The Advocate General to the European Court of Justice yesterday issued an Opinion relating to the effect European competition law has on copyright licensing throughout the EU which is likely, if the full court agrees with the Opinion in a few months’ time, to radically change many copyright licensing practices throughout industries such as publishing, software supply as well as broadcasting. The decision has been reported in the press as applying primarily to the satellite broadcasting industry, but its ramifications are far broader than that. Indeed, in her Opinion the Advocate General makes specific reference to e-books and software, and the recent decision by Waterstones to limit the way they sell e-books in Europe.
For many years the Football Association Premier League Ltd (the FAPL), has sought to achieve the most lucrative exploitation of the copyright for the live transmission of its football matches by granting its licensees the exclusive right to broadcast only within their broadcasting area, generally a particular country. Thus a French broadcaster would be licensed to broadcast exclusively in France, a UK broadcaster exclusively in the UK, and so on. In order to protect this territorial exclusivity, each broadcaster undertook in its licence agreement with the FAPL to encrypt its satellite-delivered signal and to restrict the circulation of authorised decoder cards outside its own territory.
This arrangement was threatened, however, when some people obtained decoder cards and exported them from one part of the EU to another. Perhaps unsurprisingly, the cost of a decoder card to watch English Premier league football is considerably more expensive in the UK than it is in Greece, and so a lucrative trade arose re-selling Greek decoder cards to people in the UK in breach of the restrictions described above. Karen Murphy, who ran a pub in Portsmouth, obtained such a decoder card so that her customers could watch English football over a pint. Those charged with protecting the FAPL’s interests discovered what Ms Murphy was doing and decided to bring a private prosecution against her under laws emanating from Europe designed to prohibit the circumvention of electronic copyright restrictions. Having been convicted and fined, Ms Murphy appealed to the English High Court, which in turn referred certain questions of European law to the European Court of Justice.
The satellite broadcast industry enjoys a number of protections under European laws that other industries do not benefit from. In her Opinion the Advocate General had to consider Directive 98/84 on the protection of devices for access to services based on conditional access (the law under which Ms Murphy had been prosecuted) and Directive 93/83 on copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission. However, in her view these industry specific provisions had to be read in the light of the fundamental freedoms granted by the European Treaty itself and, in addition, what the Treaty lays down in respect of competition law.
One of the key fundamental freedoms in the Treaty is the freedom to provide services throughout the European Union. This requires the abolition of all restrictions on the ability of a service provider established in one Member State to provide a service in another Member State. In the view of the Advocate General the the restriction on the reselling of decoder cards prevented the utilisation of services from other Member States, the services in this case being access to television programmes. In a key passage of the Opinion she states that “this impairment of freedom to provide services is particularly intensive as the rights in question not only render the exercise of freedom to provide services more difficult, but also have the effect of partitioning the internal market into quite separate national markets. Similar problems exist with regard to access to other services, for example the sale of computer software, musical works, e-books or films via the internet”.
In the field of the free movement of goods such as hardcopy books, CDs and so on, the principal intellectual property right is the exclusive right to copy the work and to place the copies on the market. European caselaw over many years has shown that this exclusive right is exhausted once a product has been lawfully distributed on the market in a Member State by the actual proprietor of the right or with his consent. In most cases intellectual property rights cannot preclude the re-sale of such goods within the internal market. In other words, the rights holder can only sell the copy of the work once; nothing can stop the purchaser then reselling that copy, and the rights holder has no right to benefit from that reselling. The FAPL argued that, in the field of the provision of services, there is no exhaustion of rights comparable to the movement of goods.
However, the Advocate General was firmly of the view that services do not differ significantly from goods in this regard. Referring to other examples of digital goods/services – music, films and books – she said that these “also show that the question at issue has considerable importance for the functioning of the internal market beyond the scope of the cases in the main proceedings. A delimitation of the markets based on intellectual property rights means at best that access to the goods in question will be granted subject to differing conditions, in particular as regards prices or digital rights management. Often, however, access to such goods is completely precluded on many markets, either because certain language versions are offered only to customers from certain Member States or because customers from certain Member States cannot acquire the product at all. For example, in autumn 2010 dealers from the United Kingdom announced that they could no longer sell e-books to customers outside that Member State. No comparable products are offered for sale in other Member States in the case of many English-language books.” It is noteworthy that at this point in her Opinion the Advocate General made specific reference to an article on Bookseller.com (http://www.thebookseller.com/news/waterstones-halts-overseas-e-book-sales.html) reporting Waterstones’ decision to stop selling e-books to customers outside of the UK and Ireland in order to comply with the legal demands of publishers regarding the territories into which it can sell digital titles.
Having decided that goods and services should both be subject to the principle of exhaustion of rights, the Advocate General held that the rights in the transmission of football matches are exploited through the charge for the decoder cards, and once those cards have been sold European law would not allow any restrictions on their resale.
Finally, the Advocate General was firmly of the view that agreements aimed at preventing or restricting parallel exports between Member States are likely to be contrary to European competition law. In this case a contractual obligation linked to a broadcasting licence requiring the broadcaster to prevent its satellite decoder cards from being used outside the licensed territory had the same effect as agreements to prevent or restrict parallel exports. Such an obligation was intended to prevent any competition between broadcasters through a reciprocal compartmentalisation of licensed territories. Such licences with absolute territorial protection were incompatible with the internal market.
The Advocate General’s Opinion itself is not binding – it is a formal recommendation to the full court of how the case should be decided. However it is rare for the full court to disregard an Advocate General’s Opinion. Given that the Opinion sets out what has been the state of European law for several decades it should come as no surprise – perhaps the biggest surprise is that satellite broadcasters have got away with this for so long. Whoever had the bright idea of bringing a private prosecution against Ms Murphy, an action which has snowballed into the current case before the European Court of Justice, may well have succeeded in causing the downfall of the very system that the prosecution was designed to defend.
© Taveners 2011