One of the landmark cases where the CCI first imposed the highest possible penalty of 10% of the total turnover of a company held guilty for violations under the Competition Act, 2002 was multiplex cases. There was much hue and cry such high penalty and the issue again came into limelight recently when the COMPAT reduced the CCI penalty in another case despite agreeing with its findings. The CCI has moved the Supreme Court against COMPAT on this issue. The issue of computation of penalty by the CCI could thus be said to have gained proportions.
An Overview: The anti-competitive terms of the associations
In 2010, UTV& others filed a case against distributor associations like KFCC (Karnataka Film Chamber of Commerce) for forcing producers to either register their movies with the association or to become members of the association. The implication was that the producers were bound by the rules of such associations that clearly favoured the distributors. Members of these associations were not allowed to exhibit non-registered movies Penalties were imposed on members if non-registered movies were showcased. In some instances membership was lost.
Additionally, there was a restriction on the number of screens non-regional movies could be showcased on (there were no such restriction for regional movies) and non- members were boycotted.[1] Associations such as the BJMPA (Bihar and Jharkhand Motion Pictures Association) had hold-back clauses which barred studios from exploiting satellite and home video rights in the respective regions.[2]
Thus not only was the market access for showcasing films in theatres restricted but there were also constrains in the ability to exploit non-theatrical platforms. The regional film bodies were known to restrict the exhibition of movies on the basis of language and also dictate terms for the release of films through other media like CDs or television.
It was observed that the entire country is divided into 12 circuits. These circuits have drawn a certain territory and each association regulates the business of film distribution and exhibition in their area of control in accordance with their rules formulated in Memorandum and Articles of Association. The Commission said that there existed a tacit agreement amongst these associations as one would not interfere in the territory of another. It was alleged that these regional association were engaging in anticompetitive practice.[3] The informants in this case were Reliance Big Entertainment Limited, Informant Reliance Media Works & UTV Software Communications Limited. They represented the producers of the industry. In brief this case dealt with a dispute between the producers and the distributors.
The issues
There were 3 main issues that the CCI formulated and which the COMPAT discussed:
Whether the associations in questions could be considered as ‘enterprise’ within the definition stated in Section 2(h) of the Act and consequently would their acts be violative of Section 4 of the Act?
Whether the rules and regulation of the associations could be subject-matter for a Section 3 scrutiny.
Could the acts of the associations be said to be anti-competitive in terms of Section 3(3) and Section 3(1) of the Act?
The order of the CCI
With regard to the issue of violation of Section 4, the CCI held that associations could not be termed as “enterprise” as understood under Section 2(h) of the Act and thus could not be held to be in contravention of Section 4.[4]
On the other hand the CCI order held that the agreement was indeed anti-competitive and thus contravened Section 3 and thus, clarified that the association would have to stop the following activities:
(a) Compelling the producers/distributors/ exhibitors to become their members as a precondition 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) Hold-backs on satellite and home video. The studios should be free to decide such holdbacks;
(e) Compulsory registration of films as pre-condition to release to be done away with.
The Decision of COMPAT
COMPAT did not deal with the Section 4 issue as the same was not brought to its notice in the appeal. On the other hand, it held that the membership to these associations was infact compulsory is nature which further bound them to the rules of the association. COMPAT relied on the investigation undertaken by CCI and said that in effect the producers did not have any option but to become members of the association if they wanted their films to be exhibited. The restrictive provision and the rules of not permitting their members to deal with non-members made it mandatory for every distributor or exhibitor to take their membership and further register the film with that particular association.
The associations justified their rules on the ground that they ensured the welfare of the distributor and the exhibitors. However the COMPAT agreed with the CCI in its finding that anticompetitive practices could not be permitted and would be against the tenet of free trade.[5]The decision states that though the associations themselves did not engage in any activity, enabling them to be termed as an ‘enterprise’, they did take decisions relating to the production or distribution or exhibition for safeguarding the interest of the members engaged in similar or identical business of production or distribution or exhibition of the films. Thus the practices of the associations would fall within the scope 3(3).
It also went on to state that the associations did not take into account the objections that the producers had raised with the rules currently in place and thus these rules could not be said to protect the interest of members. A collective reading of all the rules established that non-members who were competitors could not compete in the market due to the collusive members of the association which consisted of producers, distributors and exhibitors.
There rules were indicative of a horizontal agreement. The decision not to deal with non-members in effect limited the supplies and distribution of the films in the territory under the control of the appellants’ associations. Competition was also hampered by the practice of limiting the number of screens on which a movie could be screened and unfair hold back periods. Thus on these counts, the associations were found guilty of violating Section 3(3)(b) of the Act.[6]
The appellants argued that the penalty imposed was excessive. The justification given for imposing the penalty at 10% of the average income of all the associations was that these penalties were insignificant keeping in mind the stakes involved in the film industry. It should be noted that though the Act states a maximum amount that can be levied as penalty, there are no guidelines as in place so as to determine what should be the quantum of penalty. One can question what the deciding factor for the CCI & COMPAT is with regard to the determination of quantum of penalty. Is it the financial standing of the parties or the gravity of the offence? Would the CCI impose a lesser penalty if the same anticompetitive practices were undertaken by parties that did not have deep pockets? Would that not be unfair? Would that not take away from the deterring effect the law seeks to establish and create inconsistencies or would that infact have increase the deterring effect by ensuring that the penalty is not a mere token amount? The answers to this can be given only when subsequent decisions are looked into and a pattern with regard to penalties emerges or if the CCI evolves guidelines for the same. However it is suggested that caution should be practiced and the anticompetitive practice should be the sole determinant for the quantum of penalty.
This post has been written by Srishti Goyal, Student Director of SITC and a 5th year student of West Bengal National University of Juridical Sciences, Kolkata.
[1]Para 12 (Pg 51) of the Judgement- KFCC issued a directive to the effect that “a non-Kannada film can be released only in 21 cinemas that is 17 in Bangalore city and 4 in district headquarters, while as per their directive, a Kannada film can be released in 200 cinemas in Karnataka.” This clearly shows the discriminatory practices in favour of regional films.
[2]CCCA imposed a condition that stated a film distributor would not exhibit or exploit his film through the medium of video, cable TV, satellite or any other network through VCD, DVD or any other form for a period of one year from the date of theatrical release in India and in the event the distributor breached this condition, he would be compelled to distribute 50% of the income amongst the distributors.
[3] This matter pertains to 10 of these 12 associations regulating the circuits, namely: (1) Karnataka Film Chamber of Commerce (KFCC); (2) Eastern India Motion Picture Association (EIMPA); (3) Central Circuit Cine Association (CCCA); (4) Telangana Film Chamber of Commerce (TFCC); (5) Northern India Motion Pictures Association (NIMPA); (6) Motion Pictures Association, Delhi (MPA); (7) Indian Motion Pictures Distributors Association (IMPDA); (8) Bihar and Jharkhand Motion Pictures Association (BJMPA); (9) Chennai Kanchipuram Thiruvallur District Film Distributors Association (CKTDFDA); and lastly (10) Orissa Films Distributors Syndicate (OFDS).
[4]Section 4(1) states that no enterprise shall abuse its dominant position. The section goes on to stated which practices would amount to abuse of dominant position. If the associations are not enterprises, they cannot be said to abuse their dominant position.
[5]COMPAT stated “The Hon’ble Supreme Court has unanimously on this point taken a stand that if a provision is even capable of creating the mischief or discrimination, such provision has to be held constitutionally invalid.”
[6]Section 3(3) bars any agreement “between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which….” (b) limits or controls production, supply, markets, technical development, investment or provision of services;
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