In what have become known as the 'pub football cases', specifically FAPL and others v QC Leisure and others and Karen Murphy v Media Protection Services Ltd (Cases C-403/08 and C-429/08), the key issue is whether the licensing practices of the Football Association Premier League (FAPL) in the exploitation of its live football matches are compatible with European law. The European Court of Justice (ECJ) is expected to deliver its final judgment onthe matter later this year. In the meantime, the Advocate General, whose opinion the Court usually (but not invariably) follows, has answered the question in the negative. In doing so, the opinion calls into question all exclusive territorial licensing practices relating to the broadcast and online transmission of digital content in Europe.

Circumvention

The FAPL grants its licensees exclusive territorial broadcasting rights on terms, among other things, that the licensee will prevent their broadcasts from being viewed outside their licensed territory. This is done by encrypting the signal and making decoder cards only available within the territory. The pub football cases arise out of attempts to circumvent this exclusivity through the distribution and use of decoder cards outside the licensed territory. The incentive to do so comes from the different prices of the cards in different territories. In the cases in question, UK decoder cards for use in pubs cost £6,000 while Greek cards cost only around £600. Karen Murphy, a publican, had used a Greek card in her pub and QC Leisure, a dealer, had distributed other non-UK decoder cards to others.

In the UK, it is an offence under s.297 of the Copyright, Designs and Patents Act (CDPA) to receive a pay service without paying the applicable charge and it is a civil wrong under s.298 to carry on an unauthorised trade in the means to do so, such as selling foreign decoder cards. Murphy and QC Leisure were prosecuted and sued respectively under those provisions. They contended, however, that the use of those sections to enforce that exclusivity was incompatible with single market principles and the High Court referred that question, along with various others, to the ECJ.

The Single Market

On this central question, the Advocate General took the view that the FAPL's practice of exploiting its rights in transmissions of its matches on an exclusive territorial basis in Europe had the effect of enabling FAPL not only to make a commercial charge but also to profit from the partitioning of the market. She took the view that this was incompatible with single market principles and with European law. Briefly her reasoning was as follows:

Although decoder cards were goods, they were secondary to their use to gain access to the encrypted programmes, so the cases had to be examined from the point of view of the freedom to provide services, one of the fundamental freedoms of the single market. Restrictions on that freedom could be justified only on a limited number of grounds, but they did include the protection of property rights. IP is a form of property, the nature or "specific subject matter" of which is the right to make charges for its use, and FAPL had IP rights in its transmissions.

The territorial restrictions in or arising out of FAPL's licences on the freedom to access the programmes (which is part of the freedom to provide services) could be justified so far as they were necessary to protect the specific subject matter of its IP rights. in Karen Murphy's case a charge had been made for the issue of the Greek card, but no further protection for the specific subject matter of its rights was deemed necessary. To put it another way, and in the Advocate General's own words, "Partitioning the internal market for the reception of satellite broadcasts is not necessary in order to protect the specific subject-matter of the rights to live football transmissions." Similar considerations applied to QC Leisure. So territorial exclusivity in these circumstances is incompatible with European law and national laws (such as sections 297 and 298) which cannot be invoked to enforce it. Further, contractual provisions requiring such exclusivity are inherently anti-competitive within Article 101(1) TFEU.

Is the Argument Sustainable?

One consequence of this analysis is that FAPL's rights in a decoder card (that is to say, access to the programme) are in effect exhausted on the sale of the card anywhere in Europe. But it is settled law that the principle of exhaustion of rights, which applies to the distribution of goods in Europe, does not apply to services, which is what the Advocate General says we are concerned with here. She addresses this difficulty by going back to first principles on the one hand and by pointing to the similarity between distribution of digital items and the distribution of goods on the other. She distinguishes the case in hand from the old Coditel cases which had said that films were to be treated differently from goods. The $64,000 question in these proceedings is whether the ECJ will follow the Advocate General in this approach. The answer may lie in a refinement of the argument about the relationship between the decoder card (a good) and access to the programme (a service). The sale of a card does not exhaust FAPL's rights in the programme but only in the card. But we must await the ECJ's judgment.

Possible Consequences

In the meantime, those who are parties to exclusive territorial licensing arrangements in relation to digital content in Europe, whether as distributors or licensees, face considerable uncertainties. The Advocate General recognises that if it is upheld, her analysis will affect not only the exploitation of live football rights but also the distribution of music, films, e-books and other forms of content on the internet. Unless some other justification for partitioning the single market can be found, new business models will have to be adopted in Europe and many existing licensing arrangements, including geoblocking practices, may be held to infringe European laws.

Those who are entering into new deals that might be struck down if the ECJ follows the Advocate General's opinion need to consider the possible consequences and what alternative business models are available, such as those generally permitted under the block exemption regulations on vertical restraints in the distribution of goods. However, those whose deals are already in place need to watch this space closely.