- (1.) The present information has been filed by M/s. Atos Worldline India Private Limited (hereinafter, the 'Informant') under section 19(1)(a) of the Competition Act, 2002 (hereinafter, the 'Act') against M/s. Verifone India Sales Pvt. Ltd. (hereinafter, the 'Opposite Party No. 1'/'Verifone') and M/s. Verifone System Inc. (hereinafter, the 'Opposite Party No. 2') [collectively hereinafter, the 'Opposite Parties'), inter alia, alleging contravention of the provisions of section 4 of the Act. FACTS , in Brief. 1.1 As per the information, the Informant, a company incorporated under the Companies Act, 1956, is owned by Atos, a global information technology services company operating in the areas of hi -tech transactional services, consulting and technology services and system integration and management services. The Informant is stated to be engaged in the provision of services such as software development including Value Added Services (hereinafter, 'VAS'), maintenance, implementation, upgradation, applications management and infrastructure management. It delivers end -to -end service in industries of public sector, healthcare, transport and financial services and also operates as a third party processor (hereinafter, 'TPP'). As a TPP, it tracks the flow of intervening events between a card holder swiping his card and finally receiving a printed charge slip at the Point of Sale (hereinafter, 'POS') Terminals on the premises of a merchant from whom the card holder buys products/services. As a VAS provider, the Informant develops applications such as loyalty, gift card, bill payment, top -up, money transfer, dynamic currency conversion, etc. for integration into POS Terminals. The customers of the Informant such as banks and financial institutions use its services for customising, commissioning, installing and maintaining POS Terminals at merchant locations. 1.2 The Opposite Party No. 1, a company incorporated under the Companies Act, 1956, is a wholly owned subsidiary of the Opposite Party No. 2 which is a NASDAQ listed public company and a global leader in secure electronic payment technologies for the provision of hardware solutions such as POS Terminals, services and expertise to enable electronic payment transactions at the POS Terminals. 1.3 As per the information, the Opposite Party No. 1 is a leading supplier of POS Terminals in India having control over nearly 70% to 80% of the market. It has acquired several other players in the POS Terminals market in India such as Lipman Electronic India Private Limited in 2006, Hypercom India and Gemalto in 2011. 1.4 As per the Informant, the Opposite Party No. 1 supplies POS Terminals along with core POS Terminal applications (i.e., Operating System and Kernels) and Software Development Kits (hereinafter, 'SDKs') to enable the basic 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 TPPs such as the Informant who act on behalf of acquiring banks and also render VAS to develop and integrate applications into POS Terminals. 1.5 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 standard industry practice, core POS Terminal applications and SDKs are provided along with the POS Terminals and the costs of the same are built into the price paid for the POS Terminals. 1.6 The Informant submitted that between September, 2010 and December 2011, the Opposite Party No. 1 continued to provide SDKs to the Informant along with the POS Terminals and core terminal applications without any restrictions on the use of SDKs. The Opposite Party No. 1 also used to provide training to the Informant's engineers to enable the Informant to render VAS to its customers. 1.7 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 terminal 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. 1.8 It is submitted that after acquisition of Venture Infotek by the Informant in August, 2010, the Opposite Party No. 1 issued a termination letter to the Informant in 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. As per the Informant, despite issue of the said termination letter, the Opposite Party No. 1 continued to supply POS Terminals along with its core applications, SDKs and training to its engineers for the use of SDKs. 1.9 It is averred that, in January 2012, the Opposite Party No. 1 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 has alleged that through the said draft SDK agreement the Opposite Party No. 1 sought to impose certain restrictive conditions on it. 1.10 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 Opposite Party No. 1 to carry out such drastic changes in the said draft SDK agreement. It is alleged that the restrictions contained in the draft SDK agreement foreclose the VAS market. 1.11 The Informant averred that since early January, 2012, the Opposite Party No. 1 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 Opposite Party No. 1 made repeated attempts to force the Informant to agree to the terms and conditions as set out in the draft SDK agreement. Further, the Opposite Party No. 1 issued several reminders to the Informant to complete the formality of signing the draft SDK agreement, failing which the Opposite Party No. 1 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 Opposite Party No. 1 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 Opposite Party No. 1 on the restrictive conditions of the draft SDK agreement, it issued a termination letter dated 01.08.2012. 1.12 It is alleged in the information that the Opposite Party No. 1 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 Opposite Party No. 1'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. 1.13 It is stated 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 Opposite Party No. 1 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. 1.14 Citing Reserve Bank of India's 'Payment System Vision Document, 2012 -15', 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 Opposite Party No. 1 exercises significant control over the supply of hardware and software solutions. 1.15 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 Opposite Party No. 1's interests by eliminating competition in the market. The Informant has alleged that Opposite Party No. 1, by imposing restrictions in the draft SDK agreement, is aiming to strengthen its position in the VAS market. 1.16 Based on the above submissions, the Informant has alleged that the Opposite Party No. 1, 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) & (ii) of the Act. As per the Informant, the Opposite Party No. 1 by imposing severely 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 in contravention of section 4(2)(b)(i) & (ii) of the Act. It is also alleged that the Opposite Party No. 1 has sought to deny market access to VAS providers in contravention of section 4(2)(c) of the Act. Further, the Opposite Party No. 1 allegedly intended to use its dominant position in POS Terminal market to dominate VAS market in contravention of section 4(2)(e) of the Act. 1.17 Based on above submissions, the Informant, inter -alia, prayed to the Commission to direct the Opposite Party No. 1 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 Opposite Party No. 1 for abuse of dominant position and grant such other reliefs as the Commission may deem appropriate in the facts and circumstances of the case.
(2.) THE Commission after giving thoughtful consideration to the facts of the case found that, prima facie, the conduct of the Opposite Party No. 1 was in violation of the provisions of section 4 of the Act. Accordingly, vide its order dated 31.12.2012, under section 26(1) of the Act, the Commission directed the Director General (hereinafter, 'DG') to conduct an investigation into the matter. Brief of the DG's Investigation. 3.1 The DG submitted his investigation report to the Commission on 20.03.2014. 3.2 Pursuant to the directions of the Commission, the DG has essentially investigated the alleged infraction of the provisions of section 4 of the Act i.e., abuse of dominant position by the Opposite Party No. 1. 3.3 For the purpose of investigation, the DG has considered 'the market for POS Terminals' as the relevant product market. As per the DG report, there are no reasonable alternative/substitutable devices available in the market to which merchants can switch over in place of POS Terminals. It is reported that new technologies such as Easytap, MS wipe etc., cannot be considered as a substitute of the POS Terminals. Moreover, the demand side substitutability of POS Terminals does not exist. The DG has considered the territory of India as the relevant geographic market because POS Terminals are capable of being traded throughout India with almost similar conditions. Thus, 'the market for POS Terminals in India' has been considered as the relevant market by the DG in the instant case. 3.4 To ascertain the position of dominance of the Opposite Party No. 1, the DG has analysed the factors mentioned under section 19(4) of the Act and concluded that the Opposite Party No. 1 is a dominant enterprise in the relevant market defined supra. It is reported that during the period of investigation i.e., from 2009 -10 to the date of filing information in 2012, there were mainly two players in the relevant market i.e., the Opposite Party No. 1 and Ingenico, and the market share of the Opposite Party No. 1 was much higher compared to Ingenico in terms of numbers of POS Terminals sold to the customers. DG has reported that in terms of size and resources, sales data, number of terminals operational in the country and the network, etc., the Opposite Party No. 1 has a clear advantage over its competitors and the consumers are dependent on it. Also, the Opposite Party No. 1 can operate independently of competitive forces and affect the market in its favour because of its wide presence and large share in the POS Terminals market. 3.5 On the alleged abusive conduct of the Opposite Party No. 1, the DG has found that the clauses of the SDK license agreements are unfair. The DG noted that the 'Purpose Clause' under which the licensee can develop VAS and use the same only on the licensor's products and the restrictive clauses prohibiting TPP to assist or develop the applications were found to be in violation of section 4(2)(a)(i), 4(2)(b)(i), 4(2)(b)(ii) and 4(2)(e) of the Act. The DG reported that the claim of the Opposite Party No. 1 that the restrictive clauses of the SDK agreement are meant for the purpose of protecting its IPRs was found to be untenable and none of the other POS Terminals vendors have incorporated such restrictive clauses in their SDK agreement. The DG found that the clauses of SDK agreement are limiting and restricting the technical or scientific development relating to the prejudice of consumers. The DG noted that the intent of the restrictive clauses in regard to licensing, selling or otherwise transferring any software that licensee develops was to not allow them its further use. Thus, the DG observed that in the name of IPR safety the Opposite Party No. 1 was restricting the VAS developer to exploit the same. Further, the DG noted that by imposing the condition of disclosing the software, the Opposite Party No. 1 gets access to the commercial rights of the developer without any obligation. The DG noted that VAS providers cannot be forced to pre intimate the details of the products they are developing to the Opposite Party No. 1. 3.6 The DG also identified the key officials of the Opposite Party No. 1 who were responsible for the said anti -competitive conduct for the purpose of individual liability under section 48 of the Act.
(3.) REPLIES /objections of the Opposite Party No. 1 in response to the DG Report. 4.1 The Opposite Party No. 1 has submitted that the findings of the DG are false, baseless and deserve to be dismissed outright for want of evidence and non -application of mind. It has been submitted that the DG has arrived at the conclusions with only a cursory analysis of the evidence and issues at hand, a selective reliance/cherry picking of statements made by few interested parties and that the report contains several methodological, procedural and analytical errors and inconsistencies, including findings contrary to the records of the case. 4.2 The Opposite Party No. 1 has submitted that the Informant has deliberately avoided any meaningful or constructive dialogue with it on the terms of any potential licensing arrangement and has intentionally sought to delay the execution of an SDK license agreement, despite the Opposite Party No. 1 meeting almost all of the Informant's claims. 4.3 It has been submitted that the case appears to be motivated by the Informant's desire to replace the Opposite Party No. 1 as a popular vendor of POS Terminals to banks in India. Further, the Informant through its sister company 'Banksys International' is already selling POS Terminals around the world and it is understood that the Informant has already started selling Mobile POS (hereinafter, 'MPOS') Terminals in India. It is also submitted that as banks heavily rely on the Informant for providing backend processing and maintenance services, the Informant enjoys a unique position in the electronic payment market. 4.4 The Opposite Party No. 1 has submitted that the DG had contacted various third parties such as banks and VAS providers and specific query had been posed whether they had come across any abusive conduct by a POS vendor. In response, all the major banks such as SBI and HDFC have stated that they had not come across any abusive conduct by POS vendors in the market. Further, all major VAS providers such as Prizim Payments Services Private Limited, Tarang Software Technologies Limited, Innoviti Embedded Solutions Private Limited and ICICI Merchant Services Private Limited had unanimously stated that they had not come across any anti -competitive conduct by POS Terminal providers. 4.5 As per the Opposite Party No. 1, the subject matter forming the basis of this information is a draft SDK agreement circulated by it to the Informant for negotiation. This draft SDK agreement was initially circulated post infringement of its intellectual property right by the Informant and MRL Posnet. It is submitted that immediately prior to the filing of information, the Opposite Party No. 1 was about to close negotiations over the SDK license agreement with the Informant agreeing to nearly all its demands. However, the Informant preferred filing the information. 4.6 The Opposite Party No. 1 has submitted that the DG's analysis and the finding that the relevant market is limited to POS Terminals is misconceived, flawed and contradictory to the actual market realities of the electronic payment industry. The DG has altogether failed to apply section 2(r) of the Act while delineating the relevant market in the case. In addition to disregarding the basic requisites of defining the relevant market under the provisions of the Act, the DG has disregarded and failed to examine the inherent substitutability between different technologies in the electronic payment industry that act as substitutes to POS Terminals. 4.7 The Opposite Party No. 1 has submitted that the DG has failed to take into account the new products being developed and deployed in this sector on account of the technology driven nature of the industry. It is submitted that the electronic payment industry as a whole is witnessing rapid technological change and progress. Relying upon a RBI publication, it is stated that the payment system initiatives taken over the last three years viz. from 2009 to 2012 have resulted in deeper acceptance and penetration of modern electronic payment systems in the country. The electronic payment industry is rapidly growing in India with various modes of electronic payment emerging and constraining the sales of POS Terminals. The Opposite Party No. 1 has relied upon the M/s. Pricewaterhouse Coopers (hereinafter, PWC) Report on Electronic Payment Market in India which states that "technology advancements have given rise to a new platform of POS Terminals referred to as MPOS, which has opened an affordable channel for merchants of all sizes. It requires less upfront investment and its maintenance is more economical than POS Terminals. 4.8 The Opposite Party No. 1 has submitted that MPOS are severely constraining and acting as an effective substitute to POS Terminals. MPOS devices include Ezetap's Mobile solutions card reader, MSwipe's USB/dongle mobile Point of Sale, and MobiSwipe products. The Opposite Party No. 1 has submitted that MSwipe is adding around 1500 merchants per month and is planning to reach 50,000 merchants by the end of 2014. It has also been submitted that SBI has recently teamed up with Ezetap to set up 5,00,000 MPOS Terminals over the next five years. 4.9 The Opposite Party No. 1 has submitted that First Data, a sister entity of ICICI Bank Merchant Services Limited, plans to aggressively market its new product to a large number of merchants across India including retailers and eretailers, radio taxis, etc. and it has over 2 lakh customers in India and the survey showed that around 39 percent of the merchants are willing to adopt this product. 4.10 As per the Opposite Party No. 1, MPOS are easier to use and more cost effective and fast replacing the POS Terminals. Further, in India acquirer banks are continuously seeking ways to migrate to cheaper modes of transacting e -payment systems. These new technologies which can be 'attached' to mobile phones to process transactions not only result in upfront investment by the bank but also reduce the monthly maintenance expense of the banks. Such devices perform comparable functions with a POS Terminal and provide the same end use i.e., facilitation of electronic payment. Further, MPOS are Europay, Mastercard and Visa (hereinafter, 'EMV') Level 2 certified so they have the ability to process debit/credit cards and process electronic payments just like POS Terminals. 4.11 In addition to MPOS, there are other technologies such as mobile wallets and pre -paid instruments that severely constrain the POS Terminal sales and are substitutable to POS Terminals. As per the Opposite Party No. 1, the DG has grossly erred by not accurately examining these technologies. It is submitted that since the electronic payment industry is highly technology driven, the relevant product market definition must be broad enough to include new and innovative products which compete and constrain the sales of POS Terminals. 4.12 It has been submitted that both POS Terminals and other POS devices including MPOS such as Ezetap and Mswipe achieve the same end result i.e., the processing of electronic payment transactions. Banks and merchants who wish to obtain a device for processing a credit/debit card are equally able to choose between a POS Terminals and other POS devices that process electronic payments. Further, the consumers prefer these emerging technologies over POS Terminals due to cost effectiveness and relative case in use. Thus, as per the Opposite Party No. 1, all such devices are interchangeable and substitutable with each other and therefore are part of the same relevant market. Accordingly, the relevant market to be considered in this case should be "the market for electronic payment devices" 4.13 As regards the relevant geographic market, the Opposite Party No. 1 has submitted that the relevant geographic market definition of 'India' as set out in the DG report may be accepted but such relevant market should also include imports of electronic payment devices, including POS Terminals into the country. 4.14 It is submitted that the DG's finding that Verifone holds a dominant position in the POS market has no basis and DG has disregarded the basic tests of dominance contained in Explanation (a) to section 4 of the Act. Further, the determination of market shares by the DG is flawed and contradictory to the data contained in various market study reports. 4.15 The Opposite Party No. 1 has submitted that, given the number of competing devices and players, it cannot be in a dominant position in the relevant market. Without prejudice to the submissions on the correct relevant market definition, even in the narrower relevant market defined by the DG i.e., 'market for POS Terminals in India', the Opposite Party No. 1 is not a dominant player. It is submitted that Ingenico holds a higher market share than Verifone in the POS Terminals market and the market share of Verifone is further declining which shows that it does not have position of strength to act independently of competitors, consumers or the market. 4.16 As per Opposite Party No. 1, section 19(4) is not a standalone provision; it has to be seen contextually as an aid to section 4. This has been affirmed by the COMPAT in the case of National Stock Exchange vs. Competition Commission of India wherein the Hon'ble COMPAT observed that "Shri Sibal is undoubtedly right when he argues that while applying the factors listed in section 19(4) of the Act, a 'check the box' approach should not be followed and the factors in that section should only be considered as an aid in assessing dominance". Thus, even if an enterprise is a leader in terms of factors set out under section 19(4) of the Act, such an enterprise can be considered as dominant only if these factors confer upon the enterprise a position of strength in the relevant market which enable it to operate independently or affect competitors or consumers or the relevant market in its favour. It has been submitted that the DG failed to analyse the POS Terminals market and various competitive constraints exercised on the Opposite Party No. 1 which demonstrate that it is unable to operate independently of competitive forces or affect competitors or consumers or the relevant market in its favour. The Opposite Party No. 1 has submitted that the POS Terminals market is highly competitive and the players in the industry (including customers of the Opposite Party No. 1, whether banks, TPPs or VAS providers) substantially constrain the Opposite Party No. 1's activities. 4.17 It is submitted that the POS Terminals market is a 'buyers' market with customers especially banks dictating the terms and conditions. As per the Opposite Party No. 1, banks considerably constrain its operations as they are the primary customers. In fact, banks adopt a (minimum of) two -vendor policy and source their requirements from more than one POS Terminal supplier in India and are well aware of the other available alternatives. 4.18 As per the Opposite Party No. 1, the banks have the ability to choose its competitors over it and therefore, are free to shift their purchases to competitors. The Opposite Party No. 1 has also submitted that its commercial operations are highly dependent on third party processors such as the Informant. 4.19 It has been submitted that the Informant mandates various 'specification requirements' which include a variety of functionalities that must be adhered to, apart from just the certification of the core payment applications. If a POS Terminal is not certified by the Informant, banks refuse to place orders for it. The Informant's White Paper on Certification of Terminal Applications explicitly states "banks shall only deploy/advise to deploy those terminals whose applications have been credited by Venture Infotek .... Banks shall advise any prospective terminal before deployment" (emphasis added). The paper also states "terminal Vendors shall comply with the testing and certification process of Venture Infotek" (emphasis added). As per the Opposite Party No. 1, the Informant charges a significant amount of approximately Rs. 8,00,000 as fees for certifying payment applications on its terminals whereas no other TPP in India charges such exorbitant certification fees. 4.20 It has been submitted that the Informant is also operational in the POS Terminals market globally under the brand name 'Banksys' and can easily customize these terminals to meet Indian market requirements and align them to the standards in India. This is evidenced by the fact that the Informant has also started to service the MPOS segment of the market and further may launch its own terminals in India. 4.21 The Opposite Party No. 1 has submitted that the Informant, in its White Paper on Certification of Terminal Applications states "Venture Infotek provides the ubiquitous infrastructure for POS Terminals and payment card transactions to be processed to over 15 acquiring banks in India". In fact, the Informant is the only TPP in India which mandates that it will be the exclusive TPP to acquiring banks, demonstrating Informant's significance as a TPP to banks and its dominant position of strength as a TPP in India. The ability of the Informant, as a dominant TPP service provider, does not allow the Opposite Party No. 1 to 'affect its competitors' or 'operate independently' of market forces. 4.22 As per the Opposite Party No. 1, it is significantly constrained by various players including its customers. The players in this industry such as Indigo and the Future Group, and banks such as Axis bank, HDFC bank, SBI are much larger than it and can exercise significant countervailing buyer power on it in the POS Terminals market. 4.23 It is submitted that the Opposite Party No. 1 does not hold highest market share rather, Ingenico holds the highest market share in the POS Terminal market in India. In support of its lower market share, the Opposite Party No. 1 cited the DG report which states that "if we take only the share of Opposite Party No. 1 and exclude the machines sold by Gemalto (acquired by Opposite Party No. 1 in 2011) the market share of Opposite Party No. 1 is about 45% as it had sold about 2.8 lacs terminals by 31 -03 -2012" (emphasis added). This calculation of market share has been arrived at by collating the sales of POS Terminals by the Opposite Party No. 1 for the last three years and without aggregating the sales of its acquired companies in previous years. 4.24 The Opposite Party No. 1 has submitted that the POS Terminals it acquired from Lipman in 2006 -2007, Gemalto in 2011 and Hypercom in 2012 (hereinafter, 'Legacy Terminals') are near obsolete and the acquired POS Terminals have not raised its sales rather facilitated additional opportunities for its competitors. It is submitted that since the acquired POS Terminals do not provide any commercial advantage, either at present or in the future, such terminals should not be included while computing the market share of the Opposite Party No. 1. 4.25 Further, as a result of the new RBI guidelines, 'legacy terminals' are rendered redundant because of requirement of a 'PIN' at the time of swiping a debit/credit card on a POS Terminal. Since banks have sought to replace many POS Terminals with GPRS enabled terminals, it renders 'legacy terminals' useless. The DG has failed to examine this aspect. 4.26 The Opposite Party No. 1 has submitted that, in the light of above, a more accurate estimate of its market share would be approximately 45% (and it is further declining) as opposed to 70% to 80% alleged by the Informant. It is submitted that a market share of 45% cannot, in itself, lead to a conclusion that the Opposite Party No. 1 holds a dominant position especially, when one of its competitors has a higher market share. 4.27 As per the Opposite Party No. 1, its competitor Linkwell Telesystems Pvt. Ltd. in its response to the DG date 25 October 2013, has submitted that "[t]here are a number of POS machine vendors in India such as Verfione, Ingenico, Gemalto, Sagem, PAX, MPOS, Specra Tech, Exadigm, who import their machines into India. Among the local vendors are Geodesic, Evolute, Analogics, Sands, Balaji, Quantum, MicroFX, Palmtech, Smartlans, etc. There are a number of small regional vendors as well". The DG however has failed to obtain the number of POS Terminals sold by these players and has failed to include such players in market share analysis. 4.28 It is submitted that the Commission has recognised that falling market share is an indication that the enterprise is not in a dominant position in the relevant market in the case of M/s. HNG Float Glass Ltd. vs. M/s. Saint Gobain Glass India Ltd. where the Commission held that "the erosion of market shares for established players like SGGIL, AIS point out the competitive constraints exercised by a new firm on the old experienced firms". Further, in the case of Hoffman La Roche V. Commission, the ECJ held that "[a]n undertaking which has a very large market share and holds it for some time, by means of the volume of production and the scale of the supply which it stands for ....is by virtue of that share in a position of strength" (emphasis added). This is also recognized by the OECD report which states, "[t]o distinguish between instances of "normal, everyday" non -substantial market power and the type of market power that should trigger heightened scrutiny under single -firm conduct provisions, it is important to determine whether market power is durable i.e., whether it can be maintained for a considerable period of time. (emphasis added) 4.29 In this regard, it is submitted that the Opposite Party No. 1's revenues and profits have been facing a steady decline over the last year. Its profits which were Rs. 6.9 crore in financial year 2011 -12, were reduced to a mere Rs. 65.75 lakhs in financial year 2012 -13. Further, in financial year 2011 -12 the Opposite Party No. 1's revenues were Rs. 118.15 crore and were reduced significantly to Rs. 96.57 crore in the financial year 2012 -13. Further, its market shares have also fallen from 57% to 43% in the past 5 years. It is submitted that significant drop in revenues, profits and market share indicate that the Opposite Party No. 1 does not hold any dominant position in the relevant market. 4.30 It is submitted that the DG has wrongly compared the data relating to POS Terminals sold to the banks by the Opposite Party No. 1 and Ingenico. It is stated that the DG has not taken into account the POS Terminals acquired by SBI. It is stated that SBI has purchased 67,000 terminals from Ingenico as compared to only 2000 terminals and 4000 PIN pads from the Opposite Party No. 1. In choosing to analyse the sales figures of only the largest three POS Terminal acquiring banks, the DG has failed to account for POS Terminals purchased by all other banks in India such as IDBI bank which has 14,844 POS Terminals, Corporation bank which has 14063 POS Terminals, American Express Banking Company which has 17652 POS Terminals, Citibank which has 9800 POS Terminals, etc. 4.31 It is further submitted that the DG has failed to account for Linkwell's sales of POS Terminals in India. Linkwell has sold a total of 78,860 POS Terminals over last three years. It is submitted that the market share of the Opposite Party No. 1 in the POS Terminals market clearly indicates that it does not enjoy a dominant position. Ingenico is the market leader with a market share of 54% whilst the Opposite Party No. 1's market share has fallen by 14%. 4.32 Further, it is submitted that the DG has also failed to effectively examine the competitive strength enjoyed by the competitors of the Opposite Party No. 1 which are large multi -national corporations such as Ingenico and PAX and local players such as Linkwell or Visiontek and Advanced Micronic Devices Ltd. (AMDL).Threat of new entry from globally established POS Terminal suppliers also prevents the Opposite Party No. 1 from operating independently of competitive forces prevailing in the relevant market. 4.33 It is submitted that Ingenico is the world's largest supplier of POS Terminals and it holds 'No. 1' position in Asia. In April 2014, Ingenico was adjudged as the highest ranking POS Terminal vendor globally by ABI Research's POS Terminal Vendor Competitive Assessment. This leading position is also corroborated by the Nilson Report (a leading publication covering payment system worldwide and it provides up -to -date information on companies, products, and services from all areas of the payments industry infrastructure) on POS Terminal shipments in 2011. 4.34 Citing PWC Report, it is submitted that Ingenico is the largest player in India. Ingenico has deployed approximately 300,000 POS Terminals across six hundred cities, village and metros in India and it claims to be selling 20,000 POS Terminals every month and has expanded its presence by providing MPOS and online payment gateways as well. According to financial statement of Ingenico filed with the Ministry of Corporate Affairs, its sales in India since its incorporation have increased nearly by 10 fold i.e., from Rs. 81.83 million in the financial year 2009 to Rs. 799.93 million in the financial year 2013. 4.35 As per the Opposite Party No. 1, given the global presence, size and importance of competitors, including potential competitors such as the Informant, it cannot be said to hold a dominant position in the POS Terminals market in India. As per the Opposite Party No. 1, it is not dominant in any market relevant to this case, including the relevant market defined by the DG thus, it cannot be found to have abused its dominant position. 4.36 The Opposite Party No. 1 has submitted that DG's conclusion on its abusive conduct is not reflected by any actual anti -competitive effects. Though DG has received the details of VAS provided by the Informant and FSS and VAS revenues of the Informant, the DG has failed to examine whether their statements on the Opposite Party No. 1's abusive conduct is true and actually reflected in falling VAS revenues of these companies or by any other anticompetitive effects whatsoever. 4.37 It is submitted that DG has found that the Opposite Party No. 1 has violated the provisions of section 4 of the Act on the basis of a draft SDK agreement which has not been executed or implemented. As per the Opposite Party No. 1, the DG has completely failed to consider that presently there cannot be 'imposition' of any unfair term or condition on the Informant and accordingly there is no breach of section 4(2)(a)(i) of the Act. The DG has also failed to give evidence of any actual foreclosure or anti -competitive effect caused by the Opposite Party No. 1's conduct. Thus, the DG's conclusions of abuse are mere subjective statements which fail to correlate with any market reality. 4.38 It is submitted that based on a bald comparison of selectively compared clauses from other SDK license agreements to the clauses contained in Verifone's 2012 draft SDK license agreement such as 'Purpose Clause' and restriction of development of VAS on managed Terminals; restriction on development of payment applications; restriction on sub -licensing or appointing third -parties for development of VAS; restriction relating to disclosure of VAS to be created or intended to be created; and restriction on the commercial exploitation of VAS the DG concludes that the 2012 draft SDK license agreement was not in line with prevailing industry practices in the Indian and global POS Terminals market. 4.39 The Opposite Party No. 1 has submitted that DG's findings ought to be rejected outright as it failed to appreciate the different business models adopted by different POS Terminal suppliers and has also completely misrepresented certain SDK license agreements evaluated. The Opposite Party No. 1 has stated that a bald comparison of clauses set out in a draft agreement, being negotiated between parties, both prior to and after the filing of the information, cannot amount to the 'imposition' of any unfair term or conditions and cannot amount to abuse of dominance in violation of section 4 of the Act. 4.40 It has been submitted that 2012 draft SDK license agreement imposes far less stringent terms and conditions when compared to SDK license agreements in the smart phone industry. Clauses under the 2012 draft SDK license agreement cannot be said to be restrictive as it is standard business practice. 4.41 As regards the 'Purpose Clause', the Opposite Party No. 1 has submitted that the DG has merely looked at the language, without analysing its effects and implications. It is submitted that the Opposite Party No. 1's position has always been to permit VAS development on managed terminals, subject to a prior disclosure and permission requirement. That there is no evidence to show that the Opposite Party No. 1 has unreasonably withheld permission from allowing the Informant or other VAS providers from developing VAS applications on managed terminals. It is stated that Verifone does not unreasonably restrict the development of VAS on managed terminals. 4.42 It has been submitted that the Opposite Party No. 1 permits development of VAS on managed terminals and the same is evidenced by the fact that numerous VAS applications such as DCC, PUNGRAIN, Asian Paints Loyalty etc. have been developed on the Opposite Party No. 1's managed terminals in the past. Where a VAS provider wishes to develop VAS on managed terminals, the permission and disclosure requirement is effected merely by way of updating "Exhibit C" of the 2012 draft SDK license agreement. 4.43 The Opposite Party No. 1 has submitted that this minimal disclosure cannot amount to an abuse of dominance. The Opposite Party No. 1's terminals have been purchased by customers such as the Future Group and the Opposite Party No. 1 is liable under warranty to its customers for the POS Terminals purchased from it. Given the immense risk that the Opposite Party No. 1 incurs in the provision of warranty services to its customers, the Opposite Party No. 1 requires a simple list of the customer, the name of the VAS and the terminal models on which the VAS functions under 'Exhibit C'. 4.44 In cases of VAS applications developed on managed terminals, the Opposite Party No. 1 remains liable under warranty to its customers. The 2012 draft SDK license agreement provides such a mechanism. This had been submitted to the DG who has completely failed to acknowledge or even address any of its submission. The Opposite Party No. 1 has submitted that a mere permission and limited disclosure requirement is not a 'restriction', and the DG has failed to provide even a single instance where it has refused to provide such permission. 4.45 The Opposite Party No. 1 has objected the DG's finding that once a terminal is sold, customers cannot be restricted to develop any new application to enhance the utility of POS Terminals and payment applications are required to be modified/upgraded or developed as per the needs of buyers. It is submitted that the DG has absolutely failed to understand the basic functioning of a POS Terminal, including the operation of payment application. 4.46 It is also submitted that a POS Terminal is sold with its hardware (POS Terminal) and software (POS application) which processes the electronic payment. Sans a payment application, a POS Terminal is of no or little utility and would be simply empty shell. A POS Terminal can be compared to a Blackberry mobile phone where the phone hardware and the operating system are essentially one product. 4.47 It is submitted that the DG has fundamentally failed to comprehend what a payment application is and has not understood its primacy to the functioning of a POS Terminal. Given that a functional POS Terminal is provided by the Opposite Party No. 1, any modifications/upgrades can only be provided by it. Since the payment application is already functioning on a POS Terminal, there is no question of any 'new' application for processing payments on the terminal. 4.48 The Opposite Party No. 1 has submitted that the market itself demands a device that facilitates electronic payment which is catered to by a POS Terminal with a functioning payment application. The Opposite Party No. 1 therefore adopts a business model that caters to what the market and customers demand. The DG however, without any analysis of market functioning or responses of banks, has concluded that "Opposite Party No. 1 had not disclosed its terms and conditions of SDK license agreement to the buyers at the time of sales of POS Terminals. Thus, the buyers who purchased huge number of terminals were clearly under the impression that the SDK shall be provided as per the industry practices". This stands in stark contrast to its submission above that banks/customers themselves demand for a POS Terminal along with a payment application. The demand for POS Terminals in India is of a functional product that processes electronic payment and the Opposite Party No. 1 is engaged in the sale of such a functional electronic payment device. 4.49 Further, it is submitted that since this industry involves payments, potential faults may have catastrophic effects. Therefore, in order to ensure that electronic operations of banks/merchants function smoothly and also to protect its reputation. Given the immense risk of potential fraud and misuse in the electronic payment industry in India, it is absolutely necessary that payment applications are developed, installed and tested by the Opposite Party No. 1. 4.50 It is submitted that the Opposite Party No. 1's business model in India is not comparable to SDL licensing arrangements in other parts of the world and cannot be compared to the Opposite Party No. 2's and Banksys application development agreements around the world. The security and safety concerns surrounding the electronic payment industry in India are significantly higher as compared to mature jurisdictions overseas. The Opposite Party No. 1 has submitted that the DG's simplistic comparison of payment application development globally to that in India, without assessing the safety and security concerns of electronic payments in India, should be rejected. 4.51 As per the Opposite Party No. 1, modification/developments cannot be made to the core functionality of devices and the same is evident from the SDK license agreements for smart phones which show that 'app' developers are not permitted to tamper with the calling, emailing, or other mobile communication services. These agreements do not permit 'app' developers to develop/modify the core functions of email and phone functionality. 4.52 It is submitted that the DG has compared Ingenico's SDK license agreement to the 2012 SDK license agreement of the Opposite Party No. 1 and finds that Ingenico permits third party development of payment application and none of the other players are imposing such restrictions. However, the DG has failed to observe that Ingenico's SDK license agreement and 2012 draft SDK license agreement operate on completely different business models. 4.53 The Opposite Party No. 1 submitted that a consumer is at liberty to choose POS Terminals from any of the players and is not constrained in any way. If a customer does not wish to procure the Opposite Party No. 1's terminals as it does not like Opposite Party No. 1's business model, it can purchase from Ingenico, PAX etc. Further, it is stated that the Opposite Party No. 1 does not sub -contract the payment application development to other third -parties like Ingenico or third -party payment application development because if there is any fault in the payment application resulting in a merchant not being able to process transactions or processing a transaction incorrectly, this would adversely impact its business and reputation. Accordingly, the 2012 draft SDK license agreement does not allow a third -party to write the payment application for its POS Terminals. In this regard, the Opposite Party No. 1 submitted that, a company, as a matter of right should be free to adopt any business model of its choice. 4.54 It has been submitted that the SDK, the underlying software, the source code, etc., are the IPR of the Opposite Party No. 1. Restriction on sub -licensing to 'third parties' in a license agreement cannot be considered unreasonable, since the very essence of an IP right is the right to determine to whom the IP and the manner in which it is licensed. In cases of third party use of its IP, the Opposite Party No. 1 requires such third party to enter into an SDK license agreement with it since, if a third party were to steal/misappropriate its IP, the Opposite Party No. 1 would have no recourse to contractually enforce its IP rights over the third party or cure the breach. Only if there is an executed SDK license agreement between the Opposite Party No. 1 and the third party, the Opposite Party No. 1 would be able to directly enforce its IP rights vesting in its SDK. 4.55 It has been submitted that the Opposite Party No. 1 has not imposed any restrictions, its conduct has not constrained its customers or competitors in any manner and it has acted in a reasonable and responsible manner. The DG has merely found that a third -party would not be able to develop VAS on 'Managed terminals' (under the 'Purpose Clause') and has held that this prevents POS Terminal customers from outsourcing or engaging third -parties for VAS development. This conclusion is not supported by any evidence. The Opposite Party No. 1 does not unreasonably withhold third -party access to its SDK, as is evident in the case of FSS. FSS was supplied with the Opposite Party No. 1's SDK, despite FSS not having purchased any POS Terminals with the Opposite Party No. 1. The Opposite Party No. 1 provided its SDK to FSS and also provided training on its SDK to FSS in July 2011. 4.56 As per the Opposite Party No. 1, the DG's conclusion that Ingenico permits third -party for development of applications on its SDK is incorrect, because Ingenico's SDK license agreement provides that 'third party allowed if nominated by contractor and accepted by Ingenico'. Thus, Ingenico's SDK license agreement envisages a prior permission requirement. Further, the DG has also failed to note that the purpose clause of the Opposite Party No. 2's MX9 DTK agreement provides "[s]subject to the terms of this agreement, for each license purchase by you, you are granted a limited, non -exclusive, revocable, non -sub -licensable and non -transferable license to install and use the MX9 DTK within the territory on a single computer for use by a single user..." (emphasis added). On a review of the MX9 DTK agreement, it is revealed that Clause 3(c)(iv) does not permit a licensee to "disclose to any third party or permit any third party to have access to, use, execute, alter, modify, customize or improve the MX9 DTK, or any part thereof, or any alteration, modification, customization or improvement of the MX9 DTK (including any Integrated Software)" Accordingly, the DG's conclusion that other POS Terminal vendors allow sub -licensing is flawed and is liable to be rejected. 4.57 It is submitted that the DG's comparison of the SDK license agreements of other suppliers to the 2012 draft SDK license agreement is a cursory analysis of the issues at hand, ignores material and relevant evidence on record including the SDK license terms of other POS vendors and deserves to be rejected. It is also submitted that a review of SDK license agreements in other industries such as smart phones demonstrate that similar SDK agreements contain the same restrictions on sub -licensing or impose restrictions on sub -licensors. 4.58 It is submitted that the Opposite Party No. 1 does not restrict third -parties from using the SDK. Any third -party is free to develop VAS using the SDK upon the execution of an SDK license agreement with the Opposite Party No. 1. Further, a restriction on sub -licensing to third -parties cannot be considered unreasonable since the very essence of an IP right is the right to determine to whom the IP and the manner in which it is licensed. In the absence of an executed SDK license agreement between the Opposite Party No. 1 and such third -parties, the Opposite Party No. 1 would be unable to directly enforce its IP rights vesting in its SDK and would be unable to directly govern/prevent misuse. Accordingly, it is submitted that the restriction on permitting third -parties from using the SDK contained in the 2012 draft SDK license agreement is not abusive and does not amount to a violation of section 4 of the Act. 4.59 As per the Opposite Party No. 1, information required to be disclosed by the Informant under the draft SDK license agreement does not extend to any commercially sensitive information. The DG's conclusion in this regard is premature and has been reached without taking into account the limited nature of the information that is required to be disclosed under Exhibit C. Exhibit C under the 2012 draft SDK license agreement does not require any 'confidential', 'commercially sensitive information' or 'IP rights of the developer'. The only information required under the 2012 draft SDK license agreement is disclosure on (a) terminal numbers; (b) name of the customers; and (c) name of the VAS. It is submitted that both the Informant and the DG have failed to provide a single instance where the Opposite Party No. 1 has used information provided under Exhibit C to further its own VAS business or has developed competing VAS by using the information provided by SDK licensees. 4.60 It is submitted that the limited disclosure requirement under 'Exhibit C' of the 2012 draft SDK license agreement has always been to ensure the smooth functioning of a POS Terminal, including the VAS that operates on the terminal. The only reason behind this is to ensure that the POS Terminal can function seamlessly with the VAS applications created/intended to be created on terminals. If a terminal malfunctions, the Opposite Party No. 1 is entitled to be aware of whether such fault is attributable to VAS applications developed by VAS providers. 4.61 The Opposite Party No. 1 has stated that preventing VAS developers' from 'licensing, selling or otherwise transferring any software' does not amount to restricting the commercial exploitation of VAS that is developed by a VAS provider. This is because SDK licensees are free to develop VAS on all its POS Terminals in the electronic payment industry/POS Terminal market. The only terminals on which VAS providers can technically exploit their VAS are either: (i) directly purchased the Opposite Party No. 1 terminals or (ii) managed terminals. Since the 2012 draft SDK license agreement allows licensees to develop VAS on directly purchased terminals (subject to disclosure) and managed terminals (subject to disclosure and prior permission), there is, in effect, no restriction on 'commercial exploitation' of VAS. 4.62 The Opposite Party No. 1 has submitted that it is because of technological barriers that commercial exploitation of VAS is restricted inter se amongst different brands of terminals or among different ranges of the same brand of a POS Terminal. This is because SDKs that are provided for POS Terminals of one brand cannot be used for POS Terminals of another brand. Further, SDKs provided for one range of terminals of a brand cannot be used for a different range of terminals of the same brand.;