Another episode in pay-TV saga as ECJ annuls Paramount's binding commitments

On 9 December 2020, the European Court of Justice ("ECJ") set aside a judgment of the General Court upholding a 2016 decision by the European Commission ("Commission") to make binding commitments offered by Paramount on cross-border pay-TV services.  This is the first time that a commitment decision adopted under Article 9 of Regulation 1/2003 has been successfully annulled. 

Background

The case relates to the Commission's investigation into pay-TV licensing agreements between Sky UK and six movie studios (including Paramount).  The Commission announced in 2016 its preliminary conclusion that certain clauses under these agreements restricted broadcasters' ability to accept unsolicited requests (so-called 'passive sales') for their pay-TV services from consumers located outside their licensed territory.

To address these concerns, Paramount offered commitments to the Commission that it will neither act upon nor enforce these clauses in existing film licensing contracts for pay-TV with any broadcaster in the European Economic Area.  In July 2016, the Commission made those commitments legally binding on Paramount ("Decision").

Canal+, a French television broadcaster, was the counterparty to a pay-TV licensing agreement with Paramount and challenged the Decision before the General Court ("GC"), notably arguing that the Decision encroached upon its contractual rights.

In December 2018, the GC dismissed Canal+'s action.  In particular, the GC ruled that the Decision did not have an "irremediable effect as against a third party that neither offered nor subscribed to the commitment made binding".  According to the GC, nothing prevented Canal+ from referring the matter to a national court for a declaration that the relevant clauses are compatible with competition law.  Canal+ appealed to the ECJ.

The ECJ's judgment

The ECJ rejected a number of Canal+'s arguments on appeal, notably confirming that: 

• the GC was correct to rely on Murphy to find that terms granting absolute territorial protection give rise to competition concerns; and
• the Commission can entirely disregard efficiencies under Article 101(3) TFEU when negotiating commitments.

However, in line with the Advocate General's opinion, the ECJ held that the GC breached the principle of proportionality when assessing the adverse effects of the Decision on third parties' interests.

The ECJ recalled its Alrosa judgment and noted that in the context of commitment decisions:

• the Commission is confined to verifying (1) that the commitments address the competition concerns and (2) that the undertakings concerned have not offered less onerous commitments that also address those concerns adequately; and
• when doing so, it must take into consideration the interests of third parties.

Distinguishing between these two aspects of the proportionality test, the ECJ clarified that when assessing the proportionality of commitments by reference to their impact on third parties' interests (as opposed to their impact on the competition concerns), the Commission must ensure that the rights of third parties are "not deprived of their substance". 

While acknowledging that commitment decisions do not preclude national courts from examining whether agreements that are the subject of those decisions comply with competition rules (as made clear in Gasorba - see our December 2017 newsletter article), the ECJ disagreed with the GC's conclusion that this would ensure an adequate and effective protection of third parties' contractual rights. 

This is because, pursuant to Masterfoods, which is now codified in Article 16(1) of Regulation 1/2003, national courts cannot take decisions that would run counter to Commission decisions (and, in this case, require Paramount to contravene its commitments and honour its obligations towards Canal+).  In other words, it is now clear that whilst national courts can adopt a stricter approach and may, during the period of a commitment decision's validity, conclude that the arrangements that are the subject of the decision amount to an infringement, they cannot adopt a finding of non-infringement that runs counter to legally binding commitments.

The ECJ therefore set aside the General Court's judgment and annulled the Commission's Decision.

Comment

The ECJ's judgment in Canal+ is likely to have an impact on the Commission's future approach to commitment decisions, and constrain its discretion to accept commitments that would otherwise nullify the pre-existing contractual rights of third parties.  It may also have more direct implications for existing commitment decisions: press reports have recently suggested that the Commission is considering whether to withdraw a similar commitment decision relating to other movie studios adopted in 2019 (see our April 2019 newsletter article; there is also a legal challenge currently pending).  The pay-TV saga may be far from being over.

With thanks to Jessica Bracker of Ashurst for her contribution.