THIRD GLOBAL ANTITRUST & COMPETITION LAW MOOT COURT COMPETITION 2018 23-25, MARCH 2018 MOOT PROPOSITION IN THE COMPETITION APPELLATE TRIBUNAL OF OREGANO, at Chilli Flakes Appeal No. 1/2012 Koda Printers Limited...Appellant v. Yoku Printers Limited...Respondent No. 1 Competition Commission of Oregano...Respondent No. 2 Clubbed With Appeal No. 2/2012 Yoku Printers Limited...Appellant v. Koda Printers Limited...Respondent No. 1 Teaser Limited...Respondent No. 2 Competition Commission of Oregano...Respondent No. 3 1. The Republic of Oregano ( Oregano ) is a developing country with its capital at Chilli Flakes. The laws of Oregano are in pari materia with the laws of India, with the limited exceptions created in this Proposition. Oregano enacted its competition law, the Oregano Competition Act (the Competition Act ), in 2002. However, due to resistance from business and industrial houses in Oregano, the Competition Act was only brought into force in a phased manner, with the last provisions coming into force in June, 2011. 1
2. The Competition Act has provisions that deal with anti-competitive agreements and abuse of dominant position. These were brought into force with effect from 20 May 2009. The provisions relating to mandatory notification of combinations (also known across the world as the merger control provisions), along with implementing regulations, were brought into force with effect from 1 June 2011. 3. The Competition Commission of Oregano (the Competition Commission ) treats decisions of the Competition Commission of India as well as other authorities as having high persuasive value. The Competition Commission also regards the competition regulators of the European Union and the United States highly, and relies on precedent from these jurisdictions as well. 4. Teaser Limited ( Teaser ), a company incorporated in Oregano, is, inter alia, a manufacturer of colour ink cartridges for office printers. There are a number of ink cartridge manufacturers and they can easily switch from producing colour ink cartridges to monochrome ink cartridges depending on the buyer s requirement. However, the users of particular printers (coloured / monochrome ink) cannot easily switch to using a different ink cartridge as it requires substantial technical modifications to the printer. Market shares in the market for the supply of ink cartridges are not stable and Teaser s shares have ranged from 25-45% over the past 5 years. However, Teaser is the largest supplier of colour ink cartridges for use only in colour laser printers (that are mostly used in offices). 5. Teaser supplies colour ink cartridges to Koda Printers Limited ( Koda ), a company that manufactures colour laser printers for offices and operates in the market through four primary distributors Alpha, Beta, Gamma, and Theta that sell the printers to retailers who supply to the offices that place orders with the same. 6. The Competition Commission has, in a previous decision that is otherwise irrelevant to the present matter, found that Koda is a dominant company as it has a long history of manufacturing colour laser printers and has achieved large economies of scale, and has a market share of 85%. Yoku Printers Limited ( Yoku ) is the only other manufacturer of colour laser printers with market share of 15%. 7. Koda and Teaser signed an exclusive supply agreement for the supply of colour ink cartridges in 2012. The agreement mandated that Teaser will supply colour ink cartridges only to Koda, and that Koda will buy all the colour ink cartridges that Teaser can produce before procuring colour ink cartridges from any other source. The price of these colour ink cartridges is determined based on a price variation clause that was incorporated in the agreement. The agreement is for 6 years and is renewable at the end of 3 years. However, both parties have an option to terminate the contract at any point without cause, giving the other part three months notice. 8. As stated earlier, Koda sells its colour laser printers to its distributors Alpha, Beta, Gamma and Theta. Alpha is the largest of the distributors and purchases 50,000 colour laser printers every year. Beta purchases 15,000 colour laser printers, Gamma 10,000 colour laser printers and Theta 5,000 colour laser printers. It costs Koda ONR 8,000 2
(where ONR stands for Oregano National Rupees) to produce one colour laser printer, on average. However, Koda s average variable cost is ONR 7,500 per printer, as this industry has low fixed costs. The list price for the colour laser printers manufactured by Koda and Yoku are both ONR 1,000. Yoku s costs are however higher than Koda (its average total cost is approximately ONR 8,500 and its average variable cost is ONR 7,900). Yoku has long term agreements to supply half of Beta, Gamma and Theta s requirements. As Yoku can only supply 15% of the market, Alpha must buy at least 38,000 printers from Koda every year. Koda has a discount policy in place which caters to the unique needs of its distributors. Since 2015, Koda has the following preferential rate agreement with Alpha: If Alpha buys 38,675 printers from Koda, Koda will sell them at the rate of ONR 10,000 per printer. For every additional printer Alpha buys from Koda, over the original 38,675 printers, Koda will apply its preferential rates and supply the additional printers at the rate of ONR 5,000 per printer. If Alpha buys its entire requirement of printers from Koda, Koda will give Alpha an additional discount of 15% on the price for the entire 50,000 printers. 9. Similarly, Koda has developed a preferential discount scheme with Beta, Gamma and Theta depending on their requirements. An e-mail from the CEO of Koda to the CEO of Beta states that the rationale for Koda offering these discounts is that it wants that [Beta] need not look any further than Koda to meet all your printer needs. Similar e- mails to the CEOs of Alpha, Gamma and Theta were also discovered. Another e-mail from the CEO of Koda to a marketing manager within Koda also states, Alpha and Beta are important customers from a long term point of view. It is crucial that they understand that an agreement with Koda is a valuable long term proposition, because they are a value proposition for us in the long term. I trust that you will give these accounts the importance due to them. 10. Yoku does not have the economies of scale enjoyed by Koda, but is willing to invest money into increasing its capacity. As a promotional tool, Yoku has offered Alpha 100 printers for free, to show Alpha that its products are better and more reliable than Koda s. However, Alpha rejected this offer. The printer industry is a regulated industry in Oregano, with various decisions about the market being made by the Printer Board ( PB ), set up under the PB Act, 2000. Section 11 of the PB Act has the following clause: 11. Function of the Board:-The Board shall protect the interest of consumers by fostering fair trade and competition amongst the entities. 11. Yoku filed a suit before the PB claiming that Koda s discount scheme amounts to predatory pricing and that, given the PB s mandate to ensure that competition in the marketplace is not harmed, the PB must look into the matter. Koda has taken an argument on jurisdiction in this case, arguing that the appropriate authority to adjudicate this issue is the Competition Commission. The PB has decided to hear the issue on merits, passing an order stating that it has jurisdiction and so it would like to hear the matter on merits. 3
12. Yoku then files an Information against Koda before the Competition Commission, alleging that its discount scheme is an abuse of dominance, as it is predatory pricing and leads to denial of market access for Yoku. For strategic reasons, Yoku files a separate Information against Koda and Teaser, alleging that their exclusive supply arrangement has an appreciable adverse effect on competition in the relevant market in Oregano. 13. At the Competition Commission, Koda argues that the Competition Commission does not have jurisdiction over the matter as the competent authority is the PB, which has already asserted its jurisdiction in the predatory pricing case. It also states that the matter is sub judice before the PB, Yoku cannot agitate it before the Competition Commission. Additionally, it states that Yoku is forum shopping and needs to choose between the two fora, and cannot file complaints before both the Competition Commission and the PB. The Competition Commission decides that, since it is the only authority vested with the power to investigate infringements of the Competition Act and since this case has substantial competition concerns, it has jurisdiction over the matter. The Competition Commission also finds that there is a prima facie case of infringement of the Competition Act in both the cases filed by Yoku, and it sends both matters to the Director General s office (the DG s Office ) for investigation. 14. The Competition Commission, as a practical matter, deals with the two cases together, but they are not officially clubbed at any point. In fact, Koda files an application with the Competition Commission for clubbing the matters, but the same is rejected as Yoku objected to the clubbing of the two cases. 15. In the meanwhile, the DG s Office submits its reports (the DG s Reports ) on the alleged infringement of Section 3 and 4 of the Competition Act to the Competition Commission. The DG s Reports conclude that there is an abuse of dominance by Koda in the relevant market for sale of colour laser printers for offices. 16. The Competition Commission then heard all parties on the merits of both cases. Koda re-raised several jurisdictional arguments regarding the investigation into the agreement between Teaser and Koda, but the Competition Commission rejected them all. The Competition Commission concluded that there was an abuse of dominance as Koda had violated Section 4(2) (a) read with Section 4(1) and 4(2) (c) read with Section 4(1) of the Competition Act, and also imposed a fine on Koda of 7% of its total turnover. The order of the Competition Commission provided no explanation for how this amount was arrived at, though it is believed that the Competition Commission may have taken guidance from recent decisions in India. 17. The Competition Commission also found that there was no anti-competitive agreement between Koda and Teaser primarily because the agreement was terminable on three months notice for no cause, providing some respite to Teaser. 4
18. Koda appealed against the order finding an abuse of dominance (Appeal No. 1/2018) and also against the Competition Commission s incorrect assertion of jurisdiction over the matter. Yoku appealed against the order finding no anti-competitive agreement between Koda and Teaser (Appeal No. 2/2018). 19. These two appeals were listed before the National Company Law Appellate Tribunal (the NCLAT ), the appellate body for competition orders passed by the Competition Commission which decided to hear all the matters together, after giving all parties adequate time to file their written submissions. 20. The Competition Commission, as is customary in such cases, was made a party to both the appeals filed before the NCLAT. The Competition Commission filed a reply stating that it wished to participate in the matter insofar as the question of its jurisdiction was concerned. Teaser has declared that it shall only act as a proforma participant in the proceedings, as it believes that its interests are adequately represented by Koda. 21. The NCLAT has clubbed the two appeals and will hear both sides together and has asked that briefs for both sides address the issues on all the three issues, namely the jurisdiction of the Competition Commission, Koda s abuse of dominance, and the agreement between Koda and Teaser. Note: The counsel representing both sides, viz., Koda Printers Limited and Yoku Printers Limited/ Competition Commission, are required to address the arguments that are specifically mentioned in the Proposition. They are, however, free to make any other arguments that they deem fit. Counsel for both sides are encouraged to explore additional arguments related to jurisdiction as well as merits. 5