Relaxing whilst doing Competition Law is not an Oxymoron

The Canal+ Judgment (T-873/16), and the end of the Pay-TV Case (or the illusion of precedent)

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the end

On 12 December 2018 the General Court rendered its Judgment in Canal+. The case concerned an appeal against the Art. 9 decision that made binding the commitments offered by Paramount in the Hollywood Studios/Pay-TV case. The latter is a case I followed with particular interest and on which I certainly am not objective, as [disclosure alert] I have represented PACT, the association of UK independent cinema and TV producers.

The case will presumably be over very soon, as all investigated parties have now offered commitments. First, it was Paramount (two and a half years ago and due, apparently, to financial reasons); then it was Disney (which was in a strong position in the case as it had got rid of satellite restrictions before the probe started but nevertheless offered commitments “coincidentally” at the same time as the Commission authorized its acquisition of Fox in Phase I); Sky and all other Hollywood majors have now followed.

Interestingly, the latest round of commitments offer was announced only a few days after the General Court’s Judgment in Canal + “established” (see below) that the clauses under investigation constituted restrictions by object.

The Commission can claim a clear victory, putting an end to a case that otherwise had no clear end in sight, and obtaining concessions that go well beyond what an infringement decision could have attained. But beyond winners and losers, what does this mean for the law?

Now that the case is over and there is even a Court Judgment avant la lettre, the law should be clear, right? Many might believe that even if the parallel legislative attempt to curb online geoblocking restrictions has failed, competition law can kick in and, once again, fill the apparently regulatory void. Well, not so fast.

Some reflections:

-First, and as a preliminary point, the Studios are of course in their right to offer commitments, and these may well be in their best interest. There’s nothing to criticize in this, and no clear legal grounds to do so even if one wanted to (which is why I never entirely understood the Canal+ appeal, although I might well be missing something). Commitments are not law and in fact have little to do with the law, so no comments on these.

-Second, beyond other interesting issues, the main legal question that the case presented has not been resolved. The cross-border “passive sales” that the agreements allegedly restrict are unlawful. They amount to a copyright infringement. This makes the Pay TV case stand apart from Murphy and more traditional parallel trade cases. For the same reason, it raises a number of fundamental questions that did not arise in those cases. Does a transmission that infringes copyright amount to “competition” within the meaning of Article 101(1) TFEU? If an agreement prohibits a cross-border transmission that would have been unlawful anyway under copyright law, can it be said to restrict competition that would otherwise have existed (i.e. against the counterfactual)? My sense is that the Commission was aware of this aspect of the case and the legal difficulties to which it gives rise (which perhaps explains the long time elapsed since the oral hearing), having lost a number of cases on very similar grounds (O2, E.On Ruhrgas, European Night Services or Nungesser to name a few).

-Third, now you may be wondering: but what did the General Court have to say about this argument in the context of the Canal + appeal? After all, as just explained, the Court has quashed quite a few EC decisions on this point, right? [btw, we still need to comment on the last case where this has happened only weeks ago, T-684/14, Krka- Servier]. Well, the Court said nothing. But in its defense, the truth is that, despite its prominence in academic debates, apparently the argument was not presented before it. Take a look at Canal+’s grounds of annulment. One can only speculate that this may be explained Canal+ greater interest in satellite than in online communications. The General Court ruled on this plea and endorsed a conclusion that the Commission had never formally adopted. And this while ruling on an action brought by a third party, without having heard the arguments of others (although to be fair, the setting was not for the Court to decide). The relevant IPR-related arguments re online communications do not feature in the Judgment and don’t seem to have been considered at all. At most, the analysis of the General Court clarifies that the Commission’s preliminary assessment was not manifestly incorrect. In other words, the Canal+ Judgment is therefore more an illusion of a precedent than a real precedent. That seems well suited to a case concerning cinema.

For some reason, the appeal challenged the Commission’s preliminary finding that the clauses constituted restrictions by object. The Commission never actually found a restriction by object, it had simply taken that preliminary view in the SO and in a commitment decision, which by nature does not declare the existence of an infringement.

-Fourth, the EC itself has publicly stated that the case was specifically about the agreements between the Hollywood majors and Sky, and that it would somehow not affect independent producers. From a purely selfish perspective, it would have been nice to have some sort of creative formal carve out for indies (whose business model would be severely compromised), but the absence of a declaration of infringement and the multiple statements from high-ranking Commission representatives create the legitimate expectation that independent producers have nothing to fear about the legality of their agreements (or at least not until the Commission adopts a prohibition decision or until the ECJ otherwise rules on the matter).

-Fifth, there is an intellectual consolation to this strange open ending. Over two years ago, when the Commission accepted Paramount’s commitments, I wrote here that –in my view- this would legally preclude the imposition of fines on all other investigated companies for exactly the same practices. This is because, as you know, commitments are only appropriate in cases where the Commission does not intend to impose fines. There has never been a case or cases involving the same practices where the Commission accepted commitments and imposed fines for the same conduct during the same period covered by the commitments ( see here for a comment on this point). As we had anticipated, there have been no fines in this case either.

Written by Alfonso Lamadrid

23 January 2019 at 5:34 pm

Posted in Uncategorized

One Response

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  1. Dear Alfonso,

    I am an avid reader of your blog and I must thank you for all the thought-provoking analyses.

    At first, I was really convinced by your argument that the agreements in the Pay TV case might not be restrictive of competition because they only limit cross-border transactions that would in any case be contrary to copyright law.

    Now I wonder whether the Pay TV scenario is really similar to the previous case-law you cited (E.On Ruhrgas, European Night Services). On the one hand competition is not de facto impossible in the Pay TV case : a consumer in one Member State could very well subscribe to the services of a content provider in another Member State. On the other hand, the only legal hurdle to this kind of cross-border provision of services is contained in the contract between the right holder and the broadcaster. Such a cross-border broadcasting of content would violate copyright law because the right holder decided to license its rights territorially (and to prohibit passive cross-border sales to enforce this territorial licence).

    This is only one way for the right holder to exercise its rights and it does not derive from the very nature of these rights. One could for instance imagine (as the GC in Canal + and the Commission do) that a licence could be based on a potential audience rather than on a territory. Or at least include the possibility of selling beyond a given territory, and take this possibility into account in the remuneration.

    The Court accepted that the exercise of IP rights could be subject to the rules of Article 101. So why is it a problem for the Commission to say that the way the right holders in the Pay TV case exercised their rights is liable to restrict competition? In Coditel II the Court may have ruled that exclusive territorial licences were not in themselves contrary to Article 101, but I do not see any problem with the finding that restricting cross-border passive sales is “going too far” in the exclusivity.

    To sum up, if the only reason why the cross-border passive sales would be illegal is contractual, I do not see why this contract could not be subject to the scrutiny of the Commission. Indeed, in the absence of this type of contract, competition between the licensees in different Member States would be possible. Therefore, it could be argued that the agreements in the Pay TV case restrict the competition that would otherwise have existed.

    Thank you for reading my comment (I probably missed something in my reasoning due to my poor understanding of copyright law)


    Pierre Garenne

    18 June 2019 at 2:06 pm

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