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Neutral Citation Number: [2008] EWHC 1978 (Ch)
Case No: HC07C02416
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 08/08/2008
Before :
MR JUSTICE MORGAN
---------------------
Between :
(1) BOOKMAKERS’ AFTERNOON Claimants
GREYHOUND SERVICES LIMITED
(2) CORAL RACING LIMITED
(3) DONE BROS (CASH BETTING)
LIMITED
(4) LADBROKES BETTING AND GAMING
LIMITED
(5) WILLIAM HILL ORGANIZATION
LIMITED
- and -
(1) AMALGAMATED RACING LIMITED Defendants
(2) RACING UK LIMITED
(3) ALPHAMERIC PLC
(4) ALPHAMERIC GAMING LIMITED
(5) RACECOURSE MEDIA SERVICES
LIMITED
(6) RACECOURSE INVESTMENTS
LIMITED
(7) THE WESTERN MEETING CLUB
LIMITED
(8) BANGOR-ON-DEE RACES LIMITED
(9) THE BEVERLEY RACE COMPANY
LIMITED
(10) CARTMEL STEEPLECHASES
(HOLKER) LIMITED
(11) THE CATTERICK RACECOURSE
COMPANY LIMITED
(12) THE CHESTER RACE COMPANY
LIMITED
(13) GOODWOOD RACECOURSE
LIMITED
(14) THE HAMILTON PARK
RACECOURSE COMPANY LIMITED
(15) THE LUDLOW RACE CLUB
LIMITED
(16) MUSSELBURGH RACECOURSE
COMPANY LIMITED
(17) NEWBURY RACECOURSE PLC
(18) THE PONTEFRACT PARK RACE
COMPANY LIMITED
COMPANY LIMITED
(19) REDCAR RACECOURSE LIMITED
(20) THE BIBURY CLUB LIMITED
(21) THIRSK RACECOURSE LIMITED
(22) WETHERBY STEEPLECHASE
COMMITTEE LIMITED
(23) YORK RACECOURSE LIMITED
AND BY WAY OF COUNTERCLAIM
(1) AMALGAMATED RACING LIMITED
(2) RACECOURSE INVESTMENTS LIMITED
(3) THE WESTERN MEETING CLUB LIMITED
(4) BANGOR-ON-DEE RACES LIMITED
(5) THE BEVERLEY RACE COMPANY LIMITED
(6) CARTMEL STEEPLECHASES (HOLKER) LIMITED
(7) THE CATTERICK RACECOURSE COMPANY LIMITED
(8) THE CHESTER RACE COMPANY LIMITED
(9) GOODWOOD RACECOURSE LIMITED
(10) THE HAMILTON PARK RACECOURSE COMPANY LIMITED
(11) THE LUDLOW RACE CLUB LIMITED
(12) MUSSELBURGH RACECOURSE COMPANY LIMITED
(13) NEWBURY RACECOURSE PLC
(14) PONTEFRACT PARK RACE COMPANY LIMITED
(15) REDCAR RACECOURSE LIMITED
(16) THE BIBURY CLUB LIMITED
(17) THIRSK RACECOURSE LIMITED
(18) WETHERBY STEEPLECHASE COMMITTEE LIMITED
(19) NICHOLAS HUGH TREMAYNE WRIGLEY (on his own behalf as member of and
as representative of the members of YORK RACE COMMITTEE)
Counterclaimants
and
(1) BOOKMAKERS’ AFTERNOON GREYHOUND SERVICES LIMITED
(2) CORAL RACING LIMITED
(3) DONE BROS (CASH BETTING) LIMITED
(4) LADBROKES BETTING AND GAMING LIMITED
(5) WILLIAM HILL ORGANIZATION LIMITED
Claimants
AND BY WAY OF ADDITIONAL CLAIM
AMALGAMATED RACING LIMITED
1ST Defendant
and
SATELLITE INFORMATION SERVICES LIMITED
Third Party
AND BY WAY OF ADDITIONAL CLAIM
SATELLITE INFORMATION SERVICES LIMITED
Third Party
and
(1) AMALGAMATED RACING LIMITED
1st Defendant
---------------------
---------------------
Nicholas Green QC, Pushpinder Saini QC, Mark Hoskins, Sarah Abram & Emily Wood
(instructed by
S J Berwin) for the Claimants
Peter Roth QC, Brian Doctor QC, Paul Harris, Ronit Kreisberger& Ewan West (instructed
by Wiggin) for the Defendants
Charles Hollander QC, Helen Davies QC & Victoria Wakefield (instructed by Olswang) for
the Third Party
Hearing dates: 1st, 2nd, 6th,7th,8th,9th,12th,13th,14th,15th,16th,19th,20th,21st,22nd,23rd of May and 3rd,
4th, 5th, 6th, 9th, 10th, 11th, 17th, 18th, 19th, 20th, 23rd, 24th and 26th June 2008
---------------------
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this
Judgment and that copies of this version as handed down may be treated as authentic.
.............................
MR JUSTICE MORGAN
MR JUSTICE MORGAN BAGS LTD
Approved Judgment
Mr Justice Morgan:
PART HEADING PARAGRAPH
PART 1 PRELIMINARY MATTERS 1
Introduction 1
The Claimants 12
The Defendants 18
SIS 26
Representation 29
The horseracing industry 30
The bookmaking industry 41
The Betting Levy 45
LBO media rights 48
PART 2 THESE PROCEEDINGS 66
The Particulars of Claim 66
The Counterclaim 97
The trial 102
The Claimants’ case: a summary 104
The Defendants’ case: a summary 105
PART 3 THE PRINCIPAL EVENTS 106
PART 4 THE EVIDENCE FROM THE ECONOMISTS 199
The three economists 199
A preliminary matter 200
The experts’ joint statement 209
Mr Biro’s evidence 228
Dr Niels’ evidence 245
Dr Bishop’s evidence 268
MR JUSTICE MORGAN BAGS LTD
Approved Judgment
A further comment 287
PART 5 THE LAW 289
Article 81 of the EC Treaty 289
The Competition Act 1998 295
Article 81(1) 300
Article 81(3) 339
Some specific decisions 342
Three decisions of the Commission 363
The burden and standard of proof 392
Article 81(2) 394
PART 6 DISCUSSION AND ANALYSIS 411
The Claim and the Counterclaim 411
The Claimants’ claim: restriction by object 412
The Claimants’ claim: restriction by effect 445
Restriction by effect: exclusive rights 453
Restriction by effect: collective selling 476
Restriction by effect: closed selling 497
Restriction by effect: exclusive, collective and closed 503
selling
The Claimants’ claim: overall result 504
The Defendants’ claim against BAGS and SIS 516
PART 7 THE OVERALL RESULT 522
MR JUSTICE MORGAN BAGS LTD
Approved Judgment
PART 1: PRELIMINARY MATTERS
Introduction
1. British horseracing is of central importance to British bookmakers and British
bookmakers make a substantial contribution to British horseracing.
2. Since the early 1960s, the betting industry has paid substantial sums to British
racecourses pursuant to a Betting Levy, assessed and collected by the Horseracing
Betting Levy Board.
3. Since 1986, it has been lawful to show, in Licensed Betting Offices (“LBOs”), where
off-course betting is carried on, live pictures of horseracing. Since 1987, the operators
of LBOs have paid a distributor, Satellite Information Services Limited or “SIS” (in
the earlier part of the period it was a company associated with SIS) for the right to
show those pictures and, in turn, payments have been made to the racecourses for
these rights, referred to as LBO media rights.
4. Over the years, many racecourses have become increasingly dissatisfied with the size
of the payments for their LBO media rights. Eventually, 31 out of 60 racecourses in
Great Britain decided to participate in a joint venture to create a new distributor and in
(and, in one case, shortly after) January 2007, those racecourses licensed their LBO
media rights to the joint venture. The other 29 racecourses licensed their LBO media
rights so that they were available to the former distributor, SIS.
5. One result of the new arrangements is that the 31 racecourses which have participated
in the joint venture are receiving more revenue for their LBO media rights. A second
result of the new arrangements is that LBOs now have to pay more for the services
shown in their premises. The new joint venture service is a “must have”; it supplies
the pictures from 31 out of the 60 racecourses in Great Britain. The former service
provided by SIS, which supplies the pictures from 29 out of the 60 racecourses, is also
a “must have”. The price of the new service is greater than the amount of the
reduction in the price of the former service (which originally supplied pictures from
all the racecourses in Great Britain).
6. There are large sums of money at stake for both sides to this dispute.
7. These seemingly straightforward facts have produced this litigation. The bookmaking
industry, or a part of it, says that the emergence of the joint venture and its entry into
the market is anti-competitive and infringes Article 81 of the EC Treaty and the
Chapter I prohibition in the Competition Act 1998. Initially, the challenge seemed to
be as to the way in which the racecourses went about granting exclusive rights to the
joint venture. Later, the allegation has been made that the racecourses and the joint
venture have been guilty of price fixing.
8. The racecourses reject the charge that they have done anything which is anti-
competitive. They say the charge of anti-competitive behaviour stands matters on
their head. Before the entry of the joint venture into the market, the market for the
purchase of LBO media rights from racecourses was a monopsony. The entry of the
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joint venture has broken that monopsony and there is now competition for the
purchase of LBO media rights. What has happened has been pro-competitive. The
particular steps taken to enable the joint venture to enter the market were appropriate,
indeed necessary, to achieve market entry and have produced a pro-competitive result.
The suggestion of price fixing is said to be wholly unfounded in fact and in law.
These issues are at the centre of this litigation.
9. The central issues described above have spawned other disputes. The joint venture
says that if (but only if) their licences of LBO media rights are anti-competitive, then
so too are the exclusive licences of LBO media rights granted by the other 29
racecourses. Further, the Defendant racecourses counter-attack the bookmakers. They
say that certain large bookmakers were guilty of an unlawful concerted practice to
boycott the new service and to withhold sponsorship of races at certain racecourses.
10. The above introduction to this dispute is necessarily heavily summarised and omits
many distinctions and differences which will later have to be described.
11. This is not the first legal battle between sections of the horseracing industry and
sections of the bookmaking industry and it may not be the last.
The Claimants
12. The First Claimant in these proceedings is Bookmakers’ Afternoon Greyhound
Services Limited (“BAGS”). As this case is not about greyhound racing in the
afternoon, or at any time of day, the name requires a little explanation. In around
1967, the early days of off-course cash betting, certain bookmakers thought it
desirable for betting shops to offer to punters an alternative betting opportunity to
horseracing, on those days during the winter months when horseracing was
abandoned. Accordingly, BAGS was formed as a betting industry body which would
pay greyhound tracks to put on meetings on afternoons when horseracing might be
cancelled due to bad weather. Greyhound racing under the control of BAGS has now
grown to the extent that there are now substantially more greyhound races than
horseraces broadcast into betting shops of the United Kingdom and the Republic of
Ireland.
13. BAGS is a not for profit company, limited by guarantee, established in 1967. I have
described its original purpose. Its membership comprised, and comprises, 22 of the
United Kingdom’s 680 off-course bookmakers. The memorandum of association of
BAGS includes the duty to promote the interests of all bookmakers operating LBOs.
BAGS has 9 directors who are drawn from the membership. At all material times,
William Hill, Ladbrokes and Coral have each appointed one person to be a director of
BAGS. From May 2007, BetFred appointed a director. Mr Tom Kelly is the Chief
Executive of BAGS.
14. Coral Racing Limited (“Coral”) is named as the Second Claimant. However, Coral
has settled all its disputes with all other parties and played no part in these
proceedings. Coral is the third largest bookmaker in Great Britain and operates around
16% of British LBOs.
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15. Done Bros (Cash Betting) Limited is the Third Claimant and trades as BetFred
(“BetFred”). BetFred is the fourth largest bookmaker in Great Britain and operates
about 7% of British LBOs.
16. Ladbrokes Betting and Gaming Limited (“Ladbrokes”) is the Fourth Claimant.
Ladbrokes’ share of the British bookmaking market is similar in size to that of
William Hill, as each operates about 23% of British LBOs. Ladbrokes and William
Hill are therefore the 2 largest British bookmakers.
17. William Hill Organization Limited (“William Hill”) is the Fifth Claimant. William
Hill operates about 23% of British LBOs and with Ladbrokes is one of the 2 largest
British bookmakers.
The Defendants
18. The First Defendant is Amalgamated Racing Limited (“AMRAC”). AMRAC is a
joint venture company wholly owned by Racecourse Media Services Limited
(“RMS”) (50%) and Alphameric Gaming Limited (“AGL”) (50%).
19. The Second Defendant is Racing UK Limited (“RUK”). RUK was incorporated in
around 2004 to exploit the media rights of some 30 racecourses. Those 30 courses
together account for some 54% of total off-course LBO betting turnover. The
principal aim of RUK in 2004 was to establish a television channel, owned by the
racecourses, broadcasting UK racing to non-LBO subscribers on cable and satellite
platforms within the UK and Ireland. From around March 2004, RUK has, amongst
other things, used its media rights to provide a domestic (but not LBO) subscription
television channel on the Sky platform, known as Racing UK.
20. The Third Defendant is Alphameric Plc (“Alphameric”). Alphameric provides
technology and operating services to the bookmaking industry including electronic
point of sale (“EPOS”) systems and display systems and services.
21. The Fourth Defendant is Alphameric Gaming Limited (“AGL”). AGL is a wholly
owned subsidiary of Alphameric and is one of the two joint venture partners in
AMRAC.
22. The Fifth Defendant is Racecourse Media Services Limited (“RMS”). RMS was
incorporated in around 2006. The shares in RMS are currently held by the 30 RUK
racecourses and Ascot. The Articles of Association of RMS provide for the issue of
further shares to other racecourse operators in the future. RMS was formed to be one
of the two joint venture partners in AMRAC.
23. The Sixth Defendant is Racecourse Investments Limited. This company is a
subsidiary of Jockey Club Racecourses Limited. It was previously called the
Racecourse Holdings Trust and now operates 14 racecourses. Of those 14 courses, 13
are the subject of an exclusive licence of LBO media rights in favour of AMRAC.
The 14th course, Exeter, was formerly an independent course which licensed its LBO
media rights to SIS.
24. The other Defendants (Seventh to Twenty-Third) are 17 separate operators of 17
separate racecourses (or, possibly, in one case the owner as distinct from the operator
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of the racecourse). Together with the 13 racecourses (out of the 14 operated by
Racecourse Investments Limited) referred to above, these are the 30 courses known as
the 30 RUK courses. These 30 courses, together with a 31st, Ascot, are the 31
shareholders in RMS, which has participated in the joint venture. The operators of
these 31 courses have granted exclusive licences of their LBO media rights to the
joint venture.
25. The operator of the Ascot racecourse is not a Defendant.
SIS
26. Some of the Defendants have brought a Part 20 claim against Satellite Information
Services Limited (“SIS”).
27. SIS was incorporated in 2001. It is a wholly owned subsidiary of Satellite Information
Services (Holdings) Limited (“SISH”). SISH itself is not a party to these proceedings.
I will refer to SIS and SISH by their current names even though there have been
various name changes over the years. SISH was founded in 1985 by the four leading
bookmaking firms of the day in order to take advantage of the deregulatory measure
which permitted live televised screening of horseracing coverage in LBOs. SISH has
always had a number of bookmakers as shareholders. When SISH was formed, the
bookmaker shareholders were William Hill, Ladbrokes, Coral and Mecca. The Horse
Race Totalisator Board (“the Tote”) became a shareholder shortly afterwards. In
1998, Ladbrokes contracted to acquire the business of Coral and, at that time, Coral’s
shares in SISH were transferred to Ladbrokes. The proposed acquisition of Coral by
Ladbrokes was blocked by the Monopolies and Mergers Commission and the business
of Coral was then sold to third parties. However, Ladbrokes continued to own the
shares formerly owned by Coral. More recently, as described below, Mr Fred Done
(who runs BetFred) acquired shares in SISH and the former shareholdings of William
Hill, Ladbrokes and indeed of other shareholders were reduced to permit Mr Done to
acquire his shares. The current position as to bookmaker shareholdings in SISH is that
Ladbrokes own some 23.41% of the shares, William Hill owns 19.51%, Mr Done
personally (rather than his company BetFred) owns 7.51% and the Tote owns 6%. At
the relevant times there were 11 directors of SISH; 5 were bookmaker representatives
and 6 were not. The chief executive of SIS was a Mr Holdgate, who was a director of
SIS and of SISH.
28. A live televised and picture data service for LBOs, via satellite transmission, was
launched by SISH in 1987. The service has been provided by a number of different
entities within the SISH group since then, but since 2002 has been provided by SIS.
Representation
29. Nicholas Green QC, Pushpinder Saini QC, Mark Hoskins, Sarah Abram and Emily
Wood appeared on behalf of the Claimants. Peter Roth QC, Brian Doctor QC, Paul
Harris, Ronit Kreisberger and Ewan West appeared on behalf of the Defendants. Charles
Hollander QC, Helen Davies QC and Victoria Wakefield appeared on behalf of SIS.
The horseracing industry
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30. There are currently 60 racecourses in Britain. Before 2008 there were 59 racecourses.
The 60th racecourse is Great Leighs in Essex. Racing at Great Leighs began in May
2008.
31. The 60 racecourses have tended to group themselves in various different groups,
whether based on ownership or on other common interests and some of these
groupings overlap. The membership of the groups has also changed from time to time.
For present purposes, the most relevant groups can be described as follows.
32. The largest group is the group of 30 courses known as the RUK courses. RUK is a
company that is owned by and acts as the media arm of the operators of 30 British
racecourses. Those 30 racecourses can themselves be sub-divided into 13 out of the
14 Jockey Club courses (i.e. excluding Exeter), the Large Independent courses and
various other independent courses.
33. As already explained, the Jockey Club courses comprise the above mentioned 13
courses plus Exeter, that is, 14 racecourses owned and operated by Racecourse
Investments Limited. The 14 Jockey Club courses are Aintree, Carlisle, Cheltenham,
Epsom, Exeter, Haydock Park, Huntingdon, Kempton Park, Market Rasen,
Newmarket, Nottingham, Sandown Park, Warwick and Wincanton.
34. The Large Independent courses are Ayr, Chester, Goodwood, Newbury and York.
The other independent courses are Bangor-on-Dee, Beverley, Cartmel, Catterick,
Hamilton Park, Ludlow, Musselburgh, Pontefract, Redcar, Salisbury, Thirsk and
Wetherby. The courses referred to in this paragraph total 17. These 17, with 13 out of
the 14 Jockey Club courses, comprise the 30 RUK courses.
35. The other groups of racecourses which are relevant for the purposes of this dispute are
the Northern racecourses, the Arena racecourses and the 10 former GG Media
courses.
36. The Northern racecourses are the courses operated by Northern Racing Limited
(“Northern”). These were 8 in number at the time that they granted exclusive LBO
media rights to BAGS. These 8 were Bath, Brighton, Chepstow, Fontwell Park, Great
Yarmouth, Hereford, Newcastle and Uttoxeter. Sedgefield was not originally a
Northern racecourse but is now a Northern racecourse. As will be seen, Sedgefield
granted its exclusive LBO media rights to SIS.
37. The Arena racecourses are the courses operated by Arena Leisure Limited (“Arena”).
These are the 7 courses at Doncaster, Folkestone, Lingfield Park, Royal Windsor,
Southwell, Wolverhampton and Worcester.
38. The former GG Media courses were Exeter, Fakenham, Hexham, Leicester, Perth,
Sedgefield, Stratford, Taunton, Kelso and Towcester. As indicated earlier, Sedgefield
is now a Northern course. Further, Exeter is now a Jockey Club course. Towcester has
left the group. The group of, originally 10, GG Media courses without Sedgefield and
Towcester have been called the ICAC courses (8 in number).
39. There is also a group of racecourses called the Super 14 which is an informal
grouping of the 7 largest Jockey Club racecourses and 7 other large racecourses.
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40. Horseracing in the United Kingdom is a substantial industry. It generates over £830
million of income annually. The main participants in staging horseracing events are
the horse owners, horse trainers, stable workers and the racecourses. The betting
industry and punters are a significant source of funds for the British horseracing
industry. The bulk of betting on horseracing takes place off-course in LBOs.
Racecourses generate additional revenue by selling the media rights to their
horseracing fixtures to satellite TV distributors which provide television picture and
data services to LBOs and to other television distributors which distribute television
channels featuring horseracing coverage to residential customers. The viability of the
horseracing industry in Great Britain is dependant on the transfer of betting revenue
from LBOs to racecourses in Great Britain, via the Betting Levy. There are now 60
active racecourses in Great Britain. In addition, there are 2 racecourses in Northern
Ireland and 25 in the Republic of Ireland. Some racecourse operators own multiple
racecourses.
The bookmaking industry
41. The bookmakers in Great Britain operate either at racecourses (“on-course”) or away
from a racecourse (“off-course”). There are approximately 1,300 bookmakers
operating in Great Britain, of which approximately 680 are licensed to conduct
business off-course. These 680 bookmakers between them operate some 8,700
licensed betting offices (“LBOs”).
42. LBOs offer punters the facility of betting on a wide range of sporting events, on
numbers games, and on other non-sporting events. The bulk of LBO betting turnover
is on horseracing. After horseracing, the next most significant sources of turnover are
betting on greyhound racing, betting on other sports and numbers games.
43. The two largest off-course bookmakers are William Hill and Ladbrokes. The third in
terms of size is Coral. The fourth in terms of size is BetFred. The fifth largest off-
course bookmaker is the Tote. Between them, William Hill, Ladbrokes, Coral and
BetFred own and operate about 70% of the LBOs in Great Britain. The three leading
bookmakers in the UK are Ladbrokes, William Hill (each operating around 23% of
British LBOs) and Coral (accounting for around 16% of British LBOs) followed by
BetFred and Totesport (operating around 7% and 6% respectively of British LBOs).
There are also many smaller LBO chains as well as independent bookmakers. The UK
off-course betting industry was subject to strict regulation until 1986 when
deregulatory measures began to be introduced. One of those measures was permission
for live televised screening of horseracing in LBOs.
44. The Association of British Bookmakers (“ABB”) is a trade organisation representing
high street (i.e. off-course) bookmakers in the United Kingdom. The ABB was
established in 2002 following the merger of the British Betting Office Association and
the Betting Office Licensees’ Association. The ABB’s membership covers the entire
spectrum of bookmakers operating in the UK and includes some 200 independent
bookmakers. There are 3 categories of membership, A, B and C. Category A
membership is limited to the 3 largest bookmakers: William Hill, Ladbrokes and
Coral. There is only one member in category B and that is BetFred. The ABB’s affairs
are run by a 12 person council. 6 of the council members are drawn from the category
A membership with each of the 3 category A members having 2 seats on the council
and 2 votes. The other 6 council members (referred to as “independents”) are drawn
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from the category B and C membership and between them have 6 votes. Any formal
vote of council requires a two-thirds majority. This means that if William Hill,
Ladbrokes and Coral vote the same way they still do not have between them a two-
thirds majority and they require the support of some of the independents. The Chief
Executive of the ABB is Mr Tom Kelly who is also the Chief Executive of BAGS.
The Secretary of the ABB is the Secretary of BAGS. Some of the ABB council
members are also directors of BAGS.
The Betting Levy
45. A large amount of the revenue of the British horseracing industry is generated by
betting. The Horseracing Betting Levy Board (“the Levy Board”) is a statutory body
established by the Betting Levy Act 1961 and now operating under the Betting,
Gaming and Lotteries Act 1963, as amended. The Levy Board raises money for the
horseracing industry by collecting a statutory levy on horseracing betting from off-
course bookmakers, the Tote and on-course bookmakers. The levy from off-course
betting represents the greatest part of the Levy Board’s income. The levy is collected
from bookmakers as a percentage of their gross profit from betting on United
Kingdom horseracing. The 46th levy scheme (1st April 2007 to 31st March 2008) was
agreed between the Levy Board and the Bookmakers’ Committee in September 2006.
A bookmaker’s 2007/2008 contribution is 10% of the relevant figure relating to its
British horseracing betting business (with some threshold relief for LBOs with low
turnover). The 46th levy scheme was rolled over, following determination by the
Secretary of State, to create the 47th levy scheme on the same terms, following lack of
agreement between the parties on the proposals for the 47th scheme. This was
announced on the 28th February 2008.
46. The majority of levy income is expended in direct support of horseracing and the
Levy Board is among the most important contributors to horseracing’s finances. In
2003/2004, the levy amounted to £102 million. In 2006/2007, the levy amounted to
£90 million of which 61% was allocated to prize money, 23% to integrity services
(i.e. to prevent cheating), 8% to other racecourse expenditure and the remaining 8% to
veterinary services, improvement of breeds, training and other improvements. In
2007/2008 the levy amounted to £116.5 million. The Government indicated its desire
to abolish the levy in March 2000 and launched a process of consultation as to the
future of the levy in 2001. In January 2002, the Culture Minister announced that the
levy was to be renewed and not abolished.
47. The Bookmakers Committee was established under section 26 of the Betting, Gaming
and Lotteries Act 1963 as a body representative of the interests of bookmakers
generally. The main function of the committee is to recommend annually to the Levy
Board the categories, rates, conditions and definitions of the Levy Scheme for the
following year and, if appropriate, to revise such recommendations in the light of
observations made by the Levy Board.
LBO media rights
48. Before 1986, it was not permissible to show live televised pictures of racing in LBOs.
The law in this respect changed in 1986. SISH, which had been formed in 1985,
began in around 1987 to provide a service known as SIS Facts. Since 2002, the
service has been provided by SIS rather than SISH. The SIS Facts Service provides
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those LBOs who subscribe to it (and all, or virtually all, of them do) with televised
pictures of racing together with audio commentary and data services.
49. The service provided by SIS to LBOs contains a number of elements. The service
includes live television pictures and sound commentary on horseracing and greyhound
racing (the Facts Service), a processed text service giving information (for example
on runners, riders, trainers and form) and odds on racing and, separately, raw data on
racing for those customers wishing to format their own text information service and
associated equipment.
50. Until the launch of Turf TV by AMRAC in April 2007, SIS was the only company
providing live horseracing images to LBOs on a subscription basis. LBOs are able to
access free-to-air live horseracing images for certain fixtures broadcast by the BBC
and Channel 4 and by RTE in Ireland. From April 2007 to December 2007, SIS
provided live television pictures and sound commentary from 53 of the 59 British
racecourses. From January 2008, SIS provided coverage from 28 British racecourses
and when the new racecourse, Great Leighs, became active in May 2008, SIS
provided coverage from 29 British racecourses.
51. In April 2007, AMRAC launched a new horseracing picture service for LBOs,
marketed under the name Turf TV. The AMRAC service includes data, audio and
pictures. Between April 2007 and December 2007, Turf TV provided exclusive live
pictures to LBOs from 6 British racecourses and from January 2008 has provided
exclusive live coverage from 31 British racecourses (the 30 RUK racecourses plus
Ascot).
52. The first formal agreement between SISH and the racecourses, acting through the
Racecourse Association (“RCA”), was entered into in 1987. That agreement granted
to SISH a licence in relation to the LBO rights from each of 59 racecourses for a term
of 10 years. The 1987 agreement was renegotiated in 1993, that is before the end of
the 10 year term. The 1993 agreement was terminated by the RCA on 30th April 2002.
The 1987 agreement and the 1993 agreement did not contain exclusivity provisions
but at that time SISH was the only provider of a service of this kind to LBOs.
53. In the period from 2000 to 2002, the RCA reviewed its approach to the exploitation of
racing media rights, with a view to increasing the revenue generated from those
rights. One outcome of this review was that 49 out of the then 59 UK racecourses
decided to deal directly with the bookmakers, rather than with SISH or SIS (which
was formed in 2001), while the remaining 10 courses decided to sell their media
rights (including but not restricted to LBO rights) to a new company called GG Media
Limited. In turn, GG Media Limited exclusively licensed LBO rights to SISH for a
period of 5 years. The remaining 49 UK racecourses licensed their rights to BAGS
and BAGS decided to sub-license those rights to SIS on a non-exclusive basis. The
arrangements between BAGS and SIS meant that SIS was to act as a collection agent
for the fees, payable by LBOs, for those rights and SIS would then (acting as BAGS’
agent) make payments to the racecourses. SIS took over the SIS Facts service in
December 2002. The licences between the racecourses and BAGS, and the sub-
licence from BAGS to SIS, expired in 2004 but were then renewed. In relation to 6
racecourses (which have been referred to at this trial as “the April 2007 courses”) the
renewal ran from 1st January 2005 to 31st March 2007. In the case of the other 43
courses, the renewal ran from 1st January 2005 to 31st December 2007.
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54. In the meantime, in 2001, SISH entered into an exclusive licence with the Association
of Irish Racecourses (“AIR”) for the British and Irish LBO rights in respect of all 25
racecourses in the Republic of Ireland and the 2 in Northern Ireland, for a period of 3
years.
55. On 17th April 2004, SIS entered into an exclusive agreement with AIR to acquire the
exclusive LBO rights to all 25 racecourses in the Republic of Ireland and the 2
racecourses in Northern Ireland from 1st January 2004 to 31st December 2008.
56. On 20th October 2006, SIS entered into an agreement to acquire the exclusive LBO
rights to Towcester. On 10th November 2006, SIS entered into an agreement to
acquire the exclusive LBO rights to 8 independently owned racecourses (known as
“the ICAC courses”) from 1st May 2007. As the parties have agreed that the duration
of the current licences to SIS are to be treated as confidential for the purposes of this
litigation, I will not state that period in this judgment. The same comment applies
generally to other licence agreements entered into by SIS. On 16th November 2006,
SIS entered into an agreement with Sedgefield to acquire the exclusive LBO rights to
that racecourse from 1st May 2007.
57. Also on 16th November 2006, BAGS entered into an agreement with Northern to
acquire the exclusive LBO rights to 8 of the racecourses owned and operated by
Northern for the period from 1st January 2008 to 31st December 2012. On 6th
December 2006, BAGS entered into an agreement with Arena to acquire the exclusive
LBO rights to the 7 racecourses owned and operated by Arena from 1st January 2007
to 31st December 2011.
58. On 19th December 2006, SIS entered into an agreement for the exclusive LBO rights
to Great Leighs from the date it opened.
59. On 22nd December 2006, BAGS entered into an agreement to sub-license its exclusive
LBO rights to the 7 Arena racecourses and the 8 Northern racecourses to SIS.
60. Thus, by 22nd December 2006, SIS had acquired the exclusive LBO rights to 26
racecourses in Great Britain.
61. On 11th January 2007, SIS entered into a further agreement with AIR to acquire the
exclusive LBO rights from the 27 racecourses in Northern Ireland and the Republic of
Ireland from 1st January 2009.
62. On 31st January 2007, AMRAC entered into agreements under which it acquired
exclusive LBO rights to 5 RUK racecourses from 1st April 2007 to 31st March 2013
and exclusive LBO rights to those 5 and the remaining 25 RUK racecourses from 1st
January 2008 to 31st March 2013. On 14th March 2007, AMRAC entered into an
agreement with Ascot under which it acquired exclusive LBO rights to Ascot from 1st
April 2007 to 31st March 2013.
63. Thus, AMRAC had exclusive LBO rights to 6 courses from 1st April 2007 (“the April
2007 courses”) and to a total of 31 courses from 1st January 2008
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64. SIS also entered into separate agreements to acquire the exclusive LBO rights in
respect of Newton Abbot (5th March 2007), Ripon (9th May 2007) and Plumpton (27th
September 2007) from 1st January 2008.
65. The result for SIS was that it had acquired the exclusive LBO rights to 29 racecourses
in Great Britain.
PART 2: THESE PROCEEDINGS
The Particulars of Claim
66. The Claimants issued the present proceedings on the 13th September 2007. It is
important to refer to the Particulars of Claim to identify the allegations which the
Claimants put forward in order to seek relief from the Court.
67. Paragraph 7 of the Particulars of Claim refers to “the RUK Agreements”. These are
defined in paragraph 7 as media rights agreements which RUK is alleged to have with
the RUK racecourses pursuant to which RUK is allegedly licensed to negotiate and/or
enter into commercial media agreements with third parties including agreements in
respect of inter alia the rights to supply images, sound and data in respect of horse
races held at the RUK racecourses to LBOs in the United Kingdom and the Republic
of Ireland.
68. Paragraph 19(d) of the Particulars of Claim defines “the AMRAC Agreement” and the
“AMRAC Licences”. The AMRAC Agreement is alleged to have been entered into,
in or around December 2006 between RUK, acting collectively on behalf of the RUK
racecourses, and AMRAC. The AMRAC Licences are said to have been entered into
pursuant to the AMRAC Agreement. The AMRAC Licences are some 30 licences
between the RUK racecourses and AMRAC entered into on the 31st January 2007.
69. Paragraph 20 of the Particulars of Claim states:
“The Claimants submit that the RUK Agreements, AMRAC
Agreement and AMRAC Licences are individually and/or
collectively contrary to the prohibition established by section
2(1) of the Competition Act 1998 (the Chapter I prohibition”)
further or alternatively Article 81(1) of the EC Treaty because
they provide for or give effect to the collective exclusive
licensing of the RUK relevant rights to AMRAC on a closed
basis.”
70. Paragraph 21 of the Particulars of Claim states:
“Further or alternatively by virtue of the acts identified above
the Defendants or some of them participated in a concerted
practice contrary to the Chapter I prohibition further or
alternatively Article 81(1) of the EC Treaty because they
sought to procure, facilitate and/or give effect to the collective
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exclusive licensing of the RUK relevant rights to AMRAC on a
closed basis (“the Concerted Practice”).”
71. Paragraph 22 of the Particulars of Claim states that particulars of the breach
complained of are set out at paragraphs 26 to 30 of the Particulars of Claim.
72. Paragraph 23 of the Particulars of Claim states that “in the premises”, the RUK
Agreements, AMRAC Agreement and AMRAC Licences are unlawful and
automatically void.
73. Paragraph 24 of the Particulars of Claim pleads that the relevant product market is the
supply of images, sound and/or data in respect of horse races in the United Kingdom
to LBOs, alternatively to any off-course betting provider. Paragraph 25 pleads that the
relevant geographic market is the United Kingdom.
74. Paragraphs 26 and 27 of the Particulars of Claim have the heading “Restrictions on
competition”. Paragraph 26 pleads that insofar as the RUK Agreements, AMRAC
Agreement, AMRAC Licences and/or the Concerted Practice each provide for and/or
give effect to the collective exclusive licensing of the RUK relevant rights on a closed
basis they have the object of restricting competition.
75. Paragraph 26 then gives particulars of the alleged anti-competitive object. Particular
(a) states:
“The collective exclusive licensing on a closed basis prevents
the individual RUK racecourses from being able to market their
relevant rights individually. In the absence of such collective
exclusive licensing on a closed basis the individual racecourses
would be entitled to set prices and other licence conditions
independently of one another and in competition with one
another. The collective exclusive licensing on a closed basis
thus eliminates competition, including price competition,
between individual RUK racecourses in respect of the
marketing of the RUK relevant rights.”
76. Particular (b) under paragraph 26 states:
“The collective exclusive licensing to AMRAC on a closed
basis prevents competitors to AMRAC from having the
opportunity to negotiate or tender the RUK relevant rights.
Such collective exclusive licensing on a closed basis forecloses
competition from other actual or potential competitors to
AMRAC to the detriment of competition in the market for the
provision of images, sound and data to LBOs in respect of
horseracing at the RUK racecourses.”
77. The opening part of paragraph 27 of the Particulars of Claim is essentially the same as
the opening part of paragraph 26 save that a reference to the Agreements having “the
object” of restricting competition is replaced by an allegation that the Agreements
have “the effect” of restricting competition.
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78. Paragraph 27 contains some 11 sub-paragraphs of particulars. Particulars (a) and (b)
under paragraph 27 are in the same terms as particulars (a) and (b) under paragraph
26. It is not necessary to set out the detail of the other sub paragraphs of particulars
given under paragraph 27. Those particulars, in the main, refer repeatedly to
“collective exclusive licensing on a closed basis” to describe the matter complained of
in the arrangements made between racecourses and AMRAC.
79. Paragraphs 28 and 29 of the Particulars of Claim refer to the effect on trade between
member states, and within the United Kingdom, of the arrangements complained of.
80. In the prayer for relief in the Particulars of Claim, the Claimants seek, first, a
declaration that the collective exclusive licensing on a closed basis of the rights
necessary for the supply to LBOs in the United Kingdom and the Republic of Ireland
of images, sound and data, in respect of horse races held at the RUK racecourses is
contrary to section 2(1) of the Competition Act 1998 and Article 81(1) of the EC
Treaty. The Claimants claim, secondly, an injunction preventing the Defendants from
giving effect to the collective exclusive licensing on a closed basis of such rights. The
Claimants seek other injunctive relief and damages and other supporting relief.
81. On the 17 June 2008, which was Day 24 of the trial, Mr Green began his closing
submissions on behalf of the Claimants. At quite an early point, I sought assistance
from him as to how he put his case. In particular, I wanted to know precisely what
agreement was said to be caught by Article 81 of the Treaty. Who were the parties to
the agreement and what were its terms? What were the consequences of the relevant
agreement being declared to be void? If and in so far as Mr Green in his closing
submissions wished to assert a horizontal agreement between racecourses, how was it
that any such agreement, which allegedly infringed Article 81 and would accordingly
be void, resulted in the vertical agreement between a racecourse and AMRAC also
being void? In the course of Mr Green’s answers to these questions, I suggested that
the case he was advancing appeared not to have been pleaded.
82. Thereafter, Mr Green sought permission to amend the Particulars of Claim. In view of
my decision which I gave, with reasons, at the time, to refuse the Claimants
permission to make the draft amendments, it is not necessary to refer to those draft
amendments in this judgment. It is sufficient to say that the draft amendments clearly
pleaded a number of different horizontal agreements between racecourses. The
agreements pleaded included agreements between groups of racecourses and also
between individual racecourses within a particular group. The draft amendments
asserted that those agreements had an object which was to restrict competition in
particular by fixing prices. It was also pleaded that AMRAC was a party to these
agreements with and between racecourses. The alleged consequence of these
agreements was, first, that the horizontal agreements between racecourses were void
and also that the LBO licences granted by a racecourse in favour of AMRAC were
also void.
83. For the purpose of considering the rival submissions made to me in support of, and in
opposition to, the proposed amendments, I analysed what was originally pleaded in
the un-amended Particulars of Claim and I set out that analysis in a judgment I gave at
that time. It is convenient to set out again the substance of that analysis.
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84. As explained, paragraph 20 of the original pleading refers to the RUK Agreements,
the AMRAC Agreement and the AMRAC Licences. Paragraph 21 refers to something
defined as “the Concerted Practice”. It is those three classes of agreement and that
Concerted Practice which are referred to in paragraph 26 as having the object of
restricting competition.
85. The RUK Agreements are defined in paragraph 7 of the original pleading. They are
agreements (said to be in the plural) between racecourses on the one hand and RUK.
There is nothing in paragraph 7 of the original pleading which would lead one to
conclude that the agreements being referred to are horizontal agreements between
racecourses.
86. The AMRAC Agreement is referred to in paragraph 19(d) of the original pleading. It
is not absolutely clear what agreement is being referred to. The paragraph seems to
refer to an agreement which was entered into in or around December 2006, which
agreement led to the AMRAC Licences on 31 January 2007. In any case, as pleaded,
the AMRAC Agreement has on the one side, AMRAC, and on the other, the RUK
racecourses, acting through RUK. This is a vertical agreement between courses and
AMRAC; it is not a horizontal agreement between courses.
87. The AMRAC Licences are also referred to in paragraph 19(d) of the original pleading.
It is clear that the Licences are vertical agreements between the courses and AMRAC.
They are not horizontal agreements between courses.
88. Paragraph 20 of the original pleading pleads that the vertical agreements which I have
referred to are individually or collectively contrary to Article 81, because they provide
for or give effect to what is called “collective exclusive licensing”. The word
“collective” seems to refer to the fact that the courses acted collectively but without in
terms asserting that there was a prior agreement to act collectively, and, if so, what the
terms of that agreement (a horizontal agreement) might be.
89. Paragraph 21 of the original pleading asserts that “the Defendants or some of them”
participated “in a concerted practice”. It is said that “they” (which must mean “the
Defendants or some of them”) “sought to procure, facilitate and/or give effect to the
collective exclusive licensing” of the relevant rights to AMRAC. If all of the
Defendants had been racecourses then this plea would lead one to suppose that what
was being alleged was a concerted practice operating horizontally as between
racecourses. However, not all of the Defendants are racecourses. The Defendants
include AMRAC; indeed AMRAC is the first Defendant. Therefore, it is much less
clear that paragraph 21 is trying to describe a concerted practice between racecourses
(or conceivably only some of the racecourses) to which AMRAC might also, or might
not, be a party.
90. The result of the above analysis is that the wording of paragraphs 20 and 21 of the
original pleading lacks precision and is open to interpretation. However, paragraphs
20 and 21 which allege breach of Article 81 are followed by paragraph 22 which
states that particulars of the breach are set out at paragraphs 26 to 30 of the pleading.
Accordingly, one turns to those paragraphs (and for present purposes to paragraph 26)
to discover what the pleader is referring to.
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91. I have already read paragraph 26 of the original pleading. It refers to the three classes
of agreement (which are all vertical agreements) and the pleaded Concerted Practice
which provide for or give effect to collective exclusive selling. Of course, if on the
facts, the selling was “ collective” then the vertical agreements do indeed “provide
for” (especially the pleaded RUK Agreement) or “give effect to” (especially the
AMRAC Agreement and the AMRAC Licences) collective selling. Accordingly, the
opening words of paragraph 26 do not yet bring in any allegation that there was a
horizontal agreement between racecourses which infringed Article 81.
92. Sub-paragraph (a) of paragraph 26 now needs to be considered. It is asserted that
collective exclusive selling prevents the individual racecourses from acting
individually and, in particular, agreeing terms individually and, further, agreeing
prices individually. Of course, once a racecourse had granted exclusive rights it is no
longer able to grant any rights to another grantee of rights and there is no point in
negotiating to grant rights to another grantee. I do not think, however, that sub-
paragraph (a) is meant to be confined to a reference to the consequence of the grant of
exclusive rights. It can be read as referring also to the period of negotiation before the
grant of exclusive rights. So what is being said, although far from clearly, is that the
process of collective selling prevents a racecourse from selling individually even
before the grant of exclusive rights. But a racecourse would only be prevented from
selling individually if it had agreed with someone that it would not sell individually.
But who is the someone with whom the racecourse, allegedly, has agreed not to sell
individually? Is it an agent, RUK, who might have been acting for a number of
principals, and whose role as agent would be undermined if a single racecourse as
principal began to negotiate individually? Or is sub-paragraph (a) intended to allege
that the racecourses have agreed between themselves that they will act together as
collective sellers and will not seek to negotiate individually?
93. Although sub-paragraph (a) is very far from being well expressed if it were intended
to allege that there was an agreement or practice between racecourses operating at a
horizontal level which bound them to act collectively and prevented them from acting
individually, nonetheless I have reached the conclusion that the pleading is indeed
making that allegation.
94. It is therefore open to the Claimants, as a result of paragraph 26(a), to argue that there
was an agreement or practice between racecourses operating at the horizontal level
which restricted the conduct of racecourses in that it prevented them from negotiating
individually. It is open to the Claimants on the original pleading to argue that such a
restriction is a restriction on competition contrary to Article 81. Further, in view of the
fact that paragraph 26 deals with restrictions by object, it is open to the Claimants on
the original pleading to argue that such a restriction is a restriction by object. It is also
open to the Claimants to argue that such a restriction by object is properly to be
regarded as a restriction which has the object of fixing prices. I add the last sentence
not because that allegation is specifically pleaded but because Mr Green in his
opening submissions asserted that collective selling necessarily involves the object of
price fixing. Mr Roth accepted that that allegation is one which the Defendants have
to deal with.
95. Although I refused permission to the Claimants to make the very extensive
amendments they sought, I did permit the Claimants to plead an additional paragraph.
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I granted this permission in view of the fact that an amendment in those limited terms
was not opposed by the Defendants. The new paragraph 26A of the Particulars of
Claim pleads:
“For the avoidance of doubt, the reference in paragraph 26(a)
above to collective licensing which prevented the individual
racecourses from setting prices independently of one another
and in competition with one another, constituted collective
price setting by the Defendant racecourses inter se and/or the
Defendant racecourses inter se together with the 1st to 4th
Defendants which falls within Article 81(1) as a restriction by
object.”
The Claimants also gave particulars under the new paragraph 26A. It is now pleaded,
by way of particulars, that the subject matter of the agreement or concerted practice was
the fixing of prices to be paid by AMRAC to the racecourses for their LBO rights, as
well as collective setting of other terms and conditions. The provisions as to price are
said to be contained in, or evidenced by, four specific terms of the AMRAC Licences,
i.e. the vertical agreements between racecourses and AMRAC. The point being made
about those specific terms is that each of 18 AMRAC Licences has the same terms.
Finally, a particular is pleaded that the agreement or concerted practice fixed prices.
There was no amendment to the relief claimed in the prayer for relief.
96. The Defendants have served a detailed Defence to the claim made against them. It is
not necessary at this stage to go to the way in which the matter is pleaded by way of
defence.
The Counterclaim
97. The Defendants also brought a Counterclaim against the Claimants and by way of
additional claim brought a claim against SIS.
98. The Counterclaim essentially breaks into two parts. The first part refers to the fact that
BAGS entered into exclusive LBO licences with the Northern courses and the Arena
courses and granted an exclusive sub-licence to SIS. This part of the Counterclaim
also refers to the fact that SIS entered into a number of exclusive licences; the first
was, of course, the exclusive sub-licence from BAGS but in addition SIS directly
entered into exclusive licences with the ICAC courses, Sedgefield, Towcester, Ripon,
Newton Abbot, Plumpton and the Irish courses. The most recent version of the
Counterclaim has been amended so that the Defendants’ claim in relation to these
exclusive licences, in which BAGS and SIS participated, are alleged to be contrary to
Article 81 and void if, but only if, the licences of LBO rights granted to AMRAC are
held to be void pursuant to the Claimants’ claim to that effect. Although the
Claimants’ challenge to the AMRAC licences is on the basis that they involve
collective and exclusive and closed selling, the basis of the Defendants’ challenge to
the BAGS and SIS exclusive licences is restricted to the argument that those licences
were exclusive licences.
99. The second part of the Counterclaim brought against the Claimants (and not against
SIS) alleges four different matters contrary to Article 81. Two of these four alleged
agreements or concerted practices are no longer the subject of the Counterclaim. The
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first concerned the decision by BAGS not to take LBO licences (by way of sub-
licence from AMRAC) for the period April to December 2007, in relation to 6
courses, which had by then signed exclusively to AMRAC. The second matter related
to the decision by BAGS not to take up rights which were on offer in relation to
televising evening races at Kempton Park in the period from 1st September 2007 to
31st December 2007.
100. Two other matters which are the subject of this part of the Counterclaim are still
pursued by the Defendants. The first of the two surviving matters is an allegation that
there was a concerted practice by Coral, Ladbrokes and William Hill to withdraw
sponsorship of races being run at racecourses which had granted LBO rights
exclusively to AMRAC. The second of the surviving matters is an allegation that
Coral, Ladbrokes, William Hill and BetFred were parties to an agreement and/or a
concerted practice to refuse to purchase Turf TV and/or to exclude or impede
AMRAC’s entry to the market and/or to injure or jeopardise AMRAC’s survival in
the market. In relation to these two allegations, it is said that the Defendants or some
of them have suffered loss and damage as a result. In relation to the alleged concerted
practice to withdraw sponsorship, the claim to damages is made by all of the
Defendants apart from AMRAC and in relation to the alleged concerted practice to
refuse to purchase Turf TV, the claim to damages is made by AMRAC alone.
101. The Claimants have served a detailed Defence to Counterclaim and SIS has served a
detailed Defence to the additional claim made against it. It is not necessary for present
purposes to refer to the detail of those pleadings.
The trial
102. On 11th October 2007, Lindsay J ordered that there should be an expedited trial in this
action. He directed that the issues of liability (which were described as the
“competition issues”) and the issues as to quantum be determined at separate trials. I
conducted the trial in relation to the competition issues.
103. The competition issues included the two issues raised by way of Counterclaim, as
described in paragraph 100 above. The trial dealt with all the competition issues. It
was originally my intention to give a single judgment dealing with all those issues. In
the event, I have not been able to give judgment before the arrival of the long
vacation. A resolution of the two issues described in paragraph 100 above will require
detailed consideration of a large volume of evidence and of lengthy submissions by
the Claimants and the Defendants. I prepared my judgment, and reached my
conclusions, on the other issues arising before preparing a judgment on the two issues
raised by Counterclaim. It is clear that if I defer giving judgment until I have prepared
a judgment which also deals with these two issues, I will have to postpone for some
considerable time the giving of judgment on all other matters. I am able to reach the
conclusion that my decision on all other matters will not be affected by my decision
on the two issues raised by the Counterclaim. In these circumstances, I have decided,
and notified the parties in advance, that I will give judgment on all matters that
require to be decided save for the two issues raised by the Counterclaim and on those
two issues, I will give a separate judgment later.
The Claimants’ case: a summary
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104. At the end of the trial, the Claimants’ case can be summarised as follows. There was
an agreement between the 18 racecourse operators and AMRAC. The object of that
agreement was to fix the prices to be charged to AMRAC for the LBO rights. The
racecourses and AMRAC knew that the prices paid by AMRAC to the racecourses
would be recovered from LBOs because the AMRAC service was a “must have”. The
conduct of the racecourses involved the use of collective market power. The
consequence of the price fixing was to drive up prices for LBOs. This was harmful to
LBOs. There were no benefits to LBOs from the price fixing. What was harmful to
LBOs would in due course be harmful to punters. Because the object of the agreement
was to fix prices, the object was to restrict competition. Price fixing can never be
justified by alleged commercial necessity. The price fixing infringed Art 81(1).
Although the possibility of exemption under Art 81(3) had to be considered, such a
possibility was theoretical only, in a price fixing case. In any event, the agreement in
this case did not satisfy any of the four essential conditions for individual exemption.
Accordingly the relevant agreements were void under Art 81(2). The agreements
which were void included the agreements by racecourses to grant LBO rights to
AMRAC. Further, the arrangements had the effect of restricting competition. The
effect was that prices to LBOs were increased. As before, there were no benefits to
LBOs. Yet further, the arrangements made by racecourses with AMRAC consisted of
closed collective exclusive selling of LBO rights. The exclusive nature of the rights
resulted in foreclosure of the market. The collective and closed selling had the effect
of restricting competition. The effect of the arrangements could not be justified by
alleged commercial necessity. Thus, the arrangements infringed Art 81(1) as having
the effect of restricting competition. As before, the requirements of Art 81(3) were not
satisfied. The relevant agreements were void and those agreements included the
licences to AMRAC.
The Defendants’ case: a summary
105. At the end of the trial, the Defendants’ case can be summarised as follows. Before the
arrangements complained of were entered into, the market for LBO rights from
racecourses was controlled by a monopsony, BAGS/SIS. Because of its position of
control of the upstream market, the monopsony paid racecourses a price which was
less than what the rights were worth. The arrangements in this case were made to
allow a new entrant, AMRAC, into the upstream market. There was no other possible
new entrant. The arrangements made in this case did not have the object of restricting
competition and in particular they did not have the object of price fixing. The
arrangements had the object of enhancing competition. The arrangements in this case
did not have the effect of restricting competition as they had the effect of enhancing
competition. Although they had the effect of increasing prices to LBOs, that was the
result of enhancing competition in the upstream market and was not a restriction on
competition. There was no collective selling on the facts. There was no closed selling
on the facts. The rights were granted exclusively. Exclusive rights were appropriate. If
there had been collective and closed selling (of what were undoubtedly exclusive
rights), then those arrangements were commercially appropriate, and indeed
necessary, to allow a new entrant and new competition into the upstream market. In
the absence of those arrangements, the upstream market would have continued with a
monopsony purchaser, BAGS/SIS. The arrangements were beneficial in other
respects. Art 81(1) was not infringed. If Art 81(1) was infringed, then this was a case
for individual exemption under Art 81 (3) as each of the four conditions was satisfied.
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PART 3: THE PRINCIPAL EVENTS
106. It is now necessary to describe the events which have given rise to this dispute in
more detail. Although the documents are voluminous and although I heard a great
deal of oral evidence, there is little dispute about the essential facts, save in relation to
one matter. That matter is the allegation made in the Counterclaim that there was
collusion between bookmakers to boycott Turf TV and to withhold sponsorship from
certain racecourses. Even in that area, the dispute is not about what actually happened
but whether what happened was the result of independent action by bookmakers or
whether it was pursuant to collusion between them. As I have now indicated, I will
defer considering that issue of collusion, and the facts which are relevant only for the
purpose of that issue, until a later separate judgment.
107. Because my description of the principal events, which need to be described for the
purposes of this judgment, does not depend to any real extent on the credibility of
witnesses, it is unnecessary to comment upon the individual witnesses and to set out
my assessment of them.
108. I heard detailed evidence from representatives of various racecourses and Mr Kelly of
BAGS and others speaking for the bookmaking industry as to the general market
position, as regards racecourses selling their LBO media rights, before the arrival of
AMRAC. In particular, as regards representatives of racecourses, I heard evidence
from Mr Derby of York, Mr Fabricius of Goodwood, Mr Farnsworth of Musselburgh,
Mrs Hordern of Newbury and Mr Gould of the Jockey Club Racecourses.
109. The racecourses regarded BAGS as a monopoly purchaser in a strong negotiating
position and placing racecourses in a weak negotiating position. The racecourses’
perception was that BAGS offered its terms to racecourses on “a take it or leave it”
basis. In particular, BAGS steadfastly refused to consider the idea of paying
racecourses for their races if those races were shown on terrestrial television. Races
shown on terrestrial television are available to LBOs without payment and BAGS
took the view that it would not pay racecourses for them.
110. Mr Kelly did not agree that he had conducted negotiations on “a take or leave it”
basis. However, in my judgment, the reality of the situation was just as it was seen by
the racecourses. BAGS was in effect the only buyer. Mr Kelly was the principal
negotiator for BAGS. Mr Kelly is an intelligent, articulate and forceful individual and
he was determined to look after the interests of bookmakers generally.
111. It is also necessary to understand the relationship which existed between BAGS and
SIS before the arrival of AMRAC in the market. It is clear that, at that time, BAGS
and SIS did not act competitively as between themselves in seeking to obtain LBO
media rights from racecourses. The relationship between BAGS and SIS was
described by Mr Roseff of H Backhouse (Baker Street) Limited, an independent
bookmaker. Mr Roseff is a director of BAGS. He explained that the essential
negotiations as to terms and price, before AMRAC entered the market, took place
between the racecourses and BAGS. BAGS was not itself a distributor of pictures and
data to LBOs and needed to sub-license its rights to SIS. The terms on which BAGS
sub-licensed its rights to SIS prevented SIS from making a profit on the rights
acquired by BAGS. Thus the position as regards market forces and price negotiation
before the entry of AMRAC into the market were that BAGS, acting in the interest of
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bookmakers, sought to keep down the price it paid for LBO media rights acquired
from racecourses. BAGS sub-licensed those rights to SIS but on terms that prevented
the cost to LBOs being increased, otherwise than in a limited way. Thus, in the chain
of supply from racecourses to BAGS, from BAGS to SIS and from SIS to LBOs, the
bookmakers who were the subscribers to the service were vertically integrated at a
higher level, through BAGS acting in the interests of bookmakers generally. Mr
Roseff’s evidence on this point was corroborated by Mr Kelly of BAGS.
112. In February 2005, RUK met Alphameric for the purpose of preliminary discussions as
to the possibility of creating a start up business to acquire and deliver pictures and
data from racecourses to LBOs, in direct competition with SIS.
113. In July 2005, RUK held a strategy away day which considered a large number of
issues as to the future of the racing industry. The material presented at the away day
referred to the fact that UK betting revenues were increasing but horseracing’s share
of sports betting revenue was in decline and bookmakers’ reliance on horseracing was
decreasing. The away day considered the possible opportunity of RUK expanding into
LBO media rights. The away day also considered the possibility of RUK forming a
partnership with four particular companies, including Alphameric and SIS.
114. In around August 2005, Alphameric formally approached RUK and discussions took
place in the ensuing six months about the possibility of Alphameric and RUK coming
together to create a service as a competitor to SIS Facts.
115. In September 2005, the board of RUK considered that such a service could be viable
and that RUK would seek to advance discussions with a number of potential partners.
116. In January 2006, RUK prepared a detailed paper identifying a large number of points
that needed further consideration. One such question was whether there would be a
competition law problem in taking the grant of exclusive rights from racecourses.
117. In February 2006, the board of RUK agreed to investigate further the feasibility of a
rival service to SIS Facts. RUK considered that it might be necessary to acquire LBO
licences on an exclusive basis in order to launch a new service and RUK decided it
should seek competition law advice in that regard.
118. RUK initially sought legal advice from solicitors, Wiggin LLP on 7th February 2006.
The advice sought related to the compatibility of competition law with the licensing
of LBO rights on an exclusive basis, in order to enter the market and provide a
competitive service to SIS Facts. RUK envisaged at that time that it would take
content from non-RUK racecourses on a non-exclusive basis. RUK’s intention was to
create a full service which would be a viable alternative to SIS Facts so that
bookmakers would be able to choose between RUK’s proposed service and SIS Facts.
RUK envisaged that the new service would be provided by a proposed joint venture of
RUK and Alphameric which was called at that time “RUKA”.
119. In April 2006, RUK presented its ideas to York racecourse. In relation to the possible
launch of a service competing with SIS Facts, RUK recognised that the competing
service should match or improve on the current service, offer better value for money
for bookmakers, provide a more constructive partnership with bookmakers, increase
the return to racecourses and not fall foul of competition law. This is one of a large
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number of presentations and other documents which described the perceived
advantages for the different interests, including the interests of bookmakers, which
might result from the launch of a service competing with SIS FACTS. Many of these
suggested benefits were controversial at the trial. If it had been necessary for me to
rule on the question of what was called “consumer benefit” for the purpose of Article
81(3), then it would have been necessary for me to form a view as to the substance of
such matters described in this and other documents. As will be seen, I have reached
the conclusion that I do not need to rule on the question of consumer benefit and,
accordingly, I do not make specific findings as to the benefits described in this
document and in other similar statements of such perceived benefits.
120. On 5th April 2006, Wiggin LLP, solicitors for RUK sent written instructions to Mr
Swift QC to advise on various matters arising in connection with a proposed
competing service to LBOs. The instructions discussed the effect of the 30 RUK
racecourses granting their LBO rights exclusively to the new service. The instructions
stated that the new service would thereby be able to compete with SIS Facts. RUK
would try to acquire non-exclusive LBO rights from the 29 non-RUK courses so that
it could offer a combined 59 courses service. SIS would not be able to do the converse
if the RUK courses had granted their rights exclusively to the new service. The
instructions said that for an LBO to receive pictures from all 59 UK racecourses, an
LBO would need to take two different services. That must have been on the basis that
the new service would not be able to acquire rights to all 59 courses.
121. Mr Swift QC advised in conference on 12th April 2006. He stated that licensing by
RUK of the racecourses’ LBO rights on an exclusive basis would be a form of
collective selling. He suggested that the racecourses/RUK had to come within one of
the exemptions in Article 81(3) to permit a collective arrangement involving
exclusive rights. He then addressed the four requirements of Article 81(3). He
recommended that RUK should talk to the OFT to seek their views on the proposed
arrangements. He discussed whether a case could be made that the new arrangements
were “objectively justifiable”. He recommended that RUK approach an economist, for
example Mr Biro of Frontier Economics Limited, to advise on the least restrictive
route that RUK needed to employ in order to achieve their intended position in the
market. Mr Swift expressed the view there was considerable uncertainty as to the
treatment in competition law of the proposed arrangements.
122. Some of the matters discussed in conference on the 12th April 2006 were the subject
of Mr Swift’s written opinion of 26th April 2006. Mr Swift appears to have
approached the question on the basis that if the RUK racecourses granted rights
exclusively to the new service then that would result in the elimination of SIS. Mr
Swift stated that the relevant question was whether exclusivity was absolutely
indispensable to the launch of, and the success of, the new service as what was
involved was the displacement of the existing monopoly by a new monopoly owned
by the racecourses.
123. In May 2006, the Alphameric board concluded that the way forward lay with
establishing an entirely new start up business to provide a service competing with SIS.
124. In June 2006, RUK instructed RBB Economics to provide an economic analysis of the
acquisition of LBO rights from RUK courses on an exclusive basis to facilitate the
entry of the proposed new service into the market.
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125. Later in June 2006, RUK and Alphameric met to discuss the proposed joint venture
and concluded that a business plan should be formulated and agreed by both parties.
126. On 27th June 2006, Alphameric issued a short stock market announcement disclosing
that it was exploring a joint initiative with a major UK-based television production
and broadcasting company which was intended to create a television channel
dedicated to the needs of approximately 9,500 LBOs in the UK and the Republic of
Ireland.
127. On 10th July 2006, the council of the ABB met. Mr Kelly, the Chief Executive of
ABB, was in attendance. The members of the council included a representative of
each of Coral, Ladbrokes and William Hill. The minutes of this meeting show that the
council was aware that Alphameric and RUK were planning a joint venture. It was
said that the joint venture would “challenge” the supply of pictures to betting offices.
SIS was described as being “BAGS’ agents to supply the service to the shops”. Mr
Kelly stated that the new venture was a challenge to BAGS.
128. On 11th July 2006, RBB Economics prepared a draft of its advice on the economic
issues arising.
129. On 27th July 2006, the board of RUK resolved to enter into exclusive negotiations
with Alphameric. RUK and Alphameric met on 31st July 2006 to discuss detailed
matters including the level of exclusivity of LBO rights that might be required. On 9th
August 2006, RUK and Alphameric entered into an agreement providing for a period
of exclusivity in relation to negotiations between them.
130. In September 2006, RUK prepared materials for presentations to racecourses. These
materials described the content of the proposed service including exclusive rights in
relation to RUK courses and both exclusive and non-exclusive rights in relation to
non RUK courses. The described content also included international horseracing,
greyhound racing, virtual racing and number games. The materials predicted that SIS
would be an aggressive competitor.
131. On 8th September 2006, Alphameric made a stock exchange announcement in which it
disclosed that it had entered into exclusive negotiations with “a major UK based
consolidator of horseracing pictures and data” to give the joint venture the exclusive
right to distribute content to LBOs.
132. This stock exchange announcement of 8th September 2006 was noted on the agenda
for a meeting of the ABB scheduled for 11th September 2006. The agenda referred to
RUK providing exclusive rights to distribute the relevant content to LBOs. The
minutes of the ABB meeting on 11th September 2006 refer only in passing to the
potential entrance of Alphameric into the market. The passing reference was to the
possibility that this new fact could be used in negotiation with SIS to improve the
position of bookmakers as regards SIS.
133. It was known at the time of the ABB meeting on 11th September 2006 that BAGS
were due to meet with Northern on the 19th September 2006 to discuss a new
agreement for the LBO media rights in respect of the Northern courses.
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134. At the meeting between BAGS and Northern on 19th September 2006, the parties
discussed the grant by Northern of exclusive LBO rights.
135. SISH and SIS were both aware in September 2006 of Alphameric’s stock exchange
announcement and its plans. Mr Holdgate of SIS explained that it was apparent to him
in September 2006 that the new joint venture was likely to be a serious competitor to
SIS. SIS was concerned to ensure that it could also continue to provide its service to
LBOs. Mr Holdgate thought that the relevant market was not big enough to
accommodate two suppliers, each supplying an identical product. The board of SISH
met on 21st September 2006 and agreed that SIS’s strategy should be to seek to
secure, on an exclusive basis, as much content as was available, whether by renewal
of existing agreements or by securing new content. SIS did not at that time expect that
rights would be available to it from the 30 RUK courses as it expected those courses
to grant their rights exclusively to the new venture.
136. In October 2006, RUK prepared an updated presentation to racecourses and,
separately, a presentation to the large independent racecourses. Amongst the many
points in these presentations were comments that racing should develop a constructive
partnership with bookmakers to develop the retail value of horseracing and to counter
horseracing’s eroding market share. The presentations referred to some key elements
in the joint venture’s business plan. So far as payment to racecourses was concerned,
there would be a minimum payment to racecourses to match any payment from
BAGS together with additional payments to racecourses through dividends from
participation in the joint venture. The business plan here referred to assumed that the
bookmaker shareholders in SISH would not sign up to the new service. It was
suggested that the new service would show “significant financial returns”. The
presentations asked whether it was possible to compete with SIS and the answer given
was that, to compete with SIS, the new venture must have “a high level of confidence
for success”. It was stated that exclusive rights were likely to be necessary for market
entry but must not fall foul of competition law. It was suggested that racecourses must
present “a united front”. It was expected that SIS’s response would be aggressive and
SIS would go to any lengths to protect its “monopoly position”.
137. On 4th October 2006, the proposed joint venture, described as RUKA, instructed
consultants, LEK, to provide a “modelling analysis” of a number of options for
market entry by RUKA based on various strategies involving varying amounts of
exclusivity of rights.
138. On 6th October 2006, BAGS wrote to the 6 racecourses which had existing contracts
with BAGS, which were due to expire on 31st March 2007. BAGS said in its letter to
each of these 6 courses that BAGS was aware that the course was in negotiations with
a third party for an exclusive licence for the access and media rights necessary to
supply pictures and/or related information to LBOs. BAGS said in its letter that the
market background was that it had never been necessary to license such rights on
anything other than a non-exclusive basis. BAGS asked each of the 6 courses whether
that course was prepared to enter into renewal discussions with BAGS and whether it
was indeed the case that that course was seeking to license the relevant rights on an
exclusive basis, and if so, why exclusivity was thought to be necessary.
139. Of the 6 courses which received this letter of 6th October 2006, 5 courses were RUK
courses and the sixth was Ascot. The 5 RUK courses did not reply to the letter. Mr
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Fabricius of Goodwood stated that he wanted to take legal advice before replying to
the letter and he thought that the RUK courses should take a collective view. Ascot
did reply to the letter by an e-mail of 1st November 2006 inviting BAGS to make an
offer for Ascot’s LBO rights. Mrs Walker of Ascot gave evidence and stated that
Ascot was perfectly open to having a discussion with BAGS and was prepared to
consider all offers made. In the end, Ascot was satisfied with the deal offered with
AMRAC and signed an exclusive agreement with AMRAC.
140. On 10th October 2006, Mr Bazalgette of AMRAC met representatives of the
racecourses known as the “Super 14”. Mr Bazalgette described what was involved in
the proposed joint venture. Mr Bazalgette referred to BAGS’ letter of 6th October
2006 to 6 racecourses. He recommended that the racecourses should check their
response for competition law issues.
141. On 12th October 2006, Wiggin LLP gave advice on an appropriate response to BAGS’
letter of 6th October 2006.
142. On 16th October 2006, there was a meeting of the council of the ABB. The minutes of
that meeting contain only a limited reference to the joint venture involving
Alphameric.
143. On 20th October 2006, SIS entered into an exclusive licence agreement with
Towcester racecourse for its LBO rights.
144. On 26th October 2006, some 8 or 9 courses which were formerly part of the GG
Media courses informed Mr Bazalgette of AMRAC that those courses had “signed
up” with SIS. In fact, the formal documents were signed a little later, on 10th
November 2006 and the courses involved were what are known as the 8 ICAC
courses and Sedgefield (which signed on the 16th November 2006). Mr Lees acting on
behalf of those courses wrote to Mr Bazalgette on 26th October 2006 stating that those
courses preferred the certainty offered by the SIS offer. On the same day, Mr
Bazalgette sent an e-mail to the RUK courses and Ascot referring to the 9 courses
having “signed” with SIS. Mr Bazalgette said that the fact that AMRAC had not
signed with those 9 courses did not undermine its plans.
145. On 30th October 2006, LEK delivered its first report. I will not refer to the detailed
contents of that report but in due course I will refer to a later version of it.
146. On 31st October 2006 the 30 RUK courses granted non-exclusive LBO rights to RUK
for the period to 28th February 2010.
147. In November 2006, RUK sent letters to the 30 RUK racecourses informing them of
the proposed joint venture, offering on behalf of the proposed joint venture to acquire
LBO licence rights and inviting the courses to enter into a period of exclusive
negotiation with the joint venture until the end of December 2006.
148. On the 10th November 2006, SIS entered into an exclusive licence agreement with the
8 ICAC racecourses. On the 16th November 2006, SIS entered into an exclusive
licence agreement with Sedgefield.
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149. On the 16th November 2006, BAGS concluded an exclusive LBO agreement with
Northern in respect of its 8 courses.
150. On the 16th November 2006, LEK prepared its second report. I will not refer to the
detailed contents of this report but I will, in due course, refer to a later version of it.
151. On 1st December 2006, the joint venture known as AMRAC was created. On that
date, AGL, RMS and AMRAC entered into a shareholders’ agreement. AGL and
RMS each acquired 500 shares in AMRAC. By clause 2.3 of the shareholders’
agreement completion of the vesting of the shares was conditional on the satisfaction
or waiver of a number of conditions. The first condition was that at least 19 of the
RUK courses agreed to make their non-exclusive LBO rights available to AMRAC as
of 31st January 2007 and their exclusive rights were to be made available to AMRAC
as soon as the courses were permitted to do so, on the expiry of any existing contracts
licensing their LBO rights.
152. On 4th December 2006, a draft AMRAC business plan was produced. This draft
business plan referred to the market opportunity to offer a new content and data
supply service to LBOs in the United Kingdom. The plan said that SIS had operated a
de facto monopoly for many years and SIS was supported by its bookmaker
shareholders, Ladbrokes and William Hill, who together owned about 45% of SIS.
The opportunity for a second service in the LBO sector flowed initially from the
granting of exclusive media rights by racecourses. The business plan referred to
benefits which would accrue to customers from the new service. The plan stated that
the financial reward for successful entry into the market was significant and set out a
number of figures which it is not necessary for me to state in this judgment. The new
service was described as including a full range of betting content and data. The core
of the service was to be horseracing from the UK racecourses who licensed their
media rights, supplemented by horseracing from other UK racecourses, greyhound
racing, international horseracing, other sporting events, numbers games and virtual
content. The plan stated that the new service would be sold to all subscribers at a
lower price than the current SIS prices. The plans stated that the new service would
bring competition to an uncompetitive sector. The plan referred to the fact that
participating racecourses would, through RMS, benefit from the success of AMRAC
in that the equity share of each racecourse would be determined by reference to the
value that the racecourses bring to AMRAC and this would be assessed as a share of
the betting turnover generated by each racecourse in those LBOs which took the
AMRAC service. The plan suggested that when the AMRAC service was launched on
1st January 2008, it would have access to the exclusive rights to 30 RUK courses and
also potentially to the exclusive and/or non-exclusive rights to other courses which
might participate, possibly Ascot, Arena and others. In that way, AMRAC would have
coverage from up to 41 of the 60 UK racecourses, with the majority of those
racecourses potentially available exclusively to AMRAC subscribers. The plan stated
that LEK had advised that it was necessary to obtain a certain amount of exclusive
high value content in order to enter the market in the face of an existing monopoly
competitor. Based on LEK’s research, AMRAC believed that it would be necessary
for AMRAC to have the exclusive right to distribute pictures and data from 18
racecourses. The plans stated that AMRAC planned to acquire exclusive content from
all of the RUK courses and then sub-license 13 racecourses to BAGS/SIS. The plan
identified a number of respects in which the new venture would promote technical
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and economic progress. The plan referred to the reluctance of those bookmakers who
were shareholders in SISH to take the AMRAC service. This was addressed in the
business plan by assuming that both Ladbrokes and William Hill would not take up
the service in the first year of operation but that one of them would take up the service
in the second quarter of the second year of operation. Even then, that bookmaker
would only take the exclusive content in the service and not the entire service. The
plan stated that the service would go live on 1st January 2008 and that there would be
no income from LBOs until that date. The plan recognised that from 1st April 2007,
AMRAC would have exclusive rights to horseracing content from 5 RUK courses and
potentially also from Ascot. The business plan assumed that the LBO rights to these
courses would be sub-licensed to BAGS/SIS for non-exclusive use until 31st
December 2007 and the sub-licence would generate revenue in that period.
153. On 6th December 2006, BAGS entered into an exclusive LBO agreement with Arena
in respect of its 7 courses.
154. On 4th December 2006, the council of the ABB met. The minutes of that meeting
contain a limited reference to what was described as RUK’s new picture service.
155. On 7th December 2006, AMRAC attended a consultation with Mr Swift QC and Mr
Harris of Counsel. I was shown a brief note of consultation. There is a reference to a
third party having secured 40% of the market. This would seem to be a reference to
BAGS and SIS together. By 7th December 2006, BAGS and SIS had entered into a
number of exclusive licensing agreements. The advice of Counsel was that in order
for AMRAC to be able to get into the market, it should take “as much as we can get –
what we need to survive in the market place”. This seems to be a reference to
AMRAC acquiring as many exclusive rights as it could. Counsel added that AMRAC
no longer needed to worry about a BAGS/SIS attack on the basis of competition law
as there was no longer any question about forcing BAGS/SIS out of the market.
156. On 7th December 2006, Mr Morcombe of Alphameric/AMRAC telephoned Mr Kelly
of BAGS. Mr Morcombe had plainly heard about the agreement between BAGS and
the operator of the Arena courses. Mr Morcombe asked to meet BAGS and a meeting
was arranged for 13th December 2006.
157. Also on 7th December 2006, Mr Brown of RUK sent an e-mail to the RUK courses.
Mr Brown referred to the fact that BAGS had signed up Arena. Mr Brown suggested
that this development did not change RUK’s plans significantly. RUK would make an
offer to each of the courses shortly and the offer would be accompanied by a detailed
business plan. Mr Brown stated that the financial viability of the business plan was
not significantly affected by the news and in some circumstances the viability might
be improved by the news. The new service having content from 30 RUK courses
made the new service a “must have” for bookmakers and the new service would be
able to enter the market even if it only had that content. Mr Brown encouraged a show
of unity on the part of the RUK courses. If the effort to create a new service and enter
the market failed then no similar opportunity would arise for at least a further five
years.
158. On 8th December 2006, BAGS wrote to the 5 RUK courses whose agreements with
BAGS ended on 31st March 2007. In its letter, BAGS stated that it was interested in
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discussing an extension to that agreement. One of these 5 courses (York) later replied
telling BAGS that York was in a period of exclusive negotiation with AMRAC.
159. RUK’s thoughts about the effect of BAGS signing with Arena are usefully revealed in
an e-mail dated 8th December 2006 from Mr Brown of RUK to Mrs Hordern of
Newbury. He wrote: “much about the financial plan and strategy now changes as a
result of the Arena decision, but on the positive side, it strengthens our legal position
considerably, to the extent that we no longer need to be so measured about our use of
exclusivity.”
160. Around this time, RUK had considered whether to complain to the OFT about the
conduct of BAGS in signing exclusive agreements with racecourses. It appears from
an e-mail sent by Miss Curran of RUK on 8th December 2006 that the considered
view was that nothing would be achieved by complaining to the OFT at that stage.
This e-mail also records the increasing confidence on the part of those behind the new
service that there was less of a concern from a competition law perspective in the new
service taking exclusive licences from the courses.
161. On 11th December 2006, RUK sent the draft business plan of 4th December 2006 to
Mr Derby of York. The covering e-mail referred to a further draft of the business plan
which was in the course of preparation.
162. Around this time, York signed a letter addressed to RUK agreeing on a period of
exclusive negotiations with Alphameric. The exclusivity period was until 31st
December 2006 but was later extended, first, to 15th January 2007 and, later, to 31st
January 2007.
163. Mr Kelly of BAGS met Mr Morcombe of Alphameric/AMRAC on 13th December
2006. AMRAC presented details, as it saw it, of the intended new service. Mr Kelly
was not impressed. He thought many of AMRAC’s statements were window dressing.
In particular, when AMRAC suggested that there might be savings to bookmakers, Mr
Kelly questioned that assertion.
164. By 14th December 2006, all 30 RUK courses had agreed to a period of exclusive
negotiation with AMRAC.
165. On 19th December 2006, SIS entered into an exclusive agreement with Great Leighs
in relation to its LBO rights.
166. In around the middle of December 2006, AMRAC prepared a revised executive
summary of its draft business plan. The executive summary identified financial
rewards which were greater than in previous versions. This was explained on the basis
that AMRAC believed it was able to use exclusivity to gain entry to the market and its
customers would include the large bookmakers that were shareholders in SISH. The
figures were calculated on the basis that the British horseracing contracted to
AMRAC consisted of only the 30 RUK courses and that the bookmakers took only
the exclusive content. The executive summary also stated that AMRAC had
previously been very cautious about using exclusivity as a tool to gain entry into the
market. However, the summary stated, in view of the “incumbent monopoly player”
having taken exclusive rights from a number of other significant courses, AMRAC
believed it needed to use the maximum level of exclusive content that it could obtain
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in order to enter the market. The summary stated that this view was based on detailed
legal advice received from Queen’s Counsel as well as advice from RBB Economics
and management consultants, LEK.
167. On 20th December 2006, AMRAC received detailed written advice on competition
law aspects of their proposed action. The advice was apparently given by Mr Swift
QC, Mr Harris and by Wiggin LLP rather than by Counsel alone. The advice referred
to previous developments and previous advice given by Mr Swift. The advice then
referred to the steps which had then been taken by BAGS/SIS to obtain exclusive
LBO rights in respect of racecourses. The advice stated that BAGS/SIS had exclusive
access to over 40% of UK LBO rights by value and 51% of races. The advice to
AMRAC was that it should acquire as many RUK courses’ LBO rights as it could on
an exclusive basis if it wished to enter the market in January 2008 and to establish a
sustainable business. It was stressed that this approach was “not without risk” and
could lead to legal action. AMRAC was told that it could argue that the end game in
this scenario was a duopoly whereby SIS and AMRAC effectively each owned around
50% of the market and provided content to LBOs on a simultaneous and concurrent
basis. The conclusions of the advice were that the context of the advice had radically
changed from the time of the earlier advice in April 2006. In December 2006, in order
for AMRAC to have any serious chance of entering the market so as to compete with
BAGS, it was said to be imperative for AMRAC to do broadly what BAGS had done
and to create its own product through a series of exclusive contracts.
168. On 22nd December 2006, BAGS entered into an exclusive sub-licence with SIS for
distribution on SIS Facts of the exclusive LBO rights acquired by BAGS from
Northern and Arena. The sub-licence contained terms which restricted the charges
which SIS might make to LBOs for the SIS Facts service.
169. On 22nd January 2007, there was a meeting of the council of the ABB. The agenda
papers noted that BAGS had entered into exclusive contracts with Arena and Northern
and that BAGS had “appointed” SIS to supply the LBO picture service during the
duration of those agreements on terms which controlled the charges that could be
made by SIS to LBOs. The copy of the agenda disclosed was annotated by Mr Kelly
to assist the chairman of the meeting. Mr Kelly’s annotation refers to the fact that 5
RUK courses were coming to the end of their agreement with BAGS on 31st March
2007. Mr Kelly suggested that BAGS would not wish to assist those 5 courses by
continuing arrangements with them until the new RUK service were available. Mr
Kelly then referred to finding alternative content to replace the content lost from these
5 courses.
170. On 31st January 2007, AMRAC entered into 18 separate agreements (to which RMS,
RUK were also parties) with the 18 operators of the 30 RUK courses. The licences
were non-exclusive for so long as those courses were subject to non exclusive
agreements with BAGS and thereafter the licences were exclusive. The licence
agreements were conditional on each operator signing the RMS shareholders’
agreement. The exclusive terms of the licence were therefore from 1st April 2007 (for
the 5 RUK April 2007 courses) and from 1st January 2008 for the other 25. All the
licences expire on the 31st March 2013.
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171. On 31st January 2007, the RUK shares in RMS were transferred to the 18 operators of
the 30 RUK courses and the licence agreements of 31st January 2007 became
unconditional.
172. Also on 31st January 2007, Mr Bazalgette of RUK/AMRAC and Mr Morcombe of
Alphameric/AMRAC met Mr Kelly of BAGS. Mr Kelly was told that the AMRAC
full service was planned to commence on 1st January 2008. The parties discussed the
5 RUK April 2007 courses and also the possibility of Ascot signing with AMRAC.
Ascot’s agreement with BAGS was due to end on the 31st March 2007. No conclusion
was reached as to whether BAGS would take on the rights to these 6 April 2007
courses for the period to 31st December 2007.
173. The BAGS board met on 5th February 2007. The board discussed the suggestion from
AMRAC that BAGS should agree, through SIS, to distribute content from the 5, or 6,
April 2007 courses until 31st December 2007. Mr Kelly made a detailed report to the
board. The board decided that there was no benefit for BAGS in supporting AMRAC
until it could commence transmission at the end of 2007. BAGS concluded it was
better equipped to negotiate with the 5 or 6 courses itself and that there was still scope
for BAGS to do so. BAGS was not interested in renewing the agreements with those
courses for a short period but would want a 3 year period of renewal. BAGS then
recognised that it should look for content to fill the slots previously allocated to
content from the April 2007 courses. The board noted that each bookmaker was free
to take the AMRAC service and should reach its own decision separately about
whether to deal with AMRAC.
174. On 8th February 2007, BAGS wrote to Mr Morcombe of Alphameric/AMRAC in
relation to the 5 RUK April 2007 courses. BAGS turned down the proposals that had
been made by AMRAC to BAGS. BAGS stated that it was better equipped than
AMRAC to negotiate terms with those racecourses. The letter was copied to the 5
RUK April 2007 courses.
175. On 9th February 2007, Mr Morcombe of Alphameric/AMRAC met Mr Ross of
Ladbrokes to discuss the terms on which Ladbrokes might subscribe to Turf TV. The
financial terms on offer at that point to Ladbrokes showed a very considerable
discount to the standard tariff charged by AMRAC.
176. On 13th February 2007, Mr Morcombe of Alphameric/AMRAC replied to BAGS’
letter of 8th February 2007. Mr Morcombe set out the terms on which AMRAC would
offer to BAGS a licence until 31st December 2007 in relation to the 5 RUK April 2007
courses. AMRAC stated that it was open to constructive discussion with BAGS.
177. Also on 13th February 2007, Mr Kelly gave an interview to the Racing Post. Mr Kelly
referred in detail to the position with the 5 RUK April 2007 courses. Mr Kelly stated
that BAGS and AMRAC were now competitors and BAGS was looking for
alternative content to cover the gap produced by the absence of the April 2007
courses.
178. On 20th February 2007, AMRAC revised its business plan. The financial rewards
identified in the draft business plan were greater than shown in earlier drafts. The
business plan stated that the new service would be launched on 1st January 2008 but a
pilot service would be available from 1st September 2007. It was stated that the first
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three quarters of 2007 would be the key recruitment period in order to drive the
necessary market penetration to make the new service viable. At this stage, AMRAC
was plainly still assuming that the content from the April 2007 courses would be
provided through BAGS or SIS and not by AMRAC. In fact because BAGS would
not agree on that possibility with AMRAC, AMRAC launched its own service on the
20th April 2007.
179. The Annual General Meeting of the ABB took place on 22nd February 2007, Mr
Kelly, as Chief Executive of the ABB made a detailed report to the meeting. Mr Kelly
referred to the then recent debate about the retention of the levy and a possible
alternative to the levy represented by commercial funding of racecourses by the
betting industry. He then referred to AMRAC. He declared an interest by reason of his
involvement with BAGS. He stated that each bookmaker should decide for itself
where its commercial interests lay. He then pointed out, in his view, a number of
advantages which BAGS offered and some disadvantages in the AMRAC service. He
identified three possibilities for bookmakers to adopt. One was to take the SIS service
alone. The second was to take the AMRAC service alone. The third choice was to
take both services. Although AMRAC had said that competition between AMRAC
and SIS would force the price down, Mr Kelly expressed doubts on that score.
180. On 5th March 2007, SIS entered into an exclusive agreement with Newton Abbott
racecourse in relation to its LBO rights.
181. On 14th March 2007, AMRAC entered into an exclusive agreement with Ascot in
respect of its LBO rights in respect of the period from 1st April 2007 to 31st March
2013.
182. The board of BAGS met on 27th March 2007 and discussed ways in which additional
content could be obtained to fill the slots vacated by the April 2007 courses.
183. On the 19th April 2007, Paddy Power agreed to take Turf TV.
184. On the 20th April 2007, in the absence of an agreement between BAGS and AMRAC,
AMRAC launched the Turf TV service in relation to the 6 April 2007 courses.
185. On the 24th April 2007, Mr Ross of Ladbrokes met Mr Morcombe of
Alphameric/AMRAC.
186. On the 9th May 2007, SIS entered into an exclusive agreement with Ripon racecourse
in relation to its LBO rights.
187. Mr Smee of Jockey Club Racecourses Limited gave evidence that in May 2007 he
telephoned Mr Kelly of BAGS to offer BAGS a licence of the LBO rights for the
forthcoming (from 1st September 2007) evening race fixtures at Kempton Park
racecourse. Mr Kelly did not recollect any such conversation at that time.
188. On 8th June 2007, there was a meeting of the board of BAGS. One of the topics
considered was whether BAGS would take the rights in relation to evening meetings
at Kempton Park which were scheduled to begin on 1st September 2007. The board
decided that it would not take these rights. Also on 8th June 2007, Mr Kelly
telephoned Mr Smee of Jockey Club Racecourses Limited to tell him of this decision.
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189. On the 11th June 2007, SIS entered into a new agreement with AIR for exclusive
worldwide media rights for a term commencing 1st January 2009.
190. On 25th July 2007 the Claimants’ solicitors wrote a letter before action to the
Defendants. On 7th August 2007, the Defendants’ solicitors replied. On 13th
September 2007 the present proceedings were issued.
191. On 27th September 2007, SIS entered into an exclusive agreement with Plumpton
racecourse for its LBO rights for a period from 1st January 2008.
192. On Friday 21st December 2007, Coral a signed a five year deal with Turf TV. This
information had leaked, as a rumour, by Saturday 22nd December 2007. Coral agreed
to take Turf TV using SIS infrastructure. Coral was the first major bookmaker to sign
up for Turf TV. The proceedings between Coral and the Defendants were settled on
confidential terms.
193. By 27th December 2007, Mr Bell of Ladbrokes was able to report that he was putting
the finishing touches to a five year contract between Ladbrokes and Turf TV.
194. On 1st January 2008, Ladbrokes agreed to take Turf TV using Ladbrokes’ own
television service and infrastructure, known as Ladbrokes Xtra.
195. On 11th January 2008, William Hill agreed to take Turf TV, using SIS infrastructure.
196. On 18th March 2008, a company known as Bookmakers Technology Consortium
Limited (“BTC”), a collection of bookmakers, served proceedings on AMRAC, RMS
and AGL seeking an urgent interim mandatory injunction to compel AMRAC to
provide Turf TV to their members on terms which were more favourable to the
bookmakers than those previously on offer from AMRAC.
197. On 26th March 2008, Norris J declined to grant an injunction to the claimants in the
BTC litigation.
198. I was shown a circular letter dated 5th June 2008 sent by SIS to its customer LBOs.
The letter is headed “we are listening” and goes on to explain how SIS is concerned to
understand its customers’ needs and to provide the right kind of service for those
customers. It was suggested that this behaviour by SIS was a reaction to the arrival of
Turf TV as a competitor in the market and was a beneficial effect of such competition.
PART 4: THE EVIDENCE FROM THE ECONOMISTS
The three economists
199. The court heard evidence from three distinguished economists. The Claimants called
Mr Biro of Frontier Economics Limited. The Defendants called Dr Niels of Oxera
Consulting Limited. SIS called Dr Bishop of CRA International Limited. These three
experts met and agreed a statement which recorded the extent of their agreement and
their disagreement on various matters. Before turning to that statement, I ought to
record one feature of the evidence of Mr Biro.
A preliminary matter
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200. Mr Biro was asked by the solicitors acting for the Claimants to comment on two
specific issues or groups of issues. The first issue was as to the extent to which
AMRAC needed to secure media content exclusivity agreements with a number of
British racecourses in order to enter the market for the supply of television channels
containing live British horseracing content to LBOs. Specifically, Mr Biro was to
consider: (a) whether AMRAC’s arrangements with the 30 RUK racecourses and
Ascot were necessary to ensure viable entry into the market; or (b) whether there were
any less restrictive entry models available to AMRAC. The second issue or group of
issues was as to the anticipated consumer welfare effects arising from the entry of
Turf TV into the market for the supply of television channels containing live British
horseracing content LBOs. Mr Biro was specifically asked to consider: (a) whether at
the time of AMRAC’s entry, one could reasonably have foreseen the launch of Turf
TV as leading to consumer benefit; and (b) if less restrictive entry models were
available to AMRAC, what would have been the effect on competition in the market,
on LBOs and on their customers of AMRAC having gone beyond what was
necessary. Further, in relation to the first issue or group of issues, Mr Biro was asked
by the Claimants’ solicitors to proceed on a certain factual assumption.
Notwithstanding the fact that by 31st January 2007, when AMRAC entered into
exclusive LBO licences for 31 racecourses, BAGS and SIS between them had signed
up some 26 British racecourses on exclusive terms, Mr Biro was asked to assume that
the only exclusive media content available to BAGS and SIS were the ten former GG
Media Racecourses in Britain and 27 courses in the Republic of Ireland and Northern
Ireland and BAGS Greyhound Tracks. At no time during his written or oral evidence
did Mr Biro move from that position which he had been asked to adopt and which was
at variance with the real facts as at 31st January 2007.
201. The other two experts (Dr Niels and Dr Bishop) addressed many more issues than
those addressed by Mr Biro. Accordingly, when the three experts met the three of
them (including Mr Biro) discussed matters which were not the subject of Mr Biro’s
written evidence. In the statement prepared by the three experts, the position of Mr
Biro is identified in relation to a number of matters he had not dealt with in his written
evidence. Notwithstanding that fact, the Claimants did not at any time seek to put in a
further report from Mr Biro in which he might have dealt with matters in addition to
those dealt with in his written evidence. Indeed, the Claimants did put in a
supplemental report but again restricted to the matters addressed by Mr Biro in his
original report. Accordingly, when Mr Biro was called to give oral evidence at the
trial an issue arose as to the status of that part of the statement of the experts which
identified Mr Biro’s position in relation to matters that he had not addressed in his
written evidence. I ruled that the Claimants were not entitled to call Mr Biro to give
evidence in chief on matters that were not contained in his initial report and his
supplemental report. In particular, any statement as to Mr Biro’s position recorded in
the joint statement of experts was not evidence in chief by Mr Biro. However, I went
on to state that the statement of experts existed and if it became material to know at
some point what an expert might have said outside his evidence in chief, for example,
in a letter or in a document or in a joint statement between experts, then the joint
statement could be referred to for the purpose of identifying such a position.
202. I indicated at the time when I gave my ruling on this question that I would give short
reasons for that ruling in this judgment.
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203. The subject of experts’ reports is dealt with by CPR Part 35. Rule 35.5 states that
expert evidence is to be given in a written report, unless the court directs otherwise.
Rule 35.6 again refers to the report prepared by the intended expert. Rule 35.10 states
that an expert’s report must comply with the requirements set out in the relevant
Practice Direction. Rules 35.10(2) and (3) specify other requirements as to the
contents of an expert’s report. The Practice Direction referred to in Rule 35.10
identifies general requirements as to expert evidence in paragraph 1 and deals with the
form and contents of an expert’s report in paragraph 2. It is not necessary to read the
detail of those requirements into this judgment. The notes in Civil Procedure at
35.10(2) contain further commentary on the required contents of an expert’s report.
204. Mr Biro complied with the requirements of the rules and the Practice Direction in the
first report and in the supplemental report which he prepared. Those requirements
have not been complied with in relation to that part of the statement of the experts
which records his position in a number of respects. It seems to me to follow from the
requirements of the Rules and of the Practice Direction, and the form of the
documents I have referred to, that Mr Biro’s report for the purposes of CPR Part 35,
and therefore the permitted scope of his evidence in chief, is confined to his first
report and his supplemental report. The result is that the record of his position in the
joint statement of experts is not part of his report and ought not to be part of his
evidence in chief, unless the court directs otherwise under Rule 35.5. I was not, in the
event, invited to give such a direction under Rule 35.5.
205. Mr Green on behalf of the Claimants relied on Rule 35.12 and on the order of Lindsay
J. on 11th October 2007, when he directed the experts to meet to discuss the issues
between them and to prepare and file a statement for the court showing the issues on
which they agreed and the issues on which they disagreed, with a summary of their
reasons for disagreeing. That order was complied with by the three experts when they
prepared their joint statement to which I have referred. I do not suggest that the
Claimants or Mr Biro have broken any rule. Nonetheless, the fact remains that the
steps which have been taken and the documents which have been prepared have
produced a result that Mr Biro can give evidence in chief in accordance with his
report and supplemental report, but not further or otherwise.
206. It should be remembered that if the Claimants had wanted Mr Biro to give evidence
on subjects wider than those addressed in his report and his supplemental report,
particularly when they saw the scope of the evidence given by Dr Niels and Dr
Bishop, it would have been open to them to request Mr Biro to prepare a further
report dealing with those matters and one which complied with the rules and the
Practice Direction. At no time did the Claimants seek to do this.
207. If I had permitted Mr Biro to give evidence in chief in accordance with the statement
of his position in the statement of the experts, then the situation would have been
unsatisfactory as regards the conduct of the trial. If that statement of his position had
been part of his evidence in chief, it would seem that it would have been necessary for
the other parties to cross examine Mr Biro on matters where he disagreed with other
experts. If Mr Biro had been cross-examined on those matters, not dealt with in his
report or his supplemental report, then the cross-examiner and the court would have
heard for the first time his reasons for his position when he gave answers in cross-
examination. That is the very thing which the rules and the Practice Direction were
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meant to prevent and it would have been plainly unsatisfactory for the other parties to
this dispute.
208. It was for the above reasons that I ruled during the course of the trial that Mr Biro’s
evidence in chief was to be confined to his report and his supplemental report.
The experts’ joint statement
209. As already explained, the three economists drew up a statement recording areas of
agreement and of disagreement. In so far as this statement sets out the agreement of
the three economists it is, of course, very helpful. In so far as the statement sets out
areas of disagreement between Dr Niels and Dr Bishop in respect of matters discussed
in their expert’s reports then, again, the statement is useful as identifying the matters
in dispute between them. In so far as the statement indicates disagreement on the part
of Mr Biro with either Dr Niels or Dr Bishop, then the statement is useful if the
relevant issue is a subject discussed in Mr Biro’s report. If the area of Mr Biro’s
disagreement with one or other expert is not discussed in Mr Biro’s report then that is
an issue on which Mr Biro did not give evidence in chief and, speaking generally, was
not cross-examined and I do not have his evidence on that subject. As explained
above, the part of the experts’ joint statement which records Mr Biro’s position on a
matter he does not deal with in his evidence is not part of the evidence on behalf of
the Claimants.
210. With the above comments on the joint statement of the experts, I will now attempt to
summarise the areas of agreement and disagreement between them. I start with the
issue of market definition where there is essentially no dispute between the experts.
The experts were able to agree that there were two relevant product markets, the
upstream market and the downstream market. The upstream market includes the
acquisition of licences for media rights to British horseracing. The downstream
market includes the supply of televised broadcasting of live British horseracing to
British LBOs. Dr Bishop suggested that the product markets might be narrower than
those described. The three experts left open the question whether in some respects the
relevant product markets might be wider than those described in that the relevant
product markets could arguably include Irish horseracing, the supply of services to
Irish LBOs and the supply of data. As regards the relevant geographic markets, the
experts saw the choice as one between (a) the British Isles (essentially the United
Kingdom and the Republic of Ireland) as a single market and (b) Great Britain being a
separate market from Ireland (Northern Ireland and the Republic of Ireland). The
experts concluded that it was not necessary to make this choice for the purpose of
determining the other issues in the case.
211. The experts then considered whether the upstream market or the downstream market
constituted a natural monopoly. This was a matter that only Dr Niels had considered
in his report. He was of the view that neither the upstream market nor the
downstream market constituted a natural monopoly. Dr Bishop did not address the
matter because it was not material to the issues he had considered and he thought it
was inherently difficult to know the answer to this question. Mr Biro agreed with Dr
Neil that neither market constituted a natural monopoly and both markets seemed
capable of supporting more than one supplier.
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212. The experts then considered whether obtaining a critical mass of LBO customers was
necessary in order for any new broadcaster to enter the downstream market and
whether both Irish and British LBOs were relevant for such critical mass. Mr Biro
agreed that it would be necessary for a new broadcaster to require a certain mass of
LBO customers in order to enter the downstream market on a profitable basis. He
commented on the evidence as to what the critical mass might be. Dr Neil agreed that
critical mass was necessary and that both Irish and British LBOs were relevant for
such critical mass. Dr Bishop agreed that critical mass was necessary although he
stated this issue was not relevant to the matters dealt with in his report.
213. The experts then considered whether exclusivity was necessary for the sellers of
media rights to maximise their revenues and whether exclusivity was in the interests
of racecourses. Dr Niels agreed that exclusivity was in the interests of racecourses as
it allowed them to enhance their revenues from media rights. Dr Bishop agreed that
exclusivity was necessary for the sellers of media rights to maximise their revenues
and was in the interests of racecourses. Mr Biro disagreed with the proposition in the
question. He stated it would be equally possible for racecourses to maximise their
revenues by licensing their media rights on a non-exclusive basis. He thought that
the answer depended on whether the media rights were sold on a lump sum basis or
on a royalty basis. If rights were sold on a lump sum basis, exclusivity might be
necessary for revenue maximisation but if rights were sold on a royalty basis then
exclusivity was not necessary to maximise revenue.
214. The next issue in the joint statement was whether exclusivity allowed broadcasters to
differentiate their services, and thereby increase their revenue. Dr Niels and Dr
Bishop agreed that this was so. Mr Biro questioned the word “differentiate” and its
applicability to a case where broadcasters offered similar amounts of exclusive
content. He thought that it was more accurate to say that exclusivity could create a
“must-have” element to the services of each broadcaster and that would allow
broadcasters to increase their revenues.
215. The experts then considered whether exclusivity was necessary for competing
broadcasters to invest, or to recover their investments, in channel production and
distribution. Dr Niels stated that a degree of exclusivity was necessary to recover the
broadcaster’s investment. The necessary degree of exclusivity was higher for
AMRAC as an entrant as compared with SIS as an incumbent. Dr Bishop agreed with
the proposition in the question. Mr Biro disagreed. He thought that a degree of
exclusivity might be required but the question had not been fully addressed. The
answer depended on the scope for suppliers to differentiate their services by other
means. Further, the size of the fixed costs which were said to drive the need for
exclusivity depended to a large extent on whether the media rights were sold on a
lump sum basis (and so constitute a fixed cost) or on a royalty basis (and so constitute
a variable cost). He went on to state that a relatively small amount of exclusive
content could suffice to ensure viable market entry.
216. The next issue was as to the relevant counterfactual for the purpose of considering the
effects on competition. I comment that this question is not as precise as it might be.
It would have been helpful to have identified what was the thing which was said to
have an effect on competition. Was it the fact that the AMRAC licences were
exclusive? Was it the fact that the AMRAC licences were the result of collective
selling by racecourses or closed selling by racecourses? Dr Niels stated that the
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correct counterfactual was one in which no entry by AMRAC took place (i.e. there
would still be a SIS monopoly) since (he stated) the AMRAC licences were necessary
for entry in the first place. Dr Bishop said that the correct counterfactual for assessing
the competitive effects of exclusive agreements was what would happen if the
agreements were non-exclusive. This answer focuses on the effect of exclusivity and
not the effect on competition of any other matters of complaint. Mr Biro stated that
the relevant counterfactual would be the situation which prevailed prior to AMRAC’s
entry if the AMRAC arrangements were necessary in order to ensure market entry. If
the AMRAC arrangements went beyond what was necessary (in terms of exclusive
licensing on a collective and closed basis) then a less restrictive form of entry would
constitute the relevant counterfactual.
217. The experts then considered whether harm to consumers was a necessary condition
for exclusivity to be anti-competitive. Dr Niels dealt with this issue as a matter of
principle by stating that harm to consumers was not always a necessary condition for
exclusivity to be anti-competitive as there could be situations where exclusivity was
anti-competitive if it harmed intermediate customers (who were not end consumers)
or if it harmed suppliers. Dr Bishop stated that harm to final consumers (punters) was
a necessary, but not a sufficient, condition for exclusivity to be anti-competitive. Mr
Biro disagreed that harm to consumers was a necessary condition for exclusivity to be
anti-competitive. The question of whether an agreement between firms including an
exclusivity provision served to restrict competition was logically distinct from the
question of whether the agreement was harmful to consumers. Agreements which
restricted competition might or might not result in harm to consumers. Agreements
which did not harm consumers or were even beneficial to consumers could be
unnecessarily restrictive of competition by having anti-competitive elements which
were dispensable.
218. The experts then considered whether greater income from media rights flowing to
racecourses was beneficial to the sport of horseracing and ultimately consumers. Dr
Niels and Dr Bishop succinctly agreed with this proposition. Mr Biro provided a
detailed answer which involved some element of disagreement. In particular, he did
not think that an increase in racecourse income from the sale of media rights was
likely to be beneficial to the sport and ultimately to consumers. The answer depended
on how the monies were used by racecourses and he thought that that issue had not
been fully addressed. Mr Biro suggested that Dr Bishop’s report was inconsistent on
this point in that Dr Bishop was sceptical that increased costs faced by LBOs as a
result of the AMRAC arrangements would feed through to punters but also stated that
increased revenues to racecourses would feed through to the sport of horseracing. Mr
Biro also suggested that the historic role of BAGS, acting in the interest of LBOs,
should be taken into account. He stated that if greater incomes were good for the
sport of horseracing in a manner that was beneficial to LBOs, then BAGS would have
taken these considerations into account when negotiating with the racecourses. Mr
Biro also disagreed that punters were net beneficiaries from the AMRAC
arrangements in particular as a result of the increase in costs to LBOs. Mr Biro stated
that racegoers were not relevant in this context as they were not consumers of the
media rights or services based on those rights, the subject of the AMRAC
arrangements. Further, racegoers did not bear the detriments which resulted from the
AMRAC arrangements.
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219. The next question considered by the experts was whether an industry-wide cost
increase for LBOs resulted in harm to consumers. Mr Biro thought that the cost to
LBOs would ultimately be borne by the punter and this was harmful. Dr Niels had
not specifically addressed this question in his report as he had set out the likely non-
price benefits of competition between SIS and AMRAC to LBOs and their customers
from enhanced content and technology. He thought that the cost increase to LBOs
was a consequence of the removal of a 20 year SIS monopsony and should not be
viewed in isolation. Dr Bishop thought that an increase in costs for LBOs would not
automatically result in significant harm to consumers because prices to consumers
were unlikely to increase appreciably, because it was not clear that a significant
number of LBOs would exit the market and it was unlikely the cost increases would
significantly affect LBOs investments.
220. On the next topic, whether it was relevant to consider the effects of the arrangement at
issue on competition in both the upstream and the downstream markets, Mr Biro and
Dr Niels agreed that it was. Dr Bishop agreed subject to an earlier point he had made
that the arrangements could be anti-competitive only if they resulted in consumer
harm.
221. The experts then addressed the nature of AMRAC’s licence agreements. They
considered whether obtaining some exclusive British horseracing content was
necessary in order for AMRAC to enter the market. Dr Niels thought that the answer
was “yes”. Dr Bishop thought the answer was probably “yes” but it was not relevant
to the particular matters considered in his report. Mr Biro considered that this
proposition was a possibility but he was unable to reach a reliable conclusion on the
basis of the available evidence. The experts then went on to consider: what was the
amount of exclusive British horseracing content which would have represented the
minimum necessary? Mr Biro suggested that the LEK report which had been
obtained by AMRAC “implied” that the scope of the AMRAC arrangements under its
Business Plan was more than necessary in order to enter the market. However, Mr
Biro pointed out that the LEK reports were based on SIS having a certain amount of
exclusive content in its service and the assumed exclusive content of SIS was less
than the actual exclusive content available to SIS by the end of January 2007 when
the AMRAC licences were entered into. Mr Biro went on to refer to “various
shortcomings” in the LEK reports so that he was unable to reach a reliable conclusion
on the exact minimum level of exclusivity that would be necessary but he felt able to
conclude that the minimum level was materially less than was envisaged under the
ARL Business Plan. Dr Niels thought it would be difficult for anyone to determine
the minimum level of exclusivity required. He stated that Mr Biro’s estimate of the
minimum exclusivity required was no more robust or reliable than the estimate of
LEK. He further stated that the question of minimum exclusivity for AMRAC could
not be meaningfully addressed if it was assumed that SIS had less exclusivity in its
content than it actually did at the end of January 2007. Dr Bishop said that the answer
to the question was inherently difficult and he had not addressed the issue because it
was not material to the questions considered in his report.
222. The next question was whether the sale of the media rights to the RUK courses on a
collective and closed basis was necessary in order for AMRAC to enter the market.
Mr Biro stated that if a new entrant needed to obtain a certain amount of horseracing
content on an exclusive basis, then the collective selling in relation to these rights
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might have been necessary. To the extent that the scope of the AMRAC
arrangements was more than was necessary in order to enter the market, then the
collective selling of the RUK media rights would have been unnecessary. Mr Biro
was not aware how it would have been necessary for the RUK media rights to have
been sold on a closed basis and why new entry into the downstream market could not
have been achieved through an open and competitive bidding process.
223. The three economists then considered the effects of AMRAC’s licensing
arrangements on competition and consumers. They asked whether the sale of the
media rights by the RUK courses on a collective and closed basis had a bearing on
competition in the upstream and downstream markets as defined earlier. Mr Biro
considered that the sale of the media rights to the RUK courses on a collective and
closed basis did have a bearing on competition in both markets. To the extent that the
scope of the AMRAC arrangements, in terms of the amount of exclusivity and
collective and closed selling, was more than was necessary in order to enter the
market, this would have had implications for competition in both markets. A further
consequence of the AMRAC arrangements was the vertical integration of the RUK
courses into the downstream market for the supply of television services, with
implications for future competition in the acquisition of rights, once the current RUK
agreements expired. Mr Biro did not agree that racecourses were not competitors in
the sale of their LBO media rights. Dr Niels stated that the closed basis of the sale (if
that had happened) was necessary for the successful establishment of AMRAC as an
entrant competing with SIS. The effect on upstream and downstream competition
was therefore positive as it created competition where there had been none for 20
years. As to the collective selling by RUK courses (assuming this occurred), that did
not restrict competition between racecourses. Dr Bishop did not address this question.
224. The next issue considered by the economists was whether the licensing of the RUK
courses to AMRAC had increased or was likely to increase competition in the
upstream market for the acquisition of licences for horseracing media rights. Mr Biro
stated that in principle the presence of AMRAC as a second potential purchaser of
licences could increase competition in the upstream market. In practice, if the RUK
courses were licensed on a closed basis then only AMRAC was afforded the
opportunity to acquire these rights and so the arrangements would have entailed no
competition for the acquisition of the RUK rights. Further, the AMRAC
arrangements led to vertical integration of the RUK courses into the downstream
market and it was questionable whether other potential purchasers would in the future
be offered the opportunity to bid for the RUK rights. Although other racecourses
such as the Arena and Northern courses were likely to have had increased competition
for the purchase of their rights as a result of AMRAC’s entry, the AMRAC
arrangements were not necessary to create that competition, as AMRAC could have
entered the market with materially lower levels of exclusive content. Dr Niels
succinctly agreed that the licensing of the RUK courses to AMRAC had increased or
was likely to increase competition in the upstream market. Dr Bishop stated that what
mattered in the upstream market was the ex-ante competition for media rights.
Particular licensing agreements were the natural outcome of such competition. As
long as there had been ex-ante competition any outcome would potentially be a
competitive outcome.
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225. The next matter in the agreed statement of the experts was whether the impact of the
licensing of the RUK courses on competition in the upstream market resulted or was
likely to result in consumer benefits. Mr Biro considered such benefits unlikely. Mr
Biro gave a detailed answer referring to a large number of matters. These included
the question whether racecourses would use their increased income to invest in or
otherwise improve their courses and whether such improvements were to the benefit
of the LBO punter. He stated it was unclear whether an increase in racecourse income
would lead to additional investment in horseracing and it was also unclear whether
this would generate benefits to LBO punters. Any benefit to the punters would need
to be considered in the light of detriments to punters resulting from the AMRAC
arrangements. Dr Niels agreed with the proposition that competition in the upstream
market resulted in consumer benefits. Upstream competition enhanced income to
racecourses. This was highly likely to enhance investment in horseracing. This
would benefit horseracing and its various stakeholders including race goers and
punters. Dr Bishop’s view was that what mattered was ex-ante competition for rights
regardless of the particular licensing outcome. Such competition was likely to result
in benefits to horseracing and its various stakeholders including race goers and
punters.
226. The penultimate question considered by the economists was whether the licensing of
the RUK courses to AMRAC had increased or was likely to increase competition in
the downstream market for the supply of television services to LBOs. Mr Biro
disagreed that the AMRAC licences had increased or were likely to increase
competition in the downstream market. They had led to less downstream competition
compared with a counterfactual entailing a less restrictive entry model. Competition
in the downstream market was limited as a result of both SIS and AMRAC holding
large amounts of exclusive “must have” content. Moreover, the scope for potential
competition through market entry which Mr Biro said had previously existed, had
been eliminated given the levels of exclusive media rights held by BAG/SIS and
AMRAC. Dr Niels thought that the AMRAC arrangements had increased or were
likely to increase competition in the downstream market. They had made such
downstream competition possible. Competition between SIS and AMRAC to become
the only broadcast service into any specific LBO would be limited. However, there
was or was likely to be competition between SIS and AMRAC on secondary content
and on technological improvements which were of significant benefit to LBOs and
their customers. Dr Bishop again stated that, provided there had been ex-ante
competition in the upstream market, any of the possible outcomes (one, two or more
providers) in the downstream market would be a competitive outcome.
227. The final question addressed by the economists in their joint statement was whether
the impact of licensing of the RUK courses on competition in the downstream market
had resulted or was likely to result in consumer benefits. Mr Biro considered that the
AMRAC arrangements had not increased competition in the downstream market
compared with a counterfactual entailing a less restrictive entry model and this was to
the detriment of consumers. Mr Biro was doubtful whether the AMRAC
arrangements in accordance with the ARL Business Plan would have been expected to
benefit LBOs and punters. The market situation following AMRAC’s entry,
compared with the situation that prevailed prior to AMRAC’s entry, involved both
LBOs and punters being worse off. Dr Niels thought that there were likely to be
significant benefits to LBOs and their customers in terms of choice and variety of
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secondary content and technological improvements. The higher total price that LBOs
were now paying for Turf TV and SIS FACTS was a consequence of the removal of
the 20 year SIS monopsony. Dr Bishop again repeated his point that provided there
had been ex-ante competition in the upstream market consumer benefits were likely to
arise.
Mr Biro’s evidence
228. As I have earlier indicated, Mr Biro prepared a report and a supplemental report. I
have already described the two issues which Mr Biro addressed in these reports.
Before summarising Mr Biro’s conclusions on those two issues, it is relevant to note
that Mr Biro referred to the history of the matter in the autumn of 2006 and winter
2006/2007. He referred in particular to the sequence of events under which BAGS,
SIS and AMRAC entered into exclusive licences or sub-licences concerning LBO
rights. He noted that there was a dispute as to the motivation of the various parties in
respect of entering into exclusive licences as distinct from non-exclusive licences. Mr
Biro then stated that he had not been asked by the solicitors for the Claimants to
address this dispute. Instead when Mr Biro reviewed the LEK reports and the ARL
Business Plan, he proceeded on an assumption that the relevant prevailing BAGS/SIS
exclusive media content comprised access to the GG Media racecourses, the Irish
racecourses and the BAGS greyhound races. Thus, in relation to British racecourses,
Mr Biro gave his evidence on the basis that BAGS/SIS had exclusive media content in
respect of 8, or possibly 10, racecourses. In fact, on 31st January 2007, when
AMRAC entered into exclusive licences with the operators of 30 RUK racecourse
(Ascot was added in March 2007) BAGS/SIS had exclusive media content in respect
of 26 British racecourses. As Mr Biro was asked to make the assumption as to
BAGS/SIS exclusive media content by the Claimants’ solicitors, one would have
expected that the Claimants would put forward a legal submission to justify this
assumption and invite the court also to proceed on the basis of those assumed facts,
rather than the actual facts. In the event, the Claimants did not argue that Mr Biro’s
assumption was legally justified or that there was any basis on which the court should
disregard the actual background facts as at 31st January 2007.
229. Mr Biro helpfully summarised the conclusions he had reached. These were:
i) The minimum amount of exclusive horseracing media content that was
necessary for AMRAC viably to enter the market would be likely to be less
than 30% of off-course betting turnover as assumed by the ARL Business
Plan.
ii) On the basis of the assumptions underlying the ARL Business Plan, it was
doubtful whether the launch of Turf TV would have been expected to generate
an overall improvement in consumer welfare.
iii) If Turf TV’s entry strategy had been based on the acquisition of a smaller
number of exclusive media rights contracts, then this would be likely to
expand the scope for competition between SIS and Turf TV and to generate
consumer welfare benefits.
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iv) In relation to the market situation as it stood after Turf TV’s entry, compared
with the situation that prevailed prior to Turf TV’s entry, consumer welfare
had clearly been reduced.
v) The scope for consumer welfare to improve through, and enhancement of,
competition was severely restricted since further market entry was presently
foreclosed.
230. Mr Biro expanded on this summary of his conclusions and referred, first, to the
approach he had adopted in assessing the necessary minimum amount of exclusive
horseracing media content to enable AMRAC viably to enter the market. Mr Biro
referred to the work carried out by LEK in particular. Mr Biro said he had some
criticisms of the assumptions and research used in the LEK report and, accordingly,
he had criticisms of the results of the analyses carried out and the conclusions taken
from these analyses. The author of the LEK report was not called by any party to give
evidence at the trial. Neither of the other economists, Dr Niels or Dr Bishop, gave
evidence in support of the LEK report. As indicated above, Mr Biro was himself
critical of the LEK report. Notwithstanding that fact, Mr Biro sought to use the LEK
report to arrive at his conclusions. He stated that he took most of LEK’s assumptions
at face value but adjusted certain assumptions which he considered to be particularly
doubtful. He then concluded that the minimum level of exclusivity required for a
market entry to have been viable would have comprised around 22% of off-course
betting turnover, equivalent to the 7 most valuable RUK courses.
231. Mr Biro then turned his attention to the anticipated impact on consumer welfare
resulting from the market entry of Turf TV. I have already described his summary of
the conclusions he reached. In considering consumer welfare, Mr Biro concentrated
on the welfare of punters using LBOs. In principle, their position could be improved
if the quantity or the quality of the media services provided to LBOs were enhanced
and/or if the total costs of purchase of the service by LBOs were reduced. Mr Biro
did not believe that the LEK reports and the Business Plan would have justified a
conclusion that there would be an improvement in the quality or the content of Turf
TV’s offering. Accordingly, for AMRAC to have expected that Turf TV’s market
entry would generate a consumer welfare benefit, it would have had to expect a
consequent reduction in the total costs of purchase of media content by LBOs. Mr
Biro explained that in his view, it would not have been possible to reach the
conclusion, in advance, that there would be a reduction in total cost to LBOs or even
that the situation would have been equivalent in cost terms, following Turf TV’s
entry. In expressing his conclusions, Mr Biro also addressed the question of
collective selling on an exclusive basis. He said there was a realistic counterfactual
scenario in which some or all of the RUK courses could have sold their LBO media
rights on a non-exclusive basis. If that had happened, that would have expanded the
scope for competition between SIS and Turf TV and would have increased the
likelihood that Turf TV’s market entry would have generated consumer welfare
benefits.
232. At the end of his report, Mr Biro considered whether increased cost to LBOs would be
passed on to the punter. In the event that the increased cost to LBOs were on a per
outlet basis, he did not expect that LBOs would pass the increased costs onto punters
in any immediate or direct way. However, he referred to the fact that the change in
the fixed costs incurred by LBOs would affect the profitability of LBOs and the
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incentives to invest at an outlet level and he thought this would have implications for
the welfare of punters. In particular, reduced LBO profitability would result in some
LBOs closing and reduced investment incentives would result in fewer LBOs
opening.
233. Annex 3 to Mr Biro’s report contained an examination of the LEK written reports and
supporting financial model in order to assess how this material might be translated
into a minimum number of exclusive horseracing media contracts that a new entrant
might have had to acquire to achieve a viable entry into the market.
234. Mr Biro prepared a supplemental report. He explained that it had been suggested to
him, by the Claimants’ solicitors, that it would be helpful if he could provide a fuller
explanation of the workings he had carried out in Annex 3 to his earlier report and his
supplemental report sought to do this.
235. When cross-examined, Mr Biro accepted that he was not an industry expert for the
purposes of carrying out appraisals or business planning. He also accepted that he
had not carried out his own survey of LBOs with a view to assessing their propensity
to subscribe to Turf TV. He changed the assumptions in the LEK Report as to take
up, changing both take up by large LBOs and smaller LBOs.
236. Part of the work done by LEK and part of the recalculation carried out by Mr Biro
was with a view to assessing how much exclusive content would be needed to enable
a new entrant to enter the relevant market. These calculations were based upon
figures which showed the contribution each racecourse made to the turnover or gross
win of LBOs. If one reached a conclusion that it was desirable or necessary to have,
say, 22% or 30% of turnover or gross win the subject of exclusive licenses, then LEK
and Mr Biro took the percentages for each racecourse and added them together to get
the target figure of, say, 22% or 30%. However, there was a basic flaw in this
approach. The percentages attributed to each racecourse included a contribution to
turnover or gross win in respect of races which were shown on terrestrial television by
Channel 4 or BBC2. Thus, LBOs could show races on terrestrial television without
buying that service from the new entrant into the market. Conversely, the new entrant
into the market could not say to LBOs that it had exclusive rights in relation to races
which were also available on terrestrial television. No one calculated the figures
which would be appropriate if one removed the contribution to turnover or gross win
attributable to races shown on terrestrial television, from the figures used by LEK and
Mr Biro. However, it is clear that the reduction that would need to be made would be
a significant one and not one that could properly be overlooked. Mr Biro accepted
this point when it was put to him.
237. Mr Biro also gave evidence as to the rate of return which one should reflect in a
financial projection for the purpose of considering the viability of a new entrant. Mr
Biro had recorded in his report a statement made by Mr Bazalgette in his witness
statement to the effect that LEK had advised AMRAC that a reasonable return on the
investment in the new venture, which would be seen as a high risk investment, was in
the region of 25-35% per annum compound. Mr Biro had pointed out that LEK had
used a cost of capital of 13%. This was described as the weight adjusted cost of
capital or WACC. Mr Biro gave evidence, when cross-examined, that the cost of
capital of 13% was there to reflect the degree of risk which was foreseen and that
sounded a reasonable figure for that purpose.
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238. Mr Biro was also cross-examined as to the impact on the LEK prediction of the fact
that the Northern and Arena courses granted exclusive rights to BAGS in November
and December 2006 and BAGS granted an exclusive sub-licence of those rights to
SIS in December 2006. Mr Biro was asked to confirm the differences between the
spreadsheet based on LEK’s approach which showed AMRAC being able to offer to
LBOs non-exclusive content from the Northern and Arena courses and AMRAC not
being able to offer to LBOs any content from the Northern and Arena courses
(because they had signed exclusively to BAGS). Mr Biro accepted that there was a
significant difference in the net present value of the business if AMRAC could not
offer non-exclusive content from the Northern and Arena courses.
239. Mr Biro also accepted that if the non-availability of non-exclusive content from the
Northern and Arena courses meant that AMRAC was not able to persuade a large
LBO, such as Coral, to take non-exclusive content (from those courses where
AMRAC was able to offer non-exclusive content) then the net present value of the
business of the new entrant would become substantially negative. Indeed, the position
could well be worse than the spreadsheet produced by the Defendants to illustrate the
point as in that spreadsheet there continued to be income for AMRAC from other
LBOs who bought non-exclusive content from AMRAC. It could very well be the
case that if those spreadsheets were run on the basis that all LBOs would buy non-
exclusive content from SIS and no non-exclusive content from AMRAC then the
position would deteriorate further.
240. Mr Biro also gave evidence as to the difference between what he was evaluating
based on the LEK prediction and what happened in the real world when the Northern
and Arena courses signed exclusively to BAGS and those rights were sub-licensed to
SIS. He said that that state of affairs was “wholly different” to the scenario that he
was evaluating.
241. In relation to the suggestion that AMRAC’s entry on an exclusive basis had
foreclosed the market, he stated that he had not looked at the question of whether
there was room in the market for a third competitor and he had not conducted an
exercise which identified potential operators that might (even in principle) be willing
to exploit a market entry opportunity.
242. He agreed with Dr Bishop’s evidence that exclusive agreements were common when
licensing sports media rights. He also agreed that if one acquired LBO rights on a
lump sum basis rather than on a royalty basis the new entrant to the market would
have to bear high fixed costs. He accepted that based on the examples referred to in
Dr Bishop’s report, it seemed to be the norm for media rights to be sold on a lump
sum basis.
243. In relation to Mr Biro’s point that reduced profitability for LBOs would indirectly
impact on punters, he explained that he was not able to give detailed evidence as to
the way in which LBOs went about reinvesting profit and he had not looked at the
matter empirically. He said however that economic theory created a presumption that
reduced profitability would have an impact on the end consumer.
244. Mr Biro explained that in his report he had looked at the question whether there were
less restrictive entry models available in terms of how much exclusivity was needed
to create a viable proposition. He had not however looked at what he called the
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mechanics of putting together a grouping of racecourses to provide the necessary
amount of exclusivity. He had not looked at the question of whether the new entrant
would need to sign all 30 RUK courses, and then sub-license a number of them, or
whether the new entrant could take exclusive rights from some only of the 30 RUK
courses, so as not to exceed what Mr Biro was saying was the minimum needed for
effective entry.
Dr Niels’ evidence
245. In his report, Dr Niels identified some 15 questions which he intended to address. He
then addressed those questions in detail and summarised his conclusions. It is not
necessary to recite Dr Niels’ conclusions on matters that were non-contentious, and
which were dealt with above when referring to the joint statement of experts. I will
attempt to summarise Dr Niels’ conclusions in other respects.
246. Dr Niels expressed the view that, in principle, it was a legitimate objective for the
operators of racecourses to seek to enhance their revenues from the sale of LBO
media rights. He considered it likely that increased income to racecourses would lead
to beneficial effects on horseracing as a whole and its various stakeholders.
247. Before AMRAC’s entry, the racecourses effectively faced a single monopsony
purchaser in SIS, whether directly or through BAGS. The effect of monopsony was
normally to suppress artificially the purchase price. Therefore there was commercial
and economic logic to the creation of AMRAC by the RUK racecourses (and
Alphameric) to compete with SIS. The launch of Turf TV was in itself pro-
competitive since it created competition where there had been none for 20 years.
248. Dr Niels expressed the view that competition was preferable to the continuation of the
SIS monopoly. The supply of televised horseracing was not a natural monopoly.
There was only limited cost duplication between Turf TV and SIS FACTS. The
situation of exclusive rights for each horseracing broadcaster made it unlikely that the
market would “tip” in favour of one of them. But even if the episode of competition
currently created by AMRAC turned out to be temporary, it would have had the
beneficial impact of shaking up a market that had been monopolistic for 20 years. Dr
Niels asked: “what would have competition have been like in the absence of the
AMRAC exclusive licence agreements?” He concluded that without exclusivity the
entry would not have been viable and no competition would have been created.
AMRAC required a critical mass of LBO customers to achieve a sustainable entry
into the market. It faced significant challenges in achieving this because SIS, as the
monopolist, had various advantages of incumbency, including its long standing
business relationships, some investment costs, and exclusivity for some British
horseracing, Irish horseracing, and BAGS greyhound racing. This exclusivity meant
that it would not have been possible for AMRAC to replicate the content of SIS
FACTS. The equity share of William Hill and Ladbrokes in SIS was also a material
barrier to entry.
249. With exclusivity, a new entrant into a market with entry barriers can differentiate its
product from that of the incumbent, obtaining a competitive edge to attract customers.
As to the degree of exclusivity needed for AMRAC’s market entry, Dr Niels thought
it was very difficult for anyone to determine this. When AMRAC had 6 racecourses
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signed exclusively (the April 2007 racecourses) that exclusivity was far short of the
amount necessary to reach the critical mass of LBO subscribers.
250. Dr Niels did not rely on the LEK report and the AMRAC Business Plan. He was not
himself able to vouch for the estimates in those documents and, further, those
documents did not take into account the additional exclusive licences subsequently
obtained by SIS before the AMRAC licences were granted at the end of January 2007.
When SIS obtained further exclusive content in December 2006, this added to the
uncertainty and insecurity that formed an inherent part of AMRAC’s attempt to gain a
critical mass of LBO customers. As to the duration of the AMRAC licences, this was
not unreasonable as an entrant required sufficient time and opportunity to recover its
initial investment.
251. As regards the alleged “closed” character of the AMRAC licence agreements, Dr
Niels considered it to be self-evident that offering the RUK racecourse rights to SIS
would make little economic sense. If SIS had won the RUK rights in a tender,
AMRAC would effectively have ceased to exist as a credible broadcaster and the
outcome would have been a continuation of the SIS monopoly. If it were the case that
the RUK racecourses were closed to SIS, that was necessary for the successful
establishment by the racecourses of the AMRAC joint venture as an entrant
competing with SIS.
252. Dr Niels also considered the effects of AMRAC’s entry into the market on
competition and on consumers. He felt that AMRAC’s entry had led to competition
in the upstream market and an increase in revenue to racecourses which was likely to
lead to investments for the benefit of all stakeholders, including punters. In the
downstream market, competition between SIS and AMRAC to become the only
service into any specific LBO would be limited as both services were to some extent
“must-have” for LBOs. There were other benefits. One was competition for
secondary content, that is, content other than British horseracing. Dr Niels also
understood that Turf TV also brought a number of technological improvements to the
market. AMRAC’s entry had not resulted in lower prices to LBOs as the reverse was
the case. This fact needed to be weighed against the long term benefits of competition
to LBOs to racecourses and of horseracing generally. The net cost increase to LBOs
was a consequence of the overall beneficial introduction of competition where there
had been none for 20 years.
253. As to collective selling, if that had occurred, Dr Niels accepted that in principle
collective selling could be harmful if it restricted competition between rivals.
Collective selling might be harmful where products were substitutes. However,
British horseracing was organised so that individual races took place at different times
so racecourses did not compete with one another in the same time slots and collective
selling would not restrict competition in that sense. Further, collective selling of LBO
media rights by racecourses would not significantly reduce other forms of competition
between them. Racecourses continued to have incentives to compete with each other
in the bidding for fixtures, attracting sponsorships and other matters.
254. The structure of payments to the AMRAC racecourses had certain pro-competitive
features when compared with the previous structure of payments to racecourses by
BAGS. Under the AMRAC arrangements, racecourses would receive dividends
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calculated on the basis of their share of the revenue stream attributable to each
racecourse.
255. On the question of broadcasters discussing LBO media rights with groups of
racecourses, it was convenient to talk to groups of racecourses. In economic terms,
such combined negotiations could be expected to save transaction costs, to increase
the likelihood of achieving an alignment of incentives between the various parties,
and ultimately to speed up the conclusion of agreements. The last of these was a
crucial factor given the competition between SIS and AMRAC to sign up racecourses.
Central negotiations did not in themselves imply a restriction or distortion of
competition.
256. When cross-examined, Dr Niels explained the benefits which he saw for the persons
whom he described as the “stakeholders in horseracing”. It was put to him that he
was describing a virtuous circle and he agreed. The virtuous circle was that the result
of the AMRAC arrangements was that racecourses would receive more money; they
could apply that money to investing in their facilities, promotion and development;
this would produce a better racing product which could generate greater interest in
racing and more betting, both on-course and off-course, with the result that LBOs and
punters would benefit. He explained that the presence of AMRAC in the market
meant that both RUK courses and non-RUK courses would have a choice between
broadcasters. In the negotiation that took place in 2006, the non-RUK courses were
able to play SIS and AMRAC off against each other when negotiating to grant
exclusive rights.
257. Dr Niels was also asked about competition between racecourses, particularly the
competition which might arise if each racecourse wanted to avoid being the last in the
queue to sell its LBO rights. Dr Niels acknowledged that, in theory, there could be
competition of that kind but he thought it had not happened with the most recent
round of negotiations. This fact was demonstrated by the case of Plumpton, which
was the last of 60 courses to grant LBO rights, in fact, to SIS. Dr Niels explained that
AMRAC and SIS had both competed strongly for the rights at Plumpton.
258. Dr Niels had referred in his report to various obstacles to entry faced by AMRAC and
he accepted that most of the matters he referred to were mentioned in the AMRAC
Business Plan.
259. Dr Niels commented that the survey carried out by LEK was not representative of the
total bookmaker population and not very reliable for the purpose of determining the
minimum degree of exclusivity required by a new entrant to the market.
260. Dr Niels also commented upon the fact of BAGS and SIS signing up racecourses on
an exclusive basis in the period before the grant of the AMRAC licences. He
commented that the position had materially changed between the date of the LEK
Report and the grant of the licences to AMRAC. He regarded that as being of
fundamental importance to the rest of his analysis.
261. Dr Niels acknowledged that as the cost to LBOs of acquiring services from SIS and
from AMRAC was greater than before and there ought to be a weighing up exercise,
which balanced benefits against cost. He stated that a weighing up exercise on a
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quantitative basis was difficult but the exercise could be attempted on a qualitative
basis. He stated that, on this basis, the benefits outweighed the disadvantages.
262. Dr Niels commented that, unlike the cases of UEFA and FAPL, considered by the
European Commission, there was no output restriction in the present case.
263. He commented that secondary content (with British horseracing being the primary
content) in the SIS and AMRAC services was important. From an economic
perspective, he thought that AMRAC had incentives to add further secondary content
so as to position themselves in the market as a good alternative to SIS. He thought
this could lead to a very significant form of competition, in respect of secondary
content, between SIS and AMRAC.
264. Dr Niels also expressed the view that for LBOs to have a choice between AMRAC
and SIS was good in itself. He commented that secondary content occupied more
than half of the time that a service was provided to LBOs. He also thought that
competition between SIS and AMRAC would produce a greater availability of
information which would be of benefit to LBOs.
265. Dr Niels was cross-examined about the extra cost to LBOs as a result of AMRAC’s
entry into the market. He indicated that the extra cost to LBOs was between £35m
and £40m. The extra cost could be as much as £45m if all the LBOs signed up to
AMRAC. About one half of the extra cost to LBOs would find its way back to
racecourses.
266. When re-examined, Dr Niels distinguished between two situations. The first situation
was where the rights holders licensed their rights to a rights aggregator which offered
those rights together to various existing broadcast channels. The second situation was
where a group of rights holders, in order to create a new television broadcasting
channel, licensed rights to the new company which then entered the market where
there had previously been only one buyer of rights. Dr Niels said that as an economist
there was a fundamental difference between the two cases because in the second case
the rights holders faced the hurdle of creating a second potential purchaser.
267. Also in the course of re-examination, Dr Niels was asked about the appropriate
process to encourage ex-ante competition. He stated that the process which one
selected as appropriate would be affected by the number of bidders, for example
where there was only one bidder or several bidders.
Dr Bishop’s evidence
268. The expert economist instructed by SIS was Dr Bishop. Dr Bishop prepared two
reports dated, respectively, 7th April 2008 and 17th April 2008. When Dr Bishop
prepared his reports, AMRAC’s claim against SIS included an unconditional
allegation that certain exclusive licences or sub-licences held by SIS were anti-
competitive, by virtue of their exclusive character. This allegation was initially made
by AMRAC against SIS unconditionally and did not depend upon the Claimants
establishing their case against AMRAC. After the date of Dr Bishop’s reports,
AMRAC further amended its claim against SIS so that the claim against SIS, in
respect of exclusive licences or sub-licences taken by SIS, was only made in the event
that the court held that the licences to AMRAC infringed Article 81.
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269. It should also be noted that the challenge made by the Claimants to the AMRAC
licences is based on the fact, or the alleged fact, that those licences were not only
exclusive but were also the subject of closed and collective negotiations. Conversely,
the contingent claim made by AMRAC against SIS challenges the licences to SIS
only on the basis that those licences are exclusive. No complaint is made by AMRAC
against SIS as to the nature of the process which lead to the grant of the licences to
SIS.
270. I will seek to summarise the main conclusions arrived at by Dr Bishop. Dr Bishop
concluded that the exclusive licences to SIS were not anti-competitive. Exclusive
agreements were common when licensing sports media rights. This was essentially
for two reasons. The first reason was that exclusive rights were needed to ensure that
the broadcasters or distributors had the incentive to invest in producing and
distributing the service. The second reason was that exclusive rights provided the
rights holders with an efficient tool to maximise the revenues and that was a
legitimate aim of rights holders. The grant of exclusive rights allowed distributors to
charge a price that reflected the full economic value of the rights. Television
distribution was characterised by high costs of operation but very small marginal costs
of distributing to one additional customer. Without exclusive content, whether
contractually or in practical terms, distributors would not undertake the investment
needed to distribute the content and the product at issue would not exist or exist only
in an inferior form. Where there was more than one potential distributor, rights
holders were able, by granting exclusive rights, to extract a large portion of the
economic value of the rights. In economics, maximising the rents falling to the rights
holders was a normal and legitimate aim, not dissimilar from extracting the full
economic value from intellectual property rights covered by a patent or copyright. By
allowing rights holders to exploit their rights fully, exclusive agreements in sport
typically resulted in larger investments, more prize money and better talent and that
tended to improve the quality and the value of the sport.
271. In an industry such as horseracing, by reason of high fixed costs and very low
marginal costs, competition usually meant preserving the possibility of periodic rival
competition for the rights, and for periodic rival entry. Ex-ante competition for
securing the rights was the natural form of competition in such a market. Seen in this
light, the claim by the Claimants against AMRAC and the counterclaim by AMRAC
against SIS were both misplaced. Exclusivity was natural and normal in such an
industry and was beneficial, even essential, to the efficient operation of such an
industry.
272. Exclusive provisions could raise concerns when their duration was exceedingly long
or their breadth excessive. An anti-competitive effect could arise with a temporary
conferment of exclusive rights that allowed a distributor to become entrenched and
foreclosed the downstream distribution market. Because of the duration of the
exclusive provisions of the agreements (being considered by Dr Bishop) and because
they related to less than half of the available British horseracing content, Dr Bishop
concluded that the exclusive provisions in question could not result in an anti-
competitive entrenchment of SIS’s market position. It was beyond doubt that the
BAGS/SIS exclusive agreements had not prevented the entry of Turf TV, which was
in the market and in operation. Further, Turf TV’s exclusive rights had not driven
BAGS/SIS from the market.
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273. Even if the exclusive character of the rights resulted in higher prices to LBOs over the
long run, it did not follow that these exclusive agreements were anti-competitive.
Higher prices to LBOs did not automatically result in harm to the ultimate consumers
of televised horseracing images, i.e. the punters. The welfare of the final consumers
was the concern of competition policy.
274. There might be some negative effects on punters if the increase in the price of the
service to LBOs had the effect of pushing some LBOs out of business. Dr Bishop had
not seen any evidence suggesting any large effect of that kind. Further, the negative
effect on punters must be assessed against the benefit from three sources, to
racegoers, to on-track punters and to off-track punters, from the better racing
experience offered by racecourses as a result of the higher income flowing from their
rights. The main effect of exclusivity was the transfer of some of the economic rents
from LBOs to racecourses and such transfers should not be considered anti-
competitive.
275. Dr Bishop saw the present proceedings as just one more round in the industry’s long
term struggle over how the economic profits were split between racecourses and
LBOs. The dispute was essentially a commercial one and that was a normal market
occurrence with nothing anti-competitive about it. The arrangements did not affect
the ultimate consumers of televised images, i.e. punters to any appreciable extent, but
even if off-track punters were a little worse off, there was no reason to suppose there
would be an overall detriment when racegoers, on-track punters and other various
stakeholders were susceptible to be made better off.
276. Dr Bishop expanded on some of these topics in his second report. His second report
also dealt with the way in which the AMRAC claim against SIS was then pleaded.
The case which was then put involved the court holding that the AMRAC licences
were valid but that the BAGS/SIS exclusive licences were invalid. It is not necessary
to summarise Dr Bishop’s comments on that possible outcome, as it is no longer
contended for by any party.
277. When Dr Bishop was cross-examined he confirmed that his report had focussed on
the question of exclusivity and he had not addressed any issue as to collective selling.
He had considered the way in which the markets operated for the purpose of assessing
how exclusivity operated in those markets.
278. He was asked about the approach taken by the Commission, in particular in cases
such as UEFA and FAPL. He described the Commission’s concern as one which
related to the potential effects on downstream distribution.
279. Dr Bishop expressed the view that off-track punters would benefit from a better
horseracing experience and a better horseracing industry.
280. Dr Bishop explained that the bookmakers were what economists called “price takers”.
They therefore had difficulty, at least in the short run, in passing on costs increases.
He would expect the immediate effect of increased costs to LBOs to be essentially
negligible.
281. Dr Bishop was asked about the circumstances in which the racecourses entered into
exclusive negotiation agreements with AMRAC for a period during which
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racecourses and AMRAC negotiated and finally settled on the terms of exclusive
licences to AMRAC. Dr Bishop considered that such arrangements would be entirely
normal in a case where the race tracks were throwing in their lot with the new venture
and so would not negotiate with SIS. This was a case of sponsored entry where a
customer or supplier helped someone get into the market usually because the
customer or supplier was unhappy with the pre-existing market. This was not anti-
competitive as it was a case of the operation of normal competition. It involved a new
entrant. It was suggested to Dr Bishop that the racecourses had “locked out” other
bidders for their rights. Dr Bishop did not accept that as a realistic analysis of the
position. He referred to the racecourses regarding BAGS/SIS as a monopsonist
offering prices that were too low for valuable rights. The racecourses took action to
ensure a new entrant into the market, who could bid for their rights. If they had not
acted the way they had done, there was every prospect that the new entrant would
have failed. There would have been a lack of confidence in the new entrant and it was
not clear if it would have got off the ground. The phrase “lock out” made no sense in
relation to an entrant because what the racecourses were doing was saying: “we will
decide not to sell to this monopolist any longer” – a reference to the incumbent in the
market.
282. Dr Bishop described the industry as a well functioning one that had exhibited recent
successful competition. He regarded the suggestion that the RUK racecourses should
have gone about creating or permitting a new entrant in a different way as misplaced.
283. Dr Bishop expressed the view that competition was about entry. Entry had happened
in the present case and that was an example of competition. The LEK analysis was
not germane to the question of whether what had happened was competitive or anti-
competitive.
284. Dr Bishop referred to the Claimants’ case as involving the idea of two firms, with
essentially the same content, competing with each other. In theory, that situation
would reduce price competition whereby price fell to marginal cost. Dr Bishop
explained that this theory was not sustainable in the present industry. This was
because the provider of the service had very high fixed costs and low marginal costs.
This was called the Bertrand paradox.
285. Dr Bishop also explained that he would be surprised if a third firm (in addition to
BAGS/SIS and AMRAC) would want to come into the industry. The next move in
the industry was as likely to be back to one as it was forward to three, by, for
example, a merger of SIS and AMRAC.
286. At the end of his evidence, I asked Dr Bishop to expand his views as to the
desirability of new entry to the market. I asked him to comment on the Claimants
case that the new entry should have come about in another way, in particular, a way
which was less restrictive of competition. Dr Bishop explained that such a case
would be the first time he had heard of competition law being applied to limit the
behaviour of an entrant. Competition law, he said, applied to limit the behaviour of
incumbents who were seeking to prevent a new entrant. He added that some harm to
LBOs, in the sense of paying higher prices, was inevitable if there was a new entrant.
The fact that the price was higher should not be regarded as a detriment providing that
it is reflecting the costs of the operation of competition.
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A further comment
287. I have now described the evidence given by the three economists. Some of the matters
discussed by the economists, in particular by Dr Niels and Dr Bishop, went beyond
the normal scope of expert evidence, as I understand it. Those two witnesses did not
confine themselves to matters of micro economics on which they could give
admissible opinion evidence for the assistance of the court. They also summarised
their understanding of the legal principles which fell to be applied and then offered
their conclusions as to the result of applying those legal principles to this case. They
also commented on some of the policy questions which might be said to arise. Whilst
I found their reports helpful to me when I came to consider the legal principles and
their application in this case, the fact remains that such topics are not matters for
expert evidence but, if anything, they are submissions as to what the law is and how it
ought to be applied.
288. In the course of the trial, I did seek assistance from the parties as to which parts of the
evidence were truly admissible expert evidence on matters of micro economics and
which went beyond the proper bounds of expert evidence. None of the parties
attempted to distinguish between what was admissible and what was not. The parties
dealt with the evidence of the experts in a general way as if it was all available as
evidence which could be relied upon by the court. Nonetheless, in considering my
judgment I have attempted to distinguish in my own mind between what is evidence
(where my decision must be whether I do or do not accept that evidence) and what are
contentions as to the law (which I can consider as submissions and which I may or
may not find helpful).
PART 5: THE LAW
Article 81 of the EC Treaty
289. Article 81(1) of the EC Treaty is in these terms:
“The following shall be prohibited as incompatible with the
common market: all agreements between undertakings,
decisions by associations of undertakings and concerted
practices which may affect trade between Member States and
which have as their object or effect the prevention, restriction
or distortion of competition within the common market, and in
particular those which:
a) directly or indirectly fix purchase or selling prices or any other
trading conditions;
b) limit or control production, markets, technical development, or
investment;
c) share markets or sources of supply;
d) apply dissimilar conditions to equivalent transactions with other
trading parties, thereby placing them at a competitive
disadvantage;
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e) make the conclusion of contracts subject to acceptance by the
other parties of supplementary obligations which, by their
nature or according to commercial usage, have no connection
with the subject of such contracts.”
290. Article 81(2) of the EC Treaty provides:
“Any agreements or decisions prohibited pursuant to this
Article shall be automatically void.”
291. Article 81(3) of the EC Treaty provides:
“The provisions of paragraph 1 may, however, may be declared
inapplicable in the case of :
- any agreement or category of agreements between
undertakings;
- any decision or category of decisions by associations of
undertakings;
- any concerted practice or category of concerted
practices,
which contributes to improving the production or distribution
of goods or to promoting technical or economic progress, while
allowing consumers a fair share of the resulting benefit, and
which does not:
a) impose on the undertakings concerned restrictions which are not
indispensable to the attainment of these objectives;
b) afford such undertakings the possibility of eliminating competition in
respect of a substantial part of the products in question.”
292. Article 81(1) has always been a directly applicable provision of Community law
creating rights for individuals that can be invoked before national courts. Article 81(3)
on the other hand does not have direct effect. This follows from Article 83(2)(b)
which requires the Community institutions to lay down detailed rules for the
application of Article 81(3). Article 83(2)(b) expressly provides for the adoption of
detailed implementing measures as a necessary condition for applying Article 81(3).
This implies that Article 81(3) is not sufficiently unconditional to produce direct
effect.
293. The Council of the EEC first laid down detailed rules for the application of Article
81(3) by Regulation 17 of 1962. Under Regulation 17/62 only the European
Commission could authorise agreements caught by Article 81(1). Neither national
courts nor national competition authorities had the power to apply the exception in
Article 81(3). Regulation 17/62 created a notification and authorisation system
whereby undertakings had to notify agreements to the Commission in order to benefit
from that exception.
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294. Regulation 17/62 has now been replaced by Council Regulation (EC) 1/2003, the so
called Modernisation Regulation. Regulation 1/2003 replaces the centralised
notification and authorisation system by an enforcement system based on direct
application of Article 81 as a whole. Under the new regime, the European
Commission, competition authorities and courts of the Member States all have the
power to apply Article 81 in full. Moreover, an agreement caught by Article 81(1) but
which satisfies the conditions of Article 81(3) is valid and enforceable, no prior
decision to that effect being required. Notification is no longer a condition for Article
81(3) to apply. These changes are effected by Articles 1 and 6 of Regulation 1/2003.
Article 2 of Regulation 1/2003, deals with the burden of proof for the purpose of
Article 81. I will refer to the question of burden of proof later in this judgment.
Regulation 1/2003 came into force on the 1st May 2004.
The Competition Act 1998
295. Agreements and concerted practices restricting competition are also dealt with by
Section 2 of the Competition Act 1998. Section 2 of the 1998 Act provides:
The prohibition
2 Agreements etc preventing, restricting or distorting competition
(1) Subject to section 3, agreements between undertakings, decisions
by associations of undertakings or concerted practices which--
(a) may affect trade within the United Kingdom, and
(b) have as their object or effect the prevention, restriction or
distortion of competition within the United Kingdom,
are prohibited unless they are exempt in accordance with the provisions
of this Part.
(2) Subsection (1) applies, in particular, to agreements, decisions or
practices which--
(a) directly or indirectly fix purchase or selling prices or any other
trading conditions;
(b) limit or control production, markets, technical development or
investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other
trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the
other parties of supplementary obligations which, by their nature or
according to commercial usage, have no connection with the subject of
such contracts.
(3) Subsection (1) applies only if the agreement, decision or practice
is, or is intended to be, implemented in the United Kingdom.
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(4) Any agreement or decision which is prohibited by subsection (1) is
void.
(5) A provision of this Part which is expressed to apply to, or in
relation to, an agreement is to be read as applying equally to, or in
relation to, a decision by an association of undertakings or a concerted
practice (but with any necessary modifications).
(6) Subsection (5) does not apply where the context otherwise
requires.
(7) In this section "the United Kingdom" means, in relation to an
agreement which operates or is intended to operate only in a part of the
United Kingdom, that part.
(8) The prohibition imposed by subsection (1) is referred to in this Act
as "the Chapter I prohibition".
296. Section 9 of the 1998 Act, as amended in 2004, provides:
9 [Exempt agreements]
[(1)] [An agreement is exempt from the Chapter I prohibition if it]--
(a) contributes to--
(i) improving production or distribution, or
(ii) promoting technical or economic progress,
while allowing consumers a fair share of the resulting benefit; [and]
(b) does not--
(i) impose on the undertakings concerned restrictions which are not
indispensable to the attainment of those objectives; or
(ii) afford the undertakings concerned the possibility of eliminating
competition in respect of a substantial part of the products in question.
[(2) In any proceedings in which it is alleged that the Chapter I
prohibition is being or has been infringed by an agreement, any
undertaking or association of undertakings claiming the benefit of
subsection (1) shall bear the burden of proving that the conditions of that
subsection are satisfied.]
297. Section 60 of the 1998 Act declares that its purpose is to ensure that so far as possible
questions arising under Part I of the 1998 Act (which includes Sections 2 and 9) in
relation to competition within the United Kingdom are dealt with in a manner which
is consistent with the treatment of corresponding questions arising in Community law
in relation to competition within the Community. By Section 60(2), when a court
determines a question arising under Part I of the 1998 Act it must act with a view to
securing that there is no inconsistency between the principles applied and the decision
reached by the court in determining that question and the principles laid down by the
Treaty and the European Court and any relevant decision of that Court as applicable at
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that time in determining any corresponding question arising in Community law. By
Section 60(3), it is provided that the Court must, in addition, have regard to any
relevant decision or statement of the European Commission.
298. It can be seen from comparing the language of Article 81 with Sections 2 and 9 of the
1998 Act that the two sets of provisions are very similar and they operate in parallel.
At the trial, all of the parties made their submissions in relation to Article 81, rather
than by reference to Sections 2 and 9 of the 1998 Act. All the parties proceeded on the
basis that if the matters complained of infringed Article 81 then they would also
infringe Section 2 of the 1998 Act and, conversely, if the matters complained of did
not infringe Article 81 then they would not infringe Section 2 of the 1998 Act. I will
therefore in this judgment confine myself to addressing the requirements of Article 81
without on every occasion repeating that the same requirement exists in the parallel
provisions of Sections 2 and 9 of the 1998 Act.
299. It emerged at the trial that there were important differences of principle between the
parties as to the operation of Article 81. In some respects at least the relevant law
lacks precision. Further, the relevant legal principles have not been static but have
been developed in recent decisions, but without the fact of development always being
acknowledged in those decisions. In addition to these considerations, I face the further
difficulty that the Claimants’ submissions in opening, and even more so in closing,
involved a considerable change in the case that had been originally pleaded. Indeed,
the other parties submitted that in a number of respects, the Claimants’ case began by
accepting certain basic propositions of law but later the Claimants appeared to
challenge those propositions. All of the above, unfortunately, makes it necessary for
me to set out my understanding of how Article 81 operates in some detail before I
attempt to apply that understanding to the particular circumstances of this case.
Article 81(1)
300. Article 81(1) refers to “agreements between undertakings”. Article 81(1) also refers to
“decisions by associations of undertakings”. At one time, during the trial, by reason of
the allegations being put forward by way of counterclaim, it would have been
necessary to consider the meaning and application of the latter phrase. However, by
reason of concessions made during closing submissions, it is no longer necessary to
do so.
301. There was no real dispute about the meaning of “undertakings”. In order to be an
undertaking, an entity must be engaged in an economic activity. An economic activity
is any activity involving the offer of goods and services in a given market. Entities do
not have to be incorporated under company law or take any other legally recognised
form in order to be deemed an undertaking. Pursuit of profit is not essential. Each of
the Defendants against whom a claim has been brought by the Claimants is an
undertaking. So too is each of the Defendants to Counterclaim.
302. Article 81(1) refers to “agreements” and to “concerted practices”. The decisions of the
European Court suggest that one should avoid discussing these words or phrases in
isolation as if they were mutually exclusive separate concepts. The trend has been to
treat the concept of agreement and the concept of concerted practice as simply
overlapping parts of a spectrum of activity.
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303. For present purposes, it is sufficient to cite two references to understand what is
meant by an agreement or by a concerted practice. The first reference is to the
Commission Guidelines on the Application of Article 81(3). Although those
Guidelines refer in their heading to Article 81(3) they also contain some important
discussion as to the operation of Article 81(1). As I will wish to cite these Guidelines
on a number of occasions I will refer to them as “the Article 81(3) Guidelines”.
304. Paragraph 14 of the Article 81(3) Guidelines includes the following passage:
“The prohibition rule of Article 81(1) applies to restrictive
agreements and concerted practices between undertakings and
decisions by associations of undertakings in so far as they are
capable of affecting trade between Member States. A general
principal underlying Article 81(1) which is expressed in the
case law of the Community Courts is that each economic
operator must determine independently the policy, which he
intends to adopt on the market. In view of this the Community
Courts have defined “agreements”, “decisions” and “concerted
practices” as Community law concepts which allow a
distinction to be made between the unilateral conduct of an
undertaking and co-ordination of behaviour or collusion
between undertakings.”
305. Paragraph 15 of the Article 81(3) Guidelines is in these terms:
“The type of co-ordination of behaviour or collusion between
undertakings falling within the scope of Article 81(1) is that
where at least one undertaking vis-à-vis another undertaking
undertakes to adopt a certain conduct on the market or that as a
result of contacts between them uncertainty as to their conduct
on the market is eliminated or at least substantially reduced. It
follows that co-ordination can take the form of obligations that
regulate the market conduct of at least one of the parties as well
as of arrangements that influence the market conduct of at least
one of the parties by causing a change in its incentives. It is not
required that co-ordination is in the interest of all the
undertakings concerned. Co-ordination must also not
necessarily be express. It can also be tacit. For an agreement to
be capable of being regarded as having been concluded by tacit
acceptance there must be an invitation from an undertaking to
another undertaking, whether express or implied, to fulfil a goal
jointly. In certain circumstances an agreement may be inferred
from and imputed to an ongoing commercial relationship
between the parties. However, the mere fact that a measure
adopted by an undertaking falls within the context of on-going
business relations is not sufficient.”
306. In the present case it is not necessary to explore the reference in paragraph 15 of these
Guidelines to “tacit acceptance”.
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307. The second reference which I cite is the judgment of the Court of Appeal in (1) Argos
Limited (2) Littlewoods Limited and OFT and JJB Sports Plc and OFT [2006] EWCA
Civ 1318. Although the passage set out below is a lengthy one, it is a most convenient
summary of a great deal of case law from the European courts.
“ [21] The Ch I prohibition applies to agreements and also to
concerted practices which do not have the formality or certainty of
agreements. It is not legally necessary to distinguish between
agreements and concerted practices, and references by the tribunal in its
judgments to agreements included concerted practices. We will
differentiate between them only so far as seems necessary or
appropriate. The tribunal set out a summary of the relevant law which, in
itself, is not controversial at paras 150 to 163 of its judgment in the
Football Shirts appeals and similarly at paras 145 to 156 of its judgment
in the Toys and Games appeals, drawing in each case on judgments of
the European Court of Justice and the Court of First Instance. We will
set out here the essential propositions, with references but not full
quotations:
i) The object of the inclusion of concerted practices in the prohibition
is to bring within art 81 a form of coordination between undertakings
which, short of the conclusion of an agreement properly so-called,
knowingly substitutes practical co-operation between the undertakings
for the risks of competition. A concerted practice does not have all the
elements of an agreement but may arise out of co-ordination which
becomes apparent from the behaviour of the participants. Parallel
behaviour may amount to strong evidence of a concerted practice if it
leads to conditions of competition which do not correspond to the
normal conditions of the market: ICI v Commission [1972] ECR 619,
[1972] CMLR 557 ("Dyestuffs").
ii) The requirement of independent determination of policy on the
market on the part of competitors strictly precludes any direct or indirect
contacts between competing undertakings, the object or effect of which
is either to influence the conduct on the market of an actual or potential
competitor or to disclose to such a competitor the course of conduct
which the undertaking has decided to adopt or contemplates adopting on
the market: Suiker Unie v Commission [1975] ECR 1663, [1976] 1
CMLR 295, [1976] FSR 443.
iii) The prohibition on concerted practices applies to all collusion
between undertakings whatever the form it takes. An agreement arises
from the expression by the participating undertakings of their joint
intention to conduct themselves in a specific way. Concerted practices
include forms of collusion having the same nature as agreements which
are distinguishable from agreements by their intensity and the forms in
which they manifest themselves: Commission v Anic Partecipazioni
[1999] ECR I-4125, [2001] 4 CMLR 17.
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iv) A decision on the part of a manufacturer which constitutes
unilateral conduct of that undertaking escapes the Ch I prohibition
(though if the undertaking has a dominant position, it might be caught by
the Ch II prohibition). The concept of an agreement centres around the
existence of a concurrence of wills between at least two parties, the form
in which it is manifested being unimportant so long as it constitutes the
faithful expression of the parties' intention: Bayer v Commission [2000]
ECR II-3383, [2001] All ER (EC) 1, 63 BMLR 71, upheld by the
European Court of Justice, Joined Cases C-2 and 3/01 P, 6 January 2004.
v) Although the concept of a concerted practice implies the existence
of reciprocal contacts, that requirement may be met where one
competitor discloses its future intentions or conduct on the market to
another when the latter requests it or, at the very least, accepts it:
Cimenteries v Commission [2000] ECR II-491, [2000] 5 CMLR 204.
vi) The fact that only one of a number of competing undertakings
present at a meeting reveals its intentions is not sufficient to exclude the
possibility of an agreement or concerted practice: Tate & Lyle v
Commission [2001] ECR II-2035, [2001] All ER (EC) 839, [2001] 5
CMLR 859.
…
[22] Counsel for all the Appellants submitted that many of the
observations in the cases from which these propositions are drawn need
to be understood in the light of the particular facts. They pointed out that
it is just as essential to a concerted practice as it is to an agreement that
there be a consensus between the two or more undertakings said to be
parties to the agreement or concerted practice. That is true, but concerted
practices can take many different forms, and the courts have always
been careful not to define or limit what may amount to a concerted
practice for this purpose.
[23] Particular attention was given in Counsel's submissions to the
decisions in the Bayer case. It is therefore appropriate to refer to that
case in more detail at this stage. The Commission had held that conduct
on the part of Bayer in relation to its dealers, aimed at controlling the
distribution of supplies of its products within the common market, and
of preventing or limiting parallel imports, amounted to agreements or
concerted practices in breach of art 81. The CFI held that this was wrong
on the facts, because the actions of Bayer were unilateral, not agreed to
or acquiesced in by the dealers. In its judgment, the CFI said, at para 69:
"It follows that the concept of an agreement within the meaning of Article 85(1) of the Treaty, as interpreted
by the case-law, centres around the existence of a concurrence of wills between at least two parties, the form
in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties'
intention."
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[24] After referring to certain cases in which measures adopted in an
apparently unilateral manner by a manufacturer had been held to
constitute an agreement, the CFI went on to say this at para 71:
"That case-law shows that a distinction should be drawn between cases in which an undertaking has adopted
a genuinely unilateral measure, and thus without the express or implied participation of another undertaking,
and those in which the unilateral character of the measure is merely apparent."
This proposition was reaffirmed later in the judgment, in particular at
paras 173, 174 and 176, in which the phrase "concurrence of wills" is
used repeatedly. It is unnecessary to quote these passages for present
purposes, as they do not set out any different proposition from that
already quoted.
[25] In the meantime, after para 71, the court considered in detail the
facts as regards the conduct of the wholesale customers and held that it
did not constitute sufficient proof in law of the acquiescence of the
dealers in Bayer's policy designed to prevent parallel imports.
[26] In the ECJ, the court referred at para 97 to what the CFI had said at
para 69, quoted above. It recognised at para 100 that "the existence of an
agreement within the meaning of [art 81] can be deduced from the
conduct of the parties concerned". It then said this at paras 101 and 102:
"101 However, such an agreement cannot be based on what is only the expression of a unilateral policy of
one of the contracting parties, which can be put into effect without the assistance of others. To hold that an
agreement prohibited by Article 85(1) of the Treaty may be established simply on the basis of the expression
of a unilateral policy aimed at preventing parallel imports would have the effect of confusing the scope of
that provision with that of Article 86 of the Treaty.
102 For an agreement within the meaning of Article 85(1) of the Treaty to be capable of being regarded as
having been concluded by tacit acceptance, it is necessary that the manifestation of the wish of one of the
contracting parties to achieve an anti-competitive goal constitute an invitation to the other party, whether
express or implied, to fulfil that goal jointly, and that applies all the more where, as in this case, such an
agreement is not at first sight in the interests of the other party, namely the wholesalers."
On that basis the court held that the approach of the CFI had been
correct in law, and dismissed the appeal.
[27] Counsel also cited a passage from Competition Law, 5th edition,
by Professor Whish, at p 100, the correctness of which was not
challenged, as follows:
"These two cases [Dyestuffs and Suiker Unie] provide the legal test of
what constitutes a concerted practice for the purpose of Article 81: there
must be a mental consensus whereby practical co-operation is knowingly
substituted for competition; however the consensus need not be achieved
verbally, and can come about by direct or indirect contact between the
parties." ”
308. Article 81(1) refers to agreements, decisions and practices “which may affect trade
between Member States”. No issue has been raised in relation to this requirement in
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this case. In the absence of a possible effect on trade between Member States, Article
81 does not apply so that the agreement or practice is subject only to the domestic law
of a Member State. The purpose of this criterion is to determine the jurisdictional
reach of Article 81.
309. Section 2(1)(a) of the 1998 Act refers to agreements, decisions and practices which
“may affect trade within the United Kingdom”. As with the similar phrase in Article
81(1), no issue has been raised in relation to this requirement in this case. As no point
has been raised in relation to the relevant requirement in Article 81 or in Section 2, I
need not discuss it further.
310. Article 81(1) refers to agreements, decisions or practices “which have as their object
or effect the prevention, or restriction or distortion of competition within the Common
Market….”. The Treaty does not define “competition”. Further, “competition” is not
defined in the Competition Act 1998. It is clear from the relevant provisions that
competition is regarded as beneficial and desirable but it may still be helpful to know
what competition is thought to be and in what respects it is thought to be beneficial
and desirable. The concept of competition is described, in passing, in a large number
of decisions of the courts and I will set out below a number of references which give
the flavour of what is meant by competition.
311. Paragraph 19 of the Commission Guidelines on the Applicability of Article 81 to
Horizontal Cooperation Agreements (“the Horizontal Cooperation Guidelines”)
describes the adverse effects of horizontal cooperation agreements, resulting in a
restriction on competition. The paragraph refers to “negative market effects as to
prices, output, innovation or the variety or quality of goods and services…..”. That
formulation shows that the operation of competition is relevant as to prices in the
market, but it is not restricted to the question of price, as competition may yield
beneficial results in relation to output, innovation, variety of goods and services and
quality of goods and services.
312. Paragraph 13 of the Article 81(3) Guidelines states:
“The objective of Article 81 is to protect competition on the
market as a means of enhancing consumer welfare and of
ensuring an efficient allocation of resources. Competition and
market integration serve these ends since the creation and
preservation of an open single market promotes an efficient
allocation of resources throughout the Community for the
benefit of consumers.”
313. The UK Government in its White Paper, Productivity and Enterprise: a World Class
Competition Regime (Cm 5233/2001) at para 1.1 stated:
“Vigorous competition between firms is the life blood of strong
and effective markets. Competition helps consumers get a good
deal. It encourages firms to innovate by reducing slack, putting
downward pressure on costs and providing incentives for the
efficient organisation of production.”
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314. In Glaxo Smith Kline Services v Commission, case T-168/01, judgment of the CFI,
27th September 2006, it was said at paragraph 118:
“In effect, the objective assigned to Article 81(1)EEC, which
constitutes a fundamental provision indispensable for the
achievement of the missions entrusted to the Community, in
particular for the functioning of the internal market ….., is to
prevent undertakings, by restricting competition between
themselves or with third parties, from reducing the welfare of
the final consumer of the products in question…………”
315. Without listing the many references of this kind, the judgments of the European Court
repeatedly refer to “workable competition” or “effective competition”.
316. It is also clear that the reference to competition is not confined to actual existing
competition but extends to potential competition: Tierce-Ladbroke v Commission
[1997] ECR II-923.
317. Article 81(1) refers to “the prevention, restriction or distortion” of competition. Not
much attention has been paid to the three separate words in this phrase and, in the
present case, it is sufficient to discuss whether the behaviour complained of amounts
to a “restriction” on competition.
318. The behaviour complained of will not be held to be a restriction on competition unless
it is held to have “an appreciable impact” on competition: Societe Technique Miniere
v Maschinenbau Ulm Gmbh [1996] ECR 235.
319. Finally, in relation to the concept of competition, the competition which is relevant is
competition in a particular product market. The definition of the product market
involves identifying the product in question and may also have a geographical
limitation. The definition of the relevant product market can be a complicated matter
but fortunately, in the present case, there is broad agreement between the economic
experts instructed by the parties as to the relevant product market. The views of the
economic experts in this respect are referred to in the earlier to this judgment. This
broad agreement appears to be sufficient for the purpose of determining the issues in
the case.
320. Article 81(1) refers to agreements and practices having a certain “object or effect”.
Object and effect are alternatives. It is sufficient to establish one of the alternatives for
the purpose of establishing an infringement of Article 81(1). However, the approach
of the European Courts in an object case is very different from the approach in an
effect case. In the present case, the Claimants say that the matters complained of by
them were agreements or practices which had the object of restricting competition,
alternatively, had the effect of restricting competition.
321. The question of restrictions of competition by object is dealt with in paragraphs 21
and 22 of the Article 81(3) Guidelines. Paragraph 21 states:
“Restrictions of competition by object are those that by their
very nature have the potential of restricting competition. These
are restrictions which in the light of the objectives pursued by
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the Community competition rules have such a high potential of
negative effects on competition that is unnecessary for the
purposes of applying Article 81(1) to demonstrate any actual
effects on the market. This presumption is based on the serious
nature of the restriction and on experience showing that
restrictions of competition by object are likely to produce
negative effects on the market and to jeopardise the objectives
pursued by the Community competition rules. Restrictions by
object such as price fixing and market sharing reduce output
and raise prices, leading to a misallocation of resources,
because goods and services demanded by customers are not
produced. They also lead to a reduction in consumer welfare,
because consumers have to pay higher prices for the goods and
services in question”.
322. Paragraph 22 of the Article 81(3) Guidelines states:
“The assessment of whether or not an agreement has as its
object the restriction of competition is based on a number of
factors. These factors include, in particular, the content of the
agreement and the objective aims pursued by it. It may also be
necessary to consider the context in which it is (to be) applied
and the actual conduct and behaviour of the parties on the
market. In other words, an examination of the facts underlying
the agreement and the specific circumstances in which it
operates may be required before it can be concluded whether a
particular restriction constitutes a restriction of competition by
object. The way in which an agreement is actually implemented
may reveal a restriction by object even where the formal
agreement does not contain an express provision to that effect.
Evidence of subjective intent on the part of the parties to
restrict competition is a relevant factor but not a necessary
condition.”
323. Paragraph 23 of the Article 81(3) Guidelines refers to various restrictions which are
regarded as restrictions by object. Restrictions that are blacklisted in block
exemptions or identified as “hard core” restrictions in guidelines and notices are
generally considered by the Commission to constitute restrictions by object. In the
case of horizontal agreements, restrictions of competition by object include price
fixing.
324. In Faull & Nikpay, the EC Law of Competition, 2nd ed., at para 3.155, it is suggested
that the determination as to whether an agreement or concerted practice involves a
restriction by object is predominately a question of policy for the Community
institutions. If this is right, then there is little room for a national court to expand the
scope of restrictions, which are regarded as restrictions by object, beyond those
explicitly identified as such by the European Courts and case law and by the
Commission in its notices and guidelines. However, it is clear that an agreement
which has the object of fixing prices is a restriction by object and, indeed, the
Claimants contend in the present case that the behaviour complained of in this case
amounted to an agreement to fix prices.
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325. In general, an agreement which prima facie has as its object the restriction of
competition can nevertheless escape the prohibition of Article 81(1) if it only has an
“insignificant effect” on the market or on trade: Volk v Vervaecke [1969] ECR 295 at
paragraphs 5-7. As against that, it is stated in Faull & Nikpay at para 3.161 that it is
implausible that the European Courts would permit price fixing cartels to escape the
Article 81 prohibition on the basis of low market shares alone.
326. Where the agreement or practice does not have as its object the restriction of
competition, it will then be necessary to ask whether the effect of the agreement or
practice is the restriction of competition. The proper approach to such a case is
described in the Article 81(3) Guidelines, in paragraphs 24 to 26 in particular.
327. Paragraph 24 of the Article 81(3) Guidelines states:
“If an agreement is not restrictive of competition by object it
must be examined whether it has restrictive effects on
competition. Account must be taken of both actual and
potential effects. In other words the agreement must have likely
anti-competitive effects. In the case of restrictions of
competition by effect there is no presumption of anti-
competitive effects. For an agreement to be restrictive by effect
it must affect actual or potential competition to such an extent
that on the relevant market negative effects on prices, output,
innovation or the variety or quality of goods and services can
be expected with a reasonable degree of probability. Such
negative effects must be appreciable. The prohibition rule of
Article 81(1) does not apply when the identified anti-
competitive effects are insignificant. This test reflects the
economic approach which the Commission is applying. The
prohibition of Article 81(1) only applies where on the basis of
proper market analysis it can be concluded that the agreement
has likely anti-competitive effects on the market. It is
insufficient for such a finding that the market shares of the
parties exceed the thresholds set out in the Commission’s de
minimis notice. Agreements falling within safe harbours of
block exemption regulations may be caught by Article 81(1)
but this is not necessarily so. Moreover, the fact that due to the
market shares of the parties, an agreement falls outside the safe
harbour of a block exemption is in itself insufficient basis for
finding that the agreement is caught by Article 81(1) or that it
does not fulfil the conditions of Article 81(3). Individual
assessment of the likely effects produced by the agreement is
required.”
328. Paragraph 25 of these Guidelines states:
“Negative effects on competition within the relevant market are
likely to occur when the parties individually or jointly have or
obtain some degree of market power and the agreement
contributes to the creation, maintenance or strengthening of that
market power or allows the parties to exploit such market
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power. Market power is the ability to maintain prices above
competitive levels for a significant period of time or to
maintain output in terms of product quantities, product quality
and variety or innovation below competitive levels for a
significant period of time. In markets with high fixed costs
undertakings must price significantly above their marginal
costs of production in order to ensure a competitive return on
their investment. The fact that undertakings price above their
marginal costs is therefore not in itself a sign that competition
in the market is not functioning well and that undertakings have
market power that allows them to price above the competitive
level. It is when competitive constraints are insufficient to
maintain prices and output at competitive levels that
undertakings have market power within the meaning of Article
81(1).”
329. Paragraph 26 of these Guidelines states:
“The creation, maintenance or strengthening of market power
can result from a restriction of competition between the parties
to the agreement. It can also result from a restriction of
competition between any one of the parties or third parties, e.g.
because the agreement leads to foreclosure of competitors or
because it raises competitors’ costs limiting their capacity to
compete effectively with the contracting parties. Market power
is a question of degree. The degree of market power normally
required for a finding of an infringement under Article 81(1) in
the case of agreements that are restrictive of competition by
effect is less than the degree of market power required for a
finding of dominance under Article 82.”
330. For the purpose of considering whether the agreement or practice has the effect of
restricting competition, the consequences of the agreement must be considered to see
if competition has been restricted to an appreciable extent. Competition must be
assessed within the actual context in which it would occur in the absence of the
agreement in dispute: Societe Technique Miniere v Maschinenbau Ulm Gmbh [1996]
ECR 235 at 249 to 250; O2 (Germany) Gmbh v Commission case T-328/03.
331. Initially, the European Commission approached the question of a possible restriction
by effect by examining the impact of the agreement on the process of rivalry between
the parties and/or from third parties, through either foreclosure of potential new
entrants or hindrance of existing players in the market: see Faull & Nikpay at paras
3.167 to 3.175. The authors state, at para 3.176, that the European courts have
modified this traditional approach in a number of respects. Restrictions on rivalry are
not in themselves always restrictions on competition for the purposes of Article 81(1).
The restrictions must be considered in their specific market context. This introduces a
stronger economic element to Article 81(1); a point reflected in the passages quoted
from the Article 81(3) Guidelines.
332. The European Courts have also developed a concept of ancillary restraints. Clauses
which restrict rivalry between the parties and/or third parties fall outside Article 81(1)
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if they are directly related and necessary to the implementation of a legitimate
purpose. This purpose may be commercial, as shown by the decisions in Gottrup-
Klim v Dansk Landbrugs Grovvareselskab [1994] ECR I-5641 and Oude Luttikhuis v
Verenigde Cooperatieve Melkindustrie Coberco [1999] ECR I-4515. Or the purpose
may relate to a public interest such as the case involving the Bar of the Netherlands:
Wouters v Algemene Raad Van de Nederlandse Orde Van Advocaten [2002] ECR I-
1577.
333. The concept of an ancillary restraint is described in paragraph 29 of the Article 81(3)
Guidelines, in these terms:
“In Community competition law the concept of ancillary
restraints covers any alleged restriction of competition which is
directly related and necessary to the implementation of a main
non-restrictive transaction and in proportion to it. If an
agreement in its main parts, for instance a distribution
agreement or joint venture, does not have as its object or effect
a restriction of competition then restrictions, which are directly
related to and necessary for the implementation of that
transaction, also fall outside Article 81(1). These related
restrictions are called ancillary restraints. A restriction is
directly related to the main transaction if it is subordinate to the
implementation of that transaction and is inseparably linked to
it. The test of necessity implies that the restriction must be
objectively necessary for the implementation of the main
transaction and be proportionate to it. It follows that the
ancillary restraints test is similar to the test set out in paragraph
18(2) above. [This paragraph includes an example of a
restriction being imposed for the purpose of allowing a
distributor to penetrate a new market.] However, the ancillary
restraints test applies in all cases where the main transaction is
not restrictive of competition. It is not limited to determining
the impact of the agreement on intra-brand competition.”
334. The Article 81(3) Guidelines go on to contrast the ancillary restraint concept with the
exercise of applying Article 81(3) itself. Paragraph 30 of these Guidelines states:
“The application of the ancillary restraint concept must be
distinguished from the application of the defence under Article
81(3) which relates to certain economic benefits produced by
restrictive agreement and which are balanced against the
restrictive effects of the agreements. The application of the
ancillary restraint concept does not involve any weighing of
pro-competitive and anti-competitive effects. Such balancing is
reserved for Article 81(3).”
335. The authority quoted by the Commission for the statements in paragraph 30 of the
guidelines is Metropole Television [2001] ECR II-2459.
336. Paragraph 31 of the Article 81(3) Guidelines further discusses the concept of ancillary
restraints. It states:
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“If on the basis of objective factors it can be concluded that
without the restriction the main non-restrictive transaction
would be difficult or impossible to implement, the restriction
may be regarded as objectively necessary for its
implementation and proportionate to it.”
The Commission then gave this example of how the concept of ancillary restraints was
to be applied.
“…..if a joint venture is not in itself restrictive of competition,
then restrictions that are necessary for the functioning of the
agreement are deemed to be ancillary to the main transaction
and are therefore not caught by Article 81(1). For instance in
TPS the Commission concluded that an obligation on the
parties not to be involved in companies engaged in distribution
and marketing of television programmes by satellite was
ancillary to the creation of the joint venture during the initial
phase. The restriction was therefore deemed to fall outside
Article 81(1) for a period of three years. In arriving at this
conclusion the Commission took account of the heavy
investments and commercial risks involved in entering the
market for pay-television.”
337. The concept of ancillary restraints has been applied, generally speaking, where the
ancillarity has a commercial character, that is, where the restriction is said to be
necessary for the implementation of a legitimate commercial purpose. However, the
decision in Wouters [2002] ECR I-1577 is an example of an ancillary restraint being
held to be justified on public interest grounds, notwithstanding its anti-competitive
effect.
338. There is also another group of cases which might be said to overlap with the cases of
ancillary restraint, but which might also be regarded as identifying a more general
approach. These are cases where agreements as to exclusivity, which might otherwise
be regarded as having an anti-competitive effect, are treated as justified where the
exclusivity is necessary for legitimate commercial purposes. In Societe Technique
Miniere [1966] ECR 235, the Court held that “it may be doubted whether there is an
interference with competition if the said agreement seems really necessary for the
penetration of a new area by an undertaking”. In Nungesser v Commission [1982]
ECR 2515, the ECJ concluded that, having regard to the specific nature of the
products in question, an undertaking “which was not certain that it would not
encounter competition from other licensees for the territory granted to it, or from the
owner of the right itself, might be deterred from accepting the risk of cultivating and
marketing that product; such a result would be damaging to the dissemination of a
new technology and would prejudice competition in a community between the new
product and similar existing products”: see [1982] ECR 2515 at para 57.
Article 81(3)
339. If it is held that an agreement otherwise infringes Article 81(1) then the agreement
may be exempt under Article 81(3). Article 81(3) recognises that agreements that
restrict competition may at the same time have pro-competitive effects. When the pro-
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competitive effects of an agreement, assessed in accordance with Article 81(3),
outweigh its anti-competitive effects, the agreement can be seen to be on balance pro-
competitive and therefore compatible with the competition rules.
340. Article 81(3) is subject to four cumulative conditions, two positive and two negative.
These are:
“(1) the agreement must contribute to improving the production
or distribution of goods or contribute to promoting technical or
economic progress;
(2) consumers must receive a fair share of the resulting
benefits;
(3) the restrictions must be indispensable to the attainment of
these objectives; and
(4) the agreement must not afford the parties the possibility of
eliminating competition in respect of a substantial part of the
products in question.”
341. If any one of the four conditions is not satisfied, then the exemption under Article
81(3) is not available. Although Article 81(3) states that the provisions of Article
81(1) “may” be declared inapplicable, the Article 81(3) Guidelines state that the four
conditions in Article 81(3) are exhaustive and when they are met the exemption is
available and may not be made dependant on any other condition: see paragraph 42.
Some specific decisions
342. I ought to refer briefly to some specific decisions which were emphasised by the
parties in their submissions. I will take these decisions broadly in chronological order
rather than treat them thematically.
343. Delimitis v Henninger Brau AG [1991] ECR I – 935 concerned a beer tie in a vertical
agreement between a brewery and a publican. It is an important case on vertical
agreements operating to foreclose the relevant market, to prevent entry into the
market or expansion of existing market share. Such an agreement is regarded as
restrictive of competition under Article 81(1) if two conditions are met. The first is
that, having regard to the economic and legal context of the agreement at issue, it is
difficult for competitors, who could enter the market or increase their market share, to
gain access to the relevant market. The fact that the agreement in issue is only one of
a number of agreements having a cumulative effect on competition is only one factor
in assessing whether access to the market is indeed difficult. The second condition is
that the agreement in question must make a significant contribution to the sealing-off
effect brought about by the totality of those agreements. The extent of the contribution
made by the individual agreement depends on the position of the contracting parties in
the relevant market and on the duration of the agreement.
344. In Gottrup-Klim [1994] ECR I-5641, the ECJ was asked to consider whether the rules
of a joint purchasing cooperative which prevented its members from buying through
other similar cooperatives fell within Article 81(1). The opinion of Advocate General
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Tesauro set out the established principles as to distinguishing between a restriction on
competition by object and a restriction on competition by effect: see paras. 14 to 16.
The Advocate General stated that the undistorted competition sought by Article 81 of
the Treaty implied the existence in the market of workable competition. He referred to
the need to consider how competition would have operated in the market in question
in the absence of the agreement being considered. This question arose whether the
agreement was said to be restrictive by object or restrictive by effect. When
considering the application of this approach to the agreement in that case he
commented upon the contractual strength of producers and suppliers which was to be
counterbalanced by the establishing of a purchasing cooperative: see paragraph 18. In
the judgment of the Court, it was stated that the compatibility of the agreement with
Article 81 was not to be assessed in the abstract and would depend on the economic
conditions prevailing on the markets concerned: see paragraph 31. It was also stated
that the existence of a purchasing cooperative could constitute a significant
counterweight to the contractual power of large producers and make way for more
effective competition: see paragraph 32. It was stated that the restriction in the
agreement in question did not necessarily constitute a restriction on competition and
might even have beneficial effects on competition: see paragraph 34. However, such a
restriction should be limited in its effect to what was necessary to ensure that the
cooperative functioned properly: see paragraph 35. It was held that having regard to
the particular features of that case, the restriction did not go beyond what was
necessary to ensure that the cooperative functioned properly and maintained its
contractual power in relation to producers: see paragraph 40.
345. The decision of the ECJ in Oude Luttikhuis [1995] ECR I-4515 also concerned an
agricultural cooperative, this time a selling cooperative. The decision of Advocate
General Tesauro is reported as part of the report of the judgment of the ECJ in
Dijkstra v Friesland (Frico Domo) Cooperatie [1995] ECR I-4471 as the opinion of
the Advocate General dealt with both cases before the court. The Advocate General
summarised the established principles as to the appropriate analysis where the
restriction on competition is said to be a restriction by object and where it is said to be
a restriction by effect. When considering the suggested restriction by object, the
Advocate General referred to the possibility that a restriction might be needed to
enable the cooperative to function properly “particularly where it is first entering the
market or is at an early stage of operation”: see paragraph 30. In paragraph 31, when
considering whether the agreement had the effect of restricting competition, the
Advocate General stressed that the same restriction might in some circumstances be
regarded as a suitable way of increasing competition “in that it fosters the
consolidation of new undertakings in the market” but in other circumstances might be
regarded as unjustified and anti-competitive. This point was also made in footnote 31
to paragraph 31 of his opinion. At paragraph 36, the Advocate General stated that
subject to further findings falling to be made by the national court, he considered that
in view of the size and importance of the cooperative on the market, the existence of a
complex of agreements of similar content, the fact that the members’ obligation to
deliver all their milk to the cooperative was reinforced by clauses which required an
outgoing member to pay a resignation fee on withdrawal and the fact there was a
serious restriction on members and on competitors, the clauses in question did have
the effect of contributing to a restriction of competition incompatible with Article
81(1). The judgment of the ECJ considered restrictions by object at paragraphs 11 to
14 and restrictions by effect at paragraphs 15 to 16. In paragraph 14, when
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considering restrictions by object, the ECJ applied the test set out in Gottrup-Klim
[1994] ECR I-5641 at paragraph 35, to which I have referred. When considering
restrictions by effect, the ECJ suggested that in the circumstances of that case, the
clauses were liable to be a restriction on competition contrary to Article 81(1). The
ECJ having given its ruling on a reference from the national court, it was for the
national court to apply the decision of the ECJ to the facts found by the national court.
346. Re Television par Satellite (TPS) [1995] 5 CMLR 168 was a decision of the
Commission on an application for negative clearance/exemption in relation to a new
venture formed by 6 broadcasting and telecommunications companies. The
Commission considered various restrictions in that case. It was held that a non-
competition clause agreed by the shareholding companies in the new venture which
was formed to launch satellite pay-TV programmes and services in France was an
ancillary restriction to the creation of the new venture and not caught by Article 81(1):
see paragraphs 98 to 99 of the decision. The Commission referred to doubts having
been expressed as to the prospects of success of the new venture, the amount of
investment required, the difficulty of establishing the new venture in a market
dominated by an experienced operator possessing a strong subscriber base and other
difficulties and uncertainties. The non-competition clause was held to contribute to
the creation of a new entrant in the market and could be “deemed pro-competitive”.
At paragraphs 100 to 109 of its decision, the Commission considered four other
obligations which applied. One obligation might have been regarded as ancillary to
the launch of the new venture but as the obligation was imposed over a period of ten
years, this was regarded as a restriction caught by Article 81(1). However, the
Commission went on to consider Article 81(3) and granted exemption for a period of
three years from the launch of the new venture.
347. European Night Services Ltd v Commission [1998] ECR II – 3141 is a decision of
the CFI. The Court stated (at paragraph 136) that in considering whether an agreement
infringed Article 81, account should be taken of the actual conditions in which it
functions, in particular the economic context in which the undertakings operate, the
products or services covered and the actual structure of the market concerned, unless
it was an agreement containing obvious restrictions on competition such as price
fixing. In that case, such restrictions could be weighed against their claimed pro-
competitive effects only in the context of Article 81(3). It was stated (at paragraph
137) that one had regard to potential as well as actual competition and one assessed
whether there were “real concrete possibilities” of a new competitor penetrating the
market. An “economically realistic approach” was necessary.
348. In Wouters [2002] ECR I-1577 the national court asked the ECJ for a preliminary
ruling as to whether a regulation restricted competition within Article 81. The
restriction in question governed the formation of multi-disciplinary partnerships and
was said to have the objective of guaranteeing the independence and loyalty to a client
of members of the Bar of the member state. The ECJ held that prima facie the
regulation had an adverse effect on competition: see paragraphs 86, 92 and 93.
However, at paragraph 97 the ECJ remarked that not every agreement which
restricted the freedom of action of a party necessarily fell within the prohibition in
Article 81(1). The court stated that account must be taken of the overall context of the
agreement and of the objectives of the agreement. Having done that, one then
considered whether the consequential effects, restrictive of competition, were inherent
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in the pursuit of those objectives. At paragraphs 105 to 108 of the decision, the court
identified the objectives of the regulation in question. At paragraph 109 the court
stated that it did not appear that the effects which were restrictive of competition went
beyond what was necessary in order to ensure the proper practice of the legal
profession and the court referred to the Gottrup-Klim case.
349. I was referred to the decisions of the Commission in which it found that processors of
raw tobacco in Spain and Italy agreed between themselves the maximum purchase
price that they would pay to their suppliers, the tobacco producers, in order to keep
their input prices down: see Re Spanish Raw Tobacco Cartel [2006] 4 CMLR 16 (in
particular at paragraph 301) and Re Italian Raw Tobacco Cartel [2006] 4 CMLR 29.
The point made on the basis of these decisions was that higher prices may indeed
signify a more competitive buying market and low prices result from a lack of
competition in the buying market, whether through monopsony or collusion.
350. In the Racecourse Association v Office of Fair Trading [2005] CAT 29, the
Competition Appeal Tribunal heard an appeal against a decision of the OFT under
section 31 of the Competition Act 1998. In its decision, the OFT had held that the sale
of certain media rights under what was called the Media Rights Agreement (“the
MRA”) infringed the Chapter 1 prohibition, imposed by section 2 of the Competition
Act 1998, and did not qualify for individual exemption under section 9 of that Act.
The rights granted by the MRA included rights which were described as “the non-
LBO bookmaking rights”. These rights permitted the grantee to supply programming
covering British horseracing to UK bookmakers, other than LBOs, for distribution in
combination with betting services. The rights were picture rights which, in
combination with betting rights and data, could be used to allow interactive betting
using television or the internet. The rights only became commercially valuable with
the development of interactive betting technology enabling punters to place off-course
bets at home or at work rather than in a LBO. The OFT found that the MRA effected
a collective sale by racecourses of the rights in question. It was held that the collective
sale of these rights infringed section 2 of the 1998 Act and did not qualify for
exemption under section 9 of that Act. In relation to section 9, the OFT held that
collective selling was not indispensable to attaining the benefits resulting from the
MRA.
351. The appeal to the CAT raised altogether some six questions. Not all of the questions
are relevant for present purposes. The first question was whether the OFT was correct
in its identification of the relevant product market. The second question was whether
there was a horizontal agreement and/or concerted practice by the Racecourse
Association and/or the racecourses collectively to sell their rights. The third question,
which is relevant for the present discussion, was whether a collective sale was
“necessary” for the launch of the interactive betting service on digital television and
the internet so that there was no negative impact on competition.
352. The CAT considered the relevant product market at paragraphs 135 to 150. At
paragraph 150, the CAT held that the OFT was in error in its identification of the
product market and that the OFT’s decision should be set aside. However, the CAT
went on to consider some of the further questions that had been argued on the appeal.
353. At paragraphs 151 to 156, the CAT set out some general propositions as to the
operation of Article 81(1). At paragraph 155, the CAT stated that an agreement was
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not restrictive of competition if it was “necessary” to create and/or operate a new
service and the CAT quoted and relied upon paragraph 87 of the Horizontal
Cooperation Guidelines.
354. At paragraphs 157 to 159, the CAT considered whether the MRA amounted to
collective selling and held that it did. At paragraphs 160 to 176, the CAT considered
whether collective selling or collective negotiation was “necessary” for the creation of
the new product in respect of which the racecourses were selling media rights. The
CAT considered the decisions in Gottrup Klim and Wouters and also the decision of
the CFI in Metropole Television v Commission [2001] ECR II-2459.
355. At paragraph 167 of its decision, the CAT said this:
“ We confess to some difficulty in reconciling the approach of the ECJ
in Gøttrup-Klim and Wouters with that of the CFI in Métropole, but find
it unnecessary to dwell on the explanation in Métropole as to the
rationale that the CFI perceived as underlying cases such as Gøttrup-
Klim and Wouters (the latter of course being decided after Métropole).
We consider that these two decisions of the ECJ show that the
assessment of whether or not a particular arrangement constitutes an
infringement of Article 85(1) (now Article 81(1)), or therefore of the
Chapter I prohibition, is a rather more flexible exercise than the CFI was
perhaps willing to appreciate. It is not enough that the arrangement is
apparently anti-competitive, as in Gøttrup-Klim and Wouters. What
those cases show is that ostensibly restrictive arrangements which are
necessary to achieve a proper commercial objective will not, or may not,
constitute an anti-competitive infringement at all. Whether or not they
will do so requires an objective analysis of the particular arrangement
entered into by the parties, assessed by reference to their subjective
"wants" and against the evidence of the particular market in which they
made their arrangement. The task then is to consider whether the
restrictive arrangement of which complaint is made is "necessary" to
achieve the objective. The RCA appellants also submitted that the
concept of "necessity" in this context is not an absolute one, but has an
element of flexibility about it, for which they referred us to paragraph
109 in the Métropole case in which the court observed that "If, without
the restriction, the main operation is difficult or even impossible to
implement, the restriction may be regarded as objectively necessary for
its implementation." We also accept this last submission: competition
law is not an area of law in which there is much scope for absolute
concepts or sharp edges. ”
356. Having directed itself as set out in paragraph 167 of its decision, the CAT applied that
legal direction to the facts of that case. It considered whether the necessary critical
mass of rights could have been assembled by individual negotiation with racecourse
owners rather than by a process of collective negotiation. It dismissed the idea of
assembling a critical mass by individual negotiation as “a triumph of theory over
commercial reality”. The same point was made in paragraphs 171 and 172. The CAT
concluded that the collective negotiation was necessary for the achievement of the
legitimate commercial objective of creating a new product: see paragraph 175.
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357. O2 v Commission [2006] 5 CMLR 5 concerned an infrastructure sharing and national
roaming arrangement in Germany, made between two mobile telephone operators, O2
and T-Mobile. These two companies notified their agreement to the Commission. The
Commission held that in certain respects the agreement restricted competition
contrary to Article 81(1) but granted exemption under Article 81(3), subject to certain
conditions. O2 challenged that decision before the CFI. It was held that O2 was able
to bring that challenge to the decision because the contested decision of the
Commission had granted O2 only partial satisfaction and not the full negative
clearance sought by O2. At paragraphs 66 to 67 of its decision, the CFI stated that
what was called for was an examination of the economic and legal context in which
the agreement was concluded considering the structure of the market concerned and
the actual conditions in which the agreement functioned. At paragraphs 68 to 72, the
CFI said this:
“ 68 Moreover, in a case such as this, where it is accepted that the
agreement does not have as its object a restriction of competition, the
effects of the agreement should be considered and for it to be caught by
the prohibition it is necessary to find that those factors are present which
show that competition has in fact been prevented or restricted or
distorted to an appreciable extent. The competition in question must be
understood within the actual context in which it would occur in the
absence of the agreement in dispute; the interference with competition
may in particular be doubted if the agreement seems really necessary for
the penetration of a new area by an undertaking (Société minière et
technique at 249-250).
69 Such a method of analysis, as regards in particular the taking into
account of the competition situation that would exist in the absence of
the agreement, does not amount to carrying out an assessment of the pro-
and anti-competitive effects of the agreement and thus to applying a rule
of reason, which the Community judicature has not deemed to have its
place under Article 81(1) EC (Case C-235/92 P Montecatini v
Commission [1999] ECR I-4539, paragraph 133; M6 and Others v
Commission, paragraphs 72 to 77; and Case T-65/98 Van den Bergh
Foods v Commission [2002] ECR II-4653, paragraphs 106 and 107).
70 In this respect, to submit, as the applicant does, that the Commission
failed to carry out a full analysis by not examining what the competitive
situation would have been in the absence of the agreement does not
mean that an assessment of the positive and negative effects of the
agreement from the point of view of competition must be carried out at
the stage of Article 81(1) EC. Contrary to the defendant's interpretation
of the applicant's arguments, the applicant relies only on the method of
analysis required by settled case-law.
71 The examination required in the light of Article 81(1) EC consists
essentially in taking account of the impact of the agreement on existing
and potential competition (see, to that effect, Case C-234/89 Delimitis
[1991] ECR I-935, paragraph 21) and the competition situation in the
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absence of the agreement (Société minière et technique at 249-250),
those two factors being intrinsically linked.
72 The examination of competition in the absence of an agreement
appears to be particularly necessary as regards markets undergoing
liberalisation or emerging markets, as in the case of the 3G mobile
communications market here at issue, where effective competition may
be problematic owing, for example, to the presence of a dominant
operator, the concentrated nature of the market structure or the existence
of significant barriers to entry - factors referred to, in the present case, in
the Decision.”
358. In O2, the CFI then considered the approach of the Commission and found that the
Commission has assumed, without adequate supporting evidence, that O2 would have
been in the market in the absence of the agreement in question. At paragraph 96, the
CFI commented on the fact that the effect of an agreement has to be examined first for
the purposes of Article 81(1) and then, if necessary, for the purposes of Article 81(3),
the second examination presupposing that it has already been demonstrated that the
agreement is incompatible with Article 81(1). Although the Commission had carried
out an examination of the effects of the agreement for the purposes of Article 81(3)
they had not properly done so for the purposes of Article 81(1) and the examination
for the purposes of Article 81(3) was not sufficient to fill the gap.
359. Because the Commission had failed to analyse objectively the competition situation in
the absence of the agreement under Article 81(1), the CFI set aside the relevant part of
the Commission’s decision. In particular, the CFI stated that the Commission ought
to have considered whether the restrictions complained of might have been pro-
competitive in enabling a small telecoms operator to compete with the major players
particularly given the specific characteristics of the relevant emerging market.
360. The implications of the decision in O2 and in particular the tension between the CFI’s
rejection of “a rule of reason” (see paragraph 69 of the decision) and the CFI’s
endorsement of the need for a detailed market analysis is considered in Faull &
Nikpay at paras 3.269 to 3.288.
361. The decision in O2 is also of interest in that it identifies the separate nature of the
enquiry which has to be undertaken for the purpose of Article 81(1) from the nature of
the enquiry needed for Article 81(3). In that case, O2 had obtained exemption subject
to conditions pursuant to Article 81(3) and plainly hoped to be able to obtain negative
clearance which held, in effect, that the agreement did not infringe Article 81(1) and
so there was no scope for the Commission to impose conditions, as a term of the grant
of exemption under Article 81(3). This illustrates the possibility that even though
exemption might be refused under Article 81(3) or exemption might be granted under
Article 81(3) subject to conditions, there is a wholly separate question which arises
under Article 81(1) which might produce the answer that the agreement does not
infringe Article 81(1) in the first place.
362. The point in the last paragraph is also illustrated by Days Medical Aids v Pihsiang
[2004] 1 All ER (Comm) 991. In that case the Judge expressed the view that the
agreement was not entitled to individual exemption under Article 81(3) because it
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failed to satisfy one of the four requirements for such exemption (see paragraph 252)
but the Judge also held that the agreement did not infringe Article 81(1) (see
paragraph 242).
Three decisions of the Commission
363. In the period 2003 to 2006, the Commission gave three important decisions which
concern the joint selling of media rights in connection with sport. These three
decisions are: Re: The Joint Selling of the Commercial Rights of the UEFA
Champions League (“UEFA”) [2004] 4 CMLR 9; Re: The Joint Selling of the Media
Rights to the German Bundesliga (“DFB”) [2005] 5 CMLR 26 and Re: FA Premier
League (“FAPL”) [2006] CMLR 25. The Claimants relied heavily on these decisions
of the Commission and in particular the decisions in UEFA and FAPL. It is therefore
appropriate to examine those decisions in a little detail.
364. While the cases concerning UEFA and DFB were pending before the Commission,
the European Commissioner for Competition Policy (Mario Monti) gave a speech at
Brussels on the 17th April 2000 entitled “Sport and Competition”. He referred to the
cases pending before the Commission and he expressed the preliminary opinion of the
Commission to the effect that collective selling agreements restricted competition in
three ways:
(1) they amount to a price fixing mechanism;
(2) the availability of rights to sports events is limited; and
(3) the market position of the most important broadcasters is strengthened because they
are the only operators who are able to bid for all the rights in one package.
He stated that the proceedings in relation to UEFA and DFB would provide the
Commission with an opportunity to set out case law in the relevant area. He also
commented on the granting of media rights on an exclusive basis. He recognised that
this was an established commercial practice. He stated that the Commission had already
stated that exclusive contracts for a sporting event or for one season did not normally
pose any competition problems but exclusivity of a long duration and for a wide range
of rights was unacceptable because it was likely to lead to market foreclosure. He
recognised that a longer duration of exclusive arrangements could be justified
particularly when an operator wished to enter a new market with an innovative service
or to introduce a new technology requiring very high risk and heavy investments. A
standard duration for exclusivity contracts could not be pre-determined because each
agreement in each market had its own characteristics.
365. In paragraph 1 of its decision in UEFA, the Commission introduced its decision by
stating that the joint selling arrangement in that case restricted competition among the
member football clubs in the sense that the arrangement had the effect of coordinating
the pricing policy and all other trading conditions on behalf of the club. However, the
Commission considered that those restrictions could be exempted in the specific
circumstances of the case. This is one of the places in the decision where the
Commission refers to the effect of the arrangements on price. It is clear that the
Commission saw the restrictions in that case as having an effect on competition
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insofar as they had an effect on price but, conversely, the Commission did not express
any concern that the arrangements had the object of price fixing.
366. At paragraphs 18 to 20 of its decision, the Commission described the original
arrangements which were notified to the Commission for negative clearance and/or
individual exemption. In paragraph 19, the Commission again described the effect of
the arrangements rather than the object of the arrangements. The same comment can
be made as to paragraph 20 of the decision. At paragraphs 21 to 24 of the decision,
the Commission set out the amended arrangements put forward by UEFA. These
arrangements are then described in some detail at paragraphs 25 to 54 of the decision.
The decision discusses the relevant market at paragraphs 55 to 90. The Commission
referred to the upstream market for the sale and acquisition of certain television rights
and the downstream market in which television broadcasters competed for advertising
revenue and for subscribers.
367. The Commission began its appraisal of the application of Article 81 at paragraph 102.
At paragraph 114, the Commission said this:
“UEFA’s joint selling arrangement has the effect that through
the agreement jointly to exploit the commercial rights of the
UEFA Champions League on an exclusive basis through a joint
selling body, UEFA, prevents the individual football clubs from
individually marketing such rights. This prevents competition
between the football clubs and also between UEFA and the
football clubs in supplying in parallel media rights to the UEFA
Champions League to interested buyers in the upstream
markets. This means the third parties only have one single
source of supply. Third-party commercial operators are
therefore forced to purchase the relevant rights under the
conditions jointly determined in the context of the invitation to
bid, which is issued by the joint selling body. This means that
the joint selling body restricts competition in the sense that it
determines prices and all other trading conditions on behalf of
all individual football clubs producing the UEFA Champions
League content. In the absence of the joint selling agreement
the football clubs would set such prices and conditions
independently of one another and in competition with one
another. The reduction in competition caused by the joint
selling agreement therefore leads to uniform prices compared to
a situation with individual selling.”
368. Paragraph 114 of the Commission’s decision refers to the effect of the arrangements
as regards price. It is clear that the reasoning process in paragraph 114, when it refers
to price, is referring to a restriction by effect and not a restriction by object. In other
words, the Commission did not consider that the object of the relevant arrangements
was to fix prices.
369. In paragraphs 115 and 116 of its decision, the Commission identified other
restrictions on effect which resulted from the arrangements. At paragraph 116, the
Commission referred to a restriction on competition in the upstream market between
football clubs.
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370. The Commission then considered a question which arose in that case as to the
ownership of the media rights. It observed that if UEFA were the sole owner of the
rights in a Member State then no horizontal restriction of competition would occur
from UEFA selling the commercial rights. The Commission however considered that
UEFA could at best be considered as a co-owner of the rights but not the sole owner.
The Commission proceeded on the basis that there was co-ownership between the
clubs and UEFA for the individual matches but that this co-ownership did not concern
horizontally all the rights arising from a football tournament.
371. The Commission further considered the question of competition in the context of the
special characteristics of sport. At paragraph 125, it noted UEFA’s submission that
football clubs were not truly independent competitors. At paragraph 128, the
Commission held that UEFA and the football clubs were economic competitors in
selling commercial rights (property rights and media rights) to football matches. If
there were no joint selling arrangement then these parties would be selling their rights
individually and in competition with one another. At paragraph 129, the Commission
again stated that the clubs were economic competitors in relation to the sale of the
relevant rights.
372. Before continuing with the Commission’s reasoning in UEFA, I should note at this
point that I was referred to the Commission’s decision concerning Formula One motor
racing (2001/C 169/03), where the Commission considered the position of the various
participants in a Formula One race as part of the Formula One World Championship.
The various participants included all the teams and the FIA and the decision refers to
the FOA negotiating on behalf of the teams and the FIA with local promoters and
broadcasters. It was stated that the arrangements did not appear to affect prices or
market output. It was then added that individual Formula One events did not compete
with each other as they were not broadcast at the same time.
373. Returning to the decision concerning UEFA, at paragraph 131, the Commission
referred to the principal of “solidarity” between all levels and areas of sport. This
concerned the way in which revenue was redistributed between undertakings. The
Commission noted that the European Council in Nice in December 2000 had
encouraged the mutualisation of part of the revenue from the sales of television rights
as beneficial to the principal to solidarity. However, in the UEFA case, the
Commission held that a joint selling arrangement was not an indispensable
prerequisite for the redistribution of revenue. It based this conclusion on the fact that
in other cases, individual football clubs had sold the television rights individually.
374. Accordingly, the Commission concluded that the arrangements notified to it did
restrict competition by effect contrary to Article 81(1) of the Treaty and that made it
necessary for the Commission to consider individual exemption under Article 81(3).
The Commission then considered the four conditions set out in Article 81(3). The
Commission examined each condition in great detail and concluded that each
condition was satisfied and the case for an individual exemption was made out. In
relation to the first condition, which refers to improvement in production or
distribution and/or the promotion of technical or economic progress, the Commission
considered the specific circumstances of a league product. At paragraphs 164 to 167,
the Commission considered the principal of solidarity but, in the end, did not find it
necessary to come to a conclusion as to whether this was a sufficient justification in
its own right. The Commission then considered the second condition which refers to
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the test of fair share of benefit for consumers. The Commission appeared to consider
media operators and viewers as being consumers of the product being sold.
375. The Commission next considered the third condition in Article 81(3) which refers to
the test of whether the restrictions are indispensable. On the particular facts of that
case, the Commission held that this condition was met. Finally, on the fourth
condition, which refers to no elimination of competition, the Commission remarked
that the television rights of UEFA Champions League represented some 20% of the
rights in the relevant market and probably a similar percentage in relation to
potentially emerging markets.
376. The Commission’s decision in DFB is more shortly expressed than its decision in
UEFA. DFB concerned the central marketing of the media rights in respect of
matches in the first and second national football divisions in Germany. The
Commission had formed a preliminary assessment which led it to note that these
arrangements could restrict competition between the clubs and companies in the first
and second division but in view of certain commitments given to the Commission
following the preliminary assessment and in the light of observations submitted by
third parties, the Commission concluded that there were no grounds for it to take
action. The Commission’s preliminary concerns are expressed in paragraph 22 of its
decision. These refer to the fact that the league association, under the marketing
agreements with the clubs, determined the price and the nature and scope of
exploitation of the media rights. The clubs were prevented from dealing
independently with television and radio operators and sport-rights agents. In
particular, the clubs were prevented from taking independent commercial decisions
about the price for their rights. At paragraph 23 of its decision, the Commission
commented that the joint marketing arrangements could have an adverse effect on the
relevant downstream television market. The commitments offered by the league led to
the relevant rights being offered in several packages in a transparent non
discriminatory way. The duration of the agreement entered into would not exceed
three seasons. At paragraph 41 of its decision, the Commission concluded that the
commitments from the league association introduced the competition into the
marketing of the relevant rights between the league and the clubs and allowed for new
club branded products. These commitments reduced the scope and duration of future
marketing deals and provided a transparent non-discriminatory marketing procedure.
377. As with the UEFA decision, the DFB decision does not disclose that the Commission
felt that the arrangements led to a restriction by object where the relevant object was
price fixing.
378. FAPL concerned the horizontal joint selling arrangements put in place by the football
clubs in the Premier League for the exploitation in the United Kingdom of media
rights to Premier League matches. Pursuant to those arrangements, FAPL as the body
representing all of the individual clubs sold the media rights pertaining to Premier
League matches on the club’s behalf, both in the United Kingdom and throughout the
world. The Commission expressed objections to these arrangements insofar as certain
aspects of the horizontal joint selling arrangements raised concerns. In paragraph 2 of
its decision in FAPL, the Commission stated that its decision had as its sole subject
matter the horizontal joint selling arrangements and its decision did not concern the
vertical agreements to license the rights concluded pursuant to that joint sales
agreement.
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379. The Commission’s decision in FAPL described its preliminary assessment of the
original arrangements. The Commission considered the relevant upstream market and
the relevant downstream market. The most commercially important of the
downstream markets was the television market where free television broadcasters
competed for advertising and pay television broadcasters competed for subscribers
and, usually, advertising. It was remarked that football had proven to be a driving
force for the development of pay television and it was also an essential programme
item for free television broadcasters.
380. The Commission expressed its concern about the arrangements originally notified at
paragraph 25 of its decision in these terms:
“Joint selling prevents clubs from taking independent
commercial action regarding the exploitation of the media
rights pertaining to Premier League matches. In place of twenty
clubs, each having a relatively small market share and each
pursuing its own media rights policy, the arrangements result in
a single (joint) sales organisation with exclusive rights,
enjoying significant market share, and pursuing a single sales
policy. Markets on which no one possesses market power and
whose development would typically be dictated by the demand
for rights become subject to the commercial choices made by a
joint sales organisation with a significant market share. Markets
that would be demand-led thus become supply-driven. As a
consequence, the joint sales organisation can, depending on
how and to whom the rights are sold, restrict output and create
foreclosure problems on downstream markets.”
381. The Commission then went on to consider the specific foreclosure problem in the
downstream market. At paragraph 29, the Commission expressed the view that in the
absence of the relevant arrangements, the media rights would have been sold by
individual clubs, creating greater scope for ex ante competition on the upstream
market for the acquisition of media rights and consequently for competition in the
downstream markets.
382. Following the Commission’s preliminary assessment of the proposed arrangements,
FAPL, in December 2003 introduced changes (the December 2003 commitments).
The Commission noted a number of features of the December 2003 commitments.
One feature was that the television rights would be sold in a number of balanced
packages, each showcasing the League as a whole, and designed to create the
conditions for competition. No single buyer would be able to buy all of the rights. The
duration of the rights agreements would not exceed three years. The rights would be
sold in a transparent and non discriminatory tendering procedure. Unused or
unexploited rights would revert to the clubs for their exploitation.
383. Following further discussions, FAPL amended its December 2003 commitments. The
amended commitments are summarised in paragraph 36 of the decision and it was
these amended commitments which were the basis of the Commission’s decision. At
paragraph 37, the Commission stated that its objective was to ensure that the
arrangements which were put in place did not restrict output nor result in competitors
being foreclosed from the relevant markets, to the detriment of consumers. The
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Commission felt that its objectives could be secured by certain features of the revised
commitment to which I have referred.
384. Having reviewed those three decisions of the Commission, it is possible to make a
number of comments. The first is that the arrangements being considered involved
horizontal agreements between competitors. The Commission was not considering a
vertical agreement entered into between, say, a club and a broadcaster. The second
comment relates to the part of Article 81 which was being considered. It is quite clear
from the UEFA decision that the Commission’s reasoning process involved, first, a
decision that Article 81(1) would be infringed by the notified arrangements but,
having considered the four conditions in Article 81(3) separately and in detail, the
case was one for an individual exemption under Article 81(3). This process of
reasoning is not, or at any rate not obviously, the basis of the decisions in DFB and
FAPL. Indeed, in those two later decisions, the Commission did not individually
identify the four conditions in Article 81(3) nor consider them in detail. The reasoning
in the two later decisions appears to be grounded on Article 81(1) and amount to a
conclusion that with the various modifications to the arrangements which I have
discussed in detail, the arrangements did not infringe Article 81(1) and so no question
of a need for individual exemption arose.
385. I was also referred to the Commission Staff Working Document on the EU and Sport:
Background and Context, which was an accompanying document to the White Paper
on Sport and published in Brussels on the 11th July 2007. At page 54 of the
document, it is stated that the area of sport media rights is particularly sensitive to anti
trust violations. The concern expressed was that a single seller or a joint seller entity
selling all sport media rights on an exclusive basis for an extended period of time to
one single operator in a certain market (such as pay TV) might result in foreclosure of
that market and competitive harm. The document then referred to the three
Commission decisions in UEFA, DFB and FAPL. At page 55 the document states:
“The Commission’s consistent policy has been that joint selling
constitutes a horizontal restriction of competition under Article
81(1) EC. At the same time, the Commission also
acknowledges that joint selling creates certain efficiencies and
may, under certain circumstances, fulfil the conditions of
Article 81(3) EC and therefore not constitute a violation of
Article 81EC. The Commission remedied the negative effects
of joint selling by requiring, e.g., the selling of rights in several
individual rights packages following an open and transparent
tendering process. Moreover, the duration of rights contracts
should exceed 3 years and unsold rights would fall back for
individual exploitation by the clubs. The above mentioned
decisions had the effect of opening up media rights markets to
broadcasters and new media service providers by making
several different rights packages available while safeguarding
the social and cultural aspects of football. This prevented the
concentration of all available rights in the hands of a single
media operator and ensured that a maximum amount of rights
was made available to sports fans. The question if and under
which conditions joint selling can be justified on the basis of
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Article 81(3) has to be examined in the light of the specific
circumstances of each individual case.”
386. It may be that the passage quoted above is a sufficiently accurate statement of the
reasoning process in the UEFA case. However, having examined in detail the
decisions in DFB and FAPL, it is far from obvious that what the Commission did in
those cases (as the short summary in the Working Document would suggest) involved
a finding that Article 81(1) had been infringed but that the case was appropriate for
individual exemption under Article 81(3), as compared with a reasoning process
which held that in all the circumstances Article 81(1) was not infringed.
387. On page 55 of the Working Document, there is a discussion of the question of
redistribution of revenue within sport or the principle of solidarity. It is not necessary
to quote from that passage.
388. At pages 81 to 86 of the Working Document there is a detailed discussion of the
possible competition concerns resulting from the behaviour of sellers of exclusive
media rights. The Commission stated in paragraph 3.1.3.1.1:
“In the upstream market Article 81(1) EC applies to joint
selling agreements leading to competition restrictions, like
foreclosure and output limitation, that would unlikely have
occurred in the absence of the agreements. Joint selling
describes, for example, the situation where sport clubs entrust
the selling of their media rights to their sports association
which then sells the rights collectively on their behalf. A joint
selling arrangement is a horizontal agreement which prevents
the individual clubs each having a relatively small market share
from individually competing in the sale of sports media rights.
One price is applied to all rights collectively which constitutes
price fixing. In addition the number of rights available in the
upstream acquisition market is often reduced which may create
barriers to entry on downstream broadcasting markets and may
lead to access foreclosure in these markets.”
389. The passage quoted above again seems to suggest that joint selling agreements will
generally infringe Article 81(1). This reading of the passage is supported by the fact
that the Working Document goes on to consider cases in which individual exemption
might be appropriate under Article 81(3). As before, this treatment of the topic may
not be wholly faithful to the decisions in DFB and FAPL although it is accurate in
relation to the decision in UEFA.
390. The other point to be noted from the passage in paragraph 3.1.3.1.1 of the Working
Document is the reference to “price fixing”. Having examined the three decisions of
the Commission in UEFA, DFB and FAPL, I do not find that the Commission’s
expressed concern under Article 81(1) involved a restriction by object, where the
object was price fixing. As explained when analysing those three decisions, it seems
to me that what the Commission was referring to was the effect on price of joint
selling arrangements where the effect on price was part of a restriction on competition
by effect rather than a restriction on competition by object.
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391. At paragraph 3.1.3.2 of the Working Document, the Commission described in the
detail the “remedies” it had applied in previous cases to address competition concerns.
At paragraph 3.1.4.2, the Commission stated that it was important to re-emphasise
that the steps adopted in previous decisions were “not exhaustive nor binding” for
future cases as they merely represented possible options to deal with competition
issues arising in this area. The Commission might decide to adopt additional or
different remedies in future cases. In expressing its conclusion at paragraph 3.1.5 the
Commission stated:
“… It is important to note that there is no ‘standard’ or ‘one-size-fits-all’
approach that applies to cases involving sports media rights. The
Commission will have to carefully assess each individual case in order
to determine, where necessary, the appropriate remedy or remedies,
taking into account the specific facts and circumstances, in particular
also considering the technological developments of the relevant
markets.”
The burden and standard of proof
392. The burden of proof is dealt with by Article 2 of Council Regulation 1/2003. Article 2
provides that the burden of proving an infringement of Article 81(1) is on the party
alleging the infringement. If an undertaking claims the benefit of Article 81(3), that
undertaking bears the burden of proving that the conditions of Article 81(3) are
fulfilled. This Article does not say anything about the standard of proof: see recital (5)
to the Regulation. The question of the standard of proof has been considered in a
number of cases. In Napp Pharmaceuticals Holdings Limited v Director General of
Fair Trading [2002] CAT 5 and JJB Sports Plc and All Sports Limited v Office of Fair
Trading [2004] CAT 17, it was held that the standard of proof is the civil standard of
proof on the balance of probabilities although the seriousness of an infringement of
Article 81 or of the 1998 Act, involving (as it may) the imposition of penalties, is a
factor to be taken into account in considering the probabilities of an infringement
having occurred; see also The Racecourse Association v Office of Fair Trading [2005]
CAT 29 at paragraph 131.
393. It can be seen from the above discussion of Article 81(1) that there will be cases
where the agreement in question is prima facie contrary to Article 81(1) but a party
seeks to persuade the court that the prima facie restriction on competition is justified
in the particular circumstances of the case. Where this happens, the legal burden of
proving an infringement of Article 81(1) remains with the party who so asserts but the
evidential burden of demonstrating that the apparent restriction on competition is
justified falls upon the undertaking advancing such assertion: see The Racecourse
Association v Office of Fair Trading [2005] CAT 29 at paragraphs 132 to 133.
Article 81(2)
394. Article 81(2) provides:
“Any agreements or decisions prohibited pursuant to this
Article shall be automatically void.”
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395. In order to know what agreement is void pursuant to Article 81(2) one needs to ask:
what agreement is prohibited by Article 81(1)? Article 81(1) refers to an agreement
which has the object or effect of restricting competition.
396. At first sight, it would seem to be relatively straightforward to apply Article 81(2). By
the time one reaches the point of applying Article 81(2), the court will have
considered the challenges that have been made to one or more agreements and will
have held that an agreement or agreements infringe Article 81(1). The consequence
follows under Article 81(2) that the prohibited agreement or the prohibited
agreements are automatically void.
397. However, difficulties can arise. It may be that the agreement which is prohibited
under Article 81(1) is a term or several terms in a wider contract containing other
terms. The question immediately arises whether it is only the prohibited terms which
are void so that the remainder of the terms, which were not independently prohibited,
remained fully enforceable. In Societe de Vente Ciments et Betons de L’Est v Kerpen
& Kerpen [1983] ECR 4173, at paragraphs 11 and 12, the ECJ stated that:
“….the automatic nullity decreed by Article [81(2)] of the
Treaty applies only to those contractual provisions which are
incompatible with Article [81(1)]. The consequences of such
nullity for other parts of the agreement, and for any orders and
deliveries made on the basis of the agreement, and the resulting
financial obligations are not a matter for Community law.
Those consequences are to be determined by the national court
according to its own law.”
398. It seems to follow from the Ciment et Betons case that, in this jurisdiction, the
question whether an agreement which contains, amongst other terms, prohibited terms
is void in its entirety or only as to part, involves English law and not Community law.
English law has, of course, a doctrine of severance which enables one to strike down
offending terms and leave unaffected non-offending terms. This question was touched
on by the Court of Appeal in Chemidus Wavin v TERI [1978] 3 CMLR 614, a case
concerning Article 81(1). Buckley LJ said, somewhat tentatively, at paras 519 to 520:
“It seems to me, that in applying Article [81] to an English
contract, one may well have to consider whether, after the
excisions required by the Article of the Treaty have been made
from the contract, the contract could be said to fail for lack of
consideration or on any other ground, or whether the contract
would be so changed in its character as not to be the sort of
contract the parties intended to enter into at all.”
Since that decision, the English Courts have had to decide in a large number of cases
whether the prohibited terms could or could not be severed; the cases are summarised
in Bellamy & Child, European Community Law of Competition, 6th Edition, at
paragraphs 14.101 to 14.106.
399. In the course of argument, submissions were made as to the width of Article 81(2) in
another respect. If, for example, the agreement which was made contrary to Article 81
(1) was a horizontal agreement between suppliers to fix prices to be charged to their
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customers and, subsequently, one of the suppliers charged that price to a customer in a
vertical supply agreement how would Article 81(2) apply to those arrangements?
Clearly, the horizontal price fixing agreement would be void under Article 81(2). But
would the vertical supply agreement also be void?
400. There does not appear to be anything explicit in Article 81 which would make the
vertical supply agreement void. Article 81(2) makes void the prohibited agreement.
The prohibited agreement was the horizontal agreement and not the vertical
agreement. As the Ciment et Betons case says, the consequences of the horizontal
agreement being void on any orders and deliveries made on the basis of the agreement
are not a matter for Community Law but are a matter for English law. I was not
shown any principles of English law which would have the effect that the vertical
supply agreement was void in such a case. Indeed, I could see that a conclusion that
the vertical supply agreement was void could be productive of many undesired
consequences. Take, by way of example, a horizontal price fixing agreement between
suppliers of motor cars. One of those suppliers sells a motor car at the pre-fixed price
to a consumer. The car is defective. The existence of the defect is a breach of the
contract of supply to the consumer and the consumer suffers substantial loss in
consequence. If the consumer wished to rely on the contract of supply to assert a
breach of contract and claim damages, could the supplier assert that the contract was
void? Could another motor car supplier who was not a party to the horizontal price
fixing agreement claim a declaration that all the contracts of supply made by the
offending suppliers were void and the motor cars were not owned by the consumers
who thought they had bought them. If the first purchaser of a motor car in those
circumstances sub-sold it to a second purchaser, could the second purchaser assert
that the first purchaser did not have title to the motor car because the contract under
which the first purchaser purported to buy the motor car was void? In my judgment, to
state these questions is to point strongly to the answer that even where the horizontal
price fixing agreement is void, the vertical supply contract is not void.
401. Mr Green contended otherwise. He submitted that the conclusion that the vertical
supply contract was void was required, or at any rate justified, by three decisions,
namely, Consten and Grundig v The Commission [1966] ECR 299, Glaxo Group
Limited v Dowelhurst Limited [2000] Eu LR 493 and English Welsh & Scottish
Railway Limited v E.ON UK Plc [2007] Eu LR 633.
402. Consten and Grundig v The Commission concerned an agreement between Consten
and Grundig which infringed Article 81(1). The agreement was a vertical distribution
agreement and it had been argued that Article 81(1) applied only to horizontal
agreements and could not apply to a vertical agreement. That argument was rejected
by the ECJ. Under the contractual provisions which were contrary to Article 81(1),
Grundig granted to Consten the right to a trademark (“GINT”). Consten wished to
assert its rights as owner of the trademark against a third party. Consten argued that
whatever the effect of Article 81 on the agreement between Consten and Grundig, it
had nonetheless a property right in the form of the trademark which it was able to
assert and nothing in Article 81 entitled the court to take the trademark away from
Consten. The arguments before the court on that point are summarised in the
judgment at pages 314 to 315. The court dismissed Consten’s argument at page 345. It
was held that the agreement by which Grundig authorised Consten to register the
trademark in France in Consten’s name was an agreement which tended to restrict
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competition. Although Consten was by virtue of the registration of the trademark,
registered under French law as the holder of the rights relating to that trademark, it
remained the fact that it was by virtue of the prohibited agreement with Grundig that
Consten was able to effect that registration. The court reasoned that the prohibition on
the agreement between Consten and Grundig would be ineffective if Consten could
continue to use the trademark to achieve the same object as that pursued by the
agreement, which has been held to be unlawful. Consten’s submissions were therefore
rejected.
403. In my judgment, the decision in Consten and Grundig concerned an agreement
between two parties, which agreement was void under Article 81. Under that void
agreement Grundig had permitted Consten to acquire the intellectual property rights
represented by the trademark. The court was able to hold that under community law a
right which was purportedly passed under a void agreement did not effectively pass.
The position in my example of a horizontal price fixing agreement followed by a
vertical contract of supply seems to me to be quite different. In that example, the
vertical contract of supply is made by a supplier on the one hand and a consumer on
the other. The supplier was a party to a horizontal price fixing agreement but the
consumer was not.
404. The Glaxo Group Limited case, referred to above, involved 5 separate actions brought
by 8 pharmaceutical companies for trademark infringement and passing off against
one importer of parallel pharmaceutical products, which had been repackaged and 2
such actions against a second importer. The defendants sought leave to amend their
defences to plead that the proceedings had been brought or continued by the claimants
pursuant to, or were affected by, an agreement or concerted practice which infringed
Article 81(1). Much of the judgment is taken up with a consideration as to whether the
draft amended defence showed a sufficiently arguable case of such a concerted
practice. It was held that the matter was sufficiently arguable on the facts to justify
being included in the defence. That raised the question whether the existence of such
a concerted practice would have any bearing on the claimant’s ability to pursue their
proceedings. At paragraph 25 of his judgment, Laddie J said:
“It appears to me that if there was a concerted practice as
alleged, if the claimants here were parties to it and if the
commencement or continuation of these proceedings is part of
that concerted practice, it is at least arguable in the current state
of European law that the defendants will have a defence or a
claim for compensation. As I have indicated above, even if the
defendants make out all of their allegations, there could well be
difficult questions of what relief would be appropriate on their
counterclaim, but that is not a matter on which I have been
addressed.”
405. In that case, it appears to have been accepted that the claimant could bring similar or
identical proceedings against the defendant provided they acted unilaterally in
bringing those proceedings and did not act in concert pursuant to an unlawful
concerted practice. Although not spelt out in the judgment, the defendant’s suggestion
seems to have been that the court should not allow proceedings to be conducted
before it when the manner in which the proceedings were being conducted involved
an unlawful act. In my judgment, whatever the legal position in such a case might be,
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it does not have any relevance to the question I have identified as to whether a vertical
supply agreement is affected by reason of the fact that the supplier under that
agreement entered into a horizontal price fixing agreement which infringed Article
81(1).
406. The English, Welsh and Scottish Railway case concerned Article 82 of the Treaty.
Article 82 provides that an abuse of a dominant position is prohibited in certain
circumstances. Article 82 does not state what the consequence is of a party abusing a
dominant position. In that case, English, Welsh and Scottish Railway Limited
(“EWS”) entered into a contract, the Coal Carriage Agreement (“CCA”) for the
transport of coal on behalf of E.ON UK Plc (“E.ON”). Rival rail companies
complained to the regulator that in making that contract EWS had abused a dominant
position contrary to Article 82 and, on the later enactment of those provisions, the
Chapter II prohibition in the 1998 Act. Those complaints were upheld by the regulator
who went on to give a direction pursuant to his statutory powers. The direction
required EWS and E.ON to remove or modify certain offending terms in the CCA.
Section 33 of the 1998 Act permits a regulator to give such a direction not only to the
person who has infringed Article 82 but also to such other persons as are considered
appropriate. Thus the effect of the direction was that both EWS and E.ON were
directed to remove the offending terms from the CCA. EWS and E.ON had not, by the
time of the subsequent proceedings, removed the offending terms from the CCA. The
offending terms were financially favourable to E.ON. EWS brought proceedings in
the High Court seeking a declaration that the effect of the regulator’s direction was to
render the CCA void and unenforceable. The case which was made for E.ON was that
neither the infringement of Article 82 nor the direction had the effect that the terms, or
the CCA, were automatically void. E.ON submitted that the modifications which were
needed to the CCA were to be arrived at as part of a process which had not yet been
completed. EWS had two submissions. The first was that, without more, EWS and
E.ON were obliged to remove the terms from the CCA. The second submission was
that the relevant terms were void and as they could be severed from the remainder of
the CCA, the CCA in its entirety was void. The regulator also made submissions in
the court proceedings. The regulator agreed with EWS’s first submission as to the
meaning of the direction. The regulator did not make submissions as to the effect of
the direction on the continuing existence of the CCA. However, the regulator appears
to have submitted that because Article 82 had direct effect and by reason of Article
1(3) of Council Regulation 1/2003 the relevant terms were illegal and void “as a
matter of public law”. Field J held that the effect of the direction was straightforward;
the offending terms had to go. The idea that the offending terms would only be
modified as part of a process which was continuing was rejected.
407. The judge went on to consider the regulator’s submission that the offending terms
were illegal “as a matter of public law”. This meant that the relevant terms were void
at all times. The direction to remove the terms were an administrative measure to
ensure that the CCA was brought within the law. The judge then considered whether
the offending terms could be severed from the remainder of the CCA. E.ON had
conceded that severance was not possible and the judge accepted that concession.
408. The EWS case is no doubt an important decision as to the consequences of a breach of
Article 82 where the infringing action consists of the party with the dominant position
entering into a contract with a third party. The decision did not, however, involve the
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court in construing words such as those that appear in Article 81(2), because no such
words appear in Article 82. Further, the ECJ said in Ciment et Betons that the
consequences of automatic voidness of a contract which infringes 81(1) for any orders
or deliveries made on the basis of that agreement is not a matter for Community law
but is a matter for national law.
409. In my judgment, not one of the three cases cited by Mr Green gives any support for
the existence in English law of a principle which would enable me to hold that a
vertical supply contract is void when the supplier under that contract was a party to a
horizontal price fixing agreement which was itself void. If the consumer under the
vertical agreement wishes to complain that the price charged by the price fixer was
excessive then the consumer will have a claim for damages for breach of Article 81. It
is not necessary, in order to protect the position of the consumer, for the law to enable
the consumer to say that the contract was from the outset void and as I have indicated
earlier, that legal consequence would in many circumstances be adverse to the
position of the consumer.
410. I wish to add this qualification to the above discussion. The facts of a particular case
might reveal that the agreement in question, which infringes Article 81(1), is not a
simple horizontal agreement but is a more complex arrangement where the parties to
the offending agreement are not confined to the horizontal parties but include
someone who takes a supply from those horizontal parties. If the facts of a particular
case led to that conclusion then both the horizontal parties and the person taking the
supply from one of them could be held to be party to an agreement and, if that
agreement infringed Article 81(1), then that agreement is void under Article 81(2). In
such a case, the consequence would be that the party taking a supply from the
horizontal parties would not acquire rights under the offending agreement (or the
offending part of it).
PART 6: DISCUSSION AND ANALYSIS
The Claim and the Counterclaim
411. I will discuss and analyse the claims in the following order:
i) I will first consider the Claimants’ claims against the Defendants. That will
require me to consider whether the Defendants made an agreement which
restricted competition by object and, in particular, whether the object was to
fix prices. I will then consider whether the Defendants made an agreement
which had the effect of restricting competition.
ii) I will next consider the Defendants’ counterclaim against BAGS and SIS. That
will require me to consider whether the exclusive licences entered into by
BAGS and by SIS had the effect of restricting competition.
The Claimants’ claim: restriction by object
412. The first matter I will deal with is the question, expressed in general terms, as to
whether there was an agreement between racecourses which had the object of fixing
prices. For the purpose of answering that general question, I have to ask: what
agreement is being referred to? It will be remembered that Article 81(1) refers to
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“agreement” and also to “concerted practice” and that the decisions in the many cases
have emphasised that there is no need for a precise distinction to be made between
these two things. Accordingly, in the following discussion, I will generally use the
word “agreement” to cover both possibilities and I will only distinguish between an
agreement and a concerted practice where it appears to be useful to do so.
413. I have already analysed the original Particulars of Claim and have concluded that the
Claimants there alleged that there was an agreement between, or a practice
concerning, racecourses which restricted them from negotiating individually and that
such agreement had the object of restricting competition. I have also referred to the
fact that the Claimants submitted that this pleaded agreement had the object of fixing
prices.
414. In paragraph 26A of the Amended Particulars of Claim, the Claimants allege that the
agreement or practice already referred to between racecourses constituted collective
price setting by the racecourses. It is also alleged in the particulars given under
paragraph 26A that the subsequent AMRAC licences, granted by racecourses to
AMRAC, which licences contain the same terms as to price, show that the subject
matter of the agreement or practice between racecourses was price fixing.
415. Before turning to the facts of this case, it is right to comment that the Claimants’
pleading pleads something which looks very different from an agreement which has
the object of fixing prices. What is essentially being pleaded by the Claimants is that
the racecourses made an agreement between themselves which prevented them from
negotiating individually with AMRAC. It is then said that because they did not
negotiate individually, the result was that they all obtained the same price from
AMRAC. This pleading strikes me as more appropriate to a case where the allegation
is that there is a restriction by effect. The effect of the restriction on individual
negotiation is said to be that the racecourses did not negotiate in competition with
each other and one consequence of that was that the prices they achieved were the
same for each racecourse.
416. This reading of the pleading is also consistent with the fact that the way in which the
Claimants initially put their case was obviously inspired by the decisions of the
Commission in UEFA and in FAPL. I have analysed those decisions earlier in this
judgment and pointed out that the Commission did not regard the restrictions in those
cases, caused by a process of collective selling, to be a restriction by object but rather
a restriction by effect.
417. The Claimants have not pleaded that the racecourses got together and decided on the
price they would charge AMRAC and any other purchaser of their LBO media rights
and then imposed that agreement on AMRAC. That would be an agreement, the
object of which was to fix prices, but, as indicated, no such agreement was pleaded.
418. Accordingly, on the basis of the Claimants’ own pleading, this does not appear to be a
very promising case of an agreement which had the object of fixing prices.
419. I now turn to consider the evidence of collective action by the racecourses. The
Claimants say that there was collective action on the part of the racecourses when
dealing with AMRAC. They point to the evidence of Mrs Hordern (of Newbury)
acting on behalf of the large independent courses, Mr Farnsworth (of Musselburgh)
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acting on behalf of the small independent courses and Mr Gould (for the Jockey Club
courses).
420. Mrs Hordern gave evidence of the, initially, differing interests of the different courses
and the process of balancing the competing interests to produce agreement with
AMRAC. The large independents and the small independents were represented by the
same solicitor, Louise Quinn of Littons. That enabled a process of compromise
between the large and small courses to come about. Wiggin LLP acted for the Jockey
Club courses and RUK. Mr Derby (of York) gave evidence that all the courses who
were going to be shareholders in RMS had to co-operate. Other racecourse witnesses
described the process in a similar way.
421. Much of the material relied upon by the Claimants came from the Defendants’
witnesses’ own witness statements. Accordingly, there was little or no dispute about
the factual basis of the Claimants’ contentions. Indeed, in the course of Mr Roth’s oral
opening submissions, he accepted that of the 18 racecourse operators who signed up
with AMRAC on 31st January 2007, 17 of those operators (the 18th was RIL in respect
of the Jockey Club courses) did negotiate collectively on common terms to be entered
into with AMRAC. He accepted that the courses (or at least 17 of them) were working
together, were in communication and were encouraging each other to sign up and
agree to a set of terms. He accepted that there was coordination and a concerted
practice in that sense. I should add that there are many references in the documents to
the courses having a great deal in common in securing the success of the joint venture
and that what united the courses was more important than what divided them.
422. Mr Roth’s submissions about the collective behaviour of the operators of racecourses
(or 17 of them in particular) was not that such behaviour did not take place but rather,
that it did not amount to collective selling. He compared this case with the facts in
UEFA and FAPL, where there was a single “aggregator” who provided a single
source of supply of the relevant rights. He also contrasted the case with the facts in
The Racecourse Association v OFT where the RCA acted on behalf of 49 courses to
sell media rights to a third party, Attheraces. He pointed out that the facts of the
present case did not involve an aggregator, for example, RUK, acting on behalf of the
18 operators of the 30 courses and selling their rights collectively to AMRAC. Here,
he submitted, the 17 or 18 operators came together to establish a joint venture and
agreed the terms on which they would license their LBO rights to their own joint
venture.
423. Mr Roth’s submissions as to why the present case is not one of collective selling need
not be pursued at this stage. The issue being considered at present was whether there
was a relevant agreement between racecourses. If so, it will be necessary to consider
what was the object of that agreement: was the object to fix prices; was the object to
restrict competition in some other way?
424. I do not think it is necessary to decide whether there was an agreement, as distinct
from a concerted practice, pursuant to which, or in accordance with which, the
operators of the racecourses acted collectively. It is not in the end in dispute that there
was a concerted practice as to the way in which the negotiations with AMRAC were
conducted. I need not at this stage, I think, consider whether the racecourses were in
competition with each other. That is a question I will have to address when I consider
whether any relevant agreement had the effect of restricting competition. That does
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not seem to me to be a question I need to consider separately in relation to the
allegation that the object of the agreement between racecourses was to fix prices. If
that truly was the object, then inherent in that finding would be a finding that the
racecourses do compete on price. Accordingly, I can move to the critical question
which is: was it the object of the concerted practice to fix prices?
425. The Claimants assert that the object of the cooperation between racecourses was to fix
prices. The Claimants went so far as to submit that the Defendants had conceded that
this was the object of the cooperation. I do not accept that. The Defendants conceded
the fact of cooperation but not the alleged object of price fixing.
426. Although the Claimants repeatedly and vigorously asserted that the object of the
cooperation was to fix prices, the precise basis of that submission was not so clearly
spelt out. I have therefore tried to find in the Claimants’ submissions what they say is
the test for determining the object of an agreement and, in this case, what is the
material relied upon to establish that the object was to fix prices.
427. The Claimants submit that price fixing is a very serious matter and that it is obviously
anti-competitive. They identify the many decisions of the courts, summarised in
Bellamy & Child at para 5.016, which describe the different arrangements concerning
price in which the object was held to be price fixing. These cases illustrate that fixing
discounts, surcharges, margins, rates, rebates, a common tariff structure, and so on,
involves the fixing of “price”. These cases might conceivably be of assistance in
considering whether the payment of a dividend by RMS to its racecourse shareholders
could be regarded as part of the “price” in this case and certainly are of assistance in
considering whether an agreement as to the formula for the calculation of the dividend
was an agreement as to price. However, in my judgment, they are of no real assistance
in considering what is the “object” of an agreement.
428. The Claimants also submit that because the object of fixing prices is a restriction by
object, then there is necessarily an infringement of Article 81(1). Accordingly, one
does not need to consider the effect of the restriction. One cannot argue for the
restriction being permissible because of other pro-competitive consequences of the
restriction. It will be difficult to justify the restriction by reference to alleged
commercial necessity. It will not be appropriate to consider a counterfactual of what
would have happened in the market in the absence of the restriction. Finally, it is
submitted that a restriction which has the object of price fixing will rarely, if ever, be
exempted under Article 81(3).
429. I doubt if there is very much dispute about many of the Claimants submissions as to
what is “price”, what is an agreement as to price and what is the consequence under
Article 81(1) and 81(3) where the court has found that there was an agreement with
the object of fixing prices. But the initial question remains to be addressed: how does
one go about assessing the “object” of an agreement.
430. The Claimants say as follows: it being accepted by the Defendants that there was
cooperation between racecourses and that the result of that cooperation was that
racecourses entered into licences with AMRAC which contain the same terms as to
the basic price (excluding the arrangements as to the payment of dividends) it must
follow that the object of the cooperation was to fix prices. The Claimants also say that
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the object of the cooperation between racecourses was to raise prices and that shows
the object was to fix prices.
431. The Defendants made detailed submissions as to what did and what did not have the
object of price fixing. They referred to an example of two companies, A and B, the
sellers of raw materials, who traditionally had sold those raw materials to a
monopolistic purchaser, which then used the raw materials to manufacture a product
and sell the product downstream. A and B decide to create a joint venture which will
set up a manufacturing plant, buy the raw materials from A and B, manufacture the
product and sell it downstream. A and B plainly have to agree terms with the joint
venture as to the price to be paid by the joint venture to A and B. A and B agree to sell
their raw materials to their own joint venture at the same rate or price. The Defendants
submit that A and B have not made an agreement with the object of price fixing. Their
object was to increase competition for the purchase of their raw materials and they
have done so. The fact that the price which they secure for their raw materials, now
that there is competition from the incumbent and the new joint venture, is higher than
before is not anti-competitive.
432. The Defendants’ example is, of course, very close to what the Defendants say has
happened in this case, as regards the racecourses previously having to sell to a
monopoly purchaser and then sponsoring a new entrant into the market, to introduce
competition for the purchase of their LBO media rights. The Defendants say that this
example shows that the object of the cooperation in the present case was not to fix
prices. The Claimants retort that in this example A and B did make an agreement with
the object of fixing prices. In this way, the example does not go very far to resolve the
difference between the parties as it simply restates the problem and gives rise once
again to the pre-existing difference of approach of the parties.
433. The Defendants further submit that an intention on the part of the racecourses to raise
prices is not the same thing as having the object of fixing prices. The Defendants also
rely on Dr Bishop’s evidence about sponsored entry being an expression of
competitive behaviour and not a restriction on competition.
434. The Defendants drew attention to the decisions in Gottrup-Klim and Oude Luttikhuis
not so much for what they decided but rather, it was submitted, for what was implicit
in the decisions or what had not been argued in those decisions. It was submitted that
these cases showed that even with an argument as to the object of an agreement, one
had to look at the economic context in which the agreement operated.
435. The Defendants also submitted that the Claimants had not proven that they had to pay
more as a result of the way in which the AMRAC licences were negotiated. It was
said that if it had been possible to negotiate the AMRAC licences in some other way,
then one would have ended up with the same result of two “must have” services and it
was that fact which resulted in the increased costs to LBOs.
436. The Defendants also submitted that the Commission decisions in the three football
cases showed that collective selling did not involve an agreement with the object of
fixing prices. They further submitted that the court could not hold there was the object
of restricting competition in the present case where the result was so plainly pro-
competitive, as regards competition in the upstream market.
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437. The Defendants then submitted that prices were not fixed because the revenue
received by a racecourse for the sale of its LBO media rights is not only the payment
made by AMRAC under the licence but also the dividend paid to the racecourse by
RMS. The Claimants dispute this particular submission on two grounds. First, they
say the dividends are not part of the price and, secondly in the alternative, they say
that the agreement as to the formula for the calculation of dividends is itself an
agreement with the object of fixing prices. In the event, I do not think that I need to
resolve those particular points.
438. In my judgment, faced with these radically different approaches, the approach which I
should adopt is the approach summarised in paragraphs 21 and 22 of the Article 81(3)
Guidelines. Applying that approach I reach the conclusions which I now express.
439. I must have regard to the content of the relevant agreement. The agreement or, more
accurately, the concerted practice in this case arises from the cooperation between
racecourses to negotiate collectively with AMRAC. The object of the arrangements
was not the crude and simplistic object of fixing prices, as the Claimants allege. They
had a more complex function. The objective aim of the cooperation was to sponsor
the entry of AMRAC into the market. The racecourses wanted AMRAC to exist and
to have LBO media rights which would differentiate it from the incumbent distributor,
SIS. The racecourses had a common interest in this respect and what united them in
their interest was judged by them to be more important than what divided them as to
their rival attractions as racecourses. It is also relevant to consider the particular
circumstances in the actual market in which the relevant agreement is to operate. The
pre-existing market was one of a monopoly purchaser from racecourses. The market
desired by the racecourses was one involving competition for the purchase of their
rights. The objects of the relevant agreement in this case did not have, by their very
nature, the potential of restricting competition. They had the reverse potential, and
very real potential at that, to increase competition in the upstream market. As regards
competition in the downstream market, at the lowest there would not be an adverse
effect on competition in that market. The collective process of negotiation would not
result in a reduction of output. It would result in an increase in prices paid to the
racecourses. But the resulting increase in price was not the result of anti-competitive
behaviour by sellers fixing prices but was the result of the pro-competitive entry of a
second purchaser into a market, formerly occupied by a monopsony.
440. My conclusion is therefore that the relevant concerted practice between racecourses
did not have the object of fixing prices.
441. The Claimants’ case as to there being a restriction on competition by object was
confined to the argument that the relevant object complained of was to fix prices.
Having rejected that argument, there does not appear to be any other case on
restriction by object that I need to address. For the avoidance of doubt, I can
determine that the concerted practice as to cooperation in negotiation by racecourses
did not have the object of restricting competition.
442. There were, of course, other agreements made in this case. The AMRAC licences are
vertical agreements between racecourses and AMRAC. I did not understand the
Claimants to argue that, if the horizontal agreements between racecourses did not
have the object of restricting competition, the vertical agreements did have that object.
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443. In view of my conclusion that the horizontal cooperation between racecourses did not
have the object of restricting competition, it follows that the question whether a void
horizontal agreement would result in a vertical agreement, made pursuant to it, also
being void does not arise at this stage.
444. In the event that I were to decide that a relevant agreement did not give rise to a
restriction on competition by object, the Claimants say that certain agreements had the
effect of restricting competition. I therefore turn to consider that submission.
The Claimants’ claim: restriction by effect
445. As before, the right place to begin is by attempting to identify the agreement or
practice which needs to be examined.
446. The Claimants refer on many occasions in the Particulars of Claim to “collective,
exclusive selling on a closed basis”. What agreements are encompassed in this
phrase?
447. The first agreement which appears to be referred to is the vertical agreement made by
a racecourse with AMRAC. That is the agreement which granted exclusive rights to
AMRAC. Indeed, that is the agreement which is the principal target of the Claimants.
They want the AMRAC licences to be declared to be void.
448. The second agreement that appears to be referred to is a horizontal agreement or
concerted practice between racecourses which, the Claimants say, involved collective
selling. The Claimants say that this horizontal agreement or practice gave rise to the
AMRAC licences, the vertical agreements between the racecourses and AMRAC.
449. The third agreement that appears to be referred to is an alleged agreement or
concerted practice between racecourses to “close” their negotiations so that the
negotiations would only take place with AMRAC and not with BAGS or SIS. That
seems to be a horizontal agreement between racecourses. The Claimants say that this
horizontal agreement or practice gave rise to the AMRAC licences, the vertical
agreements between the racecourses and AMRAC.
450. Although it is necessary for the purpose of analysis to examine what appear to be the
three different parts of the Claimants’ claim, they also say that the matter should be
looked at in the round so that the court should assess the combined operation of the
three matters complained of.
451. The questions therefore are: first, what was the effect on competition of the fact that
the first agreement, the AMRAC licences, were exclusive; secondly, what was the
effect on competition of any agreement or practice as to collective selling; thirdly,
what was the effect on competition of any agreement or practice as to closed selling;
and, fourthly, what was the effect on competition of any exclusive, collective and
closed selling?
452. When considering the alleged effect on competition, an economic approach is called
for. The approach must be realistic. There must be a proper market analysis of the
position with the relevant restriction and the position in the absence of the relevant
restriction. Not every restriction on conduct amounts to a restriction on competition,
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much less to a significant restriction on competition. Attention must be paid to the
individual circumstances. One has regard to actual competition and to potential
competition. In the latter case, if it is suggested that there might be someone who
wishes to enter the market, but who is kept out or adversely affected by the restriction,
there must be a real concrete possibility of that happening. The effect on competition
must be negative and must be appreciable or significant. An adverse effect on
competition can be produced by a horizontal agreement or by a vertical agreement.
The court should apply the jurisprudence as to ancillary restraints and commercial
necessity, as referred to earlier. Amongst the objectives which might be regarded
favourably, and in relation to which certain restrictions might be regarded as
commercially necessary, is a restriction for the purpose of enabling a new entrant into
a market. In this context, the concept of “necessity” could be satisfied by something
which is not strictly essential. The concept of necessity has some flexibility and in an
appropriate case can be satisfied by facts which show that it would be difficult to
achieve the commercial objective without the presence of the restriction. The duration
and scope of the restriction may be important.
Restriction by effect: exclusive rights
453. The first agreements which I need to consider are the vertical agreements made by the
racecourses with AMRAC. Those are the agreements which granted exclusive rights
to AMRAC. The question is: what was the effect on competition of the fact that the
first agreements, the AMRAC licences, were exclusive?
454. It is well established that a vertical supply agreement, not between competitors, can
have an adverse effect on competition if it makes a significant contribution to a result
whereby competitors are prevented from gaining entry to the market or from
increasing their market share, or if those options are made more difficult for them.
This adverse effect is described as foreclosure of the market. Applying that to the
present circumstances, the question is whether a restriction on entry applies in the
case of a potential competitor to BAGS or SIS or AMRAC and/or whether a
restriction on increasing market share applies to AMRAC’s competitors, say BAGS or
SIS.
455. In theory, it is easy to see that the fact that all 60 racecourses have granted their LBO
media rights exclusively to one of AMRAC, or BAGS or SIS, prevents any other
intending distributor from entering the upstream market or the downstream market for
the period of those grants, which is some 5 years. But that does not necessarily mean
that the exclusive character of the agreements has had an adverse effect on the
markets. Conversely, there would be an adverse effect if there was a real concrete
possibility of a new competitor seeking to come into the markets. The burden of
proving the reality of that possibility is on the Claimants. But it must be recognised
that they have to prove a real concrete possibility, not a matter of historic fact.
456. The Claimants submit that the consequence of the AMRAC licences being exclusive
is that the market was foreclosed to new entrants (in addition to BAGS, SIS and
AMRAC) and also BAGS and SIS were precluded from increasing their market share.
457. In opening their case at the beginning of the trial, the Defendants submitted that the
idea of the market being foreclosed to new entrants was purely hypothetical as the
Claimants had not set out to prove that there was a possibility of a new entrant who
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had been prevented by the exclusive AMRAC licences from entering the market. As a
result of this submission, the Claimants did put forward a detailed submission in
closing, on this point.
458. In their closing submissions, the Claimants referred to the fact that RUK had at one
point considered various entities which might be appropriate to be further investigated
as potential partners in a joint venture with racecourses. Before commenting further
on how the Claimants sought to use this list of entities, it is right to note that these
entities were being considered as partners with racecourses. There could only be one
vacancy for the position of partner. Once Alphameric was chosen as partner, the
vacancy was filled. The issue as to foreclosure in respect of new entrants relates to
new entrants as competitors to the existing distributors in the market, after AMRAC
has entered the market. There are two points here. Any potential new entrant must be
a competitor to SIS and AMRAC, not a potential partner in a joint venture with
racecourses. Secondly, one is not considering an entrant competing with a single
distributor but an entrant competing with two distributors.
459. The Claimants made a detailed written submission listing and considering 10 entities
identified by RUK, as described above. One of the 10 was SIS, who need not be
further discussed in this context as it was already in the market. A second entity was
Alphameric, who was chosen as the joint venture partner. As to the other 8, it is right
to note that there was no evidence from any one of these 8 as to their market
ambitions. I do not say that in every case of suggested foreclosure, a court has to have
direct evidence from someone who says that he has been prevented from entering the
market. However, I do note the absence of direct evidence in this case, with the result
that the court is asked to speculate about what various entities might or might not
have wanted to do.
460. The Claimants also referred to evidence as to other entities (not on the list considered
above) having at one time considered entering the market in competition with SIS.
However, those entities did not pursue the matter in the past when their market entry
involved them competing with one incumbent distributor, SIS. I think it is extremely
unlikely that they would have renewed their interest in entering a market where there
were two incumbent distributors, SIS and AMRAC, even if the licences to SIS and
AMRAC were non-exclusive, to allow for the possibility of a third distributor seeking
to enter the market and compete.
461. In relation to foreclosure adversely affecting a possible new entrant as a third
distributor, the Defendants submitted that there had been no serious attempt by any
third party (other than AMRAC) to enter the market and compete with the single
distributor (SIS) in the 20 years from 1987 to 2007 and that there was no evidence of
any realistic prospect of such an entrant emerging to compete with SIS and AMRAC.
The Defendants also referred to the evidence of Dr Bishop that the market was very
unlikely to support three independent players in view of the high fixed costs of market
entry. The Defendants also wryly commented on the curiosity of the bookmakers
putting forward a submission that principles of competition favoured keeping open
the possibility of a third distributor entering the market. Given that it appeared to be
common ground that some element of exclusivity, sufficient to make the distributor’s
service a “must have”, would be needed to permit successful entry by a third entrant,
the result being contended for by the bookmakers would be that they would have to
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buy three “must haves” (if there were a third successful entry into the market) rather
than the present two.
462. My conclusion on the evidence in this case is that the Claimants have failed to show
that there was at any time since January 2007 a “real concrete possibility” of there
being a third entrant who would wish to enter the market as a purchaser of the LBO
rights from racecourses and as a distributor of the relevant service to LBOs.
Accordingly, foreclosure of that kind is hypothetical rather than a reality. Putting it
another way, there has not been an adverse effect on competition in the way alleged.
463. I now turn to consider the Claimants’ case that there has been foreclosure in another
way. The argument is that because AMRAC has taken exclusive licences from 31
courses, that prevents BAGS or SIS seeking to increase their market share above
their existing number of courses; in the case of SIS, some 29 courses. The converse of
this argument is that BAGS and SIS have also foreclosed the market against AMRAC
and that if the AMRAC licences are void under Article 81(2), then it would appear
that the exclusive licences to BAGS and SIS are also void. Indeed, Mr Green
appearing for BAGS appeared to be content to acknowledge this as the price of a
successful attack on AMRAC on this ground.
464. I find that the Claimants’ argument as to foreclosure by preventing existing
purchasers of rights from increasing their market share stands arguments as to
competition on their head. Before AMRAC entered the market, there was a monopoly
purchaser of LBO rights. After AMRAC entered the market, there are two purchasers
of LBO rights. That appears to be pro-competitive activity and not anti-competitive
activity.
465. AMRAC contends that it was commercially necessary for it to take exclusive licences
in order for it to enter the market against an incumbent SIS. Before considering the
issue as to what might have been commercially necessary to enter a market where
non-exclusive licences were the norm, I think it is right to focus instead on the steps
actually taken by BAGS, SIS and AMRAC in the period up to January 2007. By
December 2006/January 2007, SIS had exclusive rights to 26 courses. In January
2007, if AMRAC were to be able to compete at any level with SIS, it is now common
ground that it needed to have exclusive rights to some courses. I find it a very odd
idea that competition principles should restrict the number of courses that AMRAC
could sign up on an exclusive basis. Was AMRAC to be limited to exclusive rights to
7 courses so that it could only acquire non-exclusive rights to the other 24? Was
AMRAC limited to exclusive rights to 18 courses so that it could only acquire non-
exclusive rights to 13? Would AMRAC even be able to acquire non-exclusive rights
to those other 24 or 13 courses? That would depend on whether BAGS/SIS would
seek to sign up those courses exclusively. It would also depend on whether courses
would be willing, against the background of the market prevailing in December
2006/January 2007 to grant non-exclusive rights. The evidence clearly showed that a
course would receive less revenue from granting non-exclusive rights to two operators
as compared with granting exclusive rights to one operator. What was happening in
that period was that competition between BAGS/SIS on the one hand and AMRAC on
the other took the form of competition to take exclusive licences. That activity was
how a competitive market worked, not anti-competitive behaviour. That means that
all the participants in the market were acting competitively and not that all the
participants (including the Claimants who complain about AMRAC’s behaviour)
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were acting anti-competitively and entered into agreements all of which the court
should strike down. The Claimants also referred to the position which might come
about in 2013 at the end of the five year terms of the various exclusive agreements. In
my judgment, the position which might exist in 2013 is too uncertain and speculative
to enable the court to conclude that the current arrangements are anti-competitive by
reason of those unpredictable possibilities.
466. The above conclusions mean that I reject the claim that the grant of exclusive licences
to AMRAC had the effect of restricting competition by foreclosure of the market in
either of the two ways put forward by the Claimants. It is therefore not strictly
necessary to consider the other arguments put forward by the Defendants in relation to
the challenge based on the exclusivity of the arrangements. However, I will record my
conclusions on those other arguments.
467. In this case, the LBO rights were historically granted on a non-exclusive basis when
there was effectively only one buyer and no-one who had to be excluded. As soon as
there was competition for the purchase of the rights, the response of the market was to
move to the grant of exclusive rights.
468. It is commonplace for media sports rights to be sold on an exclusive basis. When
there is competition for the purchase of such rights, exclusivity is favoured by the
purchaser and by the seller, for proper commercial reasons. Exclusivity gives the
purchaser the ability to differentiate his service downstream. Exclusivity gives the
seller greater revenue. Where there is competition, the grant of exclusive rights is the
natural form for that competition to take.
469. What may be required by competition law principles in this area is that there is ex
ante competition when the renewal of the exclusive rights is considered. But as with
other such principles, the requirement of ex ante competition may yield to, or have to
be adapted in the face of, other considerations such as ancillary restraints, or justified
commercial necessity or to facilitate new entry, and so on.
470. It is common ground in this case that, in the pre-existing market where BAGS/SIS
had, generally speaking, non-exclusive LBO media rights, it would be necessary for a
new entrant to acquire exclusive rights to a certain number of courses to differentiate
itself and facilitate market entry. There is considerable room for argument as to what
that number of exclusive rights would be to enable entry into the pre-existing market
consisting, largely, of non-exclusive rights. This is a topic which was addressed by
LEK, advising AMRAC. However, no-one called LEK to give evidence. No-one
submitted that LEK’s conclusions were determinative. In my judgment, LEK’s
conclusions may always have been wide of the mark. The survey they carried out was
very limited and hardly reliable. Their calculations based on the provision of
exclusivity missed out a vital ingredient, namely, that even if a course granted its
LBO media rights exclusively, many races at that course would be available to an
LBO on terrestrial television, even if the LBO did not buy the service which included
the (otherwise) exclusive rights to that course. If LEK’s conclusions were not reliable
on such grounds, then Mr Biro’s conclusions were even less reliable. He built on the
unreliability of the LEK conclusions by introducing further unreliable reasoning of his
own. I need not catalogue those matters at this stage as they are described earlier in
this judgment dealing with the evidence which he gave.
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471. The true position is that if I were required, which I am not, to make a finding as to
how much exclusivity was necessary to enable a new entrant into the pre-existing
market dominated by non-exclusive licences, I would not be able to find with
accuracy whether the number of courses was 31 or 30 or something less, and if so,
how much less. The Claimants say that because the burden of proof is on the
Defendants in this respect, they must therefore have failed to discharge the burden of
proof. The Claimants say that the consequence of that is that even if it would have
been permissible for AMRAC to take exclusive rights to, say, 25 courses, because it
took exclusive rights to 31 courses, all 31 licences are void.
472. I doubt if the Claimants’ submission about the burden of proof is right. It ignores the
degree of flexibility in the concept of what is “necessary”. If I felt that out of 31
courses, it was essential for AMRAC to take exclusive rights to, say, 25 courses, then
the right conclusion would have been that the extra courses being signed up
exclusively could well be within the band of what was permissible on the ground that
it was difficult to judge just how many could and how many could not be signed up
exclusively.
473. In addition, the question of necessity has to be judged in a realistic way. It was plain
that AMRAC would build up the necessary number of courses granting exclusive
rights by negotiating with the RUK courses. It seems to me to be impractical to say
that AMRAC should offer exclusive packages to, say, 25 courses, and then offer only
non-exclusive packages to the remainder of the RUK courses. That would be to divide
the RUK courses who were otherwise entering into a joint venture on the basis that it
was in the interests of each course for there to be equality of treatment. It was also, I
conclude, impractical to think that AMRAC should sign up all 30 courses (or 31
including Ascot) on exclusive terms and then offer, say, 6 of those courses, possibly
non-exclusively, to BAGS or SIS.
474. Accordingly, if the question had arisen as to whether AMRAC had shown that it
needed exclusivity in relation to 31 courses to enter the pre-existing market,
dominated by non-exclusive licences, I would have reached the conclusion that
AMRAC had done sufficient to demonstrate that fact.
475. I stress however, that the market which AMRAC had to enter in January 2007 was not
the pre-existing market dominated by non-exclusive licences. It had to enter a market
where SIS had already established exclusive rights in relation to 26 courses. The
competitive forces in that market differed from the pre-existing state of affairs. It was
commercially necessary to enter that market as a successful competitor to take
exclusive rights to as many courses as were available and to prevent SIS acquiring
such rights on an exclusive basis.
Restriction by effect: collective selling
476. As was seen, the first agreement which I have considered was a vertical agreement
where the alleged effect on competition was the effect on competition from a potential
competitor to BAGS or SIS or AMRAC and/or the effect on competition between
BAGS and SIS and AMRAC. The second and third agreements are different. The
principal, if not the only, agreements which are challenged are the horizontal
agreements between racecourses.
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477. The second agreement that is referred to is a horizontal agreement or concerted
practice between racecourses which, the Claimants say, involved collective selling.
The Claimants say that this horizontal agreement or practice gave rise to the AMRAC
licences, the vertical agreements between the racecourses and AMRAC. The question
therefore arises: what was the effect on competition of any agreement or practice as to
collective selling?
478. The Claimants submit that the 18 operators of the 30 RUK courses engaged in
collective negotiation with AMRAC. That was an agreement or concerted practice
which amounted to collective selling. The 18 operators were in competition with each
other as regards the prices and terms to be achieved on granting a licence to a
distributor of LBO media rights. The price that a course would achieve on an
individual negotiation would depend on the quality and attractiveness of that course
and would be different from a common price agreed on a collective negotiation on the
part of 18 operators of 30 courses. Collective selling had the effect of restricting
competition. It prevented the individual courses agreeing price and other terms
individually. The adverse effect on competition was not justified as objectively
necessary. Although Mr Biro had agreed in the course of cross-examination that if it
had been necessary for the courses to sell their LBO rights on an exclusive basis, it
was possible that they might have had to sell them on a collective basis, he had not
confirmed that collective selling definitely was necessary.
479. The Defendants submit that this is not a case of collective selling; that the collective
negotiation (or collective selling, if that is what it was) did not adversely affect
competition and that it was objectively necessary.
480. As to whether this is a case of collective selling, the Defendants submitted that there
was no single agent or “aggregator” who negotiated with the purchaser. The case was
different from UEFA or FAPL or, indeed, The Racecourse Association v OFT. Each
individual operator retained the right to decide whether or not to sign up to a licence
with AMRAC. Further, it was submitted, the fact that the operators were setting up a
joint venture distinguished this case from those others referred to. This was a case of
“sponsored entry”.
481. On the question of competition, the Defendants put their case in a number of ways:
first, that the operators were not in competition and, secondly, that the collective
negotiation did not have an adverse effect on price.
482. As to the existence of competition, the Defendants say that although racecourses
compete with each other for prize money, for sponsorship, for racegoers, for horse
owners and trainers, they do not compete with each other in relation to organising
their events. As regards televising their races, the races are scheduled so that,
generally, they do not clash. Further, it is said that racecourses are not in competition
in relation to the sale of their LBO media rights. Accordingly, the Defendants say that
the racecourses do not compete with each other in a relevant way and the type of
horizontal agreement challenged by the Claimants relating, as it does, to LBO media
rights, does not involve a restriction on competition because the parties are not
competitors in relation to LBO media rights.
483. As to whether the collective negotiation had an adverse effect on competition, the
question was whether the total price paid to the operators of the 30 racecourses was
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higher than the total price which would have been arrived at in individual
negotiations.
484. These questions, as to the existence of competition and as to the effect on any such
competition, were considered in detail by Dr Niels in section 5 of his report. In that
section, he proceeded on the basis of an assumption that 30 racecourses, or more
accurately, 18 racecourse operators, had engaged in collective selling. He then
considered whether racecourses generally, and the 18 operators in particular, were in
competition for the sale of their LBO media rights. He considered that racecourses
were not in direct competition with each other for the sale of their LBO media rights
as those rights were not substitutes. He went on to consider whether collective selling,
if that had occurred, would have resulted in the total price to the 18 operators under
collective selling being higher than the total price paid if each operator had sold its
rights individually. He acknowledged that with individual negotiations, the individual
price agreed with an operator might be different from the common price agreed in the
present case (putting the issue as to the differential dividends paid to operators on one
side). However, he did not see that acknowledgment as answering the question as to
whether there would be a difference in the total prices, with and without individual
negotiation. His conclusion was that collective selling would not lead to a higher total
price paid in the case of a collective negotiation, as compared with the case of
individual negotiations. He referred to the fact that the rate of payments made to
racecourses by BAGS, SIS and AMRAC had increased, compared with the prices
paid before AMRAC entered the market. However, he attributed that to the fact of
competition for the purchase of the courses’ LBO rights and not the adverse effect of
collective selling.
485. There was only a limited amount of cross-examination of Dr Niels on this section of
his evidence.
486. As to objective necessity, the Defendants say that it was necessary to have a critical
mass of agreements with racecourses. Collective negotiation was a necessary and
commercially obvious way of achieving that critical mass.
487. When I considered the Claimants’ case as to there being a restriction by object, I
expressed the view that there was a concerted practice in this case by which the 18
operators of the 30 racecourses negotiated with AMRAC. It does not seem to me
strictly to matter whether I call that collective selling or collective negotiation. I will
therefore proceed on the basis that there was a concerted practice as to collective
negotiation and consider the other issues that may then arise.
488. The next issue is whether the 18 operators of the 30 courses were in competition with
each other in relation to their LBO media rights. On this point, I believe that I get
assistance from the reasoning of the Commission in UEFA. As I noted earlier, the
Commission considered at paragraphs 125, 128 and 129 of its decision that, although
it could be said that the clubs did not compete with each other in some of their
economic activities, they did compete with each other in selling their media rights. In
my judgment, that reasoning applies in this case. Although racecourses do not
compete with each other in a number of respects and for a number of reasons, it is
open to them to compete with each other when it comes to selling their LBO media
rights.
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489. The Defendants drew my attention to the Commission’s decision in relation to
Formula One motor racing and I have already referred to the relevant comments in
that decision. The specific point being addressed in those comments is not wholly
clear and the reasoning is very brief. In my judgment, the reasoning in the UEFA case
is clear and intelligible and applicable to this case. Accordingly, I hold that the
racecourses are potentially in competition with each other in relation to the sale of
their LBO media rights.
490. In these circumstances it is not necessary to consider a second argument put forward
by the Claimants to the effect that the racecourses were in competition in that they
would all wish to avoid being the last racecourse in negotiation with a distributor for
their LBO media rights as such a course might find itself in a weak negotiating
position. If it were necessary for me to deal with that argument, I would give little
weight to it in view of the facts in this case, in relation to the negotiations with
Plumpton. But as I have already held that racecourses are competitors in relation to
the subject matter of the AMRAC licences, it is not necessary to consider this point
further.
491. I next have to consider whether the concerted practice as to collective selling had an
adverse effect on competition. My starting point for a discussion of this point is
paragraphs 114 to 116 of the decision in UEFA. In those paragraphs, the Commission
plainly held that a restriction on freedom of action to negotiate individually was a
restriction on competition. However, the Defendants relied upon the approach of the
CAT in The Racecourse Association v OFT where the Tribunal considered whether
the arrangements in that case had an anti-competitive effect. The Tribunal considered
that question by asking itself whether the arrangements had the effect of increasing
prices. After a long discussion between paragraphs 178 and 202, the Tribunal held
that the OFT had failed to prove that the arrangements had resulted in an appreciable
increase in price. In the present case the Defendants submit that in this case also there
is only an adverse effect on competition if the Claimants prove that the collective
negotiation led to an increase in the total prices paid by AMRAC to the 18 operators
of the 30 courses.
492. It is not obvious how to reconcile the reasoning of the Commission in UEFA and that
of the Tribunal in the Racecourse Association case. It may be that in the Tribunal
decision, the Tribunal was reacting to the way in which the OFT made its findings and
put its case. The OFT finding was that the arrangements adversely affected (i.e.
increased) price. I note that the Tribunal’s decision is the subject of a footnote in Faull
& Nikpay at page 22 footnote 256, which states that it was strongly arguable that the
Tribunal went too far in requiring the OFT to demonstrate an actual, rather than a
likely, effect on price. The Commission did not ask itself that precise question in
UEFA , but that may have been because the Commission considered the answer to be
obvious. In my judgment, I should take this hint from the text book and ask myself
whether the collective negotiation in this case was likely to increase the total prices
paid by AMRAC to the 18 operators.
493. On that question, I conclude that the Claimants have not shown that the collective
negotiation was likely to result in a higher price being paid by AMRAC. First of all, I
have the evidence of Dr Niels. Although Dr Niels expressed the view that the
racecourses were not in competition and although I have proceeded on the basis that
they were in competition (in view of the reasoning in UEFA), that does not in my
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view undermine his detailed reasoning as to the way in which the racecourses would
and did operate and his conclusion that the total prices would not be increased by
reason of the fact of collective, rather than individual, negotiation. Further, there is
this consideration. AMRAC was a joint venture between racecourses and Alphameric.
AMRAC had to consider how much in total it was prepared to pay by way of price for
the rights, as distinct from dividends from profits. I think it is likely that the sum that
AMRAC considered it was prepared to pay was what actually determined the amount
it agreed with the courses and that amount was not altered by reason of the fact that
there was collective negotiation, rather than individual negotiation.
494. Another way of approaching the matter and possibly reconciling the decisions in
UEFA and The Racecourse Association is to consider whether the effect on
competition is appreciable or significant, as it is only such an effect which is contrary
to Article 81(1). If I hold, as I do, that a restriction on individual negotiation did not
lead to an increase in the price paid by AMRAC, then it is difficult to see how I could
decide, on the question of the significance of the effect, that the effect was anything
other than insignificant.
495. Accordingly, I hold that the Claimants have not established on the evidence any
appreciable adverse effect on competition by reason of the collective negotiations
with AMRAC.
496. It is not strictly necessary therefore to consider whether any restriction on
competition, resulting from collective negotiation, was objectively necessary. If I had
to decide that question I would unhesitatingly hold that it was objectively necessary. It
must be remembered that AMRAC was a joint venture in which the operators of the
racecourses were participating. The participants necessarily had to talk to each other
and negotiate collectively in order to create the joint venture. It was up to them to
decide between themselves as to the terms on which they should participate in the
joint venture. They were entitled to decide that they would share the total price for the
LBO rights on equivalent terms and that their different interests would be reflected in
the dividends payable out of profits.
Restriction by effect: closed selling
497. The third agreement that appears to be referred to is an alleged agreement or
concerted practice between racecourses to “close” their negotiations so that the
negotiations would only take place with AMRAC, and not with BAGS or SIS. That is
a horizontal agreement between racecourses. The Claimants say that this horizontal
agreement or practice gave rise to the AMRAC licences, the vertical agreements
between the racecourses and AMRAC. The question arises: did any closed selling
have an adverse effect on competition?
498. The Claimants submit that a collective or concerted refusal to deal with someone in
the market is contrary to Article 81(1). In the case of sports rights, the decisions in
UEFA and FAPL show that if it is to be permitted to have collective selling of
exclusive rights, the process must be transparent and open. It is not enough to say that
the buyer can take the initiative and bid without being invited by the seller to tender
for the rights. The seller is under a positive obligation to ensure the existence of ex
ante competition. On the facts, the 18 operators of the 30 racecourses (or possibly all
of them except York) were not prepared to consider an offer from BAGS or SIS. In
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fact, BAGS did write to the courses expressing an interest in negotiating for the rights
and was either ignored or rebuffed. In addition, the operators of the courses entered
into an agreement providing for an exclusive period of negotiation beginning in late
November or early December 2006. The position was to be contrasted with the
behaviour of Ascot (who has not been made a Defendant by the Claimants). Ascot did
talk to BAGS and although the parties did not in the end agree, BAGS has no
complaint because there was open negotiation and consideration by Ascot of
competing bids. As to alleged objective necessity, the decisions in UEFA and FAPL
did not countenance any defence of necessity and, in any case, on the facts the closing
off of competition was not defensible.
499. The Defendants submit that there was no closed process and if there had been it was
appropriate and necessary. As regards the exclusive period of negotiations, that was a
normal step in the course of detailed commercial negotiations and could not begin to
be said to be anti-competitive. Indeed, the need for such an agreement evidences the
fact that the courses would have been prepared to contemplate offers from third
parties for their rights. As to the wider allegation of closure of the negotiations, it was
open to BAGS and SIS to make offers and it was open to the courses to decide
whether they were interested or not. In any case, the attitude adopted by the courses
was necessary in view of their desire to create a joint venture and sponsor the joint
venture as a new entrant into the market. The creation of the joint venture is not said
to be anti-competitive and it was commercially obvious that the courses would want
to grant their rights to the joint venture rather than to the incumbent where that would
defeat the whole purpose of having a joint venture. The courses were not obliged by
competition law to prevent the successful launch of their joint venture; the reverse
was the case as was recognised by the decision of the Commission in TPS at
paragraphs 98-99. The position in UEFA and FAPL was different. In those cases,
there were a number of established broadcasters competing to acquire exclusive
media rights from third party rights holders.
500. I can now express my conclusions on this point. In this instance, as with the other
arguments as to the effect on competition, it is necessary to have regard to the actual
market circumstances, to be economically realistic and to pay close attention to the
individual circumstances.
501. The primary consideration in this case was that the 18 operators of the 30 courses
wanted to create a joint venture and to sponsor the entry of that joint venture into the
market to provide competition for the purchase of their rights. The suggested
alternative to that would be to sell those rights to the incumbent. That would
undermine the joint venture and imperil its entry. It would not be logical to promote
the joint venture and then to withhold from it the rights which it needed and wished to
have to enter the market. There is not a true comparison between granting LBO media
rights to BAGS and granting LBO media rights to AMRAC. A deal with BAGS
would not result in the existence of competition in the market, would not result in the
successful entry of the joint venture and would not result in participation in a
successful joint venture. If the two deals are not alike, then in my judgment, it is not
anti-competitive for an operator to decide which type of deal he prefers to pursue and
then not to deal on an alternative and incompatible basis.
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502. In my judgment, the decision by the 18 operators of the 30 courses to back their joint
venture and not undermine it by selling their rights to BAGS or SIS is not an
infringement of Article 81(1).
Restriction by effect: exclusive, collective and closed selling
503. I have now analysed separately the cases as to the exclusive character of the
arrangements and as to the alleged collective and closed selling. Taking those points
individually, I have concluded that no one of those points amounts to an infringement
of Article 81(1). I need to consider whether the result is different if I consider the
combined effect of the three matters. Having done so, I can see no reason why the
combined effect should be any different from the sum of the three individual parts.
The Claimants’ claims against the Defendants: overall result
504. My overall conclusion is that the arrangements which are challenged by the Claimants
do not amount to an infringement of Article 81(1) or section 2 of the 1998 Act.
505. In these circumstances, it is not necessary to consider, any further than I have already
done, whether a vertical agreement which was entered into pursuant to a void
horizontal agreement is also void.
506. Because the arrangements which are challenged by the Claimants do not infringe
Article 81(1), it is not necessary for the Defendants to establish an entitlement to
exemption under Article 81(3).
507. The Defendants did seek to establish at the trial that, if it should be held that the
agreements challenged by the Claimants infringed Article 81(1), they satisfied each of
the four conditions in Article 81(3). The Claimants and the Defendants and SIS called
expert evidence in relation to matters which were said to be material to the application
of these conditions. I have analysed that expert evidence earlier in this judgment.
508. The Defendants’ primary case in resisting the claim against them was throughout that
they did not infringe Article 81(1) and reliance on Article 81(3) was its alternative
case. Indeed, the Defendants devoted much less time to the case based on Article
81(3), as compared with their primary case.
509. The Claimants have dealt, with immense thoroughness, with the issues arising in
relation to Article 81(3). If I were to deal properly with all of the issues which are in
play in relation to Article 81(3), both as to the law and as to the facts, a considerable
amount of further work in finalising this judgment would be required. One inevitable
consequence would be to delay the time when this judgment can be released to the
parties. The period of delay would be further lengthened in that it has not been
possible for me to complete my judgment before the arrival of the long vacation.
510. The trial of this action was ordered to be expedited. When I refused the Claimants
permission to amend I indicated that one concern I had about the consequence of
granting permission to amend would be that it would significantly delay the
determination of the dispute between the parties, with the consequence that there
would be a prolonged period of uncertainty before the result would be known.
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511. In these circumstances, I am reluctant to lengthen the delay in releasing this judgment
to the parties by taking the time it would necessarily take me to deal properly with all
the points in play in relation to Article 81(3), in a case where whatever I have to say
about those matters will not affect my decision.
512. Accordingly, I will not deal in this judgment with the issues which were argued in
relation to Article 81(3). This decision is subject to two comments.
513. The first is that if there is an appeal, then the Court of Appeal has power (as recently
exercised in Hicks v Russell Jones & Walker [2008] 2 All ER 1089) to ask me to
make any necessary findings which might be relevant for the purpose of considering a
Respondent’s Notice relying on Article 81(3). If it is relevant to the Court of Appeal’s
exercise of that power for me to indicate my readiness to make those further findings,
then I of course can state that I would be ready to do so. It seems to me that that way
of proceeding, which will enable me to release my judgment to the parties in this
expedited matter, is a better solution than postponing this judgment for a considerable
period.
514. The second comment I make is that because I am not deciding the issues in relation to
Article 81(3), one possible result, if I were to do so, might be that the Defendants
would fail to establish one or more of the conditions in Article 81(3). I have earlier
referred to this outcome being a possible legal conclusion. It might be suggested that
such a legal approach is a little unexpected. The possibility of such a legal outcome
may have come about partly because of the procedural rules which formerly applied
to claims for exemption under Article 81(3) (before the Modernisation Regulation). If
it had not been for those rules, there might have more of a tendency for the courts
when construing Article 81(1) to use Article 81(3) as an important aid to the
interpretation of Article 81(1) and that might have led to the courts interpreting and
applying Article 81(1) more narrowly than they have begun to do in more recent
times. A narrower approach to Article 81(1) might have produced the result that if an
agreement did not satisfy the exemption criteria of Article 81(3), then it should be
expected to be held to be an infringement of Article 81(1).
515. The overall result in relation to the Claimants claim against the Defendants is that the
claim fails.
The Defendants’ Counterclaim against BAGS and SIS
516. The Counterclaim in relation to the exclusive licences which were entered into by
BAGS or by SIS is contingent upon the court holding that the exclusive licences
granted to AMRAC infringed Article 81(1) or section 2 of the 1998 Act. I have now
held the opposite of that possibility so the contingency has not come about and the
Counterclaim falls away.
517. I will however make one or two brief comments on the Counterclaim simply to
describe the positions adopted by the various parties.
518. The challenge to the exclusive licences to BAGS and SIS was on the basis that those
licences were exclusive. There was no suggestion that those licences had been entered
into as a result of anything allegedly impermissible in the nature of collective or
closed selling.
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519. In relation to the Counterclaim against BAGS, BAGS was apparently prepared to
accept that if it succeeded in showing that the AMRAC licences were void, because
they were exclusive licences which gave rise to foreclosure, then it would follow that
the exclusive licences granted to BAGS and presumably the exclusive licence granted
by BAGS to SIS would also be void.
520. In relation to the Counterclaim against SIS, its position was that there could be no
challenge to the licences granted to it by reason of the fact that those licences were
exclusive. SIS made detailed and cogent submissions on the law to the effect that in
this area, any concern as to exclusivity in relation to the grant of rights was met by the
existence of ex ante competition for the grant of those rights. SIS then made detailed
submissions on the facts to the effect that if one considered the detailed facts as to
each and every licence taken by SIS, it could be clearly seen that there was ex ante
competition for each licence which satisfied the requirements of competition law. The
only possible area of fact in SIS’s submissions, which might not be in accordance
with the findings I have earlier made, relates to my earlier conclusion that in practice
(before the arrival of AMRAC) the operation of BAGS and SIS on the upstream
market produced a situation of a monopoly purchaser for the racecourses’ LBO media
rights. SIS also put forward arguments as to why, if the exclusive licences might
otherwise infringe Article 81(1), such licences were objectively necessary and
therefore justified. SIS also contended that it was entitled to exemption under Article
81(3).
521. In view of the contingent nature of the Counterclaim against SIS, and the fact that the
Counterclaim simply falls away in consequence of my earlier findings, and having
regard to the length of this judgment in dealing with the issues that have to be dealt
with, I will not go further in discussing the points which would have arisen if it had
been necessary to determine the issues raised by the Counterclaim.
PART 7: THE OVERALL RESULT
522. In relation to the Claimants’ claim against the Defendants, the claim fails and is
dismissed.
523. In the events which have happened, the contingent Counterclaim by the Defendants
against BAGS and against SIS, in relation to the exclusive licences entered into by
BAGS and by SIS does not arise and it is dismissed.
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