Article by MM Sharma
Head -Competition Law & Policy
Vaish Associates Advocates

By way of judgement dated 13.03.2020, the National Company Law Appellate Tribunal ("NCLAT") has upheld two orders dated 10.04.2015 passed by the Competition Commission of India ("CCI/Commission") holding that Verifone India Sales Pvt. Ltd ("Verifone") has abused its dominant position in the market for Point of Sale (POS) terminals in India.


Two separate information were filed before the CCI by, Atos Worldline India Pvt Ltd ("Atos") and Three D Integrated Solutions Ltd ("Three D"), respectively , alleging abuse of dominant position by Verifone in the market for POS terminals in India. CCI found Verifone in contravention of Section 4 of the Act in both the cases and imposed a penalty of INR 4, 48, 40,236/-. Verifone filed appeals against both the orders with the primary ground that it was not dominant since the delineation of the relevant market by the Commission was not correct. A brief insight into the allegations and decision of the CCI in each case is given below:

i. Case No. 56/2012- Information filed by Atos

It was submitted in the information that Verifone supplies POS Terminals along with core POS Terminal applications (i.e. Operating System and Kernels) and Software Development Kits ("SDKs") to enable the basis functionality of the POS Terminals. POS Terminals along with its core applications are either sold directly to the customers like banks and retail outlets or to the third-party processors ("TPPs") such Atos , which renders Value Added Services (VAS) to develop and integrate applications into POS Terminals.

As per the information, during September, 2010 - December, 2011, Verifone provided SDKs to the Atos along with the POS Terminals and core terminal applications without any restrictions on the use of SDKs. However, after Atos acquired Venture Infotek in August 2010, Verifone issued a termination letter to Atos in September 2010 alleging breach of Source Code License Agreement signed between Verifone and Atos. However, despite issue of the said termination letter, Verifone continued to supply POS Terminals along with its core applications, SDKs and training to its engineers for the use of SDKs.

It was alleged that in January, 2012 Verifone sent a draft SDK agreement to the Informant stating that the same is not open to any negotiations, amendments or changes and asked Atos to insert certain details in the said draft SDK agreement and to counter sign. As per Atos, the terms of the said draft SDK agreement and the restrictions contained therein were a complete departure from the business practice that had existed in the industry for several years and restrictions contained in the draft SDEK agreement foreclosed the VAS market. Despite Atos's repeated attempts to engage in constructive discussion with Verifone on the restrictive conditions of the draft SDK agreement, Atos received a termination letter dated 01.08.2010. It was further alleged that Verifone by imposing restrictions in the draft SDK agreement, is aiming to strengthen its position in the VAS market, a new venture of Verifone at the relevant period.

The CCI in its order had observed that through the SDK agreement Verifone (a) imposed unfair conditions on VAS/TPP service providers in contravention of Section 4(2)(a)(a)(i) of the Act;(b) restricted the provision of VAS services as well as limited/restricted the technical and scientific development of VAS services used in POS Terminals market in India in contravention of Section 4(2)(b)(i) and (ii) of the Act. The Commission also held that (c) the conduct of Verifone with respect to seeking disclosure of sensitive business information from the customer in the downstream market in order to enable to enter into the downstream market of VAS services in in contravention of the provisions of Section 4(2)(e) of the Act.

ii. Case No. 13/2013- Information filed by Three D

Ministry of Urban Development ("MOUD") Govt. of India launched a National Programme for Standardized Automatic Fare Collection System ("AFCS") in eighty cities with a National Common Mobility Card ("NCMC") for passengers. The MOUD award the project of launching an all India common mobility card along with AFCS to UTI Infrastructure Technology Services Ltd (UTIITSL) and its consortium partner across India. UTIITSL floated a Request for Proposal for implementation of Integrated Transport Management System (TIMS) with a NCMC for Jaipur City Transport Services Ltd (JCTSL) in Jaipur. The said bid was awarded to M/s Efkon India Pvt Ltd ("EFKON") who in turn subcontracted to Three D for supply, installation and maintenance and handheld payment device for mobile use with wireless connectivity, security certifications etc. to be used in buses for the aforesaid project.

Three D placed a purchase order for INR 45,00,342 with Verifone for the supply of 275 nos. of Vx680 fully functional mobile ETMs for ITMS project in the city of Jaipur. After securing and accepting the purchase order dated, Verifone informed Three D regarding the restrictive use of the ETMs i.e. requirement of a Software Development Kit (SDK) to achieve full functionality of ETMs. Three D alleged that Verifone, a major player in the hardware market for ETMs, wanted to attain a similar position in the market for software loaded in the ETMs. Having to fulfil its obligation of the sub contract, Three D had no choice but to purchase SDK from Verifone for INR 3,65,615/-. The SDK was delivered by Verifone was locked by a security key i.e. File Signing Tools ("FST") and Verifone illegally withheld the security key. Further the said SDK was an incompatible version and not appropriate for ETMs delivered and also some of the critical components were also not supplied. Moreover, it was alleged that Verifone made Three D sign a very restrictive agreement with regard to the use of its SDK which was abusive and unfair.

The Commission observed that SDK agreement had a restrictive clause which prohibited the licensee to "not use the licensed software to develop any payment software that directly or indirectly interacts with any acquiring bank" seems to be unfair and restrictive. Commission observed that the clause relating to not license, sell or otherwise transfer any software that Verifone develops using the licensed software to any third party of SDK license agreements appears to be unfair, limits/controls the provision of VAS services and limits/restricts the technical and scientific development of VAS services used in POS terminals in India. CCI observed that the restriction appeared to restrict technical or scientific development relating to VAS services for POS terminals in India. Moreover, the SDK agreement imposed certain disclosure requirements in the form i.e. a) disclose to licensor from time to time the activities relating to licensed software; b) what value added software it has created; and c) what licensee intends to create using the licensed software. The Commission held that by way of these disclosures, Verifone intended to access confidential commercial information form the VAS providers and to exploit the VAS market. CCI observed that Verifone itself is a manufacturer of POS terminals, its conduct with respect to seeking disclosure of sensitive business information from its customers in the downstream market with a view to protect/enhance its presence in the downstream market of VAS services is abusive in terms of Section 4 of the Act.

The Commission concluded that the conduct of Verifone in imposing unfair condition was in violation of Section 4(2)(i)(a), restricting the provisions of VAS services as well limiting the scientific and technical development of VAS services used in POS service was in violation of Section 4(2)(b)(i) and (ii) and seeking disclosure of sensitive business information from its customers in the downstream market in order to enable it to protect the downstream market of VAS service is in contravention of the provisions of Section 4(2)(e)of the Act.

The NCLAT decided to hear both the appeals together and dispose it vide a common judgement.

Verifone's submissions

In the Atos Appeal, Verifone contended that the agreement was only a draft agreement and the terms were being negotiated at the time of filing the information before the CCI. However, NCLAT did not agree with this contention by placing reliance on the language of the agreement which revealed that Verifone had practically asked Atos to sign on the dotted lines of the agreement. NCLAT further observed that once it is established that Verifone is a dominant player in the relevant market then Verifone asking Atos to sign on the dotted lines of the agreement will amount to abuse of dominant position in contravention of Section 4(2)(a)(i), Section 4 (2) (b) (i), Section 4(2)(b)(ii) and Section 4(2) (e) of the Competition Act, 2002.

As regards the relevant market definition, Verifone submitted that the purpose of defining a relevant market is to determine the competitive constraints on the enterprise under investigation, and therefore, all reasonably foreseeable constraints, such as, technologies at use elsewhere or imminently entering the market must be included in the definition of the relevant market. It was submitted that all electronic payment devices perform the same function, with the same end use, i.e. to process electronic payments at the merchant's location, therefore, the relevant market should be considered as the "market for electronic payments in India".

Verifone, in the alternate, proposed that the relevant market may be considered at least as the market for POS and mobile POS terminals in India. It was submitted that Mobile-POS terminals and POS terminals are virtually the same product having similar characteristics, price and intended use. Moreover, both devices are used to swipe the user's card at the merchant's location to process payments, and the methodology of functioning of both devices is also the same, from swiping of the card to final processing of payments. Verifone proposed that the only difference between the two is that Mobile POS machines are more compact and portable in nature than POS terminals.

Further, it was submitted that even in the narrow market for POS terminals Verifone was not in a dominant position as during the relevant period of 2012-13, Ingenico had a market share of 57% whereas Verifone had 40%. As per Verifone, the Commission had inflated its sales by (i) including all POS terminals sold by Verifone since its inception, including those which were defunct/non-functioning at the relevant time (ii) including POS terminals sold by Verifone's competitors prior to them even being acquired by Verifone, and (iii) not considering data of certain select banks/TPPs who had procured more terminals from Verifon's competitors.

Verifone further submitted that it was not in a position to operate independently in the market as it was dependent on banks for access to the market and could not access customers, nor could its terminals be functional without connectivity with the banks.

As regards the Three D case, Verifone submitted that the relevant market cannot be held to be POS terminal in India as the supply of ETMs by Verifone to Three D does not relate to supply of POS terminals by Verifone. Moreover, Jaipur RFP, which is central to the present dispute, itself distinguished between ETMs and POS terminals and treated them as separate products. It was further submitted that POS terminals and ETMs being two different products serve different end users, have different characteristics and different customers and producers. Merely because Verifone uses the same basic hardware for both the products, they cannot be treated as substitutable.

NCLAT Decision

The NCLAT observed that POS terminals was available in the year 2012-13, however, Mobile POS machines came later on and therefore cannot be considered in determination of the dominance in the year 2012-13 which is the relevant period. NCLAT agreed with the finding of the DG that new technologies such as EasyTap or Mswipe cannot be considered as substitute of the POS terminals and thus, there is no alternative/substitute to POS terminals.

The NCLAT observed that the dominance of Verifone in the relevant market in the relevant period was established on account of its market share, size, resources and economic power, dependence of consumers on the appellant. Verifone and its acquired companies had a market share of approximately 80%.

NCLAT held that the terms of SDK agreement were not as per the prevailing industry standards and was non-negotiable which revealed the intention of Verifone to exploit the VAS market by either restricting the VAS providers or sharing the revenue from them. It was also found that other VAS providers such as Pine Labs and FSS were also subjected to such restrictive clauses by Verifone. NCLAT concluded that the clauses of the SDK agreement were restrictive and in violation of Section 4(2)(a)(i), 4(2)(b)(i) and 4(2)(b)(ii) and 4(2)(e) of the Act.

The NCLAT observed that the instrument is the factor for the purpose of dominance and not the app i.e. the end use ETM distinct characteristics or POS terminals. It was further observed that POS terminals can be converted into ETM without the knowledge of the sellers and there is no difference between the hardware of the two devices. NCLAT observed that Verifone was having a dominant position in the relevant market of POS/ETMs in particular the instrument in question, held a position of strength in the relevant market during the relevant period.

Once, the relevant market and dominance of Verifone was confirmed, the NCLAT was of the opinion that no case was made out to interfere with the orders passed by CCI penalising Verifone for abusing its dominant position. Accordingly, NCLAT confirmed the CCI orders and dismissed both the appeals.

Note: This article first appeared on the Antitrust & Competition Law Blog on 24 March 2020.

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