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CCI says consumer brands’ authorised-sellers-only demand is “prudent business policy”

Snapdeal LogoThe Competition Commission of India, while ruling on a complaint against Snapdeal for not allowing Ambitious Marketing to retail Sandisk products, ruled that it is “a prudent business policy” by SanDisk to insist that its storage devices being sold via online shopping portals be bought from its authorised distributers, and that the letter circulated by the company, informing customers that after sales and warranty services will be provided only to products bought from its authorised distributors is a “part of normal business practice”.

We chanced upon this ruling (dated May 19th, 2014) while researching for our recent Consumer Protection series, and it’s worth noting how the Competition Commission views statements made by consumer retail brands asking customers to exercise caution while buying online, and hint that warranty might not apply. Details of the case:

Issue

This case involved a third-party seller (Ambitious Marketing), online marketplace Snapdeal.com, and memory storage solutions and software maker SanDisk.

– New Delhi-based Ambitious Marketing had signed up as a seller on Snapdeal’s marketplace in November 2013. Snapdeal allegedly stopped sale of products offered by Ambitious Marketing on January 24, 2014 and removed its products from the site, saying that they had received a list of authorised online channel partners from SanDisk and products from only these sellers would be sold on Snapdeal.

– In February this year, Snapdeal informed Ambitious Marketing that it had to obtain a No Objection Certificate (NOC) from SanDisk without which its products wouldn’t be listed on the site, even after Ambitious Marketing assured that it would be selling SanDisk India products freely available in the market for consumption/reselling/whole selling.

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– Ambitious Marketing alleged that Snapdeal and SanDisk were essentially forcing it to become an authorised dealer of SanDisk products, and also stopping it from offering competitive prices for SanDisk products. Ambitious Marketing also states that the initial agreement with Snapdeal did not stipulate the need to be an authorised dealer of SanDisk to be eligible to sell its products.

SanDisk authorised online channel partners

– The company also stated that SanDisk had circulated a letter (See image above) informing that it had only 4 authorised distributors (See image below) in India and products bought from only these distributors would be offered its after sales and warranty services. However, Ambitious Marketing claimed that SanDisk products were being sold by more than 13 sellers, including M/s Softek Surya India Pvt. Ltd., M/s Storage M. VOI, and M/S Highend Gadgets among others. Also, Snapdeal had been allowing numerous sellers (apart from the 4 authorised distributors) to sell SanDisk products on its platform, but not Ambitious Marketing.

SanDisk distributors (retail)

SanDisk distributors (commercial)

CCI’s observations

– According to the CCI, SanDisk’s insistence that its storage devices being sold through online shopping portals should be bought from its authorised distributors by itself cannot be considered as abusive as it is within its rights to protect its distribution channel. The CCI also stated that SanDisk’s decision “appears (to be) a prudent business policy” and that “sale of products from unknown/unverified/unauthorised sources” should not be encouraged or allowed.

– CCI also stated that it considers the letter circulated by SanDisk “part of normal business practice” as it was merely informing customers that after sales and warranty services will be provided only to the products brought from its authorised distributors. CCI didn’t find SanDisk in violation of Section 3 or 4 of the Competition Act, 2002, which address issues of anti-competition agreements and abuse of dominant market position, respectively.

Competition Act 2002 Section 3

Competition Act 2002 Section 4

Our Take

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– The CCI is effectively giving consumer brands complete control over who can sell their products and at what price. Isn’t this anti-competitive practice? If a retailer wants to sell the product at a discount because its cost of operations is lower than that of “authorised retailers”, what is wrong with that? Companies that do offer consumers competitive prices for a brand’s products can be muscled out if CCI’s views become the rule.

– If the products being sold by Ambitious Marketing were fake then CCI’s argument can be accepted, but what exactly does the term unverified/unauthorised sellers mean? Ambitious Marketing had made it clear that they procured the products from the open market, and these products would have been supplied by SanDisk’s authorised distributors.

– In the letter circulated by SanDisk the company says that “whether or not such products are genuine products bearing the trademark and brand “SanDisk” and regardless of the source of origin, manufacture or other particulars of such products/services, are not covered under any after sales, warranty support, customer service or any other service offered by SanDisk in India.” This is more definitive than the Customer Advisories issued by some of the other brands.

To us, it appears that the company’s argument isn’t about the genuineness of the products being sold by companies like Ambitious Marketing: it merely wants to ensure that the pricing of its products is controlled and hence the authorised-distributors-only demand.

– As an online marketplace, Snapdeal’s stand isn’t particularly consumer friendly: it doesn’t need to comply with Sandisk’s demands. In the past, when consumer brands have termed it an unauthorised seller, Snapdeal has protested that saying they are a marketplace only, and ensure that all products sold are genuine. If the products that Ambitious Marketing was selling were genuine (the ruling makes no mention of products being fake), why give in to Sandisk’s demands? It’s also not clear why Snapdeal is allowing other unauthorised sellers to sell on its platform.

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