Information Note on the Court’s case-law 222
October 2018
Könyv-Tár Kft and Others v. Hungary - 21623/13
Judgment 16.10.2018 [Section IV]
Article 1 of Protocol No. 1
Article 1 para. 2 of Protocol No. 1
Control of the use of property
State monopoly of the schoolbook distribution market: violation
Facts – Following new measures adopted in 2011 and 2012 the school system in Hungary had been entirely reorganised, and formerly decentralised schools had become subject to centralised State management. The new measures introduced a new system of schoolbook distribution according to which schoolbook supply was a public-interest responsibility of the State. The lawmaker’s intention was to discharge those duties through a State-owned non-profit book distribution company.
The three applicant companies, schoolbook distributors, complained that the creation of a State monopoly in the schoolbook distribution market had deprived them of peaceful enjoyment of their possessions, in breach of Article 1 of Protocol No. 1.
Law – Article 1 of Protocol No. 1
(a) Applicability – The applicant companies, who had been in the schoolbook distribution business for years, had built up close relations with the schools located in their vicinity. Their clientele was an essential basis for the established business and had in many respects the nature of a private right, and thus constituted an asset, being a “possession” within the meaning of Article 1 of Protocol No. 1.
(b) Merits – The new measures had introduced a new system of schoolbook distribution which had resulted in the applicant companies effectively losing their clientele. Thus, there had been an interference with the applicant companies’ rights, consisting of a measure entailing the control of the use of their property.
The Court noted an attribute inherent in the schoolbook market which was unusual in some aspects. The protagonists who selected the products (that was, the schools or the teachers) were not the ones who paid for them (that was, the end-users: the pupils and their parents). That scheme could be explained by the need to ensure that all pupils in a class used the same textbook. That arrangement could have entailed some market distortions and a potentially exposed situation of the end-consumers. The latter could be balanced by market regulations, such as maximised prices or State subsidies. However, the Court was not convinced that in the applicant companies’ case this had produced a distortive effect on the competition amongst the participants of the distributing business. The distributors had maintained contractual relationships with the schools and not with the end-users; and, for their part, the schools were entirely free to select any distributor as their long– or short-term supplier. It was true that there was a constant market outlet (that was, the multitude of pupils in the need of textbooks in a given school year) ultimately corresponding to the entirety of the applicants’ and other distributors’ combined services. However, the respective shares of that constant market outlet were in no way guaranteed to the applicant companies, who had needed to acquire and preserve their clientele (the schools) in a largely unregulated and competitive market environment. Therefore, although the schoolbook market indeed had some special attributes, those did not yield any special or privileged market situation for the applicant companies which would have justified the impugned State’s intervention.
In terms of market reality, the State had stopped the applicant companies from continuing their business operations and in fact had created a monopolised market in schoolbook distribution. Although there had been no formal withdrawal of a licence, the new measures introduced a system of schoolbook procurement where, inevitably, the applicant companies’ entire clientele had been taken over by the State-owned distributor and the applicant companies were practically excluded from the schoolbook distribution contracts.
The margin of appreciation afforded to the State in identifying appropriate measures for the implementation of the reform in question was a wide one. However, they could not be disproportionate in terms of the means employed and the aim sought to be realised; and could not expose the business players concerned to an individual and excessive burden. In the present case the drastic change to the applicant companies’ business had not been alleviated by any positive measures proposed by the State.
Having had regard to various factors, including the fact that no measures had been put in place to protect the applicant companies from arbitrariness or to offer them redress in terms of compensation, the impossibility for the applicant companies to continue or reconstitute their business outside the schoolbook distribution and the absence of real benefits for the parents or pupils, the interference with the applicant companies’ right had been disproportionate to the aim pursued, in that they had had to bear an individual and excessive burden.
Conclusion: violation (six votes to one).
Article 41: reserved.
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This summary by the Registry does not bind the Court.
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