By Aashna Chawla, Second Year, B.A, LL.B (Hons.), Amity Law School
Editors Note: The present case in consideration is important because it raises serious questions about the scope of the jurisdiction of the Competition Commission of India vis-à-vis other authorities, here, the Copyright Board. It is pertinent to lay down the contours of the jurisdiction because it will deter the scope of forum shopping. This case has the potential to challenge once again, the constitutional validity of the order passed by the Commission in light of the NCLT and more recent, NTT judgment of the Supreme Court of India.
INVESTIGATION BY DG:
- Determined the market as: ‘sale of rights of Bollywood music to private FM radio in the territories of India where Bollywood music is prevalent’ and concluded that the opposite party is in a dominant position in the said market.
- Investigations revealed that the opposite party was abusing its position of dominance by:
- Charging excessive fee from FM channels.
- Imposing conditions like MCC and mandatory payment of performance license fee on Radio operators.
- The conduct of the opposite party was also found to foreclose the market at both i.e. the upstream and downstream levels to other music providers and radio stations respectively, as by imposing the condition of minimum committed needle hours of its songs the opposite party was distorting the competition in the relevant market.
- Lastly, it was noted by the DG that the opposite party was not able to justify its conduct by way of any pro-competitive reasons for imposing these conditions.
In the result, the DG concluded that the opposite party contravened the provisions of section 4(2)(a)(i) and 4(2)(a)(ii) of the Act.
The relevant material available on record and the facts and circumstances of the case throw up the following issues for determination in this case:
- What is the relevant market in the present case?
- Is the opposite party dominant in the above relevant market?
- If so, is there any abuse of its dominant position by the opposite party in violation of Section 4 of the Act?
SUBMISSIONS BY PARTIES:
ON BEHALF OF THE OPPOSITE PARTY:
- The opposite party has submitted that the DG has, failed to consider supply-side substitutability and an absence of such assessment demonstrates the extremely narrow and internally conflicting approach in delineating the relevant market. Based on both demand and supply side substitution, it is evident that the product market should be defined in a broader manner as the market for licensing of all music content to FM radio broadcasters in India (including AIR FM).
- The DG should have focused his attention on the market for the licensing of music content to FM radio broadcasters in India including AIR and not merely ‘sale of rights of Bollywood music to private FM radio in territories of India where Bollywood music is prevalent’.
The DG has reached the conclusion on the relevant market by considering the extent to which the medium of music is substitutable/ interchangeable for listeners/consumers. However, this is the wrong level to assess the relevant market.
- The opposite party has further submitted that the DG does not justify restricting the market to Bollywood music. The DG’s conclusions are based upon the ‘strong genre of preference by Indian radio listeners’. This was stated to be the wrong level to consider substitution. The evidence shows that radio stations are prepared to substitute to alternative content.
There are many stations that are not based on Bollywood music, as the report identifies around 20% of stations which are not based on Bollywood music. Even those stations that have a higher content of Bollywood music still play other types of popular music, so they could easily increase the amount of non-Bollywood music they play.
- In the present case, the DG has defined the geographic market as ‘areas of Indian territory where Bollywood music is prevalently played on FM channels’. Such a definition is extremely vague and cannot be used for any competition law assessment as there does not exist any objectively verifiable standard of norm to determine what is ‘prevalent’ form of music in any given territory of India especially considering the fact that the same music/content is available through internet radio, mobile radio, TV etc.,across territories of India.
- The opposite party has submitted that even if the DG’s definition of the relevant market is accepted, there is no evidence in the DG Report that the opposite party holds a dominant position in the relevant market. The DG fails to shows that the opposite party has held persistently high market share in the relevant market over a period of time and the DG also failed to provide any robust evidence of barriers to entry or expansion or other factors identified in Section 19(4) of the Act to support a finding of dominance.
- The opposite party also submitted that the DG has erred in concluding that the opposite party holds a dominant position. The market share data relied upon by the DG itself shows that the market share of the opposite party in the relevant market does not exceed 27%. A share of over 50% is generally considered as strong evidence of a dominant position (Akzo Commission).
- It was contended that the DG has erred in concluding that the opposite party has the largest market share in the Bollywood film music or even for that matter the ‘hit’Hindi film music and as such is the dominant player in the said market. The DG has further erred in not relying upon and taking into account the data showing the market share of the opposite party on an all India basis in respect of the private FM stations whether or not licensed by the opposite party.
- The DG has erred in not taking into consideration and assessing the data which shows that the opposite party does not have the size and resources or economic power to be dominant. The category wise revenue generated along with the percentage of FM revenue clearly shows that the opposite party’s revenue has been decreasing over the years, which information was ignored by the DG.
- It was argued that the DG has focused only on the customers of the opposite party and not on the competition faced by the opposite party. The DG should have noted that the opposite party faces competition at two levels, i.e. initially from the music companies at the stage of acquisition of content and subsequently from PPL and other music companies for licensing of such content.
- The DG has wrongly stated that the opposite party is a lifeline for the radio stations and that no radio station can survive without obtaining a license from the opposite party.
- The DG has erred in observing that the conduct of the opposite party has resulted in barriers to entry for the FM radio stations. In this regard, a review of the annual report of Big FM and Radio Mirchi shows that Big FM’s (which does not have a license from the opposite party) growth in revenue was nearly 16% while radio stations with the opposite party’s licensed content like Radio Mirchi and HT Media grew by only 10% and 6% respectively. The DG provides little evidence of barriers to entry and expansion. The DG also fails to consider the possibility of expansion by current rivals such as Sony.
- The opposite party has submitted that a perusal of publicly available documents on the Radio Industry, annual reports of certain radio stations etc., demonstrates that this industry is growing at a steady (if not exponential) rate and does not reflect any indication of any anti-competitive injury or even a remote possibility of foreclosure as a result of the anti-competitive conduct of the opposite party. Such data itself should be sufficient to demonstrate that there exists no case of excessive pricing.
- The opposite party has submitted that under the MCC clause, the licensee/radio station is liable to pay an assured sum of royalty to the opposite party. It may be noted that since radio companies more or less end up playing music equal to and in most cases more than the amount that MCC accounts for, MCC raises no competition law issues. Thus, it is incorrect to say that radio stations are ‘forced’ to play the opposite party’s content as a result of the MCC clause. Opposite party has denied that it has imposed MCC of 50% on any FM radio station.
- The opposite party has lastly submitted that assessment of the DG is incorrect as there are conflicting decisions of various High Courts on this issue and the Supreme Court is presently seized of the matter. The DG has failed to note that dominance has no causal link to the payment of performance license fees.
At present, the opposite party does not charge any performance license fees from radio broadcasters and is awaiting the Supreme Court’s decision in the matter. There is no decision or court order, to which the opposite party is a party which prevents or prohibits it from charging a performance license fee and there is no court order that makes the charging of performance license fees illegal.
ON BEHALF OF THE INFORMANT:
The informant has submitted that the DG has conducted a thorough investigation and that the DG’s conclusion is correct and well-founded.
- On the issue of the relevant market, the informant has submitted that FM radio is distinct from other forms of music media for the following reasons:
- FM radio stations are free-to-air.
- Broadcast restrictions imposed on the radio.
- Accordingly, the informant has submitted that in addition to reasons of expenditure incurred, accessibility, broadcast restriction, licensing requirements also indicate that music entertainment on radio and TV/mobile VAS are not substitutable and therefore, radio as a medium for music broadcast is in itself an altogether different product market.
- The informant has also submitted that AM is a distinct market from FM. Transmission over radio can take various forms such as Amplitude Modulation (‘AM’) and Frequency Modulation (‘FM’). These are two different and most popular methods of broadcasting content. With FM radio’s superior audio quality and stereophonic sounds, cheaper availability, a wider collection of radio channels, FM frequencies cannot be considered as interchangeable or substitutable with AM frequencies.
- The DG has found that AIR is distinct from private FM radio stations inter alia because of:
- no restrictions on content.
- pan-India presence.
- huge listenership and earns approx. 40% of the total advertising revenue of the FM industry.
The informant has supported the finding of the DG that private FM radio stations are not substitutable for AIR in India.
- The informant has submitted that non-music content is broadcast on FM radio for the purposes of complementing music content and therefore, is not substitutable or interchangeable for music content. All music channels advertise themselves as music channels or have tag lines relating to more music content than their competitors. Thus, it can be seen that the main focus of radio stations is on music and it is an essential branding and marketing proposition for them to have the latest music content.
- The informant has submitted that Bollywood music is a distinct relevant product market on FM channels. In the radio industry, markets can be delineated by different genres/categories of music. This is because a listener’s tastes i.e. consumer preferences can be strong enough to warrant segmentation of markets. Similarly, the DG has also found Bollywood music to constitute a product market separate from other genres of music as:
- 80% of the 240 private FM radio stations in India play a majority of Bollywood music.
- the most popular songs on the radio are Bollywood songs.
- a majority of radio listeners in India are under 50 years old.
Therefore, the target audience for radio strongly prefers Bollywood music.
- The informant, therefore, has submitted that in India, access to Bollywood music is necessary for FM radio stations to be viable and operate successfully. This is evidenced by the falling revenues of Radio City, Radio Mantra and Big FM, during the periods that the opposite party had terminated its licenses to these radio stations, which had resulted in Radio City having to renew its license with the opposite party in order to operate and remain financially viable in the radio market. The informant submits that Bollywood music is a separate relevant market for the purposes of assessing conduct under the Act.
- The informant submits that the DG’s findings on the opposite party’s dominance are correct and conclusive.
- Supporting the findings of the DG it was submitted that the opposite party’s website itself announces that the opposite party is India’s dominant music label which represents over 70% of upcoming Indian entertainment content including Bollywood. Publicly available reports also state that the opposite party commands a lion’s share of 80% of the music market with a catalog of over 200,000 songs.
- The informant has submitted that the opposite party’s size, resources, and economic power place it in a position of dominance in the relevant market. The opposite party is considered to be the largest non-governmental music copyright holder in India with a turnover of over 400 crores of the 750 crores Indian music industry.
Furthermore, the opposite party has acquired exclusive music rights of all major Bollywood films produced in the recent past. The DG has compared the turnover of the opposite party to the turnover of its competitors and found that the opposite party’s turnover is almost 3 times that of its closest competitors SaReGaMa.
- It was submitted that it is evident from the investigation carried out by the DG that private FM stations cannot survive in the relevant market without the opposite party’s music. The informant has further submitted that private FM radio stations are dependent on the opposite party in view of its music repertoire, the strong preference of their listeners and the lack of viable alternative options.
The dependence of radio stations can clearly be demonstrated by how Radio Mantra, Big FM and Radio City’s businesses have been affected by the opposite party’s refusal to license on fair and reasonable terms to them.
- The informant has submitted that the opposite party has abused its dominant position by excessively and unfairly licensing its music content. Excessive price is covered under the Act as an ‘unfair price’under Section 4(2)(a)(ii) of the Act. The informant has further submitted that excessive pricing by dominant undertaking is universally recognized as an abuse of dominant position. The European Court of Justice has explicitly recognized that excessive prices imposed by a dominant undertaking will be an abuse of a dominant position in cases such as General Motors, United Brands.
- The informant has further submitted that in order for the copyright license to be fair it must bear a reasonable relation to the economic value that the license provides to the licensee and consequently it must correspond to/reflect a proportion of the revenue generated by the exercise of a license. It was submitted that the broadcast license fee of INR 660 per needle hour and performance license fee of INR 666 per needle hour which is not payable as per the recent judgments of the Delhi, Bombay and Kerala High Courts imposed by the opposite party is unfair and excessive and in violation of section 4(2)(a)(ii) of the Act.
- The informant has argued that imposition of MCC on the informant is an unfair condition in violation of section 4(2)(a)(ii) of the Act. An enterprise is held to abuse its dominant position if it exploits the opportunities arising out of its dominant position in such a way so as to reap trading benefits which it would not have reaped had there been normal and sufficiently effective competition.
The MCC imposed by the opposite party has no relation to the music content that is actually broadcast nor is it necessary or indispensable for such broadcast and the opposite party is abusing its dominant position by imposing unfair and discriminatory conditions which are unconnected to the actual service provided by the license.
- It was submitted that the opposite party as a holder of the copyrights to a majority of ‘new’ Bollywood music is an unavoidable trading partner for FM radio stations. As a result of the dominance in the relevant market, the DG has found that the opposite party is the only music company that dictates such unfair conditions for the provision of its license to FM radio stations.
No other music provider including PPL requires the payment of MCC from FM stations for grant of a license to broadcast their music. Given this overwhelming dependence of the informant and other private FM radio stations and the weakness of their position vis-a-vis the opposite party, it is submitted that the opposite party is imposing an excessive and unfair condition in violation of Section 4(2)(a)(ii) of the Act.
- The opposite party’s insistence on payment of a performance license fees is an abuse of its dominant position under section 4 of the Act. It is now settled law that FM radio stations do not have to pay a performance license fee for the broadcast of music on radio stations. This position has been clarified by the High Courts of Kerala, Bombay and Delhi.
- The informant has contended that the anti-competitive terms and conditions imposed by the opposite party amount to the refusal to supply its music on fair terms in violation of the Act. The DG noted that Section 31 of the Copyright Act provides radio stations adequate safeguards to approach the Copyright Board for a compulsory license, and the opposite party is not in a position to refuse to supply radio stations.
The informant disagrees with the findings of the DG and submits that the informant’s ability to approach the Copyright Board under Section 31 of the Copyright Act is not mutually exclusive from the Commission being able to come to a finding that the opposite party has abused its dominant position by constructively refusing to supply music to radio stations.
- The informant has further submitted that excessive royalties charged by the opposite party, MCC and the imposition of performance license fees which the opposite party is not entitled to in the license agreement are unreasonable restrictions on competition and consequently the license agreement between the parties is an anti-competitive vertical agreement in violation of Section 3(4) of the Act.
In view of the above discussion, the Commission holds that the opposite party is in contravention of the provisions of Section 4(2)(a)(i) of the Act by imposing an unfair condition of MCC on private FM radio stations.
- In view of the findings recorded by the Commission, it is ordered as under:
(i) The opposite party is directed to cease and desist from formulating and imposing the unfair condition of MCCin its agreements with private FM radio stations in India; (ii) The opposite party is further directed to suitably modify the unfair condition of MCC imposed on private FM stations in India in its existing agreements within 3 months of the date of receipt of this order.
- In terms of the provisions contained in Section 27(b) of the Act, the Commission inter alia may impose such penalty upon the contravening parties, as it may deem fit which shall be not more than ten per cent of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse.
- It is evident that the legislature has conferred wide discretion upon the
Commission in the matter of imposition of the penalty as can be noticed from the phraseology employed in the provision noted above. The primary objectives behind the imposition of penalties are: to impose penalties on infringing undertakings which reflect the seriousness of the infringement; and to ensure that the threat of penalties will deter both the infringing undertakings and other undertakings that may be considering anti-competitive activities from engaging in them.
To quantify the penalty, the Commission needs to prepare an inventory of aggravating and mitigating circumstances/ factors. After weighing the aggravating and mitigating factors, the Commission has to reach an appropriate finding on the quantum of penalty. In relation to the imposition of penalty under section 27 of the Act, the legislative intent seems to provide a strong deterrence to the firms from indulging into practices which are detrimental to the competitive process in the market resulting not only harm to the consumes but also retard economic development of the country.
- The Commission has bestowed its thoughtful consideration on the issue of quantum of penalty.
- Furthermore, the Commission has also taken note of the aggravating factor emanating from the finding recorded by the DG that the opposite party imposed an amount of INR 2,16, 667 per month per radio station (excluding Bangalore) as MCC for both sound recording and performance rights and therefore, the informant is bound to pay a total of INR 6,50,000 per month for three radio stations to the opposite party, irrespective of the actual quantity of the opposite party’s music broadcast.
- Considering the totality and peculiarity of facts and circumstances of the present case, the Commission decides to impose a penalty on the opposite party at the rate of 8% of its average turnover of the last three years of the company amounting to Rs. 2,83,28,000(Two Crore Eighty Three Lakhs Twenty Eight Thousand).
- The Commission further directs the opposite party to deposit the penalty amount within 60 days of receipt of this order.
- The opposite party is further directed to file an undertaking in terms of the directions contained in para 216(i) within a period of 30 days from the date of receipt of this order.
- It is ordered accordingly.
Formatted on February 21st, 2019.