Does the Collective Society’s Licensing System for Music violate the Anti-Monopoly Law? Decision by the Japanese Supreme Court
JASRAC is the largest music copyright management organization (mCMO) in Japan, founded in 1939. It entrusts the management of music copyrights from copyright owners.In addition, it licenses broadcasters to use JASRAC managed-music copyrights and distributes the royalties collected from broadcasters to the copyright owners (JASRAC, 2014). JASRAC used to be the only mCMO in Japan. This was about to change as the Law on Management Business of Copyright and Neighboring Rights came into force in 2001 and permitted other mCMOs to enter the business of music copyright administration. Thereby, e-License Inc, an appellee in the case at hand, entered the business in 2006 as the first new entrant.
The blanket licensing of JASRAC means a system under which broadcasters pay an annual fee and are thereby allowed to use an unlimited amount of songs that are, under management of JASRAC. e-License’s system for blanket licensing to the broadcasters was not competitive in comparison to JASRAC’s system. Most importantly, e-Licenses song collection was considerably smaller than that of JASRAC’s. e-License therefore had to charge royalties based on the number of songs used by broadcasters and when the broadcasters use songs of e-License, they have to pay extra royalties in addition to royalty to JASRAC.
Procedure and Grounds for Action
On 27th February 2009, the Japanese Fair Trade Commission (JFTC) issued a cease-and-desist order (2009 Cease-and-desist Order No. 2) against JASRAC. The Commission found that JASRAC’s blanket licensing constitutes private monopolization under Article 2, paragraph 5 of the Anti-Monopoly Law. It stipulates that “the term ”private monopolization” as used in this article means such business activities, by which any enterprise, individually or by combination or conspiracy with other enterprises, or by any other manner, excludes or controls the business activities of other enterprises, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.”
The order declared that the system deters broadcasters from using the songs of new entrants because that would entail paying additional copyright royalty. This rendered the conducting of business difficult for the new entrants. The Commission in its order concluded that the blanket licensing excludes the business activities of other enterprises, thereby causing, contrary to the public interest, a substantial restraint of competition.
On 28th April 2009 JASRAC filed a request to the JFTC for a hearing against the order. Hearing examiners of the JFTC found that it was difficult to prove that the blanket licensing in reality has the effect of excluding the business activities of new entrants and the order was withdrawn (2009 Decision No. 17) on 12th June 2012. This withdrawal was the first to occur in a JFTC hearing in 18 years. After the withdrawal, e-License filed an appeal against the JFTC decision to the Tokyo High Court on 10th July 2012. The Court ruled that the decision was not based on substantive facts and the blanket licensing does have the effect of excluding the new entrants from the business field. Therefore, the court rescinded the JFTC decision of 1st November 2013 (H24 (Gyo-Ke) No.8).
Grounds for Appeal to Supreme Court and Outcome of Decision
On 13th November 2013, the JFTC filed a final appeal to the Japanese Supreme Court. Points argued were as follows: i) since broadcasters select songs suitable for their program among plural songs, songs used in broadcasting programs are substitutable; ii) it is almost impossible for broadcasters not to agree on blanket licensing with JASRAC; and, iii) when the broadcasters use songs of other mCMOs, they have to pay extra royalties in addition to the royalty to JASRAC. Therefore, since almost all broadcasters are deterred from using songs of other mCMOs over a long period, the JASRAC’s blanket licensing is “excluding the business activities of other enterprises” unless special circumstances prevail. The Supreme Court upheld the decision of the Tokyo High Court and remanded the case to the JFTC.
The exclusionary private monopolization of Article 2, paragraph 5 of the Anti-Monopoly Law is based on the following points: 1) the blanket licensing has the effect of excluding the business activities of new entrants; 2) the blanket licensing is intentionally carried out beyond the fair competition from the viewpoint of the establishment, maintenance and strength of their own market control; 3) the blanket licensing substantially restrains the competition in the targeted business field; 4) the blanket licensing is contrary to the public interest; and, 5) the Cease-and-desist Order is necessary for recovery from the restraint of competition and feasible for respondent.
The hearing of the JFTC decided in its decision that no sufficient evidence exists to support point 1). However, the Tokyo High Court ordered the JFTC to reconsider the decision examining the remaining points 2-6. The Supreme Court concluded that the blanket licensing of JASRAC falls under the points 1-2 unless specific circumstances prevail. As a result of this Supreme Court ruling, the JFTC has to consider its decision against the order by examining whether such specific circumstance exists. If the specific circumstances do not prevail, points 3-5 will be examined on the basis of facts that existed on the issuance date of the cease-and-desist order, 27th February 2009. Because of the result of the final ruling, JASRAC now seems to introduce a modified blanket licensing system (The Nikkei, 2015).
Evaluation and Discussion
The Japanese business community has criticized the fact that the JFTC plays the role of both prosecutor and judge in the JFTC hearing procedures against cease and desist orders of the private monopolization (JTFC, 2013a). Addressing the criticism, the hearing procedure of JFTC was abolished. Thereby, appeal suits filed after 1st April 2015 are under the exclusive jurisdiction of the Tokyo District Court (JTFC, 2013b).
Ryoko Oshikamo
LL.M., PhD researcher
University of Helsinki
This work was supported by the Scandinavia-Japan Sasakawa Foundation (Grant NO. 2015). Prof. Dr. Rainer Oesch, University of Helsinki, is sincerely thanked for his supervising.
Supreme Court Decision H26 (Gyo-Hi) NO.75 (in Japanese)
Tokyo High Court Decision (in Japanese)
The Nikkei, 2015 (in Japanese)
