Reforming EU copyright law through competition enforcement? Waiting for the Commission’s decision in the “Pay-tv” case

These are complicated days for the entertainment industry. While one investigation regarding sports media rights has just been launched by the European Commission, another is coming to an end. I am talking about the so-called “Pay-tv” case, by means of which the Commission is subtly attempting to reform copyright law through competition enforcement.

The facts of the case

In July 2015 the Commission delivered statement of objections to the major US film producers (Twentieth Century Fox, Warner Bros., Sony Pictures, NBC Universal, Paramount Pictures) and the broadcaster Sky UK. The Commission noted that the copyright licensing agreements in force between the parties grant to Sky territorial exclusivity in UK and Ireland for the transmission of movies via satellite and online and restrict Sky’s ability to accept unsolicited requests for its pay-TV services from consumers located in other Member States outside the territorial scope of the license. This last provision is viewed by the Commission as a restriction of passive sales and, therefore, as a hardcore restriction of competition law.

The approach followed by the Commission raises some concerns on the validity of its arguments:

  1. the Commission seems to have misread the CJEU’s case law on which its allegations are grounded (I will talk about it in a future post);
  2. the fact that the Commission has accepted the commitments submitted by one of the US film studios involved in the investigation (Paramount) implies that the conducts under exam are not anticompetitive by-object;
  3. but, above all, the strangest thing is that the Commission apparently decided to intervene through competition enforcement without taking into account the applicable copyright regulatory framework, which already addresses all the concerns at issue here.

The regulatory framework

From a competition law perspective, the Vertical Block Exemption Regulation, which grants a safe harbour from antitrust public enforcement to vertical agreements fulfilling certain conditions, identifies some hardcore restrictions which do not enjoy the exemption, including the award of “absolute territorial protection” to licensees. In other words, while plain territorial exclusivity is generally exempted, the grant of such privilege entails a hardcore restriction when the licensee is prevented not only from active sales outside its territory but also from those sales made in response to unsolicited requests from individual customers (passive sales). The idea of the EU Legislator is to avoid that partitioning the market in accordance with national borders eliminates all competition between resellers.

From a copyright law perspective, the right of communication to the public of online content is regulated by the Information Society Directive (“InfoSoc Directive”). As this field of copyright law has not experienced full harmonisation in the EU so far, its applicability has remained national in scope and each country has its own rules. As a consequence, online content providers generally acquire licenses from the right holders on a national basis in order to offer their services in compliance with copyright law in every single country. Therefore, the rule to apply to the diffusion of online contents is “one Member State, one license”, and under the current copyright regulatory framework there is no chance for the licensee to broadcast the licensed contents outside the geographic scope of the license itself. Indeed, even if the US film studios were not to contractually prevent Sky UK from accepting unsolicited requests for its pay-TV services from consumers located in other Member States, Sky would be exposed to potential copyright infringement lawsuits in countries where it does not have a license.

Conversely, satellite broadcasting is regulated by the Satellite and Cable Directive (“SatCab”), which applies the “country of origin” principle. Under this principle, rights cleared in one country allow the broadcasting organisations to broadcast to the entire territory of the EU. In other words, a broadcasting organisation will need to acquire licences only from right holders in the Member State of origin of the satellite signal. Therefore, differently from the online world, a European single market for satellite broadcasting already exists and only the law of the country of origin applies. As a consequence, EU copyright law already allows licensing agreements on an EU-wide basis under the “country of origin” principle, irrespective of the application of competition law. Any breach of copyright rules can be enforced through copyright enforcement.

The hidden aims behind the investigation

The reasons of the investigation launched by the European Commission might be found elsewhere than within the borders of competition policy. Indeed, one of the main political goals pursued by the Commission from the begin of its mandate has been the reform of copyright rules, in order to eliminate national barriers with regard to the access to online contents and to fight against geo-blocking.

In this regard, the Commission submitted in September 2016 a proposal for a Regulation envisioning an extension to online broadcasts of the “country of origin” principle applied to satellite and cable broadcasters. However, this plan has bumped into movie producers’ traditional business model which is based on licensing copyright on a national basis. Following this model, distributors pay producers upfront in exchange for an exclusive right to distribute the film in a specific territory during a certain period. This model allows producers to dispose of enough cash in advance for shooting purpose and for making the business profitable. Should the possibility to license on a territorial basis be eliminated, not only the majors, but especially independent producers would struggle, with cultural diversity being severely harmed. Indeed, broadcasters would have to pay enormous sums to get EU-wide licenses for the most marketable movies, remaining with fewer resources than today to finance independent film-makers.  This is particularly true for the European market, which is more fragmented in terms of language, culture and local preferences, leading to higher costs being sustained along the distribution chain.

Producers fought fiercely to have the reform rejected, or at least limited in scope, and finally made it. On December 2017, the EU Parliament watered down the initial proposal and decided that the “country of origin” principle in relation to right clearance for online services should apply only to news and current affairs programs.

Nevertheless, a final decision from the Commission is yet to come. In principle, one might expect a non-infringement decision or one which exempts absolute territorial protection in light of the efficiencies arising from territorial licensing (both for the distribution-chain and consumers). However, in consideration of the time and efforts dedicated to this investigation and of the political objectives still pursued by the Commission, a manoeuvre which turns upside-down the negative outcome of the copyright reform cannot be excluded. Surely, it would be strongly challenged in Court by the entire film industry.

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