Irish Competition Authority Decisions

1. Notification was made on 3 October 1991 of the standard copyright music licence agreement under which Irish Music Rights Organisation Ltd (IMRO) licenses public performance users. 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 issue a certificate in respect of the standard agreement was published on 10 November 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 Act.

2. The notification concerns the standard agreement, titled "Copyright Music Licence - Contract", whereby IMRO licenses the public performance of musical works in its repertoire in return for the payment of royalties. A notification was also made in respect of IMRO's standard copyright music licence agreement with independent radio stations which was the subject of the Authority's Decision No. 449 of 18 December 1995 and the IMRO agreement with RTE which was the subject of the Authority's Decision No. 456 of 21 December 1995.

3. 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 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. IMRO's members are primarily the Irish based owners of the performing rights of musical works including the original composers, arrangers, lyricists and the publishers of those works. IMRO's membership now stands at over 1,000. The standard assignment arrangements as amended, between IMRO and its members were the subject of the Authority's Decision No. 445 of 15 December 1995.

4. The public performance licensees are companies or persons which use the public performance of the IMRO repertoire at their premises during the course of their businesses or activities. These include public houses, hotels/restaurants, retail shops and centres, cinemas, clubs, theatres, industrial and commercial companies, dance halls, discos, stadia as well as premises used for individual events and concerts.

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 public performing 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 performance users enables them to lawfully use the musical works in the IMRO repertoire. The relevant market is the market for the use of the performing right in relation to the public performance of the musical works in the IMRO repertoire. Since the public performance users of the IMRO repertoire are located throughout the State, the appropriate geographic market is the State.

8. The number of IMRO public performance licences in force on 31 December 1994 was 9,646. In 1994 IMRO's annual royalty income from public performance of its repertoire, excluding income from radio, television and cable retransmission, was estimated to be £3.6m allocated as follows:

Publicans £ 608,994 £ 865,925

Hotels 550,963 332,698

Shops 401,243 -

Cinemas 204,607 -

Clubs 43,887 2,002

Theatres - (4,204)

Permits (live concerts) - 238,986

Miscellaneous 87,289 92,080

£1,996,983 £1,597,487

9. Under the notified standard agreement, IMRO "grants the Licensee a licence (subject to the terms and conditions in the agreement) authorising the public performance at the (specified) premises of any and every musical work ...for the time being in the repertoire of IMRO". The licensee provides details of the performances contemplated at the start of the licence. The agreement contains provisions relating to royalty payments, termination, exclusions of certain types of performances, returns of performance details, etc. Clause 3 provides for the payment of a royalty based on IMRO's tariffs for the particular type of premises/activity involved. Clause 4 outlines in general terms the amount of the royalties payable to IMRO initially and annually. Clause 5 provides for the possibility of IMRO revising the tariffs and for the licensee to inform IMRO of any changes in the performance particulars which would affect the royalty payable. Clause 6 provides for the IMRO licence to operate from year to year but allows either party to terminate the Agreement by giving one month's notice to expire at the end of a licence year. If royalties are increased by IMRO the licensee can terminate the agreement forthwith. IMRO may terminate the agreement if royalties are not paid or if breaches of contract are not rectified by the licensee. Under clause 7, certain types of performances e.g. the performance of dramatico - musical works, are excluded from the scope of the agreement. Under clause 10, IMRO has the right to enter the premises of the user at all reasonable times to check the particulars on which the royalty is based. Clause 11 obliges the licensee to supply IMRO with details of the musical works performed at the premises but only if requested to do so by IMRO and for periods specified by IMRO. According to IMRO, this clause has never been enforced by them but they wish to reserve the right to enforce it. IMRO royalties generally involve a flat minimum fee plus a charge per session of featured music which varies with the category of the business and the size or capacity of the premises.

10. 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 was 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 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.

11. IMRO stated that the European 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 be 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 this 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.

12. IMRO stated that its tariffs for public performance users were determined as far as practicable following negotiations with representative bodies and were applied uniformly to all users in that category. IMRO also stated that a suite of standard tariffs had been developed to suit the varying circumstances under which copyright music was used. Each tariff sought to reflect the value of the use of the copyright by the music user in a particular set of circumstances. IMRO also stated that its tariff policy was to achieve agreement in advance with a representative trade body on any changes in tariff rates. If agreement was not possible or if no representative body existed with whom IMRO could negotiate, the tariff revisions might be introduced unilaterally by IMRO. If the licensee was unhappy with the tariff revisions he could terminate the licence forthwith under Clause 6 of the agreement. IMRO, therefore, maintained that to some extent it had to have regard to the likely customer reaction to tariff increases and that its pricing policies were dictated accordingly.

13. Many bodies, representing public performance users of the IMRO repertoire, initially made submissions to the Authority about the notified standard agreement. The organisations involved were:

(1) Vintners Federation of Ireland (VFI)

(2) RGDATA

(3) Licensed Vintners Association

(4) National Federation of Retail Newsagents

(5) Irish Retail Newsagents Association

(6) Irish Hardware Association

(7) Irish Music Users Council

(8) Concert Promoters & Venue Owners Association

(9) Irish Hotels Federation.

Further detailed submissions were subsequently received from the Irish Music Users Council (IMUC), a body established to represent music users and made up of representative bodies such as the Vintners Federation of Ireland, RGDATA, The Irish Amusement Trades Association etc. The main points made by these bodies were concerned with IMRO's monopoly position which in their opinion resulted in excessive charges and unfair conditions. They were also concerned about the absence of a simple, inexpensive and effective appeal mechanism in relation to IMRO's charges. The bodies believed that IMRO was abusing its dominant position in many respects e.g., IMRO refused to negotiate the terms of its public performance licence with individual users, IMRO imposed charges and increases in charges unilaterally on users, IMRO's practice (after the giving of a warning/ultimatum to the user) of initiating Circuit Court injunctions where musical works were performed in public without a licence amounted to the abuse of a dominant position.

14. The Irish Hotels Federation objected to having to pay royalties on music played via radio and television in hotel bedrooms. The Concert Promoters and Venue Owners Association objected to the fact that they were not free to negotiate a separate deal regarding the payment of royalties with individual popular singers or composers on the occasion of public performance concerts by them. They were currently obliged to pay IMRO a percentage of the gross box office revenue as the royalty payments for public performance concerts. The Association also objected to the percentage increases in the level of tariffs imposed in 1990. The Association also asserted that costs of a proceeding before the Controller of Patents about the level of royalties payable by the concert promoters would be excessive.

15. A number of other parties made submissions. The Anderson/Ward Cinema Group objected to the level of tariff applicable to cinemas. Quinnsworth regarded the royalties payable by them as excessive because they were based on square footage. They suggested that the basis on which royalties were calculated should be re-examined. Dublin Corporation Community & Environment Department stated that if they were obliged to pay royalties to IMRO, because of the music played at the free rock concerts which they had organised for the past number of years, then those concerts would be discontinued.

16. 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." Ministere Public .v. Tournier [1989] ECR 2521 and Lucazeau and others .v. Sacem and others [1989] ECR 2811.

17. Following publication of the Notice of intention on 10 November 1995, IMUC made further written and oral submissions to the Authority. They claimed that IMRO should be regarded as a cartel of music publishers. They were not opposed to the idea of a collective licensing agency but argued that there should be more than one. They submitted that a collecting society did not constitute a natural monopoly so that there was no legitimate reason for there being only one licensing agency. They also cited the unilateral imposition of tariffs by IMRO as an abuse and as evidence of their monopoly position. In support of this claim they adverted to the substantial increase in tariff rates which occurred over the years 1988 and 1989 and the subsequent large scale re-categorisation by IMRO of premises so that the higher featured music tariff should apply to premises which previously were rated for the lower amusement music tariff. They repeated previous assertions about unfair and inequitable terms in the licence contract. IMUC stated that the mechanisms for the settling of disputes by the Controller of Patents, Trade Marks and Designs were inadequate and therefore were not availed of by their members. Non-copyright music commissioned by their members had low customer appeal leaving them with no alternative but to use the IMRO repertoire. Other matters relating to IMRO's employment of agents on a commission basis and their methods and the charging of royalties on rearranged traditional music were also cited as abuses. IMUC believed that if the Authority refused to certify or license the arrangements it would provide a stimulus to the legislature for a review of the Copyright Act to ensure an appropriate balance between the rights of creators and users. IMUC claimed that, because the notified standard agreements did not contain details of the specific category of use and the tariff applied to each premises, which in themselves were restrictive of competition, the notification should be rejected as technically incorrect. IMUC also claimed that, in practice, if a user was to try and obtain a licence from a foreign based collecting agency, it would be refused, as they believed that the societies operated in concert.

18. 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.

19. 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."

20. The individual members of IMRO, whether composer, author, lyricist or publisher (corporate or non-corporate) are each engaged in the provision of goods or a service for gain, i.e. the composition, writing or publishing of musical works, and are therefore undertakings. IMRO is an association of undertakings and the standard agreement under which IMRO licenses the public performance of its repertoire represents a decision by an association of undertakings setting out the terms on which they agree to license others to use their copyright works. The decision has effect within the State. As the Authority considers that the notified standard agreement represents a decision of an association of undertakings, the argument by IMUC that the licence agreement was not capable of being notified as an agreement under the Act is not relevant to this decision.

21. 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, decisions by associations of undertakings and concerted practices.

22. In this decision the Authority is concerned with the relationship between IMRO and the users of its repertoire, i.e. public houses, hotels, theatres, shops and others. The licence granted by IMRO is a non-exclusive licence authorising the public performance of all musical works in the IMRO repertoire at the premises of the user. 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.

23. The IMRO blanket licence is not the only means by which the users 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 to offer to deal directly with individual Irish creators and publishers since October 1995, if they so wish. As the arrangements between IMRO and other collecting societies are non-exclusive, it has also been open to users to deal directly with overseas societies in respect of their musical repertoire since December 1994 when IMRO became an independent company. IMUC claimed that in practice this was not possible because the societies acted in concert and a foreign society would not license an Irish user to use its repertoire. However such concerted behaviour would be in breach of the Competition Act, and in the light of the ECJ judgements cited earlier, would be contrary to Article 85(1). IMUC did not, however, produce any evidence to support their claim of such concerted behaviour.

24. 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, in many cases particularly involving smaller users, be prohibitive, and many users would therefore be denied the right to lawfully use copyright music. This could have a detrimental impact on competition in many markets 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.

25. IMUC argued that IMRO was effectively a cartel and also submitted that there should not be a single copyright collecting society. The Authority stated, in its Decision No. 445, that the agreements between individual creators and publishers and IMRO offended against Section 4(1) as they constituted an agreement between competitors which restricted competition in respect of their musical works, but it has licensed the arrangements in the context that individual creators and publishers may enter into individual licence agreements with users. In the Authority's opinion, the agreements between creators and IMRO represented an efficient, and for many creators the only, way to obtain payments lawfully due to them for the use of their work. It has not been shown that there is any impediment to the establishment of other collecting agencies. Having accepted that, in the particular circumstances of this market, creators and publishers should be permitted to act collectively, the Authority does not believe that, in the context of Section 4, this should be subject to a requirement that there be more than one collecting society. Even under Section 5 of the Act, the existence of a dominant position and even an outright monopoly is not prohibited, it is only the abuse of such a position which is contrary to the provisions of the Competition Act.

26. The IMRO licence is non-exclusive and IMRO place no limits on licence numbers. Thus anyone 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. The VFI, for example, has provided its members with tapes of non-copyright music for use in their premises. There are therefore some alternatives available to users. Nor is the user obliged to play any particular selections from the IMRO repertoire.

27. The main complaints made by third parties 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 this Decision the Authority considered the general arrangements for the licensing by IMRO of its repertoire and the standard conditions incorporated in the licence. It did not consider the tariff and user category applied to each of the 9,646 public performance licences in existence on 31 December 1994, since such individual agreements were not notified. The financial terms inserted in an individual agreement could cause that agreement to offend against Section 4(1) if the terms were discriminatory and placed the individual user at a competitive disadvantage. In such circumstances it is the individual agreement which contains such terms, rather than the standard agreement, which would offend against Section 4(1).

28. 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. As indicated in para. 21, the Authority does not accept the claim that the Competition Act does not apply to the notified arrangements. Nevertheless 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. IMUC in its submissions also alleged abuses by IMRO of its dominant position. Such behaviour is prohibited under Section 5 of the Competition Act. It is not the function of the Authority to take a view on any Section 5 issues that might arise out of the notified arrangements. The Authority therefore concludes that the notified arrangements, i.e. the decision of the association of undertakings, 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).

29. In the Authority's opinion Irish Music Rights Organisation Ltd is an association of undertakings within the meaning of Section 3(1) of the Competition Act, 1991, and the notified standard copyright music licence agreement is a decision of the association. In the Authority's opinion the notified arrangements do not offend against Section 4(1) of the Competition Act, 1991, in the context that it is open to public performance users to obtain licences from the individual owners of the copyright material, who are members of IMRO, and from overseas licensing organisations.

30. 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 Irish Music Rights Organisation Ltd standard "Copyright Music Licence-Contract" notified under Section 7 on 3 October 1991 (notification no. CA/3/91E) does not offend against Section 4(1) of the Competition Act, 1991, in the context that it is open to public performance users 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

21 December 1995