On 4 October 2011, the Court of Justice of the European Union (“ECJ”) delivered its long-awaited judgment in Cases C-403/08 and C-429/08 Football Association Premier League v QC Leisure & Karen Murphy v Media Protection Services Ltd.

The ECJ’s judgment does not restrict the ability of sports rights holders to grant exclusive licences for the satellite transmission of their sporting events.  However, such rights holders are not permitted to either invoke contractual clauses concerning territorial limitations or national legislation to prevent the importation of decoding devices required to view the satellite transmission in other EU Member States. The judgment goes beyond sports broadcasting rights and has the potential to impact upon the licensing strategy of all content owners.

The FA Premier League (“FAPL”) licenses its rights, on an exclusive territorial basis, to broadcasters in various jurisdictions. Each licence agreement contains restrictive clauses which oblige the broadcaster to both encrypt its signal and to not supply decoding devices to users outside the territory covered by the licence arrangement. The mechanics of such arrangements were designed to ensure that customers in one geographic region (for example, the UK) cannot receive a broadcast from a broadcaster in another geographic region (e.g. Greece). The UK rights were awarded to Sky and ESPN, but some public houses (including Ms Murphy’s Red, White and Blue in Southsea, Portsmouth) began to purchase foreign decoding devices issued by a Greek licensed broadcaster to show live FAPL matches, and at prices significantly lower than those charged by the UK licensees.

Legal proceedings were commenced in the High Court of England & Wales by the FAPL and its licensing partners against the sellers and users of the imported decoding devices. These devices were used in public houses to screen live FAPL matches, including the Saturday 3pm matches, which no UK broadcaster is permitted to screen live. The High Court referred a number of questions on the interpretation of EU law to the facts of the cases.

In summary, the ECJ held:

  • that the use or resale of legitimate decoding devices sold in one EU Member State cannot be prohibited in other EU Member States. Any national legislation which precludes the importation and resale of such devices infringes Article 56 of the Treaty on the Functioning of the European Union (“TFEU”) that is, it constitutes a restriction on the freedom to provide services. The ECJ considered that the free movement of services rules rather than the free movement of goods rules were applicable in the case on the grounds that, although the decoding devices are goods, their use is secondary to the reception of the encrypted broadcasting services;
  • that territorial restrictions which require a licensed broadcaster not to supply decoding devices outside the territory covered by the licence agreement, constitutes' absolute territorial restrictions' and, accordingly, are inconsistent with Article 101(1) of the TFEU (the prohibition on anticompetitive arrangements) as being a restriction by object.  Further, such absolute territorial restrictions are not capable of benefitting from the exemption (or ‘efficiency’) criteria in Article 101(3) of the TFEU (where the prohibition on anticompetitive arrangements can be declared inapplicable where, broadly, the procompetitive benefit(s) outweigh the restriction(s) of competition); and
  • in considering Article 3(1) of the Copyright Directive (which allows copyright owners to restrict any ‘communication to the public’ of their works) that the transmission in a public house of certain copyright-protected works incorporated in the broadcast (for example, the FAPL anthem, pre-recorded footage showing highlights of recent matches and various graphics) is a communication to the public under the Copyright Directive and the consent of the copyright owner is required for such a communication. It appears that this right was given a broad interpretation by the ECJ, which disagreed with the findings of the Advocate General on the issue.

The case now reverts to the High Court, which will apply the ECJ’s ruling to the facts of the case.

How the High Court will interpret and apply the ECJ’s ruling is not entirely clear. What appears beyond doubt is that importing a foreign decoding device to screen live matches for personal use is permitted under EU law. However, Ms Murphy’s fate, as a commercial user of a foreign decoding device, is less certain. It would appear that UK publicans may not show FAPL matches in public houses using a non-UK decoding device, because they would be communicating to the public the copyright-protected rights which have been held to exist. As a result, it cannot be said that the publicans have won this case in any meaningful sense. However, that being said, there exists a long line of EU precedent which holds that intellectual property rights may not be used to impede the single market, without justification.

The ruling and the High Court's interpretation of same may force the FAPL to change its licensing strategy. In such circumstances, the FAPL would appear to have a number of available options. For example, it might seek to auction off its rights on a pan-EU basis and likely to more than one broadcaster, with perhaps only a few true media giants being in a position to bid. Should that occur, it is quite possible that a bidding war for the pan-EU rights could push pricing above the current levels paid by the incumbent broadcasters. It is also possible that the FAPL might decline to sell its rights in any EU market from which cheap decoders are likely to emerge. We should not rule out a subsequent challenge to any such arrangements on the basis of EU law. It might seek to impose territorial restrictions preventing ‘active’ sales, but not restricting ‘passive’ sales, but it is unclear whether this would work commercially. Alternatively, it might decide to start its own subscription TV channel. This could happen, as occurs in the Dutch Eredivisie, where the dedicated channel is available on every platform on a non-discriminatory basis. The FAPL already operates its own overseas channel, demonstrating that it has made inroads into the broadcasting market. It is an option with a lot of upside, but is risky.