Seven Network Limited v News Limited

REASONS FOR JUDGMENT 1 Proceedings NSD 1223 of 2002, known as Seven Network Limited & Anor v News Limited & Ors arise out of bids for television broadcast rights in respect of two codes of football, one administered by the Australian Football League and the other by the National Rugby League. There are numerous parties to the proceedings and needless to say, the litigation is complex. 2 On 11 February 2005 the main proceedings were listed for hearing before Justice Sackville commencing on Monday 18 July 2005. 3 On 31 March 2005 the seventh, eighth and twenty-first respondents ("the Nine Respondents") caused a subpoena to produce documents to be issued requiring the production of documents by The Proper Officer, Australian Competition and Consumer Commission ("the ACCC"). 4 It would appear that on 4 May 2005 the ACCC produced a number of documents to the Court (identified as documents Nos 13 - 42) and access was granted to such of those documents as were not marked "privileged". 5 In respect of part of document 14 in the ACCC List objection to production was made by the Applicants in the proceedings on the ground of privilege. Document 14 was identified as a "File note - telecon" made by S. Clancy of the ACCC and dated 12 December 2000. 6 The file note would appear to have been prepared by Sharon Clancy, Assistant Director, Mergers & Asset Sales in the ACCC on 13 December 2000, not 12 December. It purported to summarise what had been said during the course of a meeting at the Sydney office of the ACCC at 3.00 pm on Tuesday 12 December 2000. That part of the file note for which no privilege was claimed provided as follows: " FILE NOTE File number: C2000/1729 Matter: AFL broadcasting rights - complaint by the Seven Network about joint bid by News Ltd, the Nine Network, Telstra and the Ten Network Present: Peter Gammell, Director, Seven Network Ltd Harold Anderson, Head of Sport, Seven Network Ltd Robin Waters, Director, Australian Capital Equity Pty Ltd Sheila McGregor, Freehillls Michael Gray, Freehillls Ross Jones, Commissioner, ACCC Sharon Clancy, Asst. Director, Mergers & Asset Sales, ACCC Venue: ACCC Sydney office Date and time: 12 December 2000, 3.00 pm [Masked section of file note] Mr Jones said the Commission thought it unlikely the acquisition of the AFL broadcast rights would result in a substantial lessening of competition in the free to air ("FTA") television market. Mr Gray said rights holders would face difficulties in the future in respect of obtaining satisfactory prices for their rights should the field of potential bidders be reduced to a monopoly. Mr Gray commented one way of addressing this issue is to separate FTA and pay TV rights. Mr Jones commented the structure of the bidding process appeared to achieve this separation. Mr Gammell said should Seven not acquire the AFL broadcast rights, its pay TV sports channel, C7, will fail, thus resulting in rights holders being confronted with a monopoly buyer when premium sports rights next become available. Mr Gray said there is no possibility of C7 getting access to the Foxtel cable should a Foxtel consortium acquire the AFL rights. Mr Gray commented distribution of sports channels is a powerful factor taken into account by rights holders when selecting successful bidders. Mr Gray advised Seven is engaged in legal arguments with the AFL in respect of the contractual first and last rights agreements. The AFL has made a first offer to Seven for the FTA rights but Seven considers this offer does not comply with its contractual agreement with the AFL and has not accepted the offer on this basis. Mr Gammell said Seven has paid, on average, $24 million per year for the AFL FTA rights since 1997. The offer made by the AFL for the FTA rights for the 2002-2006 seasons averaged $85 million per year. Seven has advised the AFL it would be prepared to pay an amount substantially above the put value of the rights, but it will not pay the amount offered by the AFL. Mr Gray said the AFL is of the view the first offer expires tomorrow. Seven does not know what will happen tomorrow in respect of the bidding process. Mr Jones advised the issue of the first and last rights dispute is a contractual matter rather than a competition issue. Mr Jones advised the issue of the first and last rights dispute is a contractual matter rather than a competition issue. Mr Jones said the Commission had focused its analysis on the downstream pay TV market. He raised the possibility the AFL may require the successful bidder to make the rights available to all pay TV operators. Mr Gammell commented a requirement of this nature would encourage Optus to 'blow-up' its contract with Seven for the supply of the C7 channel and this would have the effect of putting C7 out of business. Mr Gemmell advised he has spoken with Mr Chris Anderson, CEO of Optus, and Mr Anderson would not confirm whether Optus would keep C7 in its channel line-up. Mr Jones said Seven appears to want the ACCC to intervene in a competitive bidding process to ensure Seven is the only bidder for the AFL rights. Mr Gray said the bidding process for the AFL rights represents a single transaction, not a market. Mr Jones hypothesised a market for the acquisition of premium sports involving the competing bidders for the AFL rights. In respect of the analysis of this market, it is critical to reach a view on the likely entry of new bidders to the market, when the rights next become available. Mr Jones said it is not unreasonable to assume in five years time, a larger number of bidders will compete to acquire the AFL rights. Mr Gray said the market for the acquisition of premium sports is presently not a monopoly as two bidders are active in this market. Mr Gray wondered who may be interested in entering this market. Mr Gammell said the number of entrants into this hypothetical market is limited due to the non-compete arrangements between News Ltd, Telstra and Nine Network. Mr Gammell considers the Foxtel partnership to be anti-competitive. Mr Jones advised the ACCC cannot initiate court action to intervene in a competitive bidding process particularly when the AFL is of the view there is going to be a greater number of bidders when the rights next become available. Mr Gray suggested a market for the acquisition of premium sports programming. Mr Gammell advised access to premium sports and access to a platform is necessary to create a sports channel. Mr Jones asked whether Seven had any concerns should News Ltd acquire the AFL rights. Mr Gray said an acquisition by News Ltd would have competitive implications downstream as it supplied the rights to Foxtel and Foxsports, particularly as News Limited already owns the NRL and ARU rights. Mr Gray commented significant infrastructure is required to broadcast AFL matches including broadcast facilities, technical staff and talent. Additionally, access to a platform is critical. Mr Gammell agreed barriers to entry are high. He said channel providers generally supply pay TV operators at a price calculated per subscriber. Mr Jones said it would appear Seven is arguing a "tipping effect", whereby one party would become large enough such that it could acquire all content and essentially become a monopoly. Ms McGregor asked if the ACCC had spoken with other rights holders? Mr Jones said the ACCC has examined the European experience in respect of B Sky B and the premium soccer rights. Mr Gammell said Seven charges Optus a lower price for its C7 channel relative to the Foxsports channels because C7 has rights to one premium sport, while Foxsports has rights to both the NRL and the ARU. He said while Optus faces incentives to carry C7, it faces greater incentives not to carry C7. Mr Gray said should a market for the supply of premium sports channels be assumed, it must be ensured consumers have a choice of sports channels. Ms McGregor commented should a monopoly buyer of premium sports rights emerge, rights holders will receive less while consumers will pay more. Mr Jones advised the Commission would like to be convinced that blocking a Foxtel consortium from acquiring the AFL rights would be pro-competitive. He commented it would make commercial sense for Foxtel related parties to acquire the AFL rights given Foxtel's penetration in the Melbourne area. Mr Gray referred to today's press release from the Department of Communications, Information Technology and the Arts in which the Federal Government has announced it has sought public assurances on FTA AFL and NRL broadcasts. Mr Jones advised the Commission is moving towards a view it should not intervene in the competitive bidding process for the AFL rights. The meeting concluded at 4.30 pm. Sharon Clancy 13 December 2000" 7 The edited copy of the file note for which no claim of privilege was made also reproduced the business card of Mr. Robin Waters, a Director of Australian Capital Equity Pty Limited. 8 That part of the file note to the production of which objection has been taken comprises the first paragraph thereof comprising, so it would seem, less than ten lines. 9 For convenience the whole of the unedited version of the document has been left with the Court and placed in a packet marked as Packet 120. 10 By a notice of motion filed 27 May 2005 the First, Second, Fourth, Ninth, Thirteenth, Fifteenth, Nineteenth and Twentieth Respondents ("the News Respondents") have applied for the following orders:- "1. The First, Second, Fourth, Ninth, Thirteenth, Fifteenth, Nineteenth and Twentieth Respondents be permitted to inspect and make a copy of the file note dated 12 December 2000 produced by the ACCC to the Court on 23 May 2005 in response to a subpoena issued by the Court on 31 March 2005 and marked by the Registry as Packet 120. 2. Costs" 11 On the hearing of the motion Mr N C Hutley SC appeared with Mr C Mantziaris for the News Respondents and Mr S J Gageler SC appeared with Mr S M Nixon for the Applicants. 12 The News Respondents indicated that they did not object to the Court inspecting the document marked by the registry as Packet 120 for the purpose of this application, without the necessity of it being tendered and I have, at the request of the Applicants in the proceedings ("Seven"), done so. 13 In an affidavit sworn 17 May 2005 Michael John Gray, a Partner at Freehills, the solicitors for Seven, who participated in the conference at the offices of the ACCC on 12 December 2000 deposed that that part of the file note of 13 December 2000 to the production of which objection had been taken, purported "to summarise legal advice of counsel given to Seven in respect of the bidding process for the AFL broadcast rights". 14 Mr Gray said in his affidavit:- "5. In late 2000, Freehills received instructions from Seven to raise with the ACCC concerns Seven had about the bidding for the AFL broadcast rights for the period from 2002 onwards. … 6. I do not now recall whether I (or anyone else present) said at the 12 December 2000 meeting that the information being provided by Seven to the ACCC was confidential. However, it was my knowledge and belief in late 2000 … based on previous dealings … that the general practice of the ACCC in dealing with confidential and other commercially sensitive information provided to it was to treat such information confidentially, even if it was not expressly stated to be confidential. …" 15 In an affidavit sworn 20 June 2005 Ross Jones, who in December 2000 had been a Commissioner of the ACCC and a participant in the 12 December 2000 meeting, deposed:- "5. I remember attending the meeting recorded in the file note and I generally recall the nature of the matters discussed. 6. The masked portion of that document records a statement by Michael Gray (a Freehills partner) summarising legal advice of counsel which he said was given to Seven in respect of the bidding process for the AFL broadcast rights ("the Gray Statement"). … 7. At the time it was made, I considered that the information conveyed by the Gray Statement was confidential in that it should not be disclosed to persons outside the ACCC. I do not recall Michael Gray making any specific request that the information be kept confidential. … 8. As an ACCC Commissioner, from time to time people would inform me of legal advice they had obtained. When I received such information, I considered it to be appropriate for the ACCC to keep such information confidential even in the absence of an express request to do so. 9. The ACCC's practice in relation to such disclosures of legal advice was to keep the information confidential. …" 16 Volume 26 of the ACCC Journal of April 2000 included the following:- "Preserving the confidentiality of information provided to the ACCC The Commission relies heavily on information provided by those who know of conduct that may contravene the Trade Practices Act. … In most cases the person providing the information may want it to remain confidential, either fearing repercussions or because it may reveal sensitive details relating to the provider's own commercial activities. The Commission has a long-standing policy of not disclosing sensitive information provided in confidence, except with the permission of the provider or where required to do so by law. … While the Commission will do all it can to preserve the confidentiality of sensitive commercial information, third parties can still seek access to such information against the wishes of the provider through several avenues, including Freedom of Information. … Information can … be sought … by subpoena or discovery. While the Commissioner's ability to resist the production of documents in these cases is more limited, courts can take steps to preserve, as far as possible, the confidentiality of such information. The Commission will continue to seek to preserve the confidentiality of such information when the provider requests it. …" 17 In an October 2000 publication entitled "Collection and use of information" and described as "A guide to the Australian Competition and Consumer Commission's policies on collecting and using information in the course of its regulatory and enforcement activities" a "Summary" included the following:- "Summary Receiving information is crucial to the Australian Competition and Consumer Commission's ability to carry out its enforcement and regulatory functions. Most of the information received by the Commission is provided voluntarily. … The Commission conducts itself transparently to facilitate and promote open scrutiny of its actions, decisions and reasons - while balancing the need for disclosure with respect for the confidentiality of information …" 18 At page 15 of the same guide the following appears under the heading "Use of information": "Use of information The Commission recognises that it is critical to maintain the confidence of voluntary information providers in the way that information is obtained and handled. The Commission and its staff are subject to a number of limitations on use of collected information. · The Commission cannot disclose or use information other than for the performance of its statutory duties · Where information provided under a statutory power is confidential, the Commission must comply with any specific statutory restrictions on disclosure. In any event it has a broad duty to consider whether to consult with the provider of that information before deciding to disclose it However, as a general rule the Commission takes the view that if it has legitimately obtained information for one purpose and that material discloses information relevant to another of its statutory functions, it is under no general duty to disregard the information in the context of that other function. Given that it could lead to inappropriate results if the Commission were to ignore relevant information in its possession, it will generally consider itself free to use that information for its other functions or in other contexts. …" 19 On the hearing of the motion Seven acknowledged that on 12 December 2000 it participated in the meeting at the Sydney office of the ACCC with a view to advancing its own commercial interests. It is not suggested that it was acting altruistically in the public interest and it does not seek to argue that some new category of privilege should be recognised protecting communications by "whistle blowers" providing information to bodies such as the ACCC. 20 I was taken to a number of documents demonstrating Seven's commercial objective in respect of its bid for broadcast rights in relation to the Australian Football League. An email dated Sunday 12 November 2000 refers to Terry Cassells, an officer of the ACCC, known as Director, Broadcasting, having received a telephone call from Chris North who was "acting for Seven/Stokes". Mr North would appear to have made a number of points including "Seven has got Freehills' burning the midnight oil on a submission to the ACCC". 21 Later in the same email the following appears:- "Chris summarised by saying it was a collusive bid (referring to a 'Nine/Foxtel bid' which 'also includes Telstra') with the purpose of the partners becoming dominant players in their respective markets." 22 In a letter dated 22 November 2000 from Mr Gray of Freehills to Mr Cassells at the ACCC he said, inter alia:- "In our view, therefore, the actions of the consortium involved the very misuse of market power which your 1998 media release indicates you were concerned about, and which is contrary to section 46 of the Trade Practices Act 1974 (Cth). … It is … significant that the consortium consists of the very group of companies who are currently denying the Seven Network's pay channel, C7, access to the Foxtel carriage services, in spite of the recent Federal Court decisions in favour of Seven in this regard. We therefore urge the Commission to make the necessary enquiries and take appropriate steps to ensure this misuse of market power is not permitted." 23 On 24 November 2000 Mr Gray of Freehills submitted a very detailed submission on the "multimedia/communications market and the effects of the PBL/News/Telstra consortium's conduct in that market" to the ACCC for its consideration together with a separate paper on the "Premium Sports/Pay Television" market. 24 On 1 December 2000 Mr Gray of Freehills wrote a letter to Mr Cassells at the ACCC in which he said, inter alia:- "We therefore submit that the ACCC should take urgent action to prevent the Fox Sport/Foxtel interests from bidding to acquire the Pay TV rights to the AFL." 25 A strategy document dated 4 December 2000 which would appear to have emanated from Seven entitled "Decision Tree" included a series of options headed "Full blooded strike", "Threatening stance to the end", "Threatening stance with premature withdrawal", "Premature withdrawal" and "Expiry of Last Offer". 26 Under "Full blooded strike" the following, inter alia, appeared:- "Alternatively, get ACCC involved in action to prevent sale to Foxtel of AFL rights." 27 Under the heading "Threatening stance to the end" the following, inter alia appeared:- "Never get as far as going to Court but leave AFL in no doubt that it is within our contemplation starting with sending letter on defects to preserve rights. Our history will help here and their fear must be that it could be tied up by lawyers for ages. At the same time encourage the ACCC to make their presence felt asking questions etc…." 28 Another strategy document dated 7 December 2000 entitled "AFL Current Status" included, inter alia:- " · Keep ACCC stirred up" 29 This document referred to "another meeting with ACCC early next week" which presumably ended up being the 12 December 2000 meeting. 30 In my opinion it could not be concluded that when, at the meeting on 12 December 2000, Mr Gray revealed the contents of legal advice of counsel, given to Seven in respect of the bidding process for the AFL broadcast rights, to the ACCC, the ACCC was under any express or implied obligation to treat that disclosure confidentially. It certainly could not be found that Seven sought any undertaking as to confidentiality nor, indeed, did the Commission proffer one. 31 As the abovementioned ACCC publications make clear, information provided to it can be sought by third parties by, inter alia, "subpoena or discovery". Furthermore, the ACCC considered itself free to use information in its possession "for its other functions and in other contexts".