brands of cars and effectively compete with authorized dealers is severely impeded. As per the DG, such conduct amounts to imposition of unfair condition, denial of market access to independent repairers in terms of section 4(2)(a)(i) 4(2)(c) respectively of the Act . The DG, during the course of its investigation, has discovered that in case of each OEM there is substantial escalation in most of the spare parts prices from the price at which has been sourced to the price at which it is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India. Therefore, one of the functions of the Commission is to eliminate practices having adverse effect on competition and protect the interests of the consumers, including providing automobile consumers and the independent repairers with more choice in the Indian automobile aftermarket. In the view of the Commission there are two main issues that needs to be dealt by the Commission, they are: (a) Ability of the consumers to freely choose between an independent repairer and an authorized dealers without being faced by any adverse financial consequences; and (b) Ability of independent repairers to access the aftermarket and provide services in a competitive manner. It is in this background, that the Commission has analyzed the alleged abusive practices of the OEMs within the parameters of section 4(2) of the Act. Denial of Market Access 20.5.75 The DG's investigation has revealed that most of the overseas suppliers are not supplying spare parts directly into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yota is placed below: Q.10 Are there any restrictions in the agreement on your overseas suppliers (TMAO) in supplying directly in the aftermarket in India? Ans: No Q.11 Are your overseas suppliers (TMAP) selling directly in the aftermarket in India? Ans: We are not aware of our overseas suppliers selling directly in the aftermarket in India. The relevant extract of submissions of Volkswagen is placed below: Q4. Are your overseas suppliers supplying the parts imported by you directly in the market in India as well? Ans. We are not aware whether they do so or not. Q5. Can you check with them and revert? Ans. We will try and check. Vide letter dated March 6, 2012 With reference to your query on whether overseas supplier can supply spare parts directly to India, we would state that there are no such restrictions on overseas supplier. With respect to your query on whether any permission has been granted by our company to overseas supplier for supplying parts directly in the market including after sales market, we confirm that we have not received any such request from the overseas supplier. Further, the scope of our business does not cover any after s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Maruti OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Mercedes Benz OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Nissan OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Skoda OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Tata Motors OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Volkswagen OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Hindustan Motors OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Toyota OESs restricted from supplying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The DG has recorded the submissions of the various multi-brand service providers with respect to the availability of specialized diagnostic tools manufactured by various OEMs. Their submissions have been tabularized below: Table 7 Brand Tooling Technology/ Diagnostic tools Workshop manuals/Catalogues Special Tools Technical Manual and information Maruti NA NA NA NA A (only to My TVS) Ford NA NA NA NA NA Honda NA NA NA NA NA Toyota NA NA NA NA NA GM NA NA NA NA NA Tata Motors NA NA NA NA A* ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of these spare parts for the aftermarket requirements. (b) apart from Maruti; most of the other OEMs have some restrictions on the ability of their authorized dealers to sell spare parts to independent service providers. (c) all the OEMs restrict the availability of the diagnostic tools/repair manuals etc., required to effectively repair various models of their respective brand of automobiles to the independent service providers and the multi-brand retailers. It is pertinent to note that even though Maruti allows its spare parts to be sold over the counter to independent repairers; it restricts the access of such independent repairers to diagnostic tools required to repair various models of automobiles manufactured by Maruti. Therefore, even in case of automobiles manufactured by Maruti, the independent service providers are restricted to effectively compete with the authorized dealers of the OEM. 20.5.80 The principle of free competition lies at the heart of the Commission's mandate under the Preamble and section 18 of the Act. Under section 18 and the Preamble of the Act, the Commission still has the overall responsibility, it shall be the duty of the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... type of customers; one in the primary market and the other in the secondary market. These customers are: (a) car owners who purchase the automobiles manufactured by the OEMs in the primary market and (b) independent service providers in the aftermarket. An owner of a car cannot fit the spare parts into the machine by himself and requires the services of a specialized technician. Therefore, the owner of automobiles does not operate in the aftermarket as purchasers of spare parts but require the service of firms engaged in maintenance and repair work. The independent repairers, who are not part of the official dealer network of the OEMs, do operate in the market for as purchasers of spare parts of the automobiles manufactured by the OEMs. Therefore, the independent service providers are customers of the OEMs in the aftermarket and further compete with the OEMs in the repairs and maintenance service aftermarket. 20.5.83 Section 4(2) provides a list of abusive conducts, which when undertaken by a dominant enterprise, would fall within the mischief of section 4(1) of the Act. Section 4(2)(c); provides that a dominant enterprise shall abuse its dominance, if it indulges in practice o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 4(2)(a)(ii) of the Act, which is substantiated by the considerable mark up in prices and significant variation across spare parts as demonstrated in the DG's reports. Section 4(2)(a)(ii) provides that there will be an abuse of dominant position, if a dominant enterprise, imposes unfair or discriminatory price in purchase or sale (including predatory pricing) of goods or service. Section 4(2)(a)(ii) is similar to the prohibition in Article 102 of the TFEU, which provides that an abuse by a dominant undertaking shall include directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions. The Commission has looked into the seminal cases establishing the legal test for excessive pricing under Article 82 of the EC Treaty (now Article 102 of TFEU). In United Brands Company and United Brands Continental BV v. Commission [1978] ECR 207, the ECJ held that 'charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied' could constitute abuse of a dominant position. The ECJ in United Brands proposed a cost-based test to assess the relationship for the purposes of Article 82 between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... across quarters for each OEM has been summarized in the table below: Table 8 OEM Price Markup of top 50 spare parts based on Revenue Generated Price markup of top 50 spare parts on the basis of Consumption Nissan 84.96%-201.98% 85.81%-258.78% Maruti -77.98% - 433.59% -16.94%-650% Mahindra 65.80%- 462.50% 108.58%-890.99% Volkswagen 54.36% -995.55 (Q1, 2010-11); 61.41% - 995.55% (Q2, 2010-11); 58.17%-995.55% (Q3, 2010-11); 58.17%-995.55% (Q3, 2010-11) 62.27%-995.55% (Ql,2010-11); 62.27%-995.55% (Q2, 2010-11); 22.54%-995.55% (Q3; 2010-11); 62.27%-995.55% (Q4, 2010-11) Toyota 79.61%-1305.85% 38.26%-510.43% BMW 101.38%-458.98% 76.24% - 484.04% Ford 38.37%-1171.09% (Q1, 2010-11); 35.62% - 1171.09% (Q2, 2010-11); 35.62%- 1171.09%(Q3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the dominant enterprise. This can be a particularly difficult task given that an enterprise may have diverse production and market operations which incurs various categories of costs and working out the production costs may raise great difficulties, especially determining what costs should be taken as a basis for calculating the costprice ratio to show whether the price charged exceeds the costs incurred. However, the Commission is of the view that such difficulties do not arise in the present case. Since the OEMs source a majority of their spare parts, both for assembly line and aftermarket requirements from OESs or other overseas suppliers, a starting point for the Commission's costprice analysis can be the price at which the spare parts are sourced from the OESs and other suppliers. The OEMs have submitted that the DG in its investigations has failed to consider that over and above the procurement other costs incurred by the OEMs, including, depreciation on tangible assets, amortization of intangible assets, royalty for technical know-how, packing materials, warehouse management, octroi, government taxes, financial and freight cost etc. The Commission has noted that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate to the economic value of the products supplied by the OEMs. 20.5.94 The concept of unfairness of a price is related to the notion that such price is unrelated to the 'economic value' of the product and that such price are being charged by the enterprise because of its capacity to use its market power or position of strength in that relevant market to affect its competitors or consumers in its favour. As evident from the DG's investigation, the OEMs are charging a substantially high price for its top 50 spare parts, without which the respective owners of the various models of the automobiles manufactured by the OEMs cannot get their automobiles repaired, serviced or maintained in the aftermarket. The actual cost of procuring the spare part is much lower than the price at which they are being sold to the ultimate consumer; however, the value of such spare parts to the consumer is great, because without such spare parts the owner will not be able to effectively repair his automobile. Even if the OEM has substantially markedup the price of its spare parts; the locked-in consumer would be forced to purchase such spare parts in order to effectively render the much exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of spare parts and diagnostic tools to independent repairers. These restrictions therefore create entry barriers for the OES who could produce matching quality spare parts, eliminates direct access by OES from supplying genuine spare parts of an OEM in the aftermarket and in the process, foreclose competition in the supply of genuine spare parts and diagnostic tools for the various models of automobiles manufactured by the OEMs. 20.5.97 The fact that the OEMs are the only source of supplying spare parts for its brand of automobiles in the aftermarkets is an important factor in analyzing the enterprise's degree of exploitative pricing. The ECJ in General Motors Continental NV v. Commission [1975] ECR 1376, agreed that the holder of the exclusive position .may abuse the market by fixing a price-for a service which it is alone in a position to provide. Therefore, the fact that the OEMs are the only source of genuine spare parts compatible to its brand of automobiles in the aftermarket allows such OEMs to use the opportunities arising out of its dominant position to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Skoda (-)3.19% (2008-09); (-) 2.96% (2009-10); (-) 0.35% (2010-11)* 11.59% (2008); 22.84% (2009); 19.49% (2010) DG has obseived that Skoda, as a whole, is incurring losses; but is making significant profit margins from the sale of spare parts. Fiat (-) 88.35% (2008); (-) 10.44% (2009); (-)6.62% (2010) 5.72% (2009-10); 9.39% (2010-11) Fiat has been incurring substantial losses on vehicle sales whereas it has been earning profits on the spare parts segment Honda (-)8.42% (2008-09); (-)0.10% (2009-10); (-)2.02% (2010-11) 26.02% (2008-09); 22.70% (2009-10); 8.02% (2010-11) Honda is making negative margins from sale of cars whereas it is selling spare parts at substantial profit In this context it is relevant to mention that as per CII-Mckinsey Report, the aftermarket business is highly profitable for OEMs. The aftermarket contributes a modest 24% in revenues to OEMs, however, a sizable 55% of profit is deri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in the Indian automobile aftermarket. Leveraging 20.5.100 Section 4(2)(e) provides that it shall be an abuse of a dominant position if a dominant enterprise uses its dominant position in one relevant market to enter into, or protect, other relevant market. The two relevant markets in the current case are the market for spare parts and diagnostic tools and the market for repairs and maintenance services, which as we have described earlier are different, yet inter-linked and inter-connected (refer to our discussions in paragraph 21.2.16 of this order). The OEMs have an inherent dominant position of strength in the market for spare parts and diagnostic tools because of limited interbrand interchangeability of spare parts and the fact that the OEMs, pursuant to a network of restrictive contracts and commercial practices have become the sole supplier of genuine spare parts of various models of their automobiles and diagnostic tools in the aftermarket. Given the interlinkages between the repair/service markets and the spare parts/diagnostic tools market, the OEMs have a commercial incentive to leverage their dominance from the relevant market of spare parts/diagnostic tools to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay not be keen to sell the spare parts over the counter to prevent the customers from shifting to independent repairers. The sale of spare parts over the counter is in any case at the discretion of the OEM and the authorized dealers. Further, all the OEMs (except BMW) have warranty clauses which effectively deny any warranty to the owners of automobiles if such owners avail the services of the independent repairers or other multi-brand service providers. Moreover, in the limited instances where spare parts are available to the actual owners, the owners have to buy such spare parts at the MRP and then avail the services of the independent repairers at additional costs; whereas the authorized dealers are able to provide such services at cheaper rates since the applicable spare parts are available to the authorized dealers at a discount over the MRP. Hence, based on these facts, it can be stated that in practice the OEM and the authorized dealers allow the use of genuine spare parts only for purpose of undertaking service and repairs at the workshop of the authorized dealers. Therefore, most of the OEMs force their customers to buy maintenance and repair services together with spare p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2013, inter alia, asked the OEMs to submit details regarding what percentage of then customers seek the services of their authorized dealers post warranty. The submissions of the OEMs have been summarized in the table below: Table 10: Name of OEMs No. of consumers using authorized dealers Source Nissan No data provided N/A MSIL 2010-11:27%: 2011-12:29%; 2012-13: 33% MSIL Internal records Hindustan Motors Ambassador vehicles: 27% Pajero vehicles: 95% No source provided Ford 50% (approx) Affidavit of Mr.DushyanthJayakuinar, authorized representative of Ford Honda 64% (without Brio, as all Brio cars are within warranty) No source provided BMW 78% No source is provided M M 2007-08: 33%: 2008-09: 40%; 2009-10: 52% No source is provided, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the aftermarket. However, the Commission is unable to accept such a contention of the OEMs for the following reasons. (a) As evident from Table 10, most of the OEMs have not provided any source for the data regarding the percentage of their customers who use the OEM's authorized dealer network in the post warranty period. In the absence of disclosure of any source, such data cannot be scrutinized or relied upon by the Commission. (b) The submissions of the OEMs, as set out in table 10 are contrary to the findings of the DG and, in certain cases, the express provisions of the OEM's authorized dealer agreements. For example, OEMs like, Fiat, Skoda, Nissan and M M, expressly restrict the ability of their authorized dealers to sell spare parts over the counter, besides restricting the access to diagnostic tools to the OEMs authorized dealers. They further have policies for absolutely cancelling their warranty obligations if any of their cars are repaired by an independent repairer in the post-warranty period. However, based upon the submissions of the OEMs, approximately 42% of Fiat's customers, 68% of Skoda's customers and 52% of M M customers use the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lting in contravention of section 4(2)(a)(i), 4(2)(a)(ii), 4(2)(c) and 4(2)(e) of the Act. 20.6 Determination of Issue No. 2 20.6.1 The OEMs source spare parts for their assembly line and aftermarket requirements from overseas suppliers and other local OESs, pursuant to agreements with such overseas suppliers and the OESs. The OEMs distribute the spare parts to the aftermarket and provide for aftersale repairs and maintenance of their various models of cars through a network of authorized dealers. The authorized dealers and the OEMs enter into dealership agreements to regulate the terms and conditions pursuant to which the authorized dealers sell spare parts and provide maintenance services in the aftermarket. Therefore, OEMs enter into three types of agreements: (a) agreements with overseas suppliers; (b) agreements with OES and local equipment suppliers and (c) agreements with authorized dealers. During the course of its investigation, the DG has analyzed the agreements and arrangements of the OEMs with the OESs, overseas suppliers and the authorized dealers to determine if such agreements are in the nature of agreements prohibited under section 3(4) of the Act. 20.6.2 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their overseas suppliers 20.6.3 The DG, during the course of the investigation, has analyzed the importer agreements entered by the OEMs with their overseas suppliers to find restrictions if any, on these suppliers from selling spare parts directly in the Indian aftermarket. The examination of these agreements has however not revealed any specific clause restricting overseas suppliers from undertaking such supplies. However, as per the DG, based upon the facts gathered during the investigation it has emerged that even these overseas suppliers are not supplying spare parts to any entities other than the OEMs. The DG has further observed that in most of the cases the overseas suppliers are the group companies/associate companies of the OEM or its overseas parent company. Hence, the DG has alleged that it is possible that there is the existence of an internal arrangement/understanding between the OEM and their overseas suppliers restricting the latter from supplying spare parts directly to the Indian aftermarket. Such agreements shall be in the nature of an exclusive distribution arrangement/understanding under section 3(4)(c) of the Act. 20.6.4 The OEMs have denied the existenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the same group e.g. holding-subsidiaries are presumed to be part of a 'single economic entity' incapable of entering into an agreement, the presumption is not irrebuttable. It is a question which should be decided on the facts and circumstances of each case. Based upon facts revealed by the DG's investigation in the present case, OEMs like BMW, Fiat, Ford, General Motors, Honda, Maruti, Mercedes Benz, Volkswagen, Hindustan Motors and Toyota have agreements/arrangements with their respective overseas suppliers which do not contain any specific restrictive clause regarding the rights of the overseas suppliers to supply spare parts into the Indian aftermarket. OEMs like Skoda has entered into overseas supplier agreements which contain specific clauses, restricting the ability of their respective suppliers from supplying spare parts into the Indian aftermarket. OEMs like Mahindra and Mahindra, Nissan, Tata and Premier do not import spare parts from overseas suppliers. All the aforesaid OEMs, except Maruti, and Hindustan Motors have arrangements with their overseas suppliers, which are part of the same corporate group or where such overseas supplier is the overseas pare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. (2) Where the patents, know-how, technology belongs to the OES, however, the parts are manufactured based on the specifications, drawings, designs supplied by the OEM. The tooling/tooling cost may also be borne by the OEM in some of these cases. (3) Where the spare parts developed and sold by the OES are made to their own specifications or designs or designs and specifications which are commonly used in the automobile industry. Such parts are very few for example, batteries, tyres etc. 20.6.8 Based upon the investigation of the DG, it has been observed that OESs supplying spare parts pursuant to agreements/arrangements which fall within category (1) and (2) above; cannot supply spare parts directly into the aftermarket without seeking prior consent of the OEMs. Based upon the submissions of the OEMs and the OESs it has been gathered that most of the OESs are not selling directly in the aftermarket. The DG's investigation has not revealed any instance where written consent has been granted by OEMs to OESs to supply spare parts directly in the aftermarket. The OEMs have contended that spare parts manufactured by the OESs using IPRs like patents, designs, copyrights, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements for Ambassador branded cars were not provided to the DG for review Toyota Restrictions present for protecting IPRs Based upon the findings of the DG, as summarized m table 11, the Commission is of the opinion that none of the OESs actually supply genuine spare parts of the various brands of the OEMs directly into the aftermarket. The DG has submitted that the relevant agreements between the OEMs and the OESs are therefore in the nature of 'exclusive distribution agreements' and 'refusal to deal' as contemplated under section 3(4)(c) and 3(4)(d) of the Act respectively. In order to assess the same, we need to determine firstly, whether such agreements/arrangements fall under section 3(4) and secondly, whether they are causing an appreciable adverse effect on competition (AAEC) within the meaning of section 3(4), read with section 3(1), of the Act. Further, most of the OEMs have relied upon the exemption contained in section 3(5)(i) in order to justify their restrictions on the sale of spare parts by the OESs to third parties without the consent of the OEMs. Whether such an exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such agreements cause an AAEC in the market based upon the factors listed in section 19(3) of the Act. It is pertinent to note that clauses (a)-(c) of section 19(3) deals with factors which restrict the competitive process in the markets where the agreements operate (negative factors) while clauses (d)-(f) deals with factors which enhance the efficiency of the distribution process and contribute to consumer welfare (positive factors). An agreement which creates barriers to entry may also induce improvements in promotion or distribution of goods or vice versa. Thus, whether an agreement restricts the competitive process is always an analysis of the balance between the positive and the negative factors listed under section 19(a)-(f). 20.6.12 The OEMs have submitted that the regulations imposed upon the OESs are necessary to ensure quality control and protect the goodwill of the brand of the OEM. The OEMs have submitted that in the absence of any quality certification process in India to certify the quality of certain brand of spare parts, the OEMs are themselves required to examine the quality of applicable parts and items in the market and determine whether they are suitable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorized dealer of the OEM or an independent repairer to purchase spare parts of repair services. The Commission is of the opinion that there is a requirement for the creation of a collaborative space between the independent repairers, multi-brand operators, the OEMs and their OESs so that they can play an effective role in curbing the usage of spurious spare parts and providing the automobile consumers of India with competitive and efficient repair and maintenance options. Therefore, the Commission is of the opinion that the restrictions placed on the OESs adversely affects the competition in the automobile sector and falls within the mischief of section 3(4), read with section 3(1), of the Act. However, since most of the OEMs have relied upon the exemption contained in section 3(5)(i) in order to justify their restrictions on the sale of spare parts by the OESs to third parties without the consent of the OEMs, we have to analyze the strength of their contention before reaching a conclusion on contravention under section 3(4), read with section 3(1). It may be noted that if the OEMs are able to prove that their agreements with OESs are protected by the exception enshrined under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 3(5)(i) of the Act. The Commission is of the opinion under section 3(5)(i) allows an IPR holder to impose reasonable restrictions to protect his rights 'which have been or may be conferred upon him under' the specified IPR statutes mentioned therein. The statute is clear in its requirement that an IPR must have been conferred (or may be conferred) upon the IPR holder prior to the exception under section 3(5)(i) being available. Therefore, before the OEMs are permitted to seek the exemption under section 3(5)(i) they must establish that their IPRs have been granted protection (or that the OEMs have initiated the process of being granted protection) under the specified IPR statutes in India. The Commission, after reviewing the submissions of the findings of the DG and the submissions of the OEMs is not satisfied regarding both the characterization of certain rights, claimed by the OEMs, as IPRs as well as regarding the fact that the OEMs could not provide sufficient evidence to establish their claim over a particular type of IPR. Even in those cases where the OEMs have registered/applied for registration of certain designs, patents, however, the details of spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an IPR statutes and the grant/recognition from the Indian IPR agency is imminent. 20.6.18 The OEMs have further submitted that they have a valid claim of copyright protection over its engineering drawings for the various spare parts and the technical manuals as 'literary works' under the Copyright Act. Since any work which is the subject-matter of copyright need not be registered to get protection, the OEMs have claimed that the non-registration of the designs and technical drawings of their spare parts and diagnostic tools under section 2(o) of the Copyright Act, does not deprive them of the full copyright protection under the Copyright Act. Consequently, the OEMs have submitted that they are entitled to avail the exemption under section 3(5)(i) of the Act. 20.6.19 However, the DG after a thorough study of several judgments relating to the Indian copyright law has concluded that the copyright protection claimed by several of the OEMs over the designs, drawings and specifications of their respective spare parts are not available to the OEMs. The DG has come to this conclusion based upon the fact that though there are no requirements to register the copyright over a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finished products (e.g. bumpers, bonnet/hoods, car gears, fog lights etc). All such products are finished products and selling them in the open market does not necessarily compromise the IPR such products. For example, selling a Xerox photocopier machine will not compromise the patent held by Xerox on the image loop that captures the photocopies page and reproduces it. The intellectual property required by the OESs to manufacture a spare part (e.g. car gear) will be protected contractually pursuant to the agreement between the OEMs and the OESs. Merely selling of the spare parts, which are manufactured end products, does not necessarily compromise upon the IPRs held by the OEMs in such products. Therefore to answer the question posed above, in our opinion, the OEMs could contractually protect their IPRs as against the OESs and still allow such OESs to sell the finished products in the open market. 20.6.22 The DG's investigation has further revealed that apart from spare parts even diagnostic tools, manuals and catalogues form a part of the secondary spare parts market. The OEMs have claimed that such diagnostic tools, manuals and catalogues are proprietary information and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an and Mahindra. b. In several cases though there are no specific clauses in the agreements entered by the OEMs restricting over the counter sales, however, the DG, based upon the enquiries carried out and submissions of stakeholders, have concluded that the spare parts are not generally available over the counter and at best are being sold selectively. The DG, therefore, alleged, that there exists an arrangement or understanding between the OEM and the authorized dealers regarding non sale of spare parts over the counter to individual customer/independent repairers thereby amounting to exclusive distribution and refusal to deal agreement in terms of Section 3(4)(c) and 3(4)(d) of the Act. c. There are clauses in agreements entered by most of the OEMs with the Authorized dealers requiring them to source spare parts only from them or their* approved vendors. These agreements are found to be in nature of exclusive supply agreements in terms of Section 3(4)(b) of the Act. d. Further the dealer agreements entered by all the OEMs with then dealers contain restrictions on dealing in competing brands of cars without seeking then consent in writing. During the investigation, most ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use* DG allows spare parts of its brand to be sold in the open market Only available to authorized dealers. However, Maruti has contended that independent repairers can repair about 99.5%ofMaruti branded cars without the help of Maruti's diagnostic tools, manuals etc Warranty invalidated if repaired by independent repairer No restriction Tata Motors No Clause* DG's investigation has revealed that limited sales of spare parts for certain models of Tata cars are occurring over the counter. Only available to authorized dealers. Warranty invalidated if repaired by independent repairer Restricted Volkswagen No Clause* Only available to authorized dealers. Warranty invalidated if repaired by independent repairer Restricted (However, certain Volkswagen dealers have been dealing in competing brands) Hindustan Motors No clause* Only available to authorized dealers. Mitsubishi cars-Warr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AAEC caused by agreements between the OEMs and the authorized dealers also, we have noted the factors provided in section 19(3) of the Act. 20.6.27 The rationale given by the OEMs for such restrictions, such as, (i) the independent operators may not possess the skills required to replace the parts and undertake repairs thereby causing health hazards, (ii) widespread availability of counterfeit parts; (iii) parallel resale network if established would conflict with the distribution network etc. The OEMs have submitted that the rationale behind their policies in restricting access to spare parts and diagnostic tools to independent repairers is to protect the automobile owners from the counterfeit and spurious spare parts market. The policy is to ensure that the automobile owner does not end-up purchasing spurious/counterfeit spare parts in the mistaken assumption that he is purchasing a genuine spare part. It has been further submitted that the reasons provided by the OEMs to restrict availability of the spare parts and diagnostic tools are due to the fact that technologically advanced vehicles require specialized skills, infrastructure, regular training which is available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2011 As per the DG Report, the Indian automobile aftermarket is serviced by several multi-brand retailers, who have the same scale of operations, in terms of finances, infrastructure and workforce, as many of the OEM authorized dealer workshop. These include Bosch Car Service, Carnation Auto India (Pvt) Ltd, Vahan Motors (Pvt) Ltd and TVS Automobile Solutions (Pvt) Ltd. Therefore, the argument submitted by several OEMs that even if spare parts are available over the counter, the cars could develop fitment defects when serviced by unskilled independent repairers cannot be accepted entirely. For example, a Mercedes car owner may not avail the services of a local garage owner, due to lack of technologically advanced diagnostic tools required to service a Mercedes brand car, however, the Mercedes car owner may be inclined to get his Mercedes car repaired from the repair shop a multi-brand repairer, since he may perceive that such repair shops are providing comparable repair jobs to that of the Mercedes authorized workshops. Alternatively, a Honda Brio owner may avail the services of the local garage repair shop, because, in the estimation of a Honda car owner, the local garage tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized dealers to source spare parts only from OEMs or their approved vendors is anti-competitive in nature. Based on the foregoing, there is no doubt that by restricting access of independent repairers to spare parts and diagnostic tools and by denying the independent repairers access to repair manuals, the agreements entered into between OEMs and authorized dealers have fallen foul of the provisions of section 3(4)(b), 3(4)(c) (d) read with section 3(1) of the Act. 20.6.30 Besides, it may be noted that the DG has also found contravention of the provisions of the section 3(4)(b), 3(4)(c) and 3(4)(d), of the Act, with respect to agreements entered into between OEMs and their authorized dealers, restricting the ability of such dealers to deal in competing products. The Commission, however, is of the opinion that the root of the anti-competitive conduct complained of and as investigated by the DG, in the present case mostly emanates from and is localized in the aftermarket for automobile spare parts and repair services, respectively. The Commission has not considered any issues relating to the primary market for sale of cars in the present case. Since the issue of 'single-bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bent to maintain its position (rent seeking), misallocation of resources, reduced innovation and higher prices. This criterion thus requires an analysis of the competitive restraints imposed upon the parties, the degree of competition existing prior to the agreements and the impact of the agreement on competition. It is therefore essential to note the nature of the competitive constraints in while analyzing the AAEC caused by the restrictive clauses of an agreement pursuant to the factors provided in section 19(3) of the Act. In situations where an agreement providing apparent efficiencies allow the enterprise to create structural entry barriers and consequently eliminate the competitive process, the Commission must look beyond the immediate short term efficiency goals of such alleged anti-competitive agreements. It is pertinent to appreciate the long lasting anti-competitive effects, if any, of such agreements in the market in which they operate. 20.6.33 The General Court of the European Union, while considering the exercise that the European Commission is required to undertake in conducting an analysis under Article 101(3) of the Treaty for the Functioning of the European ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banden-Industrie Michelin (Michelin) v. Commission [(1983) ECR 3461, at para 57] explaining the concept of the prohibition of Article 102 stated that, an undertaking in a dominant position: has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market. Therefore, a non-dominant enterprise may enter into a vertical agreement which forecloses the market but enhance certain distribution efficiencies, and in such conditions the Commission on balancing the factors provided in section 19(3), may conclude that such agreement does not cause an AAEC in the market. However, where such agreements are entered into by a dominant entity, and where the restrictive clauses in such agreements are being used to create, maintain and reinforce the exclusionary abusive behaviour on part of the dominant entity, then the Commission should give more priority to factors laid down under section 19(3)(a) to (c) than the pro-competitive factors stated under section 19(3)(d) to (f) of the Act, given the special responsibility of such firms not to impair genuine competition in the applicable market. 20.6.36 In United States v. Arnold, Schwinn Co., 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the selective distribution network of their authorized dealers comply with the above mentioned standards/conditions and therefore such agreements should not be considered as causing an AAEC in the automotive aftermarkets in India and section 3(4) should be held inapplicable to such agreements. However, Article 5(a); Recital 16 of the E.U. Motor Vehicle Block Exemption Regulation, 2010, provides for certain 'hardcore restrictions', the presence of such restrictions renders a vertical distribution agreement ineligible for the benefits of the Block Exemptions. These 'hardcore restrictions' include: (a) the restriction of the sales of spare parts for motor vehicles by members of a selective distribution system to independent repairers which use those parts for the repair and maintenance of motor vehicle; (b) the restriction, agreed between a supplier of spare parts, repair tools or diagnostic or other equipment and a manufacturer of motor vehicles, of the supplier's ability to sell those goods to authorized or independent distributors or to authorized or independent repairers or end-users. The Commission has noted that both or at least one of the above har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DG during the course of preparing its investigation reports(s) has erroneously compared the Indian automobile market with those of developed competition regimes, like E.U. and the USA, and have relied upon the statutory provisions of such regimes to reach the conclusions that the OEMs have violated the provisions of the Competition Act. Therefore, the Commission has specifically looked into the practices of OEMs of developing nations and have found that business practices of OEMs, restricting access to spare parts and technical manuals has been frowned upon by competition authorities of developing nations like Brazil and South Africa. 20.6.40 On 8 October 2012, the French Competition Authority ( FCA ) published the results of its sectoral inquiry of the motor vehicle maintenance and repair. The main recommendations were against: any contractual restrictions by OEMs discouraging sale of spare parts to independent repairers. OEMs denying access to repair tools/technical information to independent repairers. warranty clauses that discourages consumers from availing the services of an independent repairer. the widespread practice of issuing recommended retail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , requiring the removal of practices that limit the availability of spare parts and repair tools, is illustrative of the fact that irrespective of the size, nature of level of development of the automobile industry of such countries, the practices of the OEMs were found to restrict consumer choice and foreclose the aftermarkets and were held to be anti-competitive in nature. Therefore, after analyzing the comparative case laws of other mature and developing competition law jurisdictions and the facts of the present case, the Commission is of the opinion that: i. the OEMs like, Skoda, Mahindra, Nissan and Fiat which completely restrict the access to spare parts and diagnostic tools coupled with an absolute cancellation of warranty if cars are repaired by independent repairs, completely foreclose the market for independent repairers, create barriers to entry and deprive consumers of any choice in the aftermarket for spare parts and repairs. Further, the agreements also contained clauses requiring the authorized dealers to source spare parts only from OEMs or their approved vendors. The Commission is in agreement with the findings of the DG that such agreements are in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eements also contained clauses requiring the authorized dealers to source spare parts only from OEMs or their approved vendors. Therefore, even in cases of OEMs like General Motors and Mercedes Benz, which allow over the counter sale of genuine spare parts, in effect foreclose the market for independent repairers and other service providers and even such OEMs are, as mentioned above in violation of section 3(4)(b), 3(4)(c) and 3(4)(d) of the Act. 22. Conclusion 22.1 In view of the aforesaid discussions and for reasons recorded earlier, the Commission is of the considered opinion that the Opposite Parties (OPs) have contravened the provisions of sections 3(4)(b), 3(4)(c), 3(4)(d), 4(2)(a)(i) and (ii), 4(2)(c) and 4(2)(e) of the Act, as applicable. As elucidated in detail in the order, the Commission does not accept the unified systems market in this case specifically, and in the Indian market conditions in general. The kind of parameters which have been defined even in other jurisdictions and literature for accepting the systems market approach do not normally exist in the Indian market, including in regard to availability of relevant information (e.g. life-cycle cost) to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent repairers/garages. (v) The OPs may develop and operate appropriate systems for training of independent repairer/garages, and also facilitate easy availability of diagnostic tools. Appropriate arrangements may also be considered for providing technical support and training certificates on payment basis. (vi) The OPs may also work for standardization of an increasing number of parts in such a manner that they can be used across different brands, like tyres, batteries etc. at present, which would result in reduction of prices and also give more choice to consumers as well as repairers/service providers. (vii) OPs are directed not to impose a blanket condition that warranties would be cancelled if the consumer avails of services of any independent repairer. While necessary safeguards may be put in place from safety and liability point of view, OPs may cancel the warranty only to the extent that damage has been caused because of faulty repair work outside their authorized network and circumstances clearly justify such action. (viii) OPs are directed to make available in public domain, and also host on their websites, information regarding the spare parts, their MRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealers 22.6 In view of the foregoing, the Commission imposes a penalty of 2% of total turnover in India of the opposite parties. As such, the penalty imposed on different parties is as follows:- S.No. Name Turnover for 2007-08 (in crores) Turno ver for 2008-09 (in crores) Turnover 2009-10 (in crores) Turnover 2010-11 (in crores) Turno ver 2011-2012 (in crores) Total Turno ver for three years (in crores) Average Turnover for three years (in crores) @2% of average Turnover (in crores) 1. Honda Siel 4039.72 3526.08 4204.43 -- -- 11770.23 3923.41 78.47 2. Volkswagen India Pvt Ltd* 26.01 95.77 366.16 -- -- 487.94 162.65 3.25 3. Fiat India Automobiles Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.14 67323.05 1346.46 14. Toyota Kirloskar Motors 4268.74 3948.89 5790.11 -- -- 14007.73 4669.24 93.38 *Volkswagen has provided turnover for year 2007-2008 (From February 6, 2007 to March 31, 2008); for the Year 2008-09 (April 1, 2008 to December 31, 2008) and for the year 2009-10 (January 1, 2009 to December 31, 2009). * General Motors has provided financial statements only for 2 years (2010-11 and 2011-12) 22.7 The directions of the Commission contained in para 22.3 of this order will be complied with by the opposite parties in letter and spirit. Each OP is directed to file individual undertakings, within 60 days of the receipt of their order, about compliance to cease and desist from the present anti-competitive conduct, and initiation of action in compliance of other directions. This will be followed by a detailed compliance report on all directions within 180 days of the receipt of the order. The amount of penalty will be paid by the OP within 60 days of the receip ..... 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