Competition Issues in Credit Card, Debit Card Swipe Machines in India: Atos Worldline India Private Ltd v. Verifone India

Atos Worldline India Private Ltd v. Verifone India

Parties

1. Atos Worldline India Private Limited

Atos Worldline India Private Ltd provides end-to-end services for electronic transactions in India. It focuses on electronic payment services for banks, merchants, and government institutions. The company offers acquiring managed services including merchant signup and activation; point-of-sale (PoS) terminal procurement, supply, and installation; and merchant training. Additionally, it provides credit, debit, and prepaid cards application, issuance, and transaction processing; currency conversion, fraud and risk management, and Internet and mobile payment services. The company caters to banking, financial services, energy, utilities, retail, hospitality, transport, and healthcare sectors.

VeriFone India

2. VeriFone India is subsidiary of Verifone US. VeriFone is an American multinational corporation headquartered in San Jose, California that provides technology for electronic payment transactions and value-added services at the point-of-sale. VeriFone sells merchant-operated, consumer-facing and self-service payment systems to the financial, retail, hospitality, petroleum, government and healthcare industries. The company’s system solutions consist of POS electronic payment devices that run its own operating systems, security and encryption software, and certified payment software, and that are designed for both consumer-facing and unattended environments.

POS Machine

A point of sale (POS) terminal is credit card or debit card swipe machine. A merchant can use to perform transactions with a bank card.

Software Development Kits (SDKs) are used to enable the basic functionality of the POS Terminals.

For the provision of VAS, it is extremely important for the Atos Worldline to have access to the core POS Terminal applications and their crucial enhancements/updates along with SDKs.

Withholding of such enhancements/updates and SDKs by the POS Terminal manufacturers will negatively impact the growth of the TPP and VAS markets.

As per standard industry practice, core POS Terminal applications and SDKs are provided along with the POS Terminals and the costs of the same are built into the price paid for the POS Terminals.

Between September, 2010 and December 2011, the Verifone India continued to provide SDKs to the Atos Worldline along with the POS Terminals and core terminal applications without any restrictions on the use of SDKs.

The Verifone India also used to provide training to the Informant’s engineers to enable the Atos Worldline to render VAS to its customers.

Atos Worldline in September, 2010 alleging breach of Source Code License Agreement (SCLA) which was signed between them in July, 2009 for a particular model of a POS Terminal.

As per the Informant, despite issue of the said termination letter, the Verifone India continued to supply POS Terminals along with its core applications, SDKs and training to its engineers for the use of SDKs.

In January 2012, the Verifone India sent a proposed draft SDK agreement to the Atos Worldline stating that the same is not open to any negotiations, amendments or changes and that the Atos Worldline has to insert certain details in the said draft SDK agreement and to counter-sign it.

Citing Reserve Bank of India’s Payment System Vision Document, 2012-15, the Atos Worldline stated that in the POS Terminal manufacturing industry in India, Verifone and Ingenico are the two prominent players.

By virtue of being almost an exclusive supplier of POS Terminals in India, the Verifone India exercises significant control over the supply of hardware and software solutions.

The Atos Worldline has also stated that there appears to be no objective justification for imposing unreasonable and unfair terms in the draft SDK agreement.

These terms would effectively eliminate the Atos Worldline from the downstream market and would support the Verifone India‟s interests by eliminating competition in the market.

The Atos Worldline has alleged that Verifone India, by imposing restrictions in the draft SDK agreement, is aiming to strengthen its position in the VAS market.

Relevant Market

The market for POS Terminals as the relevant product market.

DG has found that the clauses of the SDK license agreements are unfair. The DG noted that the Purpose Clause‟ under which the licensee can develop VAS and use the same only on the licensor’s products and the restrictive clauses prohibiting TPP to assist or develop the applications were found to be in violation of section 4(2)(a)(i), 4(2)(b)(i), 4(2)(b)(ii) and 4(2)(e) of the Act.

Alternative Technologies

MPOS such as Ezetap and Mswipe achieve the same end result

CCI is of the view that DG has segregated the upstream market for POS Terminals which also includes core applications such as Kernel, Operating System, Source Code and SDK and the downstream market like TPP (terminal management services), VAS (application development services) and after sales services (repairs and maintenance), etc.

The Commission is of the same view as that of the DG in this regard that upstream market for POS Terminals as stated above is different from the downstream market of VAS and after sales services. It is so because POS Terminals require services such as terminal management, application development, repairs and maintenance, etc.

CCI found Verifone dominant abusing its dominance in the relevant market.

Having regard to the above, the Commission decides to impose a penalty on the Verifone India at the rate of 5% of its turnover based on the financial statements filed by the Verifone India.

Advent to lead acquisition of 34.37% of Crompton Greaves consumer products business

Advent to lead acquisition of 34.37% of Crompton Greaves consumer products business

Advent International (“Advent”)

Advent International is an American global private equity firm focused on buyouts of companies in Western and Central Europe, North America, Latin America and Asia.

Avantha Holdings Limited (“Avantha”)

Avantha Group is an Indian business conglomerate led by Gautam Thapar. The company is one of India’s largest business conglomerates. Its businesses include power generation and distribution, power transmission and distribution equipment and services, paper and pulp, food processing, farm forestry, chemicals, infrastructure, Information Technology and Information Technology Enabled Service (ITeS), BPO.

Avantha Group operates in 90 countries with over 25,000 employees worldwide. Business units include, Crompton Greaves, (CG) India’s largest power transmission and distribution equipment company, and Ballarpur Industries (BILT), India’s largest paper manufacturer, both listed on the Indian Stock exchanges.

Advent and Avantha, announced that they have signed a share purchase agreement whereby Advent will lead the acquisition of 34.37% of CG’s consumer products business, Crompton Greaves Consumer Electricals Limited (“CGCEL”). Temasek will be an independent co-investor alongside Advent in CGCEL.

CGCEL will be demerged from CG into a standalone company and will consequently be listed on NSE and BSE. Thereafter, Advent, a global private equity firm with a dedicated presence in India, and Temasek, an investment company based in Singapore, will make an open offer for additional shares of CGCEL in compliance with takeover regulations. The transaction values CGCEL at an enterprise value of INR 66 billion (US$1.07 billion). The transaction is subject to closing conditions and receipt of all statutory and other approvals, including the successful demerger of CGCEL from CG and approval from the Reserve Bank of India and Competition Commission of India.

CGCEL, one of CG's largest and fastest-growing businesses, manufactures and markets a wide spectrum of consumer products, ranging from fans, lamps and luminaries to pumps and household appliances such as water heaters, mixer grinders, toasters, irons and electric lanterns. The business is India’s market leader in fans, No. 1 player in residential pumps and has leading market positions in its other product categories. It employs approximately 3,500 people and has six manufacturing facilities.

After an extensive search and careful evaluation, Avantha signed a share purchase agreement for the sale of its stake in Crompton Greaves’ consumer business.

CGCEL has leading positions in several fast-growing product categories with strong brand names and extensive distribution capabilities. Post completion, it look forward to driving growth by investing in sales and marketing, distribution and enhanced product offerings.

Demerger and share purchase details

Advent and Temasek will acquire ownership in CGCEL by purchasing shares in CGCEL from Avantha Holdings following the demerger of the consumer products business from CG and the listing of CGCEL on the BSE and NSE. The transaction is expected to be completed in the first quarter of 2016.

CG had filed with the BSE on March 3, 2015, regarding the demerger of CG’s consumer business into CGCEL, whereby all of CG’s shareholders will receive shares of CGCEL such that the shareholding of CGCEL upon completion of the demerger will mirror the shareholding of CG.

CGCEL’s growth and consumer product market growth

CGCEL has grown at a compound rate of 16% per year over the past six years and generated revenue of INR 28.5 billion (US$459 million) for the fiscal year ended March 31, 2014. The business has benefited from robust long-term growth in the Indian consumer products market, where sales volume has increased approximately 1.5 to 1.9 times India’s real gross domestic product (GDP) from 2002 to 2014.

FRAND Licensing of Essential Patents in Indian Telecom Sector: Ericsson v Micromax

     








Recently, for the first time, Delhi High Court, through
HON'BLE MR. JUSTICE MANMOHAN passed an interim injunction to to grant royalty rates on FRAND (fair, reasonable and non discriminatory) basis by Micro-max to Ericson for using its standard essential patents. Final judgement available here. The issue was about was use of Ericsson's 8 patents on the technologies AMR Patents, 3G Patents and EDGE Patent. Standardisation is a new phenomena in India. So these terms FRAND, RAND, Standardization are unknown to many.  
In various sectors such telecom, integrated circuits, internet etc. standardization of the new technology is the key of product development. Standardization is technical configuration of new products. There are some patents essential to these standards. Those patent are called as essential patents.

Due to lack of private standard setting bodies in India, Indian essential technology could not be included in global standards. So to fill this gap two private standard setting organisations have emerged. These are GISFI and DOSTI.

Private Enompetition Law: Call For Amendment in Competition Act 2002

There are two types of enforcement of competition law: public and private enforcement. Public enforcement can be defined in simple words where the competition authority does not enforce that private rights and duties but it controls the macro structure and behavior of firms in an economy. In private enforcement parties can enforce their rights and get damages for the anti-competitive conduct of other parties.

The key deciding factor is the damages to private parties. Competition Act 2002 of India does not provide for damages to the parties. For a country like India which has started enforcing competition, how private enforcement can help.

Actually private enforcement can increase the deterrence against anti-competitive activities. the firms will take pro-active role in filing cases to CCI. The victims of anti-competitive activity will be compensated. In a new competition authority which is not adequately resourceful, private enforcement may help in maintaining competitive environment in country. The litigation cost can be recovered from the complainant in case of unsuccessful probe.

CCI is doing public enforcement but it is lacking in true spirit of public enforcement. In public enforcement, the authority is supposed to take suo-moto actions which CCI has done only in four cases out of more than hundred cases. Even in the cases brought to knowledge of commission by the private parties. Commission is rejecting the cases just because the informant does not provide sufficient information. In public enforcement the authority is supposed to collect evidence itself not rely on the informant(complainant). 

The investigation wing Director General should be empowered further to conduct efficient investigation and collect evidence. Dawn raid should be used where-ever required.

Competition Law and Consumer Protection: A Phenomena Wrongly Understood

Consumer protection is the main objective of competition law all around the world including Indian competition law. However, consumer is not only as, commonly, we perceive. We perceive it as consumer and producer or manufacturer two separate classes. In real Producer and manufacturer are the consumers in most of the cases.

The concept of consumer is about the role a person is playing in the particular situation or business transaction. As the purchase for commercial purpose is also included in the definition of consumer which was not in the definition of consumer under Monopolistic and Restrictive Trade Practices Act 1969.

The bigger issue in this is the objective of competition law we determine. The first impression comes that it is anti-corporates and pro-poor or aam admi. But competition law in real gives equal opportunity to MNCs against local companies and vice-versa provided  domestic companies are able to compete.

Indian Competition Law: Patent Drug Price Control and Effect on Competitio...

Indian Competition Law: Patent Drug Price Control and Effect on Competitio...: Ministry of Chemical and Fertilizers is planning to control t he prices of patented drug s. A panel was constituted to study this in 20...

Patent Drug Price Control and Effect on Competition

Ministry of Chemical and Fertilizers is planning to control the prices of patented drugs. A panel was constituted to study this in 2007. On 25th February 2013, the panel has submitted its report. The panel report is available here.  Indian patented domestic drug market is US $ 5 million out of total domestic market turnover of US $ 12 billion. So patented drug market forms just 4% of whole domestic market. I wonder why there is need to control the prices of such a small fraction of market share. Patented drugs are new drugs with high R&D cost. Companies especially in the case biotech based drugs have very high R&D cost. It can be US $ 50 million to US $ 2 billion. Companies need to recover R&D cost by high prices.

Out of 96 percent market of drugs the government  is decreasing the list of essential drugs in National List of Essential Medicines (NLEM). Then why there is need to control the prices of only patented drugs. 

Pharmaceutical sector is the one where patent protection is must for the growth of R&D intensity in contrast with internet industry, ICT industry. In such sector, it is not advisable to control patented drug prices. The consequences of price control would be that MNCs will not introduce innovator drugs in India and even Indian compnies will also introduce new drugs first outside India. 

The panel committee report suggests a novel price control mechanism. It is weighted reference pricing. Since per capita income in India is less in comparison with even many developing countries. So simple reference pricing will not work for India. Therefore, committee report suggest standardizing the price of drug in other countries by dividing with ratio of per-capita income in India and other countries. So in a way it will be effective measure to control price. But there are concerns on the innovation and availability by the control of prices of patented drugs.