Apple’s battle with Qualcomm spreads to the UK

On 19 May 2017 Apple issued a major claim against Qualcomm in the English Court. This is part of a widely reported global dispute between the two giants. The English action includes an Article 102 abuse of dominance claim as well as a FRAND licensing claim and was issued just a month after the English Court’s first FRAND valuation in Unwired Planet v Huawei (Bristows’ blog post here and here). The particulars of the claim are now available and make fascinating reading. 

On the FRAND licensing front, Apple seeks a declaration that Qualcomm has breached its obligations to ETSI, by failing to offer a FRAND licence for Standard Essential Patents (SEPs), seeking excessive and non-FRAND royalties. 

As far as competition law and Article 102 is concerned, Apple makes a number of arguments. 

It claims that Qualcomm is abusing its dominant position in the markets for LTE, CDMA and UMTS chipsets by refusing to license its SEPs to competing chipmakers. This means that if a chipset is purchased from a company other than Qualcomm, the purchaser must then obtain a licence from Qualcomm for use of Qualcomm’s standard-essential IP. Apple asserts that Qualcomm’s practices exclude chipset competitors from the market, as well as being in breach of its contractual FRAND obligations.

Apple also complains about various aspects of agreements between itself and Qualcomm. These expired in 2015, and in 2016 Apple began to purchase chipsets from Intel. This has doubtless affected the nature and timing of the litigation.

As mentioned above, Apple contends that Qualcomm’s royalties are excessively high. It then argues that to reduce the effective royalty rate it had to pay, it had no commercial alternative other than to conclude rebate agreements which involved granting Qualcomm exclusivity over Apple’s chipset supply. Apple maintains that one consequence of this arrangement has been to limit the emergence of other chipset manufacturers, who have been precluded from competing for Apple’s custom. Because of Apple’s importance as a purchaser of chipsets this is argued to have foreclosed a significant part of the potential demand. Qualcomm’s practice of forcing customers to take a licence and to agree to exclusionary terms is said to further reinforce the exclusionary effects. 

A particular feature of the rebate agreement which is criticised by Apple is that it was conditional on Apple agreeing not to pursue litigation or governmental complaints that the royalties were ‘non-FRAND’. 

Apple explains that Qualcomm’s royalties are charged in addition to the price of the chipset itself, and are based on the price of the end device being sold by the licensee, rather than on the price of the chipset in which it is argued that all the patented technology is practised. Apple takes the position that in order to be acceptable the royalty should be calculated by reference to the smallest saleable patent practising unit (SSPPU) – in this instance the chipset, rather than the phone. This is said to guard against situations where two phones that use the same Qualcomm technology could incur significantly different royalty obligations for use of the same SEPs based only on their different end sales prices. Those sales prices which differ because of completely different aspects of the phones, such as design or additional functionalities. This issue was not considered by Birss J in Unwired Planet v Huawei. The argument was raised in Vringo v ZTE, but was dropped before trial. 

Apple makes several arguments which are in tension with the recent Unwired Planet v Huawei Judgment. These include: that licensees can be acting in a FRAND manner even though they refuse to take a licence of an entire patent portfolio of declared SEPs, irrespective of validity or essentiality; that the FRAND royalty for an SEP should reflect the intrinsic value of the patent; and that the standard (of which that technology is a part) constitutes value that Qualcomm has not created and which it should not seek to capture through its FRAND licensing. 

Finally, in an attempt to demonstrate that Qualcomm’s royalty is not FRAND, Apple states that Qualcomm holds a quarter of the declared SEPs for the LTE standard and compares Qualcomm’s royalty with the (presumably lower) licence fee it pays other SEP holders, who combined hold one third of the relevant SEPs.

Ultimately, Apple claims that Qualcomm’s undertaking to ETSI is ineffective to constrain its dominance as an SEP owner. This may be a direct response to comments by Birss J in Unwired Planet v Huawei that an SEP holder may not always hold a dominant position, for example, because of the FRAND obligation and the risk that implementers may engage in patent hold-out. 

Conclusion

Developments in this case will be interesting when set against the recent judgment in Unwired Planet v Huawei, in which Birss J considered many of the issues raised by Apple. But Apple also makes arguments that go well beyond the issues considered in that case. For example, Apple’s arguments about exclusionary rebates may be affected by the Intel judgment, due to be handed down by the EU’s Court of Justice on 6 September 2017.  It also sits alongside parallel antitrust litigation in the US, including retaliatory actions by Qualcomm designed to exclude Apple’s handsets from import to the US. How this case, and the global dispute, evolves will be fascinating to follow – and not only for those with an interest in SEP and FRAND issues.

Luxury brands, third party platforms and EU competition law – guidance from AG Wahl

The Court of Justice of the European Union (‘CJEU’) has today handed down Advocate General Wahl’s opinion in the Coty Germany reference proceedings (see press release here, the full opinion should be published later today). The press release explains that the Opinion proposes that the European Court find that a supplier of luxury goods may prohibit its authorised retailers from selling its products on third-party platforms such as Amazon and EBay. For the background to the case see our earlier post here

The Opinion begins by restating that selective distribution systems for luxury and prestige products do not necessarily fall within the prohibition of anticompetitive agreements under Article 101(1) if they meet three well-established criteria:

  1. the resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers; 
  2. the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used; and 
  3. the criteria established do not go beyond what is necessary.
AG Wahl then goes on to deal with the restriction which is at the centre of this dispute, namely a provision which prohibits the authorised sellers from using third party platforms for internet sales “in a discernible manner”. He states that – in the present state of development of e-commerce – such a restriction does not necessarily fall within Article 101(1) where three criteria are met. However, it seems to us that the criteria he lists is merely a restatement of the well-established criteria for lawful selective distribution set out above, i.e. that the criteria:  

  1. are dependent on the nature of the product; 
  2. are determined in a uniform fashion and applied without distinction; and 
  3. do not go beyond what is necessary.
The assessment of the facts will ultimately be left to the German Court.  However, AG Wahl does observe that the contested clause does not appear to be caught by Article 101(1). In fact, he suggests that the restriction is likely to improve competition by ensuring the products are sold in an environment that meets the qualitative criteria and guarding against the phenomena of “parasitism” (a more loaded term than the usual reference to ‘free-riding’). He points out that the restriction does not amount to an absolute prohibition on online sales (which is considered a serous restriction of competition) for two reasons. First, the restriction still allows authorised distributors to sell through their own websites and to make use of third party platforms “in a non-discernible manner”. Second, distributors’ own online stores are still the preferred distribution channel so such a restriction cannot be assimilated to an outright ban or substantial restriction on internet sales.  This analysis leaves a number of questions open, and certainly suggests that the analysis of such restrictions may change if the popularity of third party platforms continues to grow.  

Finally, the Opinion proposes that, in the event that a restriction on third party platforms does fall within Article 101(1), it may well be exempted under Article 101(3), including under the block exemption for vertical agreements. AG Wahl does not consider a third party platform ban to be a hardcore restriction which would automatically exclude the relevant distribution agreement from the benefit of the block exemption. 

Overall, the AG Opinion appears to be in line with the Commission’s recent final report in its e-commerce sector inquiry, which recognised that price is not the only relevant competition consideration when selling goods online: “While price is a key parameter of competition between retailers, quality, brand image and innovation are important in the competition between brands. Incentivising innovation and quality, and keeping control over the image and positioning of their brand are of major importance for most manufacturers to help them ensure the viability of their business in the mid to long term.”  The AG Opinion is a first step in showing how this balance may in future be struck – although crucially the Opinion is not binding on the CJEU who will now begin its deliberations in this case. The final word on these issues will be left to the European Court, and this will no doubt be keenly awaited by brand owners, online retailers and third party platforms alike.

Online auction commitments demonstrate digital markets are central to CMA’s priorities

The CMA has accepted commitments from ATG Media, the largest provider of online auction sites in the UK, to bring an end to practices which it considered hinders competition from rival bidding platforms (press release and decision here and here). 

ATG’s Live Online Bidding (LOB) platforms cover a wide range of markets, including: antiques and art; industrial and insolvency; and construction and agricultural equipment. 

LOB platforms are aggregators that host live auctions run by multiple auction houses. They aim to attract both individual bidders and auction houses to list live auctions. Traditionally live bidding was available only by attending in person or by telephone.

The CMA’s investigation began in November 2016 and focused on three practices:

  • obtaining exclusive deals with auction houses, so that they do not use other providers;
  • preventing auction houses getting a cheaper online bidding rate with other platforms through Most Favoured Nation clauses; and
  • preventing auction houses promoting or advertising rival live online bidding platforms in competition with ATG Media.
In order to bring the investigation to an end ATG has given the CMA legally binding commitments under the Competition Act 1998 to stop all three practices. 

The CMA’s Annual Plan 2017/18 (here) stresses the importance of digital markets in its enforcement priorities: “Online aspects of markets have become a major focus of our work, as many industries have become more digital in how they trade, raising important questions of policy and law.”

Online platforms (particularly those with market power) are likely to face increased scrutiny as competition authorities across the world focus ever more of their resources on the digital economy.   

Transparency may undermine online competition: Commission’s Final Report on the E-commerce Sector Inquiry

On 10 May 2017 the European Commission published its Final Report on the E-commerce Sector Inquiry, together with accompanying Q&As, and, for those who want something rather longer, a Staff Working Document

The inquiry, launched over 2 years ago, and part of the wider Commission Digital Single Market Strategy (see our earlier comment here) has gathered evidence from nearly 1,900 companies connected with the online sale of consumer goods and digital content.
The Report’s main findings

  • Price transparency has increased through online trade, allowing consumers instantaneously to compare product and price information and switch from online to offline. The Commission acknowledges that this has created a significant ‘free riding’ issue, with consumers using the pre-sales services of ‘brick and mortar’ shops before purchasing products online. 

  • Increased price transparency has also resulted in greater price competition both online and offline.  It has allowed companies to monitor prices more easily, and the use of price-tracking software may facilitate resale price maintenance and strengthen collusion between retailers.

  • Manufacturers have reacted to these developments by seeking to increase their control of distribution networks though their own online retail channels, an increased use of ‘selective distribution’ arrangements (where manufacturers set the criteria that retailers must meet to become part of the distribution system) and the introduction of contractual restrictions to control online distribution.
How about changes to competition policy? 

The Report does not advocate any significant changes to European competition policy, but rather confirms the status quo. The key point of interest are as follows: 

  • Selective distribution – whilst the Commission has not recommended any review of the Vertical Block Exemption Regulation (‘VBER’) ahead of its scheduled expiry in 2022, the Commission notes that the use of selective systems aimed at excluding pure online retailers, for example by requiring retailers to operate at least one ‘brick and mortar’ shop, is only permissible where justified (for example in respect of complex or quality goods or to protect suitable brand image).

  • Pricing restrictions – dual pricing (i.e. differential pricing depending on whether sales are made online or through a bricks and mortar outlet) will generally be considered a ‘hardcore’ (or object) restriction of competition when applied to one and the same retailer, although it is capable of individual exemption under Article 101(3) TFEU, for example if the obligation is indispensable to address free-riding by offline stores.  

  • Restrictions on the use of marketplaces – the Report finds that an absolute ban on the use of an online marketplace should not be considered a hardcore restriction, although the Commission notes that a reference for a preliminary ruling is pending before the CJEU (C-230/16 - Coty Germany v Parfümerie Akzente).

  • Geo-blocking – a re-emphasis of the existing position on territorial and customer restrictions – active sales restrictions are allowed, whereas passive sales restrictions are generally unlawful. Within a selective distribution system, neither active nor passive sales to end users may be restricted. The Commission also make clear that companies are free to make their own unilateral decisions on where they choose to trade.

  • Content licensing – the significance of copyright licensing in digital content markets is noted, as is the potential concern that licensing terms may suppress innovative business practices.  

  • Big Data – possible competition concerns are identified relating to data collection and usage. In particular, the exchange of competitively sensitive data (e.g. in relation to prices and sales) may lead to competition problems where the same players are in direct competition, for example between online marketplaces and manufacturers with their own shop.  
What happens next?

The Commission has identified the need for more competition enforcement investigations, particularly in relation to restrictions of cross-border trade.  It is expected that more investigations will be opened in addition to those already in play in respect of holiday bookings, consumer electronics and online video games. In a more novel approach, the Commission’s press release also name-checks a number of retailers (in particular in fashion) who have already reformed their business practices “on their own initiative”.
  
The Commission also highlights the need for a consistent application of the EU competition rules across national competition authorities.  It remains to be seen whether the Commission will seek to use its enforcement investigations to address inconsistencies such as those evident in the more interventionist stance of some national authorities (e.g. the Bundeskartellamt) in respect of issues such as pricing restrictions.

Collusion in the online economy – new competition law traps for the unwary?

We reported last year on the Eturas decision, in which the Court of Justice ruled that technical measures applied on an online platform gave rise to a potentially anti-competitive agreement.  The Lithuanian Court which had referred the matter to the CJEU then went on to consider liability, based on the participants’ knowledge of the relevant facts (for a review of this decision, see here).

But the risks posed by agreements over platform T&Cs are not the only thing for companies to be aware of.

The European Commission is now carrying out active enforcement in relation to geo-blocking, which can be achieved primarily through technical measures.  The Steam video games investigation is looking in particular at whether anti-piracy measures have an anti-competitive effect. 

Meanwhile, the CMA last autumn issued a statement noting another practice potentially raising antitrust concerns.  This concerned agreements restricting the use of paid online search advertising (e.g. through use of Google AdWords).  The CMA suggested that restrictions on bidding for particular ad terms, or on negative matching (identifying terms for which ads should not be shown) may infringe the competition rules.  It appears that the CMA sees this in terms of potential effects on competition, rather than as a new form of object restriction, with the CMA stating that the practices are particularly likely to be problematic “where one or more similar agreements include parties that collectively represent a material share of the relevant markets and, in the context of brand bidding restrictions, as a result of negative matching obligations in relation to brand terms which an advertiser would not negatively match but for the agreement”.   It should therefore not be assumed that such a provision would in fact be restrictive of competition – but it is something which bears watching.  Indeed, the CMA is not the only competition authority to have lighted on this issue – a similar point is under investigation in the United States, where the FTC accuses 1-800 Contacts of “orchestrating a web of anticompetitive agreements with rival online contact lens sellers that suppress competition in certain online search advertising auctions”.

In conjunction with this statement, the CMA also announced a market study into digital comparison tools; it described the study as an opportunity to explore the nature of competition between price comparison websites and their relationship with service providers.  This may lead to further issues in this area; in the meantime, judgment in the Coty case, which considers contractual prohibitions on the use of certain online sales channels, such as price comparison websites, is due from the CJEU in the near future.

And then there’s the risk of good ol’-fashioned collusion, with a modern twist.  One thing that comes to mind is the new attention on the significance of privacy conditions for consumers.  Now that these are recognised as a parameter of competition (see here, for example), is there a risk that exchanging information about planned changes to privacy conditions / other online trading T&Cs, or actually agreeing a common strategy for these could amount to a breach of Article 101 or its national equivalents?   Or that an agreement between separate companies to adopt a common practice on such terms (in particular if it results in less protection for consumers) could amount to active collusion?  These are open questions for now, but companies should remember that – while benchmarking is often sensible – they should ultimately take their own decisions, and keep their own counsel, about such matters.

Coincidentally, the consumer arm of the CMA has just closed an investigation into the online terms and conditions of cloud service providers following changes agreed by a number of companies.  The closure statement notes that “the CMA remains interested in unfair terms and conditions, particularly in the digital economy”.  It should not be assumed that this interest is limited only to the parts of the CMA responsible for enforcement of consumer laws… 

Pay-for-delay focus on steroids

At the end of last week, the CMA sent a formal statement of objections to Actavis UK and Concordia alleging that they had entered into illegal ‘pay-for-delay’ patent settlement agreements.
 
For a number of years Actavis was the sole supplier of hydrocortisone tablets used to treat conditions such as Addison’s disease that result in insufficient amounts of natural steroid hormones. Concordia was the first potential competitor to obtain a market authorisation for a generic version of the drug. The CMA alleges that Actavis incentivised Concordia not to enter the market with its generic version of the drug by agreeing a fixed supply of its drug to Concordia at a very low price for resale to customers in the UK. As a result Actavis remained the sole supplier of the drug for most of the duration of the agreements (January 2013 to June 2016), during which time the cost of the drug to the NHS rose substantially from £49 to £88 per pack. 
 
The CMA has provisionally found that the pharma companies have breached competition law by entering into anti-competitive agreements.  It has also provisionally found that Actavis abused its dominant position by inducing Concordia to delay its independent entry into the market. This case is separate from the CMA’s other continuing investigation into Actavis UK, which it announced at the end of last year.  That investigation is looking at whether Actavis UK has abused a dominant position by charging excessive prices to the NHS for the drug following a 12,000% price rise over the course of several years.  A substantial portion of that price rise took place in the period before the start of the agreements in issue in this investigation.
 
This latest development comes amidst a number of appeals regarding the application of competition law to pay-for-delay patent settlement agreements in the pharma sector.  In particular, the General Court of the EU recently upheld the European Commission’s decision fining Lundbeck and a number of generic companies in relation to patent settlement agreements (see here and here). That decision is now on appeal to the EU Court of Justice – the grounds of appeal are available here.  Separately, the CAT is currently hearing the appeal of the CMA’s infringement decision against GSK and a number of generic companies for pay-for-delay agreements (see here and here) – this hearing is listed for five weeks, continuing until the end of this month.
 
In both of these appeals a key issue is whether the competition authorities applied the correct test in finding that the pay-for-delay agreements restricted competition ‘by object’, meaning that the effects of the agreements did not need to be considered. The appellants argue that, following the EU Court of Justice’s decision in Cartes Bancaires, ‘by object’ restrictions should be interpreted restrictively.   The Lundbeck appeal to the EU Court of Justice also raises the critical issue of how the General Court dealt with the existence of Lundbeck’s patents. With this in mind, we will be keeping a close eye on the CMA’s investigation into Actavis/Concordia, particularly the legal basis for any final finding of infringement…  

Francion Brooks

Back to the future: the Commission opens e-commerce competition investigations

True to its current focus on all things digital, the European Commission has recently announced that it has launched three separate investigations into whether certain online sales practices prevent, in breach of EU antitrust rules, consumers from benefiting from cross-border choice in their purchases of consumer electronics, video games and hotel accommodation at competitive prices.

The context to the investigations is the Commission's Digital Single Market Strategy and its related sector inquiry on e-commerce, which suggested that the use of online sales restrictions were widespread throughout the EU (previous posts here and here).

The Commission is now examining whether the companies concerned are breaking EU competition rules by “unfairly restricting retail prices” or by excluding customers from certain offers because of their nationality or location (geo-blocking). 

The Commission’s rationale for the inquires is that these practices may make cross-border shopping or online shopping in general more difficult and ultimately harm consumers by preventing them from benefiting from greater choice and lower online prices.  Whether the evidence gathered from the investigations ultimately bears out this hypothesis is very much an open question. 

Whatever the wider benefits to the Commission of the sector investigation, it is questionable whether these investigations in themselves justify the full arsenal of an antitrust sector inquiry.  To judge by the press release, at least a significant part of the Commission’s concern appears to relate to classical infringements of competition law – resale price maintenance and contractual barriers to parallel trade – which merely happen to have come to light through the sector inquiry.  Time will tell whether this hypothesis is correct, or whether more specific types of online anti-competitive conduct are in fact concerned.

Amazon’s E-Books antitrust saga - War now Peace?

Amazon has offered commitments to the European Commission to end the antitrust investigation into its use of ‘most favoured nation’ (MFN or parity) clauses in its e-books contracts with publishers, launched in 2015. The Commission is now inviting comments on these proposed commitments from customers and rivals. 

The Commission’s concern is that the clauses may breach EU antitrust rules and result in reduced competition among e-book distributors and less consumer choice.

Amazon’s MFN clauses require publishers to inform Amazon about more favourable terms or conditions offered to Amazon's competitors and to offer Amazon similar terms and conditions. This includes requiring publishers to offer Amazon any new or different distribution methods or release dates, any better wholesale prices or agency commissions, or to make available a particular catalogue of e-books.

The Commission considers that the cumulative effect of these clauses is to make it harder for other e-book retailers to compete with Amazon by developing new and innovative products and services. It also takes the view that imposing these clauses on publishers may amount to an abuse of a dominant market position.

In parallel, Audible, Amazon’s audio-books subsidiary, has announced the end of its exclusivity provisions in its distribution agreement with Apple following a joint antitrust investigation by the Commission and the German competition authority, the Bundeskartellamt. 

Amazon’s proposed commitments

Amazon disputes the competition law basis for the Commission’s investigation.  Nevertheless, in order to bring the investigation to a close (and to avoid the risk of a costly infringement decision), it has offered commitments:
  • Not to enforce:
    1. any clause requiring publishers to offer Amazon similar terms and conditions as those offered to Amazon's competitors; or 
    2. any clause requiring publishers to inform Amazon about such terms and conditions. 
  • To allow publishers to terminate e-book contracts that contain a clause linking discount possibilities for e-books to the retail price of a given e-book on a competing platform. Publishers would be allowed to terminate the contracts upon 120 days' advance written notice.
  • Finally, not to include, in any new e-book agreement with publishers, any of these clauses.
The commitments would apply for five years and (as is usual for behavioural commitments) be subject to oversight by a monitoring trustee.

E-Books - déjà vu? 

This is not the first time the Commission has investigated the e-books sector. In 2011 it opened antitrust proceedings against Apple and five international publishing houses (Penguin Random House, Hachette Livres, Simon & Schuster, HarperCollins and Georg von Holtzbrinck Verlagsgruppe) on the basis that it considered that they had colluded to limit retail price competition for e-books. In that case the companies also offered commitments to address the Commission's concerns (see our previous comment).

Where does this leave MFNs?

The Commission and national competition authorities have conducted investigations into MFN clauses in a number of other sectors, including online motor insurance and online sports goods retail, on which we have previously commented.  

While MFNs are not per se unlawful, and in some circumstances may even be pro-competitive, companies should carefully consider their possible anti-competitive effects before including them in new contracts. 

A decision of Paramount importance to independent film financing…?

In the latest instalment of the pay-TV saga, the French pay-TV operator Canal Plus has asked EU judges to overturn a commitments decision agreed earlier this year between Paramount and the European Commission.  Those commitments (on which we reported here) ended Paramount’s involvement in the Commission’s antitrust investigation into the distribution arrangements between Sky UK and the six Hollywood film Studios, with no infringement finding or fine. 

The Commission’s investigation into Disney, NBCUniversal, Twentieth Century Fox and Warner Bros remains ongoing.  In the background is the Commission’s Digital Single Market Strategy which aims to break down barriers preventing cross-border E-commerce.

What has been agreed with Paramount? 

Paramount has agreed to remove restrictions on customers trying to access content from another EU country.  In practice, this means it will no longer insert “geoblocking” obligations in its licensing contracts with EU broadcasters. 

As we previously commented, the Commission considered that the Studios bilaterally agreed restrictions with Sky UK that prevented it from both making active sales in to other EU territories and from accepting passive sales requests. 

These restrictions effectively granted Sky UK ‘absolute territorial exclusivity’ in the UK and Ireland, eliminating cross-border competition between Sky and other pay-TV broadcasters in other Member States.

Why is Canal Plus appealing?

Canal Plus wants the General Court to annul the Paramount settlement, as – in common with other EU broadcasters – it considers that the terms agreed with the Commission risk undermining the EU system of film financing which relies on broadcasters being able to use different pricing and release strategies for different EU counties.  

The appeal seems likely to face an uphill struggle; the General Court has only recently underlined the high hurdle for a successful appeal against a commitments decision in its Morningstar judgment.  Nevertheless, the Commission appears to be seeking to understand (or at least to address) this issue – it is understood to have requested further information from Sky and the remaining Hollywood Studios about the potential impact of a decision on the financing of independent films. 

Last thoughts 

Sky has also been in the news of late in relation to the recent bid by Twentieth Century Fox for the 61% of Sky that it does not already own.  If cleared, Sky’s future distribution arrangements with the film arm of Twentieth Century Fox are likely to fall outside of any future competition remedy imposed by the Commission in the Hollywood Studios investigation. Once their production and distribution businesses are vertically integrated, the rules on anti-competitive agreements will no longer apply, as there will no longer be any agreement between separate undertakings. 

Case T-873/16 Groupe Canal + v Commission

Premier League scores in latest dispute with pub broadcasting football matches

The ever-increasing amount of money tied up in TV deals for Premier League football perhaps makes it unsurprising that The Football Association Premier League (“FAPL”) has been willing to litigate on a number of occasions against publicans using foreign satellite services to show football matches in pubs.

Following the CJEU’s decision in the joined cases FAPL v QC Leisure and Murphy (C-403/08 and C-429/08) and the subsequent High Court decision in FAPL v QC Leisure (here) the law in this area is relatively settled. Although FAPL can grant rights on a territorial basis, exclusive licences preventing the supply of foreign satellite decoder cards into other Member States are unlawful. Despite this, the FAPL on-screen graphics and logos incorporated into the live feeds of football matches are copyright protected works. FAPL is therefore able to bring actions for copyright infringement for any unauthorised uses of these. The success of such actions will depend on the terms of the agreement that a decoder card is supplied under.

As an aside, it may be possible for pubs to avoid infringement claims by only switching the screens on at kick-off, and attempting to cover up any FAPL logos and graphics. This would be challenging in practice however, given the frequency in which graphics pop up throughout the matches (for example when a player is booked or a replay is shown).

FAPL v Luxton

The Court of Appeal has recently added to the relevant pool of judicial opinion by rejecting an appeal by Mr Luxton, the proprietor of a pub in Swansea, against the summary judgment granted in favour of FAPL by the High Court in January 2014. Mr Luxton had used a domestic satellite decoder card originally sold by a Danish broadcaster to show Swansea City matches following Swansea’s promotion to the Premier League.  Mrs Justice Rose held that by using a domestic satellite decoder card rather than a commercial one, Mr Luxton was using FAPL’s copyright works without its consent. 

Mr Luxton raised two EU law defences which have now been considered by the Court of Appeal (see here).

The two defences raised

  1. That the proceedings brought by FAPL were an illicit attempt to prevent Mr Luxton from using a foreign decoder card, isolating the UK market from the continental market in breach of Articles 101 and/or 56 TFEU.
  2. The (alleged) illegal arrangements between FAPL and its exclusive licensees in Europe had prevented Mr Luxton from obtaining a commercial foreign card; FAPL should therefore be prevented from exercising its copyright in respect of the domestic foreign card.
The Court of Appeal’s decision

Floyd LJ gave the leading judgment, disposing of both defences relatively quickly. On the first, he noted that in bringing the action, FAPL was relying on the right of a copyright owner to prevent the unauthorised communication to the public of copyrighted works. This right could also be enforced against a person in the UK who used a domestic card issued by FAPL’s UK licensee (Sky) for commercial purposes. The fact that Mr Luxton was using a foreign domestic card did not make any difference; FAPL’s right was not one that depended on the use of the card in a particular territory. Enforcement of the right could not therefore be capable of reinforcing allegedly unlawful agreements to partition the market.  

Regarding the second defence, the judge did not consider Mr Luxton’s use of the domestic card to be a consequence of FAPL’s agreements and practices. Even if the effect of those practices was to starve the market of foreign commercial cards - that did not make the use of foreign domestic cards a natural consequence of FAPL’s actions. Though Mr Luxton thought he had purchased a commercial card rather than a domestic one, this could not change the outcome, as if his argument was correct a publican who deliberately sought out a foreign domestic card would be in the same position.
 
Comments on ‘Euro-defences’

The decision provided some interesting commentary on the overlap between IP and EU/competition law, noting that it “has long been recognised that in some circumstances an intellectual property right may become unenforceable because what lies behind it is an attempt to divide up the market in the EU contrary to the provisions on free movement”. A breach of the Treaty isn’t enough – there must be a sufficient connection between the exercise of the right and the unlawful agreement in question.

Floyd LJ cited Lord Sumption’s warning in Oracle that this sort of ‘Euro-defence’ “must be scrutinised with some care” due to the risk of litigation devaluing intellectual property rights by increasing the cost and delay associated with their enforcement. In that case of course, the Euro-defence was rejected on the grounds that the unlawful conduct relied on was collateral to the particular rights which the claimant was seeking to enforce.

Scope for Commission activity?

A further point of note is that the evidence adduced in this case showed the difficulty of actually obtaining a foreign commercial card.  FAPL accepted that there is an arguable case that foreign broadcasters are still behaving as if they are bound not to provide commercial cards outside their national territories, and that if Mr Luxton had used a commercial card, he would have had an arguable defence that it authorised him to communicate the copyright works to the public in the UK. (Whether this defence would succeed may be the subject of further litigation in the future). 

Cross-border access to digital services is a central part of the Commission’s Digital Single Market Strategy and this is evidently an area in which the Commission is willing to take action – see our thoughts on the Commission’s investigation into Paramount’s pay-TV licensing practices here. This is certainly a space worth keeping an eye on in the future, as if it continues to prove difficult to obtain foreign commercial cards, thereby defeating attempts to deliver digital services across borders, there may be grounds for action by the Commission.