Competition Commission of India vs Schott Glass India Pvt. Ltd. & Anr.

Held: The uniform 8% functional rebate was granted to converters that met three objective and commercially justifiable conditions: (i) fulfilling a purchase plan to ensure furnace stability; (ii) refraining from using certain Chinese tubing due to quality concerns (a condition later withdrawn); and (iii) complying with traceability and fair-pricing obligations – Each condition is therefore objectively connected with the legitimate aim, patient safety and brand integrity, and is proportionate to it – Ledgers for FY 2008-09 to FY 2011-12, collated by COMPAT, discloses no instance in which two converters performing the same function received different net prices – The rebate terms remained consistent across similarly placed converters, with no price discrimination – The only variation was credit timing which was commercially rational and not violative of Section 4(2)(a) –– Every converter prepared to assume the same traceability and quality-promotion obligations received exactly the same economic consideration – Therefore, the functional rebate and its successor agreements therefore do not offend either Section 4(2)(a) or Section 4(2)(b)(i) of the Act. [Paras 40, 41, 45] Competition Act, 2002 – s.4 – Abuse of Dominance – The Long-Term Tubing Supply Agreement (LTTSA) between Schott India and Schott Kaisha resulted into a market squeeze, prohibited by Section 4(2)(e) of the Competition Act, 2002 – As Schott India is absent downstream; the wholesale-to-retail spread left rivals with sustainable margins; and the market exhibited neither exit nor price elevation – Thus, LTTSA does not contravene Section 4(2)(e) of the Act:

Held: It is alleged that impugned LTTSA enabled Schott India to foreclose independent converters by compressing the margin between their input cost and the downstream selling price of Schott Kaisha – Three essential condition should be met in for a margin squeeze - (i). The respondent must itself operate downstream; (ii). The wholesale-to-retail spread must be insufficient for an equally efficient competitor; and (iii). The compression must threaten competitive harm – In the present case Schott India did not operate in the downstream market for converted glass containers, which was served by Schott Kaisha, a separate company in which the global Schott AG holds fifty per cent stakes, the balance being with the Kaisha promoters, with no board overlap, no common management, and separate audited accounts – Moreover, there is no evidence established that equally efficient independent converters were foreclosed or operated at a loss – There is no demonstrable squeeze of rivals’ margin, as there is no evidence that equally efficient rivals were forced into losses – Financial data from nine independent converters show positive EBITDA throughout the LTTSA period, with seven improving in both volume and margins – Accordingly, none of the three cumulative conditions for a margin squeeze were met. [Paras 48-53]

Competition Act, 2002 – s.4 – Abuse of Dominance – Schott India tied or bundled NGA and NGC tubes, thereby breaching Section 4(2)(d) of the Competition Act:

Held: Section 4(2)(d) of the Act is attracted only where a dominant enterprise, (i). supplies two distinct products, (ii). makes the supply of the tying product conditional upon acceptance of the tied product, and (iii). thereby forecloses competitors in the tied-product market — In the instant case, NGA and NGC are not economically distinct products, but rather alternative specifications drawn from the same continuous-melt furnace, with customer demand dictated by downstream pharmaceutical requirements – Even assuming as arguendo, NGA and NGC were separate, no coercive condition was proven – Alleged tying of both the products was based on witness statements in which no opportunity of cross examination was granted and an outdated circular, both of weak evidentiary value – No contract, invoice, or purchase record demonstrated forced bundling – Thus, it is not proved NGA and NGC are not independent products and the converters were never compelled to buy both the products moreover no foreclosure was demonstrated – In these circumstances, the essential elements of Section 4(2)(d) of the Act are not proved as NGA and NGC are not independent products. [Paras 54, 55, 56, 58] Competition Act, 2002 – s.4 – Whether an effects-based (harm) analysis is an essential component of an inquiry under Section

4 of the Act, and, if so, whether it was omitted in the present case – That the CCI, having relied on untested statements and pre-2009 correspondence, Undertook no credible assessment of harm – The omission of a proper harm analysis vitiates the CCI’s order in limine:

Held: Section 4 of the Act prohibits the abuse of dominance – Abuse is conduct that distorts the competitive process or harms consumers – The statute therefore contemplates two logically separate findings: (i). that the impugned practice falls within one of the descriptive clauses (a)–(e) of sub-Section (2), and (ii). that it results in, or is likely to result in, an appreciable adverse effect on competition (“AAEC”) – The majority ruling of the CCI professed to have analysed effects yet adduced no economic evidence of price increases, output restriction or foreclosure – However, after compiling converter sales, EBITDA and price data for FY 2007-08 to FY 2011-12, it was found (i) that all independent converters expanded output and margins, and (ii) that pharmaceutical buyers paid identical or higher prices for containers from the joint-venture than from other converters – The CCI, having relied on untested statements and pre-2009 correspondence, Undertook no credible assessment of harm; and that, on the evidence marshalled by the COMPAT, converter growth, stable downstream prices, absence of foreclosure – No appreciable adverse effect on competition is shown. [Paras 59, 64, 66]

Competition Act, 2002 – s.36 – Whether the investigation and the Commission’s order are vitiated by denial of crossexamination and allied breaches of natural justice: Held: Section 36(2) of the Act incorporates the Code of Civil Procedure’s guarantees, including the right to “examine witnesses on oath” and to test them in cross-examination, Regulation 41(5) of the 2009 General Regulations obliges the DG or the CCI to grant that opportunity whenever it is “necessary or expedient” — In this case, the DG relied extensively on statements from converters commercially adverse to Schott India, by circulating questionnaires, recording their statements and “surfing the worldwide web”, no independent verification was attempted – The CCI adopted the same material without independent scrutiny – In short, uncorroborated testimony is the foundation of every adverse inference by the DG and CCI against Schott India – Schott India had repeatedly requested cross-examination, both in writing and orally, but the CCI rejected the request on technical grounds, ignoring the substantive right – If the CCI had allowed cross-examination, two courses were open: (i). either the allegations would have crumbled under questioning, or (ii). a tested evidentiary record would have emerged on which a reasoned decision, whichever way, could rest. Cross-examination would have revealed that several converters had, during the period in question, expanded output, raised prices independently of Schott India – The findings of CCI are not legally sustainable and are contrary to natural justice – COMPAT correctly allowed the appeal filed by Schott India, as CCI’s refusal to let Schott India cross-examine the converter-witnesses was a material infraction. [Paras 68, 69, 73, 75]