Irish Competition Authority Decisions

1. Notifications were made by the Irish Music Rights Organisation (IMRO) on 19 January 1995 and 30 January 1995 of three standard agreements relating to the assignment of copyright in musical works, with a request for a certificate under Section 4(4) of the Competition Act or, in the event of a refusal by the Authority to issue a certificate, a licence under Section 4(2). The Memorandum and Articles of Association and Rules of IMRO were also supplied as part of the notified arrangements. Following the expression of concern by the Authority in relation to certain aspects of these latter arrangements, amendments to satisfy the Authority's concerns were made. Notice of intention to grant a licence in respect of the arrangements was published on 13 October 1995 and one submission was received. In addition the Minister for Arts, Culture and the Gaeltacht was invited to offer observations pursuant to Section 4(5) of the Competition Act.

2. The notifications concern 3 standard agreements between IMRO and the owners of copyright in musical works relating to the assignment by individual creators (composers and authors), Publishers (involving individual persons) and Publishers (companies) of performing rights in their works to IMRO.

3. (i) IMRO

IMRO was the Irish subsidiary of the UK based Performing Rights Society (PRS) until 16 December 1994, when following a change in its Memorandum and Articles of Association, it became an independent company. Since January 1995 it has been operating as an independent collecting society on behalf of its members, who have entered into assignment agreements with IMRO, and on behalf of foreign collecting societies with which it has non-exclusive reciprocal arrangements.

The assignors under the notified agreements are primarily the

Irish based owners of the performing rights of musical works who are members of IMRO. These include the original composers, arrangers, lyricists and the publishers of those works. IMRO's membership now stands at 1049.

4. The product involved and the market for performing rights were described by the Authority in paragraph 15 of its Decision No. 326 [1] which dealt with similar arrangements notified by PRS. The Authority refused to issue a certificate or grant a licence in respect of those arrangements. In that decision the Authority also described in detail the legal position relating to the copyright in musical works (paragraphs 12/14) and EU and US law on collecting societies (paragraphs 60/64). The geographic market involved in the current IMRO notifications is the State. The value of the performing rights market for these works, based on IMRO's revenue within the State in 1994, was £6,477,000.

5. Three types of standard deed of assignment were notified by IMRO. One relates to creators while the other two are of the type 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 deeds is that the form relating to creators covers the assignment of both the performing right and the film synchronisation right while the forms relating to publishers only cover the performing right . The Memorandum and Articles of Association and the Rules of IMRO also form part of the notified arrangements.

6. The standard agreement is described as a deed of assignment made between the Assignor, pursuant to his/her membership of IMRO, and IMRO. Clause 1(a) of the deed defines a musical work 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 such work, words, music or accompaniment as aforesaid."

Clause 1(b) states " The expressions "Performing Right", "Film Synchronisation Right", "Performance" and "Perform" shall have the meanings given to them in the Company's Articles of Association."

7. Clause 2 of the deed of assignment states as follows:

"The Assignor assigns to the Company 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 company 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 be so acquired by or be or become vested in the Assignor (all which rights hereby assigned or expressed or intended to be assigned are hereinafter collectively referred to "as the rights assigned"), TO HOLD the same unto the Company 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 Company for the time being in force) remain vested in or controlled by the Company.

The rights assigned to the Company by this Deed are:-

(i) the Performing Right, and

(ii) the Film Synchronisation Right to the extent prescribed in Article 7(c)(ii) of the Company's Articles of Association (subject to the undertaking by the Company to assign or license this right in accordance with the terms of the proviso to Article 7(b))

for all parts of the world."

8. Under Clause 3 of the deed "The Company hereby covenants with the Assignor that the Company shall from time to time pay to the Assignor such sums of money out of the monies collected by the Company in respect of the exercise of the rights assigned to the Company in the works of its members as the Assignor shall be entitled to receive in accordance with the Rules of the Company for the time being in force."

9. Under clause 4 of the deed, the assignor covenants that he has full right and power to assign the rights and warrants that the musical works, the rights to which are assigned, do not infringe copyright in any other work. The assignor covenants to keep the company indemnified against any claims arising from the exercise by the company of the rights assigned and, as long as he is a member of the company, he will do all such acts necessary to enable the company exercise those rights.

10. The standard deed of assignment for publishers, whether corporate or individual persons, has the same clauses as that for writers with one exception, i.e., there is no provision for the assignment of the Film Synchronisation Right described at (ii) in para. 7 above.

11. The Memorandum and Articles of Association of IMRO set out the arrangements for the operation of the Company, the rights and obligations of members and provide for definitions of matters germane to the assignment agreements. The objects for which the company is established include the following:

(a) "To exercise and enforce on behalf of Members of the Company, being the composers of any musical works or the authors of any literary or dramatic works, or the owners or publishers of or being otherwise entitled to the benefit of or interested in the copyright in such works (hereinafter called the proprietors") all rights and remedies of the proprietors by virtue of the Copyright Acts, 1963 and 1987, or otherwise in respect of any exploitation of their works." and

(d) "To make and from time to time alter or vary any rules for regulating ...

(6) The terms and conditions under which (a) a member may require the company to grant to such member a non-exclusive licence in respect of work or works of which such member is the composer author publisher or proprietor for the performance of such work or works in public in the Republic of Ireland or (b) the company may decline to exercise the whole or any part of the Performing Right in any particular work or works;"

12. Provisions for access to membership are set out in Articles 2-5 of the company's Articles of Association. The number of members is unlimited. Persons who were members at 16 December 1994, excluding PRS, continued as members for 2 months within which they had to reapply for membership. Any writer, publisher or proprietor, or any spouse, next of kin or beneficiaries of deceased persons in the former category is eligible for membership subject to meeting the qualifying criteria. Provision is made for 3 categories of membership i.e. provisional, associate and full member. The qualifying criteria for membership are to be prescribed by the company's board with the criteria for associate and full membership to be approved by the company at general meeting.

13. Article 7, under the heading Assignment of Rights, states

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

(b) Every assignment to the Company pursuant to this Article shall be in such form as the Board of Directors may from time to time prescribe and shall operate for and during the period of the assignor's membership subject to the provisions of Articles 9 and 10.

Provided always that any assignment to IMRO of the film synchronisation right shall expressly provide that the company will at any time at the request of the composer or author of the work assign or license the film synchronisation right in the work to the film producer or other person who commissioned the composition ...provided that the Company shall have obtained from the producer...an agreement ....for payment to the Company of such fees....as the company may require in respect of any exhibition ....in cinemas ...in the USA.

(c) The rights to be administered by the Company 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 Board of Directors may direct,

for the whole universe or such part or parts of the whole universe as the Board of Directors 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 IMRO to exercise the rights of members by, inter alia, granting licences and collecting royalties.

Article 7(e) states "The Company 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 Company and such affiliated societies."

Article 7(f) states "The Company 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. Provided always that the Company 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 its rights comprised therein, whereupon the provisions of sub-clauses (a) to (d) of this Article shall again apply to such right or rights."

Article 7(g) states "Any Member may, (subject to compliance by the Member with the Rules), require the Company to grant to the Member a non-exclusive licence in respect of any particular work or works, the Performing Right in which has been assigned to the Company by such Member as the Composer, Author, Publisher or Proprietor thereof, for the performance of such work or works in public at any particular Event or series of consecutive Events."

14. Article 9 provides for termination of membership in the event of death of a member, liquidation of a member company and expiry of copyright. It also provides as follows:

"(d) the membership of a provisional member may at any time be terminated by notice in writing to the provisional member. Such notice shall be in writing and shall be signed by the Secretary or other officer designated by the Board of Directors.

(e) Any full or associate member may be given notice by the Board ..determining his membership at the expiration of fourteen days from the date of such notice ...Provided always that if, before the expiration of such notice.....such member shall require the Board ...to submit the question of the continuance of his membership to the decision of the company in Extraordinary General Meeting, he shall not cease to be a member unless and until the company in Extraordinary General Meeting shall have approved the action of the Board...

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

(I) one year after the date with effect from which he was first elected to membership, and

(ii) thereafter, on any anniversary of that date."

15. Article 35 provides that, until the AGM in the second year following the adoption of these Articles, the board shall consist of not more than 15 directors, of whom not more than 5 shall be publishers, not more than 7 shall be writers and not more than 3 shall be appointed by PRS. After that period the maximum number of directors reduces to 14, made up of 5 publishers, 7 writers and 2 appointed by PRS. Special provisions are provided in other Articles in relation to the PRS nominated directors.

16. Performing Right is defined in the company's articles as follows:

"Performing right means, in relation to a Musical Work, the right to do, or authorise other persons to do, any of the following acts:-

(i) to perform the work in public;

(ii) to broadcast the work; and

(iii) to cause the work to be transmitted to subscribers to a diffusion service

in so far as such rights subsist under the law in force from time to time relating to copyright in the State, and includes such corresponding or similar rights as subsist under the laws relating to copyright in all other countries in the world as in force from time to time."

17. Clause 2(d) of the Company's Memorandum and Article 52 of its Articles of Association empower the Board, subject to approval of the Company in General Meeting 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 IMRO to exercise and enforce the statutory rights and remedies under Irish law 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.

18. 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 deduction of IMRO'S collection and administrative expenses shall be distributed among the persons interested in the several works in such manner and in such proportions as the Board of Directors may from time to time determine. Under rule 2(e)(i), the royalty share paid by IMRO to a publisher or proprietor may not exceed one half of the net fee.

19. Rule 11 provides for the conditions under which IMRO grants a non-exclusive licence to members and reads as follows:

"The following shall be pre-conditions to the grant by the Board of Directors to a Member of a non-exclusive licence under Article 7(g):-

(a) that the Member serve a written notice ("the Notice") on the secretary of IMRO at the registered office of IMRO in a form prescribed by IMRO from time to time, not less than two months prior to the Event or Events in respect of which the licence is required. The Notice shall include the following:-

(i) the date or dates and approximate time or times on which the Event (or series of consecutive Events) specified in the Notice is or are to take place;

(ii) the place or places within the Republic of Ireland at which the Event (or series of

consecutive Events) specified in the Notice is or are to take place;

(iii) the particular Work or Works in respect of which the Member giving the Notice require IMRO to grant to that Member a non-exclusive licence for the performance of the Work or Works in public;

(iv) the name or names of the person or persons who will perform the Work or Works at the Event or Events;

(v) evidence to the satisfaction of IMRO that all the Works to be performed at the Event or Events will be subject to a licence granted pursuant to this Rule.

(b) that the Member giving the Notice shall furnish to the secretary of IMRO a written consent and release (in a form prescribed by IMRO from time to time) from all Persons interested in the Performing Right in the Work or Works specified in the Notice consenting to the proposed performance and releasing IMRO from any obligation to collect any royalty or other sums in respect of the performance of such Work or Works at the Event or Events in respect of the Performing Rights administered by IMRO for such persons."

For the purpose of this Rule 11:-

Event" means one day's performance of a Work or Works in public at a venue in the Republic of Ireland."

20. In regard to the Arrangements generally, IMRO submitted that the essential feature of the assignment arrangements was that they involved a transfer of title to property (the performing right) from the creator or publisher to the collecting society for the period of his or her membership for the purpose of administering the performing right in his or her works. However, the cumulative effects of the assignment, the Articles (particularly Article 7(g) and the Rules (particularly Rule 11) allowed great latitude to individual members of IMRO to obtain from IMRO a non-exclusive licence in respect of the performance of a particular work or particular works at a particular Event (as defined in Rule 11) or series of consecutive Events. The arrangements went no further than was reasonably necessary to protect the viability and cohesion of the collecting and administration system operated by IMRO while at the same time allowing "self-licensing" to the extent that members had a real and substantial choice of the most efficient means of exploiting rights in respect of a specific performance or series of performances of their musical works.

21. As regards Rule 11, IMRO stated that the first four requirements set out in Rule 11 (a)(i) to (iv) served merely to clarify the scope of any licence given. The fifth requirement in Rule 11(a) was included in order to ensure the feasibility of the self-licensing procedure and to protect the interests of the members and creators other than the member applying for a licence. If an Event included the performance of works by creators who had not sought or consented to a licence, IMRO, because of its obligation to collect and receive royalties in respect of the exploitation of copyright works, would be obliged to seek the payment of royalties in respect of those works from the promoters of the Event. This would undermine the feasibility of the self-licensing facility and place an excessively onerous administrative burden on IMRO. Unless IMRO could be certain that all of the works to be performed at an Event were the subject of a licence under Rule 11, it would be obliged to monitor each such Event to ensure that there was no unauthorised performance of works by other creators without the payment of a royalty. Clearly it would be administratively unworkable to monitor the content of each Event in respect of which Rule 11 was invoked by a Member or Members.

22. IMRO also stated that the Authority should note that the Rule 11 option was available to Members regardless of the value of the royalty payments which would otherwise be payable to IMRO in respect of the Event(s). The Rule 11 option might therefore be availed of by Members not only in respect of the relatively few large scale public performances which took place at the major venues in Ireland but also for the numerous regular events which occurred in smaller venues throughout the State. Effective monitoring by IMRO would require the attendance of one of the organisation's officers or agents at these Events. Such a monitoring operation would have a negative impact on other IMRO members since its cost would diminish the revenues available for distribution.

The more efficient means of regulating the self-licensing procedure was for IMRO to satisfy itself prior to any Event that the entire programme for that Event was, or would be, the subject of a licence under Rule 11. In this manner, IMRO struck the necessary balance between facilitating a member who wished to avail of self-licensing and protecting the interests of all other members against the possible unrewarded exploitation of their works. In this respect, IMRO submitted that in so far as any of the provisions of Rule 11 might be regarded as restrictive of the commercial freedom of members, such provisions were both necessary and indispensable for the protection of the viability of IMRO's own collection and administration functions and for the protection of the interests of IMRO members as a whole.

23. IMRO also made arguments in respect of the assignment, the royalty arrangement, power to acquire similar businesses and access to and termination of membership citing the views expressed by the Authority in its Decision No. 326. These arguments are not repeated here.

24. The following arguments in support of the request for the issuing of a certificate were submitted.

"Although the Authority considered in PRS that various elements of the collective copyright arrangements considered there offended against section 4(1), it is submitted (notwithstanding the observations above) that the Authority might properly take the view that insofar as the relevant provisions of the assignments and of IMRO's Memorandum and Articles and Rules affecting its members are necessary to ensure the proper and effective functioning of IMRO as a collecting society and to protect its contractual strength vis-a-vis users, they do not offend against section 4(1).

In this respect, IMRO would refer the Authority to the recent judgment of the EC Court of Justice in Case C-250/92 Gottrup-Klim -v- Dansk Landbrugs Grovvaresselskab ("Gottrup-Klim") (Judgment of 15 December 1994)."

25. IMRO submitted that one of its principal functions was to protect the interests of creator and publisher members in a market involving many powerful users. These users included RTE and other national and local broadcasters. Smaller users were also often members of powerful representative organisations or lobby groups. For example the Vintners' Federation of Ireland Limited effectively represented approximately 6,000 users. The difficulties encountered by IMRO in ensuring payment by users and the level of non-compliance with their obligations by certain types of users reflected the imperative need for a strong countervailing body, such as IMRO, to ensure the effective collective enforcement of copyright on behalf of creators and publishers. In order to function effectively as a collecting society, IMRO was obliged to place certain restrictions on members as regards assignment of copyright and minimum duration of membership. By reason of section 22 of the Copyright Act, 1963, copyright could only be enforced by the owner or an assignee of the owner. If IMRO did not enter into the notified assignments, it could not carry out its enforcement function effectively on behalf of its members (i.e. the proper and effective functioning of IMRO as a collecting society would be wholly undermined).

26. IMRO added that the provisions of Article 7(g) and Rule 11 on "self-licensing" (which effectively derogated substantially from the exclusivity of the assignment itself) made clear that IMRO sought to fully comply with the relevant copyright legislation, and to ensure its own proper functioning and bargaining power vis-a-vis users for the benefit of all IMRO members (including those who, for various reasons, would not seek to avail of "self-licensing"). On the other hand, these provisions also indicated, it was submitted, that IMRO did not seek to go further than was necessary to preserve its own essential functions for the benefit of members, without unduly restricting the rights of its members in the exploitation of the performing right in their works.

27. The Authority was also requested to note that the ECJ implicitly recognised in Gottrup-Klim that collective organisations (because of their complex administrative functions) might be justified in imposing long minimum membership periods on members. (In that case, a minimum period of five years was accepted). The Authority itself had recognised in PRS that a minimum period of one year (which applies in IMRO's case) would be acceptable. Accordingly, IMRO submitted that, on the basis of the ECJ's interpretation of the scope of Article 85(1) in Gottrup-Klim, the notified arrangements did not offend against section 4(1) because any restrictions imposed on members were necessary to ensure the proper functioning of IMRO as a collecting society and in order to maintain IMRO's contractual strength vis-a-vis users. It was therefore submitted that a certificate should be issued in respect of the notified arrangements.

28. IMRO also submitted that if the Authority did not accede to the request for a certificate, the notified arrangements should benefit from a category licence, under section 4(2) of the Act as the conditions laid down in that sub-section were met. They further submitted that they had carefully considered the PRS Decision and that the notified arrangements had been drafted with the specific purpose of addressing the concerns raised by the Authority in the PRS Decision . If therefore the Authority treated the notified arrangements in a manner consistent with the Authority's own treatment of the arrangements it considered in the PRS Decision , it ought to conclude that the notified arrangements were entitled to benefit from a category licence under section 4(2).

IMRO also submitted that the most appropriate means of disposing of the notified arrangements was by the way of a category licence in respect of assignments of performing right to IMRO by creators/publishers. They requested that any licence issued would expressly cover not only assignments already entered into between IMRO and individual creators/publishers (in respect of existing and future musical works) but also assignments entered into during the lifetime of any such licence.

29. The submission included the following arguments that the notified agreement contained no restrictions which were not indispensable saying that

"The Authority accepted in the PRS Decision (para 106) that:

"a mechanism for creator/publishers to assign their works to [a collective licensing body] is necessary to enable [that body] to be in a position to license its repertoire. Those provisions, without which [the body] could not exist at all, are clearly indispensable".

However, in the PRS Decision (para 106) the Authority said that it believed 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 Authority will have seen that under Article 7(g), a member of IMRO may require IMRO to grant to the member a non-exclusive licence in respect of any particular work or works for performance at an Event or series of consecutive Events.

Article 7(g) is drafted so as to preserve the integrity of the assignment from the members to IMRO, in order to ensure that IMRO can bring proceedings for infringement of the performing right in its own name. IMRO has obtained senior counsel's opinion that the granting of licences by IMRO to its members will not affect IMRO's claim to title to the copyright in the performing right (which is vital to enable it bring infringement proceedings in its own name) but if IMRO was obliged to assign back the rights to its members for this purpose then, arguably, the original assignment would not operate as an assignment (as IMRO's ability to bring proceedings in its own name would be placed in doubt).

IMRO accordingly submits that the benefits of self-licensing for members and users can only be attained with legal certainty by use of the procedure established in Rule 11. In light of the significant differences between the terms of IMRO's arrangements with its members and the terms of PRS' arrangements with its members, and for the other reasons given above, it is submitted that the IMRO arrangements include only those restrictions which are indispensable for the achievement of the efficiencies and other benefits which a collective copyright system produces. It is therefore submitted that the third test is satisfied."

(f) Subsequent Developments

30. In the light of its earlier decision on the PRS assignment agreements (Decision No. 326) the Authority expressed to IMRO its concerns in relation to the following aspects of the notified arrangements

(i) While Article 7(g) of IMRO's Articles of Association, which is described in para. 13, enabled the assignor to require IMRO to grant back to him a non-exclusive licence, this was limited to a particular event, or events, involving live performance in public.

(ii) While it had been claimed that IMRO was now independent of PRS, Article 35 of IMRO's Articles of Association, described in para. 15 above, provided that PRS, a potential competitor of IMRO, was entitled to appoint 3 persons as directors for the first 2 years and 2 persons thereafter.

31. On 16 October 1995 IMRO informed the Authority that following resolutions passed at an Extraordinary General Meeting of the company on 16 October 1995 to the company's Memorandum and Articles of Association and its rules had been made as follows:

clause 2(d)(6)(a) deleted and replaced with

"a Member may require the Company to grant to such Member a non-exclusive licence to permit such Member to exercise all or part of the Performing Right in respect of any particular work or works, the Performing Right in which has been assigned to the Company by such Member as the composer, author, publisher or proprietor thereof."

Article 7(g) deleted and replaced with

"Any Member may (subject to compliance by the Member with the Rules), require the Company to grant to the Member a non-exclusive licence to permit the Member to exercise all or part of the Performing Right in respect of any particular work or works, the Performing Right in which has been assigned to the Company by such Member as the Composer, Author, Publisher or Proprietor thereof".

Rule 11 deleted and replaced with

"The following shall be pre-conditions to the grant by IMRO to a Member of a non-exclusive licence under Article 7(g):-

(a) that the Member serve a written notice ("the Notice") on the secretary of IMRO not less than two months prior to proposed first date of exercise by the Member of the rights sought to be acquired by the Member pursuant to Article 7(g) such notice to be sent to the registered office of IMRO in the form prescribed by IMRO from time to time. The Notice shall include the following :-

(i) the date or dates on which, or the period during which the Member proposes to exercise the rights granted to him or her pursuant to Article 7(g);

(ii) the place or places within the Republic of Ireland at which the Member proposes to exercise the rights granted to him or her pursuant to Article 7(g);

(iii)the particular Work or Works in respect of which the Member proposes to exercise the rights grant to him or her pursuant to Article 7(g) (the " Relevant Works" ).

(b) that the Member giving the Notice shall furnish to the secretary of IMRO a written consent and release (in a form prescribed by IMRO from time to time) from all Persons interested in the Performing Right in the Relevant Works consenting to the proposed exercise by the Member of the rights granted to him or her pursuant to Article 7(g) and releasing IMRO from any obligation to collect any royalty or other sums in respect of Performing Rights arising as a result of the exercise by the Member of the rights granted to him or her pursuant to Article 7(g).

32. On 31 October 1995 IMRO informed the Authority that following an Extraordinary General Meeting held on 31 October 1995 the company's Articles of Association had been amended to eliminate the provisions for the nomination of directors by PRS and delete the special provisions in relation to them. The number of Directors was reduced to 12 of which not more than 5 shall be publishers and not more than 7 writers. In addition, a Resolution was passed which removed the existing PRS nominee directors from IMRO's board.

33. Following publication of Notice of Intention to grant a licence a response was received from the Irish Music Users Council (IMUC) which is the principal body representing music users and is made up of representative bodies such as the Vintners Federation of Ireland, RGDATA, The Irish Dance and Entertainment Industry Association etc. IMUC welcomed the changes effected to the arrangements as providing the basis for the introduction of some competition in the sector in the years ahead. They expressed their concern about the high level of involvement of publishers in the operation of IMRO saying that there was a conflict of interest between writers and publishers. IMUC contended that its members paid excessive charges to IMRO and that, while the user organisations had some strength, they did not, unlike IMRO, have any form of monopoly. In a subsequent submission IMUC argued that IMRO was a cartel of music publishers operating to the detriment of creators and music users and that if the Authority licensed the assignment agreement it would have given a licence to a multi-national cartel. IMUC did not accept that music royalties were a natural monopoly and argued that, as monopolies in practice were inefficient, the Authority should reject the argument that the effective monopoly represented by IMRO could improve efficiency. They claimed that if there was more than one royalty body, consumers would benefit from the lower prices arising from greater competition. They stated that the effect of the assignment agreements was to eliminate competition in the market for copyright music and that the Authority should therefore reject the agreements.

34. 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.

35. The term "undertaking" is defined in Section 3(1) of the Competition Act, 1991 as "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." IMRO is a body corporate engaged for gain in the licensing of music performing rights and is therefore an undertaking. The individual composer, author, lyricist or publisher, whether corporate or as an individual, is also an undertaking since each is engaged in the provision of goods or a service, i.e. the composition, writing or publishing of musical works, for gain. The notified standard agreements are agreements between undertakings. The agreements have effect within the State.

36. The assignment agreements notified 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 and Articles of Association and the Rules of IMRO since the assignment agreements in isolation from these would have no life of their own, i.e. the assignment is in pursuance of the assignee 's membership of IMRO with membership a precondition to the administration by IMRO 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.

Arrangements generally

37. The essential feature of the assignment arrangements is that they involve, under clause 2 of the assignment agreement, a transfer of ownership of property (the performing right) from the creator or publisher to IMRO thereby granting IMRO the exclusive right necessary to exploit, within the State and elsewhere, the copyright for the period of the agreement. As such, the arrangements ordinarily 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. The cumulative effect of the network of similar agreements established between the many Irish creators/publishers and IMRO creates a restriction on the freedom of copyright users to purchase the global performing right from any supplier other than IMRO. They also have the effect of restricting competition in the supply of performing rights 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.

38. The main clause of the Deed which operates to carry out the assignment is Clause 2 and, since it creates an exclusive assignment of performing rights to IMRO, it has the object and effect of preventing, restricting and distorting competition and accordingly, it offends against Section 4(1). The other clauses in the deed which relate to definitions, royalty payments to, and warranties by, the assignor do not offend.

39. Article 9 provides for termination of membership, with Article 9(f) providing that a member may terminate his membership, on giving 3 months notice, one year after election as a member or on any anniversary of that date. This effectively provides an opportunity to a member to terminate his membership at one yearly intervals. The Authority considers that this provides adequate opportunity for a member, if so minded, to leave IMRO and to make other arrangements such as to administer all his performing rights himself, to join another collecting organisation or to seek, with others, to establish a new collecting organisation. Nor does it represent a significant barrier to the possible entry of new collecting organisations into the performing right market. This Article, therefore does not offend against Section 4(1).

40. Article 7(a), which provides for the assignment by every member of all rights to IMRO, offends against Section 4(1) for the reasons indicated in para. 37 above. Article 7(b) also offends against Section 4(1) inasmuch as it prescribes the "form" of the assignment agreement. Article 7(c) offends against Section 4(1) because it includes in the assignment all the rights of the creators/publishers in all their works.

41. Article 7(d), which provides for transitional arrangements pending the ordinary assignment of rights pursuant to Article 7(a), offends against Article 4(1) inasmuch as it provides for or permits, albeit on a temporary basis, the imposition of terms or conditions similar to those in sub clauses 7(a) to (c) which do offend against Article 4(1).

42. Article 7(e) is an enabling provision under which IMRO may enforce, in the State, the rights of members of societies in other countries with which IMRO is affiliated. This is provided for further in contracts between IMRO 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. In the Authority's opinion, provided these contracts are on a non-exclusive basis they do not offend against Section 4(1) but they would offend if they were on an exclusive basis.

43. Articles 7(f) and 7(g) provided for the return to members in certain circumstances of all or part of a performing right originally assigned to IMRO. Article 7(f) only applies in very restricted circumstances and does not offend against Section 4(1). Article 7(g) of the Articles as originally notified, provided that any member, subject to compliance with the rules, could require IMRO to grant back to the member a non-exclusive licence in respect of any work or works for its/their performance in public at any particular event or series of consecutive events. Rule 11 of the Rules of IMRO set out the pre-conditions for the grant of the non-exclusive licence i.e. 2 months advance notice was required which would include the time and place of the event, the particular works to be performed, the names of the performers and evidence that all works to be performed would be subject to the non-exclusive licence granted. The licence was restricted to performance of the work or works in public at a venue within the State. The Authority considered that a member should be entitled to obtain a non-exclusive licence in respect of all his performing rights and that Article 7(g), by limiting the licence to performances at a public event only, was restrictive of competition and therefore offended against Section 4(1). In its Decision No. 326 the Authority had made it clear at paragraph 106 of that decision that such a grant back should apply to all categories of performing right. It also considered that the requirement to provide, 2 months in advance, details of the performers and evidence that all works to be performed would be subject to the non-exclusive licence was restrictive of competition and offended against Section 4(1).

44. Following an Extraordinary General Meeting of IMRO on 16 October 1995 Article 7(g) and Rule 11 were amended to provide that a member may require the grant back to him of a non-exclusive licence to permit him to exercise all his performing rights in respect of the relevant works. In addition the requirement to provide 2 months in advance details of the names of the performers and evidence that all works to be performed would be subject to the non-exclusive licence granted were deleted. Following this amendment Article 7(g) and Rule 11 no longer offend against Section 4(1).

45. Under Article 35 there was provision for the appointment by PRS of 3 of the 15 directors to IMRO over the first 2 years and 2 directors thereafter, while special provisions were included in other Articles in relation to the PRS nominated directors. In December 1994 IMRO became an independent company owned by its members yet under Article 35, PRS, a UK company and a potential competitor of IMRO retained powers to nominate directors to IMRO. Through their nominee directors in IMRO, PRS were therefore in a position to obtain information relating to the internal affairs of IMRO and possibly influence their decisions. The Authority took the view that the object and effect of this arrangement was to prevent, restrict or distort competition and it therefore decided that Article 35 offended against Section 4(1) of the Competition Act. Following an Extraordinary General Meeting of IMRO on 31 October 1995 the Articles of Association were amended to remove the power of PRS to nominate directors to IMRO and the special provisions relating to PRS nominated directors were deleted. In addition the PRS nominee directors were removed by a Resolution of the company. As a result of these amendments Article 35 no longer offends against Section 4(1).

(e) Applicability of Section 4(2)

46. 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.'

47. In the opinion of the Authority, the notified arrangements, as amended, fulfil all the conditions provided for in Section 4(2).

48. 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. 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. 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 IMRO is accepted as improving the provision of services.

49. 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.

50. A mechanism for creators/publishers to exclusively assign their rights in musical works to IMRO is necessary to enable IMRO to be in a position to license its repertoire. Those provisions, without which IMRO could not operate as a collecting society at all, are clearly indispensable. In its Decision No. 326 the Authority gave its reasons why it considered similar assignment arrangements, between PRS and the creators/publishers, did not meet the indispensability criteria under Section 4(2) for the grant of a licence. It indicated in para. 106 of that decision that the restriction in the PRS arrangements, which prevented members from granting non-exclusive licences to individual users for particular purposes, was not indispensable. The concerns of the Authority in this regard were not satisfied by the IMRO arrangements which were originally notified. However following the amendments made to the arrangements, as described at para. 31 above, which now provide for the grant back by IMRO to a member of a non-exclusive licence to permit him to exercise all or part of the performing right himself subject to the provisions of Rule 11, the restriction has now been removed. In para. 107 of the PRS Decision the Authority also indicated its view that the minimum 3 year duration of the PRS agreements was excessive in the context of the PRS arrangements but that a reduction of the period to one year would satisfy its concerns in the matter. Article 9(f) of the new Articles of Association of IMRO provides for the reduction of this period to one year. The essential differences in the new IMRO arrangements, as amended, are that the provisions in the PRS arrangements, which the Authority considered not indispensable for the effective operation of PRS and therefore for the achievement of the benefits that a collective copyright system produces, have been eliminated. The Authority also took the view that the original provisions in IMRO's Articles for the appointment of PRS nominees as directors of IMRO could not be considered as indispensable but the subsequent deletion of these provisions in October 1995 and the removal of the PRS nominees from the board of IMRO has satisfied the Authority's objections in this regard. The Authority therefore considers that the notified arrangements, as amended, do not impose on the undertakings concerned terms which are not indispensable to the attainment of the objectives of Section 4(2).

51. It is clear from the foregoing that the assignment arrangements involve significant restrictions on competition between creators and between publishers, especially in relation to price. Since each item in the IMRO repertoire is essentially available at the same price, price competition is greatly reduced by virtue of these arrangements. The Authority, however, believes that there was some degree of non-price competition between creators which was not eliminated by the arrangements. The fact that creators/publishers may now have rights granted back to them, enabling them to license users themselves, provides some scope for price competition. This would also allow a creator to break into the market by offering his product at a lower price. 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.

52. In the Authority's opinion Irish Music Rights Organisation Ltd and its creator and publisher members are undertakings and the notified standard agreements are agreements between undertakings. The Authority considers that the notified standard agreements offend against Section 4(1) of the Competition Act and did not satisfy the conditions for a licence under Section 4(2). The Authority considers that, in the light of the amendments made in October 1995 to IMRO's Memorandum and Articles of Association and its Rules, the notified standard agreements satisfy the conditions of Section 4(2) of the Competition Act. It has therefore decided to grant licences in respect of the notified standard agreements. It considers that the licence should operate for a period of 15 years from the date the arrangements were amended to satisfy the requirements of Section 4(2). The licences therefore apply from 31 October 1995 to 30 October 2010. It is not considered necessary to attach any conditions to the licences.

53. The Competition Authority has issued the following licences:

The Competition Authority grants licences under Section 4(2) of the Competition Act, 1991 to the standard assignment agreements, outlined under, between Irish Music Rights Organisation Ltd and Creators and Publishers, notified on 19 January and 30 January 1995 on the grounds that, following the amendments made to its Memorandum and Articles of Association and its Rules on 16 and 31 October 1995, in the opinion of the Competition Authority, all the conditions of Section 4(2) of the Competition Act have been fulfilled:

Notification No. CA/2/95 Irish Music Rights Organisation Ltd/ writers

Notification No. CA/3/95 Irish Music Rights Organisation Ltd/ Publishers (non-corporate)

Notification No. CA/4/95 Irish Music Rights Organisation Ltd/ Publishers (corporate)

The licences apply from 31 October 1995 to 30 October 2010.

For the Competition Authority

Des Wall

Member

15 December 1995