Irish Competition Authority Decisions

1. Notification was made on 3 October 1991 of the standard copyright music licence agreement between Irish Music Rights Organisation Ltd (IMRO) and independent radio stations. A request was made for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2). Notice of Intention to grant a certificate in respect of the standard agreement was published on 10 November 1995. In addition the Minister for Arts, Culture and the Gaeltacht was invited to offer observations pursuant to Section 4(5) of the Act.

2. The notification concerns the standard agreement, as amended in November 1992 between IMRO and independent radio companies, as licensees, whereby IMRO licenses the broadcast of its repertoire of musical works in return for the payment of royalties. At the date of notification there were 20 standard agreements made. The standard agreement was amended in November 1992. Notifications were also received in respect of IMRO's standard copyright music licence agreement with public performance users (public houses, hotels, theatres etc) and the licence agreement with RTE and these are being dealt with separately.

3. IMRO was the Irish subsidiary of the UK based Performing Rights Society (PRS) until 16 December 1994, when following a change in IMRO'S 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 creator and publisher members, who have entered into

assignment agreements with IMRO, and on behalf of foreign collecting societies, including PRS, with which it has non-exclusive reciprocal arrangements. The standard assignment arrangements between IMRO and its members, as amended, were the subject of the Authority's Decision No. 445 of 15 December 1995.

4. According to the review for 1994 published by the Independent Radio and Television Commission (IRTC) there were 23 independent radio stations operating in specified franchise areas in the State, including 4 in Dublin. The stations are operated by commercial companies which provide local radio broadcasting services with their income derived from advertising and sponsorship. Combined revenue of the companies from advertising and sponsorship was £18.1m in 1993.

5. Certain provisions in the Copyright Act 1963 relate to the public performance of copyright material viz.

(1) Section 7(3) of the Copyright Act 1963 states: "copyright in a work is infringed by any person who not being the owner of the copyright and without the licence of the owner thereof does or authorises another to do in the State any of the acts referred to ......"

(2) Section 8(6) of the Copyright Act states: "The acts restricted by the copyright in a literary dramatic or musical work are:

(a) reproducing the work in any material form

(b) publishing the work

(c) performing the work in public

(d) broadcasting the work

(e) causing the work to be transmitted to subscribers to a diffusion service

(f) making any adaptation of the work

(g) doing in relation to an adaptation of the work any of the acts mentioned in paragraphs (a) to (e) of this subsection".

The Act also provides a mechanism whereby disputes relating to a licence scheme may be referred to the Controller of Patents, Trade Marks and Designs

6. Effectively the legislation provides that before any of the "restricted acts" listed at para. 5(2) above take place the permission of the copyright owner or his authorised representative is required. IMRO's function is to license all users of its musical repertoire whether being performed publicly, being broadcast on radio or television or being retransmitted by cable.

7. The product involved in this notification is the broadcasting performance right contained in the IMRO repertoire of musical works. The IMRO repertoire includes the rights in musical works assigned to it by its members, who are the composers, authors, lyricists and/or publishers of the works, as well as rights assigned to it by foreign based collecting societies which have entered into reciprocal agreements with IMRO. The performing right, which comprises the rights of public performance, broadcasting and cable diffusion of musical works, is part of the copyright which is a property right which when used by others entitles the owner or assignee to remuneration. IMRO licenses the public performance of the musical works contained in the IMRO repertoire and the users pay royalties to IMRO in recompense for the copyright contained therein. The licence from IMRO to the public broadcast users enables them to lawfully use the musical works in the IMRO repertoire.

8. The service associated with the notified arrangements is the transmission of radio broadcasts by Irish based radio stations. The market is therefore that for radio broadcasting and the upstream market for copyright musical works, which is the essential raw material of most commercial radio broadcasting. In the area of radio broadcasting RTE dominates with Radio 1 and 2 FM but the independent radio stations have attracted a large audience since their advent some years ago. The Joint National Listenership Research published in February 1995 shows Radio 1 with a listenership share of 37%, 2FM with 21% and the independent local radio stations with 41%. British stations, Northern Ireland stations, community stations, other foreign stations and pirate stations make up the balance of the radio market in the State. Although each independent radio station is allocated a designated franchise area within the State, collectively their activities cover the whole State. The relevant geographical area affected by the arrangements is, therefore, the State.

9. IMRO estimated that its income from royalties within the State in 1994 was obtained as follows:

RTE £1,857,000

Local radio 702,000

Cable & satellite 323,000

2,882,000

Other Public Performance users 3,595,000

Total £6,477,000

10.(i) The standard notified agreement, which was amended in relation to the method of calculating royalties in November 1992, following negotiations with the body representing the independent radio stations, is made between IMRO and the licensee, who is described as a sound broadcasting contractor within the meaning of Section 4(2)(a) of the Radio and Television Act, 1988. Under clause 2 "Subject to the exemptions and limitations hereinafter set out IMRO hereby grants to the Licensee licence and authority to broadcast the repertoire of IMRO in the territory." Repertoire is defined as "all or any musical works including any words associated therewith in which rights to broadcast and authorise others to do the same are or may be at any time during the term of this Agreement vested in IMRO in the territory." The territory is defined as the Republic of Ireland.

(ii) Clause 3 and Schedule 1 set out the extent of the licence granted which may be amended from time to time pursuant to changes in the extent of the rights administered by IMRO. In the event of a substantial amendment either party may require renegotiation of the terms of the agreement. Under Schedule 1 the licence does not extend to

- dramatico-musical works;

- words written for some commercial advertisements;

- musical works by microwave distribution;

- musical works where words other than the words normally associated with the musical works are being used;

- musical works which have been adapted or re-arranged;

- musical works in dramatic form;

- recorded musical works if the recording infringed copyright; and

- words associated with a musical work if the music is not played.

(iii) Clause 4 provides for the payment of royalties by the licensee in accordance with Schedule 2 to the agreement. Schedule 2, as amended in 1992, provides for the calculation of royalties, based on percentages of the licensees net revenue which percentages increase as earnings increase. It also provides for remittance arrangements. Net revenue is defined as the aggregate of net advertising revenue, income from subscribers, donations, income from sponsorship but less any levy payable to IRTC with restrictions on the deductions allowable. Clause 5 and Schedule III make provision for the submission by the licensee of weekly returns to IMRO of all musical works broadcast simultaneously with their live performance or broadcast after recording by the licensee. In respect of other musical works, sample lists compiled on days specified by IMRO are to be submitted each month. Such further information as IMRO may reasonably require from time to time is also to be furnished by the licensee. Clause 7 entitles IMRO to inspect relevant books and records of the licensee although the licensee can require such inspection to be made by an auditor, nominated by the President of the Institute of Chartered Accountants, at the licensee's expense.

(iv) The sample amended agreement notified was deemed to have commenced on 1 September 1989 and was to extend until 31 December 1996 unless terminated earlier in accordance with clause 8. Clause 8 provides for termination of the agreement by IMRO in the event of a breach of obligations under the agreement which is not remedied by the licensee within 30 days of being so required by IMRO. Either party may also terminate the agreement in the event of the other entering into receivership or liquidation, or if a substantial amendment is made to the extent of the licence as provided for in Schedule 1.

11. IMRO stated that the notified agreement did not prevent, restrict or distort trade in goods or services in the State or in any part of the State. They also stated that a mechanism had already been provided for regulating the market between copyright owners and the persons requiring licences. This mechanism had been provided in Part V of the Copyright Act, 1963, which entrusted these functions to the Controller of Patents, Trade Marks and Designs. The Competition Authority, therefore, had no jurisdiction to consider the provisions of the notified licence agreement. IMRO also stated that the Court of Justice of the European Communities had recognised that copyright management societies pursued a legitimate aim when they endeavoured to safeguard the rights and interests of their members vis-a-vis the users of recorded music (Ministere Public v Tournier and Lucazeau v Sacem, both in 1989). The contracts concluded with users for that purpose, therefore, could not be regarded as restrictive of competition for the purposes of Article 85 unless the practice exceeded the limit of what was necessary for the attainment of that aim.

12. They stated that the Court of Justice had also accepted that the right to receive a fee was an essential feature of the property itself and had acknowledged the necessity of guaranteeing proper remuneration for the intellectual accomplishment and associated financial risk of the creator. Implicit in this was an acceptance that, without such remuneration, the incentive to produce musical works would have been very significantly reduced, in the absence of other forms of public financial support. This would obviously have been very much to the detriment of the ultimate consumers, the general public, but also of the licensed users who earned part or all of their livelihood in providing public performances. As to what constituted proper remuneration, statute had provided a method of resolving the issue (Controller of Patents, Trade Marks and Designs) thus removing control over pricing from IMRO and the creators and therefore from the scope of the consideration by the Authority. It was believed that, as far as the ultimate consumer - the listening public - was concerned, the arrangements were very beneficial indeed. Once the appropriate royalties had been paid, a licence could be obtained for the performance of any work in the IMRO repertoire, with no restrictions.

13. Views on the notified agreement were submitted by the Association of Independent Radio Stations (AIRS) which represents the majority of the independent radio stations in the State. The Independent Radio Stations Copyright Association which represents some independent radio stations also submitted views on the notified agreement. Views were also submitted by individual independent radio stations such as Carlow Kilkenny Radio and Tipp FM. All these views were submitted in early 1992 i.e. prior to the amendment made in the standard agreement.

14. The main points made on behalf of the independent radio stations in relation to the notified agreement may be summarised as follows:-

- the basic right of composers and authors (creators) to receive royalties for their work was recognised;

- IMRO operated a monopoly which abused its position especially in the area of pricing policy;

- the level of IMRO charges for the independent radio stations were excessive and should be the subject of flexible negotiations between IMRO and the radio stations;

- the royalties payable under the notified agreement were an onerous imposition on the finances of independent radio stations in Ireland;

- the IMRO monopoly should be examined in depth by the relevant authorities;

- a certificate or licence under the Competition Act 1991 should be refused because according to AIRS the assignment of rights "prevents artists from competing with one another in the rate of royalty which they charge users for the playing of their compositions. The members of the (radio) association are unable to negotiate the basis of the charges with individual artists or with different representatives of artists. Competition is prevented, therefore, in the market for the transmission of music by radio, television, the playing of tapes, records or discs or even of live performances to the public."

In addition AIRS also stated that in its opinion all of the conditions of Section 4(2)(ii) of the Competition Act were not satisfied.

15. Since December 1994 IMRO has had a non-exclusive reciprocal arrangement with PRS, whereas previously users could only obtain the PRS repertoire through IMRO. In 1989

the European Court of Justice held that

"Article 85 of the EEC Treaty must be interpreted as prohibiting any concerted practice by national copyright-management societies of the Member States having as its object or effect the refusal by each society to grant direct access to its repertoire to users established in another Member State." [1]

16. 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.

17. 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."

18. IMRO is a corporate body engaged for gain in the licensing of music performing rights and is therefore an undertaking. The licensees are the companies operating the independent radio stations which are engaged for gain in broadcasting and advertising. They are therefore undertakings. The notified agreement is an agreement between undertakings. The agreement has effect within the State

19. In its submission IMRO argued that because of the mechanisms provided in Part V of the Copyright Act 1963 for regulating the market between copyright owners and persons requiring licences, the Authority had no jurisdiction to consider the provisions of the notified agreement. The Authority rejects this argument. While Part V of that Act makes provision for the determination by the Controller of Patents, Trademarks and Designs of disputes relating to royalties, remuneration and certain other copyright matters, the provisions of the Competition Act 1991 apply to all agreements between undertakings.

20. In this decision the Authority is concerned with the relationship between IMRO and the independent radio stations. The licence granted by IMRO is a non-exclusive licence authorising the public performance by radio broadcast of all musical works in the IMRO repertoire. The IMRO repertoire consists of those works assigned to it by its members and works assigned by their members to those overseas collecting societies, with which IMRO has entered into non-exclusive reciprocal arrangements. Thus the licence granted by IMRO is, in effect, a blanket licence to use all copyright music.

21. The IMRO blanket licence however is not the only means by which the independent radio stations can secure the right to use copyright music. By virtue of the amended arrangements between IMRO and its members, which are described in the Authority's Decision No. 445, it has been open to the users, since October 1995, to offer to deal directly with individual Irish creators and publishers if they so wish. As the arrangements between IMRO and other collecting societies are non-exclusive, it has also been open to the radio stations to deal directly with overseas societies in respect of their musical repertoire since December 1994 when IMRO became an independent company. This answers one of the complaints made by the radio stations.

22. The Authority recognises however that the conclusion of individual agreements between large numbers of creators and users would involve substantial transactions costs which would make such agreements highly impractical. For this reason it considers that the IMRO blanket licence is an alternative to such individual agreements and is primarily designed to reduce transactions costs and facilitate both creators and users. In the absence of a blanket licensing system for copyright music the transactions costs involved in concluding individual agreements would, particularly in many cases involving smaller radio stations, be prohibitive, and radio stations would therefore be denied the right to lawfully use copyright music. This could have a detrimental impact on competition in the radio broadcasting market since only very large undertakings could afford the substantial transaction costs involved in concluding individual licence agreements. For these reasons the Authority believes that the blanket licence, even though it means that all copyright music is sold collectively, does not constitute an anti-competitive arrangement per se.

23. The IMRO licence is non-exclusive and IMRO places no limits on licence numbers. Thus any radio station wishing to use copyright music may do so by obtaining a licence from IMRO in return for payment of the appropriate fee. Users are not compelled by the licence to play only music included in the IMRO repertoire. They can play other music, primarily music no longer subject to copyright protection. Nor is the user obliged to play any particular selections from the IMRO repertoire.

24. The other main complaints made by the independent radio broadcasters in respect of the licence agreement were that the royalties charged by IMRO were excessive, unreasonable and imposed an undue financial burden which affected the viability of their businesses and their ability to compete. In its submission IMRO also argued that because of the statutory powers of the Controller of Patents, Trademarks and Designs to determine proper remuneration, pricing should be outside the scope of the Authority's consideration.

25. As indicated in para.18, the Authority does not accept the claim that the Competition Act does not apply to the notified arrangements. The Authority's functions under Section 4 of the Competition Act are confined to considering whether or not an agreement 'prevents, restricts or distorts competition'. By and large therefore it is not the function of the Authority to adjudicate on the fairness of the terms of an agreement as between the parties, and, in particular, to arbitrate on matters such as prices. Clearly if IMRO set tariffs in a discriminatory fashion so as to place individual radio stations at a competitive disadvantage this would offend against Section 4(1)(d). The IMRO tariff structure sets uniform rates of payment for independent radio stations. Thus in the Authority's opinion, it does not apply dissimilar conditions to equivalent transactions. The Authority therefore concludes that the arrangements do not have as their object or effect, the prevention, restriction or distortion of competition within the State or any part of it. They do not therefore offend against section 4(1).

26. In the Authority's opinion, Irish Music Rights Organisation Ltd and the independent radio broadcasters are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified standard broadcast copyright music licence agreement, as amended in November 1992, is an agreement between undertakings. In the Authority's opinion, the notified agreement does not offend against Section 4(1) of the Competition Act, 1991, in the context that it is open to the independent radio stations to obtain licences from the individual owners of the copyright material, who are members of IMRO, and from overseas licensing organisations.

27. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the standard copyright broadcast music licence agreement between Irish Music Rights Organisation Ltd and the independent radio broadcasters notified under Section 7 on 3 October 1991 (notification no. CA/5/91E), and as amended in November 1992, does not offend against Section 4(1) of the Competition Act, 1991, in the context that it is open to the independent radio stations to obtain licences from the individual owners of the copyright material, who are members of IMRO, and from overseas licensing organisations.

For the Competition Authority.

Des Wall

Member

18 December 1995