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3 DAMODARAM SANJIVAYYA NATIONAL MOOT COURT COMPETITION - 2017

(PURSUANT TO DSNMC COMMITTEE NOTIFICATION DT. 03-12-2016)

MOOT PROPOSITION (Pursuant to DSNMC Committee Notification Dt. 03-12-2016) 1. Avalon is a republic in Asia and is considered to be one of the most readily accessible and fastest growing consumer markets in Asia. Industries around the world look at Avalon as a country with great potential for industrial growth, primarily for the reason that Avalon has a self-sustaining market. 2. The laws of Avalon are in pari materia with the laws of India, with the limited exceptions created in this problem. Avalon courts often refer to decisions of courts, tribunals, and commissions in India which have high persuasive value in Avalon. 3. In 1991, pursuant to a systemic policy change, the Government of Avalon opened its market to global competition. In order to address any emergent issues, Avalon enacted its competition law, the Avalon Competition Act (the “Competition Act”), in 2002. However, due to various policy considerations and judicial challenges, the Competition Act was brought into force in phases, with first tranche of substantive provisions coming into force on 20 May 2010. The Competition Act replaced the Avalon Monopolies and Restrictive Trade Practices Act, 1969 (“AMRTP Act”). 4. The Competition Commission of Avalon (the “CCA”) regards the decisions of the Competition Commission of India as well as other decisions of Indian courts on the Indian Competition Act, 2002, of high persuasive value. The CCA also gives due regard to the competition regulators of the European Union and the United States, and relies on precedent from these jurisdictions as well. 5. Following liberalisation of the Avalonian economy, consumer electronics evolved as a big industry in Avalon, with several companies that manufactured consumer electronics such as televisions, refrigerators and washing machines. Adison, Brandon and Coral are the leading manufacturers of consumer electronics in Avalon, whose Televisions (“TVs”) were based on the Cathode Ray Tube (“CRT”) technology, became popular because of their superior quality in comparison to conventional black and white TVs then in vogue. 6. Kitachi a renowned Japanese electronics company entered into technology sharing agreements with Adison, Brandon and Coral in 2002 for use of its LCD technology in televisions to be manufactured in India. Since the primary component in these TVs was the LCD screen, which had

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to be imported, the cost of the televisions of Adison, Brandon and Coral increased by about 1.2 times. Since all the three companies had an established brand presence in Avalon, they were successful in the new LCD segment, despite the high prices. Within six months of the launch of the LCD technology, all the three players discontinued manufacturing the CRT based TVs. 7. HatimTai, which started as a manufacturer of home appliances in South Korea in the 1980s became a world leader in electronics, due to its innovation and R&D. It revolutionized the TV market with the launch of TVs based on its patented LCD(E) technology that offered clearer picture quality at a price comparable to LCD technology. 8. In an attempt to expand its presence in the Avalonian market, HatimTai approached a number of Indian TV manufacturers, including Adison, Brandon and Coral with its offer for technology sharing for its LCD(E) technology. 9. Plato, Quantas and Rony entered into technology sharing agreements with HatimTai in 2004 for its LCD(E) technology and started selling TVs. Coral also entered into a technology sharing agreement with HatimTai and discontinued the use of Kitachi’s technology. All the technology sharing agreements entered into by HatimTai contained a “Most Favoured Licensee Clause”, which reads as follows: “6.2.22 All the benefits and terms granted by HatimTai (Licensor) herein are at least as favourable as the benefits and terms granted by the Licensor to any previous Licensee of the LCD(E) Technology as defined under the Agreement. Should the Licensor enter into any subsequent agreement with any other Licensee, during the term of this Agreement which provides for benefits or terms more favourable than those contained under in this Agreement, then this Agreement shall be deemed to be modified to provide Licensee with those more favourable benefits and terms. The Licensor shall notify the Licensee promptly of the existence of such more favourable benefits and terms and the Licensee shall have the right to receive more favourable benefits and terms immediately. If requested in writing by the Licensee the Licensor shall amend this Agreement to contain the more favourable terms and conditions.” 10. Due to the sudden emergence of several TV manufacturers in Avalon, the manufacturers started offering attractive loyalty inducing and target based discounts, along with incentives such as free foreign trips in order to lure dealers to sell their products. The dealers were also incentivized to offer various schemes and discounts to the customers.

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11. In December 2015, Brandon filed an Information under Section 19(1)(a) of the Competition Act before the CCA alleging cartelization between the manufacturers of TVs using the LCD(E) technology. Even though there was no substantial increase in the cost of manufacturing, the TVs using LCD(E) were sold at abnormally high prices during the festive season in November – December 2010. The CCA found that there was a prima facie case of violation of Section 3 of the Competition Act, and directed the Director General (“DG”) to investigate into the alleged cartelization in the sale of TVs in the relevant period. 12. The DG sought information and explanations from Plato, Quantas, Rony and Coral and their competitors regarding the allegation of cartelization. The investigation of the DG revealed that in March 2010, Mr. Jung Ho, the CEO of HatimTai gave an interview in Business Today on the future of the television market in Avalon. Mr. Jung Ho spoke at length about the increase in innovation due to changing demand patterns of entertainment in Avalon. He briefly mentioned about the aggressive pricing in the TV market in Avalon and how HatimTai was continuously working towards reducing the price of its products to make its products more affordable. During the course of the interview, Mr. Jung Ho also mentioned that the television companies did try to capitalise on the festive season and marginally increase the price of products by 15-20% to achieve their targets. The excerpt of the interview is reproduced below: “The general perception about your products is that they are over priced and that

is why the LCD(E) technology is not very popular in tier 2 and tier 3 cities in Avalon. As a leading technology provider, we realize the importance of our product reach in a market like Avalon and are working towards it. There are many innovative technologies in pipeline which will make our products more affordable and hopefully increase our consumer base. However, the prices of TVs using our technology are not very high with the exception of festive seasons where the local manufacturers increase the price of products by 15-20% to achieve their production and sales targets.

Is the price increase during festive season a general phenomenon? It varies from market to market, but it is apparent and sensible in TVs of 30 – 50 inch variants.” 13. The DG’s investigation further revealed that, in April 2010, an Annual Technology Conclave was organised in Tokyo, Japan which was attended by manufacturers and dealers of several technological products of Japanese technology. Mr. Kechri Motiwala, who was representing the

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dealer community of TVs in Avalon raised the grievance that in March 2010, during the time of the CCI Cricket World Cup 2010 the demand for TVs is very high. In such a scenario, some of the multi brand retailers in order to benefit from the incentives offered by different companies sold the TVs at a very low price. This impacted the sale of products of the single brand retailers who suffered severe loss of business and reduced margins on the sale of TVs. The single brand retailers urged the manufacturers to recommend a minimum resale price of TV, below which the dealers is allowed to sell the TVs so that TVs which have similar technological features are sold at a similar price inducing faith in the consumers and securing the margins of the dealers.

14. A representative of Kitachi informed the dealers that such recommendation of price was not feasible since the cost of technology for each manufacturer may be different. When the dealer community of TVs started threatening to walk out of the Conclave, in order to pacify them, the representatives of Adison and Brandon informed the dealers that they will consider such a proposition.

15. The DG noted that due to anti-dumping restrictions on Chinese electronic peripherals in 2010, Adison, Brandon, Coral, Plato, Quantas and Rony together held about 73% of the market for TVs in India. Further, from the information submitted by the Parties, it was found that the average selling prices of different sizes in the months of November - December 2010 were as follows: 32”

42”

*Prices in INR 50”

Adison

14500

34600

40200

Brandon

14450

34500

40400

Coral

14950

35150

40950

Plato

15000

35200

41300

Quantas

15105

34950

41250

Rony

15110

35100

41000

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16. In their third party submissions, Mr. Kechri Motiwala informed the DG that, in order to protect their interest they made a written representation to Plato, Quantas, Rony and Coral to set a minimum resale price for their televisions. However, all the four manufacturers denied their request on the basis that their prices would follow the market trend.

17. From the call records of the CFOs of Adison and Brandon, it was found that there were three calls of 36 seconds, 3 minutes and 20 seconds and 1 minute 19 seconds, respectively on the personal numbers of the two officers. The last call was 5 minutes before, Mr. Harpal Singh Bandhu, the CFO of Adison entered the felicitation function of the Minister of Corporate Affairs on 19 May 2010 in New Town, the capital of Avalon. Ms. Suparna Nehra, the CFO of Brandon also attended the same function and the visitor register shows that he entered the premises at 4:10 PM, 7 minutes after Mr. Bandhu. However, the DG also found that the entries in the visitor’s register were made by the representatives of Adison and Brandon with a red pen.

18. The email records of Mr. Bandhu revealed that he took a 2:00 PM Air Avalon flight to travel to New Town on 19 May 2010. Further perusal of the e-mail records of Mr. Bandhu and Ms. Nehra did not contain any correspondence with each other for the period between January 2010 and January 2011, except for a common invitation for the Annual Technology Conclave in Tokyo and the felicitation function of the Minister of Corporate Affairs. 19. During the deposition of Ms. Suparna Nehra and the subsequent submissions, the DG discovered that Ms. Nehra travelled on flight number E 645 of Air Avalon at 2:00 PM to reach New Town.

20. The DG after having conducted the investigation, found that the OPs had fixed prices for TVs with LCD(E) technology in the size segments of 32”, 42” and 50” during the month of November – December 2010. In addition to this, the DG returned a finding that the prices of the Informant increased in sync with the prices of Adison during the months of November - December of 2010 which appear to have colluded and therefore resulted in violation of the provisions of the Competition Act.

21. The DG thus submitted its report to the CCA recommending that the six companies were in violation of Section 3(3) of the Competition Act.

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22. Plato, Quantas, Rony and Coral in their objections to the DG’s report argued that the alleged conduct of cartelization is outside the purview of the Competition Act as the entire finding of the DG is based on the conduct prior to the enactment of the Competition Act. Further, Adison and Brandon submitted that there was no evidence of cartelization against them and the entire basis of the DG’s findings was based on cherry picking. Brandon raised the additional ground that since it was the Informant it cannot be part of the same investigation. 23. The CCA, after hearing all the parties in the matter, agreed with the recommendation of the DG regarding the violation of Section 3(3) of the Competition Act and passed an order under Section 27(b) of the Competition Act imposing the following penalties: Name of the Party

Turnover for 2013-2014 (in Crores)

Turnover for 2014-2015 (in Crores)

Turnover for 2015-2016 (in Crores)

Adison

10600

13700

15000

Average turnover for three years (in Crores) 13100

Brandon

17680

18900

20200

18926.66

Coral

11260

13500

15700

13486.66

Plato

14560

16800

18700

16666.66

Quantas

15600

18900

21400

18633.33

Rony

17900

19000

23500

20143.33

Penalty (in Crores) 655 (@ of 5% of the average of last three years) 757.06 (@ of 4% of the average of last three years) 472.03 (@ of 3.5% of the average of last three years) 333.33 (@ of 2% of the average of last three years) 372.66 (@ of 2% of the average of last three years) 402.66 (@ of 2% of the average of last three years)

24. Aggrieved by the decision of the CCA, Plato, Quantas, Rony and Coral filed Appeals before the COMPAT against the findings of the CCA.

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25. Adison and Brandon also filed Appeals before the COMPAT challenging the findings of the Commission against them for the violation of Section 3 of the Act.

26. Apart from challenging the substantive arguments against the findings of the Commission on violation of Section 3, Adison and Brandon in their Appeal, raised the issue of jurisdiction of the CCA and the DG in conducting an investigation and arriving at a finding against Adison and Brandon by expanding their scope of investigation. 27. The COMPAT decided to hear all the six Appeals together and heard the parties on their grievances. By way of a common Order in the matter, the COMPAT returned with following findings: a.

the Appeals filed by Plato, Quantas, Rony and Coral are dismissed and the findings of the CCA regarding the cartelization among the Appellants is upheld;

b. the CCA was right in holding that the price increase in November-December 2010 was in contravention of Section 3 of the Act and there is no merit in the plea of the Appellants that the act in question was outside the ambit of the Act; c. the plea raised by Adison and Brandon that the DG had exceeded its jurisdiction in holding Adison and Brandon liable, is unsustainable; d. the Appeal filed by Adison and Brandon is allowed to the extent that the findings of the CCA are not upheld, but the matter is remanded back to the CCA.; and e. the penalties imposed by the CCA are in accordance with the provisions of the Act and are accordingly upheld. 28. Aggrieved by the decision of the COMPAT, Plato, Quantas, Rony and Coral approached the Supreme Court under Section 53T of the Competition Act challenging the finding of violation of Section 3 against them. 29. Adison and Brandon on the other hand approached the High Court of New Town challenging the finding of the COMPAT on scope and powers of the DG to conduct the investigation. The High Court of Avalon dismissed the Writ Petition filed by Adison and Brandon.

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30. Aggrieved by the Order of the High Court, Adison and Brandon filed a Special Leave Petition (SLP) before the Supreme Court of Avalon challenging the order of the High Court dismissing the Writ Petition. Additionally, Adison and Brandon filed an Appeal before the Supreme Court against the order of the COMPAT remanding the matter to CCA.

31. The Supreme Court admitted the SLPs as well as the civil appeals, and directed that all the related matters be listed for final hearing together. 32. The Supreme Court will now hear all arguments, including in relation to the scope and powers of the DG and the CCA, along with the substantive issues.

NOTE: Counsels representing both sides are encouraged to explore additional arguments in addition to the issues that have been specifically identified in the Problem. All the members of an alleged cartel are made pro-forma Respondents in Appeals. For the purposes of this Proposition, the Counsel for the Appellants will argue in the case on behalf of all the Appellants. Counsel for the Respondents will represent only the CCA.

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