On May 7, 2020, Advocate General (“AG”) Pitruzzella delivered his opinion on Canal+’s appeal against a 2016 Commission commitment decision in the context of its investigation into the cross-border provision of pay-TV services.[1] AG Pitruzzella concluded that by accepting Paramount’s commitments, the Commission breached the principle of proportionality because they ignored contractual rights of third parties. Should the Court of Justice (the “CJEU”) follow this opinion, the case may lead to the first annulment by the EU’s highest court of a Commission commitment decision since the adoption of Regulation No. 1/2003.
Background: the pay-TV investigation
In 2015, the Commission issued a Statement of Objections against six U.S. film studios (Disney, NBCUniversal, Paramount, Sony, Twentieth Century Fox, and Warner Bros.) and the U.K. broadcaster Sky.[2] It alleged that certain contractual provisions in the licensing agreements between the studios and Sky restricted cross-border passive sales within the EEA and had, as their object, the restriction of competition within the meaning of Article 101(1) TFEU.
Figure 2
These provisions are sometimes referred to as “geo-filtering clauses” (see figure 2). In essence, Sky agreed not to respond favorably to unsolicited requests for the studios’ films through its pay-TV services from customers residing in the EEA but outside the U.K. and Ireland (“broadcaster obligation”). In return, the studios agreed to prohibit broadcasters located elsewhere within the EEA from responding to unsolicited requests from customers residing in the U.K. and Ireland (the “studio obligation”).
To address the Commission’s concerns, Paramount committed: (i) not to (re)introduce any broadcaster or studio obligation in its pay-TV licensing agreements; (ii) not to enforce any existing broadcaster obligation before a court or tribunal; and (iii) not to honor any existing studio obligation. In July 2016, the Commission accepted and made Paramount’s commitments legally binding across the EEA for five years.[3]
Canal+ had concluded a pay-TV licensing agreement for the French market with Paramount in 2014, which contained both broadcaster and studio obligations. In August 2016, Paramount notified Canal+ of its intention to release it from the broadcaster obligation and not to honor the studio obligation. The latter affected Canal+’s commercial interest as it was no longer sheltered from cross-border passive sales by rival broadcasters (Paramount’s contractual partners) into France, where Canal+ held exclusive rights.
Canal+ objected to Paramount’s notice on the ground that the Paramount Decision cannot bind Canal+ because it was adopted in the context of an investigation to which Canal+ was not a party. Canal+ subsequently brought an action for annulment of the Paramount Decision before the General Court in 2016, which was dismissed on all grounds on December 12, 2018.[4] Canal+ then appealed the judgment to the CJEU in February 2019. Against this background, the CJEU requested AG Pitruzzella’s opinion.
AG’s Opinion: the commitments are disproportionate
The AG commenced his analysis by offering a reflection on the role of Article 9 commitments in the EU competition law system. While acknowledging the advantages of the procedure,[5] the AG noted that an “extensive and quasi- unlimited” recourse to commitments could endanger the predictability, effectiveness, and legitimacy of EU competition law. He warned the Commission against the “temptation to regulate” and “shape” markets via a commitment decision.
Canal+ claimed that the Paramount commitments were disproportionate because they altered the contractual rights of third parties (such as Canal+) without their consent. Canal+ relied on a precedent in which the CJEU ruled on the scope for judicial review of commitment decisions. It held in Alrosa that the principle of proportionality requires the Commission to verify that the commitments address the concerns, and that the party offering the commitments had not offered less onerous commitments that could also adequately address the concerns. In making this assessment, the Commission is required “to take into consideration the interests of third parties.”[6]
The AG offered his interpretation of the Alrosa principles. He stated that, at a minimum, the rights of third parties must not be “sacrificed” or “emptied of their substance.” In this case, the commitments required Paramount to repudiate its contractual obligations towards a third party (Canal+). As this is a serious breach of the latter’s contractual freedom, which is protected by the EU Charter of Fundamental Rights,[7] the AG concluded that the commitments violated the principle of proportionality.[8] The AG pointed out that the Commission had other, less intrusive means of preserving competition, such as refusing Paramount’s commitments and pursuing an infringement procedure.
The AG disagreed with the General Court’s finding that there was no disproportionate interference with third party rights, since, in the General Court’s view, Canal+ could bring national proceedings arguing that the geo-filtering clauses were lawful and seek damages from Paramount. In his opinion, a commitment decision significantly prejudices a third party’s ability to enforce its contractual rights because it creates a “presumption of illegality” before a national judge, especially in light of Member States’ duty of loyal cooperation and the requirement to avoid national decisions that conflict with the effect of Commission decisions.[9] Such prejudgment—resulting from a simplified procedure with lower safeguards for interested third parties—would ultimately constitute an excessive interference in the contractual freedom of such third parties.
Conclusions
While AG opinions are only advisory, they are regarded as a bellwether of the CJEU’s position. In past cases, the Court of Justice has more often than not followed the AG’s recommendation.[10]
Should the CJEU agree with the AG, it may order the complete or partial annulment of the Paramount Decision.[11] The rare challenges of commitment decisions to date have been brought by third parties, which can be explained by the voluntary nature of offering commitments.[12] These cases were so far unsuccessful, primarily due to the Commission’s wide discretion in accepting commitments from undertakings, and the narrow scope for judicial review (limited to a proportionality review).
The AG’s Opinion may now lay the ground for the first annulment of a Commission commitment decision by the EU’s highest court.
[1] Opinion of AG Pitruzzella of May 7, 2020 in Groupe Canal+ v. European Commission (Case C-132/19 P) EU:C:2020:355 (the “Opinion”). See Cross-border access to pay-TV (Case COMP/AT.40023), Commission decision of July 26, 2016.
[2] Commission Press Release IP/15/5432.
[3] On March 7, 2019, the Commission accepted comparable commitments offered by Sky and the other studios, as reported in our March 2019 EU Competition Law Newsletter. Canal+ has also challenged this decision before the General Court (see Groupe Canal+ v. Commission (Case T-358/19), case pending).
[4] Groupe Canal+ v. Commission (Case T-873/16) EU:T:2018:904.
[5] Commitments allow for a swift resolution of the Commission’s concerns (and therefore efficient allocation of its scarce resources) and a quicker (and therefore more effective) remedy. Undertakings hence avoid a formal finding of infringement and a fine. This contrasts with Article 7 infringement proceedings, which are often protracted and contentious.
[6] Commission v. Alrosa (Case C-441/07 P) EU:C:2010:377, para. 41.
[7] Contractual freedom stems from the freedom to conduct a business enshrined in the EU Charter of Fundamental Rights (Article 16).
[8] Opinion, paras. 121–132.
[9] The AG pointed to the Court of Justice’s finding, in Gasorba, that national courts should regard commitment decisions “as an indication, if not prima facie evidence, of the anticompetitive nature of the agreement at issue.” See Gasorba et al. v. Repsol (Case C-547/16) EU:C:2017:891, para. 29.
[10] A 2016 study found that the Court of Justice is 67% more likely to annul an act, or part of it, if recommended by the AG’s opinion. See C. Arrebola et al., An Econometric Analysis of the Influence of the Advocate General on the Court of Justice of the European Union, Cambridge Journal of International and Comparative Law, 2016.
[11] The upcoming CJEU judgment will also be indicative of the outcome of Canal+’s challenge of the Commission decision accepting the other studios and Sky’s commitments pending before the General Court.
[12] See Alrosa and Morningstar v. Commission (Case T-76/14) EU:T:2016:481.