Sky and Virgin case could set a precedent

Published on Monday 23 April 2007 00:55

BSKYB and Virgin Media (formerly ntl: Telewest) are probably the leading names associated with pay TV channels in the UK - Sky's customer base extends to 70 per cent of all pay TV subscribers in the UK.

Sky not only provides the ability to view, but also owns various channels. Other carriers, such as Virgin, make payments to Sky for the right to show Sky channels. Virgin also owns the rights to various channels and Sky pays Virgin for the right to show these channels.

Given that this system only works with co-operation between two parties competing for the same market, it is perhaps to be expected that there is tension.

Virgin alleges that Sky forced a reduction of around 85 per cent in fees payable in respect of Sky subscribers viewing Virgin channels. This incident appears to have happened in January. Matters then came to a head in February when Sky demanded an enhanced fee from Virgin Media to allow it to carry Sky channels. Virgin claims this fee was double the previous rate and some 17 times what Sky was prepared to pay for Virgin channels. Sky apparently denies it is being unreasonable and has been quoted as accusing Virgin of breaking off negotiations.

Talks eventually broke down and Sky channels are not currently being shown on Virgin.

On 12 April, Virgin raised English High Court proceedings against Sky. Its claim is apparently not based on any contract or agreement with Sky, but rather that Sky is in breach of the Competition Act 1998. The Act applies across the UK and implements a European treaty on competition law. Virgin appears to be basing its claim on section 18 of the act which prohibits firms abusing a "dominant market position".

In order to be successful, Virgin will need to show Sky has a dominant position in the pay TV market. If Sky has more than 70 per cent market share then this may not be difficult. But there is no rule against dominating the market, so Virgin will then have to show Sky is abusing its position, affecting UK trade. Steve Burch, the Virgin Media chief executive, issued a statement, from which it appears that Virgin will be rely on Sky's alleged actions: of forcing a reduction in fees coming to Virgin, and forcing an increase in fees coming to Sky.

The High Court will be applying what the Competition Act has to say about abuse in this context. Has Sky been using its dominant position to stifle competition?

To subscribers currently not able to watch favourite channels, the impasse will be very frustrating. To a litigator, however, the dispute is very interesting.

There is relatively little decided authority on this point of law. If Virgin is successful, there may be consequences in sectors of the economy where one supplier dominates the market. It is difficult to predict the outcome, but the decision will be keenly anticipated by any business that finds itself caught up in the rigours of competition law.

• Eric Baijal is a commercial dispute resolution solicitor with Miller Hendry.