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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Attheraces Ltd & Anor v The British Horseracing Board Ltd & Anor Rev 2  EWCA Civ 38 (02 February 2007)
Cite as:  EWCA Civ 38,  BusLR D77,  UKCLR 309,  Bus LR D77
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
MR JUSTICE ETHERTON
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE SEDLEY
LORD JUSTICE LLOYD
| (1) ATTHERACES LIMITED
(2) ATTHERACES (UK) LIMITED
|- and -
|(1)THE BRITISH HORSERACING BOARD LIMITED
(2) BHB ENTERPRISES PLC
MR CHARLES HOLLANDER QC and MR DANIEL JOWELL (instructed by Olswang) for the Respondents
Hearing dates: 18th, 19th, 20th & 21st July 2006
Crown Copyright ©
|Competition law setting||2|
|Financial setting of British horse racing||8|
|The appellants/defendants - BHB||28|
|The respondents ATR||32|
|PRE-ACTION ARRANGEMENTS AND EVENTS||53|
|A. Pre-29 March 2004 ATR/BHB arrangements||54|
|B. Post-29 March 2004 ATR/BHB arrangements||66|
|C. January 2004-April 2005 ATR/BHB negotiations||74|
|PRINCIPAL LEGAL PROVISIONS||96|
|THE JUDGMENT OF ETHERTON J||104|
|Unreasonable refusal to supply||108|
|Excessive/unfair pricing and economic value||114|
|OVERVIEW OF THE APPEAL||132|
|A. BHB's case||134|
|B. ATR's case||139|
|INDIVIDUAL GROUNDS OF APPEAL|
|A. Excessive and unfair pricing: discussion||149|
|Rival submissions on excessive pricing: introduction||170|
|Nature of product and basis of marketing||172|
|Conclusions on excessive pricing||203|
|B. Unreasonable refusal to supply pre-race data: introduction||219|
|The agency point||227|
|The double charging point||232|
|The IP licence point||252|
|The non-ATR fixtures point||259|
|C. Discriminatory pricing||265|
Lord Justice Mummery:
Competition law setting
Financial setting of British horse racing
(a) its unreasonable refusal from 10 February 2005 to supply the relevant product (pre-race data) to an existing customer (ATR);
(b) its excessive and unfair pricing of pre-race data (from 29 March 2004 or from 21 April 2005, there being some dispute on the date from which the abuses began); and
(c) its discriminatory pricing of pre-race data.
A. The appellants/defendants - BHB
B. The respondents - ATR
(i) The ATR information and betting website (the ATR Website) for horseracing produced for it by Sky Sports. ATR does not itself take bets, which are placed by viewers through third party betting operators with an affiliate link. The ATR Website went online in December 2001.
(ii) The ATR branded satellite television channel (the ATR Channel) dedicated to horseracing and part of the Sky satellite package produced for it by SIS. The ATR Channel is also transmitted by cable to subscribers, domestic and commercial, in the UK and Ireland. It has a teletext and an interactive service through which viewers can place bets.
(iii) The SIS FACTS audio-visual bookmaker service (SIS FACTS) produced and distributed by SIS internationally for bookmakers, including overseas bookmakers, that provide fixed odds betting. It broadcasts races from British racecourses under an arrangement with ATR.
(iv) ATR International (ATRi), a branded international satellite television bookmaker service launched in November 2004, produced by SIS on behalf of ATR and dedicated to supporting Tote pool betting in pari-mutuel betting markets where fixed odds betting is illegal (as in the USA, Holland and Spain). In pari-mutuel pool betting all funds are pooled and, after deduction of expenses, paid out to successful punters. ATRi comprises pictures of horse races at racecourses covered by ATR (18) plus some others, on-screen text and a teletext service.
"i) The product supplied by BHB is UK pre-race data. It is not, as contended for by BHB, "the ability to create value from the whole show of British racing." It is not a bundle comprising both British pre-race data and British racing pictures.
ii) The relevant product market is, as contended by ATR, the market for the supply of UK pre-race data to those in the horse racing industry that require such information for the services they provide their customers (in particular bookmakers and producers of TV channels or internet sites relating to horse racing). That conclusion is confirmed by the application of the economist's SSNIP test.
iii) The geographical extent of that product market, for the purposes of these proceedings, is all countries outside the UK and Ireland; but it makes no difference to the outcome of the case if that is incorrect and the geographical extent of the market is the world.
iv) BHB is dominant in that market.
v) BHB has abused its market dominance by threatening to terminate the supply of pre-race data to ATR, even though ATR is an existing customer of BHB and pre-race data is an essential facility controlled by BHB, without which ATR would be eliminated from the market. There is no objective justification for such conduct of BHB. It is irrelevant that BHB and ATR are not competitors. BHB seeks to justify its proposals as to price, which ATR refused to accept, as being reasonable charges on ATR's overseas customers-who would otherwise be "free riders"- collected through the agency of ATR, but that is not a correct description of them as a matter of substance or form: they would be charges on ATR in substance and form. Further the prices proposed prior to the commencement of the proceedings were unfairly excessive, and also discriminated unfairly against ATR. Further, BHB continued to insist, until after the commencement of the proceedings, that ATR enter into an intellectual property licence from BHB, even though the use by ATR of BHB's pre-race data would not infringe any intellectual property right of BHB.
vi) The prices specified from time to time by BHB to ATR prior to the commencement of the proceedings were excessive and unfair, and so an abuse of BHB's dominant position in the market, because they were significantly in excess of the economic value of BHB's pre-race data and not otherwise justified. The economic value of the data is to be measured, on the facts of the case, by the cost to BHB of producing its Database (about £5m) together with a reasonable return on that cost. BHB's proposed charges to ATR were so far in excess of any justifiable allocation to ATR of that amount as to be plainly excessive. I reject BHB's contention that its proposed prices are justified by the right or need to take into account the cost of the positive "externality" of British racing, that is to say the cost of providing those aspects of British racing which make it an attractive subject matter for broadcast and for betting. BHB's proposed prices were not justified by any application of the economic principle of Ramsey pricing.
vii) The prices specified from time to time by BHB to ATR prior to the commencement of proceedings were an abuse of BHB's market dominance because they were substantially in excess of BHB's normal charge for broadcasters, and also because they differed from, and would have had more onerous consequences than, BHB's pricing mechanism for ATR's direct competitor Phumelela Gold Enterprises ("Phumelela"), in both cases for no justifiable reason and so unfairly discriminating against ATR.
viii) In the absence of any public interest defence under Article 86 of the EC Treaty ("Article 86") or paragraph 4 of Schedule 3 to the 1998 Act, the fact that a decision against BHB in the present case would have serious consequences for the proposals and plans of the Government and BHB to modernise British racing by "commercialising" BHB's assets and replacing the statutory Levy on bookmakers cannot affect the outcome of the proceedings. Nor can it make any difference to a proper application of Article 82 and s. 18 of the 1998 Act that BHB has been motivated, in its proposals to ATR, by the wider interests of British racing rather than private profit."
PRE-ACTION ARRANGEMENTS AND EVENTS
A. Pre-29 March 2004 ATR/BHB arrangements
B. Post-29 March 2004 ATR/BHB arrangements
C. January 2004 - April 2005: ATR/BHB negotiations
"Unless it is agreed that £900 per fixture is paid on behalf of end users outside the UK and Ireland for pre-race data provided with pictures relating to race courses covered by [ATR] BHB has taken the decision that it will instruct SIS that it may no longer broadcast pre-race data to bookmakers which do not have a BHB data licence, which for all practical purposes is SIS' customer base. BHB is prepared, if SIS so wish it, to enter into an agreement with ATR in place of SIS." [see paragraph 89 of the judgment]
"We therefore give you notice that, unless ATR enters into a licence agreement with BHB within 14 days of today's date, we will instruct our authorised suppliers to withdraw supply of BHB's data to ATR. This is a lawful instruction, derived from the contracts which they have entered into with BHB. It also represents sensible commercial behaviour, unless of course it is your view that you should be entitled to use BHB's data free of charge."
PRINCIPAL LEGAL PROVISIONS
"Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) [not material];
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to their commercial usage, have no connection with the subject of such contracts."
"(1) The purpose of this section is to ensure that so far as it is possible (having regard to any relevant differences between the provisions concerned), questions arising under this Part is in relation to competition within the United Kingdom are dealt with in a manner which is consistent with the treatment of corresponding questions arising in Community law in relation to competition law within the Community.
(2) At any time when the court determines a question arising under this Part, it must act (so far as is compatible) with the provisions of this Part and whether or not it would otherwise be required to do so) with a view to securing that there is no inconsistency between-
(a) the principles applied, and decision reached, by the court in determining that question; and
(b) the principles laid down by the Treaty and the European Court and any relevant decision of that Court, as applicable at that time in determining any corresponding question arising in Community law.
(3) The court must, in addition, have regard to any relevant decision or statement of the Commission."
" it is important not to lose sight of the fact that the principal purpose of Article  is to prevent distortion of competition -and in particular to safeguard the interests of consumers - rather than to protect the position of particular competitors. It may therefore, for example, be unsatisfactory, in a case in which a competitor demands access to a raw material in order to be able to compete with the dominant undertaking on a downstream market in a final product, to focus solely on the latter's upstream market power and conclude its conduct in reserving to itself the downstream market is automatically an abuse. Such conduct will not have an adverse impact on customers unless the dominant undertaking's final product is sufficiently insulated from competition to give it market power."
" the question whether a certain pricing practice by a dominant undertaking is to be regarded as abusive for the purposes of Chapter II is a matter to be looked at in the round, taking particularly into account (i) whether the dominant undertaking has had 'recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators ...' and (ii) whether such conduct has the effect of weakening or distorting competition in the relevant market, having regard to the special responsibility of a dominant firm not to impair genuine undistorted competition."
THE JUDGMENT OF ETHERTON J
Unreasonable refusal to supply
Excessive/unfair pricing and economic value
" the charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied would be an abuse.
This excess could, inter alia, be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost of production, which would disclose the amount of the profit margin;
The questions therefore to be determined are whether the difference between the costs actually incurred and the price actually charged is excessive, and, if the answer to this question is in the affirmative, whether a price has been imposed which is either unfair in itself or when compared to competing products."
"300. The economic value of BHB's pre-race data is not more, or significantly more, than the competitive price."
"212. I consider that the competitive price is such as would recoup to BHB the cost of producing its Database (about £5m) together with a reasonable return on that cost, and also, in principle, some small additional element to reflect any specific head of expenditure by BHB that could be identified as benefiting ATR's customers. As I have said no such separate head of expenditure has in fact been identified in the evidence before me.
213. ATR has not in fact put forward any specific figure as the competitive price. The nearest approximation is the analysis carried out by Mr Ridyard at para 15 of his 1st report, to which I have already referred."
"299. In my judgment the prices specified by BHB from time to time between 29 March 2004 and the commencement of the proceedings were excessive and unfair and therefore an abuse within Article 82 and section 18 of the 1998 Act."
" 305. BHB's charges to ATR, and those proposed prior to the commencement of the proceedings, have been so far in excess of any justifiable allocation of the cost of production and a reasonable return (in effect, the competitive price) that they are, in my judgment, plainly excessive. If ATR had to pay £1800 for each of the 583 fixtures in the 2005 fixture list, ATR would have to pay £1,049,400.00: see Mr Robertson's 1st witness statement at para 9. Further, BHB's data income in 2004 (£18m) covered its costs nearly 4 times over (i.e. a profit margin of 300% of the cost of maintaining the Database)."
OVERVIEW OF THE APPEAL
A. BHB's case
B. ATR's case
INDIVIDUAL GROUNDS OF APPEAL
A. Excessive and unfair pricing: discussion
Rival submissions on excessive pricing: introduction
Nature of product and basis of marketing
Conclusions on excessive pricing
B. Unreasonable refusal to supply pre-race data: discussion
a. The first was that the basis on which the charges were sought was one which BHB could not justify, in fact or in law (this was referred to as the agency point).
b. The second was that BHB required ATR to enter into a licence as regard intellectual property rights (the IP licence point) and that this was not justified because, as a result of the ECJ decision, it was clear that BHB had no relevant IP rights which could be the subject of the licence.
c. Third, the charges claimed were said to involve double payment by ATR, because it was already paying for the same supply under its agreement with PA and there was no justification for BHB requiring it to pay directly as well (the double charging point).
d. Fourth, BHB's demand was said to be that ATR should pay at the stipulated rate not only for races for which it had the picture rights, but also for races for which it did not have, and another party did have, those rights (the non-ATR fixtures point). BHB's invoice calculated on this basis was later acknowledged by BHB to have been a mistake, but ATR contends that the demand, even though mistaken, was still an abuse of BHB's dominant position.
The agency point
The double charging point
"Nor in my view is it correct to draw an analogy between a delivery boy and PA. PA is paid for the information, part of which it has obtained itself, as well as for its supply."
The IP licence point
"2.2 The rights hereunder do not extend to any use of the Data outside the rights granted under clause 2.1 including, without limitation, any making available to third parties for their commercial use, or otherwise separately exploiting the whole or any part of the Data. Any proposed use of the Data on the Channel which is proposed to be made available to commercial customers/subscribers is to be subject to BHB's approval and to be the subject of a separate licence agreement between the parties hereto
2.3 The Licensee shall not be entitled to make or permit any use of the Data other than as specified in this Agreement and this Licence Agreement does not authorise the Licensee to use the Data for any bookmaking activities or facilities or related services For the avoidance of doubt the Licensee is not licensed or authorised to distribute the Data alone and in each distribution over the Licensed Media there must be some material element of the films, recordings and/or live feeds referred to in clause 2.1.
2.4 Any supply of the Data over the Licensed Media shall include reference to BHB's ownership of the rights in the Data in a format and manner to be agreed from time to time with BHB."
"8.3 The Licensee undertakes that it shall
(h) execute any documents and do all acts reasonably required by BHB for the purpose of confirming the licence set out in clause 2.1 and the legal ownership of all such materials by BHB
(j) not compile any database comprising the Data for use by the Licensee outside the terms of this Agreement and/or for supply to third parties"
The non-ATR fixtures point
C. Discriminatory pricing