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Schott Glass Case: COMPAT Strikes Down CCI’s Order!

Published on Mon, Apr 14,2014 | 20:09, Updated at Mon, Apr 14 at 20:09Source : CNBC-TV18 |   Watch Video :

Big is not bad, said the Competition Appellate Tribunal last week when it struck down CCI’s majority order that had found Schott Glass India guilty of abuse of dominant position. In relying on the minority order of the CCI, the COMPAT has laid down precedent setting economic and procedural principles. Payaswini Upadhyay gets you the fine print.

In 2012, the CCI had found Schott Glass India guilty of abuse of dominant position in the supply of glass tubes used in pharmaceutical containers and imposed a penalty of Rs 5.66 crores. But that was the majority view. In a minority order CCI member Geeta Gouri had disagreed. Last week, the Competition Appellate Tribunal upheld the reasoning of the minority order. But a common finding across orders was that India is the relevant geographic market and Section 4(a) of the Competition Act was interpreted to mean that dominance of the enterprise is required to be tested in relevant market in India.

 

Paku Khan

Partner, Khaitan & Co.

“That’s going to have a result of false positives which means that if the market is actually worldwide based on the economic realities but by statute, both the COMPAT and the CCI say that it can never be wider than India, that’s going to have all sorts of unintended results. The bottom-line is that the geographic market is what it is; statute can’t change that. What they should be looking for is the effects in India and the relevant market- however it is defined- whether the dominant position involves India and whether there’s an abuse.”

The second important principle that could be precedent setting is the Tribunal’s conclusion on discriminatory pricing.

CCI’s majority noted that Schott Glass India gave higher target discounts to its joint venture on a monthly basis while discounts to other customers was lower and on a quarterly basis. The majority order also pointed out that the discount percentage was determined on the basis of quantity purchased. And so, it had concluded that Schott Glass India abused its dominant position by indulging in discriminatory pricing.

But the Tribunal disagreed and pointed out that since pricing reflected differences in the quantity purchased, there was no case of discrimination.

 

Paku Khan

Partner, Khaitan & Co.

What we have here is – in both the majority and minority orders and COMPAT’s decision- is a reference to target discounts and it’s not clear to me what they are talking about. Target discounts applied retroactively meaning that if I’m a dominant company and I tell you that if you buy 1000 units of my product at the end of the year, I will give you a very very large discount and ill rebate money back to you. That’s very different from saying if you buy a 100 units, your pricing for next units will be reduced because of volume discounts or quantity discounts on a go-forward basis. So the issue here is what is the reference period- are they looking backwards and incentivizing which would be a loyalty inducing discount and therefore problematic in Europe or is this a forward looking slab based discount. It’s not clear to me.”

The third key conclusion made by the COMPAT relates to functional discounts.

CCI’s majority order noted that Schott Glass India gave functional discounts based on a sale purchase agreement. It included promotion of Schott’s tubes by agreeing to purchase an agreed quantity; non-usage of Chinese tubing, signing the trade mark licence agreement, and maintaining fair pricing of Schott’s products that were sold by them. The functional discount too was given to the joint venture company on a monthly basis but on an yearly basis to others. The regulator concluded that Schott Glass India was discriminating not only on the basis of quantum but also on conditions of discount and that the functional discount amounted to insistence on loyalty which was unfair under the law.

Here again, the Tribunal relied on the minority order of the CCI to conclude that the functional discount was made available uniformly to all customers at the same flat rate and the insistence on signing the trade mark licensing agreement was to avoid the mixing risk with inferior quality imports.

 

John Handoll

Senior Advisor, Amarchand Mangaldas

“Essentially, there is an issue if you have a discount policy which requires or encourages people to buy your product to the exclusion of competitive product. So, if you, for example have a customer loyalty rebate, then you have a problem. What the COMPAT is saying we are not talking about a loyalty rebate; we are talking about a system which is really to discourage the use of inferior Chinese products. So there was no exclusionary policy. And the COMPAT also made it plain that you have to show that there was a negative impact on competition in the market place.”

The final important precedent that this order sets is a procedural one. The Tribunal observed that the evidence relied upon by the CCI came from interested witnesses and Schott Glass India was not given any opportunity to cross examine them. The COMPAT has frowned upon this practice of the CCI.    

 

John Handoll

Senior Advisor, Amarchand Mangaldas

“In the EU, over the years, the courts have told the European Commission that they have to get their facts right; they have to make sure that the evidence they have is sufficiently robust to reach a conclusion and cross examination includes that. And what we have here is the COMPAT saying you- the CCI- must do the same and make sure the evidence that you use to make a finding of infringement is robust and that I think is where individual rights come into play.”

When asked about the lapses on principles of natural justice, the CCI Chairman had recently told this show that if the Commission goes all the way of such processes, it could be in serious danger of becoming like civil courts. But successful appeals on the principles of natural justice and now the COMPAT’s observation that the regulator should give the opposing party an opportunity to cross-examine the witness sets a higher standard than what the CCI has set for itself.

In Mumbai, Payaswini Upadhyay

 
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