Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Advocate General Kokott reinvents (k)opyright

with 8 comments



Once again it´s a luxury to have Pablo Ibañez Colomo as a guest blogger at Chillin´Competition.  He has some strong views on the Opinion delivered last week by AG Kokott on the “Greek decoders case” that we thought should be of great interest to you. Here they are:

Thanks very much to Alfonso and Nicolas for allowing me to share some of my thoughts with their readers!

I read yesterday Advocate General Kokott’s opinion in Joined Cases C‑403/08 and C‑429/08, already referred to by Alfonso a couple of days ago. Following a wholly unprecedented line of reasoning, the opinion seems to propose to overrule the principle, laid down in Coditel I, according to which the exhaustion doctrine does not apply to the exploitation of the copyright in the form of a communication to the public. The logic underlying this well-established rule is so sensible and obvious that I have little doubt that this opinion has been received as a complete surprise by all EU lawyers.

The fact that such a proposal is clearly unsound (both from a legal and an economic perspective) made me reflect on more general questions relating to the art of judging, with regards, in particular, to economic law issues, such as competition law or copyright.

The importance of FORMAL economic analysis (and the risks of DO-IT-YOURSELF economics): Controversy surrounding the use of economic principles in legal matters is sometimes presented as a debate on whether or not economic tools should be relied upon by judges and policy-makers. I have long insisted that the true question is in fact whether FORMAL economic tools should inform the law or whether, instead, we should accept that judges and policy-makers follow their rudimentary economic intuitions (i.e. DO-IT-YOURSELF economics). Put differently: economic analysis is simply unavoidable in some legal areas (and this includes, to be sure, competition law), and to the extent that it is so there seems to be no reason to refuse following mainstream economic tools.

Advocate General Kokott may be opposed to the use of formal economic tools, but this does not mean that she is able to avoid analysing the economic foundations of copyright when proposing a legal rule. The opinion tries to identify the rationale underlying Coditel I, and because no formal, standardised economic tools are relied upon, it fails in its attempt. For instance, the opinion distinguishes between services that are consumed only once (such as a meal or a haircut) and those that can be consumed ad infinitum. According to the opinion, there would be no reason not to apply the exhaustion doctrine to the latter. In doing so, the Advocate General misses completely the logic underlying Coditel I, which relates to the fact that a broadcast, unlike a book or a CD, is—as explained, by the way, in any basic economics textbook—an example of a public good (i.e. it is non-rival in use and, to the extent that the encryption technology is by-passed, non-excludable).

The importance of factual and sectoral knowledge: It is surprising to see that the bold reasoning displayed in the opinion does not take account of the far-reaching implications of the rule proposed and, more precisely, on how it would alter the way in which television rights are bought and sold.

In particular, it is surprising to note that the opinion never really asks why television rights for sports events are systematically licensed on an exclusive basis (and why, conversely, books and CDs are widely circulated and are rarely offered by a single retailer by means of an exclusive distribution agreement). In this sense, the opinion simply ignores the fact that competition between broadcasters to show the same game at the same time in a given territory may, in the circumstances of the case, empty the right of communication to the public of all of its economic value. Which broadcaster would pay to the FA Premier League knowing that its exclusivity could not be effectively enforced?

This is all the more surprising if one considers that these same issues were carefully identified and understood 30 years ago in Coditel I and Coditel II. In fact, the opinion of the Advocate General in the latter case already displayed a good understanding of these issues and the clear differences between the right of communication to the public and the right of reproduction.

Written by Alfonso Lamadrid

11 February 2011 at 8:39 pm

8 Responses

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  1. In particular, it is surprising to note that the opinion never really asks why television rights for sports events are systematically licensed on an exclusive basis (and why, conversely, books and CDs are widely circulated and are rarely offered by a single retailer by means of an exclusive distribution agreement). In this sense, the opinion simply ignores the fact that competition between broadcasters to show the same game at the same time in a given territory may, in the circumstances of the case, empty the right of communication to the public of all of its economic value. Who would pay to the FA Premier League if it is unable to enforce its exclusivity?

    I take the point about failing to recognise the realities of broadcasting, but does the second point necessarily follow? Surely being able to show the football is worth paying something for?

    I realise there’s a significant premium to be had from exclusive licensing, but isn’t that just another way of saying that competition would bring prices down for the consumer?

    Pete

    11 February 2011 at 10:39 pm

  2. Thanks Pete for your reply, which, I believe, illustrates very well the points I was trying to make in the post.

    If your line of reasoning (i.e. saying that doing away with exclusive licensing would be good for consumers insofar as it would bring prices down) were correct then why not ban exclusive distribution agreements altogether? Why not ban territorial technology licence. Having several distributors/licensees would bring prices down, right?

    The reasoning above (and the AG’s conclusions) would be impeccable if you did not take account of the economic logic underlying a limitation in the number of distributors in the first place.

    In the specific case of television rights, the free-riding argument is so compelling that you see non-exclusive licensing only very rarely. So much so that if the AG’s opinions are followed, you will not see competition among broadcasters across Europe (which you defend), but pan-European licensing (a single licensee across the EU).

    Bagnole

    12 February 2011 at 11:06 am

  3. Thanks for taking the to reply, Bagnole. I think I may have illustrated the points I was trying to make very badly. My confusion here is that I don’t see the point about public goods, except in the sense that all IP questions are about public goods problems. But the argument can’t be that any diminution in the value of an IP right is aggravating a public goods problem, because that would apply to exhaustion in the case of books and CDs. An IP right is always worth more if it allows you segment your market.

    If your line of reasoning (i.e. saying that doing away with exclusive licensing would be good for consumers insofar as it would bring prices down) were correct then why not ban exclusive distribution agreements altogether? Why not ban territorial technology licence. Having several distributors/licensees would bring prices down, right?

    In the specific case of television rights, the free-riding argument is so compelling that you see non-exclusive licensing only very rarely.

    We accept that there’s a premium attached to exclusivity, and that, absent the ability to license exclusively, the revenue of the underlying right will be diminished. What I’m unclear about is why we’d want to call the various licensees in this scenario “free riders” rather than “competitors.” The value of the license declines, but it doesn’t decline to zero.

    Obviously I’m not saying that it would be a good idea to actually actually introduce compulsory licenses. I just don’t see why we’d classify it as a public goods problem if we did.

    So much so that if the AG’s opinions are followed, you will not see competition among broadcasters across Europe (which you defend), but pan-European licensing (a single licensee across the EU).

    I can see that that’s the likely end-game, and I accept that it’s a perverse outcome. With the UK constituting so much of the effective demand for live premier league matches, a law that forces them to be sold at a single price will just mean that non-UK outlets get charged prices for the premier league that they will almost never be willing to pay. Fewer people get to watch football, the FA loses revenue, etc. So I can see it’s bad. But surely the point here is just that price discrimination on a national basis makes sense when there are such radical differences in demand for a product between countries.

    Pete

    13 February 2011 at 2:00 pm

  4. – If we talk about public goods, this is not because IPRs are granted to remedy a public goods problem, but because a broadcast is a textbook example of a public good (while a book or a CD is a tangible object). This is why it makes little sense to talk about exhaustion in the case of the right of communication to the public in the first place. This is also why, even when the cross-border trade in services is not at stake, exclusivity (i.e. introducing excludability by contract and providing certainty about the investment made by the broadcaster) is pervasive in the broadcasting sector.

    – In the case of non-exclusive licensing, I am very happy to the different licensees as ‘competitors’. The problem is that, to the extent that they take a free-ride on other licensees’ investments, they are also free-riders. In this sense, the idea that exclusive distribution in general is a satisfactory response to free-riding concerns is wholly uncontroversial nowadays.

    – As regards, the impact of non-exclusive licensing on prices, this is an interesting theoretical issue that was explored a few years ago by several economists such Mark Armstrong. From a practical perspective, what we know is that exclusivity for these events is very rare and that the European Commission is extremely reluctant to go down the road of non-exclusive licensing (and we have witnessed problems whenever a comparable remedy has been implemented, as in NewsCorp/Telepiu). What I do not know (and this would be of interest for the readers of the blog) is whether you have in mind concrete practical examples of non-exclusive licensing (i) in exchange of a lump-sum (as the Premier League is licensed) and (ii) which is not the consequence of government coercion (always there whenever the Olympics or the Football World Cup are played).

    Bagnole

    13 February 2011 at 5:45 pm

  5. Thanks Bagnole. I’m really not trying to be difficult about this and I do appreciate you taking the time to reply. My background’s in economics rather than law, so I’m sure that there are subtleties to this that I’m missing.

    What I do not know (and this would be of interest for the readers of the blog) is whether you have in mind concrete practical examples of non-exclusive licensing (i) in exchange of a lump-sum (as the Premier League is licensed) and (ii) which is not the consequence of government coercion (always there whenever the Olympics or the Football World Cup are played).

    Absolutely not. I’m completely happy with the idea that broadcasters will mostly prefer to confer exclusive licenses where they have that option available to them. My confusion really is just about where the public goods analysis fits in.

    Specifically, I think I’m missing something with these bits:

    The problem is that, to the extent that they take a free-ride on other licensees’ investments, they are also free-riders

    I see how this works in the current case – Sky paid over the odds for an exclusive license that, if the AG’s opinion is followed, turns out not to be exclusive. I get that they are having their lunch stolen in this case.

    What I don’t see is how – in a situation where everyone knows the license they’re paying for is non-exclusive – one licensee gets to free-ride on another’s investments.

    Just to be clear, I can see that as an arrangement this is sub-optimal from the rights-holder’s point of view and that, absent coercion, they’re unlikely to do it. I just don’t get the public goods angle.

    If we talk about public goods, this is not because IPRs are granted to remedy a public goods problem, but because a broadcast is a textbook example of a public good

    Again, I’m lost. I can see that paid-subscription broadcasts are intangible, but why does that make them public goods? Hasn’t the excludability problem been solved? (You’ve referred to a worry about circumventing the encryption. I couldn’t gather whether you meant bypassing any restrictions as to region – so that an English consumer can purchase from a Greek provider – or bypassing it altogether – so that the circumventer can actually free-ride.) My feeling is that there could be something about the non-rivalrousness that I’m missing, but I don’t get what.

    I appreciate that this whole line of questioning may come off as either stubborn or stupid, but it’s asked honestly – I really am just trying to figure out the argument here. Some literature references to broadcast rights and public goods problems would probably clear it all up. Thanks again, and apologies for lengthy reply.

    Pete

    13 February 2011 at 8:28 pm

  6. […] the future of broadcasting rights is being decided in Luxembourg, and as he did last week when  Kokott´s opinion was issued, Pablo is sharing with us his views on the latest Judgment in this […]

  7. […] cómprate el abono en Grecia, llévate el descodificador a Gran Bretaña y te ahorras una pasta. Libre circulación versus derechos de exclusiva, JA: “Ya la he visto. Mi impresión es que no tendrá ningún efecto, solo obligará a cambiar […]


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