Monopolies and Restrictive Trade Practices Commission
In Re: Olympia Electronics Ltd. And Anr. vs Unknown on 10 March, 1993
JUDGMENT
A.N. Varma, Chairman
1. Sony Corporation, the second respondent in this enquiry, manufactures and sells various electronic products under the trade name "Sony". In course of time, Sony has come to acquire a substantial market for the sale of its products in India. Sony has appointed Olympia Electronics Ltd., the first respondent, as its service centre, as per the terms and conditions agreed to between the two respondents and these are set out in a written agreement dated June 1, 1990. The agreement attracted the attention of the Commission. It felt that Clause 6 of the agreement was a trade practice of exclusivity squarely falling within the purview of Section 33(1)(c) of the Monopolies and Restrictive Trade Practices Act (hereinafter referred to as "the MRTP Act").
2. Clause 6 of the agreement reads as follows :
"6. During the term of this agreement, the repairer shall not. without prior written consent of Sony, engage in any business which is the same as or similar to the services for another manufacturer of electronic products."
3. A notice of enquiry was accordingly issued to the respondents by the Commission under Section 10(a)(iv) and Section 37 of the Monopolies and Restrictive Trade Practices Act, 1969, stating that the respondents are and have been indulging in the aforesaid restrictive trade practice and that the said restrictive trade practice is prejudicial to public interest.
4. In response to the notice, the respondents put in appearance through their learned counsel but instead of a filing reply they submitted an application under Section 37(2) of the MRTP Act offering an undertaking in the following terms :
"(a) That Olympia and Sony shall forthwith discontinue the operation of Clause 6 of the service agreement ;
(b) That Olympia and Sony shall not repeat in future the said restrictive practices ;
(c) That Clause 6 of the service agreement shall, subject to the approval of the Director-General and of the Hon'ble Commission, be amended in terms of the draft set out in Schedule I hereto."
5. In addition to the undertaking, the respondents also offered that, subject to the approval of the Commission, Clause 6 of the agreement be amended as set out in Schedule I of that application. Schedule I reads as follows :
"During the term of the agreement, the repairer shall not, without the prior written consent of Sony, engage in any business which is the same as or similar to the services for another manufacturer of electronic products--provided that Sony shall not unreasonably withhold such consent if the rendering of the services for such other manufacturer does not affect the quality of the services rendered by the repairer to the users of Sony products or cause confusion in respect of the rendering of the services."
6. The case came up for hearing for the first time on September 21, 1992, and upon conclusion of arguments, the Commission reserved its orders on the application under Section 37(2) of the Monopolies and Restrictive Trade Practices Act. As the Commission felt that even in its modified form Clause 6 of the agreement does not cease to operate as a restriction within the meaning of Clause (c) of Section 33(1), it ordered the matter to be listed again for further arguments. In the light of the observations made by the Commission during the fresh hearing, the respondent filed a further affidavit in support of their application under Section 37(2) of the Monopolies and Restrictive Trade Practices Act asserting that the clause was necessitated solely in the interest of consumers of Sony products and its removal would seriously affect the quality and standard of service and maintenance of Sony products. It is further stated in this affidavit that the impugned clause was designed to ensure the highest standard of service to users of Sony products. In short, the respondents claim that the restriction protects the public (users of Sony products) rather than injures it.
7. Having heard Shri A. M. Setalwad, the learned senior advocate for respondent No. 2, and Mr. R. K. Arora, the Joint Director-General for the Director-General, we think that the respondents are clearly right in their contention that the amended Clause 6 is in public interest designed to ensure a high quality of service and maintenance of Sony products and that the removal of the restriction would be highly prejudicial to the interest of the consumers of Sony products. We will presently demonstrate how the impugned clause in the agreement achieves these results.
8. It seems that Sony has come to acquire a worldwide reputation being indisputably one of the largest manufacturers of electronic products such as TV sets, video cameras, compact disc players, radio receivers, video cassettes players, tape recorders and walkmen, etc. It is claimed that the aggregate number of models of such products exceeds 1,300. It may also be assumed, as claimed by the respondents, that these are highly sophisticated electronic products. The need for ensuring the highest possible quality of maintenance and servicing from time to time can, therefore, scarcely be over emphasised.
9. In paragraph 8 of its further affidavit, Sony asserts that considering the highly sophisticated and technical nature of Sony's products, it is extremely important and indeed in the interest of Sony's customers and users of its products that such products should be regularly serviced or repaired by highly skilled and trained technicians using genuine Sony or Sony-approved components and spare parts with the help of authorised Sony service manuals. It is further asserted that from time to time, Sony products also require to be serviced and maintained by the removal and replacement of certain essential components and spare parts.
10. We see no ground for not accepting these claims. The respondents rightly contend that maintenance of a high quality of service is essential and in the best interest of the user of the products in view of the highly sophisticated nature of the same. It is equally essential, they say, that the replacement of components and spare parts should either be manufactured by Sony itself or by parties holding licence from Sony. These assertions have not and indeed could not be disputed by the Director-General.
11. The respondents also state in this affidavit that with a view to rendering the best possible services to the customers of Olympia and promoting the reputation and goodwill of Sony, a number of significant steps have been taken by Sony for achieving the highest standards of servicing, repairs and replacement of components and spares of Sony products. Extensive workshops and training programmes are organised by Sony to enable its service centres in this country to undertake servicing and repairs of Sony products consistently with the highest standards of efficiency in providing assistance to the users of Sony products. Sony has also, it is claimed, extended substantial technical and commercial assistance and know-how to Olympia with a view to enabling them to render the best possible maintenance and services for Sony products in India.
12. Again at the request of Sony, free service clinics for Sony products were organised by Olympia during 1991-92 and Sony agreed to reimburse the expenses for the free service clinics conducted by Olympia. The particulars of expenses relating to supplies of service manuals by Sony to Olympia during 1990-91 have also been disclosed in the affidavit. The total cost of service manuals runs into more than 10 million yens.
13. Finally, in paragraphs 14 and 15 of the affidavit the respondents have set out extensively the grounds and considerations which impelled them to insert that restrictive clause in the agreement. They contend that not only is the restriction not prejudicial to the public interest, but the same is positively beneficial to the public--the users of Sony products. In short, the claim is that the restriction is necessary for achieving excellence of service rendered by Olympia. They say the restriction was clamped simply to ensure that the activities of the latter are properly carried out. For example, it is important to ensure that Olympia does not take on work in excess of its capacity, i.e., take on more than it can adequately handle, without endangering the quality of service rendered to the users of Sony products. It is further claimed that the restriction is necessary to avoid any confusion or mix-up between the spare parts, etc., of Sony on the one hand and those of other manufacturers on the other hand. The respondents rightly apprehend that if Olympia is permitted to engage in the activity of repairing and servicing the equipment of manufacturers without any limitation whatever, it will be unable to devote that kind of time and attention which is necessary to ensure the quality of service or repair of any equipment of Sony.
14. Another aspect which is rightly stressed by the respondents in this affidavit is that Olympia must have at all times adequate space where the activity of servicing and repairing of the products of other manufacturers can be separately carried out without the possibility of any confusion or mix-up with the activity connected with the servicing and repairing of equipment manufactured by Sony. It is equally imperative that Olympia has adequate staff or personnel to carry out the said new activity (of servicing and repairing the products of other manufacturers) without making any dent into or compromising on the quality of servicing of the Sony equipment.
15. The aforesaid facts uncontroverted as they are undoubtedly establish that the restriction imposed by Sony to the effect that the repairer shall not, without the prior written consent of Sony, engage in any business which is the same or similar to any services for another manufacturer of electronic products is, in the facts and circumstances of the present cases and having regard to the highly sophisticated nature of trade and the quality of the product in question, reasonably necessary to protect the public (in this case, the users of Sony products) against injury and that the removal of such restriction would deny to the users of Sony products other substantial benefits or advantages in that it ensures excellence in the quality of servicing, repair and replacement of components of Sony products. As noticed above, if such restrictions are not placed on the service centres, there is a fair possibility of confusion and mix-up between the parts of Sony products and those of other manufacturers. The removal of such restrictions would tempt the Sony service centres to take on larger quantum of work than they might be able to handle without having the requisite space and personnel to undertake the job relating to the products of others.
16. In conclusion, we hold, as was also fairly conceded by the respondents concerned, that even though the amended Clause 6 of the agreement does technically fall within the purview of Clause (c) of Section 33(1) of the Monopolies and Restrictive Trade Practices Act, in the facts and circumstances of the present case'and having regard to the highly sophisticated nature of the products in question, the respondents are entitled to the gateways provided under Clauses (a) and (b) of Section 38 of the Monopolies and Restrictive Trade Practices Act. We would, therefore, refrain from issuing any "cease and desist" order in this case.
17. In this connection, it would be pertinent to point out that a somewhat similar clause came up for consideration in India Cements Ltd., In re [1987] 62 Comp Cas 382 (MRTPC) [SB]. The clause which was for consideration in that case prohibited the stockists of cements from dealing in or selling any other brand of cement without obtaining the approval of the manufacturers. A Full Bench of this Commission, while holding that the clause was hit by Section 33(1)(c), enabled the respondent to get away through the gateway available, inter alia, under Clauses (a) and (b) of Section 38(1) of the Monopolies and Restrictive Trade Practices Act. The Bench observed as follows (at pages 390, 391) :
"The aforesaid clause is applicable in the present case as far as the restriction placed on the dealers to the effect that they should not deal in any brand of cement other than that of the respondent. Obviously, that restriction is reasonably necessary, otherwise there could be possibility of mixing up and the consumer getting either a mixture of two brands or a different brand of cement. Hence such restriction is necessary to protect the public from getting cement other than the one desired. . . .
If we look at the restrictive trade practice of not allowing the stockists to keep a different brand of cement from the aforesaid point of view, such practice cannot be prejudicial to public interest. The other brands of cement can be and are generally kept by other stockists and healthy competition goes on between the stockists of the cement manufactured by the respondent as well as that manufactured by other concerns. Therefore, this type of restrictive trade practice, having regard to the nature of the commodity of cement involved which can be easily mixed up with or passed off for another brand of cement, and the restriction imposed by the respondent is reasonable and should not be directed to be struck off."
18. These observations apply with greater force and validity to the case on hand inasmuch as we are dealing here with a highly sophisticated product, namely, Sony equipment having a worldwide reputation for excellence in that area. In conclusion, the notice of enquiry is discharged in view of our conclusion recorded hereinabove that the respondents are entitled to the gateway available under Clauses (a) and (b) of Section 38 of the Monopolies and Restrictive Trade Practices Act. There will be, however, no orders as to costs.