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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 ..... 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-competitive and causes or is likely to cause AAEC in markets in India, the relative market power of the OPs is to be looked into and thereafter the factors provided under Section 19(3) of the Act need to be examined. The Commission observes that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely 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 the brand name Vivo. 3. The Informants have submitted that they were appointed as distributors for mobile handsets under the brand Vivo , accessories of mobile handsets Vivo and such other products that OP-1 may supply from time to time, in consultation with the Informants. 4. It has been alleged that the representatives of OP-1 started approaching the Informants, since early 2017, stating that the retaile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 infiltration. ii) The Informants have further submitted the following, to substantiate their allegation against MIP of OP-1: a. Minutes of the meeting attended by the distributors of OP-1 on 25.02.2017, which contained that several retailers were not maintaining the MIP in the relevant market due to which OP-1 was facing penalties from its Head Office. b. Notificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, inter-alia seeking order of restraint against the OPs from arbitrarily removing the retailers from Data Management System, imposing restrictive clauses of the Distributor Agreements and levying arbitrary penalties. 9. During the course of the proceedings and pursuant to the directions of the Commission, OP-1 and OP-2 filed certain documents on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging 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 distributor appoints sub-distributor and enters into Secondary Distributor Agreement . It was also submitted that OP-2 had no role to play as far as the Secondary Distributor Agreement was concerned. 10. Subsequently, the Informants made fresh submissions based on documents filed on 21.12.2018 and were heard by the Commission in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 further submitted that the Distribution Agreement between OP-1 and OP-2 pertained only to offline sales and not online sales of products given to OP-1. As no right for online sales had been given to OP-1, the question of restricting online sales by OP-1, with respect to its sub-distributors, such as the Informants, did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-competitive and causes or is likely to cause AAEC in markets in India, the relative market power of the OPs is to be looked into and thereafter the factors provided under Section 19(3) of the Act need to be examined. 22. As regards relative market power, the Commission notes that OP-1 has furnished a report o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rguments the counsel for the Informants also submitted that concentrating only on the market shares of Vivo is an inaccurate representation of the market and that the market shares of other brands forming a part of the entire BBK group, comprising Vivo, Oppo, OnePlus and Realme should be considered for AAEC analysis. OP-1 while disagreeing with the claim of the Informants submitted that its shares are held by two individuals in their personal capacity, namely Mr. Hexi and Mr. Tangwensheng with 99.9% and 0.1% shareholding, respectively. OP-2 has submitted that its shares are held by Multi Accord Limited (a Hong-Kong based entity) and Aruna Sharma. Multi Accord Limited is solely held by Lucky City International Limited (a Hong Kong based entity). 26. Based on above, the Commission observes that 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was an opportunity to look into somewhat similar issues, the Commission observed as under: ..Though the Commission does not find merit in the intellectual property argument put forth by the learned counsel for the OP to be a valid justification for imposition of such restriction, yet its notes that OPPO smartphones are freely available in the market at competitive prices and are also easily available for purchase online on all major websites like flipkart, snapdeal, paytmmall etc. at discounted rates. Also, as noted above, by such restriction, no inter-brand or intra-brand competition has been restricted .in such view, Clause 8 of the Sub-Super Distributorship Agreement also cannot be held to be in contravention of Section 3(4) of the Act. iv) In view of the foregoing, the 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 dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such restriction against sales outside the Sales Region, the Informant has been given the exclusive right to sell within the Sales Region, it is evident that no AAEC in India because of such restriction is or is likely to be caused. Therefore, the clauses of the Sub-Super Distributorship Agreement restricting sales of the Informant outside South and Central Maharashtra cannot be held to be in contravention of Section 3 (4) of the Act. iv) The Commission notes that Informants have not refuted the submission of the OPs that no restrictions have been placed on Informants in dealing in other brands either within or outside the allocated territory as has also been held in the above referred decision of the Commission. In the light of these facts, the Commission observes that in the instant matter the MIP does 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire matter. Consequently, the allegation of the Informant, as regards contravention of various provisions of Section 3(4) of the Act by the OPs is not made out. 30. The Commission notes that in addition to the aforesaid allegations, the Informants have also alleged that from admission of the OP-1 in its response dated 19.11.2018, it appears that the OPs are facilitating a cartel at the retailer level under the aegis of the All India Mobile Retailers Association, in violation of Section 3(3) of the Act. However, the Commission observes that the Informants have merely raised a general allegation during the proceedings without substantiating the same with any evidence whatsoever and the same has been controverted by the OPs stating that no retailers or AIMRA has been impleaded in the matter by the Informant. The Commission accepts the contention of the OPs in this regard and also observes that in the absence of any tangible evidence that the OPs through their acts and conducts are facilitating a cartel amongst the retailers, no case has been made out for contraventions of the provisions of Section 3(3) of the Act against the OPs. 31. Accordingly, the matter is ordered to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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