In the first judgment of its kind, the Court of Justice of the European Union (the ‘CJEU’) has annulled a Commission decision to accept commitments. The judgment arose in proceedings brought by Canal+ to challenge the Commission’s decision to accept binding commitments from Paramount Pictures, and overturns the General Court’s earlier rejection of Canal+’s action.
While clearly a significant development in the Commission’s use of commitments, the key question for this blog is the implications of the judgment for the treatment of ‘geo-blocking’ provisions in copyright licences, which was the subject of the original investigation.
In 2015, the Commission sent a statement of objections to Sky UK and 6 US film studios (including Paramount) in relation to agreements that had the effect of restricting the access of EU consumers outside of the UK to certain pay-tv services. The Commission has been interested in restrictions of ‘passive sales’ and unjustified geoblocking since the launch of its e-commerce sector inquiry and Digital Single Market strategy, aiming to remove barriers to digital goods and services (see a selection of our previous posts here and here).
Paramount proposed commitments to the Commission in April 2016 to address the Commission’s concerns, notably that it was prepared to no longer act upon or enforce the clauses leading to the broadcasters’ absolute territorial protection. Following market testing, the Commission accepted Paramount’s commitments in July 2016, and made them legally binding under Article 9 of Regulation 1/2003.
Canal+ had an existing pay-tv licensing agreement in place with Paramount covering the French market. Canal+ considered that its contractual rights were affected as a result of the commitments accepted by the Commission, as a result of Paramount announcing that it would not enforce the film studio obligation.
Canal+’s appeal against the Commission decision to accept the commitments challenged the Commission’s findings and sought annulment of the decision; this was dismissed by the General Court in December 2018. Canal+’s main argument on appeal to the CJEU was that the General Court had erred in law in finding that the Commission decision to accept the commitments did not interfere with the contractual rights of Canal+, or its ability to seek remedies before a national court.
In a ruling which largely followed the earlier AG opinion, the CJEU set aside the judgment of the General Court, considering the crucial role of the principle of proportionality. Canal + emphasised the importance of the Commission verifying the commitments offered under Article 9 of Regulation 1/2003 with respect to the interests of third parties as well as addressing any competition concerns. It was argued that the legally binding nature of the commitments automatically imply that Paramount would not honour its contractual obligations with Canal+ in relation to their existing license agreement. Unlike before the General Court, Canal+ did not rely on arguments about the promotion of cultural production and diversity that these sorts of clauses seek to achieve, so these arguments remain untested at this level.
The CJEU found that the principle of proportionality requires that the contractual rights of third parties are holders are not ‘devoid of their meaning’ and that disapplying contractual clauses conferring rights on third parties who are not targeted by the investigation constitutes an interference with contractual freedoms. The CJEU annulled both the decision of the Commission imposing legally binding commitments and the decision of the General Court rejecting Groupe Canal+’s appeal.
Given the focus of the judgment, it does not finally resolve the question of whether the sorts of geo-blocking clauses used in licensing agreements in the film and television sector infringe competition law or not. To finally establish the position, the Commission (or another competition authority or private claimant) is likely to need to litigate the issue on the merits. An interesting perspective on the likely success of any such proceedings comes from Chillin’ Competition, where Professor Pablo Ibanez Colomo suggests that the national copyright laws are “insurmountable barriers” to competition in the absence of licences being granted. If that were recognised by the competition authorities, a licence granting broadcast rights in respect of one country and prohibiting broadcast in other countries would not be capable of affecting competition. As we commented here after the General Court appeal, given the national nature of copyright, anything other than a pan-EU licence will leave the broadcaster exposed to the risk of infringement proceedings if it sells into countries not covered by the licence.
Offering commitments to the Commission in an investigation can be a favourable way of settling investigations that might otherwise result in considerable fines, and the commitments offered by Paramount initially seemed like a victory for the Commission in opposing geoblocking practices. This CJEU judgment casts doubt on the force of future commitments decisions, and Canal+ may now be more likely to succeed in its future appeal against commitments offered by Disney, NBCUniversal, Sony Pictures and Warner Brothers.