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AFTERMARKET MONOPOLISATION: AN ANALYSIS OF THE CHICAGO AND POST-CHICAGO SCHOOLS OF THOUGHT (II)

Updated: Mar 4

This two-part post is authored by Ayushi Dubey and Yash Jain, 4th-year students of B.A.LL.B. (Hons.) at the Institute of Law, Nirma University, Ahmedabad. The first part can be accessed here.




In this part, the authors analyse the jurisprudence of aftermarket in the European Union and the United States. The authors further discuss the position of the Indian competition regime in cases of aftermarket monopolization. Lastly, the authors suggest a viable approach to handle the complexities of aftermarket monopolization.

1. AFTERMARKET MONOPOLIZATION IN THE UNITED STATES


The United States antitrust agencies are more inclined towards the CSOT.[xvii]. However, a sudden shift from the traditional approach was witnessed in the case of Eastman Kodak Co. v. Image Technical Services, Inc.,[xviii] wherein the Supreme Court followed the PCSOT approach.[xix] Kodak was present in both the primary market of selling printers and aftermarket services of printers. Other than that, there were Independent Service Operators (“ISOs”) who were present only in the aftermarket. However, the ISOs were thrown out of business as Kodak stopped selling replacement parts to them which resulted in a forced shift of consumers from ISOs to Kodak services. Thus, the issue before the court was to determine the antitrust implications of Kodak’s exclusionary conduct in the aftermarket services.


Kodak took its defence from the arguments of the CSOT stating that there is enough competition in the primary market to restrict its ability to gain monopoly power in the aftermarket.[xx] The ISOs, on the other hand, accused Kodak of aftermarket monopolization and illegal tying of its product in the primary market to its replacement parts in the aftermarket. The court decided in favour of the ISOs declaring Kodak dominant in the aftermarket of both spare parts and services. The court observed that Kodak violated the Sherman Antitrust Act, 1890[xxi] by taking exclusionary steps to maintain its monopoly in the spare parts market and further used this to gain a monopoly in the services market. The Court negated almost all the pro-competitive justifications of aftermarket monopolizations given by the CSOT. The court held that the presumption that consumers are aware of the life-cycle cost of a product does not stand. Further, the court also considered that the lack of market power in the primary market cannot justify monopoly prices in the aftermarket.


The jurisprudence set by the Kodak Case has been narrowed down in the last few years and the courts have stopped challenging original equipment manufacturers for use of unilateral restrictions in the aftermarket unless the same is affecting competition for lock-in consumers.[xxii] The courts have limited their approach in the sense that they do not find antitrust liability in cases where consumers are capable of assessing the life-cycle cost or where the product of the manufacturer in the primary market is protected by intellectual property rights. Besides, where no policy changes are made by the manufacturer or only predictable changes are made, or where there is enough competition in the primary market, no antitrust liability is likely to be imposed.[xxiii] This shows US antitrust law’s shift from the PCSOT adopted in the Kodak case to the Chicago approach.

2. AFTERMARKET MONOPOLIZATION IN THE EUROPEAN UNION


Unlike the US antitrust laws, the European Union antitrust law has a changing opinion when it comes to aftermarket monopolization. In some cases, the European Commission has charged the Original Equipment Manufacturer (“OEMs”) for anti-competitive conduct in the aftermarket whereas has found no abuse of dominance in other cases. One of the infamous cases that the Commission noted was the Pelikan/Kyocera[xxiv] wherein the Commission following the Chicago school approach did not find Pelikan/Kyocera dominant in the aftermarket. The case was filed by Pelikan against Kyocera for abusing its dominant position in the aftermarket of toner cartridges and engaging in the practices which drove Pelikan out of the market for toner cartridges. The Commission did not find any evidence against Kyocera and also observed that it is not dominant either in the primary or secondary market of toner cartridges. Moreover, the Commission opined that the consumers were well informed and had the opportunity to assess the life-cycle cost of the product and thus no anti-competitive harm is done.[xxv]


In contrast to the Pelikan/Kyocera case, the Commission has discerned abuse of dominance in the aftermarket in several cases including the Novo Nordisk case, the Digital case, and the IBM Mainframes Maintenance case. The European Commission after analysing aftermarket dominance has evolved the European Federation of Ink and Ink Cartridge Manufacturers (“EFIM”) test in the Pelikan/Kyocera case which is used in subsequent cases.[xxvi] The test, through its step-by-step analysis, helps to determine the existence of sufficient interdependence and a timely reaction by the consumers on the primary market in case of monopolization in the aftermarket.[xxvii] However, the EFIM test does not lay any strict approach and the analysis of aftermarket dominance in the European Union depends on a case-to-case basis.


3. AFTERMARKET MONOPOLIZATION IN INDIA


The jurisprudence of competition issues in the aftermarket is at a nascent stage in India. India has still not witnessed many cases dealing with the effects of aftermarket abuse in the market as most of them have been closed at the preliminary stage.[xxviii] However, in Shri Shamsher Kataria v. Honda Siel Cars and Ors.,[xxix] the Competition Commission of India (“CCI”) carried out the preliminary inquiry and held 14 automobile companies liable for anti-competitive conduct irrespective of the market share that they possessed in the primary market of sale of automobiles. The allegations pertained to discriminatory pricing and total entry barrier in the aftermarket. Further, the informant alleged contravention of Sections 3(4)(b), 3(4)(c), and 3(4)(d) of the Competition Act, 2002.


Based on the information, the Director-General (“DG”) identified two separate relevant markets. However, OEMs challenged the bifurcation of the market into primary and aftermarket as they believed that the relevant market is a unified “systems market” where the market of the cars and spare parts were indivisible. The OEMs relied on the CSOT and argued that consumers while purchasing a car anticipate the whole life cost and future expenses of a car. Furthermore, non-setting of supra-competitive prices would harm OEMs as they will not be able to earn profits on future sales of cars in their primary market. The OEMs also mentioned that once the warranty period is over, most of the consumers switch to independent repairers.


The CCI concurred with DG’s findings and observed that an aftermarket is determined on the basis of whether firstly, customers engage in whole life costing or secondly, reputation effects deter producers of the primary product from setting a supra-competitive price for the secondary product.[xxx] The CCI held that the spare parts market forms a separate market from that of cars, inter alia, as the consumers do not engage in whole life costing while buying cars, and the OEMs monopolized the spare parts market.


The CCI relied on the lock-in theory to assess the abuse of aftermarket monopolization in the Shamsher Kataria case and noted that once a consumer purchases a primary product, the consumer is left with limited choices in the aftermarket products that are only compatible with that primary product.[xxxi] Hence, consumers are to a greater extent locked-in with the aftermarket suppliers. The lock-in theory was also applied by CCI in the case of MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd,[xxxii] wherein an entirely different aftermarket of software for trading on NSE was delineated.[xxxiii] The CCI held that NSE has abused its dominant position by locking-in consumers with its software and since the consumers wanted to trade with it, they were left with no other choice.


The Indian consumer base is different in characteristics from consumers of other jurisdictions and in that case, it becomes difficult to assess it on the same factors as other jurisdictions. The concept used in other jurisdictions such as the life-cycle cost usually does not exist in India due to the lack of relevant data and information coupled with the complex functioning of the aftermarket.[xxxiv] Therefore, CCI’s approach towards aftermarket monopolization is seen in a restrictive manner. Nonetheless, the case of Shamsher Kataria throws light on aftermarket jurisprudence and highlights the evolving nature of the CCI towards effectively addressing aftermarket concerns.


4. CONCLUSION


The anti-competitive implication of aftermarket monopolization is a serious concern as it affects the consumers both in the primary and secondary market. A consumer investing in the primary market will suffer a loss if he is not provided sufficient and compatible services in the aftermarket. Notably, aftermarket monopolization by enterprises involved in both primary and secondary market disturbs those service providers who are engaged only in the aftermarkets as they will be driven out of the only market that they are engaged in. Therefore, the anti-competitive issues convoluted in the aftermarket are different and more entangled than the issues involved in the primary market where the traditional approach to assess the dominance and its effect is used.


Different jurisdictions around the world are dealing with aftermarket monopolization in diverse ways and no standard approach has been noticed so far. Unlike the traditional antitrust arena, modern remedies rely on economic justifications and endeavours to balance the pro and anti-competitive effects of an enterprise on the market. Every case of aftermarket monopolization is sui generis in itself and courts must judge each case with a blend of innovation, practicability, and caution.


The parameters such as lock-in theory, reputation effects, switching cost, for the market competition are some common criteria used across the jurisdictions to assess the anti-competitive challenges of aftermarket monopolization. Both CSOT and PCSOT are based on different assertions and the complex nature of aftermarkets makes it difficult to use the same school of thought for all cases. Therefore, the authors believe that the antitrust implications of aftermarket monopolization should be based on the analysis of factors such as whether the consumer had the opportunity to assess the life-cycle cost of the product or whether the consumer was locked-in or had to bear high switching cost. The European Commission after the Pelikan/Kyocera case adopted the case-by-case analysis approach which according to the authors makes the assessment feasible and less prejudicial to any school of thought.


In recent years, the antitrust agencies have been acting flexibly in cases of aftermarket monopolization, the reason being the entangled nature of such markets. However, the increasing number of cases points towards the alarming need for countries to effectively adjudge aftermarket cases and accomplish the purpose of competition law.



Endnotes:

[xvii] William E. Kovacic, The Chicago Obsession in the Interpretation of US Antitrust History, 87(2) University of Chicago Law Rev. 459, 463 (2020).

[xviii] Eastman Kodak Co. v. Image Technical Services Inc., 504 U.S. 451 (1992).

[xix]Tara J. Schleicher, The US Supreme Court’s Use of Post-Chicago Antitrust Theory in Eastman Kodak v. Image Technical Services: Implication for Marketing Practice, 16(2) Journal of Public Policy & Marketing 310 (1997).

[xx]Supra note 4.

[xxi] Sherman Antitrust Act of 1890, 15 U.S.C. §§ 1-7.

[xxii]Competition Issues in Aftermarkets - Note from the United States, OECD (2017),

https://one.oecd.org/document/DAF/COMP/WD(2017)38/en/pdf.

[xxiii]Competition Issues in Aftermarkets - Summaries of Contributions, OECD (2017), https://one.oecd.org/document/DAF/COMP/WD(2017)1/en/pdf.

[xxiv] Case No. IV/34.330 – Pelikan/Kyocera (1995).

[xxv]Competition Issues in Aftermarkets - Note from the European Union, OECD (2017), https://one.oecd.org/document/DAF/COMP/WD(2017)3/en/pdf.

[xxvi] Id., at 2.

[xxvii]Supra note 25.

[xxviii] Supra note 23.

[xxix] Supra note 1.

[xxx] Supra note 1 at 20.5.9.

[xxxi]Supra note 1 at 3.9.4.

[xxxii]MCX Stock Exchange Ltd. v. NSE, 2011 CompLR 129 (CCI).

[xxxiii]Gangal & Dalmia, supra note 3, at 34.

[xxxiv]Competition Issues in Aftermarkets - Note from India, OECD (2017), https://one.oecd.org/document/DAF/COMP/WD(2017)11/en/pdf.



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