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Advertising Agencies Guild v. Indian Broadcasting Foundation & its


members
INFORMANT : Advertising Agencies Guild
OPPOSITE PARTIES: Indian Broadcasting Foundation & its members
FACTS:
Informant was an association of small and medium sized advertising agencies set up to
look after the interest of small and medium sized agencies besides interacting with
professional bodies such as the Indian Newspaper Society (INS), Government,
advertising agencies and associations.
Indian Broadcasting Foundation (IBF) ie., OP 1 was a section 25 company, claimed to be
Indias premium apex organization of television broadcasters. OP 1 was stated to consist
of major broadcasters with more than 250 TV Channels enjoying a unique position as the
accredited spokesman of the broadcasting industry.
Allegations:
Informant alleged formation of a cartel by the members of IBF through the medium of
OP 1.
It further alleged that OP 1 and its members had been acting as a cartel for a long time
and even during the MRTP regime OP 1 was suspected of acting as a cartel.
The informant association averred that the members of OP 1 wanted to shift from the
time tested and industry wide practice of gross billing basis to a net billing to the
advertising agencies and were forcing the advertising agencies to agree to the new
mechanism.
They collectively boycotted and did not broadcast advertisements on their Channels for
two days viz. 01.05.2013 & 02.05.2013.
The informant stated that the Advertising agencies had no other option but to agree to the
demands of OP 1 as it directed all its members to stop screening advertisements during
the aforementioned period and thereby forced the advertising agencies to shift to the new
billing system. This act of OP 1 was described in the information as a classic case of a
group boycott/ cartel where all the channels boycotted the advertisement agencies.
It was alleged that the agreement amongst the members of OP 1 and the decision taken by
OP 1 to switch to a net billing method are agreements in violation of sections 3(1) and
3(3) of the Act and has an appreciable adverse effect on competition.
The informant further alleged that the decision taken by OP 1 to drop advertisements
from TV on 01.05.2013 & 02.05.2013 and the action of the broadcasting companies to
follow the decision of IBF in dropping advertisements were anti-competitive in violation
of sections 3(1) and 3(3) of the Act.

LEGISLATIVE PROVISION INVOLVED:


Violation of Section 3(1) and 3(3) of the Competition Act, 2002
Synopsis of the legal provisions
Section 3 of the Competition Act, 2002 (Act) prohibits an enterprise or association of
enterprises or persons to enter into agreements in respect of production, supply, distribution,
storage, acquisition or control of goods or provision of services, which causes or is likely to
cause appreciable adverse effect on competition in India.
Following kinds of agreements between enterprises, persons or association of persons or
enterprises, or practices or decisions taken by association of persons or enterprises,including
cartels, engaged in similar or identical trade of goods or provision of services is presumed to
have appreciable adverse effect on competition:
a)

Agreements or decisions that directly or indirectly determine purchase or sale price.

b)
Agreements that limit or control production, supply, market, technical development,
investment or provision of services.
c)
Agreements to share market or source of production or provision of services by way of
allocation of geographical area of market or type of goods or services, or number of customers in
the market or any other similar way.
d)

Agreements that, directly or indirectly, result in bid-rigging or collusive bidding.

However, agreements entered into by way of joint ventures are excluded from above restriction if
such agreements increase the efficiency in production, supply, distribution, acquisition, or control
of goods or provision of services.
Under the Act, cartel includes an association of producers, sellers, distributors, traders, or
service providers who, by agreement amongst themselves, limit control or attempt to control the
production, distribution, sale or price of, or trade in goods, or provision of services.
Further, under section 19(3) of the Act, following factors are to be considered byCompetition
Commission of India (CCI) in determining whether an agreement has appreciable adverse
effect on competition:

a)
Creation of barriers to new entrants in the market.
b)
Driving existing competitors out of the market.
c)
Foreclosure of competition by hindering entry into the market.
d)
Accrual of benefits to consumers.
e)
Improvement in production or distribution of goods or provision of services.
f)
Promotion of technical, scientific and economic development by means of
production or distribution of goods or provision of services.

PRAYER OF THE INFORMANT:


To hold that the decision of IBF and the agreements amongst its members to boycott
advertisements of the advertisers as anti-competitive under section 3 of the Act.
To hold that the decision of IBF and the agreement amongst the various members of IBF
to shift to the net billing method as an anti-competitive agreement under section 3 of the
Act.
ISSUES:
Whether the agreement amongst the members of IBF and the decision taken by IBF to
switch to a net billing method is anticompetitive agreements having appreciable adverse
effect on competition
Whether the decision taken by IBF to drop advertisements from TV on 01.05.2013 &
02.05.2013 is an anticompetitive agreement having appreciable adverse effect on
competition.
DEFENCE OF OPPOSITE PARTY ON 1ST ISSUE:
The reason given by the OPs (as stated in the information) related to the Income Tax
departments mandate which requires the members of OP 1 to deduct TDS on the 15%
Discount (which amounts to commission to the advertising agencies) given to the
advertising agencies (which include members of the informant association). Since OPs
were not deducting TDS on the 15% discount/commission, they decided to start billing at
net 85% instead of showing gross bill as 100% reduced to 85% after showing discount on
the invoice.
OBITER OF THE COMMISSION:
The Commission does not find any competition issue involved in the change of this
billing system. In the net billing method, only the net bill or the charges of the
broadcaster are to be indicated and the trade discount which was reflected in the bills is
no longer to be mentioned in the invoices.
The informant alleged violation of section 3(1) read with 3(3) of the Act. At this juncture,
it may be stated that section 3(3) of the Act is applicable when there is a horizontal
agreement between players operating at the same level in a particular market. Such
agreement may be in the form of price fixation, market sharing, collusive bidding etc.
which will have an appreciable adverse effect on competition within the market in which
they are operating. Collective action of the members of a trade association per se does not
fall in the categories of agreements contravening section 3(3) of the Act. Simply,
collective action taken at the level of the trade association to change the billing system
prima facie does not amount to any contravention under the Act.

ORDER OF THE COMMISSION:


The Commission is of the view that there does not exist a prima facie case for
directing DG to investigate the matter. The case deserves to be closed under section
26 (2) of the Act and is accordingly hereby closed.

Referred Cases:
1. M/s Oracle Drugs and Others v Secretary, Department of Health & Family Welfare,
Government of Odisha and another, decided on 1st July, 2013
The case was filed by M/s Oracle Drugs and Others (Informants) against Department of
Health and Family Welfare, Government of Odisha and Another (Health Department)
alleging abuse of dominance.
Informants were stated to be medicine shop owners operating in the different premises of public
health facilities in the State of Odisha and their shops are governed by the guidelines formulated
by Health Department.
Informants alleged that Health Department vide its resolution dated November 17, 2012
(Resolution) issued revised guidelines for medical shop owners operating in public health
facility premises. As per the Resolution, the Informants and such other medicine shop owners
were required to provide medicines at discounted rates. The abovementioned Resolution
provides for a detailed slab of discount based on the location of medicine shops such as shops in
premises of district headquartered hospitals, shops inside the premises of medical colleges etc.
Informants submitted that the same conditions were not applicable on other day and night
medicines shops, which are operating under Public Private Partnership (PPP) model.
Informants further alleged that the said Resolution also provides for appointing at least 3
pharmacists to supervise the sale of drugs, whereas the shop owners are themselves pharmacists
and the same was commercially not viable for Informants. Aggrieved with the above conduct of
Health Department, Informants approached CCI.
On the basis of the information available on the website of the Health Department, CCI observed
that one among the many functions of the Health Department is to guarantee free treatment and
free medicines to the people of Odisha.
CCI stated that the said actions of Health Department are not economic in nature but are policy
decision for benefit of general public. CCI also stated that the shops which are operating in the
premises of public health facilities can be bound by such reasonable policy decisions. CCI
further stated that the Resolution provides for the lower limit of discount and Informants can
compete with each other by providing higher rate of discounts. CCI therefore held that the
decision of Health Department cannot be held to anti-competitive.
On the issue non-applicability of Resolution on the day and night medicines shops operating
under PPP model, CCI stated that Health Department must have provided some conditions in the
PPP agreement for such consumer benefits. However, Informants did not provide terms and
conditions of PPP model shops.

Lastly, CCI noted that requirement of pharmacists is a must for a medicine shop and the same
cannot be held as abusive in nature. CCI also pointed out the decision of Health Department
would not be disadvantageous for Informants as the large number of consumers would be
encouraged to buy medicines from Informants rather than buying from such medicines shops,
which do not provide discounts.
Based on the above analysis and observations, CCI held that no prima facie case could be
established against Health Department. Therefore, CCI ordered for closure of the case.

2. Mr. V. Senthilnathan, Chartered Accountant v M/s. United India Insurance


Company Limited and other, decided on 1st July, 2013
The case was filed by V. Senthilnathan (Informant) against United India Insurance (UII)
and E-Meditak Services Limited (Meditak) alleging violation of section 3 and 4 of the Act.
UII is stated to be a public sector general insurance company incorporated in 1938, engaged in
the business of Mediclaim Insurance for CanCard holders under group insurance from year
2005-2006. Meditak is a Third Party Administrator (TPA) of UII.
TPAs are registered under IRDA and are governed by IRDA (Third Party Administrators-health
services) Regulation 2001. TPAs work as an intermediary between the insurer and the insured
and facilitate cashless service at the time of hospitalization as well as processing of claims. TPAs
are appointed by insurance companies and the terms and conditions of the appointment are also
fixed by insurance companies only.
Informant alleged that Meditak did not fulfill certain obligations under the agreement with UII.
As per the Informant those obligations were for benefit of the policy holders. The said
obligations pertain to renewal/termination of the policy, denial of preauthorization, claim
intimation, repudiation of claim etc. Therefore, Informant approached CCI.
CCI stated that the relevant product market in the present case is of medical insurance, as it
cannot be substituted with any other insurance. CCI further noted that the relevant geographical
market is whole of India as a medical insurance policy can be sold to any person residing
anywhere in the country. Therefore, the relevant market in the present case shall be market for
services of medical insurance in India.
On the basis of the IRDA report of 2011-12, CCI observed that UII holds only 15.09% of the
market share in the relevant market and it was not sufficient to enable UII to operate
independently of the competitive forces. Hence, CCI concluded that UII is not a dominant player
in the market. On the basis of information available on the website of IRDA, CCI observed that
there are only 31 TPAs working in India. CCI held that none of the TPAs are dominant player in
the relevant market.
On the issue of violation of section 3 of the Act, CCI stated that an agreement can be said to have
appreciable adverse effect on competition, if it creates barriers to new entrants in the market or
forecloses competition by hindering entry into the market or curtails accrual of benefits to the
customers. CCI observed that the latest regulations of the IRDA provides for portability of
mediclaim policies, where a policy holder can deal with other insurance companies as well.
Based on the factors mentioned in section 19 of the Act and on the availability of mediclaim
portability to policy holders, CCI stated that Informant could have gone to any other insurance
policy, if he believes that Meditak is not performing its duties under TPA agreement.

CCI further stated that the terms and conditions of TPA agreement are fixed by insurance
companies and in case of violation of conditions by TPA, insurance company has a right to
terminate agreement and complaint to IRDA for cancellation of registration of TPA. CCI noted
that a policy holder can also make complaint to IRDA against a TPA as the conduct of the TPA
and insurance companies are governed by IRDA.
On the basis of the above analysis and observations, CCI ordered for closure of the close.