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
1Views 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
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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.

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!  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.

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!  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.

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!  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.

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!  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.
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!  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.
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!  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.
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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.
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POSITION IN OTHER JURISDICTIONS
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!  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.
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!  In a 1946 ruling involving RKO Radio Pictures,
the United States Supreme Court held an
arrangement to be anti-competitive wherein a
movie was distributed only 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
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!  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.
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!  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 distributors
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.
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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
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!  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.
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!  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.
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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;
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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.
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!  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.
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!  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
conditions for the business of film
distribution which otherwise should be
decided between the producer and
distributor.
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!  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.
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!  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)
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