The recent judgment of the Court of Justice of the European Union (CJEU) in FAPL v QC Leisure has generated significant comment in the media and elsewhere: few judgments will generate such fevered anticipation and analysis in 2011 as this one. It was hailed as a victory for Karen Murphy, the pub landlady who bought a decoder card enabling her to show Greek broadcasts of FA Premier League matches in her pub rather than Sky’s and who was subsequently convicted of offences stemming from infringements of domestic copyright legislation. Whether it is as simple as that, however, remains to be seen.
In particular, as a result of the Court’s judgment there is a distinction to be drawn between private subscribers and those such as Ms Murphy who purchase a decoder card in order to show matches to the wider public. It is still unclear whether publicans are allowed to show Premier League games using a broadcast from another EU country: the Court held that the FAPL does own copyright in the anthem and logos used during broadcasts, and arguably can restrict their “communication to the public”, as the Copyright Directive puts it. This important issue, along with the other IP issues raised by the case, is dealt with in the accompanying post by Dr. Stuart Baran.
The rest of this piece focuses on the free movement and competition law issues raised by the judgment. Whilst the Court has displayed (once again) its firm pro-single market tendencies, looking unfavourably on the rigid partitioning of markets along national lines, the judgment is just as notable for what it does not say: in particular, the relatively narrow basis for its judgment contrasts with the approach proposed by the Advocate General (AG) which, had it been followed, would have been more worrying for owners of media content generally.
Free movement of services
The Court held first that domestic legislation which prohibited foreign decoders (giving access to satellite broadcasts from other Member States) from being imported into (and sold and used in) the UK amounted to a restriction to provide services within the meaning of Article 56 TFEU. No surprise there.
The crucial question, however, was whether the restriction was justified; specifically, whether the objective of protecting IP rights was a good justification in the circumstances of this case. In principle the protection of IP rights can be relied on as a justification (see e.g. Coditel I); but the restriction must not go beyond what is necessary to achieve the objective. In this regard, the Court drew attention to previous case law in which it had stressed that restrictions must be necessary for safeguarding the rights “which constitute the specific subject-matter” of the IP concerned. Here, the specific subject-matter of the IP “is intended…to ensure for the right holders concerned protection of the right to exploit commercially the marketing or the making available of the protected subject-matter” (para 107); it does not ensure to right holders “the opportunity to demand the highest possible remuneration” (para 108).
Here, the FAPL (and its member clubs) were remunerated in respect of the Greek broadcasts, and there was nothing to stop the FAPL asking the Greek broadcaster for an amount which took into account the actual and potential audience both in Greece and elsewhere. By contrast, what the FAPL had done was to extract a premium from the UK broadcaster which reflected the absolute territorial protection (ATP) given to it. Such ATP, and the “artificial price differences” to which it gave rise, were “irreconcilable with the fundamental aim of the Treaty, which is completion of the internal market” (para 115).
The justification based on protection of IP rights therefore failed. The Court also took a robust approach to a second justification proffered by the FAPL relating to the so-called “closed period”. In the UK, broadcasters are not permitted to screen live matches during a window on Saturday afternoon when most games take place. This is done so as to encourage attendance at live games (including games played between teams in lower divisions than the Premier League). No similar prohibition, however, is imposed on foreign broadcasters. The FAPL therefore argued that the ability for those in the UK to watch live Saturday afternoon matches broadcast by foreign broadcasters would jeopardise the objectives which the closed period was designed to achieve.
The Court dismissed this line of argument in just 2 paragraphs, saying that the objective could be achieved by preventing foreign broadcasters, too, from screening games during the closed periods (para 123); in other words, a ban on imports was not proportionate. The Court’s approach differs from that of the AG, who doubted whether the empirical evidence backed up the FAPL’s claims but proposed leaving it to the national court to decide. The Court’s approach here again seems to regard the price of the rights as of secondary importance, for there is no doubt that a prohibition on foreign broadcasters from showing Saturday afternoon matches live would materially reduce the value to such broadcasters of the rights package.
Importantly, the Court did not follow the AG’s analysis of the free movement issues. She had considered the issues through the prism of the ‘exhaustion’ principle. In the area of goods, a supplier’s IP rights are ‘exhausted’ once the products have been placed on the market in the EU, regardless of where that takes place; once in circulation, the IP right holder may not use his IP rights to prevent those goods moving across national boundaries; his rights are restricted to making and selling additional copies of the product.
In the AG’s view, the exhaustion principle was relevant, in that the transmission and viewing of matches was exploited through the charge for the decoder cards, which ought then to be capable of being sold on freely within the EU. She saw no difference between goods and services. Indeed, she made explicit reference to computer software, e-books, music and films, which could easily be passed on in electronic form, and that a distinction between goods and services would be arbitrary (para 185).
As Thomas Graf has suggested, however, there is a critical difference between the sale of a physical thing (such as a DVD) and the dissemination of intangible media content: whilst the onward sale of the former does not create additional copies of the product, the same is not true of the latter. It is fair for a content owner to be compensated for the creation of such additional content, and so the doctrine of exhaustion should not apply. Had the Court adopted the AG;s approach, it would have had profound implications for intangible content distribution. The CJEU neatly sidesteps this debate, however, by finding that the viewing of the broadcast does not involve an act of exploitation and so no question of exhaustion arises.
The Court then dealt with the questions posed by the High Court relating to EU competition law. Here, it was the licences between the FAPL and broadcasters which were in question, rather than domestic copyright legislation: did the conferral of so-called “absolute territorial protection” (ATP), under which each (national) licensee agreed not to sell to customers located outside of the licensee’s territory, have as its object the restriction of competition? If so, the licence agreements would be contrary to Article 101(1) TFEU.
The Court held that ATP in this context had as its object the restriction of competition: the effect was to eliminate all competition between broadcasters in relation to the supply of broadcasting of FAPL matches. Such a conclusion is unsurprising – ATP is generally frowned upon in other distribution contexts and is ‘blacklisted’ in the vertical agreements block exemption. Indeed, it contradicts one of the fundamental aims of the Treaties, which is the achievement of the single market. Furthermore, the case differed in important factual respects from Coditel II, a case involving the grant of a licence to broadcast a film in Belgium, in which the grant of an exclusive copyright licence along national lines was not a restriction of competition by its object. There, the Court held that the grant of an exclusive licence to show a film in Germany, and preventing the showing of the film in Belgium by others, was not anti-competitive: the Court recognised that a licence had been granted in respect of particular territories only and that the licence was limited in time. That was not the case in respect of the rights to broadcast FAPL games; to the contrary, the FAPL had licensed its copyright across the EU and beyond.
What is more noteworthy, perhaps, is the language used by the Court and the summary nature of the Court’s treatment of the competition law issues. At para 140, it states that:
“where a licence is designed to prohibit or limit the cross-border provision of broadcasting services, it is deemed to have as its object the restriction of competition, unless other circumstances falling within its economic and legal context justify the finding that such an agreement is not liable to impair competition”.
The Court does not consider any efficiency arguments – under either Article 101(1), as part of the ‘object’ test, or under Article 101(3), which expressly permits efficiency arguments to be taken into account – in favour of differentiated pricing, notably the relative value of the service in different Member States. It is pretty obvious that coverage of the Premier League is more likely to be of greater value to UK residents than to residents of other Member States. In that respect, the position is arguably quite different from that of pharmaceutical products (dealt with in the Sot Lelos and GlaxoSmithKline cases to which the Court cross-refers at para 139), which are of equal value to consumers regardless of their Member State of residence.
The cases now go back to the High Court for resolution in the light of the CJEU’s judgment. The implications of the ruling – in particular for the screening of foreign broadcasts of FAPL matches in pubs – are far from clear, however. The CJEU has said that the FAPL is entitled to require publicans to receive its authorisation for re-transmission of the FAPL anthem etc, and so the FAPL may seek to use domestic copyright legislation to prevent the likes of Ms Murphy from showing FAPL matches other than through Sky. That certainly appears to be the FAPL’s current line.
As has been noted elsewhere, however, such an approach may be vulnerable to challenge on the basis that it will result in the same partitioning of the internal market, so far as concerns the showing of matches in pubs, as the FAPL has thus far achieved. And the Advocate General took the view that it would be disproportionate to prohibit publicans from showing matches broadcast by a foreign provider simply because the FAPL had copyright in “secondary elements” whose economic value represented only a very small portion of the value of the broadcast as a whole (para 230). In any event, if Ms Murphy purchased a ‘commercial’ decoder card (a question of fact to which the answer is currently unclear), she would be able to argue that any necessary authorisation to communicate the matches to the wider public has already been granted. It is fair to say that the High Court’s job in applying the ruling won’t be straightforward.
What does seem clear is that there is nothing to stop the FAPL (and other sports rights holders) appointing exclusive licensees for broadcasting purposes, so long as they do not prevent any passive selling of their services across national boundaries. Such passive selling is perhaps unlikely to take place on a large scale, given that most customers will wish to receive the accompanying commentary in their own language, so the financial impact on Sky in terms of individual subscribers may not be great.
In the longer term, if the FAPL takes the view that the economic value of the UK rights (which are by far the most important to it) has been undermined by the CJEU’s ruling, there are bound to be ways round the judgment. In particular, it may seek to licence the rights on a pan-European basis, leaving it to the exclusive licensee to decide on its own pricing policy across Europe.
Finally, standing back from the subject-matter at hand, it is likely that owners of other types of content will be breathing a sigh of relief that the Court did not echo the AG’s opinion in relation to the ‘exhaustion’ of IP rights – that fight can be had another day.