Will the final whistle be blown on the Exploitation of Territorially Exclusive Sports Media Rights?
In anticipation of next Tuesday's judgment by the European Court of Justice in Football Association Premier League Ltd v QC Leisure and Karen Murphy v Media Protection Services Ltd, we have outlined below the current state of play.
In February of this year AG Kokott's opinion addressed questions referred to the Court of Justice of the European Union by the High Court stemming from two cases concerning the use of imported satellite decoding boxes sold and used to access live Premier League matches via a foreign broadcaster.
The FA Premier League (FAPL) divides the rights to broadcast live matches by territory. This model of partitioning the market has been used by rights holders throughout Europe for many years. The Coditel I case of the early 1980's has been used by broadcasters to justify partitioning of the European market on the basis that the case decided that exclusive territorial licences to broadcast content are not contrary to the EU free movement rules. The licence fees payable vary depending on the market demand for FAPL rights in each territory, allowing FAPL to maximise revenues in territories where demand to view Premier League matches is greatest (such as the UK). In most territories licensees are granted exclusivity which allows the licensees to exploit broadcasts of Premier League matches via a form of subscription service. In return for the exclusivity a licensee will typically be obliged to take steps to prevent its broadcasts being available to view outside of the specified territory. This is done in part by employing digital rights management and encryption technologies and by ensuring that the necessary decryption equipment is not available for purchase outside of that territory.
In December 2007 Karen Murphy, the landlady of a Portsmouth pub, was fined for showing Premier League matches in her pub using a foreign decoder card. Murphy had taken a subscription which included a decoding box and card with NOVA, the Greek satellite broadcaster that had secured the rights to broadcast Premier League matches in Greece. The subscription fee for NOVA was reported to represent a saving of over £5,000 when compared to the fee for the equivalent service provided by BSkyB, which since the Premier League's inception has been licensed to broadcast live matches in the UK. Murphy appealed to the High Court.
FAPL also brought actions against QC Leisure and others who imported and supplied equipment and decoder cards to pubs and bars in the UK that enabled Premier League games to be shown via a foreign broadcast service.
The High Court referred a number of questions from these cases, often referred to as simply the "Murphy case" to the European Court of Justice.
AG Kokott's findings may be grouped into five main issues:
1. Whether a decoder card lawfully manufactured and sold in one Member State can become an 'illicit device' if sold in another Member State and therefore prohibited under Article 4 of the Conditional Access Directive:
Contrary to FAPL's opinion, AG Kokott stated that a decoder card from one Member State does not become an illicit device merely by being used in another Member State contrary to the authority of the broadcaster providing the service. Article 2(e) of the Conditional Access Directive refers to equipment that has been adapted to give access to a protected service, it is not intended to cover devices performing the function they were specifically designed to do by the broadcaster. AG Kokott's opinion appears to distinguish between genuine decoder cards and unauthorised or 'pirate' cards. Her reasoning suggests that the Conditional Access Directive only applies to illegitimate cards, and that legitimate cards used for their primary purpose, irrespective of the contractual terms relating to their use, are not capable of becoming illicit devices.
2. Whether digital communication of broadcasts affects the author's right in the reproduction of the work, and specifically whether the reproduction right applies to live transmissions:
The Advocate General confirmed that the reproduction right applies to live transmissions, and the display of a broadcast on a screen amounts to reproduction. AG Kokott stated that reproduction occurred during the process of transmission when fragments of the broadcast are copied within the decoder's memory. However, it was the Advocate General's opinion that such copies benefit from the exception which allows copies to be made for technological reasons and have no economic significance. However the AG contrasted this with reproduction on the screen which did have economic significance. On this basis, the AG concluded that the author's reproduction right covers live transmissions, and to this extent she found in favour of FAPL as rights holder.
3. Does showing a broadcast of a match in a pub represent a 'communication to the public' and is it therefore subject to the author's right to prohibit access to their copyrighted works by the public in a publicly accessible place?
The Advocate General concluded that showing a Premier League match in a pub did not represent a 'communication to the public' on the grounds that Article 3(1) of the Copyright Directive only applies where the relevant public are not present at the place where the communication originates. In AG Kokott's opinion, when showing a match in a pub the communication originates on the screen, and so the relevant public is present at the place in which the communication originates. She contrasted her findings with hotel based cases such as SGAE v Rafael where transmission of broadcasts to individual hotel rooms is regarded as retransmission and hence qualifies as communication.
4. Whether the sale of rights on a territorial basis and the prevention of licensees exploiting such rights outside of their licensed territory amounts to an infringement of EU provisions on the free movement of services:
The Advocate General's key finding is that selling exclusive rights on a territorial basis has the effect of partitioning the European market primarily along national lines, and that this represents a serious impairment of the freedom to provide services under Article 56 of the Treaty on the Functioning of the European Union:
(i) A partitioning of the internal market is not justified by the specific subject-matter of the rights to live football transmissions, in contrast to the Coditel I case. In that case the rights-holder was able to exercise its rights to prevent the cross-border transmission through a different form of exploitation, whereas in this case the aim of territorial partitioning is to optimise exploitation of the same work in different territories; and
(ii) Although she recognised that the decoder cards (as goods) are of secondary importance to the relevant services, she considered that the rules on exhaustion of rights for goods are applicable. This extension of exhaustion from goods to services is controversial and if followed by the Court of Justice would be a fundamental alteration in the effective scope of copyright protection.
5. Whether a provision that restricts the sale of decryption equipment outside of a licensed territory is contrary to competition law (on the basis that its object is to prevent, restrict or distort competition):
The Advocate General considered the absolute contractual restriction obliging licensees to prevent their cards from being used outside of their licensed territory was contrary to Article 101(1) of the Treaty (which prohibits anti-competitive agreements) in a similar way to restrictions on parallel exports, which by their nature have the effect of preventing, restricting or distorting competition, without need to demonstrate actual anti-competitive effects. AG Kokott suggested that it might be possible to prove that the restriction is justified under Article 101(3) which enables an exception based on a balancing of the anti–competitive and efficiency effects of the agreement.
AG Kokott stressed that it would be for FAPL to prove this by means of convincing arguments and evidence and for the High Court to determine whether the conditions were satisfied.
If the Court of Justice follows the Opinion of the Advocate General (which it does in approximately 80% of cases), the landscape for the sale of sports media rights, and perhaps all media licensing will be changed. The two key consequences will be that:
(i) possibilities will be reduced under EU law for sports rights holders to prevent licensees from broadcasting content outside of their licensed territory and across Europe; and
(ii) this in turn would prevent rights holders from being able to offer exclusive licensees protection against cross-border transmissions in their territory.
Rights owners such as FAPL may seek to stay as close to the current regime as possible by licensing rights on a language basis and not permitting a pan European broadcast in English. This business model may work for domestic subscribers who are unlikely to purchase a subscription in a foreign language, but it may only have a limited effect on the sale of subscriptions to pubs and bars as many currently receive services in a foreign language and either show the match with the sound muted or rely on the customer noise in the premises to drown out the foreign commentary.
The other main option would be to license rights to one broadcaster for exploitation throughout Europe, a proposal suggested by AG Kokott. The effect would be to strengthen the hand of large players in the market such as BSkyB who have the capacity and resources to develop a multi-territory subscription service to the possible exclusion of smaller broadcasters, including broadcasters in smaller markets such as Greece. It is conceivable that smaller markets may even be left without access to Premier League matches if the multi-territory broadcaster considered the cost of providing the service to that territory or country will not be offset by the revenues generated.