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Petitioner: M/S Nippon Paint Pakistan (Private) Limited for Deceptive Marketing Practices VS Respondent: In the Matter of: Show Cause Notice Issued to M/S Diamond Paint Industries (Private) Limited
Court Name: Competition Commission of Pakistan Judge(s): Salman Amin, Dr. Kabir Ahmed Sidhu Title:M/S Nippon Paint Pakistan (Private) Limited for Deceptive Marketing
Practices vs In the Matter of: Show Cause Notice Issued to M/S Diamond Paint Industries (Private) Limited Case No.: File No.415/OFT/Diamond Paints/CCP/2021/1355 Date of Judgment:2024-08-16 Reported As: 2024 CLD 1292 Result: Penalty imposed Judgment
ORDER This order shall dispose of proceedings arising out of Show Cause Notice No. 1/2023 dated 18.10.2023 (hereinafter the `SCN') Issued to M/s Diamond Paint Industries (Private) Limited (hereinafter the 'Respondent') for prima facie violation of Section 10 of the Competition Act, 2010 (hereinafter the 'Act'). BACKGROUND FACTS The Complaint 2. This is the third occasion the Competition Commission of Pakistan (hereinafter the 'Commission') has received concerns regarding the non-disclosure of tokens in paint buckets by the paint manufacturers. On 28.10.2021, the Commission received a complaint filed by M/s Nippon Paint Pakistan (Private) Limited (hereinafter the 'Complainant'). The complaint stated that the Complainant is an undertaking engaged in manufacturing, marketing, sales and distribution of paints and associated products. 3. Brief particulars of the Complaint are as follows: 3.1. the Respondent aired a marketing campaign of its product namely "DURASILK" on various television channels with national outreach and viewership wherein it did not make disclosure as to the presence and value of redeemable tokens in its paint buckets; 3.2. the Respondent ran his marketing campaign during prime time at television channels; therefore, it was capable of affecting the consumers' buying decision and distortion of competition
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in the market; and 3.3. the television commercials (TVCs) aired by the Respondent is not only prima facie deceptive within the meanings of Section 10(2)(b) of the Act, but also in violation of the order passed by the Commission In the matter of Show-Cause Notice Issued to Paint Manufacturers, 2012 CLD 808 (the "CCP's Paint Order, 2012"). The CCP's Paint Order, 2012 4. This was the first occasion the Commission took notice of the marketing practice in the paint industry of inserting redeemable coupons/tokens in paint buckets and their non-disclosure by the paint manufacturers. 5. The Commission observed that the televised adverts and packaging of the paint buckets did not give any indication of the presence of token in these buckets. It seemed that the said practice directly the painters while the end consumers paid the price and were not made aware of the placement of token inside the paint pack in the absence of any formal disclosure on the relevant product. 6. After carrying out inquiry, the Commission, in the CCP's Paint Order 2012, directed all paint manufacturers in the country to disclose the presence of redeemable tokens in their paint buckets. The paint manufacturers were also reprimanded to ensure responsible behaviour in future with respect to marketing of their product. 7. Para 48 of the CCP's Paint Order, 2012, containing directions of the Commission, is reproduced herein below: "i) All advertisements, promotional materials, or instructional manuals pertaining to the paint packs primarily falling in the decorative paints category; manufactured by the Undertakings whether electronic, printed or otherwise are to be modified to disclose the presence and the price/value of the token on each pack for the consumer, within a period of 60 days starting from the January 15, 2012. ii) The disclosure with respect to the token on the paint pack as mentioned at N above should be made with the use of bright/conspicuous colors distinct from the color of the packaging of the paint pack and should be printed in clear, bold and legible size. iii) During 60 days period given at (i) above, the Undertakings will issue, four advertisements/public notices of A-4 size, to be published at fifteen days interval in at least two Urdu and two English newspapers of national circulation; making due disclosures to the public regarding the presence and price/value of token and the category of products in which these tokens are found present. iv) With respect to (iii) above, "public notice" may be published by the undertakings on an individual or collective basis. In case of undertakings which are members of the association, public notice may be given by the association (naming the members therein) and in case of non- members, a collective advert naming the undertakings therein. The text and content of such advertisement prior to publication shall be cleared by the Registrar's office of the Commission. v) A compliance report with respect to implementation of the aforementioned directions must be filed by the Undertakings no later than March 30, 2012. Continued violation and/or non-adherence to the directions of the Commission, by any of the Undertakings shall entail penal consequences." Non-Compliance with CCP's Paint Order, 2012 8. This was the second occasion when CCP took notice of the marketing practices in the paint industry of inserting redeemable tokens in paint packs and their non-disclosure and issued an order to the paint manufacturers. 9. Soon after issuance of the CCP's Paint Order, 2012, the Commission received reference and concern from the Consumer Association of Pakistan regarding non-compliance by the paint manufacturers of the said order.
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10. To ascertain compliance, the Commission conducted a market survey in December 2013. Eleven (11) paint manufacturers were found non-compliant. Complainant and Respondent, however, were not among these eleven (11) manufacturers. 11. Show-Cause notices were served on the aforesaid eleven (11) paint manufacturers. Proceedings were concluded vide Commission's order dated 13.10.2021 titled as [i] In the Matter of Show-Cause Notices issued to the Paint Manufacturers for non-compliance of CCP's Order dated 13.01.2012 (hereinafter the "CCP's Paint Order, 2021"). In para 79 of the said order, it was observed that all concerned paint manufacturers, pursuant to compliance proceedings, have finally complied with the directions of the Commission, hence, the Commission imposed no penalty. INITIATION OF ENQUIRY 12. On 17.08.2022, the Commission authorized initiation of another enquiry to investigate into the matter and constituted an Enquiry Committee (the "EC"). 13. EC collected evidence and concluded its Enquiry Report on 24.11.2022 (the "ER") with findings that there was a non-disclosure of redeemable tokens in the alleged TVC and same was admitted by the Respondent. The Respondent's products packaging and shade card contains disclosure, however, a TVC is usually a first point of contact between a consumer and a manufacturer, as product is being marketed through that medium, therefore, disclosure in TVC has its due significance. EC relied on available evidence i.e. snapshots of, shade cards, the product packaging, and the relevant TVC with following findings: "5.18. Thus, in light of the above, it can be concluded that the Respondent is through the non- disclosure of presence of tokens in its product Durasilk on TVC, prima facie, engaged in the distribution of misleading information to the consumers that lacks a reasonable basis related to price of goods, prima facie, in violation of Section 10 (1) of the Act in general and 10(2)(b) in particular," SHOW-CAUSE NOTICE 14. Consequent upon the findings of ER, the Commission initiated proceedings under Section 30 of the Act by issuing SCN in the following terms: "5. WHEREAS, in terms of the Enquiry Report in general and paragraph 5.9 to 5.18 in particular, it appears that the undertaking is engaged in distribution of misleading information to the consumers for its Product that lacks reasonable basis related to price of goods which is prima facie, in violation of Section 10(1) of the Act in general and Section 10(2)(b) of the Act in particular." RESPONDENT'S SUBMISSIONS 15. The Respondent filed its written reply to the SCN on 11.01.2024 and appeared before the Commission on 16.01.2024, whereby it submitted arguments, which are summarised below: Non-compliance with CCP's Paint Order, 2012-Substantial Disclosures 15.1. That circumstances in the instant matter are different from the CCP's Paint Order, 2012, because while the current matter encompasses situation when disclosure is already there, the later dealt with a situation when there were no disclosures at all. 15.2. The Commission, in the Paint Order, 2012, did not require any undertaking to provide such information in every single marketing campaign. Also, the previous directions in the CCP's Paint Order, 2012 did not pertain to all upcoming advertisements in future. Hence, the information provided by the Respondent, clearly and conspicuously, on the shade card and the paint bucket shall suffice and satisfy the test. 15.3. Pursuant' to the TCP's Paint Order, 2012, the Respondent informed the public as to the presence of tokens via newspapers and webpage of the Consumer Association of Pakistan. Therefore, compliance was made with the directions of the Commission. 15.4. No information is being concealed or omitted in the marketing campaign. The shade cards and paint bucket itself is first point of contact between the seller's product and the buyers which
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contain the information pertaining to presence and value of token. Furthermore, it was submitted that the first point of contact in this situation is not secured by deception hence any equivalence with "bait and switch" advertising is deeply erroneous. The Respondent referred to the Commission's earlier orders wherein the Commission has set parameter of providing complete and true information to the consumer for example, In the Matter of China Mobile Pakistan Ltd. (Zong) and Pakistan Telecom Mobile Ltd. (Ufone), 2010 CLD 1478 (hereinafter referred to as "Zong Order"), and the CCP's Paint Order, 2012. Since the disclosure is made at the shade cards and the paint bucket, which is the first contact point just before a point where a consumer would make a final transactional decision, therefore compliance with the directions of the Commission is made and no deceptive marketing practice exists. 15.5. Respondent was not a party to the previous proceedings in CCP's Paint Order, 2021 therefore, directions in the said Order, if any, are not applicable to the Respondent. Misleading information-Omission of Material Information 15.6. Deception occurs when there is an omission of information either because of dissemination of half-truth regarding a product, or because of an affirmative statement without a qualifying information such as disclosure/disclaimer. 15.7. The Commission, In The Matter of Show-Cause Notice Issued to M/s Proctor and Gamble Pakistan (Pvt.) Limited for Deceptive Marketing Practices, 2017 CLD 1609, (the P&G Order), has held that advertisements are deceptive if half-truth is disseminated, and qualifying information is omitted which cannot be cured by subsequent telling of the truth. The Respondent emphasized that the Commission's concern, as reflected from the orders in the matters of China Mobile Pakistan Ltd. (Zong) and Pakistan Telecom Mobile Ltd. (Ufone) 2009, Reckitt Benckiser 2015, and Dry and Acid, Lead Battery Manufacturers 2018, has always been the informed decision making by the consumer before making a transaction; a principle that the Respondent has followed. Therefore, the inquiry officers should have before them a narrow proposition that whether Respondent disseminated complete information to the end consumer for making informed decision. 15.8. TVC is not a first point of contact between a consumer and manufacturer as it does not result in a sale-purchase transaction. There are multiple intervening contacts before a consumer finally makes the decision to purchase the product. These multiple intervening include the dissemination of the information regarding value and presence of the token through shade cards, other sales material, and the paint bucket itself. The TVC is simply another mode of advertisement to reach a wider audience; an invitation to treat basically. Neither nationally nor internationally, is the price of a product mentioned in a TVC. Also, the consumer does not place reliance merely on the said TVC before: making any transactional decision. 15.9. Absence of disclosure on TVC does not amount to lacking reasonable basis. Disclosure of token on product packaging and shade cards is the prevailing industry practice, therefore, the Respondent's action is no different from the industry, hence, no violation of 10(2)(b) has occurred. No Mention of Price, No Mention of Token 15.10. Respondent through its TVC neither makes any claim about price of any product(s) nor claims any fact pertaining to the price. The Respondent is disclosing the price as well as the information regarding redeemable tokens through its paint buckets and shade cards etc. Since price of the product is not disclosed through TVC, therefore the disclosure pertaining to the redeemable tokens is also not required through the said medium. 15.11. That Commission needs to distinguish between a claim which is misleading and no claim at all. In other words, the Commission should approach differently a situation where price/token is not mentioned in the TVC but is stated by the seller itself (along with tokens) on shade cards/paint
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buckets at the time of purchase from a situation where a seller gives partial information in a TVC and leaves it to consumers to discover the rest through independent research. Allegations are based on assumptions 15.12. The complaint is defective since it does not provide any substantial evidence of violation rather the allegations are based on assumptions, inter alia, that most purchases are made by contractors or painters instead of consumers; and that 60% of the consumers buy through painters or contractors, therefore, benefit of tokens is also reaped by the painters or contractors instead of the consumers. 15.13. The Complainant's reliance on an 11 year old survey report is misplaced because it pertained to a time when there was no mention of tokens at all, and the consumers were totally unaware thereof. Considerable time has lapsed and today the consumers are aware of tokens in paint buckets. Distortion in Price Mechanism/Consumer Harm 15.14. Insertion of redeemable tokens is a long-standing industry practice that not only discourages counterfeit products but also provides incentive to the consumer in terms of redeemable money, the cost of which is borne by the Respondent. If there is non-disclosure about redeemable tokens, then the price of paint bucket will come off inflated and the consumer's preference is likely to be shifted towards the rivals. In other words, keeping the consumers aware of the incentive is in the economic interest of the Respondent therefore, there is no need to hide it from consumers. 15.15. The Complainant's case is hypothetical because it failed to explain how the TVC in question has affected the consumers. There is no evidence or research to show that an intermediary, such as a contractor or a painter, is reaping benefit of tokens, or that deception or harm is caused to the consumer due to the non-disclosure in the alleged TVC. 15.16. Every TVC is limited in terms of time slot; the longer it is the more would be advertisement cost. Therefore, only viable option is displaying the information that is essential and needs disclosure to clarify an affirmative statement regarding the products. 15.17. The Commission's approach in requiring every single market player to mention in its TVC the presence and value of token amounts to overregulating the market, which puts unfair burden on commercial entities. 15.18. The Respondent has no intention to deceive consumer in any manner whatsoever. Legal and Technical Grounds 15.19. Both ER and the SCN are unwarranted as they lack the Commission's own assessment of facts. Basic requirements of Section 37(2) of the Act are not fulfilled which imposes a positive obligation on the Commission to initiate an enquiry only in case of bona fide complaints and sufficient evidence. The Complaint has substantive shortcomings. It is vexatious, frivolous and filed with ulterior motives which is not only deficient in facts, but also, silent as to veracity of facts alleged by the Complainant. 15.20. Both EC and the Complainant have failed to establish in any persuasive manner as to how the alleged TVC violated the applicable law. The Complaint lacks reasons as to how it is actionable, whereas the ER lacks explanation with respect to assessment of facts. This lack of reason renders the ER as well as SCN liable to be set aside. 15.21 The Complainant itself has not approached the Commission with clean hands. The Complainant's own TVC, social media pages or shade cards do not mention presence of tokens. Since the Respondent is competitor of the Complainant, therefore, the Complainant attempted to harass it through the instant complaint. ISSUES 16. The Bench has identified following issues for further deliberation and analysis: I. Whether the Respondent is non-compliant with the CCP's Paint Order, 2012?
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II. Whether non-disclosure of token in the alleged advertisements amounts to violation of Section 10(2)(b) of the Act? III. Whether non-disclosure of redeemable tokens distorts price mechanism or competition and causes harm or economic loss to the consumers? IV. Whether legal and technical grounds taken by the Respondent are tenable? ANALYSIS ISSUE - 1 Whether the Respondent is non-compliant with the CCP's Paint Order, 2012? 17. The primary allegation against the Respondent is that it has violated directions of the Commission with respect to disclosure requirements contained in the CCP's Paint Order, 2012 to which Respondent was also part of the proceedings. 17.1. The Bench has heard the arguments of the Respondent on this issue and would like to refer to CCP's Paint Order, 2012, ibid, wherein both the Complainant and the Respondent have been part of the proceedings. Relevant directions of the Commission are already reproduced in para 7 above. 17.2. Bare perusal of the Commission's direction in the CCP's Paint Order, 2012 makes it clear that all market players in the paint industry were required to disclose presence of redeemable token in all of their advertisements, promotional materials, and instructional manuals. The Commission also directed to make disclosure on all advertisements, promotional materials about the presence and the price/value of the token on each pack. The Commission's directives explicitly covered all advertising channels, regardless of whether they were first or second points of contact. However, Respondent overlooked this entirety aspect, as the necessary disclosure is only present on the shade cards and paint buckets, but not in the TVC. 17.3. Regarding significance of a TVC, and its influence on consumers' perceptions of a product, the Bench would like to refer to para 40-43 of the CCP's Paint Order, 2012, wherein it was observed that "40. Accurate disclosure of important terms and conditions allows consumers to compare services/products offered by one or multiple providers and weigh the different terms being offered in making decisions about purchase. In the absence of information pertaining to the value of rebates on price of the paint the ordinary consumer cannot be expected to adequately compare the two varieties of paint as the true price differential is not known at the time of purchase. 41. In the case of International Harvester Co., 104 F.T.C. 949 at pg. 1058, it was held that: "[i]t can be deceptive to tell only half the truth, and to omit the rest. This may occur where a seller fails to disclose qualifying, information necessary to prevent one of his affirmative'.... It can also be deceptive for a seller to simply remain silent, if he does so under circumstances that constitutes an implied but false representation..., statements from creating a misleading impression... 42. Reference is also made to Cliffdale Associates, Inc., 103 F.T.C. 110, (1984) wherein it was held: "when the first contact between a seller and a buyer occurs through a deceptive practice, the law may be violated even if the truth is subsequently made known to the purchaser." [Emphasis added] 43. Therefore, it does not suffice to argue that the presence of token was not disclosed at the time of sale as it is a hidden/surprise gift as even if the consumer finds but subsequently about the presence of token, which in this scenario is highly unlikely, it still has the potential to mislead." 17.4. Keeping in view aforementioned observations of the Commission, the Bench does not agree with the Respondent's argument that making required disclosure only at the time of purchase suffice the purpose. 17.5. In the CCP's Paint Order, 2012, the Commission has directed the paint manufacturers to mandatorily disclose the tokens, a requirement that is not limited to a specific timeframe but extends indefinitely into the future. 17.6. The relevant portion of the said Order reads as follows:
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"35. Accordingly, there is a duty on the undertakings to disclose information about tokens and take necessary measures to ensure that the benefit is accrued to the consumer otherwise it would unreasonably place a higher onus on the consumer rather than the undertaking which would be contrary to the intent of the law." 17.7. The Respondent has argued that the directions given in the CCP's Paint Order, 2012 do not pertain to all advertisements in future. However, a plain reading of sub-para (1) of para 48 of the CCP's Paint Order, 2012 clearly provides that it concerns "All advertisements, promotional material, or instructional manuals pertaining to the paint packs falling in the decorative paints category; manufactured by the Undertakings whether electronic, printed or otherwise are to be modified to disclose the presence and the price/value of the token on each pack for the consumers, within a period of 60 days starting from the January 15, 2012." 17.8. As a matter of fact, the disclosure in shade cards is not prominently made and is a footnote which a consumer may ignore at the particular point in time when prime focus is on selection of the colours from shade card. Whether the disclosure in such a manner is in line with the directions of the Commission, the Bench would make reference w previous orders of the Commission where it has explicitly outlined mode and manner of a disclosure. 17.9. In the Zong Order, supra, at para 36, it has been held that "fine print disclaimer, are inadequate to correct the deceptive impressions". In fact, such disclaimers are, in them-selves, a deceptive measure." Also, In the Matter of Show Cause Notice Issued to M Proctor and Gamble Pakistan (Pvt.) Limited for Deceptive Marketing Practices, 2017 CLD 1609, para 40, the Commission has set a parameter for a disclosure 'by observing that "[t] principle regarding disclaimer/disclosure is that they must be "clear and conspicuous" and placed "as close as possible" with the advertising claim." 17.10. In view of above, the Bench finds that there is a non-disclosure of required information in the TVC. The consumer is kept unaware at the point of first contact i.e. TVC, and the disclosure made in the shade card cannot compensate or makeup for that non-disclosure as at that time consumer is more focussed on colour selection. 17.11. Furthermore, the Respondent has contended that it was not party to the non-compliance proceedings in 2021 and was only informed of the non-compliance issue directly through the instant proceedings. However, this argument lacks merit since the directive originated from the CCP's Paint Order, 2012, to which the Respondent was certainly a party. Therefore, the Bench is of the opinion that the Respondent's reasoning of being unaware is not tenable as it was well aware of these directives of 2012. Besides, being a key stakeholder in the relevant market, it is the Respondent's obligation to be well aware of the regulatory directions in the field, particularly in view of the complaint against the respondent before the Commission. 17.12. In light, of the foregoing, the Bench finds that the Respondent has not complied with the Commission's directives contained in the CCP's Paint Order, 2012. The alleged TVC lacked the required disclosure as per the Commission's directives. Although some disclosure is provided on shade cards/paint buckets, it does not compensate for the non-disclosure made in TVC and thus disregards the CCP's Paint Order 2012 along with its directives and guidelines on disclosures to be made in all mediums of advertisement. ISSUE-II Whether non-disclosure of token in the alleged…
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