CCI fines UFO Moviez, Qube Cinema ₹2.69 crore for anti-competitive practices

The Competition Commission of India (CCI) has imposed a cumulative penalty of ₹2.69 crore on UFO Moviez, its subsidiary Scrabble Digital, and Qube Cinema Technologies for indulging in anti-competitive practices that adversely affected competition in India’s digital cinema exhibition market..The Commission found the companies guilty of violating Sections 3(1) and 3(4) of the Competition Act, 2002 for engaging in tie-in arrangements, exclusive supply agreements and refusal to deal. A penalty of ₹1.04 crore was levied jointly on UFO Moviez and Scrabble Digital, while Qube Cinema was fined ₹1.65 crore.The case originated from a complaint filed in 2020 by PF Digital Media Services and film producer Ravinder Walia, who alleged that UFO Moviez was disabling its leased equipment to prevent exhibition of films that were not post-production processed by Scrabble Digital. The informants contended that this amounted to denial of market access and abuse of dominance. A civil suit originally filed before the Delhi High Court was withdrawn in favour of filing formal information before the CCI. In September 2021, the CCI directed its Director General to conduct a detailed investigation.After thorough investigation, the DG concluded that both UFO Moviez and Qube Cinema Technologies held significant market power, controlling approximately 40% and 48% respectively of the market for Digital Cinema Equipment (DCE) leased to Cinema Theatre Owners (CTOs)..Tie-in arrangement: Leasing with content exclusivity.The Commission held that both UFO and Qube entered into tie-in arrangements with CTOs, bundling the lease of DCE with exclusive content delivery services."The provision of content has been tied with the lease of DCE which can be separately made available," the CCI noted, adding that such bundling “constitutes a tie-in arrangement” under Section 3(4)(a) of the Act.It found that CTOs leasing DCEs from UFO or Qube were contractually barred from sourcing content from any other provider..Exclusive supply agreements.The investigation revealed that agreements between the companies and CTOs contained clauses explicitly stating that the right to supply content was reserved by UFO Moviez and Qube Cinema, forbidding supply of content by any other player on DCEs leased from them."The Commission concludes that OP-1 is indulging in an exclusive supply agreement wherein it is requiring CTOs to only accept content supplied by it (or its affiliates including OP-2) on OP-1's leased DCEs and restrict supply of any content from other PPP service providers.".Technical barriers and firewalls.A significant finding in the investigation was the implementation of technical barriers or "firewalls" in the leased equipment. Multiple film producers testified that key delivery messages (KDMs) generated by competing post-production processors were rejected by the DCEs leased from UFO and Qube Cinema. Viacom18 testified during the investigation: "We are forced to work with the Concerned DCSPs as the movies processed via any other lab are disabled from being run on the DCE supplied by the Concerned DCSPs to CTOs."The Commission observed that such restrictive practices do not appear to exist in international markets, where KDMs supplied by any service provider are compliant with any DCI-Compliant DCE."Based on the above, the Commission agrees with the DG that the restraints imposed by OP-1 have resulted in adverse effects," CCI said..The CCI conducted a detailed assessment of the appreciable adverse effect on competition (AAEC) resulting from these practices. The Commission concluded that the restrictions imposed by both companies created barriers to entry for newer players in the post-production processing market, drove out existing competitors and foreclosed a significant portion of the market.The Commission also found that these agreements hindered improvement in production services and potential innovation in the sector. Film producers including YRF, Reliance Entertainment, Viacom18 and ZEEL confirmed during investigation that the restrictive practices led to lower bargaining power and higher prices..Beyond financial penalties, the CCI has issued specific directives to address the anti-competitive behaviour:"In terms of Section 27(a) of the Act, the Commission hereby directs the OPs not to re-enter lease agreements with the CTOs imposing restrictions on supply of content from parties other than OPs. Further, in terms of Section 27(d) of the Act the existing lease agreements with CTOs shall stand modified such that they do not impose restrictions on supply of content from parties other than OP-1 (and its affiliates) and OP-3," the order stated..After considering mitigating factors submitted by the companies, the CCI imposed penalties of ₹1.0403 crore on UFO Moviez and Scrabble Digital, and ₹1.658 crore on Qube Cinema Technologies.The companies have been given 60 days to deposit the penalty amounts..PF Digital Services and Ravinder Walia were represented by Advocate Tarini Khurana..UFO Moviez and Scrabble were represented by Senior Advocate Arun Kathpalia with Advocates Rahul Rai, Binit Agarwal, Diksha Gupta, Riddhika Dumane, Bhavika Chhabra and Avinash Amarnath..Qube Cinema was represented by Senior Advocate Sajan Poovayya with Advocates Bharat Budholia, Deepanshu Poddar and Vayshnavi Ganesh..[Read Judgment]