On 9 December 2020, the Court of Justice of the EU (“CJEU”) annulled a European Commission decision accepting legally binding commitments offered by Paramount aimed at addressing a Commission investigation into cross-border pay-TV in the EU (the “Paramount Commitment Decision”). The CJEU also set aside a General Court judgment that had rejected an action for annulment of the Paramount Commitment Decision.

This judgment, which is the first annulment by the EU’s highest court of a Commission commitment decision, is important as it clarifies the obligations of the Commission in commitment decisions adopted under Article 9 Regulation 1/2003. According to the CJEU, the Commission is not only required to verify that the commitments offered are appropriate to address the competition concerns identified by the Commission, but it must also consider the effects of those commitments on the interests of third parties. In particular, the Commission is required to take into account the proportionality of the commitments and protection of third parties’ contractual rights.

The requirement to pay closer attention to the interests of third parties in commitment decisions will have an impact on the future approach of the Commission. The Commission may find it more difficult to adopt commitment decisions without properly taking into account the views of third parties, which will carry more weight in the overall assessment of proposed commitments. Similarly, undertakings offering commitments will have to be more vigilant that the proposed commitments do not undermine the rights of third party contractual counterparts and, indeed, may find it necessary to agree the form of commitments with affected third parties before offering them to the Commission.

BACKGROUND

The Paramount Commitment Decision

In January 2014 the Commission formally opened proceedings against a number of film studios and the largest European pay TV broadcasters including Canal+, Sky and DTS. In  July 2015, the Commission issued a Statement of Objections to Sky UK and six other film studios (Disney, NBC Universal, Paramount, Sony, Twentieth Century Fox and Warner Brothers) alleging that the studios and Sky bilaterally agreed to put in place contractual restrictions that prevented Sky UK from allowing EU consumers located elsewhere to access, via satellite or online, pay-TV services available in UK and Ireland (see here).

The Commission’s preliminary view was that such clauses restricted Sky UK’s ability to accept unsolicited requests for its pay-TV services from consumers located abroad (so-called “passive sales”). Some agreements also contained clauses requiring studios to ensure that, in their licensing agreements with broadcasters other than Sky UK, these broadcasters were prevented from making their pay-TV services available in the UK and Ireland. As a result, the Commission reached the preliminary conclusion that these clauses granted “absolute territorial exclusivity” to Sky UK and/or other broadcasters and as such constituted a restriction of competition ‘by object’ under Article 101(1) Treaty on the Functioning of the EU (TFEU).

On 26 July 2016, the Commission accepted commitments from Paramount to address the Commission’s concerns (commitments offered by Disney, NBC Universal, Sony Pictures, Warner Bros and Sky were accepted by the Commission in March 2019 – see here). Under the commitments, Paramount agreed to the following (see here):

  1. When licensing film output to pay-TV broadcasters in the EEA, Paramount agreed to refrain from introducing contractual obligations that will prevent or limit broadcasters from responding to unsolicited requests from consumers in the EEA but outside the broadcaster’s licensed territory (the so-called ‘broadcaster obligations’).
  2. When licensing film output to pay-TV broadcasters in the EEA, Paramount agreed to refrain from introducing contractual obligations which require Paramount to prohibit or limit broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (the so-called ‘Paramount obligation’).
  3. Paramount agreed not to bring actions before a national court for a violation of a ‘broadcaster obligation’ in any existing licensing agreement.
  4. Paramount agreed not to act upon or enforce a ‘Paramount obligation’ in any existing licensing agreements.

The commitments were applicable in the entire EEA for a period of five years covering both standard pay-TV services and subscription video-on-demand services (SVOD) on satellite and online broadcasts.

The General Court’s ruling of 12 December 2018

On 8 December 2016, the French pay-TV provider Groupe Canal+ (Canal+) lodged an action for annulment before the General Court against the Paramount Commitment Decision. Canal+ contended that commitments purportedly made legally binding during a procedure which involved only the Commission and Paramount could not be legally binding on third parties because this would infringe the contractual freedom of those third parties. Canal+ contended that its legal rights as against Paramount were undermined by the commitments.

On 12 December 2018, the General Court dismissed Canal+’s action for annulment, thereby upholding the Commission decision to accept commitments from Paramount.

The General Court found that, in the context of the application of Article 9 Regulation 1/2003, the Commission’s role is limited to verifying that the proposed commitments address the concerns expressed by the Commission proportionately. According to the Court, this ‘preliminary assessment’ is made in respect of the undertakings concerned and is intended to allow them to determine appropriate commitments to address the competition concerns preliminarily raised by the Commission.

Even if a commitment decision adopted under Article 9 Regulation 1/2003 must include such a preliminary assessment, that reasoning cannot include all the elements to establish an infringement of Article 101(1) TFEU or the application of a possible exemption under Article 101(3) TFEU. The General Court therefore concluded that the review of the lawfulness of a commitment decision may relate solely to: (i) the question whether the circumstances set out in the contested decision establish competition concerns (as opposed to an infringement of competition law); (ii) whether the commitments address those concerns; and (iii) whether the commitments are the least onerous to adequately address those concerns.

On this basis, the General Court held that the Commission’s commitment decision met the required legal standard.

According to the General Court, the adoption of a set of commitments that are legally binding on an undertaking does not imply that third party undertakings are deprived of the possibility of protecting their potential contractual rights before a national court (following the CJEU judgment in case C-441/07, Alrosa). This is because the commitment decision did not affect the possibility that Canal+ could refer the matter to a national court which could declare the compatibility of the clauses with the provisions of Article 101 TFEU and/or order Paramount to honour its obligations under the relevant licence agreements.

THE CJEU UPHOLDS CANAL+’S APPEAL AND ANNULS THE GENERAL COURT’S JUDGMENT AND THE COMMISSION’S COMMITMENT DECISION

On 9 December 2020, the CJEU upheld Canal+’s appeal and annulled the General Court’s judgment as well as the Commission commitment decision.

Alleged misuse of powers

First, Canal+ claimed that the Commission misused its powers under Article 9 Regulation 1/2003 by adopting a commitment decision and thus circumventing the ongoing legislative process relating to the issue of geo-blocking of audiovisual content in the EEA. On this point, the CJEU confirmed the General Court’s findings according to which, as long as there was no legislation preventing geo-blocking, the Commission was entitled to adopt a commitment decision under Article 9 Regulation 1/2003 aimed at preventing geo-blocking in the EEA.

Therefore, since the Commission adopted the Paramount commitment decision before the adoption of the Geo-blocking Regulation, it did not exceed the powers conferred by Article 101(1) TFEU and Article 9 Regulation 1/2003.

Alleged lawfulness under Article 101 TFEU

Second, Canal+ argued that the relevant clauses in the licensing agreement with Paramount were lawful under Article 101 TFEU and that, therefore, the Commission had no reasonable grounds to adopt the Paramount Commitment Decision. Further, Canal+ argued that the Commission failed to properly assess the legal and economic context surrounding the agreements between Paramount and EEA-based broadcasters other than Sky.

The Court rejected these claims holding that the General Court was correct in concluding that the absolute territorial protection in this context was sufficient to give rise to competition concerns. The Court agreed with the General Court’s assessment that the Commission must solely conduct a preliminary assessment without having to conclude on the existence or absence of an infringement under Article 101(1) TFEU. Since the application of Article 101(3) TFEU requires an initial finding of an infringement, there was no need for the Commission to consider the applicability of an exemption under Article 101(3) TFEU.

The CJEU also agreed with the General Court’s findings that the relevant clauses in the contested licensing agreements could raise competition concerns throughout the EEA, without the Commission having to analyse each of the national markets in the EU.

Alleged infringement of the principle of proportionality

Third, Canal+ claimed that the Commission and the General Court infringed the principle of proportionality by making binding the commitments offered by Paramount without properly taking into account the interests of third parties and by claiming that such third parties could have recourse to national courts to protect their contractual rights.

The Court held that when assessing proposed commitments under Article 9 Regulation 1/2003, the Commission must consider not only whether the commitments are appropriate to address the competition concerns but also whether those commitments may impact the interests of third parties so that those third parties’ rights are not rendered meaningless.

According to the CJEU, third parties could not enforce their contractual rights in national courts without infringing Article 16 Regulation 1/2003, which provides that national courts cannot take decisions running counter to the decisions adopted by the Commission. This is a departure from previous case law (notably case C-441/07, Alrosa), which considered that the fact that individual commitments offered by an undertaking have been made binding, does not mean that third parties are deprived of the possibility of protecting their rights.

The General Court therefore erred in law by holding that national courts could declare the relevant clauses compatible with Article 101 TFEU because the Commission could theoretically reopen proceedings under Article 9(2) Regulation 1/2003 and adopt a formal infringement decision.

While a national court can adopt a stricter approach and find an infringement under Article 101(1) TFEU in cases where the Commission has adopted a commitment decision under Article 9 Regulation 1/2003 (see e.g. case C-547/16, Gasorba), a national court cannot declare that there is no infringement of Article 101(1) TFEU in circumstances where the Commission has adopted a commitment decision under Article 9 Regulation 1/2003 because the Commission can always reopen the case under Article 9(2) and potentially adopt a formal infringement decision.

On this basis, the CJEU concluded that the General Court erred in law in its assessment of the principle of proportionality in relation to the harm caused to interested third parties and decided to annul the General Court’s judgment as well as the Paramount Commitment Decision.

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Stephen Wisking

Stephen Wisking
Partner, London
+44 20 7466 2825

Daniel Vowden

Daniel Vowden
Partner, Brussels
+32 2 518 1851

Daniel Barrio

Daniel Barrio
Associate, Brussels
+32 2 518 1845

Agathe Célarié

Agathe Célarié
Associate, Brussels
+32 2 518 1821