European Commission blocks Hutchison/Telefónica tie-up

In a move that was largely expected the European Commission has prohibited a merger between Hutchison’s Three and Telefónica’s O2 mobile businesses.  EU Commissioner Vestager said that the transaction which would have created the UK’s largest mobile network operator presented “significant competition concerns” and would have led to higher prices, less innovation and fewer choices for consumers.

It be recalled that the CMA urged the Commission to block the merger unless the parties were required to sell off at least one network’s infrastructure and spectrum.  Then CMA Chief Executive Alex Chisholm in a letter to the Commission, though polite in tone, was unequivocal in stating the CMA’s view that absent such remedies “the only option available to the Commission is prohibition”.  The head of Ofcom Sharon White was also opposed to the merger and the regulator has publicly stated its view that the final decision is the right outcome for consumers.

A combination between Three and O2 would have given the merged group an interest in two network sharing arrangements owned respectively by Three and EE and Vodafone and O2.  The Commission did not view this as healthy for competition.

The transaction has bucked the trend of recent EU clearances of mobile mergers where remedies have been found to allay competition concerns.  Examples include Orange/T-Mobile (UK); Orange/Hutchison (Austria); Hutchison/O2 (Ireland); and Telefónica/E-Plus (Germany).  The regulatory reviews of these transactions suggested that in-market mergers would be tolerated provided that the parties would be prepared to offer both structural and behavioural remedies.

A possible remedy might have been the introduction of a fourth mobile operator in one of the network sharing arrangements to replace Three or O2 but Hutchison was not prepared to offer this, or a remedy considered by the Commission to be equally effective.  The merging parties had offered to open their networks to potential mobile virtual network operators (MVNOs) but the Commission did not consider that this was sufficient.

The decision is the first prohibition of a merger by the Commission since it blocked Ryanair’s takeover of Aer Lingus in February 2013.

High Court refuses to transfer FRAND competition claim to the CAT

A judge in the Patents Court division of the High Court has declined to transfer the competition law claims in patent infringement proceedings to the Competition Appeal Tribunal (CAT).  Birss J accepted that a hearing of the competition law issues by the CAT, with two other judges, an economist and a competition law expert would be advantageous but he decided that it would not be practical to split the competition issues from the contractual issues relating to fair, reasonable and non-discriminatory (FRAND) licence terms.

The proceedings so far are technically complex and have already been split into six trials. Unwired Planet alleges that Huawei and Samsung infringed multiple telecoms patents.  The defendants have counterclaimed that Unwired Planet’s acquisition of patents from Ericsson infringed competition law and that it violated obligations to license its standard essential patents (SEPs) on FRAND terms.

It is not uncommon for competition law issues to be raised by defendants as counterclaims in patent infringement cases.  This is the first time that separation of the technical IPR issues around patent validity and infringement from the competition law issues was a possibility in a SEP case before the English court.  Interestingly, Birss J said that his decision was “[n]ot without some regret”.  As this area of law is by no means straightforward, the decision is ripe for appeal. 

Unwired Planet International Ltd v Huawei Technologies Co Ltd and others [2016] EWHC 958 (Pat), 29 April 2016

Commission puts Paramount’s geoblocking commitments to test

The European Commission is consulting on commitments offered by film studio Paramount to resolve its investigation into ‘geoblocking’ and territorial restrictions.

In 2014 the Commission launched a formal investigation into agreements between six film studios and Sky which allegedly prevent access by EU consumers outside of the UK and Ireland to Sky’s services.  The Commission maintains that other provisions seem to require the studios to restrict non-UK broadcasters from granting access to UK consumers.

The Commission is concerned that the agreements confer on Sky absolute territorial exclusivity over the studios’ films in the pay tv market in violation of Article 101 TFEU.

Paramount has offered to commit not to limit passive sales to consumers outside the broadcaster’s licensed territory in any future agreements.  It also offers not to litigate against any broadcasters that agree to passive sales even where they would be prohibited under the terms of existing agreements.

Similar agreements between Sky and Disney, NBC Universal, Sony, Twentieth Century Fox and Warner Bros are also under investigation, although only Paramount has offered commitments at this stage.  Third parties have one month to submit comments on the commitments.

The Commission’s antitrust interest in the issue of geoblocking coincides with its policy initiative to promote the digital single market.  In May 2015, the Commission launched a competition sector inquiry into e-commerce which will probe particularly contractual barriers to cross-border trade. On 18 March 2016, the Commission published its initial findings of its sector inquiry in relation to geoblocking.

Case AT.40023: Cross-border access to pay TV; Commission press release IP/16/1530