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TMI Blog2019 (6) TMI 1700X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in the present case has been filed under Section 19(1)(a) of the Competition Act, 2002 ("Act") by M/s Karni Communication Private Limited ("Informant No. 1") and M/s Karni Telnet Private Limited ("Informant No. 2"), collectively referred to as Informants, against Haicheng Vivo Mobile (India) Pvt. Ltd.("OP-1"), Vivo Mobile India Private Ltd.("OP-2") and Vivo Communication Technology Co. Ltd.("OP-3"), collectively referred to as Opposite Parties ("OPs"), alleging contravention of provisions of Section 3(4) read with Section 3(1) of the Act. 2. As stated in the Information, OP-1 is in the business of trading and distribution of mobile handsets in India. OP-1, entered into a 'Distributor Agreement', with Informant No. 1, on 19.01.2017, wherein it was appointed as the non-exclusive distributor for the region of 'South Delhi Part - I', 'South Delhi Part-II' and 'South Delhi Part-III', for distribution of mobile handsets under the brand name, 'Vivo'. OP-1 is stated to have entered into another 'Distributor Agreement' with Informant No. 2 in April, 2017, wherein it was appointed as a distributor for the region of 'South Delhi Part -IV' for distributorship of mobile handsets under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atform by cancelling all payouts to the distributor who did not adhere to such restrictions. b) Market Infiltration Policy ("MIP") i) As regards MIP, the Informants submitted that in gross violation of provisions of the Act, the OPs were collectively imposing a scheme of penalising the distributors/ retailers in the event they were found to be indulging in MIP. It has been submitted that Clause 3 of the Distributor Agreement lists the obligations of the Informants towards OP-1. Sub-clause (h) and (o), of the said distributor agreements explicitly imposed a restriction together with provision for imposition of penalties on the Informants, mandating them to comply with the condition that no sales will be made either by the Informants or by their retailers beyond the Authorised Distributor Zone. The aforesaid clauses are as follows: Clause 3(h) - "will not sell to any person or body corporate, the goods which they know or have reason to believe are intended for resale outside the Authorised Distributor Zone." Clause 3(o) - "will take full responsibility to manage its retailers for any wholesale or any sale which they know or have reason to believe are intended to be market i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he may at his discretion charge prices higher than the suggested MOP." 5. The Informants have averred that due to the abovementioned reasons, OP-1 imposed an arbitrary penalty of five times the MOP on the Informants. 6. As per the Informants, OPs, also sent a list of International Mobile Equipment Identification ("IMEI") numbers for stocks which were sold by the Informants to the retailers and found that the said IMEI numbers were sold in other states or wholesale markets, resulting in breach of the MIP. The Informants have further averred that prima facie such a MIP/ territorial allocation to dealers and distributors, is in contravention of the Act. The Informants have also submitted that all their requests to waive off the alleged penalties incurred on them were denied by OP-1. 7. Based on the above averments and allegations, the Informants have alleged that the OPs have contravened the provisions of Sections 3(4) of the Act. 8. The Informants have, inter-alia, prayed that an inquiry into the matter be conducted by the Director General and relief be granted under Section 27 of the Act. Further, the Informants have sought certain interim reliefs under Section 33 of the Act, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also submitted that the direct consequence of MOP was that profit margin of retailers had increased, without any corresponding increase in prices for consumers, demonstrating the benefits of MOP policy on retailers and consumers. OP-1 further reiterated that within the retailer market, there had been several instances of retailers engaging in predatory pricing with the intent of reducing the competition in the market. Predatory pricing by a retailer raised barriers to entry within the market and prevented other retailers from being able to enter the market. Therefore, the stipulation of MOP pre-empted the possibility of predatory pricing by any retailer, thereby ensuring level playing field within the market for retailers eventually benefitting the consumers. Further, OP-1 also invested significant amounts of capital and expended effort in training personnel and the stipulation of minimum price floor under MOP allowed benefits to be enjoyed by the consumers of the brand. d) OP-2 submitted that it appoints state-level distributors for Vivo mobile phones and accessories in each specific territory of India, by entering into a "Primary Distributor Agreement". Each state-level distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any concern with respect to the policies promulgated by OP-1 from 2015 to 2017 and this misconceived Information had been filed before the Commission after 2017 only to arm twist OP-1 as the Informants were found to be blatantly violating its policies consequent to which penalty of Rs. 2,00,00,000/ and Rs. 17,00,000/ had been imposed by OP-1 on Informant No. 1 and Informant No. 2 respectively on 17.05.2017 and 26.05.2017. 13. The counsel for OP-1 vehemently opposed the contention that OP-1 was connected with the BBK group and submitted in this regard that shares of OP-1 are held by two individuals in their personal capacity, namely Mr. Hexi and Mr. Tangwensheng with 99.9% and 0.1% shareholding respectively. There was no direct or indirect evidence that OP- 1 has any shareholding in the BBK group or vice versa. Neither does OP-1 have any common directors with the BBK group nor with Oppo. 14. The counsel for OP-1 submitted that the fact that brands incur very steep expenditures in marketing and promotion clearly show that the market was competitive and that there was no restraint of competition or any AAEC caused in the market for smartphones in India. 15. The counsel for OP-1 fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by both parties, oral submissions made by the parties on 28.03.2019 and the information available in public domain. 20. The Commission notes that allegations of the Informants against the OPs pertain to contravention of Section 3 (4) of the Act which provides that any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including (a) tie-in arrangement; (b) exclusive supply agreement;(c) exclusive distribution agreement;(d) refusal to deal; (e) resale price maintenance, shall be an agreement in contravention of provisions of the Act, if such agreement causes or is likely to cause an appreciable adverse effect on competition in India. 21. The Commission observes that in the instant case, no doubt, there was an agreement between OP-1 and the Informants, in the form of 'secondary distribution agreement'. Further, the parties to the agreement are in a vertical chain of supply and distribution of Vivo smartphones. However, in order to assess whether such agreement/ any clause(s) of agreement is anti-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no evidence of any controlling influence of BBK Enterprise on the economic activities of OP-1 and OP-2, has been furnished by the Informants. The Commission notes that OP-1 has stated that the brands Vivo and Oppo have independent marketing teams and are competitors in the market for sale and distribution of smartphones in India and that BBK Enterprise does not have any director(s) on the board of directors either of OP-1, OP-2 or OP-3, thereby resulting in autonomy in decision making in Vivo. There is no material on record to refute these contentions of the OP. Therefore, the contention of the Informants that combined market share of Vivo, Oppo, OnePlus and Realme be taken to determine market power, is not tenable. 27. In addition, the Commission has also examined the grievance of the Informants to find out whether the agreement between the OPs and the Informant has caused or is likely to cause AAEC in markets in India. a) Allegation with respect to Restriction on online sales i) The Informants have alleged that the OPs, by restricting them from selling Vivo branded mobile handsets and accessories to consumers via online retail portals curtailed their freedom of trade. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission observes that the restriction on online sales on the distributors/retailers by OP-1, does not directly withhold the supply of Vivo products in the market, and consumers have the option to buy such products through online retail platforms as well. Such a clause in the Secondary Distributorship Agreement between the parties is not likely to cause AAEC in the market for sale and distribution of smartphones in India. The Commission, accordingly, finds no contravention of the provisions of Section 3(4) (c) of the Act on the part of the OPs as far as allegations of restriction on online sales is concerned. b) Allegation as regards MIP i) On the issue of MIP, the Informants have submitted that the OPs were collectively enforcing their illegal policy of allocating territories for their dealers, and penalizing the distributors/ retailers in the event they were found to be indulging in market infiltration, in gross violation of Section 3(4)(c) of the Act. ii) Upon perusal of the provisions of the aforementioned Distributor Agreement entered into by the parties and adverting to the contentions raised by both the parties, the Commission notes that it is evident that OP-1 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not appear to have caused or is likely to cause AAEC in the market for sale and distribution of smart phones in India and consequently, no case is made out for contravention of Section 3(4)(c) of the Act. c) Allegation as regards MOP violation i) The Informants on the issue of MOP have alleged that the practice of the OPs mandating a MOP is explicitly resulting into Resale Price Maintenance ("RPM") which is anti-competitive and is in contravention of Section 3(4)(e) of the Act. ii) In this regard, the Commission notes that there are sufficient number of distributors/retailers from whom the consumers can purchase Vivo smart phones. The consumers also have an option of purchasing the smartphones online through various e-commerce platforms at competitive prices. In the present case, though the clause(s) of the distributor agreement mandate MOP, its adverse effect on competition has not been established by the Informants. The imposition of RPM through the MOP Policy does not appear to have caused AAEC in the market for sale and distribution of smartphones in India since there is intense inter-brand competition in the said market in India. Further, the Informants had complete fl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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