Amazon and Flipkart found violating Competition law in India-DG investigation report out
Following its own precedence in the recently decided Britannia Case, the Competition Commission of India (“CCI/Commission”) vide its order dated 06.07.2022 dismissed another similar complaint filed by the same Informant against Parle Products Private Limited (“Parle/OP”) holding that the informant has not been able to demonstrate any exclusionary practice on behalf of Parle which may hinder the development of a competing supply chain for the products of the Parle and hence no prima facie case of refusal to deal or abuse of Dominance is made out in the market of Biscuits in India.
The information in this case was again filed by Hiveloop Technology Private Limited (“informant/Udaan”)
Like in the previous Britannia case , the Informant delineated the relevant market as the market for glucose biscuits in India and made a distinction between the glucose and non-glucose biscuits and submitted that the a consumer in the market for non-glucose biscuits would not consider glucose biscuits to be an consistent alternative and vice-versa making the two market segments clearly distinguishable in terms of section 19(7)(b) of the Competition Act, 2002(“the Act”).
It was further submitted that Parle-G biscuits command brand loyalty and haves developed into a ‘legacy brand’ which is a ‘must-stock’ and that Parle derives majority of the revenue from the sale of the Parle-G and it has a market share of 83% in the relevant market of glucose biscuits in India and based on the high market share , the informant contended that Parle is dominant in the relevant market for glucose biscuits in India .
Allegations
It was alleged by the informant that despite informant’s consistent efforts and attempt to deal in good faith on terms at par with the general market practice, Parle had refused to deal directly with the informant as a result of which it had to buy the Parle-G from the open market thereby increasing the input cost and causing a competitive disadvantage and squeezing its margin as compared to the other distributors.
Informant alleged that though Parle products are made available on the informant’s platform since 2018, Parle had never supplied these products directly to the informant, which is a clear case of refusal to deal and violating the provisions of Section 4(2) of the Act. It was further alleged that Informant had made several attempt to negotiate with Parle but still had not been able to secure terms of trade comparable to the other distributors. Further, owing to the high market share of Parle and admission by other competitors that Parle is strong player in the glucose market, the conduct of Parle is in stark violation of Section 4(2)(c) of the Act.
Further the informant had also alleged the violation of provisions of Section 3(4)(d) of the Act stating that Parle has been dealing under an agreement with other distributors who are then selling in the open market. But, Udaan has been forced to procure Parle’s product in the open market and is not able to deal directly with Udaan. Such conduct of Parle is nothing but constructive refusal to deal, which is borne out of the agreement between Parle and its distributors.
Based on the above allegations the informant had submitted that the Parle’s refusal to deal has the effect of creating and strengthening barriers in the market for distribution of its product, thereby softening the intra-brand competition to the detriment of the retailers and the end customer. Further it was also submitted by the informant that if the sufficient supply at par with its competitors are not provided to the informant, it may have to exit the market altogether, since they would not be able to compete effectively, implying it would remain foreclosed for 83% of the relevant market.
Parle’s response
Parle in its reply refuted all the allegations levelled against it and submitted that the there is no competition concern in the matter and the informant is abusing the machinery of the Act to settle its commercial grievance.
At the outset Parle refuted that the relevant market delineated by the informant and submitted that the relevant market to be considered in the case should be Market for biscuits in India or alternatively the narrowest possible relevant market would be market for sweet biscuits in India or market for non-sweet biscuits in India.
Parle further submitted that regardless of the metric adopted for segmentation, viz., sweet/non-sweet, price, or premium/mass market, Parle cannot be considered a dominant player in terms of market share or market power, and there is also presence of competing products by other manufacturers, which pose competitive constraints. Parle relied upon the study conducted by market research firm IMRB and Nielsen to substantiate its contention on its dominance. Accordingly, Parle submitted that it is not dominant in either in the ‘market for biscuits in India’ or in the ‘market for sweet biscuits in India’.
Further Parle held that even if it is assumed that Parle is dominant in the market, there is no abuse of its dominant position. Parle submitted that in order to prove that the alleged refusal to deal/supply tantamount to abuse, three criteria should be fulfilled; firstly, refused input (Parle-G) is indispensable for the Informant; secondly, refusal to supply (Parle-G) will eliminate competition in the downstream market; thirdly, refusal will harm consumers
But in the present case market has not been entirely foreclosed and the informant can purchase Parle-G from the wholesaler market (alternative source) and thereafter, sell the product on its online platform, no benefit accrues to any consumer, since the ultimate consumer would continue to pay the same Maximum Retail Price (MRP) on the product as they are paying presently. This would only entail the effect of compelling Parle to deal with the Informant, against its wishes, to maximize the profits of the Informant and temporarily increase the retailer’s margins, with the loss-making model of the Informant.
Further Parle submitted that its conduct is objectively justified. It was further submitted that while appointing a distributer Parle sees certain attributes which are not met by the informant’s platform. Further It was submitted that the business model of the Informant is based on accumulating massive debts through raising funds from venture capitalist and other markets and, as per publicly available information, it is a massive loss-making enterprise year on year. For Parle, it is important that its distributors are entities capable of surviving in the long term and are further capable of honoring their payment obligations. Thus, in view of such precarious financial position and risky debt driven business model of the Informant, Parle had legitimate business justifications and concerns about the long-term viability of the Informant as a reliable partner in the distribution channel.
Informant Rejoinder
Further in the rejoinder to the reply filed by the Parle, besides retreating all its allegations, the informant to further substantiate the allegations introduced a new fact for the first time that the distributorship of an agency at Varanasi was terminated by Parle as it was supplying Parle’s products to the Informant.
Informant had also submitted an audio clip containing a recording of a certain Parle official, whereby the vehicle transporting products of Parle to the Informant’s godowns was seized by a separate distributor in the presence of Parle officials, though a compromise was made between the parties after the intervention of the police.
Based on the above incident the informant submitted that there exists vertical anti-competitive arrangement/agreement between Parle and its distributors to effect refusal to deal against the Informant by creating an exclusive distribution network, which cumulatively leads to denial of market access by systematically restricting supply of Parle’s products to the Informant directly and indirectly. This is in breach of Sections 3(4)(c), 3(4)(d), and 4(2)(c) of the Act. Also, Parle’s conduct ought to be examined under Section 4(2)(b)(i) for limiting and restricting the provision of services, and Section 4(2)(b)(ii) of the Act for limiting and restricting technical and scientific development in the market.
CCI Findings
At the outset Commission expressed its displeasure on the conduct of the Informant that it did not disclose the fact regarding the incident at Varanasi, even though Informant knew this even before filing the information. The Commission expressed its displeasure on the conduct of the parties, which play hide and seek with facts and adopt a truant approach.
On merits, in delineating the relevant market, Commission relied on its previous decision in the Britannia Case wherein it had delineated the market as the market for Biscuits in India and held that there is no reason to depart from the said finding in the facts and circumstances of this case and that the narrow segmentation of the market as envisaged by the Informant is not warranted.
The Commission, however, noted that Parle has the market share of approximately 27% in the overall biscuit category and hence it cannot be said that Parle does not have market power. Further the fact that Parle is able to choose its trading partners and has not evinced interest in a technology platform like that of the Informant, which had a wide reach itself, tends to show that Parle possesses some degree of market power.
On the issue whether there exist a ‘vertical agreement’ between the existing distributors and Parle, as covered under section 3(4) of the Act, the Commission noted that the incident of Varanasi wherein it was alleged that distribution agreement of one of the distributor was cancelled as he was dealing with the informant remain unsubstantiated in the absence of Parle not having had a chance to respond, as this was disclosed only in the rejoinder to the reply filed by Parle.
Commission noted that even if it was assumed that Parle had placed vertical restraint on one of its distributor not to deal with the informant, the same could not have had any effect on competition as no retailer or the end customer appeared to be effected by such refusal. Commission agreed with the submission of the Parle that under the facts and circumstances of the case the Parle is under no obligation to deal with the informant. Commission held that informant had not been able to establish a business relationship with Parle in the first place. The obligation to treat equally arises amongst parties that are equally placed. An entity which is yet to be accepted as a trading partner either expressly or impliedly may not be entitled to claim a same or similar right as available to an existing distributor. Further, even amongst distributors, it may not be out of place to subject them to different terms of trade when the same is stated to be based on sound commercial logic and not in derogation of any governing laws, and therefore, equal treatment is not any bounden obligation cast in iron and stone.
With respect to the ‘must have’ stock, as alleged by the Informant, the Commission disagreed with the informant and held that one brand of biscuits is ‘Must Have’ or so indispensable that not directly dealing with the Parle will pose an existential threat to the informant in the biscuits market. Further the Commission was of the view that free exercise of right of the manufacturer may only be limited to the extent of marking competition prevailing in the market.
Further on the issue of the Manufacturer’s freedom to choose its business partners, the Commission again agreed with the contentions of the Parle under the facts and circumstance of the case. The Commission retreated its view in the Britannia Case (Supra) on this aspect.
Further on the objective justification given by the Parle in not dealing with the informant, the Commission observed that the type and nature of distributors a manufacturer desires to partner with is an essential part of the autonomy of its business, and the Commission cannot ipso facto substitute its regulatory wisdom to that of the commercial wisdom of the businesses, unless the commercial wisdom is palpably in the face of the provisions of the Act, and the criteria laid down are ex facie unfair and/or discriminatory and designed with a view to exclude/eliminate competition on merits.
Lastly Commission assessed the adverse effect of the Parle’s conduct and prima facie held that there entails no market foreclosure, there is no allegation that any of the existing distributors have exited the market on account of any anti-competitive conduct. The Commission noted that the overall competition is not getting or likely to get adversely effected in any of the market at this stage.
The Commission noted that there is apparently no barrier to entry either in the manufacturer’s market or in the distributor’s market, considering the large number of biscuits manufacturers in the upstream as well as the presence of Parle distributors in the downstream market. The Commission noted that there is no existential treat to the informant, considering that informant is an online B2B platform catering to multiple product segment pan India and is not significantly dependent on Parle’s product. Further there are multiple other similar players in the market. Thus, Commission was of the view that neither intra-brand nor inter-brand competition appears to be affected to cause or likely to cause an appreciable adverse effect on competition (AAEC) in the market.
Based on the above reasoning, the Commission concluded that there is nothing to indicate in the case that the autonomy of Parle needs to be curtailed, hence the Commission was of the prima facie view that, the Informant has not been able to demonstrate any exclusionary practice on behalf of Parle within the purview of the Act, which may hinder the development of a competing supply chain for the products of Parle. CCI, therefore, held that there exists no prima facie case of contravention of the provisions of Sections 3(4) and Section 4 of the Act against Parle, and therefore, ordered the matter be closed forthwith under Section 26(2) of the Act.
COMMENT: This is the second complaint filed by Udaan against another manufacturer on the similar grounds of a particular brand being popular and hence claimed it be a must have brands for all retailers to constitute a separate relevant market. Such narrow definition of the market was not backed with sufficient data to be accepted as such and hence apparently, CCI had to follow its precedent in Britannia Case to close this case as well. However, although refusal to deal with the Informant was apparent from the Varanasi incident, which also showed some sort of understanding between the manufacturer Parle and its existing offline distributors, to deny supplies to Udaan , yet CCI chose to ignore it, perhaps, because of lack of evidence of such refusal likely to cause AAEC in the relevant market, as defined by the Commission.
#Parle #Udaan #refusaltodeal #Competitionlaw
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