Cryogas Equipment Private Limited Vs. Inox India Private Limited (Competition Commission of India)
The Commission, at the outset, notes that the allegations in the instant matter emanates from a suit instituted by Inox against CEPL for infringement of its copyright in the drawings of LNG semi-trailer by CEPL, which CEPL alleges is in the nature of sham litigation, coupled with actions resorted by Inox, in writing various threatening communications to the customers/potential customers of CEPL, as well as to a regulatory authority, with a view to jeopardize the business interests of CEPL, a competitor of Inox in the supply of LNG semi-trailers in India. This conduct, according to CEPL, is an abuse of dominant position by Inox in contravention of provisions of Section 4 of the Act.
The Commission, based on its previous orders, observes that a litigation from a competition perspective may be termed as a sham when it is initiated by a dominant undertaking to cause anti-competitive harm, via, the inappropriate use of adjudicatory/government processes or legal rights. Usually, the aim behind any ‘sham’ litigation is to either subdue a competitor by increasing operational costs or delay the entry of a competitor in the market by resorting to the invocation of governmental process.
The Commission notes that, to determine whether a litigation or legal recourse is an abusive strategy of a dominant player, firstly, it needs to establish that a case filed against an enterprise on an objective view is baseless and appears to be an instrument to harass the enterprise. Secondly, what needs to be examined is whether the legal action appears to be conceived with an anti-competitive intent/plan to eliminate/thwart competition in the market. The lawsuit must be objectively baseless that no reasonable litigant could realistically expect success on the merits and be filed and prosecuted, not with a view to protect a legitimate right but to prevent a competitor from effectively competing or thwarting a potential entrant into the market.
Having considered the facts and circumstances of the above case, the Commission observes that the test, from an alleged IPR infringement perspective, requires an examination of whether there is substantial copying or copying of material features, which is based on the appreciation of evidence. This is a thicket which should be left untouched by the competition authority for want of subject matter competence, save to the extent specifically provided under the Act. Further, as per the established jurisprudence worldwide, in matters relating to sham litigation resulting in alleged abuse of dominance, the competition authority is to look into the matter objectively as to whether the litigation resorted to by the dominant entity is ex facie baseless, i.e., no reasonable litigant could realistically expect success on the merits, and it is filed with the intent to prevent competition.
The Commission, based on a limited appreciation of the facts, the submissions made and evidence on record is of the prima facie finding that the aforementioned suit filed by Inox against CEPL cannot be, at this stage, said to be fraught with any lack of bona fide. However, any final and conclusive determination on this aspect can only be made by the competent Court. The Commission is conscious that nothing further is germane to be said in the context of this issue, which is to be decided by the court of competent jurisdiction where the matter is pending and is beyond the domain of this authority.
With regard to the communications issued by Inox to various customers/potential customers of CEPL or even to the regulatory authority, Inox could be said to have the right to inform the concerned entities of the factum of the suit having been filed against CEPL by it, alleging infringement of copyright and of the rights available to Inox under the Copyright Act, 1957 to pursue its remedies against others too, should it succeed in establishing the infringement claim. Inox, while trying to convey the factual position of a suit having been filed by it against CEPL, went further, and the tenor of the communication issued by Inox could arguably indicate that more was said than what was perhaps required and which could give rise to an impression that Inox was trying to frighten such customers into not dealing with CEPL. Even if Inox submitted that the entities to which the aforementioned communications were addressed are not small players but entrenched in their fields who understood the entailing legal position very well, that cannot take away the fact that Inox dropped a strong word that was way more than what may have been necessary to convey a factual position.
In the view of the Commission, these communications ought to have been commensurate with the legal rights that Inox sought to enforce in the civil court and having regard to the orders passed by such Learned Court till date in the pending suit. This is regardless of weighing the merit in the submissions of Inox that bigger, established companies do not act merely on the basis of communications received by them, but are bound to do their own due diligence before reacting on the same. Though Inox has submitted that its actions are justified on the anvil of Section 63 of the Copyright Act, 1957 and are primarily to prevent aiding and abetting, the Commission is of the view that it may not be apposite to give any finding on this issue, in view of the reasoning given above. In relation to the letters addressed by Inox to one of the vendors, viz, fabricator, the same appear to be in furtherance of the exclusive terms of the contract between the said entities, and the Commission does not prima facie find any competition issue in the face of a large number of fabricators present in the market, as has been submitted by Inox.
The Commission, in the specific facts and circumstances of this case, is of the view that this may not be a fit case warranting an investigation at this stage and has thus obviated the requirement of defining a relevant market and assessing dominance of Inox. However, it goes without saying that Inox ought to be mindful in issuing communications or acting in any manner perceived to be having any anti-competitive overtones. It is axiomatic that the entities, subject to their legal rights, behove competition on merits and not eschew the same in the interest of the market and its stakeholders.
FULL TEXT OF THE ORDER OF COMPETITION COMMISSION OF INDIA
1. The present information has been filed by Cryogas Equipment Pvt. Ltd. (“CEPL/Informant”) under Section 19(1)(a) of the Competition Act, 2002 (“Act”) alleging contravention of the provisions of Section 4 of the Act by Inox India Pvt. Ltd. (“Inox”/ “Opposite Party”).
Facts and allegations, as per information
2. CEPL is stated to be a private limited company incorporated under the provisions of the erstwhile Companies Act, 1956. It is, inter alia, involved in the business of manufacturing, supply and export as well as engaged in providing solutions with regard to air, gas and Liquified Natural Gas (“LNG”) and also caters to the need of city gas distribution.
3. Inox is stated to be a business conglomerate incorporated in 1976 under the provisions of the erstwhile Companies Act, 1956. The Inox Group has diversified across several businesses and is engaged in activities pertaining to industrial gases, manufacturing refrigerants, fluorochemicals, polytetrafluoroethylene, cryogenic equipment, LNG storage and distribution equipment, wind turbine renewable energy and building multiplexes in India. CEPL has stated that Inox has grown to become a market leader in the field of vacuum insulated cryogenic equipment and LNG solutions in India and across the world. Inox’s portfolio includes products in three different segments: (i) Industrial Gas, (ii) LNG, and (iii) Oil and Gas.
4. Since 2017, CEPL and its group companies are, inter alia, engaged in the repair and maintenance of Indian Oil Corporation Limited’s LNG Cryogenic semi-trailers and are providing a complete overhaul, including refurbishing accidentally damaged cryogenic tankers and also repairing complex cryogenic semi-trailers for and on behalf of Cryolor, France. As per CEPL, LNG Tankers have a simpler design compared to industrial gas cryogenic semi-trailers, which involve complex piping cabinet, instrumentation and metering systems.
5. In 2019, CEPL ventured into the market of manufacturing of LNG semi-trailers and service of transportation of LNG through LNG semi-trailer, based on its considerable experience of design, manufacturing, testing and repairing several such tankers and semi-trailers manufactured by other companies from Europe and USA, knowledge and understanding of the domestic market and the needs of the customers, and inputs received from an expert, viz., Mr. Ron Baker, CEPL devised the design keeping in view the requirements mentioned by the Road Transport Office (RTO) and the requirements under the codes specified by international organizations such as the American Society of Mechanical Engineers (ASME)/European Commission. It also obtained the requisite approval, a mandatory requirement, from the concerned regulatory authority on 05.10.2017 with respect to the drawings of the design for 46KL LNG semi-trailer, pursuant to its application dated 05.08.2017.
6. While CEPL designed the LNG semi-trailer taking into consideration the fact that it would not manufacture the undercarriage and the prime mover and purchase the same from companies such as TATA DLT and Ashok Leyland, it is stated that Inox manufactures its own undercarriage.
7. CEPL has stated that the LNG semi-trailer is to be mounted on an Automotive Research Association of India (ARAI) pre-approved undercarriage which is thereafter attached exclusively to an ARAI approved prime mover from original equipment manufacturers like Ashok Leyland and TATA. CEPL, vide application dated 10.10.2017, also sought approval from the regulatory authority for the mounting drawing as per extant rules. The regulatory authority granted approval to CEPL with respect to the mounting drawing.
8. After obtaining the necessary approvals and procedures, CEPL made a foray into the LNG semi-trailer market and, purportedly on account of its superior quality and design (capable of storing much larger quantity of LNG than its competitors), reasonable price. etc., began to give tough competition to the other competitors in the market.
9. Inox has been engaged in the manufacturing of LNG semi-trailer for the past 12 years and is the largest manufacturer of cryogenic liquid storage and transportation tanks in India and is a supplier to leading international gas companies worldwide like Air Liquide, Air Products, Linde, Messer, Taiyo Nippon, Sanso and Praxair.
10. CEPL has alleged that Inox maliciously instituted a civil suit before the Court of the Learned District Judge at Vadodara on 26.09.2018 being Trademark Civil Suit No. 03/2019 (earlier numbered Commercial Trademark Suit No. 11 of 2018) against CEPL, its group company LNG Express and two of its employees, claiming infringement of Inox’s copyright over proprietary engineering drawing in relation to the LNG semitrailer. Inox also filed an application seeking temporary injunction against CEPL and LNG Express to restrain them from using or causing to be used the drawing of LNG semi-trailer of Inox. Inox further moved an application on 25.09.2018 in the aforesaid suit, seeking to appoint a Court Commissioner for the purposes of searching the premises of CEPL including making/preparing an inventory of the impugned drawing and making copies of the same from the computer’s hardware, promotional materials, etc., found in CEPL’s possession.
11. CEPL has also stated that the application seeking injunction is still pending before the Learned Court, and following the visit to the office and factory of CEPL, the Court Commissioner appointed by such Court did not find any satisfactory evidence to showcase that impugned drawings of CEPL are similar to the drawings of the LNG semi-trailer prepared by Inox.
12. CEPL has averred that the features and details of both the drawings of CEPL and that of Inox are essentially found on the requirement to follow designing codes which are universally practiced such as EN 13530 CODE for designing LNG semi-trailer, which is a European code and is typically the design code followed in India. Accordingly, it has been alleged that the civil suit instituted by Inox against CEPL and its group company LNG Express is in bad faith and is in abuse of dominant position.
13. CEPL stated that, during the pendency of the civil suit, which in itself has been instituted with a mala fide intent of ousting CEPL from its business and irretrievably damaging its reputation, Inox has addressed several communications regarding the pendency of the civil suit to the regulatory authority, clients/customers of CEPL with an anti-competitive intent.
14. As per CEPL, Inox India wrote a letter to the regulatory authority, intimating the said authority of the pendency of the civil suit before the Learned Court and requesting it to withdraw the approvals granted in respect of the drawings of certain semi-trailers submitted by CEPL and not grant it any approvals in the future pertaining to the transportation of LNG as well as industrial gas. Pursuant to the same, a letter was received by CEPL from the regulatory authority seeking a reply/explanation to the aforesaid letter of Inox. CEPL replied to the same, specifically denying the baseless objections and allegations raised by Inox. CEPL submitted that it has not received any further letters or orders from the regulatory authority, therefore, it can be safely assumed by it that the regulatory authority is satisfied with the reply furnished by CEPL and does not require any further clarifications in this regard.
15. Inox also wrote an email/letter to a potential customer of CEPL, a global energy and solution company, intimating the said company about the aforementioned civil suit and dissuading it from entering into any business collaboration with CEPL or its group company, failing which, the said company would bear consequences of the same. In response, the said company, through an email intimated CEPL of the letter it had received from Inox and after deliberations, expressed their intention not to proceed with the proposed collaboration, to the detriment of CEPL.
16. CEPL also stated that a letter was issued by Inox to an existing customer of CEPL, a government company/state PSU, intimating about the civil suit pending against CEPL for copying the drawings of Inox with respect to LNG semi-trailer and misrepresented to the said government company that during the search conducted by the Court Commissioner as appointed by the Learned Court, the Commissioner found various documents which are related to the quality control of Inox’s products/proprietary material(s) consisting of their exclusive intellectual property rights. The said government company contacted CEPL seeking clarifications with respect to the allegations levelled by Inox. CEPL furnished adequate clarifications to the said company regarding the bad faith and exclusionary practices on the part of Inox to mislead the customers of CEPL and demoralize CEPL from competing with Inox in the market. The said government company, after being satisfied with the clarifications tendered by CEPL, awarded the work to CEPL and its group companies on the precondition of indemnifying it from all the risks that may arise from an adverse order, if any, in the sub-judice civil suit.
17. CEPL also stated that, during the course of negotiations between it and a potential customer, another global company, Inox wrote a letter to the said potential customer regarding the sub-judice civil suit and erroneously claiming that CEPL violated the intellectual property rights of the Inox and warned the said potential customer against doing business with CEPL or face consequences of civil and/or criminal actions for aiding and abetting the violation/ infringement of Inox’s intellectual property rights. The said potential customer, allegedly, put on hold the understanding previously arrived at with CEPL.
18. Thereafter, Inox served a legal notice upon one of the vendors/suppliers of CEPL, i.e., a fabricator alleging a breach by said service provider of the non-disclosure agreement (NDA) entered into between the said service provider and Inox, stating that the said fabricator, by undertaking fabrication work for CEPL, has violated the contract and NDA. In the said legal notice, Inox demanded of the said service provider, inter alia, to forthwith cease and desist from carrying out manufacturing, fabrication or any other related or unrelated work for CEPL and additionally, furnish an undertaking to that effect.
19. As per CEPL, apart from the above, Inox has been employing tactics to harm CEPL’s business, such as poaching specifically trained employees of CEPL by giving them higher incentives. As per CEPL, Inox is writing to its own customers to not engage in any kind of business with CEPL. Some business houses/prospective clients who have approached CEPL have not given them orders despite CEPL quoting competitive prices. Due to the abusive conduct engaged in by Inox, there are several semi-trailers of CEPL that are lying idle and not in use.
20. CEPL, for the purpose of the present case, has delineated relevant market as the “market for manufacturing of LNG semi-trailer and transportation of LNG through LNG semitrailer in the territory of India”.
21. CEPL stated that, as per the Rating Rational issued by CRISIL, Inox, for a long period of time, has consistently maintained a market share of approximately 60% in the cryogenic tank segment in India and is the largest manufacturer of the same. A market share of 60% is clearly sufficient to demonstrate Inox’s dominance in the relevant market. The turnover of Inox and its competitors are as under:
