Chillin'Competition

Ruling today on the Canal+ case (click here for the Judgment, not yet available in English) the CJEU has effectively corrected some of the excesses of its 2009 Alrosa Judgment, whose effects on competition enforcement over the past decade are difficult to understate. Today’s Judgment is equally poised to have a major impact on future competition law enforcement.

In Alrosa, the CJEU quashed a GC ruling that had, in turn, annulled a Commission decision for (i) failing to comply with the principle of proportionality, and (ii) for failing to respect Alrosa’s right to be heard on the proportionality of the individual commitments offered by De Beers (the GC took the view that the complete prohibition of all commercial relations between the two parties with effect from 2009 was manifestly disproportionate).

On appeal, the CJEU held that in the context of commitment decisions the principle of proportionality plays a different role than in infringement decisions, requiring only that the Commission ascertain that the commitments addressed its concerns. The Alrosa Judgment enabled the Commission to make binging remedies that would go beyond what would have been possible in infringement decisions and, in a way, changed our mindsets about how far competition law could reach.

Today’s Judgment nuances, and in a way implicitly reverses, part of the Alrosa ruling. The CJEU again quashes the GC’s Judgment in first instance, but this time for the opposite reason; that is, for failing fully to consider the impact of the commitments on the contractual rights of third parties.

The CJEU does not explicitly recognize that this Judgment in any way corrects Alrosa. AG Pitruzella’s Opinion, however, hinted that the Court’s interpretation of the principle of proportionality in Alrosa had been particularly restrictive (para. 120) (for Pablo’s comments on the Opinion, see here).

The CJEU’s reasoning, in fact, is that today’s Judgment does not necessarily depart from the letter of Alrosa. At para. 106 the Judgment makes a distinction between assessing proportionality by reference to the Commission’s competition concerns (where Alrosa would still apply) and assessing proportionality by reference to the impact on the contractual rights of third parties (where, as explained below, today’s Judgment kicks in). This is in line with the AG’s Opinion (para. 122). Admittedly, the Alrosa Judgment did make the point that third parties rights should be taken into consideration.

Specifically, today’s Judgment observes that Paramount’s commitments in the Pay-TV case (on which we commented here and here) automatically imply that it would not fulfill its contractual obligations, vis-à-vis third parties, like Canal+. In the circumstances of the case, this meant that Paramount would not be able to act against any violations of the territorial exclusivity obligations protecting its licensees.

The Commission had argued, and the GC had accepted, that this would not be a problem, because affected third parties could always seek to enforce their contractual rights against Paramount before a national Court. After all, as you know, and as made further clear in Gasorba, the existence of a commitment decision to address competition concerns created by certain practices does not prevent national competition authorities and national courts from assessing the compatibility of those same practices with Articles 101 and 102.

The CJEU, following the recommendation of the AG, finds that this possibility cannot ensure an adequate and effective protection of third parties’ contractual rights. This is because pursuant to the Masterfoods case law, now codified in Art. 16 of Regulation 1/2003, national courts would not be able to require an undertaking to contravene commitments made binding by a Commission Decision.

Importantly, the Judgment makes use of the possibility to directly rule on the merits of the case instead of remanding the case to the GC. This is because the commitments accepted by the Commission affected an essential element to the balance of the contracts at issue (para. 126) that would devoid of substance the contractual rights conferred upon Canal + (para. 127).

A few additional comments:

• It is clear that going forward the Judgment will constrain the Commission’s discretion to accept commitments (as well as the proposal of those commitments by undertakings) and that it will increase the relevance of third parties. The extent to which this will have a material effect is hard to anticipate. It is possible that the Courts may generally defer to the Commission’s analysis of proportionality, but the very obligation to conduct a proportionality assessment is likely to result in better-designed remedies (and possibly in more litigation).
• Today’s Judgment, and notably the idea that remedies altering the essential balance of contracts are by definition disproportionate, could arguably have some implications beyond Art.9 commitment cases. Proportionality nonetheless would need to be checked against the public interest, and the situation will arguably be different in cases involving clear infringements.
• The commitments offered by other Hollywood Studios in this very same investigation, which were made binding by a different Commission decision, are the subject of a separate pending Canal+ appeal before the GC in Case T-358/19. It seems safe to say these are now doomed.
• A particularly interesting question is whether this Judgment may have an impact on other pre-existing commitment decisions, but this is one that requires some more reflection.
• This is a Judgment from the CJEU’s Second Chamber, including competition experts like Nils Wahl and, importantly, featuring President Lenaerts acting as a Judge.

DISCLAIMER: I have represented PACT, the UK Producers Alliance for Cinema and Television, one of the third parties affected by the Commission’s Decision, whose members might be directly affected by today’s Judgment.