The Legal 500

All countries

Search News and Articles

Legal Developments in The Legal 500 United Kingdom 2012

Commission takes action against collecting societies

September 2008 - EU & competition. Legal Developments by Berwin Leighton Paisner LLP.

More articles by this firm.

A RECENT INFRINGEMENT DECISION BY THE European Commission has significant implications for the collective management of intellectual property rights in Europe. Collecting societies are entrusted by rights owners with the tasks of granting licences to users, enforcing copyright and collecting and distributing royalties. Traditionally, collecting societies have been run on purely national lines, with international rights exploitation being facilitated by networks of reciprocal agreements between societies. Although such arrangements contained territorial restrictions that would have been illegal in other sectors, collecting societies have until now benefited from a rather lenient approach on the part of the Commission. This is due, perhaps, to the specifically national nature of the rights concerned and the particular importance placed in certain countries on ‘cultural’ products. The arrival of the internet made a system based on country-by-country licensing increasingly untenable, however, resulting in complaints from users of music and, ultimately, the Commission’s decision of 16 July 2008 in the CISAC case.

BACKGROUND TO THE CASE

In February 2006, the Commission opened formal proceedings against the International Confederation of Societies of Authors and Composers (CISAC) and its individual national European Economic Area (EEA) collecting society members, alleging that certain parts of CISAC’s model contract for collective rights administration, and the related reciprocal representation contracts, infringed Article 81 of the EC Treaty.

CISAC and some of its member societies offered commitments to address these concerns in July 2007. However, interested parties commented negatively on the commitments and market testing showed that they would not work in practice. As a result, the Commission proceeded to issue a final infringement finding against CISAC’s 24 EEA collecting society members. No infringement finding was made against CISAC itself, as it had already removed the infringing clauses from its model contract.

THE DECISION

The decision requires the collecting societies to no longer apply the following provisions in their agreements, on the grounds that they infringe Article 81:

  • the ‘membership clause’, which effectively forces authors to sign-up with the collecting society in their home country by preventing CISAC member societies from offering their services to rights owners outside their country of operation; and
  • territorial restrictions, which prevent CISAC member societies from offering licences to commercial users located outside their domestic territory. These restrictions include an exclusivity clause, by which each of 17 societies appoints another society to represent it in a given territory on an exclusive basis, and a wider concerted practice among all member societies, which has led to a strict segmentation of the EEA market on a national basis.

The combined effect of these restrictions was that pan-European users of rights, such as the complainants RTL and Music Choice, were unable to obtain multi-territory licences for the use of music but, rather, were forced to negotiate licences with each national society, on a country-by-country basis. The Commission’s hope is that, by enabling authors and licensees to choose between collecting societies, there will now be scope for increased competition between societies on service quality and administration costs, without undermining the financial basis of collective rights administration.

The Commission has pointed out that collecting societies will still be allowed to delimit a given territory in their agreements, provided that this is decided independently. This decision nevertheless challenges the prevailing collecting society model, which is based on each society holding a monopoly for administering certain rights in a single country.

Interestingly, no fines have been imposed in this case, despite the nature of the infringement, as the Commission’s view is that these would result in penalising the authors and composers that the societies represent. Moreover, some of the societies have already begun to remove the restrictive clauses from their agreements, showing a willingness to address the Commission’s concerns. It is also likely that the lack of fines reflects the Commission’s previous lenient approach regarding collecting societies.

The decision will have practical consequences for the music industry and the collection of royalties for digital transmission of music. Specifically, the prohibition of the ‘exclusivity clause’ should help broadcasters and online music providers who need to obtain multi-territory European licences, who should now be able to obtain a single licence that covers a multitude of territories, rather than having to negotiate with each collecting society of each individual country separately, which was a time-consuming and expensive process. The decision should therefore support the development of new pan-European music services, as well as injecting a dose of competition into collective rights administration.

By Becket McGrath, partner, and Talya Morris, associate, Berwin Leighton Paisner LLP.

For more information please visit www.blplaw.com.

© 2013 www.legal500.com