High Court holds that collective selling and exclusive licensing of media rights by racecourses is not anti-competitive

29 September 2008

Richard Eccles

The High Court has recently dismissed a claim by a betting industry body and four British bookmakers that arrangements between a number of British racecourses for collective and closed selling of media rights to Amalgamated Racing Ltd (‘AMRAC’), a new distributor of media rights to licensed betting offices, infringed competition law. The High Court also dismissed the claim that the grant of exclusive licences by the racecourses to AMRAC had the effect of restricting competition by foreclosure of the upstream or downstream market.

Satellite Information Services Ltd (‘SIS’) has distributed media rights to show live pictures of horseracing at licensed betting offices (‘LBOs’) since 1987. Up until the creation of AMRAC, SIS was the sole (but non-exclusive) distributor of LBO media rights and supplied pictures from all racecourses in Great Britain. LBO operators paid SIS for the right to show those live pictures, and in turn SIS made payments to the racecourses. 31 of these racecourses, who were discontent over the size of the payments for their LBO media rights, set up a joint venture, Racing UK Ltd, in order to create a new LBO media rights distributor: AMRAC. Since January 2007, the racecourses which have participated in the joint venture (i.e. 31 out of 60 British racecourses) have licensed their LBO media rights exclusively to AMRAC. 29 racecourses continue to license their LBO media rights so that they are available to SIS, which has recently acquired exclusive rights for 26 racecourses. The 31 racecourses which have participated in the joint venture receive more revenue for their LBO media rights. On the other hand, LBOs now have to pay more, the price of the AMRAC service being greater than the amount of the reduction in the price of the former SIS service.

Restriction of competition by object: price fixing

The judge considered whether there was an agreement or concerted practice between the racecourses which had the object of fixing prices, resulting in increased prices paid to the racecourses. The judge concluded that the object of the concerted practice, which arose from the cooperation between the racecourses to negotiate collectively with AMRAC, was to sponsor the entry into the market of a new purchaser of LBO media rights, AMRAC. The pre-existing market was one of a ‘monopoly purchaser’ of LBO media rights (SIS), and the racecourses simply wished to create competition for the purchase of their rights. The object of the arrangements between the racecourses was not to restrict competition. On the contrary, they had the very real potential to increase competition in the upstream market (which includes the acquisition of licences for media rights to British horseracing). In addition, the judge considered that the concerted practice would not have an adverse effect on competition in the downstream market (which includes the supply of televised broadcasting of live British horseracing to LBOs), as collective negotiation would not result in a reduction of output. Although the arrangements would result in an increase in prices paid to the racecourses, this was not due to any anti-competitive behaviour by the racecourses fixing prices but to the pro-competitive entry of a second purchaser into a market previously occupied by a monopsony.

Restriction of competition by effect: exclusive rights, collective selling and closed selling

The judge stressed that when assessing the effect of agreements or concerted practices on competition, a realistic economic approach is necessary. Regard must be given to individual circumstances, to actual and potential competition. The effect on competition must be negative and must be appreciable or significant, not merely hypothetical. If it is claimed that a restriction prevents a new competitor from entering a market, there must be a real concrete possibility of a new competitor entering that market. Regard must also be given to ancillary restraints and commercial necessity, and in particular whether a restraint is ‘necessary’ for the purpose of enabling a new entrant in a market. The judge noted that the concept of ‘necessity’ does not necessarily entail something which is ‘strictly essential’ but could be satisfied in circumstances where achieving the commercial objective would be difficult absent the restriction.

The judge first considered whether the exclusive licences entered into by AMRAC and the racecourses had the effect of restricting competition by: (i) foreclosing the market to new entrants and/or (ii) restricting AMRAC’s competitors from increasing their market share. In terms of market foreclosure, the judge held that in theory, the fact that all 60 British racecourses had granted their LBO media rights exclusively prevented any intending distributor from entering the upstream or downstream market for the period of the grants (5 years). However, because there was no real concrete possibility of new competitors seeking to enter the markets, there could be no adverse effect on competition. Any foreclosure remained hypothetical. In relation to market share, the judge found that AMRAC’s entry into the market meant that there could be a second purchaser of LBO media rights, which could only have a pro-competitive effect. In addition, the market which AMRAC entered in January 2007 was not the pre-existing market of non-exclusive licences, but a market where SIS had already acquired exclusive rights for 26 racecourses. In order to compete successfully, it was commercially necessary for AMRAC to enter into exclusive licences.

The judge then considered the effect of the concerted practice between racecourses which involved collective negotiation and selling. Following Re: The Joint Selling of the Commercial Rights of the UEFA Champions League [2004] 4 CMLR 9, the judge held that the racecourses were potentially in competition with each other in relation to the sale of their LBO media rights and that a restriction on freedom of action to negotiate individually was a restriction on competition. As however there was no evidence that the collective negotiation was likely to increase the total prices paid by AMRAC to the racecourses, there could be no appreciable adverse effect on competition by reason of collective negotiations with AMRAC. In any event, any restriction on competition resulting from collective negotiation was objectively necessary, since the racecourses participating in the joint venture had to negotiate collectively.

Finally, the judge considered the effect of the concerted practice between racecourses to ‘close’ the negotiations so as to limit them to AMRAC. Having regard to the actual market circumstances, individual circumstances and what is commercially realistic, the judge held that the decision of the racecourses to negotiate exclusively with AMRAC did not infringe Article 81(1). Selling LBO media rights to SIS would have undermined the purpose of the joint venture, which was to sponsor entry of a new purchaser into the market. It would not have been logical for the racecourses participating in the joint venture to withhold the LBO media rights that AMRAC needed to enter the market.

In the absence of any infringement of Article 81(1), the judge did not need to consider the application of Article 81(2), which stipulates that any agreements prohibited pursuant to Article 81(1) will be automatically void. The judge nonetheless commented that there did not appear to be any principles of English law which would enable a court to hold that a vertical supply agreement is void when the supplier under that agreement is also party to a horizontal price-fixing agreement which is itself void under Article 81(2). In the case however of a more complex horizontal agreement (where the parties not only include the horizontal parties but also someone supplied by one of the horizontal parties), the judge explained that both the horizontal parties and the person taking the supply could be found to be party to an agreement which infringes Article 81(1) and is void under Article 81(2). In such circumstances, the party being supplied would not acquire rights under the offending agreement.

Source: Bookmakers Afternoon Greyhound Services Ltd & Ors v Amalgamated Racing Ltd & Ors [2008] EWHC 1978 (Ch) (08 August 2008)

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