BHB Enterprises plc v Victor Chandler (International) Ltd

The British Horseracing Board (“the Board”) is a company limited by guarantee which is vested with the function of administering British horseracing. It was formed in 1993 to take over some of the functions formerly exercised by the Jockey Club. According to evidence given in these proceedings by Mr Nigel Smith, its Commercial Director, the Board’s current functions are:

“(1)

the improvement of the financial position of horseracing; (2) funding of the administration of horseracing; (3) encouraging the maintenance and improvement of standards in horseracing, and exercising regulatory control ("Regulatory Functions"); (4) meeting the cost of the Regulatory Functions and assisting the Jockey Club; (5) encouraging and improving the breeding of bloodstock; (6) establishing the dates of Fixtures and the programme content of Fixtures; (7) considering and consulting on all questions affecting horseracing, advising and communicating views and recommendations to others, including the statutory and regulatory bodies in the horseracing industry; (8) initiating and promoting improvements in the law and local rules, regulations or practices; (9) making and publishing rules of practice and procedure for horseracing; (10) developing and maintaining programmes of training and education within horseracing; (11) each year creating the fixture list involving (currently) 1,209 race meetings in Britain annually; (12) weight adding and handicapping; (13) supervision of race programmes; (14) producing racing publications and stakesbooks; and (15) compiling data related to horseracing.”

This action arises principally out of the last of these functions, namely the compiling of data. The Board maintains a computerised collection of information on a database (“the Database”). It includes a collection of information accumulated over many years by way of registration of information supplied by owners, trainers and others concerned in the racing industry. It contains the names and other details of over one million horses, tracing back through many generations. It contains details of registered owners, racing colours, registered trainers and registered jockeys. At least part of the data in the Database is collected on the Board’s behalf by Weatherbys Group Limited (“Weatherbys”). In particular, Weatherbys gathers together what is called the Pre-Race Data, commonly known as the “racecard”. The Pre-Race Data consists of the following details about each horse race: the venue; date of race; race times; race information (i.e. distance, flat or hurdles); horse number; horse name; course and distance; weight; age; owner; trainer; jockey and any jockey changes (prior to the day of the race); basic form ( i.e. where a horse was placed in the last six races); and a description of the jockey's silks and cap.

It is one of the Board’s functions not only to maintain the Database containing the Pre-Race Data, but also to ensure that it is accurate. There is no dispute that the gathering and maintenance of the contents of the Database and the Pre-Race Data is an onerous, skilled and expensive operation. For example, in 2004, 1299 race meetings took place in Great Britain consisting of a total of 8577 separate races. The Database had to contain accurate and up to date data on each race, each horse, each owner and each jockey. The Pre-Race Data is produced as a daily data feed to certain users. Apparently it costs more than £4 million annually to maintain the Database and to produce the daily feed of Pre-Race Data.

The contents of the Database and, in particular, the Pre-Race Data is valuable. For example, it is very important to bookmakers. As Mr Peter Nicoll, a witness for Victor Chandler (International) Limited (“VCI”), part of the Victor Chandler Group of bookmaking companies and the defendant in this action, says:

“22.

The Pre-Race Data is essential to any bookmaking. It is not possible to run a book unless the bookmaker knows which horses are in which race.”

The Board seeks to exploit this asset by selling the right to access and use it to interested third parties. This it does through a limited company, BHB Enterprises plc (“BHBE”) which is, in effect, the Board’s trading arm. For the purpose of these proceedings there is little difference between the Board and BHBE. Where possible, I shall refer to them together as BHB. Access to the Database is provided through BHBE. However the latter company does not provide access to the end users, such as bookmakers, directly. Instead it supplies data, including the Pre-Race Data, to another company, PA News Limited (“PA”), for onward transmission. PA collects sport related data from a variety of sources all over the world and licences it to bookmakers. As well as data from the Database, it also supplies its customers with On-Course Data, racecards for Irish and the South African horse racing, certain selected horse races in France and Japan, and for greyhound racing. It also supplies extensive data relating to United Kingdom and foreign football fixtures and data relating to the NFL, NBA, NHL and Major League Baseball events in the USA. Thus a triangular arrangement exists where the Board contracts with PA to supply the latter with Pre-Race Data on terms that the latter can, in certain circumstances, allow PA’s customers to use it. PA in turn enters into licences with users, including bookmakers like VCI, which allow them to use the sports data it administers including, but not limited to, the Pre-Race Data. The customers enter into a data licence with BHBE.

Three such agreements exist in this case. First there is a data compilation and delivery agreement between the Board (and the Racecourse Association Ltd) and PA dated 28 March 2002 under which the Board gives PA access to the Pre-Race Data from the Database (for convenience I will refer to this as the BHB/PA agreement). Second, there is an agreement, effective as of 1 June 2003, between PA and Newcote Services Ltd (of which VCI is a part) under which PA makes, among other things, the Pre-Race Data available for use by, amongst others, VCI (for convenience I shall refer to this as the PA/VCI agreement). Third, there is a data licence dated 3 March 2003 between BHBE and VCI pursuant to which VCI is given a licence to use the Pre-Race Data on certain terms including the payment of a charge, currently in the region of £60,000 per month (I shall refer to this as the BHB/VCI agreement).

Before explaining the dispute which has arisen between the parties, certain other pieces of background information need to be mentioned. First, although BHB has exploited its database by licensing, amongst others, bookmakers for some years, its ability to do so appeared to be given additional strength by the enactment of the EC Directive 96/9 (the Directive). This provided for the creation, throughout the EU, of a database right. This is a new, sui generis, right, similar to copyright, in certain databases. Prior to this Directive, databases in the United Kingdom were probably protected as a type of compilation, and therefore as “literary works”, under our domestic copyright legislation. It is probable that no similar copyright protection existed elsewhere in Europe or, for that matter, in the USA. The Directive not only created a pan-European database right (I understand that there is no equivalent right in the USA) but also placed limits on the extent to which databases could be protected under national copyright law. The extent of this limitation is unclear and, so far as I am aware, has not been explored either in national courts of Member States or in the European Court of Justice (“ECJ”).

In March 2000, the Board commenced proceedings against William Hill, the well-known bookmaker, under the database right it claimed in the Database. William Hill was using, without permission, some of the data from the Pre-Race Data. That use was limited to the names of the horses in each race, the date, time or name of each race and the name of the racecourse (the “William Hill Extract”). In the action the Board claimed a declaration that the Database was the subject of the new database right and that the unlicensed abstraction, reproduction and use of the William Hill Extract amounted to a breach of that right. The action came on before me. The Board won on both issues. William Hill appealed in relation to the second issue but not in relation to the declaration that database right subsisted in the Database. On 31 July 2001, the Court of Appeal gave judgment. It referred certain questions to the ECJ. The Advocate General delivered her opinion on 8 June 2004. It was regarded as generally favourable to the Board’s position. The ECJ gave judgment on 9 November 2004. Many observers, including VCI, considered that it severely limited the new database right and, in particular, held that the William Hill Extract did not infringe such database rights as the Board owned in the Database. BHB takes a rather different view. In any event, the Court of Appeal is due to consider the application of the judgment of the ECJ to the facts in the William Hill case on 28 June 2005. The parties agree that a number of outcomes are possible.

Another matter which should be referred to is the Horseracing Betting Levy. This is, in effect, a tax levied on bookmakers’ profits to help fund and develop British horseracing. The income derived from the Levy is distributed by the British Racing Levy Board. In March 2000 the Government announced that it was to phase out the Levy by 2006, British Racing being required to find alternative means for funding the various facets of British horseracing other than through a levy system. The result is that the Board has to raise income. A significant part of that income is generated by commercialisation of its Database asset. At the moment, the Levy is still payable. For jurisdictional reasons, it is and has been payable only by bookmakers carrying on business in the Britain. Whilst the Levy remains in place, bookmakers operating in Britain are entitled to set off their Levy payments against amounts due under their Data Agreements with the BHB. Bookmakers operating outside the Britain pay no Levy. There is, accordingly, no set off against payments paid to the BHB under their Data Agreements. VCI carries on business from Gibraltar. It is not liable for the Levy.

At about the time of my judgment in the William Hill case, a new standard Data Agreement was negotiated between representatives of the interested parties. The charge to bookmakers was increased. VCI says that this was because of the reinforcement of BHB’s rights which seemed to follow from my judgment in the William Hill case. The BHB/VCI agreement is on the increased terms. Since the judgment of the ECJ, large numbers of bookmakers have asserted that the Board’s rights have been seriously weakened or destroyed. The Board has taken two steps as a consequence. First, it has adopted a cautious stance towards expenditure, lopping some £8 million from various programmes designed to support and expand British horseracing. Second, it has asked the Government to extend the Levy, at least on a temporary basis.

The only other matter of background to mention at this point concerns the Office of Fair Trading (“OFT”).

The OFT and Competition Appeal Tribunal have between them as extensive jurisdiction as the High Court to consider and apply the provisions of Chapter I and II of the Competition Act (“the Act”). On 28 June 2000, BHB and the Jockey Club (“the JC”) jointly notified their Governance Agreements to the OFT, including the Orders and Rules of Racing. They were seeking negative clearance or alternatively an exemption. The OFT commenced an investigation into the compliance of British Racing with competition law. That investigation concerned issues arising under both Chapter I and Chapter II of the Act. During the 5 years that this investigation has been ongoing, the OFT has issued a number of requests for documents and answers to questions under section 26 of the Act, including questions on the following matters concerning the pricing of data under its Chapter II investigations:

In a letter dated 19 October 2001, Mr Russ Philips of OFT stated:

“following preliminary investigations the Director General has opened a full investigation into: BHB’s commercial policy for charging for data and audio-visual rights [and] BHB’s new arrangements for producing and delivering pictures, commentary and on-course data to licensed betting offices.”

According to the evidence before me, a large number of bodies and individuals were sent section 26 Notices. These included representatives of major bookmakers and numerous smaller bookmakers. I am told that a great number of bookmakers, bookmaker associations and other data users made submissions to the OFT about BHB’s licensing of data and its pricing, including: William Hill; the Spread Betting Association; the National Association of Bookmakers Limited; Stanley Leisure Plc; Blue Square Limited; The British Betting Office Association; The Federation of Racecourse Bookmakers; The Confederation of Bookmakers Associations; Ladbrokes Limited; Coral Eurobet Plc; and Satellite Information Services Limited.

Among the complaints were allegations that BHB has abused a dominant position by excessive or discriminatory pricing, or by restricting the supply of data. I am told that the investigation was extensive. The OFT has disclosed to BHB 66 lever arch files relating to these complaints and investigations. The major bookmakers withdrew their complaints of excessive and unfair pricing, price discrimination, and unnecessary bundling of data, in 2002, in the context of a commercial settlement with BHB. By way of defence to the various allegations and inquiries made, BHB and the JC provided the OFT with written and oral submissions and presentations; witness statements from representatives of owners, breeders and trainers, and from overseas horseracing governing bodies (from Japan, the USA, South Africa, Ireland and France), documents and written responses to s. 26 Notices and to numerous informal requests; and extensive expert economic and econometric evidence on a great number of issues. That, together with its exhibits, amounted to 6 lever arch files of material.

On 8 April 2003 the OFT published a Rule 14 Notice, i.e. a preliminary infringement decision, in respect of Chapter I alone. This suggests that the OFT considered that there was sufficient evidence to sustain a Rule 14 Notice in respect of Chapter I, but not in respect of Chapter II. BHB is optimistic that the OFT’s Chapter I concerns will be met by its offer of certain binding commitments.

As noted, VCI is one of the bookmakers which believes that the judgment of the ECJ in the William Hill case has destroyed the intellectual property rights underlying the BHB Data Agreements. It has stopped paying the charge due under the BHB/VCI agreement which it says is void. Currently BHB asserts that over £200,000 is due from VCI. As a result the current proceedings were commenced in which BHBE is the claimant and seeks damages for breach of contract against VCI. In addition, BHB has made it clear that if VCI fails to pay for use of the Pre-Race Data, it will instruct PA not to supply that data to VCI. PA is not interested in becoming involved in the dispute between VCI and BHB but it feels that it is entitled to terminate the feed of Pre-Race Data to VCI in view of the latter’s stance that it will not pay the charges due under the BHB/VCI agreement and regards the latter agreement to be void. In addition, the BHB/PA agreement has come to an end. BHB has indicated that it is prepared to allow the agreement to continue until a new agreement is negotiated. However that is subject to one additional term, namely an express acceptance that PA will, on receipt of notice from BHB, cut off the Pre-Race Feed to any bookmaker who is in material or persistent breach of its licence with BHB. Refusal to pay the charges due and becoming due under a licence from BHB is clearly considered to be both material and persistent.

This has led to the applications before me. In its defence to the claims in these proceedings, VCI has alleged that it is under no obligation to pay anything to BHBE in respect of the Pre-Race Data because the licence is void or is liable to be rescinded on grounds of mistake, failure of consideration and misrepresentation. On the other hand, it argues that PA is contractually bound under the PA/VCI agreement to allow VCI to continue to use the Pre-Race Data. Since PA is likely to comply with BHB’s demand to cut the feed, it seeks to bring a Part 20 Claim against PA for breach of contract. Furthermore, it says that both the Board and BHBE are liable to it for procuring PA to breach its contract with VCI (or unlawful interference with trade, the unlawful act consisting of the same alleged procurement of breach of contract). In addition, it says that the Board and BHBE are guilty of abuse of a dominant position, that abuse consisting of forcing or attempting to force VCI to pay charges under the BHB/VCI agreement which are abusively high and excessive. This abuse is said to amount to both a breach of Article 82 of the Treaty of Rome and the equivalent Chapter II prohibition in the Act. In the result I have to consider the following applications:

As I understand it, there is no objection, as such, to VCI’s application to join both the Board and Newcote. However the application to join PA is resisted. PA is represented on this application by Jeffery Onions QC. Similarly the application for injunctive relief and amendment to plead abuse of dominant position, procuring breach of contract and unlawful interference with trade is resisted by BHB. The latter are represented before me by Mr David Vaughan QC (who deals with the EC and Competition Act issues), and Miss Lindsay Lane (who deals with contractual issues). VCI and Newcote are represented by Mr David Lord (contract issues) and Mr Jonathan Turner (EC and Competition Act issues).

The proposed amendments to the pleadings to join PA and the claims against BHB are dependent upon VCI’s argument that PA, which has been supplied with the Pre-Race-Data by BHB, is contractually bound by the VCI/PA agreement to allow VCI to use it. This is so notwithstanding the fact that, according to VCI, there is no binding contract between it and BHB under which the latter licences the former to use the Pre-Race Data. Among other things, VCI argues that the only rights BHB had to licence were the alleged database right in the Pre-Race Data and that, as a result of the ECJ judgment in the William Hill case, no such rights exist. Thus central to VCI’s case is the meaning and effect of the PA/VCI agreement.

Before analysing that agreement, it is worth noting the startling consequences of VCI’s submissions. Mr Lord accepts that the Database and the Pre-Race Data are very valuable and that they have been created after considerable effort and at significant cost to BHB. He accepts that they are assets of BHB which BHB is entitled to withhold or license to third parties. He also concedes that it is entitled to organise the distribution of the Pre-Race Data through an intermediary such as PA. Mr Lord also concedes that, as a matter of commercial commonsense, BHB can and must charge persons who want to use its assets.

Notwithstanding these points, Mr Lord says that VCI is entitled to use the Pre-Race Data administered by PA even though it has not and will not pay for it. He accepts that this does not make commercial sense but he says that it is what the PA/VCI agreement secures for his client.

As mentioned already, the PA/VCI agreement covers a great deal more sports information than just the Pre-Race Data. This body of information is referred to as the “PA Material”. The agreement contains the following provisions in Schedule 1:

“1.

The PA will take all reasonable steps to ensure the accuracy and timely supply of the PA Material, but the PA does not warrant that the PA Material will be free from error or uninterrupted or, as provision of the PA Material is subject to availability of the necessary information to the PA, that specific items of information will be available.

9.

During the Term, this Agreement may be terminated immediately by either party giving notice to the other if: (a) the other commits a material breach of a material term of this Agreement and such material breach is not remedied (if remediable) within 7 days of receipt of notice requiring remedy; or (b) any encumbrancer takes possession of, or a receiver is appointed over, any of the property or assets of the other party or the other party makes any voluntary arrangement with its creditors or convenes a meeting to consider proposals for a company voluntary agreement and/or files any documents with the court for a moratorium pending the outcome of such a meeting or becomes subject an administration order or goes into liquidation (except for the purposes of amalgamation or reconstruction not involving insolvency and in such manner that the entity resulting agrees to be bound by or assumes the obligation imposed on that other.

12.

The Customer acknowledges that: (a) the copyright (including, for the purposes of this Agreement, database rights) and any and all other intellectual property rights used or embodied in the PA Material, including the manner in which it appears on delivery to the Customer, is the property of the PA or its licensors, and (b) the PA Material is provided on the basis that, if required, the Customer (or the relevant member of the Customer’s Group) will enter into appropriate copyright and/or other arrangements direct with such licensors, and such provision is, in any event, subject to any restrictions or prohibitions imposed by the owner(s) of such information, whether directly or indirectly, either on the PA in respect of its provision of such information to the Customer (or any member of the Customer’s Group) or on the Customer itself or any member of the Customer’s Group. The PA may terminate this Agreement (or any part of it) if the Customer (or any member of the Customer’s Group) challenges the validity of any of the rights of the PA or its licensors as set out above or is in breach of its licence agreement with the BHB (or any other licensor) or fails to conclude or renew any such licence.”

The PA Material is defined in Schedule 2. That starts with the following:

“Use of racecards [i.e. including, but not limited to BHB’s Pre-Race Data] is subject to the Customer having in place the necessary licensing and/or other arrangements with the relevant racing board/authority representative of the relevant racing board for this purpose.”

BHB and PA submit that it is clear that the latter can refuse to allow a non-paying bookmaker to use the Pre-Race Data. The contrary is unarguable. There are a number of reasons for this.

Clause 9 entitles PA to terminate VCI’s rights under the agreement if there is a material breach by VCI. It is argued that VCI is in material breach. First, Clause 12 provides that “the PA material is provided on the basis that, if required, the Customer…will enter into appropriate copyright and/or other arrangements direct with such licensors”. VCI’s only justification for not paying the monthly charges due under the BHB/VCI agreement is the fact that it considers that to be void or unenforceable. Its position is that it needs no, and has no, licence from BHB. Mr Lord does not dispute that failure to have the requisite licence is a material breach but he says that the words “if required” must mean “required by law”. In my view Ms Lane is right to say that there is no basis for construing the agreement this way. All that is necessary is that VCI will enter into “appropriate arrangements” direct with the licensor, BHB. This is not the language which would be used were the parties agreeing to legal necessity being a pre-requisite. Furthermore, the first part of Clause 12 makes it clear that, as a matter of contract between the parties, VCI acknowledges that PA and BHB do have the rights they assert. It follows that, for the purpose of these provisions, BHB is accepted as having rights under which VCI needs to take a licence. The construction advanced by Mr Lord would produce a result which would make no commercial sense. As Lord Wilberforce said in Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191 in a passage recently cited with approval in Mannai Investment Co. Ltd v Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749:

“… if detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.” (p 201)

I can see no reasonable prospects of any court giving this provision the construction advanced by Mr Lord.

Second, even were this wrong, Clause 12 goes on to stipulate that provision of data by PA is, “in any event” subject to “any restrictions or prohibitions imposed by the owner(s) of such information, whether directly or indirectly, either on the PA … or on the Customer itself “. Mr Lord argues that the prohibition must be one which the owner is entitled, as a matter of law, to impose.

I do not accept that submission either. The meaning of these words is clear. The words “in any event” emphasise that this right to refuse to provide the data is separate from the requirement that there be copyright or other arrangements between the customer, i.e. VCI, and the licensor, i.e. BHB. This is dealing with “any” restrictions or prohibitions imposed by the owner of the information, whether on PA or the customer. Thus if BHB tells PA that it may not provide the data to VCI, this is a restriction which, by virtue of this clause, PA is entitled to honour. In other words, PA, being a mere middleman in the transfer of data from the owner (BHB) to the customer (VCI) is not obliged to supply the latter if the former directly or indirectly prohibits that. In such a case, if the customer has any complaint he must make it to the owner. By contrast, Mr Lord’s construction would oblige PA to onward supply the owner’s information to the customer even if to do so would force PA to breach its contract with the owner. Once again that, and the consequence that VCI is entitled to use the data without paying for it, make no commercial sense.

Third, the Clause gives PA an express right to terminate any part of the agreement if the VCI “challenges the validity of any of the rights of [BHB]”. There can be no doubt that VCI is challenging the validity of BHB’s rights in these proceedings. Mr Lord does not assert otherwise. However, he says that this provision should be ignored because it amounts to an attempt to oust the jurisdiction of the courts.

I do not accept this argument either. This clause does not seek to oust the courts at all. VCI is entitled to attack BHB’s claims to database right, copyright or any other right it may assert. It is doing so in these proceedings. The only restriction imposed is that, if it does so, it may not take the benefit of a licence to use BHB’s assets. Non-challenge clauses of this sort are common in intellectual property licences. They are not void or unenforceable as being attempts to oust the jurisdiction of the court.

Fourth, Clause 12 gives PA an express right to terminate any part of the agreement if VCI “fails to conclude or renew any such licence”. This covers failure to enter into a licence or to renew one. VCI’s position is that it is not licensed by BHB, hence it is not liable for breach of contract in these proceedings. However it says that this does not bring it within the scope of these words in Clause 12 because the right to terminate is dependant upon it failing to enter into “such licence”. This means a licence required by law. This repeats Mr Lord’s arguments referred to above. For the same reasons I reject them.

Fifth, the commencement of Schedule 2 expressly provides that the use of Pre-Race Data is conditional. It is subject to VCI having in place “the necessary licensing and/or other arrangements” with BHB. Once again Mr Lord argues that “necessary” in this context means necessary as a matter of law. For reasons given already, I can see no justification for restricting the meaning of this word in this way, particularly since it would produce a result which defies commercial sense.

Sixth, Mr Onions relies on the provisions of Clause 1. The supply of the PA Material is subject to it being available to PA. If BHB refuses to supply PA for onward supply to VCI, this Clause exempts PA of any liability to VCI. I accept this submission also. This Clause, like Clause 12, emphasises the position of the PA as a middleman between the owners of data, such as BHB, and PA’s customers. If the former does not supply, it is not PA’s responsibility. The customer must take up its objection, if any, with the owner direct.

For all these reasons, if in the circumstances of this case PA refuses to allow VCI to use the Pre-Race Data, it will not be breaching the terms of the PA/VCI licence. It follows that VCI has no cause of action against it and, consequent on that, BHB cannot be liable for procuring breach of contract or unlawful interference with trade.

In these circumstances it is not necessary to consider the terms of the other agreements between the parties.

VCI alleges that the Board and BHBE are infringing and threaten to infringe the Chapter II prohibition created by section 18 of the Competition Act 1998 (“the Act”) and the equivalent prohibition in Article 82 (formerly 86) of the Treaty of Rome. There is, for the purpose of this application, no material difference between the two. In each case it is said that BHB has a de facto monopoly in the Pre-Race Data required by bookmakers and others, and is thus in a position to prevent effective competition in its supply. This gives BHB a dominant position. It is said that BHB has set prices for the Pre-Race Data which are “manifestly excessive” in relation to the cost of generating that data. Following from this it is said that BHB is abusing its dominant position to force bookmakers, including VCI, to enter into an agreement to licence the Pre-Race Data at these excessive prices.

VCI rely on these allegations as a defence to BHB’s claim for payments under the BHB/VCI Agreement, in support of their existing counterclaim for restitution of payments previously made and as the basis of an additional counterclaim for injunctive relief (restraining continuation of the abuse) and damages. As a result VCI seeks to amend its pleading to include these allegations and interim injunctive relief to restrain acts alleged to infringe (and if necessary to restore the status quo prior to the commencement of the infringement) pending trial.

The proposed amendment to VCI’s pleadings to raise these issues is in the following terms:

“Abuse of Dominant Position

33.

The Claimant, alternatively the Claimant together with BHB and/or Weatherbys Group Limited (“WGL”), has a dominant position in the market for the supply of Pre-Race Data for horse races in the United Kingdom.

Details

(1)

The Claimant is a subsidiary of BHB and is exclusively entrusted by BHB with the commercial exploitation of the data relating to horse races which BHB controls.

(2)

BHB controls the Pre-Race Data, prepared by WGL pursuant to a contract between them, in relation to all or substantially all professional horse races in the United Kingdom.

(3)

Pursuant to these arrangements, the Claimant has a monopoly or virtual monopoly in the supply of the Pre-Race Data for professional horse races in the United Kingdom.

(4)

The Pre-Race Data are an essential facility required for any bookmaking in relation to professional horse racing in the United Kingdom.

34.

The Claimant (or the Claimant together with BHB) has abused and is abusing this dominant position.

Details

(1)

The Claimant purports to license the right to receive, display and use Pre-Race Data to bookmakers only on its standard terms, including charges of 10% of the bookmaker’s gross profit or 1.5% of the bookmaker’s turnover relating to bets taken in LBOs and/or Licensed Media activity.

(2)

These charges are particularly high and not justified by objective criteria. The cost of preparing the Pre-Race Data is approximately £4 million per year. The total income from data licensing was stated in 2002 to be expected to amount to £600 million over 5 years.

(3)

In accordance with the ruling of the European Court of Justice in the William Hill proceedings, the Pre-Race Data is not protected by any intellectual property rights.

(4)

As set out below, the Claimant has threatened and arranged to prevent the supply of the Pre-Race Data to the Defendant and other bookmakers who have declined to pay the Claimant’s unlawful charges, notwithstanding that the Pre-Race Data is an essential facility required by the Defendant, without objective justification. The non-payment of the Claimant’s charges does not constitute an objective justification, since those charges are not justified, as pleaded above.

35.

The said abuses may affect trade within the United Kingdom or part thereof and/or trade between member states of the European Union to an appreciable extent.

Details

(1)

The charges are a substantial levy on bookmaking services supplied to members of the public in the United Kingdom and Ireland.

(2)

A large part of the sums raised by the charges is used to subsidise horse racing and breeding in the United Kingdom, thereby distorting competition between horse racing and breeding services in the United Kingdom and corresponding services in other EU member states, and hence the patterns of trade in those services between member states.

(3)

Preventing the supply of the Pre-Race Data to bookmakers who decline to pay the Claimant’s charges would prevent those bookmakers trading in relation to horse racing in the United Kingdom.

36.

The Claimant (or the Claimant together with BHB) has thereby infringed and is infringing the Chapter II prohibition of the Competition Act 1998 and Article 82 of the Treaty of Rome, and its charges under the Agreement are unlawful.”

For present purposes, it is not necessary to consider the allegations in paragraph 35. I will assume that they are arguable. Similarly it is not necessary to consider the assertion that the Pre-Race Data is “an essential facility”. Mr Turner confirms that his client’s claim of abuse is based solely on the allegation that BHB is seeking “unlawful charges” for the data. It is not running a denial of an essential facility argument.

Mr Vaughan raises a number of objections to these allegations. He says that VCI should be refused permission to amend on the basis that it would be an abuse to allow these allegations to be litigated here when, for 5 years, they have been the subject of consideration by the OFT. Assuming that there is anything in these allegations, the proper course would be for VCI to take them to the OFT and the Competition Appeal Tribunal. Second he says that there is not an arguable or properly pleaded case that “the supply of Pre-Race Date for horse races in the United Kingdom” is a relevant market for the purposes of the Act or Article 82. Third, he says that, even if dominance in a relevant market was arguable, VCI has failed to raise a proper case that there has been an abuse. It is convenient to consider the latter argument first.

The purpose of a pleading is to ensure that the other parties and the court know what are the matters in issue. A pleading must contain a concise statement of the facts on which the party relies. In some cases, this is particularly important. The Practice Direction supplementing Part 16 CPR sets out specific circumstances in which particularity is required. For example, consistent with a practice of some antiquity, a party is required to allege fraud explicitly. This involves setting out the essential facts upon which the allegation is based. There is no reason to believe that the contents of that Practice Direction are, or are intended to be, exhaustive. For example, in relation to breach of confidence actions the Court of Appeal has expressed the view that, bearing in mind the seriousness of the allegation, proper and full particulars must be set out in the pleadings (see John Zinc Co. Ltd. v Wilkinson [1973] RPC 717). There is nothing to suggest that this requirement has been removed by the CPR.

Similarly, it seems to me that particular care is to be expected of a party who pleads breach of s 18 of the Act or an Article 82 offence. These are notoriously burdensome allegations, frequently leading to extensive evidence, including expert reports from economists and accountants. The recent history of cases in which such allegations have been raised illustrate that they can lead to lengthy and expensive trials. Mere assertion in a pleading will not do. Before a party has to respond to an allegation like this, it is incumbent on the party making the allegation to set out clearly and succinctly the major facts upon which it will rely.

If that is the correct approach, it will be seen that VCI’s pleading here is inadequate. VCI is relying on s 18(1) and (2)(a) of the Act, and the equivalent provisions in the Treaty of Rome. The former are in the following terms:

“18(1) Subject to section 19, any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.

(2)

Conduct may, in particular, constitute such an abuse if it consists in –

(a)

directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions. …”

Although the proposed pleading does not say so in terms, Mr Turner confirms that the allegation is that BHB has breached its alleged dominant position by imposing unfair prices. It is important to notice that it is the imposition of unfair prices, not high prices, which can constitute an abuse. However the amendment contains nothing which could be said to justify the allegation that the prices charged are unfair. All that is said is that the rates are fixed at 10% of the bookmaker’s gross profit or 1.5% of the bookmaker’s turnover, that the cost of preparing the Pre-Race Data is approximately £4 million per year and that BHB’s total income from data licensing was stated in 2002 to be expected to amount to £600 million over 5 years, that is to say, about £120 million each year. Even if these figures are correct and tell the whole story, they do not begin to set out the basis for asserting that the charges are unfair as opposed to high.

In my view Mr Vaughan is correct to say that this pleading is so defective that permission to amend should be refused. However he goes further and suggests that there is an underlying defect in the way in which VCI puts its case which will not be overcome by a mere re-drafting of the proposed amendment. To appreciate this argument, it is necessary to explain how Mr Turner puts his client’s case.

Mr Turner argues that, in effect, there is a per se rule. As he puts it, where a dominant undertaking charges prices greatly in excess of the cost of production, this is in principle an abuse of its dominant position. He says that the price charged by an undertaking enjoying a dominant position in a particular market must be compared with the price he would have been able to charge had there been competition. If he charges more than he would have charged in a competitive market, he is abusing his dominant position. He is obliged to behave in the same way as he would have had there been competition meaning, I assume, full blooded, no-quarter-given competition. He says that in a market where there is full competition, the price which a trader can charge will move towards that figure which will allow him to recoup his costs together with the cost to him of the capital he has used. In many cases this will mean that he will only be able to recover the capital he has expended together with interest at a LIBOR type rate. Mr Turner does not admit to any exceptions to this approach. VCI’s case is that the rate charged by BHB for the Pre-Race Date is unfair, whether or not database rights exist. That is a stance which is a necessary consequence of the argument that all that counts is what would be the price if there was not a dominant position but an aggressively competitive market existed.

Even before one considers the case law, it appears that this approach is based on a number of doubtful propositions. It assumes that in a competitive market prices end up covering only the cost of production plus the cost of capital. I am not convinced that that is so. Sometimes the price may be pushed much lower than this so that all traders are making a very small, if any, margin. Sometimes the desire of the customer for the product or service is so pressing that all suppliers, even if competing with one another, can charge prices which give them a much more handsome margin. In other words, even when there is competition, some markets are buyers’ markets, some are sellers’. I do not see that there is any necessary correlation between the cost of production and the cost of capital and the price which can be achieved in the market place. Furthermore the question is not whether the prices are large or small compared to some stable reference point, but whether they are fair.

In addition, this rule breaks down as soon as one applies it in the real world. What happens if there are only a few customers? Must the cost of production, including all research and development, be recovered from them? If so, does that mean that the price varies depending on the number of customers one has? Does it also mean that the price must go down once all the research and development costs have been recovered? Does it mean that traders cannot increase the price if they engage in successful advertising campaigns which whet the consumer’s appetite? If Mr Turner’s proposition were correct, it would mean that for most fashion products (clothes, cars, perfumes, cosmetics, electronics and so on) the prices charged would be deemed to be unfair. Indeed it must follow that if the price of a product differed significantly in a single market or between markets in different locations, one must assume that, at best, one set of customers is getting the fair price and all the ones being charged more are being charged an unfair price. This would be so even though no trader occupies a dominant position.

The main case relied upon by Mr Turner in support of his argument is United Brands v Commission [1978] ECR 207 in which the European Court of Justice said:

“248.

The imposition by an undertaking in a dominant position directly or indirectly of unfair purchase or selling prices is an abuse to which exception can be taken under Article 86 of the Treaty.

249.

It is advisable therefore to ascertain whether the dominant undertaking has made use of the opportunities arising out of its dominant position in such a way as to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition.

250.

In this case charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied would be such an abuse.

251.

This excess could, inter alia, be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost of production, which would disclose the amount of the profit margin; however the Commission has not done this since it has not analysed UBC’s costs structure.

252.

The questions therefore to be determined are whether the difference between the costs actually incurred and the price actually charged is excessive, and, if the answer to this question is in the affirmative, whether a price has been imposed which is either unfair itself or when compared to competing products.

253.

Other ways may be devised – and economic theorists have not failed to think up several – of selecting the rules for determining whether the price of a product is fair.”

I do not accept that this supports the proposition advanced on behalf of VCI. On the contrary it appears, particularly from the paragraph 252 of the judgment, that all the ECJ was saying was that comparing prices with costs determines the profit margin. Once that has been achieved it is necessary to go on to the next stage to determine whether the price is unfair. What it did not do was suggest that high prices or high margins are the same as unfair prices. Indeed, were Mr Turner right, it seems to me that the law reports would be full of cases where undertakings in dominant positions would have been found guilty of abuse by simply charging high prices. As Mr Vaughan says, the reality is that there are no such cases.

Furthermore, in view of the figures relied on by Mr Turner, if his proposition were correct, the OFT would have realised at some time during the 5 years that it has been considering, among other things, complaints of unfair prices levelled at BHB, that there was a cast iron, per se breach of s. 18 of the Act. Not only has it not done so, it has, apparently, terminated its investigation into this allegation.

Mr Vaughan argues that Mr Turner’s approach is at odds with accepted jurisprudence in this field. He says that Bellamy & Child European Community Law of Competition (5^th Ed) is correct when it describes the proper approach to the competition provisions of the Treaty of Rome (and, by extension, the Competition Act) when it says:

“At one time, the Commission was inclined to hold that Article 81(1) could apply to an agreement on the basis that it had the effect of making one of the parties “less competitive”, for example where a licensee was subject to an onerous obligation to pay royalties after the expiry of a patent. But the current approach pays greater respect to a freely negotiated commercial agreement, unless it has an appreciable foreclosure effect on third party suppliers or customers. The purpose of Article 81(1) is not to provide a general escape route for those wishing to avoid complying with contractual obligations which turn out to be more onerous than expected.” (paragraph 2-115)

Although that paragraph is concerned with the scope of Article 81(1), Mr Vaughan says that it represents the approach which is also adopted to Article 82. It must also be the approach which applies to a case like the present where VCI’s complaints really straddle both Articles 81 and 82.

Furthermore the same message that the function of these provisions is not to produce a straitjacket for commerce is to be seen in the Opinion of Advocate General Jacobs in Case C-7/97 Oscar Bronner v Mediaprint [1998] ECR I-7791. In that case a major newspaper proprietor refused to allow a small competitor access to its efficient distribution service. That was said to amount to an abuse of a dominant position. Accordingly it was concerned with a very different type of abuse to that alleged here. Nevertheless the Advocate General expressed views which are not limited to the specific facts of the case. In particular, having referred to the freedom of contract being an essential element of free trade, he said:

“56.

First, it is apparent that the right to choose one’s trading partners and freely to dispose of one’s property are generally recognised principles in the laws of the Member States, in some cases with constitutional status. Incursions on those rights require careful justification.

57.

Secondly, the justification in terms of competition policy for interfering with a dominant undertaking’s freedom to contract often requires a careful balancing of conflicting considerations. …

58.

Thirdly, in assessing this issue it is important not to lose sight of the fact that the primary purpose of Article 86 is to prevent distortion of competition – and in particular to safeguard the interests of consumers – rather than to protect the position of particular competitors.

62.

In assessing such conflicting interests particular care is required where the goods or services or facilities to which access is demanded represent the fruit of substantial investment. That may be true in particular in relation to refusal to license intellectual property rights. Where such exclusive rights are granted for a limited period, that in itself involves a balancing of the interest in free competition with that of providing an incentive for research and development and for creativity. It is therefore with good reason that the Court has held that the refusal to license does not of itself, in the absence of other factors, constitute an abuse.

69.

To accept Bronner’s contention would be to lead the Community and national authorities and courts into detailed regulation of the Community markets, entailing the fixing of prices and conditions for supply in large sectors of the economy. Intervention on that scale would not only be unworkable but would also be anti-competitive in the longer term and indeed would scarcely be compatible with a free market economy.”

It seems to me that Mr Vaughan is right. The message of these passages is that we still live in a free market economy where traders are allowed to run their businesses without undue interference. What Article 82 and section 18 of the Act are concerned with is unfair prices, not high prices. In determining whether a price is unfair it is necessary to consider the impact on the end consumer and all of the market conditions. In a case where unfair pricing is alleged, assessment of the value of the asset both to the vendor and the purchaser must be a crucial part of the assessment. VCI’s approach does not take into account value at all. It simply relates prices to the cost of acquisition or creation.

Here, were one to consider value, there are numerous factors which would suggest that the allegation of unfair pricing is unjustified. This is not a case of a trader making bumper profits. On the contrary, this is concerned with undertakings, and particularly the Board, whose prime function is to nurture British horseracing. It is non-profit making. Save for administration costs it feeds back all its income into the promotion and improvement of British horseracing not only for the benefit of the general public but also for the benefit of those who have a commercial interest in the sport including bookmakers like VCI.

For example, Mr Brand, Finance Director of the Board, explains that BHB introduced a Development Fund to ensure that a small but significant number of higher-value races, intended to serve a specific race planning role, either continue to be run or are introduced into the programme at values which reflect the ability of the horses for which they are intended. These are often the ‘stepping stone’ races in the middle to upper tiers of the pyramid of races run and provide opportunities for the stratum of horses that might otherwise have been exported to countries, such as the US and Hong Kong, where a greater number of options for such horses existed. He says that this is important to British Racing because, without this pyramid, BHB will fall short of its aim of delivering the opportunity for horses of all ages to develop and excel, and the overall quality of British Racing will suffer, and thus a potential exodus of horses abroad will be triggered. There are other programmes undertaken by the Development Fund which are designed to improve the quality, variety and spread of the horseracing. Furthermore Mr Brand explains how some of BHB’s income is channelled into Owners' premiums which help to encourage breeding of British horses and Bloodstock sales. Funds are also made available for direct marketing of British horseracing, thereby increasing the vigour of the whole industry, into scientific research and a number of other programmes all of which are designed to benefit the industry as a whole.

All of this expenditure, to a greater or lesser extent, benefits bookmakers as well as others. It is the sort of matter which would have to be taken into account if the court were to consider whether or not the charges for the Pre-Race Data were unfair. What is clear is that VCI’s approach ignores all of this. It does so because it ignores the necessity of proving that prices are unfair and considers only whether they are high.

On the material before me, there is nothing to suggest that VCI have formulated a viable argument that BHB has breached either section 18 or Article 82.

For these reasons, I do not think it is necessary to consider Mr Vaughan’s other arguments.

In the result I will not give VCI permission to join PA or to amend its pleadings to allege breaches of Article 82 or section 18. It follows that it is also not necessary to consider further the application for an interim injunction.