November 14 2002
The Austrian Supreme Court recently ruled on the wielding of market power by film distributors over cinemas. The decision is significant in that it may well be contrary to the court's prior ruling.
In the 1997 case a distributor refused to supply films to an exhibitor who had failed to discharge an alleged claim. The Supreme Court found the distributor, which held 23.5% of the market share, to be a monopolist on the basis that it held exclusive distribution rights for the films which the plaintiff sought to rent, so that the latter was entirely dependent on it. Such dependency is the basis of a dominant market position pursuant to Article 34(2) of the Austrian Cartel Act.
The court also ruled that the distributor's refusal to supply films constituted an abuse of a dominant market position due to the absence of any justification for the refusal.
Pursuant to the 1997 ruling, a distributor holds a dominant market position where its customers (cinemas) are dependent on the delivery of films which it offers exclusively. The distributor abuses this position in refusing to supply its customers without any justification.
In the 2002 case the plaintiff owned two multiscreen cinemas and had a long-standing business relationship with the defendant. The defendant distributed films and had a 11.6% domestic market share. In 2001 the plaintiff requested a copy of the film Chocolat with a view to screening it in one of its cinemas. The distributor, which held the exclusive distribution rights, agreed to supply the film on condition that the plaintiff order two copies. The plaintiff reluctantly agreed, but was given no copies at all when the defendant received fewer copies of the film than anticipated and used them to supply its own cinemas.
The Supreme Court ruled that the defendant did not hold a dominant market position, even though it was a monopolist with regard to the film 'Chocolat' and the plaintiff had no choice but to order the film from it. Distinguishing the two cases, the court reasoned that the distributor's market share in the 1997 case was approximately 25%, whereas in the current case it was just 11.6%. Moreover, the court ruled that monopoly over a single film leads to a dominant market position pursuant to Article 34 of the Austrian Cartel Act only where the film is not substitutable. The substitutability of films must be assessed objectively, and the exhibitor's objective estimation is the decisive factor rather than individual consumer preferences.
The court held that a dominant market position could not be proved and, therefore, it was not necessary to consider the question of abuse of such a position.
Pursuant to the 2002 decision, the preconditions for a dominant market position are stricter than in 1997. The exhibitor's dependency on the distributor's supply of films is no longer sufficient to create a dominant market position. Whereas the court could see no other way for the exhibitor to be supplied with the ordered film in 1997, in 2002 it was ruled that the film in question was substitutable.
The inconsistency of the adjudication regarding dominant market positions in the cinema sector leaves unresolved the issue of whether a single film constitutes a distinct market. In neither decision did the court clearly specify the relevant market on which its decision was based. On the one hand, it may be inferred from the 1997 decision that each individual film should be considered as a single market. On the other hand, the 2002 decision leads to the conclusion that the relevant market includes more than one film, otherwise substitutability would not have been relevant.
Pursuant to the case law, it is difficult to define the relevant market and to assess the degree of substitutability with accuracy. A cohesive definition of the relevant market regarding film distribution is required.
For further information on this topic please contact Dieter Hauck or Martin Nepraunik at Preslmayr & Partners by telephone (+431 533 16 95) or by fax (+431 535 56 86) or by email (firstname.lastname@example.org or email@example.com).
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