Caxton and Ctp Publishers and Printers Limited v Multichoice Proprietary Ltd

• Jurisdiction: South Africa
• Judge: Davis JP and Boqwana AJA and Vally AJA
• Judgment Date: 24 June 2016
• Docket Number: 140/CAC/MAR16
• Court: Competition Appeal Court
• Hearing Date: 24 June 2016
• Citation: 2016 JDR 1372 (CAC)

Davis JP and Boqwana AJA (Vally AJA separate judgment):

Introduction

[1]

This appeal concerns the nature of a "Commercial and Master Channel Distribution Agreement" concluded between first respondent and second respondent

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during July 2013 ('the agreement') and, in particular, whether it gives rise to a merger within the meaning of s 12 (1) of the Competition Act 89 of 1998 ('the Act').

[2]

The concept of a merger transaction and hence which transactions fall within the scope of a merger review lies at the heart of this dispute. The definition of a merger transaction which is to be subjected to the scrutiny of competition authorities seeks to identify those transactions which are "suitable" for merger review. By suitability, we mean that the transaction in question could lead to consequences that are in conflict with the chosen policy goals of the competition law regime. Expressed differently, the focus is on whether the transaction may lead to structural changes in the relevant market and, accordingly, whether there is a reasonable likelihood that the transaction could interfere detrimentally with a competitive market outcome.

[3]

The purpose of developing the concept of a merger transaction which is clear, predictable and comprehensible is to ensure that the system of merger review targets transactions that may lead to structural and durable changes in the market place and therefore hold the likelihood of substantially preventing or lessening competition. At the same time, the system should avoid the review of transactions that might pose no competitive risks or could be more appropriately be dealt with by different instruments. Viewed within the context, the goal must be to minimise the costs resulting from what are referred to as type I errors, by ensuring that transactions that raise no competitive problems do not have to be notified, while preventing type II errors, that is problematic transactions that might otherwise escape a merger review. See in general, OECD working party No 3 on Co-Operation and Enforcement: 'The Concept of a Merger Transaction 18 June 2013.

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The relevant provisions of the Act

[4]

In terms of s 13 A (1) the party to an intermediate or a large merger must notify the Competition Commission of that merger in the prescribed manner and form. Section 13 A (3) provides that the parties to such a merger may not implement the merger until it has been approved with or without conditions by the Competition Commission in terms of s 14 (1) (b), by the Competition Tribunal in terms of s 16 (2) or the Competition Appeal Court in terms of s 17 of the Act.

[5]

For a transaction to require a notification, two elements must be satisfied.

(i)

The transaction must comply with a definition of "merger" as contained in s 12 (1) of the Act; and

(ii)

The relevant financial thresholds must be met. This is not an issue in the present dispute.

[6]

A merger is defined in s 12 (1)(a) of the Act as occurring 'when one or more firms directly or indirectly acquire(s) or establish(es) direct or indirect control over the whole or part of the business of another firm'. Section 12 (1) (b) provides that this control can be achieved in any manner. The section then sets out a non-exhaustive list of transactions that may give rise to an acquisition of control by a firm, including the purchase and lease of assets. Of equal relevance is s 12 (2) (g) of the Act, which provides that a person controls a firm if that person has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f) of s 12 (2) of the Act.

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[7]

Before dealing with the current jurisprudence which has interpreted these sections, we must turn to a description of the agreement.

The agreement

[8]

The agreement concerns the licensing of certain rights in respect of television channels for a period of five years. The key components of the agreement are:

1.

An Entertainment channel, being on entertainment channel to be developed and produced by second respondent for first respondent in respect of which first respondent will have, subject to qualifications, exclusive distribution and marketing rights.

2.

A News channel, being a 24 hour news channel, to be developed and produced by second respondent for first respondent in respect of which first respondent will have, subject to qualifications, exclusive distribution and marketing rights.

3.

The SABC Digital FTA channels, that is the free to air channels which will in the future be transmitted by second respondent on its digital terrestrial television platform ('SABC DTT Platform') and in respect of which first respondent will have non-exclusive distribution marketing rights.

4.

The MultiChoice Digital FTA channel, that is a free to air entertainment channel, to be provided by first respondent to the second respondent for distribution in the future on the SABC DTT Platform and in respect of which the first respondent will have non-exclusive distribution and marketing rights.

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5.

The two key components which were the subject of the present dispute concerned the Entertainment channel and the FTA channels. It is therefore necessary to deal with these provisions in somewhat more detail.

The Entertainment channel

[10]

The agreement contemplates that the entertainment channel will be created from materials sourced in the archives of second respondent. First and second respondent shall meet (as soon as possible after the signing of the agreement) to discuss the scheduling and precise details of the content of the entertainment channel. Second respondent was required, pursuant to this meeting, to deliver to first respondent "a comprehensive presentation" which should provide "precise details" as to the content, programming schedule, name, broadcast hours and detailed costs of the channel. First respondent will "convey its content, programming and scheduling requirements" and raise any concerns that it might have with the proposal of second respondent. Thereafter, a detailed "content description schedule" will be incorporated into the agreement. In the event that the parties are unable to agree on this schedule, first respondent has the right to terminate the agreement. The content for this channel will be owned by second respondent as it will be sourced from its archives.

[11]

The agreement provides that first respondent will have exclusive rights to broadcast the entertainment channel in "the territory", which is defined as all of Africa, subject to clearances which second respondent is able to procure from countries other than South Africa. It is then required to inform first respondent which will be able to broadcast the channel in other parts of the continent, save for South Africa,

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where it is clear that there is such a clearance. In certain circumstances; second respondent is precluded from distributing or authorising anyone else to distribute the entertainment channel or any branded block or substantially similar channels. It may distribute the entertainment channel on its wholly owned services, on condition that there is, at all times, a specified delay of 60 days following the first broadcast of the channel on any system of first respondent, in which case it must be broadcast by second respondent in exactly the same format and according to the same schedule as broadcast by first respondent but subject to the delay clause.

[12]

First respondent has the right to monitor the performance of the entertainment channel and, if the performance falls below a certain specified benchmark, the fees paid by first respondent for the distribution of the entertainment channel will accordingly be reduced.

The FTA Channels

[13]

First respondent is to provide second respondent with a MultiChoice FTA channel, for the second respondent to distribute on its DTT Platform. First respondent will grant second respondent a non-exclusive license to receive, distribute and market this channel in South Africa during the term of the agreement. First respondent will be responsible for any costs of delivery of this channel; that it for any new transmission equipment. Second respondent grants to first respondent a non-exclusive right to distribute and market SABC FTA channels in South Africa (at present SABC 1, 2 and 3). The parties agree to discuss in 'good faith' the terms for first respondent to distribute these channels in the rest of Africa.

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[14]

In terms of clause 4.3.1 read with clause 2.1.6 of the agreement, second respondent undertakes not to transmit its FTA signals unencrypted, but in a way that would be receivable by first respondent's set top – boxes for the duration of the agreement. Clause 2.1.6 of the agreement provides:

'The Channel Signals for the SABC FTA channels as transmitted in South Africa would at all times be available to and receivable on the M-Net DTT Set-Top Boxes distributed in South Africa. The SABC agrees that the SABS FTA channels will not at any times be encrypted or allow any conditional access system to be applied in respect of the Channel Signals for the SABC FTA channels transmitted on the SABC DTT Platform in South Africa so that viewers are able to view the SABC FTA Channels without requiring anything other than the installation of an M-Net DTT Set-Top Box.'

[15]

In the event that second respondent...