By way of an order dated 30 August 2018, the Competition Commission of India (CCI) penalised the Karnataka Film Chamber of Commerce (KFCC), the Kannada Okkuta and various individuals – including Sa Ra Govinda and Vatal Nagraj, the presidents of both organisations – for engaging in anti-competitive conduct.

Facts

Information filed by G Krishnamurthy under Section 19(1)(a) of the Competition Act 2002 alleged that the defendants had created numerous competitive roadblocks by posting incendiary posts on Twitter and by threatening to commit acts of violence, including in a newspaper interview in which Nagraj threatened to burn down cinemas for releasing a dubbed film. The informant acquired the dubbing rights to the Tamil film Yennai Arindha from M/s Sairaam Creations by way of an agreement dated 3 May 2016 and had dubbed the film from Tamil to the Kannada language under the title Sathyadev IPS.

The informant further argued that the defendants had acted in the same manner on the release of previous dubbed films, for which the CCI had already penalised them in Kannada Grahakara Koota & Anr v KFCC (order dated 27 July 2015, passed in Case 58/2012). The informant stated that the defendants' actions of banning and suppressing the production and release of dubbed content constituted anti-competitive behaviour and violated Section 3 of the Competition Act; therefore, he requested that the CCI direct an inquiry into the matter. The informant also appealed for interim relief against the defendants for hindering the release of another Tamil film, Araambham, which the informant had dubbed into the Kannada language and retitled Dheera.

Based on the records and the submissions by the parties, the CCI held that there was a prima facie case and directed the director general to instigate an investigation. Further, the CCI was fully convinced on the grant of interim relief in favour of the informant under Section 33 of the Competition Act. By way of an order dated 3 October 2017, the CCI held that the defendants and their affiliates must not prevent, obstruct, hinder or adversely affect the release of the dubbed film Dheera, directly or indirectly, in the state of Karnataka.

Director general investigation

The director general submitted a detailed investigation report under Section 26(3) of the Competition Act, analysing the conduct of the defendants based on:

  • documentary and oral evidence;
  • information gathered from the informant, the defendants and third parties during the course of investigation; and
  • information available in the public domain.

The director general identified the relevant market as the production and exhibition of dubbed films in the Kannada language in the state of Karnataka by considering the requirements laid down by the Supreme Court in Competition Commission of India v Coordination Committee of Artists and Technicians of WB Film and Television Industry (AIR 2017 SC 1449, Civil Appeal 6691/2014).

The director general found that the KFCC and Kannada Okkuta provided a platform to its office bearers (ie, Govinda and Nagraj) to issue statements during a press meeting on 1 March 2017 at the Press Club, Bengaluru and that these statements instigated the sentiments of the public. Nagraj even threatened to torch cinemas that were screening the dubbed movie Sathyadev IPS and defendant Mr Jaggesh supported the cause through inflammatory tweets.

The director general further found that Jaggesh, through posts on his Twitter account and a speech during the press meeting, invoked Kannada pride, culture and tradition to issue inflammatory statements and incite the masses. Jaggesh has thousands of followers and his tweets have instigated Kannada-speaking people to rebel against certain cinemas, calling them to ban the screening of Sathyadev IPS. Jaggesh's fans acted on the instigation and made telephone threats to the cinema owners and film distributors against the screening of Sathyadev IPS, as well as physically protesting outside the cinemas and causing damage to the property of the exhibitors and distributors.

The director general's report stated that the defendants had been in tacit understanding when creating entry barriers for the producers, distributors and cinema owners in the state of Karnataka, which had significant adverse effects on competition in the Karnataka market – in clear contravention of Section 3(3)(b) of the Competition Act. Therefore, their actions violated Sections 3(1) and 3(3)(b) of the act.

The director general also found the KFCC to be a repeated offender by virtue of Case 58/2012, in which a cease and desist order was issued against the organisation, which it had defied. The director general also found the conduct of H Shivram, secretary of the Kannada Okkuta, and N M Suresh, secretary of the KFCC, in violation of Section 3 of the Competition Act and hence liable under Section 48 of the act.

Decision

The CCI considered the issues of:

  • whether the defendants had acted in concert and created barriers to the screening of the dubbed films in the state of Karnataka; and
  • whether such actions violated Sections 3(1) and 3(3)(b) of the Competition Act.

The commission held that the argument that the press meeting was organised with the intent to preserve the culture and tradition of native languages did not hold. The defendants were found to have a prior meeting of minds, pursuant to which they had acted in the press meeting with the common aim of protesting against the release of the dubbed film. The timings of the tweets and the press meeting indicated that there was a tacit understanding between the defendants in contravention of Section 2 of the Competition Act. Further, their actions seriously disrupted the supply chain through which the film would reach audiences.

The CCI held that this tacit understanding led to an adverse effect on competition under Sections 19(3)(a) and 19(3)(c) of the Competition Act, as new entrants in the dubbed film market were prevented from competing with Kannada films. In addition, the defendants' conduct resulted in neither an accrual of benefits to consumers under Section 19(3)(d) of the act, nor an improvement of the production or distribution of goods or services, as provided under Section 19(3)(e) of the act. Therefore, the CCI agreed with the director general's findings.

Responding to the KFCC's objection that the director general had wrongly narrowed the investigation to the banning of the informant's film and had failed to pay heed to the defendants' larger aim of protecting their members, including producers, distributors and exhibitors, the CCI relied on the judgment in Cochin Port Trust v CTOCC and held as follows:

There can be legitimate reasons for forming trade associations and such associations undoubtedly serve an important platform for betterment of a particular trade, for establishing code of conduct, for laying down standards for fair trade, for facilitating legitimate co-operative behaviour in case of negotiations with government bodies etc. However, there is a very thin line between legitimate trade activities and anti-competitive practices that take place through these trade association meetings/discussions. And when these trade associations are used as a charade to transgress that thin line to promote illegitimate/anti-competitive ends, it becomes necessary for the Commission to intervene, for lifting the charade to penalise the anti-competitive conduct.

On the second issue of recidivism (ie, that the KFCC continued to violate Section 3 of the Competition Act, despite the cease and desist order previously issued by the CCI), the commission relied on the evidence in which a journalist witness stated that there had been no instance of opposition after the issuance of the cease and desist order, but the words stated by the journalist ("they are not opposing so much") indicated that the activity remained in operation. Therefore, the CCI found the KFCC:

  • guilty of recidivism for continuing its anti-competitive conduct; and
  • liable under Section 42 of the Competition Act for non-compliance with the cease and desist order.

The CCI imposed a penalty of Rs972,943 on the organisation, calculated at 10% of its average income.

While dealing with the final issue of holding office bearers liable under Section 48 of the Competition Act, the CCI ruled that Govinda and Nagraj were liable on the grounds that, as presidents of the KFCC and the Kannada Okkuta, respectively, they sent a strong message against dubbed films in the industry in general and to the masses in particular. Despite being asked repeatedly about the income tax returns and financial statements of Nagraj and the Kannada Okkuta, no information was submitted; therefore, the CCI stated that a separate penalty order would be issued in respect of these defendants in due course.

Ultimately, the CCI found that a tacit understanding existed between the defendants, whose adopted practices and decisions taken in pursuance of the agreement held between them violated Sections 3(1) and 3(3)(b) of the Competition Act. In coming to the conclusion that the defendants had acted in concert, the CCI relied on circumstantial evidence and held that the concurrent and cohesive nature of the defendants' conduct clearly demonstrated that their actions to prevent the release of the informant's dubbed film Sathyadev IPS constituted collusion.

In Case 58/2012 the CCI had directed the KFCC to establish a competition compliance manual to educate its members about the basic tenets of competition law principles, which it failed to do. Exercising its power under Section 27(g) of the Competition Act, the CCI again directed the organisation to create the manual. This will enable the CCI's active role in promoting competition advocacy.

Comment

The case is significant because it is the fifth time that the KFCC has been found guilty of anti-competitive conduct by the CCI (for further details please see "COMPAT dismisses Karnataka Film Chamber of Commerce appeal against cartelisation"). However, in the first three instances, the CCI imposed no penalty on the organisation. It is only in the last two instances that the CCI has penalised the KFCC.

For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4249 2525) or email (mmsharma@vaishlaw.com). The Vaish Associates website can be accessed at www.vaishlaw.com.