Collective Management – A Push Towards Competition

(IPRinfo 2/2009)

Martti Kivistö
Director, Legal Affairs
TEOSTO, Finnish Composers´ Copyright Society

Complaints of Societies are Pending before the Court of First Instance
A network of bilateral contracts between collecting societies underpins the cross-border management of music copyrights.

Following a Statement of Objections addressed in January 2006 against 24 European music copyright societies and their cooperational body CISAC, the European Commission ruled on 16 July 2008 that any clauses that restrict an author from joining a collecting society of his choice or allocate exclusive territorial licensing mandates for any society shall be abolished from the bilateral agreements between the societies.

The ’territorial delineation’ of cross-border mandates shall also be redefined. However, most addressees consider the decision unclear and unfair and have lodged their complaints against the Commission in the Court of First Instance.

A network of bilateral contracts between nationally operative collecting societies has for decades underpinned the European and worldwide cross-border management of music copyrights. The principle ’one country, one society’ has been the established practice, rendering each national society a local ’one-stop-shop’ for all repertoires represented by the networking societies.

As early as in the 1930´s, CISAC developed a model contract for bilateral relations, which has since been regularly updated.

Negotiations brought no solution
Since the emergence of a borderless online environment, the Commission’s goal has been to enhance the availability of pan-European music use licences. Broader licences mean fewer transactions and economies of scale and hence, more revenues, reads the line of argumentation.

But the national scope of the societies´ traditional business model does not fit very well together with this vision. By forcing the collecting societies to review the present network of bilateral contracts the Commission purports to generate competition on the licensing market through increased room to manoeuvre.

This should result in incentives for new business models and supply of broader licences. The sequence of events leading towards the Commission Decision was accounted for in IPRinfo 1/2008, pp. 24-27.

Despite serious efforts over winter and spring 2008 to find a negotiated solution between the Commission, CISAC, and its member societies, the Commission finally decided to end the Statement of Objections procedure by adopting a formal decision (Case COMP/C-2/38.698 – CISAC; notified under document number C(2008) 3435 final). It is addressed to all societies involved in the process, excluding CISAC.

Collecting societies are operational on several markets
The Commission Decision concerns firstly, ’membership restrictions contained in the reciprocal representation agreements which prevent competition between EEA CISAC members for the provision of their services to authors’; and secondly, ’territorial restrictions which prevent competition between EEA CISAC members for the licensing of performing rights to commercial users; the territorial restrictions take the form of express exclusivities in the reciprocal representation agreements and a concerted practice on the territorial delineation of the scope of the licence’.

The decision first illustrates and analyzes the relevant product and geographical markets on which the collective management societies operate. The Commission’s finding is that collective management societies operate in three different product markets, a) the provision of copyright administration services to right holders, b) the provision of copyright administration services to other collecting societies and c) the licensing of public performance rights for satellite, cable and internet transmissions to commercial users.

As regards the relevant geographical market, the Commission first recalls that ’historically, the Commission has defined relevant markets in the framework of traditional copyright licensing as being national’. Then, however, it points out that technical and economic barriers preventing collecting societies from entering the markets of other collecting societies have clearly diminished.

Hence, the Commission envisages that ’the potential market is therefore much broader – the geographic market for satellite broadcasting and cable retransmission could be considered to be the entire satellite footprint; for internet use, the geographic scope of the market is potentially worldwide, or at least regional in scope’.

CISAC model contract had determined the conduct
In assessing the network of contracts and CISAC´s role in the cross-border management of rights, the Commission states that ’collecting societies are undertakings within the meaning of Article 81(1) of the Treaty and Article 53(1) of the EEA Agreement. They participate in the commercial provision of services and are therefore engaged in the exercise of economic activities’.

Further, ’CISAC is an association of collecting societies and therefore an association of undertakings’ and ’the bilateral reciprocal representation agreements concluded between the EEA CISAC members constitute agreements between undertakings’.

While CISAC has all the way argued that its model contract is non-binding for CISAC members, the Commission finds that ’even if it takes the form of a non-binding recommendation to the members, the CISAC model contract constitutes a decision taken by an association of undertakings’. The Commission concludes that the model contract has determined the conduct of CISAC members and ’consequently had an appreciable influence on competition’.

In the following chapters the Commission bit by bit collects evidence against CISAC and the societies and finally draws the conclusion that ’a concerted practice between the EEA CISAC members is the only possible explanation for the current market outcome’. The Commission wraps up its reasoning by stating that the societies had failed to demonstrate that the CISAC model contract and its application at bilateral level fulfil all the requirements of Article 81(3) of the Treaty.

An extensive review of contracts decreed
In conclusion, the Commission found that the 24 societies had infringed Article 81 of the Treaty and Article 53 of the EEA Agreement a) by using in their bilateral agreements the membership restrictions contained in the CISAC model contract or by de facto applying those restrictions, b) by conferring in their bilateral agreements exclusive rights as provided for in the CISAC model contract, and c) by coordinating the territorial delineations in a way which limits a licence to the domestic territory of each collecting society.

However, no fines were imposed. It should further be noted that Decision does not prohibit territorial mandates since ’the fact of limiting the mandate to the territory of the other collecting society is not in itself restrictive of competition’.

The first two infringements had to be brought to an end immediately, whereas the societies were given a 120 days period for implementing the third decree. In particular, the Commission ordered that the societies shall bilaterally review ’the territorial delineation of their mandates for satellite, cable retransmission and internet use in each of their reciprocal representation agreements’.

This deadline proved to be too short for a full round of negotiations between 24 societies, therefore an extension was later accorded. The new deadline is 15 March 2009, by which date the societies shall provide the Commission with copies of the revised contracts. It is imperative, says the Commission, that all negotiations be conducted on a strictly bilateral basis. In other words, CISAC shall play no coordinating role in this effort.

Next step: the Court of First Instance
In the meantime, the second phase of the Statement of Objections procedure is very much pending in Luxembourg. The cases brought by each society against the Commission are likely to last long, perhaps several years. The procedure will be extensive with more than 20 separate actions on the table.

In Brussels, starting from mid-March, the Commission’s case team will be facing a huge task in reviewing hundreds of bilateral contracts that will have been needed to implement the decision. They need to make sure that the new agreements indeed are ’the result of bilateral negotiations and are not anymore influenced by the existence of a concerted practice which limits the territory of the mandate’.

In the midst of a legal confusion only one thing is sure: uncertainty in the pan-European licensing market lingers on.

C(2008) 3435 final – Commission Decision of 16.07.2008 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case COMP/C2/38.698 – CISAC)

See also the earlier article by Martti Kivistö ”European Collective Management in Turbulence” in IPRinfo 1/2008