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TMI Blog2015 (4) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... ger motor vehicles in India. It has been averred that the Opposite Parties also operate/authorize/regulate or otherwise control the operations of various authorized workshops and service stations which are in the business of selling automobile spare parts, besides, rendering aftersale automobile maintenance services. 1.1 The Informant has also alleged, that even the technological information, diagnostic tools and software programs required to maintain, service and repair the technologically advanced automobiles manufactured by each of the aforesaid OPs were not freely available to the independent repair workshops. The repair, maintenance and servicing of such automobiles could only be carried out at the workshops or service stations of the authorized dealers of OP. 1.2 The Informant has further alleged that the restriction on the availability of genuine spare parts and the technical information/know-how required to effectively repair, maintain or service the automobiles manufactured by the respective OPs is not a localized phenomenon. The OPs and their respective dealers, as a matter of policy, refuse to supply genuine spare parts and technological equipment for providing mainten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase in the maintenance cost to car owners. 1.5 It has been stated in the information that the components and parts used in the manufacture of their respective brand of automobiles are often sourced from independent original equipment suppliers (hereinafter, referred to as "OESs") and other suppliers who are restrained by the OPs from selling the parts/components in the open market. Such restriction on the ability of the OESs to sell the spare parts/components further limits the access of such spare parts/components in the open market, thereby, allowing the OPs to create a monopoly-like situation wherein they become the sole supplier of the spare parts/components of their respective brand of automobiles. Such restrictions allow the OPs to influence and determine the price of the spare parts/components used to repair and maintain the respective brands of automobiles. 1.6 The Informant has alleged that the restrictive and monopolistic trade practices, as detailed above, of the OPs and their authorized dealers have a negative effect not only on the consumer but also on the whole Indian economy since such practices increase the cost of the consumer to maintain an automobile. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission issued the new regulation No. 461/2010 in the year 2010, which included specific guidelines apart from the earlier block exemption rules. 1.10 The informant has stated that there are regulations in place in United States to ensure that emissions related diagnostic tools and information is available to independent vehicle repair shops. Several states of the U.S. have introduced the 'Right to Repair Act' to curb restrictive practices by automobile manufacturers. The Informant has further stated that all over the world consumers and governments are seeking to implement a free and fair competition regime in the automotive sector, with varying degree of success. 1.11 The informant has alleged that the acts of the OPs in restricting the sale and supply of spare parts and technical information, diagnostic equipments and tools to independent automobile service providers indirectly determine the purchase or sale prices of both the price of automobile spare parts as well as the price of repair and maintenance services. The informant has alleged that the anti-competitive acts of the OPs are arbitrary, illegal and devastating to free and fair competition. The Informant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturer indulging in similar activities as detailed herein to allow authorized dealers the right to undertake franchises/dealerships from different vehicle manufacturers without fear of malevolent action from the respondents or other defaulting vehicle manufacturers; (e) pass appropriate orders ensuring that access to the spare parts, tools, technical information, technical training and equipment for repair, maintenance and service of the vehicles and manufacturers by OESs is provided to the independent service providers, consumers and in the open market upon request and without undue delay and the price charged from such parts, tools, equipment should not be fixed by the vehicle manufacturers but be determined by independent market forces free and fair competition; (e) award reasonable amount for costs incurred towards legal fees; (g) pass such further order as this Hon'ble Commission may deem fit and proper in the facts and circumstances of the case. 2. Prima Facie Opinion The Commission after forming an opinion that a prima facie case exists in the matter, vide an order dated February 24, 2011, passed under section 26(1) of the Act directed the Director General (h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafter, referred to as "MSIL") (9) Mercedes-Benz India Pvt. Ltd. (hereinafter, referred to as "Mercedes") (10) Nissan Motor India Pvt Ltd. (hereinafter, referred to as "Nissan") (11) Premier Ltd. (hereinafter, referred to as "Premier") (12) Skoda Auto India Pvt. Ltd., (hereinafter, referred to as "Skoda") (13) Tata Motors Ltd., (hereinafter, referred to as "Tata") (14) Toyota Kirloskar Motor Pvt. Ltd. (hereinafter, referred to as "Toyota") 3.4 During the course of the investigation, the DG issued detailed questionnaires to seek information from each of the OEMs listed above, including their group companies, engaged in the automobile aftermarket in India. The DG also recorded statements on oath of representatives of the OEMS, the OESs and other multi-brand retailers. Besides, information was also collected from various third party stakeholders, such as: (a) OES (original equipment suppliers) (b) Authorized dealers appointed by each of the OEMs (c) Multi-brand service providers (d) Independent repairers (e) Discontinued dealers of the OEMs 3.5 Additionally, the DG obtained information from the following entities, namely: (a) trade associations related to the Indian auto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of the aftermarket for passenger vehicle sector in India. They are: (a) Supply of spare parts, including the diagnostic tools, technical manuals, catalogues etc. for the aftermarket usage; and (b) Provision of after sale services, including servicing of vehicles, maintenance and repair services. 3.9.3 The DG further analysed whether the aftermarket segments described above constitute distinct relevant product markets or the products in the primary market (i.e. the cars) and the products in the aftermarket (i.e., repair services and spare parts) were part of one indivisible 'system' of products consisting of a durable primary product and a complimentary secondary product. 3.9.4 While determining the relevant product markets, the DG took into account the technical difference between the various primary market products which leaves the customers with limited choice in complimentary products or services compatible with the primary product. This in the opinion of the DG implies that once the primary product has been purchased, consumer choice is confined to those aftermarket products or services compatible with that primary product. Hence, consumers are to a greater or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tching costs and the fact that post registration the residual value of a new car is lower than the price of a pre-registration new car, the owner of a car may only shift to another product in the primary market after incurring substantial financial loss. Thus, in the opinion of the DG, a purchaser of a product in the primary market is to a great extent locked-in with the primary product and the feasibility of switching to another primary product to avoid a price increase in the secondary market of spare parts or repair services is limited. 3.9.8 Based on the abovementioned analysis, the DG concluded that the spare parts market for each brand of cars (each OEMs), comprising of vehicle body parts (manufactured by each OEMs, spare parts sourced from the local OESs or overseas suppliers), specialized tools, diagnostic tools, technical manuals for the aftermarket service formed a distinct relevant product market as defined under section 2(t) of the Act. Secondary Market for Repair and Maintenance Services 3.9.9 In order to determine whether the maintenance and repair services of the products in the primary market constitutes a separate relevant market, the DG analyzed following facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parts are available for a particular brand of vehicle from the authorized dealers of the OEMs in any part of India. Further, a perusal of the dealer agreements between the OEMs and the authorized dealers suggest that such dealers are required to provide service requirements to an OEMs customer irrespective of the State in which the vehicle is registered. Based on such findings, the DG has concluded that the relevant geographical market would be India. DG's findings regarding dominance of the OEMs in the market for the supply of spare parts 3.9.12 The DG during its investigation carried out an assessment for each of the OEM in terms of the factors contained in section 19(4) to determine whether such OEMs can be stated to be dominant in the market for supply of spare parts for their brands of cars. This analysis is available in the sub-reports prepared by the DG in respect of each of the OEMs. The DG report, after analyzing the practices of each OEM, based upon the factors stipulated in section 19(4) of the Act, have concluded that, each OEM is a monopolistic enterprise/dominant player in the relevant market of supply of spare parts (including those manufactured in-house, sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able through other sources, however, in the absence of the required software to detect the fault codes (which are required by a repairer to effectively detect a particular fault in the highly sophisticated automobiles manufactured by the OEMs), the utility of such equipment would be limited. Therefore, given the circumstances, the DG finds each OEM to be the only viable source of supply of these specialized tools, technical manuals, fault codes, etc., for their particular brand of automobiles. 3.9.15 Therefore, the DG has concluded that each OEM is in a dominant position in the supply of its spare parts for its own brand of cars. DG's findings regarding Abuse of Dominance 3.9.16 The DG has analyzed the practices and conduct of each OEM in terms of provisions of section 4 of the Act. The DG notes that the dominance of the OEMs emerge to a large extent on account of purported holding of relevant intellectual property rights over the spare parts being manufactured by the OESs or the OEMs themselves. Moreover, the DG after an exhaustive analysis of several international precedents have concluded that though the mere possession of a protective right does not amount to abuse of do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s authorized dealers which adversely affects the ability of the former to compete effectively Therefore, the DG found that the conduct of such OEMs also results in denial of market access to independent repairers in terms of section 4(2)(c) of the Act. As such conduct also shuts out the choice of the car owners to choose their repair and maintenance service providers, it amounts to imposition of unfair conditions on the users of the automobiles in terms of section 4(2)(a)(i) of the Act. 3.9.19 Further, based upon its investigation and analysis of international case law and practices, the DG concluded that spare parts, diagnostic tools, manuals etc. of each OEM would constitute essential facilities for the independent repairers to be able to provide consumers with effective after sale repair and maintenance work and for such independent repairers to effectively compete with the authorized dealers of the OEMs. The DG has pointed out that the essential factors to be taken into account in determining whether spare parts, diagnostic tools, manuals etc. of each OEM would constitute essential facilities for the independent repairers, are: (a) control of the essential facility by the mono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecification, technology, know-how, equipment, quality parameters etc. are provided to the OESs by OEMs, the OESs are required to make the parts and supply according to these parameters. (b) Where the patents, know-how, technology belong to the OESs however, the parts are manufactured based on the specification, drawings, designs supplied by the OEMs. The tooling/tooling cost may also be borne by the OEMs in some of these cases. (c) Where the parts developed and sold by the OESs are made to their own specifications or designs which are commonly used in the automobile industry. Such parts are very few, for example, batteries, tyres etc. 3.9.23 The DG has reported that most of the OESs cannot supply spare parts which fall within category (a) and (b) mentioned above without seeking prior consent of the OEMs. 3.9.24 The DG after an examination of the agreements/letters of intent entered into between the OEMs and the OESs has found that most of such agreements/letters of intent have clauses which restrict the ability of the OESs to supply spare parts directly to third parties or in the aftermarket without the prior written consent of the OEMs. The DG's investigation has further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions, as may be necessary to protect such intellectual property rights. 3.9.28 The DG while reviewing the documents evidencing the grant of the intellectual property right upon an OEM found that there were several issues relating to the fact whether the OEMs actually are in the possession of a particular intellectual property right. In some of the instances the OEMs could not provide sufficient documentary evidence linking the design of a particular spare part with the claimed intellectual right protection over such design. Some of the intellectual property rights claimed by the OEMs are actually held by their overseas parent corporation and such proprietary technology has been transferred to the OEMs through technology transfer agreements ("TTA"). However, such TTAs do not contain any specific details of the intellectual property rights that are being transferred to the OEMs. Thus, given the lack of adequate information, the DG could not verify the claim of such OEMs that they were in possession of a legally valid intellectual property right. The DG also noted that the intellectual property rights claimed by the OEMs were territorial in nature and the particular right is vested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that trade secrets are not provided in section 3(5)(i) as one of the various forms of intellectual property rights whose holder can avail of an exemption from the provisions of section 3 of the Act. 3.9.31 The DG observed that even in cases which are covered in terms of section 3(5)(i) of the Act, only reasonable conditions, as may be necessary for protecting of rights under various legislations referred therein, can be imposed. Notwithstanding the fact that OEMs have not established that they possess valid intellectual property rights in India for being considered for the exemption under section 3(5)(i) of the Act, during the course of investigation it was examined whether based on available facts and circumstances, restrictions imposed by the OEMs could be termed as "reasonable". The DG after examining the agreements between the OEMs and the OESs have found that in most instances the OESs are restricted from selling spare parts to third parties without "prior consent". The DG has also revealed that not a single instance of such permission by any OEM has been confirmed. The DG has further stated that the reason for the OESs not approaching the OEMs could be either that OE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements entered by OEMs with their dealers are in nature of exclusive distribution agreement in terms of Section 3(4)(c)of the Act. Assessment of AAEC 3.9.33 The DG has analyzed each set of vertical agreement/arrangement that the OEMs have with: (a) local OESs who manufacture spare parts for the OEMs for their assembly lines or to be sold in the aftermarket through authorized dealers, (b) over seas dealers who supply OEMs with spare parts and (c) dealers through whom the OEMs sell their cars and spare parts and provide their consumers with after sales service with respect to the factors listed under section 19(3) of the Act, which includes, inter alia, creation of barriers to entry, driving existing competitors out of the market, foreclosure of competition, accrual of benefit to consumers, improvement in production or distribution of goods or provision of services, promotion of technical, scientific and economic development. 3.9.34 The DG has analyzed the appreciable adverse effect on competition ("AAEC") on each of the secondary markets of spare parts and repair and maintenance services. The analysis of the DG with respect to the AAEC on each of the secondary markets (market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorized dealers are typically located. In the post warranty period the independent repairers continue to be foreclosed from the service and maintenance aftermarket since the OEMs ensure that the genuine spare parts and other diagnostic tools necessary for carrying out repair work are available only to authorized dealers. Thus, even in the post warranty period consumer choice remains limited and independent repairers remain excluded from the automobile aftermarket. There are some limited exceptions where independent repairers can purchase spare parts from the authorized dealers. However, even in such cases the independent repairers lack the adequate training and do not have access to diagnostic tools, technical manuals and necessary software required to carry out repair work on sophisticated automobiles. (c) AAEC of restrictions of dealers in dealing in other brands of cars The DG's review of the agreements/arrangements between the OEMs and their dealers revealed that the requirement of seeking permission from the OEMs before a dealer can deal in the cars of other OEMs create a major entry barrier for the dealers to enter into business of other brands of cars. DG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y exist an arrangement between Honda and such overseas supplier for not supplying spare parts directly into the Indian aftermarket. Further, local OES's are restricted from accessing the aftermarket in the name of protecting the OEM's IPRs. 4.3 Based upon the submissions of multi-brand retailers and independent repairers, the DG has concluded that although the agreement between Honda and its authorized dealers does not contain any clause dealing with the right of the authorized dealers to sell spare parts over the counter, but in practice such sales are not permitted. Diagnostic tools are available only to authorized dealers of the OEM. 4.4 Warranty conditions are invalidated if a Honda branded car is repaired by independent repairers. 4.5 Ability of dealers to deal in competing brands is restricted. Honda's dealers are not permitted to deal with competing brands in any manner without seeking the prior permission of the OEM. 4.6 Price markup for top 50 spare parts in terms of revenue generated is: 12.10% - 984.73% and price markup of top 50 spare parts on the basis of consumption is: 77.20% - 939.13%. 4.7 OP has failed to establish that Honda and HIL possess valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n network of TML's approximately 171 dealerships and 198 authorized service stations at 130 cities across India for the sale of Fiat branded cars and providing after sale service. The DG has received information that the arrangement between TML and Fiat India stands discontinued and Fiat India is in the process of setting up its own distribution network. 5.2 The specific findings of the DG against the alleged anti-competitive practices of Fiat are summarized below: 5.2.1 Fiat imports spare parts from FGA Spa (a group company). DG did not find any restrictive clauses in Fiat's overseas supplier agreements. DG concluded that on account of the link between Fiat and SPAL there is a presumption of existence of an arrangement for not selling spare parts directly in Indian aftermarket. 5.2.2 OES's are restricted from accessing the aftermarket for protecting the OEM's IPRs. 5.2.3 The authorized dealer agreement of Fiat expressly restricts over the counter sale of spare parts of Fiat branded cars in the aftermarket. 5.2.4 Diagnostic tools are only available to authorized dealers of the OEM. 5.2.5 Warranty conditions are invalidated if a Fiat branded car is repaired by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any restrictive clauses in Ford overseas supplier agreements. DG concluded that since the overseas supplier are associates of Ford and infact only supplies spare parts to Ford in India, there may exists an arrangement between Ford and such overseas supplier for not supplying spare parts in Indian aftermarket. 6.2.2 OES's are restricted from accessing the aftermarket for protecting the OEM's IPRs. 6.2.3 Based upon the submissions of multi-brand retailers and independent repairers, the DG has concluded that although the agreement between Ford and its authorized dealers does not contain any clause dealing with the right of the authorized dealers to sell spare parts over the counter, but in practice such sales are not permitted. 6.2.4 Diagnostic tools are only available to authorized dealers of the OEM. 6.2.5 Warranty conditions are invalidated if a Ford branded car is repaired by independent repairers. 6.2.6 Ability of dealers to deal in competing brands is restricted; however, Ford has submitted that 61 dealers have undertaken dealerships of competing brands. 6.2.7 Price markup for top 50 spare parts by revenue generated is: 38.37% -1171.09% (Q1, 2010-11); 35.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts. BMW has a dealer network for its after sale operations in 22 cities in India. These 22 BMW accredited service centers have been equipped and trained to handle the BMW products and to service such products. 7.2 The specific findings of the DG against the alleged anti-competitive practices of BMW are summarized below: 7.2.1 BMW imports spare parts from BMW AG which is its group company. The DG has not found any clause in such importer agreements dealing with the right of BMW's overseas suppliers, BMW AG, to sell spare parts in the open market in India. In practice BMW AG does not supply BMW spare parts in the Indian aftermarket. The DG contends that due to link between BMW AG and BMW, presumption of a possible arrangement can be drawn. 7.2.2 No clause in agreement with respect to OES's right to access the aftermarket. 7.2.3 Counter sale of spare parts are not permitted. 7.2.4 Warranty conditions honoured by BMW if defects do not arise directly from the defective performance of an independent repairer. 7.2.5 Ability of dealers to deal in competing brands is restricted. 7.2.6 Price markup for top 50 spare parts by revenue generated is 101.38% - 488.98%. Price markup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in the open market in India. In practice Mercedes's overseas suppliers do not supply Mercedes spare parts in the Indian aftermarket. The DG contends that due to link between Mercedes and Daimler Group there can be a presumption of an arrangement. 8.2.2 OES's are restricted from accessing the aftermarket for protecting the OEM's IPRs. 8.2.3 Over the counter sale of spare parts are permitted. 8.2.4 Diagnostic tools are only available to authorized dealers of the OEM. 8.2.5 Warranty conditions are invalidated if a Mercedes branded car is repaired by independent repairers. 8.2.6 Ability of dealers to deal in competing brands is restricted. 8.2.7 Price markup for top 50 spare parts by revenue generated is: 70.34 - 292.22% (Q1, 2010-11); 67.31- 306.80% (Q2, 2010-11); 76.63- 301.71%(Q3, 2010-11); 84.86-2150.69% (Q3, 2010-11). Price markup of top 50 spare parts on the basis of consumption is: 59.80- 284.88% (Q1, 2010-11); 11.25-1206.15% (Q2, 2010-11);76.63- 1207.20 %(Q3, 2010-11); 71.78 - 1245.87% (Q3, 2010-11) 8.2.8 Technology transfer agreements between Mercedes and Dailmer Group do not specify the technologies and IPRs covered under such agreements. It does not sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there are approximately 270 authorized dealers/workshops in 208 cities in India catering to various models of General Motor cars. 9.2 The specific findings of the DG against the alleged anti-competitive practices of GMI are summarized below: 9.2.1 GMI imports spare parts from GM Korea, which is a group company. The DG has not found any clause in such importer agreements dealing with the right of GMI's overseas suppliers, to sell spare parts in the open market in India. In practice GM Korea only supply GMI spare parts to CSIPL. The DG contends that due to link between GM Korea and GMI there can be presumption of an arrangement. 9.2.2 OES's are restricted from accessing the aftermarket for protecting the OEM's IPRs. 9.2.3 Over the counter sale of spare parts are permitted to only actual GMI customers. 9.2.4 Diagnostic tools are only available to authorized dealers of the OEM. 9.2.5 Warranty conditions are invalidated if a GMI branded car is repaired by independent repairers. 9.2.6 Ability of dealers to deal in competing brands is restricted, however, GMI has submitted that several dealers have undertaken dealerships of competing brands. 9.2.7 Price markup for top ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y engaged in the business of manufacture/sales of automobiles/ motor vehicles and automotive parts in India. It also oversees a network of authorized dealers and service providers that cater to the maintenance and servicing requirements of automobiles manufactured by MSIL. MSIL manufactures automobiles in India through its manufacturing plants in Manesar, Haryana with a combined manufacturing facility of over 1 million cars per annum. MSIL operates its servicing segment through a network of 1058 authorized dealers, 1838 Maruti Authorized Service Stations and 50 Maruti Service Zones, collectively called MSIL Authorized Service Stations. MSIL has submitted that it has service workshops in 1,433 cities across India. 10.2 The specific findings of the DG against the alleged anti-competitive practices of MSIL are summarized below: 10.2.1 MSIL does not enter into importer agreements with its overseas suppliers. MSIL's importer-purchase orders do not contain any clauses with respect to the rights of the overseas suppliers to supply spare parts in Indian aftermarket. DG has claimed that there may be an arrangement between MSIL and its overseas suppliers for not selling spare parts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re parts only from MSIL or its approved dealers. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act. 11. Findings of the DG with respect to Mahindra and Mahindra (P) Limited ("M&M") 11.1 M&M is a flagship company of the US$ 7.1 billion, Mahindra Group of companies which consists of 105 companies and has business interests across the world. In the automobile sector the M&M business comprises of manufacturing of the cars, passenger vehicles, utility vehicles, commercial vehicles, light commercial vehicles, three wheelers and two wheelers. M&M has been also dealing in farm equipment like tractor and Powergen (electricity generator). M&M has manufacturing facilities at Kandivali (Mumbai), Chakan, Nasik, Zaheerabad and Haridwar. M&M has a network of around 290 authorized dealers, 320 authorized dealer workshops and more than 72 authorized service stations in India to take care of the maintenance, service and repair requirements of M&M branded vehicles. 11.2 The specific findings of the DG against the alleged anti-competitive practices of M&M are summarized below: 11.2.1 M&M does not have an overseas supplier arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith respect to Nissan Motor India (P) Limited ("Nissan") 12.1 Nissan is a 100% subsidiary of Nissan Motor Ltd., Japan ("NML Japan") through Nissan International Holdings Netherlands and Nissan Asia Pacific Pvt. Ltd., Nissan was incorporated on February 7, 2005. Nissan is engaged in the design, manufacture, assembly and/or sale of certain motor vehicles and motor vehicle components. Further, it caters to the after sales service of the vehicles which are sold and manufactured by Nissan. It has been informed to the DG, that the company has recently commenced the export of vehicle components and trial parts to its group companies. Nissan has manufacturing facility at the SIPCOT Industrial Park at the Kancheepuram district of Tamil Nadu and is in the process of setting up an automobile manufacturing plant in Oragadam, Chennai. Nissan has a network of approximately 40 dealers throughout India in around 25 cities. The distribution network for spare parts of Nissan branded cars is stated to be managed through such authorized dealer network. 12.2 The specific findings of the DG against the alleged anti-competitive practices of Nissan are summarized below: 12.2.1 Nissan does not have an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of section 3(4)(b) of the Act. 13. Findings of the DG with respect to Skoda Auto India (P) Limited ("Skoda") 13.1 Skoda is a wholly owned subsidiary of Skoda Auto a.s. ("Skoda Auto"), with its headquarters at Czech Republic and was incorporated in India on 23rd December 1999. Both Skoda and Skoda Auto are part of the Volkswagen group of companies. Skoda manufacturers/assembles and sells automobiles under the brand name "Skoda", "Volkswagen" and "Audi". The company is also engaged in the business of after sales service for all such Skoda branded cars. The cars manufactured by Skoda under the brand name 'Skoda' are sold by the company to its authorized dealers and the cars manufactured under the brand name "Audi" and "Volkswagen" are sold to the Volkswagen Group Sales India Private Limited. Skoda has its manufacturing plant located at Shendra Industrial Area, Maharashtra and the company uses the Volkswagen India Pvt. Ltd., plant at Chakan, Maharashtra to manufacture some specific models of Skoda cars. Skoda currently has 81 dealerships across 56 cities in 18 states and 2 union territories of India for the retail sales, marketing and after sale services of Skoda branded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of section 4(2)(e) of the Act. 13.2.12 Skoda is in violation of provisions of sections 3(4)(c) and (d) of the Act with respect to its agreements with local OESs and agreements with authorized dealers for imposing absolute restrictive covenants and completely foreclosing the aftermarket for supply of spare parts and other diagnostic tools. 13.2.13 Agreements with the authorized dealers have restrictive clauses requiring dealers to source the spare parts only from Skoda or its approved dealers. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act. 14. Findings of the DG with respect to Tata Motors Limited ("Tata") 14.1 Tata was incorporated on 1st September, 1945 under the Indian Companies Act of 1913. Tata entered the passenger car segment in 1998 and since then it has introduced various models of passenger cars and utility vehicles in the Indian automobile market. Tata has informed that it is a majority stakeholder in the company's holdings in Jaguar Land Rover. Tata is in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not stand established that Tata possesses valid IPRs in India, with respect to all spare parts for which restrictions are being imposed upon OESs. 14.2.9 As per DG, denial to access diagnostic tools and spare parts amounts to denial of access to an "essential facility" and amounts to abuse of dominant position of Tata. 14.2.10 Since Tata restricts the availability of spare parts and diagnostic tools to its authorized dealers, it imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, Tata is in violation of section 4(2)(a)(ii) for imposing unfair prices. 14.2.11 Tata uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of section 4(2)(e) of the Act. 14.2.12 Tata is in violation of provisions of sections 3(4)(c) and (d) of the Act with respect to its agreements with local OESs and agreements with authorized dealers for imposing absolute restrictive covenants and completely foreclosing the aftermarket for supply of spare parts and other diagnostic tools. 14.2.13 Agreements with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2.4 Based upon the submissions of multi-brand retailers and independent repairers, the DG has concluded that although the agreement between Volkswagen and its authorized dealers does not contain any clause dealing with the right of the authorized dealers to sell spare parts over the counter, but in practice such sales are not permitted. 15.2.5 Diagnostic tools are only available to authorized dealers of the OEM. 15.2.6 Warranty conditions are invalidated if a Volkswagen branded car is repaired by independent repairers. 15.2.7 Ability of dealers to deal in competing brands is restricted, however, Volkswagen has submitted that certain dealers of Volkswagen are dealing in competing brands. 15.2.8 Price markup for top 50 spare parts by revenue generated is: 54.36% -995.55 (Q1, 2010-11); 61.41% - 995.55% (Q2, 2010-11);58.17%-995.55% (Q3, 2010-11); 58.17%-995.55% (Q3, 2010-11). Price markup of top 50 spare parts on the basis of consumption is: 62.27%-995.55% (Q1,2010-11); 62.27%-995.55% (Q2, 2010-11); 22.54%-995.55% (Q3; 2010-11); 62.27%-995.55% (Q4, 2010-11). 15.2.9 Neither VWIPL nor VGSIPL confirmed that they have any valid IPRs registered in India. The license agreement does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usively with sales of motor vehicles (1S model), second kind of dealership is the 2S model, where dealers cater to both sale of various models of Toyota cars as well as provide aftersale services of particular brands of Toyota cars and the third model of Toyota dealers is the 3S model, where the dealer conducts the sale of Toyota cars, provides aftersale services of TKM cars and sell spare parts of various models of Toyota branded cars. Toyota has 173 dealers in its various models of dealership networks. The 2S and 3S models are stated to be spread over in 102 cities/towns in India. Toyota has submitted that it has plans to reach a network of 330 authorized dealerships by 2015. 16.2 The specific findings of the DG against the alleged anti-competitive practices of Toyota are summarized below: 16.2.1 Toyota sources several parts from overseas suppliers which include the Toyota Motor Corporation in Japan ("TMC"), Toyota affiliates in other countries and other overseas companies approved by Toyota. No clause in such overseas supplier agreements could be discovered that restricted the rights of such suppliers from accessing the Indian aftermarket. Since Toyota's overseas suppliers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act. 17. Findings of the DG with respect to Hindustan Motors Limited ("HML") 17.1 HML was incorporated on 11th February, 1942 and was promoted by National Bearing Co. (Jaipur) Ltd., National Engineering Industries Ltd., SooryaVanijya and Investment Ltd., and Central India Industries Ltd. The company isengaged in the business of assembling and manufacturing of Ambassador and Mitsubishi brands of cars, and providing after sales services etc., for the various HML brands of cars. For the Mitsubishi brand of vehicles, the company has technical assistance arrangement with Mitsubishi Motors Corporation ("MMC"), Japan. The company imports technology from MMC after paying the requisite fees. Components for Mitsubishi branded vehicles are imported from MMC and Shandong Shifend, China. The company has three plants located at Uttarpara, West Bengal, Thiruvallur, Tamilnadu and Pithampur, Madhya Pradesh.HML has submitted that for Ambassador branded cars manufactured at HML's Uttarpara plant, it has 101 authorized vehicle dealers, 17 authorized service dealers and 28 authorized spare parts dealers. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of spare parts and diagnostic tools to its authorized dealers, it imposes unfair terms and denies market access to the independent repairers as per section 4(2)(a)(i) and 4(2)(c) of the Act, respectively. Further, HML is in violation of section 4(2)(a)(ii) for imposing unfair prices. 17.2.12 HML uses its dominance in one relevant market (i.e., supply of spare parts) to protect the other relevant market (i.e. market for repair services) which is violative of section 4(2)(e) of the Act. 17.2.13 HML is in violation of provisions of sections 3(4)(c) and (d) of the Act with respect to its agreements with local OESs and agreements with authorized dealers for imposing absolute restrictive covenants and completely foreclosing the aftermarket for supply of spare parts and other diagnostic tools. 17.2.14 Agreements with the authorized dealers have restrictive clauses requiring dealers to source the spare parts only from HML or its approved dealers. The DG has found these agreements in the nature of exclusive supply agreements in violation of section 3(4)(b) of the Act. 18. Replies of the Parties 18.1 The Commission, after considering the investigation report submitted by the DG, decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable products like cars, a 'systems market' for complementary products is appropriate since customers, typically engage in 'whole-life costing', i.e., compute lifecycle cost of a car at the time of purchasing the car and the customers anticipate the future costs of ownership of the primary product by taking into account probable expenditure on aftermarket products. Such life-cycle costs include the purchase price, relationship between vehicle age and depreciation rate, insurance cost, driving patterns including mileage etc. Where the customers undertake a life-cycle cost analysis, at the time of purchasing the primary product, the relevant markets of the primary and the secondary consists of a unified 'systems market' and cannot be divided in the manner undertaken by the DG. The OEMs have submitted that due to significant increase in publications (both print and online) dealing with automobiles, substantial information about aftermarket cost of vehicles is available with customers and these resources enable prospective car buyers to assess life-cycle costs of the various OEM branded cars and compare these costs with those of rival brands. 18.10 Further, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te is the systems market for sale of cars and spare parts in India. Thus, the OEMs position of strength must be assessed in the relevant market for sale of cars and its spare parts in India. 18.14 OEMs have submitted that in the unified relevant market of sale of cars and its spare parts, they are not in a dominant position and that such market is robust with several competitors. The OEMs have submitted that due to the limited market share of each such OEM and the combined relative size and resources of their competitors and the level of competition in the unified systems markets, each OEM is unable to operate independently of the competitive forces prevailing in the relevant market and consequently, cannot be dominant in the unified "systems market". The OEMs have further submitted that the lack of market power in the primary market for the manufacture and sale of cars gives them little market power in the inter related secondary market for spare parts and after sales repair services. 18.15 The OEMs have also reiterated that their relative position in the unified systems market, as identified above, in light of the factors (market share, market structure and market size, size an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessarily avail the services of authorized dealers which amounts to such OEMs using its dominant position in one relevant market i.e. in the supply of spare parts of to enter and protect the other relevant market i.e. the market for after sales service, repair and maintenance of cars which in violation of section 4(2)(e) of the Competition Act. The OEMs have contended that since they are not dominant in their individual unified systems market for sale of cars and spare parts, such OEMs, cannot be held to be liable for violating the provisions of section 4(2)(e) of the Act. (iii) Submission of OEMs on the applicability of the Essential Facilities Doctrine to their business practices 18.19 OEMs have submitted that, contrary to DG's findings the conditions necessary for invoking the 'essential facility doctrine' are not fulfilled in the present case. As per the OEMs, firstly, the OEMs are not in a dominant position, in a unified systems market for cars and spare parts/repair services. The second condition requires that the competitors of the enterprise who is in control of the essential facility will be incapable of practically or reasonably duplicating the essential fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esses significant market power or not. OEMs have further submitted that under the 'rule of reason' adopted under section 3(4) of the Competition Act, the DG is required to consider the various factors listed in section 19(3) of the Competition Act to determine if the alleged agreement causes or is likely to cause an AAEC on competition within India. OEMs have stated that a plain reading of section 19(3) of the Competition Act as well as established case laws, suggest that while assessing whether an agreement causes an AAEC on competition, it is incumbent upon the DG to consider and evaluate the likely anti-competitive and the pro-competitive effects arising out of an agreement before arriving at a finding of net impact on competition. OEMs have submitted that, in the present case, the DG has failed to carry out a meaningful analysis of AAEC on competition in line with the requirement under section 3(4) of the Competition Act, read with the provisions of section 19(3) of the Competition Act. 18.22 OEMs have submitted that even if one were to assume that the agreements between the OEMs on one hand and the OESs and the OEMs' authorized dealers, on the other, impose exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aint to adversely affect the competitive conditions at different levels of production-supply chain, under section 3(4) of the Competition Act, it is imperative for the parties to the agreement to possess some market power in their respective market spheres. The OEMs have contended that they have miniscule market shares in India's automobile market and have no ability to cause any anti-competitive harm to the Indian automotive industry. (vi) Submissions with respect to Intellectual Property Rights of the OEMs and exemption under section 3(5) of the Competition Act 18.25 OEMs have submitted that the DG in its reports, has failed to appreciate that the various OESs, manufacture the spare parts of the respective OEMs with the aid of design, drawings, technical specification, technology, know-how, tooling, quality parameters etc., provided by the OEMs. Consequently, the proprietary interest in the product will lie solely with the OEMs and their respective OESs are precluded in law to deal in any other manner in terms of contract/agreement inter se the parties. OEMs have submitted that section 3(5)(i) of the Competition Act, expressly permits a person or enterprise to impose reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, all spare parts cannot be protected under the [Indian] Designs Act. OEMs have submitted that for all such spare parts, copyright protection is available and the restriction of section 15(2) of the Copyright Act is not applicable in such instances. Hence, the OEMs have submitted that the decision of the DG that the OEMs may not secure IPR protection for all its spare parts, under India's copyright laws is incorrect. OEMs have argued that the designs of their respective spare parts are protected either under the Designs Act or under the Copyright Act and further, since such spare parts are manufactured using the OEM's trade secrets and confidential information, OEMs would still be entitled to protection under the established common law principles. (vii) Submissions of OEMs on 'Single Branding' clauses of their agreements with authorized dealers 18.28 OEMs have denied the DG's assertion that they have placed restrictions on their respective authorized dealers from taking up dealerships of other OEMs and that such restrictions violate the provisions of the Competition Act. As per the OEMs, they have authorized dealers whose promoters have dealerships of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OPs Reply of M&M 18.30.1 M&M has further stated that the DG has incorrectly and selectively relied on international developments (legislative and judicial precedents of foreign courts) without adequately assessing the state of the market in India and the market realities that distinguish the Indian market place from the rest of the world's automobile sector. In doing so, M&M claims, the DG has pre-empted the state of development and growth of the automobile market in India and has wrongly found M&M in violations of the provisions of the Competition Act. M&M claims that the DG has not been able to make out a case of consumer benefit that would mandate an intervention by the Commission given the state of development of the automobile sector of India. 18.30.2 Pursuant to the Commission's order dated May 28, 2013, M&M has submitted additional information in response to certain queries raised by the Commission. The Commission had asked M&M to indicate which of its cars fall under the following categories: low-end (price below Rs. 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). M&M categorized its various models in the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services that he had used MSIL's practices as the benchmark to assess the practices adopted by the Original Respondents (Honda, Volkswagen and Fiat) in the aftermarket. MSIL has further stated that, neither the DG nor the Commission has provided any reasons for expanding the scope of the investigation to include MSIL. Therefore, MSIL has maintained that the scope of investigation is not sustainable and the proceedings against MSIL should be closed. 18.30.6 MSIL has submitted that the Commission has not passed a valid prima facie order against MSIL and that the DG was not empowered to enquire into MSIL's conduct in the first place. MSIL maintains that the order of the Commission, dated April 26, 2011 expanding the scope of the investigation beyond the Original Respondents is not a reasoned order as required by the Supreme Court in Competition Commission of India v. Steel Authority of India. In MSIL's view, it is only the Commission that has the power to initiate an investigation and by stating that the DG shall have the power to unilaterally expand the scope of the investigation with the prior permission of the Commission is an instance of 'excessive delegation' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mni Medium range (Rs.5-10 lakh) (i) SX4, (ii) Ertiga, (iii) Gypsy Executive (Rs. 10-20 lakh) (i) Kizashi, (ii) Vitara Luxury (above Rs. 20 lakh Nil MSIL has further submitted that the abovementioned segmentation set by the Commission is based purely on the basis of price and does not accurately reflect the actual segmentation of MSIL cars. MSIL has submitted that this was because different models of MSIL cars may fall in the same price range but are targeted at different customer groups, are based on different expectations and are meant for different uses. 18.30.11 The Commission asked MSIL to provide its customer profile in each segment based upon educational qualifications, occupation, income level, age and gender. Commission had further asked MSIL to submit details of what percentage of its customers seek its services post-warranty period. MSIL has submitted such details regarding MSIL vehicles out of the warranty period for the years 2010-11, 2011-12 and 2012-13. However, MSIL has claimed confidentiality over the contents of such submissions. Regarding the question if the current service network was adequate to handle all aftermarket requirements (service/repair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger and Head of Accounting, Taxation and Legal, additional information in response to certain queries raised by the Commission. The Commission had asked VWIPL to indicate which of its cars fall under the following categories: low-end (price below Rs. 5 lakhs), medium range (Rs.5-10 lakh), executive (Rs. 10-20 lakh) and luxury (Rs. 20 lakh and above). VWIPL has categorized its various models in the abovementioned categories, in the following manner: Audi brand: Segmentation of Products Name of Model Low-end (price below Rs. 5 lakh) No car Medium range (Rs. 5.10 lakh) No car Executive (Rs.10 -20 lakh) No car Luxury (above Rs. 20 lakhs) Audi A4, A6, A7, A8 Audi Q3, Q5, Q7 Audi RS5, TT, R8,S4 S6 Volkswagen brand: Segmentation of Products Name of Model Low-end (price below Rs. 5 lakh) Polo TL Petrol Medium range Rs. 5-10 lakh) Polo CL Petrol, Polo HL Petrol, Polo TL Diesel, Polo CL Diesel, Polo HL Diesel, Vento TL Petrol, Vento CL Petrol, Vento HL Petrol AT & MT, Vento TL Diesel, Vento CL Diesel & Vento HL Diesel. Executive (Rs.10 -20 lakhs) Jetta (all models) Passat Luxury (above Rs. 20 lakh) VWIPL was further asked to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es) of car owners. Fiat has submitted that, keeping in view the small number of Fiat cars sold, its current service network is adequate enough to handle all after market requirements (service and spares) of cars owners. Reply of Nissan 18.30.18 Nissan has submitted that it had started commercial production in May 2010 and all of its cars are under the warranty period. Nissan has further submitted that since April 1, 2012, it is engaged only in distribution of cars and sale of spare parts (after sale services) and from the aforementioned date Nissan is no longer acting as an OEM or car manufacturer, it should not be treated at par with the other OEMs. 18.30.19 Further, pursuant to the Commission's order dated May 28, 2013, Nissan has submitted additional information in response to certain queries raised by the Commission. The Commission had asked Nissan to indicate which of its cars fall under the following categories: low-end (price below Rs. 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). Nissan categorized its various models in the abovementioned categories, in the following manner. Models of Nissan cars falling in the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such information in order to reach its decision in the present case, the same has not been reproduced in this order. 18.30.22 BMW was further asked by the Commission to submit details regarding what percentage of BMW's customers seek the services of its authorized dealers post-warranty and what percentage of its customers are repeat customers. BMW has submitted that such data is not available, however, approximately 78% of BMW branded automobiles have availed post-warranty services from BMW authorized workshops. BMW has submitted that no separate data is available regarding repeat customers. The Commission has further asked BMW if its current service network is adequate to handle all its aftermarket requirements (service/spares) of car owners. BMW has submitted that its current service network is adequate enough to handle all after market requirements (service and spares) of cars owners. Reply of Hindustan Motors 18.30.23 Pursuant to the Commission's order dated May 28, 2013, Hindustan Motors has submitted additional information in response to certain queries raised by the Commission. The Commission had asked Hindustan Motors to indicate which of its cars fall under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h supply 'build to print' spare parts to Tata and who are required to obtain consent before selling the same directly to any other party, also supply a large number of such part directly to the aftermarket. Tata has submitted that most of the spare parts that are supplied by OESs to Tata are also supplied directly by OESs to the aftermarket and are available in abundance in the aftermarket. 18.30.26 Pursuant to the Commission's order dated May 28, 2013, Tata has submitted additional information in response to certain queries raised by the Commission. The Commission had asked Tata to indicate which of its cars fall under the following categories: low-end (price below Rs. 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). Tata has categorized its various models in the abovementioned categories, in the following manner. Price range Segment referred to in the query Cars falling under the respective price ranges Price below Rs. 5.00 lakh Low-End Nano, Indica and Venture Price (Rs.5 laks-10 lakh) Medium range Indica, Vista, Indigo, CS, Indigo, Manza, Sumo, Sumo Grande, Safari Price (Rs.10 lakh-20 lakh) Executive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k the services of its authorized dealers post-warranty and what percentage of its customers are repeat customers. Skoda has submitted that: Group Customer Retention Segment 1 (0-4 years from the date of sale) 68% Segment 2 (5-7 years from the date of sale) 34% Segment 3 (8 and above years from the date of sale) 14% 18.30.30 The Commission has further asked Skoda if its current service network is adequate to handle all its aftemarket requirements (service/spares) of car owners. Skoda has submitted that its current service network is adequate to handle all aftermarket requirements (service and spares) of cars owners. Regarding the scope of bringing the informal sectors into the fold of authorized network, Skoda has submitted that presently the informal sector is not regulated by any legislation, roles, regulations or guidelines. The cars are technologically advanced and it is not in the interest and safety of consumers to allow the informal sector to cater to the aftermarket needs without necessary regulations or guidelines being in place. Reply of Ford 18.30.31 Ford has submitted that the Reports as submitted by the DG is in excess of the authority; is against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord that any such material/evidences is being obtained or recorded against the Ford. Ford has submitted that for the purpose of investigation, it was the duty of the DG to provide/furnish all such material/evidences, which the DG has obtained against Ford, if the same was to be relied upon and used against Ford. Ford has submitted that no material has been shared and only the factum of there being such evidence is recorded in the DG's Reports and that no opportunity has been provided to Ford to clarify/rebut the said material or evidences collected by the DG during its investigation. 18.30.34 Further, pursuant to the Commission's order dated May 28, 2013, Ford, through the affidavit of Mr. Dushyanth Jayakumar, authorized signatory of Ford, has submitted additional information in response to certain queries raised by the Commission. The Commission had asked Ford to indicate which of its cars fall under the following categories: low-end (price below Rs. 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). Ford categorized its various models in the abovementioned categories, in the following manner. Models of Ford cars falling in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions. 18.30.37 Honda was further asked by the Commission to submit details regarding what percentage of Honda's customers seek the services of its authorized dealers post-warranty and what percentage of its customers are repeat customers. Honda has submitted such details but has claimed confidentiality on the contents of such submissions. The Commission has further asked Honda if its current service network is adequate to handle all its aftermarket requirements (service/spares) of car owners. Honda has submitted that its current service network is sufficient in terms of quality, space, infrastructure and customer satisfaction to handle all after market requirements. Reply of Mercedes 18.30.38 Pursuant to the Commission's order dated May 28, 2013, Mercedes has submitted additional information in response to certain queries raised by the Commission. The Commission had asked Mercedes to indicate which of its cars fall under the following categories: low-end (price below Rs. 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakhs and above). Mercedes has submitted that all cars currently being offered for sale BY MBPIL in the Indian mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercentage of its customers are repeat customers. Toyota has submitted such information but has claimed confidentiality over the contents of such disclosures. The Commission has further asked Toyota if its current service network is adequate to handle all its aftermarket requirements (service/spares) of car owners. Toyota has submitted such information; but has claimed confidentiality over the contents of such disclosures. 19. Oral Submissions of the Informant 19.1 The counsel to the Informant submitted that about 95% of workshops (over 3 lakh) are operating in Indian automobile aftermarket which work outside the authorized dealer network and spare parts/ diagnostic tools are not made available to such independent repairers in the aftermarkets. This has resulted in the development of an industry of spurious spare parts in aftermarkets, which cause death/ injuries besides causing revenue and employment loss. The counsel to the Informant though conceded that TATA/ Maruti/ M&M make available some spare parts in aftermarkets in respect of some of their car models, but that the consumers do not have a choice or right in this regard. 19.2 The counsel to the Informant submitted that non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. In this regard, it was also highlighted that the OPs have already admitted before the Commission that their agreements contain restrictions and have tried to justify such restrictions under section 3(5) of the Competition Act. 20. Decision of the Commission 20.1 The Commission has carefully gone through information, report of the DG and averments of the parties in the present case. The Commission notes that in addition to substantive issues involved in the matter, some of the Opposite Parties have also raised objections regarding jurisdiction of the Commission to inquire the conduct of those OPs which were not named specifically in the information filed by the Informant. 20.2 Before determination of the substantive issues, therefore, the Commission deems it proper to deal first with the objections raised by the OPs regarding jurisdiction of the Commission in the present matter. 20.3 Issue of Jurisdiction 20.3.1 A plea has been advanced by some of the OEMs like MSIL and Nissan that the Commission does not have the jurisdiction to investigate and proceed against any other OP other than the three OPs, viz., Honda, Volkswagen and Fiat, named in the information. The OPs have ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the information. The purpose of filing information before the Commission is only to set the ball rolling as per the provisions of the Competition Act, 2002. The scope of inquiry is much broader and the Commission is not restricted in its inquiry to consider the material placed by the parties only. Even if the informant subsequently does not participate in the proceedings or does not furnish any evidence during investigation or inquiry or seeks to withdraw the matter it is not the requirement of law that proceedings should be dropped or closed and the Commission may continue with the proceedings to take it to logical conclusion. This is so because being an expert body clothed with a duty to prevent practices having adverse effect on competition in the markets, the Commission is mandated by law to examine the issues in a holistic and not in a piecemeal manner. For example, if any information regarding cartelization is filed before the Commission or the Commission takes suomoto cognizance of such matter and at the stage of forming prima facie opinion name of only two entities participating in the cartel is known and matter is referred to the DG for investigation. During investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n treated the almost similar conduct of all car manufacturers equally and gave mandate to the DG that he can investigate the matter against not only the named car manufacturers but against other car manufacturers as well. 20.3.7 In the present case the DG brought the matter to the Commission and thereafter exercising its power under the Act, the Commission allowed the request in order to achieve the objectives of the Act, as mentioned in the preamble and in discharge of its functions under section 18 of the Act. The Commission, therefore, cannot be said to have committed any irregularity by allowing the request of DG for doing thorough and complete investigation as mandated under the Act for achieving its objectives. It is also noted that all OPs were given ample opportunity by the DG to present their case and without exception all of them have indeed taken that opportunity to make detailed submissions. Further, all OPs have not only submitted their detailed objections to the report of the DG but they have been heard at length by the Commission and they were further allowed to submit written arguments. All these facts demonstrate that principles of natural justice were followed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "relevant product market". 19(6) The Commission shall, while determining the "relevant geographic market", have due regard to all or any of the following factors, namely: (a) regulatory trade barriers; (b) local specification requirements; (c) national procurement policies; (d) adequate distribution facilities; (e) transport costs; (f) language; (g) consumer preferences; (h) need for secure or regular supplies or rapid after-sales services. 19(7) The Commission shall, while determining the "relevant product market", have due regard to all or any of the following factors, namely: (a) physical characteristics or end-use of goods; (b) price of goods or service; (c) consumer preferences; (d) exclusion of in-house production; (e) existence of specialised producers; (f) classification of industrial products. (a) Relevant Product Market 20.5.2 As per the definition under section 2(t) of the Act, the "relevant product market" comprises all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use. The DG, during the course of its investigation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The term, therefore, refers to markets for complementary goods and services such as maintenance, upgrades, and replacement parts that may be needed after the consumer has purchased a durable good. 20.5.6 A typical allegation is that the durable goods producer (i.e. the OEM or the car manufacturer in the present case) behaves in a fashion that stops alternative producers from offering the complementary good (restrictions imposed on the OESs) or service with the result that the original durable goods producer monopolizes the aftermarket. This is the core allegation of the Informant in this case. This monopoly behaviour and the concomitant abuse of such monopoly market power allow the monopolist in the primary market to charge supra-competitive prices and impose other restraints in the aftermarket. 20.5.7 OEMs have submitted that the correct "relevant market" in the present case is a unified 'systems market' comprising a set of products or services, which cannot be distinguished into two different antitrust markets, since the consumers demand the primary and the secondary products as a 'system' and determining inter-changeability and substitutability of such product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... witch to another razor brand, say Phillips, without incurring substantial switching costs. The Commission is of the view that one of the criteria in deciding whether the primary and secondary products form part of one systems market or two separate markets is the cost of the primary product. If the owner of the primary product can easily switch to another competing primary product, the primary product and secondary product may be clubbed to form a systems market. Since this is not so the case in automobile sector, the Commission is of the opinion that 'sale of cars' and 'sale of spare less parts' and 'repair and maintenance services' do not form part of a systems market. 20.5.12 As per the Commission, one of the key factors in choosing one product rather than another (and, therefore, the associated level of utility) depends, among other things, on the 'product price'. Therefore, where it may be easier for a consumer to shift to a different razor (where an average Gillette razor may be priced at Rs. 500) than for the same consumer to shift to a separate car (average price of a car would be Rs. 3 lakh or more), consumer will shift to another primary p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to gauge compatibility/substitutability between the primary markets and the secondary markets it needs to be ascertained whether the owner of a particular brand of car is capable of substituting the use of the spare parts of his brand of car with that of another brand of car, manufactured by a different OEM or is his choice of spare parts limited to that of his own brand of car. Therefore, a consumer of the automobile market in India, e.g., the owner of a Maruti Alto cannot switch to using the spare parts of a Honda Brio. Further, the Maruti Alto owner has very limited ability to use the spare parts of Maruti Ertiga. Such limited interchangeability, is primarily due to technical differences between the various primary products, which often mean that the choice of complementary products or services compatible with the primary product is limited. If the owner of a brand of car needs necessarily the spare parts of that brand of car, then it would imply that there is no supply side substitutability and the primary market for cars for each brand of car and their respective secondary market (aftermarket) are distinct relevant product markets. 20.5.17 The Commission notes that altho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out spare parts. Therefore, spare parts and repair services may be demanded simultaneously or concurrently and in a few instances car owners may only access one segment of the aftermarket, where they either themselves provide the repair services or where repair services do not involve replacement of spare parts. Therefore, in view of the Commission the two segments of the Indian automobile aftermarket are different, yet inter-linked and inter-connected. 20.5.19 In the context of defining markets in the present case, a reference may also be made to the European Union's Notice on the Definition of the Relevant Market. Relevant extract of Point 56 of the Notice is reproduced below: ".... when considering primary and secondary markets, in particular, when the behaviour of undertakings at a point in time has to be analysed pursuant to Article [82 EC]. The method of defining markets in these cases is the same, i.e. assessing the responses of customers based on their purchasing decisions to relative price changes, but taking into account as well, constraints on substitution imposed by conditions in the connected markets. A narrow definition of market for secondary products, for inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian automotive sector based on various segments of automobiles, viz., small or economy car segment, mid market car segment and the luxury car segment. Keeping in view of such submissions, the Commission in an order dated May 28, 2013, had asked the OEMs to indicate which of its cars fall under the following categories: low-end (price below Rs. 5 lakh), medium range (Rs.5-10 lakh), executive (Rs.10-20 lakh) and luxury (Rs. 20 lakh and above). OPs have submitted their response to the aforesaid query of the Commission and have divided their various models of cars as per the abovementioned categories. Their submissions have been reproduced in the relevant part of this order. 20.5.22 However, the Commission, after the perusal of such submissions, is of the opinion that such a determination of the relevant product market is unnecessary for determining the present case on its merits. As it will be evident from the following paragraphs of the order that the Commission is of the opinion that a 'systems market' does not exist in the present case and that the relevant product market consists of the primary market for the sale of automobiles and the secondary markets for the sale of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y maintained by the OEMs in the supply of their respective brand of spare parts, diagnostic tools and technical information. Therefore, it is in the aftermarket of spare parts, diagnostic tools and technical manuals and not in the primary market of sale of cars where the alleged dominance of the OEMs is being felt. It is in the aftermarket for automobile spare parts and repair services, where each OEM are being alleged to operate independently of competitive constraints allowing them to affect their competitors, i.e., independent repairers and their customers. Consequently the aftermarket thus constituted by the market of the OEMs' spare parts, diagnostic tools and technical manuals, required by the independent repairers must be regarded as the relevant market for the purposes of the application of section 4 of the Act. It is in fact the market on which the alleged abuse was committed. 20.5.24 According to the E.U. Notice on Market Definition: "Market definition is a tool to identify and define the boundaries of competition between firms. It serves to establish the framework within which competition policy is applied by the Commission. The main purpose of market definition is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Indian automobile sector is in the automobile aftermarket and not the primary market for the sale of cars. Consequently, the need to delineate the primary market into separate car segments based upon each car's characteristics, price or intended use is unnecessary to determine the issues raised in the current case. 20.5.26 The OEMs have submitted that the relevant market is the unified market for the sale of cars and that there is no separate market for the sale of spare parts or the provision of after sale services. The OEMs have submitted that the car market is in fact a complete 'systems market' which consists of a durable primary product and ongoing supply of spare parts and maintenance and repair services. As per the OEMs a system market is likely to be appropriate "where customers engage in whole life costing'...or where effective primary market competition ensures that the overall price is not excessive, or where reputation effects mean that setting a supra-competitive price for the secondary product would significantly harm a supplier's profits on future sales of its primary product" (Maher Dabbah, EC and UK Competition, pp.47). Where by necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by Tata Motors Limited. Ford The company stated that this data is not available to them. General Motors The company vide letter dated February 13, 2012, submitted a list containing estimate of annual cost of routine aftersale services on kilometer basis. Hindustan Motors Hindustan Motors stated that most of the cars come to their dealers/services center during the warranty period. They do not have data outside the warranty period. Mahindra and Mahindra Although Mahindra did submit an estimate of aftersale service of Mahindra branded cars, they consider such information as commercially sensitive and confidential in nature. Reva The company has not furnished any information on the issue. Maruti Maruti vide letter dated February 22, 2012 have submitted that it does not maintain records for the estimated annual cost and /or lifetime cost of aftersales service for all automobiles manufactured by it. Mercedes-Benz Mercedes vide letter dated March 1, 2012, have submitted that a very large number of models and variants based on different options for driveline and other system components and hence, the cost of service varies for car to car, depending upon its age and milea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiring the current price of the blades, he is able to determine his approximately weekly expense of using the particular brand of razor. However, the same is not true for complex durable machines. For example an automobile, a photocopy machine, an industrial equipment or other complex machinery has several parts and for an unsophisticated consumer to make equipment purchasing decisions based on accurate assessment of the total cost of equipment, service, spare parts over the lifetime of the machine is often impossible. This is because, such decisions would require the consumer to have knowledge of a large number of variables, such as, frequency of breakdown, degrees of equipment use, future fluctuations of price of spare parts, development of advances features of the existing primary equipment, a decrease in the ability to repair outdated models of the primary equipment etc. 20.5.30 Some OEMs have submitted that they provide their consumers with a price-list of the spare parts. The price-list is the raw data, based upon which the consumers need to undertake a sophisticated analysis to determine the actual life cycle of a car. As discussed above, such analysis for a prospective ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have more effective means of information gathering and better ability to analyze such data than that of a car owner, who often would be the first time purchaser of a particular brand of automobile. 20.5.33 Further, several empirical studies on life cycle costs seem to suggest that consumers of durable goods do not undertake whole life cost analysis before purchasing the equipment in the primary market. Empirical studies conducted by Dermot Gately, Jerry A. Hausman and Paul L. Joskow analyzing purchase choices of household appliances for which energy consumption represent a significant proportion of lifecycle costs, concluded, that observed consumer choices imply that consumers put much more weight on the upfront cost of the appliance than on its aftermarket cost (i.e. energy consumption) (see: Dermot Gately, Individual Discount Rates and the Purchase and Utilization of Energy-using Durables: Comment, 11 Bell J. Econ. 373 (1980), Jerry A. Hausman, Individual Discount Rates and the Purchase and Utilization of Energy-using Durables, 10 Bell J. Econ. 33 (1979), Jerry A. Hausman and Paul L. Joskow, Evaluating the Costs and benefits of Appliance Efficiency Standards, 72 Am. Econ. Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary, incidental costs/parking charges etc. Further. BMW has submitted that the ownership period is a variable factor and may differ between segments. Skoda With respect to the question regarding the methodology of calculating the life cycle cost of a car. Skoda has submitted that it is extremely difficult to ascertain the life cycle costs of a car, considering the negligible size of available car park in the country further makes it challenging to have a pre-estimate of the life cycle costs of these cars. The costs of maintenance of a car can also differ are wise based on different terrain in India. Skoda has submitted that the life cycle cost of the car is dependent on number of factors, e.g.. average running of the vehicle per year, time period, anticipated cost of scheduled maintenance etc. Skoda has further submitted that the information relating to life cost of the vehicle is not released in the public domain on a regular basis. Ford The life cycle cost depends on various external factors such as standard of driving, maintenance of cars, road condition and others. Since the manufacturer is not in control of a particular car in question, the life cycle cost cannot be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumers make informed decisions with regards to overall costs of motor vehicle ownership in advance. Most of these automobile related magazines/websites provide either promotional advertisements by OEMs or comparative information regarding price/features of different automobiles which are mostly relied upon by prospective car purchasers. A majority of the consumers of the Indian automobile market are private individuals who generally do not possess the sophistication required to analyze the data even if it is available publically... Reputation Effects: 20.5.37 The OEMs have argued that in determining the relevant product market in the given fact scenario, a systems market may be appropriate, since the OEMs will be dissuaded from charging supra-competitive prices in the aftermarkets since such pricing strategy shall significantly affect the supplier's profits on future sales of its primary product. The OEMs have submitted that it would make less economic sense to adopt such pricing tactics in markets which has greater growth rates, greater prospects of higher market shares, greater margins and greater future sales prospects. OEMs in such markets will be careful in sustaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erged that most of the spare parts other than a few generic spare parts like tyres, batteries etc., were manufactured specifically for the respective models of the cars and therefore inter-brand interchangeability is drastically diminished. The DG has concluded that even intra-brand substitutability of spare parts, i.e., inter-changeability of spare parts between various models manufactured by the same OEM is greatly limited. Therefore, the Commission is of the view that a consumer of a particular model of car manufactured by an OEM cannot switch to the spare parts manufactured by another OEM. With respect to the second question, as to the possibility of the consumers to switch to another primary product (to avoid a price increase on the spare parts aftermarket), the DG concluded that due to high switching costs and the fact that the residual value of a new car, post registration in the name of the new owner, is lower than the price of a pre-registration new car, the owner of a car may only shift to another product in the primary market after incurring substantial financial loss. Thus, in the opinion of the Commission, a purchaser of a product in the primary market is to a great e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t incurring substantial switching costs. The OEMs have maintained that the ability of an automobile consumer to switch to another primary market product (i.e., another car in the second-hand car market) without incurring switching costs would establish that such consumers are not locked-in and therefore cannot be exploited by the OEMs by charging high aftermarket prices for spare parts and other repair services. However, the Commission is of the opinion that such submissions are incorrect. Whenever a consumer, who is being exploited in the aftermarket, would want to switch to another car, whether it is a first-hand car or a second-hand car, such a consumer usually incurs a switching cost. This is primarily because an automobile always depreciates in value post-registration. Therefore, if an owner of a Maruti Dezire wants to shift to another car, he necessarily would have to sell his existing car at a price which would be less than the price at which he had bought the car. Further, usually a consumer of a lower-end car would purchase a used car of a higher-end brand of automobile. Hence a Maruti Wagon-R owner may purchase a second-hand Toyota Innova. A second time automobile consume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85.06- 265.88% (Q1, 2010-11); 79.15-280.75% (Q2, 2010-11); 76.29 - 248.54%(Q3, 2010-11); -0.92-260.40% (Q3, 2010-11) -31.6 - 230.83% (Q1, 2010-11); -33.78-254.18% (Q2, 2010-11); -34.84- 248.54%(Q3, 2010-11); -35.81-218.42% (Q3, 2010-11) Tata 60.76% - 658.80% 64.60%- 858.90% Fiat 33.60% - 3020.29% 19.93%-4817.17% Honda (-)12.10%-984.73% (-)77.20%-939.13% General Motors 1.66% - 871.56% (Q1, 2010-11); (-)0.23% -871.56% (Q2. 2010-11); 3.39%- 871.56%(Q3, 2010-11); 66.92% -871.56% (Q3, 2010-11) (-) 18.82% - 545.16% (Ql, 2010-11); (-)20.33% - 764.08% (Q2, 2010-11); 3.39%- 764.08% (Q3, 2010-11); 28.64%-545.16% (Q3, 2010-11) Hindustan Motors 79.25% - 133.32% (Ambassador brand) 86.47% - 206.25% (Ambassador brand) Premier OEM could not provide the price data relating to the top 50 spare parts 20.5.44 Based upon the findings of the DG, it is evident that the OEMs not only have the incentive, but have in practice, raised prices of the spare parts in the locked-in automobile aftermarket of India. Therefore, it is no longer a theoretical possibility whether consumers may be subjected to exploitative price abuse in the aftermarkets. Given the above mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parts. A CII-Mckinsey Report (referred in the ACMA report) states that that, on average, 55 per cent of profits of the OEMS are derived from the spare parts business. 20.5.46 A sample of the margin of revenue (detailed data on the revenue generated from the sale of spare parts and from the sale of automobiles of the OEMs have been provided in Table 9 of this order) made by OEMs in the automotive business and the spare parts business are provided below: Table 3 OEMs Margin (%) from Automotive business Margin (%) from spare parts business Comments Maruti 4.4% (2008-09); 8.7% (2009-10); 4.7% (2010-11) 20.0% (2008-09); 21.0% (2009-10); 21.0% (2010-11) Maruti's margins from sale of vehicles are substantially lower than those derived from sale of spare parts Volkswagen (-)23.70% (2008-09); (-)7.15% (2009-10); 0.40% (2010-2011) 49.37% Volkswagen is making substantial losses from sale of cars and has made nominal profit only in FY 2010-2011. However, it is making significant profits from sale of spare parts. Therefore, even if we assume the economic theories put forward by the OEMs with respect to the existence of a systems market in the Indian automobile sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vings accounts, credit, trust administration, etc., constituted one market even though the individual products and services are not substitutes for one another. This is because, the Court found, customers typically demand the full range of services from commercial banks. Similarly, the U.S. courts have held that with respect to medical services offered by hospitals, there exists a cluster market since such medical services (consisting of a bundle of products/services which are not interchangeable with each other) are demanded together and are supplied together by such hospitals. (See, e.g., FTC v. Freeman Hasp., 69 F.3d 260,268 (8th Cir. 1995); FTC v. Univ. Health Inc. 938 F.2d 1206, 1210-12 (l1th Cir. 1991); United States v. RocliordMem 'I Corp., 898 F.2d 1278, 1284 (7th Cir. 1990)). 20.5.49 The concept of cluster markets was applied to spare parts by the U.S. Ninth Circuit court in Image Technical Servs v. Eastman Kodak Co., 125F.3d 1195, 1203 (9th Cir. 1997). The circuit court held that there could be a relevant market for Kodak photocopier replacement parts, notwithstanding lack of substitutability, because both independent service organizations and customers needed "all p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular repair service. So even using the "commercial reality" doctrine of the U.S. Ninth Circuit Court, some may argue that if one is repairing a gear box of a Honda car, the repairer may need a nut, bolt etc., however, the repairer would not need an anti-lock brake. Hence, OEMs have submitted that a gearbox and an anti-lock system should not be aggregated into the same relevant product market definition since they are not part of the same "cluster market", i.e., a Honda consumer does not demand such products together. In opinion of the Commission such a myopic delineation of the secondary product market would be antithetical to the purpose of understanding the competitive issues of the automobile aftermarket in India. Commentary on the U.S. Horizontal Merger Guidelines (2006) at (para 8-9) provides that: "when the analysis is identical across products or geographic areas that could each be defined as separate relevant markets using the smallest market principle, the Agencies may elect to employ a broader market definition that encompasses many products or geographic areas to avoid redundancy in presentation". Therefore, when the Commission is analyzing the anti-competitive i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of relevant market for the purposes of Community competition Law (97/C 372/03) Section 2(t) of the Act A relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products' characteristics, their prices, and their intended use. "relevant product market" means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer; by reason of characteristics of the products or services, their prices and intended use. Therefore, the definition of the relevant product market is identical under both the E.U. and Indian competition law. Yet, in all spare parts related cases in E.U., including Hugin Kassaregister AB v. Commission of the European Communities (C-22/78) [1979] ECR 1869, Volvo AB v. Erik Veng (UK) Ltd (C-238/87) [1988] ECR 6211; CEAHR v. European Commission (Case T-427/08); the Commission has treated all spare parts of a cash register; an automobile and Swiss watches as part of the same relevant product market; even though various spare parts of a cash register or a watch are technically not intercha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such dealers are required to provide service requirements to an OEM's customer irrespective of the State in which the vehicle is registered. The DG based on such findings has concluded that the relevant geographical market would be India. 20.5.56 The Commission is in agreement with the findings of the DG. An owner of any brand of automobile, manufactured by an OEM, can get his car serviced or repaired from repair shops across the territory of India. Whether such repair shops are authorized dealer outlets or those run by independent repairers the conditions of competition for the sale of spare parts and aftersale repair and maintenance services are homogeneous across the territory of India and therefore the relevant geographic market for the present case consists of the entire territory of India. Therefore, this Commission is of the view that the relevant geographic market, as defined under section 2(s) of the Act, consists of the entire territory of India. 20.5.57 In conclusion, on this issue, the Commission is of the opinion that there exist two separate relevant markets; one for manufacture and sale of cars and the other for the sale of spare parts and repair services in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant market in its favour", it is necessary to first examine the competitive structure of the said relevant market. 20.5.61 Further, to understand the meaning of what amounts to the 'capacity of an enterprise to operate independently of competitive forces', reliance may be placed upon the E.U Guidance on the Commission's Enforcement Priorities in Applying Article 82 EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings (the "Guidance") [(2009/C 45/02)] provides that: "This notion of independence is related to the degree of competitive constraint exerted on the undertaking in question. Dominance entails that these competitive constraints are not sufficiently effective and hence that the undertaking in question enjoys substantial market power over a period of time. This means that the undertaking's decisions are largely insensitive to the actions and reactions of competitors, customers and, ultimately, consumers." 20.5.62 In order to understand if the OEMs are subject to any effective degree of competitive constraints in the Indian automobile aftermarket, the Commission needs to consider that each OEM controls almost the entire production and sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively shielded themselves from any competition. In Hugin v. Commission [(1978) ECR 1869]; the ECJ found that Hugin was dominant in the relevant market for the fact that Hugin by its vertical integration of its subsidiaries and distributors had sheltered itself from all effective competition in the matter of service and maintenance of its cash registers. Similar to Hugin, each OEM through a network of contracts has restricted the supply of genuine spare parts of models of automobiles manufactured by the OEMs to the aftermarket. The OEMs have imposed restrictions on their respective local OESs from supplying spare parts directly in the aftermarket. The overseas suppliers of the OEM are not selling spare parts directly in the Indian aftermarket. The DG, during the course of their investigation, has discovered that most of the OEMs have restricted their authorized dealers from selling spare parts and diagnostic tools over the counter. Further, the agreement between the OEMs and their authorized dealers require that such dealers source all the spare parts from the OEMs themselves. Therefore, each OEM is the sole supplier in the aftermarket for supply of spare parts and diagnostic too ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessarily use the spare parts/diagnostic tools compatible to Skoda cars is in itself an entry barrier of other competitors of Skoda from entering into its aftermarket. Additionally, as discussed above, each OEM has also created barriers in the entry of independent repairers to the aftermarket of the repairs and maintenance of its brand of cars. The independent repairers require the spare parts and diagnostic tools to effectively compete with the authorized dealers in the aftermarket of repairs and maintenance for each brand of cars manufactured by the OEMs. 20.5.67 During the course of investigation, the DG has discovered that many multi brand service providers have stated that in the absence of the availability of the spare parts of the OEM they have to either refuse the customers or get the spare parts from the authorized dealers of the OEM after opening a job card without actually getting the car service, in order to retain the customer. Hence, the DG has concluded that the practice of the OEM acts as an entry barrier for independent repairers to undertake repairs of the cars of the OEM and practically forecloses the market even for established and credible independent repaire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine spare parts and diagnostic tools that are compatible to carry out effective repair work on the various models of automobiles manufactured by the OEMs, the independent repairers are foreclosed to compete effectively with the authorized dealers of the OEMs. Therefore, such practices of the OEMs amounts to creation of entry barriers for the independent service providers in the Indian automobile aftermarket. 20.5.68 Many of the OEMs have submitted that their share in the automobile market in India is minuscule and therefore, they cannot be in a dominant position, pursuant to the provisions of Explanation (a) to section 4(2) of the Act. In the view of the Commission, such submissions are misleading. The informant in the present case did not allege that the OEMs held market power in the primary market for manufacture and sale of automobiles; he alleged market power only in the aftermarket consisting of those customers that had already purchased the automobiles manufactured by the OEMs that needed replacement parts and services for after sale maintenance and repair that particular OEM branded automobile. The antitrust theory was that each OEM was engaging anti-competitive practic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alers of the OEMs in the secondary market for repairs and services by denying them access to required spare parts and tools to complete such repair work. Finally, the OEMs have entered into warranty conditions with their consumers which dissuade them from availing the services of independent repairers. 20.5.71 In the context of Explanation (a) to Section 4 of the Act, what has to be ascertained is whether an enterprise has the "strength" and whether it has the ability to use that strength in its favour. In the instant case, we find that each OEM has a position of strength which enables it to affect its competitors in the secondary market, i.e., independent service providers in its favour, thereby limiting consumer choice and forcing the consumers to react in a manner which is beneficial to each OEM, but detrimental to the interests of the consumers. Whether the dominant enterprise(s) as established above has abused its position. 20.5.72 The DG, during the course of its investigation has discovered that in case of several OEMs in the absence of availability of the genuine spare parts, diagnostic tools, technical manuals, etc. in the open market the ability of independent repairer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market for consumer choice to be optimized? Antitrust certainty does not require that the number of options be maximized. Nor does antitrust prevent all conduct or transactions that have the effect of reducing the number of options available to consumers. Nor does the law affirmatively require the creation of options. Rather, it prevents business conduct that artificially limits the natural range of choices in the market place." 20.5.74 Under the preamble and section 18 of the Act, the duty of the Commission includes, to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India. Therefore, one of the functions of the Commission is to eliminate practices having adverse effect on competition and protect the interests of the consumers, including providing automobile consumers and the independent repairers with more choice in the Indian automobile aftermarket. In the view of the Commission there are two main issues that needs to be dealt by the Commission, they are: (a) Ability of the consumers to freely choose betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly in India? Ans: Overseas Suppliers don't supply directly in India except tyre and oil. The relevant extract of submissions of Fiat is placed below: Q.10 Is Fiat Group Automobiles (SPAL) also selling the parts being imported by FIAL (Fiat India Automobiles Limited) directly in the open market? Ans: We don't know. Q.11 Please confirm with your principal supplier and confirm Ans: We shall revert. Vide e-mail dated February 28, 2012 Ans: No The relevant extract of submissions of Toyota is placed below: Q.10 Are there any restrictions in the agreement on your overseas suppliers (TMAO) in supplying directly in the aftermarket in India? Ans: No Q.11 Are your overseas suppliers (TMAP) selling directly in the aftermarket in India? Ans: We are not aware of our overseas suppliers selling directly in the aftermarket in India. The relevant extract of submissions of Volkswagen is placed below: Q4. Are your overseas suppliers supplying the parts imported by you directly in the market in India as well? Ans. We are not aware whether they do so or not. Q5. Can you check with them and revert? Ans. We will try and check. Vide letter dated March 6, 2012 With reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e OEM. General Motors OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Honda OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Mahindra OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Maruti OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Mercedes Benz OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Nissan OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Skoda OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Tata Motors OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Volkswagen OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Hindustan Motors OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. Toyota OESs restricted from supplying to the aftermarket on pretext of protecting the IPRs of the OEM. &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A NA NA NA NA Fiat NA NA NA NA A* Volkswagen NA NA NA NA NA Nissan NA NA NA NA NA BMW NA NA NA NA NA Mercedes NA NA NA NA NA NA : Not Available anywhere in PAN India PA : Partially available in some regions based on Dealer/Distributor discretion A : Available PAN India * Available to "My TVS" only, because My TVS has tie-ups with Tata Motors, whose dealers have been dealing with Tata and Fiat brand of cars. Note: No information has been received with respect to premier brand vehicles 20.5.79 The DG, during the course of its investigation, has recorded statements of SPX India Private Limited ("SPX"), which is supplying diagnostic tools to several OEMs in India. SPX has submitted that that they are restricted in terms of their* arrangement with the OEMs to sell the diagnostic tools which are specific to each OEM, directly in the aftermarket. The DG has also stated that it has emerged from the responses of SPX as well as independent repairers that there are limitations in diagnosing faults using alternate diagnostic tools. Therefore,based upon the practices of the OEMs, the Commission is of the conclusion that: (a) in none of the insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which, with the object of reserving such raw material for manufacturing its own derivatives, refuses to supply a customer, which is itself a manufacturer of these derivatives, and therefore risks eliminating all competition on the part of this customer, is abusing its dominant position." The basic objection of the Court was that a dominant enterprise, which competes in both the upstream and downstream markets and is in effective control of a product/service in the upstream market which is required by the enterprises in the downstream market to effectively carry out their economic activity, may exclude a competitor from such downstream market, by refusing to supply such product/services to enterprises in the downstream market. 20.5.82 In the present case, the independent service providers require the spare parts and diagnostic tools compatible to the various models of automobiles manufactured by the various OEMs to carry out their economic activity of providing repair and maintenance services in the Indian automobile aftermarket. As discussed earlier, each OEM is a dominant player in the aftermarket for the supply of spare parts and diagnostic tools and through a network of contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd such exclusionary abusive conduct allows the OEMs to further strengthen their dominant position and abuse it. As has been noted by the European Court of Justice, that "such behaviour cannot be countenanced if its actual purpose is to strengthen this dominant position and abuse it" (United Brands v. Commission Case 27/76 [1978] ECR 207, (para 189). It is the opinion of the Commission that in such cases a violation of section 4(2)(c) of the Act is clearly established. 20.5.85 The OEMs have submitted that the spare parts and diagnostic tools, workshop manuals are their proprietary materials and therefore accessible only to the authorized dealers network of each OEM. The Commission notes that unlike section 3(5) of the Act, there is no exception to section 4(2) of the Act. Therefore, if an enterprise is found to be dominant pursuant to Explanation (a) to section 4(2) and indulges in practices that amount to denial of market access to customers in the relevant market; it is no defence to suggest that such exclusionary conduct is within the scope of intellectual property rights of the OEMs. On the basis of aforesaid, the Commission is of the opinion that the OEMs have denied market a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product/service in order to identify the profit earned by the dominant enterprise. Based upon the investigation of the DG, the OEMs source their components/spare parts to be used for the assembly line requirements as well as aftermarket requirements primarily from the local original equipment suppliers (OESs). Several components assembled in the car are also imported from overseas suppliers. Therefore, the cost of production of a spare part for an OEM is the price at which the spare part is sourced from the OESs or the overseas suppliers. 20.5.88 In order to analyze the markup from the point of the OEM to the final customer, the price difference between the rate at which the spares are sourced by the OEMs from the OES (including overseas suppliers) and the price at which they are sold to the customers by the authorized dealers was calculated on sample basis. The companies were asked to provide a list of the top 50 spare parts in terms of spare parts consumed and in terms of revenue earned from then sale for the financial year 2010-11 on quarterly basis for their* most popular brand of cars. The DG has examined the price difference (markup) for the top 50 spare parts, for each OEM, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which such spare parts are sourced from the OESs and other overseas suppliers and the price at which they are available to the consumers across all OEMs. The DG has observed that the average markup in the price of spare paits is approximately 100 per cent in case of most OEMs while the upper limit of such markup is approximately 5000 per cent. 20.5.91 The Commission is aware that in adopting a costprice comparison to determine the extent of profits enjoyed by a dominant enterprise entails the calculation of the cost of production of the goods/services of the dominant enterprise. This can be a particularly difficult task given that an enterprise may have diverse production and market operations which incurs various categories of costs and working out the production costs may raise great difficulties, especially determining what costs should be taken as a basis for calculating the costprice ratio to show whether the price charged exceeds the costs incurred. However, the Commission is of the view that such difficulties do not arise in the present case. Since the OEMs source a majority of their spare parts, both for assembly line and aftermarket requirements from OESs or other overse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit margins only unfair prices have been prohibited. However, where it has been established that a price substantially exceeds the cost of production, it will be necessary to assess whether the difference is so great as to be 'excessive', triggering a review of the prices 'fairness'. The DG's investigations have revealed that all OEMs have substantially markedup the price of its spare parts by an average of 100 percent and in some extent to as high as 5000 percent. In view of the Commission, such markups are disproportionate to the economic value of the products supplied by the OEMs. 20.5.94 The concept of unfairness of a price is related to the notion that such price is unrelated to the 'economic value' of the product and that such price are being charged by the enterprise because of its capacity to use its market power or position of strength in that relevant market to affect its competitors or consumers in its favour. As evident from the DG's investigation, the OEMs are charging a substantially high price for its top 50 spare parts, without which the respective owners of the various models of the automobiles manufactured by the OEMs cannot get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficiently effective competition. As discussed earlier, based upon the DG's investigations, it has been revealed that in the case of all the OEMs, the overseas suppliers and most of the local OESs are either contractually prohibited from selling spare parts directly in the open market. Therefore, the OEMs are the only source of availability of genuine spare parts in the aftermarket. The OEMs require their authorized dealers to source the spare parts only from the OEMs authorized vendors and further restrict the over the counter sale of spare parts and diagnostic tools to independent repairers. These restrictions therefore create entry barriers for the OES who could produce matching quality spare parts, eliminates direct access by OES from supplying genuine spare parts of an OEM in the aftermarket and in the process, foreclose competition in the supply of genuine spare parts and diagnostic tools for the various models of automobiles manufactured by the OEMs. 20.5.97 The fact that the OEMs are the only source of supplying spare parts for its brand of automobiles in the aftermarkets is an important factor in analyzing the enterprise's degree of exploitative pricing. The ECJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has made nominal profit only in FY 2010-2011. BMW 21.78% (2008-09); 16.70% (2009-10); 22.36% (2010-11) 27.08% (2008-09); 31.48% (2009-10); 42.77% (2010-11) BMW's margin from sale of spare parts are higher Skoda (-)3.19% (2008-09); (-) 2.96% (2009-10); (-) 0.35% (2010-11)* 11.59% (2008); 22.84% (2009); 19.49% (2010) DG has obseived that Skoda, as a whole, is incurring losses; but is making significant profit margins from the sale of spare parts. Fiat (-) 88.35% (2008); (-) 10.44% (2009); (-)6.62% (2010) 5.72% (2009-10); 9.39% (2010-11) Fiat has been incurring substantial losses on vehicle sales whereas it has been earning profits on the spare parts segment Honda (-)8.42% (2008-09); (-)0.10% (2009-10); (-)2.02% (2010-11) 26.02% (2008-09); 22.70% (2009-10); 8.02% (2010-11) Honda is making negative margins from sale of cars whereas it is selling spare parts at substantial profit In this context it is relevant to mention that as per CII-Mckinsey Report, the aftermarket business is highly profitable for OEMs. The aftermarket contributes a modest 24% in revenues to OEMs, however, a sizable 55% of profit is derived from this segment. The Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket. Leveraging 20.5.100 Section 4(2)(e) provides that it shall be an abuse of a dominant position if a dominant enterprise "uses its dominant position in one relevant market to enter into, or protect, other relevant market." The two relevant markets in the current case are the market for spare parts and diagnostic tools and the market for repairs and maintenance services, which as we have described earlier are different, yet inter-linked and inter-connected (refer to our discussions in paragraph 21.2.16 of this order). The OEMs have an inherent dominant position of strength in the market for spare parts and diagnostic tools because of limited interbrand interchangeability of spare parts and the fact that the OEMs, pursuant to a network of restrictive contracts and commercial practices have become the sole supplier of genuine spare parts of various models of their automobiles and diagnostic tools in the aftermarket. Given the interlinkages between the repair/service markets and the spare parts/diagnostic tools market, the OEMs have a commercial incentive to leverage their dominance from the relevant market of spare parts/diagnostic tools to that of repairs and maintenance servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounter to prevent the customers from shifting to independent repairers. The sale of spare parts over the counter is in any case at the discretion of the OEM and the authorized dealers. Further, all the OEMs (except BMW) have warranty clauses which effectively deny any warranty to the owners of automobiles if such owners avail the services of the independent repairers or other multi-brand service providers. Moreover, in the limited instances where spare parts are available to the actual owners, the owners have to buy such spare parts at the MRP and then avail the services of the independent repairers at additional costs; whereas the authorized dealers are able to provide such services at cheaper rates since the applicable spare parts are available to the authorized dealers at a discount over the MRP. Hence, based on these facts, it can be stated that in practice the OEM and the authorized dealers allow the use of genuine spare parts only for purpose of undertaking service and repairs at the workshop of the authorized dealers. Therefore, most of the OEMs force their customers to buy maintenance and repair services together with spare parts, since independent repairers' demand for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding what percentage of then customers seek the services of their authorized dealers post warranty. The submissions of the OEMs have been summarized in the table below: Table 10: Name of OEMs No. of consumers using authorized dealers Source Nissan No data provided N/A MSIL 2010-11:27%: 2011-12:29%; 2012-13: 33% MSIL Internal records Hindustan Motors Ambassador vehicles: 27% Pajero vehicles: 95% No source provided Ford 50% (approx) Affidavit of Mr.DushyanthJayakuinar, authorized representative of Ford Honda 64% (without Brio, as all Brio cars are within warranty) No source provided BMW 78% No source is provided M&M 2007-08: 33%: 2008-09: 40%; 2009-10: 52% No source is provided, however, the OEM claims that such data is highly confidential. Skoda Segment 1(0-4 years from the date of sale): 68% Segment 2 (5-7 years from the date of sale): 34% Segment 3 (8 and above years from the date of sale): 14% No source provided. However, the submissions have been certified to be true by an affidavit of the company secretary of Skoda Mercedes Benz Cars in the 4th year of operation: 89% Cars in the 5th year of operation: 81% No source is provided. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any of their cars are repaired by an independent repairer in the post-warranty period. However, based upon the submissions of the OEMs, approximately 42% of Fiat's customers, 68% of Skoda's customers and 52% of M&M customers use the services of their authorized dealers in the initial post-warranty period. The DG during the course of its investigation has concluded that other OEMs like Ford, Honda, Maruti, Volkswagen, Hindustan Motors, Toyota and Tata Motors have policies of absolutely invalidating their warranty obligations if any part of their cars is repaired by an independent repairer in the post-warranty period. In spite of such provisions, the data submitted by the OEMs indicate that 50% of Ford's customers, 64% of Honda's customers and 41% of Tata's customers use the services of the OEM's authorized dealer services in the post-warranty period. It is interesting to note that as per the data submitted by the OEMs, prudent consumers, being aware that using the services of an independent repairer would cancel the warranty obligations of the OEMs on all defects arising out of their brand of cars would still prefer to use the services of an independent re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the DG has analyzed the agreements and arrangements of the OEMs with the OESs, overseas suppliers and the authorized dealers to determine if such agreements are in the nature of agreements prohibited under section 3(4) of the Act. 20.6.2 At the outset the Commission would like to dispose one of the submissions of the OEMs with respect to the use of the words use of the word "between" in section 3(3) and "amongst" in section 3(4) of the Act. Some of the OEMs, like Ford, have submitted before the Commission, that the legislature has intentionally used two different words to describe the relationship between the enterprises in section 3(3) and in section 3(4) of the Act. It has been pointed out that section 3(3) used the word "between" whereas section 3(4) uses the word "amongst". Thus, it has been submitted that an agreement relatable to section 3(4) of the Act, cannot be a bilateral one and has to be an agreement between three (3) or more persons, i.e., it has to be multilateral (in contradistinction to a bilateral agreement). It was further submitted that the provisions of the Act will apply to vertical agreements, i.e., agreement between the OEMs and the OESs or the OEMs and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter from supplying spare parts directly to the Indian aftermarket. Such agreements shall be in the nature of an exclusive distribution arrangement/understanding under section 3(4)(c) of the Act. 20.6.4 The OEMs have denied the existence of any such arrangements between the OEMs and their overseas suppliers. The OEMs have submitted that since most of the overseas suppliers are their group companies or overseas parent companies, even if it is assumed but not admitted that there was an arrangement between the OEMs and their overseas suppliers; the same cannot be considered as an agreement between two enterprises under section 2(h) of the Act under the doctrine of 'single economic entity'. The OEMs have referred to the decision of the Commission in Exclusive Motors v. Lamborghini (Case 52 of 2012); where the Commission has held: "To establish a contravention under Section 3, an agreement is required to be proved between two or more enterprises. Agreement between opposite party and its group company 'Volkswagen India' cannot be considered to be an agreement between two enterprises as envisaged under section 2(h) of the Act. Agreements between entities constituting one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts from overseas suppliers. All the aforesaid OEMs, except Maruti, and Hindustan Motors have arrangements with their overseas suppliers, which are part of the same corporate group or where such overseas supplier is the overseas parent company of the OEM. Therefore, such arrangements need not be scrutinized under section 3 of the Act in view of the 'single economic entity' justification claimed by them. 20.6.6 At the same time, OEMs like Maruti and Hindustan Motors, who import spare parts from overseas suppliers which are not part of the same corporate group cannot claim the protection of the aforesaid doctrine of a 'single economic entity' and such agreements/arrangements are not beyond the purview of scrutiny under section 3 of the Act. However, the Commission is of the opinion that there is not sufficient direct or circumstantial proof to establish the existence of an arrangement between the OEMs Maruti, and Hindustan Motors and their foreign suppliers. The U.S. Supreme Court, in Monsanto Co. v. Spray-Rite Service Corp. (104 S.Ct. 1464) has provided guidance regarding what proof is necessary for establishing the existence of a conspiracy in the context of vertic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e where written consent has been granted by OEMs to OESs to supply spare parts directly in the aftermarket. The OEMs have contended that spare parts manufactured by the OESs using IPRs like patents, designs, copyrights, trademarks etc., of the OEMs are proprietary to the OEM and therefore cannot be sold by OES to third parties without prior consent. 20.6.9 The DG, during the course of its investigation, has analyzed the agreements entered between the OEMs and the OESs. The table below summarizes the nature of the restrictions contained in such an agreements with respect to the ability of the OESs to supply spare parts to the Indian automobile aftermarket. Table 11: Agreements with local OESs OESs Restrictive clause in OES Agreement/Purchase Orders/LOI Comments BMW No clause in agreement w.r.t. to OES's right to access aftermarket only one OES, i.e., Lear Fiat Restrictions present for protecting IPRs Ford Restrictions present for protecting IPRs General Restrictions present for protecting IPRs Motors Honda Restrictions present for protecting IPRs Honda has submitted that in case of "Asahi Glass", wherein, such OES has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r agreement falls i.e. who owned the patents, know-how, technology or who supplied the specifications, their dealing were vertical in nature. Such agreements between the OEMs and the OESs are, having features of exclusive distribution agreement and refusal to deal as per the provisions of section 3(4)(c) and (d) of the Act, respectively. Therefore, the agreements are liable to be scrutinized for its AAEC under section 3(4), read with section 3(1), of the Act. Assessment of AAEC of agreement between OEMs and OES 20.6.11 In order to analyze the AAEC caused by such agreements between the OEMs and OESs, we have noted the factors provided in section 19(3) of the Act. Section 19(3) provides: 19(3) The Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the following factors, namely:- (a) creation of barriers to new entrants in the market; (b) driving existing competitors out of the market; (c) foreclosure of competition by hindering entry into the market; (d) accrual of benefits to consumers; (e) improvements in production or distribution of goods or provision of services; (f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e OEMs and the OESs can be pre conditioned with the requirement that the OESs will be subjecting the spare parts that they wish to sell directly into the aftermarket to the same standards of safety checks as the OEMs. The OEMs can license their safety check methodology to their OESs for a royalty fee. Further, the OEMs to safeguard their brand image and to protect their consumer goodwill can require that the OESs label the genuine spare parts sold by them directly in the aftermarket with appropriate labels to limit their liability. Further, the OEMs in their contracts with their customers can limit their warranty against the use of faulty or defective spare parts sold by their OESs. 20.6.13 In view of the foregoing, it is evident how selling finished products in the open market does not compromise the intellectual property rights in such products. Consequently, the mere selling of spare parts and diagnostic tools in the aftermarket by the OESs does not violate the intellectual property rights in such spare parts. Additionally, the OEMs can through its contractual agreements with the OESs ensure that its intellectual property rights are not compromised and are protected. The OEMs c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 970); (c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999); (d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999); (e) the Designs Act, 2000 (16 of 2000); (f) the Semi-conductor Integrated Circuits Layout-Designs Act, 2000 (37 of 2000. 20.6.15 Several OEMs have relied upon the aforesaid exemptions and stated that on account of these provisions, the restrictions of sales on OESs, of their proprietary parts to third parties without prior consent would fall within ambit of reasonable condition to prevent infringements of their IPRs. It has been contended that significant investments are made into research and development facilities by them based on which these products are manufactured. In this connection, certain European Commission decisions have also been relied upon by the OEMs. 20.6.16 In determining whether the agreements entered between the OEMs and the OESs would fall within the ambit of the provisions of section 3(5)(i) of the Act; it is necessary to consider, inter alia, the following: (a) whether the right which is put forward is correctly characterized as protecting an intellect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferred to the OEMs through technology transfer agreements ("TTA"). The Commission notes that a particular IPR claimed by the OEMs are territorial in nature and the particular right is vested upon the holder of such IPR only in a given jurisdiction. Thus, even if the parent corporation of the OEMs held such rights in the territories where such rights were originally granted, the same cannot be granted upon the OEMs operating in India by entering into a TTA, unless such rights have been granted upon the OEMs pursuant to the provisions of the statutes specified under section 3(5)(i) of the Act. Thus, the OEMs pursuant to a TTA were holding a right to exploit a particular IPR held by its parent corporation and not the IPR right itself. Consequently, such OEMs could not avail of the exemption provided in section 3(5)(i) of the Act. It is pertinent to add here, that the Commission is not the competent authority to decide, for example if a patent/trademark that is validly registered under the applicable laws of another country fulfils the legal and technical requirement or is capable of being registered under the Indian IPR statutes, specified under section 3(5) of the Competition Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 20.6.20 The Commission has noted the submissions of the OEMs regarding the applicability of the provisions of section 15 of the Copyright Act to the copyright over the designs of the spare parts and the diagnostic tools. The OEMs have submitted that the drawings and/or the tools/moulds for the various spare parts that are supplied to the OESs are protected under the Copyright Act by virtue of the provisions of the International Copyright Order, 1999 implementing the provisions of the Berne Convention, read with section 33, of the Copyright Act, the copyright over the said drawings would ipso facto extend to the territory of India. The OEMs have further submitted that the Commission does not have jurisdiction to determine whether the protection under the Copyright Act, 1957 can subsist in relation to the spare parts pursuant to the provisions of section 15(2) of the Copyright Act. 20.6.21 The Commission is of the opinion that it does not need to determine the applicability of the provisions of section 15 of the Copyright Act to the designs of the spare parts and diagnostic tools required to repair the various models of automobiles manufactured by the OEMs in order to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trained personnel would be able to medically treat people. Merely selling an automobile diagnostic machine in the open market does not compromise the intellectual property that an OEM may hold in such machines. Therefore, the Commission is of the view that the restrictions imposed upon the OESs from selling spare parts directly into the aftermarket are not within the purview of the exemption of section 3(5)(i) of the Act. The Commission finds the argument of the OEMs of putting the restrictions on OESs for sale of their proprietary parts to third parties as reasonable conditions for claiming the exemption under section 3(5)(i) of the Act unacceptable devoid of any merit. 20.6.23 Therefore, since the exception under section 3(5)(i) of the Act is not applicable to the agreements between OEMs and OESs, the contravention found by the Commission under section 3(4)(c) & (d), read with section 3(1), of the Act stands established. Analysis of agreements/arrangements between the OEMs and the authorized dealers 20.6.24 The DG has during the course of its investigation, examined the conduct of the OEMs with respect to the dealing with the authorized dealers and the terms and conditions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so come across few instances where it has been stated by the discontinued dealers that then dealership was terminated on account of their taking/proposal to take dealerships of other brands of cars. 20.6.25 The findings of the DG have been summarized in the table below. Table 12 Agreement between OEMs and their authorized dealers OEMs Counter sale of Spare Parts Availability of Diagnostic Tools Warranty Conditions Ability of Dealers to deal with competing brands BMW Not Permitted (as per DG's interpretation of clauses of dealer agreement) OEM contents that such sales are allowed Can be accessed at company's website Outside warranty period if cars are repaired by an independent repairer, defects arising not directly out of a defective performance of an independent repairer, is honoured under the warranty obligations Restricted Ford No clause* (DG based upon submissions of multi-brand retailers and independent repairers have contended no such sales occur in practice) Only available to authorized dealers Warranty invalidated if repaired by independent repairer Restricted (However, 61 dealers have undertaken dealership of competing brands) Honda No clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paired by independent repairer Restricted (However, several dealers have undertaken dealership of competing brands) Mercedes-Benz Specific clause which allow dealers to sell spare parts to independent repairers Only available to authorized dealers. Warranty invalidated if repaired by independent repairer Restricted Assessment of AAEC of agreements between OEMs & Authorized Dealers 20.6.26 As already explained while assessing the AAEc of agreements between OEMs and OESs, in order to analyze the AAEC caused by agreements between the OEMs and the authorized dealers also, we have noted the factors provided in section 19(3) of the Act. 20.6.27 The rationale given by the OEMs for such restrictions, such as, (i) the independent operators may not possess the skills required to replace the parts and undertake repairs thereby causing health hazards, (ii) widespread availability of counterfeit parts; (iii) parallel resale network if established would conflict with the distribution network etc. The OEMs have submitted that the rationale behind their policies in restricting access to spare parts and diagnostic tools to independent repairers is to protect the automobile owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , multi-brand retailers and standalone neighborhood garages. Type of Service Centre Number or workshops OEM authorized 19000 Multi Brand Dealers 950 Semi - Organized Service Stations 60000 Neighbourhood Garages/un organized service providers. 300000 Source: The Indian Automotive Aftermarkets study, 2011 As per the DG Report, the Indian automobile aftermarket is serviced by several multi-brand retailers, who have the same scale of operations, in terms of finances, infrastructure and workforce, as many of the OEM authorized dealer workshop. These include Bosch Car Service, Carnation Auto India (Pvt) Ltd, Vahan Motors (Pvt) Ltd and TVS Automobile Solutions (Pvt) Ltd. Therefore, the argument submitted by several OEMs that even if spare parts are available over the counter, the cars could develop fitment defects when serviced by unskilled independent repairers cannot be accepted entirely. For example, a Mercedes car owner may not avail the services of a local garage owner, due to lack of technologically advanced diagnostic tools required to service a Mercedes brand car, however, the Mercedes car owner may be inclined to get his Mercedes car repaired from the repair s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pare parts and diagnostic tools leads to the rise in the usage of spurious spare parts and (b) by denying the independent repairers access to repair manuals force them to work on inefficiently, jeopardizing consumer safety. Further, the Commission is of the opinion that the clauses in agreements requiring authorized dealers to source spare parts only from OEMs or their approved vendors is anti-competitive in nature. Based on the foregoing, there is no doubt that by restricting access of independent repairers to spare parts and diagnostic tools and by denying the independent repairers access to repair manuals, the agreements entered into between OEMs and authorized dealers have fallen foul of the provisions of section 3(4)(b), 3(4)(c) & (d) read with section 3(1) of the Act. 20.6.30 Besides, it may be noted that the DG has also found contravention of the provisions of the section 3(4)(b), 3(4)(c) and 3(4)(d), of the Act, with respect to agreements entered into between OEMs and their authorized dealers, restricting the ability of such dealers to deal in competing products. The Commission, however, is of the opinion that the root of the anti-competitive conduct complained of and as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of innovation. In other words, the ultimate aim of Article 81 is to protect the competitive process. When competition is eliminated the competitive process is brought to an end and short-term efficiency gains are outweighed by longer-term losses stemming inter alia from expenditures incurred by the incumbent to maintain its position (rent seeking), misallocation of resources, reduced innovation and higher prices." This criterion thus requires an analysis of the competitive restraints imposed upon the parties, the degree of competition existing prior to the agreements and the impact of the agreement on competition. It is therefore essential to note the nature of the competitive constraints in while analyzing the AAEC caused by the restrictive clauses of an agreement pursuant to the factors provided in section 19(3) of the Act. In situations where an agreement providing apparent efficiencies allow the enterprise to create structural entry barriers and consequently eliminate the competitive process, the Commission must look beyond the immediate short term efficiency goals of such alleged anti-competitive agreements. It is pertinent to appreciate the long lasting anti-competitive effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprise to completely eliminate competition in the market, and thereby become a dominant enterprise and indulge in abusive exclusionary behaviour, the factors listed in section 19(3)(a)-(c) should be prioritized over the factors listed in section 19(3)(d)-(f). 20.6.35 The ECJ in NederlandscheBanden-Industrie Michelin (Michelin) v. Commission [(1983) ECR 3461, at para 57] explaining the concept of the prohibition of Article 102 stated that, an undertaking in a dominant position: "has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market." Therefore, a non-dominant enterprise may enter into a vertical agreement which forecloses the market but enhance certain distribution efficiencies, and in such conditions the Commission on balancing the factors provided in section 19(3), may conclude that such agreement does not cause an AAEC in the market. However, where such agreements are entered into by a dominant entity, and where the restrictive clauses in such agreements are being used to create, maintain and reinforce the exclusionary abusive behaviour on part of the dominant entity, then the Commission should give more priority to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference to objective criteria of a qualitative nature which are set out uniformly and are not used arbitrarily to discriminate against certain retailers; and (c) the criteria set out do not go beyond what is necessary for the product in question. The OEMs have submitted that the selective distribution network of their authorized dealers comply with the above mentioned standards/conditions and therefore such agreements should not be considered as causing an AAEC in the automotive aftermarkets in India and section 3(4) should be held inapplicable to such agreements. However, Article 5(a); Recital 16 of the E.U. Motor Vehicle Block Exemption Regulation, 2010, provides for certain 'hardcore restrictions', the presence of such restrictions renders a vertical distribution agreement ineligible for the benefits of the Block Exemptions. These 'hardcore restrictions' include: (a) the restriction of the sales of spare parts for motor vehicles by members of a selective distribution system to independent repairers which use those parts for the repair and maintenance of motor vehicle; (b) the restriction, agreed between a supplier of spare parts, repair tools or diagnostic or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumers, enhance revenue margin form the sale of auto component parts as compared to the automobiles themselves besides having potential long term anti-competitive structural effects on the automobile market in India. 20.6.39 Some of the OEMs have submitted that the DG during the course of preparing its investigation reports(s) has erroneously compared the Indian automobile market with those of developed competition regimes, like E.U. and the USA, and have relied upon the statutory provisions of such regimes to reach the conclusions that the OEMs have violated the provisions of the Competition Act. Therefore, the Commission has specifically looked into the practices of OEMs of developing nations and have found that business practices of OEMs, restricting access to spare parts and technical manuals has been frowned upon by competition authorities of developing nations like Brazil and South Africa. 20.6.40 On 8 October 2012, the French Competition Authority ("FCA") published the results of its sectoral inquiry of the motor vehicle maintenance and repair. The main recommendations were against: ♦ any contractual restrictions by OEMs discouraging sale of spare parts to indepe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts, such as automobiles, is frowned upon, since such practices restricts consumer choice besides foreclosing the market for repairs/maintenance contracts by independent repairers. The fact that the competition law agencies of both mature and developing countries have reached the same conclusions, i.e., requiring the removal of practices that limit the availability of spare parts and repair tools, is illustrative of the fact that irrespective of the size, nature of level of development of the automobile industry of such countries, the practices of the OEMs were found to restrict consumer choice and foreclose the aftermarkets and were held to be anti-competitive in nature. Therefore, after analyzing the comparative case laws of other mature and developing competition law jurisdictions and the facts of the present case, the Commission is of the opinion that: i. the OEMs like, Skoda, Mahindra, Nissan and Fiat which completely restrict the access to spare parts and diagnostic tools coupled with an absolute cancellation of warranty if cars are repaired by independent repairs, completely foreclose the market for independent repairers, create barriers to entry and deprive consumers of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... biles and to independent repairers, respectively. However, such OEMs do not allow the sale of diagnostic tools and repair manuals to independent repairers and further the warranty on such automobiles get invalidated if the owners use the services of independent service providers. Further, the agreements also contained clauses requiring the authorized dealers to source spare parts only from OEMs or their approved vendors. Therefore, even in cases of OEMs like General Motors and Mercedes Benz, which allow over the counter sale of genuine spare parts, in effect foreclose the market for independent repairers and other service providers and even such OEMs are, as mentioned above in violation of section 3(4)(b), 3(4)(c) and 3(4)(d) of the Act. 22. Conclusion 22.1 In view of the aforesaid discussions and for reasons recorded earlier, the Commission is of the considered opinion that the Opposite Parties (OPs) have contravened the provisions of sections 3(4)(b), 3(4)(c), 3(4)(d), 4(2)(a)(i) and (ii), 4(2)(c) and 4(2)(e) of the Act, as applicable. As elucidated in detail in the order, the Commission does not accept the "unified systems market" in this case specifically, and in the Indian m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o wish. Where the OPs hold intellectual property rights on some parts, they may charge royalty/fees through contracts carefully drafted to ensure that they are not in violation of the Competition Act, 2002. (iv) OPs will place no restrictions or impediments on the operation of independent repairers/garages. (v) The OPs may develop and operate appropriate systems for training of independent repairer/garages, and also facilitate easy availability of diagnostic tools. Appropriate arrangements may also be considered for providing technical support and training certificates on payment basis. (vi) The OPs may also work for standardization of an increasing number of parts in such a manner that they can be used across different brands, like tyres, batteries etc. at present, which would result in reduction of prices and also give more choice to consumers as well as repairers/service providers. (vii) OPs are directed not to impose a blanket condition that warranties would be cancelled if the consumer avails of services of any independent repairer. While necessary safeguards may be put in place from safety and liability point of view, OPs may cancel the warranty only to the extent that da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other mitigating circumstance to which the Commission assigns weight is the fact that many of the opposite parties, though not all, indicated willingness to voluntarily discontinue many of these practices and offer greater choice and freedom to the consumers, repairers and dealers 22.6 In view of the foregoing, the Commission imposes a penalty of 2% of total turnover in India of the opposite parties. As such, the penalty imposed on different parties is as follows:- S.No. Name Turnover for 2007-08 (in crores) Turno ver for 2008-09 (in crores) Turnover 2009-10 (in crores) Turnover 2010-11 (in crores) Turno ver 2011-2012 (in crores) Total Turno ver for three years (in crores) Average Turnover for three years (in crores) @2% of average Turnover (in crores) 1. Honda Siel 4039.72 3526.08 4204.43 -- -- 11770.23 3923.41 78.47 2. Volkswagen India Pvt Ltd* 26.01 95.77 366.16 -- -- 487.94 162.65 3.25 3. Fiat India Automobiles Ltd 369.96 792.02 3334.66 -- -- 4496.64 1498.88 29.98 4. BMW India Ltd 826.93 964.07 1270.12 -- -- 3061.12 1020.37 20.41 5. Ford India Pvt Ltd 2068.89 1754.32 2144.38 -- -- 5967.59 1989.20 39.78 6. General ..... X X X X Extracts X X X X X X X X Extracts X X X X
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