Unfair warranty policy amounts to abuse of dominant position under section 4 of the Competition Act, 2002

The Competition Commission of India in the matter of Matrix Info System Pvt. Ltd. vs. Intel Corporation & Anr. (Case No. 05 of 2019) on 12.08.2019 held Intel Corporation to be in contravention under Section 4 of the Competition Act, 2002 for having an unfair warranty policy which amounts to abuse of dominant position under section 4 of the Competition Act, 2002.

Challenges:

The case was filed by Matrix Info Systems Pvt. Ltd. (the Informant) under Section 19(1)(a) of the Act against Intel Corporation (OP-1) and Intel Technology India Pvt. Ltd. (OP-2). The Informant deals in importing, wholesaling, distributing and supplying several IT products in India.

Initially, the Informant used to import Micro-processors which came with a worldwide manufacturer’s warranty from manufactures like Intel or distributors in different countries. In the past few years, Intel started entering into exclusive agreements with a few sellers and distributors in India and other countries and recognized them as ‘authorized sellers’ who in turn sold its products to consumers with a country-specific manufacturer’s warranty instead of a worldwide one.

Held:

The Commission formed a prima facie opinion that Intel abused its dominant position in the market of Boxed Micro-processors. As observed before 2016, Intel used to provide manufacturer’s warranty for its Boxed Micro-processors within India even if they were imported. However, w.e.f. 25th April 2016, Intel revised its country-specific warranty policy for India and now the new policy stated that Intel would only entertain warranty requests for the Boxed Micro-processors if they were bought by an authorized seller like OP-2 within India and excluded warranty requests if such Micro-processors were imported even though from an authorized seller in the foreign country.

The Commission held that the said policy is discriminatory and unfair and is done with an ulterior motive to secure the market for its authorized seller market. Such a discriminatory practice eliminates, limits and restricts effective competition from the market and deprives the consumer of choice striking at the mandate of Section 4(2) and 3(4) of the Act.

The Commission took note that the ‘network effects’ are a common phenomenon in many high-tech markets where a particular customer cannot readily switch to a substitute if it is not compatible with the current standard. Innovation arises at both the ‘architectural’ (standard) level and the ‘modular’ level (the sub-systems which comprise a standard and raises questions, inter alia, about standard-setting and access to set standards by abusing its dominant position in the relevant market, it imposed such barriers through a strategic action of changing warranty conditions only for Indian distributors leading to denial of market access to the Informant. Additionally, the ‘exclusive agreements’ entered between OP-2 and Intel giving them the exclusive right to sell in India is violative of Section 3(4)(c).

The Commission further observed that the consumers cannot readily switch to a substitute as a result of the ‘exclusive agreement’ of the Intel. Consumers are forced to buy from authorized sellers of Intel to enjoy warranty services within India. This excludes parallel importers like the informant due to non-availability of after-sales warranty services. Intel is dominant in the market of microprocessors changed their warranty policy to exclude equally efficient competitors from the market, strengthen their market position and be able to sell the processors at their whims and fancies. The change in policy has an appreciable adverse effect on competition as defined in Section 19(3).