The Vice-Chancellor :
Introduction
- The British Horseracing Board Ltd is the governing authority for horseracing in Great Britain. Its activities include the maintenance and operation of a computerised database containing a large amount of information relating to horseracing in Great Britain. Part of the data thereon comprises pre-race information ("Pre-Race Data") such as the place and date of race meetings, the distance over which a race is to be run, the list of entrants, the owner and trainer of each entrant, the list of declared runners and riders, the weight to be carried by each runner, its saddlecloth number and the number of the stall from which it will start. BHB Enterprises plc is a wholly owned subsidiary. Its object is the commercial exploitation of such data rights through licensing agreements with third parties. As no distinction is to be drawn between the holding company and its subsidiary for the purposes of this action I shall refer to them individually and collectively as "BHB".
- Attheraces Ltd ("ATR"), formerly called Go Racing, seeks to exploit commercial opportunities arising from horseracing in Great Britain and overseas. It has obtained exclusive rights of access to certain racecourses in Great Britain and the Republic of Ireland so that it may produce audio and visual coverage of horse races. It exploits that coverage by four means, namely, an ATR branded website ("the ATR Website"), an ATR branded TV channel available to satellite and cable subscribers in the United Kingdom and Ireland ("the ATR Channel"), an ATR branded international bookmaker audio-visual service ("ATR International") and a service called SIS Facts ("SIS Facts"). The distinction between ATR International and SIS Facts is that the former service is available to bookmakers in countries where fixed odds betting is illegal but the latter is not.
- From May 2001 to 29th March 2004 ATR enjoyed exclusive rights of access to 49 of the 59 racecourses in Great Britain under a Media Rights Agreement. From various commencement dates to 29th March 2004 it also enjoyed rights to BHB's pre-race data under a binding term sheet agreement between BHB and ATR made on 25th June 2001. The combination of the two enabled ATR to provide a service under which bookmakers and the general betting public might take and place bets and then view the race. Both agreements terminated on 29th March 2004, ATR was then restructured and relaunched its service on 11th June 2004. It is with that service that this case is concerned.
- By an agreement dated 28th March 2002 ("the PA Agreement") made between BHB and PA News Ltd ("PA") BHB had appointed PA to collect data at horse race meetings, to combine it with BHB's own pre-race data and to distribute the resultant package to end-users who had a valid and subsisting licence from BHB for the use of its pre-race data. Such end-users were PA subscribers and distributor licensees. The consideration due to BHB by PA was a sum equal to 10% of its income from such end-users to be paid to BHB as and when the cumulative receipts of PA from end-users exceeds the costs of providing its service. That time has not yet arrived. Not only was the authority of PA limited to distribution of the package to those with licences from BHB but clause 11.8 of the PA Agreement required PA to discontinue any supply after receipt of notice from BHB that the end-user in question did not have a licence from BHB.
- Following the reconstruction of ATR it entered into a number of relevant agreements, including the following:
(1) Agreements with 18 racecourses formerly covered by the Media Rights Agreement and another 10 which were not for rights similar to those previously granted by the Media Rights Agreement. The remaining racecourses in Great Britain, or most of them, entered into similar agreements with Racing UK, ATR's competitor.
(2) Agreements with Satellite Information Services Ltd ("SIS") dated 21st May 2004, 3rd December 2004 and 5th January 2005 for the production of the ATR channel, the SIS Facts service and ATR International. Pre-race data was to be used in all three services.
(3) Agreements between ATR and PA effective from respectively 18th October 2004 and 1st January 2005 for the supply of pre-race data to ATR for use on the ATR website, the ATR Channel and ATR International. Under those agreements ATR agreed to pay substantial though variable fees depending on the bookmaking outlets to which the audio-visual coverage is transmitted.
- In addition, in May 2004, ATR entered into negotiations with BHB with regard to the grant by the latter to the former of a new data licence. This was against the background of the reference by the Court of Appeal to the European Court of Justice in British Horseracing Board v William Hill of questions designed to ascertain whether BHB enjoyed in respect of its pre-race data any database rights under Directive 96/9/EC (OJ 1996 L 77 p.20)(and, consequently, under Copyright and Rights in Databases Regulations 1997 SI No:3032) and if so whether they had been infringed by the use made of such data by William Hill. On 9th June 2004 the solicitors for ATR specifically reserved ATR's position pending the final determination of the issues by ECJ. Negotiations continued during the summer and autumn 2004. On 9th November 2004 ECJ gave its ruling in British Horseracing Board v William Hill. ATR claims that such ruling established that BHB had and has no such database rights in relation to pre-race data. This is not accepted by BHB and the matter was further considered by the Court of Appeal on the first day of the hearing of the applications before me. The Court of Appeal gave judgment allowing the appeal on 13th July 2005. Accordingly, subject only to a further appeal, it is now established that BHB does not have database rights in relation to pre-race data.
- At all events the determination of the preliminary issues by ECJ undermined the negotiations between BHB and ATR for the new data licence agreement. In the course of further correspondence in February, March and April 2005 BHB threatened to cause PA to stop supplying the pre-race data to ATR unless it entered into a data licence and paid arrears allegedly due in respect of its use of such data since June 2004. ATR was prepared to pay such arrears into an escrow account pending the resolution of the dispute but that was not satisfactory to BHB.
- These proceedings were commenced by a claim form issued on 21st April 2005. ATR contends that the threat of BHB to prevent PA supplying pre-race data to ATR constitutes the abuse of a dominant position for the purposes of both s.18 Competition Act 1998 and Article 82 of the EC Treaty. It seeks declarations that BHB has no intellectual property rights in its pre-race data and injunctions to restrain BHB from causing PA to terminate the supply of such data. On the same day ATR issued an application for an interim injunction to restrain BHB from causing any such termination. This was countered by an application by BHB issued on 12th May 2005 for an order striking out or summarily dismissing that part of the claim which relies on s.18 Competition Act 1998 and Article 82 of the EC Treaty. On 27th May 2005 a similar claim was struck out by Laddie J in the case of BHB Enterprises plc v Victor Chandler (International) Ltd [2005] EWHC 1074 (Ch) ("VCI"). On 10th June 2005 ATR applied for permission to amend its particulars of claim. I do not understand that application to be opposed if I decide not to strike out or summarily dismiss the claim. It is, in any event, agreed that I should determine the first and second applications on the basis of the proposed amended particulars of claim.
- Accordingly the issues which arise are:
(1) whether to strike out or summarily dismiss the claim in relation to the alleged abuse of a dominant position, and if not
(2) whether to grant an interim injunction restraining BHB from causing PA to terminate the supply of pre-race data to ATR, and
(3) whether to grant ATR permission to amend its particulars of claim.
I will deal with them in that order but first it is necessary to refer to a number of preliminary matters, namely (1) the British Racing Levy Board, (2) the contractual relationship between BHB and PA, (3) the contractual relationship between PA and ATR, (4) the course of the negotiations between BHB and ATR and (5) the various terms sought by BHB from ATR.
The British Racing Levy Board
- It is necessary to have a broad understanding of how horseracing in Great Britain is funded. In paragraph 9 of his judgment in VCI Laddie J explained:
"This [the Horseracing Betting Levy] is, in effect, a tax levied on bookmakers' profits to help fund and develop British horseracing. The income derived from the Levy is distributed by the British Racing Levy Board. In March 2000 the Government announced that it was to phase out the Levy by 2006, British Racing being required to find alternative means for funding the various facets of British horseracing other than through a levy system. The result is that the Board has to raise income. A significant part of that income is generated by commercialisation of its Database asset. At the moment, the Levy is still payable. For jurisdictional reasons, it is and has been payable only by bookmakers carrying on business in the Britain. Whilst the Levy remains in place, bookmakers operating in Britain are entitled to set off their Levy payments against amounts due under their Data Agreements with the BHB. Bookmakers operating outside Britain pay no Levy. There is, accordingly, no set off against payments paid to the BHB under their Data Agreements".
I understand that in the light of the uncertainty created by the decision of ECJ in William Hill the levy is likely to continue in force until 2009.
The contractual relationship between BHB and PA
- It is also necessary to consider the contractual relationship between BHB and PA in more detail. The PA Agreement to which I referred in paragraph 4 above is described as an agreement for "a data compilation and delivery service". It recites that BHB "arranges for the receipt, compilation, verification and supply to third parties of the Pre-Race Data (as defined below)".
- "Pre-Race Data" is defined in clause 1 as:
"all correct and verified entries of horses received by Weatherby's on behalf of the BHB for races forming part of the future Fixtures, all lists of jockeys declared to ride horses declared to run at such Fixtures at the so-called "overnight stage", and all lists of such horses compiled on behalf of the BHB by Weatherby's including the saddlecloth number and draw of each such horse from time to time and published by or upon behalf of BHB"
Clause 1 also contains a definition of "On-Course Data". This is the data to be supplied by or on behalf of PA including, for example, the analysis by PA of the betting odds displayed by on-course bookmakers, the starting price, official results and race-day changes including horses withdrawn and jockey changes.
- In addition
"Data Package" is defined as "the combined package of the Pre-Race Data and/or the On-Course Data....as prepared and delivered to end-users",
"Service" is defined as "the provision of the Data Package or any part(s) of it (but for the avoidance of doubt not consisting only of the Pre-Race Data) by PA...under clause 2",
"Service Terms" is defined as "the conditions agreed between PA and End Users for receipt and use of the Data Package, as set out in Schedule 3 for Distributor Licensees and Schedule 4 for PA Subscribers",
"End Users" are defined as PA subscribers and Distributor Licensees, and PA Subscribers and Distributor Licensees are each defined in terms which require them to have "a valid and subsisting licence agreement with BHB for the use of the Pre-Race Data on the particular platforms agreed with such persons".
- So far as material clause 2 provides:
""2.1 In consideration of the payment of £1 by the PA to BHB...the BHB hereby appoints and agrees to obtain the necessary authorisation for PA during the term to:
(a) enter the Racecourses and collect the On-Course Data...;
(b) compile the On-Course Data, using where necessary any elements of the Pre-Race Data licensed under clause 3.1 into the Service to satisfy the reasonable requirements of End Users;
(c) subject to clauses 4.1 and 4.2 to distribute the service to End Users....; and
(d) be the official distributor to parties outside the Racecourses of the Result, including the S[tarting] P[rice] and be the official distributor of the Data Package.
2.2 The PA shall not be entitled hereunder to make or permit any use of the Pre-Race Data and/or On Course Data other than as specified in this agreement. For the avoidance of doubt, PA is not licensed or authorised hereunder to distribute the Pre-Race Data without additional material and each distribution of the Pre-Race Data in relation to a Fixture to End-Users must be followed by all or a reasonably substantial element of the On-Course Data in relation to such Fixture as part of the Service. Any distribution of the Pre-Race Data without additional material is subject to separate agreement with the BHB."
- By clause 3.1 BHB granted to PA a non-exclusive licence to use and reproduce all or part of the Pre-Race Data but only as part of the "Data Package". The consideration for that grant provided for by clause 3 is £1 and 10% "of the total income (less VAT) [PA] receives from providing the Service to End Users per year, but excluding revenues received by or on behalf of the PA from Distributor Licensees". Clause 3.3(b) provides that PA "is only obliged to begin payment to BHB...when PA first realises a profit from provision of the Service to End Users". Profit is defined as an excess of cumulative revenues from provision of the Service to End Users less the cumulative direct costs of providing the Service and a reasonable pro rata attribution of cumulative overhead costs. Clause 3.4 provides that "all supplies of Pre-Race Data to End Users shall be on the Service Terms which shall include reference to the BHB's ownership of the rights in the Pre-Race Data...".
- Clause 4.1 recognised that "PA is entitled to charge a fee or fees for the provision of the Service to End Users as determined by the costs to PA of providing the Service to End Users and the state of the market for the Service from time to time...". Finally I should refer to clause 11.8 which contains an undertaking from PA "not [to] enter into any agreement with any person to become an End User or continue to supply such End User with the Data Package after receipt of notice from the BHB if an agreement has already been entered into with such End User where that person does not have an appropriate rights licence from the BHB to use the Pre-Race Data".
- Schedules 3 and 4 contain pro forma agreements for use by PA with its Distributor Licensees and PA subscribers as foreshadowed in the definition of Service Terms in clause 1. In each case PA agrees to supply specified information for use by the distributor/licensee in its information service to subscribers. The consideration for that supply is based on the number of subscribers to the relevant information service. PA does not warrant the accuracy of the information supplied and the customer acknowledges that intellectual property rights remain the property of BHB, PA or other licensor.
The contractual relationship between PA and ATR
- As I indicated in paragraph 5(3) above there are two basic contracts between PA and ATR. The first in time is that effective from 18th October 2004. This follows the form authorised in Schedule 3 of the PA Agreement for use by PA in connection with a Distributor Licensee. By clause 1 PA agrees to supply to ATR "the information and material set out in Schedule 2" defined as "the PA Material". The PA Material comprises race cards containing for each race a list of horses, saddle-cloth number, name of horse and non-runners, the tote prices and the results. For this material ATR agreed to pay to PA a one-off set-up fee and minimum annual fee of £52,000. The fee of £52,000 was based on ATR supplying such information, in conjunction with its audio-visual coverage of the race to 1,000 betting shops or premises. If ATR had more such outlets the annual fee to PA was increased in accordance with a scale set out in clause 4. Equally the annual fee might be reduced in the event that PA was unable to supply the BHB material.
- The second agreement effective 1st January 2005 is in the form authorised by Schedule 4 of the PA Agreement for use by PA in relation to a PA Subscriber. By that agreement PA agreed to supply ATR with "the information/material set out in" Schedule 2, defined as the PA Material. Schedule 2 to this agreement prescribed a wider range of information relating to races in the UK, Ireland, France and the US. The charges for that information are specified in schedule 3 to the agreement and, if all the information was taken by ATR, could amount in all to £100,000 per annum.
The negotiations between BHB and ATR
- The negotiations started with a letter from ATR to BHB rejecting the suggested terms put forward on behalf of BHB and proposing alternatives. On 28th April 2004 BHB served a statutory demand on ATR in respect of unpaid fees amounting to £823,381 for sums (including VAT) allegedly due under the Media Rights Agreement and in respect of overseas licences granted by ATR to bookmakers as agent for BHB. There was a meeting between the parties on 12th May 2004 at which the representatives of ATR and BHB discussed what licences ATR would need from BHB in connection with its proposed website and TV subscription channel. Further requests for such information from ATR were contained in an e-mail and letter dated 14th May and 2nd June 2004 respectively.
- On 9th June 2004 solicitors for ATR wrote to BHB:
""..in respect of your failure to offer a data licence agreement on reasonable terms or at all to our clients to use race and runner data ("the Data") in relation to British horseracing. Please note, for the purposes of this letter, we do not raise any issue in relation to whether any rights in fact subsist within the Data. However pending final determination by the European Court of Justice in C-203/02 British Horseracing Board Ltd and others v William Hill Organisation Ltd our client reserves its rights in this regard."
After setting out what they considered to be the background and the relevant provisions of the Competition Act 1998 they described the position of ATR, namely that ATR was ready to enter into a data licence agreement with BHB for the use of the Data provided that the terms on offer were fair, reasonable and non-discriminatory.
- BHB responded on 10th June 2004:
"Your client has been informed that it will receive a data licence to be able to broadcast live racing to domestic customers via satellite and cable. The issue of this licence is not dependent on the payment of monies already owed by ATR. The licence is in draft form and will be issued to your clients shortly. In the meantime until that licence is concluded, we confirm that ATR may use BHB's data solely for the purpose of the broadcasting of racing for which it has picture rights to domestic customers in Great Britain via satellite or cable television and for static displays of information on its web-site."
- There were further meetings and much more correspondence in the summer and autumn. ECJ gave judgment in the William Hill case on 9th November 2004. On 15th November 2004 ATR wrote to BHB:
""From our reading of that judgment it now appears that BHB has no right to impose terms upon ATR for its use of such information. Our previous discussions have been premised upon what has proven to be a mistaken understanding of the law applicable to the BHB's rights, the legal position having now been clarified by the ECJ.
In the circumstances we shall continue to use the information as we have done previously. However, we do not presently see any need to discuss terms of such use. Nevertheless, we are interested in understanding your viewpoint and, therefore, we invite you to set out in full what the BHB's position is concerning ATR's use of the information in light of the ECJ judgment."
- BHB responded by letter dated 17th November 2004. It contended that ECJ had exceeded its jurisdiction and misunderstood the facts of the case. It claimed that BHB was entitled to copyright in some elements of pre-race data to which the ECJ judgment had no application. The writer offered to discuss the matter. On 3rd December 2004 ATR replied. The writer acknowledged that it might be helpful to meet to discuss the copyright claim and continued:
"Your letter does not provide any details of how copyright subsists in BHB's database and, if it does subsist, how ATR may have infringed that copyright, which allegation, if made, is denied. I believe it would be helpful if you set out the BHB's position in writing before any meeting between us. In the meantime, I will have to reserve ATR's position with regard to any such claim in copyright."
- As far as ATR was concerned there matters rested until 10th February when BHB wrote to confirm a telephone conversation that morning that:
"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 racecourses 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. This would be a short-term contract with a six-month notice period, which will then allow more time to enter into negotiations for a longer-term agreement. The agreement would extend to land based bookmakers only and would therefore not cover internet bookmakers who would continue to be required by BHB to enter into direct data licences.
The agreement will be retroactive and cover all 2004 races for which payment has not already been made by SIS. I will send you a note of the liability under separate cover, for which BHB will also require payment by ATR under this proposal."
By an invoice of the same date (BDL 7186) BHB sought payment by ATR of £782,550 being data charges for the period 11th June to 31st December 2004 at the rate of £900 for 704 fixtures plus VAT. It was not until the second day of the hearing of the applications before me that BHB accepted that the invoice sought to recover from ATR sums not properly due. It is now accepted that ATR could only have been liable for £320,422, the balance of £462,128 being the liability of SIS.
- ATR responded on 14th February 2004 rejecting the proposal made by BHB and expressing surprise:
"..that you have written to me in the terms of your letter, most particularly in the context that my letter of 3rd December 2004 remaining unanswered. You have not been able to explain what protectable rights the BHB is entitled to enforce."
The writer continued:
"Finally, I am sure that you do not need to be reminded that a contract is in place between ATR and SIS which would be adversely affected by any attempts by the BHB to persuade, induce or procure SIS not to broadcast pre-race data which affects ATR's business in any way (or indeed succeeds in doing so). Nevertheless, if the BHB does take such steps, then ATR will take such action as is available to it (including legal proceedings) to protect its position."
- On 22nd February 2004 BHB wrote refuting the various complaints made by ATR. The writer continued:
""...I have no real concern over the contract in place between you and SIS, and how that might be affected by BHB's position. The position is very straightforward. SIS, under its existing contractual arrangements with BHB, is only permitted to make use of the data taken from BHB's database and deliver it to third parties, if those third parties have concluded a data licence with BHB. In the absence of the conclusion of such data licences, BHB has the contractual right, as you are aware, and which has been in place from well before your contract with SIS, to require SIS to cease supplying those unauthorised end users. Whilst BHB receives the relevant payments for use of its data within the services provided by SIS, it can[not] be prepared to consider forgoing the need for there to be a data licence in place with the relevant end users. However in the absence of such payment, or other contractual arrangements protecting BHB's rights, BHB has no alternative but to enforce its rights, and require SIS not to supply data to third parties who do not have such a concluded data licence in place.
BHB has similar agreements in place, most notably with PA. PA is not permitted to supply unauthorised users with BHB's data. If no licence(s) are in place with ATR, BHB is entitled to require its authorised suppliers not to supply data to ATR....
In the light of this I invite you to revisit the proposal in my 10 February letter."
- After a further exchange of correspondence BHB wrote on 17th March claiming that the judgment of ECJ
"confirmed that BHB does have a database right in the racing information database and extends to overseas users which BHB has to date regarded as authorised on the basis that fees were being paid by intermediaries on their behalf."
The writer then gave notice 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 period of 14 days was later extended to 21st April 2005 whilst inter-solicitor correspondence continued. On 20th April 2005 BHB agreed not to cut off supplies of data until the application of ATR had been determined provided that proceedings were commenced with due despatch. The claim form was issued on 21st April 2005.
The terms sought by BHB
- The terms now sought by BHB are set out in the witness statement of its chief executive, Mr Greg Nichols, made on 12th May 2005. They are:
(1) For use of BHB pre-race data on ATR's website and ATR's TV channel:-
(a) £3,600 pa,
(b) the conclusion of a licence between BHB and ATR in the form exhibited thereto as part of exhibit PN 2, and
(c) the conclusion of data licences between BHB and ATR's "betting partners" on terms that those partners paid 10% of their gross profit to BHB but with the ability to set it off against their liability (if any) to levy.
(2) For use of BHB's pre-race data in relation to ATR International and SIS Facts Service:-
(a) 10% of the profit ATR receives from the bookmakers who use this service, and
(b) an agreement between BHB and each such bookmaker on terms whereunder such bookmaker pays BHB direct, or
(c) the collection by ATR and payment to BHB of either 1.5% of turnover or 10% of gross profit derived from that bookmaker's British horseracing business, or
(d) £1,800 per fixture in respect of which pre-race data is supplied.
- In his second witness statement Mr Ian Penrose, a director of ATR, draws attention to the discrepancy between the charges BHB seeks to make for the use of its pre-race data on the ATR website and channel when compared with such use on ATR International and SIS Fact Service. The former is an annual fee of £3,600, the latter, if alternative (d) is adopted is £1,049,400. What, asks counsel for ATR, is the justification for such a charge if BHB is not entitled to any intellectual property rights in its database?
The Claim of ATR
- S.18 Competition Act 1998 provides that:
"Abuse of dominant position.
18. - (1) Subject to section 19, any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.
(2) Conduct may, in particular, constitute such an abuse if it consists in-
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(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 commercial usage, have no connection with the subject of the contracts.
(3) In this section-
"dominant position" means a dominant position within the United Kingdom;"
Article 82 of the EC Treaty is in comparable terms save that the relevant trade is that between Member States.
- In its amended particulars of claim ATR sets out details of the parties and their businesses (paragraphs 1-6), the BHB database (paragraphs 7-10), the former agreements (paragraphs 11-16), the supply of pre-race data (paragraphs 17-19), the course of the negotiations for a licence and the William Hill judgment of ECJ (paragraphs 20-23), the threat by BHB to terminate the supply of pre-race data by PA (paragraph 24) and the terms of s.18 Competition Act 1998 and Article 82 of the EC Treaty (paragraphs 25-27).
- Paragraphs 28-30, reproduced in the appendix to this judgment, set out ATR's case that BHB has abused its dominant position. It contends that the relevant market is the supply of pre-race data to those who require it for the services they provide to their customers such as bookmakers and the producers of TV channels and that BHB has a position of dominance in that market (paragraphs 28 and 29). In paragraph 30 it sets out its contentions that BHB has abused that position in a number of respects summarised under the headings (1) unjustified cessation of supply (paragraphs 30.1-30.4), (2) unfair purchase or trading conditions (30.5-30.7), (3) excessive price (30.8), (4) exploitation by unilateral imposition of terms (30.9) and (5) elimination of a competitor or product on a downstream market (30.10 and 30.11). In paragraph 30.12 ATR contends that such abuse will or may affect trade within the UK and/or trade between EU Member States.
- In the light of those allegations ATR seeks injunctions to restrain BHB from, in effect, cutting off supplies of pre-race data to ATR (paragraph 31). In addition it seeks declarations (paragraph 32) that BHB enjoys no database rights or copyright in the pre-race data and that it is not lawfully entitled to require ATR to enter into a direct data licence as a condition of obtaining a continued supply of such data.
BHB's application
- BHB seeks an order striking out pursuant to CPR Rule 3.4(2)(a) and/or (b) summarily dismissing under CPR Rule 24.2(a) the claim that BHB is abusing its dominant position set out in paragraphs 25-31, 32(f) and declaration (f) of the Particulars of Claim. Thus it must show either that ATR has no reasonable grounds for bringing that claim or that ATR has no real prospect of succeeding on it and that there is no other compelling reason why the issue should be disposed of at a trial.
- The principal submission for BHB is that the issue has already been determined in its favour by Laddie J in VCI and I should follow it. ATR contends that Laddie J was wrong in law and that this case is distinguishable on its facts. ATR contends that I am not bound by the decision of Laddie J and should not follow it. The response of BHB is to the effect that the objections to the conclusions of Laddie J on both the law and the facts are without foundation.
- Accordingly I must consider at the outset the decision of Laddie J in VCI. VCI was and is a bookmaker carrying on business from Gibraltar. There were three relevant agreements, the PA Agreement, an agreement between PA and Newcote Services Ltd of which VCI was a part and a data licence agreement between BHB and VCI. VCI considered that the judgment of ECJ in the William Hill case had destroyed the intellectual property rights underlying the data licence. It contended that such agreement was void and stopped paying to BHB the sums payable thereunder. BHB commenced proceedings against VCI for breach of contract and threatened to cause PA to stop supplying pre-race data to VCI, as it was entitled to do under the PA agreement. In its defence VCI contended that BHB was abusing its dominant position by forcing or attempting to force VCI to pay to BHB charges under its data licence which were abusively high and excessive.
- The relevant allegations were in the following terms:
"Abuse of Dominant Position
33. The Claimant, alternatively the Claimant together with BHB and/or Weatherby's Group Limited ("WGL"), has a dominant position in the market for the supply of Pre-Race Data for horse races in the United Kingdom.
Details
(1) The Claimant is a subsidiary of BHB and is exclusively entrusted by BHB with the commercial exploitation of the data relating to horseraces which BHB controls.
(2) BHB controls the Pre-Race Data, prepared by WGL pursuant to a contract between them, in relation to all or substantially all professional horse races in the United Kingdom.
(3) Pursuant to these arrangements, the Claimant has a monopoly or virtual monopoly in the supply of the Pre-Race Data for professional horse races in the United Kingdom.
(4) The Pre-Race Data are an essential facility required for any bookmaking in relation to professional horse racing in the United Kingdom.
34. The Claimant (or the Claimant together with BHB) has abused and is abusing this dominant position.
Details
(1) The Claimant purports to license the right to receive, display and use Pre-Race Data to bookmakers only on its standard terms, including charges of 10% of the bookmaker's gross profit or 1.5% of the bookmaker's turnover relating to bets taken in LBOs and/or Licensed Media activity.
(2) These charges are particularly high and not justified by objective criteria. The cost of preparing the Pre-Race Data is approximately £4 million per year. The total income from data licensing was stated in 2002 to be expected to amount to £600 million over 5 years.
(3) In accordance with the ruling of the European Court of Justice in the William Hill proceedings, the Pre-Race Data is not protected by any intellectual property rights.
(4) As set out below, the Claimant has threatened and arranged to prevent the supply of the Pre-Race Data to the Defendant and other bookmakers who have declined to pay the Claimant's unlawful charges, notwithstanding that the Pre-Race Data is an essential facility required by the Defendant, without objective justification. The non-payment of the Claimant's charges does not constitute an objective justification, since those charges are not justified, as pleaded above.
35. The said abuses may affect trade within the United Kingdom or part thereof and/or trade between member states of the European Union to an appreciable extent.
Details
(1) The charges are a substantial levy on bookmaking services supplied to members of the public in the United Kingdom and Ireland.
(2) A large part of the sums raised by the charges is used to subsidise horse racing and breeding in the United Kingdom, thereby distorting competition between horse racing and breeding services in the United Kingdom and corresponding services in other EU member states, and hence the patterns of trade in those services between member states.
(3) Preventing the supply of the Pre-Race Data to bookmakers who decline to pay the Claimant's charges would prevent those bookmakers trading in relation to horse racing in the United Kingdom.
- Laddie J dealt with this claim in paragraphs 40-60 of his judgment. He assumed that the allegations in paragraph 35 were arguable. In paragraph 41 he noted the argument of counsel for BHB that even if dominance in the relevant market, as alleged, was arguable VCI had failed to raise a proper case that there had been an abuse. In paragraphs 42 and 43 he referred to the function of pleadings and of the particular care to be expected of a party who pleads a breach of s.18 of the Act or an Article 82 offence. He observed:
"These are notoriously burdensome allegations, frequently leading to extensive evidence, including expert reports from economists and accountants. The recent history of cases in which such allegations have been raised illustrate that they can lead to lengthy and expensive trials. Mere assertion in a pleading will not do. Before a party has to respond to an allegation like this, it is incumbent on the party making the allegation to set out clearly and succinctly the major facts upon which it will rely."
In paragraphs 45 and 46 he concluded that the pleading was defective in this respect and that permission to amend should be refused.
- I pause there to observe that the particulars of claim in this case (see appendix) are materially different. First, ATR alleges abuses other than excessive prices, namely unjustified cessation of supply, unfair purchase or trading conditions, exploitation by unilateral imposition of terms and the elimination of a competitor or product on a downstream market. Second, the allegation of excessive prices goes much further than the comparable allegation in VCI. In paragraph 30.8 of its proposed amended particulars of claim ATR alleges in detail why it contends that the prices charged by BHB are both excessive and unfair. Thus ATR avers that it is unreasonable and unfair to double prices charged in so short a period of time (paragraph 30.8.3), to use its charges to discriminate against foreign bookmakers (paragraph 30.8.4), to discriminate against ATR in its capacity as a broadcaster (paragraph 30.8.5), to make ATR responsible for the liabilities of foreign bookmakers (paragraph 30.8.6/7) and to render ATR unprofitable (paragraph 30.8.8). Counsel for BHB observes that these allegations might have been made in VCI. So they might, but they were not and ATR was not a party to those proceedings. It follows that the decision of Laddie J in VCI is distinguishable on these grounds alone and cannot determine the outcome of this application. However I should refer to the subsequent paragraphs of his judgment which deal with an aspect of the law on which BHB placed some reliance.
- In those subsequent paragraphs Laddie J considered a further argument of counsel for BHB that there was an underlying defect in the case for VCI which no redrafting of the pleading could overcome. In paragraph 47 he summarised the argument for VCI that "the rate charged by BHB for the Pre-Race Data is unfair, whether or not database rights exist".
- The views of Laddie J in relation to the factual allegations made by VCI in this connection are apparent from paragraph 45 of his judgment where he said:
"It is important to notice that it is the imposition of unfair prices, not high prices, which can constitute an abuse. However the amendment contains nothing which could be said to justify the allegation that the prices charged are unfair. All that is said is that the rates are fixed at 10% of the bookmaker's gross profit or 1.5% of the bookmaker's turnover, that the cost of preparing the Pre-Race Data is approximately £4 million per year and that BHB's total income from data licensing was stated in 2002 to be expected to amount to £600 million over 5 years, that is to say, about £120 million each year. Even if these figures are correct and tell the whole story, they do not begin to set out the basis for asserting that the charges are unfair as opposed to high."
- Laddie J returned to this point in paragraph 48. He observed:
"I do not see that there is any necessary correlation between the cost of production and the cost of capital and the price which can be achieved in the market place. Furthermore the question is not whether the prices are large or small compared to some stable reference point, but whether they are fair."
- In paragraph 50 he referred to the decision of ECJ in United Brands v Commission [1978] ECR 207. As this is central to the argument I set out the passage quoted by Laddie J in full.
"248. The imposition by an undertaking in a dominant position directly or indirectly of unfair purchase or selling prices is an abuse to which exception can be taken under Article 86 of the Treaty.
249. It is advisable therefore to ascertain whether the dominant undertaking has made use of the opportunities arising out of its dominant position in such a way as to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition.
250. In this case charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied would be such an abuse.
251. 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; however the Commission has not done this since it has not analysed UBC's costs structure.
252. 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 itself or when compared to competing products.
253. Other ways may be devised – and economic theorists have not failed to think up several – of selecting the rules for determining whether the price of a product is fair."
- In paragraph 51 Laddie J commented:
"I do not accept that this supports the proposition advanced on behalf of VCI. On the contrary it appears, particularly from the paragraph 252 of the judgment, that all the ECJ was saying was that comparing prices with costs determines the profit margin. Once that has been achieved it is necessary to go on to the next stage to determine whether the price is unfair. What it did not do was suggest that high prices or high margins are the same as unfair prices. Indeed, were Mr Turner right, it seems to me that the law reports would be full of cases where undertakings in dominant positions would have been found guilty of abuse by simply charging high prices. As [Counsel for BHB] says, the reality is that there are no such cases."
- Laddie J then referred to passages in Bellamy & Child European Community Law of Competition 5th Ed para 2-115 and the opinion of the Advocate-General in Oscar Bronner v Mediaprint [1998] ECR I-7791 and concluded:
"56. It seems to me that [Counsel for BHB] is right. The message of these passages is that we still live in a free market economy where traders are allowed to run their businesses without undue interference. What Article 82 and section 18 of the Act are concerned with is unfair prices, not high prices. In determining whether a price is unfair it is necessary to consider the impact on the end consumer and all of the market conditions. In a case where unfair pricing is alleged, assessment of the value of the asset both to the vendor and the purchaser must be a crucial part of the assessment. VCI's approach does not take into account value at all. It simply relates prices to the cost of acquisition or creation.
Here, were one to consider value, there are numerous factors which would suggest that the allegation of unfair pricing is unjustified. This is not a case of a trader making bumper profits. On the contrary, this is concerned with undertakings, and particularly the Board, whose prime function is to nurture British horseracing. It is non-profit making. Save for administration costs it feeds back all its income into the promotion and improvement of British horseracing not only for the benefit of the general public but also for the benefit of those who have a commercial interest in the sport including bookmakers like VCI."
- Laddie J then referred to evidence from the Finance Director of BHB as to the manner in which the income is fed back into the promotion and improvement of British horseracing. His conclusions in paragraphs 59 and 60 were:
"59. All of this expenditure, to a greater or lesser extent, benefits bookmakers as well as others. It is the sort of matter which would have to be taken into account if the court were to consider whether or not the charges for the Pre-Race Data were unfair. What is clear is that VCI's approach ignores all of this. It does so because it ignores the necessity of proving that prices are unfair and considers only whether they are high.
60. On the material before me, there is nothing to suggest that VCI have formulated a viable argument that BHB has breached either section 18 or Article 82."
- The judgment of Laddie J has been subjected to minute examination and sustained criticism by counsel for ATR. As this is not the trial of the action I can take the matter more shortly. Counsel submits that the first step in any consideration of unfair pricing is to compare production costs with the price charged. This, he submits, is clearly stated in paragraph 252 in United Brands and recognised in the subsequent paragraphs 254-267 to which Laddie J did not refer. It is supported by paragraph (111) of the European Commission's decision in Duales 2001 OJ L 166/1, paragraph 67 of the European Commission's XXVIIth Report on Competition Policy, paragraph 2.2 of the OFT Guideline 414 (September 1999) paragraphs 6.11-6.13 of the OXERA Report commissioned by the OFT made in July 2003 and in paragraphs 390-392 and 402 NAPP Pharmaceutical Holdings Ltd v Director General of Fair Trading Case No:1001/1/1/01. It is submitted that in paragraphs 45, 48 and 51 Laddie J failed to appreciate that such a comparison is a necessary first step.
- Counsel for BHB contends that Laddie J was right on this issue. He submits that it was a fully reasoned judgment which I should follow notwithstanding that this is an interlocutory application. I do not agree. The judgment of Laddie J was directed to the pleaded case before him. As he had observed, the allegation made was one of excessive pricing but the statutory test requires a claimant to establish unfair prices. I agree that United Brands and subsequent cases show that excessive pricing is, at least in all normal cases, the essential first step in establishing unfair pricing. VCI's pleaded case started and stopped with excessive pricing which, as Laddie J observed is insufficient. If and to the extent that Laddie J may have considered that a comparison of cost and price was irrelevant then I disagree with him. Accordingly for this reason also I do not consider that the judgment of Laddie J in VCI is in any way determinative of this application.
- Counsel for ATR also criticised other aspects of the judgment of Laddie J. He submitted that there is no warrant in the authorities for the statement in paragraph 56 that value of the asset to both vendor and purchaser must be a crucial part of the assessment. He contended that as BHB does not rely on Article 86 of the EC Treaty the matters referred to by Laddie J in paragraphs 57 and 58 cannot be relied on to swell the costs of production. As the judgment of Laddie J is not determinative of this application, I shall deal with these submissions on their merits in due course and not by reference to what Laddie J said about them.
- It is common ground that in the action it will be incumbent on ATR to establish that (1) BHB enjoys a dominant position in the relevant market, (2) BHB has abused that position in one or more of the relevant senses and (3) there is no objective justification for that abuse. On this application I am concerned with different questions, namely whether ATR has reasonable grounds for beginning the claim and whether it has a real prospect of success. In connection with those questions Counsel for ATR referred me to the speech of Lord Hope of Craighead in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1, 260, with which Lord Steyn, and Lord Hutton agreed.
- Lord Hope of Craighead found the distinction between the two tests to be elusive but that in many cases the practical effect would be the same (paragraph 92). He considered that in difficult and complex cases observance of the overriding objective was more important than any distinction between the two tests. He continued:
"94. For the reasons which I have just given, I think that the question is whether the claim has no real prospect of succeeding at trial and that it has to be answered having regard to the overriding objective of dealing with the case justly. But the point, which is of crucial importance, lies in the answer to the further question that then needs to be asked, which is - what is to be the scope of that inquiry?
95. I would approach that further question in this way. The method by which issues of fact are tried in our courts is well settled. After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence. To that rule there are some well-recognised exceptions. For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf said in Swain v Hillman, at p 95, that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all."
Given the undoubted complexity of this claim I must guard against conducting any form of mini-trial.
- ATR's case on the first issue, namely whether BHB enjoys a dominant position in the market is set out in paragraphs 28 and 29. Paragraphs 9.1 – 9.3 of the Particulars of Claim set out passages from the OFT Rule 14 Notice issued in April 2003, ECJ's judgment in William Hill and BHB's own report entitled "The Modernisation of British Racing" paragraph 4.1.1. Each of them refers to the essential nature of the pre-race data to bookmakers and the fact that BHB has an effective monopoly in its supply. BHB disputes this but its Counsel accepted, correctly, that I cannot determine that issue on this application.
- The alleged abuses on which ATR relies are set out in considerable detail in paragraphs 30.1 – 30.11. These allegations involve substantial and complex issues of fact as well as of law which I cannot determine on this application. Similarly the effect of the abuses, if made out, on trade within the UK or between Member States is alleged in paragraph 30.12 and is or at least involves a question of fact. None of these matters can be determined on this application.
- So I turn to the third ingredient over which much of the argument raged, that of objective justification. BHB contends that ATR is refusing to pay anything at all to BHB for the pre-race data it receives via PA. It submits that a refusal to pay for a supply is, par excellence, an objective justification for preventing any further supply. It relies on Leyland DAF v Automotive Products [1994] 1 BCLC 245. ATR does not dispute the proposition of law but strenuously denies the allegation that it has not paid for the pre-race data. It points to the considerable sums it has paid and continues to pay to PA, the supplier authorised by BHB. BHB does not dispute these payments but seeks to draw an analogy with the case of a paper shop and a delivery boy. It submits that payment to the delivery boy is not payment for the paper.
- The agreements to which I have already referred in detail show that ATR pays substantial sums to PA for the pre-race and on-course data with which it is supplied. PA is liable to BHB for substantial sums for the pre-race data it obtains from BHB and supplies to PA. The fact that PA does not have to pay it to BHB until it has covered its costs is a term of the PA agreement but does not diminish the value of what ATR pays and receives. Accordingly it is not correct to say that ATR has not paid anything for the pre-race data emanating from BHB. Nor in my view is it correct to draw an analogy between a delivery boy and PA. PA is paid for the information, part of which it has obtained itself, as well as for its supply. The fact that BHB has not received anything from PA is because of the terms of the PA agreement to which it adhered in what is to be presumed to be its own economic interests.
- It is quite true that under the PA agreement PA is not authorised to supply anyone with whom BHB does not have a direct agreement, sometimes called a rights licence. Accordingly it is not disputed that BHB has the contractual right to prevent further supply, the question is whether it can exercise that right without abusing its dominant position and that depends on whether it is objectively justified in requiring further payment from ATR. It cannot justify such a demand as a licence to use its intellectual property rights because it has no database right and, as appeared to be common ground, copyright does not arise except in a very tangential form. So, for what does it seek to charge ATR?
- Ultimately the objective justification on which BHB relies is twofold: (1) its responsibility for horse racing in Great Britain requires it to finance much of those activities and therefore entitles it to charge the cost of doing so to those who profit from them, such as bookmakers; (2) unless ATR enters into the licensing agreements BHB wants foreign bookmakers, who do profit from such activities but are not liable for the levy, will pay less than their British counterparts. ATR challenges both these suggested justifications.
- Article 86(2) of the EC Treaty provides:
"Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall subject to the rules contained in this Treaty, in particular to the rules on competition, insofar as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community."
It is common ground that BHB is not such an undertaking as can claim the benefit of Article 86. ATR submits that by the first justification BHB seeks to obtain indirectly the benefit of Article 86 to which it is not entitled directly. Article 86 is only of direct relevance to the claim under Article 82, but an equivalent provision is to be found in paragraph 4, Schedule 3 to the Competition Act 1998. In any event the court is required by s.60 Competition Act 1998 to interpret and apply s.18 in conformity with the parallel provisions of European law. In relation to the second justification ATR contends that it is for Parliament, not BHB, to extend the levy to foreign bookmakers.
- These are points of novelty and considerable public importance. They are fact sensitive. They may require a reference to the European Court of Justice. They are unsuitable for determination on an application such as this. I am unable to conclude that ATR has no reasonable grounds for bringing its claim nor any real prospect of success. Accordingly I dismiss the application of BHB to strike out or for summary judgment dismissing the claim of ATR under s.18 Competition Act 1998 and Article 82 of the EC Treaty.
ATR's application for an interim injunction
- By its application issued on 21st April 2005 ATR seeks an injunction to restrain BHB from ordering, instructing, requesting or otherwise soliciting or encouraging PA or anyone else to cut off or otherwise interfere with the supply of pre-race data to ATR. Its original contention was that there was a seriously arguable case for such an injunction at trial and that the balance of convenience and the status quo indicated that an interim injunction should be granted now. My decision on BHB's application and certain recent correspondence between the solicitors for the parties has narrowed the area of dispute.
- The reasons for my decision not to strike out or give summary judgment on the claim also support the view that there is a seriously arguable case for the grant of an injunction at trial. Accordingly I must consider the balance of convenience. By a letter dated 26th May 2005 ATR offered to pay into an escrow account with its solicitors £900 per fixture since 11th June 2004 for overseas use of the pre-race data on ATR International and SIS Facts and £3,600 per annum from 11th June 2004 for use of such data on its website and channel. The sum so paid in would remain there pending final judgment in the action or order of the court. This was to be in exchange for an undertaking from BHB not to cause any interruption in the supply of pre-race data to ATR.
- By a letter dated 8th June the solicitors for BHB rejected that offer on the grounds that it was unacceptable and unworkable. On 30th June 2005 the solicitors for BHB reconsidered the matter and wrote to those for ATR indicating that the offer would be acceptable if ATR entered into BHB's standard form of agreement and paid to BHB, instead of into the proposed escrow account, the sums mentioned in their letter of 26th May 2005. This was unacceptable to ATR because it questions the ability of BHB to repay such sums if it is unsuccessful in the action.
- The sums in question are those which BHB had originally sought in February and March 2005. Thus they are, effectively, agreed as being adequate payment pending judgment in the action for the continued supply of pre-race data. Their payment by ATR must be a condition for the grant of any interim relief for they represent the minimum sum for which ATR would be liable on its cross-undertaking in damages if it lost the action. But I see no sufficient reason for requiring them to be paid to BHB. One of the principal grounds advanced by BHB why I should not grant any injunction at all is that it would, if granted, encourage others to follow where ATR had led and deny to BHB the resources it requires for discharging its functions. If this fear is well founded then to lose the action would indeed lead to the wholesale refusal to pay BHB anything more for its pre-race data which it fears. This would jeopardise its ability to repay ATR.
- If no interim injunction is granted then the supply of pre-race data by PA to ATR will be stopped. It is essential to the conduct of its business because although similar data can be taken from the newspapers it is by no means necessarily up to date; up to date and accurate information is crucial to bookmakers and punters alike. I do not think that the loss of business so caused could be properly compensated in money.
- Thus the balance of convenience as well as maintenance of the status quo both favour the grant of an injunction. There is no reason why such an injunction should encourage others to follow the example of ATR because ATR will be required to pay out that for which they are prospectively liable if they lose. But I remain concerned that BHB is not kept out of the money for any longer than may be necessary if, in the event, it is shown by the judgment at trial that it is entitled to it.
- Counsel agreed a timetable on 30th June 2005 designed to enable the trial to take place on 1st October 2005. The timetable required
defence by 14th July,
reply by 21st July,
disclosure on 29th July,
additional witness statements on 26th August,
experts reports by 9th September,
trial to commence on 1st October with a time estimate of 8-10 days.
This is a suitable framework for a speedy trial. But some days have elapsed since that timetable was agreed. Further I consider that the question of experts needs to be considered in rather more detail than was possible at the hearing before me.
- In all the circumstances:
(1) I will grant the injunctions sought until judgment or further order on terms that ATR pays into court or into a joint account in the names of the solicitors for ATR and BHB the amounts specified in the letter from the solicitors for BHB dated 30th June 2005;
(2) I will direct the following timetable for the trial based on the time elapsed from the date on which this judgment is handed down (to be translated in my order into actual dates):
Defence 14 days
Reply 21 days
Disclosure 28 days
Witness Statements 56 days
Trial 17th October 2005
I direct the parties to apply to the Master as soon as possible for directions as to experts and an order for the exchange of their reports within the timetable indicated above.
ATR's application for permission to amend
- The particulars of claim as set out in the appendix to this judgment are in the form for which ATR seeks permission to amend. No argument has been addressed to me on the merits of the application but I did not understand it to be opposed if, as I have, I dismissed BHB's application to strike out. Accordingly subject to any further argument on that application I will give the permission sought.
Summary
- For all these reasons:
(1) I dismiss the application of BHB to strike out or summarily dismiss the claim of ATR under s.18 Competition Act 1998/Article 82 EC Treaty;
(2) I grant injunctions in the form sought in the application of ATR on the conditions indicated in paragraph 68(1);
(3) I give directions for a speedy trial as indicated in paragraph 68(2);
(4) I grant permission to amend the particulars of claim as sought in the application of ATR.
Appendix
- BHB and BHB Enterprises are (for the reasons set out above in paragraphs 9.1-9.3 above) in a dominant position in the market for the supply of Pre-Race Data and/or the Relevant Pre-Race Data to those in the horse racing industry in the UK and/or worldwide that require such information for the services they provide their customers (in particular, bookmakers and those that produce TV channels or internet sites relating to UK horse racing). Further, the BHB and/or BHB Enterprises enjoy a position of dominance that is an effective monopoly in this market. In particular,
- .1 The Pre-Race Data is currently only available in an accurate and up-to-date electronic form from the BHB's Database and via the BHB's official suppliers, the PA and SIS.
- .2 Accordingly, from the point of view of those in the horse racing industry in the UK and/or worldwide that require such information for the services they provide their customers, such as ATR, there are currently no available products or substitutes to the supply of Pre-Race Data and/or the Relevant Pre-Race Data from the BHB.
- 3 The price that the BHB considers that it is able to charge in relation to the BHB Data (i.e. many times its cost of production) demonstrates that the BHB is able to behave to a significant degree independently of customers and competitors in the aforesaid market for the supply of the Pre Race Data and/or the Relevant Pre Race Data.
- Further or alternatively, the Pre-Race Data is an essential facility that is indispensable for ATR and for others that produce TV channels or internet sites relating to UK horse racing and bookmakers.
- The threatened conduct of BHB and/or BHB Enterprises is (and/or would be if carried out) unlawful because it would amount to an abuse of a dominant position contrary to the Chapter II prohibition under section 18 of the Competition Act 1998 and/or Article 82 of the EC Treaty. In particular:
Unjustified cessation of supply
- 1 It is an abuse of a dominant position to cease to supply (or threaten to cease to supply) goods or services to an existing customer (whether directly to a customer or sub-distributor or indirectly through instructions to a sub-distributor to cease supply to a customer of that sub-distributor) without objective justification.
- 2 Further or alternatively, it is an abuse of a dominant position to cease to supply (or threaten to cease to supply) an essential facility to a customer without objective justification.
- 3 In the present case the BHB has threatened to cease to supply (or to cause PA and/or SIS and/or sub-distributors of its data to cease to supply) the Claimants with the Relevant Pre-Race Data and/or to instruct SIS to discontinue its supply of data to overseas bookmakers receiving the SIS FACTS service.
- 4 The only justifications advanced by the BHB in the present case is the refusal of ATR to enter into a data rights licence and/or the refusal by ATR to authorise the payment to the BHB by SIS of revenues earned from the production and distribution of the SIS FACTS service to third party overseas bookmakers to "regularise" the fact that such overseas bookmakers have not entered into data licence agreements with the BHB. Without prejudice to the fact that the burden of proof lies on the BHB to show objective justification, these matters do not amount to an "objective justification".
Unfair purchase or trading conditions
- 5 The attempt to tie the provision by PA to ATR of a continuous feed of the relevant Pre-Race Data to the entry by ATR into the proposed "licence agreement" amounts to the imposition of "unfair purchase" or "unfair trading" conditions. In particular, given that no data (or other intellectual property) rights subsist in the Relevant Pre-Race Data, the condition that ATR should enter into a licence of such non-existent rights or authorise payment for them cannot be a fair purchase or trading condition.
- 6 Further or alternatively, the instructions to SIS to discontinue its supply of the SIS FACTS service to overseas bookmakers unless ATR authorises the payment by SIS to the BHB of revenues earned from the production and distribution of the SIS FACTS service amounts to the imposition of "unfair purchase" or "unfair trading" conditions. In particular, given that no data (or other intellectual property) rights subsist in the Relevant Pre-Race Data, the condition that ATR should authorise the payment of sums alleged due under licences of such non-existent rights or authorise payment for them cannot be a fair purchase or trading condition.
- 7 Further or alternatively, the BHB's attempt to charge for a licence agreement in respect of intellectual property rights which do not exist is of itself an abuse of its dominant position. In particular, given that ATR already pays PA for the supply of the data in question, it is an abuse of a dominant position for the BHB effectively to demand payment twice for the provision of the same service (i.e. the supply of the Relevant Pre-Race Data).
Excessive price
- 8 Further, and/or alternatively, even if, which is denied, there is some other justification for the BHB charging in respect of its data even if there are no such intellectual property rights subsisting in it, then the BHB has sought to impose an unfair or excessive selling price. In particular:
(a) The BHB anticipated in 2002 that its data licensing income would amount to approximately £550 to £600 million over 5 years. Further, the BHB anticipated in June 2004 that its data licensing income would increase from £110 million per annum in 2003 to £140 million per annum in 2006.
(b) By contrast, the total cost of compiling the entire BHB database is a mere £4 million annually.
(c) Accordingly, the proposed licence fees are out of all proportion to the economic value of the Relevant Pre-Race Data and the cost of its production.
- 8.1 At paragraphs 16 to 19 of the Second Statement of Mr Nichols served in these proceedings the BHB sets out what it purports to charge ATR in relation to the ATR International and SIS Facts services. First, the BHB seeks to charge ATR 10% of its own gross profits received from foreign bookmakers in respect of the ATR International and SIS Facts services. In addition, it demands one of the following from ATR (in relation to the ATR International and SIS Facts services):
(a) That ATR should ensure that each and every foreign bookmaker with which ATR contracts for the provision of the ATR International service and/or each and every foreign bookmaker which contracts with SIS for the SIS Facts service enters into a direct database licence agreement with the BHB (in relation to database rights that almost certainly do not exist); or
(b) That ATR should itself pay to the BHB 10% of each foreign bookmaker's gross profit derived from that bookmaker's British horserace betting business; or
(c) That ATR should itself pay to the BHB 1.5% of each foreign bookmaker's turnover derived from that foreign bookmaker's British horserace betting business; or
(d) That ATR should itself pay to the BHB £1800 per fixture in respect of which data is supplied to foreign bookmakers.
("the New Charges")
- 8.2 For the reasons set out below, the New Charges demanded by the BHB are an unfair or excessive price and amount to an abuse of a dominant position contrary to the Chapter II Prohibition and Article 82.
- 8.3 The figure of £1800 per fixture represents a doubling of the previous charge of £900 per fixture that the BHB sought to impose by their letter and invoice dated 10 February 2005. The BHB alleged by their letter dated 31 March 2005 that SIS had agreed the previous charge of £900 as "fair and reasonable". A doubling of that charge to £1800 is both unfair and unreasonable.
- 8.4 The New Charges discriminate against overseas bookmakers. In particular:
(a) British bookmakers are able to set off any liability under data licences they may have entered into against the amount they pay by way of betting levy. This means that, in practice, British bookmakers are not paying any sums to the BHB under their data licences. By contract, foreign bookmakers would have to pay sums to the BHB under those licences. Accordingly, if ATR were to seek to impose the option set out in 30.8.1(a) above (i.e. if ATR were to seek to ensure that overseas bookmakers entered into the data licences) overseas bookmakers would have to pay for purported data licences that British bookmakers do not have to pay for.
(b) It is not objectively justifiable to treat foreign bookmakers differently from domestic bookmakers on the basis that such foreign bookmakers do not pay the Levy. The Levy is a statutory charge or tax. It is a matter for Parliament if it decides to impose the Levy on British bookmakers and decides not to impose that Levy on foreign bookmakers or on broadcasters (such as ATR or SIS) that supply services to foreign bookmakers. It is not for the BHB to seek to impose that Levy indirectly through charges under purported data licences. The two matters (the Levy and the data licences) are entirely separate. It is not justifiable for the BHB to treat foreign bookmakers differently from British bookmakers purely on the basis that Parliament has chosen not to impose a tax upon them.
(c) Further, the amount of the New Charges (or the manner in which they are calculated) is intended to reflect the amount of the Levy (or the manner in which the Levy is calculated). Thus, just as the Levy is calculated on the basis of 10% of the bookmaker's gross profits, so too is the data licence charge for the Pre-Race Data. The Levy itself, however, is not based upon the value for Pre-Race Data to bookmakers. Indeed, the Levy has nothing to do with Pre-Race Data or its value. Rather, the Levy is based upon the annual requirements of the Levy Board for income and upon the financial capabilities of British bookmakers to pay. This is not a fair or appropriate basis for calculating the value or amount to bookmakers (in particular foreign bookmakers) of the Pre-Race Data. It bears no relationship to the real value of that data to foreign bookmakers.
(d) It would be, in any event, more burdensome for foreign bookmakers to pay for the data licences than it is for British bookmakers to pay the Levy. In particular, the Levy is paid free of VAT, whereas VAT would be paid in respect of the data licences by foreign bookmakers located in other Member States of the European Union.
(e) The foreign bookmakers to whom ATR sells its ATR International service and to whom SIS sells its SIS Facts service, are not selling primarily to customers (i.e. bettors) based in the UK but rather to foreign bettors. Accordingly, foreign bookmakers sell to a very different market, namely, a foreign bettors' market that is, by contrast with the British bettors' market, interested in a large variety of foreign race and other products and may have no specific interest in (or knowledge of) British racing in particular. The value to foreign bookmakers of British racing (and hence data relating to British racing), therefore, is generally much less than the value of British racing (and hence data relating to British racing) to British domestic bookmakers. By seeking to charge bookmakers selling to (predominantly) foreign bettors in the same way as bookmakers selling to domestic bettors, the BHB are treating unlike cases alike (a form of discrimination).
- 8.5 Further, the New Charges the BHB threatens to impose would discriminate against ATR in its role as a supplier of broadcast services to overseas bookmakers. In particular, the BHB demands that ATR should pay (in addition to sums that would be due from overseas bookmakers under the "data licences" sought by the BHB, referred to in paragraph 30.8.1(a)) 10% of ATR's own profits received from the overseas bookmakers. The BHB imposes no such charge on ATR in its capacity as a supplier of broadcast services domestically (instead, the BHB seeks to charge only £3,600). Moreover, ATR believes that the BHB imposes no such charge on other broadcasters that supply broadcast services to domestic bookmarkers or bettors.
- 8.6 Further, it is not fair to seek to charge ATR on the basis that it should, in effect, be made liable for any alleged "default" by foreign bookmakers (to whom ATR or SIS supply their broadcast services) to enter into "data licences" with the BHB. In effect, the BHB seeks to compel ATR to be an unpaid tax collector for British racing by demanding that ATR should act as collection agent for the BHB in respect of "data licences" for foreign bookmakers.
- 8.7 ATR will not, in practice, be able to ensure that foreign bookmakers (to whom ATR sells its broadcast services) enter into the data licences that the BHB seeks to impose on those foreign bookmakers. This is because:-
(a) In relation to customers (i.e. foreign bookmakers) with existing contracts for the ATR International and SIS Facts services, there is no mechanism under most of those contracts to oblige the foreign bookmakers to enter into data licences with the BHB;
(b) In relation to future customers (i.e. foreign bookmakers) for the ATR International and SIS Facts services, as a result of the commercial circumstances referred to in paragraph 30.8.5(f) above (namely, the different market to which foreign bookmakers sell British racing) there is no realistic possibility of persuading most of those future customers to enter into the data licences with the BHB or to pay the charges that the BHB seeks to impose.
- 8.8 In the premises, ATR itself (a broadcaster not a bookmaker) will have to pay the New Charges (or most of the New Charges) that the BHB seeks to impose. Those New Charges are unfair in relation to ATR for the following reasons:
(a) If ATR were to pay the New Charges, the imposition of those charges would mean that it is doubtful that ATR would be able to make a profit from ATR International and it is doubtful that the SIS Facts service would be profitable to SIS or ATR.
(b) If ATR were to pay the New Charges, ATR would be paying more in relation to the rights to the Pre-Race Data than it pays the racecourses for the rights to the pictures. This can be contested with the position under the former agreement between the RCA and SIS, for the year 2002, in which only approximately 2% of the total payment for pictures and data was in respect of data for use world-wide. The proportion of this money to cover use of the data other than by British bookmakers (i.e. for foreign bookmakers) was no more than approximately 0.16% of the total cost of the pictures.
(c) ATR would be charged more by the BHB in relation to the Pre-Race Data than it is charged in other Member States of the European Union, such as Ireland, for equivalent or similar data.
(d) If ADR were to pay the New Charges, ATR would be paying to the BHB more than 50% of the revenues it receives from the ATR International and SIS Facts services.
(e) Since the Judgment of the ECJ in the William Hill Case, it has been clear that the Pre-Race Data is no longer protected by database rights. Further, ATR does not believe that the Pre-Race Data is protected by copyright. Accordingly, there is no longer any legal impediment to third parties copying or reproducing the Pre Race Data from publicly available sources (e.g. the Racing Post) or from ATR's own services. It follows that the value of a licence of the Pre-Race Data to licensees or the supply of that data electronically from the PA and/or SIS to recipients (such as ATR and foreign bookmakers) has fallen. Notwithstanding this fall in the value of the Pre-Race Data (arising from the absence of intellectual property right protection in the Pre-Race Data), under the New Charges the BHB seeks to charge more in relation to the Pre-Race Data than it did previously (i.e. when it was generally considered that the Pre-Race Data was protected by database rights or copyright.
(f) Further, in light of the Judgment of the ECJ in the William Hill Case, if the Levy were abolished and the BHB sought to actually charge British bookmakers the New Charges under data licence agreements, it is unlikely that British bookmakers would pay such charges. It is not fair or reasonable to expect or require ATR to collect from foreign bookmakers (or to pay itself) charges that would not, in practice, be paid by British bookmakers.
Exploitation by unilateral imposition of terms
- 9 Furthermore, even if data or other intellectual property rights did subsist in the data, or there does exist some other justification for some form of payment to the BHB, the threatened conduct by the BHB amounts to exploitation of its dominant position in order to put undue pressure on a customer that is dependent on it to accept terms that are both unfair and unilaterally determined by BHB. In particular, it would still require the payment by ATR of an excessive (and/or discriminatory) sum for the use of the intellectual property.
Elimination of a competitor or product on a downstream market
- 10 The inability to provide the Relevant Pre-Race Data to its customers/viewers would have a seriously damaging effect on the business of the Claimant and/or threaten to eliminate ATR and/or ATR UK (or certain of their services) from the market. In particular, without the Relevant Pre-Race Data:
(a) The ATR Website would lose the critical "race card" feature which is central to its success and, accordingly, its attraction to viewers/consumers (and hence its viewing figures) would be much reduced;
(b) The ATR Channel would either cease to function altogether or its attraction to viewers/consumers (and hence its viewing figures) would be much reduced;
(c) SIS FACTS service would either cease to function altogether or its attraction to viewers/consumers (and hence its viewing figures) would be much reduced;
(d) ATR International would either cease to function altogether or its attraction to viewers/consumers (and hence its viewing figures) would be much reduced with the result that the provision of the service to new international markets and countries would likely be prevented or delayed.
- 11 Accordingly, the threatened conduct would be likely to lead to the elimination of a competitor (ATR) on a downstream market (for the provision of British horseracing programming to television channel and/or audio-visual service distributors and/or websites and the provision of associated bookmaking services to consumers/viewers) and/or the elimination of innovative products on that downstream market provided by ATR (namely, the ATR channels, audio-visual services and websites and/or the ATR channels and websites in their current form) and/or damage the interest of consumers and/or impede or reduce competition on that downstream market.
- 12 The ATR channels, audio-visual services and websites and the SIS FACTS service are provided to customers in the UK and in other Member States of the European Union. Accordingly, the aforesaid abuse consisting of the threatened conduct will or may affect trade within the UK and/or between EU Member States.
