Irrespective of any criticism of the ruling (see below on that point), companies should now be aware of the following key takeaways:
- Luxembourg’s reach is wide: apart from fining decisions, it hardly ever happens that antitrust settlements between a company and the EU Commission are challenged in court. But settlement decisions are also "decisions" – and therefore subject to full review by the Luxembourg judges at the General Court and the ECJ.
- Be mindful of others: In antitrust proceedings, the companies concerned initially have just one party to deal with: the EU Commission. But: The circle of those commercially affected by a settlement is regularly much larger; it encompasses customers, suppliers, and competitors. They can not only intervene in the administrative proceedings, but aren’t powerless afterwards either. If their interests are disproportionately affected, they can appeal the Commission’s decision and undo the efforts of both the Commission and the company subject to the investigation. According to the current ruling, this applies in any case to the contractual partners of the company concerned. In order to avoid subsequent difficulties, companies should therefore seek to consider from the outset possible effects on third parties caused by their commitments offer. This may well render such proceedings more complex and protracted.
- Settle for less: The Commission regularly takes advantage of settlements with commitments to impose rapid and far-reaching self-restraints by companies in order to eliminate (alleged) restrictions of competition. In the future, it cannot be ruled out that the Commission will more regularly settle for "less", i.e. a more lengthy investigation of the facts, followed by a conclusive determination of the violation of antitrust law and prohibition of the respective conduct – and without proactive and creative behavioral commitments. In any case, the Commission is likely to subject its current practice to an internal review.
- Settle for more: Companies, on the other hand, must consider whether under certain circumstances they want to give “more” to maintain their chances of successful settlements with the Commission, e.g. by way of a private settlement agreement or contract adjustment with commercial advantages for (potential) complainants that could otherwise derail the outcome of Commission proceedings.
- A bigger stick for “The Third Man”: In any case, one thing seems certain: third party complainants will see.
So what happened?
The dramaturgy is fit for a movie – one with director’s cut length. In January 2014, the Commission opened investigations against six US film studios, including Paramount Pictures (AT.40023). At the heart of the proceedings were contractual restrictions imposed on pay TV broadcasters in the EEA that wanted to license audiovisual content (movies) from the studios. The broadcasters were prohibited from supplying the licensed content to customers outside their respective geographic "home turf" – even at the specific request of customers located outside that territory. This was backed up by a "self-restriction" on the part of the studios, which undertook to agree corresponding restrictions also vis-à-vis other TV broadcasters in the EEA. This led, in the eyes of the Commission, to a partitioning of the EU internal market by country that would likely undermine one of the EU's most important goals: the integration of the internal market and the dismantling of national economic borders.
It then closed the case against Paramount more than two years later, in July 2016, based on what is called an Article 9 decision . This provision of the Implementation Regulation (Regulation (EC) No 1/2003) allows the Commission to declare commitments offered by an investigated company binding by formal decision and to terminate the proceedings on that basis – without conclusively finding a violation of competition law (for more on this, see here). In a nutshell, Paramount’s commitments were as follows: The company committed to refrain from enforcing the clauses criticized by the Commission and to do so vis-à-vis all TV broadcasters who licensed its content on that basis. Everything looked (literally) settled until... one of those broadcasters went to court. French TV company Groupe Canal + felt that the settlement was detrimental to its position. The company had already argued in the administrative proceedings that the clauses in question ultimately protected Canal +'s geographic exclusivity in France and were therefore important for safeguarding the company's revenue streams. Ultimately, the company argued, the case was also about a cornerstone of the system of European film financing. And so things continued at two-year intervals after the Commission's decision: Canal + filed a lawsuit with the General Court in December 2016, but was defeated there in December 2018. And now, another two years later, the ECJ has set aside this very ruling and annulled the Commission's 2016 decision.
Why did this happen?
The verdict itself also follows a dramatic arc of suspense: The court rejects Canal +’s pleas three times, and only considers its fourth plea to be (partially) valid. The ECJ now ruled that the Commission had ignored the interests of Canal + and had disproportionately impaired the legal position of the company through the outcome of the decision. Specifically, the court says that by adopting the decision at issue, the Commission rendered the contractual rights of third parties “meaningless”, including the contractual rights of Groupe Canal + vis-à-vis Paramount. This was considered to infringe the principle of proportionality, especially since the Commission proceedings were not directed against Canal + at all. According to the ECJ, the Commission decision therefore had to be annulled. The court also rejected the counterargument that the broadcaster could have adequately defended its legal position before the (French) civil courts. Although legal recourse was open in principle, European competition law (namely Article 16 of the Implementation Regulation) would, according to the ECJ, have compelled the French courts to observe the content of the Commission's decision and not to oppose its outcome. With that decision, the ECJ broadly follows the views expressed in the opinion of Advocate General Pitruzzella in May this year (unfortunately not available in English either).
Why is this remarkable?
One might attach weight to the decision already for the reason that the ECJ President Koen Lenaerts himself participated in it. It also contains some interesting comments on the relation between Article 9 decisions and the analysis of a possible exemption from the ban on cartels in Article 101(3) TFEU (finding that the latter is not to be applied here) as well as on the special issue of the Geo-blocking Regulation. Canal + had argued that the Commission had unlawfully extended the scope of that Regulation to the movie industry through its decision (incidentally, the Commission recently published a report on this issue, among others). However, the ECJ also thrusts aside that argument.
More significant, however, are three other points:
- This is only the second ruling in which the ECJ has ever addressed the impact of an Article 9 decision on third parties. The last such ruling, the Alrosa case, dates back more than 10 years and concerned the binding commitment of the company De Beers to stop purchasing goods from rough diamond producer Alrosa Company as of a certain date (Alrosa then took legal action at the General Court).
- Even if it does not expressly say so, the ECJ deviates from its stance taken at the time. In the Alrosa case, the General Court had ruled in the lower instance that the commitments at issue went too far. It found that Alrosa had rightly objected that the ban on any business activity with De Beers obviously went beyond what was necessary to achieve the objective pursued by the Commission. At the time, however, the ECJ then overturned that ruling. It found that the Commission had a broad discretion in its decision-making, even under Article 9. It merely had to "take into account" the interests of third parties. Moreover, the court found at the time that the fact that individual commitments offered by a company have been made binding by the Commission does not mean that other companies are deprived of the possibility of protecting the rights they may have in connection with their relations with that company.
- The General Court, now probably eager to get everything right, took into account the Alrosa precedent when ruling on the Paramount matter – and yet again sees its judgment set aside by the ECJ. Although the ECJ refers to its case law with an appropriate citation and the new case strongly resembles the old one, the result differs dramatically.
What to make of this?
The ruling raises several questions:
- Where is the difference between this case and “Alrosa”? Then, as now, the core issue was that the company under investigation by the Commission voluntarily decided to adjust its business relations, thus interfering with the commercial fabric between that company and a third party. Moreover, the Paramount case only concerned a waiver of certain clauses, whereas in “Alrosa” the subject matter was the termination of a business relationship altogether. On that basis, a reversal of the Commission's decision would arguably have seemed more appropriate in that case than in this recent one.
- The "possibility of protecting one's rights", which was a decisive factor here as well as then, ultimately always stands or falls with the possibility of calling for judicial review. Why did this aspect not play a decisive role in the Alrosa case, but is now coming to the fore despite the facts essentially being the same? Should the relevant difference really lie solely in the fact that in “Alrosa” the Commission initially conducted its proceedings against both contractual parties, but in “Paramount” Canal + was only involved in the proceedings as a third party? If that were the case, this would in future proceedings compel the Commission to extend its investigations to all companies involved in an EEA-wide bundle of agreements. Would that help anyone? In the case at hand, the investigations would merely have been more protracted, likely without any palpably different result on the merits.
- Is the argument made by the ECJ that Article 9 broadly precludes judicial action in Member States really convincing? As far as can be seen, the question of such “procedural bar” has not been ruled on so far. Interestingly, the ECJ here even refuses to derive a pertinent precedent from its “Gasorba” decision of three years ago and finds that the powers of Member State courts to determine the existence of a competition law infringement and to rule on a case brought before them on that basis remain unaffected by Article 9 decisions. In fact, the wording of Article 16 of the Implementation Regulation only imposes a "conformity requirement" on the national courts to the extent they have to “rule on agreements, decisions or practices pursuant to Article 81 or 82 of the Treaty", i.e. if they have to decide on the "yes" or "no" of a competition law infringement. However, they would not necessarily have to do so in cases brought before them (including the one at hand), because these would be primarily governed by contract law. And to the extent that a violation of competition law is relevant to the national court’s decision at all, the Commission's Article 9 decision would not have any binding effect.
- At most, there would then remain the argument that a national court might then effectively undermine the Commission’s Article 9 decision, insofar as it causes the disputed clauses to be reinstated. But is that a problem? That seems questionable with a view to the goals of the Implementation Regulation, which governs the procedural application of European competition law, i.e. legal provisions the application of which is in case of Article 9 decisions not determined in a manner binding Member State courts (as conceded by the ECJ). To nevertheless compel Member State courts to fall in line behind any Article 9 decision, would effectively grant the Commission the power to preclude national court rulings regardless of the (national) legal basis applicable. Such ambit of Article 9 seems overly broad and, considering the legal power it would vest in the Commission, may well be seen as conflicting with the European Treaties and the division of competencies provided therein. In any event, however, an outright contradiction to an Article 9 decision would not even have to be the outcome if Member State courts were allowed to decide in such cases. There are numerous alternatives to simply reinstating the disputed clauses, such as an amendment of the contract or the award of damages (after all, it could be argued, any commitments are entered into by the respective company voluntarily and thus – thought from a breach of contract perspective – "culpably"). The ECJ, however, turns the tables and shifts the problem to the level of the Commission decision. As a result, the Commission is prompted to consider possible alternative solutions. Again, however, this view does not seem entirely conclusive, especially since the ECJ itself had stated in “Alrosa” that, although the interests of third parties must be taken into account, the Commission's proportionality test is limited to examining whether (i) the commitments in question address the concerns expressed by the Commission to the companies involved and (ii) these companies have not offered less onerous commitments that would also adequately address the concerns. In other words – and this is also consistent with the mechanism of Article 9 – the Commission actually relies on the input from the company under investigation. The current decision seems to ignore that.
- Had the Commission continued its proceedings and issued an infringement decision finding the clause to be in violation of competition law pursuant to Article 7 of the Implementation Regulation, the result might have been – subject to further judicial review – that the clause in question is not merely "waived" or “blocked” – but null and void. This is the most serious form of legal interference with any contractual structure. However, it is hardly conceivable that the ECJ would have criticized that result. This is because such interference is inherent in EU competition law. It orders all legal transactions to be null and void if they result in anticompetitive outcomes that cannot, by way of exception, be justified (exempted); an official decision by the Commission is not even constitutive for this result. At the same time, however, the ECJ declares an "undermining" of contractual positions to be a red flag for all commitments under Article 9. This is striking, especially since the ECJ in its judgment does not question the Commission's assessment that the case was at least prima facie questionable under competition law. Ultimately, this means that going forward, contractual partners of companies that use contractual clauses which are at least potentially critical from an antitrust perspective can consider their position better protected in case of Article 9 decisions than with decisions under Article 7 of the Implementation Regulation.
- The ECJ is silent on why exactly this has to be the case or which gradations should apply here. In other words: When is there an interference with third party positions that can render then “meaningless” and therefore question the validity of an Article 9 decision? After all, “rendering meaningless” is a term the contours of which are prone to be blurred. Moreover, the ruling is completely silent on the evaluation of cases below the “rendering meaningless” threshold. This will likely make life more difficult for the Commission in the future, as it is being spectacularly shot across the bow here – without any further instructions for action. It will now have to devise its own analysis schemes in order to keep the instrument of commitments decisions operational (as it may already have considered to use it in some of its current major investigations).
Authored by Martin Sura and Florian von Schreitter