In play was the right to show live coverage of much of GB horse racing. Under starter’s orders were leading bookmakers and the race course owner defendants. The latter triggered the showdown after setting up Turf TV to exclusively transmit races at their courses. Zoe Hare commentates.
Topic: Competition
Who: Court of Appeal
When: 28 July 2009
Where: UK
Law stated as at: 30 October 2009
What happened:
Bookmakers' Afternoon Greyhound Services Ltd v Amalgamated Racing Ltd
On 28 July 2009, the Court of Appeal handed down its judgment rejecting an appeal by bookmakers that the exclusive negotiation for the distribution of media rights by various racecourses in the UK was anti-competitive.
Background
Satellite Information Services Ltd ("SIS") has been distributing media rights to show horse racing at licensed betting shops since 1987. The betting shop operators ("bookies") paid SIS for these rights, part of which was passed on to the racecourses. However, various racecourses were unhappy about the amount of money which they received. Accordingly, they joined together to form Racing UK Ltd ("RUK") and set up a new media rights distributor called Amalgamated Racing Limited ("AMRAC").
31 of the 60 UK racecourses proceeded to license their rights exclusively to AMRAC, rather than SIS; therefore bookies could only show live coverage from races at these courses if they had paid AMRAC for a licence. SIS obtained exclusive licences for the remaining UK racecourses. As a result, AMRAC courses received more money from the arrangements but bookies lost out as they were compelled to pay more in order to take a licence from both AMRAC and SIS.
The bookies' claim
The betting industry body, Bookmakers' Afternoon Greyhound Services Ltd, and four bookies themselves brought proceedings against AMRAC claiming:
- the object of the collective agreements between the RUK racecourses and AMRAC was to fix prices for the media rights, contrary to Article 81(1) of the EC Treaty and the prohibition contained in Chapter I of the Competition Act 1998 (anti-competitive agreements and concerted practices between undertakings);
- the arrangements had the effect of raising prices and the exclusivity resulted in foreclosure of the market, thus restricting competition and trade, contrary to Article 81(1) and Chapter I; and
- as a result, the arrangements were void, since they would not satisfy the criteria for an exemption under Article 81(3).
In essence, it was argued that the racecourses had collectively entered into agreements to fix licence prices which bookies must pay to AMRAC for the media rights and had collectively set other terms and conditions in order to receive more money from the licences.
The High Court rejected the claim but granted leave to appeal to the Court of Appeal. The key issues raised in the appeal were:
- whether the RUK racecourses were competitors with each other, thus resulting in the collective selling being anti-competitive behaviour;
- whether the arrangements had as their object the restriction of competition because (a) the RUK racecourse agreed a minimum price for the AMRAC media rights; and (b) they negotiated exclusively with AMRAC to the exclusion of SIS; and
- whether the arrangements were necessary in order to enable a new market entrant to enter a monopolised market, and thus actually pro-competitive.
Court of Appeal's decision
1. The Appeal Judges accepted AMRAC's assertion that the racecourses do not compete with each other in relation to the sale of the media rights to the bookies. AMRAC asserted that two courses would only compete with each other where the products are substitutable; here the products cannot be substituted and so an agreement between them will not restrict competition.
2. The arrangements did not have an anti-competitive object. The actual aim of the arrangements with AMRAC was to increase competition by enabling a new entrant into a previously monopolised market. However AMRAC, as a new entrant and provider of media rights, would only be able to compete with SIS if racecourses agreed to deal with them instead of SIS.
Therefore the exclusive arrangements with racecourses to acquire AMRAC's media rights were not anti-competitive by object.
In particular, it was highlighted that an arrangement could not be considered as restrictive on competition if there is no competition in the market at that time which could be restricted. As there was only one distributor, SIS, there was in fact no competition to distort.
3. The exclusive negotiations between AMRAC and the racecourses were necessary in order to establish the joint venture. As all the racecourses were agreeing to grant their media rights to the new broadcaster, AMRAC, they needed to negotiate the terms exclusively.
4. Although the Court agreed that the arrangements were not anti-competitive, it did not decide its judgment on the basis that they were in fact a necessity and thus in fact pro-competitive. However, the Court did assert that if it was required to take a view on this question, it would have held that the collective selling of the media rights to AMRAC was objectively necessary to facilitate the entry to the market of a new distributor.
Why this matters:
This case is important as it demonstrates how arrangements, which may be said to be by their nature anti-competitive, may be considered as permissible and valid. Courts are willing to review the arrangements in light of the surrounding circumstances in order to assess their anti-competitive effects.
Even if an arrangement appears to be anti-competitive, as the entities are fixing prices charged to their customers and making decisions collectively, it may actually not be if its object and effect is not anti-competitive. In this case, as the object and effect of the arrangements in place between AMRAC and the RUK racecourses were in fact pro-competitive, by facilitating a new entrant into a monopolised market, the arrangements were not deemed to be invalid and contrary to Article 81(1) and the Chapter I prohibition.
This case illustrates that where there is no competition in a market due to the existence of a monopoly, per se anti-competitive concerted practices are permissible if their effect is to enhance competition. Therefore, even though the end buyer has ended up paying more, the argument for enhanced competition has prevailed.
