On 22 April 2016, the European Commission published for comment the first set of commitments offered in the UK Pay-TV investigations. Those commitments represent an important milestone in the Commission’s efforts to reduce the effects of territorial restrictions in content licensing agreements and may foreshadow the legislative proposals which the Commission has announced for the coming months.

Background

On 23 July 2015, the European Commission adopted a Statement of Objections against six major Hollywood studios and Sky UK. This Statement of Objections alleges that these seven undertakings breached Article 101(1) TFEU by concluding licensing agreements that contained clauses which partition the internal market by granting absolute territorial protection to Sky UK.

According to the Commission, these agreements had as their object the restriction of competition because they:

  • prohibited or limited Sky from making its retail pay-TV services available in response to unsolicited requests from consumers residing or located in the EEA but outside the UK and Ireland (the licensed territory); and/or
  • required the studios to prohibit or limit broadcasters located within the EEA but outside the licensed territory from making their retail pay-TV services available in response to unsolicited requests from consumers residing or located in the licensed territory.

The Commission’s investigation followed the 2011 judgment of the European Court of Justice in case C-403/08 Murphy. This judgment was a preliminary ruling on questions referred by the High Court of Justice of England and Wales in a case involving, amongst others, Mrs Murphy, who had procured a decoder card for a Greek satellite pay-TV channel and used it to show English Premier League matches in her pub in Portsmouth, England. Proceedings had been brought against Mrs Murphy in the UK for infringement of intellectual property legislation. In these proceedings the question was raised whether an obligation imposed by a right holder on a broadcaster not to supply decoding devices outside the exclusively licensed territory breached Article 101 TFEU.

In its ruling the Court recalled that right holders are free to award exclusive licenses to broadcasters in a Member State and consequently to prohibit its transmission by others. But it also considered that “agreements which are aimed at partitioning national markets according to national borders or make the interpenetration of national markets more difficult must be regarded, in principle, as agreements whose object is to restrict competition within the meaning of Article 101(1) TFEU.

The proposed commitments

One of the Hollywood studios involved in the Commission’s UK Pay-TV investigation, Paramount, on 14 April 2016 offered commitments in an effort to obtain a decision from the Commission declaring that there are no longer grounds to pursue the case. On 22 April 2016, the Commission published a notice in the Official Journal of the European Union inviting third parties to submit their observations on the proposed commitments. If the Commission subsequently makes the commitments binding on Paramount, it will close the case against it. It can then still continue the case against the five other studios and against Sky UK.

The proposed commitments are threefold:

  • Not to enter into, renew or extend the types of clauses in licensing agreements which the Commission considers problematic, ie. clauses that prohibit a broadcaster from responding to unsolicited requests from customers located in the EEA but outside the broadcaster’s exclusive territory;
  • Not to enforce such clauses in existing agreements; and
  • Not to directly or indirectly honour such clauses in existing agreements.

The commitments were proposed for a period of five years and cover both standard pay-TV services and Subscription Video on Demand (SVOD) services.

Interested third parties can submit observations on the proposed commitments until 22 May 2016.

Potential impact

Following the Murphy judgment, the topic of territorial restrictions in licenses for intellectual property rights has been hotly debated. While restrictions on passive sales (responding to unsolicited requests from consumers) are prohibited under EU competition law in most circumstances, the nature of intellectual property rights has often been invoked as implying an exemption from this prohibition. The Commission is trying to create a “passive sales” exception to exclusivity in audio-visual content licenses.

Rather than adopting a contestable decision, the Commission is pursuing the route of commitments to obtain changes to the licensing agreements it finds problematic. It probably hopes that these commitments will induce other studios and pay-TV operators to change their licensing agreements. In fact, the Commission is currently holding in parallel an e-commerce sector inquiry in which the question of territorial restrictions on access to digital content plays a prominent role, as evidenced by the issues paper the Commission published on this topic on 18 March 2016 (see our earlier blog post). Since the Commission has announced that it will issue a legislative proposal to end what it regards as unjustified geo-blocking in the first half of 2016, the commitments proposed in the UK Pay-TV inquiry, could foreshadow what may be contained in this draft legislation.

Finally, according to recital (13) of Regulation 1/2003 which covers antitrust investigations of the Commission, including the UK Pay-TV inquiry, “commitment decisions are not appropriate in cases where the Commission intends to impose a fine.” The fact that commitments have now been proposed (and may be accepted by the Commission) in this case, could therefore be used by rights holders and licensees to contest any attempt by the Commission to impose fines for such practices.