Unfair Competition ruling

posted by popcornn on July 19, 2009 at 7:55 am

Inquiry into the Exhibition and Distribution of Motion Pictures in Canada
Backgrounder

December 12 , 2002

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Background
The purpose of this document is to outline in general terms the findings of the Competition Bureau’s inquiry into complaints received from certain motion picture exhibitors regarding alleged anti-competitive practices by the major motion picture distributors, as well as Famous Players Inc. and Cineplex Odeon Corporation.

The Bureau’s policies and practices regarding the treatment of confidential information limit its ability to disclose specific information obtained during the course of an inquiry. However, the general findings of the Bureau on the relevant issues are summarized below.

Information Gathering
During the course of the inquiry, which was initiated on April 28, 2000, the Bureau obtained Court Orders pursuant to section 11 of the Competition Act requiring approximately 40 motion picture exhibitors and motion picture distributors to provide documents and written responses relating to the alleged practices being investigated. This information was reviewed and the Bureau followed up with interviews of a large number of these and other market participants. The inquiry also included economic analysis of the alleged anti-competitive practices and their impact on competition in the industry, as well as legal analysis of some of the issues in question.

The Complaints
The complainants alleged the following:

(1) that the major exhibitors, Famous Players Inc. and Cineplex Odeon Corporation, insist that major distributors supply them with licences to exhibit motion pictures on an exclusive basis;
(2) that Famous Players and Cineplex Odeon use their market power as the largest motion picture exhibitors in Canada to pressure distributors not to supply licences for commercially valuable motion pictures to independent exhibitors;
(3) that Famous Players and Cineplex Odeon individually align themselves with their own group of major distributors to the exclusion of other exhibitors. Through these arrangements with major distributors, Famous Players and Cineplex Odeon get a right of first refusal over licences for motion pictures;
(4) that Famous Players and Cineplex Odeon do not bid for licences that the other has obtained from distributors;
(5) that these practices have had the effect of substantially lessening and preventing competition in markets for motion picture exhibition in Canada.

The Markets
Distributors hold the rights to license specific motion pictures in Canada. Distributors license these motion pictures to exhibitors for presentation in their movie theatres. Box office admission revenues are shared between distributors and exhibitors on the basis of agreed percentages.

Distribution
There are nine major motion picture distributors operating in Canada. These are: Alliance Atlantis Motion Picture Distribution Inc.; Buena Vista Pictures Distribution Inc.; Columbia TriStar Films of Canada; Dream Works Distribution LLC; Metro-Goldwyn-Mayer Studios Inc.; Paramount Pictures Canada, a Division of Viacom Enterprises Canada Ltd.; Twentieth Century Fox Film Corporation; Universal Studios Canada Ltd.; and Warner Bros. Entertainment Inc.

In addition, there are a number of smaller, Canadian-based distributors that also operate in Canada. These include, among others: Lions Gate Film Corp.; Remstar Distribution Inc.; Seville Pictures Inc.; and TVA International Distribution Inc.

Exhibitors
Famous Players is the largest exhibitor of motion pictures in Canada, operating across the country, and is affiliated with Paramount Pictures Canada. Cineplex Odeon is the second largest exhibitor in Canada and operates theatres in all regions except the Maritimes. There are numerous other “independent” exhibitors in Canada, many operating only one theatre. The largest of these other exhibitors include the following: AMC Entertainment International Inc. which operates theatres in the provinces of Ontario and Quebec; Cinémas Guzzo which operates theatres in the Montreal area; Empire Theatres Limited which operates theatres in the Maritime provinces; Landmark Cinemas of Canada which operates theatres in Western Canada; Les Cinémas Ciné Enterprises which operates theatres in rural Quebec; and Magic Lantern Theatres which has traditionally operated theatres in the Prairie provinces.

The Analysis Under the Competition Act
The Bureau conducted an extensive inquiry into the practices alleged by the complainants. Moreover, it reviewed the allegations under the following sections of the Act:

• section 75 (refusal to supply)
• section 79 (abuse of dominant position)

Refusal to Supply
There is no absolute obligation on any business to supply to, or buy a product from, another business. However, the Competition Act would normally apply when all of the following requirements are met:

the would-be customer shows that the business has been substantially affected, or he/she is unable to carry on business, because they cannot obtain adequate supplies of a product on usual trade terms;
the inability to obtain adequate supplies must result from a lack of competition among suppliers;
the would-be customer must be willing and able to meet the supplier’s usual trade terms;
the product must be in ample supply; and
the refusal to deal is having or is likely to have an adverse effect on competition in the market1.
If these requirements are all satisfied, then the Competition Tribunal may order one or more of the suppliers in the market to accept this person as a customer.

Given that distributors hold the copyright to license their motion pictures in Canada and given the finding in the Warner Music Canada Ltd. (1997) case, where the Tribunal denied the Commissioner’s application on the grounds that the licences were not a product as the term is used in section 75 of the Act, the Bureau determined that it could not pursue the complaints from exhibitors under section 75 of the Competition Act.

Abuse of Dominant Position
Abuse of dominant position occurs when a dominant firm in a market, or a group of dominant firms, engages in conduct that is intended to eliminate or discipline a competitor or to deter future entry by new competitors, with the result that competition is prevented or lessened substantially. When all of these elements are present, the Competition Tribunal may make an Order prohibiting all or any of those persons from engaging in that practice.

As indicated above, complainants alleged that that Famous Players and Cineplex Odeon use their market power as the largest motion picture exhibitors in Canada to coerce distributors into not supplying commercially valuable motion pictures to independent exhibitors. It was alleged that these practices have had the effect of substantially lessening and preventing competition in markets for motion picture exhibition in Canada.

During the course of the inquiry the Bureau obtained information from all major distributors, and from a number of other distributors, by means of Orders under section 11 of the Act. This information included written returns under oath, as well as extensive records relating to the distribution of motion pictures in Canada.

Distributors explained to the Bureau that while exhibitors may utilize aggressive negotiation tactics, such tactics do not influence the distributor’s decisions regarding film distribution. The Bureau reviewed the extensive documentation submitted by distributors, as well as information provided by other market participants. Taking into consideration the large number of motion pictures distributed throughout Canada in the five year period considered, the Bureau concluded that the evidence available was not sufficient to satisfy the Competition Tribunal on a balance of probabilities that Famous Players and Cineplex Odeon have successfully pressured motion picture distributors to not supply independent exhibitors.

This phase of the inquiry did, however, demonstrate that certain major distributors appeared to have a preference for dealing with Famous Players, and other major distributors appeared to have a preference for dealing with Cineplex Odeon. Furthermore, it was observed that it is generally the practice of distributors to license a motion picture to only one exhibitor in a local area, or “zone”.

The Bureau also tested a possible theory that the major distributors, together with Famous Players and Cineplex Odeon, were jointly dominant in their respective markets, and were in some way coordinating the distribution of motion pictures in order to prevent competition from other exhibitors in Canada. However, an analysis of all evidence obtained, including an independent expert’s report, concluded that any theory of joint dominance involving both distributors and exhibitors cannot be supported. The apparent preference of major distributors to deal with either Famous Players or Cineplex Odeon, and the practice of licensing a motion picture to only one exhibitor in a local area, are not anti-competitive acts. There is no evidence that these practices have resulted in a substantial lessening or prevention of competition.

Conclusions
For all of the reasons mentioned above, the Competition Bureau has concluded that there are no grounds to make an application to the Competition Tribunal and the inquiry has been discontinued.

Footnotes
1This part of Section 75, which was one of the changes to the Competition Act included in Bill C-23, came into force in June, 2002