At a glance: automotive industry disputes in India

Disputes

Competition enforcement

What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?

The Competition Commission of India (CCI) (the authority regulating competition in India) actively investigates allegations of anticompetitive behaviour in the automotive sector. The investigations carried out by the CCI are either initiated suo motu by the CCI, based on press reports and information flowing from parallel cases, or on the basis of information provided to it by third-party informants. The most notable competition-related issue in the automobile sector was Shamsher Kataria v Honda Siel Cars India Ltd & Ors, Case No. 03 of 2011 (CCI, 25 October 2014), in which the CCI investigated various automobile manufacturers for anticompetitive practices – it is understood they denied market access to branded spare parts and diagnostic tools and thereby hampered the ability of independent repairers to provide aftermarket repair and maintenance services to automobile owners.

Such practices have allowed automobile manufacturing companies not only to have monopolistic control over the spare parts and diagnostic tools market under their respective brands but also to charge arbitrary and steep prices for said products, in violation of the provisions of the Competition Act 2002 (the Competition Act).

The CCI observed that owing to technical specifications of the cars manufactured by each original equipment manufacturer (OEM), the spare parts of one brand cannot be used for the repair and maintenance of cars manufactured by another OEM. Since the spare parts of one OEM are not interchangeable or substitutable with those of other OEMs, each OEM is shielded from competition in the aftermarket from existing competitors in the primary market.

Further, the agreements entered into by OEMs with their original equipment suppliers (OESs) and authorised dealers prohibited the sale of spare parts to independent repairers in the secondary market. The CCI was of the view that each OEM holds a position of strength, which enables it to affect its competitors in the secondary market or aftermarket, thereby limiting consumer choice and compelling consumers to behave in a manner beneficial to the OEMs, which allows them to enjoy a dominant position and strength in the aftermarket for spare parts.

In addition to levying a heavy penalty, the CCI directed OEMs not to place any restrictions on the operation of independent repairers and to allow OESs to sell spare parts freely in the open market. However, OEMs have been permitted to charge royalties or fees where they hold intellectual property rights on parts provided that the same is not in violation of the Competition Act. The order of the CCI was appealed by some of the automotive manufacturers before the Competition Law Appellate Tribunal (COMPACT), established under the Competition Act. The COMPACT, while hearing the appeal, concurred with the findings of the CCI and upheld the penalty that was levied. This order of the COMPACT was stayed by the Supreme Court of India in November 2018.

While some of the automotive manufacturers chose to prefer an appeal to the COMPACT as mentioned above, others chose to file a writ petition in the High Court of Delhi, inter alia, challenging the constitutional validity of the decision-making process, adopted by the CCI while adjudicating matters. This writ petition was successful, and the High Court of Delhi in April 2019 held that the decision-making process provided for in the Competition Act was unconstitutional. In its order, the court allowed the appellant automotive manufactures to file an appeal against the order of the CCI to the National Company Law Appellate Tribunal (NCLAT) (the appellate authority) within six weeks of 10 April 2019 and directed the NCLAT to entertain the appeals on their merits, unhindered by any period of limitation. As per the information publicly available to date, it seems that no appeals have been filed yet with the NCLAT.

A recent case relating to alleged anticompetitive practices against auto companies is the re: Alleged anti-competitive conduct by Maruti Suzuki India Limited (MSIL) in implementing discount control policy vis-à-vis dealers, case No. 01 of 2019 (CCI, 4 July 2019). The CCI initiated investigation in the matter based on an email sent by a Maruti Suzuki dealer anonymously alleging that MSIL resorted to resale price maintenance in Maharashtra, Mumbai and Goa. It was alleged that MSIL’s independent agency performs ‘mystery shopping audits’ wherein a fake customer visits every dealer in Pune (for example) to check whether extra discounts are being offered. On the basis of this audit, dealers are penalised and penalty is levied where extra discounts are offered to the end customers by the dealers and MSIL uses proceeds from these penalties for its expenses. MSIL, however, contended that it did not exercise control over its dealers, except to maintain uniformity in schemes and no agreement between MSIL and its dealers involved a discount control policy.

The CCI rejected MSIL’s arguments and held that MSIL revealed a fit case for investigation in respect of alleged practice of resale price maintenance agreements between the dealers and MSIL and ordered investigation into the matter, which is currently under way.

In another matter, re: Cartelisation in the supply of Electric Power Steering Systems (EPS Systems) Case No. 7 (01) of 2015 (CCI, 9 August 2019), anticompetitive conduct was alleged in the electric power steering (EPS) systems market. The case was initiated on a lesser penalty application filed by NSK Limited, Japan which revealed the existence of the cartel, and was followed by a lesser penalty application from JTEKT Corporation, Japan during the investigation by the Director General. Through the investigation report and evidences presented, the CCI held both NSK Limited and JTEKT Limited liable for cartelisation in the EPS systems market for a period of about six years, directly or indirectly determining prices, allocating markets, coordinating bid responses, and manipulating bid responses of OEMs. However, NSK Limited was granted a 100 per cent reduction in penalty and JTEKT Limited was granted a 50 per cent reduction in penalty, in view of their approaching the CCI with the applications for lesser penalties.

Over the years, the investigation by the CCI is initiated on the basis of claims brought by private parties or government authorities, which are either directly or indirectly aggrieved by the industry or party in question. There has not been much change in the nature of informants over the years, which can be said to be mixture of a private individuals, trade associations, chambers of commerce, direct competitors in the market, enterprises engaged in distributing activity for a dominant manufacturer and others.

Dispute resolution mechanisms

What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?

In the past few years, the disputes relating to the automotive industry that have made headlines primarily involve the hurdles faced in acquisition of large pieces of land for setting up manufacturing plants and employee-related issues.

Until early 2014, land acquisition was regulated solely by the Land Acquisition Act 1894, which was an archaic law. Although the Act permitted land acquisition by automotive companies it became a platform for numerous farmers to challenge the adequacy of compensation given out by the automobile manufacturers and non-adherence of due process at the time of acquisition. This resulted in the stalling of the projects until the matter had been decided by the courts or the companies reached an out-of-court settlement with the owners of the land. The most talked about of such cases involved Tata Motors Limited. In 2006, Tata Motors announced plans to set up an automotive factory in Singur, state of West Bengal for its small car project. Shortly after, it faced protests by farmers against the state government’s proposal to acquire 997 acres of farmland. The unrest continued until 2008, when Tata Motors was forced to relocate its factory to the state of Gujarat. However, the government has made continued efforts to bring about legislation that makes acquisition of land easier for the manufacturing industry. In 2014, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013 was enacted with the aim of making the process fairer and more transparent. The government further plans to propose new laws that would provide more benefits to the industries acquiring land.

Given the scale of the automotive industry, which involves the setting up of large industrial plants, often trade unions and worker associations are very strong and have the ability to influence the workers. Lately, one of the concerns for several automotive manufacturers has been unrest among workers who have been working as contract labourers continuously for a long period of time but have not been absorbed by the automotive companies as permanent employees. It was often found that these contract workers lacked the statutory benefits and protections that would be available to a permanent employee. There are judicial precedents where the courts have come down heavily on industries for adopting such a practice. However, with the changes introduced in the structure of Indian labour law, wherein the laws have been categorised in four labour codes, such issues are likely to be settled. Specifically, the draft Code on Social Security, 2020 provides for contract labour to be entitled to receive social benefits as prescribed under this code, which is similar to the benefits applicable to employees of a company.  

Further, over the years, automotive companies have experienced disputes with consumers in relation to quality control issues faced by them during aftersales services or malfunction of the car on the roads.

As a quick solution, automobile manufacturers have the option to seek interim injunctions from the courts, which are granted on a case-by-case basis after taking into account several factors and circumstances of a case. In relation to labour issues, Maruti and other automobile companies have been seen to engage in negotiations and settlement with workers. This has been a quick solution for some but not for companies that spend a long time negotiating with their workers.

Distressed suppliers

What is the process for dealing with distressed suppliers in the automotive industry?

There is no prescribed procedure or process for dealing with distressed suppliers of automobile components or spare parts. However, to avoid any slowdown or breakdown in the manufacturing process, it is usually considered in the best interest of the automobile manufacturers to provide financial support to extricate suppliers from their crunch.

It has been seen that since the automobile manufacturers provide proprietary information to automobile part suppliers and vendors, several manufacturers are reluctant to let go of their suppliers and often take the commercial decision to extend financial help to the suppliers that would enable them to continue business. 

Intellectual property disputes

Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?

The automobile industry is one of the most innovative industries and thus, intellectual property (IP) is a vital asset of automotive companies. Over the years, the industry has witnessed significant IP disputes ranging from disputes on patents to industrial designs and copyrights.

The aesthetic look of an automobile is the ultimate commercial feature of any automobile company. Automobile leaders such as Mercedes, GM, Honda, Toyota, Tata, Bajaj and many more have already established their own brands with unique design impressions. These industrial designs are extended protection under the Design Act 2000 upon registration with the relevant authority.

The Trade Marks Act 1999 provides, inter alia, for registration of a trademark, filing of multiclass applications, increasing the term of registration of a trademark to 10 years as well as recognition of the concept of well-known marks. Hence, protection of trademarks and marks in the automotive industry where an automobile is known by its marks and symbols becomes important. The Indian courts provide a plethora of precedents wherein infringement or violation of the Trade Marks Act has been analysed, and law has developed over the years through these precedents.

The Patent Act 1970 also plays an important role in the automobile industry. Any new invention in terms of technology and technique can be granted protection when registered with the concerned authority. The software developed by automotive industries for further enhancement of the functions of the automobiles is also protected by way of copyrights under the Copyrights Act 1957.

As is apparent from the current scenario pertaining to the IP laws in India and their application in the automotive industry it can be said that registering any particular IP goes a long way and is extremely helpful when it comes to protecting oneself against IP theft.

The ease or difficulty with which an IP dispute can be resolved varies from case to case depending upon various factors such as the defence of the opposing party, available evidence, the ability of the adjudicating authority or officer, etc. Generally, disputes involving issues relating to trademarks are resolved relatively faster as opposed to those involving patents. This is primarily because trademark issues are less complex than those relating to patents.

There could also be delays because of the misadministration of such matters, but this has not gone unnoticed and the state High Courts have been questioned by the Supreme Court of India over such delays. For example, in December 2007, Bajaj Auto Limited filed a suit before the Madras High Court for an injunction against TVS Motor Company Limited for the infringement of Bajaj’s patent. The relief in terms of an interim injunction in favour of Bajaj restraining use of the abovementioned patent by TVS was awarded in February 2009. Upon an appeal being preferred by TVS before the superior division bench of the Madras High Court, the earlier order of the single judge was revoked. Upon further appeal being preferred by Bajaj before the Supreme Court of India, the Supreme Court expressed its discontent at the pendency of the IP matter before the state High Court since December 2007 at the interlocutory stage and directed the state High Court to commence the hearing of the suit on a day-by-day basis.

Recently in March 2020, the Hon’ble High Court of Delhi granted an ad interim injunction restraining the e-rickshaw manufacturer, Om Balajee Automobile (India) Private, from manufacturing, exporting, importing or offering for sale, advertising or dealing with goods (not just limited to e-rickshaws) bearing the mark DMW or any other mark that may be identical or deceptively similar to the Bayerische Motoren Werke AG (BMW) marks. The court found the two marks DMW and BMW to be visually and phonetically similar and acknowledged the reputed nature of BMW marks, thereby restraining Om Balajee Automobile (India) Private from using similar marks.

Next Post

Flood damaged car, basement might not be covered by insurance

Mon Jul 5 , 2021
The aftermath of summer storms, such as those that hit many neighborhoods and freeways in metro Detroit, often includes many angry consumers who soon discover what their insurance policies do — and don’t cover — in these types of emergencies. Some cars that ended up submerged in water on Interstate-94, […]