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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Bookmakers Afternoon Greyhound Services Ltd & Ors v Amalgamated Racing Ltd & Ors [2008] EWHC 1978 (Ch) (08 August 2008) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2008/1978.html Cite as: [2009] UKCLR 547, [2008] EWHC 1978 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		08/08/2008

Mr Justice Morgan:

PART	HEADING	PARAGRAPH
PART 1	PRELIMINARY MATTERS	1
	Introduction	1
	The Claimants	12
	The Defendants	18
	SIS	26
	Representation	29
	The horseracing industry	30
	The bookmaking industry	41
	The Betting Levy	45
	LBO media rights	48
PART 2	THESE PROCEEDINGS	66
	The Particulars of Claim	66
	The Counterclaim	97
	The trial	102
	The Claimants' case: a summary	104
	The Defendants' case: a summary	105
PART 3	THE PRINCIPAL EVENTS	106
PART 4	THE EVIDENCE FROM THE ECONOMISTS	199
	The three economists	199
	A preliminary matter	200
	The experts' joint statement	209
	Mr Biro's evidence	228
	Dr Niels' evidence	245
	Dr Bishop's evidence	268
	A further comment	287
PART 5	THE LAW	289
	Article 81 of the EC Treaty	289
	The Competition Act 1998	295
	Article 81(1)	300
	Article 81(3)	339
	Some specific decisions	342
	Three decisions of the Commission	363
	The burden and standard of proof	392
	Article 81(2)	394
PART 6	DISCUSSION AND ANALYSIS	411
	The Claim and the Counterclaim	411
	The Claimants' claim: restriction by object	412
	The Claimants' claim: restriction by effect	445
	Restriction by effect: exclusive rights	453
	Restriction by effect: collective selling	476
	Restriction by effect: closed selling	497
	Restriction by effect: exclusive, collective and closed selling	503
	The Claimants' claim: overall result	504
	The Defendants' claim against BAGS and SIS	516
PART 7	THE OVERALL RESULT	522

PART 1: PRELIMINARY MATTERS

Introduction

1. British horseracing is of central importance to British bookmakers and British bookmakers make a substantial contribution to British horseracing.
2. Since the early 1960s, the betting industry has paid substantial sums to British racecourses pursuant to a Betting Levy, assessed and collected by the Horseracing Betting Levy Board.
3. Since 1986, it has been lawful to show, in Licensed Betting Offices ("LBOs"), where off-course betting is carried on, live pictures of horseracing. Since 1987, the operators of LBOs have paid a distributor, Satellite Information Services Limited or "SIS" (in the earlier part of the period it was a company associated with SIS) for the right to show those pictures and, in turn, payments have been made to the racecourses for these rights, referred to as LBO media rights.
4. Over the years, many racecourses have become increasingly dissatisfied with the size of the payments for their LBO media rights. Eventually, 31 out of 60 racecourses in Great Britain decided to participate in a joint venture to create a new distributor and in (and, in one case, shortly after) January 2007, those racecourses licensed their LBO media rights to the joint venture. The other 29 racecourses licensed their LBO media rights so that they were available to the former distributor, SIS.
5. One result of the new arrangements is that the 31 racecourses which have participated in the joint venture are receiving more revenue for their LBO media rights. A second result of the new arrangements is that LBOs now have to pay more for the services shown in their premises. The new joint venture service is a "must have"; it supplies the pictures from 31 out of the 60 racecourses in Great Britain. The former service provided by SIS, which supplies the pictures from 29 out of the 60 racecourses, is also a "must have". The price of the new service is greater than the amount of the reduction in the price of the former service (which originally supplied pictures from all the racecourses in Great Britain).
6. There are large sums of money at stake for both sides to this dispute.
7. These seemingly straightforward facts have produced this litigation. The bookmaking industry, or a part of it, says that the emergence of the joint venture and its entry into the market is anti-competitive and infringes Article 81 of the EC Treaty and the Chapter I prohibition in the Competition Act 1998. Initially, the challenge seemed to be as to the way in which the racecourses went about granting exclusive rights to the joint venture. Later, the allegation has been made that the racecourses and the joint venture have been guilty of price fixing.
8. The racecourses reject the charge that they have done anything which is anti-competitive. They say the charge of anti-competitive behaviour stands matters on their head. Before the entry of the joint venture into the market, the market for the purchase of LBO media rights from racecourses was a monopsony. The entry of the joint venture has broken that monopsony and there is now competition for the purchase of LBO media rights. What has happened has been pro-competitive. The particular steps taken to enable the joint venture to enter the market were appropriate, indeed necessary, to achieve market entry and have produced a pro-competitive result. The suggestion of price fixing is said to be wholly unfounded in fact and in law. These issues are at the centre of this litigation.
9. The central issues described above have spawned other disputes. The joint venture says that if (but only if) their licences of LBO media rights are anti-competitive, then so too are the exclusive licences of LBO media rights granted by the other 29 racecourses. Further, the Defendant racecourses counter-attack the bookmakers. They say that certain large bookmakers were guilty of an unlawful concerted practice to boycott the new service and to withhold sponsorship of races at certain racecourses.
10. The above introduction to this dispute is necessarily heavily summarised and omits many distinctions and differences which will later have to be described.
11. This is not the first legal battle between sections of the horseracing industry and sections of the bookmaking industry and it may not be the last.

The Claimants

12. The First Claimant in these proceedings is Bookmakers' Afternoon Greyhound Services Limited ("BAGS"). As this case is not about greyhound racing in the afternoon, or at any time of day, the name requires a little explanation. In around 1967, the early days of off-course cash betting, certain bookmakers thought it desirable for betting shops to offer to punters an alternative betting opportunity to horseracing, on those days during the winter months when horseracing was abandoned. Accordingly, BAGS was formed as a betting industry body which would pay greyhound tracks to put on meetings on afternoons when horseracing might be cancelled due to bad weather. Greyhound racing under the control of BAGS has now grown to the extent that there are now substantially more greyhound races than horseraces broadcast into betting shops of the United Kingdom and the Republic of Ireland.
13. BAGS is a not for profit company, limited by guarantee, established in 1967. I have described its original purpose. Its membership comprised, and comprises, 22 of the United Kingdom's 680 off-course bookmakers. The memorandum of association of BAGS includes the duty to promote the interests of all bookmakers operating LBOs. BAGS has 9 directors who are drawn from the membership. At all material times, William Hill, Ladbrokes and Coral have each appointed one person to be a director of BAGS. From May 2007, BetFred appointed a director. Mr Tom Kelly is the Chief Executive of BAGS.
14. Coral Racing Limited ("Coral") is named as the Second Claimant. However, Coral has settled all its disputes with all other parties and played no part in these proceedings. Coral is the third largest bookmaker in Great Britain and operates around 16% of British LBOs.
15. Done Bros (Cash Betting) Limited is the Third Claimant and trades as BetFred ("BetFred"). BetFred is the fourth largest bookmaker in Great Britain and operates about 7% of British LBOs.
16. Ladbrokes Betting and Gaming Limited ("Ladbrokes") is the Fourth Claimant. Ladbrokes' share of the British bookmaking market is similar in size to that of William Hill, as each operates about 23% of British LBOs. Ladbrokes and William Hill are therefore the 2 largest British bookmakers.
17. William Hill Organization Limited ("William Hill") is the Fifth Claimant. William Hill operates about 23% of British LBOs and with Ladbrokes is one of the 2 largest British bookmakers.

The Defendants

18. The First Defendant is Amalgamated Racing Limited ("AMRAC"). AMRAC is a joint venture company wholly owned by Racecourse Media Services Limited ("RMS") (50%) and Alphameric Gaming Limited ("AGL") (50%).
19. The Second Defendant is Racing UK Limited ("RUK"). RUK was incorporated in around 2004 to exploit the media rights of some 30 racecourses. Those 30 courses together account for some 54% of total off-course LBO betting turnover. The principal aim of RUK in 2004 was to establish a television channel, owned by the racecourses, broadcasting UK racing to non-LBO subscribers on cable and satellite platforms within the UK and Ireland. From around March 2004, RUK has, amongst other things, used its media rights to provide a domestic (but not LBO) subscription television channel on the Sky platform, known as Racing UK.
20. The Third Defendant is Alphameric Plc ("Alphameric"). Alphameric provides technology and operating services to the bookmaking industry including electronic point of sale ("EPOS") systems and display systems and services.
21. The Fourth Defendant is Alphameric Gaming Limited ("AGL"). AGL is a wholly owned subsidiary of Alphameric and is one of the two joint venture partners in AMRAC.
22. The Fifth Defendant is Racecourse Media Services Limited ("RMS"). RMS was incorporated in around 2006. The shares in RMS are currently held by the 30 RUK racecourses and Ascot. The Articles of Association of RMS provide for the issue of further shares to other racecourse operators in the future. RMS was formed to be one of the two joint venture partners in AMRAC.
23. The Sixth Defendant is Racecourse Investments Limited. This company is a subsidiary of Jockey Club Racecourses Limited. It was previously called the Racecourse Holdings Trust and now operates 14 racecourses. Of those 14 courses, 13 are the subject of an exclusive licence of LBO media rights in favour of AMRAC. The 14^th course, Exeter, was formerly an independent course which licensed its LBO media rights to SIS.
24. The other Defendants (Seventh to Twenty-Third) are 17 separate operators of 17 separate racecourses (or, possibly, in one case the owner as distinct from the operator of the racecourse). Together with the 13 racecourses (out of the 14 operated by Racecourse Investments Limited) referred to above, these are the 30 courses known as the 30 RUK courses. These 30 courses, together with a 31^st, Ascot, are the 31 shareholders in RMS, which has participated in the joint venture. The operators of these 31 courses have granted exclusive licences of their LBO media rights to the joint venture.
25. The operator of the Ascot racecourse is not a Defendant.

SIS

26. Some of the Defendants have brought a Part 20 claim against Satellite Information Services Limited ("SIS").
27. SIS was incorporated in 2001. It is a wholly owned subsidiary of Satellite Information Services (Holdings) Limited ("SISH"). SISH itself is not a party to these proceedings. I will refer to SIS and SISH by their current names even though there have been various name changes over the years. SISH was founded in 1985 by the four leading bookmaking firms of the day in order to take advantage of the deregulatory measure which permitted live televised screening of horseracing coverage in LBOs. SISH has always had a number of bookmakers as shareholders. When SISH was formed, the bookmaker shareholders were William Hill, Ladbrokes, Coral and Mecca. The Horse Race Totalisator Board ("the Tote") became a shareholder shortly afterwards. In 1998, Ladbrokes contracted to acquire the business of Coral and, at that time, Coral's shares in SISH were transferred to Ladbrokes. The proposed acquisition of Coral by Ladbrokes was blocked by the Monopolies and Mergers Commission and the business of Coral was then sold to third parties. However, Ladbrokes continued to own the shares formerly owned by Coral. More recently, as described below, Mr Fred Done (who runs BetFred) acquired shares in SISH and the former shareholdings of William Hill, Ladbrokes and indeed of other shareholders were reduced to permit Mr Done to acquire his shares. The current position as to bookmaker shareholdings in SISH is that Ladbrokes own some 23.41% of the shares, William Hill owns 19.51%, Mr Done personally (rather than his company BetFred) owns 7.51% and the Tote owns 6%. At the relevant times there were 11 directors of SISH; 5 were bookmaker representatives and 6 were not. The chief executive of SIS was a Mr Holdgate, who was a director of SIS and of SISH.
28. A live televised and picture data service for LBOs, via satellite transmission, was launched by SISH in 1987. The service has been provided by a number of different entities within the SISH group since then, but since 2002 has been provided by SIS.

Representation

29. Nicholas Green QC, Pushpinder Saini QC, Mark Hoskins, Sarah Abram and Emily Wood appeared on behalf of the Claimants. Peter Roth QC, Brian Doctor QC, Paul Harris, Ronit Kreisberger and Ewan West appeared on behalf of the Defendants. Charles Hollander QC, Helen Davies QC and Victoria Wakefield appeared on behalf of SIS.

The horseracing industry

30. There are currently 60 racecourses in Britain. Before 2008 there were 59 racecourses. The 60^th racecourse is Great Leighs in Essex. Racing at Great Leighs began in May 2008.
31. The 60 racecourses have tended to group themselves in various different groups, whether based on ownership or on other common interests and some of these groupings overlap. The membership of the groups has also changed from time to time. For present purposes, the most relevant groups can be described as follows.
32. The largest group is the group of 30 courses known as the RUK courses. RUK is a company that is owned by and acts as the media arm of the operators of 30 British racecourses. Those 30 racecourses can themselves be sub-divided into 13 out of the 14 Jockey Club courses (i.e. excluding Exeter), the Large Independent courses and various other independent courses.
33. As already explained, the Jockey Club courses comprise the above mentioned 13 courses plus Exeter, that is, 14 racecourses owned and operated by Racecourse Investments Limited. The 14 Jockey Club courses are Aintree, Carlisle, Cheltenham, Epsom, Exeter, Haydock Park, Huntingdon, Kempton Park, Market Rasen, Newmarket, Nottingham, Sandown Park, Warwick and Wincanton.
34. The Large Independent courses are Ayr, Chester, Goodwood, Newbury and York. The other independent courses are Bangor-on-Dee, Beverley, Cartmel, Catterick, Hamilton Park, Ludlow, Musselburgh, Pontefract, Redcar, Salisbury, Thirsk and Wetherby. The courses referred to in this paragraph total 17. These 17, with 13 out of the 14 Jockey Club courses, comprise the 30 RUK courses.
35. The other groups of racecourses which are relevant for the purposes of this dispute are the Northern racecourses, the Arena racecourses and the 10 former GG Media courses.
36. The Northern racecourses are the courses operated by Northern Racing Limited ("Northern"). These were 8 in number at the time that they granted exclusive LBO media rights to BAGS. These 8 were Bath, Brighton, Chepstow, Fontwell Park, Great Yarmouth, Hereford, Newcastle and Uttoxeter. Sedgefield was not originally a Northern racecourse but is now a Northern racecourse. As will be seen, Sedgefield granted its exclusive LBO media rights to SIS.
37. The Arena racecourses are the courses operated by Arena Leisure Limited ("Arena"). These are the 7 courses at Doncaster, Folkestone, Lingfield Park, Royal Windsor, Southwell, Wolverhampton and Worcester.
38. The former GG Media courses were Exeter, Fakenham, Hexham, Leicester, Perth, Sedgefield, Stratford, Taunton, Kelso and Towcester. As indicated earlier, Sedgefield is now a Northern course. Further, Exeter is now a Jockey Club course. Towcester has left the group. The group of, originally 10, GG Media courses without Sedgefield and Towcester have been called the ICAC courses (8 in number).
39. There is also a group of racecourses called the Super 14 which is an informal grouping of the 7 largest Jockey Club racecourses and 7 other large racecourses.
40. Horseracing in the United Kingdom is a substantial industry. It generates over £830 million of income annually. The main participants in staging horseracing events are the horse owners, horse trainers, stable workers and the racecourses. The betting industry and punters are a significant source of funds for the British horseracing industry. The bulk of betting on horseracing takes place off-course in LBOs. Racecourses generate additional revenue by selling the media rights to their horseracing fixtures to satellite TV distributors which provide television picture and data services to LBOs and to other television distributors which distribute television channels featuring horseracing coverage to residential customers. The viability of the horseracing industry in Great Britain is dependant on the transfer of betting revenue from LBOs to racecourses in Great Britain, via the Betting Levy. There are now 60 active racecourses in Great Britain. In addition, there are 2 racecourses in Northern Ireland and 25 in the Republic of Ireland. Some racecourse operators own multiple racecourses.

The bookmaking industry

41. The bookmakers in Great Britain operate either at racecourses ("on-course") or away from a racecourse ("off-course"). There are approximately 1,300 bookmakers operating in Great Britain, of which approximately 680 are licensed to conduct business off-course. These 680 bookmakers between them operate some 8,700 licensed betting offices ("LBOs").
42. LBOs offer punters the facility of betting on a wide range of sporting events, on numbers games, and on other non-sporting events. The bulk of LBO betting turnover is on horseracing. After horseracing, the next most significant sources of turnover are betting on greyhound racing, betting on other sports and numbers games.
43. The two largest off-course bookmakers are William Hill and Ladbrokes. The third in terms of size is Coral. The fourth in terms of size is BetFred. The fifth largest off-course bookmaker is the Tote. Between them, William Hill, Ladbrokes, Coral and BetFred own and operate about 70% of the LBOs in Great Britain. The three leading bookmakers in the UK are Ladbrokes, William Hill (each operating around 23% of British LBOs) and Coral (accounting for around 16% of British LBOs) followed by BetFred and Totesport (operating around 7% and 6% respectively of British LBOs). There are also many smaller LBO chains as well as independent bookmakers. The UK off-course betting industry was subject to strict regulation until 1986 when deregulatory measures began to be introduced. One of those measures was permission for live televised screening of horseracing in LBOs.
44. The Association of British Bookmakers ("ABB") is a trade organisation representing high street (i.e. off-course) bookmakers in the United Kingdom. The ABB was established in 2002 following the merger of the British Betting Office Association and the Betting Office Licensees' Association. The ABB's membership covers the entire spectrum of bookmakers operating in the UK and includes some 200 independent bookmakers. There are 3 categories of membership, A, B and C. Category A membership is limited to the 3 largest bookmakers: William Hill, Ladbrokes and Coral. There is only one member in category B and that is BetFred. The ABB's affairs are run by a 12 person council. 6 of the council members are drawn from the category A membership with each of the 3 category A members having 2 seats on the council and 2 votes. The other 6 council members (referred to as "independents") are drawn from the category B and C membership and between them have 6 votes. Any formal vote of council requires a two-thirds majority. This means that if William Hill, Ladbrokes and Coral vote the same way they still do not have between them a two-thirds majority and they require the support of some of the independents. The Chief Executive of the ABB is Mr Tom Kelly who is also the Chief Executive of BAGS. The Secretary of the ABB is the Secretary of BAGS. Some of the ABB council members are also directors of BAGS.

The Betting Levy

45. A large amount of the revenue of the British horseracing industry is generated by betting. The Horseracing Betting Levy Board ("the Levy Board") is a statutory body established by the Betting Levy Act 1961 and now operating under the Betting, Gaming and Lotteries Act 1963, as amended. The Levy Board raises money for the horseracing industry by collecting a statutory levy on horseracing betting from off-course bookmakers, the Tote and on-course bookmakers. The levy from off-course betting represents the greatest part of the Levy Board's income. The levy is collected from bookmakers as a percentage of their gross profit from betting on United Kingdom horseracing. The 46^th levy scheme (1^st April 2007 to 31^st March 2008) was agreed between the Levy Board and the Bookmakers' Committee in September 2006. A bookmaker's 2007/2008 contribution is 10% of the relevant figure relating to its British horseracing betting business (with some threshold relief for LBOs with low turnover). The 46^th levy scheme was rolled over, following determination by the Secretary of State, to create the 47^th levy scheme on the same terms, following lack of agreement between the parties on the proposals for the 47th scheme. This was announced on the 28^th February 2008.
46. The majority of levy income is expended in direct support of horseracing and the Levy Board is among the most important contributors to horseracing's finances. In 2003/2004, the levy amounted to £102 million. In 2006/2007, the levy amounted to £90 million of which 61% was allocated to prize money, 23% to integrity services (i.e. to prevent cheating), 8% to other racecourse expenditure and the remaining 8% to veterinary services, improvement of breeds, training and other improvements. In 2007/2008 the levy amounted to £116.5 million. The Government indicated its desire to abolish the levy in March 2000 and launched a process of consultation as to the future of the levy in 2001. In January 2002, the Culture Minister announced that the levy was to be renewed and not abolished.
47. The Bookmakers Committee was established under section 26 of the Betting, Gaming and Lotteries Act 1963 as a body representative of the interests of bookmakers generally. The main function of the committee is to recommend annually to the Levy Board the categories, rates, conditions and definitions of the Levy Scheme for the following year and, if appropriate, to revise such recommendations in the light of observations made by the Levy Board.

LBO media rights

48. Before 1986, it was not permissible to show live televised pictures of racing in LBOs. The law in this respect changed in 1986. SISH, which had been formed in 1985, began in around 1987 to provide a service known as SIS Facts. Since 2002, the service has been provided by SIS rather than SISH. The SIS Facts Service provides those LBOs who subscribe to it (and all, or virtually all, of them do) with televised pictures of racing together with audio commentary and data services.
49. The service provided by SIS to LBOs contains a number of elements. The service includes live television pictures and sound commentary on horseracing and greyhound racing (the Facts Service), a processed text service giving information (for example on runners, riders, trainers and form) and odds on racing and, separately, raw data on racing for those customers wishing to format their own text information service and associated equipment.
50. Until the launch of Turf TV by AMRAC in April 2007, SIS was the only company providing live horseracing images to LBOs on a subscription basis. LBOs are able to access free-to-air live horseracing images for certain fixtures broadcast by the BBC and Channel 4 and by RTE in Ireland. From April 2007 to December 2007, SIS provided live television pictures and sound commentary from 53 of the 59 British racecourses. From January 2008, SIS provided coverage from 28 British racecourses and when the new racecourse, Great Leighs, became active in May 2008, SIS provided coverage from 29 British racecourses.
51. In April 2007, AMRAC launched a new horseracing picture service for LBOs, marketed under the name Turf TV. The AMRAC service includes data, audio and pictures. Between April 2007 and December 2007, Turf TV provided exclusive live pictures to LBOs from 6 British racecourses and from January 2008 has provided exclusive live coverage from 31 British racecourses (the 30 RUK racecourses plus Ascot).
52. The first formal agreement between SISH and the racecourses, acting through the Racecourse Association ("RCA"), was entered into in 1987. That agreement granted to SISH a licence in relation to the LBO rights from each of 59 racecourses for a term of 10 years. The 1987 agreement was renegotiated in 1993, that is before the end of the 10 year term. The 1993 agreement was terminated by the RCA on 30^th April 2002. The 1987 agreement and the 1993 agreement did not contain exclusivity provisions but at that time SISH was the only provider of a service of this kind to LBOs.
53. In the period from 2000 to 2002, the RCA reviewed its approach to the exploitation of racing media rights, with a view to increasing the revenue generated from those rights. One outcome of this review was that 49 out of the then 59 UK racecourses decided to deal directly with the bookmakers, rather than with SISH or SIS (which was formed in 2001), while the remaining 10 courses decided to sell their media rights (including but not restricted to LBO rights) to a new company called GG Media Limited. In turn, GG Media Limited exclusively licensed LBO rights to SISH for a period of 5 years. The remaining 49 UK racecourses licensed their rights to BAGS and BAGS decided to sub-license those rights to SIS on a non-exclusive basis. The arrangements between BAGS and SIS meant that SIS was to act as a collection agent for the fees, payable by LBOs, for those rights and SIS would then (acting as BAGS' agent) make payments to the racecourses. SIS took over the SIS Facts service in December 2002. The licences between the racecourses and BAGS, and the sub-licence from BAGS to SIS, expired in 2004 but were then renewed. In relation to 6 racecourses (which have been referred to at this trial as "the April 2007 courses") the renewal ran from 1^st January 2005 to 31^st March 2007. In the case of the other 43 courses, the renewal ran from 1^st January 2005 to 31^st December 2007.
54. In the meantime, in 2001, SISH entered into an exclusive licence with the Association of Irish Racecourses ("AIR") for the British and Irish LBO rights in respect of all 25 racecourses in the Republic of Ireland and the 2 in Northern Ireland, for a period of 3 years.
55. On 17^th April 2004, SIS entered into an exclusive agreement with AIR to acquire the exclusive LBO rights to all 25 racecourses in the Republic of Ireland and the 2 racecourses in Northern Ireland from 1^st January 2004 to 31^st December 2008.
56. On 20^th October 2006, SIS entered into an agreement to acquire the exclusive LBO rights to Towcester. On 10^th November 2006, SIS entered into an agreement to acquire the exclusive LBO rights to 8 independently owned racecourses (known as "the ICAC courses") from 1^st May 2007. As the parties have agreed that the duration of the current licences to SIS are to be treated as confidential for the purposes of this litigation, I will not state that period in this judgment. The same comment applies generally to other licence agreements entered into by SIS. On 16^th November 2006, SIS entered into an agreement with Sedgefield to acquire the exclusive LBO rights to that racecourse from 1^st May 2007.
57. Also on 16^th November 2006, BAGS entered into an agreement with Northern to acquire the exclusive LBO rights to 8 of the racecourses owned and operated by Northern for the period from 1^st January 2008 to 31^st December 2012. On 6^th December 2006, BAGS entered into an agreement with Arena to acquire the exclusive LBO rights to the 7 racecourses owned and operated by Arena from 1^st January 2007 to 31^st December 2011.
58. On 19^th December 2006, SIS entered into an agreement for the exclusive LBO rights to Great Leighs from the date it opened.
59. On 22^nd December 2006, BAGS entered into an agreement to sub-license its exclusive LBO rights to the 7 Arena racecourses and the 8 Northern racecourses to SIS.
60. Thus, by 22^nd December 2006, SIS had acquired the exclusive LBO rights to 26 racecourses in Great Britain.
61. On 11^th January 2007, SIS entered into a further agreement with AIR to acquire the exclusive LBO rights from the 27 racecourses in Northern Ireland and the Republic of Ireland from 1^st January 2009.
62. On 31^st January 2007, AMRAC entered into agreements under which it acquired exclusive LBO rights to 5 RUK racecourses from 1^st April 2007 to 31^st March 2013 and exclusive LBO rights to those 5 and the remaining 25 RUK racecourses from 1^st January 2008 to 31^st March 2013. On 14^th March 2007, AMRAC entered into an agreement with Ascot under which it acquired exclusive LBO rights to Ascot from 1^st April 2007 to 31^st March 2013.
63. Thus, AMRAC had exclusive LBO rights to 6 courses from 1^st April 2007 ("the April 2007 courses") and to a total of 31 courses from 1^st January 2008
64. SIS also entered into separate agreements to acquire the exclusive LBO rights in respect of Newton Abbot (5^th March 2007), Ripon (9^th May 2007) and Plumpton (27^th September 2007) from 1^st January 2008.
65. The result for SIS was that it had acquired the exclusive LBO rights to 29 racecourses in Great Britain.

PART 2: THESE PROCEEDINGS

The Particulars of Claim

66. The Claimants issued the present proceedings on the 13^th September 2007. It is important to refer to the Particulars of Claim to identify the allegations which the Claimants put forward in order to seek relief from the Court.
67. Paragraph 7 of the Particulars of Claim refers to "the RUK Agreements". These are defined in paragraph 7 as media rights agreements which RUK is alleged to have with the RUK racecourses pursuant to which RUK is allegedly licensed to negotiate and/or enter into commercial media agreements with third parties including agreements in respect of inter alia the rights to supply images, sound and data in respect of horse races held at the RUK racecourses to LBOs in the United Kingdom and the Republic of Ireland.
68. Paragraph 19(d) of the Particulars of Claim defines "the AMRAC Agreement" and the "AMRAC Licences". The AMRAC Agreement is alleged to have been entered into, in or around December 2006 between RUK, acting collectively on behalf of the RUK racecourses, and AMRAC. The AMRAC Licences are said to have been entered into pursuant to the AMRAC Agreement. The AMRAC Licences are some 30 licences between the RUK racecourses and AMRAC entered into on the 31^st January 2007.
69. Paragraph 20 of the Particulars of Claim states:

"The Claimants submit that the RUK Agreements, AMRAC Agreement and AMRAC Licences are individually and/or collectively contrary to the prohibition established by section 2(1) of the Competition Act 1998 (the Chapter I prohibition") further or alternatively Article 81(1) of the EC Treaty because they provide for or give effect to the collective exclusive licensing of the RUK relevant rights to AMRAC on a closed basis."

70. Paragraph 21 of the Particulars of Claim states:

"Further or alternatively by virtue of the acts identified above the Defendants or some of them participated in a concerted practice contrary to the Chapter I prohibition further or alternatively Article 81(1) of the EC Treaty because they sought to procure, facilitate and/or give effect to the collective exclusive licensing of the RUK relevant rights to AMRAC on a closed basis ("the Concerted Practice")."

71. Paragraph 22 of the Particulars of Claim states that particulars of the breach complained of are set out at paragraphs 26 to 30 of the Particulars of Claim.
72. Paragraph 23 of the Particulars of Claim states that "in the premises", the RUK Agreements, AMRAC Agreement and AMRAC Licences are unlawful and automatically void.
73. Paragraph 24 of the Particulars of Claim pleads that the relevant product market is the supply of images, sound and/or data in respect of horse races in the United Kingdom to LBOs, alternatively to any off-course betting provider. Paragraph 25 pleads that the relevant geographic market is the United Kingdom.
74. Paragraphs 26 and 27 of the Particulars of Claim have the heading "Restrictions on competition". Paragraph 26 pleads that insofar as the RUK Agreements, AMRAC Agreement, AMRAC Licences and/or the Concerted Practice each provide for and/or give effect to the collective exclusive licensing of the RUK relevant rights on a closed basis they have the object of restricting competition.
75. Paragraph 26 then gives particulars of the alleged anti-competitive object. Particular (a) states:

"The collective exclusive licensing on a closed basis prevents the individual RUK racecourses from being able to market their relevant rights individually. In the absence of such collective exclusive licensing on a closed basis the individual racecourses would be entitled to set prices and other licence conditions independently of one another and in competition with one another. The collective exclusive licensing on a closed basis thus eliminates competition, including price competition, between individual RUK racecourses in respect of the marketing of the RUK relevant rights."

76. Particular (b) under paragraph 26 states:

"The collective exclusive licensing to AMRAC on a closed basis prevents competitors to AMRAC from having the opportunity to negotiate or tender the RUK relevant rights. Such collective exclusive licensing on a closed basis forecloses competition from other actual or potential competitors to AMRAC to the detriment of competition in the market for the provision of images, sound and data to LBOs in respect of horseracing at the RUK racecourses."

77. The opening part of paragraph 27 of the Particulars of Claim is essentially the same as the opening part of paragraph 26 save that a reference to the Agreements having "the object" of restricting competition is replaced by an allegation that the Agreements have "the effect" of restricting competition.
78. Paragraph 27 contains some 11 sub-paragraphs of particulars. Particulars (a) and (b) under paragraph 27 are in the same terms as particulars (a) and (b) under paragraph 26. It is not necessary to set out the detail of the other sub paragraphs of particulars given under paragraph 27. Those particulars, in the main, refer repeatedly to "collective exclusive licensing on a closed basis" to describe the matter complained of in the arrangements made between racecourses and AMRAC.
79. Paragraphs 28 and 29 of the Particulars of Claim refer to the effect on trade between member states, and within the United Kingdom, of the arrangements complained of.
80. In the prayer for relief in the Particulars of Claim, the Claimants seek, first, a declaration that the collective exclusive licensing on a closed basis of the rights necessary for the supply to LBOs in the United Kingdom and the Republic of Ireland of images, sound and data, in respect of horse races held at the RUK racecourses is contrary to section 2(1) of the Competition Act 1998 and Article 81(1) of the EC Treaty. The Claimants claim, secondly, an injunction preventing the Defendants from giving effect to the collective exclusive licensing on a closed basis of such rights. The Claimants seek other injunctive relief and damages and other supporting relief.
81. On the 17 June 2008, which was Day 24 of the trial, Mr Green began his closing submissions on behalf of the Claimants. At quite an early point, I sought assistance from him as to how he put his case. In particular, I wanted to know precisely what agreement was said to be caught by Article 81 of the Treaty. Who were the parties to the agreement and what were its terms? What were the consequences of the relevant agreement being declared to be void? If and in so far as Mr Green in his closing submissions wished to assert a horizontal agreement between racecourses, how was it that any such agreement, which allegedly infringed Article 81 and would accordingly be void, resulted in the vertical agreement between a racecourse and AMRAC also being void? In the course of Mr Green's answers to these questions, I suggested that the case he was advancing appeared not to have been pleaded.
82. Thereafter, Mr Green sought permission to amend the Particulars of Claim. In view of my decision which I gave, with reasons, at the time, to refuse the Claimants permission to make the draft amendments, it is not necessary to refer to those draft amendments in this judgment. It is sufficient to say that the draft amendments clearly pleaded a number of different horizontal agreements between racecourses. The agreements pleaded included agreements between groups of racecourses and also between individual racecourses within a particular group. The draft amendments asserted that those agreements had an object which was to restrict competition in particular by fixing prices. It was also pleaded that AMRAC was a party to these agreements with and between racecourses. The alleged consequence of these agreements was, first, that the horizontal agreements between racecourses were void and also that the LBO licences granted by a racecourse in favour of AMRAC were also void.
83. For the purpose of considering the rival submissions made to me in support of, and in opposition to, the proposed amendments, I analysed what was originally pleaded in the un-amended Particulars of Claim and I set out that analysis in a judgment I gave at that time. It is convenient to set out again the substance of that analysis.
84. As explained, paragraph 20 of the original pleading refers to the RUK Agreements, the AMRAC Agreement and the AMRAC Licences. Paragraph 21 refers to something defined as "the Concerted Practice". It is those three classes of agreement and that Concerted Practice which are referred to in paragraph 26 as having the object of restricting competition.
85. The RUK Agreements are defined in paragraph 7 of the original pleading. They are agreements (said to be in the plural) between racecourses on the one hand and RUK. There is nothing in paragraph 7 of the original pleading which would lead one to conclude that the agreements being referred to are horizontal agreements between racecourses.
86. The AMRAC Agreement is referred to in paragraph 19(d) of the original pleading. It is not absolutely clear what agreement is being referred to. The paragraph seems to refer to an agreement which was entered into in or around December 2006, which agreement led to the AMRAC Licences on 31 January 2007. In any case, as pleaded, the AMRAC Agreement has on the one side, AMRAC, and on the other, the RUK racecourses, acting through RUK. This is a vertical agreement between courses and AMRAC; it is not a horizontal agreement between courses.
87. The AMRAC Licences are also referred to in paragraph 19(d) of the original pleading. It is clear that the Licences are vertical agreements between the courses and AMRAC. They are not horizontal agreements between courses.
88. Paragraph 20 of the original pleading pleads that the vertical agreements which I have referred to are individually or collectively contrary to Article 81, because they provide for or give effect to what is called "collective exclusive licensing". The word "collective" seems to refer to the fact that the courses acted collectively but without in terms asserting that there was a prior agreement to act collectively, and, if so, what the terms of that agreement (a horizontal agreement) might be.
89. Paragraph 21 of the original pleading asserts that "the Defendants or some of them" participated "in a concerted practice". It is said that "they" (which must mean "the Defendants or some of them") "sought to procure, facilitate and/or give effect to the collective exclusive licensing" of the relevant rights to AMRAC. If all of the Defendants had been racecourses then this plea would lead one to suppose that what was being alleged was a concerted practice operating horizontally as between racecourses. However, not all of the Defendants are racecourses. The Defendants include AMRAC; indeed AMRAC is the first Defendant. Therefore, it is much less clear that paragraph 21 is trying to describe a concerted practice between racecourses (or conceivably only some of the racecourses) to which AMRAC might also, or might not, be a party.
90. The result of the above analysis is that the wording of paragraphs 20 and 21 of the original pleading lacks precision and is open to interpretation. However, paragraphs 20 and 21 which allege breach of Article 81 are followed by paragraph 22 which states that particulars of the breach are set out at paragraphs 26 to 30 of the pleading. Accordingly, one turns to those paragraphs (and for present purposes to paragraph 26) to discover what the pleader is referring to.
91. I have already read paragraph 26 of the original pleading. It refers to the three classes of agreement (which are all vertical agreements) and the pleaded Concerted Practice which provide for or give effect to collective exclusive selling. Of course, if on the facts, the selling was " collective" then the vertical agreements do indeed "provide for" (especially the pleaded RUK Agreement) or "give effect to" (especially the AMRAC Agreement and the AMRAC Licences) collective selling. Accordingly, the opening words of paragraph 26 do not yet bring in any allegation that there was a horizontal agreement between racecourses which infringed Article 81.
92. Sub-paragraph (a) of paragraph 26 now needs to be considered. It is asserted that collective exclusive selling prevents the individual racecourses from acting individually and, in particular, agreeing terms individually and, further, agreeing prices individually. Of course, once a racecourse had granted exclusive rights it is no longer able to grant any rights to another grantee of rights and there is no point in negotiating to grant rights to another grantee. I do not think, however, that sub-paragraph (a) is meant to be confined to a reference to the consequence of the grant of exclusive rights. It can be read as referring also to the period of negotiation before the grant of exclusive rights. So what is being said, although far from clearly, is that the process of collective selling prevents a racecourse from selling individually even before the grant of exclusive rights. But a racecourse would only be prevented from selling individually if it had agreed with someone that it would not sell individually. But who is the someone with whom the racecourse, allegedly, has agreed not to sell individually? Is it an agent, RUK, who might have been acting for a number of principals, and whose role as agent would be undermined if a single racecourse as principal began to negotiate individually? Or is sub-paragraph (a) intended to allege that the racecourses have agreed between themselves that they will act together as collective sellers and will not seek to negotiate individually?
93. Although sub-paragraph (a) is very far from being well expressed if it were intended to allege that there was an agreement or practice between racecourses operating at a horizontal level which bound them to act collectively and prevented them from acting individually, nonetheless I have reached the conclusion that the pleading is indeed making that allegation.
94. It is therefore open to the Claimants, as a result of paragraph 26(a), to argue that there was an agreement or practice between racecourses operating at the horizontal level which restricted the conduct of racecourses in that it prevented them from negotiating individually. It is open to the Claimants on the original pleading to argue that such a restriction is a restriction on competition contrary to Article 81. Further, in view of the fact that paragraph 26 deals with restrictions by object, it is open to the Claimants on the original pleading to argue that such a restriction is a restriction by object. It is also open to the Claimants to argue that such a restriction by object is properly to be regarded as a restriction which has the object of fixing prices. I add the last sentence not because that allegation is specifically pleaded but because Mr Green in his opening submissions asserted that collective selling necessarily involves the object of price fixing. Mr Roth accepted that that allegation is one which the Defendants have to deal with.
95. Although I refused permission to the Claimants to make the very extensive amendments they sought, I did permit the Claimants to plead an additional paragraph. I granted this permission in view of the fact that an amendment in those limited terms was not opposed by the Defendants. The new paragraph 26A of the Particulars of Claim pleads:

"For the avoidance of doubt, the reference in paragraph 26(a) above to collective licensing which prevented the individual racecourses from setting prices independently of one another and in competition with one another, constituted collective price setting by the Defendant racecourses inter se and/or the Defendant racecourses inter se together with the 1^st to 4^th Defendants which falls within Article 81(1) as a restriction by object."

The Claimants also gave particulars under the new paragraph 26A. It is now pleaded, by way of particulars, that the subject matter of the agreement or concerted practice was the fixing of prices to be paid by AMRAC to the racecourses for their LBO rights, as well as collective setting of other terms and conditions. The provisions as to price are said to be contained in, or evidenced by, four specific terms of the AMRAC Licences, i.e. the vertical agreements between racecourses and AMRAC. The point being made about those specific terms is that each of 18 AMRAC Licences has the same terms. Finally, a particular is pleaded that the agreement or concerted practice fixed prices. There was no amendment to the relief claimed in the prayer for relief.

96. The Defendants have served a detailed Defence to the claim made against them. It is not necessary at this stage to go to the way in which the matter is pleaded by way of defence.

The Counterclaim

97. The Defendants also brought a Counterclaim against the Claimants and by way of additional claim brought a claim against SIS.
98. The Counterclaim essentially breaks into two parts. The first part refers to the fact that BAGS entered into exclusive LBO licences with the Northern courses and the Arena courses and granted an exclusive sub-licence to SIS. This part of the Counterclaim also refers to the fact that SIS entered into a number of exclusive licences; the first was, of course, the exclusive sub-licence from BAGS but in addition SIS directly entered into exclusive licences with the ICAC courses, Sedgefield, Towcester, Ripon, Newton Abbot, Plumpton and the Irish courses. The most recent version of the Counterclaim has been amended so that the Defendants' claim in relation to these exclusive licences, in which BAGS and SIS participated, are alleged to be contrary to Article 81 and void if, but only if, the licences of LBO rights granted to AMRAC are held to be void pursuant to the Claimants' claim to that effect. Although the Claimants' challenge to the AMRAC licences is on the basis that they involve collective and exclusive and closed selling, the basis of the Defendants' challenge to the BAGS and SIS exclusive licences is restricted to the argument that those licences were exclusive licences.
99. The second part of the Counterclaim brought against the Claimants (and not against SIS) alleges four different matters contrary to Article 81. Two of these four alleged agreements or concerted practices are no longer the subject of the Counterclaim. The first concerned the decision by BAGS not to take LBO licences (by way of sub-licence from AMRAC) for the period April to December 2007, in relation to 6 courses, which had by then signed exclusively to AMRAC. The second matter related to the decision by BAGS not to take up rights which were on offer in relation to televising evening races at Kempton Park in the period from 1st September 2007 to 31^st December 2007.
100. Two other matters which are the subject of this part of the Counterclaim are still pursued by the Defendants. The first of the two surviving matters is an allegation that there was a concerted practice by Coral, Ladbrokes and William Hill to withdraw sponsorship of races being run at racecourses which had granted LBO rights exclusively to AMRAC. The second of the surviving matters is an allegation that Coral, Ladbrokes, William Hill and BetFred were parties to an agreement and/or a concerted practice to refuse to purchase Turf TV and/or to exclude or impede AMRAC's entry to the market and/or to injure or jeopardise AMRAC's survival in the market. In relation to these two allegations, it is said that the Defendants or some of them have suffered loss and damage as a result. In relation to the alleged concerted practice to withdraw sponsorship, the claim to damages is made by all of the Defendants apart from AMRAC and in relation to the alleged concerted practice to refuse to purchase Turf TV, the claim to damages is made by AMRAC alone.
101. The Claimants have served a detailed Defence to Counterclaim and SIS has served a detailed Defence to the additional claim made against it. It is not necessary for present purposes to refer to the detail of those pleadings.

The trial

102. On 11^th October 2007, Lindsay J ordered that there should be an expedited trial in this action. He directed that the issues of liability (which were described as the "competition issues") and the issues as to quantum be determined at separate trials. I conducted the trial in relation to the competition issues.
103. The competition issues included the two issues raised by way of Counterclaim, as described in paragraph 100 above. The trial dealt with all the competition issues. It was originally my intention to give a single judgment dealing with all those issues. In the event, I have not been able to give judgment before the arrival of the long vacation. A resolution of the two issues described in paragraph 100 above will require detailed consideration of a large volume of evidence and of lengthy submissions by the Claimants and the Defendants. I prepared my judgment, and reached my conclusions, on the other issues arising before preparing a judgment on the two issues raised by Counterclaim. It is clear that if I defer giving judgment until I have prepared a judgment which also deals with these two issues, I will have to postpone for some considerable time the giving of judgment on all other matters. I am able to reach the conclusion that my decision on all other matters will not be affected by my decision on the two issues raised by the Counterclaim. In these circumstances, I have decided, and notified the parties in advance, that I will give judgment on all matters that require to be decided save for the two issues raised by the Counterclaim and on those two issues, I will give a separate judgment later.

The Claimants' case: a summary

104. At the end of the trial, the Claimants' case can be summarised as follows. There was an agreement between the 18 racecourse operators and AMRAC. The object of that agreement was to fix the prices to be charged to AMRAC for the LBO rights. The racecourses and AMRAC knew that the prices paid by AMRAC to the racecourses would be recovered from LBOs because the AMRAC service was a "must have". The conduct of the racecourses involved the use of collective market power. The consequence of the price fixing was to drive up prices for LBOs. This was harmful to LBOs. There were no benefits to LBOs from the price fixing. What was harmful to LBOs would in due course be harmful to punters. Because the object of the agreement was to fix prices, the object was to restrict competition. Price fixing can never be justified by alleged commercial necessity. The price fixing infringed Art 81(1). Although the possibility of exemption under Art 81(3) had to be considered, such a possibility was theoretical only, in a price fixing case. In any event, the agreement in this case did not satisfy any of the four essential conditions for individual exemption. Accordingly the relevant agreements were void under Art 81(2). The agreements which were void included the agreements by racecourses to grant LBO rights to AMRAC. Further, the arrangements had the effect of restricting competition. The effect was that prices to LBOs were increased. As before, there were no benefits to LBOs. Yet further, the arrangements made by racecourses with AMRAC consisted of closed collective exclusive selling of LBO rights. The exclusive nature of the rights resulted in foreclosure of the market. The collective and closed selling had the effect of restricting competition. The effect of the arrangements could not be justified by alleged commercial necessity. Thus, the arrangements infringed Art 81(1) as having the effect of restricting competition. As before, the requirements of Art 81(3) were not satisfied. The relevant agreements were void and those agreements included the licences to AMRAC.

The Defendants' case: a summary

105. At the end of the trial, the Defendants' case can be summarised as follows. Before the arrangements complained of were entered into, the market for LBO rights from racecourses was controlled by a monopsony, BAGS/SIS. Because of its position of control of the upstream market, the monopsony paid racecourses a price which was less than what the rights were worth. The arrangements in this case were made to allow a new entrant, AMRAC, into the upstream market. There was no other possible new entrant. The arrangements made in this case did not have the object of restricting competition and in particular they did not have the object of price fixing. The arrangements had the object of enhancing competition. The arrangements in this case did not have the effect of restricting competition as they had the effect of enhancing competition. Although they had the effect of increasing prices to LBOs, that was the result of enhancing competition in the upstream market and was not a restriction on competition. There was no collective selling on the facts. There was no closed selling on the facts. The rights were granted exclusively. Exclusive rights were appropriate. If there had been collective and closed selling (of what were undoubtedly exclusive rights), then those arrangements were commercially appropriate, and indeed necessary, to allow a new entrant and new competition into the upstream market. In the absence of those arrangements, the upstream market would have continued with a monopsony purchaser, BAGS/SIS. The arrangements were beneficial in other respects. Art 81(1) was not infringed. If Art 81(1) was infringed, then this was a case for individual exemption under Art 81 (3) as each of the four conditions was satisfied.

PART 3: THE PRINCIPAL EVENTS

106. It is now necessary to describe the events which have given rise to this dispute in more detail. Although the documents are voluminous and although I heard a great deal of oral evidence, there is little dispute about the essential facts, save in relation to one matter. That matter is the allegation made in the Counterclaim that there was collusion between bookmakers to boycott Turf TV and to withhold sponsorship from certain racecourses. Even in that area, the dispute is not about what actually happened but whether what happened was the result of independent action by bookmakers or whether it was pursuant to collusion between them. As I have now indicated, I will defer considering that issue of collusion, and the facts which are relevant only for the purpose of that issue, until a later separate judgment.
107. Because my description of the principal events, which need to be described for the purposes of this judgment, does not depend to any real extent on the credibility of witnesses, it is unnecessary to comment upon the individual witnesses and to set out my assessment of them.
108. I heard detailed evidence from representatives of various racecourses and Mr Kelly of BAGS and others speaking for the bookmaking industry as to the general market position, as regards racecourses selling their LBO media rights, before the arrival of AMRAC. In particular, as regards representatives of racecourses, I heard evidence from Mr Derby of York, Mr Fabricius of Goodwood, Mr Farnsworth of Musselburgh, Mrs Hordern of Newbury and Mr Gould of the Jockey Club Racecourses.
109. The racecourses regarded BAGS as a monopoly purchaser in a strong negotiating position and placing racecourses in a weak negotiating position. The racecourses' perception was that BAGS offered its terms to racecourses on "a take it or leave it" basis. In particular, BAGS steadfastly refused to consider the idea of paying racecourses for their races if those races were shown on terrestrial television. Races shown on terrestrial television are available to LBOs without payment and BAGS took the view that it would not pay racecourses for them.
110. Mr Kelly did not agree that he had conducted negotiations on "a take or leave it" basis. However, in my judgment, the reality of the situation was just as it was seen by the racecourses. BAGS was in effect the only buyer. Mr Kelly was the principal negotiator for BAGS. Mr Kelly is an intelligent, articulate and forceful individual and he was determined to look after the interests of bookmakers generally.
111. It is also necessary to understand the relationship which existed between BAGS and SIS before the arrival of AMRAC in the market. It is clear that, at that time, BAGS and SIS did not act competitively as between themselves in seeking to obtain LBO media rights from racecourses. The relationship between BAGS and SIS was described by Mr Roseff of H Backhouse (Baker Street) Limited, an independent bookmaker. Mr Roseff is a director of BAGS. He explained that the essential negotiations as to terms and price, before AMRAC entered the market, took place between the racecourses and BAGS. BAGS was not itself a distributor of pictures and data to LBOs and needed to sub-license its rights to SIS. The terms on which BAGS sub-licensed its rights to SIS prevented SIS from making a profit on the rights acquired by BAGS. Thus the position as regards market forces and price negotiation before the entry of AMRAC into the market were that BAGS, acting in the interest of bookmakers, sought to keep down the price it paid for LBO media rights acquired from racecourses. BAGS sub-licensed those rights to SIS but on terms that prevented the cost to LBOs being increased, otherwise than in a limited way. Thus, in the chain of supply from racecourses to BAGS, from BAGS to SIS and from SIS to LBOs, the bookmakers who were the subscribers to the service were vertically integrated at a higher level, through BAGS acting in the interests of bookmakers generally. Mr Roseff's evidence on this point was corroborated by Mr Kelly of BAGS.
112. In February 2005, RUK met Alphameric for the purpose of preliminary discussions as to the possibility of creating a start up business to acquire and deliver pictures and data from racecourses to LBOs, in direct competition with SIS.
113. In July 2005, RUK held a strategy away day which considered a large number of issues as to the future of the racing industry. The material presented at the away day referred to the fact that UK betting revenues were increasing but horseracing's share of sports betting revenue was in decline and bookmakers' reliance on horseracing was decreasing. The away day considered the possible opportunity of RUK expanding into LBO media rights. The away day also considered the possibility of RUK forming a partnership with four particular companies, including Alphameric and SIS.
114. In around August 2005, Alphameric formally approached RUK and discussions took place in the ensuing six months about the possibility of Alphameric and RUK coming together to create a service as a competitor to SIS Facts.
115. In September 2005, the board of RUK considered that such a service could be viable and that RUK would seek to advance discussions with a number of potential partners.
116. In January 2006, RUK prepared a detailed paper identifying a large number of points that needed further consideration. One such question was whether there would be a competition law problem in taking the grant of exclusive rights from racecourses.
117. In February 2006, the board of RUK agreed to investigate further the feasibility of a rival service to SIS Facts. RUK considered that it might be necessary to acquire LBO licences on an exclusive basis in order to launch a new service and RUK decided it should seek competition law advice in that regard.
118. RUK initially sought legal advice from solicitors, Wiggin LLP on 7^th February 2006. The advice sought related to the compatibility of competition law with the licensing of LBO rights on an exclusive basis, in order to enter the market and provide a competitive service to SIS Facts. RUK envisaged at that time that it would take content from non-RUK racecourses on a non-exclusive basis. RUK's intention was to create a full service which would be a viable alternative to SIS Facts so that bookmakers would be able to choose between RUK's proposed service and SIS Facts. RUK envisaged that the new service would be provided by a proposed joint venture of RUK and Alphameric which was called at that time "RUKA".
119. In April 2006, RUK presented its ideas to York racecourse. In relation to the possible launch of a service competing with SIS Facts, RUK recognised that the competing service should match or improve on the current service, offer better value for money for bookmakers, provide a more constructive partnership with bookmakers, increase the return to racecourses and not fall foul of competition law. This is one of a large number of presentations and other documents which described the perceived advantages for the different interests, including the interests of bookmakers, which might result from the launch of a service competing with SIS FACTS. Many of these suggested benefits were controversial at the trial. If it had been necessary for me to rule on the question of what was called "consumer benefit" for the purpose of Article 81(3), then it would have been necessary for me to form a view as to the substance of such matters described in this and other documents. As will be seen, I have reached the conclusion that I do not need to rule on the question of consumer benefit and, accordingly, I do not make specific findings as to the benefits described in this document and in other similar statements of such perceived benefits.
120. On 5^th April 2006, Wiggin LLP, solicitors for RUK sent written instructions to Mr Swift QC to advise on various matters arising in connection with a proposed competing service to LBOs. The instructions discussed the effect of the 30 RUK racecourses granting their LBO rights exclusively to the new service. The instructions stated that the new service would thereby be able to compete with SIS Facts. RUK would try to acquire non-exclusive LBO rights from the 29 non-RUK courses so that it could offer a combined 59 courses service. SIS would not be able to do the converse if the RUK courses had granted their rights exclusively to the new service. The instructions said that for an LBO to receive pictures from all 59 UK racecourses, an LBO would need to take two different services. That must have been on the basis that the new service would not be able to acquire rights to all 59 courses.
121. Mr Swift QC advised in conference on 12^th April 2006. He stated that licensing by RUK of the racecourses' LBO rights on an exclusive basis would be a form of collective selling. He suggested that the racecourses/RUK had to come within one of the exemptions in Article 81(3) to permit a collective arrangement involving exclusive rights. He then addressed the four requirements of Article 81(3). He recommended that RUK should talk to the OFT to seek their views on the proposed arrangements. He discussed whether a case could be made that the new arrangements were "objectively justifiable". He recommended that RUK approach an economist, for example Mr Biro of Frontier Economics Limited, to advise on the least restrictive route that RUK needed to employ in order to achieve their intended position in the market. Mr Swift expressed the view there was considerable uncertainty as to the treatment in competition law of the proposed arrangements.
122. Some of the matters discussed in conference on the 12^th April 2006 were the subject of Mr Swift's written opinion of 26^th April 2006. Mr Swift appears to have approached the question on the basis that if the RUK racecourses granted rights exclusively to the new service then that would result in the elimination of SIS. Mr Swift stated that the relevant question was whether exclusivity was absolutely indispensable to the launch of, and the success of, the new service as what was involved was the displacement of the existing monopoly by a new monopoly owned by the racecourses.
123. In May 2006, the Alphameric board concluded that the way forward lay with establishing an entirely new start up business to provide a service competing with SIS.
124. In June 2006, RUK instructed RBB Economics to provide an economic analysis of the acquisition of LBO rights from RUK courses on an exclusive basis to facilitate the entry of the proposed new service into the market.
125. Later in June 2006, RUK and Alphameric met to discuss the proposed joint venture and concluded that a business plan should be formulated and agreed by both parties.
126. On 27^th June 2006, Alphameric issued a short stock market announcement disclosing that it was exploring a joint initiative with a major UK-based television production and broadcasting company which was intended to create a television channel dedicated to the needs of approximately 9,500 LBOs in the UK and the Republic of Ireland.
127. On 10^th July 2006, the council of the ABB met. Mr Kelly, the Chief Executive of ABB, was in attendance. The members of the council included a representative of each of Coral, Ladbrokes and William Hill. The minutes of this meeting show that the council was aware that Alphameric and RUK were planning a joint venture. It was said that the joint venture would "challenge" the supply of pictures to betting offices. SIS was described as being "BAGS' agents to supply the service to the shops". Mr Kelly stated that the new venture was a challenge to BAGS.
128. On 11^th July 2006, RBB Economics prepared a draft of its advice on the economic issues arising.
129. On 27^th July 2006, the board of RUK resolved to enter into exclusive negotiations with Alphameric. RUK and Alphameric met on 31^st July 2006 to discuss detailed matters including the level of exclusivity of LBO rights that might be required. On 9^th August 2006, RUK and Alphameric entered into an agreement providing for a period of exclusivity in relation to negotiations between them.
130. In September 2006, RUK prepared materials for presentations to racecourses. These materials described the content of the proposed service including exclusive rights in relation to RUK courses and both exclusive and non-exclusive rights in relation to non RUK courses. The described content also included international horseracing, greyhound racing, virtual racing and number games. The materials predicted that SIS would be an aggressive competitor.
131. On 8^th September 2006, Alphameric made a stock exchange announcement in which it disclosed that it had entered into exclusive negotiations with "a major UK based consolidator of horseracing pictures and data" to give the joint venture the exclusive right to distribute content to LBOs.
132. This stock exchange announcement of 8^th September 2006 was noted on the agenda for a meeting of the ABB scheduled for 11^th September 2006. The agenda referred to RUK providing exclusive rights to distribute the relevant content to LBOs. The minutes of the ABB meeting on 11^th September 2006 refer only in passing to the potential entrance of Alphameric into the market. The passing reference was to the possibility that this new fact could be used in negotiation with SIS to improve the position of bookmakers as regards SIS.
133. It was known at the time of the ABB meeting on 11^th September 2006 that BAGS were due to meet with Northern on the 19^th September 2006 to discuss a new agreement for the LBO media rights in respect of the Northern courses.
134. At the meeting between BAGS and Northern on 19^th September 2006, the parties discussed the grant by Northern of exclusive LBO rights.
135. SISH and SIS were both aware in September 2006 of Alphameric's stock exchange announcement and its plans. Mr Holdgate of SIS explained that it was apparent to him in September 2006 that the new joint venture was likely to be a serious competitor to SIS. SIS was concerned to ensure that it could also continue to provide its service to LBOs. Mr Holdgate thought that the relevant market was not big enough to accommodate two suppliers, each supplying an identical product. The board of SISH met on 21^st September 2006 and agreed that SIS's strategy should be to seek to secure, on an exclusive basis, as much content as was available, whether by renewal of existing agreements or by securing new content. SIS did not at that time expect that rights would be available to it from the 30 RUK courses as it expected those courses to grant their rights exclusively to the new venture.
136. In October 2006, RUK prepared an updated presentation to racecourses and, separately, a presentation to the large independent racecourses. Amongst the many points in these presentations were comments that racing should develop a constructive partnership with bookmakers to develop the retail value of horseracing and to counter horseracing's eroding market share. The presentations referred to some key elements in the joint venture's business plan. So far as payment to racecourses was concerned, there would be a minimum payment to racecourses to match any payment from BAGS together with additional payments to racecourses through dividends from participation in the joint venture. The business plan here referred to assumed that the bookmaker shareholders in SISH would not sign up to the new service. It was suggested that the new service would show "significant financial returns". The presentations asked whether it was possible to compete with SIS and the answer given was that, to compete with SIS, the new venture must have "a high level of confidence for success". It was stated that exclusive rights were likely to be necessary for market entry but must not fall foul of competition law. It was suggested that racecourses must present "a united front". It was expected that SIS's response would be aggressive and SIS would go to any lengths to protect its "monopoly position".
137. On 4^th October 2006, the proposed joint venture, described as RUKA, instructed consultants, LEK, to provide a "modelling analysis" of a number of options for market entry by RUKA based on various strategies involving varying amounts of exclusivity of rights.
138. On 6^th October 2006, BAGS wrote to the 6 racecourses which had existing contracts with BAGS, which were due to expire on 31^st March 2007. BAGS said in its letter to each of these 6 courses that BAGS was aware that the course was in negotiations with a third party for an exclusive licence for the access and media rights necessary to supply pictures and/or related information to LBOs. BAGS said in its letter that the market background was that it had never been necessary to license such rights on anything other than a non-exclusive basis. BAGS asked each of the 6 courses whether that course was prepared to enter into renewal discussions with BAGS and whether it was indeed the case that that course was seeking to license the relevant rights on an exclusive basis, and if so, why exclusivity was thought to be necessary.
139. Of the 6 courses which received this letter of 6^th October 2006, 5 courses were RUK courses and the sixth was Ascot. The 5 RUK courses did not reply to the letter. Mr Fabricius of Goodwood stated that he wanted to take legal advice before replying to the letter and he thought that the RUK courses should take a collective view. Ascot did reply to the letter by an e-mail of 1^st November 2006 inviting BAGS to make an offer for Ascot's LBO rights. Mrs Walker of Ascot gave evidence and stated that Ascot was perfectly open to having a discussion with BAGS and was prepared to consider all offers made. In the end, Ascot was satisfied with the deal offered with AMRAC and signed an exclusive agreement with AMRAC.
140. On 10^th October 2006, Mr Bazalgette of AMRAC met representatives of the racecourses known as the "Super 14". Mr Bazalgette described what was involved in the proposed joint venture. Mr Bazalgette referred to BAGS' letter of 6^th October 2006 to 6 racecourses. He recommended that the racecourses should check their response for competition law issues.
141. On 12^th October 2006, Wiggin LLP gave advice on an appropriate response to BAGS' letter of 6^th October 2006.
142. On 16^th October 2006, there was a meeting of the council of the ABB. The minutes of that meeting contain only a limited reference to the joint venture involving Alphameric.
143. On 20^th October 2006, SIS entered into an exclusive licence agreement with Towcester racecourse for its LBO rights.
144. On 26^th October 2006, some 8 or 9 courses which were formerly part of the GG Media courses informed Mr Bazalgette of AMRAC that those courses had "signed up" with SIS. In fact, the formal documents were signed a little later, on 10^th November 2006 and the courses involved were what are known as the 8 ICAC courses and Sedgefield (which signed on the 16^th November 2006). Mr Lees acting on behalf of those courses wrote to Mr Bazalgette on 26^th October 2006 stating that those courses preferred the certainty offered by the SIS offer. On the same day, Mr Bazalgette sent an e-mail to the RUK courses and Ascot referring to the 9 courses having "signed" with SIS. Mr Bazalgette said that the fact that AMRAC had not signed with those 9 courses did not undermine its plans.
145. On 30^th October 2006, LEK delivered its first report. I will not refer to the detailed contents of that report but in due course I will refer to a later version of it.
146. On 31^st October 2006 the 30 RUK courses granted non-exclusive LBO rights to RUK for the period to 28^th February 2010.
147. In November 2006, RUK sent letters to the 30 RUK racecourses informing them of the proposed joint venture, offering on behalf of the proposed joint venture to acquire LBO licence rights and inviting the courses to enter into a period of exclusive negotiation with the joint venture until the end of December 2006.
148. On the 10^th November 2006, SIS entered into an exclusive licence agreement with the 8 ICAC racecourses. On the 16^th November 2006, SIS entered into an exclusive licence agreement with Sedgefield.
149. On the 16^th November 2006, BAGS concluded an exclusive LBO agreement with Northern in respect of its 8 courses.
150. On the 16^th November 2006, LEK prepared its second report. I will not refer to the detailed contents of this report but I will, in due course, refer to a later version of it.
151. On 1^st December 2006, the joint venture known as AMRAC was created. On that date, AGL, RMS and AMRAC entered into a shareholders' agreement. AGL and RMS each acquired 500 shares in AMRAC. By clause 2.3 of the shareholders' agreement completion of the vesting of the shares was conditional on the satisfaction or waiver of a number of conditions. The first condition was that at least 19 of the RUK courses agreed to make their non-exclusive LBO rights available to AMRAC as of 31^st January 2007 and their exclusive rights were to be made available to AMRAC as soon as the courses were permitted to do so, on the expiry of any existing contracts licensing their LBO rights.
152. On 4^th December 2006, a draft AMRAC business plan was produced. This draft business plan referred to the market opportunity to offer a new content and data supply service to LBOs in the United Kingdom. The plan said that SIS had operated a de facto monopoly for many years and SIS was supported by its bookmaker shareholders, Ladbrokes and William Hill, who together owned about 45% of SIS. The opportunity for a second service in the LBO sector flowed initially from the granting of exclusive media rights by racecourses. The business plan referred to benefits which would accrue to customers from the new service. The plan stated that the financial reward for successful entry into the market was significant and set out a number of figures which it is not necessary for me to state in this judgment. The new service was described as including a full range of betting content and data. The core of the service was to be horseracing from the UK racecourses who licensed their media rights, supplemented by horseracing from other UK racecourses, greyhound racing, international horseracing, other sporting events, numbers games and virtual content. The plan stated that the new service would be sold to all subscribers at a lower price than the current SIS prices. The plans stated that the new service would bring competition to an uncompetitive sector. The plan referred to the fact that participating racecourses would, through RMS, benefit from the success of AMRAC in that the equity share of each racecourse would be determined by reference to the value that the racecourses bring to AMRAC and this would be assessed as a share of the betting turnover generated by each racecourse in those LBOs which took the AMRAC service. The plan suggested that when the AMRAC service was launched on 1^st January 2008, it would have access to the exclusive rights to 30 RUK courses and also potentially to the exclusive and/or non-exclusive rights to other courses which might participate, possibly Ascot, Arena and others. In that way, AMRAC would have coverage from up to 41 of the 60 UK racecourses, with the majority of those racecourses potentially available exclusively to AMRAC subscribers. The plan stated that LEK had advised that it was necessary to obtain a certain amount of exclusive high value content in order to enter the market in the face of an existing monopoly competitor. Based on LEK's research, AMRAC believed that it would be necessary for AMRAC to have the exclusive right to distribute pictures and data from 18 racecourses. The plans stated that AMRAC planned to acquire exclusive content from all of the RUK courses and then sub-license 13 racecourses to BAGS/SIS. The plan identified a number of respects in which the new venture would promote technical and economic progress. The plan referred to the reluctance of those bookmakers who were shareholders in SISH to take the AMRAC service. This was addressed in the business plan by assuming that both Ladbrokes and William Hill would not take up the service in the first year of operation but that one of them would take up the service in the second quarter of the second year of operation. Even then, that bookmaker would only take the exclusive content in the service and not the entire service. The plan stated that the service would go live on 1^st January 2008 and that there would be no income from LBOs until that date. The plan recognised that from 1^st April 2007, AMRAC would have exclusive rights to horseracing content from 5 RUK courses and potentially also from Ascot. The business plan assumed that the LBO rights to these courses would be sub-licensed to BAGS/SIS for non-exclusive use until 31^st December 2007 and the sub-licence would generate revenue in that period.
153. On 6^th December 2006, BAGS entered into an exclusive LBO agreement with Arena in respect of its 7 courses.
154. On 4^th December 2006, the council of the ABB met. The minutes of that meeting contain a limited reference to what was described as RUK's new picture service.
155. On 7^th December 2006, AMRAC attended a consultation with Mr Swift QC and Mr Harris of Counsel. I was shown a brief note of consultation. There is a reference to a third party having secured 40% of the market. This would seem to be a reference to BAGS and SIS together. By 7^th December 2006, BAGS and SIS had entered into a number of exclusive licensing agreements. The advice of Counsel was that in order for AMRAC to be able to get into the market, it should take "as much as we can get – what we need to survive in the market place". This seems to be a reference to AMRAC acquiring as many exclusive rights as it could. Counsel added that AMRAC no longer needed to worry about a BAGS/SIS attack on the basis of competition law as there was no longer any question about forcing BAGS/SIS out of the market.
156. On 7^th December 2006, Mr Morcombe of Alphameric/AMRAC telephoned Mr Kelly of BAGS. Mr Morcombe had plainly heard about the agreement between BAGS and the operator of the Arena courses. Mr Morcombe asked to meet BAGS and a meeting was arranged for 13^th December 2006.
157. Also on 7^th December 2006, Mr Brown of RUK sent an e-mail to the RUK courses. Mr Brown referred to the fact that BAGS had signed up Arena. Mr Brown suggested that this development did not change RUK's plans significantly. RUK would make an offer to each of the courses shortly and the offer would be accompanied by a detailed business plan. Mr Brown stated that the financial viability of the business plan was not significantly affected by the news and in some circumstances the viability might be improved by the news. The new service having content from 30 RUK courses made the new service a "must have" for bookmakers and the new service would be able to enter the market even if it only had that content. Mr Brown encouraged a show of unity on the part of the RUK courses. If the effort to create a new service and enter the market failed then no similar opportunity would arise for at least a further five years.
158. On 8^th December 2006, BAGS wrote to the 5 RUK courses whose agreements with BAGS ended on 31^st March 2007. In its letter, BAGS stated that it was interested in discussing an extension to that agreement. One of these 5 courses (York) later replied telling BAGS that York was in a period of exclusive negotiation with AMRAC.
159. RUK's thoughts about the effect of BAGS signing with Arena are usefully revealed in an e-mail dated 8^th December 2006 from Mr Brown of RUK to Mrs Hordern of Newbury. He wrote: "much about the financial plan and strategy now changes as a result of the Arena decision, but on the positive side, it strengthens our legal position considerably, to the extent that we no longer need to be so measured about our use of exclusivity."
160. Around this time, RUK had considered whether to complain to the OFT about the conduct of BAGS in signing exclusive agreements with racecourses. It appears from an e-mail sent by Miss Curran of RUK on 8^th December 2006 that the considered view was that nothing would be achieved by complaining to the OFT at that stage. This e-mail also records the increasing confidence on the part of those behind the new service that there was less of a concern from a competition law perspective in the new service taking exclusive licences from the courses.
161. On 11^th December 2006, RUK sent the draft business plan of 4^th December 2006 to Mr Derby of York. The covering e-mail referred to a further draft of the business plan which was in the course of preparation.
162. Around this time, York signed a letter addressed to RUK agreeing on a period of exclusive negotiations with Alphameric. The exclusivity period was until 31^st December 2006 but was later extended, first, to 15^th January 2007 and, later, to 31^st January 2007.
163. Mr Kelly of BAGS met Mr Morcombe of Alphameric/AMRAC on 13^th December 2006. AMRAC presented details, as it saw it, of the intended new service. Mr Kelly was not impressed. He thought many of AMRAC's statements were window dressing. In particular, when AMRAC suggested that there might be savings to bookmakers, Mr Kelly questioned that assertion.
164. By 14^th December 2006, all 30 RUK courses had agreed to a period of exclusive negotiation with AMRAC.
165. On 19^th December 2006, SIS entered into an exclusive agreement with Great Leighs in relation to its LBO rights.
166. In around the middle of December 2006, AMRAC prepared a revised executive summary of its draft business plan. The executive summary identified financial rewards which were greater than in previous versions. This was explained on the basis that AMRAC believed it was able to use exclusivity to gain entry to the market and its customers would include the large bookmakers that were shareholders in SISH. The figures were calculated on the basis that the British horseracing contracted to AMRAC consisted of only the 30 RUK courses and that the bookmakers took only the exclusive content. The executive summary also stated that AMRAC had previously been very cautious about using exclusivity as a tool to gain entry into the market. However, the summary stated, in view of the "incumbent monopoly player" having taken exclusive rights from a number of other significant courses, AMRAC believed it needed to use the maximum level of exclusive content that it could obtain in order to enter the market. The summary stated that this view was based on detailed legal advice received from Queen's Counsel as well as advice from RBB Economics and management consultants, LEK.
167. On 20^th December 2006, AMRAC received detailed written advice on competition law aspects of their proposed action. The advice was apparently given by Mr Swift QC, Mr Harris and by Wiggin LLP rather than by Counsel alone. The advice referred to previous developments and previous advice given by Mr Swift. The advice then referred to the steps which had then been taken by BAGS/SIS to obtain exclusive LBO rights in respect of racecourses. The advice stated that BAGS/SIS had exclusive access to over 40% of UK LBO rights by value and 51% of races. The advice to AMRAC was that it should acquire as many RUK courses' LBO rights as it could on an exclusive basis if it wished to enter the market in January 2008 and to establish a sustainable business. It was stressed that this approach was "not without risk" and could lead to legal action. AMRAC was told that it could argue that the end game in this scenario was a duopoly whereby SIS and AMRAC effectively each owned around 50% of the market and provided content to LBOs on a simultaneous and concurrent basis. The conclusions of the advice were that the context of the advice had radically changed from the time of the earlier advice in April 2006. In December 2006, in order for AMRAC to have any serious chance of entering the market so as to compete with BAGS, it was said to be imperative for AMRAC to do broadly what BAGS had done and to create its own product through a series of exclusive contracts.
168. On 22^nd December 2006, BAGS entered into an exclusive sub-licence with SIS for distribution on SIS Facts of the exclusive LBO rights acquired by BAGS from Northern and Arena. The sub-licence contained terms which restricted the charges which SIS might make to LBOs for the SIS Facts service.
169. On 22^nd January 2007, there was a meeting of the council of the ABB. The agenda papers noted that BAGS had entered into exclusive contracts with Arena and Northern and that BAGS had "appointed" SIS to supply the LBO picture service during the duration of those agreements on terms which controlled the charges that could be made by SIS to LBOs. The copy of the agenda disclosed was annotated by Mr Kelly to assist the chairman of the meeting. Mr Kelly's annotation refers to the fact that 5 RUK courses were coming to the end of their agreement with BAGS on 31^st March 2007. Mr Kelly suggested that BAGS would not wish to assist those 5 courses by continuing arrangements with them until the new RUK service were available. Mr Kelly then referred to finding alternative content to replace the content lost from these 5 courses.
170. On 31^st January 2007, AMRAC entered into 18 separate agreements (to which RMS, RUK were also parties) with the 18 operators of the 30 RUK courses. The licences were non-exclusive for so long as those courses were subject to non exclusive agreements with BAGS and thereafter the licences were exclusive. The licence agreements were conditional on each operator signing the RMS shareholders' agreement. The exclusive terms of the licence were therefore from 1^st April 2007 (for the 5 RUK April 2007 courses) and from 1^st January 2008 for the other 25. All the licences expire on the 31^st March 2013.
171. On 31^st January 2007, the RUK shares in RMS were transferred to the 18 operators of the 30 RUK courses and the licence agreements of 31^st January 2007 became unconditional.
172. Also on 31^st January 2007, Mr Bazalgette of RUK/AMRAC and Mr Morcombe of Alphameric/AMRAC met Mr Kelly of BAGS. Mr Kelly was told that the AMRAC full service was planned to commence on 1^st January 2008. The parties discussed the 5 RUK April 2007 courses and also the possibility of Ascot signing with AMRAC. Ascot's agreement with BAGS was due to end on the 31^st March 2007. No conclusion was reached as to whether BAGS would take on the rights to these 6 April 2007 courses for the period to 31^st December 2007.
173. The BAGS board met on 5^th February 2007. The board discussed the suggestion from AMRAC that BAGS should agree, through SIS, to distribute content from the 5, or 6, April 2007 courses until 31^st December 2007. Mr Kelly made a detailed report to the board. The board decided that there was no benefit for BAGS in supporting AMRAC until it could commence transmission at the end of 2007. BAGS concluded it was better equipped to negotiate with the 5 or 6 courses itself and that there was still scope for BAGS to do so. BAGS was not interested in renewing the agreements with those courses for a short period but would want a 3 year period of renewal. BAGS then recognised that it should look for content to fill the slots previously allocated to content from the April 2007 courses. The board noted that each bookmaker was free to take the AMRAC service and should reach its own decision separately about whether to deal with AMRAC.
174. On 8^th February 2007, BAGS wrote to Mr Morcombe of Alphameric/AMRAC in relation to the 5 RUK April 2007 courses. BAGS turned down the proposals that had been made by AMRAC to BAGS. BAGS stated that it was better equipped than AMRAC to negotiate terms with those racecourses. The letter was copied to the 5 RUK April 2007 courses.
175. On 9^th February 2007, Mr Morcombe of Alphameric/AMRAC met Mr Ross of Ladbrokes to discuss the terms on which Ladbrokes might subscribe to Turf TV. The financial terms on offer at that point to Ladbrokes showed a very considerable discount to the standard tariff charged by AMRAC.
176. On 13^th February 2007, Mr Morcombe of Alphameric/AMRAC replied to BAGS' letter of 8^th February 2007. Mr Morcombe set out the terms on which AMRAC would offer to BAGS a licence until 31^st December 2007 in relation to the 5 RUK April 2007 courses. AMRAC stated that it was open to constructive discussion with BAGS.
177. Also on 13^th February 2007, Mr Kelly gave an interview to the Racing Post. Mr Kelly referred in detail to the position with the 5 RUK April 2007 courses. Mr Kelly stated that BAGS and AMRAC were now competitors and BAGS was looking for alternative content to cover the gap produced by the absence of the April 2007 courses.
178. On 20^th February 2007, AMRAC revised its business plan. The financial rewards identified in the draft business plan were greater than shown in earlier drafts. The business plan stated that the new service would be launched on 1^st January 2008 but a pilot service would be available from 1st September 2007. It was stated that the first three quarters of 2007 would be the key recruitment period in order to drive the necessary market penetration to make the new service viable. At this stage, AMRAC was plainly still assuming that the content from the April 2007 courses would be provided through BAGS or SIS and not by AMRAC. In fact because BAGS would not agree on that possibility with AMRAC, AMRAC launched its own service on the 20^th April 2007.
179. The Annual General Meeting of the ABB took place on 22^nd February 2007, Mr Kelly, as Chief Executive of the ABB made a detailed report to the meeting. Mr Kelly referred to the then recent debate about the retention of the levy and a possible alternative to the levy represented by commercial funding of racecourses by the betting industry. He then referred to AMRAC. He declared an interest by reason of his involvement with BAGS. He stated that each bookmaker should decide for itself where its commercial interests lay. He then pointed out, in his view, a number of advantages which BAGS offered and some disadvantages in the AMRAC service. He identified three possibilities for bookmakers to adopt. One was to take the SIS service alone. The second was to take the AMRAC service alone. The third choice was to take both services. Although AMRAC had said that competition between AMRAC and SIS would force the price down, Mr Kelly expressed doubts on that score.
180. On 5^th March 2007, SIS entered into an exclusive agreement with Newton Abbott racecourse in relation to its LBO rights.
181. On 14^th March 2007, AMRAC entered into an exclusive agreement with Ascot in respect of its LBO rights in respect of the period from 1^st April 2007 to 31^st March 2013.
182. The board of BAGS met on 27^th March 2007 and discussed ways in which additional content could be obtained to fill the slots vacated by the April 2007 courses.
183. On the 19^th April 2007, Paddy Power agreed to take Turf TV.
184. On the 20^th April 2007, in the absence of an agreement between BAGS and AMRAC, AMRAC launched the Turf TV service in relation to the 6 April 2007 courses.
185. On the 24^th April 2007, Mr Ross of Ladbrokes met Mr Morcombe of Alphameric/AMRAC.
186. On the 9^th May 2007, SIS entered into an exclusive agreement with Ripon racecourse in relation to its LBO rights.
187. Mr Smee of Jockey Club Racecourses Limited gave evidence that in May 2007 he telephoned Mr Kelly of BAGS to offer BAGS a licence of the LBO rights for the forthcoming (from 1^st September 2007) evening race fixtures at Kempton Park racecourse. Mr Kelly did not recollect any such conversation at that time.
188. On 8^th June 2007, there was a meeting of the board of BAGS. One of the topics considered was whether BAGS would take the rights in relation to evening meetings at Kempton Park which were scheduled to begin on 1^st September 2007. The board decided that it would not take these rights. Also on 8^th June 2007, Mr Kelly telephoned Mr Smee of Jockey Club Racecourses Limited to tell him of this decision.
189. On the 11^th June 2007, SIS entered into a new agreement with AIR for exclusive worldwide media rights for a term commencing 1^st January 2009.
190. On 25^th July 2007 the Claimants' solicitors wrote a letter before action to the Defendants. On 7^th August 2007, the Defendants' solicitors replied. On 13^th September 2007 the present proceedings were issued.
191. On 27^th September 2007, SIS entered into an exclusive agreement with Plumpton racecourse for its LBO rights for a period from 1^st January 2008.
192. On Friday 21^st December 2007, Coral a signed a five year deal with Turf TV. This information had leaked, as a rumour, by Saturday 22^nd December 2007. Coral agreed to take Turf TV using SIS infrastructure. Coral was the first major bookmaker to sign up for Turf TV. The proceedings between Coral and the Defendants were settled on confidential terms.
193. By 27^th December 2007, Mr Bell of Ladbrokes was able to report that he was putting the finishing touches to a five year contract between Ladbrokes and Turf TV.
194. On 1^st January 2008, Ladbrokes agreed to take Turf TV using Ladbrokes' own television service and infrastructure, known as Ladbrokes Xtra.
195. On 11^th January 2008, William Hill agreed to take Turf TV, using SIS infrastructure.
196. On 18^th March 2008, a company known as Bookmakers Technology Consortium Limited ("BTC"), a collection of bookmakers, served proceedings on AMRAC, RMS and AGL seeking an urgent interim mandatory injunction to compel AMRAC to provide Turf TV to their members on terms which were more favourable to the bookmakers than those previously on offer from AMRAC.
197. On 26^th March 2008, Norris J declined to grant an injunction to the claimants in the BTC litigation.
198. I was shown a circular letter dated 5^th June 2008 sent by SIS to its customer LBOs. The letter is headed "we are listening" and goes on to explain how SIS is concerned to understand its customers' needs and to provide the right kind of service for those customers. It was suggested that this behaviour by SIS was a reaction to the arrival of Turf TV as a competitor in the market and was a beneficial effect of such competition.

PART 4: THE EVIDENCE FROM THE ECONOMISTS

The three economists

199. The court heard evidence from three distinguished economists. The Claimants called Mr Biro of Frontier Economics Limited. The Defendants called Dr Niels of Oxera Consulting Limited. SIS called Dr Bishop of CRA International Limited. These three experts met and agreed a statement which recorded the extent of their agreement and their disagreement on various matters. Before turning to that statement, I ought to record one feature of the evidence of Mr Biro.

A preliminary matter

200. Mr Biro was asked by the solicitors acting for the Claimants to comment on two specific issues or groups of issues. The first issue was as to the extent to which AMRAC needed to secure media content exclusivity agreements with a number of British racecourses in order to enter the market for the supply of television channels containing live British horseracing content to LBOs. Specifically, Mr Biro was to consider: (a) whether AMRAC's arrangements with the 30 RUK racecourses and Ascot were necessary to ensure viable entry into the market; or (b) whether there were any less restrictive entry models available to AMRAC. The second issue or group of issues was as to the anticipated consumer welfare effects arising from the entry of Turf TV into the market for the supply of television channels containing live British horseracing content LBOs. Mr Biro was specifically asked to consider: (a) whether at the time of AMRAC's entry, one could reasonably have foreseen the launch of Turf TV as leading to consumer benefit; and (b) if less restrictive entry models were available to AMRAC, what would have been the effect on competition in the market, on LBOs and on their customers of AMRAC having gone beyond what was necessary. Further, in relation to the first issue or group of issues, Mr Biro was asked by the Claimants' solicitors to proceed on a certain factual assumption. Notwithstanding the fact that by 31^st January 2007, when AMRAC entered into exclusive LBO licences for 31 racecourses, BAGS and SIS between them had signed up some 26 British racecourses on exclusive terms, Mr Biro was asked to assume that the only exclusive media content available to BAGS and SIS were the ten former GG Media Racecourses in Britain and 27 courses in the Republic of Ireland and Northern Ireland and BAGS Greyhound Tracks. At no time during his written or oral evidence did Mr Biro move from that position which he had been asked to adopt and which was at variance with the real facts as at 31^st January 2007.
201. The other two experts (Dr Niels and Dr Bishop) addressed many more issues than those addressed by Mr Biro. Accordingly, when the three experts met the three of them (including Mr Biro) discussed matters which were not the subject of Mr Biro's written evidence. In the statement prepared by the three experts, the position of Mr Biro is identified in relation to a number of matters he had not dealt with in his written evidence. Notwithstanding that fact, the Claimants did not at any time seek to put in a further report from Mr Biro in which he might have dealt with matters in addition to those dealt with in his written evidence. Indeed, the Claimants did put in a supplemental report but again restricted to the matters addressed by Mr Biro in his original report. Accordingly, when Mr Biro was called to give oral evidence at the trial an issue arose as to the status of that part of the statement of the experts which identified Mr Biro's position in relation to matters that he had not addressed in his written evidence. I ruled that the Claimants were not entitled to call Mr Biro to give evidence in chief on matters that were not contained in his initial report and his supplemental report. In particular, any statement as to Mr Biro's position recorded in the joint statement of experts was not evidence in chief by Mr Biro. However, I went on to state that the statement of experts existed and if it became material to know at some point what an expert might have said outside his evidence in chief, for example, in a letter or in a document or in a joint statement between experts, then the joint statement could be referred to for the purpose of identifying such a position.
202. I indicated at the time when I gave my ruling on this question that I would give short reasons for that ruling in this judgment.
203. The subject of experts' reports is dealt with by CPR Part 35. Rule 35.5 states that expert evidence is to be given in a written report, unless the court directs otherwise. Rule 35.6 again refers to the report prepared by the intended expert. Rule 35.10 states that an expert's report must comply with the requirements set out in the relevant Practice Direction. Rules 35.10(2) and (3) specify other requirements as to the contents of an expert's report. The Practice Direction referred to in Rule 35.10 identifies general requirements as to expert evidence in paragraph 1 and deals with the form and contents of an expert's report in paragraph 2. It is not necessary to read the detail of those requirements into this judgment. The notes in Civil Procedure at 35.10(2) contain further commentary on the required contents of an expert's report.
204. Mr Biro complied with the requirements of the rules and the Practice Direction in the first report and in the supplemental report which he prepared. Those requirements have not been complied with in relation to that part of the statement of the experts which records his position in a number of respects. It seems to me to follow from the requirements of the Rules and of the Practice Direction, and the form of the documents I have referred to, that Mr Biro's report for the purposes of CPR Part 35, and therefore the permitted scope of his evidence in chief, is confined to his first report and his supplemental report. The result is that the record of his position in the joint statement of experts is not part of his report and ought not to be part of his evidence in chief, unless the court directs otherwise under Rule 35.5. I was not, in the event, invited to give such a direction under Rule 35.5.
205. Mr Green on behalf of the Claimants relied on Rule 35.12 and on the order of Lindsay J. on 11^th October 2007, when he directed the experts to meet to discuss the issues between them and to prepare and file a statement for the court showing the issues on which they agreed and the issues on which they disagreed, with a summary of their reasons for disagreeing. That order was complied with by the three experts when they prepared their joint statement to which I have referred. I do not suggest that the Claimants or Mr Biro have broken any rule. Nonetheless, the fact remains that the steps which have been taken and the documents which have been prepared have produced a result that Mr Biro can give evidence in chief in accordance with his report and supplemental report, but not further or otherwise.
206. It should be remembered that if the Claimants had wanted Mr Biro to give evidence on subjects wider than those addressed in his report and his supplemental report, particularly when they saw the scope of the evidence given by Dr Niels and Dr Bishop, it would have been open to them to request Mr Biro to prepare a further report dealing with those matters and one which complied with the rules and the Practice Direction. At no time did the Claimants seek to do this.
207. If I had permitted Mr Biro to give evidence in chief in accordance with the statement of his position in the statement of the experts, then the situation would have been unsatisfactory as regards the conduct of the trial. If that statement of his position had been part of his evidence in chief, it would seem that it would have been necessary for the other parties to cross examine Mr Biro on matters where he disagreed with other experts. If Mr Biro had been cross-examined on those matters, not dealt with in his report or his supplemental report, then the cross-examiner and the court would have heard for the first time his reasons for his position when he gave answers in cross-examination. That is the very thing which the rules and the Practice Direction were meant to prevent and it would have been plainly unsatisfactory for the other parties to this dispute.
208. It was for the above reasons that I ruled during the course of the trial that Mr Biro's evidence in chief was to be confined to his report and his supplemental report.

The experts' joint statement

209. As already explained, the three economists drew up a statement recording areas of agreement and of disagreement. In so far as this statement sets out the agreement of the three economists it is, of course, very helpful. In so far as the statement sets out areas of disagreement between Dr Niels and Dr Bishop in respect of matters discussed in their expert's reports then, again, the statement is useful as identifying the matters in dispute between them. In so far as the statement indicates disagreement on the part of Mr Biro with either Dr Niels or Dr Bishop, then the statement is useful if the relevant issue is a subject discussed in Mr Biro's report. If the area of Mr Biro's disagreement with one or other expert is not discussed in Mr Biro's report then that is an issue on which Mr Biro did not give evidence in chief and, speaking generally, was not cross-examined and I do not have his evidence on that subject. As explained above, the part of the experts' joint statement which records Mr Biro's position on a matter he does not deal with in his evidence is not part of the evidence on behalf of the Claimants.
210. With the above comments on the joint statement of the experts, I will now attempt to summarise the areas of agreement and disagreement between them. I start with the issue of market definition where there is essentially no dispute between the experts. The experts were able to agree that there were two relevant product markets, the upstream market and the downstream market. The upstream market includes the acquisition of licences for media rights to British horseracing. The downstream market includes the supply of televised broadcasting of live British horseracing to British LBOs. Dr Bishop suggested that the product markets might be narrower than those described. The three experts left open the question whether in some respects the relevant product markets might be wider than those described in that the relevant product markets could arguably include Irish horseracing, the supply of services to Irish LBOs and the supply of data. As regards the relevant geographic markets, the experts saw the choice as one between (a) the British Isles (essentially the United Kingdom and the Republic of Ireland) as a single market and (b) Great Britain being a separate market from Ireland (Northern Ireland and the Republic of Ireland). The experts concluded that it was not necessary to make this choice for the purpose of determining the other issues in the case.
211. The experts then considered whether the upstream market or the downstream market constituted a natural monopoly. This was a matter that only Dr Niels had considered in his report. He was of the view that neither the upstream market nor the downstream market constituted a natural monopoly. Dr Bishop did not address the matter because it was not material to the issues he had considered and he thought it was inherently difficult to know the answer to this question. Mr Biro agreed with Dr Neil that neither market constituted a natural monopoly and both markets seemed capable of supporting more than one supplier.
212. The experts then considered whether obtaining a critical mass of LBO customers was necessary in order for any new broadcaster to enter the downstream market and whether both Irish and British LBOs were relevant for such critical mass. Mr Biro agreed that it would be necessary for a new broadcaster to require a certain mass of LBO customers in order to enter the downstream market on a profitable basis. He commented on the evidence as to what the critical mass might be. Dr Neil agreed that critical mass was necessary and that both Irish and British LBOs were relevant for such critical mass. Dr Bishop agreed that critical mass was necessary although he stated this issue was not relevant to the matters dealt with in his report.
213. The experts then considered whether exclusivity was necessary for the sellers of media rights to maximise their revenues and whether exclusivity was in the interests of racecourses. Dr Niels agreed that exclusivity was in the interests of racecourses as it allowed them to enhance their revenues from media rights. Dr Bishop agreed that exclusivity was necessary for the sellers of media rights to maximise their revenues and was in the interests of racecourses. Mr Biro disagreed with the proposition in the question. He stated it would be equally possible for racecourses to maximise their revenues by licensing their media rights on a non-exclusive basis. He thought that the answer depended on whether the media rights were sold on a lump sum basis or on a royalty basis. If rights were sold on a lump sum basis, exclusivity might be necessary for revenue maximisation but if rights were sold on a royalty basis then exclusivity was not necessary to maximise revenue.
214. The next issue in the joint statement was whether exclusivity allowed broadcasters to differentiate their services, and thereby increase their revenue. Dr Niels and Dr Bishop agreed that this was so. Mr Biro questioned the word "differentiate" and its applicability to a case where broadcasters offered similar amounts of exclusive content. He thought that it was more accurate to say that exclusivity could create a "must-have" element to the services of each broadcaster and that would allow broadcasters to increase their revenues.
215. The experts then considered whether exclusivity was necessary for competing broadcasters to invest, or to recover their investments, in channel production and distribution. Dr Niels stated that a degree of exclusivity was necessary to recover the broadcaster's investment. The necessary degree of exclusivity was higher for AMRAC as an entrant as compared with SIS as an incumbent. Dr Bishop agreed with the proposition in the question. Mr Biro disagreed. He thought that a degree of exclusivity might be required but the question had not been fully addressed. The answer depended on the scope for suppliers to differentiate their services by other means. Further, the size of the fixed costs which were said to drive the need for exclusivity depended to a large extent on whether the media rights were sold on a lump sum basis (and so constitute a fixed cost) or on a royalty basis (and so constitute a variable cost). He went on to state that a relatively small amount of exclusive content could suffice to ensure viable market entry.
216. The next issue was as to the relevant counterfactual for the purpose of considering the effects on competition. I comment that this question is not as precise as it might be. It would have been helpful to have identified what was the thing which was said to have an effect on competition. Was it the fact that the AMRAC licences were exclusive? Was it the fact that the AMRAC licences were the result of collective selling by racecourses or closed selling by racecourses? Dr Niels stated that the correct counterfactual was one in which no entry by AMRAC took place (i.e. there would still be a SIS monopoly) since (he stated) the AMRAC licences were necessary for entry in the first place. Dr Bishop said that the correct counterfactual for assessing the competitive effects of exclusive agreements was what would happen if the agreements were non-exclusive. This answer focuses on the effect of exclusivity and not the effect on competition of any other matters of complaint. Mr Biro stated that the relevant counterfactual would be the situation which prevailed prior to AMRAC's entry if the AMRAC arrangements were necessary in order to ensure market entry. If the AMRAC arrangements went beyond what was necessary (in terms of exclusive licensing on a collective and closed basis) then a less restrictive form of entry would constitute the relevant counterfactual.
217. The experts then considered whether harm to consumers was a necessary condition for exclusivity to be anti-competitive. Dr Niels dealt with this issue as a matter of principle by stating that harm to consumers was not always a necessary condition for exclusivity to be anti-competitive as there could be situations where exclusivity was anti-competitive if it harmed intermediate customers (who were not end consumers) or if it harmed suppliers. Dr Bishop stated that harm to final consumers (punters) was a necessary, but not a sufficient, condition for exclusivity to be anti-competitive. Mr Biro disagreed that harm to consumers was a necessary condition for exclusivity to be anti-competitive. The question of whether an agreement between firms including an exclusivity provision served to restrict competition was logically distinct from the question of whether the agreement was harmful to consumers. Agreements which restricted competition might or might not result in harm to consumers. Agreements which did not harm consumers or were even beneficial to consumers could be unnecessarily restrictive of competition by having anti-competitive elements which were dispensable.
218. The experts then considered whether greater income from media rights flowing to racecourses was beneficial to the sport of horseracing and ultimately consumers. Dr Niels and Dr Bishop succinctly agreed with this proposition. Mr Biro provided a detailed answer which involved some element of disagreement. In particular, he did not think that an increase in racecourse income from the sale of media rights was likely to be beneficial to the sport and ultimately to consumers. The answer depended on how the monies were used by racecourses and he thought that that issue had not been fully addressed. Mr Biro suggested that Dr Bishop's report was inconsistent on this point in that Dr Bishop was sceptical that increased costs faced by LBOs as a result of the AMRAC arrangements would feed through to punters but also stated that increased revenues to racecourses would feed through to the sport of horseracing. Mr Biro also suggested that the historic role of BAGS, acting in the interest of LBOs, should be taken into account. He stated that if greater incomes were good for the sport of horseracing in a manner that was beneficial to LBOs, then BAGS would have taken these considerations into account when negotiating with the racecourses. Mr Biro also disagreed that punters were net beneficiaries from the AMRAC arrangements in particular as a result of the increase in costs to LBOs. Mr Biro stated that racegoers were not relevant in this context as they were not consumers of the media rights or services based on those rights, the subject of the AMRAC arrangements. Further, racegoers did not bear the detriments which resulted from the AMRAC arrangements.
219. The next question considered by the experts was whether an industry-wide cost increase for LBOs resulted in harm to consumers. Mr Biro thought that the cost to LBOs would ultimately be borne by the punter and this was harmful. Dr Niels had not specifically addressed this question in his report as he had set out the likely non-price benefits of competition between SIS and AMRAC to LBOs and their customers from enhanced content and technology. He thought that the cost increase to LBOs was a consequence of the removal of a 20 year SIS monopsony and should not be viewed in isolation. Dr Bishop thought that an increase in costs for LBOs would not automatically result in significant harm to consumers because prices to consumers were unlikely to increase appreciably, because it was not clear that a significant number of LBOs would exit the market and it was unlikely the cost increases would significantly affect LBOs investments.
220. On the next topic, whether it was relevant to consider the effects of the arrangement at issue on competition in both the upstream and the downstream markets, Mr Biro and Dr Niels agreed that it was. Dr Bishop agreed subject to an earlier point he had made that the arrangements could be anti-competitive only if they resulted in consumer harm.
221. The experts then addressed the nature of AMRAC's licence agreements. They considered whether obtaining some exclusive British horseracing content was necessary in order for AMRAC to enter the market. Dr Niels thought that the answer was "yes". Dr Bishop thought the answer was probably "yes" but it was not relevant to the particular matters considered in his report. Mr Biro considered that this proposition was a possibility but he was unable to reach a reliable conclusion on the basis of the available evidence. The experts then went on to consider: what was the amount of exclusive British horseracing content which would have represented the minimum necessary? Mr Biro suggested that the LEK report which had been obtained by AMRAC "implied" that the scope of the AMRAC arrangements under its Business Plan was more than necessary in order to enter the market. However, Mr Biro pointed out that the LEK reports were based on SIS having a certain amount of exclusive content in its service and the assumed exclusive content of SIS was less than the actual exclusive content available to SIS by the end of January 2007 when the AMRAC licences were entered into. Mr Biro went on to refer to "various shortcomings" in the LEK reports so that he was unable to reach a reliable conclusion on the exact minimum level of exclusivity that would be necessary but he felt able to conclude that the minimum level was materially less than was envisaged under the ARL Business Plan. Dr Niels thought it would be difficult for anyone to determine the minimum level of exclusivity required. He stated that Mr Biro's estimate of the minimum exclusivity required was no more robust or reliable than the estimate of LEK. He further stated that the question of minimum exclusivity for AMRAC could not be meaningfully addressed if it was assumed that SIS had less exclusivity in its content than it actually did at the end of January 2007. Dr Bishop said that the answer to the question was inherently difficult and he had not addressed the issue because it was not material to the questions considered in his report.
222. The next question was whether the sale of the media rights to the RUK courses on a collective and closed basis was necessary in order for AMRAC to enter the market. Mr Biro stated that if a new entrant needed to obtain a certain amount of horseracing content on an exclusive basis, then the collective selling in relation to these rights might have been necessary. To the extent that the scope of the AMRAC arrangements was more than was necessary in order to enter the market, then the collective selling of the RUK media rights would have been unnecessary. Mr Biro was not aware how it would have been necessary for the RUK media rights to have been sold on a closed basis and why new entry into the downstream market could not have been achieved through an open and competitive bidding process.
223. The three economists then considered the effects of AMRAC's licensing arrangements on competition and consumers. They asked whether the sale of the media rights by the RUK courses on a collective and closed basis had a bearing on competition in the upstream and downstream markets as defined earlier. Mr Biro considered that the sale of the media rights to the RUK courses on a collective and closed basis did have a bearing on competition in both markets. To the extent that the scope of the AMRAC arrangements, in terms of the amount of exclusivity and collective and closed selling, was more than was necessary in order to enter the market, this would have had implications for competition in both markets. A further consequence of the AMRAC arrangements was the vertical integration of the RUK courses into the downstream market for the supply of television services, with implications for future competition in the acquisition of rights, once the current RUK agreements expired. Mr Biro did not agree that racecourses were not competitors in the sale of their LBO media rights. Dr Niels stated that the closed basis of the sale (if that had happened) was necessary for the successful establishment of AMRAC as an entrant competing with SIS. The effect on upstream and downstream competition was therefore positive as it created competition where there had been none for 20 years. As to the collective selling by RUK courses (assuming this occurred), that did not restrict competition between racecourses. Dr Bishop did not address this question.
224. The next issue considered by the economists was whether the licensing of the RUK courses to AMRAC had increased or was likely to increase competition in the upstream market for the acquisition of licences for horseracing media rights. Mr Biro stated that in principle the presence of AMRAC as a second potential purchaser of licences could increase competition in the upstream market. In practice, if the RUK courses were licensed on a closed basis then only AMRAC was afforded the opportunity to acquire these rights and so the arrangements would have entailed no competition for the acquisition of the RUK rights. Further, the AMRAC arrangements led to vertical integration of the RUK courses into the downstream market and it was questionable whether other potential purchasers would in the future be offered the opportunity to bid for the RUK rights. Although other racecourses such as the Arena and Northern courses were likely to have had increased competition for the purchase of their rights as a result of AMRAC's entry, the AMRAC arrangements were not necessary to create that competition, as AMRAC could have entered the market with materially lower levels of exclusive content. Dr Niels succinctly agreed that the licensing of the RUK courses to AMRAC had increased or was likely to increase competition in the upstream market. Dr Bishop stated that what mattered in the upstream market was the ex-ante competition for media rights. Particular licensing agreements were the natural outcome of such competition. As long as there had been ex-ante competition any outcome would potentially be a competitive outcome.
225. The next matter in the agreed statement of the experts was whether the impact of the licensing of the RUK courses on competition in the upstream market resulted or was likely to result in consumer benefits. Mr Biro considered such benefits unlikely. Mr Biro gave a detailed answer referring to a large number of matters. These included the question whether racecourses would use their increased income to invest in or otherwise improve their courses and whether such improvements were to the benefit of the LBO punter. He stated it was unclear whether an increase in racecourse income would lead to additional investment in horseracing and it was also unclear whether this would generate benefits to LBO punters. Any benefit to the punters would need to be considered in the light of detriments to punters resulting from the AMRAC arrangements. Dr Niels agreed with the proposition that competition in the upstream market resulted in consumer benefits. Upstream competition enhanced income to racecourses. This was highly likely to enhance investment in horseracing. This would benefit horseracing and its various stakeholders including race goers and punters. Dr Bishop's view was that what mattered was ex-ante competition for rights regardless of the particular licensing outcome. Such competition was likely to result in benefits to horseracing and its various stakeholders including race goers and punters.
226. The penultimate question considered by the economists was whether the licensing of the RUK courses to AMRAC had increased or was likely to increase competition in the downstream market for the supply of television services to LBOs. Mr Biro disagreed that the AMRAC licences had increased or were likely to increase competition in the downstream market. They had led to less downstream competition compared with a counterfactual entailing a less restrictive entry model. Competition in the downstream market was limited as a result of both SIS and AMRAC holding large amounts of exclusive "must have" content. Moreover, the scope for potential competition through market entry which Mr Biro said had previously existed, had been eliminated given the levels of exclusive media rights held by BAG/SIS and AMRAC. Dr Niels thought that the AMRAC arrangements had increased or were likely to increase competition in the downstream market. They had made such downstream competition possible. Competition between SIS and AMRAC to become the only broadcast service into any specific LBO would be limited. However, there was or was likely to be competition between SIS and AMRAC on secondary content and on technological improvements which were of significant benefit to LBOs and their customers. Dr Bishop again stated that, provided there had been ex-ante competition in the upstream market, any of the possible outcomes (one, two or more providers) in the downstream market would be a competitive outcome.
227. The final question addressed by the economists in their joint statement was whether the impact of licensing of the RUK courses on competition in the downstream market had resulted or was likely to result in consumer benefits. Mr Biro considered that the AMRAC arrangements had not increased competition in the downstream market compared with a counterfactual entailing a less restrictive entry model and this was to the detriment of consumers. Mr Biro was doubtful whether the AMRAC arrangements in accordance with the ARL Business Plan would have been expected to benefit LBOs and punters. The market situation following AMRAC's entry, compared with the situation that prevailed prior to AMRAC's entry, involved both LBOs and punters being worse off. Dr Niels thought that there were likely to be significant benefits to LBOs and their customers in terms of choice and variety of secondary content and technological improvements. The higher total price that LBOs were now paying for Turf TV and SIS FACTS was a consequence of the removal of the 20 year SIS monopsony. Dr Bishop again repeated his point that provided there had been ex-ante competition in the upstream market consumer benefits were likely to arise.

Mr Biro's evidence

228. As I have earlier indicated, Mr Biro prepared a report and a supplemental report. I have already described the two issues which Mr Biro addressed in these reports. Before summarising Mr Biro's conclusions on those two issues, it is relevant to note that Mr Biro referred to the history of the matter in the autumn of 2006 and winter 2006/2007. He referred in particular to the sequence of events under which BAGS, SIS and AMRAC entered into exclusive licences or sub-licences concerning LBO rights. He noted that there was a dispute as to the motivation of the various parties in respect of entering into exclusive licences as distinct from non-exclusive licences. Mr Biro then stated that he had not been asked by the solicitors for the Claimants to address this dispute. Instead when Mr Biro reviewed the LEK reports and the ARL Business Plan, he proceeded on an assumption that the relevant prevailing BAGS/SIS exclusive media content comprised access to the GG Media racecourses, the Irish racecourses and the BAGS greyhound races. Thus, in relation to British racecourses, Mr Biro gave his evidence on the basis that BAGS/SIS had exclusive media content in respect of 8, or possibly 10, racecourses. In fact, on 31^st January 2007, when AMRAC entered into exclusive licences with the operators of 30 RUK racecourse (Ascot was added in March 2007) BAGS/SIS had exclusive media content in respect of 26 British racecourses. As Mr Biro was asked to make the assumption as to BAGS/SIS exclusive media content by the Claimants' solicitors, one would have expected that the Claimants would put forward a legal submission to justify this assumption and invite the court also to proceed on the basis of those assumed facts, rather than the actual facts. In the event, the Claimants did not argue that Mr Biro's assumption was legally justified or that there was any basis on which the court should disregard the actual background facts as at 31^st January 2007.
229. Mr Biro helpfully summarised the conclusions he had reached. These were:

i) The minimum amount of exclusive horseracing media content that was necessary for AMRAC viably to enter the market would be likely to be less than 30% of off-course betting turnover as assumed by the ARL Business Plan.

ii) On the basis of the assumptions underlying the ARL Business Plan, it was doubtful whether the launch of Turf TV would have been expected to generate an overall improvement in consumer welfare.

iii) If Turf TV's entry strategy had been based on the acquisition of a smaller number of exclusive media rights contracts, then this would be likely to expand the scope for competition between SIS and Turf TV and to generate consumer welfare benefits.

iv) In relation to the market situation as it stood after Turf TV's entry, compared with the situation that prevailed prior to Turf TV's entry, consumer welfare had clearly been reduced.

v) The scope for consumer welfare to improve through, and enhancement of, competition was severely restricted since further market entry was presently foreclosed.

230. Mr Biro expanded on this summary of his conclusions and referred, first, to the approach he had adopted in assessing the necessary minimum amount of exclusive horseracing media content to enable AMRAC viably to enter the market. Mr Biro referred to the work carried out by LEK in particular. Mr Biro said he had some criticisms of the assumptions and research used in the LEK report and, accordingly, he had criticisms of the results of the analyses carried out and the conclusions taken from these analyses. The author of the LEK report was not called by any party to give evidence at the trial. Neither of the other economists, Dr Niels or Dr Bishop, gave evidence in support of the LEK report. As indicated above, Mr Biro was himself critical of the LEK report. Notwithstanding that fact, Mr Biro sought to use the LEK report to arrive at his conclusions. He stated that he took most of LEK's assumptions at face value but adjusted certain assumptions which he considered to be particularly doubtful. He then concluded that the minimum level of exclusivity required for a market entry to have been viable would have comprised around 22% of off-course betting turnover, equivalent to the 7 most valuable RUK courses.
231. Mr Biro then turned his attention to the anticipated impact on consumer welfare resulting from the market entry of Turf TV. I have already described his summary of the conclusions he reached. In considering consumer welfare, Mr Biro concentrated on the welfare of punters using LBOs. In principle, their position could be improved if the quantity or the quality of the media services provided to LBOs were enhanced and/or if the total costs of purchase of the service by LBOs were reduced. Mr Biro did not believe that the LEK reports and the Business Plan would have justified a conclusion that there would be an improvement in the quality or the content of Turf TV's offering. Accordingly, for AMRAC to have expected that Turf TV's market entry would generate a consumer welfare benefit, it would have had to expect a consequent reduction in the total costs of purchase of media content by LBOs. Mr Biro explained that in his view, it would not have been possible to reach the conclusion, in advance, that there would be a reduction in total cost to LBOs or even that the situation would have been equivalent in cost terms, following Turf TV's entry. In expressing his conclusions, Mr Biro also addressed the question of collective selling on an exclusive basis. He said there was a realistic counterfactual scenario in which some or all of the RUK courses could have sold their LBO media rights on a non-exclusive basis. If that had happened, that would have expanded the scope for competition between SIS and Turf TV and would have increased the likelihood that Turf TV's market entry would have generated consumer welfare benefits.
232. At the end of his report, Mr Biro considered whether increased cost to LBOs would be passed on to the punter. In the event that the increased cost to LBOs were on a per outlet basis, he did not expect that LBOs would pass the increased costs onto punters in any immediate or direct way. However, he referred to the fact that the change in the fixed costs incurred by LBOs would affect the profitability of LBOs and the incentives to invest at an outlet level and he thought this would have implications for the welfare of punters. In particular, reduced LBO profitability would result in some LBOs closing and reduced investment incentives would result in fewer LBOs opening.
233. Annex 3 to Mr Biro's report contained an examination of the LEK written reports and supporting financial model in order to assess how this material might be translated into a minimum number of exclusive horseracing media contracts that a new entrant might have had to acquire to achieve a viable entry into the market.
234. Mr Biro prepared a supplemental report. He explained that it had been suggested to him, by the Claimants' solicitors, that it would be helpful if he could provide a fuller explanation of the workings he had carried out in Annex 3 to his earlier report and his supplemental report sought to do this.
235. When cross-examined, Mr Biro accepted that he was not an industry expert for the purposes of carrying out appraisals or business planning. He also accepted that he had not carried out his own survey of LBOs with a view to assessing their propensity to subscribe to Turf TV. He changed the assumptions in the LEK Report as to take up, changing both take up by large LBOs and smaller LBOs.
236. Part of the work done by LEK and part of the recalculation carried out by Mr Biro was with a view to assessing how much exclusive content would be needed to enable a new entrant to enter the relevant market. These calculations were based upon figures which showed the contribution each racecourse made to the turnover or gross win of LBOs. If one reached a conclusion that it was desirable or necessary to have, say, 22% or 30% of turnover or gross win the subject of exclusive licenses, then LEK and Mr Biro took the percentages for each racecourse and added them together to get the target figure of, say, 22% or 30%. However, there was a basic flaw in this approach. The percentages attributed to each racecourse included a contribution to turnover or gross win in respect of races which were shown on terrestrial television by Channel 4 or BBC2. Thus, LBOs could show races on terrestrial television without buying that service from the new entrant into the market. Conversely, the new entrant into the market could not say to LBOs that it had exclusive rights in relation to races which were also available on terrestrial television. No one calculated the figures which would be appropriate if one removed the contribution to turnover or gross win attributable to races shown on terrestrial television, from the figures used by LEK and Mr Biro. However, it is clear that the reduction that would need to be made would be a significant one and not one that could properly be overlooked. Mr Biro accepted this point when it was put to him.
237. Mr Biro also gave evidence as to the rate of return which one should reflect in a financial projection for the purpose of considering the viability of a new entrant. Mr Biro had recorded in his report a statement made by Mr Bazalgette in his witness statement to the effect that LEK had advised AMRAC that a reasonable return on the investment in the new venture, which would be seen as a high risk investment, was in the region of 25-35% per annum compound. Mr Biro had pointed out that LEK had used a cost of capital of 13%. This was described as the weight adjusted cost of capital or WACC. Mr Biro gave evidence, when cross-examined, that the cost of capital of 13% was there to reflect the degree of risk which was foreseen and that sounded a reasonable figure for that purpose.
238. Mr Biro was also cross-examined as to the impact on the LEK prediction of the fact that the Northern and Arena courses granted exclusive rights to BAGS in November and December 2006 and BAGS granted an exclusive sub-licence of those rights to SIS in December 2006. Mr Biro was asked to confirm the differences between the spreadsheet based on LEK's approach which showed AMRAC being able to offer to LBOs non-exclusive content from the Northern and Arena courses and AMRAC not being able to offer to LBOs any content from the Northern and Arena courses (because they had signed exclusively to BAGS). Mr Biro accepted that there was a significant difference in the net present value of the business if AMRAC could not offer non-exclusive content from the Northern and Arena courses.
239. Mr Biro also accepted that if the non-availability of non-exclusive content from the Northern and Arena courses meant that AMRAC was not able to persuade a large LBO, such as Coral, to take non-exclusive content (from those courses where AMRAC was able to offer non-exclusive content) then the net present value of the business of the new entrant would become substantially negative. Indeed, the position could well be worse than the spreadsheet produced by the Defendants to illustrate the point as in that spreadsheet there continued to be income for AMRAC from other LBOs who bought non-exclusive content from AMRAC. It could very well be the case that if those spreadsheets were run on the basis that all LBOs would buy non-exclusive content from SIS and no non-exclusive content from AMRAC then the position would deteriorate further.
240. Mr Biro also gave evidence as to the difference between what he was evaluating based on the LEK prediction and what happened in the real world when the Northern and Arena courses signed exclusively to BAGS and those rights were sub-licensed to SIS. He said that that state of affairs was "wholly different" to the scenario that he was evaluating.
241. In relation to the suggestion that AMRAC's entry on an exclusive basis had foreclosed the market, he stated that he had not looked at the question of whether there was room in the market for a third competitor and he had not conducted an exercise which identified potential operators that might (even in principle) be willing to exploit a market entry opportunity.
242. He agreed with Dr Bishop's evidence that exclusive agreements were common when licensing sports media rights. He also agreed that if one acquired LBO rights on a lump sum basis rather than on a royalty basis the new entrant to the market would have to bear high fixed costs. He accepted that based on the examples referred to in Dr Bishop's report, it seemed to be the norm for media rights to be sold on a lump sum basis.
243. In relation to Mr Biro's point that reduced profitability for LBOs would indirectly impact on punters, he explained that he was not able to give detailed evidence as to the way in which LBOs went about reinvesting profit and he had not looked at the matter empirically. He said however that economic theory created a presumption that reduced profitability would have an impact on the end consumer.
244. Mr Biro explained that in his report he had looked at the question whether there were less restrictive entry models available in terms of how much exclusivity was needed to create a viable proposition. He had not however looked at what he called the mechanics of putting together a grouping of racecourses to provide the necessary amount of exclusivity. He had not looked at the question of whether the new entrant would need to sign all 30 RUK courses, and then sub-license a number of them, or whether the new entrant could take exclusive rights from some only of the 30 RUK courses, so as not to exceed what Mr Biro was saying was the minimum needed for effective entry.

Dr Niels' evidence

245. In his report, Dr Niels identified some 15 questions which he intended to address. He then addressed those questions in detail and summarised his conclusions. It is not necessary to recite Dr Niels' conclusions on matters that were non-contentious, and which were dealt with above when referring to the joint statement of experts. I will attempt to summarise Dr Niels' conclusions in other respects.
246. Dr Niels expressed the view that, in principle, it was a legitimate objective for the operators of racecourses to seek to enhance their revenues from the sale of LBO media rights. He considered it likely that increased income to racecourses would lead to beneficial effects on horseracing as a whole and its various stakeholders.
247. Before AMRAC's entry, the racecourses effectively faced a single monopsony purchaser in SIS, whether directly or through BAGS. The effect of monopsony was normally to suppress artificially the purchase price. Therefore there was commercial and economic logic to the creation of AMRAC by the RUK racecourses (and Alphameric) to compete with SIS. The launch of Turf TV was in itself pro-competitive since it created competition where there had been none for 20 years.
248. Dr Niels expressed the view that competition was preferable to the continuation of the SIS monopoly. The supply of televised horseracing was not a natural monopoly. There was only limited cost duplication between Turf TV and SIS FACTS. The situation of exclusive rights for each horseracing broadcaster made it unlikely that the market would "tip" in favour of one of them. But even if the episode of competition currently created by AMRAC turned out to be temporary, it would have had the beneficial impact of shaking up a market that had been monopolistic for 20 years. Dr Niels asked: "what would have competition have been like in the absence of the AMRAC exclusive licence agreements?" He concluded that without exclusivity the entry would not have been viable and no competition would have been created. AMRAC required a critical mass of LBO customers to achieve a sustainable entry into the market. It faced significant challenges in achieving this because SIS, as the monopolist, had various advantages of incumbency, including its long standing business relationships, some investment costs, and exclusivity for some British horseracing, Irish horseracing, and BAGS greyhound racing. This exclusivity meant that it would not have been possible for AMRAC to replicate the content of SIS FACTS. The equity share of William Hill and Ladbrokes in SIS was also a material barrier to entry.
249. With exclusivity, a new entrant into a market with entry barriers can differentiate its product from that of the incumbent, obtaining a competitive edge to attract customers. As to the degree of exclusivity needed for AMRAC's market entry, Dr Niels thought it was very difficult for anyone to determine this. When AMRAC had 6 racecourses signed exclusively (the April 2007 racecourses) that exclusivity was far short of the amount necessary to reach the critical mass of LBO subscribers.
250. Dr Niels did not rely on the LEK report and the AMRAC Business Plan. He was not himself able to vouch for the estimates in those documents and, further, those documents did not take into account the additional exclusive licences subsequently obtained by SIS before the AMRAC licences were granted at the end of January 2007. When SIS obtained further exclusive content in December 2006, this added to the uncertainty and insecurity that formed an inherent part of AMRAC's attempt to gain a critical mass of LBO customers. As to the duration of the AMRAC licences, this was not unreasonable as an entrant required sufficient time and opportunity to recover its initial investment.
251. As regards the alleged "closed" character of the AMRAC licence agreements, Dr Niels considered it to be self-evident that offering the RUK racecourse rights to SIS would make little economic sense. If SIS had won the RUK rights in a tender, AMRAC would effectively have ceased to exist as a credible broadcaster and the outcome would have been a continuation of the SIS monopoly. If it were the case that the RUK racecourses were closed to SIS, that was necessary for the successful establishment by the racecourses of the AMRAC joint venture as an entrant competing with SIS.
252. Dr Niels also considered the effects of AMRAC's entry into the market on competition and on consumers. He felt that AMRAC's entry had led to competition in the upstream market and an increase in revenue to racecourses which was likely to lead to investments for the benefit of all stakeholders, including punters. In the downstream market, competition between SIS and AMRAC to become the only service into any specific LBO would be limited as both services were to some extent "must-have" for LBOs. There were other benefits. One was competition for secondary content, that is, content other than British horseracing. Dr Niels also understood that Turf TV also brought a number of technological improvements to the market. AMRAC's entry had not resulted in lower prices to LBOs as the reverse was the case. This fact needed to be weighed against the long term benefits of competition to LBOs to racecourses and of horseracing generally. The net cost increase to LBOs was a consequence of the overall beneficial introduction of competition where there had been none for 20 years.
253. As to collective selling, if that had occurred, Dr Niels accepted that in principle collective selling could be harmful if it restricted competition between rivals. Collective selling might be harmful where products were substitutes. However, British horseracing was organised so that individual races took place at different times so racecourses did not compete with one another in the same time slots and collective selling would not restrict competition in that sense. Further, collective selling of LBO media rights by racecourses would not significantly reduce other forms of competition between them. Racecourses continued to have incentives to compete with each other in the bidding for fixtures, attracting sponsorships and other matters.
254. The structure of payments to the AMRAC racecourses had certain pro-competitive features when compared with the previous structure of payments to racecourses by BAGS. Under the AMRAC arrangements, racecourses would receive dividends calculated on the basis of their share of the revenue stream attributable to each racecourse.
255. On the question of broadcasters discussing LBO media rights with groups of racecourses, it was convenient to talk to groups of racecourses. In economic terms, such combined negotiations could be expected to save transaction costs, to increase the likelihood of achieving an alignment of incentives between the various parties, and ultimately to speed up the conclusion of agreements. The last of these was a crucial factor given the competition between SIS and AMRAC to sign up racecourses. Central negotiations did not in themselves imply a restriction or distortion of competition.
256. When cross-examined, Dr Niels explained the benefits which he saw for the persons whom he described as the "stakeholders in horseracing". It was put to him that he was describing a virtuous circle and he agreed. The virtuous circle was that the result of the AMRAC arrangements was that racecourses would receive more money; they could apply that money to investing in their facilities, promotion and development; this would produce a better racing product which could generate greater interest in racing and more betting, both on-course and off-course, with the result that LBOs and punters would benefit. He explained that the presence of AMRAC in the market meant that both RUK courses and non-RUK courses would have a choice between broadcasters. In the negotiation that took place in 2006, the non-RUK courses were able to play SIS and AMRAC off against each other when negotiating to grant exclusive rights.
257. Dr Niels was also asked about competition between racecourses, particularly the competition which might arise if each racecourse wanted to avoid being the last in the queue to sell its LBO rights. Dr Niels acknowledged that, in theory, there could be competition of that kind but he thought it had not happened with the most recent round of negotiations. This fact was demonstrated by the case of Plumpton, which was the last of 60 courses to grant LBO rights, in fact, to SIS. Dr Niels explained that AMRAC and SIS had both competed strongly for the rights at Plumpton.
258. Dr Niels had referred in his report to various obstacles to entry faced by AMRAC and he accepted that most of the matters he referred to were mentioned in the AMRAC Business Plan.
259. Dr Niels commented that the survey carried out by LEK was not representative of the total bookmaker population and not very reliable for the purpose of determining the minimum degree of exclusivity required by a new entrant to the market.
260. Dr Niels also commented upon the fact of BAGS and SIS signing up racecourses on an exclusive basis in the period before the grant of the AMRAC licences. He commented that the position had materially changed between the date of the LEK Report and the grant of the licences to AMRAC. He regarded that as being of fundamental importance to the rest of his analysis.
261. Dr Niels acknowledged that as the cost to LBOs of acquiring services from SIS and from AMRAC was greater than before and there ought to be a weighing up exercise, which balanced benefits against cost. He stated that a weighing up exercise on a quantitative basis was difficult but the exercise could be attempted on a qualitative basis. He stated that, on this basis, the benefits outweighed the disadvantages.
262. Dr Niels commented that, unlike the cases of UEFA and FAPL, considered by the European Commission, there was no output restriction in the present case.
263. He commented that secondary content (with British horseracing being the primary content) in the SIS and AMRAC services was important. From an economic perspective, he thought that AMRAC had incentives to add further secondary content so as to position themselves in the market as a good alternative to SIS. He thought this could lead to a very significant form of competition, in respect of secondary content, between SIS and AMRAC.
264. Dr Niels also expressed the view that for LBOs to have a choice between AMRAC and SIS was good in itself. He commented that secondary content occupied more than half of the time that a service was provided to LBOs. He also thought that competition between SIS and AMRAC would produce a greater availability of information which would be of benefit to LBOs.
265. Dr Niels was cross-examined about the extra cost to LBOs as a result of AMRAC's entry into the market. He indicated that the extra cost to LBOs was between £35m and £40m. The extra cost could be as much as £45m if all the LBOs signed up to AMRAC. About one half of the extra cost to LBOs would find its way back to racecourses.
266. When re-examined, Dr Niels distinguished between two situations. The first situation was where the rights holders licensed their rights to a rights aggregator which offered those rights together to various existing broadcast channels. The second situation was where a group of rights holders, in order to create a new television broadcasting channel, licensed rights to the new company which then entered the market where there had previously been only one buyer of rights. Dr Niels said that as an economist there was a fundamental difference between the two cases because in the second case the rights holders faced the hurdle of creating a second potential purchaser.
267. Also in the course of re-examination, Dr Niels was asked about the appropriate process to encourage ex-ante competition. He stated that the process which one selected as appropriate would be affected by the number of bidders, for example where there was only one bidder or several bidders.

Dr Bishop's evidence

268. The expert economist instructed by SIS was Dr Bishop. Dr Bishop prepared two reports dated, respectively, 7^th April 2008 and 17^th April 2008. When Dr Bishop prepared his reports, AMRAC's claim against SIS included an unconditional allegation that certain exclusive licences or sub-licences held by SIS were anti-competitive, by virtue of their exclusive character. This allegation was initially made by AMRAC against SIS unconditionally and did not depend upon the Claimants establishing their case against AMRAC. After the date of Dr Bishop's reports, AMRAC further amended its claim against SIS so that the claim against SIS, in respect of exclusive licences or sub-licences taken by SIS, was only made in the event that the court held that the licences to AMRAC infringed Article 81.
269. It should also be noted that the challenge made by the Claimants to the AMRAC licences is based on the fact, or the alleged fact, that those licences were not only exclusive but were also the subject of closed and collective negotiations. Conversely, the contingent claim made by AMRAC against SIS challenges the licences to SIS only on the basis that those licences are exclusive. No complaint is made by AMRAC against SIS as to the nature of the process which lead to the grant of the licences to SIS.
270. I will seek to summarise the main conclusions arrived at by Dr Bishop. Dr Bishop concluded that the exclusive licences to SIS were not anti-competitive. Exclusive agreements were common when licensing sports media rights. This was essentially for two reasons. The first reason was that exclusive rights were needed to ensure that the broadcasters or distributors had the incentive to invest in producing and distributing the service. The second reason was that exclusive rights provided the rights holders with an efficient tool to maximise the revenues and that was a legitimate aim of rights holders. The grant of exclusive rights allowed distributors to charge a price that reflected the full economic value of the rights. Television distribution was characterised by high costs of operation but very small marginal costs of distributing to one additional customer. Without exclusive content, whether contractually or in practical terms, distributors would not undertake the investment needed to distribute the content and the product at issue would not exist or exist only in an inferior form. Where there was more than one potential distributor, rights holders were able, by granting exclusive rights, to extract a large portion of the economic value of the rights. In economics, maximising the rents falling to the rights holders was a normal and legitimate aim, not dissimilar from extracting the full economic value from intellectual property rights covered by a patent or copyright. By allowing rights holders to exploit their rights fully, exclusive agreements in sport typically resulted in larger investments, more prize money and better talent and that tended to improve the quality and the value of the sport.
271. In an industry such as horseracing, by reason of high fixed costs and very low marginal costs, competition usually meant preserving the possibility of periodic rival competition for the rights, and for periodic rival entry. Ex-ante competition for securing the rights was the natural form of competition in such a market. Seen in this light, the claim by the Claimants against AMRAC and the counterclaim by AMRAC against SIS were both misplaced. Exclusivity was natural and normal in such an industry and was beneficial, even essential, to the efficient operation of such an industry.
272. Exclusive provisions could raise concerns when their duration was exceedingly long or their breadth excessive. An anti-competitive effect could arise with a temporary conferment of exclusive rights that allowed a distributor to become entrenched and foreclosed the downstream distribution market. Because of the duration of the exclusive provisions of the agreements (being considered by Dr Bishop) and because they related to less than half of the available British horseracing content, Dr Bishop concluded that the exclusive provisions in question could not result in an anti-competitive entrenchment of SIS's market position. It was beyond doubt that the BAGS/SIS exclusive agreements had not prevented the entry of Turf TV, which was in the market and in operation. Further, Turf TV's exclusive rights had not driven BAGS/SIS from the market.
273. Even if the exclusive character of the rights resulted in higher prices to LBOs over the long run, it did not follow that these exclusive agreements were anti-competitive. Higher prices to LBOs did not automatically result in harm to the ultimate consumers of televised horseracing images, i.e. the punters. The welfare of the final consumers was the concern of competition policy.
274. There might be some negative effects on punters if the increase in the price of the service to LBOs had the effect of pushing some LBOs out of business. Dr Bishop had not seen any evidence suggesting any large effect of that kind. Further, the negative effect on punters must be assessed against the benefit from three sources, to racegoers, to on-track punters and to off-track punters, from the better racing experience offered by racecourses as a result of the higher income flowing from their rights. The main effect of exclusivity was the transfer of some of the economic rents from LBOs to racecourses and such transfers should not be considered anti-competitive.
275. Dr Bishop saw the present proceedings as just one more round in the industry's long term struggle over how the economic profits were split between racecourses and LBOs. The dispute was essentially a commercial one and that was a normal market occurrence with nothing anti-competitive about it. The arrangements did not affect the ultimate consumers of televised images, i.e. punters to any appreciable extent, but even if off-track punters were a little worse off, there was no reason to suppose there would be an overall detriment when racegoers, on-track punters and other various stakeholders were susceptible to be made better off.
276. Dr Bishop expanded on some of these topics in his second report. His second report also dealt with the way in which the AMRAC claim against SIS was then pleaded. The case which was then put involved the court holding that the AMRAC licences were valid but that the BAGS/SIS exclusive licences were invalid. It is not necessary to summarise Dr Bishop's comments on that possible outcome, as it is no longer contended for by any party.
277. When Dr Bishop was cross-examined he confirmed that his report had focussed on the question of exclusivity and he had not addressed any issue as to collective selling. He had considered the way in which the markets operated for the purpose of assessing how exclusivity operated in those markets.
278. He was asked about the approach taken by the Commission, in particular in cases such as UEFA and FAPL. He described the Commission's concern as one which related to the potential effects on downstream distribution.
279. Dr Bishop expressed the view that off-track punters would benefit from a better horseracing experience and a better horseracing industry.
280. Dr Bishop explained that the bookmakers were what economists called "price takers". They therefore had difficulty, at least in the short run, in passing on costs increases. He would expect the immediate effect of increased costs to LBOs to be essentially negligible.
281. Dr Bishop was asked about the circumstances in which the racecourses entered into exclusive negotiation agreements with AMRAC for a period during which racecourses and AMRAC negotiated and finally settled on the terms of exclusive licences to AMRAC. Dr Bishop considered that such arrangements would be entirely normal in a case where the race tracks were throwing in their lot with the new venture and so would not negotiate with SIS. This was a case of sponsored entry where a customer or supplier helped someone get into the market usually because the customer or supplier was unhappy with the pre-existing market. This was not anti-competitive as it was a case of the operation of normal competition. It involved a new entrant. It was suggested to Dr Bishop that the racecourses had "locked out" other bidders for their rights. Dr Bishop did not accept that as a realistic analysis of the position. He referred to the racecourses regarding BAGS/SIS as a monopsonist offering prices that were too low for valuable rights. The racecourses took action to ensure a new entrant into the market, who could bid for their rights. If they had not acted the way they had done, there was every prospect that the new entrant would have failed. There would have been a lack of confidence in the new entrant and it was not clear if it would have got off the ground. The phrase "lock out" made no sense in relation to an entrant because what the racecourses were doing was saying: "we will decide not to sell to this monopolist any longer" – a reference to the incumbent in the market.
282. Dr Bishop described the industry as a well functioning one that had exhibited recent successful competition. He regarded the suggestion that the RUK racecourses should have gone about creating or permitting a new entrant in a different way as misplaced.
283. Dr Bishop expressed the view that competition was about entry. Entry had happened in the present case and that was an example of competition. The LEK analysis was not germane to the question of whether what had happened was competitive or anti-competitive.
284. Dr Bishop referred to the Claimants' case as involving the idea of two firms, with essentially the same content, competing with each other. In theory, that situation would reduce price competition whereby price fell to marginal cost. Dr Bishop explained that this theory was not sustainable in the present industry. This was because the provider of the service had very high fixed costs and low marginal costs. This was called the Bertrand paradox.
285. Dr Bishop also explained that he would be surprised if a third firm (in addition to BAGS/SIS and AMRAC) would want to come into the industry. The next move in the industry was as likely to be back to one as it was forward to three, by, for example, a merger of SIS and AMRAC.
286. At the end of his evidence, I asked Dr Bishop to expand his views as to the desirability of new entry to the market. I asked him to comment on the Claimants case that the new entry should have come about in another way, in particular, a way which was less restrictive of competition. Dr Bishop explained that such a case would be the first time he had heard of competition law being applied to limit the behaviour of an entrant. Competition law, he said, applied to limit the behaviour of incumbents who were seeking to prevent a new entrant. He added that some harm to LBOs, in the sense of paying higher prices, was inevitable if there was a new entrant. The fact that the price was higher should not be regarded as a detriment providing that it is reflecting the costs of the operation of competition.

A further comment

287. I have now described the evidence given by the three economists. Some of the matters discussed by the economists, in particular by Dr Niels and Dr Bishop, went beyond the normal scope of expert evidence, as I understand it. Those two witnesses did not confine themselves to matters of micro economics on which they could give admissible opinion evidence for the assistance of the court. They also summarised their understanding of the legal principles which fell to be applied and then offered their conclusions as to the result of applying those legal principles to this case. They also commented on some of the policy questions which might be said to arise. Whilst I found their reports helpful to me when I came to consider the legal principles and their application in this case, the fact remains that such topics are not matters for expert evidence but, if anything, they are submissions as to what the law is and how it ought to be applied.
288. In the course of the trial, I did seek assistance from the parties as to which parts of the evidence were truly admissible expert evidence on matters of micro economics and which went beyond the proper bounds of expert evidence. None of the parties attempted to distinguish between what was admissible and what was not. The parties dealt with the evidence of the experts in a general way as if it was all available as evidence which could be relied upon by the court. Nonetheless, in considering my judgment I have attempted to distinguish in my own mind between what is evidence (where my decision must be whether I do or do not accept that evidence) and what are contentions as to the law (which I can consider as submissions and which I may or may not find helpful).

PART 5: THE LAW

Article 81 of the EC Treaty

289. Article 81(1) of the EC Treaty is in these terms:

"The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:

a) directly or indirectly fix purchase or selling prices or any other trading conditions;

b) limit or control production, markets, technical development, or investment;

c) share markets or sources of supply;

d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

e) make 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 such contracts."

290. Article 81(2) of the EC Treaty provides:

"Any agreements or decisions prohibited pursuant to this Article shall be automatically void."

291. Article 81(3) of the EC Treaty provides:

"The provisions of paragraph 1 may, however, may be declared inapplicable in the case of :

any agreement or category of agreements between undertakings;

any decision or category of decisions by associations of undertakings;

any concerted practice or category of concerted practices,

which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question."

292. Article 81(1) has always been a directly applicable provision of Community law creating rights for individuals that can be invoked before national courts. Article 81(3) on the other hand does not have direct effect. This follows from Article 83(2)(b) which requires the Community institutions to lay down detailed rules for the application of Article 81(3). Article 83(2)(b) expressly provides for the adoption of detailed implementing measures as a necessary condition for applying Article 81(3). This implies that Article 81(3) is not sufficiently unconditional to produce direct effect.
293. The Council of the EEC first laid down detailed rules for the application of Article 81(3) by Regulation 17 of 1962. Under Regulation 17/62 only the European Commission could authorise agreements caught by Article 81(1). Neither national courts nor national competition authorities had the power to apply the exception in Article 81(3). Regulation 17/62 created a notification and authorisation system whereby undertakings had to notify agreements to the Commission in order to benefit from that exception.
294. Regulation 17/62 has now been replaced by Council Regulation (EC) 1/2003, the so called Modernisation Regulation. Regulation 1/2003 replaces the centralised notification and authorisation system by an enforcement system based on direct application of Article 81 as a whole. Under the new regime, the European Commission, competition authorities and courts of the Member States all have the power to apply Article 81 in full. Moreover, an agreement caught by Article 81(1) but which satisfies the conditions of Article 81(3) is valid and enforceable, no prior decision to that effect being required. Notification is no longer a condition for Article 81(3) to apply. These changes are effected by Articles 1 and 6 of Regulation 1/2003. Article 2 of Regulation 1/2003, deals with the burden of proof for the purpose of Article 81. I will refer to the question of burden of proof later in this judgment. Regulation 1/2003 came into force on the 1^st May 2004.

The Competition Act 1998

295. Agreements and concerted practices restricting competition are also dealt with by Section 2 of the Competition Act 1998. Section 2 of the 1998 Act provides:

The prohibition

2 Agreements etc preventing, restricting or distorting competition

(1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which--

(a) may affect trade within the United Kingdom, and

(b) have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom,

are prohibited unless they are exempt in accordance with the provisions of this Part.

(2) Subsection (1) applies, in particular, to agreements, decisions or practices which--

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development or investment;

(c) share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(e) make 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 such contracts.

(3) Subsection (1) applies only if the agreement, decision or practice is, or is intended to be, implemented in the United Kingdom.

(4) Any agreement or decision which is prohibited by subsection (1) is void.

(5) A provision of this Part which is expressed to apply to, or in relation to, an agreement is to be read as applying equally to, or in relation to, a decision by an association of undertakings or a concerted practice (but with any necessary modifications).

(6) Subsection (5) does not apply where the context otherwise requires.

(7) In this section "the United Kingdom" means, in relation to an agreement which operates or is intended to operate only in a part of the United Kingdom, that part.

(8) The prohibition imposed by subsection (1) is referred to in this Act as "the Chapter I prohibition".

296. Section 9 of the 1998 Act, as amended in 2004, provides:

9 [Exempt agreements]

[(1)] [An agreement is exempt from the Chapter I prohibition if it]--

(a) contributes to--

(i) improving production or distribution, or

(ii) promoting technical or economic progress,

while allowing consumers a fair share of the resulting benefit; [and]

(b) does not--

(i) impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives; or

(ii) afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question.

[(2) In any proceedings in which it is alleged that the Chapter I prohibition is being or has been infringed by an agreement, any undertaking or association of undertakings claiming the benefit of subsection (1) shall bear the burden of proving that the conditions of that subsection are satisfied.]

297. Section 60 of the 1998 Act declares that its purpose is to ensure that so far as possible questions arising under Part I of the 1998 Act (which includes Sections 2 and 9) 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 within the Community. By Section 60(2), when a court determines a question arising under Part I of the 1998 Act it must act with a view to securing that there is no inconsistency between the principles applied and the decision reached by the court in determining that question and 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. By Section 60(3), it is provided that the Court must, in addition, have regard to any relevant decision or statement of the European Commission.
298. It can be seen from comparing the language of Article 81 with Sections 2 and 9 of the 1998 Act that the two sets of provisions are very similar and they operate in parallel. At the trial, all of the parties made their submissions in relation to Article 81, rather than by reference to Sections 2 and 9 of the 1998 Act. All the parties proceeded on the basis that if the matters complained of infringed Article 81 then they would also infringe Section 2 of the 1998 Act and, conversely, if the matters complained of did not infringe Article 81 then they would not infringe Section 2 of the 1998 Act. I will therefore in this judgment confine myself to addressing the requirements of Article 81 without on every occasion repeating that the same requirement exists in the parallel provisions of Sections 2 and 9 of the 1998 Act.
299. It emerged at the trial that there were important differences of principle between the parties as to the operation of Article 81. In some respects at least the relevant law lacks precision. Further, the relevant legal principles have not been static but have been developed in recent decisions, but without the fact of development always being acknowledged in those decisions. In addition to these considerations, I face the further difficulty that the Claimants' submissions in opening, and even more so in closing, involved a considerable change in the case that had been originally pleaded. Indeed, the other parties submitted that in a number of respects, the Claimants' case began by accepting certain basic propositions of law but later the Claimants appeared to challenge those propositions. All of the above, unfortunately, makes it necessary for me to set out my understanding of how Article 81 operates in some detail before I attempt to apply that understanding to the particular circumstances of this case.

Article 81(1)

300. Article 81(1) refers to "agreements between undertakings". Article 81(1) also refers to "decisions by associations of undertakings". At one time, during the trial, by reason of the allegations being put forward by way of counterclaim, it would have been necessary to consider the meaning and application of the latter phrase. However, by reason of concessions made during closing submissions, it is no longer necessary to do so.
301. There was no real dispute about the meaning of "undertakings". In order to be an undertaking, an entity must be engaged in an economic activity. An economic activity is any activity involving the offer of goods and services in a given market. Entities do not have to be incorporated under company law or take any other legally recognised form in order to be deemed an undertaking. Pursuit of profit is not essential. Each of the Defendants against whom a claim has been brought by the Claimants is an undertaking. So too is each of the Defendants to Counterclaim.
302. Article 81(1) refers to "agreements" and to "concerted practices". The decisions of the European Court suggest that one should avoid discussing these words or phrases in isolation as if they were mutually exclusive separate concepts. The trend has been to treat the concept of agreement and the concept of concerted practice as simply overlapping parts of a spectrum of activity.
303. For present purposes, it is sufficient to cite two references to understand what is meant by an agreement or by a concerted practice. The first reference is to the Commission Guidelines on the Application of Article 81(3). Although those Guidelines refer in their heading to Article 81(3) they also contain some important discussion as to the operation of Article 81(1). As I will wish to cite these Guidelines on a number of occasions I will refer to them as "the Article 81(3) Guidelines".
304. Paragraph 14 of the Article 81(3) Guidelines includes the following passage:

"The prohibition rule of Article 81(1) applies to restrictive agreements and concerted practices between undertakings and decisions by associations of undertakings in so far as they are capable of affecting trade between Member States. A general principal underlying Article 81(1) which is expressed in the case law of the Community Courts is that each economic operator must determine independently the policy, which he intends to adopt on the market. In view of this the Community Courts have defined "agreements", "decisions" and "concerted practices" as Community law concepts which allow a distinction to be made between the unilateral conduct of an undertaking and co-ordination of behaviour or collusion between undertakings."

305. Paragraph 15 of the Article 81(3) Guidelines is in these terms:

"The type of co-ordination of behaviour or collusion between undertakings falling within the scope of Article 81(1) is that where at least one undertaking vis-à-vis another undertaking undertakes to adopt a certain conduct on the market or that as a result of contacts between them uncertainty as to their conduct on the market is eliminated or at least substantially reduced. It follows that co-ordination can take the form of obligations that regulate the market conduct of at least one of the parties as well as of arrangements that influence the market conduct of at least one of the parties by causing a change in its incentives. It is not required that co-ordination is in the interest of all the undertakings concerned. Co-ordination must also not necessarily be express. It can also be tacit. For an agreement to be capable of being regarded as having been concluded by tacit acceptance there must be an invitation from an undertaking to another undertaking, whether express or implied, to fulfil a goal jointly. In certain circumstances an agreement may be inferred from and imputed to an ongoing commercial relationship between the parties. However, the mere fact that a measure adopted by an undertaking falls within the context of on-going business relations is not sufficient."

306. In the present case it is not necessary to explore the reference in paragraph 15 of these Guidelines to "tacit acceptance".
307. The second reference which I cite is the judgment of the Court of Appeal in (1) Argos Limited (2) Littlewoods Limited and OFT and JJB Sports Plc and OFT [2006] EWCA Civ 1318. Although the passage set out below is a lengthy one, it is a most convenient summary of a great deal of case law from the European courts.

" [21] The Ch I prohibition applies to agreements and also to concerted practices which do not have the formality or certainty of agreements. It is not legally necessary to distinguish between agreements and concerted practices, and references by the tribunal in its judgments to agreements included concerted practices. We will differentiate between them only so far as seems necessary or appropriate. The tribunal set out a summary of the relevant law which, in itself, is not controversial at paras 150 to 163 of its judgment in the Football Shirts appeals and similarly at paras 145 to 156 of its judgment in the Toys and Games appeals, drawing in each case on judgments of the European Court of Justice and the Court of First Instance. We will set out here the essential propositions, with references but not full quotations:

i) The object of the inclusion of concerted practices in the prohibition is to bring within art 81 a form of coordination between undertakings which, short of the conclusion of an agreement properly so-called, knowingly substitutes practical co-operation between the undertakings for the risks of competition. A concerted practice does not have all the elements of an agreement but may arise out of co-ordination which becomes apparent from the behaviour of the participants. Parallel behaviour may amount to strong evidence of a concerted practice if it leads to conditions of competition which do not correspond to the normal conditions of the market: ICI v Commission [1972] ECR 619, [1972] CMLR 557 ("Dyestuffs").

ii) The requirement of independent determination of policy on the market on the part of competitors strictly precludes any direct or indirect contacts between competing undertakings, the object or effect of which is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which the undertaking has decided to adopt or contemplates adopting on the market: Suiker Unie v Commission [1975] ECR 1663, [1976] 1 CMLR 295, [1976] FSR 443.

iii) The prohibition on concerted practices applies to all collusion between undertakings whatever the form it takes. An agreement arises from the expression by the participating undertakings of their joint intention to conduct themselves in a specific way. Concerted practices include forms of collusion having the same nature as agreements which are distinguishable from agreements by their intensity and the forms in which they manifest themselves: Commission v Anic Partecipazioni [1999] ECR I-4125, [2001] 4 CMLR 17.

iv) A decision on the part of a manufacturer which constitutes unilateral conduct of that undertaking escapes the Ch I prohibition (though if the undertaking has a dominant position, it might be caught by the Ch II prohibition). The concept of an agreement centres around the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties' intention: Bayer v Commission [2000] ECR II-3383, [2001] All ER (EC) 1, 63 BMLR 71, upheld by the European Court of Justice, Joined Cases C-2 and 3/01 P, 6 January 2004.

v) Although the concept of a concerted practice implies the existence of reciprocal contacts, that requirement may be met where one competitor discloses its future intentions or conduct on the market to another when the latter requests it or, at the very least, accepts it: Cimenteries v Commission [2000] ECR II-491, [2000] 5 CMLR 204.

vi) The fact that only one of a number of competing undertakings present at a meeting reveals its intentions is not sufficient to exclude the possibility of an agreement or concerted practice: Tate & Lyle v Commission [2001] ECR II-2035, [2001] All ER (EC) 839, [2001] 5 CMLR 859.

…

[22] Counsel for all the Appellants submitted that many of the observations in the cases from which these propositions are drawn need to be understood in the light of the particular facts. They pointed out that it is just as essential to a concerted practice as it is to an agreement that there be a consensus between the two or more undertakings said to be parties to the agreement or concerted practice. That is true, but concerted practices can take many different forms, and the courts have always been careful not to define or limit what may amount to a concerted practice for this purpose.

[23] Particular attention was given in Counsel's submissions to the decisions in the Bayer case. It is therefore appropriate to refer to that case in more detail at this stage. The Commission had held that conduct on the part of Bayer in relation to its dealers, aimed at controlling the distribution of supplies of its products within the common market, and of preventing or limiting parallel imports, amounted to agreements or concerted practices in breach of art 81. The CFI held that this was wrong on the facts, because the actions of Bayer were unilateral, not agreed to or acquiesced in by the dealers. In its judgment, the CFI said, at para 69:

"It follows that the concept of an agreement within the meaning of Article 85(1) of the Treaty, as interpreted by the case-law, centres around the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties' intention."

[24] After referring to certain cases in which measures adopted in an apparently unilateral manner by a manufacturer had been held to constitute an agreement, the CFI went on to say this at para 71:

"That case-law shows that a distinction should be drawn between cases in which an undertaking has adopted a genuinely unilateral measure, and thus without the express or implied participation of another undertaking, and those in which the unilateral character of the measure is merely apparent."

This proposition was reaffirmed later in the judgment, in particular at paras 173, 174 and 176, in which the phrase "concurrence of wills" is used repeatedly. It is unnecessary to quote these passages for present purposes, as they do not set out any different proposition from that already quoted.

[25] In the meantime, after para 71, the court considered in detail the facts as regards the conduct of the wholesale customers and held that it did not constitute sufficient proof in law of the acquiescence of the dealers in Bayer's policy designed to prevent parallel imports.

[26] In the ECJ, the court referred at para 97 to what the CFI had said at para 69, quoted above. It recognised at para 100 that "the existence of an agreement within the meaning of [art 81] can be deduced from the conduct of the parties concerned". It then said this at paras 101 and 102:

"101 However, such an agreement cannot be based on what is only the expression of a unilateral policy of one of the contracting parties, which can be put into effect without the assistance of others. To hold that an agreement prohibited by Article 85(1) of the Treaty may be established simply on the basis of the expression of a unilateral policy aimed at preventing parallel imports would have the effect of confusing the scope of that provision with that of Article 86 of the Treaty.

102 For an agreement within the meaning of Article 85(1) of the Treaty to be capable of being regarded as having been concluded by tacit acceptance, it is necessary that the manifestation of the wish of one of the contracting parties to achieve an anti-competitive goal constitute an invitation to the other party, whether express or implied, to fulfil that goal jointly, and that applies all the more where, as in this case, such an agreement is not at first sight in the interests of the other party, namely the wholesalers."

On that basis the court held that the approach of the CFI had been correct in law, and dismissed the appeal.

[27] Counsel also cited a passage from Competition Law, 5th edition, by Professor Whish, at p 100, the correctness of which was not challenged, as follows:

"These two cases [Dyestuffs and Suiker Unie] provide the legal test of what constitutes a concerted practice for the purpose of Article 81: there must be a mental consensus whereby practical co-operation is knowingly substituted for competition; however the consensus need not be achieved verbally, and can come about by direct or indirect contact between the parties." "

308. Article 81(1) refers to agreements, decisions and practices "which may affect trade between Member States". No issue has been raised in relation to this requirement in this case. In the absence of a possible effect on trade between Member States, Article 81 does not apply so that the agreement or practice is subject only to the domestic law of a Member State. The purpose of this criterion is to determine the jurisdictional reach of Article 81.
309. Section 2(1)(a) of the 1998 Act refers to agreements, decisions and practices which "may affect trade within the United Kingdom". As with the similar phrase in Article 81(1), no issue has been raised in relation to this requirement in this case. As no point has been raised in relation to the relevant requirement in Article 81 or in Section 2, I need not discuss it further.
310. Article 81(1) refers to agreements, decisions or practices "which have as their object or effect the prevention, or restriction or distortion of competition within the Common Market….". The Treaty does not define "competition". Further, "competition" is not defined in the Competition Act 1998. It is clear from the relevant provisions that competition is regarded as beneficial and desirable but it may still be helpful to know what competition is thought to be and in what respects it is thought to be beneficial and desirable. The concept of competition is described, in passing, in a large number of decisions of the courts and I will set out below a number of references which give the flavour of what is meant by competition.
311. Paragraph 19 of the Commission Guidelines on the Applicability of Article 81 to Horizontal Cooperation Agreements ("the Horizontal Cooperation Guidelines") describes the adverse effects of horizontal cooperation agreements, resulting in a restriction on competition. The paragraph refers to "negative market effects as to prices, output, innovation or the variety or quality of goods and services…..". That formulation shows that the operation of competition is relevant as to prices in the market, but it is not restricted to the question of price, as competition may yield beneficial results in relation to output, innovation, variety of goods and services and quality of goods and services.
312. Paragraph 13 of the Article 81(3) Guidelines states:

"The objective of Article 81 is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources. Competition and market integration serve these ends since the creation and preservation of an open single market promotes an efficient allocation of resources throughout the Community for the benefit of consumers."

313. The UK Government in its White Paper, Productivity and Enterprise: a World Class Competition Regime (Cm 5233/2001) at para 1.1 stated:

"Vigorous competition between firms is the life blood of strong and effective markets. Competition helps consumers get a good deal. It encourages firms to innovate by reducing slack, putting downward pressure on costs and providing incentives for the efficient organisation of production."

314. In Glaxo Smith Kline Services v Commission, case T-168/01, judgment of the CFI, 27^th September 2006, it was said at paragraph 118:

"In effect, the objective assigned to Article 81(1)EEC, which constitutes a fundamental provision indispensable for the achievement of the missions entrusted to the Community, in particular for the functioning of the internal market ….., is to prevent undertakings, by restricting competition between themselves or with third parties, from reducing the welfare of the final consumer of the products in question…………"

315. Without listing the many references of this kind, the judgments of the European Court repeatedly refer to "workable competition" or "effective competition".
316. It is also clear that the reference to competition is not confined to actual existing competition but extends to potential competition: Tierce-Ladbroke v Commission [1997] ECR II-923.
317. Article 81(1) refers to "the prevention, restriction or distortion" of competition. Not much attention has been paid to the three separate words in this phrase and, in the present case, it is sufficient to discuss whether the behaviour complained of amounts to a "restriction" on competition.
318. The behaviour complained of will not be held to be a restriction on competition unless it is held to have "an appreciable impact" on competition: Societe Technique Miniere v Maschinenbau Ulm Gmbh [1996] ECR 235.
319. Finally, in relation to the concept of competition, the competition which is relevant is competition in a particular product market. The definition of the product market involves identifying the product in question and may also have a geographical limitation. The definition of the relevant product market can be a complicated matter but fortunately, in the present case, there is broad agreement between the economic experts instructed by the parties as to the relevant product market. The views of the economic experts in this respect are referred to in the earlier to this judgment. This broad agreement appears to be sufficient for the purpose of determining the issues in the case.
320. Article 81(1) refers to agreements and practices having a certain "object or effect". Object and effect are alternatives. It is sufficient to establish one of the alternatives for the purpose of establishing an infringement of Article 81(1). However, the approach of the European Courts in an object case is very different from the approach in an effect case. In the present case, the Claimants say that the matters complained of by them were agreements or practices which had the object of restricting competition, alternatively, had the effect of restricting competition.
321. The question of restrictions of competition by object is dealt with in paragraphs 21 and 22 of the Article 81(3) Guidelines. Paragraph 21 states:

"Restrictions of competition by object are those that by their very nature have the potential of restricting competition. These are restrictions which in the light of the objectives pursued by the Community competition rules have such a high potential of negative effects on competition that is unnecessary for the purposes of applying Article 81(1) to demonstrate any actual effects on the market. This presumption is based on the serious nature of the restriction and on experience showing that restrictions of competition by object are likely to produce negative effects on the market and to jeopardise the objectives pursued by the Community competition rules. Restrictions by object such as price fixing and market sharing reduce output and raise prices, leading to a misallocation of resources, because goods and services demanded by customers are not produced. They also lead to a reduction in consumer welfare, because consumers have to pay higher prices for the goods and services in question".

322. Paragraph 22 of the Article 81(3) Guidelines states:

"The assessment of whether or not an agreement has as its object the restriction of competition is based on a number of factors. These factors include, in particular, the content of the agreement and the objective aims pursued by it. It may also be necessary to consider the context in which it is (to be) applied and the actual conduct and behaviour of the parties on the market. In other words, an examination of the facts underlying the agreement and the specific circumstances in which it operates may be required before it can be concluded whether a particular restriction constitutes a restriction of competition by object. The way in which an agreement is actually implemented may reveal a restriction by object even where the formal agreement does not contain an express provision to that effect. Evidence of subjective intent on the part of the parties to restrict competition is a relevant factor but not a necessary condition."

323. Paragraph 23 of the Article 81(3) Guidelines refers to various restrictions which are regarded as restrictions by object. Restrictions that are blacklisted in block exemptions or identified as "hard core" restrictions in guidelines and notices are generally considered by the Commission to constitute restrictions by object. In the case of horizontal agreements, restrictions of competition by object include price fixing.
324. In Faull & Nikpay, the EC Law of Competition, 2^nd ed., at para 3.155, it is suggested that the determination as to whether an agreement or concerted practice involves a restriction by object is predominately a question of policy for the Community institutions. If this is right, then there is little room for a national court to expand the scope of restrictions, which are regarded as restrictions by object, beyond those explicitly identified as such by the European Courts and case law and by the Commission in its notices and guidelines. However, it is clear that an agreement which has the object of fixing prices is a restriction by object and, indeed, the Claimants contend in the present case that the behaviour complained of in this case amounted to an agreement to fix prices.
325. In general, an agreement which prima facie has as its object the restriction of competition can nevertheless escape the prohibition of Article 81(1) if it only has an "insignificant effect" on the market or on trade: Volk v Vervaecke [1969] ECR 295 at paragraphs 5-7. As against that, it is stated in Faull & Nikpay at para 3.161 that it is implausible that the European Courts would permit price fixing cartels to escape the Article 81 prohibition on the basis of low market shares alone.
326. Where the agreement or practice does not have as its object the restriction of competition, it will then be necessary to ask whether the effect of the agreement or practice is the restriction of competition. The proper approach to such a case is described in the Article 81(3) Guidelines, in paragraphs 24 to 26 in particular.
327. Paragraph 24 of the Article 81(3) Guidelines states:

"If an agreement is not restrictive of competition by object it must be examined whether it has restrictive effects on competition. Account must be taken of both actual and potential effects. In other words the agreement must have likely anti-competitive effects. In the case of restrictions of competition by effect there is no presumption of anti-competitive effects. For an agreement to be restrictive by effect it must affect actual or potential competition to such an extent that on the relevant market negative effects on prices, output, innovation or the variety or quality of goods and services can be expected with a reasonable degree of probability. Such negative effects must be appreciable. The prohibition rule of Article 81(1) does not apply when the identified anti-competitive effects are insignificant. This test reflects the economic approach which the Commission is applying. The prohibition of Article 81(1) only applies where on the basis of proper market analysis it can be concluded that the agreement has likely anti-competitive effects on the market. It is insufficient for such a finding that the market shares of the parties exceed the thresholds set out in the Commission's de minimis notice. Agreements falling within safe harbours of block exemption regulations may be caught by Article 81(1) but this is not necessarily so. Moreover, the fact that due to the market shares of the parties, an agreement falls outside the safe harbour of a block exemption is in itself insufficient basis for finding that the agreement is caught by Article 81(1) or that it does not fulfil the conditions of Article 81(3). Individual assessment of the likely effects produced by the agreement is required."

328. Paragraph 25 of these Guidelines states:

"Negative effects on competition within the relevant market are likely to occur when the parties individually or jointly have or obtain some degree of market power and the agreement contributes to the creation, maintenance or strengthening of that market power or allows the parties to exploit such market power. Market power is the ability to maintain prices above competitive levels for a significant period of time or to maintain output in terms of product quantities, product quality and variety or innovation below competitive levels for a significant period of time. In markets with high fixed costs undertakings must price significantly above their marginal costs of production in order to ensure a competitive return on their investment. The fact that undertakings price above their marginal costs is therefore not in itself a sign that competition in the market is not functioning well and that undertakings have market power that allows them to price above the competitive level. It is when competitive constraints are insufficient to maintain prices and output at competitive levels that undertakings have market power within the meaning of Article 81(1)."

329. Paragraph 26 of these Guidelines states:

"The creation, maintenance or strengthening of market power can result from a restriction of competition between the parties to the agreement. It can also result from a restriction of competition between any one of the parties or third parties, e.g. because the agreement leads to foreclosure of competitors or because it raises competitors' costs limiting their capacity to compete effectively with the contracting parties. Market power is a question of degree. The degree of market power normally required for a finding of an infringement under Article 81(1) in the case of agreements that are restrictive of competition by effect is less than the degree of market power required for a finding of dominance under Article 82."

330. For the purpose of considering whether the agreement or practice has the effect of restricting competition, the consequences of the agreement must be considered to see if competition has been restricted to an appreciable extent. Competition must be assessed within the actual context in which it would occur in the absence of the agreement in dispute: Societe Technique Miniere v Maschinenbau Ulm Gmbh [1996] ECR 235 at 249 to 250; O2 (Germany) Gmbh v Commission case T-328/03.
331. Initially, the European Commission approached the question of a possible restriction by effect by examining the impact of the agreement on the process of rivalry between the parties and/or from third parties, through either foreclosure of potential new entrants or hindrance of existing players in the market: see Faull & Nikpay at paras 3.167 to 3.175. The authors state, at para 3.176, that the European courts have modified this traditional approach in a number of respects. Restrictions on rivalry are not in themselves always restrictions on competition for the purposes of Article 81(1). The restrictions must be considered in their specific market context. This introduces a stronger economic element to Article 81(1); a point reflected in the passages quoted from the Article 81(3) Guidelines.
332. The European Courts have also developed a concept of ancillary restraints. Clauses which restrict rivalry between the parties and/or third parties fall outside Article 81(1) if they are directly related and necessary to the implementation of a legitimate purpose. This purpose may be commercial, as shown by the decisions in Gottrup-Klim v Dansk Landbrugs Grovvareselskab [1994] ECR I-5641 and Oude Luttikhuis v Verenigde Cooperatieve Melkindustrie Coberco [1999] ECR I-4515. Or the purpose may relate to a public interest such as the case involving the Bar of the Netherlands: Wouters v Algemene Raad Van de Nederlandse Orde Van Advocaten [2002] ECR I-1577.
333. The concept of an ancillary restraint is described in paragraph 29 of the Article 81(3) Guidelines, in these terms:

"In Community competition law the concept of ancillary restraints covers any alleged restriction of competition which is directly related and necessary to the implementation of a main non-restrictive transaction and in proportion to it. If an agreement in its main parts, for instance a distribution agreement or joint venture, does not have as its object or effect a restriction of competition then restrictions, which are directly related to and necessary for the implementation of that transaction, also fall outside Article 81(1). These related restrictions are called ancillary restraints. A restriction is directly related to the main transaction if it is subordinate to the implementation of that transaction and is inseparably linked to it. The test of necessity implies that the restriction must be objectively necessary for the implementation of the main transaction and be proportionate to it. It follows that the ancillary restraints test is similar to the test set out in paragraph 18(2) above. [This paragraph includes an example of a restriction being imposed for the purpose of allowing a distributor to penetrate a new market.] However, the ancillary restraints test applies in all cases where the main transaction is not restrictive of competition. It is not limited to determining the impact of the agreement on intra-brand competition."

334. The Article 81(3) Guidelines go on to contrast the ancillary restraint concept with the exercise of applying Article 81(3) itself. Paragraph 30 of these Guidelines states:

"The application of the ancillary restraint concept must be distinguished from the application of the defence under Article 81(3) which relates to certain economic benefits produced by restrictive agreement and which are balanced against the restrictive effects of the agreements. The application of the ancillary restraint concept does not involve any weighing of pro-competitive and anti-competitive effects. Such balancing is reserved for Article 81(3)."

335. The authority quoted by the Commission for the statements in paragraph 30 of the guidelines is Metropole Television [2001] ECR II-2459.
336. Paragraph 31 of the Article 81(3) Guidelines further discusses the concept of ancillary restraints. It states:

"If on the basis of objective factors it can be concluded that without the restriction the main non-restrictive transaction would be difficult or impossible to implement, the restriction may be regarded as objectively necessary for its implementation and proportionate to it."

The Commission then gave this example of how the concept of ancillary restraints was to be applied.

"…..if a joint venture is not in itself restrictive of competition, then restrictions that are necessary for the functioning of the agreement are deemed to be ancillary to the main transaction and are therefore not caught by Article 81(1). For instance in TPS the Commission concluded that an obligation on the parties not to be involved in companies engaged in distribution and marketing of television programmes by satellite was ancillary to the creation of the joint venture during the initial phase. The restriction was therefore deemed to fall outside Article 81(1) for a period of three years. In arriving at this conclusion the Commission took account of the heavy investments and commercial risks involved in entering the market for pay-television."

337. The concept of ancillary restraints has been applied, generally speaking, where the ancillarity has a commercial character, that is, where the restriction is said to be necessary for the implementation of a legitimate commercial purpose. However, the decision in Wouters [2002] ECR I-1577 is an example of an ancillary restraint being held to be justified on public interest grounds, notwithstanding its anti-competitive effect.
338. There is also another group of cases which might be said to overlap with the cases of ancillary restraint, but which might also be regarded as identifying a more general approach. These are cases where agreements as to exclusivity, which might otherwise be regarded as having an anti-competitive effect, are treated as justified where the exclusivity is necessary for legitimate commercial purposes. In Societe Technique Miniere [1966] ECR 235, the Court held that "it may be doubted whether there is an interference with competition if the said agreement seems really necessary for the penetration of a new area by an undertaking". In Nungesser v Commission [1982] ECR 2515, the ECJ concluded that, having regard to the specific nature of the products in question, an undertaking "which was not certain that it would not encounter competition from other licensees for the territory granted to it, or from the owner of the right itself, might be deterred from accepting the risk of cultivating and marketing that product; such a result would be damaging to the dissemination of a new technology and would prejudice competition in a community between the new product and similar existing products": see [1982] ECR 2515 at para 57.

Article 81(3)

339. If it is held that an agreement otherwise infringes Article 81(1) then the agreement may be exempt under Article 81(3). Article 81(3) recognises that agreements that restrict competition may at the same time have pro-competitive effects. When the pro-competitive effects of an agreement, assessed in accordance with Article 81(3), outweigh its anti-competitive effects, the agreement can be seen to be on balance pro-competitive and therefore compatible with the competition rules.
340. Article 81(3) is subject to four cumulative conditions, two positive and two negative. These are:

"(1) the agreement must contribute to improving the production or distribution of goods or contribute to promoting technical or economic progress;

(2) consumers must receive a fair share of the resulting benefits;

(3) the restrictions must be indispensable to the attainment of these objectives; and

(4) the agreement must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question."

341. If any one of the four conditions is not satisfied, then the exemption under Article 81(3) is not available. Although Article 81(3) states that the provisions of Article 81(1) "may" be declared inapplicable, the Article 81(3) Guidelines state that the four conditions in Article 81(3) are exhaustive and when they are met the exemption is available and may not be made dependant on any other condition: see paragraph 42.

Some specific decisions

342. I ought to refer briefly to some specific decisions which were emphasised by the parties in their submissions. I will take these decisions broadly in chronological order rather than treat them thematically.
343. Delimitis v Henninger Brau AG [1991] ECR I – 935 concerned a beer tie in a vertical agreement between a brewery and a publican. It is an important case on vertical agreements operating to foreclose the relevant market, to prevent entry into the market or expansion of existing market share. Such an agreement is regarded as restrictive of competition under Article 81(1) if two conditions are met. The first is that, having regard to the economic and legal context of the agreement at issue, it is difficult for competitors, who could enter the market or increase their market share, to gain access to the relevant market. The fact that the agreement in issue is only one of a number of agreements having a cumulative effect on competition is only one factor in assessing whether access to the market is indeed difficult. The second condition is that the agreement in question must make a significant contribution to the sealing-off effect brought about by the totality of those agreements. The extent of the contribution made by the individual agreement depends on the position of the contracting parties in the relevant market and on the duration of the agreement.
344. In Gottrup-Klim [1994] ECR I-5641, the ECJ was asked to consider whether the rules of a joint purchasing cooperative which prevented its members from buying through other similar cooperatives fell within Article 81(1). The opinion of Advocate General Tesauro set out the established principles as to distinguishing between a restriction on competition by object and a restriction on competition by effect: see paras. 14 to 16. The Advocate General stated that the undistorted competition sought by Article 81 of the Treaty implied the existence in the market of workable competition. He referred to the need to consider how competition would have operated in the market in question in the absence of the agreement being considered. This question arose whether the agreement was said to be restrictive by object or restrictive by effect. When considering the application of this approach to the agreement in that case he commented upon the contractual strength of producers and suppliers which was to be counterbalanced by the establishing of a purchasing cooperative: see paragraph 18. In the judgment of the Court, it was stated that the compatibility of the agreement with Article 81 was not to be assessed in the abstract and would depend on the economic conditions prevailing on the markets concerned: see paragraph 31. It was also stated that the existence of a purchasing cooperative could constitute a significant counterweight to the contractual power of large producers and make way for more effective competition: see paragraph 32. It was stated that the restriction in the agreement in question did not necessarily constitute a restriction on competition and might even have beneficial effects on competition: see paragraph 34. However, such a restriction should be limited in its effect to what was necessary to ensure that the cooperative functioned properly: see paragraph 35. It was held that having regard to the particular features of that case, the restriction did not go beyond what was necessary to ensure that the cooperative functioned properly and maintained its contractual power in relation to producers: see paragraph 40.
345. The decision of the ECJ in Oude Luttikhuis [1995] ECR I-4515 also concerned an agricultural cooperative, this time a selling cooperative. The decision of Advocate General Tesauro is reported as part of the report of the judgment of the ECJ in Dijkstra v Friesland (Frico Domo) Cooperatie [1995] ECR I-4471 as the opinion of the Advocate General dealt with both cases before the court. The Advocate General summarised the established principles as to the appropriate analysis where the restriction on competition is said to be a restriction by object and where it is said to be a restriction by effect. When considering the suggested restriction by object, the Advocate General referred to the possibility that a restriction might be needed to enable the cooperative to function properly "particularly where it is first entering the market or is at an early stage of operation": see paragraph 30. In paragraph 31, when considering whether the agreement had the effect of restricting competition, the Advocate General stressed that the same restriction might in some circumstances be regarded as a suitable way of increasing competition "in that it fosters the consolidation of new undertakings in the market" but in other circumstances might be regarded as unjustified and anti-competitive. This point was also made in footnote 31 to paragraph 31 of his opinion. At paragraph 36, the Advocate General stated that subject to further findings falling to be made by the national court, he considered that in view of the size and importance of the cooperative on the market, the existence of a complex of agreements of similar content, the fact that the members' obligation to deliver all their milk to the cooperative was reinforced by clauses which required an outgoing member to pay a resignation fee on withdrawal and the fact there was a serious restriction on members and on competitors, the clauses in question did have the effect of contributing to a restriction of competition incompatible with Article 81(1). The judgment of the ECJ considered restrictions by object at paragraphs 11 to 14 and restrictions by effect at paragraphs 15 to 16. In paragraph 14, when considering restrictions by object, the ECJ applied the test set out in Gottrup-Klim [1994] ECR I-5641 at paragraph 35, to which I have referred. When considering restrictions by effect, the ECJ suggested that in the circumstances of that case, the clauses were liable to be a restriction on competition contrary to Article 81(1). The ECJ having given its ruling on a reference from the national court, it was for the national court to apply the decision of the ECJ to the facts found by the national court.
346. Re Television par Satellite (TPS) [1995] 5 CMLR 168 was a decision of the Commission on an application for negative clearance/exemption in relation to a new venture formed by 6 broadcasting and telecommunications companies. The Commission considered various restrictions in that case. It was held that a non-competition clause agreed by the shareholding companies in the new venture which was formed to launch satellite pay-TV programmes and services in France was an ancillary restriction to the creation of the new venture and not caught by Article 81(1): see paragraphs 98 to 99 of the decision. The Commission referred to doubts having been expressed as to the prospects of success of the new venture, the amount of investment required, the difficulty of establishing the new venture in a market dominated by an experienced operator possessing a strong subscriber base and other difficulties and uncertainties. The non-competition clause was held to contribute to the creation of a new entrant in the market and could be "deemed pro-competitive". At paragraphs 100 to 109 of its decision, the Commission considered four other obligations which applied. One obligation might have been regarded as ancillary to the launch of the new venture but as the obligation was imposed over a period of ten years, this was regarded as a restriction caught by Article 81(1). However, the Commission went on to consider Article 81(3) and granted exemption for a period of three years from the launch of the new venture.
347. European Night Services Ltd v Commission [1998] ECR II – 3141 is a decision of the CFI. The Court stated (at paragraph 136) that in considering whether an agreement infringed Article 81, account should be taken of the actual conditions in which it functions, in particular the economic context in which the undertakings operate, the products or services covered and the actual structure of the market concerned, unless it was an agreement containing obvious restrictions on competition such as price fixing. In that case, such restrictions could be weighed against their claimed pro-competitive effects only in the context of Article 81(3). It was stated (at paragraph 137) that one had regard to potential as well as actual competition and one assessed whether there were "real concrete possibilities" of a new competitor penetrating the market. An "economically realistic approach" was necessary.
348. In Wouters [2002] ECR I-1577 the national court asked the ECJ for a preliminary ruling as to whether a regulation restricted competition within Article 81. The restriction in question governed the formation of multi-disciplinary partnerships and was said to have the objective of guaranteeing the independence and loyalty to a client of members of the Bar of the member state. The ECJ held that prima facie the regulation had an adverse effect on competition: see paragraphs 86, 92 and 93. However, at paragraph 97 the ECJ remarked that not every agreement which restricted the freedom of action of a party necessarily fell within the prohibition in Article 81(1). The court stated that account must be taken of the overall context of the agreement and of the objectives of the agreement. Having done that, one then considered whether the consequential effects, restrictive of competition, were inherent in the pursuit of those objectives. At paragraphs 105 to 108 of the decision, the court identified the objectives of the regulation in question. At paragraph 109 the court stated that it did not appear that the effects which were restrictive of competition went beyond what was necessary in order to ensure the proper practice of the legal profession and the court referred to the Gottrup-Klim case.
349. I was referred to the decisions of the Commission in which it found that processors of raw tobacco in Spain and Italy agreed between themselves the maximum purchase price that they would pay to their suppliers, the tobacco producers, in order to keep their input prices down: see Re Spanish Raw Tobacco Cartel [2006] 4 CMLR 16 (in particular at paragraph 301) and Re Italian Raw Tobacco Cartel [2006] 4 CMLR 29. The point made on the basis of these decisions was that higher prices may indeed signify a more competitive buying market and low prices result from a lack of competition in the buying market, whether through monopsony or collusion.
350. In the Racecourse Association v Office of Fair Trading [2005] CAT 29, the Competition Appeal Tribunal heard an appeal against a decision of the OFT under section 31 of the Competition Act 1998. In its decision, the OFT had held that the sale of certain media rights under what was called the Media Rights Agreement ("the MRA") infringed the Chapter 1 prohibition, imposed by section 2 of the Competition Act 1998, and did not qualify for individual exemption under section 9 of that Act. The rights granted by the MRA included rights which were described as "the non-LBO bookmaking rights". These rights permitted the grantee to supply programming covering British horseracing to UK bookmakers, other than LBOs, for distribution in combination with betting services. The rights were picture rights which, in combination with betting rights and data, could be used to allow interactive betting using television or the internet. The rights only became commercially valuable with the development of interactive betting technology enabling punters to place off-course bets at home or at work rather than in a LBO. The OFT found that the MRA effected a collective sale by racecourses of the rights in question. It was held that the collective sale of these rights infringed section 2 of the 1998 Act and did not qualify for exemption under section 9 of that Act. In relation to section 9, the OFT held that collective selling was not indispensable to attaining the benefits resulting from the MRA.
351. The appeal to the CAT raised altogether some six questions. Not all of the questions are relevant for present purposes. The first question was whether the OFT was correct in its identification of the relevant product market. The second question was whether there was a horizontal agreement and/or concerted practice by the Racecourse Association and/or the racecourses collectively to sell their rights. The third question, which is relevant for the present discussion, was whether a collective sale was "necessary" for the launch of the interactive betting service on digital television and the internet so that there was no negative impact on competition.
352. The CAT considered the relevant product market at paragraphs 135 to 150. At paragraph 150, the CAT held that the OFT was in error in its identification of the product market and that the OFT's decision should be set aside. However, the CAT went on to consider some of the further questions that had been argued on the appeal.
353. At paragraphs 151 to 156, the CAT set out some general propositions as to the operation of Article 81(1). At paragraph 155, the CAT stated that an agreement was not restrictive of competition if it was "necessary" to create and/or operate a new service and the CAT quoted and relied upon paragraph 87 of the Horizontal Cooperation Guidelines.
354. At paragraphs 157 to 159, the CAT considered whether the MRA amounted to collective selling and held that it did. At paragraphs 160 to 176, the CAT considered whether collective selling or collective negotiation was "necessary" for the creation of the new product in respect of which the racecourses were selling media rights. The CAT considered the decisions in Gottrup Klim and Wouters and also the decision of the CFI in Metropole Television v Commission [2001] ECR II-2459.
355. At paragraph 167 of its decision, the CAT said this:

" We confess to some difficulty in reconciling the approach of the ECJ in Gøttrup-Klim and Wouters with that of the CFI in Métropole, but find it unnecessary to dwell on the explanation in Métropole as to the rationale that the CFI perceived as underlying cases such as Gøttrup-Klim and Wouters (the latter of course being decided after Métropole). We consider that these two decisions of the ECJ show that the assessment of whether or not a particular arrangement constitutes an infringement of Article 85(1) (now Article 81(1)), or therefore of the Chapter I prohibition, is a rather more flexible exercise than the CFI was perhaps willing to appreciate. It is not enough that the arrangement is apparently anti-competitive, as in Gøttrup-Klim and Wouters. What those cases show is that ostensibly restrictive arrangements which are necessary to achieve a proper commercial objective will not, or may not, constitute an anti-competitive infringement at all. Whether or not they will do so requires an objective analysis of the particular arrangement entered into by the parties, assessed by reference to their subjective "wants" and against the evidence of the particular market in which they made their arrangement. The task then is to consider whether the restrictive arrangement of which complaint is made is "necessary" to achieve the objective. The RCA appellants also submitted that the concept of "necessity" in this context is not an absolute one, but has an element of flexibility about it, for which they referred us to paragraph 109 in the Métropole case in which the court observed that "If, without the restriction, the main operation is difficult or even impossible to implement, the restriction may be regarded as objectively necessary for its implementation." We also accept this last submission: competition law is not an area of law in which there is much scope for absolute concepts or sharp edges. "

356. Having directed itself as set out in paragraph 167 of its decision, the CAT applied that legal direction to the facts of that case. It considered whether the necessary critical mass of rights could have been assembled by individual negotiation with racecourse owners rather than by a process of collective negotiation. It dismissed the idea of assembling a critical mass by individual negotiation as "a triumph of theory over commercial reality". The same point was made in paragraphs 171 and 172. The CAT concluded that the collective negotiation was necessary for the achievement of the legitimate commercial objective of creating a new product: see paragraph 175.
357. O2 v Commission [2006] 5 CMLR 5 concerned an infrastructure sharing and national roaming arrangement in Germany, made between two mobile telephone operators, O2 and T-Mobile. These two companies notified their agreement to the Commission. The Commission held that in certain respects the agreement restricted competition contrary to Article 81(1) but granted exemption under Article 81(3), subject to certain conditions. O2 challenged that decision before the CFI. It was held that O2 was able to bring that challenge to the decision because the contested decision of the Commission had granted O2 only partial satisfaction and not the full negative clearance sought by O2. At paragraphs 66 to 67 of its decision, the CFI stated that what was called for was an examination of the economic and legal context in which the agreement was concluded considering the structure of the market concerned and the actual conditions in which the agreement functioned. At paragraphs 68 to 72, the CFI said this:

" 68 Moreover, in a case such as this, where it is accepted that the agreement does not have as its object a restriction of competition, the effects of the agreement should be considered and for it to be caught by the prohibition it is necessary to find that those factors are present which show that competition has in fact been prevented or restricted or distorted to an appreciable extent. The competition in question must be understood within the actual context in which it would occur in the absence of the agreement in dispute; the interference with competition may in particular be doubted if the agreement seems really necessary for the penetration of a new area by an undertaking (Société minière et technique at 249-250).

69 Such a method of analysis, as regards in particular the taking into account of the competition situation that would exist in the absence of the agreement, does not amount to carrying out an assessment of the pro- and anti-competitive effects of the agreement and thus to applying a rule of reason, which the Community judicature has not deemed to have its place under Article 81(1) EC (Case C-235/92 P Montecatini v Commission [1999] ECR I-4539, paragraph 133; M6 and Others v Commission, paragraphs 72 to 77; and Case T-65/98 Van den Bergh Foods v Commission [2002] ECR II-4653, paragraphs 106 and 107).

70 In this respect, to submit, as the applicant does, that the Commission failed to carry out a full analysis by not examining what the competitive situation would have been in the absence of the agreement does not mean that an assessment of the positive and negative effects of the agreement from the point of view of competition must be carried out at the stage of Article 81(1) EC. Contrary to the defendant's interpretation of the applicant's arguments, the applicant relies only on the method of analysis required by settled case-law.

71 The examination required in the light of Article 81(1) EC consists essentially in taking account of the impact of the agreement on existing and potential competition (see, to that effect, Case C-234/89 Delimitis [1991] ECR I-935, paragraph 21) and the competition situation in the absence of the agreement (Société minière et technique at 249-250), those two factors being intrinsically linked.

72 The examination of competition in the absence of an agreement appears to be particularly necessary as regards markets undergoing liberalisation or emerging markets, as in the case of the 3G mobile communications market here at issue, where effective competition may be problematic owing, for example, to the presence of a dominant operator, the concentrated nature of the market structure or the existence of significant barriers to entry - factors referred to, in the present case, in the Decision."

358. In O2, the CFI then considered the approach of the Commission and found that the Commission has assumed, without adequate supporting evidence, that O2 would have been in the market in the absence of the agreement in question. At paragraph 96, the CFI commented on the fact that the effect of an agreement has to be examined first for the purposes of Article 81(1) and then, if necessary, for the purposes of Article 81(3), the second examination presupposing that it has already been demonstrated that the agreement is incompatible with Article 81(1). Although the Commission had carried out an examination of the effects of the agreement for the purposes of Article 81(3) they had not properly done so for the purposes of Article 81(1) and the examination for the purposes of Article 81(3) was not sufficient to fill the gap.
359. Because the Commission had failed to analyse objectively the competition situation in the absence of the agreement under Article 81(1), the CFI set aside the relevant part of the Commission's decision. In particular, the CFI stated that the Commission ought to have considered whether the restrictions complained of might have been pro-competitive in enabling a small telecoms operator to compete with the major players particularly given the specific characteristics of the relevant emerging market.
360. The implications of the decision in O2 and in particular the tension between the CFI's rejection of "a rule of reason" (see paragraph 69 of the decision) and the CFI's endorsement of the need for a detailed market analysis is considered in Faull & Nikpay at paras 3.269 to 3.288.
361. The decision in O2 is also of interest in that it identifies the separate nature of the enquiry which has to be undertaken for the purpose of Article 81(1) from the nature of the enquiry needed for Article 81(3). In that case, O2 had obtained exemption subject to conditions pursuant to Article 81(3) and plainly hoped to be able to obtain negative clearance which held, in effect, that the agreement did not infringe Article 81(1) and so there was no scope for the Commission to impose conditions, as a term of the grant of exemption under Article 81(3). This illustrates the possibility that even though exemption might be refused under Article 81(3) or exemption might be granted under Article 81(3) subject to conditions, there is a wholly separate question which arises under Article 81(1) which might produce the answer that the agreement does not infringe Article 81(1) in the first place.
362. The point in the last paragraph is also illustrated by Days Medical Aids v Pihsiang [2004] 1 All ER (Comm) 991. In that case the Judge expressed the view that the agreement was not entitled to individual exemption under Article 81(3) because it failed to satisfy one of the four requirements for such exemption (see paragraph 252) but the Judge also held that the agreement did not infringe Article 81(1) (see paragraph 242).

Three decisions of the Commission

363. In the period 2003 to 2006, the Commission gave three important decisions which concern the joint selling of media rights in connection with sport. These three decisions are: Re: The Joint Selling of the Commercial Rights of the UEFA Champions League ("UEFA") [2004] 4 CMLR 9; Re: The Joint Selling of the Media Rights to the German Bundesliga ("DFB") [2005] 5 CMLR 26 and Re: FA Premier League ("FAPL") [2006] CMLR 25. The Claimants relied heavily on these decisions of the Commission and in particular the decisions in UEFA and FAPL. It is therefore appropriate to examine those decisions in a little detail.
364. While the cases concerning UEFA and DFB were pending before the Commission, the European Commissioner for Competition Policy (Mario Monti) gave a speech at Brussels on the 17^th April 2000 entitled "Sport and Competition". He referred to the cases pending before the Commission and he expressed the preliminary opinion of the Commission to the effect that collective selling agreements restricted competition in three ways:

(1) they amount to a price fixing mechanism;

(2) the availability of rights to sports events is limited; and

(3) the market position of the most important broadcasters is strengthened because they are the only operators who are able to bid for all the rights in one package.

He stated that the proceedings in relation to UEFA and DFB would provide the Commission with an opportunity to set out case law in the relevant area. He also commented on the granting of media rights on an exclusive basis. He recognised that this was an established commercial practice. He stated that the Commission had already stated that exclusive contracts for a sporting event or for one season did not normally pose any competition problems but exclusivity of a long duration and for a wide range of rights was unacceptable because it was likely to lead to market foreclosure. He recognised that a longer duration of exclusive arrangements could be justified particularly when an operator wished to enter a new market with an innovative service or to introduce a new technology requiring very high risk and heavy investments. A standard duration for exclusivity contracts could not be pre-determined because each agreement in each market had its own characteristics.

365. In paragraph 1 of its decision in UEFA, the Commission introduced its decision by stating that the joint selling arrangement in that case restricted competition among the member football clubs in the sense that the arrangement had the effect of coordinating the pricing policy and all other trading conditions on behalf of the club. However, the Commission considered that those restrictions could be exempted in the specific circumstances of the case. This is one of the places in the decision where the Commission refers to the effect of the arrangements on price. It is clear that the Commission saw the restrictions in that case as having an effect on competition insofar as they had an effect on price but, conversely, the Commission did not express any concern that the arrangements had the object of price fixing.
366. At paragraphs 18 to 20 of its decision, the Commission described the original arrangements which were notified to the Commission for negative clearance and/or individual exemption. In paragraph 19, the Commission again described the effect of the arrangements rather than the object of the arrangements. The same comment can be made as to paragraph 20 of the decision. At paragraphs 21 to 24 of the decision, the Commission set out the amended arrangements put forward by UEFA. These arrangements are then described in some detail at paragraphs 25 to 54 of the decision. The decision discusses the relevant market at paragraphs 55 to 90. The Commission referred to the upstream market for the sale and acquisition of certain television rights and the downstream market in which television broadcasters competed for advertising revenue and for subscribers.
367. The Commission began its appraisal of the application of Article 81 at paragraph 102. At paragraph 114, the Commission said this:

"UEFA's joint selling arrangement has the effect that through the agreement jointly to exploit the commercial rights of the UEFA Champions League on an exclusive basis through a joint selling body, UEFA, prevents the individual football clubs from individually marketing such rights. This prevents competition between the football clubs and also between UEFA and the football clubs in supplying in parallel media rights to the UEFA Champions League to interested buyers in the upstream markets. This means the third parties only have one single source of supply. Third-party commercial operators are therefore forced to purchase the relevant rights under the conditions jointly determined in the context of the invitation to bid, which is issued by the joint selling body. This means that the joint selling body restricts competition in the sense that it determines prices and all other trading conditions on behalf of all individual football clubs producing the UEFA Champions League content. In the absence of the joint selling agreement the football clubs would set such prices and conditions independently of one another and in competition with one another. The reduction in competition caused by the joint selling agreement therefore leads to uniform prices compared to a situation with individual selling."

368. Paragraph 114 of the Commission's decision refers to the effect of the arrangements as regards price. It is clear that the reasoning process in paragraph 114, when it refers to price, is referring to a restriction by effect and not a restriction by object. In other words, the Commission did not consider that the object of the relevant arrangements was to fix prices.
369. In paragraphs 115 and 116 of its decision, the Commission identified other restrictions on effect which resulted from the arrangements. At paragraph 116, the Commission referred to a restriction on competition in the upstream market between football clubs.
370. The Commission then considered a question which arose in that case as to the ownership of the media rights. It observed that if UEFA were the sole owner of the rights in a Member State then no horizontal restriction of competition would occur from UEFA selling the commercial rights. The Commission however considered that UEFA could at best be considered as a co-owner of the rights but not the sole owner. The Commission proceeded on the basis that there was co-ownership between the clubs and UEFA for the individual matches but that this co-ownership did not concern horizontally all the rights arising from a football tournament.
371. The Commission further considered the question of competition in the context of the special characteristics of sport. At paragraph 125, it noted UEFA's submission that football clubs were not truly independent competitors. At paragraph 128, the Commission held that UEFA and the football clubs were economic competitors in selling commercial rights (property rights and media rights) to football matches. If there were no joint selling arrangement then these parties would be selling their rights individually and in competition with one another. At paragraph 129, the Commission again stated that the clubs were economic competitors in relation to the sale of the relevant rights.
372. Before continuing with the Commission's reasoning in UEFA, I should note at this point that I was referred to the Commission's decision concerning Formula One motor racing (2001/C 169/03), where the Commission considered the position of the various participants in a Formula One race as part of the Formula One World Championship. The various participants included all the teams and the FIA and the decision refers to the FOA negotiating on behalf of the teams and the FIA with local promoters and broadcasters. It was stated that the arrangements did not appear to affect prices or market output. It was then added that individual Formula One events did not compete with each other as they were not broadcast at the same time.
373. Returning to the decision concerning UEFA, at paragraph 131, the Commission referred to the principal of "solidarity" between all levels and areas of sport. This concerned the way in which revenue was redistributed between undertakings. The Commission noted that the European Council in Nice in December 2000 had encouraged the mutualisation of part of the revenue from the sales of television rights as beneficial to the principal to solidarity. However, in the UEFA case, the Commission held that a joint selling arrangement was not an indispensable prerequisite for the redistribution of revenue. It based this conclusion on the fact that in other cases, individual football clubs had sold the television rights individually.
374. Accordingly, the Commission concluded that the arrangements notified to it did restrict competition by effect contrary to Article 81(1) of the Treaty and that made it necessary for the Commission to consider individual exemption under Article 81(3). The Commission then considered the four conditions set out in Article 81(3). The Commission examined each condition in great detail and concluded that each condition was satisfied and the case for an individual exemption was made out. In relation to the first condition, which refers to improvement in production or distribution and/or the promotion of technical or economic progress, the Commission considered the specific circumstances of a league product. At paragraphs 164 to 167, the Commission considered the principal of solidarity but, in the end, did not find it necessary to come to a conclusion as to whether this was a sufficient justification in its own right. The Commission then considered the second condition which refers to the test of fair share of benefit for consumers. The Commission appeared to consider media operators and viewers as being consumers of the product being sold.
375. The Commission next considered the third condition in Article 81(3) which refers to the test of whether the restrictions are indispensable. On the particular facts of that case, the Commission held that this condition was met. Finally, on the fourth condition, which refers to no elimination of competition, the Commission remarked that the television rights of UEFA Champions League represented some 20% of the rights in the relevant market and probably a similar percentage in relation to potentially emerging markets.
376. The Commission's decision in DFB is more shortly expressed than its decision in UEFA. DFB concerned the central marketing of the media rights in respect of matches in the first and second national football divisions in Germany. The Commission had formed a preliminary assessment which led it to note that these arrangements could restrict competition between the clubs and companies in the first and second division but in view of certain commitments given to the Commission following the preliminary assessment and in the light of observations submitted by third parties, the Commission concluded that there were no grounds for it to take action. The Commission's preliminary concerns are expressed in paragraph 22 of its decision. These refer to the fact that the league association, under the marketing agreements with the clubs, determined the price and the nature and scope of exploitation of the media rights. The clubs were prevented from dealing independently with television and radio operators and sport-rights agents. In particular, the clubs were prevented from taking independent commercial decisions about the price for their rights. At paragraph 23 of its decision, the Commission commented that the joint marketing arrangements could have an adverse effect on the relevant downstream television market. The commitments offered by the league led to the relevant rights being offered in several packages in a transparent non discriminatory way. The duration of the agreement entered into would not exceed three seasons. At paragraph 41 of its decision, the Commission concluded that the commitments from the league association introduced the competition into the marketing of the relevant rights between the league and the clubs and allowed for new club branded products. These commitments reduced the scope and duration of future marketing deals and provided a transparent non-discriminatory marketing procedure.
377. As with the UEFA decision, the DFB decision does not disclose that the Commission felt that the arrangements led to a restriction by object where the relevant object was price fixing.
378. FAPL concerned the horizontal joint selling arrangements put in place by the football clubs in the Premier League for the exploitation in the United Kingdom of media rights to Premier League matches. Pursuant to those arrangements, FAPL as the body representing all of the individual clubs sold the media rights pertaining to Premier League matches on the club's behalf, both in the United Kingdom and throughout the world. The Commission expressed objections to these arrangements insofar as certain aspects of the horizontal joint selling arrangements raised concerns. In paragraph 2 of its decision in FAPL, the Commission stated that its decision had as its sole subject matter the horizontal joint selling arrangements and its decision did not concern the vertical agreements to license the rights concluded pursuant to that joint sales agreement.
379. The Commission's decision in FAPL described its preliminary assessment of the original arrangements. The Commission considered the relevant upstream market and the relevant downstream market. The most commercially important of the downstream markets was the television market where free television broadcasters competed for advertising and pay television broadcasters competed for subscribers and, usually, advertising. It was remarked that football had proven to be a driving force for the development of pay television and it was also an essential programme item for free television broadcasters.
380. The Commission expressed its concern about the arrangements originally notified at paragraph 25 of its decision in these terms:

"Joint selling prevents clubs from taking independent commercial action regarding the exploitation of the media rights pertaining to Premier League matches. In place of twenty clubs, each having a relatively small market share and each pursuing its own media rights policy, the arrangements result in a single (joint) sales organisation with exclusive rights, enjoying significant market share, and pursuing a single sales policy. Markets on which no one possesses market power and whose development would typically be dictated by the demand for rights become subject to the commercial choices made by a joint sales organisation with a significant market share. Markets that would be demand-led thus become supply-driven. As a consequence, the joint sales organisation can, depending on how and to whom the rights are sold, restrict output and create foreclosure problems on downstream markets."

381. The Commission then went on to consider the specific foreclosure problem in the downstream market. At paragraph 29, the Commission expressed the view that in the absence of the relevant arrangements, the media rights would have been sold by individual clubs, creating greater scope for ex ante competition on the upstream market for the acquisition of media rights and consequently for competition in the downstream markets.
382. Following the Commission's preliminary assessment of the proposed arrangements, FAPL, in December 2003 introduced changes (the December 2003 commitments). The Commission noted a number of features of the December 2003 commitments. One feature was that the television rights would be sold in a number of balanced packages, each showcasing the League as a whole, and designed to create the conditions for competition. No single buyer would be able to buy all of the rights. The duration of the rights agreements would not exceed three years. The rights would be sold in a transparent and non discriminatory tendering procedure. Unused or unexploited rights would revert to the clubs for their exploitation.
383. Following further discussions, FAPL amended its December 2003 commitments. The amended commitments are summarised in paragraph 36 of the decision and it was these amended commitments which were the basis of the Commission's decision. At paragraph 37, the Commission stated that its objective was to ensure that the arrangements which were put in place did not restrict output nor result in competitors being foreclosed from the relevant markets, to the detriment of consumers. The Commission felt that its objectives could be secured by certain features of the revised commitment to which I have referred.
384. Having reviewed those three decisions of the Commission, it is possible to make a number of comments. The first is that the arrangements being considered involved horizontal agreements between competitors. The Commission was not considering a vertical agreement entered into between, say, a club and a broadcaster. The second comment relates to the part of Article 81 which was being considered. It is quite clear from the UEFA decision that the Commission's reasoning process involved, first, a decision that Article 81(1) would be infringed by the notified arrangements but, having considered the four conditions in Article 81(3) separately and in detail, the case was one for an individual exemption under Article 81(3). This process of reasoning is not, or at any rate not obviously, the basis of the decisions in DFB and FAPL. Indeed, in those two later decisions, the Commission did not individually identify the four conditions in Article 81(3) nor consider them in detail. The reasoning in the two later decisions appears to be grounded on Article 81(1) and amount to a conclusion that with the various modifications to the arrangements which I have discussed in detail, the arrangements did not infringe Article 81(1) and so no question of a need for individual exemption arose.
385. I was also referred to the Commission Staff Working Document on the EU and Sport: Background and Context, which was an accompanying document to the White Paper on Sport and published in Brussels on the 11^th July 2007. At page 54 of the document, it is stated that the area of sport media rights is particularly sensitive to anti trust violations. The concern expressed was that a single seller or a joint seller entity selling all sport media rights on an exclusive basis for an extended period of time to one single operator in a certain market (such as pay TV) might result in foreclosure of that market and competitive harm. The document then referred to the three Commission decisions in UEFA, DFB and FAPL. At page 55 the document states:

"The Commission's consistent policy has been that joint selling constitutes a horizontal restriction of competition under Article 81(1) EC. At the same time, the Commission also acknowledges that joint selling creates certain efficiencies and may, under certain circumstances, fulfil the conditions of Article 81(3) EC and therefore not constitute a violation of Article 81EC. The Commission remedied the negative effects of joint selling by requiring, e.g., the selling of rights in several individual rights packages following an open and transparent tendering process. Moreover, the duration of rights contracts should exceed 3 years and unsold rights would fall back for individual exploitation by the clubs. The above mentioned decisions had the effect of opening up media rights markets to broadcasters and new media service providers by making several different rights packages available while safeguarding the social and cultural aspects of football. This prevented the concentration of all available rights in the hands of a single media operator and ensured that a maximum amount of rights was made available to sports fans. The question if and under which conditions joint selling can be justified on the basis of Article 81(3) has to be examined in the light of the specific circumstances of each individual case."

386. It may be that the passage quoted above is a sufficiently accurate statement of the reasoning process in the UEFA case. However, having examined in detail the decisions in DFB and FAPL, it is far from obvious that what the Commission did in those cases (as the short summary in the Working Document would suggest) involved a finding that Article 81(1) had been infringed but that the case was appropriate for individual exemption under Article 81(3), as compared with a reasoning process which held that in all the circumstances Article 81(1) was not infringed.
387. On page 55 of the Working Document, there is a discussion of the question of redistribution of revenue within sport or the principle of solidarity. It is not necessary to quote from that passage.
388. At pages 81 to 86 of the Working Document there is a detailed discussion of the possible competition concerns resulting from the behaviour of sellers of exclusive media rights. The Commission stated in paragraph 3.1.3.1.1:

"In the upstream market Article 81(1) EC applies to joint selling agreements leading to competition restrictions, like foreclosure and output limitation, that would unlikely have occurred in the absence of the agreements. Joint selling describes, for example, the situation where sport clubs entrust the selling of their media rights to their sports association which then sells the rights collectively on their behalf. A joint selling arrangement is a horizontal agreement which prevents the individual clubs each having a relatively small market share from individually competing in the sale of sports media rights. One price is applied to all rights collectively which constitutes price fixing. In addition the number of rights available in the upstream acquisition market is often reduced which may create barriers to entry on downstream broadcasting markets and may lead to access foreclosure in these markets."

389. The passage quoted above again seems to suggest that joint selling agreements will generally infringe Article 81(1). This reading of the passage is supported by the fact that the Working Document goes on to consider cases in which individual exemption might be appropriate under Article 81(3). As before, this treatment of the topic may not be wholly faithful to the decisions in DFB and FAPL although it is accurate in relation to the decision in UEFA.
390. The other point to be noted from the passage in paragraph 3.1.3.1.1 of the Working Document is the reference to "price fixing". Having examined the three decisions of the Commission in UEFA, DFB and FAPL, I do not find that the Commission's expressed concern under Article 81(1) involved a restriction by object, where the object was price fixing. As explained when analysing those three decisions, it seems to me that what the Commission was referring to was the effect on price of joint selling arrangements where the effect on price was part of a restriction on competition by effect rather than a restriction on competition by object.
391. At paragraph 3.1.3.2 of the Working Document, the Commission described in the detail the "remedies" it had applied in previous cases to address competition concerns. At paragraph 3.1.4.2, the Commission stated that it was important to re-emphasise that the steps adopted in previous decisions were "not exhaustive nor binding" for future cases as they merely represented possible options to deal with competition issues arising in this area. The Commission might decide to adopt additional or different remedies in future cases. In expressing its conclusion at paragraph 3.1.5 the Commission stated:

"… It is important to note that there is no 'standard' or 'one-size-fits-all' approach that applies to cases involving sports media rights. The Commission will have to carefully assess each individual case in order to determine, where necessary, the appropriate remedy or remedies, taking into account the specific facts and circumstances, in particular also considering the technological developments of the relevant markets."

The burden and standard of proof

392. The burden of proof is dealt with by Article 2 of Council Regulation 1/2003. Article 2 provides that the burden of proving an infringement of Article 81(1) is on the party alleging the infringement. If an undertaking claims the benefit of Article 81(3), that undertaking bears the burden of proving that the conditions of Article 81(3) are fulfilled. This Article does not say anything about the standard of proof: see recital (5) to the Regulation. The question of the standard of proof has been considered in a number of cases. In Napp Pharmaceuticals Holdings Limited v Director General of Fair Trading [2002] CAT 5 and JJB Sports Plc and All Sports Limited v Office of Fair Trading [2004] CAT 17, it was held that the standard of proof is the civil standard of proof on the balance of probabilities although the seriousness of an infringement of Article 81 or of the 1998 Act, involving (as it may) the imposition of penalties, is a factor to be taken into account in considering the probabilities of an infringement having occurred; see also The Racecourse Association v Office of Fair Trading [2005] CAT 29 at paragraph 131.
393. It can be seen from the above discussion of Article 81(1) that there will be cases where the agreement in question is prima facie contrary to Article 81(1) but a party seeks to persuade the court that the prima facie restriction on competition is justified in the particular circumstances of the case. Where this happens, the legal burden of proving an infringement of Article 81(1) remains with the party who so asserts but the evidential burden of demonstrating that the apparent restriction on competition is justified falls upon the undertaking advancing such assertion: see The Racecourse Association v Office of Fair Trading [2005] CAT 29 at paragraphs 132 to 133.

Article 81(2)

394. Article 81(2) provides:

"Any agreements or decisions prohibited pursuant to this Article shall be automatically void."

395. In order to know what agreement is void pursuant to Article 81(2) one needs to ask: what agreement is prohibited by Article 81(1)? Article 81(1) refers to an agreement which has the object or effect of restricting competition.
396. At first sight, it would seem to be relatively straightforward to apply Article 81(2). By the time one reaches the point of applying Article 81(2), the court will have considered the challenges that have been made to one or more agreements and will have held that an agreement or agreements infringe Article 81(1). The consequence follows under Article 81(2) that the prohibited agreement or the prohibited agreements are automatically void.
397. However, difficulties can arise. It may be that the agreement which is prohibited under Article 81(1) is a term or several terms in a wider contract containing other terms. The question immediately arises whether it is only the prohibited terms which are void so that the remainder of the terms, which were not independently prohibited, remained fully enforceable. In Societe de Vente Ciments et Betons de L'Est v Kerpen & Kerpen [1983] ECR 4173, at paragraphs 11 and 12, the ECJ stated that:

"….the automatic nullity decreed by Article [81(2)] of the Treaty applies only to those contractual provisions which are incompatible with Article [81(1)]. The consequences of such nullity for other parts of the agreement, and for any orders and deliveries made on the basis of the agreement, and the resulting financial obligations are not a matter for Community law. Those consequences are to be determined by the national court according to its own law."

398. It seems to follow from the Ciment et Betons case that, in this jurisdiction, the question whether an agreement which contains, amongst other terms, prohibited terms is void in its entirety or only as to part, involves English law and not Community law. English law has, of course, a doctrine of severance which enables one to strike down offending terms and leave unaffected non-offending terms. This question was touched on by the Court of Appeal in Chemidus Wavin v TERI [1978] 3 CMLR 614, a case concerning Article 81(1). Buckley LJ said, somewhat tentatively, at paras 519 to 520:

"It seems to me, that in applying Article [81] to an English contract, one may well have to consider whether, after the excisions required by the Article of the Treaty have been made from the contract, the contract could be said to fail for lack of consideration or on any other ground, or whether the contract would be so changed in its character as not to be the sort of contract the parties intended to enter into at all."

Since that decision, the English Courts have had to decide in a large number of cases whether the prohibited terms could or could not be severed; the cases are summarised in Bellamy & Child, European Community Law of Competition, 6^th Edition, at paragraphs 14.101 to 14.106.

399. In the course of argument, submissions were made as to the width of Article 81(2) in another respect. If, for example, the agreement which was made contrary to Article 81 (1) was a horizontal agreement between suppliers to fix prices to be charged to their customers and, subsequently, one of the suppliers charged that price to a customer in a vertical supply agreement how would Article 81(2) apply to those arrangements? Clearly, the horizontal price fixing agreement would be void under Article 81(2). But would the vertical supply agreement also be void?
400. There does not appear to be anything explicit in Article 81 which would make the vertical supply agreement void. Article 81(2) makes void the prohibited agreement. The prohibited agreement was the horizontal agreement and not the vertical agreement. As the Ciment et Betons case says, the consequences of the horizontal agreement being void on any orders and deliveries made on the basis of the agreement are not a matter for Community Law but are a matter for English law. I was not shown any principles of English law which would have the effect that the vertical supply agreement was void in such a case. Indeed, I could see that a conclusion that the vertical supply agreement was void could be productive of many undesired consequences. Take, by way of example, a horizontal price fixing agreement between suppliers of motor cars. One of those suppliers sells a motor car at the pre-fixed price to a consumer. The car is defective. The existence of the defect is a breach of the contract of supply to the consumer and the consumer suffers substantial loss in consequence. If the consumer wished to rely on the contract of supply to assert a breach of contract and claim damages, could the supplier assert that the contract was void? Could another motor car supplier who was not a party to the horizontal price fixing agreement claim a declaration that all the contracts of supply made by the offending suppliers were void and the motor cars were not owned by the consumers who thought they had bought them. If the first purchaser of a motor car in those circumstances sub-sold it to a second purchaser, could the second purchaser assert that the first purchaser did not have title to the motor car because the contract under which the first purchaser purported to buy the motor car was void? In my judgment, to state these questions is to point strongly to the answer that even where the horizontal price fixing agreement is void, the vertical supply contract is not void.
401. Mr Green contended otherwise. He submitted that the conclusion that the vertical supply contract was void was required, or at any rate justified, by three decisions, namely, Consten and Grundig v The Commission [1966] ECR 299, Glaxo Group Limited v Dowelhurst Limited [2000] Eu LR 493 and English Welsh & Scottish Railway Limited v E.ON UK Plc [2007] Eu LR 633.
402. Consten and Grundig v The Commission concerned an agreement between Consten and Grundig which infringed Article 81(1). The agreement was a vertical distribution agreement and it had been argued that Article 81(1) applied only to horizontal agreements and could not apply to a vertical agreement. That argument was rejected by the ECJ. Under the contractual provisions which were contrary to Article 81(1), Grundig granted to Consten the right to a trademark ("GINT"). Consten wished to assert its rights as owner of the trademark against a third party. Consten argued that whatever the effect of Article 81 on the agreement between Consten and Grundig, it had nonetheless a property right in the form of the trademark which it was able to assert and nothing in Article 81 entitled the court to take the trademark away from Consten. The arguments before the court on that point are summarised in the judgment at pages 314 to 315. The court dismissed Consten's argument at page 345. It was held that the agreement by which Grundig authorised Consten to register the trademark in France in Consten's name was an agreement which tended to restrict competition. Although Consten was by virtue of the registration of the trademark, registered under French law as the holder of the rights relating to that trademark, it remained the fact that it was by virtue of the prohibited agreement with Grundig that Consten was able to effect that registration. The court reasoned that the prohibition on the agreement between Consten and Grundig would be ineffective if Consten could continue to use the trademark to achieve the same object as that pursued by the agreement, which has been held to be unlawful. Consten's submissions were therefore rejected.
403. In my judgment, the decision in Consten and Grundig concerned an agreement between two parties, which agreement was void under Article 81. Under that void agreement Grundig had permitted Consten to acquire the intellectual property rights represented by the trademark. The court was able to hold that under community law a right which was purportedly passed under a void agreement did not effectively pass. The position in my example of a horizontal price fixing agreement followed by a vertical contract of supply seems to me to be quite different. In that example, the vertical contract of supply is made by a supplier on the one hand and a consumer on the other. The supplier was a party to a horizontal price fixing agreement but the consumer was not.
404. The Glaxo Group Limited case, referred to above, involved 5 separate actions brought by 8 pharmaceutical companies for trademark infringement and passing off against one importer of parallel pharmaceutical products, which had been repackaged and 2 such actions against a second importer. The defendants sought leave to amend their defences to plead that the proceedings had been brought or continued by the claimants pursuant to, or were affected by, an agreement or concerted practice which infringed Article 81(1). Much of the judgment is taken up with a consideration as to whether the draft amended defence showed a sufficiently arguable case of such a concerted practice. It was held that the matter was sufficiently arguable on the facts to justify being included in the defence. That raised the question whether the existence of such a concerted practice would have any bearing on the claimant's ability to pursue their proceedings. At paragraph 25 of his judgment, Laddie J said:

"It appears to me that if there was a concerted practice as alleged, if the claimants here were parties to it and if the commencement or continuation of these proceedings is part of that concerted practice, it is at least arguable in the current state of European law that the defendants will have a defence or a claim for compensation. As I have indicated above, even if the defendants make out all of their allegations, there could well be difficult questions of what relief would be appropriate on their counterclaim, but that is not a matter on which I have been addressed."

405. In that case, it appears to have been accepted that the claimant could bring similar or identical proceedings against the defendant provided they acted unilaterally in bringing those proceedings and did not act in concert pursuant to an unlawful concerted practice. Although not spelt out in the judgment, the defendant's suggestion seems to have been that the court should not allow proceedings to be conducted before it when the manner in which the proceedings were being conducted involved an unlawful act. In my judgment, whatever the legal position in such a case might be, it does not have any relevance to the question I have identified as to whether a vertical supply agreement is affected by reason of the fact that the supplier under that agreement entered into a horizontal price fixing agreement which infringed Article 81(1).
406. The English, Welsh and Scottish Railway case concerned Article 82 of the Treaty. Article 82 provides that an abuse of a dominant position is prohibited in certain circumstances. Article 82 does not state what the consequence is of a party abusing a dominant position. In that case, English, Welsh and Scottish Railway Limited ("EWS") entered into a contract, the Coal Carriage Agreement ("CCA") for the transport of coal on behalf of E.ON UK Plc ("E.ON"). Rival rail companies complained to the regulator that in making that contract EWS had abused a dominant position contrary to Article 82 and, on the later enactment of those provisions, the Chapter II prohibition in the 1998 Act. Those complaints were upheld by the regulator who went on to give a direction pursuant to his statutory powers. The direction required EWS and E.ON to remove or modify certain offending terms in the CCA. Section 33 of the 1998 Act permits a regulator to give such a direction not only to the person who has infringed Article 82 but also to such other persons as are considered appropriate. Thus the effect of the direction was that both EWS and E.ON were directed to remove the offending terms from the CCA. EWS and E.ON had not, by the time of the subsequent proceedings, removed the offending terms from the CCA. The offending terms were financially favourable to E.ON. EWS brought proceedings in the High Court seeking a declaration that the effect of the regulator's direction was to render the CCA void and unenforceable. The case which was made for E.ON was that neither the infringement of Article 82 nor the direction had the effect that the terms, or the CCA, were automatically void. E.ON submitted that the modifications which were needed to the CCA were to be arrived at as part of a process which had not yet been completed. EWS had two submissions. The first was that, without more, EWS and E.ON were obliged to remove the terms from the CCA. The second submission was that the relevant terms were void and as they could be severed from the remainder of the CCA, the CCA in its entirety was void. The regulator also made submissions in the court proceedings. The regulator agreed with EWS's first submission as to the meaning of the direction. The regulator did not make submissions as to the effect of the direction on the continuing existence of the CCA. However, the regulator appears to have submitted that because Article 82 had direct effect and by reason of Article 1(3) of Council Regulation 1/2003 the relevant terms were illegal and void "as a matter of public law". Field J held that the effect of the direction was straightforward; the offending terms had to go. The idea that the offending terms would only be modified as part of a process which was continuing was rejected.
407. The judge went on to consider the regulator's submission that the offending terms were illegal "as a matter of public law". This meant that the relevant terms were void at all times. The direction to remove the terms were an administrative measure to ensure that the CCA was brought within the law. The judge then considered whether the offending terms could be severed from the remainder of the CCA. E.ON had conceded that severance was not possible and the judge accepted that concession.
408. The EWS case is no doubt an important decision as to the consequences of a breach of Article 82 where the infringing action consists of the party with the dominant position entering into a contract with a third party. The decision did not, however, involve the court in construing words such as those that appear in Article 81(2), because no such words appear in Article 82. Further, the ECJ said in Ciment et Betons that the consequences of automatic voidness of a contract which infringes 81(1) for any orders or deliveries made on the basis of that agreement is not a matter for Community law but is a matter for national law.
409. In my judgment, not one of the three cases cited by Mr Green gives any support for the existence in English law of a principle which would enable me to hold that a vertical supply contract is void when the supplier under that contract was a party to a horizontal price fixing agreement which was itself void. If the consumer under the vertical agreement wishes to complain that the price charged by the price fixer was excessive then the consumer will have a claim for damages for breach of Article 81. It is not necessary, in order to protect the position of the consumer, for the law to enable the consumer to say that the contract was from the outset void and as I have indicated earlier, that legal consequence would in many circumstances be adverse to the position of the consumer.
410. I wish to add this qualification to the above discussion. The facts of a particular case might reveal that the agreement in question, which infringes Article 81(1), is not a simple horizontal agreement but is a more complex arrangement where the parties to the offending agreement are not confined to the horizontal parties but include someone who takes a supply from those horizontal parties. If the facts of a particular case led to that conclusion then both the horizontal parties and the person taking the supply from one of them could be held to be party to an agreement and, if that agreement infringed Article 81(1), then that agreement is void under Article 81(2). In such a case, the consequence would be that the party taking a supply from the horizontal parties would not acquire rights under the offending agreement (or the offending part of it).

PART 6: DISCUSSION AND ANALYSIS

The Claim and the Counterclaim

411. I will discuss and analyse the claims in the following order:

i) I will first consider the Claimants' claims against the Defendants. That will require me to consider whether the Defendants made an agreement which restricted competition by object and, in particular, whether the object was to fix prices. I will then consider whether the Defendants made an agreement which had the effect of restricting competition.

ii) I will next consider the Defendants' counterclaim against BAGS and SIS. That will require me to consider whether the exclusive licences entered into by BAGS and by SIS had the effect of restricting competition.

The Claimants' claim: restriction by object

412. The first matter I will deal with is the question, expressed in general terms, as to whether there was an agreement between racecourses which had the object of fixing prices. For the purpose of answering that general question, I have to ask: what agreement is being referred to? It will be remembered that Article 81(1) refers to "agreement" and also to "concerted practice" and that the decisions in the many cases have emphasised that there is no need for a precise distinction to be made between these two things. Accordingly, in the following discussion, I will generally use the word "agreement" to cover both possibilities and I will only distinguish between an agreement and a concerted practice where it appears to be useful to do so.
413. I have already analysed the original Particulars of Claim and have concluded that the Claimants there alleged that there was an agreement between, or a practice concerning, racecourses which restricted them from negotiating individually and that such agreement had the object of restricting competition. I have also referred to the fact that the Claimants submitted that this pleaded agreement had the object of fixing prices.
414. In paragraph 26A of the Amended Particulars of Claim, the Claimants allege that the agreement or practice already referred to between racecourses constituted collective price setting by the racecourses. It is also alleged in the particulars given under paragraph 26A that the subsequent AMRAC licences, granted by racecourses to AMRAC, which licences contain the same terms as to price, show that the subject matter of the agreement or practice between racecourses was price fixing.
415. Before turning to the facts of this case, it is right to comment that the Claimants' pleading pleads something which looks very different from an agreement which has the object of fixing prices. What is essentially being pleaded by the Claimants is that the racecourses made an agreement between themselves which prevented them from negotiating individually with AMRAC. It is then said that because they did not negotiate individually, the result was that they all obtained the same price from AMRAC. This pleading strikes me as more appropriate to a case where the allegation is that there is a restriction by effect. The effect of the restriction on individual negotiation is said to be that the racecourses did not negotiate in competition with each other and one consequence of that was that the prices they achieved were the same for each racecourse.
416. This reading of the pleading is also consistent with the fact that the way in which the Claimants initially put their case was obviously inspired by the decisions of the Commission in UEFA and in FAPL. I have analysed those decisions earlier in this judgment and pointed out that the Commission did not regard the restrictions in those cases, caused by a process of collective selling, to be a restriction by object but rather a restriction by effect.
417. The Claimants have not pleaded that the racecourses got together and decided on the price they would charge AMRAC and any other purchaser of their LBO media rights and then imposed that agreement on AMRAC. That would be an agreement, the object of which was to fix prices, but, as indicated, no such agreement was pleaded.
418. Accordingly, on the basis of the Claimants' own pleading, this does not appear to be a very promising case of an agreement which had the object of fixing prices.
419. I now turn to consider the evidence of collective action by the racecourses. The Claimants say that there was collective action on the part of the racecourses when dealing with AMRAC. They point to the evidence of Mrs Hordern (of Newbury) acting on behalf of the large independent courses, Mr Farnsworth (of Musselburgh) acting on behalf of the small independent courses and Mr Gould (for the Jockey Club courses).
420. Mrs Hordern gave evidence of the, initially, differing interests of the different courses and the process of balancing the competing interests to produce agreement with AMRAC. The large independents and the small independents were represented by the same solicitor, Louise Quinn of Littons. That enabled a process of compromise between the large and small courses to come about. Wiggin LLP acted for the Jockey Club courses and RUK. Mr Derby (of York) gave evidence that all the courses who were going to be shareholders in RMS had to co-operate. Other racecourse witnesses described the process in a similar way.
421. Much of the material relied upon by the Claimants came from the Defendants' witnesses' own witness statements. Accordingly, there was little or no dispute about the factual basis of the Claimants' contentions. Indeed, in the course of Mr Roth's oral opening submissions, he accepted that of the 18 racecourse operators who signed up with AMRAC on 31^st January 2007, 17 of those operators (the 18^th was RIL in respect of the Jockey Club courses) did negotiate collectively on common terms to be entered into with AMRAC. He accepted that the courses (or at least 17 of them) were working together, were in communication and were encouraging each other to sign up and agree to a set of terms. He accepted that there was coordination and a concerted practice in that sense. I should add that there are many references in the documents to the courses having a great deal in common in securing the success of the joint venture and that what united the courses was more important than what divided them.
422. Mr Roth's submissions about the collective behaviour of the operators of racecourses (or 17 of them in particular) was not that such behaviour did not take place but rather, that it did not amount to collective selling. He compared this case with the facts in UEFA and FAPL, where there was a single "aggregator" who provided a single source of supply of the relevant rights. He also contrasted the case with the facts in The Racecourse Association v OFT where the RCA acted on behalf of 49 courses to sell media rights to a third party, Attheraces. He pointed out that the facts of the present case did not involve an aggregator, for example, RUK, acting on behalf of the 18 operators of the 30 courses and selling their rights collectively to AMRAC. Here, he submitted, the 17 or 18 operators came together to establish a joint venture and agreed the terms on which they would license their LBO rights to their own joint venture.
423. Mr Roth's submissions as to why the present case is not one of collective selling need not be pursued at this stage. The issue being considered at present was whether there was a relevant agreement between racecourses. If so, it will be necessary to consider what was the object of that agreement: was the object to fix prices; was the object to restrict competition in some other way?
424. I do not think it is necessary to decide whether there was an agreement, as distinct from a concerted practice, pursuant to which, or in accordance with which, the operators of the racecourses acted collectively. It is not in the end in dispute that there was a concerted practice as to the way in which the negotiations with AMRAC were conducted. I need not at this stage, I think, consider whether the racecourses were in competition with each other. That is a question I will have to address when I consider whether any relevant agreement had the effect of restricting competition. That does not seem to me to be a question I need to consider separately in relation to the allegation that the object of the agreement between racecourses was to fix prices. If that truly was the object, then inherent in that finding would be a finding that the racecourses do compete on price. Accordingly, I can move to the critical question which is: was it the object of the concerted practice to fix prices?
425. The Claimants assert that the object of the cooperation between racecourses was to fix prices. The Claimants went so far as to submit that the Defendants had conceded that this was the object of the cooperation. I do not accept that. The Defendants conceded the fact of cooperation but not the alleged object of price fixing.
426. Although the Claimants repeatedly and vigorously asserted that the object of the cooperation was to fix prices, the precise basis of that submission was not so clearly spelt out. I have therefore tried to find in the Claimants' submissions what they say is the test for determining the object of an agreement and, in this case, what is the material relied upon to establish that the object was to fix prices.
427. The Claimants submit that price fixing is a very serious matter and that it is obviously anti-competitive. They identify the many decisions of the courts, summarised in Bellamy & Child at para 5.016, which describe the different arrangements concerning price in which the object was held to be price fixing. These cases illustrate that fixing discounts, surcharges, margins, rates, rebates, a common tariff structure, and so on, involves the fixing of "price". These cases might conceivably be of assistance in considering whether the payment of a dividend by RMS to its racecourse shareholders could be regarded as part of the "price" in this case and certainly are of assistance in considering whether an agreement as to the formula for the calculation of the dividend was an agreement as to price. However, in my judgment, they are of no real assistance in considering what is the "object" of an agreement.
428. The Claimants also submit that because the object of fixing prices is a restriction by object, then there is necessarily an infringement of Article 81(1). Accordingly, one does not need to consider the effect of the restriction. One cannot argue for the restriction being permissible because of other pro-competitive consequences of the restriction. It will be difficult to justify the restriction by reference to alleged commercial necessity. It will not be appropriate to consider a counterfactual of what would have happened in the market in the absence of the restriction. Finally, it is submitted that a restriction which has the object of price fixing will rarely, if ever, be exempted under Article 81(3).
429. I doubt if there is very much dispute about many of the Claimants submissions as to what is "price", what is an agreement as to price and what is the consequence under Article 81(1) and 81(3) where the court has found that there was an agreement with the object of fixing prices. But the initial question remains to be addressed: how does one go about assessing the "object" of an agreement.
430. The Claimants say as follows: it being accepted by the Defendants that there was cooperation between racecourses and that the result of that cooperation was that racecourses entered into licences with AMRAC which contain the same terms as to the basic price (excluding the arrangements as to the payment of dividends) it must follow that the object of the cooperation was to fix prices. The Claimants also say that the object of the cooperation between racecourses was to raise prices and that shows the object was to fix prices.
431. The Defendants made detailed submissions as to what did and what did not have the object of price fixing. They referred to an example of two companies, A and B, the sellers of raw materials, who traditionally had sold those raw materials to a monopolistic purchaser, which then used the raw materials to manufacture a product and sell the product downstream. A and B decide to create a joint venture which will set up a manufacturing plant, buy the raw materials from A and B, manufacture the product and sell it downstream. A and B plainly have to agree terms with the joint venture as to the price to be paid by the joint venture to A and B. A and B agree to sell their raw materials to their own joint venture at the same rate or price. The Defendants submit that A and B have not made an agreement with the object of price fixing. Their object was to increase competition for the purchase of their raw materials and they have done so. The fact that the price which they secure for their raw materials, now that there is competition from the incumbent and the new joint venture, is higher than before is not anti-competitive.
432. The Defendants' example is, of course, very close to what the Defendants say has happened in this case, as regards the racecourses previously having to sell to a monopoly purchaser and then sponsoring a new entrant into the market, to introduce competition for the purchase of their LBO media rights. The Defendants say that this example shows that the object of the cooperation in the present case was not to fix prices. The Claimants retort that in this example A and B did make an agreement with the object of fixing prices. In this way, the example does not go very far to resolve the difference between the parties as it simply restates the problem and gives rise once again to the pre-existing difference of approach of the parties.
433. The Defendants further submit that an intention on the part of the racecourses to raise prices is not the same thing as having the object of fixing prices. The Defendants also rely on Dr Bishop's evidence about sponsored entry being an expression of competitive behaviour and not a restriction on competition.
434. The Defendants drew attention to the decisions in Gottrup-Klim and Oude Luttikhuis not so much for what they decided but rather, it was submitted, for what was implicit in the decisions or what had not been argued in those decisions. It was submitted that these cases showed that even with an argument as to the object of an agreement, one had to look at the economic context in which the agreement operated.
435. The Defendants also submitted that the Claimants had not proven that they had to pay more as a result of the way in which the AMRAC licences were negotiated. It was said that if it had been possible to negotiate the AMRAC licences in some other way, then one would have ended up with the same result of two "must have" services and it was that fact which resulted in the increased costs to LBOs.
436. The Defendants also submitted that the Commission decisions in the three football cases showed that collective selling did not involve an agreement with the object of fixing prices. They further submitted that the court could not hold there was the object of restricting competition in the present case where the result was so plainly pro-competitive, as regards competition in the upstream market.
437. The Defendants then submitted that prices were not fixed because the revenue received by a racecourse for the sale of its LBO media rights is not only the payment made by AMRAC under the licence but also the dividend paid to the racecourse by RMS. The Claimants dispute this particular submission on two grounds. First, they say the dividends are not part of the price and, secondly in the alternative, they say that the agreement as to the formula for the calculation of dividends is itself an agreement with the object of fixing prices. In the event, I do not think that I need to resolve those particular points.
438. In my judgment, faced with these radically different approaches, the approach which I should adopt is the approach summarised in paragraphs 21 and 22 of the Article 81(3) Guidelines. Applying that approach I reach the conclusions which I now express.
439. I must have regard to the content of the relevant agreement. The agreement or, more accurately, the concerted practice in this case arises from the cooperation between racecourses to negotiate collectively with AMRAC. The object of the arrangements was not the crude and simplistic object of fixing prices, as the Claimants allege. They had a more complex function. The objective aim of the cooperation was to sponsor the entry of AMRAC into the market. The racecourses wanted AMRAC to exist and to have LBO media rights which would differentiate it from the incumbent distributor, SIS. The racecourses had a common interest in this respect and what united them in their interest was judged by them to be more important than what divided them as to their rival attractions as racecourses. It is also relevant to consider the particular circumstances in the actual market in which the relevant agreement is to operate. The pre-existing market was one of a monopoly purchaser from racecourses. The market desired by the racecourses was one involving competition for the purchase of their rights. The objects of the relevant agreement in this case did not have, by their very nature, the potential of restricting competition. They had the reverse potential, and very real potential at that, to increase competition in the upstream market. As regards competition in the downstream market, at the lowest there would not be an adverse effect on competition in that market. The collective process of negotiation would not result in a reduction of output. It would result in an increase in prices paid to the racecourses. But the resulting increase in price was not the result of anti-competitive behaviour by sellers fixing prices but was the result of the pro-competitive entry of a second purchaser into a market, formerly occupied by a monopsony.
440. My conclusion is therefore that the relevant concerted practice between racecourses did not have the object of fixing prices.
441. The Claimants' case as to there being a restriction on competition by object was confined to the argument that the relevant object complained of was to fix prices. Having rejected that argument, there does not appear to be any other case on restriction by object that I need to address. For the avoidance of doubt, I can determine that the concerted practice as to cooperation in negotiation by racecourses did not have the object of restricting competition.
442. There were, of course, other agreements made in this case. The AMRAC licences are vertical agreements between racecourses and AMRAC. I did not understand the Claimants to argue that, if the horizontal agreements between racecourses did not have the object of restricting competition, the vertical agreements did have that object.
443. In view of my conclusion that the horizontal cooperation between racecourses did not have the object of restricting competition, it follows that the question whether a void horizontal agreement would result in a vertical agreement, made pursuant to it, also being void does not arise at this stage.
444. In the event that I were to decide that a relevant agreement did not give rise to a restriction on competition by object, the Claimants say that certain agreements had the effect of restricting competition. I therefore turn to consider that submission.

The Claimants' claim: restriction by effect

445. As before, the right place to begin is by attempting to identify the agreement or practice which needs to be examined.
446. The Claimants refer on many occasions in the Particulars of Claim to "collective, exclusive selling on a closed basis". What agreements are encompassed in this phrase?
447. The first agreement which appears to be referred to is the vertical agreement made by a racecourse with AMRAC. That is the agreement which granted exclusive rights to AMRAC. Indeed, that is the agreement which is the principal target of the Claimants. They want the AMRAC licences to be declared to be void.
448. The second agreement that appears to be referred to is a horizontal agreement or concerted practice between racecourses which, the Claimants say, involved collective selling. The Claimants say that this horizontal agreement or practice gave rise to the AMRAC licences, the vertical agreements between the racecourses and AMRAC.
449. The third agreement that appears to be referred to is an alleged agreement or concerted practice between racecourses to "close" their negotiations so that the negotiations would only take place with AMRAC and not with BAGS or SIS. That seems to be a horizontal agreement between racecourses. The Claimants say that this horizontal agreement or practice gave rise to the AMRAC licences, the vertical agreements between the racecourses and AMRAC.
450. Although it is necessary for the purpose of analysis to examine what appear to be the three different parts of the Claimants' claim, they also say that the matter should be looked at in the round so that the court should assess the combined operation of the three matters complained of.
451. The questions therefore are: first, what was the effect on competition of the fact that the first agreement, the AMRAC licences, were exclusive; secondly, what was the effect on competition of any agreement or practice as to collective selling; thirdly, what was the effect on competition of any agreement or practice as to closed selling; and, fourthly, what was the effect on competition of any exclusive, collective and closed selling?
452. When considering the alleged effect on competition, an economic approach is called for. The approach must be realistic. There must be a proper market analysis of the position with the relevant restriction and the position in the absence of the relevant restriction. Not every restriction on conduct amounts to a restriction on competition, much less to a significant restriction on competition. Attention must be paid to the individual circumstances. One has regard to actual competition and to potential competition. In the latter case, if it is suggested that there might be someone who wishes to enter the market, but who is kept out or adversely affected by the restriction, there must be a real concrete possibility of that happening. The effect on competition must be negative and must be appreciable or significant. An adverse effect on competition can be produced by a horizontal agreement or by a vertical agreement. The court should apply the jurisprudence as to ancillary restraints and commercial necessity, as referred to earlier. Amongst the objectives which might be regarded favourably, and in relation to which certain restrictions might be regarded as commercially necessary, is a restriction for the purpose of enabling a new entrant into a market. In this context, the concept of "necessity" could be satisfied by something which is not strictly essential. The concept of necessity has some flexibility and in an appropriate case can be satisfied by facts which show that it would be difficult to achieve the commercial objective without the presence of the restriction. The duration and scope of the restriction may be important.

Restriction by effect: exclusive rights

453. The first agreements which I need to consider are the vertical agreements made by the racecourses with AMRAC. Those are the agreements which granted exclusive rights to AMRAC. The question is: what was the effect on competition of the fact that the first agreements, the AMRAC licences, were exclusive?
454. It is well established that a vertical supply agreement, not between competitors, can have an adverse effect on competition if it makes a significant contribution to a result whereby competitors are prevented from gaining entry to the market or from increasing their market share, or if those options are made more difficult for them. This adverse effect is described as foreclosure of the market. Applying that to the present circumstances, the question is whether a restriction on entry applies in the case of a potential competitor to BAGS or SIS or AMRAC and/or whether a restriction on increasing market share applies to AMRAC's competitors, say BAGS or SIS.
455. In theory, it is easy to see that the fact that all 60 racecourses have granted their LBO media rights exclusively to one of AMRAC, or BAGS or SIS, prevents any other intending distributor from entering the upstream market or the downstream market for the period of those grants, which is some 5 years. But that does not necessarily mean that the exclusive character of the agreements has had an adverse effect on the markets. Conversely, there would be an adverse effect if there was a real concrete possibility of a new competitor seeking to come into the markets. The burden of proving the reality of that possibility is on the Claimants. But it must be recognised that they have to prove a real concrete possibility, not a matter of historic fact.
456. The Claimants submit that the consequence of the AMRAC licences being exclusive is that the market was foreclosed to new entrants (in addition to BAGS, SIS and AMRAC) and also BAGS and SIS were precluded from increasing their market share.
457. In opening their case at the beginning of the trial, the Defendants submitted that the idea of the market being foreclosed to new entrants was purely hypothetical as the Claimants had not set out to prove that there was a possibility of a new entrant who had been prevented by the exclusive AMRAC licences from entering the market. As a result of this submission, the Claimants did put forward a detailed submission in closing, on this point.
458. In their closing submissions, the Claimants referred to the fact that RUK had at one point considered various entities which might be appropriate to be further investigated as potential partners in a joint venture with racecourses. Before commenting further on how the Claimants sought to use this list of entities, it is right to note that these entities were being considered as partners with racecourses. There could only be one vacancy for the position of partner. Once Alphameric was chosen as partner, the vacancy was filled. The issue as to foreclosure in respect of new entrants relates to new entrants as competitors to the existing distributors in the market, after AMRAC has entered the market. There are two points here. Any potential new entrant must be a competitor to SIS and AMRAC, not a potential partner in a joint venture with racecourses. Secondly, one is not considering an entrant competing with a single distributor but an entrant competing with two distributors.
459. The Claimants made a detailed written submission listing and considering 10 entities identified by RUK, as described above. One of the 10 was SIS, who need not be further discussed in this context as it was already in the market. A second entity was Alphameric, who was chosen as the joint venture partner. As to the other 8, it is right to note that there was no evidence from any one of these 8 as to their market ambitions. I do not say that in every case of suggested foreclosure, a court has to have direct evidence from someone who says that he has been prevented from entering the market. However, I do note the absence of direct evidence in this case, with the result that the court is asked to speculate about what various entities might or might not have wanted to do.
460. The Claimants also referred to evidence as to other entities (not on the list considered above) having at one time considered entering the market in competition with SIS. However, those entities did not pursue the matter in the past when their market entry involved them competing with one incumbent distributor, SIS. I think it is extremely unlikely that they would have renewed their interest in entering a market where there were two incumbent distributors, SIS and AMRAC, even if the licences to SIS and AMRAC were non-exclusive, to allow for the possibility of a third distributor seeking to enter the market and compete.
461. In relation to foreclosure adversely affecting a possible new entrant as a third distributor, the Defendants submitted that there had been no serious attempt by any third party (other than AMRAC) to enter the market and compete with the single distributor (SIS) in the 20 years from 1987 to 2007 and that there was no evidence of any realistic prospect of such an entrant emerging to compete with SIS and AMRAC. The Defendants also referred to the evidence of Dr Bishop that the market was very unlikely to support three independent players in view of the high fixed costs of market entry. The Defendants also wryly commented on the curiosity of the bookmakers putting forward a submission that principles of competition favoured keeping open the possibility of a third distributor entering the market. Given that it appeared to be common ground that some element of exclusivity, sufficient to make the distributor's service a "must have", would be needed to permit successful entry by a third entrant, the result being contended for by the bookmakers would be that they would have to buy three "must haves" (if there were a third successful entry into the market) rather than the present two.
462. My conclusion on the evidence in this case is that the Claimants have failed to show that there was at any time since January 2007 a "real concrete possibility" of there being a third entrant who would wish to enter the market as a purchaser of the LBO rights from racecourses and as a distributor of the relevant service to LBOs. Accordingly, foreclosure of that kind is hypothetical rather than a reality. Putting it another way, there has not been an adverse effect on competition in the way alleged.
463. I now turn to consider the Claimants' case that there has been foreclosure in another way. The argument is that because AMRAC has taken exclusive licences from 31 courses, that prevents BAGS or SIS seeking to increase their market share above their existing number of courses; in the case of SIS, some 29 courses. The converse of this argument is that BAGS and SIS have also foreclosed the market against AMRAC and that if the AMRAC licences are void under Article 81(2), then it would appear that the exclusive licences to BAGS and SIS are also void. Indeed, Mr Green appearing for BAGS appeared to be content to acknowledge this as the price of a successful attack on AMRAC on this ground.
464. I find that the Claimants' argument as to foreclosure by preventing existing purchasers of rights from increasing their market share stands arguments as to competition on their head. Before AMRAC entered the market, there was a monopoly purchaser of LBO rights. After AMRAC entered the market, there are two purchasers of LBO rights. That appears to be pro-competitive activity and not anti-competitive activity.
465. AMRAC contends that it was commercially necessary for it to take exclusive licences in order for it to enter the market against an incumbent SIS. Before considering the issue as to what might have been commercially necessary to enter a market where non-exclusive licences were the norm, I think it is right to focus instead on the steps actually taken by BAGS, SIS and AMRAC in the period up to January 2007. By December 2006/January 2007, SIS had exclusive rights to 26 courses. In January 2007, if AMRAC were to be able to compete at any level with SIS, it is now common ground that it needed to have exclusive rights to some courses. I find it a very odd idea that competition principles should restrict the number of courses that AMRAC could sign up on an exclusive basis. Was AMRAC to be limited to exclusive rights to 7 courses so that it could only acquire non-exclusive rights to the other 24? Was AMRAC limited to exclusive rights to 18 courses so that it could only acquire non-exclusive rights to 13? Would AMRAC even be able to acquire non-exclusive rights to those other 24 or 13 courses? That would depend on whether BAGS/SIS would seek to sign up those courses exclusively. It would also depend on whether courses would be willing, against the background of the market prevailing in December 2006/January 2007 to grant non-exclusive rights. The evidence clearly showed that a course would receive less revenue from granting non-exclusive rights to two operators as compared with granting exclusive rights to one operator. What was happening in that period was that competition between BAGS/SIS on the one hand and AMRAC on the other took the form of competition to take exclusive licences. That activity was how a competitive market worked, not anti-competitive behaviour. That means that all the participants in the market were acting competitively and not that all the participants (including the Claimants who complain about AMRAC's behaviour) were acting anti-competitively and entered into agreements all of which the court should strike down. The Claimants also referred to the position which might come about in 2013 at the end of the five year terms of the various exclusive agreements. In my judgment, the position which might exist in 2013 is too uncertain and speculative to enable the court to conclude that the current arrangements are anti-competitive by reason of those unpredictable possibilities.
466. The above conclusions mean that I reject the claim that the grant of exclusive licences to AMRAC had the effect of restricting competition by foreclosure of the market in either of the two ways put forward by the Claimants. It is therefore not strictly necessary to consider the other arguments put forward by the Defendants in relation to the challenge based on the exclusivity of the arrangements. However, I will record my conclusions on those other arguments.
467. In this case, the LBO rights were historically granted on a non-exclusive basis when there was effectively only one buyer and no-one who had to be excluded. As soon as there was competition for the purchase of the rights, the response of the market was to move to the grant of exclusive rights.
468. It is commonplace for media sports rights to be sold on an exclusive basis. When there is competition for the purchase of such rights, exclusivity is favoured by the purchaser and by the seller, for proper commercial reasons. Exclusivity gives the purchaser the ability to differentiate his service downstream. Exclusivity gives the seller greater revenue. Where there is competition, the grant of exclusive rights is the natural form for that competition to take.
469. What may be required by competition law principles in this area is that there is ex ante competition when the renewal of the exclusive rights is considered. But as with other such principles, the requirement of ex ante competition may yield to, or have to be adapted in the face of, other considerations such as ancillary restraints, or justified commercial necessity or to facilitate new entry, and so on.
470. It is common ground in this case that, in the pre-existing market where BAGS/SIS had, generally speaking, non-exclusive LBO media rights, it would be necessary for a new entrant to acquire exclusive rights to a certain number of courses to differentiate itself and facilitate market entry. There is considerable room for argument as to what that number of exclusive rights would be to enable entry into the pre-existing market consisting, largely, of non-exclusive rights. This is a topic which was addressed by LEK, advising AMRAC. However, no-one called LEK to give evidence. No-one submitted that LEK's conclusions were determinative. In my judgment, LEK's conclusions may always have been wide of the mark. The survey they carried out was very limited and hardly reliable. Their calculations based on the provision of exclusivity missed out a vital ingredient, namely, that even if a course granted its LBO media rights exclusively, many races at that course would be available to an LBO on terrestrial television, even if the LBO did not buy the service which included the (otherwise) exclusive rights to that course. If LEK's conclusions were not reliable on such grounds, then Mr Biro's conclusions were even less reliable. He built on the unreliability of the LEK conclusions by introducing further unreliable reasoning of his own. I need not catalogue those matters at this stage as they are described earlier in this judgment dealing with the evidence which he gave.
471. The true position is that if I were required, which I am not, to make a finding as to how much exclusivity was necessary to enable a new entrant into the pre-existing market dominated by non-exclusive licences, I would not be able to find with accuracy whether the number of courses was 31 or 30 or something less, and if so, how much less. The Claimants say that because the burden of proof is on the Defendants in this respect, they must therefore have failed to discharge the burden of proof. The Claimants say that the consequence of that is that even if it would have been permissible for AMRAC to take exclusive rights to, say, 25 courses, because it took exclusive rights to 31 courses, all 31 licences are void.
472. I doubt if the Claimants' submission about the burden of proof is right. It ignores the degree of flexibility in the concept of what is "necessary". If I felt that out of 31 courses, it was essential for AMRAC to take exclusive rights to, say, 25 courses, then the right conclusion would have been that the extra courses being signed up exclusively could well be within the band of what was permissible on the ground that it was difficult to judge just how many could and how many could not be signed up exclusively.
473. In addition, the question of necessity has to be judged in a realistic way. It was plain that AMRAC would build up the necessary number of courses granting exclusive rights by negotiating with the RUK courses. It seems to me to be impractical to say that AMRAC should offer exclusive packages to, say, 25 courses, and then offer only non-exclusive packages to the remainder of the RUK courses. That would be to divide the RUK courses who were otherwise entering into a joint venture on the basis that it was in the interests of each course for there to be equality of treatment. It was also, I conclude, impractical to think that AMRAC should sign up all 30 courses (or 31 including Ascot) on exclusive terms and then offer, say, 6 of those courses, possibly non-exclusively, to BAGS or SIS.
474. Accordingly, if the question had arisen as to whether AMRAC had shown that it needed exclusivity in relation to 31 courses to enter the pre-existing market, dominated by non-exclusive licences, I would have reached the conclusion that AMRAC had done sufficient to demonstrate that fact.
475. I stress however, that the market which AMRAC had to enter in January 2007 was not the pre-existing market dominated by non-exclusive licences. It had to enter a market where SIS had already established exclusive rights in relation to 26 courses. The competitive forces in that market differed from the pre-existing state of affairs. It was commercially necessary to enter that market as a successful competitor to take exclusive rights to as many courses as were available and to prevent SIS acquiring such rights on an exclusive basis.

Restriction by effect: collective selling

476. As was seen, the first agreement which I have considered was a vertical agreement where the alleged effect on competition was the effect on competition from a potential competitor to BAGS or SIS or AMRAC and/or the effect on competition between BAGS and SIS and AMRAC. The second and third agreements are different. The principal, if not the only, agreements which are challenged are the horizontal agreements between racecourses.
477. The second agreement that is referred to is a horizontal agreement or concerted practice between racecourses which, the Claimants say, involved collective selling. The Claimants say that this horizontal agreement or practice gave rise to the AMRAC licences, the vertical agreements between the racecourses and AMRAC. The question therefore arises: what was the effect on competition of any agreement or practice as to collective selling?
478. The Claimants submit that the 18 operators of the 30 RUK courses engaged in collective negotiation with AMRAC. That was an agreement or concerted practice which amounted to collective selling. The 18 operators were in competition with each other as regards the prices and terms to be achieved on granting a licence to a distributor of LBO media rights. The price that a course would achieve on an individual negotiation would depend on the quality and attractiveness of that course and would be different from a common price agreed on a collective negotiation on the part of 18 operators of 30 courses. Collective selling had the effect of restricting competition. It prevented the individual courses agreeing price and other terms individually. The adverse effect on competition was not justified as objectively necessary. Although Mr Biro had agreed in the course of cross-examination that if it had been necessary for the courses to sell their LBO rights on an exclusive basis, it was possible that they might have had to sell them on a collective basis, he had not confirmed that collective selling definitely was necessary.
479. The Defendants submit that this is not a case of collective selling; that the collective negotiation (or collective selling, if that is what it was) did not adversely affect competition and that it was objectively necessary.
480. As to whether this is a case of collective selling, the Defendants submitted that there was no single agent or "aggregator" who negotiated with the purchaser. The case was different from UEFA or FAPL or, indeed, The Racecourse Association v OFT. Each individual operator retained the right to decide whether or not to sign up to a licence with AMRAC. Further, it was submitted, the fact that the operators were setting up a joint venture distinguished this case from those others referred to. This was a case of "sponsored entry".
481. On the question of competition, the Defendants put their case in a number of ways: first, that the operators were not in competition and, secondly, that the collective negotiation did not have an adverse effect on price.
482. As to the existence of competition, the Defendants say that although racecourses compete with each other for prize money, for sponsorship, for racegoers, for horse owners and trainers, they do not compete with each other in relation to organising their events. As regards televising their races, the races are scheduled so that, generally, they do not clash. Further, it is said that racecourses are not in competition in relation to the sale of their LBO media rights. Accordingly, the Defendants say that the racecourses do not compete with each other in a relevant way and the type of horizontal agreement challenged by the Claimants relating, as it does, to LBO media rights, does not involve a restriction on competition because the parties are not competitors in relation to LBO media rights.
483. As to whether the collective negotiation had an adverse effect on competition, the question was whether the total price paid to the operators of the 30 racecourses was higher than the total price which would have been arrived at in individual negotiations.
484. These questions, as to the existence of competition and as to the effect on any such competition, were considered in detail by Dr Niels in section 5 of his report. In that section, he proceeded on the basis of an assumption that 30 racecourses, or more accurately, 18 racecourse operators, had engaged in collective selling. He then considered whether racecourses generally, and the 18 operators in particular, were in competition for the sale of their LBO media rights. He considered that racecourses were not in direct competition with each other for the sale of their LBO media rights as those rights were not substitutes. He went on to consider whether collective selling, if that had occurred, would have resulted in the total price to the 18 operators under collective selling being higher than the total price paid if each operator had sold its rights individually. He acknowledged that with individual negotiations, the individual price agreed with an operator might be different from the common price agreed in the present case (putting the issue as to the differential dividends paid to operators on one side). However, he did not see that acknowledgment as answering the question as to whether there would be a difference in the total prices, with and without individual negotiation. His conclusion was that collective selling would not lead to a higher total price paid in the case of a collective negotiation, as compared with the case of individual negotiations. He referred to the fact that the rate of payments made to racecourses by BAGS, SIS and AMRAC had increased, compared with the prices paid before AMRAC entered the market. However, he attributed that to the fact of competition for the purchase of the courses' LBO rights and not the adverse effect of collective selling.
485. There was only a limited amount of cross-examination of Dr Niels on this section of his evidence.
486. As to objective necessity, the Defendants say that it was necessary to have a critical mass of agreements with racecourses. Collective negotiation was a necessary and commercially obvious way of achieving that critical mass.
487. When I considered the Claimants' case as to there being a restriction by object, I expressed the view that there was a concerted practice in this case by which the 18 operators of the 30 racecourses negotiated with AMRAC. It does not seem to me strictly to matter whether I call that collective selling or collective negotiation. I will therefore proceed on the basis that there was a concerted practice as to collective negotiation and consider the other issues that may then arise.
488. The next issue is whether the 18 operators of the 30 courses were in competition with each other in relation to their LBO media rights. On this point, I believe that I get assistance from the reasoning of the Commission in UEFA. As I noted earlier, the Commission considered at paragraphs 125, 128 and 129 of its decision that, although it could be said that the clubs did not compete with each other in some of their economic activities, they did compete with each other in selling their media rights. In my judgment, that reasoning applies in this case. Although racecourses do not compete with each other in a number of respects and for a number of reasons, it is open to them to compete with each other when it comes to selling their LBO media rights.
489. The Defendants drew my attention to the Commission's decision in relation to Formula One motor racing and I have already referred to the relevant comments in that decision. The specific point being addressed in those comments is not wholly clear and the reasoning is very brief. In my judgment, the reasoning in the UEFA case is clear and intelligible and applicable to this case. Accordingly, I hold that the racecourses are potentially in competition with each other in relation to the sale of their LBO media rights.
490. In these circumstances it is not necessary to consider a second argument put forward by the Claimants to the effect that the racecourses were in competition in that they would all wish to avoid being the last racecourse in negotiation with a distributor for their LBO media rights as such a course might find itself in a weak negotiating position. If it were necessary for me to deal with that argument, I would give little weight to it in view of the facts in this case, in relation to the negotiations with Plumpton. But as I have already held that racecourses are competitors in relation to the subject matter of the AMRAC licences, it is not necessary to consider this point further.
491. I next have to consider whether the concerted practice as to collective selling had an adverse effect on competition. My starting point for a discussion of this point is paragraphs 114 to 116 of the decision in UEFA. In those paragraphs, the Commission plainly held that a restriction on freedom of action to negotiate individually was a restriction on competition. However, the Defendants relied upon the approach of the CAT in The Racecourse Association v OFT where the Tribunal considered whether the arrangements in that case had an anti-competitive effect. The Tribunal considered that question by asking itself whether the arrangements had the effect of increasing prices. After a long discussion between paragraphs 178 and 202, the Tribunal held that the OFT had failed to prove that the arrangements had resulted in an appreciable increase in price. In the present case the Defendants submit that in this case also there is only an adverse effect on competition if the Claimants prove that the collective negotiation led to an increase in the total prices paid by AMRAC to the 18 operators of the 30 courses.
492. It is not obvious how to reconcile the reasoning of the Commission in UEFA and that of the Tribunal in the Racecourse Association case. It may be that in the Tribunal decision, the Tribunal was reacting to the way in which the OFT made its findings and put its case. The OFT finding was that the arrangements adversely affected (i.e. increased) price. I note that the Tribunal's decision is the subject of a footnote in Faull & Nikpay at page 22 footnote 256, which states that it was strongly arguable that the Tribunal went too far in requiring the OFT to demonstrate an actual, rather than a likely, effect on price. The Commission did not ask itself that precise question in UEFA , but that may have been because the Commission considered the answer to be obvious. In my judgment, I should take this hint from the text book and ask myself whether the collective negotiation in this case was likely to increase the total prices paid by AMRAC to the 18 operators.
493. On that question, I conclude that the Claimants have not shown that the collective negotiation was likely to result in a higher price being paid by AMRAC. First of all, I have the evidence of Dr Niels. Although Dr Niels expressed the view that the racecourses were not in competition and although I have proceeded on the basis that they were in competition (in view of the reasoning in UEFA), that does not in my view undermine his detailed reasoning as to the way in which the racecourses would and did operate and his conclusion that the total prices would not be increased by reason of the fact of collective, rather than individual, negotiation. Further, there is this consideration. AMRAC was a joint venture between racecourses and Alphameric. AMRAC had to consider how much in total it was prepared to pay by way of price for the rights, as distinct from dividends from profits. I think it is likely that the sum that AMRAC considered it was prepared to pay was what actually determined the amount it agreed with the courses and that amount was not altered by reason of the fact that there was collective negotiation, rather than individual negotiation.
494. Another way of approaching the matter and possibly reconciling the decisions in UEFA and The Racecourse Association is to consider whether the effect on competition is appreciable or significant, as it is only such an effect which is contrary to Article 81(1). If I hold, as I do, that a restriction on individual negotiation did not lead to an increase in the price paid by AMRAC, then it is difficult to see how I could decide, on the question of the significance of the effect, that the effect was anything other than insignificant.
495. Accordingly, I hold that the Claimants have not established on the evidence any appreciable adverse effect on competition by reason of the collective negotiations with AMRAC.
496. It is not strictly necessary therefore to consider whether any restriction on competition, resulting from collective negotiation, was objectively necessary. If I had to decide that question I would unhesitatingly hold that it was objectively necessary. It must be remembered that AMRAC was a joint venture in which the operators of the racecourses were participating. The participants necessarily had to talk to each other and negotiate collectively in order to create the joint venture. It was up to them to decide between themselves as to the terms on which they should participate in the joint venture. They were entitled to decide that they would share the total price for the LBO rights on equivalent terms and that their different interests would be reflected in the dividends payable out of profits.

Restriction by effect: closed selling

497. The third agreement that appears to be referred to is an alleged agreement or concerted practice between racecourses to "close" their negotiations so that the negotiations would only take place with AMRAC, and not with BAGS or SIS. That is a horizontal agreement between racecourses. The Claimants say that this horizontal agreement or practice gave rise to the AMRAC licences, the vertical agreements between the racecourses and AMRAC. The question arises: did any closed selling have an adverse effect on competition?
498. The Claimants submit that a collective or concerted refusal to deal with someone in the market is contrary to Article 81(1). In the case of sports rights, the decisions in UEFA and FAPL show that if it is to be permitted to have collective selling of exclusive rights, the process must be transparent and open. It is not enough to say that the buyer can take the initiative and bid without being invited by the seller to tender for the rights. The seller is under a positive obligation to ensure the existence of ex ante competition. On the facts, the 18 operators of the 30 racecourses (or possibly all of them except York) were not prepared to consider an offer from BAGS or SIS. In fact, BAGS did write to the courses expressing an interest in negotiating for the rights and was either ignored or rebuffed. In addition, the operators of the courses entered into an agreement providing for an exclusive period of negotiation beginning in late November or early December 2006. The position was to be contrasted with the behaviour of Ascot (who has not been made a Defendant by the Claimants). Ascot did talk to BAGS and although the parties did not in the end agree, BAGS has no complaint because there was open negotiation and consideration by Ascot of competing bids. As to alleged objective necessity, the decisions in UEFA and FAPL did not countenance any defence of necessity and, in any case, on the facts the closing off of competition was not defensible.
499. The Defendants submit that there was no closed process and if there had been it was appropriate and necessary. As regards the exclusive period of negotiations, that was a normal step in the course of detailed commercial negotiations and could not begin to be said to be anti-competitive. Indeed, the need for such an agreement evidences the fact that the courses would have been prepared to contemplate offers from third parties for their rights. As to the wider allegation of closure of the negotiations, it was open to BAGS and SIS to make offers and it was open to the courses to decide whether they were interested or not. In any case, the attitude adopted by the courses was necessary in view of their desire to create a joint venture and sponsor the joint venture as a new entrant into the market. The creation of the joint venture is not said to be anti-competitive and it was commercially obvious that the courses would want to grant their rights to the joint venture rather than to the incumbent where that would defeat the whole purpose of having a joint venture. The courses were not obliged by competition law to prevent the successful launch of their joint venture; the reverse was the case as was recognised by the decision of the Commission in TPS at paragraphs 98-99. The position in UEFA and FAPL was different. In those cases, there were a number of established broadcasters competing to acquire exclusive media rights from third party rights holders.
500. I can now express my conclusions on this point. In this instance, as with the other arguments as to the effect on competition, it is necessary to have regard to the actual market circumstances, to be economically realistic and to pay close attention to the individual circumstances.
501. The primary consideration in this case was that the 18 operators of the 30 courses wanted to create a joint venture and to sponsor the entry of that joint venture into the market to provide competition for the purchase of their rights. The suggested alternative to that would be to sell those rights to the incumbent. That would undermine the joint venture and imperil its entry. It would not be logical to promote the joint venture and then to withhold from it the rights which it needed and wished to have to enter the market. There is not a true comparison between granting LBO media rights to BAGS and granting LBO media rights to AMRAC. A deal with BAGS would not result in the existence of competition in the market, would not result in the successful entry of the joint venture and would not result in participation in a successful joint venture. If the two deals are not alike, then in my judgment, it is not anti-competitive for an operator to decide which type of deal he prefers to pursue and then not to deal on an alternative and incompatible basis.
502. In my judgment, the decision by the 18 operators of the 30 courses to back their joint venture and not undermine it by selling their rights to BAGS or SIS is not an infringement of Article 81(1).

Restriction by effect: exclusive, collective and closed selling

503. I have now analysed separately the cases as to the exclusive character of the arrangements and as to the alleged collective and closed selling. Taking those points individually, I have concluded that no one of those points amounts to an infringement of Article 81(1). I need to consider whether the result is different if I consider the combined effect of the three matters. Having done so, I can see no reason why the combined effect should be any different from the sum of the three individual parts.

The Claimants' claims against the Defendants: overall result

504. My overall conclusion is that the arrangements which are challenged by the Claimants do not amount to an infringement of Article 81(1) or section 2 of the 1998 Act.
505. In these circumstances, it is not necessary to consider, any further than I have already done, whether a vertical agreement which was entered into pursuant to a void horizontal agreement is also void.
506. Because the arrangements which are challenged by the Claimants do not infringe Article 81(1), it is not necessary for the Defendants to establish an entitlement to exemption under Article 81(3).
507. The Defendants did seek to establish at the trial that, if it should be held that the agreements challenged by the Claimants infringed Article 81(1), they satisfied each of the four conditions in Article 81(3). The Claimants and the Defendants and SIS called expert evidence in relation to matters which were said to be material to the application of these conditions. I have analysed that expert evidence earlier in this judgment.
508. The Defendants' primary case in resisting the claim against them was throughout that they did not infringe Article 81(1) and reliance on Article 81(3) was its alternative case. Indeed, the Defendants devoted much less time to the case based on Article 81(3), as compared with their primary case.
509. The Claimants have dealt, with immense thoroughness, with the issues arising in relation to Article 81(3). If I were to deal properly with all of the issues which are in play in relation to Article 81(3), both as to the law and as to the facts, a considerable amount of further work in finalising this judgment would be required. One inevitable consequence would be to delay the time when this judgment can be released to the parties. The period of delay would be further lengthened in that it has not been possible for me to complete my judgment before the arrival of the long vacation.
510. The trial of this action was ordered to be expedited. When I refused the Claimants permission to amend I indicated that one concern I had about the consequence of granting permission to amend would be that it would significantly delay the determination of the dispute between the parties, with the consequence that there would be a prolonged period of uncertainty before the result would be known.
511. In these circumstances, I am reluctant to lengthen the delay in releasing this judgment to the parties by taking the time it would necessarily take me to deal properly with all the points in play in relation to Article 81(3), in a case where whatever I have to say about those matters will not affect my decision.
512. Accordingly, I will not deal in this judgment with the issues which were argued in relation to Article 81(3). This decision is subject to two comments.
513. The first is that if there is an appeal, then the Court of Appeal has power (as recently exercised in Hicks v Russell Jones & Walker [2008] 2 All ER 1089) to ask me to make any necessary findings which might be relevant for the purpose of considering a Respondent's Notice relying on Article 81(3). If it is relevant to the Court of Appeal's exercise of that power for me to indicate my readiness to make those further findings, then I of course can state that I would be ready to do so. It seems to me that that way of proceeding, which will enable me to release my judgment to the parties in this expedited matter, is a better solution than postponing this judgment for a considerable period.
514. The second comment I make is that because I am not deciding the issues in relation to Article 81(3), one possible result, if I were to do so, might be that the Defendants would fail to establish one or more of the conditions in Article 81(3). I have earlier referred to this outcome being a possible legal conclusion. It might be suggested that such a legal approach is a little unexpected. The possibility of such a legal outcome may have come about partly because of the procedural rules which formerly applied to claims for exemption under Article 81(3) (before the Modernisation Regulation). If it had not been for those rules, there might have more of a tendency for the courts when construing Article 81(1) to use Article 81(3) as an important aid to the interpretation of Article 81(1) and that might have led to the courts interpreting and applying Article 81(1) more narrowly than they have begun to do in more recent times. A narrower approach to Article 81(1) might have produced the result that if an agreement did not satisfy the exemption criteria of Article 81(3), then it should be expected to be held to be an infringement of Article 81(1).
515. The overall result in relation to the Claimants claim against the Defendants is that the claim fails.

The Defendants' Counterclaim against BAGS and SIS

516. The Counterclaim in relation to the exclusive licences which were entered into by BAGS or by SIS is contingent upon the court holding that the exclusive licences granted to AMRAC infringed Article 81(1) or section 2 of the 1998 Act. I have now held the opposite of that possibility so the contingency has not come about and the Counterclaim falls away.
517. I will however make one or two brief comments on the Counterclaim simply to describe the positions adopted by the various parties.
518. The challenge to the exclusive licences to BAGS and SIS was on the basis that those licences were exclusive. There was no suggestion that those licences had been entered into as a result of anything allegedly impermissible in the nature of collective or closed selling.
519. In relation to the Counterclaim against BAGS, BAGS was apparently prepared to accept that if it succeeded in showing that the AMRAC licences were void, because they were exclusive licences which gave rise to foreclosure, then it would follow that the exclusive licences granted to BAGS and presumably the exclusive licence granted by BAGS to SIS would also be void.
520. In relation to the Counterclaim against SIS, its position was that there could be no challenge to the licences granted to it by reason of the fact that those licences were exclusive. SIS made detailed and cogent submissions on the law to the effect that in this area, any concern as to exclusivity in relation to the grant of rights was met by the existence of ex ante competition for the grant of those rights. SIS then made detailed submissions on the facts to the effect that if one considered the detailed facts as to each and every licence taken by SIS, it could be clearly seen that there was ex ante competition for each licence which satisfied the requirements of competition law. The only possible area of fact in SIS's submissions, which might not be in accordance with the findings I have earlier made, relates to my earlier conclusion that in practice (before the arrival of AMRAC) the operation of BAGS and SIS on the upstream market produced a situation of a monopoly purchaser for the racecourses' LBO media rights. SIS also put forward arguments as to why, if the exclusive licences might otherwise infringe Article 81(1), such licences were objectively necessary and therefore justified. SIS also contended that it was entitled to exemption under Article 81(3).
521. In view of the contingent nature of the Counterclaim against SIS, and the fact that the Counterclaim simply falls away in consequence of my earlier findings, and having regard to the length of this judgment in dealing with the issues that have to be dealt with, I will not go further in discussing the points which would have arisen if it had been necessary to determine the issues raised by the Counterclaim.

PART 7: THE OVERALL RESULT

522. In relation to the Claimants' claim against the Defendants, the claim fails and is dismissed.
523. In the events which have happened, the contingent Counterclaim by the Defendants against BAGS and against SIS, in relation to the exclusive licences entered into by BAGS and by SIS does not arise and it is dismissed.