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

The vexed question of the appropriate ‘royalty base’ for FRAND-based damages – the US Supreme Court declines to answer

Apple and Samsung have been engaged in litigation in the USA since 2011 over the issue of whether various Samsung smartphones infringed a number of Apple’s design patents. Last year, the US Federal Circuit affirmed a jury award of $399 million of damages in favour of Apple, comprising Samsung’s entire profit on the sale of those smartphones. On 6 December 2016, the US Supreme Court intervened in the latest chapter in this long-running saga to reverse the Federal Circuit’s decision and remand it back to that court for further consideration.

Notably, this was the first occasion in which the Supreme Court had looked at a design patent case in over a century. However, it had also seemed to be a rare opportunity for judicial clarity on a controversial issue – for infringements involving multi-component products, should damages be calculated based on the value of the whole end product sold to consumers, or on the basis of only a particular component of that product?

This is an issue regularly arising in disputes regarding what constitutes a FRAND royalty for standard essential patents, an area in which there is still little judicial guidance in the US or Europe. The Supreme Court’s judgment offers little new insight. Instead, it focuses almost entirely on the meaning of the wording “article of manufacture” in the relevant statute (35 USC §289).  The Federal Circuit had previously held that only the entire smartphone could be an article of manufacture, as its components were not sold separately to ordinary consumers.  The Supreme Court reversed this, holding that “article of manufacture” encompasses both a product as sold to a consumer and a component incorporated into that product, even though not sold direct to consumers. 

The Supreme Court declined to comment on whether the relevant articles of manufacture at issue in the case were the entire smartphones or the particular smartphone components, remanding this question to the Federal Circuit. For (F)RAND royalty calculations, a US Court of Appeal has previously suggested that different cases may require different methodologies for damages models (see here). If the Supreme Court had provided a more wide-ranging decision, it might have included useful guidance as to when it’s appropriate to base damages on the value of an entire product, and when the value of a component alone is more suitable.

As things stand, we will have to continue to wait to see what the Federal Circuit decides on remand.  Alternatively, the judgment of the UK High Court in the FRAND case Unwired Planet v Huawei, due to be handed down in early 2017, may offer us more to get stuck into. 

When the price isn’t right – CMA fines Pfizer / Flynn for excessive pricing

The year is 2011.  The Office of Fair Trading (the predecessor to the current Competition and Markets Authority) contributes to an OECD round table on excessive pricing, concluding that: “firms should not face fines for excessive pricing, and should not face the risk of private damages actions in respect of such behaviour”.

Five years later, in early December this year, the CMA announced that its investigation into the supply of phenytoin sodium capsules by Pfizer and Flynn had concluded with its highest ever fine (£90 million), and ordered the companies to reduce their prices within 4 months.  How times change…

Excessive pricing is one of the more controversial types of abuse of dominance – the lack of a bright line test between competitive and anti-competitive pricing has meant that infringement decisions in relation to this form of abuse have been rarely pursued.  Indeed, this is the first UK competition authority decision based on excessive pricing by a pharmaceutical company since the 2001 Napp decision, which involved differential pricing in the hospital and community sectors.

As we have previously reported, however, something of a sea change in competition policy currently appears to be taking place, at least for certain parts of the pharmaceutical sector. 

The full reasoning of this decision will therefore be closely reviewed.  For now, however, the text of the decision remains unpublished.  While we wait for a non-confidential version, the following 4 points seem to us to be worth noting:

  1. Phenytoin sodium is not a new drug – it has been off patent for many years, although only entered as a generic following the conclusion of a UK supply deal between Pfizer and Flynn.  The case – as with other high profile excessive pricing investigations in the EU and beyond (see here/here) – concerns a sudden and significant jump in previously established market pricing, in this case of around 2,600%.  This is an entirely different legal and commercial context to that applicable for new or branded drugs: it would be extremely surprising if this decision provides any new basis for future intervention in relation to drugs which are subject to the PPRS, even at the stage of free initial pricing.  

  2. Although two companies are involved, no anti-competitive collusion has been alleged.  Rather, the case is based only on abuse of dominance.  It is rare for such cases to involve two separate companies.  Here, the allegation appears not to be that Pfizer and Flynn are jointly dominant, but that each holds a separate dominant position and has separately proved it.  This is a surprising feature of the investigation – proving excessive pricing is notoriously difficult, and the CMA given itself the task of pulling that off twice, with each company being held separately to have extracted supra-competitive prices.  Flynn is at once the ‘victim’ of Pfizer’s excessive pricing, and the perpetrator of an abuse of its own. 

  3. The basis for the findings of dominance is also far from obvious.  While details of how the market has been defined have not yet been released, it appears from a 2015 parallel trade case also relating to Flynn Pharma’s phenytoin sodium product that the drug is only a third line treatment for certain specific types of epilepsies, and that its sales have been in decline for a number of years.  It appears that the CMA’s dominance finding may be based on clinical guidance that stabilised patients should remain on one specific brand of product rather than being switched between different formulations even of the same API.  The trend to ultra-narrow market definition in the pharma sector thus appears to be continuing (see Perindopril, Paroxetine…) – but query whether it will survive review in the Competition Appeal Tribunal. 

  4. And finally, compliance with the price reduction remedy may not be straightforward – the companies will have to calculate what measure of reduction is sufficient to bring the infringement to an end.  Pfizer has already been subject to a procedural fine for failure to comply with a procedural order; if the companies miscalculate their price reductions, further fines could follow – in addition to the now inevitable follow-on claims from, at least, the Department of Health.

We need to talk…about Pharmaceuticals and Standard Essential Patents

At the end of last month, Commissioner Vestager gave a speech at the Chillin’ Competition Conference. The focus: how competition law can protect consumers from anti-competitive behaviours. The Commissioner gave examples of situations in which intervention could be justified, two of which are of particular interest in the competition/IP sphere - pharmaceutical goods and Standard Essential Patents (‘SEPs’)

Pharmaceutical goods

Commissioner Vestager noted that people’s health often relies on a drug sold by only one company. This can be because the company has a patent, but may also simply be because no other companies are interested in coming to the market due to low levels of demand. This isn’t a problem in itself if prices stay at a reasonable level but if prices go up, the Commission suggested it may warrant action by the competition authorities.

This could not be more topical – just today the Competition and Markets Authority’s (‘CMA’) has taken a decision in the Pfizer/Flynn case, which relates to excessive pricing of an anti-epilepsy drug previously branded as Epanutin (we reported previously on this investigation here). We’ll be providing a more detailed update on the CMA’s decision soon but in the meantime, our readers will be interested to know that both Pfizer and Flynn Pharma have already announced that they intend to appeal. 

The Pfizer/Flynn case follows the CMA’s recently launched investigation into excessive pricing in the pharmaceutical sector in the UK. Concordia International announced that it was in talks with the CMA about this. However, the investigation is still at the information gathering stage, with a decision on whether or not to proceed expected in February of next year.  

An article published in the Times last week suggested that certain generics drugs continue to be subject to significant price increases – the only manufacturer of lithium carbonate tablets is reported to have raised the price of its product by £39 in the last month, and from £3.22 to £87 over the last year. 

Similarly, the Italian Competition Authority recently investigated Aspen, a supplier of cancer drugs to the Italian Medicines Agency, and in October 2016 fined it over €5 million for increasing the price of its cancer drugs by up to 1500% (see here for our report on this).  

Pharmaceutical investigations continue outside of the EU as well. Last month Bloomberg reported that the first charges in the US DOJ’s antitrust investigation into collusion over generic price increases investigation (spanning over two dozen companies) are expected by the end of the year.

The prevalence of investigations relating to pricing regulation in the pharmaceutical sector represents a major change in policy from the days when competition authorities were wary of acting as price regulators. Perhaps, as is evidenced by Vestager’s recent speech, this is largely due to a renewed focus on consumer interests.  But it is far from clear that it is sensible policy for the competition authorities to have to intervene in cases which arguably result from regulatory failures.

SEPs

In her speech, Commissioner Vestager also suggested that in some situations, phone makers may be forced to accept whatever terms they are presented with, regardless of whether these are actually FRAND (fair, reasonable and non-discriminatory).  This is particularly problematic where this takes place under threat of an injunction, and can mean that they end up paying unjustified royalties, with customers also paying more as a result. While FRAND disputes have been around for many years, the Commissioner emphasised that this remains a topical issue – with 5G and the Internet of Things, more and more products will be connected with each other; innovation is increasingly important and restrictive practices could stifle development.  

The issue of whether offers are FRAND has a reflection closer to home in the UK at the moment.  This week marks the closing submissions in the Unwired Planet v Huawei FRAND trial, which looks set to become the first EU case to determine what a FRAND offer is. A judgment in this case is likely to be handed down in the first few months of 2017… 

Hear it here first - competition law updates…

Our readers may be interested in two events next week at which Sophie Lawrance, one of Bristows’ competition partners, will be speaking on issues dear to the heart of this blog. 

On Tuesday 6 December 2016, at the Competition Law in the Pharmaceutical Sector conference, Sophie will be addressing the topic of “Distribution Systems and Parallel Trade”.  Then on Wednesday 7 December at the 10th Annual Standards, Patents & Competition: Law & Litigation conference, there will be a talk and workshop on “The Future of Litigating SEPs”.  Sophie will be joined at that event by fellow Bristows partner and patent litigator James Boon and German patent litigator Kai Rüting of Vossius.  Both events will no doubt provide useful and interesting updates on competition law in these spheres. 

Places are still available for both events so get booking!

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.

High Court Rules in Article 50 Case

We know it’s not strictly competition law or IP related but Competition and IP practitioners (and indeed the general public) will not have missed the latest Brexit developments. Yesterday, in a landmark ruling on the UK’s constitution, the High Court rejected the Government’s argument that it could trigger Article 50 by exercising its prerogative powers. Parliamentary approval will therefore be needed to invoke Article 50. It was common ground between the parties that Article 50 is irrevocable and the High Court’s ruling is predicated on this. However, the status of Article 50 has been the subject of considerable debate and the issue may need to be resolved before the Supreme Court hears the Government’s appeal. We discuss this here.  

In addition to this, we’ve written two Brexit posts which may also  be of interest:

Now, back to Competition Law and IP…


Resetting Competition Policy Frameworks

Earlier this month, the GSMA – an association representing various mobile operators – published a report: ‘Resetting Competition Policy Frameworks for the Digital Ecosystem’ – see here for an Executive Summary. The GSMA proposes a more nuanced approach to competition policy in the digital economy following the EU Commission’s Digital Single Market initiatives (see previous posts here and here). The GSMA suggests that it is necessary to create a regulatory environment fit for the digital age. We summarise the four main themes below.

Market definition and market power

The study points to: 
  • an unprecedented uptake in new technologies: 
  • an increasing use of big data to gain a competitive advantage (see our opinions here); and 
  • a rising number of cases where price is not the critical factor for consumer decision-making. 
In the light of these findings, it is suggested that competition authorities need to adapt their approach to defining product and geographic markets. Recommendations include:
  • Focussing on the products and services consumers genuinely view as viable substitutes to inform market definition;
  • Investigating how the quality of goods and services which are provided at no monetary cost can be used as part of a market power analysis; and
  • Revising market definitions where there is substantial evidence to do so.
Adopting a total welfare standard in digital markets

The GSMA has urged competition authorities to take into account the effect of conduct on product quality, innovation and economic efficiencies (‘Total Welfare’) rather than simply pricing effects. It proposes that looking at the bigger picture could entail positive effects on investments, quality of products and services and performance in digital markets. Recommendations include:
  • Adopting a total welfare standard to support productivity growth /higher living standards;
  • Focussing on dynamic effects when assessing mergers and competition in digital markets. This might enable certain mergers to be cleared that could benefit society; and
  • Adapting the approach to efficiencies by use of experts, identifying efficiencies in earlier transactions and utilising new analytical techniques. 
Rebalancing ex ante and ex post regulation

The report notes that technologies such as cloud computing, social media, and the use of the Internet of Things are no longer entirely novel but they do continue to alter how businesses operate, and products and services are being offered in new and sometimes unpredictable ways. As entire industries are adapting to this changing digital environment there is a concern that regulating on the basis of predictions (‘ex ante’) could distort competition and deter innovation. GSMA’s study argues that applying competition law in the light of experience and facts (‘ex post’), is more flexible and can be tailored to experience of changing market conditions. Recommendations include:
  • Reviewing the thresholds for ex ante regulation to ensure that the potential negative impact on investment and modernisation that may arise is analysed against any possible gains;
  • Focussing ex ante regulation on enduring market power; and
  • Ensuring consistent and streamlined regulation that conforms to competition law.
Institutional Arrangements 

While noting that there is no ‘one-size-fits-all’ institutional arrangement, the report calls for competition authorities to be independent and transparent; to adopt policies which support investment and innovation; and to cooperate closely with regulators in moving towards ex post enforcement. 

The GSMA is careful not to criticise the principles currently underpinning competition policy and enforcement in Europe. However, it is firm in the view that features of the competition regulatory framework must be updated to allow digital services the right environment to flourish and to ensure appropriate conditions for competition. That view is not necessarily universal, and it will be interesting to see how others react to the GSMA’s recommendations.

Excessive pricing: the Italian version

Pricing issues in the pharmaceutical industry have continued to keep competition authorities busy, this time with the Italian Market Competition Authority (AGCM) fining the multinational South African pharmaceutical company Aspen near €5.2 million on 14 October 2016, following its finding that Aspen abused its dominance to artificially inflate the price of four of its cancer drugs.

In its press release/statement, the AGCM stated that Aspen, which had acquired the rights to the four essential drugs (Leukeran (chlorambucil), Alkeran (melphalan), Purinethol (mercaptopurine) and Tioguanine (tioguanine)) from GlaxoSmithKline (GSK), had threatened to interrupt their supply to the Italian market in order to compel the Italian Medicines Agency to accept price increases for the drugs of between 300%-1,500% of the initial price. The drugs were described by the AGCM as “irreplaceable” and central to the treatment of blood cancers especially for children and elderly patients. In the relevant period Aspen was the only supplier of these drugs in the Italian market, which led to the finding that Aspen held a dominant position in the relevant national market and had unfairly increased the prices.  The AGCM noted in particular that there was no direct substitute for the drugs, the patents had been expired for years and no economic justification for the price increases could be established.

The antitrust authority applied a two-step test to determine whether the increase in pricing amounted to unfair pricing in contravention of Article 102. The AGCM first established that there was an excessive discrepancy between the manufacturing costs and the final prices of the products and secondly considered that the pricing was excessive and unfair, by reference to factors such as the change in prices and any economic basis for this change, any potential benefits for patients, and conversely any harm to the Italian National Health Service.

There is no easy method for competition authorities (or indeed companies) to determine what constitutes excessive pricing, due to the number of variables involved.  A justified price increase might be due to increased manufacturing costs or could be the reflection of a profitable market or a high-risk marketing strategy, among other factors.  Ultimately, the determination of when a price is excessive remains challenging, and – where pharmaceuticals are involved – may well vary from country to country.  As yet, the impact of excessive pricing on reference prices has not been examined.

Italy is not the only country to look at excessive pricing of off-patent drugs, however.  Another example from the UK (on which we have reported here and here) is the ongoing CMA investigation into the pricing of the anti-epilepsy drug Epanutin by Pfizer and Flynn Pharma (the latter having acquired the marketing rights of Epanutin by Pfizer in late 2012).   The CMA has recently updated its case file to push back the expected date of the conclusion of the investigation, to November 2016. The focus of the investigation is understood to be whether the pricing for phenytoin sodium capsules is excessive and unfair and thus constitutes an Article 102 and Chapter II abuse.

On the other side of the Atlantic, the antitrust authorities have considered similar issues with the 50-fold increase in the price of Turing Pharmaceuticals’ Daraprim and the more recent Mylan EpiPen controversy, caused by a six-fold price rise in the popular emergency allergy treatment.  In September 2016, Mylan became the subject of a congressional hearing on this subject. The allegations about increased pricing were followed by suggestions that Mylan had been misclassifying EpiPen as a generic, as opposed to as a branded product, in order to benefit from the lower rebate rate available (13%) than the equivalent for branded drugs (23%).  In this case, it was of significance that Mylan had a market share of around 90%, and the increase in pricing was accompanied by a direct increase in Mylan’s profits. The US FDA itself was criticised for not intervening more effectively in order to allow competing products to reach the market.

The complex topic of excessive pricing continues to be an issue in the EU more generally.  The announcement of the Aspen investigation has led to calls by public interest bodies such as the BEUC for the Commission to carry out EU-wide investigations into whether companies use similar tactics to increase pricing.  No doubt, as the case law develops, so will our understanding of when a company’s pricing tactics risk being in breach of Article 102.

The European Commission’s E-commerce Conference

On 6 October, the Commission held a conference on its Preliminary Findings of the E-commerce Sector Inquiry: the entire day was made available via webcast (no geo-blocking for the Commission…).  

This follows the publishing of its Preliminary Report last month (which we covered here and here).  The conference was an opportunity for those working in industry, academia and competition authorities around the EU to comment on the findings.  A list of the speakers can be found here.  We have provided a summary of the main issues raised below.

Distribution

In today’s digital world, selective distribution systems are used for a very wide range of products and they are no longer limited to those products which are accompanied by a service.  It was suggested that using selective distribution to ban the use of third party platforms raised important competition law and political questions.

In the context of consumer goods, selective distribution can be beneficial, allowing brands to maintain consistency across retail channels and strengthening consumer protection.  However, it was noted that they can be detrimental to SME retailers, which often struggle to gain market share as a result of restrictive distribution practices.  The need for clear and objective criteria was also raised as an issue.  Some industry representatives called for greater parity between online and brick and mortar stores in terms of the products they are allowed to sell.  This view was not shared by all – others were quick to emphasise the differences between online and physical stores and the benefits of differentiating between these types of sales.  

Turning to the media content sector, the focus was on the use of exclusivity which gives rise to a similar dynamic to selective distribution in the goods economy.  On the one hand, the competition for exclusivity among media organisations has been a driver of innovation and investment in the production of new technologies (e.g. Ultra HD TVs) and has facilitated the creation of more choice among content providers.  On the other hand, distribution contracts are often awarded for lengthy terms and – in the Commission’s view – certain terms risk giving rise to anti-competitive effects.  One example which was discussed was the use of automatic renewal provisions, extending the duration of exclusivity; however, such terms may be justified on the basis of the considerable investment needed to create new content. Such terms will need to be considered on a case-by-case basis.

Cross-border access to content

The paradox that 50% of EU citizens shop online but only 15% shop cross-border was raised as an important issue.  The volume of complaints about geo-blocking directed to National Competition Authorities varied significantly.  Opinions differed on the prioritisation of geo-blocking and territorial restrictions generally.  

The discussion on consumer goods focused on the ability to sell across borders.  Legal fragmentation and lack of harmonisation, personalised products and distribution capacity were all identified as reasons why cross-border sales may be limited.  In addition to technical and logistical barriers, selective distribution systems were also considered to play a part in the availability of products in specific regions. 

Geo-blocking occupied a large part of the discussion on online content distribution.  Industry representatives argued that the territoriality identified in the report is not the result of active efforts by distributors to fragment the market.  Instead, it was said to reflect diverging national demands and differences in the level of investment that broadcasters are prepared to make in each territory.  The possibility of pan-European licences was dismissed as being prohibitively expensive as well as having the potential to be anti-competitive. 

Pricing

Issues surrounding pricing and pricing mechanisms were raised throughout the day.  There was general agreement that the competitive impact of such mechanisms in e-commerce will depend heavily on the level of market power of those imposing the prices.

An interesting point on price discrimination was raised in the context of consumer goods.  If price discrimination is banned, firms adapt by changing their pricing and product strategies, which could harm or benefit consumers depending on the market.  It was noted that vertical restraints could be used strategically by suppliers in the marketplace. 

Pricing mechanisms were also raised as a concern in relation to online digital content.  It was suggested that it might be necessary for the Commission to examine restrictive payment structures in contracts and perhaps regulate the area to ensure a level playing field between mobile platform providers and application developers.

The Commission has invited stakeholders to submit comments on its Preliminary Report by 18 November 2016.  It remains to be seen whether the commentary put forward during the conference and the divergence of industry views will be reflected the Final Report.  Past sector inquiries tend to suggest that the changes between the preliminary and final reports may be few and far between…