France Telecom’s (FT) mobile and internet arm, Orange, has been sued by its competitors, Free and Neuf Cegetel (part of SFR), in the Paris Commercial Court for breaching the French Consumer Code due to its tying arrangements. Background
In 2008 FT acquired the exclusive right to show football matches of France’s leading division, Ligue 1, including some Saturday night games. FT created a TV channel (Orange Foot, now Orange Sport) that was exclusively available to FT’s internet subscribers (but also viewable on TV through Orange’s set-top box). Each house can only have one internet service provider (ISP).
On 23 February 2009 the Commercial Court held that FT had violated the Consumer Code by tying the sale of the TV channel to the sale of the internet service (ie consumers could not buy the products individually). The Commercial Court considered that the tie was contrary to EU directive 2005/29 on unfair commercial practices (the Directive).
Most recent decision
On 15 May the Paris Court of Appeal overturned the Commercial Court’s decision on the grounds that the tie was not one of the practices listed in the Annex to the Directive and therefore was not in breach of the Consumer Code. The Court of Appeal also considered that the practice did not constitute harassment or coercion. Indeed, the judges of the Court of Appeal considered that all the ISPs were trying to enrich their offerings by including innovative services or content, film and sporting events.
The Court of Appeal did not consider whether the tying was legal under competition rules and this will now be examined by the French Competition Authority, the Autorité de la Concurrence (which replaced the Conseil de la Concurrence in January 2009).
Tying and bundling: What’s the harm?
In certain circumstances, bundled or tied sales may provide customers with improved products or offerings in more cost-effective ways. However, sales by companies that are dominant in one market can harm customers by preventing companies from providing one of the other (tied) products or services.
Guidance
In February 2009 the Commission published guidance on its enforcement priorities in applying Article 82 of the EC treaty. Under Article 82, dominant companies have a special responsibility not to allow their conduct to impair genuine undistorted competition on the common market. The Commission’s guidelines are not binding on national competition authorities but they will be persuasive.
Where tied or bundled products are distinct (ie they can be sold independently) and there is a risk that the tie or bundle may foreclose competition, European competition authorities are likely to subject the tie or bundle to greater scrutiny.
Distinct products?
In the case of FT, whether the internet connection and the sports channel are considered as two separate products will ultimately depend on customer demand. It is arguable that they should be considered as separate products because consumers may wish to have an internet connection but not wish to have the sports channel and vice-versa. The Commission’s guidance suggests that products may be distinct if ‘undertakings with little market power, particularly in competitive markets, tend not to tie or not to bundle such products’.
Foreclosure?
Tying Orange Sport to the internet connection will prevent ISPs from providing an internet connection to those customers wishing to have Orange Sport. However, customers not wishing to have Orange Sport will still be able to obtain an internet connection from any ISP they choose.
In the case of bundling, if a company has a dominant position for several products in a bundle, there is a greater likelihood of anti-competitive foreclosure. The Commission notes that this ‘is particularly true if the bundle is difficult for a competitor to replicate, either on its own or in combination with others’.
The Autorité de la Concurrence may consider whether Orange’s competitors (Free and SFR/Neuf Cegetel) can replicate the bundle. Arguably, because Orange has exclusivity for particular sporting events, this will not be possible. SFR, part-owned by Vodafone, considers that the commitments given during its acquisition of Tele2 prevent it from creating a similar bundle of products.
What next?
It will be interesting to see whether the Autorité de la Concurrence considers FT’s behaviour to be anti-competitive, and assessment by a significant European competition authority of tying and bundling arrangements will help to clarify the application of the competition rules to this important area.
Geoffrey Deasy, associate, Berwin Leighton Paisner LLP. E-mail: geoffrey.deasy@blplaw.com
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