The British Horseracing Board (BHB) is the monopolist seller of pre-race data, which consists of information concerning the name and the time of races, the course where a race will run, the race distance, the criteria for entry in the race, the names of the horses entered and declared runners, their saddlecloth and stall numbers, their ages, weights, official ratings, jockeys', trainers' and owners' names. This information is essential for stakeholders of the betting industry such as Attheraces Limited (ATR), which is a broadcaster providing services relating to British horseracing to both UK and overseas audiences. The BHB has recently been the protagonist of certain disputes, at the national and European level, over the nature of the intellectual property protection that its database attracts. Whilst it had been accepted that the database in itself does not attract protection under the sui generis right doctrine (Article 7(1) of the Database Directive 96/9/EC), this does not mean that BHB is deemed to lose contractual control over the said information.
The issue to be established is whether the conditions laid down in the contract could be an abuse of its dominant position in the market for the sale of pre-race data, and therefore a breach of Article 82 of the EC Treaty and, correspondingly, of section 18 of the UK Competition Act 1998. This interconnection between intellectual property rights and information goods has raised problems that require the intervention of economists as well as legal experts.
ATR is a business involved in the exploitation of the commercial opportunities arising from British and overseas racing. Its main activity is the broadcast of information related to horseracing, and its revenue comes from contractual relationships with bookmakers and the income generated by punters. From this description, it becomes clear that the information provided by BHB to ATR assumes the character of an essential facility, and the conditions of the licence of such information can influence the capability of ATR to play an active role in the downstream marketing of horserace broadcasting and betting. At first instance, the judge found that the licence conditions laid down by BHB were anti-competitive to the extent that it was engaging in excessive, unfair and discriminatory pricing, in addition to an unreasonable refusal to supply in relation to an essential facility. BHB challenged the judge?s findings on the ground that the test for determining the key issue of alleged excessive and unfair pricing was incorrectly applied. It did not however challenge the definition of the relevant market, which had been narrowly defined as "the market for the supply of pre-race data to those in the horse racing industry", nor that it was dominant in it.
The Court of Appeal did not hesitate to consider this issue thoroughly and provided some guidance on the way that test is to be appropriately applied. In accordance with the United Brands case ( ECR 207), the Court held that the relevant test to determine whether a price is excessive is to consider whether it has any reasonable relation to the economic value of the product supplied. But while the trial judge limited the consideration of the economic value to a comparison between the costs of production and the revenue produced by the commercialisation of these products, the Court of Appeal was not ready to accept such a narrow approach. The Court decided that, in order to judge whether an abuse had been committed, it was not enough to only consider the difference between revenue and specific cost of producing the information, as that would lead to an account of profit that was narrow and unfairly balanced. What needed to be considered was the nature of the product and its economic value, including the cost externalities that could be produced by other aspects of the business (i.e. pre-race data could and should reflect the expenditure which BHB incurred in making British racing attractive and in maintaining its quality and integrity).
The Court of Appeal was firm in its decision to recognise the role externalities play in the evaluation of price policies and took a more pragmatic approach than the trial judge. In this sense, it was important that the Court recognised that BHB's effort in making horseracing an attractive and flourishing business in the UK constituted a significant benefit for ATR through the income acquired as a result of the use of BHB information. Thus, when considering whether a price was unfair, the test should not be narrowed to 'cost plus a reasonable return', but should also consider the advantages that the information generates to the benefit of the user.
Other issues that should be considered include the elasticity of demand, which reflects the level of acceptance of the variation in prices by the user of the relevant information (ATR in this case). In addition, whether or not competition was actually distorted by the conditions laid down by the holder of the information is significant. Ultimately, the goal to be achieved is to ensure that the purpose of Article 82 of the Treaty is satisfied, with specific reference to the protection of the interests of consumers that, according to the jurisprudence, should be taken into particular account when implementing competition law provisions.
It is therefore apparent that information may be protected not only through the grant of traditional intellectual property rights; contractual protection may also be sought within the guidelines suggested by this judgment. Thus, it was helpful that the Court suggested that the effect of high pricing must be shown to have a negative impact on competition, as in most cases this will be difficult unless the pricing forms part of a discriminatory or exclusionary strategy. The Court also made the useful point that the application of a 'cost plus' test should include cost externalities, which could include costs to run and promote the relevant market. In terms of discriminatory pricing, the Court reinforced the preferred view that differential pricing is not by definition abusive. Rather, it becomes abusive where such pricing has a negative effect on competition, for example, by restricting the free movement of goods or partitioning national markets.