Competition Law

CASE ANALYSIS ON

Kapoor Glass v. Schott Glass

Submitted to: Submitted by:

Prof. Vinod Dixit Aparajita Marwah

2017BALLB80
 TABLE OF CONTENTS

BACKGROUND.........................................................................................................................................3
1. Name of the judgment and citation:................................................................................................3
2. Background:...................................................................................................................................3
3. Appeal:...........................................................................................................................................3
BENCH.......................................................................................................................................................4
MATERIAL FACTS...................................................................................................................................5
ISSUES RAISED........................................................................................................................................7
CONTENTIONS.........................................................................................................................................8
PROVISIONS AND DOCTRINES INVOKED........................................................................................13
A. Sections 4(2)(a)(i) & (ii) (Discriminatory Conditions And Prices)...........................................13
B. Sections 4(2)(b)(i) and 4(2)(c) (Exclusionary Policies And Denial Of Market Access)...........13
C. Section 4(2)(d) (Tying-In)........................................................................................................13
D. Section 4(2)(e) (Leveraging Dominance To Protect Downstream Market)..............................13
E. Section 4(2)(c) (Schott India’s Refusal To Deal With Kapoor Glass Denying It Market Access)
13
LITERATURE CITED..............................................................................................................................15
JUDGEMENT IN PERSONAM AND JUDGEMENT IN REM...............................................................15
CONCLUSION.........................................................................................................................................16
ACKNOWLEDGEMENTS.......................................................................................................................17
 BACKGROUND

1. Name of the judgment and citation:

Kapoor Glass (India) Pvt. Ltd v Schott Glass Pvt Ltd. Case22/2010

Appeal No. 91 of 2012 by M/s. Schott Glass India Pvt. Ltd. vs. CCI and Ors.

Appeal No. 92 of 2012 by M/s. Kapoor Glass (India) Pvt. Ltd. vs. M/s. Schott Glass India Pvt.
Ltd.

2. Background:

Kapoor Glass was an Indian enterprise engaged in the business of production and sale of glass
ampoules and “neutral USP Type-I borosilicate glass tubes”. They approached the authorities,
reporting abuse of dominant position by Schott Glass Pvt Ltd. Schott Glass is a manufacturer of
Neutral USP-1 borosilicate glass tubes which are made of borosilicate glass, a special type of
glass having unique properties. According to the complaint, it was alleged that Schott Glass was
engaging in discriminatory pricing practices which were also unfair.

It was stated that through Joint ventures and acquisitions, Schott Glass became a major player in
the market for glass tubes in India. And then used this position to drive out competitors by
engaging in predatory pricing. It was alleged that there was a breach of sections 3(4) and 4 of the
Act.

There was also an allegation of tying of 2 unrelated products as well as giving away exorbitant
discounts, which were tied with additional conditions to purchase 80% of their requirement from
Schott in order to avail the discount. They also tried to poach empoyees of Kapoor Glass,
negatively impacting the production. Further the Appellant was charged with discriminating on
discount price by favoring its own JV- Scott Kaisha.

3. Appeal:
The Competition Commission found Scott Glass guilty of breaching section 4 due to their unfair
and discriminatory discounts, as they had resulted in unfair competition in the market. A penalty
of over INR 5 Crore was also imposed by the CCI in its order of 29 th March, 2012. It is pertinent
to mention here that this was the majority view of the CCI. The minority held otherwise.

Aggrieved with the decision, Schott Glass India had filed an appeal before the Competition
Appellate Tribunal (COMPAT). And interestingly a cross-appeal was also filed by Kapoor Glass
as they disagreed with CCI’s judicial proclamation and sought a higher penalty for Schott Glass.

Finally, in 2014 COMPAT reversed the CCI’s order and went with the minority view.

BENCH

CCI: Minority Opinion by Geeta Gouri

COMPAT: Justice V.S. Sirpurkar (Chairman of COMPAT)

 MATERIAL FACTS

The COMPAT on April 2, 2014, the Competition Appellate Tribunal (‘COMPAT’), upheld an
appeal by Schott Glass India Private Limited (‘Schott India’)1, against an earlier decision2 of
the Competition Commission of India (‘CCI’) whereby the CCI had found Schott guilty of
abuse of dominance in within the meaning of Section 4 of the Competition Act, 2002
(‘Competition Act’ or ‘the Act’).

In 2010, Kapoor Glass Private Limited (‘Kapoor Glass’), a borosilicate glass tubes and vials
manufacturer had complained to the Commission regarding abuse of dominant position by
Schott Glass in the market for the aforementioned products. They alleged the abuse on grounds
of unfair and discriminatory prices (including predatory prices) and conditions on ampoule
manufacturers (such as Kapoor Glass) through its discount policies, which violated Section
4(2)(a)(i) & (ii) of the Competition Act. Secondly, they also alleged that Schott leveraged its
dominance in the upstream market market for “neutral USP-I borosilicate glass tubes” to
protect its market presence in the downstream market for “ampoules” by favoring and being
biased towards their own Joint Venture, which was a part of their group. This was seen to
violate Section 4(2)(e) of the Competition Act. Third, they were engaged in sales of 2 types of
glass tubes (transparent and yellowish), this was allegedly violating Section 4(2)(d). Fourth,
their refusal to entertain a business relationship and rapport with Kapoor Glass was alleged to
be denial of market under Section 4(2)(c). And fifth, their exclusionary behavior was allegedly
restraining the market and violating Section 4(2)(b)(i).

At first instance, the commission had rendered a guilty verdict for Schott, due to abuse of
dominant position in the Indian market for “neutral USP-I borosilicate glass tubes”. They had
come to such a finding on four points. First, Schott was guilty of discriminatory pricing, in
breach of Section 4(2)(a)(i) & (ii). Second, they were found to be engaging in exclusionary
market practices which had the effect of restricting the product market in violation of Section
4(2)(b)(i). Third, they were doing tied-in sales for 2 different types of glass tubes in
contravention of section 4(2)(d). And fourth, they were using their dominant position in the
market for “neutral USP-I borosilicate glass tubes” in order to benefit in the market for
ampoules, i.e. a separate market.
Subsequently, there was an appeal to COMPAT by Schott. They wanted the CCI’s order
finding them guilty of abusing their dominant position, to be overturned. Surprisingly, even
Kapoor Glass had appealed against the CCI’s finding of not guilty on the grounds of refusal to
deal.
 ISSUES RAISED

The tribunal deliberated upon the following three issues:

a) “On the basis of facts involved in the case, what was the relevant market in this case?”

b) “If the Appellant had a position of dominance in the relevant market in terms of
provisions of section 4 of the Act?”

c) “If answer to b) was in affirmative, was there any case of abuse on the part of the
Appellant in terms of the following acts and conduct, which, if established, may be said
to be violative of various provisions of section 4(2) of the Act?”

There also deliberated upon seven sub-issues, in addition to the aforementioned.

i) “Whether the Appellant has indulged in the act of predatory pricing in violation of provisions
of section 4(2)(a)(ii) of the Act?”

ii) “Whether the Appellant had imposed unfair and discriminatory conditions or price in the sale
of neutral USP-I borosilicate glass tubes through its discount policies, TMLA, MSA and SPA in
contravention of the provisions of section 4(2)(a)(i) and (ii), of the Act?”

iii) “Whether the aforesaid policies of the Appellant are exclusionary and limit and restrict the
market in violation of provisions of section 4(2)(b)(i) and are also causing denial of market
access in terms of section 4(2)(c) of the Act?”

iv) “Whether the Appellant had leveraged its position of dominance in relevant upstream market
of neutral USP-1 glass tubes to enter into or protect the relevant downstream market of
'Containers, i.e., ampoules, vials, dental cartridges and syringes made out of 'neutral USP-I
borosilicate glass tubes'?”

v) “Whether the Appellant had engaged in the practice of making the sale of amber tubes
contingent upon the Converters buying clear tubes from it in contravention of provisions of
section 4(2)(d) and any other provisions of section 4 of the Act?”

vi) “Whether the Appellant had refused to deal with the Informant as has been alleged, denying
market access to it and if yes, had the Appellant contravened the provisions of section 4(2)(c) of
the Act?”

vii) “Whether the Appellant had indulged in the practice of predatory hiring of employees of the
Informant and if yes, could the practice be called inconsistent with the requirements under
section 4(2)(e) of the Act? Further, could this act be said to be violative of provisions of section
4(2)(b)(i) since it is limiting and restricting the ability of the Informant to produce goods as
alleged by the Informant?”
 CONTENTIONS

The tribunal started the discussions with the deliberation of the minority order by Smt. Geeta
Gouri where she found no violations of section 4(2)(a)((i) and (ii) of the Act i.e. the imposition
of unfair and discriminatory condition on Converters through the TMLA, section 4(2)(d), i.e.
tying up of goods and even section 4(2)(b)(i) i.e. restricting access of market. On the issue of
functional discounts, however, she held them to be liable.

The first issue dealing with violations of section 4(2)(a)(i) and 4(2)(a)(ii) was hence deliberated
first. While the CCI had found the appellant to have indeed violated these provisions, COMPAT
decided to reexamine the same. The CCI took into account the quantity discount scheme by
Schott which obliged converters to promote Schott, purchase a requisite quantity and provide all
information of use.

There were also penalties in the agreement, such as payment of damages worth seventy lakhs in
case of trademark infringement. Those who were parties to the agreement were of course
provided with royalty free rights to display and use the Schott logo for their consumers. On
examining the appellant’s argument that the discount was there to mitigate the losses of
converters by mixing two varieties of ampoules, the CCI considered the discount offered to its
own JV – Schott Kaisha. It was found that there was a biased treatment regarding discounts
where there was uneven amounts of discounts given to manufacturers, as compared to Schott
Kaisha which was the recipient of more favorable terms as well as a higher quantum of
discounts. The appellant accepted the same and justified its differential discounting by stating
that the JV had an unparalleled amount of orders and hence were deserving of the favorable
treatment. The cornerstone of this justification was that such discounting policies were the
industry norm, and even the informant engaged in them.

The CCI held that such target discounts weren’t wrong, the fact that there was no uniformity in
conditions was wrong as this promoted anti-competitive behaviors in the market. It was
concluded that such differential treatment in discounts, where the JV is given preferential
treatment as compared to other converters, revealed a non-uniformity in the adoption of the
practice, which led to price discrimination.
 The appellants argued that Schott Kaisha was the largest purchaser of the appellant, with over
30% of sales, and therefore the discount was justified. Furthermore, they argued that in order to
be discriminatory, the discount must be different for uniform transactions, which was not the
case here, and hence it was completely reasonable to give a higher discount to the bigger buyer.
The JV also sold some of the products at lower prices, so it was justified too.

COMPAT:

The tribunal after examining both sides pointed out that the appellant’s contention was indeed
correct. The JV was the largest converter even before it became a JV, and the higher discount
was justified since price conditions would be discriminatory only if they were different for
equivalent quantities of the product. Since no other converter had the JV’s capacity, no other
converter was given the higher discount. This target discounting scheme was thus not
discriminatory and the position that all converters should be treated the same irrespective of
quantities, was incorrect and unjustifiable.

“It is a trite principle of the Evidence Act that any 'untested statement by the cross-examination
cannot be blindly accepted'. According to the counsel of the Appellant, CCI had done the same
error of acting upon untested statements of interested witnesses. It was suggested by the counsel
of CCI that such opportunity should have been asked for specifically before the CCI. We are not
impressed by this statement. Once an objection was raised, it would have been appropriate for
the CCI to offer such an opportunity to cross-examine at least during the hearing before the
CCI. The CCI should not have insisted on a separate application for cross-examining these
witnesses, once the question was raised before it through the pleadings. After all, reply of the
CCI to DG's report amounted to pleadings, wherein this question was actually raised. Therefore,
we are not impressed by the argument on the part of the learned counsel of the CCI that this
opportunity was not specifically asked for and therefore, the Appellant could not have made
much out of cross-examination of these witnesses.”

1. Regarding the counts of price discrimination, the tribunal accepted the legal analysis and
reasoning of the minority order of the CCI, authored by Geeta Gouri. Taking into account the
quantum of demand by the JV, the favorable terms were justified and they did not affect market
structure of harm competition in the market as the prices charged to final consumers was the
 same or higher by the JV. Thus, the target discount policy was not discriminatory and there can
be no finding of violations of sections 4(2) (a) and (b).
2. Regarding the issue about using its dominant position in the downstream market to protect its
position in the upstream market, the CCI noted that the appellant forced all converters to
purchase from the appellant. This however does not amount to insistence on loyalty. It was
observed that the prices at which the JV sold the products to final customers was often higher or
similar (not below) the prices offered by the other Converters. This shows that there was no
differential pricing and there could be no significant effect on competition in the downstream
market.
The CCI’s contentions to the contrary were rejected by COMPAT. They stated that since the JVs
pricing is similar to its competitors, there cannot be a contention with respect to the difference in
discounts and the allegedly adverse cost structure, which harms the market. A company which
makes more profit than others is not guilty by virtue of its profit-making ability, unless it exploits
its dominant position.

“Being big is not bad. Being big and abusive is bad insofar as the competition culture is
concerned. In our opinion, the comparison of Schott Kaisha along with other Converters was
also unnecessary. We have definite evidence that the sales and business of almost all the
Converter companies was on increase right from 2007 onwards. Similarly, the deductions
reached in paragraph 9.74 and the comparison of profits earned by JV with other Converters
was also unnecessary unless it could be shown that the downstream market was affected because
of the profits earned by JV Schott Kaisha. After having quoted from Robinson Patman Act,
Article 82 (c) of the EC Treaty and after correctly mentioning that for attracting the vice of
discrimination in pricing, the two principles - (i) dissimilar treatment to equivalent transaction
and (ii) fulfillment of the conditions that the competition is harmed or likely to be harmed, the
CCI has unfortunately ignored the second principle. In short, we find the approach of the CCI to
be erroneous and we prefer to rely on the minority judgment of the learned Member Smt. Geeta
Gouri. In view of our findings, it will not be necessary for us to refer to the case law. However,
insofar as the judgment of EU Commission in Portuguese Republic vs. Commission of the
European Communities Case C-163/99 and also the judgment in Hoffman-La Roche & Co. AG
Vs. Commission (Case 85/76) are concerned, it will not be necessary for us to consider those
judgments in view of the clear facts which have been brought out in our earlier discussion. We
 therefore set aside the finding of the CCI that the Appellant was guilty of section 4(2)(a)(i) and
(ii) of the Act.”

3. Next the issues dealing with exclusionary policies which allegedly breach section 4(2)(b)(i) were
deliberated upon. The CCI had concluded that the policies and the agreements in place restricted
enterprises from purchasing tubes from other venders. However, the COMPAT noted that the
exclusivity requirement was absent in the agreements, hence the contention that converters were
forced to buy from the appellant was not tenable. Since there was no restriction of market for the
converters imposed by the appellant, there was no exclusionary practice and therefore, no
violation.
4. The next issue was the issue of tying-in, and the alleged breach of section 4(2)(d). The CCI
found evidence based on allegations by some converters that there was indeed the practice of
tying-in employed, where products were bundled and sold under a discount. Taken with the
dominant position enjoyed by the appellant and the discount policy in place, there was evidence
that the appellant was leveraging its position in the downstream market to protect its dominance
in the upstream market. "It is the pressure from the potential manufacturers which forces it to
bundle its products for discounts as a measure of quantity forcing which in a way reduces the
demand for products of rival competitors by giving incentives to the Converters to get their
entire requirements from Appellant only."

The COMPAT however, found fallacies in the CCI’s interpretation and overruled it. Since the
two products which were bundled were extremely similar in nature, where “the only differences
in the two tubes is that some drugs, requires protection from sun rays and therefore are required
to be kept and stored in dark colored vials, while others are kept in clear vials.” The appellant
also had majority share for the amber tubes, as opposed to cheaper ones sold by competitors, so
there was no need for them to push the amber tubes with clear tubes. Hence, the finding of a
violation under section 4(2)(d) cannot be sustained. Additionally, there was no documentary
evidence to support the allegation of tying-in by the appellant.

“We are also not impressed by the observations of CCI in paragraph 9.114 to the effect that the
Appellant was imposing unfair conditions of sales of tubes, which compelled Converters to
procure both kinds of tubes from the Appellant to avail common discount. What is to be
remembered is that even in the aforementioned letter of 18.08.1999, it was only in respect of the
discount policy and it stated that the discount was available only on mix purchases of clear and
amber tubing. If the discount policy has not been found in error of any provisions, there is no
question of linking it with the aforementioned question of tying-in. In short, if the parties wanted,
they could purchase the amber tubes or ignore to purchase it. It was only a discount which was
being mentioned in the aforementioned letter. The minority judgment has exonerated the
Appellant of section 4(2)(d).”

5.

The last contention dealing with the violation under section 4(2)(e) was also deliberated after
examining CCI’s findings on the matter. It was suggested that the profits earned by the JV were
correlated with the favorable discounting it received. The appellant was guilty of leveraging its
position in the upstream market of tubes to reduce and restrict competition in the downstream
market in favour of the JV. The COMPAT set aside this finding, stating there was fallacious
interpretation of the provision by the CCI. It was a requisite of guilt that the appellant must have
participation in both the markets. This was not the case here, as the appellant did not deal with
the downstream market nor had any presence there. Hence, there is no breach of the provision
which could be envisaged.
 PROVISIONS AND DOCTRINES INVOKED

A. Sections 4(2)(a)(i) & (ii) (Discriminatory Conditions And Prices)

The COMPAT referred to Article 102 of the Treaty on the Functioning of the European Union
(‘TFEU’) in order to reach a finding under this provision. It was emphasised that there are 2
necessary conditions which have to be satisfied under this provision, “(i) dissimilar treatment to
equivalent transactions; and (ii) harm or likely harm to competition.” It was also recognised
that it was fair practise in the industry to give discounts and favourable conditions to big buyers
who brought a lot of business, as this promotes capital investments. Furthermore, there was no
harm to competition from these policies, so there was no violation on this count.

 
B. Sections 4(2)(b)(i) and 4(2)(c) (Exclusionary Policies And Denial Of Market Access)
There was a finding of no merit regarding the issue of exclusionary policies on account of
discount policies and other agreements. This was due to no imposition of exclusivity and the
legitimate claim by Schott regarding its trademarks.

C. Section 4(2)(d) (Tying-In)

There was no evidence of tying in since there was no proof that the 2 products were extremely
different and unconnected from each other, so there was no reason for the appellant to push them
on the consumers. Their majority stake in the market and no documentary evidence if this
allegation suffice the same.

D. Section 4(2)(e) (Leveraging Dominance To Protect Downstream Market)

A finding of this violation was overturned by COMPAT since the appellant was duly absent rom
the downstream market for ampoules, therefore they obviously could not leverage their position
in the upstream market to protect this one.

E. Section 4(2)(c) (Schott India’s Refusal To Deal With Kapoor Glass Denying It Market Access)
The clubbed appeal before COMPAT included Kapoor Glass’s plea that Schott denied them
access to the market by refusing to deal with them. COMPAT found no merit as no supplier is
obligated to entertain a business entity, the right of refusal cannot be taken away. Furthermore,
there was sufficient trademark interference by the informant.
 LITERATURE CITED

There was a lot of referencing to foreign authorities in this case, considering how Indian
jurisprudence is still in the nascent stage. The Treaty on the functioning of the European Union
(TFEU) and the American Robinson- Patman Act were the major sources for the court. The Act
condemns the discrimination of prices between separate purchasers of the same product. This
lessens the market growth by hampering competition.

Article 102 TFEU expressly says that the adoption of different conditions in 2 same transactions
amounts to abuse, when done by a dominant player. This is the position set by the gold standard
for competition law world-over, and it could not have been clearer.

JUDGEMENT IN PERSONAM AND JUDGEMENT IN REM

On 2nd April 2014, this saga came to end with the COMPAT setting aside CCI’s order and
exonerating Schott Glass. The fine worth 56.6 million INR imposed on Schott Glass, by CCI, for
abuse of dominant position was successfully appealed. Surprisingly, Kapoor Glass had also filed
a cross appeal to COMPAT seeking an increase in penalty. This appeal however, failed. The
reasons for the same have been enumerated in earlier parts of this project, by the student.

The COMPAT found that the discount policy in question, was indeed uniform in its application
by Schott for all its converters, and entirely non-discriminatory. On all 4 counts the COMPAT
exonerated Schott glass, establishing a landmark principle: Being big is not bad

This principle while firmly rooted in US and European jurisprudence lacks sufficient stronghold
in India, and this case was one of the first to enshrine it in Indian Jurisprudence of competition
law. Interestingly, COMPAT fined Kapoor Glass 100,000 INR for lack of good faith
 CONCLUSION

Due to the aforementioned reasons and deliberations, Schott India’s appeal was accepted by
COMPAT on all counts. The cross appeal by Kapoor Glass was rejected, with a finding of bad
faith on their part and a subsequent monetary penalty imposed.

The COMPAT has held that unlawful price discrimination has two necessary prerequisites:“(i)
dissimilar treatment to equivalent transactions; and (ii) harm to competition or likely harm to
competition in the sense that the buyers suffer a competitive disadvantage against each other
leading to competitive injury in the downstream market”. One cannot be neglected in favour of
another.

This case ended up as a landmark for establishing a landmark principle: Being big is not bad. To
be penalized, the size or dominance of the firm is not the only criteria, wrongful behavior is the
true determinant of abuse. The drafters also never intended for big firms to fall prey to
overregulation based on their size, as this would quite obviously discourage growth in the
market. Mere size cannot attach punishment, with dominant position a finding of wrongful
behaviour is absolutely necessary to attract penalty under the statute.
 ACKNOWLEDGEMENTS

I would like to express my heartfelt gratitude to my teacher,

Prof. Vinod Dixit

who gave me the golden opportunity to do this enriching project on this case analysis
which has helped me enhance my knowledge exponentially about the subject; understand
the scope in totem; learn the applicable laws and correlate the present state of affairs
worldwide as well in our country.

His helpful insights in this subject have guided me to make this project.