Seven Network Limited v News Limited

Seven Network Limited v News Limited - [2007] FCA 1062 - FCA 2007 case summary — Zoe

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MEGA-LITIGATION 2 The case is an example of what is best described as 'mega-litigation'. By that expression, I mean civil litigation, usually involving multiple and separately represented parties, that consumes many months of court time and generates vast quantities of documentation in paper or electronic form. An invariable characteristic of mega-litigation is that it imposes a very large burden, not only on the parties, but on the court system and, through that system, the community. 3 Before briefly explaining the issues in the case and the outcome, I wish to record some of the features of this particular example of mega-litigation. 4 The trial lasted for 120 hearing days and took place in an electronic courtroom. Electronic trials have many advantages, but reducing the amount of documentation produced or relied on by the parties is not one of them. The outcome of the processes of discovery and production of documents in this case was an electronic database containing 85,653 documents, comprising 589,392 pages. Ultimately, 12,849 'documents', comprising 115,586 pages, were admitted into evidence. The Exhibit List would have been very much longer had I not rejected the tender of substantial categories of documents that the parties, particularly Seven, wished to have in evidence. 5 Quite apart from the evidence, the volume of written submissions filed by the parties was truly astonishing. Seven produced 1,556 pages of written Closing Submissions in Chief and 812 pages of Reply Submissions (not counting confidential portions of certain chapters and one electronic attachment containing spreadsheets which apparently runs for 8,900 or so pages). The Respondents managed to generate some 2,594 pages of written Closing Submissions between them. The parties' Closing Submissions were supplemented by yet further outlines, notes and summaries. 6 In addition, the pleadings amounted to 1,028 pages. The statements of lay witnesses that were admitted into evidence run to 1,613 pages. The expert reports in evidence totalled 2,041 pages of text, plus many hundred pages of appendices, calculations and the like. The transcript of the trial is 9,530 pages in length. 7 I have not been idle these past nine months.

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• Secondly, at a teleconference held on 13 December 2000, a 'consortium', including representatives of News, Foxtel, PBL and Telstra, made an arrangement, referred to in the case as the 'Master Agreement'. The Master Agreement was intended to facilitate Foxtel's acquisition of the AFL pay television rights for the 2000 to 2006 seasons. The Master Agreement provided that News would bid for and acquire the AFL broadcasting rights and then sub-license the pay television rights to Foxtel and the AFL free-to-air rights to Nine and Ten, on previously agreed terms. These terms required Foxtel to pay $30 million per annum, plus adjustments, for the AFL pay television rights, in circumstances where, according to Seven, the Foxtel partners were aware that Foxtel was overpaying for the rights and that the acquisition would result in a loss to it over the five year term of the sub-licensing agreement. The Master Agreement also contemplated that Fox Sports (jointly owned by News and PBL) would acquire the pay television rights to National Rugby League ('NRL') matches for the 2001 to 2006 seasons from the NRL Partnership. 16 Seven says that, pursuant to the Master Agreement, News and Fox Sports successfully bid for the AFL broadcasting rights and the NRL pay television rights, respectively, and that all the parties to the Master Agreement subsequently entered into the various licensing and other transactions contemplated by the Master Agreement. 17 Seven argues that the purpose and effect of the Master Agreement was to deprive C7 of the rights to the two so-called 'marquee sports' which were essential to C7's continued existence as a sports channel. In consequence of C7's loss of the AFL pay television rights, the two major pay television platforms with which C7 had contracts (Optus and Austar) terminated or failed to renew the contracts. Bereft of both the AFL pay television rights and the NRL pay television rights, C7 could not continue as a viable sports channel and was effectively doomed.

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GENERAL OBSERVATIONS 25 Before summarising the conclusions I have reached on Seven's case and Optus' Cross-Claim, it is appropriate to make some general observations. These comments are designed to assist in placing this very lengthy and complex case in context. 26 First, it was part of Seven's strategy for a long period of time to claim that a bid (directly or indirectly) by Foxtel for the AFL pay television rights would constitute unlawful anti-competitive conduct. Moreover, Seven was seriously contemplating litigation against the parties to the Master Agreement (the 'Consortium Respondents'), in respect of the loss or possible loss of the AFL pay television rights, well before the AFL actually awarded the 2002 to 2006 rights in December 2000. 27 If a party embarks on a strategy of the kind adopted by Seven in this case, yet continues to deal with those whom it accuses of anti-competitive conduct, its own conduct may well be influenced and its perceptions coloured by the very strategy it is following. The risk of that happening is increased if the strategy includes instituting litigation, because there must be a strong temptation to act in a manner that is calculated to improve the chances of success in the forensic battle to come. 28 In my view, Seven's case has been affected by these factors. As my findings indicate, certain of Seven's witnesses frequently reconstructed events in a manner that not merely reflected Seven's interests, but could not withstand critical examination. In particular, the accounts of a number of those witnesses could not be reconciled, in important respects, with the contemporaneous documentation, including the minutes of Seven's own board meetings. 29 Secondly, the gist of Seven's complaint in this case concerns anti-competitive conduct. It is not essential that a party which invokes the Trade Practices Act to attack the allegedly anti-competitive practices of its rivals should itself be a paragon of competitive virtue. Yet it is striking that Seven's strategy in 1999 and 2000 for obtaining the AFL broadcasting rights for 2002 to 2006 hinged on avoiding a competitive bidding process for the rights. 30 Seven used a variety of techniques, including seeking the intervention of the competition regulator, to discourage Foxtel from bidding (whether through News or otherwise) for the AFL pay television rights. Seven's intention was to position itself as the only potential buyer of the broadcasting rights. 31 Mr Sumption QC, in his closing submissions on behalf of Seven, accepted that the logic of Seven's position in the case was that, once News and Foxtel realised that Fox Sports (of which News is a part owner) had a real chance of acquiring the NRL pay television rights, neither News nor Foxtel could lawfully bid for the AFL pay television rights. Mr Sumption did not concede that, from a policy perspective, there was anything odd about this result. 32 Even so, it seems to me curious that competition law should have the effect, in the particular circumstances of this case, of conferring upon one potential buyer the opportunity to acquire valuable rights without any opposition from an otherwise willing competitor wishing to bid for the same rights. That was the very basis on which the ACCC declined to intervene in the competitive bidding process for the AFL broadcasting rights. 33 Thirdly, Seven has consistently maintained that securing the AFL pay television rights was essential to C7's commercial survival after 2001. Yet the evidence clearly establishes that Seven failed to make its best offer for the rights when they became available. In essence, Seven was the author of its own misfortune. 34 This finding is not determinative of Seven's case on liability. But the finding demonstrates that Seven was far from a helpless victim in the face of the allegedly anti-competitive conduct of which it complains. 35 Fourthly, an important element in Seven's case is that the Consortium Respondents endorsed a bid for the AFL pay television rights by Foxtel (through News), believing that the price offered was substantially more than the rights were worth and that the acquisition would prove to be loss-producing for Foxtel. It is yet another extraordinary feature of this case that Mr Stokes conceded in cross-examination that he regarded the price paid by the Foxtel Partnership for the AFL television rights as a 'good' deal for a purchaser. This concession makes it very difficult for Seven to establish the factual foundation for its 'overbidding' contention. 36 Fifthly, there is more than a hint of hypocrisy in certain of Seven's contentions. I particularly have in mind Seven's claim that Mr Philip divulged confidential information in relation to Seven's bid for the NRL pay television rights and that certain Respondents received the information knowing that it had been obtained in circumstances which breach confidentiality. 37 I find that Seven 'leaked' to the media details of its bid, thus destroying any confidentiality in the information. This finding makes it surprising, to say the least, that the claim was brought in the first place. Another example of what I have in mind is Seven's complaint that C7 suffered losses by being denied retail access via the Telstra Cable when (as I find) it never had any serious intention that C7 should be a retailer of pay television services. 38 By pointing to these matters I do not intend to imply that the behaviour of all the Respondents was exemplary. The Chief General Counsel of News, Mr Philip, for example, on his own account dishonestly attempted to mislead Telstra into contributing additional support to Fox Sports' bid for the NRL pay television rights. The evidence also shows that News was content to withhold important information from Telstra, in effect its partner in the Foxtel Partnership, and did so over a considerable period of time. 39 At the conclusion of the hearing, I asked whether Mr Philip was still employed by News and was told that he was. If, in the meantime, News has taken no action against Mr Philip in respect of his admitted dishonesty, it would reflect very seriously indeed on News' standards of commercial morality. 40 In the end, however, it is Seven that must prove its pleaded case against the Respondents.

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7.3 Purpose Case 44 In Chapter 14, I conclude that Seven's case based on the anti-competitive purpose of the various provisions, including the Master Agreement Provision, cannot succeed. The reason is that even if each of the Consortium Respondents had the objective attributed to it by Seven - that of killing C7 - achieving that objective could not have substantially lessened competition in the retail television market. By reason of Optus' parlous state, any lessening of competition in that market would have occurred quite independently of the fate of C7. 45 Although strictly not necessary to do so, I consider in Chapter 14 certain questions of construction relating to s 45(2)(a)(ii) and (b)(ii) of the Trade Practices Act. I interpret these provisions to require all parties responsible for the impugned provision in the contract, arrangement or understanding to have the subjective purpose of lessening competition, if a contravention of s 45(2) is to be established. I find that Telstra was responsible, together with the other Consortium Respondents, for including the Master Agreement Provision in the Master Agreement (that is, the provision requiring or contemplating that bids would be made both for the AFL and NRL pay television rights). But I also find that Telstra did not have the purpose proscribed by s 45(2), even if it is assumed that the other Consortium Respondents did have such a purpose. Thus Seven's purpose case under s 45(2) in relation to the Master Agreement Provision must fail. 46 Seven's case in relation to the other provisions on which it relies (with one exception) similarly fails, because Seven cannot show that all parties responsible for including the provision in the contract, arrangement or understanding shared the purpose proscribed by s 45(2) of the Trade Practices Act. The exception is the so-called News-Foxtel Licence, whereby News licensed the AFL pay television rights to Foxtel, which is not affected by this particular analysis, although I reject Seven's claim based on the News-Foxtel Licence for other reasons. 47 In view of these conclusions, it is not necessary, in order to deal with Seven's purpose case under s 45(2) of the Trade Practices Act, to make factual findings about the purpose of News, Foxtel and PBL. Nonetheless, I deal with this issue in Chapter 15. 48 I find in Chapter 15 that Seven has not made out that any of News, Foxtel (that is, Sky Cable and Telstra Media in partnership) or PBL had the objective of destroying C7 and thereby substantially lessening competition. Seven has not demonstrated that any of those parties crossed the boundary that distinguishes legitimate, albeit aggressive and even ruthless, competitive conduct from anti-competitive behaviour of the kind prohibited by ss 45(2) and 46(1) of the Trade Practices Act.

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Judgment (28 paragraphs)

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Legislation Cited (2)