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Case Report: Harmonisation of Antitrust and Copyright Provisions

A. Introduction

In an order dated May 25, 2011, the Competition Commission of India harmoniously interpreted the provisions of the Competition Act, 2002 and the Copyright Act, 1957. The order pertained to a dispute between an association of multiplex owners, and three associations of film producers and distributors: United Producers/Distributors Forum, the Film and Television Producers Guild of India Ltd., and the Association of Motion Pictures and TV Programme Producers.

The multiplex owners had alleged (in 2009) that the film producer and distributor associations were acting as a cartel, and that they had almost complete control over the Indian film industry. The multiplex owners also demonstrated that the film producers and distributors had impeded distribution of films in multiplexes so as to pressurise multiplex owners to meet their demands for a higher shares of revenues — the revenue sharing arrangement between the multiplex owners and film producers/distributors was in fact revised in June 2009 resulting in a 15% to 20% hike in ticket prices for the general public in September-October of that year.

The Competition Commission found the twenty-seven producers/distributors guilty of having acted as a cartel in violation of Section 3(1) of the Competition Act which prohibits enterprises, persons, and associations of enterprises or of persons from entering into agreements in respect of the production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.

B. Arguments made by the Film Producers / Distributors

Several arguments were made with respect to copyright by the film producers/distributors:

1. Arguments made under the Copyright Act:

  • Section 14 of the Copyright Act permits the owner of copyright to exploit such copyright in a manner as he deems fit.

  • It is entirely up to the copyright owner as to how to communicate his film to the public. No multiplex owner can demand that the film be released in its theatre let alone dictate the commercial terms on which such film must be released.

  • It is the discretion and right of the copyright owner to decide how many copies of the film to communicate to the public through theatre or multiplexes and a demand by a theatre or multiplex owner of a right to exhibit the film cannot be sustained.

  • As a copyright owner, a film producer can, at his sole discretion, determine the manner of communicating his film to the public. This includes commercial terms on which the film is permitted to be communicated to the public (as indicated in the decision of the Hon’ble High Court of Delhi in Warner Bros. Entertainment Inc. v. Santosh V.G.).

  • The producer does not generally transfer the property or the title of his motion picture to a distributor or to exhibitor. The exhibitor merely gets a limited right to exhibit the motion picture and therefore as such there is no sale of motion picture that may be said to have taken place from the producer/distributor to the exhibitor.

2. Arguments made under the Competition Act:

  • The Act acknowledges the copyright owners’ rights and excludes these from the purview of Section 3(3) of the Competition Act. Copyright owners are within their right to impose reasonable conditions for protecting any of their rights which have been conferred upon them under the Copyright Act, 1957. Section 3(5) of the Act acknowledges the rights of copyright owners and excludes them from the purview of the other provisions of section 3 thereof.

  • Section 3 (5) of the Act by using a non-obstante clause in the opening part shuts out any investigation by the Commission in a situation where the copyright owner exercises his right, as allegedly recognized and accepted by the Commission in Case No.25 of 2010, Reliance Big Entertainment Ltd. v. Karnatka Film Chamber of Commerce.

  • It is incorrect to state that in respect of copyrighted material “there is a distinction between existence of a right and its exercise. During the exercise of a right if a prohibited trade practice is visible to the detriment of competition in the market or interest of consumer, it ought to be assailed under the competition law” as such a position defeats the very purpose of the exception contained in section 3(5) of the Act.

  • Relying upon a decision of the Hon’ble Supreme Court of India in Indian Performing Right Society Ltd. v. Eastern India Motion Pictures Association, (1977) 2 SCC 820, it was argued that a feature film is nothing but a bundle of copyrights and accordingly it was sought to be urged that a feature film not being ‘goods’ or ‘services’ is outside the scope of the Act.

  • Multiplexes are not consumers within the meaning of section 2(f) of the Act and are merely exhibitors of the films / distribution outlets. There is no concept in law that a person having an outlet can demand from a manufacturer or service provider that such manufacturers’ goods or service providers’ services must be distributed from his outlet. It is always a result of qualification criteria and agreement on commercial terms that results in a distribution outlet selling goods or services.

  • Sub-dividing or segmentation of market for want of prosecution cannot be justified specially when Section 3(1) of the Competition Act does not recognize the concept of a ‘market’ other than the “Indian market”. A newly originated phenomenon in India consisting of only 850 multiplexes cannot be referred as a relevant market, especially when multiplexes account for only about 7% of such screens.

3. Arguments involving both the Copyright Act and the Competition Act:

  • Any action for the benefit of the multiplex owners to claim as a matter of right that the producers should exhibit the film through them will tantamount to compulsory licensing of the film. It was stated that the Copyright Act, 1957 provides for compulsory licensing by the Copyright Board in section 31 thereof in the manner set out therein and therefore, if a film producer refuses to communicate its film to the public then an aggrieved party can invoke the machinery provided in section 31 of the copyright Act, 1957 as aforesaid. Since alternative machinery is available, the Commission does not have the jurisdiction over such matter.

C. The Rationale of the Competition Commission

1. Intellectual property rights

  • A cumulative reading of all Sections 2(f), 13(1)(b) and 16 of the Copyright Act make it clear that copyright is a statutory right subject to the provisions of the Copyright Act, 1957. It is not an absolute right. It is, therefore, abundantly clear that a protectable Copyright (comprising a bundle of exclusive rights mentioned in Section 14(1)(c) of the Act) comes to vest in a cinematograph film on its completion which is said to take place when the visual portion and audible portion are synchronized.

  • Relying on (a) The Gramophone Company of India Ltd. v. Super Cassette Industries Ltd. (Decided on 01.07.2010) MANU/DE/1801/2010, (b) Microfibres Inc. v. Girdhar & Co. RFA(OS) No. 25/2006(DB), decided on 28.05.2009, (c) Entertainment Network (India) Limited v. Super Cassette Industries Ltd., MANU/SC/2179/2008, the Commission concluded thatthe scheme of the Act shows that a copyright owner has complete freedom to enjoy the fruits of his labour by earning an agreed fee or royalty through the issuance of licenses. Hence, the owner of a copyright has full freedom to enjoy the fruits of his work by earning an agreed fee or royalty through the issue of licenses. But, this right, to repeat, is not absolute. It is subject to right of others to obtain compulsory license as also the terms on which such license can be granted.

  • In United States v. Microsoft [38 1998 WL 614485 (DDC Sept. 14, 1998), quoted in Hove Kamp et al, 2005, p. 36], the district court held that “copyright does not give its holder immunity from laws of general applicability, including the antitrust laws.”

  • In Otter tail Power Co v. the United States, 410 U.S. 366 (1973), the US Supreme Court ruled that a dominant firm that controls an infrastructure or an asset that other companies need to make use of in order to compete has the obligation to make the facility available on non-discriminatory terms.

  • The decision of the ECJ of 6 April 1995 in Magill (Radio Telefilms Eireann) (RTE) and Independent Television Publications Ltd. (ITP), established an important precedent in relation to refusal to deal in the context of intellectual property rights. The court held: “The appellants’ refusal to provide basic information by relying on national copyright provisions thus prevented the appearance of a new product, a comprehensive weekly guide to television programmes, which the appellants did not offer and for which there was a potential consumer demand. Such refusal constitutes an abuse under heading (b) of the second paragraph of Article 82 of the Treaty (para. 54).”

  • The U.S. Supreme Court declared in Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975) that “the immediate effect of our copyright law is to secure a fair return for an ‘author’s’ creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good.”

  • The Commision held that in the present case, neither any question of infringement of rights of producers/distributors conferred under the Copyright Act, 1957 arises nor does the question of imposing reasonable conditions to protect such right arise. In the light of the facts of the case and the evidence gathered during the course of the investigation, it is clear that the producers/ distributors acted in concert to determine revenue sharing ratio with multiplex owners and to this end they also limited/controlled supply of films to multiplex owners. Such a conduct on their part squarely falls within the mischief of section 3(3)(a) and (b) of the Act and any plea based on copyright is wholly misplaced and has to be rejected.

  • Multiplex owners are not in any manner infringing the rights of the producers/distributors under the Copyright Act, 1957. On the contrary, the multiplex owners, by seeking to release films in multiplexes, are only facilitating the rights of the producers/ distributors under the Copyright Act, 1957. As multiplex owners have not infringed or threatened to infringe the rights of producers/distributors under the Copyright Act, 1957 in any manner, the plea of the producers/distributors based on section 3(5) of the Act is thoroughly untenable in law for the reasons stated above.

  • It may be mentioned that the intellectual property laws do not have any absolute overriding effect on the competition law. The extent of non-obstante clause in section 3(5) of the Act is not absolute as is clear from the language used therein and it exempts the right holder from the rigours of competition law only to protect his rights from infringement. It further enables the right holder to impose reasonable conditions, as may be necessary for protecting such rights.

  • The producers/distributors failed to produce any evidence to show the impugned act as a reasonable condition to protect their right under the Copyright Act, 1957. It has come in the reports of the D-G that as a result of the action of the producers/distributors the price of tickets of multiplex theatres was increased which, ultimately, are to be borne by the ‘common man’. In such a scenario, it is wholly preposterous on the part of the producers/distributors to invoke the plea based on the rights protected under the provisions of the Copyright Act, 1957 by taking recourse to the overriding effect of such law under section 3(5) of the Competition Act.

  • The Competition Act was enacted, keeping in view the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on the competition, to promote and sustain competition in market, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets in India. And, therefore, it is incumbent upon the Commission to protect the interests of the consumers under the provisions of the Act.

  • For the same reason, the plea of the opposite parties that any direction of the Commission for release of films in multiplexes shall tantamount to compulsory licensing of the film is also baseless and is rejected.
2. Joint venture efficiencies

As regards the argument of joint venture efficiencies as justification of cartel like conduct, it may be stated that the exemption granted to such efficiency increasing agreement is limited in as much as it exempts such agreements from the purview of the presumption inbuilt in section 3(3) of the Act with respect to appreciable adverse effect on competition. It is not a blanket exemption from the entire provisions of section 3 of the Act. Besides, the producers /distributors have failed to show as to how the impugned agreement increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

On the contrary, the alleged agreement controlled/limited the supply of films to the multiplexes besides, increasing the price of tickets as mentioned above. In the circumstances, the contention of the opposite party based on the proviso to section 3(3) of the Act is wholly misplaced and has to be rejected.

3. Collective bargaining

Coming now to the concept of “collective bargaining” the plea of collective bargaining by the producers/distributors on the grounds of greater public or consumer interest, to say the least, is devoid of any substance.

Collective bargaining may not be per se bad in law and may be resorted to for legitimate purposes in accordance with law. However, when the trade associations enter into agreements, as in the present case, in the garb of collective bargaining which are anti – competitive in nature, then no competition watchdog can countenance such act/agreement. Resultantly, the plea of collective bargaining, in the facts of the present case, is without any merit and the same is directed to be dismissed.

4. Appreciable adverse effect on competition

In this connection, reference may be made to the provisions contained in section 3(1) of the Act which states that no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. Further, sub-section (3) of section 3 of the Act contains a rule of presumption of appreciable adverse effect on competition.

The presumption contained in section 3(3) of the Act is rebuttable and the opposite parties may produce evidence to controvert the presumption contained therein. No such effort has been done by the opposite parties in the present case and no such evidence has been brought on record which may controvert the statutory presumption.

In fact, the consumers have been adversely affected in this case. .... multiplexes fall within the definition of “consumer” given in the Act. Clearly, they have suffered by the conduct of boycott by film producers/distributors. Moreover, .... the end consumer or common viewer of movies has also been adversely affected in terms of rising ticket prices.

A cartel need not necessarily meet every day or do something daily to be said to exist. Even a single series of meetings or concerted action with the clear intent to limiting output or fixing prices is sufficient condition for a cartel. As long as the reigning prices and market conditions exist due to the actions of the cartel, the cartel itself would be considered to be continuing. Resultantly, it is held that the duration of the cartel like activity, for the purposes of the Act, started from May 20, 2009 and is still continuing.

(This post was compiled by Nandita Saikia and was first published at Indian Copyright. Parts B and C of this post comprise mildly edited extracts from the Order of the Competition Commission dated May 25, 2011 in case 1 of 2009.)