Case law update: Football Association Premier League Ltd v British Telecommunication Plc and others [2017]

The High Court recently ordered a number of Internet service providers (“ISPs”) to block access to Internet servers that allowed viewers to illegally view English Premier League games. Mr Justice Arnold (the “Judge”), who heard this case, noted that whilst this matter dealt with established copyright principles, this was the first time the Court had dealt directly with the Internet servers providing the illegal streams, as opposed to just the websites that advertised the infringing content.

 Technical note: Before dealing with the details of this case, it is worth reviewing the basics of how illegal streaming works. There are numerous websites, which advertise streaming of live Premier League games. Once the viewer selects a game to view, the website lists a number of links to other websites which purport to show the game. When one of the links is clicked the first website directs you to a second website hosted on a server, which then streams the game directly back to the viewer, circumventing the initial website. Previously, when websites that advertise content have been blocked they reappear with a slightly website name (and a different IP address). They are then able to re-link the viewers to the servers that show the infringing content. Therefore, an effective anti-piracy law would seek to target the servers that host the content, as opposed to merely the websites that advertise it.

Background

Whilst the Claimant was the Football Association Premier League Ltd (“FAPL”), they were supported by a number of other right holders including the Rugby Football Union, the England and Wales Cricket Board and the British Broadcasting Corporation (The fact that the Claimant had the backing of some of the biggest UK sports rights holders indicates how important this issue is). The Defendants’ are the leading ISPs in the United Kingdom and included British Telecommunication, SKY UK and Virgin Media. The Claimant sought an injunction, pursuant to Section 97A of the Copyrights, Designs and Patents Act 1988 (which implements a variety of European Community law) (the “Act”) against the Defendants’ requiring them to prevent their customers from accessing the servers which illegally show Premier League games.

The Judge noted that in a previous case (FAPL v British Sky Broadcasting) in 2013 he had dealt with a similar request for an injunction, however in the three years since, the situation has been complicated in a number of ways:-

1. The ‘traditional’ method of blocking streaming services, which consisted of blocking websites that advertised Premier League games, needed updating. Since 2013 there has been a range of new devices that connect directly to televisions (ie: the popular Amazon Fire stick). These devices then access the streaming servers directing, avoiding the need to use specific websites;

2. Accessing illegal and increasingly high quality streaming services requires less technical know-how than ever before. Customers that purchase the Amazon Fire stick simply plug the device into their TV with the software already uploaded;

3. There is large proportion of the public that believe these new streaming devices are legal, and that because such devices are freely available (from legal websites) accessing streaming services through them is perfectly fine; and

4. Many servers which provide the illegal streams are now based off shore, and do not respond to requests by rights holders to take down material (see ‘Alternative measures’ section below).

As a result of these factors, viewers are increasingly using illegal services as a substitute for paid subscriptions, which undermines the value of the rights being offered by the FAPL. Considering that the FAPL rights are now worth £1.7 billion, the stakes involved in resolving the issue are high.

The Blocking Order (“the Order”)

The Order contained a confidential list of IP server addresses, which were to be blocked in the first instance (These had been identified by a contractor employed by the FAPL). In addition the Order aimed to address the issues outlined in 1 – 4 above, in the following ways:-

1. The Order is ‘live’, so it only works when the Premier League games are being broadcast;
2. The list of servers to block will be reset every week, meaning new infringing servers get quickly blocked whilst old servers get unblocked if they are no longer infringing;
3. The Order is only valid until the end of the current Premier League season (22 May 2017). This allows the Order to be tweaked if necessary in time for the next Premier League season; and
4. Finally as a safeguard (against unjustified blocking) a notice must be given to the hosting server and the operating website once a relevant IP address is blocked. This means the hosting server, operating website or one of the Defendants’ have the opportunity to apply to set aside the Order.

Jurisdictional requirements

The Judge then outlined the Court’s jurisdiction to make the Order by going through the relevant criteria:-

1. The Defendants are service providers within the meaning of regulation 2 of the Electronic Commerce (EC Directive) Regulations 2002, SI 2002/2013;

2. Both the operators of the servers and the users of the servers infringe the Claimant’s rights. The reasoning behind the Judge’s conclusion are summarised briefly below (for more detail see paragraphs 30 – 42 of the Judgment):-

• When a user streams the football match, it illegally creates copies of the game in the memory of the device the game is being watched on.
• The steps taken by the providers of the streaming service are deliberately intended to allow users to illegally watch a live Premier League game.
• The servers are designed to be, and often are, viewed by a large number of users.
• It is often the case that the servers are not only infringing the rights of the FAPL, but also profiting from doing so, through advertising revenue.
• Whilst the servers often operate from abroad (as previously outlined) they are aimed at UK consumers and therefore are in effect operating under UK law; and

3. The Defendant’s services are used to commit the infringement, and the Defendants are aware that this is the case.

Reasons for Order

Having established the wording of the Order and that jurisdiction was satisfied, the Judge looked at the balance between the Defendants’ right to carry on its business and the Claimants’ copyright. Overall the Judge held that the terms of the order were appropriate for the reasons explained below:

Effectiveness and dissuasiveness (ie: will the Order see a reduction in piracy)

Here the Judge drew on experience of similar blocking orders made by the High Court. In particular he highlighted previous orders in connection with ‘Bit Torrent’ websites (which enabled users to illegally download music) and online streaming websites, which enabled users to watch pirated films. Academic research done on the effect of these orders concluded:-

1. ‘Bit Torrent’ blocking orders reduced traffic to the affected websites by 90% from the UK (whilst they can still be accessed, the technical know how required to do so is high); and

2. Piracy by the users in the UK affected by the blocking orders fell by 22% and in turn subscription websites like Netflix saw a rise in users.

The Judge also stated, as he alluded to earlier in the Judgment, that he hoped the Order would educate UK consumers that using online streaming services was illegal.

Substitutability (ie: that users will simply use non blocked servers)

The Judge made two main observations:-

1. Drawing on the EU case (see judgment paragraph 55) which blocked the music download website Pirate Bay, the fact that users could use other websites, did not detract from the effectiveness of the blocking order in reducing piracy; and

2. The flexible nature of the Order allows for it to be updated as servers come and go. So whilst there will inevitably be some servers still offering illegal streaming this will be reduced.

Alternative measures

The Judge looked at what methods had previously been tried and whether the Order was the best way to combat online piracy (see Judgment paragraph 57 – 63). His observations included that:-

1. Previously the Premier League has tried to engage with hosts of the servers showing the football games, but it proved difficult, due to the fact that many of these hosts operate from offshore; and

2. It has been difficult preventing the sale of devices (ie: on Ebay or Amazon) that are configured to access infringing material. Sellers have become quite sophisticated in the way they market the devices to avoid detection.

Having regard to such factors the Judge was of the opinion the Order was an appropriate method of prevention. It was not unnecessarily complicated or costly to pursue and the targeted nature of enforcement meant the Order did not prevent legitimate trade. The main purpose of these streaming servers was to show infringing material and any legitimate content they did show was minimal and was not a reason for not granting the order.

Comment

When introducing this case the Judge referred to the ‘traditional’ method of preventing streaming being inadequate, and ‘traditional’ in this context was not even a decade old. The difficulty for lawmakers is how to keep up with innovative infringement methods and indeed it seems inevitable there will be lag periods between these new methods and an appropriate legal response. When an appropriate legal response was devised in this case, it is noticeable how labour intensive it is for the rights holder. Every week during the Premier League season the Order is reset and updated to incorporate newly infringing servers and each newly blocked server has to receive notice of this blocking order. Whilst this seems like a burden on the FAPL who have to pay to detect infringing servers, the pace of change online means the battle against illegal streaming requires such an unremitting and flexible approach.

Equally, as the Judge observed, a key part of the problem is the perception of online infringement. People are either unsure whether online streaming is a crime or they think it is less of a crime. What further clouds the issue in people’s minds is the existence of devices such as the widely available Amazon Fire Stick, which is designed to facilitate infringement (but is itself legal).

Whilst at the date of this article, a quick search online for an illegal football stream shows that the options have been severely reduced; it will be interesting to assess the situation in 12 months. To misquote former British Prime Minster Harold Wilson, ‘ a year is a long time online’.

Click here for the full Judgment text

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The Takeover Appeal Board, upheld a previous ruling that the Takeover Code was breached during the acquisition of shares in Rangers International Football Club plc.

On 13 March 2017, the Takeover Appeal Board published its decision to dismiss an appeal by the Chairman of Rangers International Football Club plc (“Rangers”), David King. The appeal concerned a ruling that Mr King had cooperated with three other individuals in acquiring shares in Rangers and did not offer to purchase the shares of the remaining shareholders, as he was required to do under the Takeover Code (the “Code”).

The Code

The Code is managed by the Panel on Takeovers and Mergers, whose remit is to supervisor and regulate takeovers of Public companies. This matter concerned two main parts of the Code:-

1. Mandatory bid obligation (Part 9 of the Code )

When any person or persons ‘acting in concert’ (defined below) acquire an interest in shares that carry 30% or more of the voting rights, they are obliged to extend an offer to acquire the remaining shares of the company in question. The primary responsibility for complying with this obligation falls on the person whose acquisition triggers the mandatory bid (ie: the person whose purchase means its goes over the 30% threshold).

2. ‘Acting in concert’ (Code definitions)

This is where one person cooperates, either formally or informally, with others to (a) consolidate control of a company (which is defined as either (i) an interest in shares, which is outright ownership of the shares OR (ii) the right to own shares, that equals 30% or more of the voting rights) OR (b) frustrate the successful outcome of an offer for the company. When applying this definition it is assumed that where a person’s close relatives or related trusts are involved, they will be ‘acting in concert’ (“Presumption 5”).

Background

The matter concerned two acquisitions (the “Acquisitions”):-

1. On 31 December 2014, Mr George Letham, Mr George Taylor and Mr Douglas Park (the “initial buyers”) acquired an interest in Rangers shares at 20p a share. Mr Lathem subsequently admitted he had ‘acted in concert’ with the other two other buyers to acquire these shares which all together constituted 19.8% of Rangers; and

2. On 2 January 2015, Mr King acquired an interest in Rangers shares at 20p a share, using a company incorporated in the British Virgin Islands called New Oasis Asset Limited (“Oasis”). Oasis was in turn owned by a company incorporated in Gibraltar called Sovereign Trust International Limited (“Sovereign Trust”). Sovereign Trust had one corporate director, Sovereign Management Limited, which was a sister company of Sovereign Trust. In turn, Sovereign Trust is a trustee of Glencoe Investments Trust, incorporated in Guernsey, of which Mr King and his family own the beneficial interest.

It subsequently became apparent, through emails between Mr King and Mr Letham that they were aware of their respective purchases and that their Acquisitions would equal over 30% of the shares in Rangers. Shortly after the completion of the Acquisitions in early 2015, Mr King’s nominees replaced the existing directors on the board of Rangers and Mr King was appointed chairman.

Panel on Takeovers and Mergers – Initial ruling of the Executive and the Hearing Committee

After an investigation which had lasted over a year, the Executive branch (who manage the day to day supervision of takeovers), ruled on 7 June 2016 that Mr King had ‘acted in concert’ with the Initial Buyers and that Mr King must make an offer to the remaining shareholders at 20p a share. Mr King requested that the Hearing Committee review the Executives’ decision. The Hearing Committee upheld the Executives’ decision for a number of reasons, including:-

1. It was apparent, through correspondence between all the parties that the purpose of the Acquisitions was to affect a change of control in the board of Rangers (which it achieved);

2. Mr King and Mr Letham had, prior to the Acquisitions, cooperated to try and gain control of Rangers. In October 2014, two joint proposals by Mr King and Mr Letham, had failed to materialise. The Committee pointed to this behaviour, as a strong indicator of the parties intentions during the Acquisitions (ie: to gain control of Rangers); and

3. Having deciphered the trust structure through which Mr King had acquired the shares in Rangers (see above), it was Mr King who was the ultimate beneficial owner and the mandatory obligation contained in the Code fell on his shoulders.

Appeal to the Takeover Appeal Board (the “Board”)

The Hearing Committees’ decision was appealed on a number of grounds, including:-

1. That Mr King himself did not acquire the shares in Rangers (see above trust structure).

Verdict: The Board pointed to Presumption 5 of the Code, which states that related trusts are presumed to be acting in concert with each other. There was no evidence to rebut this presumption and Mr King had to comply with the Code’s mandatory obligation under code 9.

2. Mr King stated his previous collaborations with Mr Letham in October 2014 were not relevant to the subsequent Acquisitions.

Verdict: The Board dismissed this argument and decided it was perfectly reasonable to consider previous behaviour to ascertain whether it was appropriate to infer the parties had acted in concert on the Acquisitions.

3. Mr King stated that the Hearing Committee had misunderstood his intentions (being to restore proper corporate governance to Rangers).

Verdict: The Board held that Mr King’s justification or motivations were not relevant to deciding whether the Code had been breached.

4. Mr King argued there was no benefit (to the shareholders) in him being required to offer the shares at 20p a share to the remaining shareholders, because they had since increased in value.

Verdict: This was dismissed, as any benefit or otherwise to shareholders of the complying with the mandatory obligation is not a consideration when deciding whether the Code has been breached.

As such the appeal was dismissed and Mr King had until 12 April 2017 to make the offer to the remaining shareholders at 20p a share.

Comment

This matter is useful in demonstrating how the Code is applied in three key ways:-

1. When Mr King drew the Board’s attention to the reasons behind his involvement in Rangers, he was seemingly claiming that ‘ends (improved corporate governance) justified the means (breaching the Code)’. The motivation and intention behind an acquisition (whether positive or otherwise), whilst important for the parties involved, have no bearing on the application of the Code;

2. Parties cannot circumvent the mandatory obligation under Code 9 by purchasing shares through an elaborate trust structure. On this basis the threshold for rebutting Presumption 5 of the Code, that related trusts are acting in concert, would seem to be high; and

3. Past dealings between the parties, whilst not conclusive evidence of future co-operation, act as helpful guidance when considering whether parties had ‘acted in concert’ as defined under the Code.

This article does not include all aspects of the ruling, for the full statement by the Board see their website

 

Court of Arbitration for Sport:- Winter 2016/2017- Case Round Up

This article looks at a number of the decisions made by the Court of Arbitration for Sport (“CAS”) between December 2016 and February 2017. For details of all the decisions made by CAS in this period, please consult their website. A video version of this article can be found via this link :- Youtube:- SportsLawin5

1. An appeal by a Turkish weightlifter was dismissed on 8 December 2016, illustrating the Court’s strict approach to an anti-doping rule violation.

Sibel Ozkan Konak, was originally found guilty by the IOC Disciplinary Committee on 21 July 2016 for an anti-doping rule violation. A substance called Stanozolol (a steroid) had been found in a urine sample taken whilst she was competing in the Beijing Olympics. Konak had her competition results declared void and was ordered to return her silver medal. She subsequently filed an appeal at CAS against the ruling.

The appeal was given short shift by the sole arbitrator Hon. Michael J Beloff QC who described the case as ‘straightforward’. Beloff stated that any arguments about the degrees of fault of the athlete were irrelevant. The presence of Stanozolol in the body is prohibited by the Olympic anti-doping rules, and this drug was discovered in Konak’s sample. As a result there was no other option but to impose a sanction, and the appeal was dismissed.

2. In contrast to the weightlifter case, on 23 January 2017 the Belarus Canoe Association managed to get a ban for an anti-doping rule violation overturned on appeal.

On 15 July 2016, the International Canoe Federation imposed a one-year competition ban on the whole Belarusian men’s canoe/kayak team including coaches, staff and athletes, due to a number of alleged doping violations. The allegations were made after French police raided the Belarusian training camp in April 2016. At the raid a number of doping substances and equipment were confiscated and after the raid five of the athletes subsequently tested positive. After appealing to CAS a panel of arbitrators found there was not enough evidence to justify banning the whole Belarusian canoe team and overturned the ban.

3. On appeal, CAS reduced the sanctions imposed on Real Madrid CF for breaching FIFA rules on the transfer of minors.(20 December 2016)

The FIFA Appeal Committee originally found that Real Madrid had breached a number of articles in FIFA’s regulations on the Status and Transfer of Players. Primarily the breach concerned Article 19, which prohibits the international transfer and first registration of foreign players under the age of 18, except in limited circumstances. After a FIFA appeal, Real Madrid appealed to CAS who amended FIFA’s decision as follows:-

1. Real Madrid were banned from registering any new players (international or national) for one transfer period (previously two); and

2. Real Madrid had to pay a fine of 240,000 Swiss francs (previously 360,000).

The arbitrator explained that Real Madrid’s infractions were less serious than was being argued by FIFA’s judiciary bodies, and as such while the ruling was upheld, the sanctions would be reduced.

While Real Madrid welcomed the sanction reduction they argued CAS should have revoked the ruling entirely. On the other hand, many Catalan commentators argued Madrid received favourable treatment. They point to the fact that Barcelona had an appeal for similar violations dismissed in 2014. Either way, with many top European football clubs increasingly looking to recruit young talent in order to gain a competitive advantage, CAS will inevitably deal with this issue again.

4. On 2 February 2017, CAS decided on an employment law dispute between Turkish footballer Hakan Calhanoglu (the “Player”) and Trabzonspor FC (the “Club”).

In April 2013 the club filed a complaint with the FIFA Dispute Resolution Chamber (“FIFA DRA”) claiming the Player had breached the terms of his employment contract without just cause when he signed for another football team in Germany. In January 2016 the FIFA DRA imposed on four-month period of ineligibility on the player. The Player and the Club appealed, with the Player asking for a stay of the four-month ban pending the outcome of the CAS hearing whilst the Club sought compensation.

The panel of arbitrators found the Player had breach the FIFA regulations on the Status and Transfer of Players and dismissed the Player’s appeal. However CAS allowed the Club’s appeal and ordered the Player to pay 100,00 euros in compensation to the Club.

5. CAS usually acts as a final court of appeal, however in the below case, due to suspension of the All Russia Athletics Federation, it acted as a court of first instance.

The case, decided on 23 December 2016, involved a Russian athlete, Anastasiya Bazdyrera (“Athlete”) and Russian coach Vladimir Mokhnev (“Coach”). The Player was found to have breached Article 32.2 (b) of the IAAF competition rules on use of a prohibited substances/methods and was given a two year ban. The coach was found guilty of violating IAAF rules on the possession, trafficking and administration of banned substances and was banned for 10 years.

 

 

 

 

Case Law update: BT v OFCOM

British Telecommunications plc v Office of Communication (Sky UK Ltd intervening) [2016] CAT 25

A long running legal battle over pay-tv sport rights came to a conclusion in December 2016. The Competition Appeals Tribunal (“CAT”) rejected British Telecommunications’ (“BT’s”) appeal against the Office of Telecommunications (“OFCOM”) decision in 2015 to drop a requirement that it had previously imposed in 2010 on Sky UK Ltd (“Sky”) when wholesaling its sports channels to its rivals including BT.

Background

This case originates from a ruling by OFCOM in 2010, which followed a review that identified competition concerns in the pay-tv market.

OFCOM’s review concluded that Sky had engaged in conduct prejudicial to fair and effective competition in connection with the wholesale of its core premium sports channels and had not constructively engaged with other providers who wished to access its sports channels. OFCOM also stated the terms of the supply agreements Sky had with other retailers weakened the ability of the competitors to compete with Sky, particularly in respect of the high prices charged and the availability of high definition channels. As a result of this, consumer choice was negatively affected and OFCOM imposed an obligation on Sky to offer on a wholesale basis Sky Sports 1 & 2 (including in high definition) at prices which were fair, reasonable and non-discriminatory. This is known as a wholesale must-offer obligation (“WMO”). This decision was given pursuant to the powers granted in ss.316 – 318 of the Communication Act 2003 (“The Act”). The exact wording of s.316 comes under scrutiny in this case, so it is worth setting out in full:-

Communication Act 2003 s.316:-

1. The regulatory regime for every licensed service includes the conditions (if any) that OFCOM considers appropriate for ensuring fair and effective competition in the provision of licensed services.
2. Those conditions must include the conditions (if any) that OFCOM consider appropriate for securing that the provider of the service does not

(a) enter into or maintain any arrangements, or

(b) engage in any practice, which OFCOM consider, or would consider, to be prejudicial to fair and effective competition in the provision of licensed services or connected services.

Litigation History

OFCOM’s 2010 ruling was appealed in CAT, which held that the WMO was not justified. There was then a further appeal in the Court of Appeal in February 2014 which confirmed OFCOM had the power to make the ruling under s.316 of the Act and agreed with the conclusion made by CAT that the WMO was not justified and was based on incomplete set of conclusions. The matter was to be sent back to CAT for further consideration.

As the remittal proceedings concerning OFCOM’s 2010 ruling were commencing, OFCOM, as they had promised to do in 2010, were conducting an up to date analysis of pay-tv market conditions. The result of this review was announced in November 2015 and it was decided that the WMO was no longer necessary (subject to continued monitoring of Sky’s conduct and market review). BT appealed this decision, claiming that Sky continued to operate in an unregulated monopoly. Sky was then granted permission to intervene in the proceedings in support of OFCOM.

Decision

BT’s grounds of appeal can be broken down in five different elements (albeit with overlap between some of the grounds):-

Ground 1

OFCOM erred in law in its application of s.316 of the Act and acted in breach of its statutory duties under the Act by adopting a “wait and see” approach to Sky’s behaviour and the condition of the market. BT’s argument had two main strands:-

1. OFCOM did not carry out a proper assessment of the future risk of Sky behaving in an anticompetitive manner; and
2. OFCOM had not acted in accordance with its general duties under the Act specifically in connection with its requirement to promote competition and innovation.

BT placed emphasis on the word ‘must’ at s.316 (2) of the Act, claiming this word conferred an imperative that OFCOM had to act (ie:- impose licensing conditions on Sky) once a relevant risk had been identified.

The CAT dismissed BT’s arguments. Firstly the Judge concluded that the word ‘must’ conferred an obligation to give full consideration of the need to include licensing conditions on Sky, rather than a requirement that OFCOM must include such conditions. The Judge also found that OFCOM had carried out a forward looking assessment on the future risk of Sky behaving anti-competitively. It conducted this assessment and then decided there was no evidence to suggest Sky would refuse to enter into supply contracts without licensing conditions. As part of point (1) above BT had also claimed that OFCOM, when deciding whether to continue with the WMO, should have carried out a proportionality assessment as referred to in the Competition judgment of Tesco plc v Competition Commission [2009] CAT 6 (known as the ‘Fedesa test’). The Fedesa test is very comprehensive but essentially looks at whether a particular regulatory measure is effective in achieving a legitimate aim and is no more onerous than it needs to be. The Judge decided that the full Fedesa test was not necessary and OFCOM only had to conduct a balancing exercise to identify the benefit and burden of the regulation. The CAT decided that OFCOM had achieved this.

 In relation to point (2) above, the CAT gave short shrift to BT’s argument, stating that there was no evidence that OFCOM had failed to discharge its duties in relation to the statutory requirements.

The full reasoning on Ground 1 can be at paragraphs 77 to 108 of the judgment.

Ground 2

OFCOM erred in the exercise of its discretion in failing to appreciate that there continued to be a significant risk of Sky engaging in wholesale distribution practices that would be detrimental to the emergence of fair and effective competition. BT argued that OFCOM should have engaged in a more ‘orthodox’ analysis of the market. They criticised OFCOM’s findings on Sky’s behaviour in the upstream market (see paragraph 124 to 133 of the judgment) and the downstream market see (paragraph 134 to 137 of the judgment).

The Judge rejected this point and held that OFCOM had not erred in exercising its discretion in analysing the pay-tv market. He further commented that there was little substance to the idea put forward by BT that competition analysis involved a series of mechanical prescribed tests. The CAT also held OFCOM’s decision that Sky’s behaviour in the upstream and downstream markets was acceptable.

The Judge recognised that OFCOM had previously highlighted concerns it had over Sky’s behaviour (most notably in 2010) but they were perfectly entitled to, after finalising the 2015 review, to decide that the market conditions had changed in a way that meant the original concerns were no longer apparent. OFCOM had found in its analysis that Sky Sports was widely available to consumers with other suppliers providing it outside BT’s arrangement with Sky under the WMO. Therefore the problem the WMO had sought to correct was less apparent (see paragraph 152 – 155 of the judgment for the full conclusion).

Ground 3

OFCOM erred in the exercise of its discretion by directing its analysis on the distribution of key sports content rather than on the product that customer’s purchase, and which is the focus of the statutory remedy under s. 316 of the Act, namely sports channels.

As BT had themselves pointed out, ground 3 was essentially a sub-section of ground 2, therefore for the same reasoning that ground 2 was dismissed so was ground 3 and OFCOM were found to have validly exercised its discretion in its analysis of competition in the pay-tv market (see paragraph 156 – 162). 

Ground 4

OFCOM erred in concluding that there was sufficient evidence that Sky would not engage in practices prejudicial to fair and effective competition in the pay-tv market by offering Sky sports channels only at wholesale prices that were too high to allow competition to emerge.

The Judge rejected this ground. He stated whilst BT had made it clear they fundamentally disagreed with the findings of OFCOM in relation to the pricing they had not proved that OFCOM had examined the pricing issues inappropriately. The Judge looked in detail at pricing evidence provided by BT (paragraph 192 – 202 of the judgment), and decided that whilst it was accurate it did not go to the heart of the argument BT was trying to make. BT’s data was relevant to assessing market prices prior to the introduction of the WMO instead of , as it should have been, assessing the market prices after the introduction of the WMO.

Ground 5

OFCOM erred in the exercise of its discretion and acted in breach of its statutory duties under the Act by failing to identify unfair demands by Sky in relation to Sky’s insistence of a ‘grant-back’ provision in its supply contracts. This essentially means that when Sky enters into a supply agreement with other providers it demands that the provider in question, as a condition of getting Sky sports, has to provide its own sports channels (ie: BT sport). BT argued OFCOM should have found the ‘grant back’ provision condition to be prejudicial and unfair and they should have imposed a condition to prevent this practice. This argument is further broken down as follows:-

1. OFCOM had previously accepted in 2010 the grant back conditions were unfair in principle;
2. The issue was not just confined to BT (but other pay-tv providers);
3. OFCOM could not in law rely on the content of the negotiations (over the supply contract between BT and Sky) but had to decide the issue in principle;
4. OFCOM fundamentally misunderstood the nature of the supply contract negotiations; and
5. OFCOM has ignored the economic modelling evidence put forward by BT as evidence of Sky’s insistence that the ‘grant back’ was purely tactical as opposed to being commercially necessary.

The Judge dealt with these points as follows:-

1. OFCOM was justified in deciding that while in principle a ‘grant back’ requirement may raise concerns, they did not apply in this instance. As reiterated throughout the judgment, OFCOM had thoroughly examined the state of the market as well as the conduct of the parties and BT had not provided any evidence which proved OFCOM had failed in its approach;
2. Sky freely admits that this issue does not just affect BT, but it is only BT that has raised it as an issue;
3. OFCOM was entitled to examine the course of the negotiations between BT and Sky and draw conclusions. The Judge agreed with OFCOM’s analysis that no positions in the negotiations had yet been absolutely decided (referred to as ‘crystallisation’- see paragraphs 232 – 245 of the judgment) and that as such the negotiations were not a reliable indicator of what the outcome would be. There is no error of law in this approach.
4. Dealt with at point (3) above; and
5. The Judge decided that the economic models put forward by BT were of limited assistance and OFCOM were entitled to decide these were not conclusive (see paragraph 240 – 250 of the judgment).

In addition to the points put forward above, BT also criticised OFCOM’s decision to withdraw the WMO and implement a ‘wait and see’ approach as to whether they needed to impose licensing conditions on Sky. (This point links into the first ground of appeal).

The judge concluded there was nothing wrong with OFCOM’s decision to monitor the market closely and intervene when considered necessary. If OFCOM intervened unnecessarily that would also had negative effects on the market. The Judge commented that OFCOM had acted in accordance with the provisions of the Act and that there had to be clear evidence it acted unreasonably for the decision to be overturned. There was no such evidence. The Judge also highlighted that this flexible ‘wait and see’ approach was perfectly acceptable given the changing nature of the market.

Comment

The Judge commented throughout the written judgment that BT’s points seemed to be based on gripes about the position of Sky and the decisions which OFCOM had made, as opposed to whether OFCOM had correctly dealt with the situation in accordance with its statutory remit. BT’s arguments suffered from a lack of focus as illustrated by the production of the economic modelling and the pricing evidence which would have considerable taken time and expertise to produce, but did not actually support the grounds of appeal.

The ultimate purpose of competition legalisation and subsequent intervention is to benefit the consumer. On that basis, there has to be a question mark over whether the consumer has actually benefited from the splitting of sports rights between Sky and BT. A decade ago (discounting a brief foray by Setanta Sports), sport obsessed consumers simply paid their Sky sports subscription. This contrasts with the current situation where high profile sports are split across BT and Sky, meaning the consumer has to pay more to access all the live sport available. Many will point out that even if you don’t subscribe to all the channels, there is a greater volume of sport available now than there was a decade ago. This is of course a subject for debate, and its also important to note that OFCOM’s concerns about the nature of competition in the pay-tv market have not simply fallen away, as Sky still hold a powerful position in the market. Furthermore given the increasing revenue generated by the acquisition of pay-tv sports rights, the relationship between providers such as Sky and BT and the regulators looks set to remain strained for the foreseeable future.

http://www.bailii.org/uk/cases/CAT/2016/25.html

 

 

Case Law Update:- McGill v SEM

Anthony McGill v The Sports and Entertainment Media Group and others [2016] EWCA CIV 1063

Background

The case involved former football player Gavin McCann (“Player”), who was transferred from Aston Villa FC to Bolton Wanderers FC (“Bolton”) for £1 million plus VAT in 2007. Bolton paid an agent’s fee of £300,000 to The Sports and Entertainment Media Group and others (“SEM” & “Defendant”). Mr Anthony McGill (“Claimant”), claimed that prior to this transfer he had a binding oral contract with the Player to act as his agent. Accordingly he claimed that the £300,000 which was paid to SEM should have been paid to him. Mr McGill initially brought a claim against the Player in November 2007 which was eventually settled out of Court for around £50,000. Then in 2012 he brought another action against nine defendants in total. The first group of defendants were SEM, Jerome Anderson (CEO of SEM), Jeffrey Weston (agent) and David Sheron who was an employee of SEM (“SEM Defendants”). The second group of defendants were Phillip Gartside (Bolton chairman), Simon Marland (Bolton club secretary), Samuel Lee (Former Bolton Manager) and Frank McParland who was the Bolton general manager (‘Bolton Defendants’). The Claimant pleaded a number of causes of action including:-

1. Inducing a breach of the alleged oral contract;
2. Breach of confidence:- disclosing or threatening to disclose confidential information;
3. Conspiracy to injure and conspiracy to use unlawful means:- The tort of conspiracy is where there is collusion or agreement between two parties (SEM/Bolton) to deprive a third party (Mr McGill) or to obtain an illegal objective;
4. Unlawful interference with the actions of the Player:- These are acts (by SEM/Bolton) intended to cause loss by interfering with the freedom of a third party (Player) that was unlawful and intended to cause damage to the Claimant (Mr McGill);
5. Quantum meruit:- This claim is that a reasonable sum of money should be paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract. So even if the oral contract was not enforceable then Mr McGill should be paid in any event; and
6. Unjust enrichment:- This is a restitution claim which is different from a standard contract or tortious claim (which focuses on compensatory damages). A restitution claim aims to reverse the unjustified enrichment that the defendant received from an illegal act, and restore it to the claimant.

The claim was initially heard at the High Court by Judge Waksman QC (“First Judge”) in April 2014 and judgement was handed down on 15 September 2014. The First Judge dismissed the action in its entirety, however he was very critical of the evidence given by the SEM & Bolton Defendants, some of which he said had been fabricated to enhance their position. This was taken into account with a reduced costs order against Mr McGill.

Mr McGill appealed in respect of his claim against the SEM Defendants, and on the grounds that the First Judge had erred in relation to his rejection of the claim for inducing a breach of the alleged oral contract, conspiracy to use unlawful means and unjust enrichment. 

Appeal Summary

The Appeal was heard by Lord Justice Lloyd Jones and Mr Justice Henderson (‘Appeal Judge’). Fundamental to this case, was the alleged oral contract between the Claimant and the Player and the Appeal Judge’s conclusions on this are outlined below:-

1. Having considered the circumstances in which the oral contract was allegedly made (a hotel meeting), the Appeal Judge said there was no good reason to doubt that an oral contract was concluded between the Player and the Claimant, which was intended to be legally binding;
2. The Defendant, had submitted that the oral contract was void for uncertainly, as there was no obligation on the part of the Player to enter into a subsequent written agreement. The Appeal Judge ruled the contract was not void for uncertainly as on analysis of the evidence the Player had clearly appointed the Claimant to act as his exclusive agent; and
3. The Appeal Judge upheld the previous decision that SEM had induced the Player to breach his contract by inducing him to dismiss Mr McGill and to appoint them as his agent.

Causation and Loss

The First Judge had concluded that in order for the claim to succeed the Claimant had to prove that the Player would have signed a written agency agreement prior to the close of the transfer deal, so that a commission would been paid out to him (the commission being the damages the Claimant was seeking). On this criterion the First Judge decided the Claimant’s case failed, concluding on the balance of probabilities the Player would not have entered into a written contract.

The Claimant stated this analysis by the First Judge was flawed and that the claim should be assessed on the basis of a ‘loss of chance’ (for the Claimant to obtain the commission monies) and whether the Player would have signed the written contract was not fundamental to the case. The Claimant stated that ‘but for’ the intervention by the Defendant the Claimant would have obtained the commission and that it was sufficient that there was a possibility the Player would have entered into a written contract. The Defendant pleaded that the Claimant’s alleged failure to plead the case as a ‘loss of chance’ claim in the first instance preluded them from putting forward this argument on appeal. Whilst the Appeal Judge accepted the initial pleadings were not clear, he rejected the Defendant’s argument and concluded it would be unjust to deny the Claimant’s the opportunity for recovery on this basis.

The Appeal Judge then considered key case law in this area including Allied Maples Group Ltd v Simmons and Simmons [1995] 1 WLR 1602 CA) and Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146. On conclusion the Court agreed with the Claimant’s analysis that there was a chance the Player would have entered into a written contract and decided the claim should be analysed on the basis of a ‘loss of chance’.

It should also be noted that a ‘loss of chance’ claim usually yields less damages for the claimant. In this case, any amount of damages would have to consider, in percentage terms, the possibility of Mr McGill signing the written contract and take that in account when handing down the final award.

The ‘Jameson argument’

The Defendant pleaded the ‘Jameson argument’, so called after the case of Jameson v CEGB [2001] 1 AC 455. This states that where there has been a full and final settlement of a claim there is bar for a further claim for the same damage. Given Mr McGill sued the Player in 2007 and they settled out of Court, the question for the Appeal Judge was whether that settlement was full and final. If proven, this argument would be a total defence to all the grounds of appeal.

The Judge concluded that the ‘Jameson argument’ did not apply. He distinguished the Jameson case and stated that it would be unfair and unjust to Mr McGill to conclude that the previous settlement was full and final. The two claims were different in character and involved different defendants.

Grounds of Appeal – Conclusion

Inducing a breach of the alleged oral contract

As outlined above, the Appeal Judge decided that the First Judge had erred in his approach in respect of causation and loss. The Defendant had induced the breach of the contract which then meant Mr McGill lost the opportunity to earn commission from the Player’s transfer and as such Mr McGill was entitled to a damages award.

Conspiracy to use unlawful means

The Appeal Judge’s analysis on causation & loss also meant the Claimant’s claim for conspiracy to use unlawful means, succeeded. It had already been established that Defendants had conspired to unlawfully cause damage to the Claimant, therefore once the Claimant’s entitlement to the commission did not depend on proving the Player would have entered into a written contract (merely the possibility he might) then causation was proven and the Claimant was entitled to recover damages for the Defendant’s actions.

Unjust enrichment

The Appeal Judge agreed with the First Judge that there was no separate claim for unjust enrichment. Even if there was a separate claim for unjust enrichment, the Appeal Judge concluded that, he failed to understand how the requirement that SEM be enriched at the expense of Mr McGill, could have been satisfied. The fee was paid to SEM by Bolton not Mr McGill. Therefore SEM was enriched at the expense of Bolton not Mr McGill.

On the question of the amount of the award to Mr McGill, the Appeal Judge referred this back to the Court of first instance who would be better equipped to reach a figure.

Commentary

The decision to grant Mr McGill damages and the reasoning of the Appeal Judge provides some useful guidance for those involved in professional football transfers as well as legal practitioners. For agencies it serves as reminder on the correct way in which to conduct business, and the once the Appeal Judge had established the correct basis to view the claim it was clear on the facts that SEM’s conduct induced the breach of contract and caused loss to the Claimant.

Mr McGill’s failure to ensure the player signed a written contract in accordance with FA regulations (thereby potentially avoiding years of litigation) should also be noted. The nature of professional football and its network may lend itself to oral agreements in hotel lobbies; however parties must take care to document their business arrangements as soon as possible.

Legally, the case also provides excellent guidance on when the ‘Jameson argument’ is an applicable defence and practitioners should read the extended section in the judgment (paragraph 80 – 101) for the Appeal Judge’s full analysis.

This update does not cover every aspect of the Judgment, but aims to provide an overall summary. For the full case please see: http://www.bailii.org/ew/cases/EWCA/Civ/2016/1063.ht

FIFA Election and Reforms

On Friday, members at FIFA’s extraordinary general meeting elected a new president, Gianni Infantino and announced a package of reforms aimed at improving the organisation’s governance:-
1. Gianni Infantino
•    He was Michel Platini’s close confidant and deputy at UEFA for 15 years. Platini is currently banned from football in relation to acceptance of a £1.35 million payment from Sepp Blater.  Infantino has been at the centre of world football administration for almost two decades. These decades have in a large part, as illustrated above, been characterised by alleged and proven incidents of corruption and bribery.  Whilst Infantino is not guilty by association it casts some doubt on how progressive his reforms will be. He is certainly not a revolutionary outsider; and
•    At what cost was he able to win the FIFA presidency? In part we know he promised various associations, particularly in Africa, money towards development. These nations swung the vote for Infantino who already had the backing of most European associations. This begs the question, whether Infantino was voted in because of his reformist credentials or because of the promises he made to potential voters. (A common question in all modern elections). Furthermore we have little idea what was promised behind closed doors and whether his presidency going forward will be hamstrung by these commitments.
2.   The Reforms:–
•    These include the introduction of term limits, transparency on pay, measures to improve diversity and the separation of political and commercial matters; and

•    One of the most interesting measures is contained in Article 14 of the reform proposals. It states that all member states and the associated confederations (eg UEFA etc.) must get their accounts independently audited every year with the subsequent results published. This reform has the potential to have a significant impact, as it could help avoid (or discover) financial corruption at member associations.  The penalty for non-compliance could be the loss of FIFA recognition, meaning a nation would be on the outside of world football.  However reports from Transparency International state only 41 out of 209 members nations currently have independently audited reports available. That leaves 168 members who have not. So if some associations, fail to comply with the auditing requirement, will they receive the associated punishment? If they don’t it could undermine the credibly of this measure and the whole reform process.

If FIFA’s governance does not see sustained improvement in the coming years, sponsors like VISA have raised doubts over whether they would continue to associate with the organisation.  Historically companies have been reluctant to withdraw sponsorship for fear of rival companies replacing them. Rather then internal politics, perhaps it would only be the threat of loss of commercial revenue which could spur FIFA into true and long-lasting reform.