Author: Vijayaditya Reddy & Manjri Singh
The authors are the students at the National Academy of Legal Studies and Research (NALSAR) University of Law.
I. Introduction
The Competition Commission of India (CCI) has ordered the Director General (DG) to probe into the alleged abuse of dominant position by Intel Corporation (opposite party 1) and it’s Indian subsidiary Intel Technology India Private Limited (opposite party 2) on 09.08.2019, after receiving information from Matrix Info Systems Private Limited (informant), a Delhi based IT trading company engaged in the business of importing, wholesaling, distributing and supplying IT products. Intel is a multinational company engaged in the manufacturing of electronic devices relating to communications and computing.
II. Background of the Case
IT products are sold by sellers/re-sellers that acquire these products from either the manufacturing company or the authorized distributors, either in India or abroad and in the ordinary course, most of these products come with a manufacturer’s warranty, which is worldwide. Over the last few years, Intel has named certain sellers/distributors as its authorized sellers in India, who sell the company’s products directly to the consumers with a country-specific warranty in place of a worldwide warranty. The informant imports Intel’s microprocessors from its authorized sellers in other countries (parallel imports) and sells the products at cut-throat prices in India competing closely with Intel’s authorized sellers. Parallel imports benefit consumers as goods are imported from other countries at a much cheaper price than the destination country and are sold at competitive prices.
Until 2016, Intel used to provide manufacturer’s warranty for its boxed microprocessors that may have been bought from any part of the world. However, w.e.f. 25.04.2016, Intel has changed its amendment policy to country-specific which entails that no warranty request would be entertained by Intel if the products are purchased/imported from other countries even when purchased from its authorized distributors. As per the new policy, warranty for Intel boxed micro-processors can be claimed only when the same is purchased from Intel’s authorized sellers in India.
It is the case of the informant that this change in the warranty policy would force the consumers to purchase the products only from Intel’s authorized sellers in India in order to avail the after-sales warranty thereby limiting the consumers’ choice and drastically affecting the business of the parallel importers and independent re-sellers in India. Although it is possible for the consumers to claim warranty from the distributor abroad, it would neither be cost-effective nor feasible on account of cross-border restrictions and time implications. This puts Intel in a position of power where it can sell the micro-processors at higher prices in the absence of competition.
The informant has alleged violation of Section 4(2)(a)(i) of the Competition Act, 2002 (the Act) by Intel for imposing unfair and discriminatory conditions of warranty and violation of Section 4(2)(c) of the Act for denial of market access to parallel importers and individual distributors/re-sellers by not providing warranty on its boxed micro-processors when not purchased from authorized distributors of Intel in India. The informant further alleged an infringement of Section 3(4)(c) and 3(4)(d) which prohibit exclusive distribution agreements that result in an appreciable adverse effect on competition (AAEC) satisfying the conditions of Section 19(3) of the Act.
In its response, Intel argued the difference between warranty and warranty service and stated that all the microprocessors come with a 3-year limited warranty when purchased from authorized distributors in any part of the world. When the same is purchased from parallel importers or individual re-sellers in India who acquire the same from authorized distributors in other countries, it is the warranty service that is denied and not the warranty itself. It is the case of Intel that for micro-processors purchased from other countries, warranty service is available at the place of purchase. It is further argued that the reason for its India specific warranty is that importers in India import goods by under-invoicing or import old and salvaged parts as new products. It is to protect the consumers from such old and used products that Intel has come up with an exclusive India-specific warranty and the same does not impair competition in any way.
The Commission delineated the relevant market in the present case as ‘the market for boxed microprocessors for desktop PCs and Laptop PCs in the territory of India’. With respect to dominance, the Commission had already found Intel to be in a dominant position in the same relevant market in India in the case of ESYS Information Technologies Pvt. Ltd. v. Intel Corporation. Based on the facts and submissions presented by both the parties, the Commission formed a prima facie opinion that the new India specific warranty policy might lead to denial of market access to the informant and other parallel importers & resellers of Intel’s microprocessors in India. The Commission was also of the prima facie opinion that the new warranty policy had the potential to limit customer choice and lead to the prevalence of higher prices in the absence of competition from parallel importers and re-sellers. Under Section 26(1) of the Act, the Commission ordered the DG to investigate into the matter and submit an investigation report.
III. Analysis
In the European context, similar agreements aimed at restricting parallel imports have been found to be violative of competition law, by the European Union Competition Commission (Commission) and the EU Courts. This was illustrated in GlaxoSmithKline v. Commission where the Court of Justice held that an agreement or policy aimed at limiting parallel trade inevitably has as its object the restriction of competition. The Court in General Motors BV v. Commission found infringement of competition rules where the restriction of competition was not the sole object but also concerned other legitimate objectives. In such cases, the agreement can be found to be violative in itself as competition rules protect ‘competition as such’ and consequently the choices available to consumers. In the Konica case (OJ [1988] L 78/34), the Commission condemned Konica’s action of buying its own film imported from the UK into Germany in order to protect its German distributors from cheap imports; this action of Konica did not prohibit parallel imports but it deprived the German consumers of purchasing the film at lower costs. It was held in ETA Fabriquesd’Ebauches v. DK Investments SA that partitioning of markets by denying the benefit of guarantees to imported goods was contrary to competition rules.
On applying the underlying logic of competition law as evidenced from the rationale in the above-illustrated cases to the Indian context, the first observation to be noted is that the new warranty policy of Intel will lead to an indirect restriction on parallel imports, effectively an indirect import ban on boxed micro-processors in India. Secondly, there is an object-effect dichotomy that is applied in the EU context. Agreements may be restrictive of competition by object i.e. the very terms are anti-competitive, or by effect i.e. the agreement when implemented will have an adverse effect on competition. Generally, the former carries the presumption of violation requiring negligible statistical demonstration of the market effect. If this framework is used in the instant case, Intel’s agreement has as its object to restrict competition; it may be argued that the policy itself suffices to demonstrate that it is anti-competitive in nature. This should be seen against the backdrop of Intel directly penetrating the distribution market through recognition of authorized distributors in India and modifying the warranty to protect these distributors from cheaper imports.
Even as Intel highlights quality customer experience to defend the policy, this objective even if legitimate does not take away from the primary objective of the agreement. Further still, the difference emphasized between warranty and warranty service is a mere technicality meriting no legal significance. The larger impact of such a policy is to demarcate national markets and protect differing country-specific price ranges. In the instant case, the detriment to the final consumer is also evident with the limitation on warranty and choice of distributor. In the final comment, a warranty must be available irrespective of where the product is purchased or marketed in order to not restrict parallel trade and maintain a healthy competition.