PREFACE
This update deals with two of the recent orders of Competition Commission of India (“CCI”), given under the provisions of section 3 (anticompetitive agreements) and section 4 (abuse of dominant position) of the Competition Act, 2002. The Orders pertain to the media and entertainment and real estate sectors and briefly relate to the following cases:
(i) K Sera Sera Digital Cinema Pvt. Ltd. v/s Digital Cinema Initiatives, Walt Disney Company India/UTV Software Communications Ltd, Fox Star Studios, NBC Universal Media Distribution Services Pvt. Ltd., Sony Pictures, Warner Bros. and Paramount Films India Ltd in which the Informant alleged that the Opposite Parties formed a cartel to dominate and monopolise the market of digital cinema exhibition in India, by entering into an agreement to release their movies in India in digital form only through DCI compliant servers and projectors. The peculiarity about the case is that CCI had not found any contravention of the provisions of the Act and had closed the matter, but upon an appeal made by K Sera Sera before the Honorable Competition Appellate Tribunal, the Tribunal remitted back the matter to CCI for reconsideration; and
(ii.) The Confederation of Real Estate Brokers’ Association of India v. Magicbricks.com, 99acres.com, Housing.com, Commonfloor.com and Nobroker.in, in which the Informants had alleged that Opposite Parties had abused their dominant position by adopting a “no brokerage policy” for realty deals or charged much less brokerage fee, as compared to traditional brokerage fee.
BRIEFLY ABOUT ANTI-COMPETITIVE AGREEMENTS
Section 3 of the Competition Act deals with anti competitive agreements. The purpose of section 3 of the Competition Act is to regulate competition. It prohibits all types of agreement which have an appreciable adverse effect on competition and also prevents those which are likely to have such effect.
Adverse effect results when the agreement harms the competitors in the consumer welfare sense of economies, i.e. price or output. That consequence may even be unintended. Even if the consequence is probable, the agreement.
It is not the form of the particular means used, but the result to be achieved that the statute condemns. It is also not important whether the means used to accomplish the unlawful objective are themselves lawful or unlawful. No formal agreement is necessary to constitute an unlawful conspiracy.
Such anti-competitive agreements are divided into 2 broad categories, namely Horizontal agreements and Vertical agreements.
Horizontal Agreements – These are agreements which are entered into in between enterprises which are engaged in identical or similar trade of goods or provision of services and which,- i. directly or indirectly determines purchase or sale prices; ii. limits or controls production, supply, markets, technical development, investment or provision of services; iii. shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition.
Vertical Agreements – These are agreements which are entered into in between enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including —(a) tie-in arrangement; (b) exclusive supply agreement; (c) exclusive distribution agreement; (d) refusal to deal; (e) resale price maintenance.
BRIEFLY ABOUT ABUSE OF DOMINANT POSITION
Section 4 deals with abuse of dominant position by an enterprise or a group. It prohibits the use of market controlling position to prevent individual enterprises or a group from driving out competent businesses from the market as well as from dictating prices. Section 4, therefore, does not prohibit dominance, but prohibits its abuse.
Section 4 defines “dominant position” as the enterprise’s position of strength in the “Relevant Market” and then sets out criteria to determine the position in terms of the enterprise power of operating independently of market forces or affecting competitors and consumers or the Relevant Market in its favour.
The basic feature of the definition is that the dominant firm is able to control the “Relevant Market” which it operates.
Therefore, for establishing dominant position and its abuse,- it is necessary to i. define the relevant market, as the dominance does not exist in the abstract, but in relation to a market in which the undertaking competes, ii. Assess market strength in order to see whether the undertaking possesses a certain level of market power, and (iii) consider whether the conduct of the undertaking amounts to an abuse of dominant position.
Relevant Market (Product Market and Geographic Market)
The term “relevant market” has been defined to mean the market with reference to either or both of the “relevant product market” or the “relevant geographic market”. Defining relevant market means identifying the particular products/services, produced/rendered by an enterprise in a given geographical area.
Relevant Product Market – The Competition Act defines the term relevant product market in terms of substitutability or interchangeability, as consisting of products which are interchangeable with each other, by reason of characteristics of the product or services, their prices and intended use.
If there are substitutes for a commodity, the competition is under no restraint. On the demand side, the relevant product market includes all such substitutes that the consumer would switch to, if the price of the product were to increase. From the supply side, this will include all producers who could, that the existing facilities, switch to the production of such substitute goods. Thus, all products which have sufficient degree of substitutability, constitute the same market.
Relevant Geographic Market – It is defined to mean the market comprising the area in which the conditions of competition for supply of goods or the provision of services or demand of goods or services are distinctly homogeneous and can be distinguished from conditions prevailing in the neighbouring areas.
Thus, geographic dimension involves identification of the geographical area within which competition takes place. Relevant geographical market could be local, national, international or occasionally even global, depending upon the particular product under examination, the nature of the alternatives in the supply of the product, and the presence of absence of specific factors (example, transport costs, tariffs, or other regulating barriers or measures) that prevents imports from counteracting the exercise of market power domestically.
K SERA SERA CASE
Facts of the Case & Contentions of the Informant
K Sera Sera Digital Cinema Pvt. Ltd. (“K Sera Sera”) filed a complaint with CCI against Digital Cinema Initiatives (“DCI”), Walt Disney Company India, UTV Software Communications Ltd, Fox Star Studios, NBC Universal Media Distribution Services Pvt. Ltd., Sony Pictures, Warner Bros. and Paramount Films India Ltd. alleging, interalia, contravention of the provisions of Sections 3 and 4 of the Act.
CCI had not find any contravention of the provisions of the Act and had closed the matter; but upon an appeal made by K Sera Sera before the Honorable Competition Appellate Tribunal, and remitted back the matter to CCI for reconsideration, with the observation that CCI must examine the potential of technical regulations in creating anti-competitive conditions and establishing monopolistic conditions.
K Sera Sera was engaged in the business of digital projection and screening of films in India through a specific own proprietary technology known as Sky Cinex Technology and had its projectors and servers installed and connected to over 300 movie theatres across India to provide its digital cinema services. It alleged that DCI was a cartel formed by the opposite parties, with an objective to dominate and monopolise the market of digital cinema exhibition in India, by entering into an agreement to release their movies in India in digital form only through DCI compliant servers and projectors. The said cartel forced the Indian companies, engaged in the business of digital cinema technology, to adhere to their standards and conditions even though the Indian companies had better technology.
K Sera Sera alleged that though its technology did not comply with the standards of DCI, but it was not inferior to DCI-Compliant technology, and in fact, it was better than the DCI-Compliant technology, both in quality and security. The Informant and similarly placed other companies were not allowed by the Opposite Parties to exhibit the movies produced by OPs and OPs had compelled the cinema theatre owners as well as the digital cinema technology companies across the country to adopt and use servers and projectors specified by them and that too only from their list of manufacturers/vendors or else loose the business of screening/exhibition of the movies produced by them.
The theatres in which the technology/equipment of the Informant and similarly placed other companies were installed also want to screen Hollywood movies, but the theatre owners were being deprived from playing Hollywood movies and the Bollywood producers had not placed any such restriction in the form of technological conditions on the Informant or other similarly placed companies. The theatre owners were left with two options, either to abstain from playing Hollywood movies and play only Bollywood movies or to install the expensive equipment technology certified and accredited by Opposite Parties.
6It was inter alia alleged that the opposite parties,- (i) were not allowing the cinema theatre owners to install the servers and projectors of their choice which deprived a large number of viewers from watching movies in a theatre of their choice at a competitive ticket price; (ii) imposed unfair condition in purchasing, installing and using the DCI-compliant equipment by the digital cinema technology companies and the cinema theatre owners which limited and restricted the provision of services of movie exhibition/screening and marketing; and (iii) used their dominant position in the movie production to enter into and monopolise the market of digital cinema service providers.
Order of CCI
CCI noted that DCI was a joint venture by six big Hollywood movie production studios – Disney, Fox, Paramount, Sony Pictures Entertainment, Universal and Warner Bros. Studios with a primary purpose to establish and document voluntary specifications for an open architecture for digital cinema that ensures a uniform and high level of technical performance, reliability and quality control.
Based on submissions of the Opposite Parties, CCI noted that the technology used by the Opposite Parties had several distinctive features compared to technology used by the Information and the former offered higher quality image and sound and higher protection from privacy.
In the absence of DCI specifications, each Hollywood studio would adopt its own proprietary format/specification for screening its movies. In such a situation, theatre owners would have to invest in separate equipments compatible with the proprietary formats of different producers/studios. This would lead to substantial increase in operating cost for the theatre owners which would in turn be passed on to the end consumer. Alternatively, to avoid investing in multiple equipments, theatre owner would invest in equipment compatible to screen/show the content of the largest Hollywood producer. This would foreclose the market for other Hollywood studios, equipment manufacturers as well as smaller production houses; and in turn limit the consumer choices.
The Informant’s allegations were made without any explanation or evidence to support the same. CCI observed that the cost of equipments was not the only determining factor for the price of a cinema ticket as there were several other factors such as the genre, locality, current market price in general, ambience, etc. which were also considered for determining the price of a cinema ticket. Thus, the allegation of the Informant was not tenable.
CCI observed that non-availability of Hollywood movies does not impede the growth of the Informant. Also while the regional movies/markets constitute a significant portion of the Indian cinema market, Hollywood movies constitute a very small portion of the movie market in India. Only approximately 5% of the total revenue earned by the Indian film industry was derived from Hollywood movies implying that the Informant would not be adversely affected if it is not able to screen the movies of OPs.
The CCI came to the conclusion that there was neither any anti competitive agreemens entered between the opposite parties, nor there was any case of abuse of dominant position.
REAL ESTATE BROKERS’ ASSOCIATION CASE
Facts of the Case
The Confederation of Real Estate Brokers’ Association of India (“Informant”) filed a complaint against five real estate websites namely, Magicbricks.com, 99acres.com, Housing.com, Commonfloor.com and Nobroker.in, alleging that Opposite Parties had abused their dominant position by adopting a “no brokerage policy” for realty deals or charging much less brokerage fee, as compared to traditional brokerage fee of 2% of the sale/purchase value of a property; and because of which the traditional real estate brokers were losing their business as they were unable to compete with the Opposite Parties.
It was alleged by the Informant that the opposite parties were the top real estate listing websites in India and they enjoyed a dominant position in the real estate market.
Order of CCI
The relevant product market in this case is was the services of real estate brokers/ agents without any distinction between on-line and off-line services of brokers, which were only alternative channels of delivering the same service.
With regard to the relevant geographic market, CCI observed that, the traditional brokers/ agents provide services within their respective localities, whereas the Opposite Parties offered their services anywhere in India through their website which enabled the consumers to purchase/ rent any property in their localities or anywhere in India.
In background of the aforesaid relevant market, the presence of a large number of listing sites and traditional brokers in the said relevant market pose competitive restraint on each other and hence no specific player could act independently of the market forces and affect the consumers or other players in its favour.
With respect to the website ranking figures, it was not possible to gauge the dominance of any of the Opposite Parties in the relevant market, as the ranking was limited to only the websites/ portals and did not include the offline brokers. Further, these rankings were based on traffic attracted by the websites which keep on changing regularly based on the number of page views.
Hence, in the absence of dominance of any of the Opposite Parties in the relevant market, CCI did not find any contravention of the provisions of Section 4 of the Act.
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