Collective Management Organisations and competition law

This article was published on www.maverick-law.com

Collective Management Organisations (“CMOs”) that promote the interests of the holders of rights in protected works, such as music or books, have been around for many years. As a result of the changes in the (digital) media landscape, CMOs are playing an increasingly important role. This blog addresses the applicability of the competition rules to the CMO phenomenon, as well as the latest developments.

CMOs

Copyright law grants right holders exclusive rights regarding the reproduction and publication of their works: they are copyright-protected works. The distribution of copyright-protected works, such as books and musical recordings, requires the granting of a licence for the rights in question by the owners of copyrights and neighbouring rights. They may be authors, producers or publishers, and are regarded as the right holders. Right holders may manage their rights individually or collectively. In some cases the collective management of rights is a statutory requirement.

A CMO is an organisation that promotes the interests of right holders. On behalf of those right holders, the CMO negotiates tariffs with users, licenses the use of protected works, distributes the income from the exploitation of rights among its members, and supervises the manner in which the rights are used.

CMOs play an important role on the market. CMOs promote diversity of creativity by making the market accessible to small and less popular repertoires, but must guard against disrupting competition. CMOs come under the Wet toezicht collectieve beheersorganisaties auteurs- en naburige rechten (Supervision of Collective Management Organisations (Copyright and Neighbouring Rights) Act), the Dutch enactment of the European Collective Rights Management Directive. CMOs must furthermore comply with the rules of competition law.

Competition law

From a competition law perspective, a CMO’s legal form can be either private or public. In principle, CMOs are viewed positively. Collective management of copyrights and neighbouring rights creates a forceful tool for obtaining reasonable payment for the use of protected works by users. Collective management also gives rise to cost savings, for instance by the efficient licensing of rights and collection of fees, and by avoiding legal actions.

Agreements that the right holders make via a CMO may come under the cartel prohibition if they go beyond what is strictly required for collective rights management. That is the case, for instance, if the CMO serves as a platform for right holders (that compete with each other) to make agreements on prices, volumes and market allocation, or to exchange sensitive competitive information.

A CMO has market power if it represents approximately 15% to 20% of the market. In that case a CMO may not create barriers for its members. The membership criteria must be non‑discriminatory and transparent and must be clear in advance. A CMO may even hold a dominant economic position, in which case it may not abuse that position, however. In established case law of the European Court of Justice, a dominant position is defined as a position of economic strength that allows an undertaking to behave to an appreciable extent independently of its competitors and customers and ultimately of its consumers. As a rule, a position of economic strength is deemed to exist if an undertaking has a market share of at least 50%. The term “abuse” is an open standard. To name a few examples:

- charging excessive tariffs;
- charging different tariffs for the same work, without objective justification;
- obligating new members to assign all their copyrights and not returning those rights when they terminate their membership;
- restricting a member’s possibility of assigning only certain copyrights to certain countries or to certain categories of rights;
- prohibiting members from swapping their membership for membership of a foreign organisation; and
- refusing to admit foreign artists as members.

An interesting development is the ACM’s commitment decision in the Buma/Stemra case. ACM investigated whether Buma/Stemra was abusing its dominant position in the management of copyrights. Composers and lyricists need Buma/Stemra for the collection of copyright fees when their work is played on the radio or on television, but not always for the Internet. Buma/Stemra required the assignment of copyrights as an all-in-one package. Composers and lyricists were therefore unable to sell their lyrics or compositions on the Internet. On ACM’s initiative, Buma/Stemra has changed the system for the management of copyrights, which allows composers and lyricists to decide which rights they wish to assign to Buma/Stemra.

Tariffs

A CMO is free to set its own tariffs in granting licences, provided that those tariffs are based on objective and non-discriminatory criteria. A CMO may furthermore not charge different tariffs for equivalent licences, unless it has objective reasons for doing so and the competition on the underlying market is not disrupted. This offers significant commercial freedom. Stichting Buma/Stemra has different categories of tariffs, for instance, per type of music use (funfairs, primary schools, workspaces, etc.) and the floor area of the room in which the music is played. Stichting Reprorecht bases its tariffs on the number of persons employed at the user and on whether the user belongs to a sector that makes intensive use of information. A food processing plant, for instance, will make less use of information than a law firm.

The downside is that individual right holders have few means of imposing tariffs and licensing conditions of their own via a CMO. In some cases individual right holders are even prohibited by law from imposing tariffs or licensing conditions of their own or from making their own agreements. The Dutch Supreme Court found, for instance, that CMO SENA had exclusive power of representation and that right holders at SENA were not allowed to individually negotiate tariffs with third parties. Individual right holders are, however, allowed to prohibit use of their work for certain purposes. Buma/Stemra, for instance, uses an opt-out system that allows right holders to prevent their work from being used for certain purposes.

Case law provides that CMOs may not charge excessive tariffs. The term “excessive” is not defined in that case law. In determining whether a tariff is reasonable, a comparison is often made in case law with tariffs that CMOs charge for similar services in other Member States, provided that these “reference Member States” are selected in accordance with objective, appropriate and verifiable criteria. If that comparison shows a significant difference, that points towards abuse of a dominant position.

The reasonableness of a tariff may also be determined by the Copyrights Disputes Committee (the “Disputes Committee”). In the case of CMO Videma, the Disputes Committee assessed whether Videma charged an excessive tariff when it increased the tariff for the all-in use for screening and broadcasting Dutch television programmes in hospitals by 80% compared with earlier years. The Disputes Committee considered the fair value of the all-in use and the prices on which the parties had previously agreed. Against that backdrop and in the absence of an objective reason for the tariff increase, it found that Videma charged excessive tariffs. The Rotterdam Court subscribed to the Disputes Committee’s opinion and ruled that Videma had abused its dominant economic position.

For some services it is more difficult to clearly set a tariff in advance. In the case of music at a festival, for instance, it is difficult to keep track of how much copyrighted music is actually played. Two Belgian festival organisations sued CMO SABAM for allegedly charging excessive tariffs. In that case the Court of Antwerp requested a preliminary ruling on the manner in which SABAM determined its licensing tariffs for the use of copyrighted music. The Advocate-General at the Court of Justice found in that case that SABAM’s tariff structure was not necessarily excessive. The Court of Justice has not yet issued its judgment.

Digitalisation

Digitalisation is a new development of the past decade. Anyone can nowadays post possibly copyright-protected content on online platforms such as Youtube, Facebook, Instagram, etc. The introduction of the Copyright Directive has given publishers neighbouring rights to the online content that they publish. Users may reuse that content only on the basis of a (paid) licence. The French competition authority has ordered Google on that ground to pay publishers in France for copying news reports.

The Copyright Directive also provides that makers must receive an appropriate share of the income that publishers receive for reuse of online content (the makers’ work) by online platforms. The exact definition of “appropriate” is unclear, however. And this is not a new rule: under the Dutch Copyright Act, makers are entitled to reasonable payments for the granting of any exploitation right in respect of their work. If the work proves to be successful, the “bestseller provision” (article 25d Dutch Copyright Act) entitles the maker to an additional reasonable payment.

In light of these developments, we believe that CMOs will begin to sell licences and collect royalties at large (online) platform on behalf of the right holders. Both CMOs and online platforms will have to comply with the competition rules in doing so.

Information on dawn raids by ACM or the European Commission can be found at invalacm.nl.