27 May, 2015
On April 10, 2015, CCI passed an order imposing a penalty on VeriFone India Sales Private Limited and VeriFone System Inc. (‘VeriFone’) for contravening the provisions of Section 4 (2)(a), Section 4(2)(b) and Section 4(2)(e) of the Competition Act. CCI’s proceedings against VeriFone were initiated on the basis of a complaint by Atos Worldwide India Private Limited (‘Atos’),alleging that VeriFone had engaged in practices that amounted to a contravention of the provisions of the Competition Act.
In its complaint, Atos alleged that while previously VeriFone supplied software development kits (‘SDKs’) along with the point of sale (‘POS’) terminals and core terminal applications without any restrictions, in January, 2012 VeriFone sent Atos a revised SDK license agreement, the terms of which it refused to negotiate. Atos claimed the revised terms were contrary to business practice and resulted in foreclosure of the value added services (‘VAS’) market. Atos further claimed that VeriFone allegedly pressurized the informant to enter into the SDK license agreement by delaying supplies of equipment and thereby delaying the supply of kernels by the informant. Atos submitted that there was no objective justification for the imposition of unreasonable and unfair terms. As a result it was alleged that VeriFone had violated the provisions of Sections 4(2)(a)(i) and (ii) of the Competition Act by imposing unfair and unreasonable conditions and prices on the informant through the draft SDK agreement. Further, by asking for unreasonable prices and limiting the supply of SDKs, Verifone allegedly restricted the supply of services and technological development in violation of Sections 4(2)(b)(i) and (ii) of the Competition Act. VeriFone has sought to deny market access in violation of Section 4(2)(c), and has sought to leverage its position in the market for POS terminals to protect its position in the market for VAS, in violation of the provisions of Section 4(2)(e) of the Competition Act.
Post the investigation the DG concluded that – (i) the relevant market was the market for POS terminals; (ii) VeriFone was dominant in the relevant market and (iii) VeriFone had abused its position of dominance as the terms of the SDK license were unfair and restrictive and were found to be in violation of Section 4 (2)(a), Section 4 (2)(b) and Section 4 (2)(e) of the Competition Act.
CCI noted that no other POS supplier had imposed restrictive conditions in the SDK license agreements, which amounted to a restriction on the development of applications for use on POS terminals. CCI noted that the SDK license agreement allowed the licensee to develop VAS and use the same only on those products purchased by the licensee from VeriFone directly, and was clearly restrictive and anticompetitive.
CCI also noted that the clause restricting Atos from licensing, selling or otherwise transferring any software that VeriFone develops using the licensed software to any third party resulted in restricting the provision of VAS services and limited the technical and scientific development of VAS services. CCI further noted that under the terms of the SDK license agreement the disclosure requirements allowed VeriFone to access confidential commercial information from VAS providers. As VeriFone is itself a provider of VAS, it was in a position to use this information to exploit the lucrative VAS market. CCI thus found that the requirement of prior disclosure amounts to imposition of an unfair condition on Atos, as well as a limitation on the provision of VAS services.
Lastly, CCI noted that the disclosure requirements allowed VeriFone, which operated in the market for sale of POS terminals to protect the VAS market, which is a downstream market. Accordingly, CCI concluded that VeriFone’s conduct also amounted to leveraging its dominant position.
In light of the above, CCI was of the view that VeriFone had abused its dominant position under Section 4 (2)(a), Section 4 (2)(b) and Section 4 (2)(e) of the Competition Act. Accordingly CCI issued a cease and desist order to VeriFone and also imposed a penalty amounting to 5% of the average turnover for the financial years 2010-11, 2011-12 and 2012-13
For further information, please contact:
Zia Mody, AZB & Partners
zia.mody@azbpartners.com
Abhijit Joshi, AZB & Partners
abhijit.joshi@azbpartners.com
Shuva Mandal, AZB & Partners
shuva.mandal@azbpartners.com
Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com
Percy Billimoria, AZB & Partners
percy.billimoria@azbpartners.com
Aditya Bhat, AZB & Partners
aditya.bhat@azbpartners.com
