A new competition law enforcement paradigm

The Financial Express, August 17, 2015

By Pradeep S Mehta

One of the biggest movie grosser of recent times, Baahubali, was produced in Telugu and dubbed in Tamil, Malayalam and Hindi, and will perhaps be also done in French, Mandarin and Japanese. Fortunately, exhibition of dubbed Indian language versions was not prevented by powerful film and TV bodies, else Bahubali may not have broken records.

In a first of its type, the film and TV trade bodies in Karnataka who were blocking dubbing of popular films and serials were hauled up by the Competition Commission of India in a complaint by a consumer group: Kannada Grahakara Koota.

Of the six respondents, three were held guilty—Karnataka Film Chamber of Commerce, Karnataka Television Association and Kannada Film Producers Association. Perhaps their strong-arm methods may have prevented Bahubali to have been dubbed in Kannada, depriving the local populace from watching this successful film.

In another first type of orders issued by CCI, other than fines and cease and desist orders, the three respondents were directed to develop a competition compliance manual and to educate their members about competition law. It is a welcome step. However, the beneficiaries of the arrangement were not fined, but only their associations, which in our opinion is incorrect.

These associations banned the telecast of dubbed movies and TV programmes. CCI observed that any form of restriction to deny market access to other language films or programmes is not justified. Such restrictions by trade associations on the film exhibitors and distributors and TV channels to exhibit validly obtained rights of a film or programme are anti-competitive. Upholding consumer choice, CCI observed that the viewer should have the choice as to which movie/programme to watch.

CCI fined and directed them to stop indulging in anti-competitive practices. It also directed infringing associations to bring in place, in letter and in spirit, a Competition Compliance Manual to educate its members about basic tenets of competition law principles and to report compliance within six months. Competition law compliance—through business groups—is gaining impetus in newer competition law jurisdictions due to proactive enforcement strategy adopted by competition authorities.

In most cases, CCI followed a stereotyped approach of imposing fines and passing cease and desist orders, when we had suggested to adopt a multi-directional advocacy approach for the biggest bang. (“Build a compliance culture”, FE, Nov 22, 2013, goo.gl/Gp6yUH). This CCI order directing competition law compliance manual and education is in line with the multi-directional approach of advocacy efforts.

Compliance training is indispensable to incorporate compliance programme in corporate governance framework. Competition lawyers need to install compliance programmes at their clients. Compliance Manual is quite common amongst the entities doing business in developed jurisdictions like the EU and the US. Notably, various jurisdictions including Singapore, South Korea, Australia and Canada reward compliance efforts through fine reductions in certain circumstances.

In 2014, the Italian antitrust authority published its Guidelines on the criteria to quantify administrative fines and noted the adoption and implementation of an effective compliance programme as a potential mitigating factor in reducing fines. These Guidelines provide examples of how this commitment might be demonstrated, such as involving management in the creation and implementation of a compliance programme, designating specific employees who are responsible for the programme, organising training activities, providing incentives for adherence and disincentives for failure, and implementing a system of monitoring and auditing. It is woeful that CCI is yet to come out with fining guidelines.

Businesses merit a discount from the penalty of up to 10% for their compliance activities as per guidelines by the UK competition authority. In 2014, the UK competition authority found a pharma firm Hamsard and its subsidiaries together with other pharma firms violated competition law by entering into a market sharing agreement in the supply of prescription medicines to old age care homes in England. The UK competition authority granted a discount to Hamsard in respect of its competition compliance programme. In the future, CCI might take up existence of compliance activities as one of the mitigating factors in arriving at its decisions.

Comprehensive corporate compliance policies and procedures, senior management commitment and support, training and education, monitoring, auditing and reporting mechanisms have to be there for effective competition compliance. Some jurisdictions through their advocacy efforts assist firms in designing competition compliance manuals and programmes. CCI can also explore the possibility of appointing a compliance education officer to assist firms in devising a competition compliance programme.

Awareness and education are the tools in the enforcement of competition law worldwide. Awareness and advocacy efforts are the focus area of competition agencies globally so as to bring the change in the mindset of all the stakeholders. The idea is to brief the stakeholders about competition principles so as to develop a culture of compliance. In India, the importance can be seen from the fact that such advocacy efforts are specifically mentioned in the provisions of the Competition Act, thus validating the paradigmatic shift from its earlier command and control regime avatar, the MRTP Act. Business enterprises need to develop a competition compliance programme and plug this with their corporate policy document. This is the right time for businesses to refurbish their corporate policies and align them with competition principles.

Trade associations have been on the radar of CCI and have been reprimanded and fined by CCI in a number of cases (“Tackling trade associations’ anti-competitive practices”, FE, July 23, 2015, goo.gl/lMNDJ1). This first case of directing a positive mandate to take up activities to educate the members of the trade association is a laudable use of discretion accorded to CCI under the law. Such proactive steps by CCI in embracing a multi-pronged approach to competition law enforcement will go a long way in creating an effective culture of competition in India.

Pradeep S Mehta is secretary general, CUTS International. Saket Sharma is an associate fellow at CUTS Institute for Regulation & Competition, Delhi

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