Antitrust Issues In Entertainment And Film Industry (Part 1)

Introduction:

India’s film industry is so glamorous that it attracts people from all over the world. Given how huge the industry is, there are various laws that apply to it. In the present article, we will be analysing the antitrust issues in the film industry and the application of Competition Laws. Competition law is the tool for decentralisation and equal distribution of resources, and it helps to control the government action in monopolising some aspects. The major issues that can be considered include the association of producers or distributors, or the combined association. Associations are always for the betterment of an industry, but if the rules and regulations for the same are not set, then the action of such associations may cause an appreciable adverse effect on competition(hereinafter AAEC). Competition law is at adeveloping stage, and not much work is done in the context of the film industry in competition law in India. This segment will try to analyse the application of Section 3 (Anti-Competitive agreement) of the Competition Act, 2002(The Act) in the Indian film/entertainment industry.

AAEC in the relevant market is prohibited by Section 3[i]of the Act, which deals with the production, supply, and distribution of products and services. The producers’ and distributors’ organisations are powerful enough to put together their agreement, which imposes arbitrary restrictions which amounts to AAEC. No matter where you are globally, it is impossible for enterprises or groups of people to agree on how to set prices, govern production, or allocate market share per their location. Section 3 of the statute also prohibits bid rigging. This law does not apply in cases where joint ventures are agreed upon to increase efficiency. Another key criterion that may lead to an anti-competitive agreement is an agreement that “limits, restricts, or withholds the output or supply of any goods or allocates any area or market for the disposal or sale of the commodities.” Under this definition, any agreement that restricts the supply of any products or services would be considered anti-competitive.

The actions which may lead to AAEC in the film industry are[ii]:

  1. Incorporating a restricted clause in the Articles of Association that members can only conduct business with other members;this is one of the acts that led to the formation of AAEC;
  2. in order to control the film, the Association made it essential for every producer to register the film; and
  3. a problem with the time it takes to broadcast the film on television

To understand the concept in a deeper sense let’s analyse the case laws set forth by the competition authorities.

In the case of Motion Pictures Association v.Reliance Big Entertainment Pvt Ltd.[iii], the issue before the Competition Commission of India (CCI) was whether the association of producers is the enterprise within the ambit of section 2(h) of the Act. CCI negatively replied the same but ruled that they may be covered under the ambit of persons or association of persons. The agreement by the association was so unreasonable and unfair that every distributor had to register themselves with the association, and penalties or an outright ban would be imposed on those who failed to followthe conditions of the association. CCI ruled that the restrictions imposed by the association are anti-competitive as it limits the control, supply, and production of the movies. The decision was challenged before the Competition Appellate Tribunal (COMPAT), where it was held that the association does fall under the category of “Association of person” or the “enterprises”; moreover, the action of the association was deemed restrictive, and hence COMPAT upheld the decision of the CCI.

In the case of the Kerala Film Exhibitors Federation[iv], the association represented over 350 theatres in the state of Kerala, having complete control over the registered members. All the unregistered members (theatres) were restricted from projecting movies because of the association’s economic power. In the present case, CCI held that the practices adopted by the Federation are anti-competitive as the associationis dominant in the relevant market. CCI awarded the punishment under Sec 27 of the Act and imposed a fine of 10% on overall average income.

In Reliance Big Entertainment Ltd v. Karnataka Film Chamber of Commerce &Ors[v], CCI delivered combined judgement for eight cases. Anti-competitive practices by several associations operating in different jurisdictions became the subject of widespread debate. The Commission’s opinion is that these associations’ Memorandum and Articles of Association(AoA) reflect the common purpose of the members of each. Though they are not directly involved in film creation, distribution, or exhibition, the association members were responsible for the association’s overall conduct. Section 3(4) was not applied since associations, and their members are not in a vertical chain when dealing with restrictions on film release under section 3(3).

The Commission said that the clauses of AoA giving the associations a lot of power to control the business affairs of the entire industry was not in line with Section 3(3)(b) of the Act. KFCC, in particular, had put an additional restriction on the release of non-Kannada films. They had limited the number of screens where non-Kannada films can be shown to 24, while Kannada films were shown on 200. It took two weeks for all non-Kannada films to get a full release. Such extreme steps were takenin order to promote local movies. Section 3(3)(b) of The Competition Act says that if an association gives one film better treatment than another, that will violate Section 3(3)(b) of the Act because it’s up to the consumer to choose which film they want to see.

Revenue sharing agreements vis-à-vis AAEC:

Distributors, manufacturers, and film organisers are all focused on this issue. Parties separately select the percentage of shares to be split according to their terms and conditions. Associations likewise determine the percentage of shares distributed among their members, which is then uniformly applied. Here, we’ll look at a few Indian competition cases in which a disagreement has risen. Revenue-sharing issues were the focus of these disagreements.

Film Guild of Producers, an independent, non-profit film trade body, filed a lawsuit against the government[vi]. The motion picture industry comprises people who make movies and make money from them. It negotiates with the government on important issues affecting the movie industry. It also works with the Association of multiplexes and the multiplex companies, like PVR, INOX, and Fun Cinemas, to solve any internal and external trade disputes in the industry. The members of the Association don’t disclose the information such as when the movie will be released, and until the last day,people usually don’t know which movie will be shown in which theatre. Another problem is that the multiplexes take the entertainment tax out of the revenue share even in states where the tax has been abolished. It was also said that the members of the multiplex association don’t pay in advance, which they are supposed to do.

The Association said that multiplexes only make up about 25% of the money so that producers can negotiate the rest of the money. The Copyright Act of 1957 allows the owner of a copyright to use that copyright in any way they want. A film is a work that would fall under that umbrella. That is to say, the creators can show off their work to the public as they want. In this case, no multiplex theatre operator can demand that the film be shown in their cinemas or set the commercial terms on which it must be shown.

In the movie theatre business, each party’s model or percentage of revenue is not a concern for competition. The multiplex association hasn’t asked its members not to deal with movie producers or distributors on their own because there was no evidence of it. As for movies like “Delhi Belly” and “Bbuddah… Hoga Terra Baap”, the movie makers and theatre owners have said that the terms of their deals with each other and with the theatres were worked out by themselves, and there was no involvement from associations. The commission couldn’t find enough evidence against the group, so it decided that they didn’t form a cartel and weren’t breaking the law by acting in a way that was against sections 3(3) (a) and 3(3) (b) of the Act.

A competition case in the film industry usually involves a party and an association that represents film producers, distributors, and movie theatres; or it could be between a party and an association that represents all the parties. It’s also a concern when section 3(3)(b), the charging section in most cases, is used. This section talks about the agreements made between businesses, associations of people that will limit or control the supply of goods or services.

In this way, the term agreement has become broader, and it is easier to prove agreements between the parties because they have formed a group to work toward the same goal. But, if we read the provision, it says that an agreement can only be made between two people who make or distribute the same thing or service. This doesn’t apply to distributors, producers, and exhibitors, because they don’t do the same thing or even similar things. It’s also a concern about whether or not section 3(4) of the Act isn’t used in certain cases, as the commission said in its common judgement on February 16: It’s not like they all do the same thing. Instead, they can be said to be in a vertical chain.

(To be continued in part 2)

Author: Amey Jadhav – an intern at Khurana & Khurana, Advocates and IP Attorney,  in case of any queries please contact/write back to us via email vidushi@khuranaandkhurana.com

References:

[i] Section 3, Competition Act, 2002.

[ii] Reliance Big Entertainment Ltd. etc. Against Karnataka Film Chamber of Commerce and ors. 2012CompLR269(CCI)

[iii] 2013CompLR466(CompAT).

[iv]CrownTheatre v. Kerala Film Exhibitors Federation , p.3, Case no. 16 of 2014.

[v] [2012] 108CLA 116 (CCI)

[vi] M/s Cinemax India Limited (now known as M/s PVR Ltd) v. M/s Film Distributors Association (Kerala), Case no. 62 of 2012.

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