Competition Law and Policy – Film Industry

Dhanendra Kumar Principal Advisor, Indian Institute of Corporate Affairs

& Chief Mentor, School of Competition Law Ministry of Corporate Affairs, Govt. of India

1 Views expressed are personal-business decisions need professional advice

!  COMPETITION LAW AND POLICY IN INDIA

!  POSITION IN OTHER JURISDICTIONS

!  CASES AND ORDERS OF CCI

!  ACTIVITIES IN CONTRAVENTION OF COMPETITION ACT, 2002

2

COMPETITION LAW AND POLICY IN INDIA

3

4

In common parlance, competition in the market means sellers striving independently for buyers’ patronage to maximize profit (or other business objectives). A buyer prefers to buy a product at a price that maximizes his benefits whereas the seller prefers to sell the product at a price that maximizes his profit.

5

!  Competition is the best means to ensure that consumers have access to the broadest range of services at the most competitive prices.

!  Producers (of goods etc.) will have maximum incentive to innovate, reduce their costs and meet consumer demand.

6

!  Unfair competition means adoption of practices such as collusive price fixing, deliberate reduction in output in order to increase prices, creation of barriers to entry, allocation of markets, tie-in sales, predatory pricing, discriminatory pricing, etc.

7

!  Competition Law and policy is defined as those Government measures that affect the behaviour of enterprises and structure of the industry with a view to promote efficiency and maximize welfare.

!  There are two elements of such Government measures:- ◦  Competition Policy: Set of policies, such as liberalized

trade policy, relaxed FDI policy, de-regulation, etc., that enhances competition in the markets. ◦  Competition Law: To prevent anti-competitive practices

with minimal intervention.

8

!  The Preamble states that this is an Act to establish a Commission to prevent anti- competitive practices, promote and sustain competition, protect the interests of the consumers and ensure freedom of trade in markets in India.

!  CCI shall prohibit anti-competitive agreements and abuse of dominance, and also regulate combinations (mergers or amalgamations or acquisitions) through a process of inquiry/investigation.

!  It shall give opinion on competition issues on a reference received from an authority established under any law (statutory authority) / Central Government/ a State Government.

!  CCI is also mandated to undertake competition advocacy, create public awareness and impart training on competition issues.

9

!  An “agreement” includes any arrangement or understanding or concerted action entered into between parties. It need not be in writing or formal or intended to be enforceable in law.

10

!  An anti-competitive agreement is an agreement having appreciable adverse effect on competition. Anti-competitive agreements include, but are not limited to:- ◦  agreement to limit production and/or supply; ◦  agreement to allocate markets; ◦  agreement to fix price; ◦  bid rigging or collusive bidding; ◦  conditional purchase/ sale (tie-in arrangement); ◦  exclusive supply / distribution arrangement; ◦  resale price maintenance; and ◦  refusal to deal.

11

!  Dominance refers to a position of strength which enables an enterprise to operate independently of competitive forces or to affect its competitors or consumers or the market in its favour.

!  Abuse of dominant position impedes fair competition between firms, exploits consumers and makes it difficult for the other players to compete with the dominant undertaking on merit.

12

Abuse of dominant position includes: !  imposing unfair conditions or price, !  predatory pricing, !  limiting production/market or technical

development , !  creating barriers to entry, !  applying dissimilar conditions to similar

transactions, !  denying market access, and !  using dominant position in one market to gain

advantages in another market.

13

!  Relevant product market in movie exhibition cases has been "first run movie exhibition," that is, exhibition of new, mass market films in movie theatres. ("First run is to be distinguished from "sub run," or re-release of older films.)

!  It is also being argued these days that the relevant market must now include video tape rentals, television movie channels and/or television pay-per-view, or, for that matter, non-movie television entertainment or even other forms of entertainment.

14

POSITION IN OTHER JURISDICTIONS

15

!  United States v. Paramount Pictures, Inc., 334 US 131 (1948) (also known as the Hollywood Antitrust Case of 1948, the Paramount Case, the Paramount Decision or the Paramount Decree) was a landmark United States Supreme Court antitrust case that decided the fate of movie studios owning their own theatres and holding exclusivity rights on which theatres would show their films. It changed the way Hollywood movies were produced, distributed, and exhibited.

!  The Court held in this case that the then existing distribution scheme was in violation of the antitrust laws of the United States, which prohibit certain exclusive dealing arrangements.

16

!  In a 1946 ruling involving RKO Radio Pictures, the United States Supreme Court held an arrangement to be anti-competitive wherein a mov ie was d is t r ibuted on ly among multiplexes owned by parties to this arrangement who were then able to exclusively show those movies during a certain ‘first run’ period before other multiplexes screen the same movie

17

!  In another cases it was held that, the distributors could not engage in "block booking," or conditioning the licensing of a desired film on the simultaneous licensing of other films, or in other specified types of contractual arrangements that effectively bound a theatre or chain of theatres to a distributor. [U.S. v. 20th Century Fox, 882 F.2d 656 (2d Cir. 1989), cert. den. 110 S. Ct. 722 (1990)]

18

!  Most of the decrees related to anti-trust law in the US contained a requirement that defendants license their films "theater by theatre, solely upon the merits and without discrimination ... ." This language gave rise to much litigation under the decrees.

19

!  Splitting was simply a form of horizontal market allocation. Groups of exhibitors in a market met periodically and allocated ("split") among themselves those films that were coming up for licensing. Subsequently, the members of the cartel negotiated for only those films that were allocated to them. Splitting was conducted more or less openly, and was condoned by the antitrust authorities in situations where the distr ibutors acquiesced.

20

!  United States v. Capitol Services, Inc., [568 F. Supp. 134 (1983), aff’d 756 F.2d 502 (7th Cir.), cert. denied, 474 U.S. 945 (1985)]

!  In this case it was held that splitting was indeed a per se violation of the Sherman Act.

21

!  Monopolies & Mergers Commission (MMC) Report on the supply of films: Focus of the investigation was on various vertical links which existed between film distributors and exhibitors.

!  The MMC concluded that two particular vertical relationships operated against the public interest: alignment, the practice whereby a distributor normally offers its films to one only of the two major circuits of exhibitors, and the imposition of long minimum exhibition periods.

22

!  The MMC recommended the following remedies:

i) Alignment: The practice should be banned. They also recommended that the parties should submit information to the DGFT(Director General of Fair Trading) to demonstrate compliance.

ii) Minimum exhibition periods: These should be restricted to two weeks for films on first release and one week for all others. The film could be retained by the exhibitor at the end of the minimum exhibition period by mutual consent.

23

CASES AND ORDERS OF CCI

24

25

Name of the Case Date of CCI Order FICCI – Multiplex Association of India v United Producers and Distributors Forum

25th May, 2011

Reliance Big Entertainment v Karnataka Film Chamber of Commerce and others; UTV Software Communications Ltd. v Karnataka Film Chamber of Commerce and others (altogether 7 cases)

16th February, 2012

Eros international Media Ltd. v Central Circuit Cine Association and others; Sunshine Pictures Pvt. Ltd. v Motion Pictures Association and others

16th February, 2012

Mrs. Manju Tharad and M/s Manoranjan Films v Eastern India Motion Pictures Association, Kolkata and CBFC, Kolkata

24th April, 2012

UTV Software Communications Ltd., Mumbai v Motion Pictures Association, Delhi

8th May, 2012

Name of the Case Date of CCI Order Sajjan Khaitan v Eastern India Motion Picture Association and Others

9th August, 2012

Ajay Devgan Films v Yashraj Films Pvt. Ltd. And Others

5th November, 2012

Film and Television Producers Guild of India v Multiplex Association of India, Mumbai

3rd January, 2013

M/s Shri Ashtavinayak Cine Vision Ltd. v PVR Picture Ltd. and Others

10th January, 2013

M/s Cinergy Independent Film Services Pvt. Ltd. v Telangana Telugu Film Distributors Association and Others

10th January, 2013

26

!  Reliance Big Entertainment v Karnataka Film Chamber of Commerce (along with other cases) [Order dated:16 February, 2012] In this case, besides other disputes, UTV had filed a case against distributor associations like KFCC (Karnataka Film Chamber of Commerce) for putting a restriction on the number of cinemas to release a non Kannada film and BJMPA (Bihar and Jharkhand Motion Pictures Association) for demanding unreasonable hold backs for registering its films. It barred studios from exploiting satellite and home video rights in the respective regions and compelled the studio to register films with the trade body and bend to their archaic rules. As a result, this constrained the market access of the studio for unfettered distribution of its films on non theatrical platforms.

27

!  The CCI in this case ruled that the anti-competitive behaviour of any entity needs to be condemned heavily for effective function of the market. Further, it said that the associations are taking decisions and engaging in practices which are anti-competitive. Consequently, in Feb 2012, the CCI has imposed a hefty penalty on these distributor associations; to be deposited with immediate effect to the Commission.

28

The order clarifies that the associations will have to stop: (a) Compelling the producers/distributors/ exhibitors to become their members as a pre-condition for exhibition in their territories; (b) Discrimination between regional and non-regional films and imposing discriminatory conditions against non-regional films; (c) Screen restrictions based on language or manner of exhibition of a film to be done away with; (d) Holdbacks on satellite and home video, with studios are free to decide such holdbacks;

29

The CCI has also directed the associations to: !  Not make any discrimination between

regional and non-regional films. !  The number of screens or the manner in

which the film should be exhibited shall not be determined by these bodies.

!  Condition of compulsory registration of films as a pre-condition for release shall be dispensed with.

30

ACTIVITIES IN CONTRAVENTION OF COMPETITION ACT, 2002

[Section 3]

31

!  Controlling the film distribution business by putting restrictive clauses in the Articles of Association that the members can only deal with the members of the Association only and that dealing with the non-members is prohibited by these Associations.

!  These provisions create a situation where all the businessmen engaged in the business of film distribution and exhibition have to become the member of these Associations to conduct the business smoothly and also to have access to all the films released in their territories. This situation leads to refusal to deal as per the provisions of section 3(4) of the Act.

32

!  Another method by which Associations are controlling the film distribution business is by way of compulsory registration.

!  Refusal to register the film hampers the release of film which results in tremendous pressure on the producers. Therefore the producers are compelled to get their films registered in each territory.

33

!  Imposing certain conditions to regulate the business of film distribution and exhibition in their territory is also found to be anti-competitive.

!  The Associations are forcing the terms and condit ions for the business of f i lm distribution which otherwise should be dec ided between the producer and distributor.

34

!  By issuing circular/ information among the members these Associations boycott a producer and thereby pressurize him to accept the directions and orders of these Associations. This is anti-competitive.

35

!  These associations are also found to enter into joint agreement with other associations to control the film distribution business in India. Their conduct indicates concerted action to restrict the market and impede the competition by controlling the market. This is also prohibited.

36

!  Scope of the business is to be left open to the option of the producers and exhibitors as their own ends.

!  Producers, distributors, exhibitors (multiplex owners + single screen owners) all constitute trade associations among themselves and work on implied cartels. Care needs to be exercised on this front.

!  Associations should avoid coming together in large groups to carry on anti-competitive agreements and abusing their dominant position.

37

( The views expressed in this presentation are entirely personal, and do not reflect the views of the Organization to which he belongs. It is

advised that professional advice may be obtained for any business decisions)

38