Irish Competition Authority Decisions

1. Notification was made by Phonographic Performance (Ireland) Ltd. (PPI) on 30 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 six sets of arrangements involving (a) members of PPI on the one hand, (b) users of copyright sound recordings, on the other. A further Notification was received on 12 September, 1996.

2.1 A total of seven arrangements were notified to the Authority by PPI; six on 30 September 1992 and the seventh on 12 September 1996. Three of these comprised the assignment by a number of member record companies of performing rights in sound recordings to PPI, with related forms of assignment mandate, while the remainder were between PPI and different categories of users of copyright in sound recordings, for which PPI acts as a royalty-collecting society on behalf of its members. A full list of the arrangements notified is below.

2.2 CA/1048/92E - PPI/Assignment of Performing Right in Sound Recordings

CA/1052/92E - PPI/ Standard Music Videogram Licence

2.3 This Decision is concerned with Notification Nos. CA/1048/92E - CA/1050/92E and CA/26/96. The remaining three cases are the subject of separate consideration by the Authority.

3.1 PPI was incorporated on 9 December 1968, and is a company limited by guarantee. PPI was established in order to collect revenues for the public performance, broadcast and diffusion of its members’ sound recordings in the Republic of Ireland and to restrain and recover damages for any infringement of the copyright subsisting therein. It is the sole body established in Ireland for that purpose. PPI altered its Memorandum and Articles of Association on 7 August 1996, and the Authority has taken account of these changes in this Decision.

3.2 PPI had, at the time of notification, two classes of member record companies (full and associate members), but it advised the Authority on 22 July 1999 that, following the Revision of its Articles of Association in 1996, this distinction no longer applies. Accordingly, PPI currently has 360 members [1]; these include sole traders and companies incorporated in the State and worldwide.

3.3 Notification No. CA/26/96 concerns three identical agreements between PPI and (a) Radio 2000 Ltd. t/a Classic Hits 98FM, (b) Capitol Radio Productions Ltd. t/a FM104, and (c) Radio County Sound Ltd t/a Cork 103 and 96FM, respectively.

4.1.1 The “products” involved here are the performing rights in sound recordings and music videograms made by PPI Members. “Performing right”, in relation to phonograms, is defined in PPI’s Articles of Association as follows -

“All or any of the following rights namely the exclusive or the sole right (whether a record embodying a sound recording is utilised directly or indirectly) in the Republic of Ireland to cause, or authorise, or permit or forbid, any sound recording to be heard in public or to be broadcast or to be transmitted to subscribers to a diffusion service”.

4.1.2 In relation to music videograms, “Performing Right” is defined thus -

“All or any of the following rights namely the right in the Republic of Ireland to cause, or authorise or permit or forbid any videogram insofar as it consists of visual images, to be seen in public or, insofar as it consists of sounds, to be heard in public, to broadcast any videogram and to cause or authorise or permit or forbid any videogram to be transmitted to subscribers to a diffusion service.”

4.1.3 The agreements with radio stations grant the right to use the whole of the PPI repertoire for a specified purpose. The royalty payable is set out in each of the separate agreements, and the terms of each agreement are identical.

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 PPI’s primary activity, as the record industry’s collecting society, is collecting equitable remuneration on behalf of its members from various categories of users in connection with the broadcasting and other “public performance”, of members’ sound recordings.

4.5.1 Separate societies exist to administer different rights in musical works or recordings. The Irish Music Rights Organisation (IMRO) is the collecting society that deals with performing rights for composers and publishers and licenses 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. Mechanical Copyright Protection Society (Ireland) Ltd. (MCPSI) is the collecting society for mechanical copyright, which is the restriction on reproducing the work in any material form, while PPI is the corresponding collection society in relation to copyright in sound recordings. PPI is not aware of any other sound recording copyright collection society operating in Ireland at present.

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 facilititate 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 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 societies in Ireland. Further detail on the 1963 Act is given in paragraph 5.1 of this Decision.

4.5.4 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. PPI has advised the Authority, however, that, while alliances and other similar mechanisms may be necessary for the operation of composers’ and publishers’ collecting societies, this is not the case with collecting societies reprenting record companies, e.g. PPI. The latter collects royalties for Ireland only.

4.6.1 While PPI represents most record companies whose material is being actively exploited via public broadcasting in Ireland, there is no obligation on such companies to join any collecting society, and no legal impediment to the direct collection by them of copyright royalties.

4.6.2 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 broadcaster exploiting their copyrights in each of the territories of the world. Direct Collection also involves record companies in the expensive process of advertising their contact addresses to all potentional users throughout the world, and of verifying use of their 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.

4.7 PPI’s total annual fee income (FI) for the year ended 31 December 1998 was c. £7.5m. The biggest single source was from radio stations (48% of FI from 26 licences), followed by nightclubs (30% from 286 licences), music video broadcasting (9% from 6 licences) and shops (5% from 1358 licences).

5.1 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 (SI 158 of 1995). However, the 20-year extension was not a blanket amendment, and does not apply to, inter alia , sound recordings.

5.2 The particular copyright in the sound recordings of PPI members is derived from Section 17 of the Act, which creates a separate copyright in the sound recording (as opposed to the music itself) for the producer; it is thus a neighbouring right , separate from the so-called first copyright of the author of original work created by Section 8 of the Act. The acts of users restricted by section 17 are as follows -

“(a) making a record embodying the recording;

(b) in the case of a published recording, causing the recording or any reproduction thereof to be heard in public, or to be broadcast, or to be transmitted to subscribers to a diffusion service, without the payment of equitable remuneration to the owner of the copyright subsisting in the recording;

(c) in the case of an unpublished recording, causing the recording or any reproduction thereof to be to be heard in public, or to be broadcast, or to be transmitted to subscribers to a diffusion service.”.

5.3 Under Section 47(1) of the 1963 Act, copyright is 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.

5.4 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. In particular, in the event of dispute as to what constitutes “equitable remuneration”, Part V of the Act vests an adjudication function in the Controller of Industrial and Commercial Property.

5.5 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 Bill represents, by any yardstick, a very extensive set of legislative reform proposals, and should be enacted this year.

5.6 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 [2] and there have been many EU Court of Justice judgements [3] in respect of such societies.

5.7 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 ”.

5.8 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.

5.9 The legislative background to copyright protection in the UK is broadly similar to that in Ireland, although State structures for dealing with it vary slightly from the Irish model. The competition functions of the UK Competition Commission and the Director General of Fair Trading broadly reflect those of the Competition Authority in Ireland. The main function of the Copyright Tribunal is to provide impartial settlement of disputes over copyright licences, usually those offered by collecting societies. However, most of the cases before the Tribunal have tended to be concerned with royalty rates.

5.10 The Monopolies and Mergers Commission (the Competition Commission’s predecessor) published a document in 1988 entitled Collective Licensing : A report on certain practices in the Collective Licensing of Public Perormance and Broadcasting Rights in Sound Recordings . That Report was concerned primarily with the effect on the public interest of the collective licensing system operated in the UK by Phonographic Performance Ltd., a similar (but unrelated) collecting body to PPI. The Report concluded, in general, that (a) collective licensing bodies were the best available mechanism for licensing sound recordings provided they could be restrained from using their monopoly unfairly - for example, the body should be obliged, as the price of its monopoly, to permit the use of its repertoire in return for equitable remuneration, (b) whether the copyright was assigned to the body, or the body acted as an agent or licensee, did not significantly affect users’ interests, (c) the practice of calculating royalty rates under common tariffs did not appear adverse to the public interest.

5.11 The Australian Competition Tribunal has recently [4] reviewed an earlier decision by the Australian Competition and Consumer Commission in relation to the Australasian Performing Right Association (APRA).

5.12 APRA operated 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.

5.13 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.

5.14 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).

5.15 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.

6.1.1 The arrangements entered into between PPI and each of its members by which it acts as agent, are contained and defined in (a) the PPI Memorandum and Articles of Association [5], (b) standard forms of assignment of the performing right in sound recordings from its member record companies, and (c) standard letters of mandate by members. While a large amount of material was included in the documentation accompanying the various notifications, the specific arrangements originally notified to the Authority by PPI in relation to its membership [6] were specimen examples of four slightly varying forms of Assignment; the object of these was the assignment to PPI of the performing right in all sound recordings in respect of which the member record company involved was, or would in the future be, either the owner or exclusive licensee of the copyright therein. However, PPI advised on 22 July 1999 that only two forms of standard assignment are now used, relating to sole traders and companies, respectively, and submitted copies to the Authority; it also assured the Authority that the specimen assignments originally notified had all been updated accordingly. The Authority has, therefore, dealt with these in this decision.

6.1.2 PPI’s Memorandum and Articles of Association also form part of the notified arrangements.

6.2 The objects for which the company is established include the following:

“(a) To exercise and enforce on behalf of members of the Company, being producers of phonograms and/or videograms, and/or owners of or otherwise entitled to the performing right therein (hereinafter called the proprietors) all rights and remedies of the proprietors by virtue of the Copyright Act 1963 or otherwise in respect of broadcasting and causing to be heard and/or seen in public and causing to be transmitted via a diffusion service phonograms and videograms and otherwise to act on behalf of members of the Company in matters relating to the proprietors’ copyright and ancillary rights.

(b) In the exercise and enforcement of such rights and remedies as aforesaid to authorise others under licence or agreement or other arrangement and to make,.......... rescind, alter or vary any such ...........arrangements with respect to the broadcasting, the causing to be heard and/or seen in public and the causing to be transmitted to subscribers to a diffusion service of phonograms and videograms.......and to collect and receive.......all royalties, fees and other moneys payable..............by all necessary actions or other proceedings ..................and to restrain and recover damages for any infringement of the copyright..... of the proprietors or of the company on their behalf..............

(c) To obtain from the proprietors such assignments, sub-licences, licences, assurances, powers of attorney...................as may be deemed necessary or expedient for enabling the Company to acquire all or any rights and remedies in respect of the copyright........and.........to acquire the legal estate...........in the copyright and to exercise and enforce in its own name or otherwise all such rights and remedies................

(d) To make and from time to time alter or vary any rules for regulating (1) the manner in which the period or periods for which, and the conditions under which the proprietors shall authorise the Company to exercise and enforce the rights and remedies aforesaid of the proprietors in respect of such phonograms and videograms as aforesaid; (2) the method and proportions by and in which and the times at which the net moneys received by the Company ....................... shall be divided and apportioned among the members of the Company..............”.

6.3 Provisions for access to membership are set out in Articles 4 to 6 of the company’s Articles of Association. Essentially, any owner of the performing right in phonograms and/or videograms and any person entitled to the benefit of such performing right is eligible for membership.

6.3.1 Article 6 requires a member, on election and from time to time thereafter, if and when requested by the Directors in writing so to do, to assign to the Company his existing and future performing right in any existing or future phonogram, and/or all or part (to the extent to which he shall elect) of such right in any existing or future videogram, then in existence or thereafter to be created, and requires him to grant to the Company the sole power and authority:-

(a) To authorise, permit or forbid the exercise of all his performing rights in respect of phonograms, and/or the exercise of all or part (to the extent to which he has elected or shall elect to assign to the Company) of such right in respect of videograms;

(b) To grant licences on his behalf for the use of any such performing right and to refrain therefrom.

6.3.2 However, Article 5 (which was added in 1996) allows the Directors, in their absolute discretion and without prejudice to any assignment already made or to the Articles, to re-assign to the member any part of the Performing or other Right vested in or controlled by the Company.

6.3.3 Article 7 provides that membership has the effect of authorising the company to collect broadcasting and public public performance fees on his behalf or take legal action on his behalf in default, and generally to represent the member and protect his interests in all matters concerning his performing rights.

6.3.4 Article 8 provides for termination of membership in the event of death of a member, liquidation of a member company and expiry of copyright. It also prohibits a member from transferring his membership to anyone else or from exercising the rights himself directly.

6.3.5 Article 10 provides that a member may terminate his membership at any time on at least six months previous notice in writing to the Company or on such shorter notice period as the Directors may in their absolure discretion agree; however, while the Company’s rights cease on such termination, any licences granted by the Company on the member’s behalf continue until their expiry or, if subject to termination by the Company, are terminated as soon as practicable. On the other hand, Article 11 allows the Directors to terminate a member’s membership on 21 days notice, subject to his right to require the convening of an EGM to consider the matter.

6.4.1 The substance of the standard form of assignment is in paragraphs 2 and 3 thereof, and is identical in the case of both Sole Traders and Companies, as follows -

“2. The Grantor HEREBY ASSIGNS to the Company ALL THAT the performing right in the territory in each and every sound recording owned (either legally or beneficially) by the Grantor at the date hereof and during its membership of the Company which has not already been assigned to the Company pursuant to any earlier assignment AND by way of present assignment of future copyright all that the performing right in the territory in each and every sound recording hereafter created the copyright in which shall be owned by the Grantor (either legally or beneficially) TO HOLD the same unto the Company for the full period of copyright and thereafter in perpetuity subject only to the provisions affecting the same contained in the Articles of Association of the Company.

3. Subject to any previous existing exclusive licence [which] the Grantor may have granted to the Company, the Grantor HEREBY GRANTS to the Company the sole and exclusive licence (to the exclusion of all persons including the Grantor) to exercise the performing right in the territory in each and every sound recording which was, is or becomes exclusively licensed to the Grantor for the Territory during the Grantor’s membership of the Company (regardless of whether such sound recordings are now in existence or hereafter created) TO HOLD the same unto the Company for the full period of the Grantor’s licence in respect of each such sound recording subject only to the provisions affecting the same contained in the Articles of Association of the Company.”.

6.4.2. The purpose of the Assignment in this format is effectively to place PPI in the shoes of each of its members for the purposes of collecting revenues for the public performance and broadcasting of that member’s sound recordings in the State and to restrain, and recover damages for, any infringement of the copyright subsisting therein.

6.5.1 PPI also notified two specimen mandates which its record company members sign [7]. The first of these - signed by EMI Records (Ireland) Ltd., and relating to music videograms - is as follows -

“We hereby confirm that as members of Phonographic Performance (Ireland) Limited we authorise and wish you to control and license as our agent in the Republic of Ireland our rights in music videograms including the reproduction, broadcasting, public performance and transmission to subscibers to diffusion services of our music videograms. This mandate is to remain in force until withdrawn by us in writing.”

6.5.2 The second specimen mandate notified - signed by A&M Records Ltd., and relating to reproduction of sound recordings by background music suppliers - is as follows -

“We hereby confirm that as members of Phonographic Performance (Ireland) Limited we authorise and wish you to control and license as our agent in the Republic of Ireland our legal rights in relation to the dubbing (i.e. the reproduction) by background music suppliers of all our sound recordings including those sound recordings wherein the copyright is controlled by us. This mandate is to remain in force until withdrawn by us in writing.”

7.1 In addition to the assignment arrangements described above, PPI also notified three separate, but identical, agreements with the three largest privately-owned radio stations operating in the State, licensing the use by them of sound recordings, from the start-up date of each station to 31 December 2003. Essentially, they provide for rates of equitable remuneration to be paid by the stations (as a sliding percentage of Net Advertising Revenue [8]), for calculation and payment of any arrears, for projections each year of the next year’s income, for estimated monthly actual payments in arrears, for logging of records played, and for inspection of the station’s books and records.

Assignment Arrangements - Notification Nos. CA/1048-1050/92E

8.1 PPI submitted that the arrangements between it and its members, whereby the members assigned the performing right, did not have as their object or effect the prevention, restriction or distortion of competition in relation to the use of the members’ repertoire in the State. The concept of normal competition as understood in relation to, for example, the Sale of Goods could not be sensibly applied to the use of copyright material. Copyright was of value only if there was an effective means of protecting it, and PPI represented the best means of protecting the copyright of its member record companies. The nature of the market was such that some special mechanism had to be devised to enable rights-holders and users to deal efficiently with each other, and that was PPI’s function. In other words, the collective administration of PPI members’ rights was indispensable, as producers’ rights in sound recordings could only be satisfactorily exercised and protected through an appropriate collective licensing scheme.

8.2 PPI stated that no record company was obliged to join it, or to remain a member. PPI, as a statutorily-recognised licensing body, existed because it gave its members the most efficient and low cost means of licensing the rights in question, while giving users instant and immediate access to the widest possible repertoire by the issue of one copyright licence.

8.3 PPI submitted that it would be impracticable for members to negotiate individually with users and, as an economic proposition, individual negotiation would only be economically suitable for five of its members, i.e. the five largest who could afford to maintain a copyright licensing department employing a number of suitably qualified staff. The nature of the market was such that some special mechanism had to be devised to enable rights-holders and users to deal efficiently with each other. Due to the high cost of individual transactions, and the time factor involved, a collective licensing body such as PPI was the natural solution - not for any monopolistic reason, but because it was the natural and sensible way to conduct transactions in the market place.

8.4 PPI’s activities could only assist competition between record companies by making available to all companies, large or small, an efficient means of exploiting their public performance and broadcasting rights. In particular, PPI reduced the high barriers to market entry which would otherwise exist for new companies if they were faced with the need to negotiate these rights individually. It was claimed that major difficulties of administration and enforcement would occur if individual licensing was allowed, and monitoring of licensing terms and conditions would be virtually impossible by the rights-holders. Also, mounting infringement actions to restrain copyright infringement would become much more complicated and difficult than it was at present. Therefore, it concluded, the system of copyright enforcement would be seriously weakened and as a consequence copyright as an intellectual property right would be greatly diminished.

8.5 PPI added that the main benefits which a member derived from entering into a standard form of assignment in favour of PPI were as follows -

(a) PPI acted as a centralised collective licensing body for the member record company in respect of its repertoire - past, present and into the future. It was open to any member to restrict the number of recordings in its repertoire which were covered by the standard form of assignment but, for obvious and practical purposes, each member chose to assign to PPI its full repertoire at any given time.

(b) The ongoing costs of collecting royalties from users in the State were obviously much lower for the member who assigned his/her/its full repertoire to PPI.

(c) The valuable intellectual property of the member record company, i.e. the copyright in its sound recordings, was protected by PPI’s activities in ensuring copyright infringement was kept to a minimum. The member record companies thus protected were the makers of the sound recordings who invested in the performance of such music, so fostering music to the greater benefit to the community and, obviously, themselves.

(d) The member record company did not have to establish a self-contained licensing department in its premises - which would not be economically viable unless the company was licensing an enormous amount of product.

(e) Regular annual distributions of royalties were made by PPI to its member record companies, with deduction only of a nominal administrative charge.

8.6 In addition to the arguments advanced by PPI in the context of its membership arrangements, it also submitted a number of extra arguments in support of the granting of certificates to its agreements with the three named radio stations - 98FM, FM104 and Cork 103/96FM.

8.7 PPI submitted that, without PPI, broadcasters would have to apply directly to each record company for permission to use particular sound recordings. This would result in substantial costs to broadcasters and only the larger ones could fund such activities, thus eliminating the smaller stations from the market.

8.8 According to PPI, the suggestion that the existence of a number of collection societies offering different repertoire would give users a wider choice was illusory. From a broadcaster’s point of view, the convenience of a one-stop-shop approach to the record industry via PPI ensured that listeners and patrons could listen to all such repertoire.

8.9 PPI further stated that, in its Judgement in Ministere Public v Tournier and Lucazeau & Others v. SACEM [9], the European Court of Justice had stated that -

“...copyright management societies pursue a legitimate aim when they endeavour to safeguard the rights and interests of their members vis-a-vis the users of recorded music. The contracts concluded with the users for that purpose cannot be regarded as restrictive of competition for the purposes of Article 85 unless the contested practice exceeds the limits of what is necessary for the attainment of that aim...”.

PPI submitted that its agreements with the three broadcasters did not, in this context, exceed the limits of what was necessary to safeguard the rights and interests of its members.

8.10 In agreeing and accepting a certain level of equitable remuneration from each of the three broadcasters concerned, PPI was granting permission to the broadcasters, on behalf of its various member record companies, to use sound recordings. This was simply a permission by PPI to broadcast sound recordings which would otherwise be unlawful and did not amount to an agreement which had as its object or effect the prevention, restriction or distortion of competition in the State or in any part of the State.

8.11 The function of the Controller of Industrial and Commercial Property under Section 31 of the Copyright Act, 1963, ensured that PPI’s arrangements with users of sound recordings could not prevent, restrict or distort competition in the State or in any part of the State. The mechanism in Section 31 allowed any user of sound recordings to refer to the Controller the fairness of PPI’s tariffs. The Controller could hear this reference himself or he could appoint an Arbitrator. In other words, PPI could not charge the highest price and expect to go unchallenged.

8.12 Additionally, PPI was constrained by market conditions not to set unreasonable fees as otherwise an optimum number of uses and users would not be guaranteed to PPI’s members. The rates charged by PPI were uniform as it did not apply different charges to radio stations with similar turnover levels.

9.1 In addition to the arguments advanced in paragraph 8 above, PPI also brought forward additional argumentation in support of their application for a licence.

9.2 PPI submitted that collecting societies were borne out of necessity, and were formed to reduce the costs of individual negotiations and of monitoring copyright use and policing infringements. PPI, as a statutorily recognised licensing body, existed because it gave its members the most efficient and low-cost means of licensing the rights in question, while giving users instant and immediate access to the widest possible repertoire by the issue of one copyright licence. Copyright was of value only if there was an effective means of protecting it, and PPI represented the best means of protecting the copyright of its member record companies. From those companies’ point of view, PPI represented the most efficient cost-effective means of exploiting the rights in question and, for almost all record companies, the only practicable way of doing so. The only alternative was a system whereby individual copyright owners administered their own rights, which would result in significantly slower access to copyright material by broadcasters and other users.

9.3 It was universally accepted that there was public benefit and cost saving in the collective administration of copyrights, and that such benefit outweighed any detriment to competition. In this context, PPI acknowledged that, in several cases, its members’ repertoire was made available by means of a common tariff and this was, prima facie, a restriction on competition. However, it reiterated that the advantages for users, as well as rights-holders, outweighed the disadvantages.

9.4 PPI’s blanket licence system was established as much in response to the requirements of users as in the interests of PPI members. It reflected the fact that most users wanted a blanket licence, and any attempt to be selective as to repertoire licensed would lead to increased administrative costs without producing a material saving in the licence fee.

9.5 PPI, as a central licensing body, also benefited users in that all public performance users and broadcasters did not have to engage in individual negotiations with individual rights-holders to secure use of a wide repertoire of music. Such a task would be out of all proportion to the value such music users could derive from the use of such repertoire. The number and circumstances of users, and the number and variety of sound recordings used, made it practically impossible for users to identify rights holders in due time, ask for their authorisation and negotiate their remuneration and other conditions of use and also pay the fees on an individual basis.

9.6 In the absence of PPI, there would be a much more restricted, and slower, access to record industry repertoire by users.

9.7 Finally, PPI submitted that collective licensing was the only practical way in which users could trace the appropriate copyright owner for permission to use a sound recording or music videogram.

9.8 PPI stated that there was no obligation on a record company to join PPI, or to license all its repertoire to PPI and, therefore, such companies could deal directly with radio stations and other users. However, they had decided that it was in their best interests to be members of a collecting society and, even if they wished to opt out of PPI, they could give six months notice in writing, or such shorter period of notice which the Board in its absolute discretion could accept. PPI’s Memorandum and Articles of Association contained no terms which were not indispensable.

9.9 All PPI’s tariffs were structured to take account of the commercial exploitation and use of the repertoire licensed. While it was confident that none of the arrangements contained terms that were not indispensable, nevertheless all such terms were, in any event, under the jurisdiction of the Controller of Industrial and Commercial Property.

The arrangements do not afford the possibility of eliminating competition

9.10 PPI stated that its member record companies were free at any time to leave PPI and/or license all or part of their repertoire to another new collection society or indeed to license the repertoire directly to users themselves.

9.11 Moreover, PPI pointed to the powers of the Controller which, it suggested, were designed to ensure that PPI did not act in such a way as to eliminate competition.

9.12 Finally, PPI could not choose the highest price and expect to go unchallenged. Under section 31 of the Copyright Act, the Controller (of Industrial and Commercial Property) had the function of determining, in cases of dispute, the amount of equitable remuneration payable. The mechanism of section 31 allowed any user to refer the fairness or otherwise of PPI’s tariffs to the Controller. Furthermore, PPI could not stop anyone from using its members’ material. They were entitled to use it, subject to the Controller determining what was equitable remuneration.

10.1 PPI stated that the European Court of Justice had, in its Decision in Case 127/73 , BRT v. SABAM, held that, in practice, rights holders could not avoid joining a licensing body, as exploitation of rights by the individual concerned was in fact impracticable, as it presupposed various substantial resources, but undoubtedly entailed enormous expense.

10.2 PPI also referred to the GEMA Statutes Decisions [10], in which the European Commission also strongly supported the case for collective licensing bodies, holding that -

“collecting societies membership is above all necessary in relation to communication to the public and broadcasting rights where copyright holders are up against powerful users of music on the demand side, i.e. the listener can exert only a very limited influence on these uses. Only through collecting societies can the copyright holder obtain the fair compensation due for their intellectual labour.”.

10.3 PPI also referred to a Report by the (UK) Monopolies and Mergers Commission in 1988 on the activities of the equivalent UK body to PPI, namely Phonographic Performance Limited (PPL, and no direct connection to PPI), pointing out that the Commission’s main finding was that collective licensing of sound recordings, as practised by PPL, was in the best interests of both the rights-holder and the user.

11.1 On 19 November, 1999, the Authority published notice of its intention to issue a licence in respect of the all seven arrangements originally notified to it, and invited any observations within two weeks from the date of publication of the notice. Arising from that, the Authority received one submission on 2 December, 1999, in the joint names of the Irish Hotels Federation (IHF), the Irish Nightclub Industry Association (INIA) and the Vintners Federation of Ireland (VFI).

11.2 IHF/INIA/VFI represent one distinct “public” category of users of copyright in sound recordings, and are affected only by some of the arrangements originally notified to the Authority, i.e. Notification Nos. CA/1051/92E - CA/1053/92E. The submission raised a series of objections to these arrangements which the Authority wishes to study and consider in more detail. For example, the submission drew the Authority’s attention to a Supreme Court Judgement in 1995, which IHF/INIA/VFI maintained was very relevant to the notified arrangements concerned.

11.3 In the circumstances, this Decision now relates only to four of the cases originally notified, i.e. Notification Nos. CA/1048/92E, CA/1049/92E, CA/1050/92E (the Membership Agreements) and CA/26/96 (the Radio Station Agreements); the remaining three cases will be the subject of a separate decision at a later stage.

12.1 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 ”.

12.2 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 ”. PPI is engaged for gain in acting as a collecting society for public performance rights and is, an undertaking. The members of PPI are engaged for gain in making sound recordings and music videograms that are to be commercially exploited and are, therefore, undertakings. The three named radio stations are engaged for gain in the broadcast of sound recordings. T he relevant agreements are agreements between undertakings, and they have effect within the State.

12.3.1 The assignment agreements notified are formal written agreements in standard form constituting categories of agreement between undertakings for the purpose of the Competition Act, and the Specimen written Mandates notified simply carry those assignments into effect. The Authority also takes into consideration the Articles of Association of PPI, since the assignment/mandate arrangements alone would have no life of their own, i.e. the assignment is in pursuance of the assignor’s membership of PPI, with membership a precondition to the administration by PPI of the performing right on their behalf.

12.3.2 In the case of sound recordings, what is assigned is the exclusive or the sole right to cause, authorise, permit or forbid any such recording to be heard in public or broadcast. The essential feature of the assignment arrangements is that they involve a transfer of ownership of property (the performing right) from the record company to PPI, thereby granting PPI the exclusive right necessary to exploit the right for the period of the agreement. As such, the arrangements ordinarily preclude the member from administering the performing right himself, e.g. by granting an individual right to individual users, or from engaging the services of any other collecting organisation.

12.3.3 The cumulative effect of the network of similar agreements established between the many Irish record company members of PPI creates a restriction on the freedom of rights users to purchase the global performing right from any supplier other than PPI. They also have the effect of restricting competition in the supply of performing rights between individual members and they involve the establishment and maintenance of uniform rates of royalty and other conditions in relation to the exploitation of the performing right thereby eliminating price competition. In effect, the arrangements, taken in their collective context, constitute an exclusive collective copyright enforcement system involving independent undertakings and, as such, are restrictive of competition within the State and, in the opinion of the Authority, contravene Section 4(1) of the Act.

12.4.1 As noted at paragraph 7.1, PPI negotiated three separate agreements with the then three largest privately-owned radio stations operating in the State, licensing the use by them of sound recordings, from the start-up date of each station to 31 December 2003. The three agreements were notified together to the Authority as one arrangement (being described by PPI as “the standard agreement”), and are identical in every respect (except, obviously, the identity of the radio station involved). Thus, the rates to be paid to PPI are identical in each case, as are the various monitoring arrangements and indemnities, and the agreements each have a termination date of 31 December, 2003.

12.4.2 It is clear that these agreements involve horizontal price-fixing. Such agreements are regarded by all competition authorities as a serious breach of competition law. In the opinion of the Authority, such agreements 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 -

“having regard to all relevant market conditions, contributes to improving the production or distribution of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not -

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

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

13.2 The Authority’s reasoning in relation to collective copyright enforcement systems has been comprehensively set out on a number of previous occasions, most recently in its Decision 569 of 8 October, 1999 - MCPS/MCPSI/Various Agreements .

13.3 In summary, the Authority’s opinion is that, having regard to all the market conditions, the existence of collecting societies in the musical copyright area, and the appointment by a great many rightsowners of a single intermediary, promotes the production and distribution of services in the State , benefiting both owners and users. In the absence of collecting societies, most rightsowners would not, in the opinion of the Authority, be in a position to vigorously enforce the copyright in their work.

13.4 In the opinion of the Authority, the role that collecting societies play confers real benefits on the “intermediate” users who exploit the rights involved, 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 rightsowners’ work, many products which ultimate consumers want would not reach them, as there would always be the overhanging possibility that someone who felt his right had been infringed would injunct the user.

13.5 It could be argued that the exclusivity arrangements enjoyed by PPI and other collecting societies might afford them the possibility of eliminating competition in respect of a substantial part of the services in question . The concern would be that exclusive appointment for the vast bulk 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 the rights concerned. However, the Authority considers that, while there may be other barriers to entry in these markets, the most important of them is the network externality (most rightsowners and users have large incentives to use a single firm). The Authority recognises that, while there is no legal barrier to the introduction of a competing society in the sound recording rights area, such an entrant would find it difficult to attain sufficient rightsowners to ensure viability. Nevertheless, if one such did exist, it would be open to an individual record company to be a member of it by having his rights reassigned to him by PPI, or indeed by terminating his membership altogether.

13.6 As regards the specific issue of assignment of rights in relation to collecting societies, the Authority’s reasoning was clearly set out in its Decision 326 Performing Right Society and individual creators/publishers (Assignment of Copyright) and the subsequent related Decision 445 IMRO/Writers, IMRO/Publishers(Non corporate), IMRO/Publishers (Limited Company). In those cases, PRS, and later IMRO, operated a system of assignment of rights similar to PPI. In the PRS case, the internal rules of the society provided that, although initial assignment was compulsory, the society could then “decline to exercise the whole or any part of the performing right in any particular work” of a member, on the latter’s request. The Authority took the view that, although the concept of assignment was reasonable and necessary (and indeed was provided for by the Copyright Act, 1963), the manner in which it was operated in practice was not. In Decision 326 the Authority stated that -

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

and the Authority refused to certify or license the arrangement.

13.7 The arrangement was subsequently re-notified to the Authority by IMRO (by then a fully-independent company), and the offending Article was ultimately re-worded by IMRO as follows -

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

This amendment satisfied the Authority that all the terms of Section 4(2) of the 1991 Act had been fulfilled, and the arrangement was licensed ( Decision 445 ).

13.8 The assignment arrangements operated by PPI are slightly different to those of IMRO. In the IMRO case, a member can require IMRO to license back , on a non-exclusive basis, all or part of any performing right he has already assigned to the company. In the PPI case, a member can request a full or partial re-assignment to him, such reassignment being at the absolute discretion of PPI. As described in paragraph 13.6, however, IMRO’s practice had previously been to refuse any such request. PPI has stated, on the other hand, that none of its members has ever requested a re-assignment, and Authority has no reason to believe that any such request would be refused. The Authority notes, in this context, that no member of PPI has expressed any concern to Authority on this issue.

PPI has further pointed out that, while it would be understandable that an artist giving a live performance might want to control that aspect of his work, it would make no economic sense for a record company member of PPI to do the same thing vis-a-vis its sound recordings. Indeed, they added, the extra administration costs necessary to segregate repertoire into that which it would allow PPI to administer and that which it wanted to administer itself would make the record company less, not more, competitive. They concluded that any apparent benefits of self-administration would increase member company costs while damaging PPI’s ability to collect on their behalf. On balance, therefore, the Authority accepts that assignment of copyright is, in principle, licensable, and is of opinion that the variations in the PPI assignment arrangements, compared with those previously approved in the case of IMRO, are not such as to cause it to take a different approach in the case of PPI.

The Authority has taken the absence of refusals to grant reassignments into account as a factor in reaching its decision on this case. If PPI were to refuse such requests, the Authority would regard this as a material change in circumstances in the context of the award of a licence.

13.9 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.

13.10 The Authority does, however, recognise the very peculiar nature of this particular market. In the absence of an intermediary such as PPI, there would be considerable transactions costs to be incurred (on the part of both users and record companies) along with a concomitant risk of litigation if all copyright was not fully respected. If PPI was to revert to the record company in each instance as to what rates to charge, this would impose considerable transaction costs on both the companies and the users - in the absence of a collecting society, the market would be characterised by frequent, costly litigation, as record companies attempted to exercise their rights over their recordings. With this in mind, the Authority is satisfied that collecting societies fill an indispensable intermediary role between rightsowners and users. Such a regime benefits both record companies (who can rely on PPI to act on their behalf) and users (who can legally use copyright material in a legally safe and uncomplicated manner).

13.11 The Authority considers, therefore, that the setting of fixed rates in this particular case allows users - and ultimately consumers - a fair share of the resulting benefit . Finally, in the opinion of the Authority, the arrangements do not afford the undertakings the possibility of eliminating competition in respect of a substantial part of the products in question . The collecting society, with its crucial intermediary role, ensures that copyright can be exploited by users in a manner which increases the use of copyright material (in a manner which simultaneously gives sufficient incentive for companies to produce it). 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 PPI to act as intermediary but at the same time having to revert to the record company to establish the fees to be charged would defeat the purpose of the intermediation. Finally, having regard to the relevant market conditions, where for the market for performing rights in sound recordings to exist in a workable form (given the large network externality) it appears necessary that the collecting society must have the bulk of record companies on its books, the possibility of eliminating competition does not, in the opinion of the Authority, arise.

13.12 Finally, 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 collecting societies such as PPI. 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 other rightsowners in 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, particularly those in relation to what constitutes “equitable remuneration”.

14. Reference was made earlier to the 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 is not possible to say when the Bill may be enacted. At all events, the Authority considers that, as far as copyright law is concerned, it must have regard solely to that law as it currently stands.

15. In the Authority’s opinion, Phonographic Performance (Ireland) Ltd. and its members, and the radio stations the subject of this Decision, 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 10 years from the date of this Decision. The licence therefore applies from such date until 27 January, 2010.

16.1 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 on the grounds that, in the opinion of the Authority, all the conditions of Section 4(2) of the Act have been fulfilled:

CA/1048/92E - PPI/Assignment of Performing Right in Sound Recordings

[notified on 30 September, 1992]

[notified on 30 September, 1992]

[notified on 30 September, 1992]

[notified on 12 September, 1996]

16.2 The licence applies from the date of this Decision until 27 January, 2010.

For the Competition Authority,

Declan Purcell

Member

28 January 2000