October 7, 2011
In a Judgment which rattles the foundations of national copyright laws, the European Court of Justice held on October 4th that broadcasting licenses which prohibit the broadcasting of football matches outside the particular European Union ("EU") Member State for which the license was granted cannot be enforced.
If any comfort can be found in the Judgment for copyright holders, it lies in the fact that the Court has opened up the possibility that football broadcasts which include elements of "literary or artistic works" alongside them might nonetheless be able to benefit fully from the grant of exclusivity.
The Facts
The Court of Justice of the EU ("the Court") adopted the Judgment following two Preliminary References (requests for legal interpretation) made in 2008 under what is today Article 267 TFEU from two separate divisions of the High Court of England & Wales, namely:
- The first Case (C-403/08) concerned a civil action, brought by the Football Association Premier League Ltd ("FAPL") and a number of entities responsible for the transmission of football matches in Greece, against UK pubs that screened Premier League matches by using Greek decoder cards (rather than decoder cards acquired in the UK at UK prices) and against the (Greek) suppliers of such decoder cards to those pubs.
- The second Case (C-429/08) concerned the criminal prosecution of a pub landlord in Portsmouth, Mrs. Murphy, who had been fined because she had screened the matches in her pub using a decoder box and a subscription card obtained from the Greek broadcaster NatMed Hellas SA, the Greek licensee of the FAPL, rather than Sky Television, the official exclusive broadcaster of the Premier League in the UK.
The Court, after having taken into consideration Advocate-General Kokott’s Opinion delivered on 3 February 2011, expressed its conclusions in relation to the interpretation of the relevant terms of the Conditional Access Directive, Articles 56 (free movement of services) and 101 (anti-competitive agreements) of the TFEU, and to the interpretation of the scope of copyright protected works.
The Court’s Key Findings
A. Conditional Access Directive
It was explained by the Court that decoding devices imported from another Member State cannot be regarded as "illicit devices", since the "illicit device" category within the text of the Directive encompasses exclusively those decoders which have been "adapted" to circumvent the law or which allow "access […] free or charge" or facilitate "without authority the circumvention of any technological measures". Hence, the import of decoders from Greece could not be prevented into the UK.
B. Free movement of services
The Court concluded that the British legislation prohibiting foreign decoding devices from being imported into and sold and used on national territory "prevents those services from being received by persons resident outside the Member State of broadcast". This provision was considered by the Court to be a clear and disproportionate restriction on the freedom to provide services, which was unable to be objectively justified either on the grounds of intellectual property rights protection or on the basis that its purpose was to promote live attendances at football grounds.
C. Competition law aspects
While indicating that the granting of licenses on an exclusive basis does not, in fact, constitute a restriction of competition in its own right, the Court nevertheless took the view that a problem arises with the imposition of "additional obligations […] contained in the clauses of the contracts concluded between the right holders and the broadcasters concerned, namely, the obligation on the broadcasters not to supply decoding devices enabling access to the protected subject-matter with a view to their use outside the territory covered by the licence agreement (emphasis added)." While AG Kokott expressed the view that any exclusive territorial license should in principle be counter to Article 101 TFEU, the Court ruled that it is only those broadcasting licenses that prohibit the purchase of decoder cards from other Member States that are in breach of EU competition rules, because they "enable each broadcaster to be granted absolute territorial exclusivity in the area covered by its license and, thus, all competition between broadcasters in the field of those services is eliminated".
D. Copyright-protected works
The Court took a broader view that AG Kokott, in holding that a "communication to the public" was taking place in the circumstances, inasmuch as the pub landlord was intentionally (and commercially) transmitting the broadcast to customers who constituted a "new public" for those works.
Critique
A very formalistic view was taken by the Court as to the operation of certain legal doctrines that were relevant to its deliberations. For example:
- When determining whether the conduct in question was anti-competitive because it interfered with parallel trade, the treatment of the concepts "freedom to provide services" and "free movement of goods" (at paras.77-84) were effectively treated in the same manner. However, the sale of a decoder designed to provide access to copyright protected material is not just any "good" that is to be consumed, but is rather a product that is itself dedicated to facilitating the provision of a service.
- The attitude of the Court, in holding that the actions of the rights holder and its local licensees were anti-competitive "by object" rather than "by effect" (see paras. 135-146) makes little sense unless it is possible to confer effective exclusivity on a copyright holder through less restrictive means. Yet the very nature of trans-national broadcasts suggests that a ‘real life’ answer can provide no other realistic alternatives other than prohibiting the use of national decoders outside the licensed territory.
- Finally, the relevance to the sporting world of the principle of "solidarity" under EU law is all but ignored by the Court, as it does not take into account that the rights acquired by Sky Television from the FAPL have been acquired in such a way as to promote a minimum number of broadcast games from less glamorous English football clubs, while at the same time avoiding the real-time transmission of games near the individual clubs so as to avoid a negative impact on live attendances. Football lovers will know that these are very real, and proportionate, concerns.
The commercial implications of the Judgment are enormous. Both holders of copyright and acquirers of such rights will need to re-consider their business strategies across the EU. In particular:
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If the "protection" of an exclusive national broadcasting territory is no longer permitted in practice, the selling of media rights on a national basis is clearly undermined. The net result will be that the acquisition of rights will shift from the national to the European level, and experience tells us into the hands of one or only a handful of powerful buyers. From a consumer welfare point of view, this result can hardly be considered to be more desirable than the situation which exists at present.
- The distortive effects on the competitive landscape are also clear insofar as the Judgment effectively endorses a position which runs counter to the principle of technology neutrality. While the Ruling clearly affects the satellite industry and also that of the Internet, it leaves untouched terrestrial and cable broadcasting, as these platforms are inherently limited by the nature of the technology which they deploy.
- Although the live match coverage itself is not covered by copyright protection, the door has been left open to the FAPL to assert its rights over FAPL-branded opening videos, background sound effects, on-screen graphics, and so forth. The acknowledgement by the Court that those copyrights can be protected fully where they reside in formats which are repeated, pre-engineered or scripted in the context of the live (and spontaneous) football coverage, means that broadcasters can arguably avoid the Court’s Judgment simply by "complicating" their live coverage by including copyright-rich elements (e.g. FAPL-branded opening videos, background sound effects, "Premier League" logos, etc.) on some part of the viewing screen.
Conclusions
The specific concerns expressed above, and in particular the failure of the Court to carry out a welfare analysis, suggest that the Court may have scored a proverbial "own goal". While it is always true that "hard cases make bad law", many of the possible negative repercussions of the Judgment might have been avoided had the Court been willing to embark upon such a welfare analysis, as it had sought to conduct in the Glaxo Case. Such a welfare analysis would, however, be more complex and subtle than the single-minded pursuit of the belief that anything which forges a common "market" must be supported by all elements of Community law.
The most likely aftermath from the Judgment, after another period of commercial uncertainty and fraught negotiations, is to see authorised distribution in commercially marginal territories disrupted. Experience tells us that this, in turn, is likely to lead to greater unlawful or pirated distribution in those territories, thereby depriving the rights holders of revenue and the relevant Member States of tax revenues.
Further intense reflection will be needed on the impact of the Judgment on audio and audio-visual "works". At the very least, there will be great uncertainty as to the scale of that impact. In these circumstances, it is likely that this uncertainty will lead to a more difficult environment for the negotiation of cross-border licenses since the parties will be unsure of their rights and the enforceability of their contracts. Thus, rather than facilitating an outcome that everybody wants, the emergence of EU-wide licensing arrangements and the increased availability of premium content, there is a risk that the effect – at least in the short term – will be quite the reverse.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above. Please feel free to contact Peter Alexiadis (+32 2 554 7200, [email protected]) or David Wood (+32 2 554 7210, [email protected]) in the firm’s Brussels office.
The contents of this Client Alert can be found in a much longer article on the topic, published in the forthcoming edition of the Utilities Law Review.
© 2011 Gibson, Dunn & Crutcher LLP
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