Verifone India Sales Pvt. Ltd vs Cci & Atos Worldline India Pvt. Ltd

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI TA(AT) (COMPETITION) NO.01 OF 2017 (OLD APPEAL NO.82 OF 2015) In the matter of: Verifone India Sales Pvt Ltd Appellant Vs CCI & Atos Worldline India Pvt Ltd Respondents

For Appellant: Mr Rajshekhar Rao, Mr Ritwik Bhattacharya and Ms Chandni Anand, Advocates.

For Resp[ondents: Mr. Pallav Shishodia, Senior Advocate alongwith Mr Febin M Varghese, Advocate for Respondent No.1-CCI Mr. Ravisekhar Nair, Mr. Sahil Khanna and Ms Tanaya Sethi, Advocates for Respondent No.2.

With TA(AT) (COMPETITION) NO.02 OF 2017 (OLD APPEAL NO.83 OF 2015) In the matter of:

Verifone India Sales Pvt Ltd Appellant Vs CCI & Three D Integrated Solutions Ltd Respondents

For Appellant: Mr Rajshekhar Rao, Mr. Naval Satarawal Chopra, Mr Ritwik Bhattacharya, Mr Gauru Purv, Mr Sagar Parekh, and Ms Chandni Anand, Advocates.

For Resp[ondents: Mr. Pallav Shishodia, Senior Advocate alongwith Mr Febin M Varghese, Mr Robin David and Mr Dhiraj PhilipAdvocate for Respondent No.1-CCI, Mr. Navdeep Singh Suhag, Dy. Director CCI Mr. Ravisekhar Nair, Mr. Sahil Khanna and Ms Tanaya Sethi, Advocates for Respondent No.2.

JU DGMENT SUDHANSU JYOTI MUKHOPADHAYA, J M/s Atos Worldline India Pvt Limited ('Informant)' filed information

under Section 19(1)(a) of the Competition Act, 2002 against M/s Verifone

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 2

India Sales Pvt Ltd (Opposite Party No.1/Verifone herein) and M/s Verifone

System Inc (Opposite Party No.2) alleging contravention of the provisions of

Section 4 of the Act. The Commission instituted it as Case No.56/2012.

2. M/s Three D Integrated Solutions Ltd (another 'Informant') had also

filed information under Section 19(1)(a) of the Competition Act, 2002 against

M/s Verifone India Sales Pvt Ltd (Opposite party/appellant herein) inter alia

alleging contravention of provisions of Section 3 and 4 of the Act. It was

registered as Case No.13/2013.

Case of M/s Atos Worldline India Pvt Ltd

3. The Informant, M/s Atos Worldline India Pvt Ltd is owned by Atos, a

global information technology services company operating in the areas of hi-

tech transactional services and system integration and management services.

It was informed that the Opposite Party No.1 i.e. appellant is leading supplier

of Point of Sale (hereinafter referred to as 'POS') Terminals in India having

control over nearly 70% to 80% of the market. It had acquired several other

players in the POS Terminal marketing in India such as Lipman Electronic

India Pvt Ltd in 2006, Hypercom India and Gemalto in 2011.

4. It is stated that appellant supplies POS Terminals along with core POS

Terminal applications (i.e. Operating System and Kernels) and Software

Development Kits (hereinafter SDKs) to enable the basis 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 third party processor (TPPs) such as Informant who act on

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 3

behalf of acquiring banks and also render Value Added Services (VAS) to

develop and integrate applications into POS Terminals

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 standards industry practice, core POS Terminal applications and SDKs

are provided alongwith the POS Terminals and the costs of the same are built

into the price paid for the POS Terminals.

6. The Information stated that between September, 2010 and December,

2011, the appellant continued to provide SDKs to the Informant alongwith the

POS Terminals and core terminal applications without any restrictions on the

use of SDKs. Appellant also used to provide training to the Informant's

engineers to enable the Informant to render VAS to its customers.

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 terminals

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.

8. It is submitted that after acquisition of Venture Infotek by the Informant

in August, 2010, the appellant issued a termination letter to the Informant in

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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. Informant stated that despite issue of

the said termination letter, the appellant continued to supply PO

S Terminals along with its core applications, SDKs and training to its

engineers for the use of SDKs.

9. It is averred that in January, 2012 the appellant 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 alleged that through the said draft SDK agreement the appellant

sought to impose certain restrictive conditions on it.

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 appellant to carry out

such drastic changes in the said draft SDK agreement. It is alleged that the

restrictions contained in the draft SDEK agreement foreclose the VAS market.

11. The Informant averred that since early January, 2012, the appellant

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 appellant made

repeated attempts to force the Informant to agree to the terms and conditions

as set out in the draft SDK agreement. Further the appellant issued several

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reminders to the Informant to complete the formality of signing the draft SDK

agreement, failing which the appellant 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 appellant 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 appellant on the restrictive conditions of the

draft SDK agreement, it issued a termination letter dated 01.08.2010.

12. It is alleged in the information that the appellant 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 appellant'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.

13. It is alleged 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 appellant 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.

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14. Citing RBI's Payment System Vision Document, 2012-156, 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 appellant

exercises significant control over the supply of hardware and software

solutions.

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 appellant's interest by eliminating

competition in the market. The Informant has alleged that appellant by

imposing restrictions in the draft SDK agreement, is aiming to strengthen its

position in the VAS market.

16. Based on the above submissions, the informant has alleged that the

appellant, 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) and (ii) of the Act. The appellant by imposing

severally 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 contravention of section 4(2)(b)(i) and (ii) of the Act. IT is also

alleged that the appellant has sought to deny market access to VAS providers

in contravention of section 4(2)(c) of the Act. Further the appellant allegedly

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intended to use its dominant position in POS Terminals market to dominate

VAS market in contravention of section 4(2)(e) of the Act.

17. Based on the above submission, the Informant inter alia prayed to the

Commission to direct the appellant to cease and desist from indulging in

abusive conduct; discontinue from imposing unfair, restrictive and

discriminatory conditions in relation to use of SDKs and enhancements to

core applications; not to give effect to the 2012 Termination letter, impose

appropriate penalty on the appellant for abuse of dominant position and grant

such other reliefs as the Commission may deem appropriate in the facts and

circumstances of the case.

18. The Commission referred the matter for investigation by Director

General (DG). After receipt of investigation report filed by the DG, notices to

the appellant was issued and the objections/replies from the appellant was

received in response to the DG Report. By impugned order dated 10th April,

2015 the Commission held that it has come to the conclusion that the conduct

of the appellant is abusive in terms of Section 4 of the Act. The Commission

is of the considered opinion that through the SDK agreement the appellant

has imposed unfair conditions on VAS/TPP service providers which is in

contravention of Section 4(2)(a)(a)(i) of the Act; restricted the provision of VAS

services as well as limited/restricted the technical and scientific development

of VAS services used in POS Terminals market in India which is in

contravention of Section 4(2)(b)(i) and (ii) of the Act. The Commission also

held that the conduct of the appellant with respect to seeking disclosure of

sensitive business information from the customer is the downstream market

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in order to enable to enter into the downstream market of VAS services in in

contravention of the provisions of Section 4(2)(e) of the Act.

19. The Commission also directed the appellant (opposite party No.1) to

cease and desist from indulging in the activities which have been found to be

in contravention of the provisions of Section 4 of the Act and imposed penalty

under Section 27 of the Act at the rate of 5% of its turnover based on the

financial statements filed by the appellant herein i.e. Rs.4,48,40,236/-

Case of M/s Three D Integrated Solutions Ltd

20. M/s Three D Integrated Solutions Ltd is engaged in the business of

video broadcasting, audio broadcasting. The appellant (Opposite Party No.1)

is wholly owned subsidiary of M/s Verifone System Inc headquartered in USA.

It has been engaged in the business of manufacturing, development and

selling of hardware and software solutions such as mobile Electronic Ticketing

Machines (hereinafter ETMs) Point of Sale (POS) terminals and related

services and expertise that enable electronic payment transactions at POS

terminals.

21. Informant stated that Ministry of Urban Development (MOUD) Govt of

India launched a National Programme for Standardised Automatic Fare

Collection System (hereinafter AFCS) in eighty cities with a National Common

Mobility Card (hereinafter NCMC) for passengers. The MOUD award the

project of launching an all India common mobility card along with AFCS to

UTI Infrastructure Technology Services Ltd (UTIITSL) and its consortium

partner across India. UTIITSL floated a Request for Proposal for

implementation of Integrated Transport Management System (TIMS) with a

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 9

NCMC for Jaipur City Transport Services Ltd (JCTSL) in Jaipur. The said bid

was awarded to M/s Efkon India Pvt Ltd Hereinafter EFKON) who in turn sub-

contracted to the Informant for supply, installation and maintenance and

handheld payment device for mobile use with wireless connectivity, security

certifications etc to be used in buses for the aforesaid project.

22. Informant had placed a purchase order dated 5.4.2012 for Rs,

45,00,342/- with the appellant for the supply of 275 nos of Vx680 fully

functional mobile ETMs for ITMS project in the city of Jaipur. The appellant

was required to supply fully functional ETMs and relevant accessories on

which the Informant was supposed to load independent application software

and operate from its infrastructure. Informant alleged that the appellant was

well aware of the requirements, methodology, end use and the project plan for

which ETMs were procured but did not communicate to the Informant about

any restrictive conditions in its offer.

23. After securing and accepting the purchase order dated 5.4.2012 the

appellant informed the Informant regarding the restrictive use of the ETMs

i.e. requirement of a Software Development Kit (SDK) to achieve full

functionality of ETMs. Informant alleged that the appellant, a major player in

the hardware market for ETMs, wanted to attain a similar position in the

market for software loaded in the ETMs. Informant alleged that such conduct

of the appellant clearly indicates its malicious intent and motive to circumvent

the Informant's business and sets the grounds for its monopolistic

opportunity in the nascent transportation automation sector. The

Information alleged that the appellant was under legal and moral obligation

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to disclose the complete material information regarding the device including

the fact that the device cannot work without purchasing its proprietary SDK

before selling the same to the Informant. Having no choice left, the Informant

purchased the SDK from the appellant for Rs.3,65,615/-

24. Informant alleged that the appellant asked the Informant to sign a very

restrictive agreement with regard to the use of its SDK. Further the appellant

with an ulterior motive, set aside the internationally accepted norms for SDK

agreement and, in the garb of IPR protection, created an agreement with an

absolute restriction on the Informant's independence to conduct business.

Since the Informant was already running behind schedule and was under the

threat of penalties and even cancellation of order, it had no choice but to sign

the agreement with highly restrictive clauses. It is also alleged that the

appellant did not sign and return the copy of the said agreement to the

Informant.

25. It is alleged that SDK which was delivered by the appellant on

30.6.2010 was locked by a security key i.e. File Signing Tools (hereinafter FST)

which was an integral part of SDK and that the appellant illegally withheld

the security key. Further the said SDK swas an incompatible version and not

appropriate for ETMs delivered and also some of the critical components were

also not supplied. It is stated that due to short supply and incompatible SDK,

the supplied ETMs became useless for the Informant and it was fully

dependent on the appellant for functioning of ETMs. This caused delay in the

development process and the Informant had to suffer not only in terms of

monetary loss but also in terms of reputation in the market.

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26. Informant alleged that by not delivering the FST on time, the appellant

restricted it from making use of ETMs. It is alleged that the intention of the

appellant was to delay the project so that the end users are frustrated thereby

projecting the informant in bad light. Further to achieve its malafide

intention, the appellant made flimsy excuses of protection of IPR for the SDKs

and also illegally started to inspect the software submitted by the Informant

to pilfer the business model of the Informant.

27. Informant alleged that the appellant even approached the end user itself

i.e M/s Efkon on 17.8.2012, bypassing the Informant and made a commercial

offer on the basis of knowledge gained from pilferage of the Informant's

software given to the appellant for trial. The informant alleged that such

conduct fully confirmed the hidden motive, unfair trade practices and desire

of the appellant in creating step by step restrictions and delays leading to the

circumvention of the Informant and setting the ground for its monopolistic

control.

28. Informant alleged that he had served two legal notices to the appellant

on 21.8.2012 and 29.09.2012 for its alleged wrong doings. However, the

appellant gave an evasive reply stating that the contentions in the notices

were frivolous, wrong, incorrect, mischievous and baseless.

29. Informant also alleged that the appellant took undue advantage of its

dominant position in the market in view of the fact that the consumers were

completely dependent upon it and there was no choice with the consumers.

Informant alleged that the appellant has entered into an anti-competitive

agreement i.e. the exclusive supply agreement which has appreciable adverse

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 12

effect on competition in India and has the effect of restricting the dealing in

any goods other than those of the appellant and therefore, amounts to

violation of Section 3 of the Act.

30. Informant, seeing the said abusive conduct of the appellant, prayed

before the Commission to cause an enquiry against the appellant for the

alleged contravention of Sections 3 and 4 of the Act, and direct the appellant

to cease and desist from abuse of its dominant position and to comply with

its purchase order dated 5.4.2012.

31. The Commission after considering the material available on record and

having informed that prima facie case is made out, directed the Director

General (DG) to conduct investigation into the matter under Section 26(1) of

the Act. The DG had investigated the matter and submitted its report, on

which notices were issued to appellant herein/opposite party. The

Commission, upon hearing the parties and perusal of evidence arrived at the

conclusion that the licence restriction clause to "not use the licensed software

to develop any payment software that directly or indirectly interacts with any

acquiring bank" seems to be unfair and restrictive. The SDK license

agreement of the appellant does not allow a third party to write a payment

application in India which is contrary to the practice followed by the appellant

elsewhere across the globe as is evidenced from the statement made in its

website i.e. "Verifone offers a selection of developer tools and drivers to help

programmers design and develop efficient, professional payment applications

that complement our payment systems". Further, by restricting the

development of payment softwares for any payment association and not

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 13

disclosing the said clause to the large buyers in India who would require

customized payment softwares to run on the POS terminals bought by them,

the appellant has restricted the availability of substitutable payment

solutions thereby restricting the choice for the buyers. Thus, the restrictions

imposed by the appellant on development of payment software by the third

parties appear to be anti-competitive.

32. The Commission observes that the clause relating to not license, sell or

otherwise transfer any software that the appellant develops using the licensed

software to any third party of SDK license agreements appears to be unfair,

limits/controls the provision of VAS services and limits/restricts the technical

and scientific development of VAS services used in POS terminals in India.

33. It is further observed that the license restriction clause relating to

disclosure mentioned in the SDK license agreement imposes three different

disclosure requirements namely; a) disclose to licensor from time to time the

activities relating to licensed software; b) what value added software it has

created; and c) what licensee intends to create using the licensed software. It

may be noted that the appellant is a POS terminal manufacturer and is also

engaged in the development of VAS applications. It appears that by way of

these restrictions, the appellant was trying to get access to confidential

commercial information from the VAS providers and to exploit the lucrative

VAS market. The requirement of prior disclosure to the appellant about the

VAS developed by the Informant amounts to imposition of unfair condition on

the Informant as well as limits the provision of VAS service. Further seeking

information on the VAS services which the Informant intends to develop is

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 14

likely to prejudice the business activities of the Informant as the appellant is

developing into a major competitor for the Informant in the VAS/TPP market

in India. Such restriction appears to restrict technical or scientific

development relating to VAS services for POS terminals in India. Since the

appellant is large player (in terms of market share of POS terminals managed

by banks in India) and it itself is a manufacturer of POS terminals, its conduct

with respect to seeking disclosure of sensitive business information from its

customers in the downstream market with a view to protect/enhance its

presence in the downstream market of VAS services is abusive in terms of

Section 4 of the Act.

34. Based on the above analysis the Commission is in agreement with the

DG findings, comes to the conclusion that the conduct of the appellant is

abusive in terms of Section 4 of the Act. The Commission is of the considered

opinion that through the SDK agreement, the appellant has imposed unfair

conditions on the Informant which are in contravention of section 4(2)(a)(i) of

the Act; restricted the provision of VAS services as well as limited/restricted

the technical and scientific development of VAS services used in POS

terminals in India which is contravention of Section 4(2)(b)(i) and (ii) of the Act

and the conduct of the appellant with respect to seeking disclosure of sensitive

business information from its customers in the downstream market in order

to enable it to protect the downstream market of VAS service is in

contravention of the provisions of Section 4(2)(e) of the Act.

35. The Commission accordingly issued impugned order dated 10th April,

2015 under Section 27(b) of the Act and not imposed penalty but took lenient

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 15

view in imposing the penalty in view of the penalty imposed in the earlier case

as referred to above (Case No.56/2012) wherein penalty of Rs.4,48,40,236/-

has been imposed on the opposite party (appellant herein) at the rate of 5%

of its average turnover for the last three financial years.

36. So far as individual liability of the officials of the appellant in terms of

provisions of Section 48 of the Act is concerned, the Commission directed

them to file their income statements/Income Tax Returns and decided to pass

an order separately in respect of them.

37. It is in the aforesaid background both the cases were heard together

and disposed off by this common judgement.

38. Learned counsel for the appellant, M/s Verifone India Sales P:vt Ltd,

almost made similar submission in both the appeals. In respect of Atos

Worldline India Pvt Ltd an additional plea was taken that the impugned

agreement was a draft agreement and its terms were being negotiated at the

time of filing of the complaint. However, we are not inclined to accept the

submission in view of the language of the agreement, which shows that the

Verifone practically asked the Atos Worldline India Pvt Ltd to sign on the

agreement within the dotted line of the Agreement.

39. Once it is held that the appellant is a dominant player of POS Terminal

in the relevant market then asking Atos Worldline India Pvt Ltd to sign within

the dotted line of the agreement will also amount to abuse of dominant

position in violation of Section 4(2)(a)(i), 4(2(b)(i), 4(2)(b)(ii) and 4(2)(e) of the

Act, 2002.

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40. Learned counsel for the appellant submitted that the relevant period to

be considered while assessing the relevant market and alleged dominance

should be 2012 onwards. According to him market for POS Terminals in India

cannot be held within relevant market. According to appellant the purpose of

defining a relevant market is to determine the competitive constraints on the

enterprise under investigation. Accordingly all reasonably foreseeable

constraints, such as, technologies at use elsewhere or imminently entering

the market must be included in the definition of the relevant market. It was

submitted that as all electronic payment devices perform the same function,

with the same end use, i.e. to process electronic payments at the merchant's

location, the relevant market should be considered as the "market for

electronic payments in India". However, without prejudice to the above, it

was submitted that at the very least, the relevant market should be defined

as the market for POS and mobile POS terminals in India.

41. Section 2(t) and 19(7) of the Act provide that while defining the relevant

market, the Commission is required to consider the substitutability between

the various products based on factors such as end use, characteristics, price

and consumer preferences. It was submitted that Mobile-POS terminals and

POS terminals are virtually the same product, with similar characteristics,

price and intended use. Both devices are used to swipe the user's card at the

merchant's location to process payments, and the methodology of functioning

of both devices is also the same, from swiping of the card to final processing

of payments. Additionally, the stakeholders involved for both devices (i.e.

banks, TPPS and VAS providers) are largely the same, and similar VAS can

(and is) developed on both machines by VAS developers. It was submitted TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 17

that the only discernible difference between the two devices is that Mobile POS

machines are more compact and portable in nature than POS terminals. A

diagrammatic representation of both products has been enclosed.

42. It was submitted that the Commission has altogether failed to consider

evidence on record which clearly establishes that owing to the similarity of

POS and Mobile POS terminals, consumers (including large banks such as

SBI, Axis Bank, Citibank and companies such as Reliance) treated POS and

Mobile POS as substitutable even in 2012. This was further corroborated by

the PwC Report on Electronic Payments Market in India, 2014.

43. Counsel for the appellant submits that there is no analysis by the

Commission under Section 2(t) and 19(7). It was submitted that while

defining the relevant market, the Commission has not undertaken an analysis

of any of the factors provided under Sections 2(t) and 19(7) of the Competition

Act (end use, characteristics, price and consumer preferences). The

Commission has summarily agreed with the DG's Report, which had itself

also not undertaken any analysis of the relevant factors.

44. Relying on the decision of this Appellate Tribunal in Hyundai Motor

India Pvt Vs. Competition Commission of India & Ors, Competition Appeal (AT)

No.06/2017, it was submitted that the aforesaid approach undertaken by the

Commission have been held to be incorrect. It was contended that Verifone

is not in a dominant position even in the narrow POS terminal market.

Without prejudice to the submission above that the relevant market should

not be considered as narrow as the market of POS terminals, it is submitted

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 18

that even in the narrow relevant market for POS terminals, Verifone is not in

a dominant position.

45. According to counsel for the appellant that even during the relevant

period of 2012-13, Ingenico had a market share of 57% while Verifone had a

market share of only 40% in the market for POS terminals in India. Learned

counsel for the appellant submitted that these figures are from the Pwc

Report, which is based on Government data. Learned counsel for the

appellant submitted that the Commission has relied on incorrect market

share figures in its analysis, and has inflated Verifone's sales by (a) including

all POS terminals sold by Verifone since its inception, including those which

were defunct/non-functioning at the relevant time (b) including POS

terminals sold by Verifone competitors prior to them even being acquired by

Verifone, and (c) not considering data of certain select banks/TPPs who had

procured more terminals from Verifon's competitors demonstrating cherry

picking of evidenced and data. The patent errors in the computation had been

highlighted to the Commission. The Commission failed to consider and

address these submissions.

46. It was further submitted that the Commission and the DG have

disregarded the basis test of dominance provided under Explanation (a) to

Section 4 of the Act i.e. the ability to operate independently of competitive

forces or affect consumers/competitors in the relevant market in its favour.

Verifone does not have this ability as it is significantly constrained at two

levels. Verifone is dependent on banks for access to the market. Verifone is

neither able to access customers, nor will its terminals be functional without

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 19

connectivity to banks. Therefore, Verifone cannot act independently in the

market.

47. Counsel submitted that due to their powerful position, banks impose

highly onerous terms in their commercial dealings with Verifone. Banks

typically adopt a two vendor policy, wherein they purchase POS terminals

from at least two vendors. Therefore, banks are not dependent on Verifone

and most banks deal with other players like Ingenico and during the

investigation when banks and TPPs were approached for their comments,

banks/TPPs have stated that they have not come across any abusive conduct

by Verifone. However, the Commission has altogether failed to consider this

evidence on record and has cherry picked the evidence it seeks to rely on.

48. A TPP must certify the terminals before it can be sold to a bank. As

Atos is the largest TPP in India with ties to more than 15 banks, Verifone

significantly depends on Atos for their certification. Interestingly, Atos is also

one of the largest global POS vendor and had also started POS operations in

India at the relevant time. The dependence on Atos is evidenced by the fact

that Verifone is forced to accept unfair terms in its operations with Atos. Atos

charges an exorbitant price of 8 lakhs and is the only TPP to impose this

charge due to its dominant position in the market.

49. Similar plea has been taken in the case of Three D Integrated Solutions

Ltd by the appellant. It is submitted that the relevant market in this case

cannot be held to be POS terminal in India as the supply of ETMs by Verifone

to Three D Integrated Solutions Ltd (Informant) does not relate to supply of

POS terminals by Verifone.

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 20

50. The counsel for the appellant submitted that Jaipur RFP, which is

central to the present dispute, itself distinguished between ETMs and POS

terminals and treated them as separate products. Therefore, according to the

learned counsel for the appellant no reliance can be placed on the cost of Atos

Worldline India Pvt Ltd for determination of relevant market. Learned counsel

for the appellant submitted that POS terminals and ETMs being two different

products that serve different end users, have different characteristics and

different customers and producers. The products cannot be treated as

substitutable simply because Verifone uses the same basic hardware for both

the products.

51. The Commission has dealt with the relevant market and noticed that

the Verifone uses the same hardware for both the products. The hardware is

common, it will be evident from the product itself, picture of it is re-produced

below::

52. Learned counsel for the appellant produced and relied on other Verifone

terminals to compare with the Ingonic terminals. The other Verifone

terminals of recent days like mobile, is reproduced as under:-

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 21

53. In the present case we are concerned with instrument. In the said

instrument which is being produced by Verifone and the present

company(Atos Worldline India Pvt Ltd) purchase the instrument only from

Verifone. The first instrument, as shown above was available in the year

2012-13, the relevant point of time. The second instrument which is like

mobile as shown above has come later on and cannot be taken into

consideration to determine the dominant position of the 2012-13. It is the

Verifone which puts the first App in it and if it is purchased by the Bank, it

puts its own additional App therein. The DG investigation in the case of Atos

Wordline India Pvt Ltd is dated 20th March, 2014. The relevant period of

investigation is between the year 2009-10 to September, 2012.

54. The relevant market of POS terminals has been found to be in India as

the instrument can be used as POS terminal for depositing the money or

collecting money through Card anywhere in India.

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 22

55. The DG rightly held that new technology such as EasyTap or Mswipe

cannot be considered as substitute of the POS terminals. There is no

alternative/substitute to POS terminals.

56. Thus it is clear that the relevant geographic market of POS termina is

India. It is apparent that the Verifone held a position of strength in the

relevant market during the period of investigation by inter alia on account of

its market share, size, resources and economic power, dependence of

consumers on the appellant. Appellant and its acquired companies as noticed

above had a market share of approximately 80%.

57. The clauses of SDK agreement were not as per the prevailing industry

practice. The DG compared similar SDK agreement entered by other players

in the market including Ingenico and Pax. The SDK agreement was non-

negotiable and intent of the appellant was found to exploit the VAS market by

either restricting the VAS providers or sharing the revenue from them. The

email dated 18.1.2012, 3.2.2012, 5.3.2012, 20.4.2012 supports the allegation

of exploitation on the VAS market by restricting the VAS provider.

58. VAS providers like Pine Labs and FSS also imposed with similar

restrictive clauses by the appellant. The clauses in SDK agreement were

restricted and therefore, it was found to be in violation of Section 4(2)(a)(i),

4(2)(b)(i) and 4(2)(b)(ii) and 4(2)(e) of the Act.

59. The Commission after considering the DG report, objections/reply filed

by the appellant and the informant and other evidence by impugned order

dated 10th April, 2015 found the appellant was abusing its dominant position

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 23

under Section 4 of the Act and imposed punishment on the appellant in the

case of Atos Worldline India Pvt Ltd.

60. We have noticed that the instrument is the factor for the purpose of

dominance and not the app i.e. the end use ETM distinct characteristics or

POS terminals. If the dominance is made because of the instrument, the same

principle will be applicable also in the case of Three D Integrated Solution Ltd

for determination of dominance.

61. So far as abuse of dominance in the case of Three D Integrated

Solutions Ltd , the DG in its report dated 30.5.2014 after investigation for the

period 2009-10 to September 2012 came to a definite conclusion that the

relevant product in question is not ETMs as the machines provided by the

appellant were not only capable of providing electronic record/printed receipts

but also capable of providing electronic payment through credit/debit cards.

Copy of the purchase order 5.4.2012 also mentions the product as a POS

terminal, therefore, it is clear that ETMs were Europay, Mastercard and Visa

and PCI (Payment card industry) certified. The purpose of EMV and PCI

certification is for transfer of payment only.

62. The reply from Ingenico, another POS vendors, confirms that POS

terminals can be converted into ETM without the knowledge of the sellers and

there is no difference between the hardware of the two devices. New

technologies such as Easy Tap or Mswipe cannot be considered as substitute

of the POS terminals. There is no alternative/substitute to POS terminals.

63. The relevant market for POS terminal is in India under Section 2(t) of

the Act. Relevant geographic market is under Section 2(r) of the Act. We hold

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015) 24

that the relevant market for the ETM is also India under Section 2(t) of the

Act, The relevant geographical market of ETM is also India under Section 2(r)

of the Act. The appellant was having a dominant position in the relevant

market of POS/ETMs in particular the instrument in question, held a position

of strength in the relevant market during the period of investigation and

allegations inter alia on account of its market share, size, resources and

economic power, dependence of consumers were on the appellant.

64. In the aforesaid facts corroborated with evidence and accepted by DG

as well as enquiry by the Commission, we find no case is made out to interfere

in the judgement both dated 10.04.2015 in both the cases. The appellants

were entitled to be penalised but we find that the Commission has taken a

lenient view by imposing penal cost in one case and no penal cost in the other

case. In absence of any merit the appeals are dismissed. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI 13-3-2020 bm

TA(AT)(Competition)No.1 and 2 of 2017 (Old Appeals No.82 and 83 of 2015)