The Competition Appeal Tribunal (CAT) has dismissed British Sky Broadcasting’s (BSkyB) appeal against the Competition Commission’s report and Secretary of State’s decision regarding the acquisition and the divestment remedy (in British Broadcasting Group plc v Competition Commission and Secretary of State) but has upheld Virgin’s appeal against the Competition Commission’s media plurality findings (in Virgin Media v Competition Commission and Secretary of State) in its judgment of 29 September 2008. BSkyB and Virgin Media were both refused permission to appeal against these judgments by the CAT on 5 December 2008.

In November 2006, BSkyB acquired a 17.9% shareholding in ITV. The acquisition was referred to the Competition Commission (CC) by the Secretary of State for Business, Enterprise and Regulatory Reform for an in depth investigation in May 2007. The CC concluded in its final report that BSkyB had the ability to exercise material influence on ITV’s policy and as a result a relevant merger situation had been created by the share acquisition, which would result in a substantial lessening of competition but would not operate against the public interest in terms of media plurality. The CC recommended that the appropriate remedy for the competition concerns raised by the acquisition was for partial divestiture to reduce BSkyB’s shareholding to a level of 7.5% which was below the level where it could exercise material influence over ITV’s policy. The CC’s findings and recommendations in its report were adopted by the Secretary of State in January 2008.

In February 2008, both BSkyB and Virgin Media, Inc (Virgin) applied separately to the Competition Appeal Tribunal (CAT) for a review of the decision of the CC and related decision by the Secretary of State. BSkyB and Virgin’s appeals between them challenged almost every element of the CC’s decision, although as confirmed by the CAT, they were limited under the relevant provisions of the Enterprise Act to a judicial review of the decision rather than any form of appeal on the merits of the decision.

The extent to which BSkyB had the ability to exercise material influence through its shareholding in ITV was relevant to the review of both the CC’s findings that there was a relevant merger situation and the recommended divestment remedy.

The CAT did not set out a general formulation on determining what constitutes material influence. It considered that the CC’s approach to assessing material influence was proportionate in particular the CC’s finding that a shareholding of 17.9% would allow BSkyB to block special resolutions, as well as taking into account BSKyB’s knowledge and standing within the industry combined with the size of its shareholding.

The CAT also concluded that the legislation did not require a remedy to be imposed to guard against unrealistic possibilities. The CAT considered that the CC’s approach was consistent with the CC’s own guidelines and it had not acted irrationally or otherwise unlawfully in concluding that the appropriate divesture for BSkyB’s shareholding in ITV was to a level below 7.5%.

However, the CAT found that the CC had misdirected itself in law on the interpretation of the relevant media plurality public interest provisions (Sections 58(2C)(a), 58A(4) and 58A(5) of the Enterprise Act.

The CC had to determine whether there was sufficient plurality of persons with control of the media enterprises serving a particular audience. To answer these questions under the Enterprise Act, the CC was required to treat BSkyB and ITV as being under the control of a single person. The deeming effect of the legislation meant that the degree of control cannot be relevant to the plurality assessment under the Enterprise Act. The restriction imposed on the scope of assessment was justified by the fragility of the media public interest consideration in question, which once lost, may be very difficult or indeed impossible to restore.

It was concluded that the CC’s conclusions and the corresponding decisions of the Secretary of State with regard to media plurality cannot be sustained and must be set aside. This is the first case where the statutory provisions regarding the media plurality have been applied, and so will provide guidance for future media mergers where the public interest considerations apply.

On 30 October 2008, the CAT handed down judgment on further relief, and concluded that the validity of the remedy, reduction of the shareholding in ITV by BSkyB to 7.5% was not affected by the finding that the CC had made an error in the media plurality test. Following the CAT’s ruling on 5 December not to allow BSkyB or Virgin to appeal in their respective cases, this appears to be end of this dispute, as it is noted that the parties have settled in separate High Court proceedings, and BSkyB programming is now available again on Virgin Media.