News Update Competition

22 December 2020

On 9 December, the Court of Justice of the European Union ("CJEU") annulled a General Court ("GC") judgment which had confirmed a European Commission (the "Commission") decision that made the commitments offered by film studio Paramount binding. The CJEU found that the assessment of proportionality of the commitments must necessarily take into account the adverse effects on the interests of third parties.

Background

In this case, the Commission's investigation focused on licensing agreements on audio-visual content concluded between Paramount and the main pay TV broadcasters in the EU, including Sky and Canal +. In July 2015, following the investigation, the Commission sent a statement of objections concerning certain clauses which, in its preliminary view, were prohibited under Article 101 of the Treaty on the Functioning of the European Union as they could restrict the provision of cross-border pay TV services and lead to territorial exclusivity. In particular, two linked clauses in the agreements were problematic: (i) a clause preventing Sky from accepting unsolicited services requests from EEA consumers residing outside the UK and Ireland and (ii) a clause preventing EEA broadcasters, other than Sky, from accepting requests from consumers in the UK and Ireland.

In April 2016, Paramount offered several commitments to address the Commission's concerns, such as stopping the geo-blocking clauses in new agreements and stopping enforcing them in existing agreements. A few months later, the Commission accepted the commitments and made them legally binding. However, Canal+ appealed the commitment decision before the GC because it had previously concluded a pay television agreement with Paramount covering France on an exclusive basis and it would lose its exclusive rights.

In December 2018, the GC rejected the appeal of Canal+ stating, in essence, that the commitments offered by Paramount did not bind Paramount's contracting partners, including Canal+, and that these third parties could still enforce their rights in civil proceedings before national courts. Canal+ then brought the case before the CJEU.

The CJEU's judgment: can the rights of third parties be effectively protected by national courts?

In its judgment of 9 December 2020, the CJEU annulled the GC's ruling. In particular, the CJEU found that the GC erred in law when it assessed the proportionality of the commitment decision as regards the negative effects on the rights of contractual third parties, such as Canal+.

In this case, the CJEU reaffirmed and clarified the nature of commitment decisions under Article 9 of Regulation 1/2003. In effect, only the undertakings that have actually offered commitments are bound by the commitment decision in question. This implies that third parties which were not part of the commitments, in this case Canal+, cannot be bound by them. However, by making the commitments binding, the Commission also restricted the contractual freedom of affected third parties who did not offer or accept the commitments. This is because the commitments automatically meant that Paramount would not honour its obligation to guarantee absolute territorial exclusivity to the affected third parties. Although the Alrosa judgment gives the Commission leeway to accept commitments that satisfy its competition concerns, when the Commission does not adequately take the rights of third parties into account, it exceeds its powers under Article 9 of Regulation 1/2003.

In this regard, both the Commission and the GC stated that Canal+ could seek redress and enforce its contractual rights against Paramount before a national court. This argument is in line with the Gasorba case which clarified that commitment decisions to address the Commission's competition concerns do not preclude national courts from assessing whether the practices in question comply with the competition rules.

The CJEU, following Advocate General Pitruzzella's opinion, did not share this view. Referring to the Masterfoods case, it recalled that the effectiveness of EU law is a fundamental legal principle. This principle would be undermined if, following a procedure started by Canal+, a national court ordered Paramount to honour its obligation under its contract with Canal+ which Paramount committed itself not to do so vis-à-vis the Commission. Therefore, the CJEU found that the possibility of enforcing third parties’ rights before the GC cannot effectively safeguard third parties’ contractual rights. This reasoning is also in line with Article 16 of Regulation 1/2003 which specifies that when a given practice is already the subject of an EC decision, national courts assessing the agreement cannot contradict the Commission's competition decisions on the same practice. Contrary to the GC's ruling, the CJEU, therefore, concluded that if a national court obliged a company, in this case Paramount, to contravene the Commission's commitments, this would clearly run counter to the Commission's decision. In this sense, the CJEU clarified that the Commission's proportionality assessment of the commitments should consider protecting third parties' contractual rights.

Following these considerations, the CJEU did not send the case back to the GC but directly ruled that “by adopting the decision at issue, the EC rendered the contractual rights of the third parties meaningless, including the contractual rights of Groupe Canal + vis-à-vis Paramount, and thereby infringed the principle of proportionality”.

General implications

After the Alrosa judgment, which was issued ten years ago, this is the second case in which the CJEU has ruled on commitment decisions.

In Alrosa, the CJEU clarified how the proportionality principle in commitment decisions under Article 9 of Regulation 1/2003 plays a different role compared to infringement decisions under Article 7 of the same Regulation. The CJEU found that commitment decisions are fundamentally different than infringement decisions in the sense that in commitment decisions the undertakings are meant to remove the Commission's competition concerns and, therefore, the Commission does not establish an infringement but simply concludes that there are no grounds to take further action. As a result, the Commission can make binding commitment proposals that go beyond what is necessary to address the Commission's competition concerns. However, this judgment makes clear that the application of the proportionality test in commitment decisions has two different roles. On the one hand, (i) the Commission needs to take into account and address its own competition concerns, and on the other hand (ii), it must consider the impact of the commitments on the contractual rights of third parties. This is undoubtedly an important nuance to the Alrosa judgment, which only considered the Commission's concerns.

In addition, as it is the first time that the CJEU has quashed a commitment decision by the Commission, this ruling will have an important impact both on undertakings offering commitments as well as on the assessment made by the Commission before making them binding. In particular, undertakings seeking to offer commitments will carefully assess the rights of their contractual third parties before offering their commitments. Likewise, even if the Commission has discretion to accept commitments, the rights of third parties will be closely examined before the commitments are made binding.

The fact that both the Commission and undertakings must consider the rights of third parties in their assessment may not only result in more appropriate and well-addressed commitments, but also national courts may feel more confident relying on the Commission's commitments without running against a Commission decision.