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When the British Horseracing Board's (BHB) commercial strategy of replacing revenues from the levy was undermined by the European Court of Justice's ruling that its database did not enjoy intellectual property right protection, it was undeterred. As the only source of official data, BHB continued to seek to obtain revenues from the commercialisation of its data and in the case of Attheraces Limited (ATR) it did so quite aggressively, charging prices well in excess of its costs of providing that service and discriminating against ATR.
When ATR challenged BHB in the High Court, BHB tried to justify its prices on the grounds that as a sports governing body, it had a legal right to use secondary revenue streams from data in order to finance racing, its primary activity. This was called the "whole show" argument. The High Court gave the argument short shrift. BHB's prices were held to be an abuse of a dominant position as they greatly exceeded cost and they were also held to be discriminatory. Furthermore, BHB's refusal to carry on dealing with an existing customer (ATR) who would not pay the increased prices was held to be an abuse of a dominant position as well.
In the Court of Appeal, armed with a new legal team, BHB controversially recast its "whole show" argument by saying that for the purpose of establishing the legality of its prices, its costs should not be confined to the costs of providing data but should be uplifted to take into account the cost of the primary activity - namely putting on the "whole show". By loading the costs of putting on the "whole show" on to the provision of the data, the apparently excessive profit margin derived from the relatively low discrete costs of providing the data was in fact wholly reasonable. If ATR did not want to pay the high price for the data this was not a constructive refusal to supply that might be considered an abuse since the price requested was not excessive taking into account the cost of BHB's primary activity. The Court of Appeal accepted BHB's argument. Now the government has decided that the levy is to continue, racing will not only continue to receive the levy but (thanks to the Court of Appeal) considerable revenues from its data as well.
The Court of Appeal regarded the matter as simply a commercial dispute about who (as between BHB and ATR) was going to get their hands on the revenues from the overseas bookmakers. The Court of Appeal was struck by the fact that everyone seemed to be doing rather well in this business (the final punter of course not rating a mention). The Court of Appeal was also understandably worried about the Courts becoming price regulators. It therefore backed BHB.
The judgment, however, is deeply flawed. It ignores the distinction between exploitative abuses (where the effect on competition is not decisive) and exclusionary abuses where it is. In reaching its conclusion that there was no abuse, heavy reliance was based on a statement by an English Advocate General in a case concerned with exclusionary rather than exploitive abuses. But the key finding comes at the end. The Court of Appeal stated that
"In the ordinary way, we accept readily that what is done with profits obtained in breach of Article 82 cannot affect the legality of how they were obtained".
This is unexceptionable. The Court then went on to say
"The fact that shareholders in a monopolistic enterprise were charities or donors to charity could not affect the answer to the question whether the enterprise was improperly exploiting its market position".
That again is not open to doubt. In spite of these statements the Court of Appeal then somehow concluded as follows:
"It is, on the evidence and the judge's findings, a situation in which (at least for the present) profits are used for reinvestment in the product in order to maintain its long-term worth……In our judgment there is no reason why such reinvestment should not be relevant to the question whether pricing, while high, is in reality excessive. If the gross profits are ploughed back into maintaining the product and are not simply banked or distributed, this may answer an accusation of excessive prices and may even make it effectively cost +. (This was the pricing formula that the High Court thought was the only appropriate one for a dominant enterprise such as BHB to adopt).
This ignores that fact that the levy will continue to finance the "whole show"! But leaving this aside it also ignores the fact that BHB has a monopoly in the organising of the primary product in the UK. What the Court of Appeal seems to be saying is that sport monopolies should enjoy a limited immunity from the competition rules where they finance the "whole show" by recourse to secondary revenue streams which they also monopolise. The statement is unsound legally and economically; logically, it would justify any price for data that a governing body chose to impose in these circumstances.
As we saw above, the "whole show" argument was dismissed in the High Court and the idea that sports governing bodies enjoy a special status under competition law (which is what the Court of Appeal is effectively granting) was thrown out recently by the European Court in the Meca-Medina case (see Early Warning 279). For it to reappear in another guise undermines this judgment.
Sports governing bodies and data service providers will now be watching the progress of this case with even closer interest. The loss of IP rights for secondary revenue streams based on sports data may prove not to be the disaster once feared by governing bodies if the Court of Appeal's approach is adopted and if there continue to be no other realistic sources for official sports data other than the sports governing bodies themselves. Although the "whole show" argument will not be available in most circumstances, on account of racing's particular characteristics, aggregators and other data providers (including bookmakers) are going to have to develop a new approach – or pay some pretty hefty prices if the law remains (for now) as stated by the Court of Appeal.
Anyone else will be left wondering how the courts can be the right place for determining issues of this nature. Stephen Hornsby
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Simkins' early warning bulletins are for general guidance only. Legal advice should be sought before taking action in relation to specific matters. Where reference is made to Court decisions facts referred to are those reported as found by the Court. Please note that past bulletins included in the Archive have not been updated by any subsequent changes in statute or case law.
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