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Dec 12, 2018

The General Court Upholds the Commission’s Decision to Make Paramount’s Commitments in the Pay-TV Case Binding

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Introduction

The long-awaited judgment of the General Court (GC) in the pay-TV saga (case AT.40023 Cross-border access to pay-TV) has finally been delivered, two years after the annulment action was brought. It was worth waiting for: The General Court has gone well beyond simply endorsing the Commission’s decision on the adequacy of the commitments, and has carried out a competitive analysis of the contractual restrictions that are under scrutiny in the pay-TV case (for which a final decision has not yet been adopted).   

The pay-TV case concerns certain clauses contained in the licensing agreements for films between the six Hollywood studios (Paramount, Disney, Fox, Warner, Sony and NBCUniversal) and the British pay-TV broadcaster, Sky UK. According to the Commission’s preliminary findings in the Statement of Objections (adopted in July 2015), such clauses prevented Sky UK from serving EU consumers who requested, from territories other than the U.K. and Ireland, access to pay-TV services available in those countries via satellite or online.

One year after the Statement of Objections, in July 2016, the Commission made binding the commitments offered by Paramount according to which: 1) it would neither act upon nor enforce these clauses in existing film licensing contracts for pay-TV with any broadcaster in the European Economic Area (EEA); 2) it would refrain from (re)introducing such clauses in film licensing contracts for pay-TV with any broadcaster in the EEA.

Canal +, a broadcaster not directly involved in the pay-TV case, had challenged such commitments, which are now the subject matter of the GC’s judgment.

The Judgment

The action brought by Canal + focused on two sets of pleas: first, the Commission’s preliminary findings that the clauses “by object” restrictions are incorrect; second, the commitments offered are not suitable to address the Commission’s concerns.

On the first set of arguments, while pointing out that the appeal should concern exclusively the suitability of the commitments to address the Commission’s concerns, the GC made it clear that:

  • The Commission’s commitments decision was prompted by a well-founded concern that the clauses at issue, having regard to their content, objectives and the economic and legal context, eliminated cross-border competition and granted absolute territorial protection to the broadcasters that had concluded a licensing contract with Paramount;
  • While it remains possible for right holders to grant exclusive licenses with regard to specific territories, clauses that restrict the ability of broadcasters to accept unsolicited requests ("passive sales") for their pay-TV services from consumers located outside their licensed territory are restrictions by object, hence in breach of Article 101 TFEU, as they result in market partitioning along national borders;
  • While the specific subject matter of the intellectual property is intended to ensure for the right holders the ability to exploit commercially the protected subject matter, this does not guarantee the right holders the opportunity to demand the highest possible remuneration. In this respect, nothing would prevent the right holder from asking for an amount which takes account of the actual audience and the potential audience both in the Member State of broadcast and in any other Member State in which the broadcasts, including the protected subject matter, are received. While similar points had already been made by the CJEU in C-403/08 and C-429/08, Premier League, the GC added that the available technology would not only permit this, but would also enable active sales to be made only in the territories for which the exclusive license is granted. In addition, if removing the restrictions would result in a reduction of the prices in France, the French broadcaster would receive appropriate remuneration because such broadcaster would be able to serve customers not only in France, but also in the whole EEA.
  • While not adjudicating on whether the clauses could be justified under Article 101(3), the GC nevertheless noted that, in imposing restrictions that go beyond what is necessary for the production and distribution of protected audiovisual content, the clauses do not fulfill one of the cumulative requirements under Article 101(3), i.e., not imposing restrictions which are not indispensable to the attainment of these objectives.

With regard to the second set of arguments, the GC noted that the commitments were not disproportionate, nor did they affect the right of third parties (such as those of Canal +). Indeed, one of the main points of Canal + was that the commitments would also affect their own interests, as they would modify substantially their licensing contracts with Paramount, containing the same type of restrictions.

According to the Court, however, removing, or not enforcing, the restrictive clauses is a commercial decision of Paramount, not of the Commission.

Also, the commitments offered by Paramount are in line with concerns expressed by the Commission, which cover the entire EEA, with the result that the Commission did not have to examine the effects of the commitments on each individual national market.

Conclusion

In addressing the possible anti-competitive nature of the clauses, the GC has somehow anticipated the findings that we may expect from the final Commission decision (which has yet to be adopted) and has given prima facie confirmation of the soundness of their analysis so far. The judgment is also likely to have spill-over effects on the commitments recently offered by Disney (and its controlled entities, including Fox), which are in substance similar to the Paramount ones, or may possibly prompt the remaining studios (Warner, Sony and NBCUniversal) to make similar offers.

Provided that the Commission’s final decision on the existence of an infringement confirms the findings of the Statement of Objections, parties that have not offered commitments may challenge it before the GC. The judgment on the Paramount commitments, however, suggests that any such challenge is likely to be an uphill battle.

Authors and Contributors

James Webber

Partner

Antitrust

+44 20 7655 5691

+44 20 7655 5691

+32 2 500 9871

+32 2 500 9871

London

Gabriella Griggs

Associate

Antitrust

+44 20 7655 5664

+44 20 7655 5664

London