European Union: General Court Rules That Territorial Exclusivity Clauses In Copyright Licensing Agreements Raise Competition Concerns

Last Updated: 26 February 2019
Article by Peter L'Ecluse

Most Read Contributor in Belgium, February 2019

On 12 December 2018, the EU General Court ("GC" or "Court") dismissed the application for annulment which Canal + SA ("Canal +") had brought against a European Commission ("Commission") decision that had made commitments offered by Paramount Pictures Ltd ("Paramount") in the context of copyright licensing agreements binding (Case T-873/16).

On 13 January 2014, the Commission opened an investigation regarding possible restrictions affecting competition in the supply of pay television services through licensing agreements between six American studios and main EU broadcasters. The Commission raised concerns with (i) specific territorial exclusivity clauses by which a studio would grant an exclusive territorial licence to a broadcaster, while at the same time committing not to grant to any other third party any licensing rights on the territory concerned and (ii) clauses which prevented broadcasters from responding to any unsolicited service requests from customers located in a Member State different from that of the broadcaster (the "contested clauses"). The Commission took the preliminary view that these clauses had the object of eliminating all transnational competition between broadcasters in breach of Article 101(1) of the Treaty on the Functioning of the European Union ("TFEU"). To address these competition concerns, Paramount, a US film studio, offered the commitment that, over a five-year period, it would not implement the contested clauses. These commitments were made binding by a Commission decision dated 26 July 2016.

The complainant, Canal +, a French broadcaster, had concluded a licensing agreement with Paramount in which it was granted exclusive broadcasting rights for the French territory. Following the Commission proceedings against Paramount, Canal + received a letter from Paramount stating that, pursuant to its commitments, it would no longer apply the contested clauses. Canal + took issue with the Commission's commitment decision and sought its annulment. Canal + argued that the contested clauses did not raise competition concerns, that imposing geographical restrictions on intellectual property, including copyright, favoured cultural diversity and supported creative activities and that these activities enabled right holders to receive adequate remuneration.

In its judgment, the GC first emphasized that, in the context of a claim for annulment, there was a different standard of review for decisions adopted under Article 9 of Regulation 1/2003 (i.e., commitment decisions) and those adopted under Article 7 of Regulation 1/2003 (i.e., infringement decisions). With respect to Article 9, the role of the Commission is limited to ensuring that the commitments offered address the competition concerns which it had raised and which were shared with the parties. Since the commitments were made voluntarily by the companies, the Court would only review whether the circumstances laid out in the Commission decision raised competition concerns and whether the commitments adequately addressed those concerns.

Second, the Court shared the Commission's position that the contested clauses raised competition concerns because they partitioned national markets, in breach of the objective of the TFEU to establish a single market. In its analysis, the Court examined the possible competition concerns in the light of "both the object and the economic and judicial context to which these clauses apply". Under established EU case law, as a matter of principle, an IP right holder may conclude exclusivity agreements for defined periods of time. However, these agreements are in breach of Article 101(1) TFEU if they prohibit passive, unsolicited sales to geographical markets located outside the Member State(s) for which the broadcaster had been granted exclusive rights. The Court added that the specific economic and judicial context (as the contested clauses concerned intellectual property rights) did not change that analysis.

Third, and finally, the Court considered that it was not required to carry out an analysis under Article 101(3) TFEU when passing judgment on the legality of a commitment decision. The Court added that a commitment decision did not prevent the complainant from bringing an action before a national court in order to challenge the compatibility of the contested clauses with Article 101(1) TFEU and, for example, request the judge to take interim measures to preserve the interests of the complainant until a final decision is issued.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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