The Finnish Supreme Court’s decision regarding unreasonable tariffs claimed by collective rights management organization sets a precedent beneficial for a fair and functioning market

Comments on case SC 2022:44 (KKO 2022:44) by Dr. Jur. Viveca Still.

On 27 June 2022, the Finnish Supreme Court published the first decision regarding the application of the Act on Collective Management of Copyright (below ‘CRM Act’, no 1494/2016). The act entered into force on January 1, 2017. The case at hand concerned the application of section 35 para 2 of the act, which stipulates that rightsholders shall receive appropriate remuneration for the use of their rights. According to the provision, the tariff ‘shall be reasonable in relation to the economic value of the use of the rights in trade, taking into account the nature and scope of the use of the work and other protected subject matter, the economic value of the service provided by the collective management organization and all other relevant factors.’

Initially Teosto, the representative of authors and publishers in the music sector, had requested the Market Court to confirm that the tariff for the use of music by a broadcaster shall be deemed appropriate in accordance with section 35 of the CRM Act. In a counter claim, the broadcaster requested the Market Court to confirm that Teosto’s tariff was in contradiction with section 35 para 2 of the CRM Act. In addition, it asked for a confirmation that the tariff of the Swedish collective management organisation STIM applicable to the use of music in TV channels should be considered a reasonable tariff according to section 35 of the CRM Act, in conjunction with either section 45 of the Sales of Goods Act (no 355/1987) or section 36 of the Contracts Act (228/1929). In addition, the broadcasting organisation requested that the price that it had paid and that exceeded the reasonable tariff in accordance with section 35 of the CRM Act should be returned to it.

Section 45 of the Sales of Goods Act stipulates that ‘if the contract does not expressly or implicitly fix or make provision for determining the price, the buyer shall pay a price which is reasonable taking into account the quality and the properties of the goods, the price generally charged at the time of the conclusion of the contract and other circumstances’. Section 36 of the Contracts Act includes the general adjustment clause through which unfair contract terms may be adjusted.

Appeal to the Supreme Court

The Supreme Court provided permission to appeal regarding the question of whether Teosto was due to return to the broadcasting organization the copyright remuneration exceeding the amount that the Market Court had considered reasonable and lawful according to section 35 para 2 of the CRM Act. According to the Market Court decision, the broadcasting organization was not entitled to receive in return from Teosto the amount that the broadcasting organization had paid in excess of the reasonable tariff established by the Market Court. Instead, the Market Court considered that there had been grounds for a copyright remuneration and that the broadcasting organization at the time was in the position to determine the amount of remuneration to pay. It was neither entitled to recovery of unjust enrichment nor entitled to the exceeding amount in damage or adjustment on the basis of section 36 in the Contracts Act.

The Supreme Court overturned the decision by the Market Court and considered that the broadcasting organization was entitled to recovery of unjust enrichment regarding the amount exceeding the tariff that the Market Court had established as lawful.

In its judgment, the Supreme Court starts its reasoning by stating that section 45 of the Sales of Goods Act is applicable, if the parties have not agreed to a price. It also states that as a general rule, the Sales of Goods Act is applicable also to copyright and that in this case there is not a dispute regarding the quality or other properties of the goods but as to what is to be considered a reasonable, fair price. However, regarding copyright tariffs set by collective management organisations, there are special rules in the CRM Act.

The Supreme Court continues its reasoning by pointing out that the CRM Act transposes the EU directive 2014/26 on the collective management of copyright and related rights (the CRM Directive), and states that while the CRM Directive requires that Member States provide for effective, proportionate and dissuasive remedies, it leaves Member States a fair amount of room of maneuver. The Supreme Court further points out that whereas the Market Court on the basis of the CRM Act may prohibit a collective management organization from using a contract term that is in contradiction with section 35 of the CRM Directive (the prohibition of so-called typically unreasonable terms in relation to all users of a certain category – (suomeksi ns. ‘tyyppikohtuuttomien ehtojen kielto’)), there are no rules in the CRM Act as to the remedies available for the contractual parties as regards contracts that are in contradiction with section 35 or the CRM Act. The Supreme Court therefore considered that general civil law principles should be applied in that case. The Supreme Court thus concluded that Teosto should return to the broadcasting organization the amount exceeding the fair and reasonable tariff established by the Market Court.

In a dissenting opinion, two out of the five judges considered it inappropriate or at least unnecessary to refer to the Sales of Goods Act in addition to the CRM Act.

Evaluation of the Supreme Court ruling

First, regarding the dissenting opinion, it seems of little importance, as the dissenting judges agree that the amount paid in excess of the fair and reasonable tariff based on section 35 should be returned by the collective management organization to the user, i.e., to the broadcasting organization. The dissent merely concerns whether it is appropriate to refer, in addition to section 35 in the CRM Act, to section 45 in the Sales of Goods Act. The dissenting judges considers it not to be necessary, and it is easy to agree with them that a general rule is not applicable whenever there is a special rule (lex specialis derogat legi generali). On the other hand, the majority view which includes a reference in the ruling to the Sales of Goods Act is understandable and clarifies the connection to general civil law principles. In any case, the dissenting opinion clarifies that independent of whether one would refer to section 45 of the Sales of Goods Act or not, the general civil law rule on unjust enrichment would be applicable. For a copyright expert it seems a bit farfetched to refer to the Contracts Act or the Sales of Goods Act, and the dissenting opinion is to thank for explaining that indeed, that would not be necessary.

It is easy to see that there has been a very good reason for the Supreme Court to allow an appeal in this case. The Market Court first establishes that the tariff requested by the collective management organization was unreasonably high and that the comparable tariff of the Swedish collective management organization in the same field would have been reasonable, and then the Court still concludes that the user is not entitled to a return of the amount exceeding the reasonable tariff. That seems quite illogical. In fact, it seems like the Market Court considered, even though it did not clearly state so, that even though the broadcasting organization had paid an amount that exceeded the reasonable tariff established by the Court itself, the amount actually paid by the broadcasting organization was to be considered agreed to by the broadcasting organization. Thus, it was a fair and reasonable price because the user had agreed to pay it.

If the view of the Market Court had prevailed, what would have been the end-result for the functioning of the copyright market? It surely would have led to the conclusion that from a user perspective, one should pay as little as possible. This would certainly not be in the best interest of rightsholders. It would also have led to double standards, as the reasonable tariff would have been both the one established based on section 35 of the CRM Act and the tariff actually paid in excess of that.

The Supreme Court ruling sets the civil law framework for one of the most difficult stipulations in the CRM Act (transposing almost verbatim the CRM Directive). When deciding that the unwritten, civil law rule of unjust enrichment is applicable, it fills in a very elegant way a gap left during the transposition of the CRM Directive. It seems perfectly logical, that if a user has paid an amount exceeding what can be considered a reasonable tariff based on section 35 of the CRM Act, then the user may claim a refund to the extent the amount exceeds the lawful tariff. From a market perspective, the result also means that a user may rely on the judicial system to recover any excess payments and may, without fear, pay also a generous tariff until the dispute has been resolved. And obviously, it must also be in the interest of rightsholders that there are no incentives for paying as little as possible until the dispute has been resolved.

The result seems commendable both from the perspective of copyright users and from the perspective of collective management organisations. It fulfils the objectives laid out in section 1 of the CRM Act, namely the enhancement of the functioning of the copyright market, which guides the application of the law.

This said, the Supreme Court ruling will probably not be the last court ruling on Section 35 of the CRM Act. In the case at hand, the reasonable tariff was determined by the Market Court based on just one comparable tariff. It is easy to imagine that in future court proceedings, it may be challenged by the collective management organizations whether it is possible to rely on just one comparable tariff. The CRM directive remains silent on this matter. It is probable that this is something that has to be evaluated on a case-by-case basis. It seems clear that courts also must have the possibility to determine the reasonable tariff without having exact comparable tariffs to rely on. This is the case also because nothing in the CRM Directive or the CRM Act requires collective management organisations to design their products uniformly. One possible negative effect of comparing tariffs with the tariffs of sister organisations is also that it may lure collective management organisations into uniform price fixing (price cartel, ‘hintakartelli’).

To avoid the negative market effects of price fixing, it seems necessary to ensure that collective management does not preclude the possibilities for direct (individual) licensing.

Kuva: iStock