Abuse of Dominant Position in Aftermarkets and Other Support and Maintenance Markets in India

Introduction

The term ‘aftermarket’ is generally used in the automobile industry and it is generally a secondary-market dealing in spare parts, accessories, and other components for motor vehicles. It is also concerned with the service, maintenance, and customization of vehicles in the automobile sector. The other support and maintenance markets involve kinds of services similar to the automobile aftermarkets but in different sectors with regards to different kinds of machines.

An enterprise that exercises control over an important input available in the secondary market associated with a particular product in the primary market will have an advantage over competitors in the market as the consumers may be dependent upon the enterprise for such input which might be any good or service. This control might increase so much that it monopolizes the market and an even greater degree of such control might result in the exploitation of the consumers. Thus, any such excessive control which restricts the competitors or consumers and monopolizes the market must be prohibited at the very outset.

Indian Position

The Competition Law in India deals with the aspects related to monopolization, abuse of dominance, and anti-competitive behavior.

The substantive provisions related to abuse of dominant position has been encapsulated in Section 4 of the Competition Act. It can be determined in three steps that whether an enterprise is abusing its dominant position or not. The first step involves the determination of the market. The second step involves ascertaining whether the business enterprise which is concerned is having a dominant influence which is of an alarming degree of power over the market which might turn into a monopoly. The third stage is verifying whether the misconduct of the relevant business enterprise is compliant in accordance with the provisions of the Competition Act or not. In crux, The provisions of the statute prohibit such conducts that aim at monopolizing the market.

Explanation (a) for section 4 of the Competition Act defines dominant position to mean “a position of strength enjoyed by an enterprise in a relevant market, which enables it to operate independently of competitive forces prevailing in the relevant market or affect its competitors or consumers or the relevant market in its favor.”

Section 19 of the Competition Act prescribes the various factors which must be determined in order to ascertain whether an enterprise is in a dominant position or not. Some of these factors include the share and size of the enterprise; size and importance of the competitors in the market; economic power of the enterprise; dependence of consumers on the enterprise; market structure and size of the market; social obligations; etc.

In Magnus Graphics v. Nilpeter India Pvt. Ltd., Magnus Graphics (Informant) was a proprietorship firm engaged in the business of label printing at Muzaffarnagar, Uttar Pradesh, and Nilpeter India Pvt. Ltd. (Respondent No. 1) was engaged in the business of manufacturing, distribution, marketing, installation, and after-sales services including training of operators of the Nilpeter brand of label printing machines in India. The informant purchased a Nilpeter brand of label printing machine FB-3300 Servo Flexo Printing Machine (machine) from the opposite party no. 1 for Rs. 2, 41, 11, 148/-

The Respondent no. 1 started denying support to the Informant in terms of service, spares and equipment sales in respect of Nilpeter Printing Machine, etc. after the expiry of the warranty period, and the informant applied before the competition commission to restrain the Respondents from abusing their dominant position in the market.

To examine the alleged abusive conduct of Respondents No. 1, the Director-General was appointed to investigate into the matter and as per his report, the market of “the servicing of Nilpeter FB 3300 Servo Flexo Printing Machine in the territory of India” was identified as the relevant market in the present case.

The issue which was discussed in this case was whether there were substitutable support and service providers present in the market at that time that could provide adequate service and maintenance to the informant when Respondent no. 1 discontinued and withdrew to provide such service and support.

The replies of the competitors similar to that of Respondent no. 1 were asked for by the commission and upon thorough examination, it came to a conclusion that such machines can be serviced by freelance engineers/ ISPs providing similar services and service parts were also available in the local market and the informant could have approached them when such service was denied by the Respondent no. 1. Therefore, it was held by the commission that there was no dominant position being held by Respondent no. 1 and the question of dominance does not arise.

In Shamsher Kataria v. Honda Siel Cars India Ltd., an order was passed by the Competition Commission of India restricting 14 car manufacturers and imposing fine upon them with regards to the issues arising in the aftermarkets. The original equipment manufacturers (OEM’s) have restricted the Original equipment suppliers (OES) by way of vertical agreements to sell the spare parts and other equipment in the open markets. Also, the OEM’s were not providing any technological information, diagnostic tools, and software programs to the independent repairers in the local market which were necessarily required for the maintenance and service of the automobiles. Thus, by way of these practices, they were charging high prices for such maintenance and service, and such practices were held by the CCI to be amounting to a denial of market access to the independent repair workshops in the market.

The CCI held that the arbitrary pricing and conduct of the enterprises are exploitative in nature and the consumers are largely getting affected by such conduct which amounts to abuse of their dominant position. The consumers were totally dependent on the OEM’s for servicing, repairs, or maintenance of their automobiles and did not have any substitutable remedy to resort to.

Position Abroad

In the IBM mainframe maintenance case of the European Union, the Competition Commission after conducting an initial investigation of the aftermarket of the IBM mainframe computers came to the conclusion that IBM holds a dominant position in the market which includes certain inputs required to provide maintenance services for IBM mainframe hardware. Also, it has abused such a position by imposing unreasonable supply conditions to its competitors in the market and thus trying to monopolize the market.

In the United States, the Kodak case which came in the year 1992 was a landmark decision in relation to the aftermarkets whereby the Kodak Company restricted its 17 agents who were providing maintenance and support services and urged the consumers to directly receive services from the Kodak Company and other authorized agents. It unilaterally stopped supplying the spare parts to the agents which it earlier used to provide. It was held by the Court that even when there was competition in the primary market, abuse or exploitation could occur in the secondary market after observing that the market for providing support and aftermarket services was different from the primary market in which Kodak sold its products.

In China, pursuant to the merger between the Epson Printers, the project distributors, and the repair service providers, concerns were raised by the consumers that the aftermarket for secondary services have very low substitutability as the competition in the aftermarket was killed after this merger and all the support services were being provided under the head of a single company. It was held that there was no restriction to market access being imposed on other repair service providers and the spare parts were available in the market even after the merger.

Conclusion

Thus, the position related to abuse of dominant position in the aftermarkets is well settled in various countries and there is a clear distinction between the primary and the secondary market which has been observed in various cases. In India, although there are very few cases in this regard, still the position has been settled by some of the cases and adequate remedy has been provided by the Competition Commission. Also, a fine has been imposed on the defaulting parties. Conclusively, the major element which is necessary to be determined in ascertaining the dominance is the substitutability of products in the market and the dependence of the consumers on the enterprise.

Author: Pratyush Rao, a 5th-year student at ILNU, Nirma University, an intern at Khurana & Khurana, Advocates and IP Attorneys and can be reached at [email protected].