Virgin sues Sky but Ofcom probe could interfere

Virgin Media has sued BSkyB alleging that Sky is abusing its dominant position in the pay TV market. But the case could be delayed by an Ofcom investigation, according to a competition law expert.

Virgin has filed its case in the High Court and its arguments centre on the high fees demanded by Sky for Virgin's right to broadcast its channels.

But Angelo Basu, a competition law expert at Pinsent Masons, the law firm behind OUT-LAW.COM, anticipates a delay. "I would expect that the Virgin litigation may be stayed pending the outcome of the Ofcom market study," said Basu.

Virgin asked Ofcom to conduct a market study into the pay TV market to determine whether or not Sky had and was abusing a dominant market position. Ofcom has agreed to carry out the study.

"Virgin in the market study will be trying to persuade Ofcom to find that the pricing dispute it has with Sky is an abuse of Sky's dominant position. Once this happens, the litigation will gather pace," said Basu.

Sky's basic stations were carried on Virgin's cable service until this year. When renegotiating a deal for the carriage, Sky asked for more money, and Virgin refused to pay it. The channels, including Sky One and Sky News, were withdrawn from the Virgin service.

The case is based on the Competition Act and on the EC Treaty which prohibits a company from abusing a market dominating position.

Virgin may find it difficult, though, to prove that Sky is abusing its position, said Basu. "Recent cases have shown that the courts are reluctant to find excessive prices," he said. "This is as a matter of evidence difficult to do and needs really detailed economic analysis."

A recent case may have some resonance for the Virgin action. Attheraces sued the British Horseracing Board over the high fees it charged for information about horse races in the UK. Attheraces, an overseas betting company, said that the BHB, racing's governing body in the UK, abused its position in charging such high fees.

The High Court backed Attheraces, but the Court of Appeal this year overturned the decision. Though it conceded that the BHB had a dominant market position, it said that the BHB was entitled to charge high prices for the data because it could be used by third parties to make a lot of money, principally in the betting business.

"In the Attheraces case the Court of Appeal said that it will only in exceptional cases interfere in businesses' freedom of contract and would only do so in an excessive pricing case if serious consumer detriment could be demonstrated," said Basu. "The pricing principle adopted in that case was that pricing may be set by a dominant company to reflect the value to the customer of the product being licensed. Given that the channels Sky is withholding are ones which many Virgin customers will think are really important, I would expect Sky to rely on this to say that they are not pricing excessively in the light of that value."