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How will Free Movement Principles in the EU impact the VOD Market?

We explore what this impact might be on the Video On Demand (VOD) market in Europe, should the European Court of Justice (ECJ) decide to follow the opinion.

June 2011

The Advocate General's opinion in the English football Premier League/Karen Murphy case has generated much discussion about the possible implications for the Football Association Premier League’s (FAPL) business model of selling exclusive packages of national rights throughout Europe. She said that her opinion would have considerable importance for the functioning of the European market in the sale of computer software, musical works, e-books or films via the internet. Here, we explore what this impact might be on the Video On Demand (VOD) market in Europe, should the European Court of Justice (ECJ) decide to follow the opinion.

European market

To recap, the Advocate General advised that, where content is placed on the single European market by, or with the consent of, the rights holder, the rights holder cannot subsequently rely on intellectual property rights in the content to prevent the broadcast of that content in another country.

Broadcasting licences for English Premier League matches are granted on a country-by-country basis in the EU and around the world. The licences contain a series of restrictions that are intended to prevent consumers accessing foreign broadcasts and taking advantage of lower subscription fees. In this case, publicans (including Mrs Murphy) had imported foreign decoder cards which enabled them to access the Greek broadcast of matches but having paid lower fees to do so.

The opinion states that territorial restrictions, which allow the broadcasters to "profit from the elimination of the internal market", amount to an unjustified partitioning of the single market and are incompatible with EU law.

internet marketIf the ECJ followed the opinion, what would the impact be on distribution models and pricing strategies for VOD services? Would territorial restrictions on release dates, territory specific pricing (perhaps supported by digital rights management technology and IP address recognition restrictions) be legitimate, given their practical effect is to fragment the internal market? The market is fragmented because customers in one member state cannot access works in the same way as customers in another member state.

Restrictions on freedom to provide services (such as those imposed by the FAPL) can be justified to protect industrial and commercial property (e.g. IP), if the restrictions are "necessary to safeguard rights which constitute the specific subject-matter of such property". The reasons the Advocate General gave for finding that the FAPL's restrictions were not justified do not immediately apply to other markets. For example markets for computer software, musical works, ebooks or films via the internet, the differences are as follows:

  • the essential function of copyright was not affected in circumstances where the initial broadcast was consented to and paid for. In a VOD context, were a consumer to access a VOD service in a territory outside the territory to which the rights owner had consented to distribution, there would be no initial consent and no initial payment;
  • there was no further communication to the public in Mrs Murphy receiving the Greek broadcast; it was already available to the public in the UK because the footprint of the Greek satellite is available in the UK. On the other hand, where a VOD service is accessed in a territory other than the licensed territory, there could well be a separate (and prohibited) communication to the public in that territory; and
  • there is a distinction between partitioning the internal market with the intention of protecting other forms of exploitation of a work and partitioning the market to optimise exploitation of the same work within different markets, the former being permissible while the latter falls foul of EU competition law.

Applying this distinction to the FAPL case, there is a difference between (a) the rights holder requiring fees for re-transmission (e.g., like in Coditel¸ where the re-broadcast on Belgian television of a film played in a German cinema undermined the economic exploitation of the Belgian rights holder to command fees for subsequent showings at the cinema) and (b) where the FAPL broadcast made by the Greek entity was both with the consent of the rights-holder and had been charged for (albeit at Greek rates).

So, on the basis of this distinction, film studios should be able to continue their current business practices in selling the rights to their films. That is, parcelling up the rights to films to protect different types of exploitation (VOD, pay TV, free TV etc) should continue to be legitimate. Each is a different method of exploitation.

Which side of this distinction other methods of territorial specific distribution fall (such as differential pricing) in VOD services will illustrate just how significant a blow this opinion might be to the fundamental principle of intellectual property that rights holders are free to license their national rights differently in different countries. On one view, each copyright work transmitted through a VOD service in each European territory is a different form of exploitation of that work. On the other view (probably held by the Advocate General), if a work comes onto the VOD market in any European state, it should equally be available on the same terms throughout Europe. Therefore, if the Advocate General's defence of the internal market is taken at its widest, it is possible that these forms of impediment to the internal market (i.e. preventing the internal market from offsetting price differences by trade) should be prohibited.

However, we would suggest that such a fundamental principle of intellectual property law (a law which is not fully harmonised across Europe) should not be challenged lightly and that the FAPL case should be confined to its facts. If rights owners could not, in general, exploit their works in different ways in different member states (as they see fit) the ECJ would, in effect, herald collective licensing of intellectual property across Europe, which is not something that should be introduced by the back-door route of the ECJ.

Ultimately, however, we may find that it is only FAPL broadcast rights for which territorial exclusivity and timely access to the footage are so important to merit such wide price differentials between markets and to encourage customers to go to the lengths Mrs Murphy did to obtain cheaper access. The studios may well take the view that there is little to be gained by charging vastly different prices between national VOD markets or restricting access between European countries, as Sky does. If so, the practical risk of the internal market being partitioned may be lower than suggested by the Advocate General.

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The EU
Adam Rendle

Adam Rendle

Adam considers a recent European opinion regarding the broadcast of premier league football games and whether European competition law could mean that access to Video On Demand services cannot be restricted to individual European countries but must be made available throughout the European Union.

"The studios may well take the view that there is little to be gained by charging vastly different prices between national VOD markets or restricting access between European countries, as Sky does"