Case No. 56 of 2012. Case: Atos Worldline India Pvt. Ltd. Vs Verifone India Sales Pvt. Ltd. and Ors.. Competition Commision of India

Case Number:Case No. 56 of 2012
Party Name:Atos Worldline India Pvt. Ltd. Vs Verifone India Sales Pvt. Ltd. and Ors.
Counsel:For Appellant: Suhail Nathani, Ravishekar Nair, Arjun Khera, Srijan Sinha and Mehfuz Mullah, Advocates and For Respondents: Ramji Srinivasan, Senior Advocate, Naval Chopra, Abjeet Sinha, Ritwik Bhattacharya, Dinoo Mutappa, Vinayak Prasad, James and Anil Gupta, Advocates
Judges:Ashok Chawla, Chairperson, S.L. Bunker, Sudhir Mital, Augustine Peter and U.C. Nahta, Members
Issue:Competition Act, 2002 - Sections (ii), 19(1)(a), 19(4), 19(6), 19(7), 2(r), 2(s), 2(t), 26(1), 27, 27(b), 4, 4(1), 4(2), 4(2)(a)(i), 4(2)(a)(ii), 4(2)(b), 4(2)(b)(i), 4(2)(b)(ii), 4(2)(c), 4(2)(e), 48
Judgement Date:April 10, 2015
Court:Competition Commision of India
 
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Order:

The present information has been filed by M/s. Atos Worldline India Private Limited (hereinafter, the 'Informant') under section 19(1)(a) of the Competition Act, 2002 (hereinafter, the 'Act') against M/s. Verifone India Sales Pvt. Ltd. (hereinafter, the 'Opposite Party No. 1'/'Verifone') and M/s. Verifone System Inc. (hereinafter, the 'Opposite Party No. 2') [collectively hereinafter, the 'Opposite Parties'), inter alia, alleging contravention of the provisions of section 4 of the Act.

  1. Facts, in Brief.

    1.1 As per the information, the Informant, a company incorporated under the Companies Act, 1956, is owned by Atos, a global information technology services company operating in the areas of hi-tech transactional services, consulting and technology services and system integration and management services. The Informant is stated to be engaged in the provision of services such as software development including Value Added Services (hereinafter, 'VAS'), maintenance, implementation, upgradation, applications management and infrastructure management. It delivers end-to-end service in industries of public sector, healthcare, transport and financial services and also operates as a third party processor (hereinafter, 'TPP'). As a TPP, it tracks the flow of intervening events between a card holder swiping his card and finally receiving a printed charge slip at the Point of Sale (hereinafter, 'POS') Terminals on the premises of a merchant from whom the card holder buys products/services. As a VAS provider, the Informant develops applications such as loyalty, gift card, bill payment, top-up, money transfer, dynamic currency conversion, etc. for integration into POS Terminals. The customers of the Informant such as banks and financial institutions use its services for customising, commissioning, installing and maintaining POS Terminals at merchant locations.

    1.2 The Opposite Party No. 1, a company incorporated under the Companies Act, 1956, is a wholly owned subsidiary of the Opposite Party No. 2 which is a NASDAQ listed public company and a global leader in secure electronic payment technologies for the provision of hardware solutions such as POS Terminals, services and expertise to enable electronic payment transactions at the POS Terminals.

    1.3 As per the information, the Opposite Party No. 1 is a leading supplier of POS Terminals in India having control over nearly 70% to 80% of the market. It has acquired several other players in the POS Terminals market in India such as Lipman Electronic India Private Limited in 2006, Hypercom India and Gemalto in 2011.

    1.4 As per the Informant, the Opposite Party No. 1 supplies POS Terminals along with core POS Terminal applications (i.e., Operating System and Kernels) and Software Development Kits (hereinafter, 'SDKs') to enable the basic functionality of the POS Terminals. It is submitted that POS Terminals along with its core applications are either sold directly to the customers like banks and retail outlets or to the TPPs such as the Informant who act on behalf of acquiring banks and also render VAS to develop and integrate applications into POS Terminals.

    1.5 It is averred that for the provision of VAS, it is extremely important for the Informant 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. It is stated that, 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.

    1.6 The Informant submitted that between September, 2010 and December 2011, the Opposite Party No. 1 continued to provide SDKs to the Informant along with the POS Terminals and core terminal applications without any restrictions on the use of SDKs. The Opposite Party No. 1 also used to provide training to the Informant's engineers to enable the Informant to render VAS to its customers.

    1.7 The Informant stated that cost of core applications and SDKs were always included in the purchase orders for the purchase of the POS Terminals. In relation to enhancements and updates to core terminal applications, the purchase orders contained clauses stipulating the terms and conditions. It is stated that in practice such enhancements and updates were provided at no extra cost, other than the price paid at the time of procurement of POS Terminals.

    1.8 It is submitted that after acquisition of Venture Infotek by the Informant in August, 2010, the Opposite Party No. 1 issued a termination letter to the Informant in September, 2010 alleging breach of Source Code License Agreement (hereinafter, '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 Opposite Party No. 1 continued to supply POS Terminals along with its core applications, SDKs and training to its engineers for the use of SDKs.

    1.9 It is averred that, in January 2012, the Opposite Party No. 1 sent a proposed draft SDK agreement to the Informant stating that the same is not open to any negotiations, amendments or changes and that the Informant has to insert certain details in the said draft SDK agreement and to counter-sign it. The Informant has alleged that through the said draft SDK agreement the Opposite Party No. 1 sought to impose certain restrictive conditions on it.

    1.10 The Informant stated that 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. Moreover, no legitimate business reasons were provided by the Opposite Party No. 1 to carry out such drastic changes in the said draft SDK agreement. It is alleged that the restrictions contained in the draft SDK agreement foreclose the VAS market.

    1.11 The Informant averred that since early January, 2012, the Opposite Party No. 1 has adopted a very unreasonable position and there was an unprecedented delay in the supply of kernels which caused heavy revenue loss to it. It is alleged that between January, 2012 and July, 2012, the Opposite Party No. 1 made repeated attempts to force the Informant to agree to the terms and conditions as set out in the draft SDK agreement. Further, the Opposite Party No. 1 issued several reminders to the Informant to complete the formality of signing the draft SDK agreement, failing which the Opposite Party No. 1 threatened to withdraw the SDK support for the Informant's business. It is averred that the Informant was constrained to issue several letters to the Opposite Party No. 1 highlighting the unreasonable nature of the restrictions set out in the draft SDK agreement. It is the case of the Informant that despite repeated attempts to engage in constructive discussion with the Opposite Party No. 1 on the restrictive conditions of the draft SDK agreement, it issued a termination letter dated 01.08.2012.

    1.12 It is alleged in the information that the Opposite Party No. 1 over the past few years also made in-roads into the VAS market and operates as a direct competitor to the Informant and other entities operating in the VAS market. It is alleged that on account of the Opposite Party No. 1's dominant position in the POS Terminals market and its presence in the VAS market, it resorted to the conduct and practices which directly impair not only the ability of VAS providers from operating in the market but appropriate the Informant's IPR in the VAS market.

    1.13 It is stated that at a global level the Informant and Verifone are competitors in the provision of hardware and software solutions to the payment industry. But, in India the Informant is operating in the TPP and VAS spheres only whereas the Opposite Party No. 1 is not only dominant in the POS Terminals market but also active in the VAS market where it primarily operates in the non-financial applications and is now leveraging its strength to compete in the financial services market.

    1.14 Citing Reserve Bank of India's 'Payment System Vision Document, 2012-15', the Informant 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 Opposite Party No. 1 exercises significant control over the supply of hardware and software solutions.

    1.15 The Informant 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 Informant from the downstream market and would support the Opposite Party No. 1's interests by eliminating competition in the market. The Informant has alleged that Opposite Party No. 1, by imposing restrictions in the draft SDK agreement, is aiming to strengthen its position in the VAS market.

    1.16 Based on the above submissions, the Informant has alleged that the Opposite Party No. 1, through the 2012 draft SDK agreement, has sought to impose unfair and unreasonable conditions and prices on the Informant which is in contravention of 4(2)(a)(i) & (ii) of the Act. As per the Informant, the Opposite Party No. 1 by imposing severely restrictive terms and conditions on the usage of SDKs and by demanding payment of unfair prices for provision of service has sought to limit and restrict provision of services and technical development in the market which is in contravention of section 4(2)(b)(i) & (ii) of the Act. It is also alleged that the Opposite Party No. 1 has sought to deny market access to VAS providers in contravention of section 4(2)(c) of the Act. Further, the Opposite Party No. 1 allegedly intended to use its dominant position in POS Terminal market to dominate...

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