Copyright reform through competition law? The Commission’s statement of objections in the pay TV investigation
The moment of truth for the Pay TV investigation has arrived. Yesterday, the Commission sent a statement of objections to Sky UK and the ‘Big Six’ Hollywood majors. It has come to the preliminary conclusion that the territorial restrictions introduced in the agreements between the pay TV operator and the studios are restrictive of competition, and this insofar as they give absolute territorial protection to broadcasters (both to Sky and to licensees based elsewhere in the EU). As a result of these agreements, the Commission argues, Sky is prevented from providing its services (online and via satellite) to end-users based in Member States other than the UK. Some of the views stated in the press release are remarkable and will no doubt give rise to considerable controversy in the coming months.
Exhaustion through competition law? The Commission suggests in the press release that Sky should be entitled to provide its online pay TV services outside the UK (at least in principle). The fact that it may hold a license to offer content only in that Member State does not seem to make a difference in this regard. This position is extraordinary. It means that a TV operator having been granted a licence to broadcast content online in one Member State should be entitled to broadcast the same content in the whole of the EU. As I see it, it comes dangerously close to saying that the exhaustion doctrine applies to broadcasts. According to the Commission, online content should circulate within the EU as freely as DVDs so long as it is offered by the right holder or with its consent.
The view advanced by the Commission in the statement of objections (at least in light of the press release) is at odds with Article 3 of the InfoSoc Directive, which states very clearly that the right of communication to the public is not subject to exhaustion. The Commission indeed suggests the opposite, in the sense that it claims that the licensee in one Member State is not entitled to prevent licensees based elsewhere from offering, online, the same content in its territory.
The question is, I guess, whether it is possible to limit the scope of an intellectual property right through competition law. One can say in this regard, at the very least, that there are no precedents for such a move. EU courts have always been clear in stating that EU competition law does not question the existence of intellectual property rights, but only their exercise. Is the extension of the exhaustion doctrine through Article 101 TFEU enforcement not tantamount to questioning the very existence of the right of communication to the public?
The scope of Murphy and Coditel II. The statement of objections seems to be based on a relatively expansive interpretation of Murphy. The Court held in that case that an export prohibition regarding decoding devices is restrictive of competition by object under Article 101(1) TFEU and does not meet the conditions of Article 101(3) TFEU. I have written elsewhere that Murphy is not easy to interpret. In particular, it is not immediately obvious to reconcile with Coditel II, which remains good law. The difficulty is that, in the latter case, the Court held that an exclusive territorial licence is not as such restrictive of competition.
In any event, it seems clear to me that merely prohibiting, by means of an agreement, an operator from broadcasting content in the territory allocated to another licensee is not contrary to Article 101(1) TFEU. Paragraph 137 in Murphy seems unambiguous to me in this regard. Not only does it confirm that Coditel II has not been overruled, but it states that ‘the mere fact that the right holder has granted to a sole licensee the exclusive right to broadcast protected subject-matter from a Member State, and consequently to prohibit its transmission by others, during a specified period is not sufficient to justify the finding that such an agreement has an anti-competitive object’.
The Commission now seems to be of the view that even clauses that restrict the ability of broadcasters to offer online content in a territory other than the one for which they hold the licence (the press release refers to geo-blocking) are contrary to Article 101(1) TFEU by their very nature. It would be interesting to see how this position is substantiated by the authority. It is without any doubt the key legal issue in the case.
Copyright reform through competition law? It is impossible to ignore that the statement of objections comes at a time when copyright reforms are being discussed. The press release itself refers to some initiatives by the Commission which seek to promote cross-border access to copyright-protected works. The proposed reforms overlap with the concerns raised in the statement of objections and would have exactly the same consequences for end-users. Is cross-border access to content a competition law issue or a copyright one, then? Why apply Article 101 TFEU to a policy objective that would be more logically achieved via legislation?
I find it extremely difficult to draw neat boundaries between disciplines. I am always wary of claims that EU competition law is being applied beyond its proper scope. One thing is clear, however. If the Commission goes ahead with the theories sketched in the press release, it would be redefining, via Article 101 TFEU enforcement, the scope of the right of communication to the public and the reach of the exhaustion doctrine. Proper or improper, this, as explained above, is surely unprecedented in EU competition law.
Chillin'Competition 
I couldn’t agree more. What intrigues me is this part of the press release: “Without these restrictions, Sky UK would be free to decide on commercial grounds whether to sell its pay-TV services to such consumers requesting access to its services, _taking into account the regulatory framework including, as regards online pay-TV services, the relevant national copyright laws_.” If national copyright laws say it is objectively justified to block sales into a territory, to avoid infringement, then what’s the point of an infringement decision?
Becket McGrath (@becketmcgrath)
24 July 2015 at 12:30 pm
Hi Becket,
Thanks for your comment. That was my thought too!
I guess the good old counterfactual analysis would be helpful here: if no competition among pay TV operators would have existed anyway (due to national copyright laws), then it is difficult to say that the clauses in the agreement are contrary to Article 101(1) TFEU (let alone by object).
Pablo Ibanez Colomo
24 July 2015 at 12:59 pm
Thanks once again for an inspiring post at this inspiring blog! One further thought on – possibly – reconciling Murphy and Coditel II: could it not be argued that in the specific circumstances of the Coditel-case, ie unauthorized cross border cable retransmission, the only way to ensure right holders obtained any remuneration at all was via exercising their copyright, whereas in the Murphy case such remuneration was ensured due to the need to obtain a subscription and decoder card (ie there was no piracy or unauthorized decoding of the signals), ie there was no free rider rationale that could be invoked as justification for the practice of blocking “parallel trade” in decoders/decoder cards. As often with older standard case law that i have over time become to simply identify with more or less hard and fast rules, it is useful to actually close read Coditel II in more detail again and to appreciate its nuances and fact-specific aspects. I would be very interested in your views on this specific aspect.
Paul Kreijger
24 July 2015 at 5:01 pm
Hi Paul,
Thanks for your comments and your kind words.
There are two main differences between Murphy and Coditel II. The cases did not deal with the same question. The Court was clear in stating in Murphy that it was not questioning the licence as such, but the ‘additional obligations’ (export prohibition concerning the decoding devices), which were examined in isolation.
A second difference is technological. In paras 119 and 120 of Murphy, you will see how the Court distinguishes the two. As far as satellite transmission is concerned, the country of broadcast is the country of origin of that communication. In Coditel, the communication took place in the country of destination.
If you read the press release, you will realise the emphasis given to the second difference by the Commission.
Remuneration is not a key difference, in my opinion. Remuneration was conceivable even in Coditel. The issue is discussed eloquently in this book by Keeling (a bit dated, but insightful): http://ukcatalogue.oup.com/product/9780198259183.do
Pablo Ibanez Colomo
24 July 2015 at 9:40 pm
Hello, could you please elaborate why you do not consider renumeration as key difference? Is this just regarding TFEU 101, or also article 54? I mean in Coditel I, it seems that the Court put a lot emphasis on non-renumeration by german broadcaster.
Pauli
17 November 2016 at 8:47 pm
Hi Pauli,
Thanks for your comment! The point is that, even in Coditel I, it was possible to conceive a remuneration mechanism for cross-border transmissions. This is in fact what the Commission argued in the case. But the Court did not follow.
Pablo Ibanez Colomo
17 November 2016 at 11:51 pm
Thanks a lot for swift answer, much appreciated!
satanen100
22 November 2016 at 9:24 am
I think that this investigation is mainly about the political goal of pursuing the internal market by ruling out geographical price discrimination. Content owners are left with only three options: 1) either licence the content to anyone willing to distribute, thus enforcing intense competitive rivalry downstream (ie, the classic Chicago school critique where the upstream monopolist doesn’t have incentives to forclose downstream under (perfect) competition); 2) license only one operator and sharing the vertical rent with the downstream monopolist; or 3) direct distribution online.
My guess is that unless the EC leans against pan-eu concentration at the dowstream distribution level, the second option is the one likely to emerge in premiuim content space. Indeed, I’d argue that the deicision to merge into Sky Europe is in preparation for the second option.
But the unintended consequence of of whichever option emerges may be that the resulting uniform pan-EU pricing will cause a deadweight loss in relatively low-income geographic areas.
Another recent similar case is the inter-regional bit in the EC investigation against Mastercard.
I’d argue that to rule out this form of third-degree price discrimination on the basis of a spurious political goal (ie, the ideal of creating a single internal market is way ahead of economic reality) is not one of the finest examples of more-economic approach….
Paolo Siciliani
30 July 2015 at 2:56 pm
[…] UK from offering its online content outside of the UK are restrictive of competition by object (see here for my reaction). Commissioner Vestager’s speech insists on the same idea. It is valuable because […]
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