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Are Lamborghini and Volkswagen India are separate entities in the Indian Competition Regime?

Exclusive Motors Pvt Limited V. Automobili Lamborghini[1]:

  1. Parties To The Case:
    1. Exclusive Motors Private Limited — Informant.
    2. Automobili Lamborghini S.P.A. — Opposite Party.

  2. Facts Of The Case:
    Exclusive Motors Pvt. Limited (ExMo) is a South Delhi based supercars selling company whose primary business is, to make agreements with the Super Sports Car Companies like Lamborghini, Aston Martin, Bentley etc. and buy cars from those companies and sell it to the Customers throughout India through their dealerships. For this purpose, some companies had signed an agreement with ExMo to be their official dealer to sell their cars in India.

    One of such was Automobili Lamborghini S.P.A. which is an Italian Brand but owned by the Volkswagen Group which is based in Germany. In the year 2005, Lamborghini entered into an agreement with ExMo to make them their official & exclusive importer & seller in India. This went long till the next 7 years. For Indian sales-based promotions costs were borne by ExMo.

    In the year 2011, Volkswagen India, another sub-company belonging to the Volkswagen Group was launched in India to sell cars under the Volkswagen badge. Thus, Volkswagen dealerships were opened and Lamborghini cars were decided to be sold through these dealerships as against the existing ExMo dealerships. In lieu of this, Lamborghini sent a notice in 2012 to ExMo to terminate their dealership agreement citing the decision to sell their cars through their sister concern Volkswagen India.

    The termination notice period was reduced from 12 months to 3 against the agreement signed in 2005. ExMo denied this and Lamborghini served a 12-month notice again. Now, in this notice period, the importing price of Lamborghini cars was much higher to ExMo against the prices bought by Volkswagen India. ExMo claimed this as a price discriminatory policy and violation of Section 3 and 4 of Competition Act.

    The agreements of Lamborghini with Volkswagen India were suspected to be anti-competitive and contravening Section 3 (3) (a) as they directly determined the sale and purchase price of the Lamborghini cars. Also, the exclusive distribution of the agreement made between Lamborghini and its group company Volkswagen India was alleged to be in violation of Section 3 (4) (c), since it excluded ExMo and other prospective dealers to become the importers and dealers of Lamborghini cars.

    Further considering the super sports cars market share held by Volkswagen Group would amount to 60 per cent as the other supercar brands that they own will also be counted into this, ExMo alleged that there was an abuse of dominance and violation of Section 4, imposing discriminatory and unfair market conditions under 4 (2) (a) (i) & (ii), and denied market access, thereby violating Section 4 (2) (c). On account of this, ExMo moved to the Commission.
     
  3. Issues Of The Case:
    1. Whether Volkswagen India and Automobili Lamborghini be considered as separate enterprises although they both belong to Volkswagen Group under Section 2 (h)?
    2. Can an internal agreement between the two subsidiaries belonging to the same group be considered as an agreement for the purpose of Section 3?
    3. Did Does Automobili Lamborghini deny market access of its cars as a result of its agreement with Volkswagen India?
       
  4. Judgement:
    The Commission held that:
    1. Since both Volkswagen India and Lamborghini belong to the same group, they are part of a Single Economic Entity and there is no question of Cartelisation.
    2. Lamborghini was not dominant in the market and hence there was no ground for investigation.
       
  5. Commentary On The Issues
    On the question of whether both ExMo and Lamborghini be considered as a separate entity or not, the Commission sought an interpretation of Section 2 (h) of the Competition Act, 2002. Section 2 (h) states that “enterprise means a person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution……”

    Here, it comprises of one person or one Company. So, to satisfy the argument of contravention to Section 3 of the Act, there need to be at least two enterprises that enter into an agreement and those enterprises should be two separate ones from each other. In this case, both Volkswagen India and Automobili Lamborghini belong to the same group or ENTERPRISE, i.e., Volkswagen Group. So, both of the Companies shall be understood as one entity in this context although they were separate legal entities and the so-called agreement between them both, does not contravene Section 3 of the Act. Further, the universal doctrine of the Single Economic Entity would also apply to this, thereby, strengthening this argument.

    So, this part of the Judgement answers two questions of:
    1. Whether Automobili Lamborghini and Volkswagen India constitute as same enterprise in the eyes of Competition Commission…… YES and,
    2. Whether the so-called agreement entered between Lamborghini and Volkswagen India are considered as an agreement under Section 3 of the Act, in the eyes of Competition Commission…… NO.
Next, the Judgement quizzed the possibility of applicability of Section 4 in this context, as claimed by the FIA that the actions of Lamborghini were violating it and committed abuse of dominance.

To prove there is abuse of dominance, by an enterprise in the market, relevant market must be checked and the player’s position amongst their competitors must be checked. Only upon the dominance being proved, the final test of whether there were any abuse present, be found.

On the test of relevant market, it was the market of Super Sports Cars where there are specifications mandated to be qualified for a car to be a player of that market. This includes 3500+ cc, 450+ BHP etc., The Lamborghini cars did pass the test alongside its competitors of cars by Aston Martin, Ferrari etc.

Next, was the test of dominance in the market. As the market is that of the Super Sports Cars, the target audience is very restricted and those with the ultimate intent of buying any car of such power and capacity will only prefer purchasing it.

For a car market where the price starts upwards of Rs2 Crores, there are more luxury cars available at or above that price range. Here is where the intent of the Customer is determined as who opts these Super Sports Cars over Super Luxury Cars.

Further, the sales of this sector are very countable where only a few hundred cars are sold every year. And Lamborghini performs at par with its competitor companies like the Mercedes, Aston Martin etc., and at such small level, none of them could be determined to be dominant in this small market. Both in terms of resource as well as economic means, their position or the stance in the market is almost level and nobody owns any commercial advantage over the other. Therefore, the Commission stated that there was Lamborghini was not a dominant player in the market.

Talking about Abuse of Dominance of the market, the main complaint of ExMo was that Automobili Lamborghini gave more importance to the delivery of orders or quick responsiveness to any query to Volkswagen India than ExMo. As well, the prices at which each of Lamborghini’s cars were delivered were much higher to what was sold to Volkswagen India.

The commission stated that the Company selling its product through its own sister concern does not create any discrimination despite the agreement of exclusivity to import its cars was signed with ExMo. Also, it is a right of an enterprise to do so and the same cannot be assailed on the ground of dominance. Therefore, the Commission answered the third issue by stating that the actions of Automobili Lamborghini did not amount to any Abuse of Dominance for the purpose of Section 4 of the Act.

Conclusion:
The concept of the Single Economic Entity through the lens of cartelisation is that it is possible only when two completely separate entities are involved. In this case, within the same group, they were part of a single economic entity and there is no question of cartelisation; it was merely an internal arrangement of the group from a business perspective and thus, it was not looked upon it as an agreement at all.

This case although has brought a bit clarity to the concept of Single Economic Entity, the ambiguity of Competition Commission’s view still exists as against the international take on it. Therefore, a vertical agreement can exist only between entities not part of the same group or economic entity. Hence, the finding has to be based on the premise that the manufacturers and their authorised service providers are separate entities.

List Of Similar Judgements:
None. The Commission stated that there was no prima facie case either under Section 3 or Section 4 of the Competition Act in this Case’s regard.

End-Notes:
  1. Exclusive Motors Pvt Limited v Automobili Lamborghini S.P.A, Case No. 52 of 2012 (CCI).
Written By: P. Vasishtan (BA0150049), IV Year, B.A., LL.B. (Hons.), Tamil Nadu National Law University, Tiruchirappalli.  

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