JUDGMENT OF THE COURT OF FIRST INSTANCE (First Chamber)

19 February 1998 (1)

(Action for annulment — Decision of the European Film Distribution Office(EFDO) — Instructions given by the Commission — Decisions imputable to theCommission — Action programme to promote the development of the Europeanaudiovisual industry (MEDIA) — Financing of film distribution — Criteria forassessment — Statement of reasons)

In Joined Cases T-369/94 and T-85/95,

DIR International Film S.r.l., a company incorporated under Italian law,established in Rome,

Nostradamus Enterprises Ltd, a company incorporated under English law,established in London,

Union PN S.r.l., a company incorporated under Italian law, established in Rome,

United International Pictures BV, a company incorporated under Netherlands law,established in Amsterdam,

United International Pictures AB, a company incorporated under Swedish law,established in Stockholm,

United International Pictures APS, a company incorporated under Danish law,established in Copenhagen,

United International Pictures A/S, a company incorporated under Norwegian law,established in Oslo,

United International Pictures EPE, a company incorporated under Greek law,established in Athens,

United International Pictures OY, a company incorporated under Finnish law,established in Helsinki, and

United International Pictures y Cía SRC, a company incorporated under Spanishlaw, established in Madrid,

represented by Michel Waelbroeck, of the Brussels Bar, with an address for servicein Luxembourg at the Chambers of Ernest Arendt, 8-10 Rue Mathias Hardt,

applicants,

v

Commission of the European Communities, represented by Berend Jan Drijberand Peter Oliver, of its Legal Service, acting as Agents, with an address for servicein Luxembourg at the office of Carlos Gómez de la Cruz, also of its Legal Service,Wagner Centre, Kirchberg,

defendant,

APPLICATIONS for the annulment of, first, the letters from the European FilmDistribution Office (EFDO) to the applicants of 12 September 1994 adjourning theprocedure in relation to applications for loans under the action programme topromote the development of the European audiovisual industry (MEDIA) for thedistribution of two films and/or of the measure whereby the Commission instructedEFDO to take those decisions; and, secondly, the measure of 5 December 1994whereby EFDO rejected the applications for loans and/or the measure whereby theCommission instructed EFDO to adopt that measure,

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (First Chamber),

composed of: A. Saggio, President, V. Tiili and R.M. Moura Ramos, Judges,

Registrar: J. Palacio González, Administrator,

having regard to the written procedure and further to the hearing on 1 October1997,

gives the following

Judgment

Legal background and facts of the case

1.

    On 21 December 1990, the Council adopted Decision 90/685/EEC of 21 December1990 concerning the implementation of an action programme to promote thedevelopment of the European audiovisual industry (MEDIA) (1991 to 1995) (OJ1990 L 380, p. 37), the name MEDIA being an acronym for 'mesures pourencourager le développement de l'industrie audiovisuelle‘. The decision began bystating that the European Council regarded it as extremely important to strengthenEurope's audiovisual capacity (first recital in the preamble). The Council thenstated that it had taken note of the Commission communication accompanied bytwo proposals for Council decisions relating to an action programme to promotethe development of the European audiovisual industry 'MEDIA‘ 1991-1995[Com(90) 132 final, of 4 May 1990, not published in the Official Journal of theEuropean Communities, hereinafter referred to as 'the communication onaudiovisual policy‘] (eighth recital). It stressed the need for the Europeanaudiovisual industry to overcome fragmentation of the markets and overhaul itsexcessively narrow and insufficiently profitable production and distributionstructures (fourteenth recital), stating that special attention needed to be given inthat context to small and medium-sized undertakings (fifteenth recital).

2.

    Article 2 of Decision 90/685 sets out the aims of the MEDIA programme asfollows:

—    to help create a favourable environment within which Communityundertakings will act as a driving force alongside those from other Europeancountries,

—    to stimulate and increase the competitive supply capacity of Europeanaudiovisual products, with special regard for the role and requirements ofsmall and medium-sized undertakings, the legitimate interests of allprofessionals who play a part in the original creation of such products andthe position of countries in Europe with smaller audiovisual productioncapacities and/or with a limited geographical and linguistic area,

—    to step up intra-European exchanges of films and audiovisual programmesand to make maximum use of the various means of distribution which eitherexist or are still to be set up in Europe, with a view to securing a betterreturn on investment, wider dissemination and greater public impact,

—    to increase European production and distribution companies' share of worldmarkets,

—    to promote access to and use of the new communications technologies,particularly European ones, in the production and distribution of audiovisualmaterial,

—    to encourage an overall approach to the audiovisual industry which allowsfor the interdependence of its various sectors,

—    to ensure that action taken at European level complements that taken atnational level,

—    to contribute, in particular by improving the economic and commercialmanagement abilities of professionals in the audiovisual industry in theCommunity, and in conjunction with existing institutions in the MemberStates, to creating conditions which will enable undertakings in that sectorto take full advantage of the single market dimension.

3.

    The Commission stated in its communication on audiovisual policy (p. 9) that theEuropean Film Distribution Office — Europäisches Filmbüro e.V. (hereinafter'EFDO‘), an association registered in Hamburg (Germany), 'is helping to set upco-distribution networks by fostering cooperation between companies which werepreviously operating in isolation on their national territory‘.

4.

    Article 7(1) of Decision 90/685 provides that the Commission is to be responsiblefor implementing the MEDIA programme. Under point 1.1 of Annex I to Decision90/685, one of the mechanisms to be used in implementing the MEDIA programmeis to develop significantly the action taken by EFDO to promote the cross-frontierdistribution of European films in cinemas.

5.

    Against that background, the Commission concluded agreements with EFDOconcerning the financial implementation of the MEDIA programme. A copy of theagreement for 1994 ('the 1994 Agreement‘), which is relevant in this case, hasbeen placed with the documents before the Court.

6.

    Article 3(2) of that agreement refers to the rules on cooperation, which form anintegral part of the agreement and are set out in Annex 3 thereto. Those ruleshave also been placed by the Commission with the documents before the Court. They provide in particular that the prior approval of the Commission'srepresentatives is to be obtained in relation to all matters having an impact on theimplementation of the MEDIA programme, particularly where, 'in general terms,any negotiations likely to affect relations between the Commission and the politicalauthorities and/or professional organisations‘ are concerned (paragraph 1(g)).

7.

    The functioning of EFDO is also subject to guidelines adopted by itself andapproved, in a manner which has not been defined, by the Commission. Theversion of those guidelines of 15 February 1994 has also been placed before theCourt. Under those guidelines, EFDO administers a fund which grants loans tofilm distributors of up to 50% of anticipated distribution costs, without interest, andrepayable only if the film recoups the anticipated costs in the country for which theloan is granted. The loan serves to reduce the risk in distributing films and helpsto ensure the release of films which, without such financing, would have littlechance of being shown in cinemas. Decisions on loan applications are taken by theEFDO Selection Committee.

8.

    Point VI.2 of the guidelines provides that the EFDO Selection Committee is toexamine applications after the expiry of a deadline announced in professionalpublications, and to grant loans to eligible projects until the funds are exhausted.

9.

    In its replies to the written questions of the Court, the Commission explained that,shortly before each meeting of the EFDO Selection Committee, the Commission'sservices were informed by EFDO of all the applications lodged and, after examining the compatibility of those applications with 'the requirements laid down(e.g. as to the budgetary aspects or the eligibility of distributors from EastEuropean countries)‘, the Commission officials responsible generally'communicated their views orally to EFDO rather than in writing‘.

10.

    As regards the conditions to be fulfilled by applicants for EFDO aid, point III.1(a)of the guidelines provides, inter alia:

'At least three different distributors from at least three different EU countries orfrom countries with which cooperation contracts exist must agree to exhibit a filmtheatrically [...]. The applications must be submitted by all the distributorsconcerned at the same application deadline.‘

11.

    The guidelines also lay down an order of priority in selecting distribution projects(point VI.1):

'1st Priority

Distribution projects (films) that bring together the greatest number of distributors,i.e. that guarantee theatrical distribution in the most countries, shall have priorityover projects bringing fewer distributors/countries together.

2nd Priority

Projects from the so-called ”difficult” film export countries have priority over theprojects from all other countries. After the evaluation of EFDO's pilot phase andaccording to the Committee's decision, all countries of the European Union [...]

with the exception of France, Great Britain and Germany are regarded as being”difficult” export countries [...].

3rd Priority

In the case of projects of equal standing with regard to the above priorities,preference will be given to films from countries from which no film or only a fewhave yet received aid.

4th Priority

If further criteria are needed, such projects, due to their distribution concept, willhave priority, that show promise of mounting a more successful theatrical releaseof a film.‘

12.

    Finally, under point VI.3 of the guidelines EFDO has the right to reject anapplication without stating reasons if it has knowledge, directly or indirectly, of anyfact giving reason to believe that the loan will not or cannot be duly repaid.

13.

    The first and third applicants, DIR International Film S.r.l. and Union PN S.r.l., areproducers of the Italian film Maniaci Sentimentali, and the second applicant,Nostradamus Enterprises Ltd, is the producer of the film Nostradamus, an Anglo-German co-production. The fourth applicant, United International Pictures BV('UIP‘), a joint subsidiary of the American company Paramount CommunicationsInc., the Japanese company MCA Inc. and the French company Metro-Goldwyn-Mayer Inc., which were equal shareholders at the time the actions were brought,is involved primarily in the distribution of full-length films around the world, withthe exception of the United States, Puerto Rico and Canada. The fifth, sixth,seventh, eighth, ninth and tenth applicants, United International Pictures AB(Sweden), United International Pictures APS (Denmark), United InternationalPictures A/S (Norway), United International Pictures EPE (Greece), UnitedInternational Pictures OY (Finland), and United International Pictures y Cía SRC(Spain), are subsidiaries of UIP and act as local distributors in the respectivecountries (and are hereinafter referred to as 'the subsidiaries‘).

14.

    On 28 July 1994, at the request of the producers of the film Maniaci Sentimentali,UIP sent EFDO funding applications for the distribution of that film by itsrespective subsidiaries in Norway, Finland, Sweden, Denmark, Greece and Spain(and on behalf of Filmes Lusomundo SARL, a company unconnected with UIP, inPortugal).

15.

    On the same date, at the request of the producer of the film Nostradamus, UIPsent a funding application to EFDO for the distribution of that film in Norway,Finland, Sweden and Denmark by its respective subsidiaries.

16.

    The correspondence between EFDO and the Commission, placed before the Courtat its request, shows that in a fax of 7 September 1994 the Commission stated thatEFDO should not take a decision on the funding applications by the UIPsubsidiaries until the Commission had given its ruling on UIP's application forrenewal of its exemption. By a further fax the same day, the Commission againasked EFDO 'not to rule on those candidatures [that day], but to keep them insuspense pending the Commission's final decision on the UIP file that it [was]investigating‘ at the time.

17.

    On 12 September 1994, the UIP subsidiaries received fax letters from EFDO ('thedisputed letters‘), stating that '[t]he Committee of EFDO [had] postponed thedecision on [their] application concerning the films Nostradamus and ManiaciSentimentali [...] until the European Commission [had] taken its general decisionupon the status of UIP in Europe‘. The general decision referred to, according tothe parties, was the decision to be taken by the Commission concerning UIP'sapplication for the renewal of its exemption under Article 85(3) of the EC Treatyfor the joint venture agreement between its three parent companies providing forits establishment and for related agreements concerning primarily the productionand distribution of full-length feature films. The exemption granted by CommissionDecision 89/467/EEC of 12 July 1989 relating to a proceeding pursuant to Article85 of the EEC Treaty (IV/30.566 — UIP) (OJ 1989 L 226, p. 25; 'Decision 89/467‘)expired on 26 July 1993.

18.

    Following receipt of the disputed letters, the first four applicants contacted EFDOand Commission representatives in order to signify their disagreement and obtaincertain information and documents, and to have the applications re-examined. UIP's representatives also contacted the Member of the Commission withresponsibility for (inter alia) cultural affairs, João de Deus Pinheiro, requesting himto intervene so that the applications could be reconsidered. Having been informedthat the file had been transferred to the Directorate-General for Competition,UIP's counsel also wrote to the Member of the Commission with responsibility forcompetition matters, Karel Van Miert, asking him for certain information. Thelatter emphasised in his reply that there was no link between the procedureconcerning UIP's application for the renewal of its exemption under Article 85(3)of the Treaty and the procedure concerning the grant of subsidies by EFDO. TheCommission explained at the hearing that all that statement by Mr Van Miertmeant was that UIP could in no circumstances rely on an EFDO decision grantingit a loan in support of its application for renewal of its exemption.

19.

    Those contacts having failed to produce the desired result, the applicants broughtan action on 16 November 1994 challenging the disputed letters.

20.

    On 5 December 1994, the EFDO Committee, 'following representations by UIP‘,examined the funding applications referred to above and decided to reject them.

That decision was notified to UIP by a letter from EFDO dated 10 January 1995('the contested decision‘).

21.

    The correspondence between EFDO and the Commission, produced by theCommission at the Court's request, shows that, on an unspecified date, theCommission recommended to EFDO that it reject the applications as ineligible onthe ground that many subsidiaries of the same distribution company did notconstitute 'different distributors‘ within the meaning of the EFDO guidelines.

22.

    According to the contested decision, drafted by EFDO staff, the applications wererejected because 'it has not yet been decided by the Commission of the EuropeanUnion what UIP's status will be in Europe in the future. Since EFDO's loancontracts are based on a five-year period of theatrical release for the supportedfilms, no other decision could be made in order not to interfere with the legalproceedings instituted by UIP against the Commission of the European Union. Inaddition to that, the Committee of EFDO thinks that UIP does not fully fulfil theaims of the MEDIA programme as described below: ”[...] to set up co-distributionnetworks by fostering cooperation between companies which were previouslyoperating in isolation on their national territory” (Action programme to promotethe development of the European audiovisual industry ”MEDIA” 1991-1995)‘.

Procedure and forms of order sought by the parties

In Case T-369/94

23.

    It was in those circumstances that, by application lodged at the Registry of theCourt of First Instance on 16 November 1994, the applicants brought an actionseeking primarily the annulment of the disputed letters and/or the measure wherebythe Commission instructed EFDO to take those decisions. The action wasregistered under case number T-369/94.

24.

    The Commission raised a plea of inadmissibility by a document lodged at theRegistry of the Court of First Instance on 30 January 1995.

25.

    The applicants submitted their observations on the plea of inadmissibility on 5April 1995.

26.

    They also made a number of requests that the Court adopt measures oforganisation of procedure.

27.

    On 3 May 1995 the applicants, not yet having had the opportunity to comment onAnnex 3 to the 1994 Agreement (see paragraph 6 above), which was lodged by theCommission after they lodged their observations on the plea of inadmissibility,applied for leave to lodge a memorandum of additional observations, attached to

the application. The President of the Court of First Instance decided that thememorandum should be added to the file and notified to the opposing party.

28.

    By order of the Court of First Instance of 7 November 1995, the decision on theplea of inadmissibility was reserved for the final judgment.

29.

    The written procedure followed the usual course, and was completed when therejoinder was lodged, on 12 July 1996.

30.

    The applicants claim in their application that the Court should:

—    annul the disputed letters and/or the act by which the Commissioninstructed EFDO to take those decisions;

—    order the Commission to pay the costs.

31.

    In their replies to the Court's written questions, the applicants abandoned theirclaim for the annulment of the instructions given to EFDO by the Commission.

32.

    The Commission contends that the Court should:

—    dismiss the application as inadmissible;

—    in the alternative, reject the application as unfounded;

—    in either event, order the applicants to pay the costs.

33.

    Finally, the Commission asks the Court to take account in its decision on costs ofthe applicants' conduct in pursuing their action even though it has been devoid ofsubject-matter since June 1995.

In Case T-85/95

34.

    By application lodged at the Registry of the Court of First Instance on 16 March1995, the applicants brought an action challenging the contested decision and/or theact by which the Commission instructed EFDO to adopt that decision. That actionwas registered under case number T-85/95.

35.

    They also requested that the Court prescribe measures of organisation ofprocedure.

36.

    The written procedure followed the usual course, and was completed when therejoinder was lodged, on 21 December 1995.

37.

    The applicants claim in their application that the Court should:

—    annul the contested decision and/or the measure by which the Commissioninstructed EFDO to adopt that act;

—    order the Commission to pay the costs.

38.

    In their replies to the Court's written questions, the applicants abandoned theirclaim for the annulment of the instructions given to EFDO by the Commission.

39.

    The Commission contends that the Court should:

—    reject the application as ill-founded;

—    order the applicants to pay the costs.

Joinder of the cases

40.

    By letter of 22 June 1995, the Commission informed the Court that itacknowledged the admissibility of the action in Case T-85/95 but that it stillchallenged the admissibility of the action in Case T-369/94, and suggested that theapplicants abandon it.

41.

    On 13 July 1995, the applicants wrote to the Court stating their position on thatletter. Rather than withdrawing their first action, they applied for the two cases tobe joined.

42.

    By letter of 25 July 1995, the Commission replied that it saw no useful purpose inthe applicants maintaining their first action, but it did not expressly oppose theapplication for joinder.

43.

    By order of 13 May 1997, the President of the Court of First Instance decided thatCases T-369/94 and T-85/95 should be joined for the purposes of the oralprocedure and the judgment.

Hearing

44.

    The parties presented oral argument and replied to the Court's questions at thehearing in open court on 1 October 1997.

Admissibility

Summary of the parties' arguments

45.

    The Commission acknowledges that decisions taken by EFDO in the context of thefinancial implementation of the MEDIA programme are imputable to it. Itconsiders that relations with private organisations assisting it, on a contractual basis,in implementing the MEDIA programme should be such as to ensure that thepower to decide on applications for financial assistance remains with theCommission. It also considers that a decentralised system of decision-making andjudicial control could be regarded as detracting from the Community character ofthe MEDIA programme.

46.

    Nevertheless, it maintains that the action in Case T-369/94 is inadmissible since thedisputed letters were only provisional. Their very wording showed clearly that thedecision had merely been postponed. In those circumstances, the letters were notmeasures capable of being annulled pursuant to Article 173 of the Treaty.

47.

    The Commission adds that, in the absence of rules fixing a time-limit for a decisionto be taken, the announcement that the decision had been postponed could not beconstrued as an implicit rejection.

48.

    The applicants argue, first, that the disputed letters were either addressed to them,or directly and individually concerned them.

49.

    Secondly, they consider that the letters effectively constituted a rejection by EFDOof the funding applications, given that a considerable period of time might elapsebefore a decision on UIP's application for the renewal of its exemption underArticle 85(3) of the Treaty could be taken by the Commission, and thatpostponement of the release of the two films concerned until that date woulddeprive them of practically all commercial value. The indefinite postponement ofplans to release films, and of the attendant publicity and marketing, was in no waya realistic commercial option.

50.

    At the hearing, the applicants maintained once again that the disputed letters weremeasures capable of being challenged in an action, and that the contested decisionadopted subsequently was no more than a confirmatory measure.

51.

    The Commission does not challenge the admissibility of the action in Case T-85/95.

Findings of the Court

52.

    Under Article 7(1) of Decision 90/685, the Commission is responsible for theimplementation of the MEDIA programme. Moreover, the judgment in Case 9/56Meroni v High Authority [1957 and 1958] ECR 133 shows that delegation of powerscoupled with a freedom to make assessments implying a wide discretionary poweris not permissible. In accordance with those principles, the relevant agreementbetween the Commission and EFDO on the financial implementation of the

MEDIA programme (see paragraphs 5 and 6 above) makes any decision in thatarea subject in practice to the prior agreement of the Commission's representatives. In that respect, the Commission has explained that, before each meeting of theEFDO Selection Committee, the Commission's services were informed by the latterof all the applications lodged and, after examining the applications, the Commissionofficials responsible made their views known (see above, paragraph 9).

53.

    The Court therefore considers that EFDO's decisions on funding applicationssubmitted under the MEDIA programme are imputable to the Commission, andthat the latter is therefore responsible for their content and may be called upon todefend them in court.

54.

    In this case, the Commission essentially determined the content of the disputedletters and decision, even if the statement of reasons in the latter does not exactlyfollow the wording proposed by the Commission.

55.

    The Court finds, therefore, that the disputed letters and decision may in principleform the subject-matter of an action against the Commission before the Communityjudicature.

56.

    The Court also needs to examine whether, in the circumstances of the case, theapplicants have, first, an interest in bringing an action and, secondly, the capacityto do so.

57.

    The first point to be made is that the application in Case T-369/94 is directedprimarily at the disputed letters and that, if those letters were annulled, the onlymeasures capable of being adopted in implementation of the judgment, pursuantto Article 176 of the Treaty, would be final decisions on the funding applicationslodged by the applicants. However, those decisions were taken after that actionwas brought and form the subject-matter of the action in Case T-85/95. Ajudgment of the Court of First Instance annulling the disputed letters could nottherefore give rise to the implementation measures envisaged by Article 176 of theTreaty, with the result that the applicants have no further interest in obtaining theannulment of the letters.

58.

    The action in Case T-369/94 has therefore become devoid of purpose, so that thereis no longer any need to adjudicate thereon.

59.

    In addition, the Court finds that the decision contested in Case T-85/95 wasaddressed to the UIP subsidiaries on whose behalf the funding applications hadbeen lodged, namely the fifth, sixth, seventh, eighth, ninth and tenth applicants. The latter therefore have the capacity to bring an action as addressees of thecontested decision.

60.

    Finally, the first, second and third applicants are the producers of films which arecandidates for EFDO financing. They have argued, without the Commission

disputing the point, that a loan from EFDO brings forward the date on which distribution costs are recovered and thus the date on which the producer receivesa royalty. The fourth applicant, UIP, obtained exhibition rights for the filmsconcerned, which it then transferred to its subsidiaries established in the respectivecountries where distribution was envisaged. It was UIP, moreover, which passedon its subsidiaries' funding applications to EFDO, on behalf of those subsidiariesand, according to UIP, at the request of the producer concerned. In thosecircumstances, both the producers of the films and UIP are directly and individuallyconcerned, in the same way as addressees of the contested decision, by reason ofcertain characteristics which are particular to them or a factual situation whichdistinguishes them in relation to any other person.

61.

    The action in Case T-85/95 is therefore admissible.

Substance — Case T-85/95

62.

    In support of their action, the applicants rely on three pleas in law: infringementof the selection criteria laid down in the EFDO guidelines, incompatibility with thephilosophy and aims of the MEDIA programme, and an insufficient statement ofreasons.

63.

    The Court will examine the first and second pleas together.

The first and second pleas: infringement of the selection criteria laid down in theEFDO guidelines and incompatibility with the philosophy and aims of the MEDIAprogramme

Summary of the parties' arguments

64.

    In their first plea, the applicants begin by arguing that the funding applications fullysatisfied all the conditions laid down in the EFDO guidelines, and in particular therequirement that at least three distributors representing at least three different EUcountries agree to exhibit a film in cinemas in their countries. The applicantssubmit that the term 'three different distributors‘ means three legally distinctentities, whether connected with each other or not, and that there is no justificationfor regarding a group of connected companies as a single distributor.

65.

    In reply to the Commission's argument that one of the central aims of the MEDIAprogramme was to set up co-distribution networks by fostering cooperation betweencompanies which were previously operating in isolation on their national territory,the applicants argue that that aim is not mentioned in the guidelines, which state,on the contrary, that the primary objective is to broaden the distribution ofEuropean films on a pan-European basis. Moreover, the guidelines of the initiative

named Espace Vidéo Européen (hereinafter 'EVE‘), which is one of the groupsof European programmes established within the framework of the MEDIAprogramme and is very similar to EFDO in its aims and methods, explicitlyencourage distribution by related companies by providing that 'specialconsideration will be given to companies operating in multiple territories‘.

66.

    The applicants add that in practice EFDO has granted loans to related companiesin the case of, inter alia, the films De Flat, Jack and Sarah and Carrington. Theapplicants have attached to their reply a list of 13 films in all, covering the periodfrom 1992 to 1995, which they maintain have been distributed by related companieswith the support of EFDO.

67.

    They also point out that the funding applications for the distribution ofNostradamus were made by four entities connected to UIP in conjunction with sixother distributors which were not connected either to each other or to any companyin the UIP group, making a total of seven applicants in accordance with theCommission's interpretation of the 'different distributors‘ rule. However, only theapplications of the six distributors not connected to UIP were declared eligible. Inthe applicants' submission, that is irreconcilable with the Commission's position.

68.

    Secondly, the applicants argue that the extent of EFDO's discretion in selectingdistribution projects is governed by the selection criteria published in the guidelines. The guidelines do not provide that applications fulfilling the stated conditions maybe rejected, save for the reasons and criteria explicitly stated therein.

69.

    The applicants maintain that, since the Commission may not delegate discretionarypowers to dependent bodies (see Meroni, cited above), EFDO may not — and couldnot lawfully have been given the power to — refuse loans on the basis of criteria notcontained in the guidelines. In those circumstances, once an application meets theeligibility test, EFDO has no discretionary power as to whether to apply theselection criteria contained in the guidelines or not. The applicants add that, evenif EFDO did enjoy a discretionary power to reject eligible applications, that powerwas exceeded in this case, with the result that the contested decision infringes theprinciples of equal treatment, legal certainty and the protection of legitimateexpectations.

70.

    The applicants emphasise that EFDO's right under the guidelines to reject anapplication without stating reasons, even if the applicant fulfils the conditions forreceiving aid, applies only in the closely-defined case where EFDO 'comes to knowof any facts, directly or indirectly, from which it can be suspected that the loan willnot or cannot be duly repaid‘.

71.

    In that connection, the applicants point out, first, that the contested decision makesno reference to concern about UIP's solvency, and, secondly, that any concernwould have been unjustified, given that the parent companies of UIP or its bankswould have been in a position to provide security for the loans, and even proposed

as much in a letter to the director of the MEDIA programme at the Directorate-General for Information, Communication, Culture and Audiovisual Media (DG X)of the Commission.

72.

    In their second plea, the applicants begin by maintaining that a measure which iscontrary to the philosophy and aims of the MEDIA programme thereby infringesDecision 90/685.

73.

    They argue that the aim of the MEDIA programme is to step up intra-Europeanexchanges of films and make maximum use of the various means of distribution,with a view to securing a better return on investment, wider dissemination andgreater public impact. Allowing EFDO to reject funding applications for reasonssuch as those put forward in this case would make UIP ineligible for EFDO aid notonly in respect of the two films at issue but also in respect of any other Europeanfilms it might seek to distribute in the foreseeable future, for as long as theCommission has not decided whether or not to renew the exemption granted toUIP under Article 85(3) of the Treaty. Whether or not a distributor benefits frominterest-free loans under the EFDO scheme may be material to the producer, sincea loan brings forward the point at which distribution costs are recouped and thusthe point at which the producer receives a royalty. If, therefore, the Commission'sview were to be accepted, film distribution in Europe would become less effective,as producers chose 'second best‘ distributors who happened to have EFDOfunding.

74.

    Moreover, the Commission's position in this case also constitutes a blatantdiscrimination against UIP in favour of other distributors.

75.

    In response to the first plea, the Commission denies that EFDO was under a legalduty to grant funds to eligible projects. EFDO did not have sufficient funds togrant all applications, so that a selection had to be made in accordance with the listof priorities mentioned above. In this case, however, since the applicants'applications were not even eligible, the question as to how to apply the list ofpriorities did not arise.

76.

    The Commission explains that the applications were not eligible because, in itsview, the words 'different distributors‘ used in the EFDO guidelines must beunderstood as referring to independent or unconnected companies. If companiesbelonging to the same group were to be regarded as eligible for financial assistance,separate companies might be established for the sole purpose of making theirapplications eligible for assistance. Such practices could give rise to abuses whichmight seriously undermine the MEDIA programme's objective of fostering genuinetransnational cooperation between distributors.

77.

    The Commission adds that the rules applicable in the context of the EVE initiative,cited by the applicants, are irrelevant in this case, since that system is whollyseparate from EFDO.

78.

    In its rejoinder, the Commission explains that, even if EFDO may occasionally havegranted loans to related companies, such companies have never been as numerousas in this case and have never constituted a majority. In reply to a question put bythe Court at the hearing, concerning information contained in the list of fundingapplications approved by EFDO since its creation, the Commission acknowledgesthat twice, in 1992, EFDO granted a film distribution loan to three companies ofwhich two were connected. That regrettable fact did not, however, diminish theimportance attached by the Commission to the interpretation of the 'threedifferent distributors‘ rule explained in paragraph 76 above.

79.

    Concerning the rejection of the applications on the ground that UIP's status wasuncertain and there were doubts as to its ability to repay a loan, the Commissionexplains that since only UIP's subsidiaries, and not their parent companies, wouldhave been the beneficiaries of EFDO loans, there was uncertainty as to the abilityof those UIP subsidiaries to make the repayments if necessary. UIP's involvementin a proceeding for the renewal of an exemption under Article 85(3) of the Treatydid not in itself lead EFDO to reject the applications.

80.

    On those grounds, the Commission submits that the first plea is unfounded.

81.

    The Commission submits that the second plea must be rejected as being too vague. It was not until the reply stage that the applicants mentioned which rule of law had,in their submission, been infringed. Nor were their arguments supported byevidence. Furthermore, the decision complied with one of the essential aims of theMEDIA programme, namely that of encouraging cooperation between companieswhich had previously acted in isolation on their national territory. The plea shouldtherefore be rejected in any event.

Findings of the Court

82.

    It is common ground that the EFDO guidelines were approved by the Commissionas part of the implementation of the MEDIA programme governed by Decision90/685. Having regard to their place in the system of the MEDIA programme, andto the fact that the Commission, which relies on their rules in order to justify thecontested decision, regards them as having binding force and being a source of lawin the implementation of that programme, the EFDO guidelines, like Decision90/685, are rules of law that the Community judicature must enforce.

83.

    The provisions of the EFDO guidelines must, moreover, in compliance with theorder of precedence of legal rules, be interpreted in the light of the purpose ofDecision 90/685.

84.

    The first question to be decided in this case is whether the eligibility condition inthe EFDO guidelines (point III.1(a)), whereby 'at least three different distributorsfrom at least three different EU countries or from countries with which cooperationcontracts exist must agree to exhibit a film theatrically in their countries‘ has beencorrectly interpreted and applied in this case.

85.

    The applicants submit that the term 'three different distributors‘ means threelegally distinct entities, whether connected with each other or not. The Commissionmaintains that it must be interpreted as referring to independent companies thatare not connected to each other. It submits that that interpretation is necessary inorder to comply with the essential aim of the MEDIA programme, namely to 'setup co-distribution networks by fostering cooperation between companies whichwere previously operating in isolation on their national territory”.

86.

    The Court agrees with the applicants that that objective does not, as such, appearamong those listed in Article 2 of Decision 90/685. Nevertheless, that idea doesappear in the communication on audiovisual policy to which the Council refers inthe eighth recital in the preamble to that decision. More precisely, in thatdocument the Commission stated that EFDO had been conducting an initial pilotexperiment to promote cooperation between European distributors, enabling themto send films across frontiers and so attempt to create a single cinema-film market. In particular, the Commission states in the document that EFDO 'is helping to setup co-distribution networks by fostering cooperation between companies whichwere previously operating in isolation on their national territory‘.

87.

    The Council clearly lent its support to the projects launched during the pilot phaseof the MEDIA programme (ninth and tenth recitals in the preamble to Decision90/685), including that undertaken by EFDO, to which the Council refers in AnnexI to Decision 90/685, describing it as a distribution mechanism due for 'significantdevelopment‘.

88.

    Moreover, the aim of encouraging contacts and cooperation between distributorsestablished in different European countries is reflected in Decision 90/685 innumerous respects. The Council considers, for example, that fragmentation of themarkets needs to be overcome (fourteenth recital), and that special attention needsto be given to small and medium-sized undertakings when adapting marketstructures (fifteenth recital). The third indent of Article 2 also states that maximumuse must be made of the various means of distribution which either exist or are stillto be set up in Europe.

89.

    The Council therefore undeniably took the view that the MEDIA programme wasto contribute to new developments in the European cinematographic market andparticularly to the creation of new forms of cooperation between Europeanoperators in order to strengthen Europe's audiovisual capacity.

90.

    The EFDO guidelines also demonstrate the consistent aim of fostering the creationof new cooperation networks by requiring that 'at least three different distributorsfrom at least three different EU countries or from countries with which cooperationcontracts exist must agree to exhibit a film theatrically‘.

91.

    In this case, therefore, the Court does not consider that the Commission andEFDO exceeded their discretionary power in taking the view that the grant ofCommunity funds for the distribution of films had to foster the creation in Europeof distribution networks which did not exist before. They were thus entitled to takethe view that the grant of EFDO loans had to encourage new contacts andcooperation, in particular between small and medium-sized distributors establishedin various European countries which, without such a programme offering financialadvantages, would probably have little motivation to establish contacts. Theylegitimately drew the conclusion that a loan could be granted only to a distributionproject which contributed to that objective of the MEDIA programme.

92.

    If, moreover, any network of whatever structure could obtain loans under theMEDIA programme, there would undeniably be a temptation to establish separatecompanies solely for the purpose of obtaining financial aid.

93.

    As for the initiative known as EVE, carried out in the context of the MEDIAprogramme and which, the applicants claim, favours companies operating inmultiple territories, the Court finds at the outset, without even having to examinethe scope of that phrase appearing in the selection criteria, that the contesteddecision in this case falls within the context of an initiative distinct from EVE and,in particular, is governed by the EFDO guidelines interpreted in the light of theobjectives of the MEDIA programme. In this legal context, moreover, theCommission, exercising its discretionary power, was entitled to consider itappropriate in the circumstances to support the creation of networks betweenindependent distributors.

94.

    For the above reasons, the Commission and EFDO were entitled to require that,for funding applications in respect of film distribution under the MEDIAprogramme to be eligible, they be submitted by at least three distributors who hadnot previously cooperated in a substantial and permanent manner.

95.

    In this case, it is undisputed that UIP, whose registered office is in the Netherlands,was initially established by three American companies for the distribution inEurope of films produced and/or distributed by its parent companies or one oftheir parent companies, subsidiaries, related companies or concessionaries,franchisees or sub-licensees, as the Commission found in Decision 89/467 (seventhrecital). As that decision shows (forty-first recital in particular), UIP's activity istightly controlled by its parent companies. It has subsidiaries in the Communitywhich act as local distributors (eighth recital) and which have little autonomy, asthe documents in the file show. In those circumstances, the Court considers that,by reason of that structure and the limited independence of the UIP subsidiaries,

the cooperation and the distribution network created by those subsidiaries alone,without the participation of other companies, does not correspond to the forms ofcooperation envisaged by Decision 90/685.

96.

    In those circumstances, the Commission and EFDO were right to regard the UIPsubsidiaries as a single distributor for the purposes of assessing the eligibility of theloan applications submitted to EFDO.

97.

    Concerning, first, the loan applications for the film Maniaci Sentimentali, it issignificant that the UIP subsidiaries made no agreements with other, independent,distributors. Since, for the purposes of examining the eligibility of the applications,they are to be regarded as a single distributor, the requirement for three differentdistributors was not met. The loan applications by the UIP subsidiaries were noteligible because the project did not create a new cooperation network in thedistribution of films.

98.

    That solution, which, as previously stated, is in accordance with the aims of theMEDIA programme, cannot be called into question by the fact that twice, in 1992,as the Commission acknowledged at the hearing, EFDO granted a film distributionloan to three companies of which two were connected, so that there were not threedifferent distributors. In that regard, the applicants maintain that between 1992and 1995 13 films were distributed by related companies with the support ofEFDO. The Court finds, however, on the basis of the information contained in thelist of distribution projects approved by EFDO since its creation, that, of the 13films cited by the applicants, only two gave rise to a loan application submitted byless than three different distributors, as the Commission has acknowledged. Bearing in mind that a total of 196 distribution projects benefited from EFDOsupport between 1992 and 1995, the Court finds that there was in reality nopractice of granting loans where the distribution project was not submitted by atleast three different distributors as indicated above. In those circumstances, theapplication of the rule cannot be regarded as arbitrary.

99.

    Secondly, concerning the distribution of the film Nostradamus, it is not disputedthat six distributors, who were not related either inter se or with a company of theUIP group, obtained funding from EFDO on the strength of their applicationssubmitted to meet the same deadline as the applications of four UIP subsidiaries. The applicants concerned also mentioned in their applications — in the spacerequesting the names of other applicants if known — four of the six distributorswhich obtained funding and one company which was not among the successfulcandidates.

100.

    The Court must conclude that they had made an agreement to distribute that film,to the extent required by the guidelines. There was therefore no justification forrejecting the applications of the UIP subsidiaries concerned on the ground that nonew network of at least three different distributors had been created. The Court

therefore finds, as regards the distribution of the film Nostradamus, that theapplications of the applicants concerned were in that respect eligible for a loan.

101.

    However, the main reason for the rejection of the applications was that theCommission had 'not yet [...] decided [...] what UIP's status [would] be in Europein the future [and that] no other decision could be made in order not to interferewith the [exemption] procedure‘. Even though the Commission stated in thecourse of the proceedings that UIP's involvement in an exemption renewalproceeding under Article 85(3) of the Treaty had not in itself led EFDO to rejectthe applications, and that it was uncertainty as to the ability of the UIP subsidiariesto make the necessary repayments, linked to UIP's uncertain status, which hadjustified the rejection, the Court finds that it was indeed the uncertain status of UIPand its subsidiaries that lay at the root of the rejection of the loan applications.

102.

    It is true that the Member of the Commission with responsibility for competitionmatters, Mr Van Miert, stated in his letter to UIP's counsel that there was no linkbetween the procedure concerning UIP's application for the renewal of itsexemption under Article 85(3) of the Treaty and the procedure concerning thegrant of subsidies by EFDO. That reply may, however, be perfectly wellinterpreted, as the Commission suggested at the hearing, as meaning that, from thespecific standpoint of Community competition law, the absence at that stage of anydecision on UIP's exemption renewal application under Article 85(3) of the Treatydid not preclude the possible grant of the subsidy requested, given that the latterwould, if granted, have no impact on the application of the competition rules.

103.

    The Court considers it appropriate at this stage of its reasoning to recall that theexemption of the basic agreement between UIP's three parent companies providingfor its creation as a joint venture, and of the agreements concerning thecooperation of companies within the group, had expired on 26 July 1993. WhenEFDO made its decision in 1994, UIP was uncertain as to whether its exemptionwould be renewed or not. There can be no doubt that the future of UIP'ssubsidiaries depended on that of their parent company, which could not itselfcontinue to exist without renewal of the exemption under Article 85(3) of theTreaty. In those circumstances, it was recognised that those subsidiaries would nolonger be able to pursue their activity if the Commission did not renew UIP'sexemption.

104.

    At that time, the situation of UIP and its subsidiaries was entirely uncertain andprecarious, since an exemption was necessary in order to render permissible anagreement contrary to Article 85(1) of the Treaty.

105.

    It follows that the UIP subsidiaries' applications concerning the distribution of thefilm Nostradamus, although eligible, could be rejected on the ground that, for aslong as the Commission had not decided whether or not it would renew theexemption granted to UIP under Article 85(3) of the Treaty, the legal position ofthat company and its subsidiaries remained uncertain. In particular, the

Commission and EFDO were entitled to take the view, in the exercise of theirdiscretionary power, that, by reason of that very precariousness, those companiescould not be accepted as structures to be supported, even if they had offered everyguarantee of repayment of the loans applied for, particularly in the event of arefusal to renew the exemption. Granting such loans to the applicants at a timewhen it was possible that the Commission might not approve their activity as it wasconstituted at the time of the relevant facts — thereby possibly precipitating theirliquidation — would have been hard to reconcile, first, with the reasonable conditionthat the Commission could not support structures that were potentiallyincompatible with the competition rules and, secondly, with the essential aim of theMEDIA programme of encouraging the development of a powerful Europeanaudiovisual industry capable of meeting all challenges. Moreover, the grant ofloans to the applicants in such circumstances would have had the result of denyingall Community financing to other undertakings which, first, pursued an activitywhich was clearly compatible with the competition rules and, secondly, were willingand able to create or develop a distribution network.

106.

    It follows that the contested decision fulfilled the requirements of Decision 90/685and fully complied with the objectives of the MEDIA programme, including inparticular that of fostering the creation and development of codistribution networkson Community territory.

107.

    Furthermore, the aim of stepping up intra-European exchanges of films, makingmaximum use of the various means of distribution already in existence or to be setup, and of achieving wider dissemination of films in Europe (third indent of Article2 of Decision 90/685) can be pursued only in so far as it is compatible with theobjective which the Commission considered in this case to be essential, namely thatof fostering the creation of new codistribution networks. In addition, the funds notallocated to the applicants could be placed at the disposal of other distributors,thereby promoting that objective.

108.

    Finally, the Court cannot accept the argument that the refusal to grant a loan tocompanies of the UIP group as long as the Commission had not decided whetheror not to renew the exemption granted to UIP under Article 85(3) of the Treatyconstituted blatant discrimination against UIP in favour of other distributors. Thereis no reason to suppose that EFDO and the Commission would have adopted adifferent position towards applications from another group of companies in thesame situation.

109.

    The first two pleas, essentially alleging that the contested decision was incompatiblewith the EFDO guidelines and the aims of the MEDIA programme, are thereforeunfounded and must be dismissed.

The third plea: insufficient statement of reasons

Summary of the parties' arguments

110.

    The applicants argue that the statement of reasons in the contested decision doesnot indicate the real reasons for it, and that the reasons stated are invalid.

111.

    They point first to the reply by Mr Van Miert, referred to above, to the effect thatthere was no link between the procedure relating to UIP's application for renewalof its exemption under Article 85(3) of the Treaty and the procedure for the grantof subsidies by EFDO. The statement that no other decision could be made inorder not to 'interfere with the legal proceedings instituted by UIP against theCommission‘, since EFDO's loan contracts were based on a five-year period ofcinema release for the supported films, is in their submission whollyincomprehensible.

112.

    As for the reference to the aim of creating co-distribution networks by fosteringcooperation between companies which were previously operating in isolation ontheir national territory, that ground, the applicants submit, is false, since that wasnot an objective of the MEDIA programme but merely a description of one of theeffects which it was hoped that EFDO's activities would have on the market.

113.

    Concerning the grounds put forward before the Court, the applicants begin byarguing that a failure to state reasons cannot be remedied by the fact that theperson concerned learns the reasons for the decision during the Court proceedings(Case 195/80 Michel v Parliament [1981] ECR 2861). They go on to maintain thatthe Commission's interpretation of the 'three different distributors‘ rule is wrong. They also argue that there could not have been any genuine concerns as to UIP'sability to repay a loan, even if its exemption were not renewed, since, even if thatconcern were well-founded, it already existed at the time when EFDO decided togrant a loan to UIP's German subsidiary for the distribution of the film Fuglekrigeni Kanofleskoven (War of the Birds) without requiring any security whatever. Theapplicants therefore consider that the latter reason was not a genuine cause ofconcern.

114.

    They emphasise that the requirement of adequate, clear and relevant reasoning laiddown by Article 190 of the Treaty applies just as much to the delegate, EFDO, asto the delegating authority, the Commission (Meroni, cited above; Case 24/62Germany v Commission [1963] ECR 63). Where, moreover, the decision representsa departure from previous practice, it is the responsibility of the institution to setout its reasoning explicitly (Case 73/74 Groupe des Fabricants de Papiers Peints vCommission [1975] ECR 1491). In this case, the applicants submit, the reasonsgiven for rejecting the applications were completely inadequate. Even if, under theguidelines, EFDO had the right in a given situation to reject the applicationswithout giving any reason, those guidelines were nevertheless subject to the Treaty.

115.

    The Commission argues that the third plea should also be dismissed. Thereasoning put forward in the contested decision is correct. It indicates

unambiguously the two categories of reasons for rejecting the applications, the firstrelating to the uncertainty as to UIP's status and its ability to repay a loan, and thesecond to the general condition providing for cooperation between companieswhich had previously operated in isolation, a principle underlying the 'threedifferent distributors‘ rule.

Findings of the Court

116.

    It should be recalled at the outset that a plea that the statement of reasons isabsent or defective is a plea alleging breach of essential procedural requirements,and that, as such, it is distinct from a plea alleging that the reasons given for thecontested decision were inaccurate, the review of which, by contrast, forms part ofthe examination as to whether that decision was well founded.

117.

    The case-law shows clearly that the statement of reasons must disclose in a clearand unequivocal fashion the reasoning followed by the Community authority whichadopted the measure in question in such a way as to make the persons concernedaware of the reasons for the measure and thus enable them to defend their rightsand the Community judicature to exercise its power of review. It is also settledcase-law that the question whether the statement of reasons for a decision meetsthe requirements of Article 190 of the Treaty must be assessed with regard not onlyto its wording but also to its context and to all the legal rules governing the matterin question (Case T-95/94 Sytraval and Brink's France v Commission [1995] ECRII-2651, paragraph 52, and the cases cited therein).

118.

    The contested decision was worded as follows:

'On 5 December 1994, the Committee of EFDO turned down the applications ofUIP for the films Maniaci Sentimentali and Nostradamus as it has not yet beendecided by the Commission of the European Union what UIP's status will be inEurope in the future. Since EFDO's loan contracts are based on a five-year periodof theatrical release for the supported films, no other decision could be made inorder not to interfere with the legal proceedings instituted by UIP against theCommission of the European Union.

In addition to that, the Committee of EFDO thinks that UIP does not fully fulfilthe aims of the MEDIA Programme as described below:

” ... to set up co-distribution networks by fostering cooperation between companieswhich were previously operating in isolation on their national territory.” (ActionProgramme to Promote the Development of the European Audiovisual Industry”MEDIA” 1991-1995).‘

119.

    The Court considers that the first part of the statement of reasons makes asufficiently clear reference to the exemption procedure pending before theCommission as a ground for rejection. Even though the wording is imprecise, theapplicants can have had no doubt as to its import. It was undoubtedly known tothe whole cinematographic industry, and certainly to the subsidiaries of UIP, thatthe latter had requested the renewal of its exemption under Article 85(3) of theTreaty. Moreover, when EFDO stated that it could not 'interfere‘ with thatprocedure, the applicants must reasonably have understood that an entity such asUIP, being a party to a proceeding under the competition rules, could not benefitdirectly, or indirectly through its subsidiaries, from a loan within the context of theMEDIA programme.

120.

    As for the second part of the statement of reasons, the statement that 'UIP doesnot fully fulfil the aims of the MEDIA Programme [... which is, in particular, tofoster] cooperation between companies which were previously operating in isolationon their national territory‘ must reasonably be understood as a reference to therule that at least three different distributors must agree to create a newcooperation network and to the fact that the network formed by the UIPsubsidiaries, without the participation of other companies, did not satisfy thatcondition.

121.

    More particularly, concerning the fact that that objective does not appear expresslyin Decision 90/685, the Court would point out first that the aim of fostering newcontacts and cooperation between distributors established in various Europeancountries is reflected in Decision 90/685 in several respects (see paragraphs 86 and88 above). As for the fact that the Commission's communication on audiovisualpolicy was not published in the Official Journal of the European Communities, itshould be noted that that communication was not confidential and could easily beobtained from the Commission. There can be no doubt that the applicants had acopy of that communication, since it was of particular interest to prudent operatorsin that clearly-defined sector and they themselves stated in their application thatthe sentence contained in the contested decision came from precisely thatdocument. The statement of reasons in the contested decision, read in the light ofthose official documents, is thus all the more clear and satisfies the requirementsof the Treaty and the established case-law concerning the reasons stated formeasures complained of.

122.

    In those circumstances, the statement of reasons for the contested decision mustbe regarded as sufficient.

123.

    It follows from the above that the third plea cannot be upheld, either.

124.

    In those circumstances, the application in Case T-85/95 must be dismissed in itsentirety.

Costs

125.

    Under Article 87(2) of the Rules of Procedure, the unsuccessful party is to beordered to pay the costs if they have been applied for in the successful party'spleadings. Since the applicants have been unsuccessful in Case T-85/95 and theCommission has applied for costs, they must be ordered to pay all the costsincurred in Case T-85/95.

126.

    Under Article 87(6) of the Rules of Procedure, where a case does not proceed tojudgment, the costs are to be in the discretion of the Court of First Instance. Inthis case, the Court has ruled that there is no need to adjudicate on Case T-369/94. On the matter of costs, the Court considers that, in this case, that result isequivalent to dismissal of the action. It therefore decides that the applicants mustalso bear all the costs incurred in Case T-369/94.

On those grounds,

THE COURT OF FIRST INSTANCE (First Chamber)

hereby:

1.    Rules that there is no need to adjudicate on the application in CaseT-369/94;

2.    Dismisses the application in Case T-85/95;

3.    Orders the applicants to bear all the costs.

SaggioTiili Moura Ramos

Delivered in open court in Luxembourg on 19 February 1998.

H. Jung

A. Saggio

Registrar

President

1: Language of the case: English.

ECR