On December 9, 2020, the Court of Justice of the European Union (“CJEU”) annulled the decision of the European Commission decision making binding the commitments proposed by Paramount Pictures International Ltd and its parent company, Viacom Inc. (“Paramount”), in order to end sanctioning proceedings, voiding those commitments.
Paramount had committed to remove several clauses, including a non-compete obligation in favor of Canal+, from its agreements with that company and other pay-TV operators. The CJEU determined that the Commission had not done enough to protect the interests of third parties in its decision and, specifically, that the decision of the Commission rendered meaningless the contractual rights of Canal+ with Paramount, therefore infringing on the principle of proportionality.
The investigation of the Commission and the 2016 decision
In January 2014, the Commission opened an investigation into possible restrictions on pay-TV services under certain agreements between Paramount and the EU’s main pay-TV operators, including Sky UK Ltd and Sky Plc (“Sky”) and Groupe Canal+ SA (“Canal+”). A year later, in July 2015, the Commission sent Paramount, Disney, NBC, Sony, Twentieth Century Fox and Warner Bros, as well as Sky UK, a statement of objections in relation to two bilateral clauses of the licensing agreements entered into with Sky.
The first of these clauses prevented Sky from allowing consumers to view films outside the United Kingdom and Ireland via satellite or online. The second clause required studios to prevent other broadcasters from offering their pay-TV services in the United Kingdom and Ireland.
The Commission ruled that the agreements of Paramount led to “absolute territorial exclusivity” and that they could constitute a restriction on competition by object, as they could restrict passive crossborder sales of pay-TV services within the EEA.
In response to the investigation, Paramount offered the Commission a series of commitments (the “Commitments”). Under the Commitments, Paramount agreed to address the concerns raised in the investigation by refraining from those practices for five years. In a decision of July 2016 (the “2016 Decision,” available here), the Commission accepted the Commitments proposed by Paramount and closed the investigation against them.
The Canal+ appeal
Paramount had entered into an agreement with Canal+ in January 2014 but, to apply the Commitments, Paramount notified Canal+ that the obligations that contradicted the Commitments would no longer apply. Canal+, therefore, appealed the 2016 Decision before the General Court of the European Union, which dismissed the appeal (as reported in another blog post available here), so Canal+ appealed to the CJEU.
Like the General Court, the CJEU dismissed the submissions of Canal+ based on an alleged misuse of powers by the Commission, the alleged unlawfulness of the clauses and the application of Article 101(3) of the TFEU. The CJEU also ratified the position of the General Court regarding the clauses of the agreement between Paramount and Canal+ that could restrict competition by restoring the partitions of national markets and, therefore, jeopardize the proper operation of the single market.
However, the CJEU upheld a submission based on the principle of proportionality regarding the impact of the Decision of the Commission on the contractual rights of third parties. The CJEU noted that the Commission must verify the Commitments offered, not only to ensure that they are appropriate to address its competition concerns, but also to protect possible third-party interests so they are not rendered meaningless. Basically, the Commission making commitments under which contractual clauses no longer apply for contracting partner of the operator constitutes an interference with the contractual freedom of that contracting partner and goes beyond Article 9 of Regulation 1/2003.
Contrary to the General Court’s position, the CJEU ruled that domestic courts cannot be assigned the authority to decide whether the clauses affected by the Commitments should apply, since any ruling by a domestic court requiring an operator to breach its binding commitments under a Commission Decision would clearly run counter to that Decision. It would also infringe Article 16 of Regulation 1/2003, requiring domestic courts to avoid rulings contrary to a prior decision of the Commission on the matter.
The CJEU, therefore, annulled the judgment of the General Court. It also ruled on the substance, annulling the decision of the General Court and the Commission because, by adopting the disputed Decision, the Commission rendered meaningless the contractual rights of third parties with Paramount, including the rights of Canal+, and thus breached the principle of proportionality.
Ultimately, the judgment of the CJEU voided the commitments of Paramount; therefore, on March 31, 2021, the Commission announced that it had decided to revoke the commitments established for the other investigated companies (Disney, NBC Universal (“NBC”), Sony Pictures (“Sony”), Warner Bros and Sky UK) in a decision of March 7, 2019 (“the 2019 Decision”), as they were practically identical to the 2016 Decision.
Conclusion
At first glance, it seems surprising that private contractual obligations can be an obstacle to the European Commission ruling on competition issues. The Judgment also appears to challenge the adoption of commitments by the Commission, the usefulness and effectiveness of which is hugely important in terms of protecting free competition in the market, contributing therefore to the generation of legal uncertainty with the undermining of this important tool.
Adopting commitments with the Commission and the conventional settlement agreement in Spain are both tools that stand out for their usefulness, effectiveness and speed, while they ensure competition is preserved, avoiding subsequent disputes whose result is always uncertain.
The ruling of the CJEU requiring competition authorities to take the interest of third parties into account when establishing commitments complicates the use of such a practical tool and makes both bodies increasingly reluctant to turn to it, despite its effectiveness in protecting competition in the market.
(The full text of the judgment can be found here: C-132/19 P. The decision of the Commission revoking the other commitments can be found here: Withdrawal Decision of March 31, 2021.)