Seven Network Limited v News Limited

SUMMARY In accordance with the practice of the Federal Court in some cases of public interest, the following Summary has been prepared to accompany the reasons for judgment delivered today. The Summary is intended to assist understanding of the decision of the Court. It is not a complete statement of the conclusions reached by the Court or the reasons for those conclusions. The only authoritative statement of the Court's reasons is that contained in the published reasons for judgment. The published reasons for judgment and this Summary will be available on the Internet at www.fedcourt.gov.au. Seven Network Limited v News Limited [2007] FCA 1062 SACKVILLE J

THE DISPUTE 1 The heart of the dispute in this case is the complaint by 'Seven' (as I call the Applicants) that in May 2002 it was forced to shut down the business of C7 Pty Ltd ('C7'), a producer and distributor of sports channels for Australian pay television platforms. Seven says that the closure of C7's business was forced on it because some of the Respondents, notably the News, PBL and Telstra parties and their associated corporations, engaged in anti-competitive conduct in contravention of ss 45 and 46 of the Trade Practices Act 1974 (Cth) ('Trade Practices Act'), during the period from 1999 to 2001.

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.

COSTS 8 It is not surprising that a case that generates this volume of material also generates very large costs. What is surprising is the sheer amount of money that has been devoted to a single case. My estimate is that the parties have spent in the order of $200 million on legal costs in connection with these proceedings. 9 When the case was opened, Mr Sheahan SC, on behalf of Seven, suggested that it would be claiming more than $1.1 billion in damages. By the time final submissions were made, Seven's damages claim, at best, had been reduced to an amount between $194.8 and $212.3 million. This amount was to be 'grossed up' by a factor of 1.429 to account for income tax. Pre-judgment interest was also to be added. Bearing in mind that (as the parties agree) tax has to be paid on any damages award, the maximum amount at stake in this litigation has not been very much more than the total legal costs incurred to date. 10 It is difficult to understand how the costs incurred by the parties can be said to be proportionate to what is truly at stake, measured in financial terms. In my view, the expenditure of $200 million (and counting) on a single piece of litigation is not only extraordinarily wasteful, but borders on the scandalous.

THE JUDGMENT 11 Mega-litigation, if it proceeds to finality, often generates very long judgments. Regrettably, this is a prime example. The judgment is divided into 21 substantive Chapters and a short final Chapter. It is about 1120 pages in length. 12 The first 11 Chapters explain the litigation and set out the facts in great detail. The final ten substantive Chapters contain my reasoning on the many causes of action on which Seven relies. Because of the complexity of the issues and the length of the judgment, this summary can be no more than a bare outline of the parties' contentions and my conclusions. 13 The abbreviations used in this Summary correspond to those used in the judgment.

SEVEN'S CASE 14 Seven commenced the proceedings on 19 November 2002. It originally sought damages, declarations, injunctions and other relief against a total of 19 respondents. Since then proceedings have been discontinued against two of the respondents (the Australian Football League Ltd ('AFL') and Network Ten Pty Ltd) and three other respondents have been added.

5.1 Alleged Anti-Competitive Conduct 15 The two major instances of anti-competitive conduct which Seven says caused or contributed to the demise of C7 are these: • First, from mid-1999 until December 2000 when the AFL awarded the AFL pay television rights for 2002 to 2006 to News, the Foxtel Partnership (the partners in which are effectively News, PBL and Telstra) refused to negotiate with C7 for the carriage of its sporting channels on the Foxtel retail pay television platform. Foxtel refused, so Seven argues, even though the C7 channels contained attractive programming (such as AFL matches which were not otherwise available to Foxtel subscribers) and even though Telstra, one of the partners, considered that C7's proposals, if accepted, would be highly beneficial to Foxtel's business. Seven says that the conduct of Foxtel, which was largely dictated by News with the support of PBL, was designed to harm C7 and favour the interests of Fox Sports, C7's competitor in the market for the supply of sports channels to retail pay television platforms. Indeed, Seven says that News and PBL had the explicit purpose of 'killing C7' and that Telstra, ultimately at least, acquiesced in that purpose.

• 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.

5.2 Market Definition 18 In a case like this, market definition plays an important part, since the Court cannot decide whether there has been, or is likely to be, a substantial lessening of competition unless and until it establishes the nature and scope of the relevant markets. Seven's case is that the Master Agreement (and certain other agreements) contained provisions that had the purpose or effect of substantially lessening competition in each of four markets: • the wholesale sports channel market (being a market for the wholesale acquisition and supply of channels containing sports programming, for supply to pay television platforms);

• the AFL pay rights market (being a market for the acquisition and supply of the rights to broadcast AFL matches on pay television);

• the NRL pay rights market (being a market for the acquisition and supply of the rights to broadcast NRL matches on pay television); and

• the retail pay television market (being a market for the supply of pay television services to retail subscribers). 19 Of these markets, Seven relies most heavily on the wholesale sports channel market to support its case based on the Master Agreement.

5.3 Taking Advantage of Market Power 20 Seven claims that, during the period from November 1998 to December 2000, Foxtel had a substantial degree of power in the retail pay television market. According to Seven, Foxtel took advantage of that power in a number of ways, including: • refusing to accept attractive offers made by C7 for the supply of its channels to the Foxtel Service; and • agreeing to pay $30 million per annum (plus adjustments) for the AFL pay television rights for the 2002-2006 seasons, an amount which Foxtel knew was more than the rights were truly worth and which was likely to be loss-producing over the term of the agreement.

5.4 Foxtel-Optus CSA 21 Seven also mounts a case based on anti-competitive conduct which is said to have taken place after the award of the AFL broadcasting rights and the NRL pay television rights in December 2000. This case rests primarily on the purpose and effect of the so-called Foxtel-Optus CSA which was entered into on 5 March 2002 between Foxtel and Optus. The effect of this agreement was that Foxtel and Optus agreed to share content on their retail pay television platforms. This content sharing agreement is said by Seven to have had the effect of substantially lessening competition in the retail pay television market, since Foxtel and Optus no longer competed with each other on content or price.

5.5 Other Causes of Action 22 Seven relies on various causes of action, quite independent of its claims based on anti-competitive conduct, arising out of the process by which the NRL Partnership awarded the NRL pay television rights to Fox Sports in December 2000. These causes of action include disclosure of confidential information in breach of a duty of confidence and misleading or deceptive conduct. 23 In addition, Seven makes a number of claims against Optus arising out of what has been described as the 'Exclusivity Clause' which was included in an agreement known as the C7-Optus CSA, by which C7 supplied sports content to Optus. Seven says that Optus breached the Exclusivity Clause by negotiating with Fox Sports and that Optus also engaged in misleading or deceptive conduct. Optus has filed a Cross-Claim in which it says that Seven acted in a misleading and deceptive fashion when negotiating the Exclusivity Clause and is therefore precluded from relying upon it in these proceedings. 24 There are other causes of action relied upon by Seven, but it is not necessary to mention them in this Summary.

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.

7.1 Markets 41 As I have noted, Seven's primary case as to the substantial lessening of competition relates to the wholesale sports channel market. In Chapter 12 of the judgment, I find that Seven has failed to establish the existence of that market. I also find that Seven has not established the existence of either the AFL pay rights market or the NRL pay rights market. However, I conclude that Seven has made out that there was, at the relevant time, a retail pay television market in the terms pleaded by it. 42 It follows from these findings that Seven can only succeed in its anti-competitive conduct case under s 45(2) of the Trade Practices Act, if the provisions on which it relies had the effect or likely effect of substantially lessening competition in the retail pay television market.

7.2 Effects Case 43 In Chapter 13, I find that the Master Agreement Provision and the other provisions relied on by Seven did not have the effect or likely effect at the relevant times of substantially lessening competition in that market. By December 2000 (when the Master Agreement was entered into) and January 2001 (when the parties gave effect to the Master Agreement Provision), Optus' pay television operations had been experiencing very substantial losses over a period of several years. The strong likelihood in December 2000 and January 2001 was that, if the Master Agreement had not been entered into or implemented, Optus would have negotiated a content sharing agreement with Foxtel along the lines of the so-called Foxtel-Optus CSA (which was in fact executed on 5 March 2002). Thus, in the absence of the Master Agreement Provision, Optus would not have been a significant constraint on Foxtel in the retail pay television market.

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.

7.4 Taking Advantage of Market Power 49 In Chapter 16, I conclude that Foxtel did not take advantage of its power in the retail pay television market in any of the ways alleged by Seven. In particular, I find that • Seven has not made out its pleaded case in relation to Foxtel's refusal to accept so-called 'offers' by Seven to supply its channels; and • Foxtel, by refusing to negotiate with C7 pending the award of the AFL broadcasting rights, did not take advantage of its market power.

7.5 Access to the Telstra Cable 50 In Chapter 17, I reject Seven's case based on the conduct of Foxtel and Telstra Multimedia in denying C7 access to the Telstra Cable for the purpose of establishing C7's own retail pay television platform. I find that the requests made by C7 for retail access via the Telstra Cable were intended to place pressure on Foxtel in relation to other issues. Seven never intended that C7 should take advantage of access to the Telstra Cable for this purpose, should such access have become available. I conclude that, although Foxtel and Telstra Multimedia gave effect to a provision in the so-called Broadband Cooperation Agreement that conferred on Foxtel exclusive access to the Telstra Cable, that provision did not have the effect or likely effect of substantially lessening the competition in the retail pay television market.

7.6 Foxtel-Optus CSA 51 In Chapter 18, I find that the provisions of the Foxtel-Optus CSA (by which Foxtel and Optus agreed to share content) did not have the effect or likely effect of substantially lessening competition in the retail pay television market. I reach this conclusion because, assuming that Foxtel and Optus had never entered the Foxtel-Optus CSA, Optus would have adopted what was described in evidence as the 'Manage for Cash' strategy. This strategy would have led to the closure of Optus' pay television operations within three to four years. In the meantime, Optus would not have been a significant competitive constraint on Foxtel.

7.7 Breach of Confidentiality 52 In Chapter 19, I conclude that Seven's cause of action founded on breach of confidentiality fails. I find that, although Mr Philip (contrary to his evidence) deliberately disclosed certain information relating to Seven's bid for the NRL pay television rights, the information lacked the quality of confidentiality because Seven had already publicly disclosed it. I also reject Seven's contentions on the other causes of action upon which it relies in relation to the award of the NRL pay television rights.

7.8 Claims Between Seven and Optus 53 In Chapter 20, I reject Seven's claims that Optus engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act. However, I find that Seven itself engaged in deceptive and misleading conduct in the lead-up to Optus executing an agreement which resulted in the Exclusivity Clause being inserted into the C7-Optus CSA. Seven therefore cannot rely on any breach by Optus of the Exclusivity Clause. I conclude that, apart from orders setting aside the Exclusivity Clause, Optus is not entitled to any further relief against Seven.

7.9 Other Claims 54 In Chapter 21 I conclude that Seven has not made out any of its additional causes of action based on alleged contraventions of the anti-siphoning regime in the Broadcasting Services Act 1992 (Cth), and of ss 45(2) and 45D of the Trade Practices Act.

8. PROPOSED ORDERS 55 The result is that I propose in due course to make orders dismissing Seven's claims for relief. Optus will be directed to bring in Short Minutes of any order it says should be made on its Cross-Claim. 56 I intend to defer making final orders until the parties have the opportunity to make submissions on costs. While I intend to dismiss Seven's application, I nonetheless propose to give the parties the opportunity to make further brief written submissions on what issues relating to relief, if any, they say that I should address before entering final orders. The only reason for contemplating this course as a possibility is to facilitate the appellate process. 57 This does not necessarily mean that I will accede to any request the parties make, even on the unlikely assumption that they are able to reach agreement as to the issues that I should consider. It must be remembered that this case has already consumed very large public resources.

9. A CAUTIONARY TALE 58 It is appropriate to conclude this Summary with a cautionary tale that the parties in the present case would do well to heed closely. So far as I am aware, the longest civil trial in recent Australian history took place in the Supreme Court of South Australia. The Duke litigation (Duke Group Ltd (in liq) v Pilmer (1998) 27 ACSR 1) ran for 471 days, from 15 June 1994 to 29 September 1997. Remarkably enough, the trial judge delivered judgment, nearly 500 printed pages in length, within a mere four months of the conclusion of the hearing. 59 That, however, was merely the end of the beginning. Allowing for multiple appeals, including two journeys to the High Court of Australia, the case finally concluded on 19 November 2004, when the High Court refused a second application for special leave to appeal. Ten and a half years had elapsed since the commencement of the trial and over twelve years since the commencement of the proceedings. Nearly seven years had passed since the trial judge had given judgment. 60 Even now, it is not too late for the parties to bring these protracted and excessively expensive proceedings to a conclusion by mutual agreement and thus avoid the costs and uncertainties of the appellate process. In the light of my findings of fact and conclusions of law, the parties should be able to assess realistically their prospects on appeal. They should also take into account that the transactions that gave rise to this litigation are long passed and have been overtaken, not only by later events, but a changed commercial environment in the industries in which they operate. 61 The alternative to a negotiated resolution may be a reprise of the Duke litigation. I do not recommend this course.