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2. The assistance was refused for two reasons. Firstly, in the case of the first film production, the distribution companies did 2 — In the case of the fourth appellant it was uncertain at the time the refusal decision was made whether the hitherto not constitute at least three separate dis- existing exemption would be renewed. It was clear, how- ever, that the future of the subsidiaries of UIP — the fifth to tenth appellants — depended on that of their parent company, which could not continue to exist without a * Original language: German. renewal of the exemption under Article 85(3) of the EC Treaty. In such circumstances, it was obvious that those 1 — Joined Cases T-369/94 and T-85/95 DIR International Film subsidiaries would not be in a position to continue their and Others v Commission [1998] ECR II-357. activity if the Commission did not renew UIP's exemption.

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B — Legal context 2. Article 2 of Decision 90/685 sets out the aims of the MEDIA programme as follows:

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— to promote access to and use of the 5. Against that background, the Commis- new communications technologies, sion concluded agreements with EFDO particularly European ones, in the concerning the financial implementa- production and distribution of tion of the MEDIA programme.... audiovisual material;

6. Article 3(2) of that agreement refers to the rules on cooperation, which form an integral part of the agreement and are set out in Annex 3 thereto.... They provide in particular that the prior approval of the Commission's repre- sentatives is to be obtained in relation to all matters having an impact on the implementation of the MEDIA pro- 3. The Commission stated in its commu- gramme, particularly where, "in gen- nication on audiovisual policy (p. 9) eral terms, any negotiations likely to that... EFDO, an association registered affect relations between the Commis- in Hamburg (Germany), "is helping to sion and the political authorities and/or set up co-distribution networks by professional organisations" are con- fostering cooperation between compa- cerned (paragraph 1(g)). nies which were previously operating in isolation on their national territory".

7. The functioning of EFDO is also sub- ject to guidelines adopted by itself and 4. Article 7(1) of Decision 90/685 pro- approved... by the Commission.... vides that the Commission is to be Under those guidelines, EFDO admin- responsible for implementing the isters a fund which grants loans to film MEDIA programme. Under point 1.1 distributors of up to 50% of antici- of Annex I to Decision 90/685, one of pated distribution costs, without inter- the mechanisms to be used in imple- est, and repayable only if the film menting the MEDIA programme is to recoups the anticipated costs in the develop significantly the action taken country for which the loan is granted. by EFDO to promote the cross-frontier The loan serves to reduce the risk in distribution of European films in cine- distributing films and helps to ensure mas. the release of films which, without such I-452

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3rd Priority C — The facts

4. Concerning the facts of the case, the Court of First Instance stated as follows in In the case of projects of equal standing paragraphs 13 to 22 of its judgment: with regard to the above priorities, preference will be given to films from countries from which no film or only a few have yet received aid.

'13.The first and third applicants, DIR International Film S.r.l. and Union PN S.r.l., are producers of the Italian film Maniaci Sentimentali, and the second applicant, Nostradamus Enterprises Ltd, is the producer of the film Nos- 4th Priority tradamus, an Anglo-German co-pro- duction. The fourth applicant, United International Pictures BV ("UIP"), a joint subsidiary of [an American com- pany, a Japanese company and a French company], is involved primarily in the distribution of full-length films around the world, with the exception If further criteria are needed, such of the United States, Puerto Rico and projects, due to their distribution con- Canada. The fifth, sixth, seventh, cept, will have priority, that show eighth, ninth and tenth applicants... promise of mounting a more successful are subsidiaries of UIP and act as local theatrical release of a film." distributors in the respective countries (and are hereinafter referred to as "the subsidiaries").

12. Finally, under point VI.3 of the guide- lines EFDO has the right to reject an 14. On 28 July 1994, at the request of the application without stating reasons if it producers of the film Maniaci Senti- has knowledge, directly or indirectly, of mentali, UIP sent EFDO funding appli- any fact giving reason to believe that cations for the distribution of that film the loan will not or cannot be duly by its respective subsidiaries in Nor- repaid.' way, Finland, Sweden, Denmark, I-454

16. The correspondence between EFDO and the Commission... shows that in a fax of 7 September 1994 the Commis- sion stated that EFDO should not take a decision on the funding applications by the UIP subsidiaries until the Com- mission had given its ruling on UIP's application for renewal of its exemp- tion. By a further fax the same day, the Commission again asked EFDO "not to rule on those candidatures [that day], but to keep them in suspense 18. Following receipt of the disputed let- pending the Commission's final deci- ters, the first four applicants contacted sion on the UIP file that it [was] EFDO and Commission representatives investigating" at the time. in order to signify their disagreement and obtain certain information and documents, and to have the applica- tions re-examined. UIP's representa- tives also contacted the Member of the Commission with responsibility for 17. On 12 September 1994, the UIP sub- (inter alia) cultural affairs, João de sidiaries received fax letters from Deus Pinheiro, requesting him to inter- EFDO ("the disputed letters"), stating vene so that the applications could be that "[t]he Committee of EFDO [had] reconsidered. Having been informed postponed the decision on [their] appli- that the file had been transferred to cation concerning the films Nostrada- the Directorate-General for Competi- mus and Maniaci Sentimentali... until tion, UIP's counsel also wrote to the the European Commission [had] taken Member of the Commission with

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instructed EFDO to take those deci- Court of First Instance and the Court sions; of Justice;

2. in the alternative, refer the case back to — order the Commission to pay the costs. the Court of First Instance and reserve the costs.

6. The Commission claimed that the Court 8. The Commission claims that the Court should: should:

1. dismiss the appeal; — reject the application as unfounded;

10. The arguments of the parties on the EFDO guidelines, leaving no room for individual grounds of appeal will be com- discretion in assessing eligibility for assis- mented upon in the analysis which follows. tance. As the institutions are bound by their own rules, the Commission was not enti- tled, in refusing assistance, to depart from the objective criteria contained in the EFDO guidelines and to rely on its discre- tion in order to exclude certain applicants from the class of beneficiaries. Even if in D — Analysis principle the EFDO guidelines had to be interpreted entirely in the light of Decision 90/685, that could not result in new criteria being read into those guidelines which the Commission should regard as necessary in individual cases in order to achieve the (a) Discretion objectives of that decision. The Court of First Instance thus started out on the basis of a possible interpretation of the guidelines in the light of the purpose of Decision Arguments of the parties 90/685, but then erred in law by acknowl- edging the existence of a discretionary power on the part of the Commission, thereby infringing the general principles of legal certainty and the protection of legit- imate expectations. 11. In their first plea, the appellants claim that the Court of First Instance wrongly took the view that the Commission enjoyed a discretionary power in assessing applica- tions for E F D O funding. T h e C o u r t assumed the existence of such a discretion in its assessment of the criteria for assis- tance (paragraphs 91 and 93 of the con- tested judgment) and in respect of the grounds for rejection (paragraph 105 of the judgment). 13. The Commission maintains that there is a discretion in the examination of applications for EFDO funding, as the C o u r t of First Instance rightly held. 12. In the appellants' submission, the Regarding the interpretation of the assis- award of assistance must be made in tance criteria carried out by the Commis- accordance with clear, uniform and objec- sion and confirmed by the Court of First tive rules suitable for determining the class Instance, the appellants have not put for- of beneficiaries in advance, thus excluding ward any arguments to contradict the the possibility of arbitrary measures. Commission's manner of proceeding. The Accordingly, in this case, the criteria for Commission thus rightly proceeded on the assistance were conclusively set out in the basis that only applications presented by at

18. The wording of that provision does not- in itself imply a discretion which would Assessment support the Commission's interpretation — at least three distributors which had not previously cooperated in a substantial and permanent manner. Since, however, both the EFDO guidelines and Decision 90/685 are rules of Community law, they are to be

15. There are two aspects to the question 7 — Cited in point 3 of this Opinion, quoting paragraph 10 of whether the Commission had a discretion. the judgment.

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judged in accordance with the rules on of the creation of co-distribution networks interpretation in force. becomes clear.

8 — See point 3 of this Opinion, citing paragraph 2 of the judgment. 2 3 . If, as in this case, it is necessary to 9 — See the first recital in the preamble to Decision 90/685. interpret the assistance criteria and grounds

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for refusal in the EFDO guidelines in the (b) Substitution of reasoning light of the objectives of the MEDIA programme, the Court of First Instance correctly proceeded on the legal basis that the Commission has a discretion in so doing. That is so especially because, under 26. In this ground of appeal, the appellants Article 7(1) of Decision 90/685, the Com- argue that the Court of First Instance erred mission is responsible for implementing the in law by substituting its own reasoning for programme. Such a responsibility implies that of the Commission in the rejection that in making its decisions the Commis- decision. This ground relates to the refusal sion must always have the objectives of the of assistance for the film Nostradamus. The programme in mind. To that extent, it reasoning for that was that the Commission cannot be deprived of the power to choose had not yet decided what the future status a formulation of the programme that is of UIP in Europe was to be, and that it was suitable for implementing those objectives. not possible to decide otherwise without prejudging the legal procedure concerning the exemption.

28. The appellants see that as an infringe- ment by the Court of First Instance of Article 173 of the EC Treaty (now, after amendment, Article 230 EC) and Arti- cle 190 of the EC Treaty (now Article 253 EC). Under Article 173 of the EC Treaty, Assessment the function of the Court is to review the legality of acts of the Commission and set them aside in appropriate cases. It did not, however, have the power to substitute the reasoning for a decision. Under Article 190 of the Treaty, it is for the Commission to state reasons for its decisions. That power 30. The Court of First Instance stated in cannot be conferred on the Community paragraph 101 of the contested judgment judicature, since otherwise the addressees that the main reason for the rejection of the of such a decision could not be guaranteed applications was that the Commission had effective legal protection. not yet decided what UIP's future status in Europe would be, and that no other decision was possible without prejudging the outcome of the court proceedings concerning the exemption. The Court then adds its view that it was indeed the uncertain status of UIP and its subsidiaries 29. The Commission acknowledges that that lay at the root of the rejection of the the Court's interpretation of the disputed loan applications. As is apparent from part of the refusal decision is not exactly paragraph 105 et seq. of the contested the same as the interpretation put forward judgment, the Court is thereby carrying out by the Commission in the course of the an interpretation of the Commission's rea- proceedings before the Court. The Com- soning of its decision. The Court begins by mission referred to the exemption proceed- examining the Commission's submission ings only insofar as they cast doubt on the before it that UIP's involvement in an UIP subsidiaries' ability to repay the loan, exemption renewal procedure under Arti- whereas the Court based its reasoning cle 85(3) of the Treaty had not led EFDO essentially on the uncertain legal status. to reject the applications, and that it was That did not, however, constitute a sub- rather uncertainty as to the ability of the stitution of the Commission's reasoning. UIP subsidiaries to make the necessary The Court's conduct could not be regarded repayments which had justified the rejec- as an infringement of Article 173 of the EC tion. I-462

31. It interprets the answer of the Member 33. Following that interpretation which it of the Commission with responsibility for had carried out, the Court could not find competition matters, Mr Van Miert, as any error of assessment by the Commission meaning that, from the specific standpoint or EFDO in refusing the assistance. of C o m m u n i t y c o m p e t i t i o n law, the absence at that stage of any decision on UIP's exemption renewal application under Article 85(3) of the Treaty did not preclude the possible grant of the subsidy requested, given that the latter would, if granted, have no impact on the application of the com- petition rules. 34. It should be stated at the outset that, in exercising the jurisdiction conferred upon it, the Court of First Instance is required to examine the legality of the actions of the institutions. In carrying out such an exam- ination in the present case, it inevitably has to interpret the disputed Commission deci- sion. In so doing, as has been established in point 24 of this Opinion, the Court cor- rectly proceeded on the basis that the Commission and EFDO have in principle a discretion when deciding upon the award 32. For the Court of First Instance, the of assistance. That discretion has been factual starting-point in the context of this recognised, exercised and not clearly excee- problem was as follows. At the time the ded. The question whether the Court refusal decision was taken, UIP was uncer- correctly interpreted the disputed passage tain as to whether its exemption would be in the refusal decision is to be determined renewed. There was, however, no doubt according to whether what was carried out that the future of UIP's subsidiaries depen- was merely an improvement on the reason- ded on that of their parent company, which ing, which is unobjectionable in Commu- could not itself continue to exist without nity law, or whether it constituted the renewal of the exemption under Arti- introduction of essential new determining cle 85(3) of the Treaty. In those circum- factors. stances, it was recognised that those sub- sidiaries would no longer be able to pursue their activity if the Commission did not renew UIP's exemption. 10 The Court con- cluded therefrom that, at that time, the situation of UIP and its subsidiaries was entirely uncertain and precarious, since an exemption was necessary in order to render permissible an agreement which could be 35. On that point, it has to be said that the contrary to Article 85(1) of the Treaty. Court of First Instance is not strictly bound to the wording of the provisions to be interpreted, but rather has to enquire into 10 — Paragraph 103 of the contested judgment. the actual will of the decision maker. That

is precisely what the Court did in this case, (c) Article 85 of the EC Treaty, Regulation in that it began by enquiring into the aims No 17/62 and the objectives of the MEDIA of the MEDIA programme, then related the programme facts of the case to those aims, and finally came to the conclusion that, because of the legal uncertainties, financial problems might arise in the form of doubtful ability to repay loans. Even if the Commission laid Arguments of the parties the emphasis of its reasoning on the financial difficulties, its intention to refuse the grant of assistance on the ground of those difficulties is also discernible in the interpretation by the Court. The motive for the refusal — the fact that a decision was outstanding concerning an exemption — is 37. In this ground of appeal, the appellants found both in the Commission's interpreta- allege an error in the reasoning of the tion and in that of the Court. Only the legal contested judgment. Even if — contrary to analysis of the factual findings differs. That the appellants' view — the Court of First does not imply, however, that the interpre- Instance proceeded on the basis that the tation chosen by the Court was clearly Commission had a discretion in taking its wrong or arbitrary, or ran counter to the decision and interpreted that decision in a Commission's intention. lawful manner, the appellants still maintain that the reasoning of the judgment is legally defective. They maintain that co-distribu- tion networks were always capable of falling within the scope of Article 85(1) of the Treaty, with the result that until a decision on an exemption the objectives of the MEDIA programme could not be implemented. Article 85 in conjunction with Regulation No 17/62 do not, they submit, support the conclusion that struc- tures which are potentially incompatible with the competition rules and do not as yet benefit from an exemption decision are 36. There is therefore no question of there in a wholly uncertain legal position and being a substitution of reasoning in this hence cannot be supported. In the first case, since the Court of First Instance place, the undertakings concerned are not merely interpreted the Commission's deci- under any duty of notification pursuant to sion in the context of its review jurisdic- Article 85(1) of the Treaty, and, secondly, tion, merely improving the reasoning of Regulation No 17/62 provides merely for that decision without adding any essential an a posteriori control. If the Court's new determining factors. Since no new findings were correct, applicants would be reasoning was thereby introduced, and the obliged, in order to obtain assistance, to content of the decision also remained obtain an exemption for co-distribution unchanged, the applicants cannot claim networks even before their creation. That that there has been an infringement of their would, however, create a link between the defence rights or the principle of the two procedures which inherently could not protection of legitimate expectations. exist. Along those lines, the Member of the

39. The Commission begins by pointing out that agreements between undertakings 40. The question to be examined here which fall under Article 85(1) of the Treaty amounts to whether the Court of First and have not been exempted under Arti- Instance was right in law to proceed on the cle 85(3) are to be regarded as unlawful basis that the Commission was entitled to and therefore void. Undertakings entering refuse the subsidies applied for on the into such agreements therefore found them- ground that the applicants were in a legally selves in a legally precarious position. The precarious position through lack of an Court of First Instance was right to proceed exemption.

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42. As already shown in points 30 to 36 of this Opinion, it was permissible in principle for the subsidies to be refused on the ground of UIP's uncertain legal status. 43. In that respect, the Court stated in The appellants are right to the extent that paragraph 105 of the contested judgment the procedures under Article 85(3) of the that granting the loan would have been Treaty (exemption) and the EFDO guide- hard to reconcile with the reasonable lines on the granting of subsidies are condition that the Commission could not independent of each other. That does not support structures that were potentially mean, however, that in taking that decision incompatible with the competition rules. the Commission was entitled to disregard The Court also refers to the essential aim of the particular provisions of the Treaty, the MEDIA programme of encouraging the especially concerning competition law. It development of a powerful European would run counter to the sense and purpose audiovisual industry capable of meeting of the Treaty if, by the award of subsidies, all challenges. In this case, because of the Commission were to support structures limited resources, 13 granting the loans to potentially incompatible with the common the applicants would have had the result of market under Article 85(1) of the Treaty. denying all Community financing to other According to the 24th and 25th recitals in undertakings whose activity was clearly the preamble to Decision 90/685, the compatible with the competition rules and which were willing and able to create or develop a distribution network. 11 — On the concept of an error of assessment, see Case C-225/91 Matra v Commission [1993] ECR I-3203, paragraph 25. 12 — Case C-120/97 Upjohn v Licensing Authority [1999] ECR 13 — See point 3 of this Opinion, citing paragraph 8 of the I-223, paragraph 34 and references therein. judgment.

(2) The appellants are ordered to pay the costs of the proceedings.

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