At the end of February, the Court of Justice of the EU ruled in a dispute between Czech collecting society OSA and a local spa. OSA had complained to the country’s courts that a domestic law exempting health establishments from paying royalties for music played to their guests was incompatible with the EU Copyright Directive.
The Krajský soud v Plzni referred the issue to the Luxembourg court, and asked it to clarify whether the monopoly that OSA has within the Czech Republic for collecting royalties is compatible with the freedom to provide services and EU competition law.
The Court ruled that the exemption was incompatible with EU law, and that the monopolies enjoyed by national collecting societies to collect royalties for their members are lawful under Article 102 TFEU.
So far, so good for collecting societies.
“[T]he court provided significant support to the collective management system, by recognising the potential benefits of having a single licensing entity in a particular market,” Gadi Oron, director of legal and public affairs at the International Confederation of Societies of Authors and Composers (CISAC), told Managing IP.
“In essence, the Court understood that a restriction of the number of licensing entities that operate in a specific country could be in the interests of the creators. It agreed that a monopolistic position of the society could be justified on the basis of the need to protect, enforce and license rights effectively.”
But the judges then raised the possibility that national collecting societies might abuse the dominant position they have.
“Where such a collecting society imposes fees for its services which are appreciably higher than those charged in other Member States and where a comparison of the fee levels has been made on a consistent basis, that difference must be regarded as indicative of an abuse of a dominant position within the meaning of Article 102 TFEU.”
Some lawyers believe that the decision steps outside the reticent, box-ticking exercise that the Court often performs for references. “It is quite bullish of the court regarding dominance and the assessment of abuse and how to do it,” said Bristows partner Pat Treacy. “I think that the Court is saying that it is fed up with the time and effort it has spent on collecting society issues. It is saying that if they don’t operate efficiently then competition law can step in.”
Treacy said that earlier efforts to challenge the way that collecting societies operate using Article 101 of Europe’s competition rules (which prohibit deals that restrict competition) have failed.
In 2008 the Commission issued an antitrust decision after investigating practices used by Europe’s network of collecting societies to manage copyright licensing. It told 24 European collecting societies to stop restricting competition, reserving its toughest criticism for a practice that saw societies limit their ability to offer their services to authors and commercial users outside their own country.
One year ago, however, the General Court annulled the Commission’s decision on the issue of concerted practice in respect of all the appellants except Stim of Sweden. It found that the Commission had not provided enough evidence to support its allegations or to refute arguments made by the collecting societies that their practices were not the result of concerted action but of the need to fight effectively against the unauthorised use of musical works.
So does the Court of Justice’s latest ruling in the OSA case offer a green light to IP owners and licensees to challenge collecting societies on other competition law grounds?
“Yes,” says Bristows’ Osman Zafar. “The Court explicitly says that collecting societies have a dominant position. That effectively says that the first hurdle is met. It puts a target on the back of collecting societies.”
But while the Court might be signalling that collecting societies could fall foul of Article 102, there are plenty of practical hurdles that will make it difficult for would-be complainants.
The Court sets out in its OSA ruling some of the issues that national courts must assess when deciding whether a collecting society has abused its dominant position. Relevant factors include the imposition of fees that are “appreciably higher than those charged in other Member States” (collecting societies must justify such differences by referring to objective dissimilarities between the member states), and prices that are excessive “in relation to the economic value of the service provided”.
“Within Europe, published rates charged by collecting societies in different countries can be very different,” says Chris Johnstone of Music Choice, whose complaint to the European Commission in 2000 about collecting society practices put music licensing under a legal spotlight.
This is because local economic conditions still outweigh the harmonising effect of the single market, he says, creating difficulties for any licensee to evaluate why one country has a higher rate than another.
“I suspect that licensees look long and hard before they bring a time-consuming and expensive competition law claim on this basis. Collecting societies may simply counter that the prices that they charge reflect the local economic conditions.”
That is not the only problem for licensees.
Given that collecting societies do not necessarily represent the same rights and repertoires, it is very difficult to compare societies in different member states, particularly when the relevant data may not be in the public domain.
In addition, the cost and energy of fighting a case for many years with an uncertain outcome will make most copyright users think twice before bringing a case, says another licensee.
The ruling comes in the same month that EU member states adopted a directive on the way that collecting societies work. The directive on collective management of copyright and multiterritorial licensing of online music was adopted by the European Council unanimously last week (although some member states made statements about how they interpreted the new rules).
The directive will allow multi-territorial licensing of online music services and should increase the transparency of collecting societies by setting out minimum standards for the way they are governed and the timeliness with which they pay royalties to rights holders.
Collecting societies have also recently been subject to scrutiny by national authorities, for example in the UK Hargreaves Report. So will new legislative efforts, combined with market shifts to online distribution of music, change the culture of collecting societies?
Says Johnstone of Music Choice: “Generally the collective licensing industry does seem to be evolving in a positive way, especially in relation to broadcasting and online where there are a number of initiatives to make music licensing more efficient.”
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