With the European Commission investigating Sky and six US film studios, and having sent 100 page questionnaires to hundreds of other EU digital content providers and distributors, the issue of “geo-blocking” and the extent to which services must be available to consumers throughout the EU presents a significant challenge.

The objection in the present investigation is familiar ground (press release available here).  As a matter of EU competition law and the over-arching EU single market rules, it is generally not permissible for a supplier of goods or services to prevent a distributor from responding to requests to purchase them from customers located anywhere within the EU.  Under specific conditions a distributor can be required only “actively” to sell to customers in an allocated territory, but cannot be prevented from making so-called “passive sales” to EU-based customers located outside their allocated territory.

The clauses at issue require blocking access to films through online pay-TV services or through satellite pay-TV services to consumers outside the licensed territory (UK and Ireland).  Some licensing agreements also require studios to ensure that other broadcasters with which the studios have entered into licensing agreements are prevented from making their pay-TV services available in the UK and Ireland. 

In the absence of a convincing justification, the European Commission considers these restrictions to amount to “absolute territorial protection” (exclusivity) for the studios’ chosen distributors within the EU and a serious breach of EU competition law. 

In contrast to the Murphy case (available here) where the ECJ held it unlawful for broadcasters of football matches to be prevented from supplying decoding devices to enable customers to access broadcasts outside the broadcasters’ allocated territory, the distribution of films raises the question of copyright and whether the regulatory protections afforded "works" justify such contractual restrictions.  In addition to questions of EU IP rules on exhaustion, a key concern for the Commission is likely to be whether such contractual restrictions are legitimate and proportionate protections by object, or by effect.

Nevertheless, in the wider context of the European Commission’s Digital Single Market strategy and its E-commerce Sector Inquiry (available here), the end-game is clear. The strategy explicitly states that it is “time to make the EU's single market fit for the digital age – tearing down regulatory walls and moving from 28 national markets to a single one”, a move which the Commission estimates could contribute €415 billion per year to the EU economy and create hundreds of thousands of new jobs (see here). 

Comment

The Commission has made it clear that it will not put on hold any investigations pending the outcome of its Sector Inquiry.  National competition authorities in individual EU Member States are also continuing to look closely at online markets.  Companies operating in these markets therefore need carefully to review their operating models and business practices to ensure they do not contain any “naked” restrictions or practices likely to fall foul of EU competition law.  They also need to ensure they take account of increasingly complex interplays between the competition law rules and the detailed regulatory rules governing digital communications markets.