Friday, January 20, 2017

Competition Appellate Tribunal Ruling in the Auto Parts Case

[The following guest post is contributed by Harsh Loonker, who is a final year student at the Jindal Global Law School]

The Competition Appellate Tribunal (“Compat”), by way of its order dated December 9, 2016, upheld the order by the Competition Commission of India (“CCI” or the “Commission”) dated August 25, 2014, with minor modifications to the order and a substantial reduction in the penalties levied. Acknowledging that the competition law regime in India and the automotive industry are going through a transitionary process, the Compat reduced the penalty imposed on the appellants, who are car manufacturers.

The CCI had penalised a total of 14 car manufacturers with presence in India, with a blanket 2% penalty on total turnover of their business. This 2% penalty would include their individual turnover from their car sales as well as their spare parts and after-market sales. This was so because the car manufacturers or the original equipment manufacturers (“OEMs”) were considered to be causing anti-competitive effects in the spare parts and after sales and service markets through restrictive agreements. The Informant had filled the information against Honda Siel Cars Ltd., Volkswagen India Pvt. Ltd. and Fiat India Automobiles Pvt. Ltd, none of which were party to this appeal. The Commission, in order to expand its investigation, conducted an inquiry on other OEMs in India and included them in the final order by the Commission. Three aggrieved OEMs, namely Toyota Kirloskar Motor Pvt. Ltd., Ford India Pvt. Ltd. and Nissan Motor India Pvt. Ltd. (“Appellants”), had availed an appeal through statutory appellate process provided in the Competition Act, 2002 (“Act”), while other OEMs had approached various high courts under writ jurisdiction.

The Appellants had preferred the appeal on all findings of the Commission, including in relation to the incorrect expansion of scope of investigation, incorrect determination of abuse of dominance through vertical agreements by and between the individual OEMs and their respective overseas supplier, OEMs and Authorized dealers. The Compat in its order agreed with the Commission and held that the Commission did not exceed its authority in expanding the scope of investigation. The Compat, after a lengthy analysis of the contentions of each side, went on to agree with all the findings of the Commission. In its order, the Compat reflected on the jurisprudence of intellectual property rights (IPR) vis-à-vis competition law and focused on two aspects of the Director General’s investigation on the treatment of agreements under the guise of protecting IPR. The Compat sought to examine if the agreements were in fact protecting company IPR and if these rights as they stood were in fact protected by Indian law.

While assessing the impugned penalty imposed, the Compat decided to adopt a lenient view. The definition of ‘turnover’ was discussed and through references to case law was found to be the turnover of the products subject to inquiry, and not the turnover of the entire multi-product enterprise.  And following the yardstick of relevant turnover, the Compat ordered a revised 2% of average annual turnover for the 3 years immediately preceding the inquiry penalty on the spare parts markets of the OEMs. The Compat directed the Commission to obtain relevant statistics and verify the amount of penalty. This case would therefore provide clarity on matter where the CCI has over-extended its reach while ordering penalty.

Borrowing jurisprudence and practice from mature regulatory jurisdictions, and setting precedent on the scrutiny of vertical agreements/arrangements, this order by the Compat has cleared much of the uncertainty in dealing with vertical arrangements.

- Harsh Loonker

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