The European Commission ("Commission") has closed its investigation into the licensing practices of a number of Hollywood studios and Sky UK following the parties' agreement to accept legally binding commitments (the "Commitments") to change their practices to address competition concerns identified by the Commission. The Commission had reached the preliminary view that the relevant licensing restrictions, which conferred "absolute territorial protection", might eliminate cross-border competition between pay-TV broadcasters and might partition markets along national boundaries, in breach of competition law.
| what you need to know - key takeaways |
- The case shows that the Commission will investigate vertical licensing agreements where these may be expected to create absolute territorial protection and eliminate cross-border competition.
- The Commission will treat cross-border restrictions in licensing agreements in much the same way as it would in distribution agreements for the supply of goods.
- The Commitments do not affect the rights of any party unilaterally to employ geo-filtering technology.
- The Commitments are without prejudice to the studios' rights under copyright law.
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Background
Following the European Court of Justice's 2011 findings in the Premier League/Murphy case, which concerned the exclusive licensing of broadcasting rights for Premier League football matches, the Commission initiated a fact-finding investigation in 2012 into licensing agreements for premium pay-TV content. This resulted in the Commission opening formal proceedings in January 2014 to investigate whether provisions in licensing agreements between several major US film studios (Twentieth Century Fox, Warner Bros, Sony Pictures, NBCUniversal, Paramount Pictures) and the largest European pay-TV broadcasters (such as BSkyB of the UK, Canal Plus of France, Sky Italia of Italy, Sky Deutschland of Germany and DTS of Spain) prevented broadcasters from providing their services across borders. The Walt Disney Company was added to the proceedings in 2015.
In July 2015, the Commission sent a Statement of Objections ("SO") to the six film studios and Sky UK. In its SO, the Commission identified clauses in the licensing agreements between the film studios and Sky UK, which:
- required Sky UK to block access to films through its online and satellite pay-TV services to consumers located outside its licensed territory; and
- prevented certain film studios from permitting broadcasters other than Sky UK to make their pay-TV services available in the UK and Ireland (Sky UK's licensed territory).
The Commission reached the preliminary view in its SO that such licensing restrictions may eliminate cross-border competition between pay-TV broadcasters and may partition markets along national boundaries in breach of Article 101 of the TFEU, because they prevent service providers from responding to unsolicited orders from outside the licensed territory (so-called "passive sales").
The Commission previously accepted binding Commitments offered by Paramount Pictures to address the Commission's competition concerns in July 2016. In November and December 2018 - following a failed appeal to the General Court (brought by Groupe Canal+) challenging the Commission's acceptance of Paramount's commitments - the other studios and Sky UK also offered Commitments.
The Commitments
On 7 March 2019, the Commission announced that it has closed its investigation, following the remaining parties' agreement to accept the legally binding Commitments to address the competition concerns identified by the Commission. In particular, the parties have agreed not to use, honour or seek to enforce restrictions in their licence agreements which:
- prevent pay-TV broadcasters providing output to customers outside their licensed territory in response to unsolicited customer requests; and
- require studios to ensure that, in their licences with broadcasters other than Sky, such broadcasters are prevented from responding to unsolicited orders for their pay-TV services from customers in the UK and Ireland (Sky's licensed territory).
The parties each agree to appoint a monitoring trustee to monitor and report annually to the Commission on their compliance with the Commitments. The Commitments will apply throughout the EEA for a period of five years.
The Commission has stated expressly that the Commitments are without prejudice to rights conferred upon the studios under the Portability Regulation (concerning consumers' access to online services when they travel in the EU) or under copyright law. In other words, the studios may still engage in legitimate and legally permissible licensing and enforcement of rights under copyright law. Further, the Commitments do not affect the rights of the studios or Sky UK unilaterally to employ geo-filtering technology to prevent services being accessed outside a territory.
There may be a tendency to think that the distribution of content through licensing is exempt from the competition law rules which apply to the supply of goods, or that the Commission is focused solely on investigating cartels between competitors. However, this case serves as a reminder that the Commission will also investigate such licensing agreements where there is a risk that they contain restrictions of competition which are contrary to the EU's single market objectives.
