A heads-up for companies seeking to settle in antitrust proceedings: commercially-affected third party complainants are not to be ignored. The Canal+ judgment marks the first time a commitment decision has been successfully challenged since the adoption of Regulation 1/2003. The European Court of Justice annulled the commitment decision on the ground that the Commission failed to take into account the rights of contractual parties affected by the commitments.
This ruling may result in the Commission treading more carefully, with potentially lengthier procedures as a consequence. Third parties will likely keep a close watch on any proposed commitments and position themselves more centrally during the process (this may involve challenging the Commission’s commitment decision before the EU courts more frequently). All good reasons for companies seeking settlement to consider the impact of their intended commitments on third parties before offering them.
In 2015, the Commission sent a Statement of Objections to six major film studios alleging that certain clauses in licensing agreements concluded with pay-TV broadcasters had the object of restricting cross-border competition. The clauses prohibited broadcasters from showing pay-TV content to EEA consumers outside the exclusive territory. In response to the SO, the studios offered commitments to not enforce or implement the geoblocking clauses; commitments which the Commission accepted as legally binding under article 9 Regulation 1/2003 (see our May 2016 newsletter).
The French TV broadcaster Canal+ challenged these commitments before the General Court, arguing that the Commission had not sufficiently taken its contractual rights into account. The contractual clauses at issue served to protect the revenue streams of Canal+ and were important in the general system of film financing. Canal+ furthermore stated that the geoblocking clauses were justified under intellectual property rights, and served to promote cultural diversity. In January 2019, the General Court dismissed the appeal of Canal+ in full, and upheld the commitment decision (see our January 2019 newsletter).
Geoblocking and territorial restrictions
Canal+ lodged an appeal against the General Court’s ruling. The company raised multiple substantive arguments to justify the territorial restrictions in the agreements at issue. Amongst other points, it argued that the classification of a ‘restriction by object’ was unwarranted, and that the Commission had misused the competition law framework to circumvent the exemption for territorial restrictions in the film industry provided under the Geoblocking Regulation.
The Court of Justice, however, rejected all substantive claims by reiterating that the clauses give rise to valid competition concerns, and that a further assessment is not warranted as a commitment decision does not formally establish an infringement of article 101 TFEU. As for the circumvention of the Geoblocking Regulation, the Court dismissed this argument by reiterating that the Regulation was not yet in force at the time of the decision.
From a more general perspective, it will be interesting to see for how long the Geoblocking Regulation will continue to exempt the audio-visual sector. According to the recent short-term review, the Commission aims to make audiovisual content more accessible and will launch a stakeholder dialogue with the sector in order to discuss concrete ways to foster the circulation of, and improve consumers’ access to, audiovisual content.
The proportionality assessment
With its procedural argument, Canal+ was significantly more successful. It argued that the Commission had failed to take into account the rights of Canal+ in its decision to declare the commitments legally binding. On this point, the General Court ruled (with reference to the Alrosa judgment) that the Commission is only required to assess the proportionality of the proposed commitments against the competition concerns; and that third parties affected by the commitment decision could enforce their contractual rights before the national court.
The Court of Justice did not agree on this point. The Court considered that national courts are bound by Commission decisions due to the Masterfoods rule laid down in Article 16 of Regulation 1/2003. Under this provision, national courts are not allowed to take decisions that run counter to a Commission decision. Therefore, to make sure that the contractual rights of third parties are “not rendered meaningless”, the Commission is required to also assess the proportionality of the commitments against their effects on the rights of third parties.
On that ground, the Court finally (and historically) annulled the commitment decision. By doing so, the Court has made clear that the Commission’s discretion in accepting commitments is more limited than it was presumed to be.
The Canal+ judgment may result in a more active role of third parties in the settlement process, and a more cautious approach from the Commission when deciding on the suitability of commitments which have been offered as part of such settlements. As a result, lengthier commitment proceedings, and an increase in EU court litigation instigated by third parties claiming breach of their contractual rights, may be looming. Companies are advised to take a pre-emptive approach by listing the potential effects of intended commitments on third parties before offering them to the Commission.
Canal+ also initiated proceedings against the commitments offered by other film studios in the same investigation. Considering the outcome of this judgment, Canal+ is likely to be equally successful in these proceedings.
This article was published in the Competition Newsletter of January 2021. Other articles in this newsletter: