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Wednesday, 29 July 2009

When anticompetition spices up competition, greyhounds lose their appeal

Although it was really a competition law decision, the ruling of Mr Justice Morgan in Bookmakers' Afternoon Greyhound Services Ltd and others v Amalgamated Racing Ltd and others [2008] EWHC 1978 (Ch), a decision from the Chancery Division, England and Wales last August (noted here by the IPKat) was deemed to be of note to IP lawyers and owners too. Yesterday, at [2009] EWCA Civ 750, the Court of Appeal (Lords Justices Mummery, Lloyd and Moore-Bick) dismissed the appeal against the trial judge's decision. Here's what it's all about.

Bookmakers' Afternoon Greyhound Services (BAGS), a not-for-profit company, was comprised of 22 of the UK's 680 off-course bookmakers. Its memorandum of association included the duty to promote the interests of all bookmakers operating Licensed Betting Offices (LBOs). The other claimants in this action were some of the largest bookmakers in the UK. In 1986 it became lawful to show live pictures of horse-racing in LBOs and, in 1987, LBO operators began to pay a distributor, Satellite Information Services Limited (SIS), for the right to show those pictures; in turn, SIS made payments to the racecourses for those rights.

Eventually just over half the 60 British racecourses decided to participate in a joint venture company, the first defendant Amalgamated Racing (AR), which would serve as their new distributor, setting up the Turf TV channel. Around January 2007 those racecourses licensed their own LBO media rights to AR. The second defendant, Racing UK (RUK), was incorporated in 2004 to exploit the media rights of some 30 racecourses, which accounted between them for about 54% of total off-course LBO betting turnover. The seventh to twenty-third defendants were operators of 17 separate racecourses. The other 29 racecourses licensed their LBO media rights so that they were available to SIS. Both AR's and SIS's services were essential services so far as the LBOs were concerned.

As a result of those new arrangements, the 31 racecourses that participated in the joint venture received more revenue for their LBO media rights, since the LBOs were required to pay more in order to show the races in their premises. BAGS argued that the emergence of AR and its entry into the market was anticompetitive, being the result of an agreement which had as its object or effect the prevention, restriction or distortion of competition under Article 81 of the EC Treaty and the corresponding provision of the Competition Act 1998. On this basis they maintained that the agreements in question, including the agreements by racecourses to grant LBO rights to AR, were void under Article 81(2).

The defendants disagreed. In their view, before the arrangements in question were entered into, the market for LBO rights from racecourses was controlled by a monopsony composed of BAGS and SIS. As a result of its position of control of the upstream market, this monopsony paid racecourses a price that was less than that which their rights were worth. The whole point of making the new arrangements with AR was to allow it to be a new entrant into the upstream market -- this not have the object of restricting competition or of fixing prices but, on the contrary, had the object of enhancing competition. Although the result was that prices paid by LBOs went up, that was the result of enhancing competition in the upstream market, was not a restriction on competition.

In a mammoth judgment of 523 paragraphs Morgan J dismissed the action of BAGS and the other bookmakers. In his view

* There was no legal principle that a vertical supply contract was void when the supplier under that contract was a party to a horizontal price-fixing agreement that was itself void. Thus if a consumer under the vertical agreement wanted to complain that the price charged by the price-fixer was excessive, that consumer had a claim for damages for breach of Article 81. There was no need for the law to enable the consumer to have that contract ruled to be void.

* Here the pre-existing market was one of a monopoly purchaser from racecourses and the objects of the challenged agreement did not have the potential of restricting competition. As the defendants contended, the new arrangements actually had the potential to increase competition in the upstream market.

* The increased prices paid by LBOs did not result from the anticompetitive behaviour of sellers fixing prices but rather from the procompetitive entry of a second purchaser into a market formerly occupied by a monopsonist.

* On the evidence, the objective aim of the cooperation between the defendants was to sponsor the entry of AR into the market. The racecourses wanted it to exist and to have LBO media rights which would differentiate it from SIS.

The Court of Appeal agreed. In its view

* Article 81 only applied if the arrangements made here were intended to restrict competition or had that effect. If they were so intended, it was unnecessary to consider their effect. If the object of an agreement was to promote competition, for example by strengthening competition in a market, opening up a market or allowing a new competitor access to a market, some consequent elements of restriction could, taking a broad view of things, be seen as aiming to promote competition.

* In this case the object of the joint venture was to establish a second broadcaster which could compete both in the upstream and in the downstream markets. To be effective, such a broadcaster needed (i) to acquire media rights for a minimum number of racecourses on an exclusive basis, (ii) to have been promoted by or in association with a number of racecourses, and (iii) to be sufficiently protected at the birth of the venture to enable it to off the ground. This being so, Morgan J was right to reject the argument that the agreement had as an object the restriction of competition.

* Where an agreement did not have as its object a restriction of competition, its effects then fell to be considered. To be caught by the Article 81 prohibition the agreement had to be shown in fact to prevent, restrict or distort competition to an appreciable extent. However, cooperation between competitors in markets closely related to the market directly concerned by the cooperation could not be defined as restricting competition, if that cooperation was the only commercially justifiable possible way to enter a new market, to launch a new product or service or to carry out a specific project, Accordingly there was no reason to interfere with the conclusion of Morgan J that the overall effect of the joint venture was procompetitive.

The IPKat thinks this is right; he likes the idea that a little bit of anticompetition can actually promote competition -- after all, isn't that what the concept of the limited monopoly for inventions, copyright and designs is all about? Merpel says, the balance betweeen the subjective state of the alleged anticompetitors' minds and the objective consequences of their actions is an interesting one: lawyers are probably more comfortable than economists in dealing with the former, while the measurable nature of the latter must surely appeal to the skills of economists more than those of to lawyers. Tufty adds, I just love the word "anticompetitor" -- it's much more funky than grey and malevolent terms like "monopolist".

Afternoon Greyhound here
Dog Day Afternoon here
Cat races here and here

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