Facts

The case FICCI Multiplex Association of India v. United Producers/Distributors Forum & Ors. (Case No. 01 of 2009) was decided by the Competition Commission of India (CCI) on May 25, 2011. The FICCI Multiplex Association of India, representing multiplex owners, filed a complaint against the United Producers and Distributors Forum (UPDF) and other film producers and distributors, alleging anti-competitive behavior. The complaint claimed that UPDF and its members colluded to restrict the release of films to multiplexes between April and June 2009 in order to force multiplex owners into accepting a revised revenue-sharing agreement.

Issue

The key issues in the case were whether the producers and distributors engaged in cartel-like behavior, whether their conduct violated Section 3(3)(a) and (b) of the Competition Act, 2002, which prohibits agreements that determine purchase or sale prices and limit supply, and whether the copyright rights of the producers under Section 3(5) of the Competition Act exempted them from competition law violations.

Ratio & Decision

The FICCI Multiplex Association argued that the producers and distributors acted collectively to limit the supply of films to multiplexes, which resulted in an appreciable adverse effect on competition (AAEC). This restriction led to higher ticket prices, ultimately harming consumers. The informant also pointed out that UPDF pressured its members to comply with the cartel decision by threatening disciplinary action against those who defied it.

On the other hand, the producers and distributors denied cartelization, claiming that they were only engaging in collective bargaining to secure fair revenue-sharing terms with multiplex owners. They argued that their actions were protected under copyright law, which granted them complete discretion over the distribution of their films. They also cited the case of Reliance Big Entertainment Ltd. v. Karnataka Film Chamber of Commerce, asserting that competition law should not interfere with copyright ownership rights.

After an in-depth investigation, the Director General (DG) of Investigation found that UPDF members actively coordinated their actions to restrict film releases, which led to an increase in ticket prices and harmed consumers. The CCI rejected the copyright defense, clarifying that Section 3(5) of the Competition Act does not provide absolute immunity to copyright holders when they engage in anti-competitive conduct. The Commission held that the actions of the producers and distributors violated Sections 3(3)(a) and 3(3)(b) of the Competition Act, 2002.

Consequently, show cause notices were issued to determine penalties under Section 27 of the Competition Act. This case is significant as it established the principle that intellectual property rights do not provide immunity from competition law scrutiny and reaffirmed the CCI’s power to regulate cartelization in the entertainment industry.

Discussion on the Case

What is the meaning of Foreclosure of Competition” in Section 19(3) of the Competition Act, 2002?

The term “foreclosure of competition” in Section 19(3) of the Competition Act, 2002 refers to situations where an agreement or practice in the market prevents, restricts, or reduces competition by making it difficult or impossible for competitors to operate effectively. This can happen through various anti-competitive strategies, such as:

1. Exclusionary Practices – A dominant player may engage in conduct that prevents new entrants from entering the market or drives existing competitors out (e.g., exclusive supply agreements, predatory pricing).
2. Market Denial – Certain agreements may create barriers to entry, limiting the ability of competitors to access essential resources or customers.
3. Tying and Bundling – A company may condition the sale of one product on the purchase of another, thereby limiting consumer choice and foreclosing competition.

Thus, foreclosure of competition essentially means limiting or eliminating the ability of competitors to compete freely in the market due to restrictive practices by dominant firms or anti-competitive agreements.