Shamsher Kataria v. Honda Siel Cars India Ltd., Competition Commission of India, 2014

The automobile spare parts case, and the most instructive single order under the Act. Fourteen car manufacturers were found to have restricted the supply of genuine spare parts and diagnostic tools to authorised dealers, so that independent repairers could not service the vehicles. The Commission defined each manufacturer's spare parts and after-sales service as separate relevant markets in which that manufacturer was necessarily dominant, found contraventions of both Section 3(4) and Section 4, rejected the intellectual property defence under Section 3(5), and imposed penalties with far-reaching remedial directions.

1. The Facts

The information alleged that manufacturers restricted access to genuine spare parts and to the diagnostic tools, technical manuals and software needed to service their vehicles. Parts were supplied only through authorised dealers, agreements with those dealers and with component suppliers prohibited sale in the open market, and the warranty was voided if the vehicle was serviced by an independent repairer. The effect was that a car owner had no practical alternative to the manufacturer's own network once the vehicle was bought.

2. The Relevant Markets

The primary market for the manufacture and sale of cars, in which the manufacturers competed vigorously and none was dominant.
The aftermarket for spare parts of each manufacturer's own vehicles, including diagnostic tools and technical information.
The aftermarket for repair and maintenance services for each manufacturer's own vehicles.

⚠ Why the aftermarkets were defined separately

The manufacturers argued that competition in the primary market disciplined their conduct in the aftermarket, because a buyer comparing cars would take account of the lifetime cost of parts and servicing. The Commission rejected the argument on the facts: information about aftermarket costs was not available to buyers at the time of purchase, those costs are incurred years later, and once the car is bought the owner is locked in because parts of one make cannot be used on another. On that footing each manufacturer holds a hundred per cent share of the market for its own parts, and dominance follows from the definition. This is the standard Indian authority on aftermarkets and on lock-in.

3. The Contraventions

Section 3(4). The agreements with dealers and with overseas suppliers, restricting the sale of parts in the open market and prohibiting supply to independent repairers, were exclusive supply agreements, exclusive distribution agreements and refusals to deal, and caused an appreciable adverse effect on competition in the aftermarkets.
Section 4(2)(a)(i) and (ii). Unfair conditions and prices in the supply of parts, the margins charged on spare parts being very substantially higher than in a competitive market.
Section 4(2)(c). Denial of market access to independent repairers, who could not obtain the parts, tools or information necessary to compete.
Section 4(2)(e). Use of the position in the primary market to protect the position in the aftermarkets, which is leveraging in its clearest form.

4. The Intellectual Property Defence

The manufacturers relied on Section 3(5)(i), contending that restrictions on the supply of parts protected their intellectual property in the designs, drawings and technology. The Commission rejected the defence for reasons that repay study.

The rights must exist under the listed statutes. Where no registration subsisted in India under the Designs Act, the Patents Act or the other enactments named in Section 3(5)(i), there was no right to protect and the saving did not arise.
The conditions must be reasonable and necessary. Even where a right existed, a restriction preventing any supply of parts to the open market went far beyond what protection of the right required; the manufacturer could protect its design without refusing to sell spares.
Section 4 has no saving at all. The defence, even if available under Section 3, could not answer the findings of abuse, because the section contains no equivalent of Section 3(5).

5. The Order

Penalties were imposed at two per cent of the average turnover of the preceding three years, the aggregate running into thousands of crores, together with directions of a remedial character: to allow the sale of genuine spare parts in the open market, to make diagnostic tools available on reasonable and non-discriminatory terms, to provide technical information and training to independent repairers, to permit them to purchase parts without restriction, and to stop voiding warranties merely because a vehicle had been serviced independently. The order was carried in appeal and its later history should be checked, but the analytical framework it established has not been displaced.

6. Why the Case Is Cited

Aftermarkets. The leading Indian authority for treating a manufacturer's own parts and service as separate relevant markets.
The same conduct under both provisions. The standard illustration of an arrangement examined as a vertical restraint under Section 3(4) and as an abuse under Section 4.
The intellectual property saving. The clearest statement of its three limits: the right must exist, the condition must be reasonable and necessary, and the saving does not extend to Section 4.
Remedies. An example of behavioural relief designed to open a market rather than merely to punish, which is the model later followed in settlement proceedings.

7. Related Topics and Provisions

Topic or provision	Connection
Vertical Agreements: Section 3(4)	Exclusive supply, exclusive distribution and refusal to deal
Abuse of Dominant Position: Section 4	Unfair conditions, denial of access and leveraging
The Relevant Market	Aftermarkets, lock-in and the whole-life cost argument
Exemptions from Section 3	The limits of the intellectual property saving
Sections 3(4), 3(5), 4(2), 19(3) and 27, Competition Act, 2002	The provisions applied