Is territoriality dead?

Dear reader

Short answer - "no", but given the increasing regulatory and consumer pressure for multi-territory licensing, any restrictions designed to limit the availability on a territorial basis will need to justfied on the basis that they are necessary to ensure the protection of intellectual property rights and that, without such restriction, the author or other rights holder of the work cannot be adequately remunerated without such restriction.

What's happened?

Let's cut to the chase. Does the European Court of Justice's (ECJ) decision last week in the Football Association Premier League (FAPL) cases mean that arrangements for licensing copyright protected content on an exclusive territorial basis are illegal under European law? If yes, this has big implications across all sectors of the creative industries in Europe.

Under the exclusive licence arrangements, FAPL's  licensees of live broadcasts of Premier League football games agree to prevent the public from receiving their broadcasts outside their exclusive territory. The contract requires each broadcaster to securely encrypt its broadcast and prohibits them from supplying decoder devices that enable their broadcasts to be decoded outside their territory.

Some of the questions referred to the ECJ were specific to satellite broadcasting e.g. whether UK legislation made it unlawful to import and sell in the UK decoder cards from other member states on the ground that it restricted the free movement of services, one of the cardinal principles of the EU Treaty on the Functioning of the European Union (TFEU). (Answer: "yes").

But other questions considered by the ECJ apply more broadly.  The restrictions accepted by FAPL's licensees were designed to reinforce the territorial exclusivity granted to each national licensee. So the point of general application to the creative industries is whether clauses in an exclusive licence agreement - which could be for books, films, music or otherwise - constitute a restriction on competition and are therefore banned by EU competition law.

So what's the answer? 

Well, let's start with the good news for rights holders. It is well settled that there's no principle of EU law which, as such, bans the actual grant of an exclusive licence for a given territory for subject matter protected by intellectual property. However, exclusivity brings EU competition law into play because it  conflicts with the cardinal principle of free movement of services. In particular, EU competition law questions arise, as in the FAPL cases, where there are additional obligations (e.g. export bans) which are designed to "insulate" exclusive national territories.

So in the FAPL cases, the ECJ decided that that the mere fact that FAPL, as right holder, granted an exclusive licence was not sufficient to justify a finding that the agreement had an anti-competitive effect.

Sting in the tail

The ECJ went on to conclude that the restrictions accepted by FAPL's licencees did have as their object the restriction of competition and were prohibited unless there were other circumstances falling within the economic and legal context which justified them. In that context, the Court noted that in determining the licence fees charged to the national broadcasters, FAPL could take account of the potential territorial coverage of the broadcasts i.e. charge more to take account of the fact that the footprint of each national broadcaster's broadcast may go beyond its national boundaries.

That meant that FAPL could not argue that it needed the contractual restrictions in order to secure appropriate remuneration as rights holder for its rights over the broadcast of live Premier League games.

The future

So what does that mean for authors and publishers for the distribution of e-books online?  True, agreements between rights owners and e-distributors or retailers will typically be on a non-exclusive basis so the question of enforceability of territorial restrictions will not arise. Also, in other areas of EU competition law (e.g. selective distribution arrangements for luxury goods), 'passive' restrictions may be justified, which prevent the exclusive retailer in one territory from actively seeking sales from customer in another territory. By analogy, a similar approach may be applicable for the distribution of e-content.

But what about provisions in those agreements which require the e-distributor or e-tailer to restrict sales based on geo-location, national credit card or other nationally-based restrictions?

In those cases, the ECJ and national courts will have to consider whether those restrictions can be justified in the light of the right holders' intellectual property rights, in order to ensure that rights holders are properly remunerated in each Member State. So if a consumer belonging in Member State A wishes to purchase a work online whilst in Member State B on payment of the applicable price in Member State B, any restriction that prevents him or her from doing so raises alarm bells from a competition law viewpoint. The restriction would have to be justified on the basis that the restriction is designed to ensure appropriate remuneration.

Of course, consumer demand will ultimately dictate the business models adopted by the creative industries and that will ultimately determine the fate of territorial restrictions.

One note of caution: this is a highly complex area of European and national law. So my views should be expressed as tentative, especially as the UK Courts must now digest the ECJ decision. So this post shouldn't be treated as legal advice on the subject. And, yes, that is a restriction against the use of this post on a territorial or extra-territorial basis :)

Have a good week

Laurie

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