Background to the Order
In early 2009, a dispute arose between multiple Bollywood film producers/distributors and multiplex owners, with the former stopping the release of several of their films till their demands were met. The dispute hinged on the producers’ demands for a greater share in the revenue collections made by the multiplexes. The multiplex owners on the other hand claimed that the producers’ and their lobbyists were ganging up against them unfairly, stirring apparent antitrust issues.
The Earlier Practice
A tabular representation of the box office collection sharing arrangement between the multiplex owners and producers prior to the dispute in 2009 is given below:
While this was the general practice, independent arrangements were also secured by big producers from time to time, on a variety of considerations – cast, location, potential of the film, budget etc.
Cartel Like Conduct
One of the main grounds of contention was the allegation that the film producers and distributors colluded together and decided not to offer their films to the multiplexes, creating pressure on the latter, in an effort to seek a compromise. The owners advanced evidence that the producers were limiting supply of their movies, with the objective of effecting higher prices for their goods and services (the right to display their films, essentially) constituting cartel like conduct. They also claimed losses arising from lost food and beverage sales. The order contains instances of such conduct under 22.214.171.124.
The New Arrangements
As a result of the joint pressure generated by them, the revenue sharing, in terms of the new settlement was fixed at 50%, 42.5%, 37.5% & 30% for the 1st, 2nd, 3rd and 4th week respectively. It can be seen that the new revenue sharing ratio in favour of producers/distributors has been enhanced by a minimum of 2% from the first week and is also higher for the subsequent weeks. The full details of the new arrangement can be found in 3.4.5 of the order.
Order of the Commission
The Commission found the 27 producers/distributors guilty of violation the provisions of S.3(1) of the Competition Act, 2002 which prohibits “enterprises or associations of enterprises or any person or association of persons from entering into an 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.”
It imposed a penalty of Rs. 1,00,000 on each of the parties involved, and ordered them to refrain from indulging in such anti-competitive practices in the future.
The Copyright Angle
Some of the arguments advanced by the producers/distributors relied on the Indian Copyright Act, 1957 heavily. They declared that:
All feature films are a subject matter of copyright (‘cinematographic film”)
Section 14 of the Act permits copyright owners to exploit their works in any manner as he or she deems fit.
It is entirely up to the copyright owner (in this case, the producers) to determine how to communicate his or her film to the public.
Alternate compulsory licensing mechanisms are provided under the Copyright Act already so the Competition Commission does not hav jurisdiction.
It is not for the multiplex owners to demand that the film be released in its theatre or dictate the commercial terms on which the film must be released.
They also argued on the basis of provisions contained in the Competition Act, 2002 dealing with intellectual property rights, specifically that:
Section 3(3) of the Act acknowledges the copyright owners’ rights and hence there is no legal prohibition in this provision against them.
They also argued that since Section 3(5) of the Act contains a non obstante clause stating that nothing shall prevent persons from imposing reasonable restrictions in order to protect their rights conferred under the Copyright Act, 1957, their actions are perfectly legal.
They sought to reject the observations of the DG that if in exercising rights conferred under the Copyright Act, unfair trade practices were observed, they should be assailed under competition law, on the basis of S.3(5) again.
Each feature film is nothing but a bundle of copyrights and hence is not “goods” or “services” as defined in the Competition Act.
Observations of the Commission on the Copyright Issues
In respect of the arguments advanced by the producers and distributors that their actions were permitted in view of the rights conferred by the Copyright Act, 1957 and the exemption created in the Competition Act, 2002 for copyright owners to impose reasonable conditions to protect their rights, the Commission in rejecting the same, made the following observations:
Copyright is a statutory right subject to the provisions of the Copyright Act, 1957 and as such, is not an absolute right.
Any action for the benefit of 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 and, therefore, the Commission would not have the jurisdiction over such issues.
However, since there was no question of infringement of copyright in this case, there can be no reliance placed on the imposition of ‘reasonable conditions’ (as set out in S.3(5) of the Act) as being permissible.
The producers/distributors, based on evidence, colluded together to determine revenue sharing ratios with multiplex owners and controlled supply of films to them, amounting to a violation of S.(3)(a) and (b) of the Act.
The multiplex owners were merely facilitating the exercise of rights vested in the producers and not arrogating or infringing them in any way.
Finally, they stressed on the fact that intellectual property laws have no overriding effect over competition law, despite such a reading of S.3(5) of the Competition Act by the producers.
Most importantly, the producers failed to establish that their actions were ‘reasonable’ and hence no reliance could be placed on the exemption provided in S.3(5)
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