Shubham Gandhi [i]
The Competition Commission of India ("CCI") on August 13, 2021, dismissed the complaint filed by Star Imaging and Janta X-Ray Clinic Pvt. Ltd. ("Informants") under Section 19(1) against M/s Siemens Healthcare Pvt. Ltd. & Ors. ("Opponents") for alleged contravention of Section 3(4) namely, refusal to deal and abuse of dominance under Section 4 of the Competition Act, 2002 ("Act"). Section 3(4) of the act is based on rule of reason, wherein there are certain types of vertical agreements, which if causes appreciable adverse effect on competition, will be declared void as per section 3(2). Furthermore, Section 4 of the act declares that no enterprise or group shall abuse its dominant power for which Section 19(5) lays down parameters in order to determine dominance of an enterprise in the market.
The Informants run a business of providing diagnostic and lab services to patients in Delhi. They buy the necessary machinery, namely, Somatom Scope CT Machine and Verio MRI Machine from the Opponents. The CCI, after considering arguments from both sides on alleged violation of Section 4 held that the Opponents do not hold a dominant position in the market and hence dismissed the complaint as per Section 26(2) of the Act.
This article will highlight the CCI's lack of reasoned approach, wrongful derivation of concept of the relevant market, and failure to consider the relevant material resulting in the lost opportunity to reiterate the law on the subject of relevant market under Section 4 of the Act.
Wrongful Derivation of Relevant Market
The Informants, with regards to Section 4, alleged that the Opponents do hold a dominant position in the market. While relying on the case of Shamsher Kataria v. Honda Siel Cars and Other ("Shamsher"), the Informants stated that there are two relevant markets, viz., (i) Manufacturing and supply of CT Scan Machines and MRI Machines in India (primary market), and (ii) Market for sale of spare parts and repair service of those machines (Secondary/after service market). The Informants then argued that the Opponents were the sole manufacturers and suppliers of the machines and are in possession of all the software, know-how, spare parts etc., and they do not authorize any other person to provide service repair of their machines. Moreover, the machines are password-protected, so no other person or service provider can break the same without prior approval.
The Opponents, in response to this allegation, relied on the judgment of M/s Magnus Graphics v Nilpeter India Pvt Ltd., and submitted that there is no need to define two separate markets, as there are several Independent Service Operators ("ISO") like Philips Healthcare, GE Healthcare and Canon to substitute them, and therefore, holding them dominant in such a narrow market is not justifiable.
At this juncture, it is important to note the parameters laid down by the CCI in the Shamsher case while dealing with the secondary market issue. Accordingly, the factors for determining secondary market are:
Whether a consumer can shift to another primary market product without bearing substantial switching costs or financial burden? (Lock-In or Exit barrier)
The inability to conduct the whole life costing of a product.
Whether the issue of interchangeability/substitutability is to determine the compatibility between the secondary products vis-à-vis the various brands of primary products?
The author submits that the CCI fails to take into consideration that the informants in the present case get 'locked-in' to the primary product as each machinery amounts to enormous cost, i.e., "CT Machine, Espree MRI Machine, and Vero MRI Machine was ₹1.5 Crores, ₹5 Crores, and ₹7.22 Crores" as stated in para 7 of the order. Therefore, the feasibility of shifting primary products will lead to greater financial loss. Moreover, the high cost of substituting goods for consumers is a factor determinant that showcases dominance in the market, which also found mention in Section 19(4)(h) of Act, which states “entry barriers including...high cost of substitutable goods or service for consumers.”
In addition, there were no other ISO’s which deals in these types of heavy machinery, as Philips healthcare themselves admits that "...they are not involved in multi-vendor services in India and do not possess the resources to provide for the systems as enquired." Also, there was no evidence which showcased that other ISO’s like GE Healthcare, Canon, Hitachi, had the competence to provide assistance for the systems manufactured by the Opponents.
Further, the Opponents held complete dominance in the after-service market as there is no substitutability of their equipment coupled with the fact that machines are password protected. The fact that consumers have to obtain prior permission, without which access to machinery is not possible, showcases the dependence of consumers on enterprise, which is one of the elements of dominance laid down in section 19(4)(f). Moreover, the enterprise, by protecting the machinery, imposes a market entry barrier and technical entry barrier, as no ISO is able to access the machinery, which is again a factor determinante of dominance as per Section 19(4)h). Also, the Opponents were demanding ₹1,10,000 for a 10 meter optic fibre cable which is exorbitantly higher than the price of the cable available in the market for a maximum of ₹4,000, under the pretext of its cable being safe, demonstrating that they were abusing their dominant position. The Opponents by their own submission accepted that consumers can buy cable from other ISO, demonstrating that there is no significant difference between two cables.
However, the CCI fails to consider all the above points, most importantly the fact that the ISO relied on by the Opponents themselves denied services of the same and rejected the challenge on Section 4 of the Act without providing adequate reasons for its decision.
Element of Substitutability in Aftermarket
The Informants alleged that excessive charges demanded by the Opponents for a 10-meter optic fiber cable showcases the abuse of dominant position. The Opponents, in its response, stated that the optic fiber cable is readily available in the market, and the Informants are free to "procure a cable from local markets if they are not satisfied with the price." Further, the Opponents argued that since the fiber cable can be substituted, this should be taken into consideration, and therefore there is no dominance of Opponents in the secondary market as the product is substitutable, which was ultimately upheld by the CCI.
However, it is submitted that the CCI fails to consider one of the submissions made by the Opponents, which results in self-contradiction. In many parts of its submission, the Opponents, while justifying the hike price between two 10-meter optic cables stated that, "(Opponents) recommend using only authentic and quality-checked spares to avoid operational hazards and risk to patient safety."
Moreover, "On the allegation of excessive pricing for replacement of optical fibre cable, OP-3 stated that...price of authentic and quality-checked cable cannot be compared to ones available in the local market."
The Opponents, by their submission, accepted the fact that the optic fiber available in the market is a distinct product from the one sold by them. This further supported the contention that the after-service market was a relevant market to be dealt with, and the Opponents had total dominance over the same, coupled with the password-protected machinery system, which does not enable any other service provider to intrude.
Unfortunately, the CCI did not consider this inherent contradiction between submissions made by Opponents, which showcases the lack of reasoning.
Password Protected Machinery System
The Informants contend that the scheme of non-sharing of encryption key/password also violates Section 3(4) of the Act as non-provision of adequate know-how and spare parts by Opponents results in 'refusal to deal.'
In contrast, the Opponents submit that the password protection scheme is essential to prevent unauthorized and under-qualified persons from accessing the machines, and it also ensures protection of Intellectual Property rights. Also, the Opponents submitted that they are willing to provide the password against payment of a reasonable license fee. The CCI, in its order, noted that the practice is reasonable and "IPs (informants) have also not brought out any fact/evidence to show whether OP-3 has created any hurdles even upon due willingness of IPs for obtaining such password after payment of fees."
However, the CCI fails to take into consideration the material fact wherein the Informants approached the Opponents to obtain the password but received a vague reply from the Opponents via email stating, "However, Service password can be provided in special cases at a Price against Service License User Agreement between User and Siemens Healthineers."
The Opponents never defined what will constitute 'special cases,' which is a precondition for obtaining a password. The Opponents' reply highlights that the Informants did reach out for a password but got a vague reply, and nothing much was carried out after that.
The author submits that the CCI failed to acknowledge this particular material fact and never questioned the Opponents as to what will constitute special cases, which can become a hurdle in acquiring the password.
The approach of the CCI in the present case can be safely termed as unreasonable as they did not deliberate much on the arguments advanced. The CCI lost an opportunity to further clarify the law regarding the distinction of the market based on the 'primary' and 'after service' market and failed to reinstate the law laid down in Shamsher Kataria. The CCI fails to administer many material facts presented by the Informants regarding the anti-competitive practices by the Opponents. The CCI fails to note that soon after the complaint, the Opponents reduced the Optical fiber cable price by Rs. 10 lakhs, which shows that they were indeed charging excessive prices.
The CCI could have delved into the principles of appreciating the evidence and could have tested the Opponents on the touchstone of Section 19(4) of the Act after due consideration. It is the author's view that the CCI were too bounteous in the present case and ignored material facts, which resulted in the unreasoned dismissal of information.