Competition Commission of India
Sunshine Pictures Private Limited & ... vs Central Circuit Cine Association, ... on 16 February, 2012
'i§Central Circuit Cine Association, Indore iiNorthern, India Motion Pictures Association _ COMPETITION COMMISSION OF INDIA Case no. 52 of 2010 Eros international Media Limited Informant I Against Opposite Party -- 1 Film Distributors Association, Keraia Opposite Party -- Opposite Party -- 3--
Motion Pictures.Association Opposite Party -- 4 ' Case No. 55 of 2010 A V .
Sunshine Pictures Private Limited Informant Against A Motion Pictures Association - Opposite Party ---- 1 Northern India Motion Pictures Association » Opposite Party -- 2 Central 'Circuit Cine Association, Indore A ~ Opposite Party - 3 Telangana Teigu Film distributors Association -- Opposite" Party 7 4 Film Distributors Association, Keraia -- Opposite Party -- 5 Karnataka Film Chamber of Cominier - Opposite Party -- 6 X \ Date of order: . \ 2 R_ prasad ldissenting) 1 have seen the majority order and I have a different view and am V therefore passing a separate order. The facts in this case are identical with the facts in the case wherein 1lhavéiéiiéadyii'ipasséa'iah"6Eaé'E"i';iéiEager nQ5_ 25, 41, 45, 47, 48, 50, 58 and 69 of 2010. As the issue involved are the same, the same orders are passed in these two cases also.
2. But before dealing with the issue it is necessary to discuss the facts in respect of the film industry. .When a film is announced having a particular story and a star cast, the producer requires funds to produce the movie. In the earlier years, as film making was perceived as _a risky business, bank and institutional finance were not ava'ila_b,l,e',to.the film producers. Finance was provided by private financiers. a"
of interest and was also provided by the distributors;
distributors in turn used to get finance from the exhib owners of single screen theatres in different regions of y,:wl3y providing the finance the distributors acquired rights toagexploitl.l,the film normally for a period of normally ten years in the areas where the distributors operated.' The country was divided in various zones, initially five, then seven and now twelve zones. A distributor o erated in one zone and the distributors distributedthe films to the ev>l"<gh The agreements entered into by the producers and on outright sale or minimum guarantee basis. In the E _, _!,:_§fantee system, the distributors agreed to provide a minimum gu'a'ran;j.eea to the producers and if there was an overflow the overflow by the producers, the distributors and the exhibitors in different proportions.
Sometimes, the producer or the distributors used to the hire the cinema halls of the exhibitors for a cert,axia""'l"""i"" led, at a negotiated price and the he hiring charges. Thus the ' C) ,4.
rovtgie large chunks of finance for 3_ In order to have discipline in the entire film industry, the industry organized itself at different levels. First of all, the name of the film was to be registered with one of these agencies so that two films having the same name were not released at the same time. Secondly'"wheneverl'a producer entered into an agreement with a distributor for a certain zone, this was also registered by an agency. Publicity of this fact was given through various publications such as Trade Guide etc. This was done with the idea that a producer does not sell the same movie to another distributor in the same area and in this manner obtain further finance. Sometimes when the film being produced involved large amount of finance and the distributor could not finance the pro*d_u:ctio'_n VI"a_n:other distributor was appointed for the zone or two distributors; form a joint venture to finance the film. In w ' operated, the exhibitors and the "formfe rjegulate the entire business of film agndffd associations were either societies or companies under sect 25 Companies Act. These associations or colmpanies forrnT'ulated"'bye--laws and they worked as dispute resolution agencies for the exhibitors, between the producers and the distributors/exhibitors and between the distributors and the exhibitors. These associlatif ns regulated the business in the way that once a producer"/fldistributo' edlito could not then give the rights to another exhibitor. In manner, the pecuniary interests of the exhibitors were protected. there T give the business of exhibition to an exhibitor,_ the prod Siimilairlly, when were similar disputes between the producers if the distributors/exhibitors, these associations protected the interest of their members. All the producers / distributors had to become members of the association by paying a nominal fee before a film could be released in that zone / area. They also had to associations so that the names were known. T he films with the zonal l/"Xdistributor / exhibitors These associatio .7, stétifigory backing but were ic2l'ust,r;§§r:/land they had evolved <_::i;/ i~"\,,f' created for the regulation of the 9 4 over a period of time. Any regulator in order to be effective has to have penal powers. As no statutory authoritywas available to the associations, they exercised the power of boycott. These associations took upon themselves the power to levy penaltywhichi was nothing butthe failure to honour contractual obligations. Failure to pay the penalty resulted in boycott by the associations and their members.
4. This system was working well till the advent of new technology and the migration of the Indian community to different countries. As a result, the demand for Indian films extended in various countries. Therefore the producers started selling the world rights of films and inthis manner got a new sourcerof revenue. With the arrival of communicati'onL_ it was possible to send films through the medium of and satellite communication also become available to t_ the advent ofinternet and broadband. technology it' be transfer films through internet and broladband serv knowhow increasing in the duplicating technology ,'me"iKeaisiLer%'to duplicate a film and sell them through floppies and expanded the earnings of the producers. World rights7,I'satellite' rights', DTH rights and music rights could be sold and the producers could get large sums of money. But it also led to a situation whe a film was reduced to afew months. The new technolo increase in piracy and reduction in the earnings of they also led to a situation where the period forthe exploitation of films got reduced as far as the exhibitors were concerned... Th earning of the exhibitors. Another factor which came up was the arrival of multiplexes where multiple screens were used for screening films in a more congenial atmosphere. Being new in the area, multiplexes got sales tax exemption in some states. This/§,e""Tf;
all over India led to closure of India. This led to various dispu esggi/vit""
as ~:
matter of discussion in these case\s.\;:3 _, 3».
5_ The issue to be decided is whether boycott of a business entity and its products is an anticompetitive behaviour. The next issue is as to whether an association is an enterprise under Section 2(h) of the
-competition Act. The third issue' islwhether Section 3 or Section'4rof the Competition Act would be applicable to the facts of this case where a number of associations are involved. But before taking the analysis further, it is necessary to discuss the legal issues in this case. Enterprise has been defined in the Competition Act under Section 2 (h) as under:~ "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, aictjjijisitioin' or control or articles or goods, or the provision of services;;..',Ofi investment, or in the business of acquiring, holcii;
dealing with shares, debentures or other securit body corporate, either directly or through one or" 1 , divisions or subsidiaries, whether such unit _or[at' a different place or at different places, but activity of the Government relatable to the sovereign functions" of the Government including all activities carried on by the departments of the Central Government dealing currency, defence and space.
3f¢ihj.i.¢iileher9y, The important words in this Section are person and activity. Person has been defined in Section 2(|) as under:-
{H} person includes:- (i) an Individual; (ii) a Hindu undivided family; (iii) a company; (iv) a firm; (v) an association of persons or a body of individuals, whether incorporated or not, in India or outside India; (vi) any corporation established by or under any gen"; "A 2' /Q' company as defined in Sec il,?§5i"7§ta.'te..or Provincial Act or a Government h'e>;§d'njpanies Act, 1956; (vii) anybody a country outside India; (viii) a law relating to cooperative ..l.') < wr . if M corporate incorporated by or . . . .~l< *2 co--operative society reg tehed ' ' government department is an enterprise according to the de societies; (ix) a local authority; (X) every artificial juridical person, not falling within any of the preceding sub--clauses;"
.Pe.rs,o..n. includes an aSsociation-of peIs9.n.- Thersf0'"¢.z 3..rs9i§fis:e§-..§9Elettv has to be considered as an association of persons whether incorporated or not. But if the society is registered under the Cooperative Society Act has to be treated separately. "Activity" has been defined in the eixplanation
(a) to Section 2(h) of the Act as follows:--
Exp/aniation - For the purposes of this clause, -- (53) "activity" includes profession or occupation;
The definition is inclusive and has therefore has to be meaning. The words used in Section 2(h) of the carrying on of business is covered. It is evident from that a finition but a government department does not carry on any busines" 2 not necessary that a person should be carrying out-« b'tisi'n'ess-- to qualify as an enterpriseunder the Competition Act'. confirmed by a decision of the Delhi High Court in the l-lemant Sharma vs. Chess Federation, Writ Petition (Civil) No. This decision of the single Member was confirmed by the byits order LPA No. 972 of 2011 dt. 22.11.2011 Therefore the associations are covered under the definition of enterprise under the Competition Act.
6. The next issue is whether they.fa;if'i; «ia;tlonisy~are hit by the provisions . '<3 Chapter/II of the egfillenyts, abuse of dominant chapter there is a of Section 3 of the Competition Ac Act which deals with Prohibition of gefitgin position and regulation of Combinakt'i§h%( Prohibition of agreements and the heading of Section 3 is anticompetitive agreements. Under Section 3(1) of the Act no enterprise / person or an association of enterprise / person shall enter into an agreement in respect of business activities, aClqluisiti'o'n""aln'd"control of goods 'a%nld"'s'éFviEésvvhichS " ' is likely to cause or causes appreciable adverse effect on competition inside India. Section 3(2) envisages that such agreements are void. Section 3(3) is a deeming provision and it envisages a rebuttable presumption.
7. Under Section 3(3) of the Act, three situations are covered. The first is any agreement between enterprises/association, otiel terprises or person/association of persons. The second is practice ca'i4h id': the third is "decision taken". Thus, by the deemiiigiprdi practices carried out and decisions taken"a're agreements and all these three items have anticompetitive agreements. Practice carried on and i'sioii:'. to be by an association of enterprisesor by an associatio all the three situations, one condition is that the enterp_:ris,e their associations should be engaged in identical or similar trade of goods or services. The persons/ enterprises and their associatiionsiwoyuld be hit by the provisions if they . S it
(a) directly or indirectly determines purchase or
(b) limits or controls b production, supply, technical development, investment or provision of (services) '
(c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding. It is presumed that if these facts exist they Would be presumed to cause appreciable" adverse effect This means that if the O presumption is involved on the strength of the legal provision, then the factors mentioned in Section 19(3) of the Act are not required to be looked into. But if the enterprises discharge the onus cast bylthe Section then the Commission would have to edkiamine Whether" thiéifiéticrsii mentioned in Section 19(3) would apply to the facts of the cage_ 8, Before proceeding with this case, it is necessary to_examine_as to how agreement and practice have been defined in the Act. Agreement has been defined in Section 2(b) as under:--
"agreement" includes any arrangement orunderstanding or action in concert»
(i) Whether or not, such arrangement, or action is formal or in writing or, ' A f' A;
(ii) Whether or not, such iarrangementy or action is intended to be enforceahie'iii.?'b'y:" . iegal proceedings.
It is also an inclusive definition and therefore a wide interpretation' has to be given to the provisions. The definition encompasses an arrangement or an understanding or action in concert. Thus the static and dynamic elements of agreement are into account. But an always envisages more than one person or an enterprise.
9. As far as practice is concerned it is defined as follows:--
"Practice" has been defined in Section 2(m) of the Act and includes any practice relating to the carrying on of any trade by a person or an enterprise.
_ a'-jwl e interpretation 0 'yet and the practice has to be related to any 'jatililg o carrying on of a trade by a person or an enterprise.
10, A perusal of the above discussion would show that the first issue to be decided is whether there was an Association of exhilbitors and di'§trib'utoi~s or the entities have to be treated as a""'sep"ara:tei on" body because there had a legal existence. Many of these associations were incorporated as section 25 companies or were registered as cooperative societies with the relevant State Acts. But in fact these entities worked as associations of various exhibitorsand distributors as well as producers. The agreement ifany was entered into between the exhibitors or the distributors at the time of the forming of the association which in many cases was more than 70 years ago. If such a situation is gacjcepytezdg then any share purchase of a limited company for a particular put 3 amount to an agreement for the purposes of _ becoming a member of society the agreement entered, intfy 50 7ofye°ajis ago for becoming a member wouldhave to be treateg.3_ associations of enterprises or persons according to thie View would be hit by the provisions of section 3(3) of the once a person or an enterprise subscribe to the shares of at company or become a member of a society then the entity which. is, found», is a association of persons or enterprises. In such a case it A to hold that the incorporated company or the society isiany associagtion of enterprises. In this particular case there was no ag: " i V have already held that the association which formed a different' legal entity from the association of persons and as there was no agreement, Section 3(3) of the Act was not attravc There is no doubt that large numbers of persons were inv, "ye K V association but as the constituted societies and the i pe etegd anies werelegal entities the different entities could no t ssociation of persons. As r».
'I J g-reeimeiifi" with self, there was no '1 . . '2 one entity cannot enter into <4?) 5' ia;Cf_§f'-':,}/i agreement. As far as practice a'hei.ii...Td.le.ciei"on taken are concerned, it is 9 rfibse. would .
necessary that the practice or the decision taken should be by an association of enterprises. As there was only one entity in an area, there was an absence of an association of enterprises. Therefore the provisions of section 3 would Anoti'be'appiidcab'ibe to theifactsiof thecas'e.TtFi'éiFéfore"if do not agree with the majority view that an association was in existence.
11. The behaviour of the said associations have to be examined with reference to Section 4 of the Competition Act. I have already held as discussed above that it is not necessary for an enterprise to carry on business and therefore the relevant society or company couidi be an enterprise which could be covered under Section 4 of the Under Section 4 of the Act in the explanation of the said section' dominant position has been defined as under V S Exp/anation:-- For the purposes of this section, the
(a) "dominant position" means a position of strength, yea by an enterprise, in the relevant market, in India, which' be 'it. to ..--. (I) Operate independently of competitive forcesipreviayi/ing in the relevant market; or A A
(ii) Affect its competitors or consumers or the. relevant market in its favour. ' . 'V S In the area which has been accepted by the associateiyogai il;s'.ta,rea of operation, most of the exhibitors and distributors area are members of the society or the company as the The enterprise which is society or a company is able to operate independently of the competitive forces prevailing in the relevant market. Thus, in the area of its operation, the said egsso' 3t,l"®»QS are dominant. The factors mentioned in Section 19(4) al A oked into as to whether the enterprises are dominant wit :7: C 'fir H) , .y' ».
being companies and societie dealing' \ \ regulation do not have a market share, size, resour S ..nd,\,.e.§§§:nomic power. There is no question of vertical integration or countervailing buying power, social l 10 factors. These' enterprises ' obligations and social cost or a market structure and the size of market does not require to be seen. The enterprises do not lead to any economic difference. But even then they are in position to create appreciable adverse effect of competition. The consumers in this ca'§"§"a'ré"'dep"e'nde"nt T' on the enterprises by the virtue of the fact that the differentgemgerpriges operating in this business in the area accept the diktat of the societies and the companies and therefore the consumers are totally d ependent on these societies and companies.
Further the association i.e. the vscqcieties and the companies have acquired dominant position as defined in Section 19(4)(g) of the Act under the clause 'otherwise'. These' ent eeitpjrises have acquired this position of dominance because the otherleht power to the enterprise. No other association can"? benefit of the different exhibitors and distributors becaiti and exhibitors would not agree to form to other asso there is an entry barrier as far as the creation of anoth 4 "concerned. The provisions of Section 19(4)(h) are Therefore the enterprises have to be treated as dominantifiplafiy T field of operation. T l T
12. The next issue to be defined is the relevant mark gebgrennicai area in which those associations operated and the n"
be the service of distribution or exhibitors of films. The tgeographical ipfaniies were market would be the area for which the societies or the con create d .
13. It is now necessary enterprises in the area of heir o '$1 associations have indul ed 'n,?abu'se"of The section under which the wee dominant position is Section 4(2)(c) of the Act. By boycottTh'"é~3t.ti.§ai«««p"roducers for differentireasons they 11 have indulged in denial of market access to the producers. They have also hit by the provisions of Section 4(2)(b(i) of the Act as t the provision of services is restricted. W 14_ with this view we have to examine the behaviour of different associations. For example Karnataka Film Chamber of Commerce did not allow to release films in more than 14 screens in the entire states. This was done only in the case of non Kannadiga films. The resltriction was imposed in order to promote the films made in the lang,ua"gei"ofVthe state of Karnataka. Thus the association of KFCC has not only enfioircedv unfair and discriminatory conditions in the provision of service galsro has limited and restricted the provision of services in the done at the cost of denial of market access to other play, The only way to promote Karnataka films is to prod':uc,e%t'q', _ that they are able to compete with the Hollywood There cannot be a discrimination on the basis of languag_e, creed. This is a constitutional guarantee and it is ensh rihect this the Competition Act. Therefore the boycott of the films and lrniting them only to fourteen screens amounts the denial of marlé being discriminatory. KFCC has therefore contravened", section 4(2)(a)(i) and Section 4(2)(b)(i) of the Act. T
15. The next issue is in respect of satellite rights, a video rights. As already discussed above, the shelf life of g _ qluifitellow.
Though some producers and distributors agree to the \relejase of these rights within a period of three months of the release of the films, the different associations have different periods some of the associations agree to the release of these rights ,wyhilt,n six » orrths of the release of the films but some others insist on all'.-pi; ?oif§3"'fiv<eivly'earsl. some of the distributors agree to the relea t" e,' three months of the release of the films, they do i'\iot§:tal'<"e:
'we, o*:aft;tt'ouht the interest of the in', 12 exhibitors. In the small mofussil cities and towns of India, many new movies come to the theatres after a period ofthree to four months or even later. If the satellite, DTH rights and video rights are sold 'prior to the: exhibition in the cinema halls, the E)<hlbltOl'SI"'&fe putiito'§lltjs's"'as the majority of the persons would have seen the movies ohiT.V. either through satellite broadcasts or cable T.V. The industry should decide this issue amicably keeping into mind the interest of the producers, the distributors and the exhibitors.
16. But presently the sale of satellite, DTH and video rights have led to difficulties for the producers, the distributors and the exhibitors._ Presently most of the associations insist that before the release of afifilm, a producer should become a member of their associal_:,'" if V should register their films with the association.
membership creates no difficulty as the" fees chargleclis _\j/eff There is a clause in most of the associations that no with a non member. If a member deals with a non me l is h'eavllv penalised. Thus a producer has to become a memberof thle,,as_sociation or otherwise it would not be able to release its film in the area of. the association. But when a producer becomes a member ofwth e __association he is made to sign an undertaking that it would not r ' film. The producers sign such undertaking s for the;
their film would not be released i M f they do not sign But thereafter the producers sell the satellite, video.'tgljil much before the expiry of the period of five years sometimes within a period of three months or even earlier. In such cases, the associations levy a charge on the producer for the failure with the association. But when t damages for the violation of the go ra comes with the distribution of a s:u?El_se allow the release of the film by reft§i.l Ybtir the contract entered into not pay the liquidated producer / distributor K' assoc ation do not 1 §;;::5:,"'f'ister the film. This again 13 amounts to a denial of market access in violation of Section 4 . Act.
17. The denial arises mainlgyfldue to thecogllective ba rgayiqniungg the exhibitors / the distributors who act through the associat correct course for the association is to go to the courts for i they cannot deny market access to the producers. ion.
is a contractual liability. on account of liquidated damage] [2)(c) of the If there s, then the 'ecovery but Anotheri issue which appears is that though there are hundreds of producers, confplaints have come only from a handful of producers. There producers do riot believe in following the earlier norms and would like to increase their cost of the exhibitors.
18. In any case it is a contentious issue and the In any case taking into account the smallshelf life of films months from the release date would be a reasonable pe"
satellite, video rights etc. A period of five years is totallyWu~ _E A period of six months would take care of the interest of ti and the exhibitors. But in any case, boycott of a film is act under the provisions of Section 4(2)(c) of the Act. T
19. Similarly when some disputes arose between pro exhibitors and some amounts were due from thefiipr association stepped in to support the exhibitor and as subsequent film of the producer by not allowing itseieregi release. In such cases also, the exhibitor could have recovery and the association should not have boycotted the also a violation of Section 4(2)(c) of the Act.
20. The D.G. also found durin'hg.......i.W€.§Fi9am" that some have clauses which restrict SE members. This;
true of KFCC, CCCA, BJMPAf 'nde"'MPA. This limits the provision of serigi mbers in vie 4(2)(b)(i) of the Act. On ome association profits at the it"'outi.
.i3§:r.i9sl..oiffsix this Sale of is petitive and <.:.ivilf suit for film. This is associations is especially restricts and w of Section s allow such 14 ..$tV.e.,"9..UT Of 1 .3 . setting disputes and running the industry in a good manne time certain anticompetitive behaviour is bound to arise. The dealings. Such restrictive and anticompetitive behaviour stopped by the associations by amending their laws.
21. Another issue raised by the D.G. films, In my view, registration of films is necessary to definitive in dealings and transparency. But if any other co put which has no relationship with the contract or registration of Section 4(2)(d) of the Act. Such supplementary obligations of registration should be stopped by the associations.
22. The associations have done exceptional work during t are doing the work of regulation without a therefore the only authority which the association is of denial of market access. But then boycott falls foul of IC;ornpetitio"n Act as discussed above.
23. I have not discussed the facts of the case becau discussed in the majority order.
24. Considering the abuse of dominance by the assoyciagtio either companies or societies, in my view the distortion market is not large as far as competition is concerniejdi.". penalty at the rate of 2% of the turnover of each association in the majority order would be sufficient for the contraveynt sufficient. The associations should comply with the directi the order within three months of the ord I':
25. The Secretary is directe ff concerned parties.
'Kt' 3;! .7 A should be is compulsory regiistréttiotn of the bring, some nditions are is violative at the time we years. by . But over associations o\/Cciléifl se they are n, which are in the .Thv;e$refore a 'discussed ion would be :>ns issued in jxcaate the order to the 15 . setting disputes and running the industry in a good manner time certain anticompetitive behaviour is bound to arise. The (jeanngs. Such restrictive- "and anticompetitive behaviour Stopped by the associations by amending their laws.
21. o-/mother issue ra.iS.ed.b.Y the-.D-G. definitive in dealings and transparency. But put which has no relationship withthe contract or registration of Section 4(2)(d) of the' Act. Such supplementary obligations of registration should be stopped by the associations. 22, The associations have done exceptional work during ti are doing the work of regulation without a stafijltor therefore the only authority which the association is'th"at"of denial of market access. But then boycott falls foul oft as discussed above.
23. I have not discussed the facts of the case becaus discussed in the majority order.
24. Considering the abuse of dominance by the associatio either companies or societies, in my view the distortio"n market is not large as far as competition is concerni1e§lv.*'. penalty at the rate of 2% of the turnover of each assoCli:i;'i,ifil.On in the majority order would be sufficient for the contrfaveint if any other cor he con should be .15. £9 rzulsqrv ts 9i,§t:@.ti§9n_.. . films, In' my view, registration of films is necessary to t )ring some is violative at the time ie years. by . But over a sociations sei they are 1, whigh are-
in the ."Fher_efore a [discussed would be sufficient. The associations should comply with the'd'li'r'ecti'on's issued in the order within three months of the order.
25. The Secretary is dir,ecte»d. to communicate the crderytoflg thee.-. concerned parties. "
\7/ . I Sd/' Q . GAimlLALJ'i" Member (R) .m\._;:g'3f:rj.§53lST/XNT DlRiECTOR
-- _%;';}';\',';/fi,t§T§elrfpeiilion Commission 0:" India New Delhi iditions are ' 15' 'iii?'