August 13, 2019

Unfair warranty policies by an enterprise prima facie amount to abuse of dominant position and is in contravention of Section 4 of Competition Act, 2002: CCI

[ by Legal Era News Network ]


Matrix Info Systems Pvt. Ltd. (Informant) filed the present information with the Competition Commission of India (Commission) under Section 19 (1) (a) of the Competition Act, 2002 (Act), against Intel Corporation and its Indian subsidiary Intel Technology India Pvt. Ltd. (collectively “Intel”). The Informant alleged that Intel contravened provisions of Sections 3 and 4 of the Act.

The Informant, a Delhi based Information Technology (IT) trading company engaged in the business of importing, wholesaling, distributing and supplying a wide range of IT products, imported Intel Micro-processors from Intel Corporation's authorised distributors in other countries and sold the same to consumers in India at highly competitive prices. Intel Corporation is a leading multinational corporation and technology company incorporated in USA which is engaged in the activities of designing and manufacturing of a wide range of IT components, peripherals, computer systems, etc. as well as manufacturing and distribution of electronic devices relating to communications and computing including micro-processors etc.

Recently Intel Technology India Pvt. Ltd. entered into exclusive agreements with certain sellers/distributors and appointed them as their authorised sellers, who directly sold the IT products of such companies to the consumers in India with a country-specific manufacturer's warranty instead of worldwide warranty.

The Matrix Info Systems stated itself to be a parallel importer of Intel Micro-processors in India, as permitted under the Indian law. According to the Informant, such parallel imports benefitted the consumers as import of goods from a country with lower prices force sellers in the country of destination to reduce prices.

The Informant said that prior to 2016, Intel used to provide manufacturer's warranty within India on its Boxed Micro-Processors that may have been purchased from any country in the world. However, w.e.f. 25.04.2016, Intel amended its warranty policy for India, according to which Intel would entertain warranty requests for Intel Boxed Micro-processors in India only when the same are purchased from an authorized Indian distributor of Intel that too within the country which would force Indian customers to purchase Intel's Boxed Micro-Processors only from the authorised distributors of Intel in India in order to avail the after-sales warranty within the country. This affected the business of independent resellers and parallel importers like the Informant. As a result of this country-specific warranty for India, Intel did not acknowledge warranty requests on its Boxed Micro-Processors purchased from anywhere else in the world even if these purchases were made from the authorised distributors of Intel in other nations.

As per the Informant, such change was made by Intel without any legitimate justification and Intel behaved in a differential manner with the Indian market. As per the Informant, such separate warranty terms of Intel for India vis- à-vis the rest of the world, is arbitrary and unfair towards the Indian market and consumers. The Informant also asserted that it was abusive in nature and anti-competitive under the provisions of the Act. Moreover, such policy changes would allow Intel Technology India Pvt. Ltd.’s Indian authorised distributors a position of power to sell Intel's Boxed Micro-Processors at higher prices. The Informant has claimed that though it may be possible to claim warranty on Intel's Boxed Micro-Processors purchased from outside the country by sending these abroad, it may not be feasible to do so on account of cross-border restrictions and cost and time implications.

The Informant alleged violation of Section 4(2)(a)(i) and Section 4 (2) (c) of the Act as Intel limited and restricted the business of other resellers and parallel importers and denied market access to them by not providing them warranty on Intel's Boxed Micro-Processors in India when not purchased from the authorised distributors of Intel. It was further alleged that Intel was indirectly imposing unfair disadvantage on the independent resellers for selling Intel Boxed Micro-Processors at lower prices in comparison to Intel's authorised distributors. Such conduct of Intel and its agreement with its Indian authorised sellers/ distributors caused an appreciable adverse effect on competition ('AAEC') in terms of Section 19 (3) of the Act.

On the contrary, Intel asserted that it did not violate of Section 4(2)(a) of the Act, as Intel's India specific warranty policy for Boxed Micro-processors applied to all purchasers in India and there was no discriminatory treatment by Intel in this regard. Further, Intel stated even after change of warranty policy, the Informant had imported multiple Intel Boxed Micro-processors in India which evidenced that there was no denial of market access by Intel.

The Informant filed a certificate under Section 65B of the Indian Evidence Act, 1872 (IEA) in support of its information.

Documents on record showed that the market share of Intel was at least three times the market share of its only competitor in the Micro-processors market i.e. AMD. Further, the information available did not show that AMD specialised in either the Tray or the Boxed Micro-processor market. Therefore, it could be safely assumed that even in the segregated market of Boxed Micro-processors for Desktop and Laptop PCs respectively in the territory of India, Intel had a high market share.

The Commission stated that India specific warranty policy of Intel had the potential to lead to denial of market access to the parallel importers and resellers of Intel Boxed Micro-Processors in India, who are competitors of Intel's Indian authorised distributors. Moreover, the absence of competition from parallel importers, may lead to the risk of prevalence of higher prices for Intel Boxed Micro-Processors in India. From a comparison of prices of one type of Intel's Boxed Micro-processor showed that the rates offered in India was almost twice the rates offered by Intel's authorised distributors outside India.

The Commission observed that the new warranty policy of Intel in India aimed at disincentivising the purchase of Intel Micro-Processors from distributors other than Intel's authorised distributors in India even though purchased from Intel's authorised distributors abroad at cheaper rates. This had the effect of raising prices offered by Intel authorised distributors in India.

The opinion of the Commission prima facie was that the distinction made by Intel by means of its new India specific warranty policy between the products purchased in India from Intel domestic authorised distributors and those purchased from Intel's foreign authorised distributors, was unfair and discriminatory, especially when seen in the light of the fact that such differential treatment was not meted out by Intel in other jurisdictions. Such act amounted to abuse of dominant position by Intel in contravention of the provisions of Section 4 of the Act.

The Commission held that the new differentiated India specific warranty policy of Intel in regard to its Boxed Micro-Processors was in contravention of Section 4 (2) (a) (i) of the Act. It prima facie resulted in limiting or restricting the market for Boxed Micro-processors for Desktop and Laptop PCs in the territory of India in contravention of Section 4 (2) (b) (i) of the Competition Act. It also resulted in denial of market access to parallel importers in contravention of Section 4 (2) of the said Act.

The Commission directed the Director General to cause an investigation into the matter and submit an investigation report.

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