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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 [2007] EWCA Civ 38 (02 February 2007)
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Cite as: [2007] EWCA Civ 38

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Neutral Citation Number: [2007] EWCA Civ 38
Case No: A3/2006/0126

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE ETHERTON

[2005] EWHC 3015 (Ch)

Royal Courts of Justice
Strand, London, WC2A 2LL
2 February 2007

B e f o r e :

LORD JUSTICE MUMMERY
LORD JUSTICE SEDLEY
and
LORD JUSTICE LLOYD

____________________

Between:
(1) ATTHERACES LIMITED
(2) ATTHERACES (UK) LIMITED
Claimants
Respondents
- and -

(1)THE BRITISH HORSERACING BOARD LIMITED
(2) BHB ENTERPRISES PLC
Defendants
Appellants

____________________

MR PETER ROTH QC and MS MAYA LESTER (instructed by Denton Wilde Sapte) for the Appellants
MR CHARLES HOLLANDER QC and MR DANIEL JOWELL (instructed by Olswang) for the Respondents
Hearing dates: 18th, 19th, 20th & 21st July 2006

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    INDEX
    TOPIC Paragraph
    INTRODUCTION 1
    Competition law setting 2
    Financial setting of British horse racing 8
    THE APPEAL 22
    THE PARTIES  
    The appellants/defendants - BHB 28
    The respondents – ATR 32
    THE ISSUES 36
    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
    Market dominance 107
    Unreasonable refusal to supply 108
    Excessive/unfair pricing and economic value 114
    Discriminatory pricing 125
    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
    Economic value 186
    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
    RESULT 279

    Lord Justice Mummery:

    INTRODUCTION

  1. This is the judgment of the court, to which each member has made a substantial contribution.
  2. Competition law setting

  3. This case involves a challenge, on competition law grounds, to the lawfulness of the financial and other terms on which a party in sole possession of valuable information (pre-race data about British horse races) is willing to supply it to another party. The legal basis of challenge is that the party possessing the information has allegedly abused a dominant position in connection with ongoing access to, and the pricing of, information, the supply of which is an "essential facility" for the established business of the other party (the supply of audio-visual services about British horse races).
  4. Protracted negotiations between the parties have failed. People willing to do business with one another usually reach agreement on terms without going to court. If they do not reach agreement, the court cannot usually do much about it. It has no power, in the absence of an express statutory jurisdiction, to negotiate an agreement for them or to impose terms on them. In this case the relevant power of the court under competition legislation is to award a legal remedy if it finds that there has been an abuse of a dominant position in the relevant market by an unreasonable refusal to supply the information, which is the product in question, or by the demand for payment of excessive, unfair or discriminatory prices for access to it. In this case all of these types of abuse are alleged and relief is claimed by way of declarations and an injunction.
  5. The proceedings presented the trial judge (Etherton J) and this court with a range of factual and legal problems of a kind which even specialist lawyers and economists regard as very difficult. This is the view of Professor Richard Whish in Competition Law (5th ed - 2003): "The law on abusive pricing practices is complex and controversial" (p.685) and "In practice it is immensely complex to determine what is the appropriate price for access to an essential facility" (p.693).
  6. The trial judge concluded that there was excessive, unfair and discriminatory pricing, in addition to an unreasonable refusal to supply in relation to an essential facility. Essential facilities arguments have most commonly arisen in relation to access to unique physical structures or facilities, such as seaports, airports, pipelines, cables and wires. The problems inherent in the pricing exercise can also arise when the essential facility in question is access to an intangible, unique and ephemeral product, such as information generated solely by the party in possession of it. In this unusual case the information in question is not gathered from generally available materials, or for its own sake, or as a primary activity. Its creation is a secondary activity associated with broader primary responsibilities of the party possessing the information.
  7. The claim of abuse of dominant position in relation to the information poses this crucial question: when is the price charged by the person controlling access to the information so high as to be excessive or unfair? This question prompts other questions. Is there a pricing principle which can be applied to such a case? If so, what is a non-abusive "right price" and how is it to be ascertained by the court? Is it, as was held in this case, the cost of production of the information plus a reasonable profit (called "cost +")? If the possessor of the information may only lawfully charge a price calculated in this way, how does the court set about ascertaining the cost + price? In comparing the price charged and the cost incurred, what should be included in the allowable costs incurred? Is it only the costs directly involved in the secondary activity of creating, collating and compiling the information, or does it include, or reflect, all, or only some, and, if so, which, of the costs incurred in conducting the primary activity to which the information relates?
  8. The nature of these difficult questions suggests that the problems of gaining access to essential facilities and of legal curbs on excessive and discriminatory pricing might, when negotiations between the parties fail, be solved more satisfactorily by arbitration or by a specialist body equipped with appropriate expertise and flexible powers. The adversarial procedures of an ordinary private law action, the limited scope of expertise in the ordinary courts and the restricted scope of legal remedies available are not best suited to helping the parties out of a deadlocked negotiating position or to achieving a business-like result reflecting both their respective interests and the public interest. These are not, however, matters for decision by the court, which must do the best that it can with a complex piece of private law litigation.
  9. Financial setting of British horse racing

  10. The questions arise in the setting of the British horse racing industry (British racing) and its commercial relations with the rapidly expanding industries of gambling and associated audio-visual media. The relevant product is pre-race data (i.e. advance information about racing fixtures, which we will amplify later in this judgment, at paragraph 47). Bookmakers and broadcasters need access to pre-race data for use in parts of their businesses. (Although "data", by its etymology, is plural, we propose to treat "pre-race data", being equivalent to information, as singular.)
  11. Changes in the funding of British racing form the background to this case. Its outcome could affect the amount of income that the British racing authorities can derive from the commercial exploitation of pre-race data. At present British racing has other sources of finance, principally the levy imposed by the Horserace Betting Levy Board (the Levy Board), which was established by the Betting, Gaming and Lotteries Act 1963 to assess, collect and pay out monetary contributions (the Levy) levied on British bookmakers and on the Horserace Totalisator Board (the Tote) for (among other things) the improvement of British racing. Over £100m was collected under the Levy in the year 2003/4 on the basis of a 10% levy charged on the gross profits of UK bookmakers from their UK horserace betting business, and on the Tote.
  12. Other sources of funding for British racing are the sums spent by racehorse owners on fees, receipts by racecourses from gate admissions, advertising, concessions and the exploitation of media rights.
  13. From about 1993 the appellant British Horseracing Board Limited (BHB) obtained income from granting to the Racecourse Association Limited (RCA) the right to licence pre-race data to a company called Satellite Information Services Limited (SIS). RCA granted SIS the right to use audio-visual material and pre-race data until 30 April 2002. On the basis of this arrangement BHB appointed authorised suppliers of the pre-race data.
  14. The respondent Attheraces Limited (ATR) was not involved in the early arrangements. ATR came on the scene later with the development of website activities and overseas interest in betting on British racing.
  15. The positions adopted by the parties in this litigation and in related litigation and in the events leading up to it were influenced by government proposals dating from March 2000 to modernise the funding of British racing. The proposals included abolishing the Levy and the Levy Board at the end of March 2006, and the commercial exploitation of the assets of the central horse racing authorities.
  16. The proposals meant that BHB had to consider how, without the proceeds of the Levy, British racing could be funded in the future. The SIS licence of audio-visual rights and the right to use pre-race data would expire on 30 April 2002. Satellite and interactive services enabled bets to be placed direct and to be placed overseas. In these circumstances BHB naturally looked to raising more money from UK and overseas bookmakers and from broadcasters associated with the growing global gambling industry.
  17. On the legal front BHB believed and asserted that it had proprietary database rights (in addition to other intellectual property (IP) rights, such as copyright) in the pre-race data. Database rights are governed by the EC Copyright and Rights in Databases Regulations 1997, which implemented the EC Databases Directive 96/9. If BHB's belief were correct, it would be entitled to prevent all unauthorised persons from infringing its rights, and to use its rights to require them to enter into a licence for use of the pre-race data. BHB's "Future Funding Plan for British Racing", issued in October 2000, proposed to combine the database and IP rights held by it and the picture rights held by RCA into a "rights package" for sale to bookmakers and media companies. The package would consist of rights in respect of the future list of pre-race data, database rights and copyright and RCA's "picture rights" for the horse races. The income stream from the rights package would be divided to benefit the various constituencies of British racing.
  18. After the package plan was abandoned for lack of support BHB concentrated on the exploitation and sale of its pre-race data. It entered into an agreement with UK bookmakers under which the bookmakers agreed to pay BHB the same sum as they were obliged to pay under the Levy, the amount paid under the Levy being set off against the sums due from them under the agreement with BHB.
  19. According to BHB's paper "The Modernisation of British Racing", published in June 2004 and to which a draft standard data licence was annexed, the "data income" for 2003 amounted to about £110m. As already mentioned, the developments affecting the sources of BHB's income included the growth of gambling via the internet and television. About £90m was derived from the Levy, £7m from the Tote and £13m from overseas, mainly from Irish bookmakers who paid to BHB 10% of gross profits derived from British racing.
  20. BHB then suffered a legal setback in its plans for the commercial exploitation of database rights in the pre-race data. The European Court of Justice gave a preliminary ruling on 9 November 2004 on a reference made by the Court of Appeal on 31 July 2001 in the case of British Horseracing Board Limited v. William Hill Organisation Limited (Case C-203/02) on the interpretation of Articles 7 and 10(3) of the Database Directive. The effect of the ruling was that the use of pre-race data by the William Hill Organisation Ltd did not infringe BHB's database rights. It was held that BHB's investment in pre-race data was in materials which made up the content of its database and the verification of such creation. Its investment was not in seeking out and collecting independent materials in a database. The pre-race data was not covered by the Database Directive. This meant that BHB was not in a position to proceed with its plans to fund racing, in place of the Levy, by the sale of BHB's Database relating to pre-race data. (Following the report of an independent review group, the Government agreed that the Levy should remain in place until at least March 2009 in order to give more time to explore alternative ways of funding British racing).
  21. BHB's attempts to find other sources and methods of funding by means of the contractual exploitation of the pre-race data led to the allegations of abuse of dominant position against BHB discussed later in this judgment.
  22. The legal position of BHB following the ruling of the Court of Justice was that, although the use of proprietary rights under the Database Regulations and Directive in order to prevent copying of pre-race data from other sources was not available to BHB, contractual control of the supply of pre-race data was still possible in respect of pre-race data provided directly or indirectly under contract by BHB. The ruling did not mean that, if someone wished to obtain a reliable supply of pre-race data from BHB or its authorised suppliers, he could do so without charge. Valid contractual arrangements could be made relating to the supply of reliable pre-race data by BHB's authorised suppliers. BHB was entitled to charge contractually for access to its pre-race data product, even if the product itself was not protected by database rights from use by third parties to the extent asserted by BHB prior to the ruling of the Court of Justice.
  23. Before describing the course of events that led up to the allegations of abuse of dominant position we first set out how this matter comes before the Court of Appeal and outline the issues for decision.
  24. THE APPEAL

  25. This appeal, which is brought with the permission of the judge, is from the judgment handed down by Etherton J on 21 December 2005 after a 3 week trial in October and November 2005 of proceedings for declaratory relief and for an injunction: [2005] EWHC 3015 (Ch). In its very thorough narrative and analysis of complex factual and expert evidence it is an impressive judgment. Its very comprehensiveness makes it unnecessary to repeat much of the detailed factual material which is accessible to the reader via the internet and other means. Indeed, repetition of the detail is more likely to obscure than to illuminate the discussion in this court of the points of principle raised on the appeal. We shall confine our account of the facts to what is necessary for an understanding of the legal arguments and the rulings of the court.
  26. The judge decided that BHB had breached Article 82 of the EC Treaty (the Treaty) and section 18 of the Competition Act 1998 (the 1998 Act) by abuses of a dominant position down to the date of the proceedings (and possibly down to the present time) in:
  27. (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.

  28. BHB challenges the judge's findings on all three findings of abuse. It is common ground that excessive and unfair pricing is the central issue and that it affects the other two findings. There is no challenge on the appeal to the judge's sound findings on related issues: the identity of the relevant product, the relevant product market and the relevant geographical market, and the presence of a dominant position in the market (though there is a dispute as to the nature and extent of the dominance).
  29. There are, however, some disputes about the scope of the appeal. There is an application by BHB to re-amend the Appellants' Notice by amending the grounds of appeal following the instruction of new solicitors and leading counsel. This is opposed by ATR on the ground that new points would be raised which were not taken before the judge. Notice of the arguments and the proposed amendments was, however, given in sufficient time for ATR to be prepared with responses to them.
  30. There is a similar complaint by ATR that BHB's skeleton argument in support of the appeal does not comply with CPR Part 52 PD.20. An unsuccessful pre-hearing application was made to secure rulings of the court on these questions in advance of the hearing. The application was mentioned again at the beginning of the hearing. The court declined to deal with it, taking the view that, in a case of this complexity, it preferred to hear all the submissions which both sides wished to make on the appeal before deciding whether particular points could be properly raised on the appeal when addressing them in the judgment.
  31. The objections to the amendments and to the contents of the skeleton arguments in support of the appeal will, so far as it is considered necessary, be identified and dealt with at relevant points in the judgment rather than as preliminary or separate procedural issues. We can, however, indicate at this stage that, if it is possible for us to do so without injustice, we wish to decide the relevant substantive issues on the basis of all the arguments heard by us. A judgment which does not address these arguments will probably be of little use to the parties or to anyone else.
  32. THE PARTIES

    A. The appellants/defendants - BHB

  33. The appellants are companies together referred to in the judgment below and in this judgment as "BHB," save where it is necessary to distinguish between them.
  34. The first appellant has already been mentioned and called BHB. When referring to it as a separate entity we shall henceforth call it "the Board." It is a company limited by guarantee. In 1993 it succeeded the Jockey Club as the administrator and governing body of British racing. It has responsibilities for formulating central policy and for the improvement, funding and promotion of British racing. The Jockey Club was left with the principal regulatory functions, safeguarding the integrity of British racing and with responsibility for such matters as licensing and discipline.
  35. The four members of the Board are the Racehorse Owners Association, RCA, which represents 58 of the 59 British racecourses, the Jockey Club and the Industry Committee (Horse Racing) Ltd, which represents jockeys, trainers, stable employees, race-goers and so on. Each has representatives on the board of directors.
  36. The second appellant, BHB Enterprises PLC, is the wholly owned subsidiary of the Board. It was established in 2002 as its commercial arm. After deduction of its costs, its revenues are passed to the Board. Its objects include the improvement of the financial position of horseracing, funding its administration and encouraging the maintenance and improvement of standards in British racing. Its computerised electronic database (BHB's Database, licensed to BHBE for exploitation) contains a large quantity of data relating to British racing, including pre-race data in respect of each race. The pre-race data is distinct from on- course data, such as the result of the race and the non-runners in it. More detail about all of this than is necessary for the purposes of this judgment is to be found in the judgment in British Horseracing Board Ltd v. William Hill Organisation Ltd [2001] EWCA Civ 1268 at paragraphs 4-6.
  37. B. The respondents - ATR

  38. The respondents are subsidiaries of Attheraces Holdings Limited. They are together referred to in the judgment below and in this judgment as "ATR", save where it is necessary to distinguish between them.
  39. In 2001 ATR started trading as "Go Racing." In 2004 it was re-structured as a consortium/ joint venture between Arena Leisure PLC and British Sky Broadcasting Group PLC, acting through its subsidiary, Sky Ventures Limited.
  40. ATR's business is the exploitation of the commercial opportunities arising from British and overseas racing. It is essentially a broadcaster. It supplies websites, television channels and other audio-visual media relating to British racing which are used by bookmakers and punters, but it does not itself carry on a bookmaking business. It has acquired rights in respect of certain British racecourses, which entitle it to produce audio and visual coverage of horse races at those courses.
  41. ATR uses coverage on four of its services, by which the pre-race data ultimately derived from BHB's Database is supplied to customers, viewers, prospective punters and bookmakers:
  42. (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.

    THE ISSUES

  43. First, a non-issue. There is no dispute about the payments made by ATR in relation to the ATR Website and the ATR Channel, which are referred to as "the Domestic Services", showing British racing and allowing viewers to place bets on those races through the internet or through interactive services offered on satellite television. A settlement was reached and embodied in a consent order prior to the trial. ATR agreed to enter into a licence agreement with BHB for the right to have access to the contents of BHB's Database at a charge of £3,600 per annum. The remaining dispute therefore now centres on the overseas geographical market, i.e. all countries outside the UK and Ireland.
  44. The trial was solely about BHB's charges for the supply of pre-race data for use on SIS FACTS and ATRi, which are sold to and shown in, among other places, overseas bookmaking offices where customers can place bets on the races.
  45. The essence of ATR's case is that BHB has a monopoly in the supply of pre-race data to broadcasters and bookmakers who require such information; that it has sought to impose its terms for the supply of the pre-race data required by ATR for its business; that it has made threats to procure termination of the supply of pre-race data; and that it is guilty of excessive, unfair and discriminatory pricing.
  46. At the outset of his judgment Etherton J summarised (in paragraph 14) his analysis and principal conclusions leading to his decision that BHB had abused its dominant market position in breach of Article 82 of the Treaty and section 18 of the 1998 Act.
  47. This section of the judgment has not been criticised as a summary. We think that it would be helpful to set it out at this point as an introduction to the detailed submissions on the appeal-
  48. "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."
  49. The judge held that the relevant product was the pre-race data, about which more later. He went on to hold that the relevant product market was the supply of UK pre-race data to those in the horse racing industry who require such information for the services they provide to customers, in particular bookmakers and providers of TV channels or internet sites relating to British racing.
  50. BHB had a number of comments on the market dominance points, which are not issues directly arising on the appeal. We would mention one of them at this stage.
  51. BHB, while not disputing that it is dominant in the relevant product market, says that it was inaccurate for the judge to describe BHB as "super-dominant" or as having a very high degree of market power because it had 100% market share.
  52. While it is correct for ATR to describe BHB as a monopoly seller, BHB submits that it is not super-dominant, because ATR had considerable countervailing buyer power in relation to the pre-race data. The fact is that ATR has acquired the exclusive right to supply audio-visual material from certain British race courses: for example, to overseas bookmakers, who also expect to have pre-race data supplied with the pictures of the horse racing. In order to obtain revenue from this supply of pre-race data for fixtures at race courses covered by ATR, BHB must sell the data to ATR at a price which leaves ATR with sufficient margin for it to supply this "downstream" market of overseas bookmakers. BHB had no incentive to charge ATR a price that would exclude it from the downstream market.
  53. The market in which ATR acquires pre-race data from BHB is called the "upstream" market. BHB has 100% dominance in that market. ATR sells pictures and pre-race data to overseas bookmakers "downstream". ATR makes profits from the sale in that market. It is a competitive market. ATR is not dominant in this downstream market. It competes with other broadcasters of pictures and data on overseas horse races. The BHB pre-race data is described as a "filler" product in the downstream market, not a "must have" product. ATR charges overseas bookmakers for pre-race data and pictures at the going rate for "filler" products. The critical area of dispute is ATR's refusal to make payments to BHB in respect of the sums which it receives for pre-race data from the overseas bookmakers.
  54. Although BHB does not appeal from the judge's ruling on pre-race data as the relevant product, more needs to be said about the product itself.
  55. The pre-race data comprises selected information from BHB's Database in relation to each race fixture. It includes the name and time of race, the course where the race will be run, the race distance, the criteria for entry in the race, the names of the horses entered and declared runners, their saddlecloth and stall numbers, their ages, weights, official ratings, jockeys', trainers' and owners' names.
  56. The information in BHB's Database is supplied by horse owners and trainers under the Orders and Rules of Racing issued by BHB and the Jockey Club, horse race organisers and others involved in British racing to Weatherbys Group Limited (Weatherbys), which is paid about £5m a year by BHB to collate relevant information, to compile BHB's Database and to distribute it to persons authorised by BHB. BHB's Database is regarded as the reliable and essential source of information about pre-race data and other matters. It should also be noted that, without the information in the pre-race data, BHB would itself be unable to develop the fixture list and race programme for which it is responsible. It is the sole collector and ultimate source of pre-race data for British racing. There is no substitute for it and it has no competitor.
  57. BHB does not itself, however, supply pre-race data direct from BHB's Database. Instead, it appoints suppliers and authorises them to charge those who wish to receive it for the supply of pre-race data. The appointed suppliers are restricted by contract with BHB to supply pre-race data only to someone who already has a prior agreement with BHB for such use.
  58. Thus, SIS was appointed an authorised supplier under an agreement of 26 February 2003, which gave SIS the right to supply data from BHB's Database from 1 May 2002 until 29 March 2004. SIS acquired the pre-race data via PA News Limited (PA), which was itself appointed supplier under an agreement with BHB on 28 March 2002. PA acquired the pre-race data from Weatherbys.
  59. Pre-race data is required by many people and undertakings: the Jockey Club, the racecourses, the Racing Post, radio and television broadcasters, operators of racing websites and bookmakers taking bets on races. ATR needs the pre-race data ultimately obtained from BHB's Database in order to provide all four of its services to customers, viewers and prospective punters. Pictures of British horse races without the pre-race data are not sufficient for the purposes of the bookmakers or the punters.
  60. As for BHB's charges for the pre-race data, they are made on different bases according to the nature of the use made of the data. For example, only a nominal charge is made for supply, to owners, racecourses and trainers. Higher charges are made for the use of data by bookmakers directly or indirectly via those who broadcast directly to bookmakers. As we shall explain later, BHB contends that differential pricing according to the nature of use is normal and legitimate.
  61. PRE-ACTION ARRANGEMENTS AND EVENTS

  62. We turn to the relevant pre-action arrangements for the supply of pre-race data and the course of events leading to the allegations of unreasonable refusal to supply and excessive and discriminatory pricing of the pre-race data. As the contractual situation is complex (it is helpfully set out in diagrammatic form in the annexes to the judgment of Etherton J) and the negotiations between the parties were protracted, we shall confine this account to the aspects that are reasonably necessary for an understanding and resolution of the issues on the appeal.
  63. A. Pre-29 March 2004 ATR/BHB arrangements

  64. In brief, from 1 May 2002 until 29 March 2004 ATR obtained pre-race data under arrangements referred to as ATR1. They are not directly in issue in these proceedings.
  65. ATR broadcast the pre-race data on the ATR Channel to UK and Irish satellite and cable subscribers and on its website. ATR also allowed SIS to broadcast the pre-race data on SIS FACTS.
  66. An important difference from the later arrangements was that there was co-operation between BHB and 49 of the 59 racecourses, so that ATR was able to obtain pre-race data and picture rights on terms under which the payments for the pre-race data were set off against the payments due for the picture rights.
  67. A media rights agreement (the MRA) dated 11 May 2001 was made between ATR's parent company (Holdings), ATR, RCA and 49 of the 59 licensed racecourses in Great Britain. ATR acquired broadcasting and other media rights for a period of 10 years. ATR was allowed access to each of the courses to film race meetings and to exploit the films world-wide on all media, save delivery to UK and Irish licensed bookmakers. The total minimum guaranteed consideration payable by ATR to RCA/the racecourses was £307m, plus up to £80m on the marketing of ATR's services.
  68. The MRA was notified to the Office of Fair Trading (the OFT) by RCA and ATR and Holdings under section 14 of the Competition Act 1998. Although ATR initially joined forces with RCA on the notification it later changed its position and contended that the MRA was anti-competitive, unlawful and void. [paragraph 63 of the judgment]
  69. The MRA was the subject of a negative decision by the OFT under the Competition Act 1998, but, on appeal, the decision of the OFT was set aside by the Competition Appeal Tribunal: see The Racecourse Association & Ors v. OFT [2005] CAT 29.
  70. It was a condition precedent to the MRA that an agreement should be entered into by which ATR was granted by BHB and/or RCA rights to the use, in its audio-visual services, of data relating to meetings at the 49 courses. The resulting agreement, called the Binding Term Sheet (the BTS), was entered into between BHB and ATR on 25 June 2001. Under it BHB granted to ATR the right to use BHB's Database in conjunction with the rights to pictures acquired by ATR under the MRA and the consideration payable to BHB was to be set against and deducted from the sums payable by ATR under the MRA.
  71. It was also agreed that, as regards ATR's media rights sub-licensees (such as overseas bookmakers, i.e. bookmakers outside the UK and Ireland), ATR was to act as BHB's non-exclusive agent in granting the relevant data licences to such bookmakers at fees to be fixed by BHB, but not to exceed 2.5% of the gross betting turnover generated by the licensee. BHB was to pay ATR an agency commission of 15% of the licence fees received by BHB from licensees under data licences granted to persons outside the EU and a normal fixed commission in respect of data licence fees from persons within the EU, but outside the UK and Ireland.
  72. Under an agreement dated 17 April 2002 ATR granted certain rights to SIS, which produces a number of television channels, to facilitate the overseas exploitation of the coverage of racing from the 49 courses in the SIS FACTS service.
  73. In discussions between BHB and ATR in 2001/2002 it became apparent that it was not realistic to expect non-Irish overseas bookmakers to make a payment to BHB based on gross betting turnover. An agreement was reached that no consideration would be paid direct to BHB by non-Irish overseas bookmakers. Instead, BHB's consideration would be satisfied by a 50/50 split with ATR of the net revenue received by ATR from the exploitation of the SIS FACTS service overseas outside the UK and Ireland. Agreement was reached on the calculation of net revenue and the method of payment as summarised by the judge in paragraphs 40 and 41 of the judgment. ATR took its "commission" payments out of the 50% otherwise due to BHB, and it set off the net sum resulting from those calculations against the amount payable to the 49 racecourses for the picture rights.
  74. Another feature of the arrangements was that, as already mentioned, PA was used as the vehicle for supplying BHB's pre-race data to SIS pursuant to the BHB/PA agreement of 28 March 2002 appointing PA to collect on-course data at horse race meetings, to combine it with BHB's pre-race data and supply the resulting package to persons who had a valid licence from BHB to use the pre- race data. PA was to pay to BHB a sum equal to 10% of its income from such licensees.
  75. The MRA expired with effect from 29 March 2004 and with it the agreement relating to the pre-race data. While the MRA and the BTS were current, BHB received from ATR about £4.675m exclusive of VAT, almost all of which was set off by ATR against the amount due from ATR to the RCA under the MRA.
  76. B. Post-29 March 2004 ATR/BHB arrangements

  77. The termination of the MRA and the BTS on 29 March 2004 was followed by an internal re-structuring of ATR's business.
  78. Between 29 March 2004 and 11 June 2004 ATR ceased to broadcast. During that time SIS continued to make BHB's pre-race data available to ATR's customers, such as overseas bookmakers, on its SIS FACTS service and without any involvement on the part of ATR. BHB and SIS came to a separate agreement about that supply, which is not in issue in these proceedings. It was agreed that SIS should pay BHB for such data at the rate of £1800 per fixture. This was similar to the 50% of net revenue previously charged by BHB to ATR.
  79. That sum was paid up to 11 June 2004 when ATR launched its restructured service, having entered into new agreements with 28 race courses (the New ATR Courses) to broadcast live races on the ATR Channel and the ATR Website. ATR obtained picture rights in relation to 18 of the racecourses itself, and for another 10 racecourses via SIS.
  80. As to the remaining 31 British race courses, audio-visual rights (except in relation to UK bookmakers) had been granted in April 2004 to a new entity called Racing UK Limited, a competitor of ATR which made an interim arrangement with SIS that pictures from the Racing UK courses could continue to be broadcast overseas on SIS FACTS.
  81. Racing UK then made an agreement with Phumelela Gold Enterprises (Phumelela) for the broadcast overseas of British horse races from the 31 courses. On 15 September 2004 Phumelela began to broadcast races from the 31 British courses. As we shall see, Phumelela features prominently in the allegations of discriminatory pricing made by ATR against BHB.
  82. Since 11 June 2004 ATR has continued, through SIS FACTS, to broadcast British horse racing from the 28 courses to overseas bookmakers providing fixed odds betting. ATR is entitled to 50% of the net revenue from the SIS FACTS service. An agreement with SIS was reached. It was dated 3 December 2004 but had retrospective effect.
  83. In November 2004 ATR launched the new ATRi as an audio-visual service for international pari-mutuel tote betting markets in countries where fixed odds betting is illegal. SIS produces ATRi for ATR under an agreement dated 5 January 2005. Overseas bookmakers pay SIS a percentage of their turnover for data and pictures on the ATRi service. The net revenue from the ATRi service is divided between ATR and SIS and, out of its share, ATR makes payments to BHB for the use of the pre-race data, which ATR acquires under agreements with PA.
  84. In fact, however, nothing has been paid by ATR to BHB for the supply and use of BHB's pre-race data in respect of the period since 11 June 2004, though throughout that time ATR has continued to receive payment for such data from overseas bookmakers.
  85. C. January 2004 - April 2005: ATR/BHB negotiations

  86. Etherton J set out a detailed account of the meetings that took place and of the letters which passed between the parties during this period. A summary of the main points will suffice for the purposes of this judgment.
  87. On 29 January 2004 there was a meeting between ATR and BHB to discuss ATR's plans for securing media rights to British race courses after the termination of the MRA and the BTS on 29 March 2004.
  88. During the summer and early autumn of 2004 some discussions took place between ATR and BHB about the basis on which BHB should be paid for the use of pre-race data in relation to overseas bookmakers. BHB sought 50% of ATR's net revenue from this source. ATR rejected this and proposed 10% instead.
  89. Then, on 9 November 2004, as mentioned above, came the ruling of the European Court of Justice in BHB v. William Hill that the database right did not include the official lists of riders and runners in horse races. They were not the product of gathered-in information or material, which was obtained, verified and checked, and protected by the database right. It was unique information created by drawing up official lists of horses in a race and did not form existing materials.
  90. Following the preliminary ruling by the European Court of Justice (the ECJ), ATR wrote to BHB on 15 November 2004 asserting that, on its reading of the Luxembourg judgment, BHB had "no right to impose terms upon ATR for its use of such information" and that the previous discussions had been premised on a mistaken understanding of the law applicable to BHB's rights. ATR intended to continue using the pre-race data as before, but did not see any need to discuss terms for such use. It reserved its position about the recovery of sums previously paid to BHB under licences to use such rights and invited BHB to set out its position in the light of the decision. ATR decided not to take further the discussions which had been continuing about the terms of the licence relating to domestic use of the pre-race data on the ATR Channel and the ATR Website.
  91. BHB had to think about its position in a number of respects. In its response on 17 November 2004 BHB argued that the ECJ had exceeded its jurisdiction and had misunderstood the facts of the case and that its ruling did not affect BHB's entitlement to copyright in some elements of the pre-race data. (The legal position asserted by BHB was later considered and rejected by the Court of Appeal.)
  92. A meeting between BHB and ATR took place on 10 February 2005, following which BHB wrote-
  93. "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]
  94. On the same day BHB sent an invoice to ATR for £782,550 in respect of data charges for the period 11 June to 31 December 2004 at the rate of £900 plus VAT for 740 fixtures [see paragraph 90 of the judgment]. It was common ground at the trial that this related not just to fixtures at the 18 New ATR Courses, but to fixtures at all British courses and that the demand was therefore incorrect so far as it related to fixtures at non-ATR courses. ATR could only have been liable for £320,422.50. The balance was the liability of SIS. The demand was said to have been the result of a mistake.
  95. Letters on each side followed. On 14 February 2005 ATR rejected BHB's proposal, pointing to the lack of an explanation by BHB as to what protectable rights it was entitled to enforce and saying that ATR would take steps to protect its position if BHB attempted to persuade or procure SIS not to broadcast pre-race data under its contract with ATR.
  96. On 22 February 2005 BHB wrote disputing ATR's complaints. It stated its position that SIS was only permitted by BHB to make use of BHB's Database and deliver it to third parties who have a BHB data licence, in the absence of which BHB could require SIS to cease supplying unauthorised end users. The letter also referred to the similar agreement with PA, which was not permitted to supply unauthorised users with BHB's data and said that, if no licences were in place with ATR, BHB was entitled to require its authorised suppliers not to supply data to ATR.
  97. In a letter of 25 February ATR noted, parenthetically, that "BHB is purporting to charge ATR for all British racing fixtures (not just from ATR's courses) during this period for no apparent reason."
  98. This was followed by a letter on 17 March 2005 which is relied on by ATR to show the refusal to supply. BHB claimed that the ruling in the William Hill case confirmed that BHB had a database right in the racing information database, extending to overseas users, which BHB had to date regarded as authorised on the basis that fees were being paid by intermediaries on their behalf. Notice was given that, unless ATR entered into a licence agreement with BHB within 14 days, BHB would instruct its authorised suppliers to withdraw supply of BHB's data to ATR. The critical passage is this:
  99. "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."
  100. The 14 day deadline was later extended pending correspondence. BHB agreed on 20 April 2005 not to cut off the supply of pre-race data until an application to the court by ATR had been determined, provided proceedings were commenced with due despatch.
  101. ATR issued the application on 21 April 2005. Each side made interlocutory applications, which came on for hearing on 28 June 2005. In support of its application for an interim injunction to restrain BHB from causing PA, to whom pre-race data was supplied, to terminate the supply of pre-race data to ATR, evidence was put in by ATR which, amongst other things, mentioned that the invoice sent by BHB covered fixtures at non-ATR racecourses.
  102. On the second day of the hearing of the application BHB accepted that the demand was incorrect insofar as it related to fixtures at non-ATR courses. BHB's application was to strike out or summarily dismiss ATR's claims under Article 82 of the Treaty and section 18 of the 1998 Act.
  103. Before considering the nature and course of the interlocutory proceedings it is convenient to complete the account of the William Hill case, the full effects of which were not, understandably, appreciated by either party.
  104. There was a resumed hearing of the William Hill case in the Court of Appeal, which had made the reference to the ECJ in the course of proceedings by BHB against William Hill for alleged infringements of its database right. On 13 July 2005 the Court of Appeal found against BHB: [2005] EWCA Civ 863; [2005] RPC 35.
  105. The Court of Appeal allowed the appeal by William Hill, holding that BHB had not established that the ECJ had given its ruling on the basis of an erroneous assumption of fact and that the result of applying the ruling was that BHB's Database did not fall within Article 7 of the Directive or within the Database Regulations.
  106. We repeat, however, that it is not in dispute that, as matter of both law and commercial reality, even in the absence of database or IP rights, BHB may legally seek to make a contractual charge to customers for the supply of pre-race data. The critical question in this case is whether, in the light of the restrictions of competition law, the price of the relevant product proposed by BHB, as a monopoly supplier in the relevant market, is excessive, unfair or discriminatory.
  107. On 15 July 2005 the Vice-Chancellor dismissed BHB's strike out/summary judgment application, accepted undertakings from BHB in the terms of the injunction sought by ATR pending judgment, on ATR's undertaking to pay into court or into a joint account £900 per fixture, and ordered a speedy trial.
  108. As indicated earlier, the issues as to the use of pre-race data on the ATR Website and the ATR Channel were resolved by agreement before the trial, which was limited to the supply of pre-race data for use in SIS FACTS and ATRi.
  109. A counterclaim by BHB for infringement of copyright was stayed in part. It has been discontinued in respect of alleged infringement of IP rights in the pre-race data, BHB having acknowledged that ATRi does not infringe any IP rights of BHB.
  110. PRINCIPAL LEGAL PROVISIONS

  111. We turn to the relevant law generally applicable to the issues on the appeal.
  112. The material parts of Article 82 provide-
  113. "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."
  114. Section 18 of Chapter II of the Competition Act 1998 (the 1998 Act) contains a prohibition in identical terms, save that the references to "the common market" are omitted and that for an effect on "trade between Member States" there is substituted an effect on "trade within the United Kingdom or any part of it." Nothing turns on whether the case is brought under Article 82 or section 18.
  115. Section 60 of the 1998 Act provides-
  116. "(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."
  117. The overall context of Article 82 and section 18 is important: to prevent distortion of competition and to safeguard the interests of customers. As Jacobs AG said in Bronner v. Mediaprint [1998] ECR 1-7791 at 7811, paragraph 58-
  118. "… it is important not to lose sight of the fact that the principal purpose of Article [82] 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."
  119. In Aberdeen Journals (No 2) [2003] CAT 11 Sir Christopher Bellamy, the President of the Competition Appeal Tribunal, said at paragraph 350-
  120. " … 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."
  121. We will refer in more detail below to the law on abuse of dominant position affecting the particular allegations of excessive pricing, unreasonable refusal to supply and discriminatory pricing.
  122. It is common ground that the legal burden of proof is on ATR to establish that, on the balance of probabilities, BHB has abused its dominant position in the particular respects alleged.
  123. THE JUDGMENT OF ETHERTON J

  124. We now turn to the judgment on abuse of dominant position in order to make some general observations on the findings and conclusions of the judge relevant to the individual grounds of appeal.
  125. The judge's conclusions are set out in four main sections of his judgment: first on dominance (paragraphs 234-239); secondly, unreasonable refusal to supply data (paragraphs 240-284); thirdly, excessive pricing (paragraphs 285-308); and fourthly and finally, discriminatory pricing (309-328).
  126. We shall first summarise the main conclusions of the judge making some general comments on the disputed points. We shall then give an overview of the position of the parties on the appeal. Finally, we shall deal with the detailed grounds of appeal in the three areas, taking them in a slightly different order from the judge, as it is common ground that the case on excessive pricing is the issue at the heart of this appeal. We shall therefore deal with it first before turning to the grounds of appeal on unreasonable refusal to supply and discriminatory pricing.
  127. Market dominance

  128. It is now accepted that, as ruled by the judge, BHB had a dominant position in the relevant product market at the relevant time: it was the sole supplier of pre-race data in the "upstream market" in which it deals with ATR. It had a special responsibility as a dominant undertaking. In this court the argument is all about whether the judge was wrong to hold that BHB had abused its dominant position in the three respects found by the judge.
  129. Unreasonable refusal to supply

  130. Refusal by a dominant undertaking to supply does not necessarily constitute an abuse. For example, the refusal will not be an abuse if it does not distort competition or if the customer will not abide by regular commercial practice. Abuse of a dominant position by refusal to supply may occur, however, as a result of the cutting off of an existing customer, or refusing to grant access to an essential facility, unless the act or refusal is objectively justified. It may also consist of the refusal to grant a licence of an IP right.
  131. ATR's claim was that, from about 10 February 2005, BHB threatened to cut off ATR's supply of pre-race data from PA unless ATR entered into a data licence with BHB or made the excessive payments demanded by BHB. ATR was an existing customer. The pre-race data were an essential facility for ATR. The threat to cut off access to the data was not, ATR argued, objectively justified nor were any of the demands made by BHB.
  132. BHB was demanding that ATR enter into an IP licence, when it had no IP rights; it was demanding that ATR should pay for non-ATR race courses, including courses where the rights were held by ATR's competitors; it was demanding that ATR should pay charges as though it was an overseas bookmaker rather than a broadcaster; it was using ATR as an agent to collect from overseas bookmakers or to get them to enter into pre-race data business with BHB direct; and BHB demanded that ATR should pay twice over for the same data.
  133. In addition it was claimed that the charges proposed by BHB were excessive and discriminatory. It was alleged that these constituted threats to ATR's profitability and its expansion. ATR had no alternative source of supply of the pre-race data. Since 15 July 2005 its position had been protected by the undertakings given on the application for an interlocutory injunction.
  134. The judge found that (a) ATR was an existing customer of BHB; (b) the pre-race data supplied by BHB was an essential facility for ATR for the purposes of the doctrine of essential facilities; and (c) the application of the principles relating to not cutting off an existing customer and to essential facilities did not require that the dominant supplier should be in competition with the purchaser.
  135. Etherton J held that the terms being proposed by BHB to ATR were unreasonable and unfair, and were not objectively justified. He relied on four grounds: (a) the charges were unjustified, being additional to the charges payable by ATR to PA; (b) BHB was insisting that ATR enter into an IP licence for rights; (c) the price proposed by BHB was excessive; and (d) the price was discriminatory prior to an open offer by BHB on 27 September 2005.
  136. Excessive/unfair pricing and economic value

  137. An excessive price will be an unfair price in terms of Article 82(a). In United Brands [1978] ECR 207 the Court of Justice said in a key passage at paragraphs 250-252:
  138. "… 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."
  139. Although it would be wrong to read this passage too literally, it must, in our judgement, be read and applied with care. We make the following points.
  140. First, the judgment in fact poses two questions. The first is whether the difference between the costs actually incurred and the price actually charged is excessive. The second question is whether, if the first question is answered affirmatively, a price has been imposed which is either unfair in itself or when compared to competing products. BHB contends that the judge wrongly conflated the two questions into a single question, namely whether the charges specified by BHB were excessive.
  141. Secondly, the central concept in abuse of dominant position by excessive and unfair pricing is not identified as the cost of producing the product or the profit made in selling it, but as the "economic value of the product supplied." The selling price of a product is excessive and an abuse "if it has no reasonable relation to its economic value."
  142. Thirdly, the court did not say that the economic value of a product is always ascertained by reference to the cost of producing it plus a reasonable profit (cost +), or that a higher price than cost + is necessarily an excessive price and an abuse of a dominant position. The court was indicating that one possible way ("inter alia") of objectively determining whether the price is excessive and an abuse is to determine, if the calculation were possible, the profit margin by reference to the selling price and the cost of production.
  143. Fourthly, it has to be borne in mind that, as stated in Bronner, the law on abuse of dominant position is about distortion of competition and safeguarding the interests of consumers in the relevant market. It is not a law against suppliers making "excessive profits" by selling their products to other producers at prices yielding more than a reasonable return on the cost of production, i.e. at more than what the judge described as the "competitive price level". Still less is it a law under which the courts can regulate prices by fixing the fair price for a product on the application of the purchaser who complains that he is being overcharged for an essential facility by the sole supplier of it.
  144. Etherton J arrived at his conclusion of abuse of dominant position by excessive and unfair pricing in three stages: first, the economic value of the pre-race data; secondly, whether the price sought by BHB was excessive and unfair; and thirdly, whether the price sought was objectively justified.
  145. A long critical section of Etherton J's judgment was devoted to the issue of the economic value of the pre-race data and to establishing "the competitive price level" of the data (see paragraphs 174 to 231). The section was in the context of market definition for the product rather than in the section which expressly dealt with excessive pricing, but the judge referred back to it when dealing with abuse of dominant position in the market by excessive and unfair pricing in paragraphs 285-308. His overall conclusion was that:
  146. "300. The economic value of BHB's pre-race data is not more, or significantly more, than the competitive price."
  147. His conclusion on "the competitive price" of the pre-race data is to be found in the earlier section of his judgment where it is expressed as follows:
  148. "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."
  149. The judge then went on, in the section of the judgment expressly headed as excessive pricing, to conclude that the prices specified by BHB were higher than the competitive price and were therefore excessive:
  150. "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."
  151. He rejected BHB's arguments for justifying the level of the proposed charges and repeated his conclusion in these terms:
  152. " 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)."

    Discriminatory pricing

  153. The judge held that the charges proposed by BHB constituted abusive price discrimination by comparison with (a) the normal nominal charges to other broadcasters (as distinct from bookmakers and distributors) for the supply of pre-race data; and (b) the charge agreed with Phumelela, the South African distributor in direct competition with ATR.
  154. The judge adopted the description of discriminatory pricing in Butterworth's Competition Law Encyclopaedia paragraph 586 "as the supply or purchase of goods or services at different prices which do not correspond with differentials in supply costs." He noted that price discrimination is not necessarily an abuse and may even be necessary to the economic viability of an enterprise, citing differential rail fares and supermarket discounts as examples: see paragraph 587 of the Encyclopaedia.
  155. BHB's normal charge to broadcasters, as distinct from the supply of pre-race data for bookmakers, is nominal. In the case of the ATR Website and the ATR Channel the charge is £3,600 a year, whereas the proposed charge for ATR's SIS FACTS and ATRi is much higher.
  156. The judge held that there was no justifiable reason for the higher charges to non-UK broadcasters. In particular, he rejected BHB's attempt to justify this on the basis that the charge was not on ATR but on the overseas bookmakers and was to be collected through the agency of ATR.
  157. As for Phumelela, it supplies overseas bookmakers with data in respect of race courses which have agreements with Racing UK, a direct competitor of ATR. In mid-July 2004 Phumelela agreed to pay 30% of its net revenue to BHB for the supply of pre-race data. On 24 December 2004 a formal agreement was made.
  158. The judge compared the agreement between BHB and Phumelela with BHB's proposals to ATR from 29 March 2004 for the supply of pre-race data on payment of 50% of ATR's net revenue, £1800 per fixture and the £900 per fixture. He concluded that the difference in pricing for supply to ATR was discriminatory, abusive and anti-competitive in its effects. It affected the decision of ATR to extend its service overseas and had more onerous consequences for it.
  159. The judge expressed no view on the offer made by BHB to ATR on 27 September after the proceedings. It was for discussion and negotiation. The judge also said that he did not accept ATR's submission that a percentage charge on net revenue was always discriminatory.
  160. OVERVIEW OF THE APPEAL

  161. In response to a request from the court during the course of the hearing the parties submitted, in addition to the very long skeleton arguments, supplementary skeleton arguments and helpful notes on particular aspects of the case. This road map put the main points on this appeal into perspective.
  162. We found this useful. It is worth summarising each party's overview of the appeal as an introduction to discussion of the detailed submissions on the three individual areas covered by the appeal.
  163. A. BHB's case

  164. According to BHB the judge failed to consider the correct test for determining the key issue of alleged excessive and unfair pricing. He applied the test of the cost to BHB plus a reasonable return (cost +), whereas, in determining the economic value of the pre-race data, account should also be taken of its value to ATR and how much ATR could make out of the data as a source of income. The economic value of a product is not the same as what it costs to produce. The product is a revenue-earning opportunity for ATR with profitable billing opportunities for bookmakers. The judge's approach, which was affected by the William Hill ruling, was that ATR could keep all its earnings from the pre-race data.
  165. The judge also took too narrow a view on the relevance of costs to BHB, confining costs in the "cost +" formula to BHB's cost of maintaining the database. The pre-race data was a by-product or secondary product dependent on the primary activity of horseracing, and revenue was needed to maintain the primary activity. BHB's assistance with the costs of the primary activity was relevant to the pricing of the pre-race data. Revenue from BHB was channelled back into the improvement of horseracing. This expenditure increased the costs. The judge had ignored the peculiar nature of the product in question, its circumstances and the basis on which it is marketed as a subsidiary product dependent on a primary activity. Pre-race data is not as simple as dealing with the market for a "standalone" product, such as, say, the bananas in the United Brands case. The relevant costs were not just the costs of compiling the data which related to racing. The cost of running the primary activity of horseracing is also relevant to cost of the pre-race data.
  166. The allegation of excessive pricing is also the key to the issue of unreasonable refusal to supply the pre-race data. BHB was willing to supply the pre-race data to ATR if it paid the prices charged. If the price was not excessive, the normal commercial practice was to refuse to supply to a customer who is not prepared to pay anything for it and yet is earning substantial revenues from it. BHB was not seeking to withhold supplies in order to reserve the downstream market for itself. There was no distortion of competition. The judge wrongly focussed on the suggested agency relationship between BHB and ATR.
  167. As to alleged discriminatory pricing, the judge failed to appreciate what BHB was doing and that there was no distortion of competition.
  168. BHB also denies that it is "super-dominant" in the relevant market and relied on ATR's countervailing buyer power in that market.
  169. B. ATR's case

  170. ATR agrees that a central issue is the economic value of the pre-race data and whether the pricing of it by BHB is excessive and unfair.
  171. According to ATR the judge considered the economic value of the pre-race data and, on the facts of this case, correctly measured it by reference to the costs of producing it, plus a reasonable return (cost +). The judge was correct in finding on the facts that the economic value of the pre-race data was no more than "the competitive price" for it. The facts in each case included consideration of the nature of the product, who produced it and expenditure which increased the demand for the product.
  172. The economic value did not mean simply what the consumer is prepared to pay. This approach would undermine competition law. The position was that the pre-race data was an essential facility for ATR's business. The charge of 50% of net profits proposed by BHB would give BHB a stranglehold on ATR and strip it of its profit.
  173. As to the costs of producing the data, there must be some limit to what could be properly spent by BHB as forming the economic value of the pre-race data. The judge had correctly decided what the limit was.
  174. The judge had also correctly considered the economic value of the pre-race data by reference to the issue whether the demand curve was "pushed out" in the overseas market of bookmakers by additional expenditure. He found that the demand curve was not pushed out and did not increase the demand for British horseracing from their customers. There was no benefit to overseas bookmakers.
  175. The judge was correct in finding that the price for the data proposed by BHB was disproportionately higher than the competitive price of cost + and was excessive and unfair.
  176. As for unreasonable refusal to supply, ATR submitted that it was incorrect that ATR was not prepared to pay with the result that BHB threatened to cut it off. The position was that BHB had demanded payment of excessive prices - first 50% of net revenue, then £1800 a fixture and then £900 a fixture. ATR's position after the William Hill ruling was that BHB had no IP rights or data rights in the pre-race data, that it was already paying PA for the data so that there was double charging and that there was no basis for making a further payment. ATR queried whether there was any data right or IP right as the basis for BHB's demands for payment.
  177. The position of the overseas bookmakers was no basis for further payments. They were not "free riders." ATR operated in a competitive market in which it had no dominant position and did not receive a monopoly rent from the overseas bookmakers.
  178. As for discriminatory pricing, there was a clear distortion of competition in the case of Phumelela, which was a direct competitor but was charged a lower rate for the pre-race data.
  179. We now turn to the individual grounds of appeal.
  180. INDIVIDUAL GROUNDS OF APPEAL

    A. Excessive and unfair pricing: discussion

  181. We have explained above how the judge reached his overall conclusion on excessive and unfair pricing. The key steps in his reasoning were that the economic value of the pre-race data was its competitive price; that the competitive price was ascertained by the cost + formula; and that, as the charges specified by BHB exceeded the competitive price and could not be objectively justified, BHB had breached Article 82 and section 18.
  182. BHB submitted that the judge's reasoning and his conclusions were fundamentally flawed. It is necessary to examine in more detail the stages by which the judge arrived at his overall conclusion.
  183. We start with the section on excessive pricing (paragraphs 285 to 308).
  184. As to the law, the parties were agreed that unfairness in pricing is to be assessed by reference to the relationship between price and the economic value of the relevant product. As laid down in United Brands (see above), the test is whether the price is excessive because it has no reasonable relation to the economic value of the product supplied.
  185. The judge (rightly, in our view) accepted the contention that, in principle, BHB is entitled to impose a charge for use of its data by, and for the benefit of, overseas bookmakers, irrespective of whether BHB has database rights or IP rights in its Database and the pre-race data. The core issue is whether the amount of the charge is excessive and unfair so as to constitute an abuse of BHB's dominant position in the relevant product market.
  186. The judge said that one way of determining the question whether the price was excessive in the United Brands sense was to make a comparison between the selling price of the product and its cost of production, which would disclose the amount of the profit margin. He said that this was not the only way of determining the question and that conduct was not abusive simply because the dominant firm charged high prices and enjoyed a high profit margin. It was necessary to consider whether the price was unfair in itself or when compared to the price of competing goods.
  187. A particularly high price and high profit margin may, however, be a determining factor if unjustified by any objective criteria, or in comparison with competing products, or where the dominant undertaking is exploiting its ownership of an essential facility. The judge cited Sirena Srl v. Eda Srl & Ors [1971] ECR 70 and United Brands. He also quoted from the OFT's Guideline on "Assessment of Individual Agreements and Conduct" (September 1999) at paragraphs 2.1, 2.3, 2.6 and 2.14, from the approach taken by the Director General of Fair Trading in his investigation in Napp Pharmaceuticals (No CA98/2/2001-30.3.2001) and from the decision of the Competition Appeal Tribunal on appeal [2002] CAT 1 at paras 390-392 and 400-403. The approach was that, in principle, prices are excessive if they "are higher than would be expected in a competitive market" and "there is no effective competitive pressure to bring them down to competitive levels, nor is there likely to be." It was recognised that "measuring whether a price is above the level that would exist in a competitive market is rarely an easy task" but the difficulty of the exercise was not a reason for not attempting it.
  188. The judge went on to hold that the economic value of BHB's pre-race data was not more, or not significantly more, than the competitive price and that the charges specified by BHB were in excess of the "cost +" competitive price. Before we examine the concept of a competitive price and how it was determined by the judge, we should first explain why the judge rejected BHB's attempts to justify the level of its proposed charges from time to time.
  189. The judge did not accept BHB's justification of its charges by reference to the positive "externalities" of British racing. He referred to the reasons given by him earlier in his judgment for rejecting the submission that the "externalities" of British racing should be reflected in the competitive price of the product. He did not accept that BHB's expenditure "pushes out" the demand curve for viewing and placing bets on British racing and so for pre-race data.
  190. In the earlier passage on the competitive price of the product and whether it should reflect externalities, the judge said that it was not appropriate at the stage of fixing the competitive price to consider the externalities on which BHB relied. It was more appropriate to consider them at the stage of objective justification for a price substantially in excess of cost: see paragraph 189. In the event BHB's submissions on externalities did not assist it when the judge came to consider the issue of objective justification for prices in excess of the competitive price. We refer in more detail later to the judge's treatment of the competitive price issue.
  191. On justification the judge also rejected the application of the principle of "Ramsey pricing" (i.e. that "it is economically efficient to recover a relatively larger part of common or joint costs from those customers whose demand is relatively more inelastic"). BHB contended that the demand of the overseas bookmakers is fairly inelastic. The judge commented that there was no evidence of benefit to the overseas bookmakers and that the demand of UK and Irish bookmakers was more inelastic.
  192. Finally, the judge relied on the "striking increase in the amounts received by BHB for the sale of its pre-race data over the past 6 years and the striking disparity between the cost of producing the data and those amounts." He accepted Mr Hollander's submission that the charging structure for the supply of pre-race data was "an artificial device to cast on the back of the data all or a substantial part of the costs of British racing."
  193. We now turn to the judge's treatment of the competitive price issue, which is closely linked to his conclusions on economic value, excessive prices and objective justification.
  194. The judge considered the competitive price issue in the context of the relevant product market and the SSNIP test used by economists as a method of determining the question of the substitutability of products. In applying the test it is necessary to establish the competitive price level of the relevant product. On that issue it is not surprising that ATR and BHB took different approaches.
  195. ATR argued that the competitive price was based on the cost of creating BHB's Database (about £5m a year) plus a small margin for return on capital.
  196. BHB argued that the competitive price must reflect the externality of all aspects of British racing which make it attractive material for broadcasting, viewing and betting. BHB made submissions on British racing as a single entity; on the effect of "free riders" not paying for positive externalities; on expenditure "pushing out" demand for the product; and on the contradictions in the position now taken by ATR, as compared with the position taken by ATR on the notification of the MRA agreement to the Office of Fair Trading in 2001.
  197. In particular, BHB submitted that the competitive price should reflect not merely the cost of production but also the value of the product to the purchaser, citing the Commission's decision in Scandlines [2006] 4 CMLR 23. It is relevant to consider what the purchaser is prepared to pay and what profit the purchaser can make, as evidenced by what ATR was prepared to pay for the picture rights which had little relationship to the direct cost of making them available to ATR.
  198. As mentioned earlier the judge rejected BHB's submissions and accepted ATR's approach. He held that the arguments on externalities were more appropriate to be made on the issues of excess pricing and justification of prices substantially in excess of costs.
  199. The judge accepted that the competitive price could reflect an amount in addition to the cost of production, instancing the investment by pharmaceutical companies in research and development and in failed products.
  200. On the Scandlines point, he accepted that the competitive price could reflect a feature that made the product in question specially attractive to the purchaser. In holding that this did not assist BHB, he commented on its uncertain effect in relation to the pushing out of the demand curve. There was no demonstrated impact of expenditure by BHB on the pushing out of the demand curve. He also observed that it could not be right that the competitive price was whatever the purchaser was prepared to pay.
  201. The judge rejected the relevance of expenditure which was not incurred by the seller of the product, for example the Levy in the case of British racing. This was not a case of BHB running "the whole show" or defraying the cost of it.
  202. Rival submissions on excessive pricing: introduction

  203. Mr Roth submitted that ATR had not discharged the burden of proving that the price demanded by BHB for the pre-race data bore no reasonable relation to its economic value. The judge erred in holding that the economic value of the pre-race data was no more, or not significantly more, than the competitive price defined by him in terms of cost +.
  204. In supporting the decision on excessive and unfair pricing, Mr Hollander disagreed with Mr Roth's main contention and with most of his detailed criticisms, adding a complaint that some of them were new points which he should not be allowed to raise by amending his grounds of appeal.
  205. Nature of product and basis of marketing

  206. Mr Roth's first main criticism was that the judge took a mechanistic approach to pricing, ignoring the nature of the particular product and the basis on which it is marketed.
  207. It is well recognised, in cases such as the pricing for pharmaceutical products, that it is not correct to apply the cost + approach uniformly to the determination of all issues of excessive pricing. It is necessary to consider all the relevant circumstances and to have regard to the particular circumstances of the product in question.
  208. Pre-race data differs from what Mr Roth described as "standalone" products with standalone costs of production, such as the bananas in United Brands. Pre-race data is not a standalone product. It is a secondary product or a by-product of British racing. Its existence and value depend on the primary activity of British racing and on the attractions, quality and integrity of the primary activity. The pre-race data relates to actual races held at actual race courses. The actual races are run by actual horses and jockeys provided by actual owners attracted by prize money. If there were no races, race courses or entrants, there would be no pre-race data.
  209. The primary activity of British racing has to be policed (the responsibility of the Jockey Club) and administered and governed (BHB's responsibility). This costs money. Funding is needed to maintain and improve the quality and to maintain the integrity of this primary activity. It involves a series of costly products and services. Pre-race data is a by-product of the primary activity which is a major income generator available to British racing. This is so regardless of whether the pre-race data is protected by database rights or IP rights. As recognised in principle by the joint notification of the MRA agreement and ATR1 by ATR and RCA to the OFT, pictures and pre-race data are products which can be commercialised to achieve funding for British racing for the benefit of all those involved in it, including bookmakers and their customers, by making it more attractive. This in turn maintains and improves the value of the pre-race data. BHB instances expenditure in 2004 not only in the form of £5m to Weatherbys to maintain its Database, but also £7m in prize money and a contribution of £3.5m to the Jockey Club's head office costs.
  210. ATR argued that this point was an attempt by BHB to re-run the "whole show" argument advanced by it at trial on the issue of the relevant product. The judge had rejected BHB's contentions on that issue and held that the relevant product was the pre-race data. BHB has not appealed against the judge's finding on that issue and cannot resurrect these arguments on the excessive price issue.
  211. In this appeal BHB accepts that the pre-race data is the relevant product, but contends that in order to answer the question whether the price of the product is excessive and unfair it is necessary to consider the nature of the product and its economic value, taking a broader view of the relevant circumstances than the judge did in holding that cost + was the benchmark for deciding whether the price charged was excessive or unfair. BHB contends that cost + is not the appropriate benchmark for this purpose. BHB does not, however, contend, as ATR suggests it does, that it is entitled to run a coach and horses through competition law by charging whatever it wishes and holding its customers to ransom.
  212. We should mention that the relevance or otherwise of the position taken by ATR on the OFT notification of the MRA to the issue of excessive pricing was the subject of considerable dispute at the hearing of the appeal. ATR submitted that the notification was not relevant and that it had subsequently taken a different line about the MRA agreement.
  213. BHB's point is that the judge did not take into account the fact of what was said by ATR's then Chief Executive Officer in the Notification as to how the acquisition of data and picture rights was pro-competitive and would benefit consumers and that the commercialisation of the assets of British racing was a good way of solving the problem of under-funding of British racing for the benefit of British racing and for consumers. ATR had recognised that the benefits would include increased overseas interest and more income from betting from overseas bookmakers.
  214. In our judgment, the position taken by ATR on the OFT notification is one of a number of relevant background information points on which BHB is entitled to rely, but it is not a point which goes to the heart of the question whether the judge was correct in determining the economic value of the pre-race data on the cost + basis.
  215. As regards the relevant allowable costs in ascertaining cost +, the judge only took account of the direct costs of the BHB Database and expenditure directly related to the revenue sought from, or specifically targeted at, the overseas bookmakers or their customers. In our judgment, this approach was wrong because it was too restrictive, given the nature of the pre-race data and the basis on which it is marketed.
  216. BHB contends that it is appropriate to take account of the particular expenditure incurred by it in maintaining the quality and integrity of the primary activity of British racing on which the value of the pre-race data as a secondary product is dependent. It is not necessary to show that it specifically benefits overseas bookmakers as distinct from British bookmakers or their respective customers. The expenditure brings benefits to them all.
  217. BHB had relied at the trial on the principle of the externality benefits as relevant to the issue whether the charges specified by BHB were excessive. The judge had considered them in the context of the effect of "pushing out" the demand curve, but held that BHB had not identified costs which might push out the demand curve. Mr Roth submitted that the evidence had identified prize money as an item which would make British racing more attractive to overseas bookmakers. ATR also recognised the importance to overseas bookmakers of the integrity of British racing in which an important regulatory role was played by the Jockey Club, which is partially funded by BHB to the extent shown in the detailed accounts in the evidence at trial.
  218. We do not accept ATR's objections that the points on expenditure on prize money schemes and on contributions to Jockey Club head office costs were not taken below. Evidence was given about the amount of prize money and its effect on the improvement of racing and on increasing its attractiveness and the demand for it. The detailed accounts showing expenditure by BHB were in evidence.
  219. As to the externalities point, BHB's argument is that the amount that ATR pays it for pre-race data can and should reflect the expenditure which BHB incurs in making British racing attractive and in maintaining its quality and integrity. Mr Roth made it clear that he was not contending, as ATR thought he was, that the overseas bookmakers should pay more to ATR for the pre-race data than they actually do. The point is that the money which ATR receives from them reflects the value of the data to them, which depends on the attractiveness and integrity of British racing. BHB has produced the positive externality which has benefited ATR, and should be paid for doing so.
  220. Economic value

  221. Mr Roth's second main criticism of the judgment on excessive pricing was that the judge's conclusion equating economic value with cost + did not involve any separate analysis of economic value. The judge gave no meaning to economic value other than the competitive price defined in terms of the supply side. Economic value looks to the demand side rather than the supply side. It means the value to the customer, not the cost to the seller.
  222. The United Brands decision focused on the price charged in relation to "the economic value of the product supplied." Although a comparison between price and cost of production may be a step in the analysis of economic value, it was only a first step. Costs of production were relevant, but they were not, as shown by cases such as Scandlines, conclusive on the question of excessive pricing and the existence of an abuse.
  223. Two cumulative questions had been equated by the judge with the first question, which is the difference between the selling price and the cost of production. The judge failed to consider the second question, which is whether the price is either unfair in itself or when compared to competing products.
  224. Mr Roth emphasised that the economic value of a product was a different concept from its cost, as it reflects its revenue-earning potential to the person who acquires it. This was evidenced, for example, by the willingness of ATR to pay £307m under the MRA for the media rights to film and broadcast races for 10 years on the 49 old ATR courses and to pay £1.586m for the media rights for 1 year (11 June 2004 to May 2005) on the 18 New ATR Courses. As in the case of the sale of media rights for facilities and access to film and broadcast sporting events for high sums, the sums paid by ATR for the media rights to the races were not related to the cost to the supplier of making the media rights available: they represented in commercial terms the economic value of the product in question to ATR, as the acquirer of a revenue-earning asset or opportunity for itself and on a re-sale to such end users of the service as the betting offices. The benefit of the revenue-earning potential for ATR and for the overseas bookmakers, who subscribe to SIS FACTS and ATRi which include the pre-race data, is what gives the pre-race data its economic value. When considering excessive and unfair pricing the judge failed to have regard to this aspect of the economic value of the pre-race data.
  225. Mr Hollander contended that this was one of the new points raised in BHB's appeal. We do not agree. It was there all the time in the United Brands decision, which both sides agreed identified the relevant questions on excessive pricing. Further, at the trial BHB had cited and strongly relied on Scandlines, as was apparent from the judgment, for the relevance of the value of the product to the purchaser. The judge had failed to distinguish Scandlines and had wrongly rejected BHB's submissions of economic value to the purchaser, which were based on Scandlines.
  226. Even on the competitive price approach to the economic value of the pre-race data, Mr Roth argued that the judge was wrong to find that in this case it was cost +. The competitive price is the price that would apply in a competitive market. In this case there is no competitive upstream market. It is necessary to ascertain the hypothetical price in a hypothetical market. This is not an easy exercise. It does not follow that the consequence of competition with BHB is that the price of the pre-race data would go down to cost +.
  227. In this case BHB accepted that it is a monopoly seller of pre-race data, but, as regards the disputed area of pre-race data for use in overseas broadcasts of races on ATR courses, it contends that ATR is effectively a monopoly buyer, as it is the only potential buyer in relation to the sale of pre-race data, as regards races at its racecourses, to the overseas bookmakers in the downstream market. It had "countervailing buyer power" which was relied on at the trial as an argument against BHB's dominance, which was not an issue on the appeal, in which it was relied on to rebut the contention that BHB had "super-dominance" in the market in which it was the seller of the pre-race data.
  228. As for ATR, it is asserted that it is not a monopolist in any relevant market, and that while BHB is the monopoly seller in the upstream market, ATR is not itself dominant as a buyer in the upstream market or as a seller in the downstream market. There is a competitive market for the supply of "filler" products to the overseas bookmakers, but ATR submitted that it is not a perfectly competitive market. That is true, but it does not meet the point that the price charged by ATR is constrained by other competing "filler" products. In those circumstances BHB cannot realistically charge ATR more than a price which leaves ATR with sufficient margin. There is a price ceiling in the sense that it would be directly against BHB's commercial interests if ATR were unable to sell profitably on the downstream market. BHB can charge the overseas bookmakers no more for the pre-race data than a wholesale price derived from the competitive retail price. The competitive wholesale price upstream will reflect the resale price in the competitive downstream market for "filler" products.
  229. ATR did not agree with this analysis, contending that it was not dominant in any relevant market and that the assertion by BHB of a "derived wholesale price" was meaningless.
  230. In this situation there is, Mr Roth argued, no basis for the finding that the hypothetical competitive price of the product is cost +, which was the foundation for the judge's conclusion that the charges specified by BHB for the pre-race data were excessive and unfair. For the reasons given by Laddie J in BHB Enterprises v. Victor Chandler (International) Limited [2005] EWHC 1074 at paragraph 48, it is wrong to assume that the competitive price is cost +. The cost + test has the attraction of being simple, but the reality is that it is not easy to establish what the price of a product would have been under different and competitive conditions. As Laddie J observed, even in competitive markets, there is no necessary correlation between the cost of production and the cost of capital and the price that can be achieved in the open market: there are buyers' markets and there are sellers' markets.
  231. Mr Roth also made the point that this was not a case where the charges proposed by BHB would cause harm to the end users or downstream consumers of the pre-race data, for example by leading to increased prices. The dispute in this case arises out of the negotiations between BHB and ATR on the commercial division of the revenues derived by ATR from the overseas bookmakers in the downstream market, which is competitive. ATR is not dominant in the downstream market in which it has to compete with other suppliers of "filler" products to the overseas bookmakers.
  232. Mr Roth criticised the judgment on two other grounds.
  233. The first was for failing to have regard to the relevant range of comparators available on pre-race data, which contradicted the finding that a price significantly in excess of cost + is excessive and unfair. The comparators cited by Mr Roth were (a) the price negotiated and agreed in April 2002 with UK and Irish bookmakers for access to the BHB Database; (b) the 50/50 split of net revenue agreed with ATR under ATR1; (c) the price of £1800 a fixture agreed with SIS in the period 30 March 2004 to 10 June 2004; and (d) the price of a 50/50 split of net revenue for pictures and data agreed with Racing UK and Phumelela from 23 May 2004.
  234. Although ATR objected that the comparators were not relied on at trial, it appears from the judgment, from BHB's skeleton argument and its closing submissions to the trial judge that the comparators point is not a new one. The significance of the comparators is that in none of these cases was the price to be paid for the pre-race data determined on the cost + basis.
  235. The second criticism was of the judge's reliance on what he described as the "striking increase in the amounts received by BHB from the sale of pre-race data in the past 6 years" (i.e. 1999 to 2005). Mr Hollander said that BHB dramatically increased its prices during this period and that this showed the lack of any constraint on BHB.
  236. Mr Roth submitted that the increase relied on by the judge did not support his finding of excessive pricing. BHB itself did not, as ATR suggested, rely on the increase for comparison purposes. On the contrary, BHB's position was that this period did not provide a valid basis for comparison, as it included the years before April 2002, that is before the contemplation and implementation of the policy of commercialising the assets of British racing. The prices in the earlier pre-2002 part of the period were inevitably low. BHB's Database was subsidised from BHB's other revenues. The position changed with the advent of the commercialisation proposed in place of the Levy.
  237. Further, the increases in the amounts received by BHB since 2002 are directly attributable not to an increase in prices charged, but to increased betting revenues particularly in Ireland and the Isle of Man, which led to an increase in the payments under the BHB standard form 5 year licence agreement with the UK and Irish bookmakers. The increase was not attributable to increases in the level of charges made by BHB or to changes in the terms of the licence.
  238. Conclusions on excessive pricing

  239. In our judgment, although the judge reached the right conclusions on important issues raised by the claim for abuse of dominant position, he erred in holding that the charges proposed by BHB were excessive and unfair. We are in broad agreement with Mr Roth's submissions criticising the judge's approach to the issue of excessive and unfair pricing of the pre-race data.
  240. The judge correctly stated the law as laid down in United Brands (cited above) that a fair price is one which represents or reflects the economic value of the product supplied. A price which significantly exceeds that will be prima facie excessive and unfair. But the formulation begs a fundamental question: what constitutes economic value?
  241. On the one hand, the economic value of a product in market terms is what it will fetch. This cannot, however, be what Article 82 and section 18 envisage, because the premise is that the seller has a dominant position enabling it to distort the market in which it operates.
  242. On the other hand, it does not follow that whatever price a seller in a dominant position exacts or seeks to exact is an abuse of his dominant position.
  243. How is the critical judgment of the economic value of the pre-race data to be made? That has to be determined before deciding whether BHB is seeking to charge ATR a price which abuses its dominant position by trying to obtain substantially more than the economic value of the pre-race data. There is nothing in the Article or its jurisprudence to suggest that the index of abuse is the extent of departure from a cost + criterion. It seems to us that, in general, cost + has two other roles: one is as a baseline, below which no price can ordinarily be regarded as abusive: the other is as a default calculation, where market abuse makes the existing price untenable.
  244. ATR argued that, if the indicator of abuse is a presumptive competitive price, cost + is what a competitive price should be. This seems to us to be at best a rule of thumb. Competition may drive price below cost for a time or in a part of the market. Where profit is obtainable, the margin of profit will be as great as the market will yield, reflecting such factors as elasticity of demand. Thus, even a hypothetically competitive market may yield a rate of profit above, as well as below, the reasonable margin represented by cost +. Those and related issues were usefully discussed by Laddie J in BHB Enterprises Ltd v. Victor Chandler (International) Limited (cited above). It seems to us that the most that a successful challenge under Article 82 can achieve in a case like this is a re-negotiation, not a cost + limit on prices, for whatever else Article 82 does it does not create a European system for determining prices.
  245. Mr Hollander submitted that, unless the court starts from the ratio of cost to price, it is "tearing up European competition law." If by this he meant that, in the absence of a price which represents more than a reasonable return on production costs, there can be no case of excessive (or discriminatory) pricing, we would agree. But, to the extent that he sought to make charging above cost + the principal criterion of abuse of a dominant position, we do not agree. Exceeding cost + is a necessary, but in no way a sufficient, test of abuse of a dominant position. None of the authorities cited by Mr Hollander suggests otherwise. What gives more pause for thought is his illustrative question: can a monopoly electricity supplier legitimately charge a hugely inflated price, albeit one which the purchaser can pay, simply because the purchaser's enterprise will have to close down if its supply is cut off?
  246. BHB has two principal answers to the accusation of excessive pricing. The first is that, if the price is one which the market will reasonably bear by definition, it is not excessive. The second is that its own role and status are such that its returns are not and should not be treated as simple profit because they are ploughed back into the very product for which ATR are paying.
  247. We are not prepared to accept the first answer, even with the adverb "reasonably." The qualification would be sufficient to answer Mr Hollander's hypothetical example about charging a ransom price for electricity, but we would also think that the case he postulates is one where the abuse consists of overtly arbitrary pricing. His argumen