Irish Competition Authority Decisions

1. Notification was made by Mechanical Copyright Protection Society Limited (MCPS) and Mechanical Copyright Protection Society Ireland Limited (MCPSI) on 30th September, 1992 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4(2) in respect of a number of agreements with (a) members of MCPS on the one hand, (b) licensees and other users of copyright musical works, on the other.

2.1 A total of eighteen agreements were notified to the Authority on 30th September, 1992 by MCPSI. Two of these were membership agreements between MCPS and its own members, while the remainder were between MCPS and different categories of users of copyright in musical works, for which MCPSI acts as a royalty-collecting society. Some of the agreements involve the UK-based parent company, MCPS, while others involve its Irish subsidiary, MCPSI. A full list of the agreements notified is below.

2.2 CA/483/92E - MCPS/ Membership Agreement

CA/487/92E - MCPSI/ Schedule of Fees from Production Music Library Catalogues

CA/492/92E - MCPS/ In-Flight Entertainment Licence

CA/496/92E - MCPSI/ Amateur Cinematographers Recording Licence

CA/499/92E - MCPS/ Production Music Code of Conduct (Production Companies)

Present Status of Notifications

2.3 Notification CA/489/92E was withdrawn by MCPSI in March 1997. Notifications CA/484/92E, CA/486/92E, CA/491/92E, CA/493/92E, CA/494/92E and CA/497/92E were withdrawn in April 1999. Notification CA/496/92E was rejected by the Authority in April 1999, on the basis that it did not constitute an agreement between undertakings.

2.4 This decision deals with eight of the remaining ten agreements originally notified and currently before the Authority. One of these is the basic agreement between MCPS and its members, while the other seven are between MCPS and various categories of users of copyright musical works. The two other remaining agreements before the Authority [1] are the subject of a separate decision. Finally, Notification CA/484/92E, withdrawn earlier this year, was re-notified on 16 July 1999 as Notification CA/8/99, and will also be the subject of a separate decision.

3.1 MCPS is a company limited by shares with its registered office at 29-33 Berners Street, London W1P 4AA. It is wholly-owned by the Music Publishers Association of the United Kingdom, a company limited by guarantee representing music publishers in the United Kingdom, and has operated a branch or agency in the State since the mid-1970s.

MCPSI

3.2 MCPSI is a wholly-owned subsidiary of MCPS, having its current registered office at Copyright House, Pembroke Row, Lower Baggot Street, Dublin 2. It was incorporated on 7 May, 1991; users and customers of MCPS in Ireland were advised in May 1991 that, with effect from 1 July, 1991, they would be dealing with MCPSI in relation to the licensing and contractual arrangements they previously had with MCPS. In order to avail of the services of MCPSI, prospective members apply for membership of MCPS. Thus, MCPSI does not have a membership in its own right, but acts as an agent for MCPS, as well as the many copyright collecting societies throughout the world who have reciprocal arrangements with it. MCPSI also acts as agent for the copyright owners of musical and related literary works, in licensing the copyright in those works for mechanical reproduction on sound recordings and the synchronisation of the works to audiovisual recordings.

3.3 Obviously, the identity of the various counterparties to these agreements depends on the type of agreement concerned. However, in general, they can be described as follows:

CA/483/92E

This is the basic Membership Agreement between MCPS and its 511 Irish members. MCPS’ membership includes both writer-members and publisher-members.

CA/485/92E

This is a standard-form agreement between MCPSI and individual record producers for the payment of royalties. Individual producers must be members of the International Federation of the Phonographic Industry (Ireland) - now known as the Irish Recorded Music Association (IRMA) [2]. The latter currently has 17 member companies. These agreements account for most of MCPSI’s income from copyright users, as indicated in paragraph 4.10.1 below.

CA/487/92E, CA/498/92E and CA/499/92E

The first of these three notifications consists of MCPS’ Royalty Rate Card for the use of “Production Music”, the others deal with Codes of Conduct to which facility houses and production companies, respectively, are expected to adhere, in their use of such music. Production companies make films, audiovisuals, presentations etc. for corporate clients and advertising agencies - examples are Windmill Media Skills and Ag-Tel Communications - while facility houses effectively act as recording studios on behalf of production companies and direct clients, examples being Tommy Ellis Studios and Reelgood Studios. MCPSI has a record of 25 facility houses and 84 production companies who use Production Music in their activities on behalf of their customers. The total estimated income from both sources is approximately £[ ] p.a.

CA/490/92E

At the time of notification, there were twelve video producers in the State with which MCPSI had regular dealings in connection with the retail sale of videograms on the Irish market.

CA/492/92E

Only one licence agreement is currently in operation, i.e with Inflight Entertainment Ltd. (for Aer Lingus transatlantic flights) and MCPSI’s annual income from this source is approximately IR£[ ] annually.

CA/495/92E

MCPSI advised in February 1999 that there are currently a maximum of fifty agreements in force in relation to education institutions in the State.

4.1 The “products” involved here are the musical and related literary works (or parts of such works), the Rights in which are directly or indirectly controlled or administered in the Territory by the Member [3]; “Rights” includes the right to make or authorise the making of sound-bearing copies of the work, and the right to issue or authorise to be issued to the public of such copies [4].

4.2 Copyright, in relation to an original literary, dramatic, musical or artistic work, is the exclusive right to do, or to authorise other persons to do, certain acts in relation to that work. Such acts include reproducing the work in any material form, publishing it, performing it in public, broadcasting it, causing it to be transmitted to subscribers to a diffusion service or making any adaptation of it. The authorisation of other persons to use copyright material is normally by way of licence in return for payment of royalties to the copyright owner.

4.3 In the case of a single musical work, several copyrights may exist. For example, the owner of copyright is the author in relation to the musical work, the maker in relation to film and sound recordings, the broadcaster in relation to broadcasts and the publisher in relation to published editions.

4.4 The primary activity of MCPS/ MCPSI is acting as an agent for the copyright owners of musical and related literary works, in licensing the copyright in those works for mechanical reproduction on sound recordings and the synchronisation of those musical and related literary works to audiovisual recordings. In the opinion of the Authority, the relevant market is the market for the provision of copyright administration services as agent for composers and publishers of musical and related literary works in licensing their mechanical reproduction rights on sound recordings and other formats for music users.

4.5.1 Separate societies exist to administer different rights in musical works or recordings, and a composer or publisher may be a member of a number of societies, as required. The Irish Music Rights Organisation (IMRO) is the collecting society that deals with performing rights . MCPSI is the collecting society for mechanical copyright, which is the restriction on reproducing the work in any material form, while the corresponding collection society in relation to copyright in sound recordings is Phonographic Performance Ireland Limited (PPI).

4.5.2 The rationale for collecting societies originates in industries such as the music industry where, due to the nature of the market, the copyright holder might otherwise be unable to enforce his copyrights at all. Collecting societies have an intermediation role, in that they facilitate users of music and sound recordings in using music legally through the payment of fees, which are then re-distributed back to their members, the copyright owners.

4.5.3 Collective licensing and enforcement of copyright in relation to musical works is common throughout the world, wherever copyright is enforced, and the Copyright Act, 1963, recognises the role of collective licensing bodies in Ireland. Further detail on the 1963 Act is given in paragraph 5.1 of this Decision.

4.6.1 The Irish Music Rights Organisation (IMRO) represents copyright owners in the collection of royalties and fees from the exploitation of the performing rights of copyright in their works. IMRO was the Irish subsidiary of the UK-based Performing Rights Society (PRS) until the end of December, 1994 when, following a change in its Memorandum and Articles of Association, it became an independent company. From 1st January 1995, IMRO became a fully- independent membership society in the Republic of Ireland, licensing the public performance, broadcast and cable transmission rights in the musical works and associated lyrics of its members and the members of affiliated societies with which it has reciprocal representation contracts.

4.6.2 Phonographic Performance Ireland Limited (PPIL) represents its record company members’ rights in the public performance, broadcast and cable transmission of their commercial sound recordings.

4.6.3 MCPS / MCPSI are not in competition with IMRO at present; however, the parties stated that this situation could change if IMRO enters the field of mechanical rights administration, as it has signalled its intention to do.

4.6.4 Even though the various collecting societies, both here and abroad, are separate entities, there are considerable overlaps, and close connections, between them, at least at operational level. For example, IMRO and MCPSI have a number of common directors, as have MCPS and MCPSI. In the UK, there is now an “operational alliance” between the Performing Rights Society (IMRO’s UK counterpart) and MCPS (MCPSI’s UK parent), although the organisations themselves, and their Boards, remain separate. That alliance has, moreover, recently announced the creation of a “shared service centre to handle music rights processing” involving itself, on the one hand, and the US and Dutch performing right societies, ASCAP and BumaStemra respectively, on the other. There is, further, an elaborate network of “affiliated societies” around the world, with close mutual operational relationships, under several umbrella bodies.

4.7.1 MCPS and MCPSI are not aware of any other mechanical copyright collection society operating in either the United Kingdom or in Ireland at present. It is, however, possible for an Irish copyright owner to join a mechanical copyright collection society in jurisdictions outside the United Kingdom and the Republic of Ireland. Most jurisdictions have only one mechanical copyright collection society and most such societies have reciprocal arrangements with each other, so that each society, in effect, collects in its home jurisdiction royalties due to copyright owner-members of societies in other jurisdictions. It is possible, under MCPS membership rules, to be a member for the purposes of some jurisdictions only, provided membership in relation to the United Kingdom is maintained, with the result that a copyright owner can be a direct member of various societies throughout the world if he wishes.

4.8.1 While MCPS and MCPSI represent most copyright owners whose material is being actively exploited via sound recording in the United Kingdom and the Republic of Ireland, there is no obligation on copyright owners to join any collecting society, and no legal impediment to the direct collection by copyright owners of copyright royalties.

4.8.2 Direct Collection, however, can involve copyright owners in considerable administrative and policing work in order to maximise the value of their copyrights. It involves them having to establish separate arrangements with each record company exploiting their copyrights in each of the territories of the world. They must separately negotiate with the producers of audio/visual works (including television and radio commercials) in relation to the synchronisation of the copyright material. Direct Collection also involves the copyright owner in the expensive process of advertising his contact address to all potential users throughout the world, and of verifying use of his material. A potential user will value ease of contact and negotiation with copyright owners and will potentially be deterred from use of copyright material if the owner is difficult to contact.

4.9.1 In order to avail of the services of MCPS Ireland, prospective members apply for membership of its parent, MCPS. Membership extends to all types of copyright owners, including composers and music publishers. MCPSI does not have a membership in its own right, but acts as agent for MCPS and its members as well as the many copyright collection societies throughout the world who have reciprocal arrangements with it.

4.9.2 The following table gives details of membership numbers, as at January 1999.

Total Writer Members 9,448

Total Publisher Members 4,149

Total Irish-Resident Members

- Writers 371

Total Irish-Resident Members

- Publishers 140

4.9.3 MCPSI provides for the members of MCPS in Ireland by acting as agent for MCPS and its members and as a central clearing house for all contractual arrangements in relation to the mechanical and synchronisation exploitation of members’ works. MCPSI also provides regular accounting to the Irish membership. MCPS charges members differential commission rates (depending on the category of user) for the collection and distribution of income sourced in the State.

4.10.1 The total turnover for MCPS in the United Kingdom and Ireland for the year ended 31 December 1998 was IR£221m, compared to IR£105m in 1992. Of the end-December 1998 total, IR£4.38m (c.2%) represented revenue collected in Ireland. The table below sets out, in percentage terms, the Society’s sources of revenue for 1991 and 1998:

1991 1998

4.10.2 MCPSI claimed that it would be very difficult to assess its market share, as it has no figures for the level of direct collection by copyright owners. However, an estimate of the share of the market of mechanical royalties would be that 95% of all mechanical royalties accruing in Ireland would be collected by MCPS.

5.1.1 Copyright law in Ireland is governed by the Copyright Act, 1963, which covers literary, dramatic, musical and other works. Copyright lasts during the lifetime of the creator and for 50 years after his/her death. The 50-year period was generally extended to 70 years by the European Communities (Term of Protection of Copyright) Regulations, 1995 [5]. However, the 20-year extension was not a blanket amendment, and does not apply to, inter alia , sound recordings.

5.1.2 A particularly important section in the Act, from the point of view of MCPSI, is Section 13, dealing with special arrangements in relation to musical works being incorporated on sound recordings. This section provides that if certain arrangements are complied with, the manufacturer of sound recordings does not infringe the copyright in a musical work by manufacturing such sound recordings for retail sales. (The section only applies where records of the musical works in question have already been made or imported into Ireland. The so-called first mechanical licence is entirely in the gift of the copyright owner). The main provision of Section 13 is that the manufacturer is obliged to pay to the owner of the copyright in the musical work a fair royalty. If there is a dispute about what a fair royalty is, the matter can be referred by either party to the Controller of Industrial and Commercial Property, who may make a determination under section 31 of the Act.

5.1.3 Section 17 of the Act creates a separate copyright in sound recordings for the producer (i.e. separate from the copyright in original work created by Section 8).

5.1.4 Under Section 47(1) of the 1963 Act, copyright can be transmissible by assignment, testamentary disposition or by operation of law, as personal or movable property. Assignments must be in writing, and can be partial, having restrictions on what the work can be used in, the form of reproduction, the territory and the period of the assignment. The owner of copyright can - short of assignment - license certain acts to be done in relation to the copyright work which would normally be an infringement of the copyright concerned. These licences may be exclusive under Section 25(10) of the Act, and they authorise the licensee, to the exclusion of all others (including the copyright owner) to exercise rights which would normally be exercisable only by the holder of the copyright.

5.1.5 Part V of the 1963 Act (sections 29 to 42) recognises the existence of copyright collection societies; section 29 defines a licensing body as “ a society or other organisation which has as its main object or one of its main objects the negotiation or granting of licences in literary dramatic or musical works or sound recordings or television broadcasts either as owner or prospective owner of copyright or as agents for the owners or prospective owners thereof ”. Sections 30 et seq of the Act give a wide jurisdiction to the Controller of Industrial and Commercial Property in determining disputes between licensing bodies and persons requiring licences. Section 31 gives the Controller a specific jurisdiction to determine disputes in relation to royalties payable.

5.1.6 The Copyright and Related Rights Bill, 1999 was published in April 1999. The aim of the Bill is to update copyright law, which now falls far behind modern international and European standards. The rationale for what is, by any yardstick, a very extensive set of legislative reform proposals, is three-fold.

5.1.7 First, w hile a number of minor legislative adjustments have made over the years to the basic framework in the 1963 Act, the lack of overall reform left Ireland facing the 21st century with a technology-specific Act drafted with the technological context of the 1950s in mind.

5.1.8 Second, major changes have occurred in European Union and international law affecting copyright in the last ten years. The EU was largely inactive in the intellectual property field until the late-1980s, when consideration of the policy challenges of the nascent new technologies began in earnest in the Commission. This process - which is still under way - produced a number of Directives in the field of copyright and related rights, several of which are overdue for transposition into Irish law.

5.1.9 The third basis for reform is the many international treaties to which Ireland is a party, which specify standards of copyright or related rights protection to be observed by subscribing States. Irish law has not been systematically modernised to bring it into full conformity with the obligations incurred under international agreements on intellectual property, notably the Paris Act of the Berne Convention on copyright but, more crucially, the Agreement on Trade-Related Aspects of Intellectual Property Right s (known as the TRIPs Agreement), which has bound Ireland since 1 January, 1996.

5.1.10 In summary, the general objectives of the 1999 Bill may be stated as follows:

- to put in place a modern, effective, efficient, technology-neutral regime of statutory protection for copyright and related rights, including provision for civil remedies and criminal penalties fully sufficient to deter copyright theft, bearing in mind the economic and cultural significance of such theft in the context of the Information Society;

- to transpose into Irish law a number of EU directives in the field of copyright and related rights;

- to bring Irish law into conformity with all obligations incurred under international law on copyright and related rights, in particular, under the Berne Convention for the Protection of Literary and Artistic Works (1971 Paris Act), the 1961 Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations, the 1993 TRIPs Agreement, the World Intellectual Property Organisation (WIPO) Copyright Treaty (1996), and the WIPO Performances and Phonograms Treaty (1996), and

- to provide, for the first time in Irish law, for tailor-made regimes of civil protection for performers’ rights, rights in performances and non-original databases in line with the best EU and international standards.

5.2.1 The legislative background to copyright protection in the UK is broadly similar to that obtaining in Ireland, although State structures for dealing with it vary somewhat from the Irish model. The UK agency responsible for developing and carrying out UK policy on copyright (as well as other aspects of intellectual property) is the Patent Office, an Executive Agency of the Department of Trade and Industry; the corresponding body in Ireland is the Department of Enterprise, Trade and Employment. Broadly speaking, the function of determining disputes between licensing bodies and persons requiring licences lies with the Controller of Industrial and Commercial Property in Ireland and the Copyright Tribunal in the UK. The competition functions of the UK Competition Commission[6] and the Director General of Fair Trading broadly reflect those of the Competition Authority in Ireland.

5.2.2 The Competition Commission produced two Reports [7] on the activities of Collecting Societies; the Authority has considered these, but is satisfied that they are not directly relevant to MCPS/MCPSI.

5.2.3 The main function of the Copyright Tribunal is to provide impartial settlement of disputes over copyright licences, usually those offered by collecting societies. It has the statutory task of conclusively establishing the facts of a case and of coming to a decision which is reasonable in the light of those facts. It has, since its establishment in 1989 [8], made a number of decisions and orders in cases involving collecting societies, including a number involving the Mechanical Copyright Protection Society. There are also a number of cases currently before the Tribunal involving the Society. However, most of the cases before the Tribunal have tended to be concerned with royalty rates.

5.3.1 EU case law imposes certain restrictions on the freedom of collecting societies in respect of their terms of membership and activities. This is because such societies usually operate as de facto monopolies in Member States; they consequently occupy a dominant position within a substantial part of the EU within the meaning of Article 86 of the EEC Treaty and any abuse of this position is prohibited under EU law. The EU Commission has investigated the practices of a number of European collecting societies under Article 86 of the Treaty [10] and there have been many EU Court of Justice judgements [11] in respect of such societies.

5.3.2 The Court of Justice made it clear, in BRT v. SABAM and FONIOR , that collecting societies, in drawing up internal rules, must take account of all relevant interests in such a way that a balance is ensured between “ the requirement of maximum freedom for authors, composers, and publishers to dispose of their works and that of the effective management of their rights ”.

5.3.3 The most detailed examination of the internal regulations of a collecting society from the viewpoint of EU competition rules was made in the 1971 GEMA decision. In this decision, the Commission ruled inter alia that, as far as relationships with members were concerned, GEMA had abused its dominant position (a) by discriminating against nationals of other Member States, and (b) by binding its members with excessive obligations. It stated that members should be free to withdraw from GEMA the administration of certain categories or rights (of which there were 7) at the end of each year.

5.3.4 GEMA found that the right of annual resignation was too difficult to live with and negotiated further with the Commission. In 1972, the Commission accepted the right of GEMA to extend the minimum length of membership to three years, on condition that the range of rights which had to be assigned during that period was narrowed, thus allowing members greater freedom in dividing up the responsibility for collection of royalties around different societies. The Commission accordingly defined 12 “forms of utilisation”, e.g. the general performance right; the public performing right of broadcast works; the public performing right of televised works; the right of mechanical reproduction and distribution within which the complete assignment of rights could be required for a given country.

5.3.5 As regards Article 85 of the Treaty (corresponding to section 4 of the Competition Act, 1991), relatively few decisions have, as far as the Authority is aware, been made by the European Court of Justice in relation to collecting societies. The most noteworthy of these are the joined cases of Ministere Public v. Tournier , 1989, and Lucazeau, Debelle and Soumagnac , 1989, already referred to above. In those cases, the Court found 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. It is for the national courts to determine whether any concerted action by such management societies has in fact taken place".

5.3.6 As mentioned in paragraph 5.1.8, major changes have occurred in European Union [12] law affecting copyright in the last ten years (following a generally inactive lengthy period), and the recently-published Copyright and Related Rights Bill, 1999 is intended, inter alia, to reflect the most recent of these changes.

5.3.7 In a 1996 document entitled “ Follow-up to the Green Paper on Copyright and Related Rights in the Information Society ”, the EU Commission recognised that, in some situations, Community law stipulated mandatory rights administration by collecting societies and, indeed, in several cases, the relevant Directives referred to collecting societies as an accepted way of rights management. The Commission agreed with “a large number of interested parties” that issues such as rights management and the role and development of collective licensing should be “left to the market”, at least for the time being, but that the issues involved should continue to be analysed and refined.

5.4.1 As already observed (paragraphs 5.1.9 and 5.1.10), Ireland is a party to a number of international treaties which specify standards of copyright or related rights protection to be observed by subscribing States. While Irish law has not - until the recent publication of the Copyright and Related Rights Bill, 1999 - been systematically modernised to bring it into full conformity with the obligations incurred under these agreements, this did not have much practical significance until recently. However, the coming into force in 1996 of the TRIPs Agreement brought about a radical change in the position.

5.4.2 The TRIPs Agreement is one of the agreements annexed to the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). Compliance with the TRIPs Agreement specifically requires improvement in the Irish regimes of civil remedies and criminal penalties in the copyright and related areas, as well as full compliance with all mandatory Articles of the Berne Convention in respect of copyright. While the enactment of the Intellectual Property (Miscellaneous Provisions) Act, 1998, has gone a very considerable way towards bringing Irish law into compliance with the TRIPs Agreement, nothing short of the fundamental reform of Irish copyright legislation proposed in the 1999 Bill will bring Ireland fully into line with the standards required.

5.5.1 The Australian Competition Tribunal has recently [13] reviewed an earlier decision by the Australian Competition and Consumer Commission in relation to the Australasian Performing Right Association (APRA).

5.5.2 APRA operates on the basis of exclusive assignment of rights, although after a long dispute with broadcasters, they proposed to modify this somewhat. The Association notified eight arrangements to the Commission, incorporating these modifications (including the membership agreement, users’ agreements, fee distribution arrangements and overseas schemes). The Commission’s main concerns were with a ban on users dealing directly with composers, and the existence of blanket licences which allowed for no fee adjustment. The Commission had licensed the overseas arrangement, but refused all the others, although it did make it clear that it would accept an opt-out clause, among other matters.

5.5.3. The Tribunal ruled (disagreeing with the Commission) that the public benefits deriving from APRA’s role were the key to the right approach, particularly from the viewpoint of indispensability of particular terms. It also said that blanket licensing was sensible, indeed essential; the problem was the way the fees were set, and the fact that licences did not distinguish on the basis of the actual amount of repertoire used. It also remarked on the extent to which the Commission wanted to go beyond what Competition Authorities in both the UK and Ireland had required in earlier similar cases.

5.5.4 The Tribunal concluded generally that authorisations should be granted, but on terms that modified anti-competitive potential. In this context, a general opt-out system should not be required, but it did recommend a restricted one, i.e. a non-exclusive licence for a specific work(s) (although it was unsure of the “practical utility” of this).

5.5.5 Ultimately, however, the Tribunal adjourned the case for nine months, to allow APRA to design a non-exclusive opt-out system (as well as an alternative dispute resolution system for smaller cases). In the meantime, it granted temporary authorisations to the notified arrangements.

6. CA/483/92E - MCPS/ Membership Agreement

6.1 Under Clause 1 of the Agreement, MCPS is appointed to act as the Member’s sole and exclusive agent. In other words, it neither owns the rights in musical works nor acts as exclusive licensee.

6.2 Where a Member’s work has not previously appeared on record in the EU, Clause 2 allows him to make the first recording licence subject to his consent, provided he has previously notified this wish to MCPS, thus limiting MCPS’ powers in relation to first recordings.

6.3 Clause 3 allows the member to collect royalties direct from all record companies which are parties to a Standard Licensing Agreement with MCPS which allows royalty accounting on the basis of records sold, as opposed to records manufactured. In the latter case, the member has the further option of collecting royalties direct from record companies which are directly related to the member.

6.4 Clause 4 covers all areas of exploitation of works except records. In such cases, the Member has a certain amount of freedom to grant licences direct to users, unless a blanket licence arrangement is in place (e.g. with a broadcaster).

6.5 Clause 5 generally prevents MCPS from granting licences for the adaptation of a Member’s work without his consent; subject to that, the Agreement applies to such adaptations. Clause 6 allows the Member to appoint his own sub-publisher or administrator outside the UK, and to be a direct member of any collecting society in any such other territory. An Irish Member may thus be a member of MCPS, while at the same time, collecting mechanical royalties for himself in Ireland.

6.6 Clause 7 sets out the arrangements for distribution of royalties, and the basis on which they are calculated; this includes arrangements for the deduction of commission by MCPS for its services.

6.7 Clause 9 sets out a number of undertakings by MCPS to its members. These include “best endeavours” to protect the owner’s Rights, the collection of royalties, acting in the best collective interests of all the Members (including individual members) in negotiating Blanket or Standard Licencing Agreements, non-discrimination as between members, prompt investigation of any alleged accounting irregularity and the provision of accounting information to individual members. In return, Clause 10 sets out a number of warranties to be undertaken by the Member, including the fact that he has full authority to enter the agreement, to register musical works with MCPS as required, not to grant licences himself if he has entrusted MCPS to do this, and generally to observe the terms and conditions of any MCPS Licensing Scheme, Code of Practice, Blanket or Standard Licencing Agreement etc.

6.8 Clause 11 allows MCPS to take enforcement action for copyright infringement in the Member’s name, with his consent. Clause 12 sets out procedures where a Member is a company with subsidiaries. Where a Member’s work constitutes Production (Library) Work, Clause 13 applies a separate Side Agreement [14] to such work, in addition to the present agreement. Under Clause 14 , the Member agrees to comply with MCPS rules for resolution of disputes between members.

6.9 Clause 15 sets a minimum of one year for the duration of the agreement, following which six month’s notice of termination by either party is required. However, if MCPS increases its own rate of commission, or makes a major change in policy by which members are no longer entitled to license or collect direct, the member may terminate membership immediately.

6.10 Clauses 16 and 17 contain various miscellaneous provisions, e.g. definitions etc.

7. User Agreements

7.1 In addition to the Basic Membership Agreement described above, MCPSI also notified a number of documents setting out its Terms and Conditions of Business under a wide range of Standard User Agreements. While these include arrangements for the distribution of net royalties to MCPS Members, their main thrust has to do with methods for extracting royalties from users under the various Agreements/Licences concerned, and the various separate standard agreements/ licences notified are described below.

7.2 Under this agreement, MCPSI licenses individual record producers to record works from the MCPS repertoire, or to import records of such works into the State for retail sale. The agreement only applies to producers who are also members of the Irish Recorded Music Association (IRMA), and for as long as they remain such members; under the agreement, the producer agrees to authorise IRMA to negotiate and contract certain matters with MCPSI on his behalf. The agreement currently in force has an expiry date of 31 December 1999. The royalty rate for manufacture or import of records is negotiated between MCPSI and IRMA every three years, the rate currently in force is 8.5% of the Published Dealer Price, and a similar rate applies to any relevant records exported, other than to the US or Canada (which is not permitted). Under Clause 29(1), the producer undertakes to abide by “ any lawful directive given to the Producer by IRMA relative to this Agreement ”, he may not “ approach or deal with the Copyright Owner direct in regard to the construction of the Agreement ”, and he must “ account for the whole of his production ” through the agreement. Under Clause 32(3), the producer cannot terminate the Agreement unless (a) IRMA agree, or (b) the Producer ceases to be a Member of IRMA.

7.3.1 MCPSI operates a schedule of royalties and other fees for the non-exclusive licensing of Production Music library catalogues. This notification consists of a production music rate card for non-broadcast copying and distribution, and a standard licence/invoice, which collectively contain the standard terms of the licence. Production music is music specifically written for inclusion in audio and audio-visual productions, and is normally used by facility houses and production companies . It is available on various high quality carriers, usually compact discs, for convenient and cost-effective synchronisation, or “dubbing”, into such productions. A valid licence must be obtained and the relevant royalty (usually per 30 seconds) and other fees paid before the production is transmitted, broadcast, shown, exhibited, distributed, hired, exploited or used in any way except for the sole purpose of completing the production.

7.3.2 Under the licence, licensees must agree to adhere to the appropriate Code of Conduct (see para 7.4 below). In using a production music library recording, a dubbing fee is payable, as well as a royalty. The Rate Card is reviewed annually.

7.4.1 These codes of conduct are associated with the Production Music Standard Licence/ Rate Card notified as CA/487/92E. It is a pre-condition of issuing any licence that the facility house/ production company agrees to the relevant code of conduct.

7.4.2 The Code of Conduct relating to the use of production music by Facility Houses (CA/498/92E) and the Code of Conduct relating to the use of production music by Production Companies (CA/499/92E) are, despite their titles, formal standard-form licence agreements, under which MCPS authorises facility houses and production companies, respectively, to record Production Music from its repertoire. In this case, the licence is normally applied for retrospectively, i.e. after the facility house/production company completes its work for the client; in exceptional cases, the licence may be applied for even after the first use of the completed work. Where the facility house/production company is a member of an organisation/association which itself has a production music agreement with MCPS, then the latter takes precedence. Lyrics may not be added without the composer’s prior written consent, nor may the work be altered or adapted (except for editing or cutting). Both agreements may be terminated by one months’ notice by either party.

CA/490/92E - Videogram Producers Licence Agreement

7.5.1 This is a standard-form non-exclusive licence agreement whereby MCPSI authorises videogram producers to synchronise the copyright in the MCPS Repertoire with videograms, in return for royalty payments. The agreement provides standard Licences for both synchronisation and duplication.

7.5.2 Under the agreement, the licensee must pay royalties at a standard published rate (currently 7%, plus an initial reproduction fee of £1 per weighted minute), or as otherwise arranged with him individually. There are arrangements for the provision of information by the licensee to MCPS, covering the number of videos produced, their published dealer price and their rental price, where applicable. Clause 5 allows the licensee to sub-contract the manufacture of the videos. The licence is terminable on one months’ notice by either side, but the licensee may continue to distribute any validly made videos for a year after termination.

7.5.3 Two separate agreements were originally notified to the Authority under this heading, viz. a Videogram Producers Agreement and a Videogram Duplication Agreement. The second of these was withdrawn in April 1999.

7.6.1 MCPSI grants non-exclusive standard licences to re-record the MCPS repertoire for incorporation into audio programme compilation tapes. These are then produced and supplied to passenger airlines for private (i.e. earphone) use by passengers. Only one licence of this category has issued - a “roll-over” licence to Inflight Entertainment Ltd. for use by Aer Lingus.

7.6.2 Under the licence, the producer pays a royalty of 10% in respect of any charges it makes to the client airline; if advertisements are included in the tape which include music from the MCPS Repertoire, it must pay a further royalty of 8% of the revenue received by the producer in respect of such advertising. There are standard provisions for information returns by the producer, the tapes must be destroyed when no longer in use, and the agreement may be terminated by either MCPS or the producer on six months’ notice.

7.7.1 This is a scheme of standard-form licences in relation to the mechanical re-recording of the MCPS Repertoire within the education system. The licences allow individual institutions to make audio copies and still visual image productions featuring MCPS Members’ works for the purposes of curricular activities only. It does not allow music to be synchronised to moving images such as video and film. The annual licence fees (at the time of notification) were £8.50 per annum per licensee (schools) and £17.00 per licensee for Universities etc. A standard-form Licence Agreement for use between MCPSI and Media Students was also notified originally, but was withdrawn in April 1999.

7.7.2 Under the licence, the right to re-record musical works can only be exercised on the institution’s premises, and the copy must remain the property, and in the possession, of the institution concerned. Use of the copy for extra-curricular purposes, or for students’ recreational activities, is expressly excluded. Licences are issued for a 12-month period.

8.1 MCPSI drew the attention of the Authority to International Copyright and Neighbouring Rights [15] and, in particular, to an article entitled Collective Administration of Rights by Michael Freegard [16], at page 350 therein.

8.2 In this context, MCPSI drew the Authority’s attention to paragraph A.17 and the principles set out therein, and felt that Principle 3 would be of particular interest to the Authority. The relevant Principle reads as follows:-

“In any given territory there should be only one organisation offering licences in respect of a given category of rights in the same kind of works, so that those requiring licences know that they can obtain them from a single source. Each organisation should. as far as possible, be a monopolist ( de facto or de jure ) in its field. This is as much in the interest of the users as of the copyright owners. Experience in the field of musical performing rights in the United States (where there are three societies administering these rights) has shown the disadvantages of a situation in which the users need to obtain licences from more than one organisation if they are to be secure from the risk of unwitting infringement. Some governments have even gone to the lengths of legislating to ensure that this does not happen (e.g. France). In Europe, the competition division of the EC Commission was initially inclined to replicate the North American situation, but it was eventually convinced (by the arguments of the major users, notably the broadcasters, as much as by those of the authors societies) that this was undesirable and, subject to minor modifications, the modus operandi of the collection societies in the member states has been endorsed.”.

8.3 MCPSI submitted that copyright was itself a statutory monopoly in relation to the author’s rights. It further submitted that, notwithstanding that a priori competition principles might suggest scepticism, collective administration of rights is the only practical method of ensuring an orderly and user-friendly copyright law, especially in the field of mass entertainment. MCPSI claimed that, having regard to the statutory role envisaged for licensing bodies by Part V of the Copyright Act, 1963, it was clear that Irish legislative policy favours the creation of collective collecting licensing societies.

8.4 MCPSI submitted that there was nothing in the membership agreement that could reasonably be said to amount to an anti-competitive provision, bearing in mind the basic features, viz. that copyright is a monopoly right and that the legislature has always foreseen that it would be enforced, in part, by monopolistic licensing bodies.

8.5.1 MCPSI drew the Authority’s attention to chapter 20 of Stewart by John MacPhail. Paragraph 20.13 of that chapter was particularly instructive in relation to the approach of the European Court of Justice to the application of Articles 85 and 86 to collecting societies such as MCPS / MCPSI. The general principle of collecting societies was approved by the European Commission in Re GEMA Statutes O.J.(1982)L94/12 (in particular paragraphs 36 and 37).

8.5.2 It was clear from this, MCPSI stated, that the existence or activities of copyright collecting societies were not per se anti-competitive or an abuse of dominant position. It was only when those collecting societies engaged in certain malpractices that competitive law might be infringed. MCPSI argued that the same principles set forth in European Community case law in this field should apply to Irish competition legislation and the manner in which it ought to be administered.

8.5.3 The malpractices of collecting societies found to potentially infringe Article 86 were as follows:

(1) refusing to conclude management agreements with foreign artists who were not resident in the territory of the society, thereby discriminating on grounds of nationality,

(2) binding members by obligations which were unnecessary and objectively unjustifiable,

(3) preventing, through its system, the establishment of a single market in the supply of music publishing services,

(4) extending copyright protection, through contractual devices, to non- copyright works,

(5) discriminating against independent importers of gramophone records as compared with manufacturers of records, and

(6) discriminating against importers of tape and optical sound recordings as compared with domestic manufacturers of such records.

8.5.4 They submitted that there was nothing in the MCPS membership agreement or in any of the other arrangements which offended against any of the decisions in relation to Articles 85 and 86 and their application to copyright collecting and licensing bodies, or which came near to doing so.

8.5.5 They conceded that a collecting or licensing body could abuse its dominant position. But its mere existence on the terms set out in the membership agreement did not come close to being described as an anti-competitive agreement. Even if it was technically held to be an anti-competitive agreement in that it obliged members for the time being to adopt similar charges in respect of record manufacturers and other copyright users, it was quite clear that the principle of licensing bodies had statutory approval (Part V of Copyright Act 1963). In those circumstances, it urged that the Competition Authority should not hold that the agreement required a licence.

8.6.1 MCPSI submitted that Part V of the Copyright Act, 1963, envisaged the existence of monopolistic licensing bodies and bilateral negotiations between such bodies and representative organisations of copyright users. It was, accordingly, the policy of the Oireachtas to recognise and favour collective bargaining and negotiation in relation to copyright use. Furthermore, Part V established arbitration procedures where there was a failure to agree in relation to copyright use and where licensing schemes existed. The jurisdiction conferred on the Controller of Industrial and Commercial Property by the 1963 Act existed in part to prevent unfair exploitation of either side of the author/user market by the other, or of the public, and the jurisdiction extended to individual copyright users.

8.6.2 They therefore submitted that the Authority ought not to attempt to “second guess” the Controller in the function of acting as guardian of the public interest and authors’ and users’ interests in relation to the use of copyright. They also stated that existing mechanisms for collective bargaining and for licensing were operating satisfactorily both from the copyright owners’ and the users’ point of view, as well as in the public interest.

8.7 For these reasons, MCPSI requested certification in relation to the arrangements notified.

9.1.1 MCPSI submitted that the arrangements did not have as their object or effect the prevention or distortion of competition in trade in any goods or services in the State or in any part of the State. In fact, it claimed, without such arrangements there would be less trade in copyright, chaos in enforcement and arbitrary price differences. Thus, the arrangements contributed to improving the provision of services and to promoting technical or economic progress. The arrangements also broadly, and in detail, contributed to improving the provision of copyright licensing and permitted consumers, namely record manufacturers and users of copyright, as well as the ultimate consuming public, a fair share of the resulting benefit .

9.1.2 In particular, persons seeking licences and paying royalties to MCPS / MCPSI were given access in an orderly way to the use of copyright material on standard terms. This gave users of copyright music a greater ability to compete with each other for business from consumers of their products, since powerful users were not able to squeeze out weaker users who could not match the purchasing power of the former as regards one of their vital inputs, i.e. the music. Moreover, in the case of statutory provision for equitable remuneration or fair royalties or in the case of licensing schemes, fairness to the consumer - in the sense of the person obtaining the licence - was guaranteed by the statutory arbitration system.

9.1.3 Rates of remuneration and royalties were, in general terms, no higher than those obtaining elsewhere.

The arrangements contribute to improving the provision of services and to promoting technical or economic progress

9.2 MCPSI claimed that the contribution of the arrangements to improving the provision of services and the promotion of economic progress included the following -

(a) Authors, writers and composers were guaranteed a proper compensation for their creative efforts. Such compensation constituted an incentive for future artistic efforts, and thus ultimately ensured the continued viability and economic importance of the music industry.

(b) The representation of copyright owners by MCPS / MCPSI enabled such owners to concentrate on artistic activities.

(c) Without MCPS / MCPSI, users of copyright works would be compelled to seek different licences, often from a number of different sources, and this would slow down the obtaining of licences which were necessary for the lawful production and distribution of goods. MCPSI enabled such licences to be obtained speedily from one central source.

9.3.1 In the context of the notified arrangements, there were three categories of potential consumers. The first was the members who used the services of MCPSI to license the use of their works, and to collect the royalties arising from those licences. The second category was the primary copyright users, such as record companies and broadcasting organisations. The third category comprised the ultimate consumers, whether purchasers of articles embodying copyrights such as records or videograms, or those who watched films or television programmes for which a recording licence had been granted.

9.3.2 It was submitted that, from the perspective of copyright owners, only an owner who had more than usual strength and consequently greater monopolistic and anti-competitive power, would seek to avoid a collective regime and attempt to strike an individual bargain with users of the copyright material including record companies. By way of illustration, it might be open to persons with substantial economic power, such as The Beatles or ABBA, to try to replicate, on terms more favourable to themselves, the services provided in Ireland by MCPS / MCPSI. But a much weaker copyright owner, such as an unknown composer, could not contemplate improving his position by independent or alternative action.

9.3.3 The fact that licences were obtainable from one central source, and often on standard terms negotiated between MCPSI and the relevant representative user body, reduced the administrative costs of obtaining the licences necessary to make recordings. This naturally benefited consumers.

9.3.4 As regards the members of MCPS, it was pointed out that it was MCPS policy to make rebates to its members where its income was greater than the costs of administration.

9.3.5 In addition, consumers benefited from the jurisdiction of the Controller of Industrial and Commercial Property under section 13 of the Copyright Act 1963, in relation to licensing schemes operated or proposed to be operated by a licensing body such as MCPSI.

9.4.1 Article 1.1 of the Membership Agreement appointed MCPS as the member’s sole and exclusive agent to manage and administer the rights in the works. Article 1.2 contained a non-exhaustive list of specific powers granted to MCPS pursuant to Article 1.1. Article 3.2 elaborated one particular aspect of the exclusivity, namely the power of MCPS to grant licences for the manufacture of phonograph records as defined in the Agreement.

9.4.2 Unlike the continental collecting societies and the (UK) Performing Right Society, MCPS did not - except in the case of copyright in sound recordings in the case of Production Music [17] - take an assignment of the relevant Rights from its Members. However, because MCPS only acted as exclusive agent, it was a necessary corollary, in Article 10.3.5, that the Member’s rights to grant licences direct, or to exercise other powers included in the grant of agency, was limited.

9.4.3 MCPSI said it was important to note, however, that other clauses of the Agreement strictly reduced the geographical scope, the material scope and the duration of the exclusivity, so as to leave considerable room to the Member for independent action, and these restrictions were indispensable to the attainment of the objectives of the Agreement.

9.4.4 As regards the first restriction, viz. reduction of the material scope of the exclusivity granted, the Agreement did not give MCPS rights in relation to the full copyright - performing, broadcasting and cable transmission rights were not controlled by MCPS. Neither did MCPS control the right to make, and issue to the public, copies of musical works in graphic form. Furthermore, under Article 2.1, the Member could also make the granting of a first recording licence subject to his consent. In addition, pursuant to Article 3.3, the Member could collect royalties direct from all record companies which were parties to a Standard Licensing Agreement with MCPS which allowed royalty accounting on the basis of records sold, as opposed to records manufactured. In the latter case, under Article 3.8, the member could also collect royalties direct from record companies which were directly related to the member.

Article 4 dealt with all areas of licensing other than phonograph records. Here, the Member had considerable scope to grant licences and collect royalties himself. In two areas - theatrical motion pictures and commercial advertisements - MCPS did not have the power to lay down standard terms and conditions which would bind the Member. Finally, under Article 5, MCPS had no power to grant licences to make adaptations of musical works, or to license the use of music in an adapted form, unless the Member had licensed the making of the adaptation or consented to it.

MCPS stated that all of these provisions considerably limited the powers which it would have otherwise enjoyed under an unqualified exclusive agency agreement.

9.4.5 As regards the second restriction, viz. reduction of the geographical scope of the exclusivity granted, the Member had, pursuant to Article 6, an almost complete discretion to define the contract territory. Only the United Kingdom could not be excluded. According to Article 6.1, the Member could freely appoint a subpublisher or administrator in another country, or adhere to a local collecting society, and such situations took precedence over the MCPS Membership Agreement, although MCPS retained certain non-exclusive rights. However, the Member was able to go further and completely exclude MCPS’ powers in relation to any country outside the United Kingdom (Article 6.3).

9.4.6 As to the third restriction, viz. reduction of the duration of the exclusivity, the Agreement was, under Article 15.1, concluded for a period of one year only, and could be terminated thereafter if either party gave six months’ notice. In addition, the Member benefited from even more flexible rules of termination (28 days’ notice only) if he wished to terminate the Agreement because of a change in commission rates (Article 15.1.1) or because of the introduction of a major new Licensing Scheme, Code of Practice, Blanket Licence Agreement or Standard Licensing Agreement, in a situation where he previously licensed or collected royalties direct (Article 15.1.2).

9.5 As already argued, the Agreement was limited in both geographical and material scope. It thus enabled the granting of further licences by the Member even during the life of the Agreement. In addition, it allowed some forms of direct licensing and direct collecting of royalty fees. More importantly, the Agreement had a short minimum duration (one year), which enabled parties to regain their economic freedom quite rapidly. It was therefore submitted that the Agreement was not capable of eliminating competition in respect of the services concerned.

10.1 On 13 August, 1999, the Authority published notice of its intention to issue a licence in respect of the arrangements the subject of this decision, and invited any observations within two weeks from the date of publication of the notice. IMRO requested an extension of that deadline by four days, to enable it to finalise and make a submission to the Authority. The request was granted, and a submission was received from IMRO within the extended time. This submission is summarised below.

10.2 IMRO stated that its submission was in accordance with its publicly-stated intention to enter the market for the collective licensing and enforcement of mechanical reproduction copyrights, and also in recognition of the fact that IMRO and MCPSI were, in fact, in competition already by virtue of the hybrid nature of the rights involved in the use of music on the internet.

10.3 In IMRO’s view, the collective administration of all music copyrights in Ireland had in the past been totally unsatisfactory. Irish music publishers had been excluded from participating fully in international markets and had suffered a loss of income over a prolonged period of time due to the ineffectiveness of the organisations operating in Ireland collecting music royalties. It was suggested that the primary reason for this had been the continuing control and influence by the UK music industry in Ireland.

10.4 While the UK-based Performing Right Society (PRS) had formerly been the national performing right collecting society in Ireland, little or no benefit had accrued to Irish holders of the performing right copyright by virtue of PRS operating in Ireland until IMRO’s formation in 1988 as a wholly-owned Irish subsidiary of PRS. As evidence of its own impact, IMRO stated that its total revenues in 1988, its first year of establishment, were £2.35m; in 1998 the equivalent figure was £16.03m. IMRO later (1995) became fully independent.

10.5 IMRO stated that its Board had, at its Annual General Meeting in 1997, announced its intention to enter the field of administration of mechanical copyright, and its Memorandum & Articles of Association were amended accordingly. It stated that among the reasons for this decision was a dissatisfaction with the manner in which the Irish mechanical repertoire was administered by MCPS.

Collective administration of performing and reproduction rights

10.6 IMRO pointed out that the collective administration of performing and reproduction rights were, in the vast majority of European countries, carried out by a single organisation. This was perfectly natural, as it was the same creator and/or publisher who owned the performing right and the reproduction right in the music. Therefore, under the European model, that category of copyright owner had one organisation collectively administering his/her rights.

10.7 That model was not, however, adhered to in the UK (nor to date in Ireland), where separate collecting societies existed for performing and reproduction rights. In the latter case, the reproduction right was still controlled from the UK by MCPS, and IMRO claimed that Irish owners of mechanical rights (most of whom were also IMRO members) had effectively no choice other than to have recourse to the services provided by MCPS. MCPS was owned in turn by the Music Publishers’ Association (MPA). The MPA’s policies and practices had necessarily been focused on the interests of the UK publishing industry and, as a result, the territory of Ireland had been regarded by the international publishing industry as part of the UK market; the absence of recognition of Ireland as a separate music publishing market had presented great difficulties to the Irish music publishing industry as regards participating in the international industry. IMRO maintained that this had had detrimental effects on Irish music generally, and had resulted in most successful Irish artists and composers having no alternative but to enter into contracts with non-Irish music and record companies.

10.8 As regards the reference made by MCPSI, in its submission to the Authority, to the chapter in International Copyright and Neighbouring Rights by Stewart, authored by Michael Freegard, under the heading Collective Administration of Rights [18], IMRO drew attention to another statement therein to the effect that all such [mechanical right administration] organisations should as far as possible represent all the rights owners interested in the category of works or other subject matter which they administer. IMRO stated that it was clear from this principle that Mr Freegard not alone advocated that there should not be competition in a territory for the administration of a particular type of copyright, but also that all rights owners interested in the category of works should be represented by a single organisation on the grounds of economic efficiencies.

10.9 IMRO stated that MCPS had initiated a process for the establishment of Mechanical Copyright Protection Society (Ireland) Limited (MCPSI) as a separate company so as to license and distribute mechanical income in Ireland (perhaps as a response to IMRO’s initiative). The UK-based MPA - the owner of MCPS - had, in collaboration with some music publishers in Ireland, formed Music Publishers Association of Ireland Limited (MPAI) to oversee and control the new MCPSI. The Council/Board of MPAI was dominated by the same UK-based music publishers as were on the MPA Board. IMRO was opposed to such a development on the grounds of competition and of cost-effectiveness and efficiency; it could also constitute a barrier to IMRO’s entry into the market. It also claimed that it made no economic sense to create yet another copyright administration organisation in Ireland, as the potential membership for a mechanical society was identical to that for IMRO. IMRO had, in the past, invested significant sums to facilitate music copyright royalties administration and considered it a totally wasteful exercise to inevitably duplicate much of the expenditure that had already taken place. Holders of Irish mechanical rights would not be properly served by such an arrangement.

10.10 IMRO stated that online distribution of material on the internet and similar computer networks involved both the transmission and temporary reproduction and storage of such material. The resulting combination of separate copyrights in the technological process of electronic distribution presented legal and administrative difficulties, and blurred the dividing line between a performing right and a reproduction right. As matters stood, since a hybrid right encompassing both performance and reproduction appeared to be involved, two authorisations would be required before use could be made of copyright material. IMRO stated that this unsatisfactory position, both for administrators and users of copyright material, arose uniquely only in common law countries, principally the United Kingdom, the United States and Ireland where, unlike continental Europe, there existed totally separate organisations for the administration of performing and reproduction rights.

10.11 The United Kingdom was the largest overseas market for Irish music (and, by definition, for the rights administered by MCPS). The creation of MPAI to oversee and control MCPSI was, IMRO maintained, a clear move to prevent the latter’s entry into this market to increase competition in the UK for reproduction rights in music, as such a move was undoubtedly designed to sustain the influence of the UK music publishers in the Irish market and limit the activities of Irish publishers in the UK market.

10.12 IMRO stated that the most widely accepted and longest-established practice of exploiting music copyrights in an overseas territory was by way of sub-publishing. This had been regarded by the music publishing industry as the only method of having music catalogues exploited effectively in overseas territories. However, the option of sub-publishing in the territory of the United Kingdom in the area of reproduction rights was not available to Irish-resident copyright holders, by virtue of their membership agreement with MCPS which, at present, was the only avenue available to them for the collective administration of their rights. Since Irish-resident members could not enter into sub-publishing arrangements with their UK counterparts, it followed that the reverse was also the case. IMRO stated that this had the effect of depriving Irish-resident publishers of an opportunity to generate revenues by the sub-publishing of UK catalogues in Ireland. It was convinced that this situation continued to pertain because of the widely-accepted attitude and practice that the territory of Ireland remained a part of the UK music publishing market.

10.13 IMRO stated that five multinational music publishing companies [19] controlled 80% of the world market, and each was controlled by a fully-integrated music company, whose activities ranged from artist management, through record companies, to retailing. By virtue of their market strength, these companies tended to control the reproduction right in global products, e.g. music by composers such as Elton John, Michael Jackson, etc. It was very much in their interests to be represented locally and therefore their local subsidiaries acted as sub-publishers in each territory, thus ensuring maximum exploitation of their global or international catalogues and, invariably, assuming positions of significant authority on the controlling boards of collecting societies.

10.14 IMRO stated that, in recent years, these companies had embarked on a concerted campaign against European collecting societies, insisting that those societies reduce the cost of administering the mechanical rights of the multinationals in the various territories. This eventually led to the signing of the so-called Cannes Agreement by the multinational publishers and the collecting societies in 14 European countries (including the UK and Ireland, via MCPS/MCPSI). The primary purpose of the Agreement, IMRO maintained, was to impose uniform maximum levels of costs that could be deducted by collecting societies in respect of the administration of the catalogues of the multinationals in the territories mentioned.

10.15 IMRO had repeatedly rejected the Cannes Agreement on the basis that it amounted to price-fixing. The imposition of arbitrary ceilings on administration costs would have a detrimental effect on those catalogues and musical works that were not within the control of the multinationals. IMRO had no doubt that, in order for collecting societies to comply with the terms of the Cannes Agreement, cost savings would have to be achieved. It was their firm belief that such savings would come about not only by increased efficiency but by a reduction in the activities of the collecting societies in the area of the administration of catalogues that did not form part of those belonging to multinationals.

10.16 IMRO pointed to a perverse situation arising as a result of the Cannes Agreement, whereby local and independent catalogues, necessarily costlier to administer, were in danger of effectively subsidising the larger catalogues by the imposition of arbitrary ceilings on administration costs. This arose through cross-subsidisation of Cannes catalogues (those of the majors) by income collected from other catalogues or the reduction in the administration activities on non-majors’ catalogues to reduce overall administration costs. In this context, IMRO were surprised to note, from the Summary made available by the Authority, the latter’s conclusion that certain reports into the activities of collecting societies in the United Kingdom were not relevant. In this regard, they pointed out that the Monopolies & Mergers Commission, in its report Performing Rights - A Report on the Supply in the UK of the Services of Administering Performing Rights and Film Synchronisation Rights, raised the issue of cross-subsidisation of income streams, which was of great relevance to the MCPSI notifications. That Report had found that, in the case of performing rights, some of the costlier sources of revenue, e.g. copyright uses that were expensive to administer, were cross-subsidised by those income streams that attracted less administration.

10.17 The Cannes Agreement was notified to the European Commission under the title Notification of an Agreement on the Administration of phonomechanical rights in Europe (Case No. 1V/36.827) (98/C 172/08 )[20]. IMRO submitted observations to the Commission on the notification. Essentially , IMRO believed that such an agreement would affect its ability to enter into mechanical administration and would also lead to a reduction in effectiveness in the administration of “non-Cannes repertoire”.

10.18 Returning to the intention of MCPS to establish MCPSI as a stand-alone mechanical rights society in Ireland, IMRO re-iterated its understanding that the owners of MCPS, the Music Publishers Association, had established an Irish counterpart, Music Publishers Association of Ireland, but with many of the MPA Board members occupying similar positions on the MPAI Board. It had been suggested that MPAI intended to appoint a Board of Directors to the Board of MCPSI and it appeared that this would almost certainly be composed of some if not all of the Board of MPAI, as the latter Board comprised many of the same people who were also directors of the MPA and thus MCPS. IMRO stated that, if this was the case, a situation similar to that which pertained during the period leading up to IMRO’s own establishment as a fully independent society would arise.

10.19 IMRO recalled that the issue of cross-directorship between IMRO and PRS had been dealt with under paragraph 45 - Articles of Association: Involvement of PRS - of the Competition Authority's Decision No. 445 of 15th December 1995 [21]. The Authority had stated that PRS was a potential competitor of IMRO and it maintained that the presence of PRS-nominated directors on the IMRO Board meant that they were in a position to obtain information relating to the internal affairs of IMRO and possibly influence the latter’s decisions. The Authority had gone on to state that it took the view that the object and effect of that arrangement was to prevent, restrict or distort competition and therefore offended against Section 4(1) of the Competition Act. IMRO had convened an EGM on 31 October 1995 and amended its Articles of Association so as to remove the power of PRS to nominate directors to IMRO, thus removing the difficulty.

10.20 Should the corporate developments within MCPSI proceed along similar lines, IMRO maintained that a similar competition-distorting situation undoubtedly would arise, not only between MCPS and MCPSI, but also between MCPSI and IMRO, as a number of directors of IMRO were, at the time of IMRO’s present submission, also directors of either MPAI or MCPSI.

10.21 Using its powers under section 4(5) of the Competition Act, 1991, the Authority decided to invite the Tanaiste and Minister for Enterprise, Trade and Employment, and the Minister for Arts, Heritage, Gaeltacht and the Islands, to offer observations on its intention to grant a Licence in this case, as it considered that they were, in the words of that section, “Ministers of the Government concerned with the matter”. The Tanaiste indicated that she had no observations to offer; no substantive reply was received from the Minister for Arts, Heritage, Gaeltacht and the Islands.

11.1 Section 4(1) of the Competition Act, 1991, states that “ 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 goods or services in the State or in any part of the State are prohibited and void ”.

11.2.1 Section 3(1) of the Competition Act defines an undertaking as “ a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service ”. MCPSI and MCPS are engaged for gain in acting as a collecting society for mechanical copyright and are, therefore, undertakings. The members of MCPS are engaged for gain in creating works that are to be commercially exploited and are, therefore, undertakings.

11.2.2 MCPSI claimed that the Authority should view its Membership Agreement as an agency agreement, since it acted, on its members’ behalf, in an intermediary role between copyright owners and users. The Authority has set out its views on agency in a number of decisions, and concluded that agency agreements generally do not contravene Section 4(1). In this context, relevant extracts from the Conoco consignee agreement (Decision 286 of 25.2.94 ) are reproduced below.

“29. The Authority considers that the question of agency is quite complex, and that each case must be examined on its own merits in relation to the Competition Act, in the light of certain general considerations. In the first place, it is not conclusive that one party is referred to as an ‘agent’ in the agreement, since he may not perform the functions of an agent in any real sense. ................. From the point of view of the Competition Act, the Authority is simply concerned with whether the relationship between the two parties is such that one of them may be termed a ‘commercial agent’ of the other.

30. The Authority considers that a commercial agent is a self-employed intermediary between the principal and a purchaser or seller. The commercial agent concludes the sale or purchase of goods and services on behalf of the principal, on a continuing basis. The commercial agent is an auxiliary organ, forming an integral part of the principal's business, and is bound to carry out the instructions of the principal, and his position is similar to that of an employee [22]. Being integrated into the principal’s business, the commercial agent can undertake no autonomous commercial behaviour, under the agreement, and certain restrictions on him are fundamental to the relationship. The Authority considers that profits or losses essentially accrue to the principal and not to the commercial agent.”

11.2.3 Given the cumulative terms of the various agreements and the relationship between MCPS and its members, the Authority considers that MCPS is an intermediary between the copyright owner, i.e. the principal, and the purchaser of the right to use his musical work, and is therefore an agent of the owner. However, the agreement is not a true agency agreement, as characterised in Conoco, since MCPS negotiates prices/ royalties, is free to make commercial decisions, and generally carries out a role more usually associated with principals.

11.2.4 Thus, the Authority considers that the MCPS Membership Agreement should be regarded, not as a standard agency agreement, but as a series of individual agreements between an association of undertakings and its members. Members sign up to an identical standard agreement, and to standard Terms and Conditions of Business; it is the view of the Authority, therefore, that the Membership Agreement is horizontal in nature. MCPS is an association of undertakings within the meaning of Section 4(1), t he agreement is an agreement between undertakings and it has effect within the State.

11.3 Article 7 (D) of MCPS’ Memorandum of Association states it as one of its objects “ to acquire and undertake all or any part of the business, assets and liabilities of any person, partnership or company carrying on a business altogether or in part similar to that of the Company.....and to amalgamate the business of the company with that of, or to transfer the undertaking of the company to, any other person, firm or company having objects wholly or in part similar to those of the company. ”. The Authority notes that these objects have been in place since its incorporation in 1924, and is satisfied that, rather than be construed solely in terms of a statement as to what the company intends to do, it amounts to no more than a standard power for the company to undergo a structural change, ie making it intra vires , should this ever arise. In the opinion of the Authority, therefore, Article 7 (D) of MCPS’ Memorandum of Association does not have the object of preventing competition in the State, and does not contravene Section 4(1) of the Act.

11.4.1 The essential feature of the arrangements (clause 1.1) is that the member appoints MCPS to act as his Sole and Exclusive agent in the Territory to manage and administer the Rights in the Works (although, as indicated earlier, the member has a non-inconsiderable right to enforce his own copyright in certain circumstances). Under clause 1.2.7, MCPS will determine, by negotiation or otherwise, the terms and conditions on which licences are granted in relation to the Rights, including the royalties, fees or other monies payable for such licences.

11.4.2 In the opinion of the Authority, clause 1.1, taken from the viewpoint of a individual creator of copyright work, does not contravene Section 4(1) of the Act. From the point of view of each individual holder of copyright, it is perfectly reasonable for him to appoint an agent, if he so wishes, to act on his behalf in relation to his copyright.

11.4.3 However, in the opinion of the Authority, if one person or body controls the vast majority of this market, such sole and exclusive terms, taken collectively, would raise concerns under Section 4(1). In the present case, MCPS, by its own admission, controls up to 95% of the relevant market and, in the opinion of the Authority, a requirement that members can only join if they appoint MCPS as sole and exclusive agent for the Territory, contravenes Section 4(1). Such a requirement acts as a formidable barrier to entry into the relevant market and, as such, distorts competition. Furthermore, the domination of 95% of the relevant market by the same agency, and with the agent having the right to determine royalty rates etc., leads to the possibility of horizontal price-fixing. For these reasons, in the opinion of the Authority, clause 1.2 contravenes Section 4(1) of the Act.

11.4.4 Clause 6 provides that Clause 1 does not apply in any country outside the United Kingdom if the member appoints a sub-publisher or administrator in that country, or the member is a direct member of any other collecting society exercising the Rights in that country. The member is entitled to exclude from the Territory any country outside the UK. In the opinion of the Authority, the requirement that Members must remain members for the UK at minimum is not a restriction which contravenes Section 4(1). It is possible for a member resident in the State to be a member of MCPS but have other arrangements in relation to their copyright in the State. Thus, members resident in the State are not tied in relation to the agency of their copyright in the State by being members of MCPS.

11.4.5 Under Clause 15, the duration of the agreement is one year and, thereafter, can be determined by either party giving 6 months notice. However, if a member wishes to resign due to an unfavourable change in commission rates, he can terminate the agreement before the changes take place once sufficient notice is given. In the opinion of the Authority, both the term of the agreement and the notice term, given the nature of the market, are reasonable and do not contravene Section 4(1) of the Act.

11.4.6 IMRO has argued (see paragraph 10) that the fact that only one organisation, viz. MCPS, has been active in Ireland in the field of mechanical reproduction rights has led to a totally unsatisfactory state of affairs for Irish authors and publishers, particularly the latter, and it wishes to enter this field itself. It also argues strongly that a single collecting society should exist for the collective administration of both performing and reproduction rights. IMRO has also stated that it is opposed, on grounds of competition, cost-competitiveness and efficiency, to the prospective separation of MCPSI from its current UK parent, MCPS, and its establishment as a subsidiary of Music Publishers Association of Ireland Ltd.; further, that such a move, if it took place, could also constitute a barrier to IMRO’s entry into the mechanical market. Whatever about the merits or otherwise of these views, the Authority can only consider arrangements formally notified to it under the Competition Acts; what the Authority has before it for consideration currently is limited to a series of arrangements between MCPS and its members on the one hand, and between MCPSI and users on the other, and its views on the applicability of Section 4 of the Competition Act, 1991, to these current arrangements are set out in this decision. By the same token, since the Authority has received no formal notification under the Acts of any sale or prospective sale of MCPSI, it cannot assess definitively whether any such sale would contravene Section 4 of the Act.

11.4.7 IMRO also argued that the Cannes Agreement , to which MCPS is a party, amounted to price-fixing. It further argued that the Agreement would have detrimental effects on Irish publishers by reducing the activities of collecting societies as regards the catalogues of publishers other than the major multinationals. Finally, it also argued that the Agreement was a barrier to its own entry into the mechanical rights administration field, since MCPS - and indeed any independent MCPSI - would not, it claimed, be likely to provide reciprocal services to it for “non-Cannes Repertoire”. While it is arguable as to whether or not such an eventuality would, in fact, come to pass were IMRO to enter the mechanical rights field, the fact is that the Cannes Agreement is one concluded between a number of multinational publishers and a number of European collecting societies; as the matter involves inter-State trade, it is beyond the scope of the Competition Acts. The question as to whether it is anti-competitive is, therefore, one for consideration under EU competition rules, for which the appropriate European Institutions have responsibility; the Authority understands, in this connection, that the Agreement is currently being considered by the EU Commission.

11.4.8 As regards the UK Monopolies & Mergers Commission 1996 report referred to by IMRO (see paragraph 10.16), the Authority has reviewed this again. The fact is that that report was concerned with performing rights in the UK, as opposed to mechanical rights, and with the Performing Right Society, as opposed to MCPS. While the report did deal with the issue of cross-subsidisation of income streams, it did so in the particular circumstances obtaining in the performing right area in the UK at the time. Thus, for example, it identified cross-subsidies due to (a) attempts to support specific categories of members with the tacit approval of members, such as classical music members and long-established members who had fallen on hard times, and (b) lack of adequate cost-allocation procedures - for example as regards the latter, it found that, in respect of membership costs, the high-earning members of PRS were subsidising low-earning ones. The Report recommended, in this connection, that -

“The PRS also needs to put more effort into appraising its costs to determine which are direct and which are indirect. Once this has been done, PRS should then implement systems to provide the necessary information for more equitable cost allocations to be made. The PRS should begin within two months of publication of this report to set published targets for reducing administration costs in particular areas, and these targets should be modified as soon as new cost allocation systems are in place.”

The Authority is satisfied, therefore, that the Monopolies & Mergers Commission report concerned is not directly relevant to the present case, particularly since the function of the Authority is to come to a view as to whether the specific arrangements notified to it - in this case the MCPS membership arrangements - have the object or effect of preventing, restricting or distorting competition in the State. Finally on this point, the Authority observes that none of the persons who might be expected to comment most directly on the issue raised by IMRO, i.e. the Irish publisher-members of MCPS, have done so.

11.4.9 IMRO referred to the Authority’s Decision No. 445 [23] which had dealt, inter alia, with the issue of cross-directorships in the field of collective administration of copyright, and suggested that (a) should MCPSI be sold/ restructured along the lines IMRO expected, and (b) should IMRO enter the mechanical field, similar issues would arise, not only between MCPS and MCPSI, but also between MCPSI and IMRO. While the Authority repeats that it has received no formal notification under the Acts of any sale or prospective sale of MCPSI, and so cannot comment on whether any such sale would contravene Section 4 of the Act, it nevertheless re-affirms the view expressed in Decision 445 as regards cross-directorships in the field of collective administration of copyright, namely that such arrangements between potential or actual competitors contravene Section 4 of the Act.

12.1 CA/485/92E - MCPSI/ Record Producer Agreement

12.1.1 Producer-members of the Irish Recorded Music Association (IRMA) are engaged for gain in the production of music recordings and are therefore undertakings and IRMA is an association of undertakings representing the interests of its members. The agreement is, therefore, an agreement between undertakings, and it has effect within the State.

12.1.2 Under this agreement, MCPSI licenses individual record producers who are members of IRMA, to record works from the MCPS repertoire, or to import records of such works into the State for retail sale. Under the agreement, the producer agrees to authorise IRMA to negotiate and contract certain matters, including royalty rates payable, with MCPSI on his behalf; such royalty rate negotiations take place between the two representative bodies every three years.

12.1.3 In the opinion of the Authority, such horizontal agreements to fix prices contravene Section 4(1) of the Act.

12.1.4 Under Clause 29(1), the producer undertakes to abide by “ any lawful directive given to the Producer by IRMA relative to this Agreement ”, he may not “ approach or deal with the Copyright Owner direct in regard to the construction of the Agreement ”, and he must “ account for the whole of his production ” through the agreement. Such a restriction, if applied literally, would ensure that record producers could not deal with copyright holders directly on any level, if they found that they could dispense with the intermediation services of MCPSI, and would, in the opinion of the Authority, distort competition on the relevant market. While it is arguable that the ban on direct approaches to copyright holders does not rule out approaches to their (legal or other) representatives, and that the ban refers specifically only to the construction of the agreement, nevertheless, on balance, the Authority considers that this restriction contravenes Section 4(1) of the Act.

12.2.1 The synchronisation licence for Production Houses/Facility Houses in essence involves a code of conduct, a rate card and the licence itself. To be eligible to apply for a synchronisation licence, the Production Company or Facility House must sign the appropriate code of conduct (both are identical) and abide by the common rate card. The folowing notifications are involved -

12.2.2 Production Companies and Facility Houses are engaged for gain in the recording of Production Music and are, therefore, undertakings. The agreements are agreements between undertakings and they have effect within the State. The Production Music Rate Card sets out the fee rates (reviewed annually) that MCPSI charges for use by both Facility Houses and Production Companies of items in the Production Music Library. The types of use for which a standard licence is available for the recording of production music libraries’ works include, among several others, All Forms of Advertising, Audio-Only Productions (Excluding Advertising) and Multi-Media Productions.

12.2.3 It is clear that, in producing a standard rate card, the issue of horizontal price-fixing (through the mechanism of MCPSI) again arises. As mentioned in paragraph 12.1.3 above, horizontal agreements to fix prices, in the opinion of the Authority, contravene Section 4(1) of the Act. The composers of production music, by the act of joining MCPS, are, for all practical purposes, precluded from competing for users across the whole gamut of trading terms and conditions. While it is true that each user can approach the individual composers involved and strike an individual deal, such action is all but a practical impossibility. With these considerations in mind, the Authority is of the opinion that the setting of common terms and conditions in the Rate Card contravenes Section 4(1).

12.2.4 Under Clause 2 of the Code, the Facility Houses and Production Companies can use Production Music Discs for incorporation only in productions within one of the categories of use referred to in the MCPS Schedule of Royalty and Other Fees [CA/487/92E]. The types of use for which a standard licence is available for the recording of production music libraries’ works have already been mentioned in paragraph 11.2.2 above.

12.2.5 In the opinion of the Authority, the restrictions imposed on the field of use of the Production Music Discs are no more than is necessary for MCPS to protect the property of the copyright holder and to ensure that the composers and MCPS obtain proper payment for the copyright works, and do not contravene Section 4(1) of the Act.

12.2.6 The Code(s) contains verification procedures allowing MCPS to check that Facility Houses/ Production Companies are fulfilling their obligations under the Agreement; these may also be activated up to a year after the agreement is terminated. In the opinion of the Authority, given the volume of Production Music produced, such verification measures are a necessary protection for the rights in the copyright material, and are no more than is necessary to ensure that the ultimate copyright holders willingly allow MCPS to license the use of their works to the Houses/Companies involved and do not contravene Section 4(1). Furthermore, given the transfer of intellectual property, the Authority is also of opinion that the continuation of these procedures for one year post-termination do not contravene Section 4(1).

12.2.7 The Code(s) also provides that, where the Facility House or Production Company is or becomes a member of a trade organisation or other similar organisation or association with whom MCPS has an agreement with regard to the use of Production Music Works, the Code concerned shall be subject to the terms and conditions of that agreement. If the latter agreement ceases to have effect for any reason, the Code will again apply with effect from the date of termination. In view of the fact that a Facility House etc. is free to decide whether or not to join any such central trade organisation, the Authority considers that this restriction does not contravene Section 4(1) of the Act.

12.3.1 Video producers are engaged for gain in the production of video recordings and are, therefore, undertakings, the agreement is an agreement between undertakings, and it has effect within the State.

12.3.2 Under the Agreement (Clause 2(b)), the royalty per videogram paid to MCPSI is set out in the conditional licence/invoice issued to each Producer and is “calculated at the rates(s) published from time to time by MCPS or as otherwise arranged with the Licensee”. The Producer cannot duplicate or distribute the videograms until payment is made. He then, under Clause 3(c), sends to MCPSI his price list showing the Published Dealer Price for each item on his catalogue. These prices are used in calculating the royalty rates. On the basis of the facts in its possession, the Authority is of the view that the preponderance of Licences are given on standard published rates. That being the case, the Authority re-iterates its opinion that horizontal agreements to fix prices contravene Section 4(1) of the Act.

12.3.3 The agreement can be terminated by either party by one month’s notice and the licensee is allowed to distribute videograms for one year after the agreement is terminated (once they were produced prior to the date of termination). The Authority considers the notice required to terminate the agreement, and the restriction that the Licensee cannot continue to distribute the goods after one year as reasonable and not in contravention of Section 4(1) of the Act.

12.3.4 MCPSI also has the right (Clause 3(f)) to restrict the distribution of the producer’s output. MCPSI stated in March 1997, in reply to queries from the Authority, that these restrictions could be on such items as the number of copies licensed, whether the licence was in respect of manufacture or sale, and whether the licence was restricted to a certain territory. The Authority considers that such restrictions are no more than is normal in drafting a copyright licence and, in its opinion, do not contravene Section 4(1) of the Act. In particular, the Authority is of the opinion that territorial restrictions are often necessary in relation to copyright material due to the varying regimes across jurisdictions.

12.4.1 In-flight entertainment producers are engaged for gain in the production of sound recordings to be used as in-flight entertainment and are, therefore, undertakings, the agreement is an agreement between undertakings, and it has effect within the State.

12.4.2 MCPSI advised the Authority in March 1997 that only one licence had been issued under this agreement to date. It further stated that the company concerned was engaged to provide in-flight entertainment on Aer Lingus’s transatlantic flights and that MCPSI’s annual income from this source was IR£[ ] annually.

12.4.3 Under the agreement, the Licensee obtains a non-exclusive licence to produce tapes for in-flight passenger use. The fees charged are calculated on a percentage basis of the revenue obtained from the tapes, with special extra charges levied if they include advertising. The Authority re-iterates its opinion that horizontal agreements to fix prices contravene Section 4(1) of the Act.

12.4.4 There are standard clauses relating to the policing of the agreement and the in-flight tape producer must ensure that the airline only uses the tapes for the licensed purpose and that the tapes are destroyed once the licence expires. The agreement lasts for two years and has a six month notice period (by either party) for termination. In the opinion of the Authority, none of these terms contravenes Section 4(1) of the Act.

12.5.1 Education institutions are engaged for gain in the provision of education services and are, therefore, undertakings, the Licence Agreement is an agreement between undertakings, and it has effect within the State.

12.5.2 MCPSI licenses education establishments to re-record the MCPS repertoire, so long as the copy is only made and used on the institution’s premises, is used for curricular purposes only, and remains the institution’s property. The copy can be made for use as part of a visual presentation, so long as the visual images are stills and that the visual images and sound recordings are physically separate. The licence subsists for 12 months, and the fee is a standard one, depending on whether the Institution is a school or third-level college. The Authority re-iterates its opinion that horizontal agreements to fix prices contravene Section 4(1) of the Act.

13.1 Under Section 4(2) of the 1991 Act, the Authority may grant a licence in the case of any agreement, decision or concerted practice which -

13.2 The Authority accepts that, having regard to all the market conditions, the existence of collecting societies for mechanical copyright, and the appointment by a great many composers of a single intermediary, promotes the production and distribution of a service in the State . The role of intermediation that MCPS plays between composer and user also benefits both parties. The composer can concentrate his full efforts on his main business in the knowledge that he will benefit more fully from his endeavours, and the actions of collecting societies ensure that composers have the incentive (and more time) to create. In the absence of collecting societies, most composers would not, in the opinion of the Authority, be in a position to vigorously enforce the copyright in their work.

13.3 Users benefit in that, rather than having to invest scarce resources in attempting to ensure that all copyrights in a given piece of work are being paid royalty, they can approach the collecting societies and get a licence to use the piece of work accordingly. In the opinion of the Authority, the role that MCPS plays as a collecting society for mechanical copyrights confers real benefits on the “intermediate” users who exploit them, and these benefits carry through to ultimate consumers of musical works. In the absence of a clear structure of rights and of mechanisms for users to safely use composers’ work, many products which ultimate consumers want would not reach them, as there would always be the overhanging possibility that someone who felt his copyright had been infringed would injunct the user.

13.4 It could be argued that, having regard to all the relevant market conditions, MCPS’ sole and exclusive agency might afford it the possibility of eliminating competition in respect of a substantial part of the services in question. The concern would be that appointment as sole and exclusive agent for 95% of the relevant market, characterised as it is by network externalities, might represent a significant, if not insurmountable, barrier to entry into the market for intermediation of mechanical copyright. However, in the opinion of the Authority, the marginal impact of Clause 1.1 of the Membership Agreement, as compared to the very large network effects, do not warrant the finding that that the clause affords the undertakings the possibility of eliminating competition in the relevant market. In taking this view, the Authority, considers that, while there may be other barriers to entry in the relevant market, the most important of them is the network externality (most composers and users have large incentives to use a single firm). These considerations have formal expression in many States which legislate to ensure that there is only one collecting society for mechanical copyright etc. The Authority recognises that, while there is no legal barrier to the introduction of a competing mechanical copyright society, such an entrant would find it difficult to attain sufficient composers to ensure viability. Nevertheless, if one such did exist, it would be open to a composer to be a member of it, as well as retaining his membership of MCPS for purposes of copyright protection and licensing in the United Kingdom.

13.5 The Authority considers that the exclusivity aspect of the membership agreement is considerably mitigated by the options open to the member to exercise his own rights - otherwise than through MCPS - while still a Member of the Society (described earlier in paragraphs 6.2 to 6.5, and 9.4.3 to 9.5). In the opinion of the Authority, therefore, the Membership Agreement does not impose on the undertakings terms which are not indispensable nor afford the undertakings the possibility of eliminating competition. Furthermore, in the opinion of the Authority, the sole and exclusive nature of the relationship between MCPS/ MCPSI and the composer confers benefits on users, in that users can be confident that MCPS/MCPSI has the authority to act in place of the composer. This contributes to the improvement in the distribution of copyright material in a manner which confers benefits on users.

13.6 The Authority is of the opinion that, in the vast majority of cases, horizontal price-fixing arrangements would not meet any of the conditions for the grant of a licence. By their very nature, such arrangements tend to lower production (and consumption) of the good or service in question and raise prices. Thus, it is clear that horizontal agreements on the terms and conditions of sale (including price) do not normally allow consumers a fair share of the resulting benefit.

13.7 The Authority does, however, recognise the very peculiar nature of this particular market. In the absence of an intermediary such as MCPS/MCPSI, the market for the use of mechanical copyright material would, in the opinion of the Authority, be much smaller than it currently is. There would be considerable transactions costs to be incurred (on the part of both users and composers) along with a concomitant risk of litigation if all copyright was not fully respected. If MCPS was to revert to the composer in each instance as to what royalty rates to charge, this would impose considerable transaction costs on both composers and users - in the absence of a collecting society, the market would be characterised by frequent, costly litigation, as composers attempted to exercise their rights over their compositions. With this in mind, the Authority is satisfied that collecting societies fill an indispensable intermediary role between composers and users. Such a regime benefits both composers (who can rely on MCPSI/ MCPS to act on their behalf) and users (who can legally use copyright material in a legally safe and uncomplicated manner).

13.8 The Authority considers, therefore, that the requirement in Clause 1.2.7 of the Membership Agreement allows users - and ultimately consumers - a fair share of the resulting benefit and does not impose on the undertakings conditions which are not indispensable . Finally, in the opinion of the Authority, Clause 1.2.7 does not afford the undertakings the possibility of eliminating competition in respect of a substantial part of the products in question . Furthermore, in the opinion of the Authority, in the cases of the other instances of horizontal price fixing outlined above, the same reasoning applies. The copyright collecting society, with its crucial intermediary role, ensures that copyright can be exploited by users in a manner which increases the use of copyright (in a manner which simultaneously gives sufficient incentive for composers to produce copyright material). Furthermore, in the opinion of the Authority, having regard to all the relevant market conditions, the role of the collecting society does not impose on the undertakings terms which are not indispensable . As argued earlier, for MCPSI to act as intermediary but at the same time having to revert to the composer to fix royalty rates would defeat the purpose of the intermediation. Finally, having regard to the relevant market conditions, where for the market for mechanical copyright to exist in a workable form given the large network externality, the collecting society must have the vast majority of composers on its books, there is not, in the opinion of the Authority, the possibility of eliminating competition.

13.9 Some of the user agreements [24] contain the restriction that an agreement negotiated centrally between MCPS and the user representative body concerned would supersede any agreement negotiated with an individual user. Moreover, under Clause 29(1) of the record company agreement (CA/485/92E), the producer undertakes to abide by “any lawful directive given to the Producer by IRMA relative to this Agreement”, he may not “approach or deal with the Copyright Owner direct in regard to the construction of the Agreement”, and he must “account for the whole of his production” through the agreement. Such restrictions would not normally be legitimate candidates for the grant of a licence, since they would restrict competition and would not meet the conditions necessary to qualify for a licence.

13.10 However, in the circumstances of the arrangements in this case, the Authority is satisfied that such provisions do operate in a manner which contributes to the benefit of users including, ultimately, end consumers, by lowering the administrative costs of obtaining the licences necessary to make recordings, i.e by lowering transaction costs. The Authority is satisfied that, given the network externalities which characterise this market as a whole, the provision of services is improved as a result, and that users (and, ultimately, consumers) benefit, without imposing on any of the undertakings involved, terms which are not indispensable to achieving those objectives. Furthermore, the Authority is satisfied that the arrangements do not eliminate competition. Rather, the arrangements are pro-competitive, as they facilitate the distribution of intellectual property to the end user.

The Copyright Act and collecting societies

13.11 In reaching these overall conclusions, the Authority has taken into account the fact that the Oireachtas has recognised, via Part V of the Copyright Act, 1963, the existence of central licensing bodies such as MCPSI. In doing this, the Oireachtas obviously satisfied itself that the existence of such collecting societies was in the best interests, not just of composers and authors of literary, dramatic and musical works, but of a rational and efficient distribution of the rights to use these works. While the Authority is of the view that both the full ambit of the Competition Acts and its own functions vis-a-vis competition apply as much to the area of copyright protection as to any other sector of the economy, it has, in reaching its conclusions, also taken into account the considerable jurisdiction of the Controller of Industrial and Commercial Property to hear disputes arising from licensing schemes.

14.1 The Authority has previously considered agreements notified by collecting societies, most notably those involving the Irish Music Rights Organisation (IMRO) [25].

14.2 The essential feature of the IMRO membership arrangements was an assignment - i.e. transfer of ownership - of property from the creator or publisher to IMRO. As such, the arrangements ordinarily precluded the member from administering the performing right himself or from engaging the services of any other collecting organisation; they also had the effect of restricting competition in the supply of performing rights between individual members. In the event, however, the arrangements were licensed by the Authority for a period of 15 years, from 1995 to 2010.

14.3 While, in the MCPS case, the notified arrangements also involve standard agreements between authors of musical works and a central collecting society/ licensing body, they are distinguished from the IMRO case by the fact that, unlike IMRO, MCPS does not take assignments of copyright by authors (the relationship therefore being one of agency only), and MCPS members have more freedom to exercise rights to grant licences themselves, and to collect their own royalties while still retaining their membership of the Society.

14.4 In Decisions 383 and 384, the Authority found offensive, but licensable, agreements whereby UK television companies agreed with a number of cable TV companies for the licensing of their copyright material, and appointed IMRO as their agent for the collection and distribution of royalties and making any further agreements with new cable companies. The Authority stated that collective licensing agreements between actual or potential competitors, ie the TV companies, were, on the face of it, restrictive of competition; but because of the number and diversity of copyright interests involved, the collective system was the most efficient method of distribution and, as such, licensable.

14.5 Decision 456 was concerned with a non-exclusive licence granted by IMRO to RTE in respect of the whole of IMRO’s repertoire. The Authority recognised in that case that a system of blanket licensing was an acceptable alternative to the disruption that would be caused by (in that case) RTE having to negotiate many individual agreements. It concluded that the blanket licence, even though it meant all copyright music was sold collectively, did not constitute an anti-competitive arrangement per se. In its decision, the Authority certified the arrangement in the context that it was open to RTE to obtain licences from the individual owners of the copyright material who were members of IMRO, and from overseas licensing organisations.

14.6 The Authority adopted the same approach in Decision 449 , IMRO/Independent Radio Stations , and Decision 457 IMRO/ Public Performance Users.

15. Earlier parts of this decision refer to the recent publication of the Copyright and Related Rights Bill, 1999 . The Bill amounts to a thorough overhaul of copyright law in Ireland in general, the first such effort since 1963. As might be expected, the detailed provisions of the Bill are both complex and very extensive and will, among other matters, amend the law in many respects as regards the statutory position of owners of copyright in musical works. While the Authority is conscious that the provisions of the Bill could, if enacted in their present form, have an impact on the factors underlying this decision, it recognises that enactment may be some way off at this stage, and considers that, as far as copyright law is concerned, it must have regard solely to that law as it currently stands.

16. In the Authority’s opinion, Mechanical Copyright Protection Society Limited (MCPS) and Mechanical Copyright Protection Society Ireland Limited (MCPSI) and their members and licensees are undertakings and the notified agreements are agreements between undertakings. The Authority considers that the notified agreements contravene Section 4(1) of the Competition Act, 1991. The Authority further considers that the notified agreements satisfy the conditions of Section 4(2) of the Act. It has, therefore, decided to grant a licence in respect of the agreements concerned. It considers that the licence should operate for a period of 15 years from the date of this Decision. The licence therefore applies from such date until 7 October, 2014.

17. The Competition Authority has issued the following licence:

The Competition Authority grants a licence under Section 4(2) of the Competition Act, 1991, to the following agreements notified on 30 September, 1992, on the grounds that, in the opinion of the Authority, all the conditions of Section 4(2) of the Act have been fulfilled:

CA/483/92E - MCPS/ Membership Agreement

CA/485/92E - MCPS/ Record Producer Agreement

CA/487/92E - MCPSI/ Schedule of Fees from Production Music Library Catalogues

CA/492/92E - MCPS/ In-Flight Entertainment Licence

CA/495/92E - MCPSI/ Education Institution Licence

CA/499/92E - MCPS/ Production Music Code of Conduct (Production Companies).

17.2 The licence applies from the date of this Decision until 7 October, 2014.

For the Competition Authority,

Declan Purcell

Member

8 October, 1999

[1] CA/488/92E (MCPSI/Synchronisation Licence ) and CA/500/92E ( MCPSI/Radio Station Licence Agreement), which are the subject of Decision No. 570 of 8 October, 1999.

[2] And accordingly referred to hereinafter as IRMA.

[3] Clause 16.26 of the Membership Agreement

[4] ibid, Clause 16.21

[5] S.I. No. 158 of 1995.

[6] This replaced the Monopolies and Mergers Commission (MMC) on 1 April 1999.

[7] Collective Licensing: a Report on Certain Practices in the Collective Licensing of Public Performance and Broadcasting Rights in Sound Recordings , 1988, and Performing Rights: A Report on the Supply in the UK of the Services of Administering Performing Rights and Film Synchronisation Rights, 1996.

[8] Replacing, and extending the functions of, the Performing Rights Tribunal, which had existed since 1957.

[9] ....essentially corresponding to the arrangement notified to the Authority as CA/485/92E.

[10] Among them, the GEMA Decisions, OJ L 134/15 (20/6/71), OJ L166/22 (24/7/72), OJ L94/12 (8/4/82), and the GVL Decision, OJ L370/49 (28/12/81)

[11] Among these are Case 127/73 , BRT v. SABAM and FONIOR , 1974 ECR 313, Case 395/87 , Ministere Public v. Tournier , 1989 ECR 2521, Cases 110/88, 241/88 and 242/88 , Lucazeau, Debelle and Soumagnac , 1989 ECR 2811, as well as a series of cases involving GEMA and GVL.

[12] e.g . Directive 92/100 on Rental and Lending Rights and certain Rights related to Copyright, Directive 93/83 on Copyright and Neighbouring Rights relating to Satellite Broadcasting and Cable Retransmission and Directive 96/9 on the Legal Protection of Databases.

[13] Re Australasian Performing Right Association Ltd. [1999] ACompT, 16 June 1999.

[14] This Side Agreement was also notified to the Authority as CA/484/92E but withdrawn in April 1999. It has recently been re-notified as CA/8/99, and will be considered separately by the Authority.

[15] S.M. Stewart (2nd Edn) (London) 1989 Butterworths

[16] formerly Chief Executive of the Performing Right Society Ltd.

[17] Since 1 January 1999, this exception no longer applies.

[18] See paragraph 8.1.

[19] BMG Music Publishing, EMI Virgin Music Publishing, Universal, Sony/ATV Music Publishing and Warner Chappell Music Publishing.

[20] The Cannes Agreement is currently being considered by the EU Commission.

[21] IMRO/Writers, IMRO/Publishers (Non-corporate), IMRO/Publishers (Limited Company).

[22] This definition was based on the European Court of Justice judgement in the Suiker Unie case.

[23] IMRO/Writers, IMRO/Publishers (Non-corporate), IMRO/Publishers (Limited Company).

[24] i.e. CA/485/92E (Record Producers), CA/498/92E (Production Companies), CA/499/9E (Facility Houses).

[25] eg. Decision 445 of 15 December 1995 - IMRO/Writers, IMRO/Publishers (Non-corporate), IMRO/Publishers (Limited Company). Also Decisions 449 , 456 and 457 of 18 and 21 December 1995 - IMRO/ Independent Radio Stations, IMRO/RTE, IMRO/Public Performance Users. Also Decisions 383 and 384 of 16 December 1984 , IMRO//UK TV Companies and other Copyright holders/ Cable Relay and MMDS operators, IMRO/UK TV Companies/Copyright holders.