EU/UK Competition Law Newsletter - April 2011

April 1, 2011

ECJ Adviser: Distributors Can't be Stopped from Selling Online in EU

An advocate general (adviser) to the EU's highest court (European Court of Justice (ECJ)) said that an absolute ban on Internet sales by a distributor will usually be an automatic infringement of EU competition law, on March 3, 2011. It would require very exceptional circumstances for this not to be the case, and the products considered in the opinion (cosmetics manufactured by Pierre-Fabre) did not justify such a limitation.

Pierre-Fabre's agreements were selective distribution agreements, under which distributors are chosen based on specific criteria. However, the same principle would apply to such a restriction included in other types of "vertical" (supplier/purchaser) agreements, such as exclusive distribution agreements. This finding, consistent with the European Commission's (EC) view, means a distribution or other agreement containing such a clause will not satisfy the Vertical Restraints Block Exemption. This EU legislation automatically exempts certain vertical agreements which may otherwise be seen as anticompetitive (due to the inclusion of clauses such as exclusivity provisions) from the ban on anticompetitive agreements contained in EU competition law. The ECJ normally, but not always, follows the opinion of its advocates general.

ECJ Adviser: Distributors Can't be Required to Stop Satellite Decoder Cards from being used Outside Licensed Territory in EU

An advocate general (AG) to the ECJ gave his opinion in a case which has been described by a senior EC official as of "fundamental importance", on Feb. 3, 2011. The case concerns the broadcasting of English Premier League football, but is of general application.

The broadcast rights for the "Premiership" are licensed to foreign broadcasters for transmission in their various territories. The AG said that an obligation requiring the foreign broadcasters to prevent their satellite decoder cards, which enable reception of the licensed programme content, from being used outside the licensed territory infringes EU competition law. Such an obligation is intended to prevent any competition between broadcasters through a reciprocal compartmentalisation of licensed territories, and there is therefore no reason to treat such agreements any differently from other types of agreements intended to prevent cross border trade in the EU. It remains to be seen whether the ECJ will follow this opinion, but if it does, this will lead to a "revolution in [the treatment of broadcast and similar] rights in the EU," according to the EC official.

EC Considers Most Favoured Customer Clauses

The EC closed an investigation into contracts between the major Hollywood film studios and so-called "integrators" (which obtain financing and pay upfront for digital equipment to be installed in cinemas, so as to enable a switchover to digital technology) on March 4, 2011. Many of these contracts gave the film studio the right to benefit from the most favourable terms, including lower payments, that had been agreed between a given integrator and other film studios or distributors (most favoured customer clauses).

The EC concluded that these clauses could hinder integrators from signing contracts with distributors of independent/art house films (who presumably would not be able to pay the same prices as the Hollywood studios), since the integrators would have to offer the Hollywood studios the same terms as those offered to smaller distributors. The provisions have been revised by "several" of the studios, but the new format has not been revealed by the EC. This investigation will be of interest to any company using or the subject of such clauses in the EU, particularly where the practice is industry-wide or the company imposing the requirement has a strong market position.

OFT Looks at Abuse of Dominance through Exclusive Agreements

The UK Office of Fair Trading (OFT) issued a statement of objections (preliminary statement of its case, to which the recipient can reply) on Feb. 25, 2011, alleging that CH Jones abused a dominant position in the UK market for the provision of bunker fuel card services to direct bunkering customers, typically heavy goods vehicle (HGV) fleet operators. The OFT also alleges that CH Jones used its dominant position in that market to anticompetitive effect in the UK market for the provision of pay-as-you-go (PAYG) fuel card services to customers with HGV fleets.

The case is interesting because: alleged infringements of competition law took place as a result of the use of exclusive agreements; the OFT rarely proceeds in abuse of dominance cases, so the cases are important for precedent reasons when they do; and the case relates to two markets, on only one of which is CH Jones allegedly dominant.

Additional EU/UK competition law coverage can be found in our news section.

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