India: CCI Directs Investigation Into India Specific Warranty Policy Of Intel Finding It Potentially Abusive Of Dominance

Last Updated: 7 November 2019

Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

The Competition Commission of India ("CCI/Commission"), by way of order dated 09.08.2019, under section 26(1) of the Competition Act,2002 (the Act) has directed the Director General (DG) to undertake investigation with respect to Intel's India specific warranty policy in regard to its Boxed Micro-Processors, after finding a prima facie case for a potential abuse of dominant position against Intel. .

Background & Allegations

Information was filed by Matrix Info Systems Pvt. Ltd ("Matrix") which is a Delhi based Information Technology (IT) trading company engaged in the business of importing, wholesaling, distributing and supplying a wide range of IT products, against, Intel Corporation , a multinational corporation and technology company incorporated in USA and its Indian subsidiary i.e. Intel Technology India Pvt. Ltd. (collectively referred to as "Intel') .

The information stated that IT products are sold in India by sellers and/or re-sellers by purchasing the same form the manufacturing company or through distributors either in India or abroad and most of these products come with manufacturer's warranty which is generally worldwide. However, in the recent years, big companies like Intel have entered into exclusive agreements with certain sellers/distributors and appointed them as their authorized sellers who directly sell the IT products to the consumers in India with a country-specific manufacturer's warranty instead of a worldwide warranty.

As per the informant, who is a parallel importer of Intel Micro-processors in India, 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, post 25 April 2016 , Intel amended its warranty policy for India. As per the new policy, Intel only entertains warranty requests for Intel's Boxed Micro Processors in India only if the same are purchased from an authorized Indian distributor of Intel and that too when purchased in India only. In other words, Intel does not acknowledge warranty requests on its Boxed Micro- Processors that are purchased from anywhere else in the world, even if the purchases are made from authorized distributors of Intel in some other nations.

Matrix alleged that the change in warranty policy was made without any legitimate justification and Intel has been behaving differently with the Indian market and 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.

Matrix delineated the relevant market as the 'market for sale of boxed Micro-processors for Desktop and Laptop Personal Computers ('PC') in India and alleged violation of Section 4(2) (a) (i) of the Act being unfair and discriminatory and also violation of Section 4(2) (b) as Intel limits and restricts the business of other resellers and parallel importers and also violation of Section 4 (2) ( c) as Intel denies market access to them by not providing them warranty on Intel's Boxed Micro-Processors in India when not purchased from authorized distributors of Intel. In addition, the exclusive agreement between Intel and its Indian authorized distributors which gives them exclusive selling rights in India which also amounts to refusal to deal with parallel importers and was alleged to be violating Section 3(4) (c) and (d) of the Act.

Intel's preliminary response

Intel, in its preliminary response, attempted to distinguish between 'warranty' and 'warranty service'. Intel contended that it offers a 3 year limited warranty on all genuine Boxed Micro-processors and under the new India specific warranty policy, it is only the 'warranty service' which cannot be availed in India if the Boxed- Micro Processors are not purchased from Intel's authorized distributors in India. However, for such Boxed Micro-processors purchased from outside India, warranty service can be claimed from the place of purchase. As per Intel, a violation under Section 4(2) (c) could not be made out because the India-specific warranty policy applied to all purchasers in India and there was no discriminatory treatment by Intel in this regard .

Intel averred that the entire claim of the Informant is based on Intel allegedly refusing to entertain its warranty service claims on two Boxed Micro-processors in India. As per Intel, the Informant had placed requests to replace 34 Micro-processors in toto. Out of the same, 29 were replaced by Intel, 3 were denied on the ground of being Tray Micro-processors and only on 2 Microprocessors, the Informant sought warranty service in India which was refused by Intel to be given in India. Intel submitted when these 2 refusals are seen in the light of the total import of Micro-processors made in India (around 2.93 million units in 2018-19), the number is insignificant, thereby, demonstrating the lack of AAEC in India.

Further , explaining the reason for its India specific warranty, Intel stated that India has a large unorganized sector engaged in computer manufacturing and assembly, which is serviced both by authorised distributors of IT products and peripherals as well as grey/ parallel market importers. It is not uncommon in India for importers to import goods by under invoicing; or to import old and salvaged parts disguised as new products. Even the Informant imported such under invoiced and old products including Intel Micro-processors, in violation of India's export-import ('EXIM') Policy and was penalized for the same by the Commissioner of Customs (Import). Even otherwise, the Informant has been the subject of a variety of investigations. As per Intel, by not disclosing such material facts to the Commission, the Informant approached the Commission with unclean hands.

With regard to the allegation under Section 3(4), Intel stated that its authorized distributors are not exclusive as they are free to sell Micro-Processors of any other brand as well, and, the prices at which they sell Intel's Micro Processors in India are also not set or controlled by Intel.

In support of the above contentions , Intel relied upon an earlier decision of the Commission dated 19 May 2014 in Case no. 17/2014 in re Mr. Ashish Ahuja v. Snapdeal.com and Another and also on a judgment of Delhi High Court in re : Kapil Wadhwa and Others v. Samsung Electronics Co. Ltd. and Another, 194 (2012) DLT 23, which, according to Intel, entitled a manufacturer to refuse warranty service on products purchased from unauthorised distributors.

CCI Analysis

Relevant Market

CCI noted the case of ESYS Information Technologies case and in the order dated 09.11.2018 passed in Case No. 16 of 2018 titled Velankani Electronics Private Limited v. Intel Corporation, it was found by the Commission that there is no substitutability or interchangeability of Micro-processors across end products and that Micro- processors are a distinct product in itself and can be classified into two categories- (i) Tray Micro Processors- which Intel makes as per the requirement of the OEMs for their assembly line/manufacturing activities; and (ii) Boxed Micro Processors- which are sold by Intel in the open market. Intel does not provide direct warranty support on Tray Micro-processors and the OEM/reseller is to be contacted for seeking warranty support. However, in case of Boxed Micro-processors, Intel itself provides the warranty service. Since, in the present case, the end product being dealt with by the informant was Desktops and Laptops, therefore, CCI delineated the relevant market as the market for Boxed Micro-Processors for Desktop PC's in the territory of India and market for Boxed Micro-Processers for Laptop PC's in the territory of India.

Dominance

On the issue of dominance, the Commission noted that in the case of ESYS Information Technologies (supra), the Commission had found Intel to be in a dominant position in the relevant markets of Micro-processors for desktops PCs in India as well as the relevant market of Micro-processors of mobile/ portable PCs such as laptops, notebooks, netbooks, etc. in India. In this case , CCI observed that, in addition, the informant had furnished sufficient evidence in the form of Gartner's Supply Chain List of 2018, Research Bulletin by IC Insights, Passmark Report dated 16.12.2018, statement of Dell's CTO John Roese and Annual Reports of Intel and of its competitor AMD, which prima facie established the dominance of Intel in the markets of Micro-Processors for Desktop and Laptop PCs in the territory of India.

The Commission also noted that Intel's market share was at least three times the market share of its only competitor in the Micro-Processors market i.e. AMD, which does not specialize in either Tray or Box Micro-processors . In addition, factors such as significant economic power of Intel, dependence of consumers on Intel, high entry barriers in the market, no countervailing buyer power etc. established the dominance of Intel.

Abuse

The Commission compared the worldwide and India specific warranty policy of Intel on its website and noted that only Intel Boxed Micro-Processors sold by Intel Authorized Distributors in India and purchased in India are eligible for warranty service in India. The Commission noted that under the new India specific warranty policy, Intel does not offer warranty services to consumers in India, on products purchased by them from the parallel importers, even when such parallel imports were made from authorized distributors of Intel abroad and for claiming service on such warranty, the customers have to contact Intel at the place of purchase only.

As regards the contention of Intel that business of parallel importers in India has not been affected by new warranty policy of Intel, which can be seen from the imports made by the informant recently, CCI held that imports made by one single entity cannot be the sole criteria to assess the Appreciable Adverse Effect on Competition (AAEC) caused by the change in Intel's warranty policy in India. The Commission was of the prima facie view that the India specific policy has the potential to lead to denial of market access to the parallel importers and resellers of Intel Boxed Micro Processors in India.

The Commission also noted that in absence of competition from parallel importers, there lies a risk of prevalence of higher prices for Intel Boxed Micro-Processors in India. The Commission noted that during the preliminary conference, the Informant has provided a comparison of rates as on 29.06.2019 of one type of Intel's Boxed Micro-processor (Intel i3-8300 Microprocessor) offered by Intel's authorised distributors in India and outside India, which are as follows:

Country

Price (INR)

India

29,610

Japan

18,344

USA

11,307

Germany

11,757

This showed that the rates offered in India for the same products by Intel's authorized distributors in India is almost 2 times the rates offered by Intel's authorized distributors outside India. Intel had argued that the prices at which Intel's authorized distributors in India sell their Micro-Processors are not set or controlled by Intel, however, the Commission observed that the new warranty policy of Intel in India seems to be aimed at disincentivising the purchase of Intel Micro-Processors from distributors other than Intel's authorized distributors in India even though purchased from Intel's authorized distributors abroad at cheaper rates which has the effect of raising prices offered by Intel authorized distributors in India.

CCI noted that the distinction made by Intel, due to its India specific policy, is unfair and discriminatory when seen in the light of the fact that such differential treatment is not meted out in other jurisdictions by Intel.

Commission also took note of a statement published in Digit.in dated 25 April 2016 by Mr. Rajiv Bhalla (Director, Direct and Channel Sales, Intel South Asia) which hinted that the change in warranty policy by Intel in India was brought only to protect the market share of Intel's authorized distributors in India. Moreover, the justification given by Intel for introducing the India specific policy that old and savaged Micro-processors are sold as new by unauthorized sellers in India did not convince the Commission, as it was of the opinion that such problems might be subsisting in various parts of the world and not in India alone. The Commission held that merely because Intel may have received a few requests in India for replacement of some old Boxed Micro-Processors which may have been sold as new, Intel cannot , in a market as large as India, subject every consumer and/or parallel importer/reseller to suffer the inconvenience of claiming its warranty service outside India, even if the product is eventually purchased from an Intel authorized distributor, but outside India.

Further, the Commission distinguished the facts of this case from those in its earlier decision in the case of Ashish Ahuja (supra). The Commission observed that in that case, it was not the situation that SanDisk would not provide warranty services on products purchased from authorised distributors of SanDisk merely because the purchases are made from outside India. Further, in that case, SanDisk did not limit its warranty policy in any country/ ies. Further, the Commission also distinguished the facts of the case from those in the judgment of the Hon'ble Delhi High Court in the case of Kapil Wadhwa (supra) , relied upon by Intel and found that in that case, refusal of warranty in India by Samsung was held by the Hon'ble Court to be justified in the circumstances that no warranty on those products was provided by the manufacturer Samsung, even in the country from which they were imported by the Appellant.

Lastly, regarding Intel's contentions that the Informant has approached the Commission with unclean hands, the Commission observed that the said allegation has no bearing upon the merits of the present case as the proceedings before the Commission are in rem and not in personam. Antecedents of the Informant cannot be a ground for the Commission to not take cognizance of an abusive conduct of any entity.

Accordingly, CCI was of the prima facie opinion that the new differentiated India specific warranty policy of Intel regarding its Boxed Micro-Processors is in contravention of Section 4 (2) (a) (i) of the Act. The same also prima facie results 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 Act as well as results in denial of market access to parallel importers in contravention of Section 4 (2) (c) of the Act.

Consequently, under the provisions of Section 26 (1) of the Act, the Commission directed the Director General ('DG') to cause an investigation into the matter and submit an investigation report within a period of 150 days of receipt of this order.

As regard the allegations under Section 3(4), CCI noted that Intel had stated during the preliminary conference that the agreement between Intel and its authorized distributors is not in the nature of exclusive distribution agreement and its authorized dealers are free to sell Micro-Processors of any brand. Also, the primary grievance of the informant was in regard to the change in warranty policy of India upon its Boxed-Micro Processors. Accordingly, CCI held that no case under Section 3(4) is made out in the present case.

Comments: This is the third antitrust investigation initiated against Intel for alleged abuse of dominance and shows the resolve of the Commission to curb anti-competitive conduct in the new age technology market irrespective of the size and might of the enterprise . In my view Intel seemed to have a valid justification in making a change in its world wide warranty service for Microprocessors in India but was not able to demonstrate how the insignificant the likely effect on competition could have been overridden by the efficiencies generated due to its nonexclusive authorised dealers selling the product with a proper invoice as compared with those sold by the parallel importers like the Informant and how it benefited the end consumer more and improved distribution etc. in the market . Let us hope Intel is able to do so before the DG during the ensuing investigation.

Note: This article first appeared on the Antitrust & Competition Law Blog

On 06 September 2019 .

Specific Questions relating to this article should be addressed directly to the author.

© 2019, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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