CCI introduces Leniency “Plus” regime in India- Will it suffice?
CCI dismisses allegations against vertical restraints imposed by VIVO on dealers- finds no evidence to hold AAEC
The Competition Commission of India (“CCI/Commission”) by way of order dated 19.06.2019 has exonerated Haicheng Vivo Mobile, Vivo Mobile India Pvt. Ltd and Vivo Communication Technology Co. Ltd (hereinafter collectively referred to as ‘Vivo’) of allegations of vertical restraints imposed on its distributors that is (i) restricting online sales by distributors (ii) imposing a scheme of penalizing distributors in the event of market infiltration (iii) Mandating Minimum Operation Price and did not find them to be anti-competitive by a rule of reason analysis .
Background
The information was filed against Vivo by M/s Karni Communication and M/s Karni Telnet Pvt Ltd (hereinafter referred to as informant No.1 and informant No. 2 & collectively referred to as ‘informants’), who had entered into distributor agreements with Vivo. The informant No. 1 had entered into a ‘Distributor Agreement’ with Vivo 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 the distribution of mobile handsets under the brand name Vivo. Similarly, the informant No.2 had entered into a distributor agreement with Vivo in April 2017 wherein it was appointed as the distributor for the region of South Delhi Part IV.
It was alleged that since early 2017, the representatives of Haicheng Vivo Mobile had been approaching the informants stating that the retailers of the informants have not been adhering to the Distributor Agreements and therefore levied heavy penalties on the distributors.
In summary, the allegations pertained to (i) Vivo levying heavy penalties on the informants in case sales were made via online marketplace (ii) Vivo penalizing the distributors in case sales were made outside the ‘Authorized Distributor Zone’ I.e. indulging in the practice of Market Infiltration Policy (“MOP”) and (iii) Vivo mandating a Minimum Operation Price (“MOP”) which explicitly results in Minimum Resale Price Maintenance (RPM).
Before arriving at a prima facie view, the CCI accorded a preliminary hearing to both the parties and during the hearing the informant also indicated the possibility of the OP facilitating/ coordinating with other mobile manufacturers/retailers under the aegis of the All India Mobile Retailers Association (“AIMRA”).
CCI Prima Facie Analysis
The Commission, at once, acknowledged that there exists an agreement between Haicheng Vivo Mobile and the Informants. However, it was of the view that in order to assess whether such agreement/any clause of such agreement causes an Appreciable Adverse Effect on Competition (“AAEC”), the relative market power of Vivo is to be looked into, since it is in the form of a vertical agreement.
Market Share Analysis
CCI, on looking at the market share of Vivo in Q2, Q3 and Q4 of 2018, as provided by Haicheng Vivo Mobile as 12.6%, 10.5% and 9.7% respectively, held that Vivo does not appear to command a position which can have enough influencing power to adversely affect competition in India. During the preliminary hearing, a contention was also raised by the informants that considering only on the market shares of Vivo would be an inaccurate representation of the market, and the market shares of other brands forming a part of the entire BBK group which comprises of Vivo, Oppo, OnePlus and Realme should be considered for the AAEC analysis. Refuting this contention, Haicheng Vivo Mobile provided that its shares are held by only two individuals in their private capacity having a shareholding of 99.9% and 0.01%. CCI observed that there was no evidence of any controlling influence of BBK Enterprise on the economic activities of Vivo and neither does BBK have any director(s) on the Board of Directors of either Haicheng Vivo Mobile, Vivo Mobile India Pvt. Ltd or Vivo Communication Technology Co. Ltd. Moreover, CCI also observed that the brands Vivo and Oppo have independent marketing teams and are competitors in the market for sale and distribution of smartphones in India. Accordingly, the Commission held that contention of taking combined market share of Vivo, Oppo, OnePlus and Realme was not tenable.
Restriction on online sales
The informants had alleged that Vivo, by restricting the distributors from selling Vivo branded mobile handsets and accessories to consumers via online retail portals, have curtailed their freedom of trade. In addition, such practice also allegedly restricted the distributors from maximizing their sales and limited their ability to compete with other distributors of Vivo products who operate in the market.
The Commission observed that the Vivo products are readily available online on various e-commerce portals like flipkart, Snapdeal, amazon etc. In addition, Vivo itself has a dedicated e-shopping portal (http://shop.vivo.com/in) where their products can be purchased by any consumer. The Commission noted that there existed a primary distributor agreement between Vivo Mobile India Pvt. Ltd and Haicheng Vivo Mobile which was in respect of offline sales and not in respect of online sales. Therefore, CCI noted that since Haicheng Vivo itself has no rights for online sales, the question of restricting online sales with sub distributors such as the informants, under a secondary distributor agreement, cannot arise. Accordingly, CCI held that the restriction on online sales on the distributors/retailers by Haicheng Vivo Mobile did not directly withhold the supply of Vivo products in the market and the consumers have the option to buy such products through online retail platforms as well and such clause in the secondary distributorship agreement is not likely to cause AAEC in the market for sale and distributorship of smartphones in India.
CCI also noted that there are no exit barriers for the informants and if they are not agreeable with this policy, they are free to exits from the agreement and opt out of this distributorship.
Market Infiltration Policy
The Informants had alleged that Vivo was enforcing their policy of allocating territories for their dealers to distribute the Vivo product and accessories and in the event the distributors were found to violate this territorial allocation, they were subjected to penalties.
CCI noted that it was evident from the distributor agreement that Haicheng Vivo Mobile had enforced MIP on its distributors. However, Vivo justified MIP on the basis that the system of tracking IMEI numbers helps in prevention of duplication of the smart phones and in checking counterfeits, since it is possible that IMEI numbers can be removed or altered by a technical person using special equipment or with help of software.
CCI took reference from an earlier decision in M/s K C Marketing v Oppo Mobiles MU Pvt. Ltd.[1], in which it had exonerated Oppo for a similar conduct observing that such restriction to sell outside its demarcated regions had not put a bar on the customers on one sales region to purchase from a dealer in another sales region or a bar on the distributor to deal in the products of other brands in or outside the sales region.
Accordingly, the Commission observed that in the present case too, there was no bar on the informants in dealing in other brands either within or outside the allocated territory, and therefore, 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.
Minimum Operation Price
As regards the allegations that Vivo was mandating an MOP on distributors, CCI observed that there were sufficient number of distributors/retailers from whom the consumers can purchase Vivo smart phones. In addition, the consumer also have an option of purchasing the smartphones online through various e-commerce platforms at competitive prices. The Commission observed that though the distributor agreement mandates MOP, its adverse effect on competition was not established by the informants. CCI held that there is no AAEC in the market for sale and distribution of smartphones in India since there exist intense inter-brand competition in the said market. The Commission noted that the market for smart phones is highly competitive with presence of many players and there is enough competition in the market to discipline an enterprise from imposing restrictive conditions on a downstream player.
Further, CCI also noted that the informants/distributors had complete flexibility to move away from the Vivo brand in case they did not wish to abide by the policies and they had plethora of options to select any other mobile brand for their business since there existed no exit barriers to say that the distributors were forced to maintain business relationship and continue with the existing arrangement. The Commission also held that there is no consumer harm evident because of such restrictions.
Cartel allegation
Regarding the indication of a cartel under the umbrella of AIMRA, CCI observed that it was a mere allegation which was not substantiated with any evidence whatsoever which was also supported by the fact that no retailers or AIMRA was impleaded in the matter by the informant.
[1] Case No 34 of 2018, order dated 08.11.2018
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