Irish Competition Authority Decisions

1. On 3 October, 1991 The Performing Right Society Limited (PRS) and the Irish Music Rights Organisation Limited (IMRO) jointly notified to the Competition Authority, under Sections 7(1) and 7(2) of the Competition Act, 1991, three standard form agreements, relating to the assignment of copyright in musical works with a request for a certificate under Section 4(4) of the Act or, in the event of a refusal by the Authority to issue a certificate, a licence under Section 4(2).

2. The Authority issued a Statement of Objections to PRS on 4 March 1993, indicating why, in its opinion, the agreements offended against Section 4(1) of the Competition Act and did not satisfy the requirements for the grant of a licence set out in Section 4(2). An oral hearing was held on 7/8 March, 1994, which was attended by representatives of PRS and IMRO. PRS were given some time to consider an amendment to their arrangements but at a further meeting on 4 May 1994, PRS informed the Authority that they were not prepared to make any amendment and requested a conditional licence from the Authority.

3. The standard form agreements provide for the assignment by individual creators (composers and authors) and publishers of the performing right in their musical works to PRS which, directly or through its subsidiary IMRO, administers on their behalf the performing right in the State and in the UK and, through affiliated societies, throughout the world wherever copyright is recognised. The Authority has already considered and approved (by certificate) an agreement transferring from PRS to IMRO responsibility for the licensing in Ireland of the repertoire of PRS, and the collection of royalties in respect of this. [1]

The Authority has under consideration a number of other PRS/IMRO notifications which relate to the licensing agreements between IMRO and various users. The present notification does not directly concern any of these notifications.

4. The parties involved are (i) PRS (ii) IMRO and (iii) individual creator and publisher members of PRS.

5. Set up in 1914, PRS is an association of composers, authors (creators) and publishers for the United Kingdom and Republic of Ireland. It is a private company limited by guarantee and not having a share capital. The main objects of PRS are to exercise and enforce on behalf of its members all rights and remedies in relation to the exploitation of the copyright in their works; to collect and receive all royalties and fees payable in respect of their works; to restrain and recover damages for the infringement of the copyright; to obtain from members assignments of copyright; to distribute the net monies minus administration expenses to the members; to establish and support funds, trusts, associations or institutions for the benefit of its members or ex-members, to lend money to members and to invest the monies of the company not immediately required.

6. PRS, being a company not having a share capital, may not distribute dividends. Its income derives mainly from its licensing activities and, after deduction of expenses and taxation, it is distributed to members (apart from some funds placed in reserves). Its licence revenue in 1991 was Stg£130.3m. comprising Stg£3.5m. from the Republic of Ireland (IMRO), Stg£87.1m. from Great Britain and Stg£39.7m. from Overseas Territories. For the same period, the net distributable revenue by PRS in the Republic of Ireland was Stg£3.1m. The net distributable revenue was Stg£64.3m. in the UK and Stg£38.7m. overseas.

7. IMRO is not a party to the notified agreements. It is a registered private company limited by guarantee, not having a share capital. Its main activities are the licensing of performing rights in the State and the collection of royalties. PRS controls the composition of the Board of Directors of IMRO. IMRO distributes its license income less operating expenses to PRS. The income and expenditure account of IMRO for the year ended 31 December 1991 showed that total licence revenue amounted to IR£4.8m consisting of IR£2.6m. from broadcasting and IR£2.2m. from public performance. Total administration costs amounted to IR£1.0m. leaving IR£3.8m. for royalty payments for transmission to PRS.

8. The members of PRS include composers of musical works, authors of any literary or dramatic works, publishers of any such musical literary or dramatic works or other proprietors of the copyright of such works. PRS membership totals around 25,000 including approximately 1,000 Irish members. Through affiliation with similar societies overseas, PRS represents more than 750,000 copyright owners throughout the world. By virtue of reciprocal agreements with such societies, PRS, until 1 January 1989, administered the rights in the United Kingdom and Ireland of creators of music resident throughout the world. Since 1 January 1989, IMRO, a subsidiary of PRS, has taken over the licensing of the performing right and collection of royalties in Ireland but members of PRS resident in Ireland have remained members of PRS which continues to be responsible for the distribution of all royalties collected. PRS is also a member of CISAC, the International Confederation of Authors' Societies.

9. The membership provisions and arrangements of PRS involve an important distinction between two types of member. First, there is the composer or author of a musical work. This person is also referred to as the "creator" or "writer". The lyricist, i.e. the writer of the words accompanying a musical work, is also a creator. Secondly, there is the publisher of a musical work. When a musical work is composed, all copyright in it belongs to its creators. The creator usually makes a full assignment of the copyright in any musical work to the publisher although this is subject to the rights of PRS. The function of the publisher is to publish the work and generally to promote and exploit it commercially. When a publisher is involved in the promotion of a musical work, both the creator and the publisher have an interest in the work and in the performing right therein. In recognition of this, PRS accept publishers into their membership.

10. The activities of music publishers in Ireland include the publication in printed form of music and song sheets of their composers' works, the securing of the recording of their composers' music and lyrics and more particularly promoting the maximum possible exploitation of these works. The relationship between writer and publisher is usually formalised by means of a contract which normally specifies the services to be provided by the publisher and provides for the allocation of earnings arising from the exploitation of the musical work. The Rules and Regulations of PRS also provide for the division of copyright earnings payable by PRS. The "normal basis of division" means the basis laid down by the General Council from time to time to regulate the apportionment of the net fees between two or more persons interested in the same work. The divisions are in every case subject to any modification that may be agreed upon in writing between the persons interested, except that in no case, other than in certain grades of arrangements of non-copyright music, may the share of the publisher, or the combined share of all the publishers and performing right owners, other than the creator, concerned with a particular work, exceed one half of the total distributable fees. The normal division under the Society's rules is 8/12ths to the writer and 4/12ths to the publisher. The PRS yearbook, which is supplied to every member, sets out in detail the different arrangements in relation to the division of fees. There is, for example, provision for division on an equal basis between composer, lyric writer and publisher in the case of published vocal works and between composer and lyric writer in the case of unpublished vocal works.

11. The members of PRS in Ireland are generally also members of one or other of the following bodies who represent their interests: Association of Irish Composers (AIC); Irish Association of Songwriters and Composers (IASC) and the Republic of Ireland Music Publishers Association (RIMPA).

12. Copyright in relation to an original literary, dramatic, musical or artistic work is the exclusive right to do, or to authorise other persons to do, certain acts in relation to that work. Such acts include reproducing the work in any material form, publishing it, performing it in public, broadcasting it, causing it to be transmitted to subscribers to a diffusion service or making any adaptation of it. This type of copyright normally lasts during the lifetime of the creator and for fifty years after his death. The authorisation of other persons to use copyright material is normally by way of licence in return for payment of royalties to the copyright owner. The performing right is part of the copyright which is a property right which initially vests in its creator who is entitled to remuneration for its use by others. It is protected in most jurisdictions including Ireland where the relevant legislation is the Copyright Acts 1963 and 1987. Ireland is also bound by International Conventions which require mutual recognition and protection of the performing right.

13. Collective licensing and enforcement of copyright in relation to musical works is common throughout the world, wherever copyright is enforced. The Copyright Act 1963 recognises the role of collective licensing bodies. Part V of the Act contains general provisions relating to the jurisdiction of the Controller of Industrial and Commercial Property in determining disputes between licensing bodies and persons requiring licences. It defines a licensing body as "a society or other organisation which has its main object, or one of its main objects, the negotiation or granting of (such) licences, either as owner or prospective owner of copyright or as agent for the owners or prospective owners thereof". Section 22 of the Act provides for action by the owner of copyright for infringements.

14. Section 47 of the Copyright Act 1963 provides for the total or partial assignment of copyright. It states: "An assignment of copyright may be limited in any one of the following ways or in any combination of two or more of these ways, that is to say -

(i) so as to apply to one or more, but not all, of the classes of acts which by virtue of this Act the owner of the copyright has the exclusive right to do (including any one or more classes of acts not separately designated in this Act as being restricted by the copyright, but falling within any of the classes of acts so designated),

(ii) so as to apply to any one or more, but not all, of the countries in relation to which the owner of the copyright has by virtue of this Act the exclusive right,

(iii) so as to apply to part, but not the whole, of the period for which the copyright is to subsist".

15. The product involved in this notification is the musical work and the performing right therein. The definition of "musical work" as set out in Clause 1 of the assignment agreement is given in para. 17. The "performing right" is the right of public performance, broadcasting and cable diffusion of these works. Copyright legislation does not define what constitutes a performance in public. The general rule which has emerged from courts over the years, is to the effect that any performance which takes place outside the domestic circle is to be regarded as 'public' for this purpose, regardless of the nature of the entertainment and the nature of the premises at which the performance takes place and irrespective of whether a charge for admission is made. For example performances at clubs in which attendance is restricted to members, and performances in factories, have been found to be public performances. The

market is the market for the performing right. In theory, an individual member of PRS could administer his performing right himself but it is understood that no individual member does so. In practice, members assign their performing right to PRS or an equivalent body who then license it to music users in return for the payment of a royalty. Creators and publishers are not obliged to join or assign their rights to PRS and could, for example, join any collecting society in the EC with whom PRS has reciprocal agreements or form their own society in Ireland. The reality however is that the overwhelming majority of creators resident in Ireland are members of PRS. PRS is a monopoly and its reciprocal arrangements mean that it has a monopoly in all copyright music. The users consist mainly of radio and television broadcasters, hotels, restaurants, public houses, retail shops and industrial premises, dance halls, concert halls, cinemas and theatres who buy the product through IMRO. The geographic scope of the relevant market is the State.

16. Three standard form deeds of assignment were notified by PRS. One of these is used by creators. The other two standard deeds are used by publishers, one for publishers who are individual persons and the other for publishers having corporate status. The only difference in substance between the three standard form deeds relates to the scope of the warranty in Clause 4. This difference, which is explained in para. 21 below is not material for present purposes. The full import of the contents of the assignment agreements are not fully apparent or evident from these documents in themselves. The assignment agreements have no life without the Articles of Association and Rules of PRS and the applicants in their notification drew specific attention to these. In addition, there is a considerable body of other more detailed regulation, practice and usage to which reference is necessary. These are set out generally in the PRS "Yearbook", the 1990-91 version of which was included with the notification. In some cases, further clarification and elaboration was required from PRS by the Authority. The following paragraphs set out or summarise those arrangements which the Authority considers to be covered by the present notification or to be relevant for the purposes of deciding whether the arrangements are certifiable or licensable under the Competition Act.

17. A musical work is defined in Clause 1 of the assignment as "any musical work whether now existing or hereafter composed and such words (if any) as are associated with any musical work and shall include (without prejudice to the generality of the expression "musical work") the vocal and instrumental music in any cinematograph films, the words and/or music of any monologue having a musical introduction and/or accompaniment, the musical accompaniment of any non-musical play, and any part of any work, words, music or accompaniment as aforesaid."

18. Under Clause 2 of the assignment, the assignor assigns to the Society "All the undermentioned rights in musical works which now belong to or shall hereafter be acquired by or be or become vested in the assignor during the continuance of the assignor's membership of the Society and all such parts or shares (whether limited as to time, place, mode of enjoyment or otherwise) of, and all such interests in, any such rights as so belong to or shall so be acquired by or be or become vested in the assignor" and agrees "to hold the same unto the Society for its exclusive benefit during such time as the rights assigned continue to subsist and (in accordance with the provisions of the Articles of Association of the Society for the time being in force) remain vested in or controlled by the Society".

19. The term performing right means the right (a) to perform the work in public, (b) to broadcast a work or to include it in a cable programme service. PRS also takes an assignment from its writer members of the film synchronisation right in every work composed or written by the member primarily for the purpose of being recorded on the sound track of a particular film or films in contemplation when such work was commissioned. The rights assigned to PRS in the case of publishers are usually all performing rights for all parts of the world. PRS have indicated to the Authority that their members are free to divide their rights by reference to category (e.g. public performance) and also by country. This freedom is exercisable at 3 yearly intervals only (as in the case of the right of the member to leave PRS altogether).

20. Under Clause 3 of the deed of assignment, PRS "covenants with the assignor, that the Society shall from time to time pay to the assignor such sums of money out of the monies collected by the Society in respect of the exercise of the rights assigned to the Society in the works of its members as the assignor shall be entitled to receive...." in accordance with PRS's rules. These rules are adopted by the members of PRS in general meetings.

21. Clause 4 contains a warranty of title and, for composers and authors only, a warranty that no breach of copyright will be involved in the assignment or the exercise of the performing right. The reason for the difference between creators and publishers is that publishers do not create the works and would not therefore be in a position to provide a warranty of originality.

22. The applicants stated that the assignment must be considered in conjunction with the Articles of Association and Rules of PRS, as membership is a precondition to the administration by PRS of the performing right on behalf of a creator. In the preamble to the assignment agreements express reference is made to the assignor "pursuant to its membership of the Performing Right Society Limited". The following provisions are included in the Memorandum and Articles of Association of PRS.

23. The objects for which the company is established as set out in the Memorandum of Association include the following:-

3(h) "To acquire or undertake the whole or part of the business, property or liabilities of any person or company carrying on any undertaking or business which the company is authorised to carry on or possessed of property suitable for the purposes of the company.

3(k) To take or otherwise acquire and hold shares in any other company having objects altogether or in part similar to those of this company or carrying on any business capable of being conducted so as directly or indirectly to benefit this company".

24. Provisions for access to membership are set out in Articles 2-5 of the Articles of Association of PRS. They provide for 3 categories of membership i.e. provisional, associate and full member. New applicants are usually admitted at first to provisional membership. Article 5(b) states that the General Council shall have full and unrestricted power to refuse any application without assigning any reason for such refusal. The criteria governing admission to provisional membership for composers and lyricists, as prescribed from time to time, at present are 3 works which must each have been either (a) commercially recorded or (b) broadcast within the past 2 years or (c) performed in public on at least 12 occasions within the last 2 years and commercially published. There are also a number of alternative criteria for writer applicants. A publisher must have a catalogue of 15 works of which at least 10 have been commercially recorded. In addition, the writers of the 15 qualifying works must be members of PRS, or of one of its affiliated societies. The publisher must have acquired rights in at least 10 of the works for a territory within the EC. In a case where the catalogue of works consists entirely of works recorded on the sound-tracks of films, such catalogues must not consist only of works recorded on the sound-track of one film and the works must be of not less than 30 minutes duration in aggregate as recorded on such sound-tracks. Copies of all assignments between the applicant and the writers in respect of the works concerned must be supplied. The minimum qualifying criteria for associate membership are 1 year's provisional membership and certain aggregate PRS earnings over a period not exceeding 3 years. Associate members have one vote on a show of hands or on a poll or postal ballot.

25. For promotion to full member, earnings criteria are also prescribed. The figures are automatically adjusted each year in line with changes in the total revenue distributed to PRS members. Full members have 1 vote on a show of hands, 10 votes on a poll or postal ballot plus 10 additional votes if their average annual earnings through PRS either over the preceding 2 years or over the preceding 20 years reach specified levels. The purpose of the provisions regarding voting rights is to ensure, having regard to the large number of members whose activities are limited and whose income is low, that a preponderant voice in the affairs of PRS may be exercised by its members who rely on it for their livelihood to a reasonably significant extent. The category of membership to which a writer or publisher is admitted does not affect in any way the share of royalties which he is entitled to receive. The heirs of deceased composers or authors are usually admitted to associate membership; they are not normally eligible to become full members.

26. Article 7 states

7(a) "Every Member shall, on election, or at any time thereafter if requested by the Society, assign or cause to be assigned to the Society all rights to be administered on his behalf by the Society".

7(b) "Every assignment to the Society pursuant to this Article shall be in such form as the General Council may from time to time prescribe and shall operate for and during the period of the assignor's membership......". For films exhibited in the USA, PRS negotiates a theatrical performance licence with the production company for PRS members' music incorporated in the soundtrack.

7(c) "The rights to be administered by the Society on behalf of a Member are:-

(i) the performing right;

(ii) in the case of writer Members only, the film synchronisation right in every work composed or written by the Member primarily for the purpose of being recorded on the soundtrack of a particular film or films in contemplation when such work was commissioned;

(iii) such other rights, or such parts of the rights mentioned in sub paragraphs (i) and (ii), as the General Council may direct,

for the whole world or such part or parts of the whole world as the General Council may direct, in all or any works or parts of works, present and future of which the Member is the writer, publisher or proprietor".

Article 7(d) provides for temporary arrangements and ceases to have effect on execution of the assignments. It allows PRS to exercise the rights of creators and allows creators to be paid by PRS before the assignment.

7(e) "The Society may exercise and enforce the rights of members of any affiliated societies pursuant to the terms of any contract now existing or which may hereafter be made between the Society and such affiliated societies".

7(f) "The Society may, by notice in writing to any member, decline to exercise the whole or any part of the performing right in any particular work or works of which such member is the composer, author, publisher or proprietor, and thereupon the provisions of sub-clauses (a) and (d) of this Article shall cease to apply to such right, and any assignment thereof already made to the Society by such member shall be determined by the Society. Provided always that the Society may at any time, and from time to time, by further notice in writing to such member, withdraw such notice in respect of all or any of the rights comprised therein, whereupon the provisions of sub-clauses (a) and (d) of this Article shall again apply to such right or rights".

27. Under the Article 7(f) procedure, the Society may, on request, return to members the whole or any part of the performing right in any of their works, to enable members, copyright owners or authorised third parties to license certain performances themselves in particular circumstances, examples of which are compilation shows, interpolated music in plays, music theatre, cantata musicals, and specially written music accompanying silent films. Once a member has made a request to the Society, and the terms are agreed, the procedure is that the Society gives formal notice to the member or members concerned, pursuant to Article 7(f) that it "declines to exercise" the relevant part of the performing right in the works in question. During the period 1977 to 1992 use has been made of the provisions of this Article in about 60 instances. It has been used solely for the purpose of facilitating the direct licensing by members of works not originally written for theatrical performance but which are then used in theatrical compilation shows.

28. Where PRS is requested to apply the Article 7(f) procedure in respect of works to be performed in a compilation show it invariably accedes to such a request by giving formal notice to the member that it declines to exercise the relevant part of the performing right in the works in question. PRS does, as a matter of policy, apply two conditions to the granting of the request which do not appear in Article 7(f) itself:

(a) the royalty to be charged is not less than the appropriate PRS tariff rate, and

(b) the producer of the show is granted an exclusive licence by the copyright owner (in a defined context) for the performances which are the subject of the Article 7(f) notice.

29. Article 9 states that

9(d) "the membership of a provisional member may at any time be terminated without notice and without the assignment of any reason thereof, either by the General Council or in accordance with such general directions as the General Council may from time to time give."

9(e) "Any full or associate member may be given notice by the General Council determining his membership at the expiration of fourteen days from the date of such notice, and his membership shall cease accordingly".

9(f) "Any member may, by giving three months' notice in writing to the Secretary, terminate his membership:

- three years after the date with effect from which he was first elected to membership, [2] and

- thereafter, on any third anniversary of that date."

30. Provisional writer membership is terminated if no royalties at all are credited to the writer over a 3 year period, and the membership of provisional publisher members whose royalties have not exceeded an aggregate of £250 over 3 years is also terminated. Associate membership is terminated after a period of 5 years in which no royalties have been credited. Membership ceases on death but all royalties to which the deceased would have been entitled are payable to the personal representative of the deceased.

31. PRS stated that in practice they would only exercise their right to terminate provisional membership in the event that a provisional member was no longer earning any money. This was in the interests of the Society as a whole. If the member's name was kept on the files and he was no longer earning any royalties the cost of administration would increase and a lower standard of service provided to the remaining members would result. There were no rights of appeal. If a provisional member was no longer earning royalties he did not need the services of PRS and, in any event, if he did qualify for admission again he would always be welcomed. In the case of full or associate members however, they may appeal in writing and have the question of their continuance of membership put before the members at an Extraordinary General Meeting. Not until the members in the EGM had approved the action would membership cease.

32. Clause 3(d) of the Memorandum of Association and Article 54 of the Articles of Association empower the Society, through its General Council, to make "rules" for regulating various matters, including the manner in which the net monies received by the company are to be divided and apportioned among members. These rules provide in more detail for PRS to exercise and enforce the statutory rights and remedies in relation to the performing right. They contain inter alia provisions relating to the distribution of money; deduction of expenses; notification of musical work in a prescribed manner; misleading or incorrect information; appointment of a disciplinary panel to hear and determine complaints and impose penalties; disputes regarding infringement or ownership of copyright and legal proceedings.

33. The general policy governing the distribution of fees to members is set out in Rule 2(c) which provides inter alia that all sums remaining after authorised deductions shall be distributed among the persons interested in the several works in such manner and in such proportions as the General Council may from time to time determine. Clearly this confers considerable discretionary power on the General Council in relation to distribution policy. The General Council is of course elected by and is accountable to the general membership of the Society. Under rule 2(f) [3], the royalty share paid by PRS to a publisher may not exceed one half of the net fee, although PRS cannot as a practical matter exercise control over contractual arrangements between the publisher and the creator, outside the PRS rules, which may prescribe different divisions of the royalty.

34. This and the following paragraphs (35-38), which are based on material submitted by PRS, summarise what happens in practice as regards distribution of royalty income. IMRO obtains from broadcasters and selected other music users licensed by IMRO, programme details of the music which has been broadcast or publicly performed. Generally speaking, broadcasting stations in the United Kingdom and in the State submit complete returns of all music used. The only exceptions are local radio stations which can, by special arrangement, submit sample returns in respect of broadcasts which have taken place using commercial recordings or 'stock' records. They are however, required to supply complete returns of all music which is broadcast 'live' from the studio or at an outside event or specially recorded in the studio. IMRO monitors the output of radio and television stations on a random sample basis and checks the results against the returns submitted. In the case of other music users, e.g. hotels, dance halls, restaurants, bars, etc., IMRO have stated that despite the express provisions of its licence, IMRO does not require returns for performances, recognising that this would place an undue burden on the users concerned as well as a massive administrative burden on IMRO. IMRO is able to do this, because of its ability to grant blanket licences of the entire PRS repertoire. IMRO also claimed that this procedure would not be effective if the PRS repertoire were non-exclusively held by PRS and IMRO were not in a position to grant such a licence.

35. Up to and including 1991, programmes were required to be submitted by public performance licensees only in respect of:

(a) concerts and recitals of 'classical music (extended to include 'light-classical' music);

(b) concerts (including a series of concerts at a single venue and tours where the same works are performed on each occasion) for which the royalty payable is £200 or more;

(c) other 'live' musical events which are licensed on a 'per occasion' basis and where an identifiable separate royalty of £200 or more is payable by the licensee.

36. Royalties for live or recorded performances of copyright music in hotels, public bars etc., are usually paid under an annual blanket licence issued by IMRO to the proprietor of each venue. Over the years IMRO (and its predecessor PRS) encountered many problems in their attempt to obtain accurate and representative programme information about public performances of copyright music. Until 1964, PRS endeavoured with limited success, to collect programme returns for all such performances. In 1964 sampling was introduced and this has continued in one form or another since then. However, it was found that even on this limited basis, inadequate programme information was obtained.

37. In 1976 the Republic of Ireland Music Publishers Association made representations to PRS in relation to the live performances of copyright music in Ireland. It was felt that because of the inadequacies of the programme information being received in respect of performances of live music in Ireland, an alternative method of distributing some of those royalties should be considered. As a result a system was introduced whereby details of work frequently performed live and by recorded means were sought from Irish PRS members and a certain portion of the royalties collected in respect of live and recorded performances was set aside to be distributed on the basis of the details received from the members. Until recently, it was the practice of IMRO to write to all PRS members resident in Ireland in December each year to seek from them the details of the works popularly performed, either live or by way of recorded music. Such information was normally verified by music publishers but where no music publisher was involved a composer member could obtain verifying information from the venues at which performances of their works took place. In the case of the performance of recorded music, details of record sales involving Irish works were obtained from the members and used as a basis for the distribution of a certain portion of the royalties collected in respect of the performances of recorded copyright music. This system was found to be unsatisfactory so MRBI was commissioned to carry out a survey of actual live performances in significant venues throughout the country on a trial basis. Since January 1993 these details are being used to make appropriate royalty payments to creators whose works are performed live. The MRBI survey was to continue until September 1993.

38. Programme material received by the Society is analysed so as to identify the musical works which have been broadcast or publicly performed and in which a PRS member or one of the affiliated societies has an interest as a composer, lyric writer or publisher. It is not always feasible for all this material to be fully analysed; in that event analysis is carried out on a sample basis. This is applied, e.g., to the programme material supplied by most local radio stations and from RTE in respect of their TV services. Royalties received from broadcasting and general performance are kept separate and each of these separate categories of royalties is then further broken down into distribution pools usually referred to as "sections" relating to specific sources of public performance or broadcasting e.g. RTE radio, RTE TV, discotheques, juke boxes. Each of the works identified as a result of the analysis of programme details for a particular section of revenue receives 'points', the number of which varies depending upon the number of times performed, the duration of the work and in some cases other factors, for example the level of royalties collected and the classification of a performance. When programmes have been analysed only on a sample basis, the number of points accruing to each 'sampled' performance is multiplied by the sample factor so as to take account of the fact that each 'sampled' performance represents a greater number of actual performances. The total number of points which have been awarded to works within a particular section is then calculated and divided into the distributable revenue for that section. This establishes the value of a point in each section at that distribution and, consequently, the amount of money each work is to receive from that pool. The value of a point thus varies from section to section and distribution to distribution. The point award plans and rules are applied without discrimination to all works which can be identified as coming under the control of PRS.

39. PRS operates an earnings equalisation scheme for the purpose of providing a form of financial 'cushioning' for long established members of the Society whose works, because of changes in musical fashion or for other reasons, cease to be publicly performed or broadcast to the same extent as may once have been the case.

40. PRS stated that the purpose of the arrangements was to give effect to the rights of creators granted by the Copyright Acts, 1963 and 1987. They considered that the arrangements afforded the mechanism for bringing to consumers, through the users, the benefits of the artistic achievements of the creators, in the most effective manner. In the absence of the arrangements in their present form, it would be impossible for Irish creators to obtain a just reward for their achievements and it would also be impossible for creators based abroad to be remunerated for Irish performance of their work.

41. PRS stated that the assignment involved an absolute transfer of property from one owner to another, on the basis that the property could be more efficiently managed by the second. The substituted owner acquired an equally exclusive right to that enjoyed by the previous owner, no more and no less. There was therefore no effect on competition.

42. According to PRS, effective protection of the performing right was extremely labour intensive involving considerable expenditure on administration and monitoring procedures. The development of the market in its present form had been entirely natural and was inevitable in the absence of effective and affordable legal remedies. Without the arrangements as presently constituted, most creators would be forced out of the market. While in some product or service markets this could lead to efficiency and increased competition, it was self- evident that in the market for musical works, this would be catastrophic for all concerned.

43. PRS considered that the arrangements were also beneficial to the listening public and that they were indispensable for the attainment of the objectives of the Copyright Acts and for securing a proper balance of benefit between creators, users and the ultimate consumers.

44. PRS said that the 50% rule was for the protection of the creator so that the publisher would not get too much or all of the royalties on their works. Creators have been forced to take Court action against their publishers on a number of occasions. Details of some well publicised cases were provided. In continental Europe the actual divisions between the publishers and the writers are prescribed. They claimed that the PRS system was the least restrictive of all the European systems in force. The divisions were specified in the statutes and in the regulations of the societies. The publisher's share was limited to one third and they only got 50% in special circumstances. PRS were not aware of any society which permitted the publisher to get more than 50%. In the USA the royalties are split 50/50 between the creator and the publisher.

45. It appeared from the terms of the assignment that the freedom of PRS members to divide their rights by category or by country was very restrictive if not non-existent while the assignment was in force (paras. 18 and 19). PRS confirmed that its members were free to divide by category and by country but no member had ever asked to subdivide except by territory. In recent years, it had become relatively frequent for PRS to accept, on request, an assignment of territory comprising less than the whole world. The most frequent exclusion was the United States but there had, in recent years, been at least one case of a writer becoming a member of GEMA (the German collecting society), and therefore transferring his performing right to GEMA, for GEMA's territory of administration. In respect of PRS as a whole, of the admissions for the years 1989, 1990 and 1991 (approx. 1,400 per year), the number of writer applications to exclude any territory amounted to 4, 6 and 11 respectively. Thus only a minute proportion of applicants for membership requested and were granted membership for a territory comprising less than the whole world. The number of requests granted to existing PRS writer members to modify their territory of representation was 10, 12 and 8 in each of the three years respectively.

46. PRS stated that it was legally possible to subdivide by reference to category (e.g. public performance, broadcasting, film synchronisation), and a member who wished to do so would be accepted provided any permissible subdivision as set out in the Gema cases (see para. 61 below) was not exceeded. Members had not asked for such a subdivision and were they to do so, PRS would attempt to dissuade them from this course of action. PRS would not feel bound to agree similar terms with non EU residents or nationals (under the Gema decision).

47. Article 7(f) states "the Society may by notice in writing to any member decline to exercise the whole or part of the performing right..." The applicants explained that PRS did not administer "grand rights" i.e. rights in operas, ballets or pantomimes in so far as they consisted of words and music written expressly for them (although since 1 January 1992, PRS has administered grand rights for cable diffusion). On the other hand they administered "small rights" i.e. the rights in the individual musical works and associated literary works such as songs. There was a category of works, the rights in which fell on the borderline between grand rights and small rights. The category consisted of those songs which were not written for theatrical productions but which had subsequently been used by the producer of a show and which usually, but not always, depicted the life or career of a particular composer or performer. Such shows were known as compilation shows.

48. PRS stated that Article 7(f) enabled an individual creator to carry out a licensing function himself in certain circumstances. The original reason for the inclusion of Article 7(f) in the PRS Articles was not known but in practice it had, over the past 25 years or so, been used solely for the purposes of facilitating the direct licensing by members of works not originally written for theatrical performance but which were then used in theatrical compilation shows. A further reason for the application of Article 7(f) to theatrical performances was that there was an uncertainty in the case of some works of American origin as to whether PRS did in fact control the rights. This was because the composers were normally members of ASCAP or affiliates of BMI, (the performing rights societies in the US) and the extent of the non-exclusive mandate granted to those organisations by their members was not the same as that of the assignment to PRS by its members. In many cases there was a PRS member sub-publisher for the PRS territory who assigned to PRS such rights as he had, but the sub-publisher did not always have full rights to assign to PRS. Owners of the copyright in songs and other works of American origin sometimes claimed that the use of such works in compilation shows constituted a dramatic performance falling outside the scope of the mandate given to the US performing right organisation to which they belonged and in consequence PRS had no authority to license such use. Article 7(f) therefore facilitated direct licensing via the UK sub-publisher and prevented a damaging argument as to PRS' ability to license such rights.

49. PRS indicated that they invariably acceded to requests for the application of the Article 7(f) procedure in the case of compilation shows. They did, in these cases insist on compliance with the two conditions referred to in paragraph 28 above i.e. the tariff must not be lower than the appropriate PRS tariff and the licence granted to the producer of the show must be an "exclusive" one. The main reason for insisting on the first condition was to avoid any undercutting of the relevant PRS tariff which could lead to pressure from users (and perhaps from the price regulatory authorities) for a reduction in that and perhaps other PRS tariffs. PRS also indicated that, in practice, this condition was largely redundant since the member concerned would not request the procedure if he did not think that he could license the public performance at a rate greater than the relevant PRS tariff. The second condition, relating to exclusivity, was to help the theatrical producer himself. Some producers required a degree of exclusivity to protect them from the possibility of a similar show being presented in competition with them.

50. PRS said that there have been some instances of pop groups, whose members are also composers, seeking to operate the Article 7(f) procedure in relation to pop concerts. Such requests have invariably been refused for a number of reasons. Pop concerts could be quite spontaneous events and the precise songs to be performed were not necessarily fixed in advance. Furthermore the condition regarding exclusivity could not be complied with. In effect since the main attraction at a pop concert was usually the performers themselves, the need for protection from similar events (and hence the need for exclusivity) did not arise. Accordingly the exclusivity condition is not really relevant to pop concerts.

51. PRS said that there were a number of problems which would be difficult to overcome if PRS ever acceded to such a request by a pop group. Firstly the request was likely to be made in respect of a given tour by the group and if a number of different countries were involved then PRS would have the task of trying to negotiate its reciprocal representation agreements with the local society in each of the different countries in which the group was to perform. PRS would have granted to those societies the right to authorise every public performance of works in the PRS repertoire. For PRS to decline to exercise the performing right in certain works in its repertoire would require the group in question to license its rights subject to the prior licences granted by PRS to the foreign societies (which would render the effect of Article 7(f) practically useless) or, alternatively, for the foreign societies to agree that the rights could be licensed directly by the group. There would be no particular reason for them to agree at all. The foreign societies would gain nothing from the arrangement and their own credibility in licensing the performances of foreign groups could be called into question.

52. Secondly, according to PRS almost always a tour by a prominent group would involve support acts. These acts would either perform their own works or other works within the repertoire of PRS. If the headline act were permitted to license the public performance of its own works directly, PRS would still be required to grant a licence for the public performance of other works to be performed by the support acts (or even by the headline act itself if it proposed to perform works written by others) and the cost of such licensing would be borne unfairly by the other members of PRS. The headline act would not bear its fair share of the normal PRS administrative costs arising out of the concert.

53. Thirdly, according to PRS there was undoubtedly in some instances of requests by pop groups to invoke the Article 7(f) procedure a conflict of interest which meant that the request was not necessarily made to benefit them as composers. PRS stated that it attempted to set licensing tariffs which ensured a reasonable rate of return for all members. To create a "free market" in royalties for pop concerts might act to the detriment of the weaker members, who might, in the absence of effective protection, be induced to avail of Article 7(f) for a lesser consideration.

54. Finally there was a further practical matter in that pop concerts provided a forum for young support bands and an arrangement which allowed pop groups to use the Article 7(f) procedure would not necessarily be in the interests of the support acts. It would be open to a headline act to decline to use any support acts to try to circumvent PRS' argument that it would still have to license the concert anyway. If support acts were no longer used, this would be a disincentive to young composers and performers and in itself would be a restriction on competition.

55. As regards the returns of programme details from hotels, restaurants, bars etc (see para. 34), IMRO stated that it would not be practicable for them to require returns to be submitted from such users for all performances, and even if they were obtained, the cost of analysing them would consume so much of the royalties collected, that there would be little left to distribute.

56. PRS stated that in essence the earnings equalisation scheme referred to at para 39 was close to being a pension scheme; however the 'pension' only became payable if the current PRS earnings of the member who had qualified under it fell below a level which was determined by reference to the level of his past earnings through the Society. The scheme therefore provided a 'cushion' against income falling below a given level.

57. The three associations representative of authors, composers and publishers referred to at para 11 were invited to furnish observations on the assignment arrangements. One of the bodies, Republic of Ireland Music Publishing Association (RIMPA), made a submission. RIMPA represents virtually all trading music publishers in Ireland and its members belong to PRS. Its activities involve the promotion of the musical compositions of their composers including by way of performance on radio and television. These composers are also normally members of PRS. The position regarding distribution of performing royalties by PRS to these members is that a maximum of 50% may be paid to the publisher. RIMPA said that the reason for this maximum limit was to protect composers from selling out their interest in their compositions completely to music publishers who might be in a stronger economic position. RIMPA said that publishers generally were not in as strong an economic position as before and that the maximum limit should be reviewed accordingly.

58. A submission, on behalf of the Concert Promoters and Venue Owners Association, stated that the Association was formed in November 1991 for the specific purpose of representing concert promoters and venue owners in their dealings with PRS/IMRO. It was the understanding of the Association that once copyright in the performing right had been assigned to PRS, a member had no control thereafter as to how such copyright was disposed of. The result of this was that even where the composers were the performers of the music, as was commonly the case with popular artists, those composing and performing artists were not in a position to negotiate with the concert promoter as to how much the concert promoter was to be charged for the public performance of the composer's work. Instead, PRS insisted that a percentage of the gross box office be paid to them as the copyright owners in the performing rights in the music. The Association felt that it ought to be possible for them to negotiate directly with composer-performers "on a free market basis".

59. A submission on behalf of The Vintners' Federation of Ireland Limited, RGDATA, Licensed Vintners' Association, National Federation of Retail Newsagents, Irish Retail Newsagents Association and Irish Hardware Association stated that they did not know the content of the agreements (CA/1, 2 and 3) and reserved the right to make a further submission on seeing the preliminary decision of the Authority. They felt that the system whereby they could only obtain licences from IMRO (a situation resulting from the combined effect of the assignments) was fundamentally anti-competitive and contrary to Section 4 of the Act. They had no objection to the idea of collecting copyright organisations as such. They did not accept that it was necessary for the assignments to result in only one such collecting organisation. In their view, IMRO's charges were excessive.

60. EU law imposes certain restrictions on the freedom of collecting societies in respect of their terms of membership and activities. This is because collecting societies usually operate as de facto monopolies in Member States and consequently, they occupy a dominant position within a substantial part of the EU within the meaning of Article 86 of the EEC Treaty and any abuse of this position is prohibited under EU law. The EU Commission have investigated the practices of a number of European collecting societies under Article 86 of the Treaty and there have been several EU Court of Justice judgments in respect of such societies. The rules and practices of performing right societies have not been examined by the EU Commission under Article 85 of the Treaty, which relates to anti-competitive agreements, decisions of associations and concerted practices. The Court of Justice made it clear in BRT v. SABAM and FONIOR, [4] that collecting societies, in drawing up internal rules must take account of all relevant interests in such a way that a balance is ensured between 'the requirement of maximum freedom for authors, composers, and publishers to dispose of their works and that of the effective management of their rights'.

61. The most detailed examination of the internal regulations of a collecting society from the viewpoint of EU competition rules was made in the 1971 Gema [5] decision. In this decision the Commission ruled inter alia that, as far as relationships with members were concerned, Gema had abused its dominant position (a) by discriminating against nationals of other Member States and (b) by binding its members with excessive obligations. It stated that members should be free to withdraw from Gema the administration of certain categories (of which there were 7) at the end of each year. Gema found that the right of annual resignation was too difficult to live with and negotiated further with the Commission. In 1972, the Commission accepted the right of Gema [6] to extend the minimum length of membership to three years, on condition that the range of rights which had to be assigned during that period was narrowed, thus allowing members greater freedom in dividing up the responsibility for collection of royalties around different societies. They accordingly defined 12 "forms of utilisation" e.g. the general performance right; the public performing right of broadcast works; the public performing right of televised works; the right of mechanical reproduction and distribution) within which the complete assignment of rights could be required for a given country. The Rules of PRS have been challenged under Articles 85 and 86 in a case currently before the High Court in London.

62. The operations of Music Performing Rights Associations in the USA have been the subject of several anti trust actions principally under the Sherman Act 1890. There are three main licensing associations operating in the US viz. The American Association of Composers, Authors and Publishers (ASCAP -whose members are composers, lyricists and music publishers), Broadcast Music Inc (BMI - whose stock is owned by broadcasters) and the much smaller privately owned SESAC. All the associations operate under anti trust constraints arising in particular from an amended consent decree accepted by ASCAP in 1950 and a consent judgment accepted by BMI in 1966. Under the 1966 decree judgment BMI was, inter alia , enjoined and restrained from

"(A) Failing to grant permission on the written request of all writers and publishers of a musical composition including the copyright proprietor thereof, allowing such persons to issue to a music user making direct performances to the public a non-exclusive licence permitting the making of specified performances of such musical composition by such music user directly to the public, provided that the defendant shall not be required to make payment with respect to performances so licensed."

63. The consent decree accepted by ASCAP in 1950 included, inter alia, a more restrictive enjoinment and restraint on ASCAP from

"(A) Holding, acquiring, licensing, enforcing or negotiating concerning any rights in copyrighted musical compositions other than rights of public performance on a non-exclusive basis;

(B) Limiting, restricting or interfering with the right of any member to issue to a user non-exclusive licenses for rights of public performance;"

64. As a result of these consent decrees, creators/publishers in the US have the right to license the public performance of their works even though they are members or affiliates of collecting societies. In a number of cases, the US Supreme Court has held that the ASCAP and BMI arrangements, as amended by the consent decrees, do not constitute a collective price fixing arrangement per se and so do not infringe the provisions of the Sherman Act. [7]

65. The Authority issued a Statement of Objections (SO) to PRS and IMRO on 4 March 1993. A written response was received on 23 April, 1993. An Oral Hearing was held on 7/8 March 1994, and a further meeting with PRS took place on 4 May 1994. Notification of their arrangements was made by PRS to the EU Commission on 4 February 1994 seeking negative clearance under Articles 85(1) and 86 or alternatively an exemption under Article 85(3).

66. In its submissions and at the Oral Hearing, PRS disputed that the arrangements constituted an agreement between undertakings within the meaning of Section 4(1) of the Competition Act. They considered that PRS, as distinct from its individual members, could not be considered as an economic undertaking independent of the other party, i.e. its members. In 1992 PRS had approximately 25,500 members of which 12,700 were provisional members with no vote, 10,200 were associate members with 1 vote each and 2,600 full members with 10 votes each. PRS said that Section 5 of the Act was designed to capture unilateral behaviour by one player and in this case there was just one player involved. PRS also stated that only the deeds of assignment had been notified to the Authority and not its Memorandum and Articles of Association and rules. They considered that Section 5 of the Act, in respect of which the Authority had no function, was the proper focus for these.

67. PRS stated that Sections 22 and 25 of the Copyright Act, 1963 limited the rights to enforce copyright to the owner (PRS) and an exclusive licensee of the owner (IMRO). Ability to enforce within the framework of the Copyright Act was an essential element of the collection system. A rule of reason approach to the interpretation of Section 4 of the Competition Act should take account of the unique aspects of music creation and marketing as well as of constraints on enforcement imposed by the Copyright Act, bearing in mind that copyright itself was created by statute. A non-exclusive licencing system would substantially complicate legal enforcement of copyright and increase its costs, e.g. in specific cases PRS would have to jointly sue with named members with any relief granted confined to the particular works cited. The cumulative effect of widespread non-exclusivity would be to so increase costs as to make enforcement uneconomic and lead to a collapse in the licensing system. They stated that there was a difference between enforcement in the sense of being able to sue and licensing in the sense of being able to issue a licence. A non-exclusive licensee could issue a licence but he could not sue. PRS at present sought a wide injunction in respect of the full portfolio of the works they were entitled to license. That did not necessarily mean that PRS would sue on all of them.

68. PRS argued that the licencing environment in the USA was very different from that in the UK or Ireland, i.e. on a per head basis there were four times more licensed users in Ireland than in the US and in the US many types of public performance were exempted by law. Figures supplied by PRS showed that while revenue from live performance in Ireland represented 40% of public performance revenue (and for Great Britain and Ireland 30%), in the US (for one collection society) live performance revenue was only 5%. Under its consent decree ASCAP was required to permit the members themselves license performances of their works but the incidence of live performance licensing in the USA was low with the major share of revenue derived from broadcasting. With regard to the BMI consent decree, PRS said that they did not know whether there was an assignment or a non-exclusive licence but there was a transaction and creators and publishers could administer their own rights if they wished. Basically all persons involved in a composition had to send a written request to BMI which BMI could not refuse. PRS said that because non-exclusivity applied in the US, the Authority should not proceed on the basis that it should also work in this country. The practices operated in the EU countries, where exclusivity was the norm, were more relevant to, and comparable with, the Irish situation.

69. PRS said that the non exclusivity of the US system did not prevent the inclusion of US works in their enforcement proceedings in Ireland. Currently PRS sued for breaches on the basis of a number of named works but sought an injunction in respect of their full portfolio. They said that with the exception of concerts there was no perceived demand from its members to exercise the performing rights themselves. In practice a creator might be able to collect royalties from his own performances but wider collection would not be practicable. The main concern of PRS was to avoid giving users another excuse for non payment and creating uncertainty even for broadcasting where they could no longer guarantee exclusivity. A study undertaken by PRS showed that if some Irish song titles were non exclusive to PRS there would be a diminution in PRS income from public performance and a very substantial increase in costs largely due to increased monitoring of users resulting in a sharp decline in net revenue for distribution to members.

70. On the question of Rules 7(b) and 7(c), which required a three year assignment of rights, PRS in its written submission argued that this was the minimum period deemed necessary for the stability and security of membership necessary to achieve their objectives. At the Oral hearing PRS stated that its Council would propose to reduce this period to 1 year at their AGM in September 1994.

71. At the Oral Hearing, the Authority accepted that PRS/IMRO could not operate if creators granted them a non-exclusive licence instead of an assignment in respect of their works, since this would make it extremely difficult for PRS/IMRO to take court actions for breach of copyright. It suggested that it should be possible to devise alternative arrangements which could satisfy the indispensability test in section 4(2) of the Competition Act and still protect the integrity of the collection/enforcement system. It was noted that Article 7(f) of their Articles of Association already enabled PRS to return the whole or any part of the performing right to a member although currently this was entirely at the discretion of PRS. It was indicated to PRS that if certain amendments were made to the Articles of Association, the arrangements would be acceptable to the Authority. In particular it was suggested that a variant of Article 7(f) whereby PRS would be required, in response to a request by all of the creators/publishers of a work, to allow members to license the use of their works to individual users within the State on a non-exclusive basis, (i.e. on the lines of the BMI consent decree), would be acceptable. PRS were given time to consider this proposal but subsequently informed the Authority on 4 May 1994 that they did not intend to make any amendments to their Articles of Association along the lines discussed.

72. PRS said that Article 7(f) was only used in respect of the return of compilation rights which were in the grey area between grand rights (which PRS did not hold) and small rights. Where this rule was invoked for a particular performance at a particular place PRS could still retain enforcement rights for other performances of the works involved. PRS argued that the PRS collecting system required that exclusive licensing rights remain with PRS. Broadcasting licences were for 3/5 year periods and premature return of broadcast rights to members for particular songs would damage the integrity of the PRS warranty to broadcasters on their full portfolio. The collective loss to PRS members from the loss of exclusivity, leading to increased collection costs, increased opportunities of evasion and uncertainty in relation to the scope of the PRS warranty, would far outweigh the individual gain. Anybody opting out of the system would cause chaos. PRS stated that legal differences existed between a non-exclusive licence and an assignment where some rights were given back and that the latter would not deprive IMRO (PRS) of its enforcement rights. The wider operation of a provision similar to 7(f) would damage the creation of music in Ireland especially in relation to support bands. It would not be practical for support bands with small repertoires to perform only their own music. Creators performing their own music would seek to maximise their income by cutting out support bands.

73. Following further consideration PRS informed the Authority on 4 May 1994 that they could not agree to the amendment to the Articles of Association as proposed at the Oral Hearing. They requested instead that a licence be issued subject to conditions as provided for in Section 8(1) of the Act, i.e. that the licence would operate with the amendment suggested and that PRS would be given a time limit to comply with the condition imposed. This would minimise the damage that would result from a negative decision. It would also give PRS and other parties an opportunity to comply with, or appeal, the licence. Should the Authority subsequently decide on the basis of evidence submitted to it that PRS was not complying with the conditions imposed, it could amend or revoke the licence under Section 8(3) of the Act. A negative decision would give rise to legal uncertainty and make it impossible for PRS to enforce its licensing system.

74. PRS stated that it would not be acceptable to them to have two sets of rules for one member, i.e. one set which would apply in Ireland and one applying elsewhere. Any changes in relation to Ireland would lead to great pressure for a change in the system with regard to other countries. They urged the Authority to defer a decision in this case until the EU, having looked at the arrangements from a European dimension, had made its decision. A decision by the Authority could be reversed by the EU and would have caused unnecessary chaos.

75. At the Oral Hearing, PRS also stated that discussions were taking place between PRS and IMRO on the question of IMRO becoming a separate membership organisation in Ireland during 1994. Currently PRS members in Ireland had little option to join other European societies because of the language difficulties. PRS stated that if IMRO was established as an independent membership society, members would be free to move between societies which would create competition and give members a choice of remaining with PRS or of joining IMRO. Subsequent to the Oral Hearing IMRO wrote to the Authority requesting that the Authority should not take a decision in respect of the notification until IMRO had been established as an independent body.

76. A number of other issues raised in the PRS submission and at the Oral Hearing relating to factual details and clarifications have been incorporated in this decision.

77. Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State, or in any part of the State.

78. The term "undertaking" is defined in Section 3(1) of the Competition Act, 1991 as follows:

"a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service."

79. In its decision in the PRS/IMRO agreement, the Authority concluded that PRS was an undertaking within the meaning of the Act. That conclusion applies in the present case also. The individual composer, author, lyricist or publisher of music is also an undertaking since each is engaged in the provision of a service,i.e. the composition, writing or publishing of musical works, for gain. The primary purpose of the assignment is to facilitate the obtaining of financial gain from the exploitation of the copyright which arises from the musical composition.

80. The assignment agreements under consideration are formal written agreements in standard form constituting categories of agreement between undertakings for the purposes of the Competition Act. The Authority also takes into consideration the Memorandum, Articles, Rules and related practices of PRS as the assignment agreements in isolation from these would have no life of their own, i.e. the assignment is in pursuance of the assignees' membership of PRS with membership a precondition to the administration by PRS of the performing right on their behalf. For the purposes of this decision, these are regarded as being part of the overall agreement between undertakings. In other circumstances, these latter might be viewed as decisions of an association of undertakings. While PRS might not be considered as an economic entity independent of the totality of its members, particularly the 10% of members, who, as full members, have voting control of its affairs, the assignment agreements are between PRS and particular individual members, each of whom operates as a separate independent undertaking. Individual members are pursuing their own economic interest when they create/publish musical works. They are competing to have their works used in preference to those of other creators/publishers in order to maximise their income. The members and PRS cannot be regarded as a single economic entity with common interests.

81. The essential feature of the assignment arrangements is that they involve a transfer of ownership of property (the performing right) from the creator or publisher to PRS, thereby granting PRS the exclusive right necessary to exploit the copyright (Clause 2 of the Assignment; Article 7(a) of Articles). Generally, the assignments cover the performing right in all works for the whole world. As such, the arrangements preclude the member from administering the performing right himself, e.g. by granting an individual right to individual users, or from engaging the services of any other collecting organisation. It is understood that most, if not all, active musical creators and publishers in Great Britain and Ireland are members of, and enter into these arrangements with, PRS. The arrangements also involve a restriction on the freedom of copyright users to purchase the performing right from any supplier other than PRS. They also have the effect of restricting competition in the supply of performing right between individual members and they involve the establishment and maintenance of uniform rates of royalty and other conditions in relation to the exploitation of the performing right thereby eliminating price competition. In effect, the arrangements, taken in their collective context, constitute an exclusive collective copyright enforcement system involving independent undertakings and, as such, are restrictive of competition within the State and offend against Section 4(1) of the Competition Act.

82. The main clause of the Deed which operates to carry out the assignment is Clause 2 and, accordingly, it offends against Section 4(1) as it has the object and effect of preventing, restricting and distorting competition between individual creators and between individual publishers.

83. Clauses 1 and 4 which relate to definitions and to the giving of a warranty that the assignment itself does not involve breach of copyright are clearly not anti-competitive and do not offend against Section 4(1).

84. Clause 3 provides for the making of payments to the assignor out of the royalties collected by PRS. As such, the clause, per se , does not offend against Section 4(1). However, the amounts payable to members are determined in accordance with the Rules of the society and these are further considered in paras. 95 and 96 below.

85. The objects of PRS, as set out in Clause 3 of the Memorandum, include the acquisition of the business or property of any company carrying on activities similar to those of PRS (Clause 3(h)) as well as the acquisition of shares in such a company (Clause 3 (k)). The main purpose of these clauses, apart from empowering PRS to make such acquisitions, is to ensure that PRS keeps within its main functional area. As such, these clauses do not have the object of restricting competition. As regards their effect, they could, in conjunction with relevant provisions of the articles, afford a basis for acquisitive activities intended to maintain the dominant position of PRS in the market for performing right. However, following enquiries with PRS in regard to the actual use of these provisions, it is clear that these provisions have not been used in this way. Accordingly, the Authority does not consider that these provisions offend against Section 4(1).

86. Income derived from performing right royalties represents an important part of the livelihood of musical creators and publishers. While membership of PRS is not, in itself, essential to enable a person to pursue a livelihood in this field (since a creator or publisher could join another collecting society in the EU or attempt to collect royalties individually), exclusion from membership would involve considerable competitive disadvantages arising from additional delays in obtaining royalties and from additional administrative costs. The provisions of the Articles of Association relating to access to membership are outlined in paras. 24 and 25 above. The basic qualifying criteria are based on a minimum level of published or public output/work. Advancement from the lowest grade of membership (provisional member) to that of associate and full membership is conditional on the attainment of certain earnings levels. These distinctions as to membership are reflected also in the voting arrangements. The main perspective from which the Authority views these membership conditions is whether they might involve any unreasonable restrictions on the freedom of creators/publishers to enter into the profession of musical composition, writing and publishing. In the view of the Authority in these circumstances, the conditions relating to membership set out in Articles 2 to 5 of the Articles of Association are based on objective criteria which are applied in a non-discriminatory way. They do not involve any restriction on competition and therefore do not offend against Section 4(1) of the Act.

87. For the same reason as that set out in the preceding paragraph, the Authority considers that Clauses 9(d) and 9(e) relating to termination of membership on the initiative of PRS do not offend against Section 4(1).

88. A less sanguine view must be taken of the provisions of Article 9(f) under which the freedom of the member himself to terminate his membership is considerably limited. Under this article, the member is given an opportunity to leave, in effect, only at three-yearly intervals. This represents a significant impediment to the member to leave at all, if he were minded to do so, and to make other arrangements such as to administer his performing right himself, to join another collecting organisation or to seek, with others, to establish a new collecting organisation. It also represents a significant barrier to the possible entry of new collecting organisations into the performing right market. PRS has indicated that its Council is to propose an amendment to this rule at their AGM in September 1994 to introduce a one year interval with 3 months notice expiring at end year required. However the agreements notified to the Authority provide for 3 yearly periods and, for the reasons stated above, the Authority is of the view that Article 9(f) offends against Section 4(1).

89. Article 7(a), which provides for a member of PRS to assign his rights to PRS, offends against Section 4(1) for the reasons indicated in para. 81 above.

90. Article 7(b) offends against Section 4(1) in two respects, (a) inasmuch as it prescribes the "form" of the assignment agreement and (b) inasmuch as it prescribes, in conjunction with Article 9(f) (see para. 88 above), the duration of the assignment agreement.

91. Article 7(c) offends against Section 4(1) inasmuch as it forms the legal basis for the imposition of the restriction relating to dividing up rights referred to in para 19 above, i.e. the right to divide rights by category or country is exercisable on joining and thereafter at 3 year intervals only.

92. Article 7(d) which provides for transitional arrangements pending the ordinary assignment of rights pursuant to Article 7 offends against Article 4(1) inasmuch as it provides for or permits the imposition of terms or conditions similar to those in other clauses which do offend against Article 4(1), e.g. in relation to the basic assignment and duration of assignment.

93. Article 7(e) is an enabling provision under which PRS/IMRO may enforce, in the State, the rights of members of societies in other countries with which PRS is affiliated. This is provided for further in contracts between PRS and the affiliated societies. No such contracts have been notified to the Authority under the Competition Act and, accordingly, this decision does not apply to them. Since Article 7(e) is merely an enabling provision, it does not offend against Section 4(1).

94. Article 7(f) empowers PRS to return to the member all or part of the performing right which he originally assigned to the Society. On the face of it, this provision appears to be pro-competitive. It represents a derogation from the restrictive ties of the assignment agreement. It is necessary, however, to consider how the provision operates in practice. It is clear from the material in paras. 49 to 54 that the provision is actually operated in a very restrictive way. Derogations are permitted only in very restricted circumstances. Applications from creators/performers to license their own concerts are invariably refused. Even if a request is granted, two further restrictions, which do not appear in the Article itself, are imposed. These require that the appropriate PRS tariff be respected and that an exclusive licence only be granted. PRS may also withdraw the derogation at any time. The manner in which Article 7(f) is operated reinforces the view that the assignment arrangements generally are indeed restrictive of competitive activity. In the Authority's view Article 7(f), as operated at present, offends against Section 4(1).

95. Rule 2(c) of the Rules forms the legal basis for the value to be assigned to musical works for distributable purposes. In this regard, the operation of the point system as described in para 38 is non-discriminatory and does not offend against Section 4(1).

96. Rule 2(f) of the Rules provides that the share of the publisher and/or proprietor of the performing right shall not exceed one half of the net fee. This rule sets a limit of 50% on the share of income payable directly by PRS to the publisher. However the arrangements between the writer and publisher are also governed by the writer/publisher contracts which can, inter alia , provide that royalty payments to the writer are paid over to the publisher. Effectively any restrictive effect in this rule can be bypassed by the arrangements agreed in the creator/publisher contracts. Price competition between publishers in the provision of publishing services is therefore not affected and consequently this rule does not offend against Section 4(1).

97. The Authority considered whether the "Earnings Equalisation Scheme", described in paragraph 39 above, might represent a form of "tied sale" from the point of view of the ultimate users of the performing right. In the Authority's view, the scheme involves a voluntary donation by creators for fellow members whose earnings have fallen because their music is no longer popular. As such, it may be seen as a sacrifice of a small proportion of their earnings by the general membership and not involving the payment of additional royalties by users. The total amount paid out by PRS in 1991 in respect of the E.E.S. was £619,000 Sterling or 0.5% of total royalty income. The Authority does not consider that these activities offend against Section 4(1) of the Act.

98. In the view of the Authority, the following features of the arrangements offend against Section 4(1):-

- the whole exclusive assignment agreement with PRS

- the basic assignment provisions, including their exclusivity (Clause 2 of Deed of Assignment and Article 7(a) of the Articles of Association)

- Article 7(b) inasmuch as it prescribes the form and duration of the assignment agreement

- Article 7(c) of the Articles insofar as it forms the legal basis for restricting the times at which the member may divide rights by category or by country

- Article 7(d) insofar as it provides for restrictive arrangements on a temporary basis

- Article 9(f) which imposes restrictions on termination of membership by a member

- Article 7(f) and the operation of the two conditions attaching to it allowing individual members to administer the performing right themselves.

99. Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement or category of agreements "which in the opinion of the Authority, having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not -

(i) impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;

(ii) afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.'

100. In the opinion of the Authority, the notified arrangements do not fulfil all the conditions provided for in Section 4(2).

101. The notifying parties advanced a number of arguments in support of their claim that the arrangements notified met the above condition. These arguments may be summarised as follows. Effective protection of performing right is extremely labour intensive involving considerable expenditure on administrative and monitoring procedures. In view of the practical difficulties and expense involved, it is only through collective action that creators may ensure effective protection of their performing right. In the absence of the present arrangements, it would be impossible for creators to obtain a just reward for the performance of their works and, in that event, the incentive to produce musical works would be very significantly reduced, or licences to perform music might not so readily be made available, and these would be to the detriment of licensed users and of the general public, as ultimate consumers.

102. The Authority accepts this reasoning. There are considerable practical difficulties involved in the administration and enforcement of performing rights, particularly in relation to the multiplicity of smaller users, and these difficulties do point to the need for a central collective licensing/enforcement system on behalf of creators and publishers many of whom are based outside the State. Substantial additional transaction costs would clearly be involved in any multiplicity of systems of administration of performing right based on licensing by individual creators. Compliant users would require a large number of licences while the cost of pursuit for non compliance by individual creators/publishers would make this activity totally uneconomic except in the case of major users or events. The pursuit of breaches of copyright by smaller users would become totally uneconomic.

103. The Authority therefore accepts that a collective system of performing right administration involves efficiencies and these would be significant in the generality of cases. Assignment of the performing right to PRS is accepted as improving the provision of services.

104. Users benefit from the improved provision of services. Licensees (i.e. the users, such as radio and television broadcasters, discos, public houses etc.) benefit from access to the PRS repertoire and from the avoidance of additional transaction costs which would be involved if they had to deal with a multiplicity of licensors. The ultimate consumers, the listening public, also share in this benefit as consumers of the various services, of which music forms part, provided by the intermediary undertakings. Consumers also benefit to the extent that a collective copyright arrangement has resulted in a greater supply and variety of musical works being available than would otherwise be the case. The Authority therefore considers that the collective copyright arrangements allow consumers a fair share of the benefit.

105. When a member assigns his performing right to PRS, he does so on an exclusive basis i.e. the rights which he has assigned may not thereafter be exercised by him as an individual apart from the Article 7(f) procedure in respect of which PRS has full discretion whether to apply it or not and which is applied very seldom in practice. This is in contrast with the situation in the US where either exclusivity is prohibited in the case of one society or where affiliates of another society must be granted permission to license individual users themselves. Essentially they therefore can individually license public performance of their works. This system has operated in the US for the past 50 years. There is no evidence that preventing members from granting non-exclusive licences to individual users for particular purposes is essential to achieve the efficiency gains generated by a collective copyright enforcement system. Even though licensing on an individual basis appears to be rarely used in the US, it is clear that a collective copyright enforcement system which allows such freedom can operate satisfactorily.

106. A mechanism for creators/publishers to assign their works to PRS is necessary to enable PRS to be in a position to license its repertoire. Those provisions, without which PRS could not exist at all, are clearly indispensable. The Authority believes that preventing the members from granting non-exclusive licences to individual users for particular purposes is not essential for PRS to operate effectively as a collective copyright enforcement agency. In the Authority's view such a restriction is not indispensable for the achievement of the efficiencies and other benefits which a collective copyright system produces. The experience in the US over the past 50 years indicates that collective administration of performing right is not incompatible with allowing creators/publishers to grant individual non-exclusive licences. The Authority considers that members of PRS should have the freedom to choose whether to allow PRS alone to administer all or part of the performing right, or to administer it themselves on individual occasions. At the Oral Hearing the Authority indicated to PRS its view as to how this could be effected in a manner which could meet the indispensability test under section 4(2) without impinging on the integrity of the current licensing and enforcement system. Since it is likely that few would choose to exercise this option, the Authority believes that the efficient operation of PRS does not require the existing arrangements.

107. The Authority is also not convinced that the following provisions are indispensable for the effective operation of PRS:

- Article 7(b) which prescribes the duration and form of the assignment agreement,

- Article 7(c) which forms the legal basis for restricting the times at which a member may divide rights by category or by country,

- Article 9(f) which imposes restrictions on termination of membership by a member.

It is accepted that these restrictions are compatible with the Gema decisions but compatibility with a Commission decision under Article 86 does not rule out the application of national competition law. It is also accepted that only a limited number of members may be interested in these freedoms. However, in the Authority's view, the three year period is, in the context of the present arrangements, excessive and should be reduced to such period as can be shown, objectively, to be indispensable for the efficient operation of PRS. In this regard the Authority noted the intention of the Council of PRS to recommend a reduction of this period to 1 year at their AGM in September 1994. A reduction of the period to one year would satisfy the concerns of the Authority in relation to Articles 7(b), 7(c) and 9(f).

108. It is clear from all of the foregoing that the assignment arrangements do involve significant restrictions on competition between creators and between publishers, especially in relation to price. Since each item of the PRS repertoire is essentially available at the same price, price competition is entirely eliminated by virtue of these arrangements. A creator cannot break into the market by offering his product at a lower price. The exclusive nature of the assignment contributes greatly to these restrictions. The Authority however believes that there is some degree of non-price competition between creators which is not eliminated by the arrangements. The Authority believes that normally arrangements which eliminate price competition would not satisfy the requirements for a licence. It considers on balance however that, taking into account the special nature of the market in music, the arrangements do not afford the possibility of eliminating competition in respect of a substantial part of the services in question.

109. At its meeting with the Authority on 4 May 1994 PRS requested that, in the event of the Authority coming to a negative conclusion on their notifications, a conditional licence should be issued. The Authority is empowered to grant licences to agreements which meet the requirements of section 4(2) of the Act. It cannot grant a licence specifying the type of agreement it would like to see when no such agreement exists. In addition as PRS has already indicated that they were not prepared to amend the arrangements the Authority does not consider that a conditional licence would be appropriate. IMRO also requested the Authority not to take a decision until a planned new independent Irish based collection society with its own rules had been established. No action under the Competition Act can be taken in respect of the notified agreements under the terms of the Competition Act until the Authority has decided upon them, by virtue of section 6(7). The Authority does not believe that it should extend the protection of section 6(7) by deferring a decision in respect of a notified agreement in these circumstances. Any new independent Irish collective copyright agency can notify its arrangements to the Authority in the future if it chooses to. A party which has notified an agreement to the Authority may withdraw it prior to the Authority taking a decision. By so doing it loses the benefit of section 6(7). The Authority does not believe therefore that there is any justification for it deferring a decision when the effect of such a deferral would be to deprive third parties of a right to take action under the terms of the Competition Act.

110. PRS has asked the Authority to state the scope of its decision, i.e. by specifying whether it applies to revenue derived outside the State. The Authority considers that the scope of any of its decisions is co-extensive with the scope of the Act, which is a matter of general law, rather than a matter to be determined by the Authority.

111. It is important to stress that the present proceeding and decision relates solely to Section 4 of the Act. The Authority has not considered the present arrangements under Section 5 since it is not empowered to do so.

112. The Performing Right Society Ltd., and the individual creators and publishers who are parties to the notified standard assignment agreements under consideration are undertakings within the meaning of the Competition Act. The notified standard assignment agreements are agreements between undertakings. In the Authority's opinion, the notified agreements offend against Section 4(1) of the Act. In its opinion also, the notified agreements do not qualify for a licence under Section 4(2) of the Act because they do not meet all of the conditions required for the granting of a licence. The Authority therefore refuses to grant a certificate or a licence in respect of the PRS standard assignment of copyright in musical works, (CA/2/91E), notified to the Authority under Section 7 of the Competition Act 1991 on 3 October 1991.

For the Competition Authority

Des Wall

Member

18 May 1994