HomeInsightsCourt of Justice of European Union annuls Commission Decision making binding certain commitments offered by Paramount Pictures to allay competition concerns in EU pay-TV market

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In 2015, the European Commission sent a statement of objections to Sky UK and six of the major US film studios including Paramount Pictures International Ltd and its parent company, Viacom Inc, in relation to certain clauses in licensing agreements agreed with Sky. The Commission was particularly concerned about two related clauses: (i) a clause intended to exclude or limit Sky’s ability to accept unsolicited requests from consumers resident in the EEA, but outside the UK and Ireland, to provide TV distribution services (i.e. passive sales); and (ii) a requirement on Paramount to include a similar clause with broadcasters established in the EEA, but outside the UK, in relation to requests from consumers in the UK or in Ireland. The Commission said that these clauses resulted in absolute territorial exclusivity and were capable of constituting a restriction of competition “as their object” within the meaning of Article 101 of the Treaty on the Functioning of the EU and Article 53 of the Agreement on the EEA, insofar as they partitioned national markets and frustrated the Treaty’s objective of establishing a single market.

Paramount offered commitments to the Commission that it would no longer comply with or enforce the offending clauses providing absolute territorial protection. By its Decision of 26 July 2016, the Commission accepted Paramount’s commitments and made them binding, as permitted under Article 9 of EC Regulation 1/2003.

Canal+ had an existing agreement with Paramount for the French market and it considered that the Commission’s decision would affect it adversely. Canal+ therefore issued proceedings in the General Court seeking annulment of the 2016 Decision. The GC dismissed the application and Canal+ appealed to the CJEU.

The CJEU held that the GC had been entitled to reject Canal+’s allegation of a misuse of powers by the Commission. Canal+ argued that, by adopting the 2016 Decision, the Commission had circumvented the legislative process relating to geo-blocking. The CJEU rejected this, agreeing with the GC’s observation that, at the time, the geo-blocking legislative process had not yet resulted in the adoption of a legislative text. Further, it said, the legislative process was without prejudice to the Commission’s powers under Article 101 of the TFEU and under Regulation 1/2003, under which it had made the 2016 Decision.

Further, the CJEU held that the GC had not erred in rejecting Canal+’s argument that the relevant clauses were lawful under Article 101(1) TFEU and that there was therefore no basis for the concerns that had resulted in the 2016 Decision. The CJEU said that the GC was entitled to find that clauses designed to eliminate the cross-border provision of broadcasting services and grant broadcasters absolute territorial protection guaranteed by reciprocal obligations were capable of causing the Commission concerns over competition issues. Further, under Article 9 of Regulation 1/2003, the Commission was only required to make a preliminary assessment of the potentially anticompetitive conduct. It was not obliged to make any findings under Article 101(1) TFEU.

The CJEU also agreed with the GC’s finding that the relevant clauses could validly raise competition concerns for the Commission as regards the whole of the EEA, without the Commission being under an obligation to analyse the relevant national markets one by one. Insofar as the relevant clauses were intended to partition national markets, the GC had rightly pointed out that such agreements could jeopardise the proper functioning of the single market, thereby counteracting one of the principal objectives of the EU, irrespective of the prevailing situation in the national markets.

Finally, Canal+ argued that the GC had erred in law, in particular in the light of the principle of proportionality, in its assessment of the effect of the 2016 Decision on the contractual rights of third parties, such as Canal+. The CJEU noted that, in the context of Article 9 of Regulation 1/2003, the Commission must verify commitments offered, not only from the perspective of whether they are appropriate to address its competition concerns, but also with regard to their effect on the interests of third parties. The CJEU held that the Commission’s 2016 Decision to make binding Paramount’s commitments not to apply certain contractual clauses vis-à-vis a third party contracting partner, such as Canal +, when that contracting partner did not consent to it, constituted an interference with the contractual freedom of that contracting partner and went beyond the provisions of Article 9.

Finally, in the CJEU’s view, the GC could not refer third party contracting partners to the national courts to have their contractual rights enforced without infringing the provisions of Article 16 of Regulation 1/2003, which prohibit national courts from making findings that run counter to a previous Commission Decision on the matter. A national court decision that required a broadcaster to breach the commitments made binding by a Commission Decision would clearly run counter to that Decision. Therefore, the GC had also erred in law by holding that a national court could declare the relevant clauses compatible with Article 101 TFEU, whilst the Commission could still, under Article 9(2) of Regulation 1/2003, reopen the proceedings and adopt a formal Decision that there had been an infringement.

Therefore, the GC had erred in law in its assessment of the proportionality of the adverse effects on the interests of third parties resulting from the 2016 Decision. Consequently, the CJEU set aside the GC judgment under appeal and, giving final judgment in the matter, annulled the 2016 Decision. By adopting the 2016 Decision, the CJEU said that the Commission had rendered the contractual rights of third parties meaningless, including the contractual rights of Canal + vis-à-vis Paramount, and had thereby infringed the principle of proportionality. (C-132/19 P Groupe Canal + v European Commission EU:C:2020:1007 (9 December 2020) — to read the judgment in full, click here).

As regards the potential wider implications of the CJEU’s judgment, the case only concerns the Paramount commitments. The CJEU did not have the jurisdiction to order the annulment of the Commission’s Commitment Decision (of 7 March 2019) in respect of the other studios and Sky and, procedurally, the CJEU’s judgment does not automatically annul those commitments.  However, Article 9(2) of Regulation 1/2003 provides that the Commission may, upon request or on its own initiative, re-open proceedings where there has been a material change in any of the facts on which the decision was based. There are also review clauses of the commitments given by the studios.

The Commission may still look to maintain its clear position in the Pay-TV investigation – i.e. that the contractual provisions at issue infringe Article 101(1) TFEU ‘by object’ and do not satisfy the requirements for Article 101(3) TFEU – for example by opening a new case. However, the judgment is a setback for the Commission in respect of what was a protracted investigation which presented difficulties in terms of adopting an infringement, rather than a commitment, decision.