(read time: 5 mins)

Last month, we reported in our newsletter that the EU’s General Court had handed down its decision in the Pay TV case. By way of summary, Canal+ had challenged the European Commission’s decision to accept commitments from the US studio Paramount in relation to its investigation into the distribution of Pay TV content in Europe. Given the fundamental importance of territorial licensing of content to the media sector, here is an update on the law in this area.

Copyright vs. competition

As a starting point, audiovisual content is protected by copyright. Despite being protected around the world in a fairly similar manner, copyright is a territorial right. The rights associated with a work in the UK are distinct from the rights associated with the same work in France. Therefore, if a film is licensed to a broadcaster in France and that broadcaster streams the film to a user in the UK, the French broadcaster is potentially infringing the UK copyright in the film (which will typically have been licensed to someone in the UK).

There is a tension between the territorial nature of IP rights such as copyright and competition (anti-trust) rules. Carving up the EU into different territories for the purposes of licensing content runs directly against the EU’s aspirations of creating a single market in goods and services. From a copyright perspective, transmission of content from one country to another typically represents copyright infringement in that other country (absent a licence and save in relation to satellite and cable transmissions covered by the SatCab Directive, which is discussed below). From a competition perspective, agreements that provide for “absolute territorial protection” (eg exclusive licences for each territory, backed up by obligations on each licensee not to sell into the territory of another licensee) can be anti-competitive.

Resolving the conflict

The cleanest way to resolve the conflict might be to create an EU-wide copyright to replace the national rights, but this has its own problems and is very unlikely to happen in the foreseeable future. The Commission has therefore sought to resolve it by tolerating agreements that prohibit “active” sales from one territory to another (ie sales actively sought out by the distributor, eg through advertising), provided that “passive” sales are permitted. However, this resolution does not address the problem that even passive sales are unlawful from a copyright perspective, meaning that there is a natural partition of the EU into its constituent jurisdictions.

There are some pieces of EU legislation that limit copyright in order to promote the EU’s single market objective (and competition) by undermining copyright. Those include:

  1. The SatCab Directive 93/83/EEC, which was introduced in 1993. It side-steps the copyright issue, and the related need to licence content in every territory in which a broadcaster wants to broadcast, through adoption of a “country of origin” principle. This means that where a broadcaster is transmitting its programmes across national borders within the EU, the copyrights only need to be cleared in the country where the broadcast originates. This principle only applies to satellite broadcasts, so does not protect the provision of content over the internet. The Commission wants to expand the SatCab directive so that it applies to online content, but the changes are likely to be limited (eg simulcasts and catch-up TV).
  2. The Portability Regulation (EU) 2017/1128 allows consumers to access their subscriptions to online content services as they travel around the EU. From a copyright perspective, this means that the content is deemed to have been provided to the customer in the country where they live rather than the country in which they happen to (temporarily) be, reducing the territorial control of the rightsholder.

However, outside these limited circumstances, the conflict between copyright and competition law remains.

The Canal+ case

The Commission instigated its Pay-TV investigation in 2014, and it sent statements of objections to Sky UK and six major US film studios: Disney, NBCUniversal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros. The Commission took the preliminary view that licence agreements that prevented Sky UK from allowing consumers located elsewhere in the EU to access pay-TV services available in the UK and Ireland, and corresponding obligations on the studios to prevent licensees in other territories being able to provide access to customers in the UK and Ireland, were anti-competitive as they constituted absolute territorial protection.

All of the studios, as well as Sky, have offered commitments to stop using such contractual restrictions in the future. It was the decision of the Commission to accept the commitments offered by Paramount in 2016 that formed the subject matter of the Canal+ case. Canal+ challenged that decision to accept Paramount’s commitments on a number of grounds, including arguing that the Commission was wrong when it presumed that the agreements infringed competition law by object. It seems that Canal+ was motivated to challenge the preliminary finding that the territorial licensing of content on the Pay-TV market was anti-competitive.

Unfortunately, the Canal+ judgment does not deal directly with the competition vs. copyright question as the court was not asked to rule on that point. Nevertheless, the court did uphold the Commission’s preliminary finding of infringement, and in so doing cast a large shadow over any agreements “aimed at partitioning markets along national lines”.

So where is territorial licensing of content now?

Agreements that provide for territorial protection can fall foul of competition law, including where those are intended to protect IP rights. Where a restriction allows for “passive” sales (ie unsolicited requests for access to the content), the agreement is less likely to be viewed as anti-competitive (see for example the Murphy case). While there is scope to argue that the territorial licensing is justified (under Article 101(3)), the General Court in Canal+ found that the licence agreements “impose restrictions going beyond what is necessary”, so cannot benefit from the article 101(3) exception.

The Commission and the EU General Court have clearly not been persuaded by arguments from content producers and distributors that strict territorial licensing is necessary. The General Court in Canal+ stated that “there is nothing to prevent the rights holder from negotiating an amount that takes into account the potential audience in both the Member State for which the exclusive license is granted and in any other Member State in which the programs covered by the distribution agreement are also received”, so clearly considers that the industry can adapt.

It seems unlikely that the Commission will levy fines so long as the commitments are observed, so the territorial licensing of content appears to be here to stay. However, there is scope for private litigation to bring this issue back to the fore, as well as for the Commission to investigate these arrangements in the future.

 


 

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