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The Sale of Exclusive Rights

It has already been explained that there is a clear commercial attraction to the acquisition of a product or service on an exclusive basis. The buyer becomes the sole source from which other parties in downstream markets can acquire the product or service, and can set prices accordingly. This is true in any market: the market for the sale of rights to broadcast sporting events is simply one in which the lure of exclusivity is especially glittering. The question, raised earlier, is whether the foreclosing effect on the market which results from exclusivity should attract concern from the perspective of competition law. The answer, explained at length in the following section, is in short, ‘sometimes—but it depends on the state of the market’.

The scope of Article 101(1) TFEU

Article 101 TFEU prohibits agreements which have as their object or effect the prevention, restriction, or distortion of competition within the internal market, subject only to the possibility of exemption in accordance with the criteria set out in Article 101(3). The prohibition is given bite by Article 101(2) which directs that prohibited agreements shall be automatically void. This is plainly designed to curtail contractual autonomy where it violates the requirements of EU law. Where a seller agrees to supply a buyer with rights to broadcast sports events on an exclusive basis, other would-be competitors are excluded from access to the content. But this cannot of itself lead to the application of Article 101. After all, any contract that involves a promise to do or not to do something is capable of being understood as a restriction on the freedom of the party making the promise. It would stretch competition law in general and Article 101 in particular too far to apply it in such indiscriminate fashion. It is instead necessary to focus in a more economically informed manner on what should be the proper reach of Article 101.

The sale of rights counts as a vertical deal. Such deals generally have pro-competitive implications because they increase the supply of goods or services in the market. Exclusivity is commonly a necessary element in a successful vertical deal. The grant of exclusivity is what makes the purchase attractive to the buyer, who may thereby be induced to invest much more confidently in the quality of the product—which is in itself a clear benefit to the consumer. That means that where, without exclusivity, there will be no deal at all, then the exclusivity is in fact procompetitive. It would be wrong to subject it to Article 101 TFEU.

There is nothing new about this, nor indeed is there anything sport-specific about it. As long ago as 1966 the Court ruled in Societe TechniqueMiniere vMaschinenbau Ulm GmbH that ‘competition must be understood within the actual context in which it would occur in the absence of the agreement in dispute’ and that ‘it may be doubted whether there is an interference with competition if the said agreement seems really necessary for the penetration of a new area by an undertaking’.[1] This meant that in order to determine whether the prohibition contained in (what is today) Article 101(1) TFEU bites, the grant of an exclusive right needed to be accompanied by assessment of its context. There should be appreciation of matters including the nature and quantity of the products covered by the agreement, the position and importance of the buyer and the seller in the market for the products concerned, the question whether the disputed agreement stands alone or instead forms part of a series of agreements, and the severity of the clauses intended to protect the holder of exclusive rights.

The case concerned the sale of equipment used by public utilities by a German producer to a French user. It was not about sport or broadcasting. But it asserted that, in short, the structure of the particular market in which the grant of exclusive rights is made needs to be taken seriously in deciding whether there is a reason to review the arrangement pursuant to Article 101(1). This is enduringly true.

The most important document in practice today is the 2010 Commission Guidelines on Vertical Restraints.3® This sets out in careful detail how to apply Article 101(1) TFEU. It makes clear that unduly tight or lengthy restrictions will not escape subjection to Article 101. Nor will EU law countenance an exclusive licence which suppresses parallel trade—that is, one which seeks to achieve absolute territorial protection within the wider EU internal market. Moreover, an agreement conferring exclusive rights should be assessed in the context of any ‘network effects’ that are involved if that is relevant in the particular market—that means, an agreement’s impact on competition must not be assessed in isolation if the economic reality is that the agreement is not an isolated transaction.

This model is readily applicable to the sale of sports rights, which is commonly conducted according to the sale of exclusive rights on a territorial basis. Careful consultation of the Guidelines may lead to the drafting of an agreement which does not fall within the scope of Article 101(1) at all. However, the more power in the market the agreement confers on the buyer, the more valuable the exclusive right becomes: while the more power in the market the agreement confers, the more likely it is that it will in consequence affect competition to a sufficient degree to bring it within the scope of Article 101(1). This does not mean it is inevitably unlawful. It means instead that it survives only if capable of exemption pursuant to Article 101(3). This is now considered.

  • [1] Case 56/65 [1966] ECR 235. 3® European Commission, Guidelines on Vertical Restraints, SEC (2010) 411 [2010] OJ C130/1.
 
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