Competition Authority Decision of 21 December 1995 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/4/91E Irish Music Rights Organisation Ltd/Radio Telefis Eireann 

Decision No. 456

Introduction

1.	Notification was made on 3 October 1991 of a copyright music licence agreement between Irish Music Rights Organisation Ltd (IMRO) and Radio Telefis Eireann (RTE). A request was made for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2). In accordance with Section 4(5) of the Act, the Minister for Arts, Culture and the Gaeltacht was invited to offer observations prior to the Authority's decision.

The Facts

(a)	The subject of the notification

2.	The notification concerns an agreement between IMRO and RTE whereby IMRO, in consideration of annual royalty payments, licenses RTE to broadcast on its existing Radio and Television services as well as publicly perform the repertoire of IMRO. The original agreement was dated 12 December 1984 and was replaced by a further agreement dated 15 October 1992 in similar terms, apart from the financial terms, which has been extended by mutual agreement until 31 December 1995. A notification was also made in respect of IMRO's standard copyright music licence agreement with independent radio stations and this was the subject of the Authority's Decision No. 449 of 18 December 1995. In addition a notification was made of IMRO's standard copyright music licence agreement with public performance users which is being dealt with separately. 

(b)   The parties involved

       IMRO

3.    IMRO was the Irish subsidiary of the UK based Performing Rights Society (PRS) until 16 December 1994, when following a change in IMRO'S Memorandum and Articles of Association, it became an independent company. Since January 1995 it has been operating as an independent collecting society on behalf of its members, who have entered into assignment agreements with IMRO, and on behalf of foreign collecting societies, including PRS, with which it has non-exclusive reciprocal arrangements. The standard assignment arrangements between IMRO and its members, as amended, were the subject of the Authority's Decision No. 445 of 15 December 1995.

       Radio Telefis Eireann

4.    RTE is a public service broadcasting organisation providing a national radio and television service throughout the State.  In 1993 it had a revenue of £130.6m of which £50m came from licence fees with revenue from advertising, sponsorship and publications making up the balance.

(c)   Copyright legislation

5.    Certain provisions in the Copyright Act 1963 relate to the public performance of copyright material viz.

(1)   Section 7(3) of the Copyright Act 1963 states: "copyright in a work is infringed by any person who not being the owner of the copyright and without the licence of the owner thereof does or authorises another to do in the State any of the acts referred to ......" 

(2)   Section 8(6) of the Copyright Act states: "The acts restricted by the copyright in a literary dramatic or musical work are:

(a)	reproducing the work in any material form
(b)	publishing the work
(c)	performing the work in public
(d)	broadcasting the work
(e)	causing the work to be transmitted to subscribers to a diffusion service
(f)	making any adaptation of the work
(g)	doing in relation to an adaptation of the work any of the acts mentioned in paragraphs (a)to(e)of this subsection".

The Act also provides for a mechanism whereby disputes relating to a licence scheme may be referred to the Controller of Patents, Trade Marks and Designs.

6.	Effectively the legislation provides that before any of the "restricted acts" listed at para. 5(2) above take place the permission of the copyright owner or his authorised representative is required.  IMRO's function is to license all users of its musical repertoire whether being performed publicly, being broadcast on radio or television or being retransmitted by cable.  

(d)	The product and the market

7.	The product involved in this notification is the broadcasting and performing right for radio and television contained in the IMRO repertoire of musical works.  The IMRO repertoire includes the rights in musical works assigned to it by its members, who are the composers, authors, lyricists and/or publishers of the works, as well as rights assigned to it by foreign based collecting societies which have entered into reciprocal agreements with IMRO. The performing right, which comprises the rights of public performance, broadcasting and cable diffusion of musical works, is part of the copyright which is a property right which when used by others entitles the owner or assignee to remuneration. IMRO licenses the public performance of the musical works contained in the IMRO repertoire and the users pay royalties to IMRO in recompense for the copyright contained therein.  The licence from IMRO to RTE enables it to lawfully use the musical works in the IMRO repertoire for performing and broadcasting from within the State.   

8.	The service associated with the notified agreement is the transmission of television and radio broadcasts. The market is therefore that for radio and television broadcasting and the upstream market for copyright musical works, which is an essential raw material for much of radio and television broadcasting. In the area of television, RTE is the only television operator broadcasting from within the State. To some extent, it is in competition with terrestrial stations broadcasting from Northern Ireland and Wales either in fringe signal areas or in areas served with retransmissions of these services, and other satellite services, through cable or other systems. The number of homes owning at least one television set as indicated by the number of television licences issued to householders is approximately 900,000. In the area of radio broadcasting RTE dominates the market with Radio 1 and 2 FM but the independent radio stations have attracted a large audience since their advent some years ago. The geographical market for RTE's television and radio broadcasts is the State.

9.	IMRO has estimated that its revenue in 1994 from royalties within the State was obtained as follows:

RTE					£1,857,000
Local radio				     702,000
Cable & satellite			     323,000
                                                 	  2,882,000
Other Public Performance users           3,595,000
                                        total   	£6,477,000
  
(e)	The notified arrangements

10.   The agreement notified on 3 October 1991 had been made on 12 December 1984 between PRS and RTE. The 1984 agreement was novated and amended by a further agreement dated 16 October 1992 between IMRO and RTE which was deemed to have commenced on 1 January 1991 and which incorporated virtually all of the provisions of the 1984 agreement.  The 1992 agreement has been extended by mutual agreement on an interim basis at various times until 31 December 1995 pending completion of negotiations on a new agreement and subject to a retroactive adjustment of royalties on its completion.

Agreement dated 15 October 1992

11.   Clause 1 of this agreement provides that in consideration of a royalty of £6.875m to be paid by RTE to IMRO for the period January 1991 to 31 December 1994 IMRO hereby licenses RTE to broadcast on its existing Radio and Television services the repertoire of IMRO. Clause 2 of the agreement provides that paragraphs 1 to 14 (excluding paras. 5 and 13) and Schedule 1B and Schedule II of the agreement made between PRS and RTE dated 12 December 1984 should mutatis mutandis be construed as forming part of the terms and conditions of the Licence granted to RTE except that clause 12 should be amended by substituting 1 January 1991 for 1 October 1983. Clause 3 provides that the agreement should be deemed to commence on 1 January 1991 and should expire, subject to any earlier termination, on 31 December 1994.

Agreement dated 12 December 1984.

12(i) Clause 2 of this agreement provides that subject to the exemptions, restrictions and conditions set out in the agreement IMRO grants licence and authority to RTE to broadcast or cause to be broadcast the IMRO repertoire from any of RTE's transmitters within the licensed territory or perform, or cause to be performed, in public, the IMRO repertoire within the licensed territory. The territory is defined as the Republic of Ireland.  Clause 3 sets restrictions on the licence stipulating that no one else who may broadcast RTE programmes was authorised by the RTE licence to use the IMRO repertoire.  Clause 3 also provides that RTE cannot transmit the IMRO repertoire to a satellite for the purpose of broadcasting by another broadcasting organisation or for cable distribution/direct reception outside the Republic of Ireland.  Clause 3 also states that the RTE licence does not apply where certain types of performances are being broadcast on radio and television e.g. dramatico-musical works, ballet, commercial advertisements, etc. 

(ii)  Clause 6 provides that royalty payments should be made by RTE in accordance with the provisions of Schedule 1. Under clause 7 RTE is required to furnish to IMRO a weekly list of its broadcast material especially details of any musical works broadcast.  Under clause 9, IMRO agrees to keep RTE harmless and indemnified in respect of any claims or actions by third parties in relation to the IMRO repertoire. The agreement may be terminated by IMRO in writing if RTE breaches any of its obligations or if disputes between the parties as regards the payment of royalties cannot be resolved, the agreement may be terminated by either party by giving 7 days notice in writing. 
(iii) Clause 5 provided that the agreement shall terminate on 30 September 1988. However it was continued by mutual consent until 1 January 1991 when the agreement dated 15 October 1992 was deemed to commence.

(f)   Views of the parties

13.	IMRO stated that the notified agreement did not prevent, restrict or distort trade in goods or services in the State or in any part of the State.  They also stated that a mechanism had already been provided for regulating the market between copyright owners and the persons requiring licences.  This mechanism was provided in Part V of the Copyright Act, 1963, which entrusted these functions to the Controller of Patents, Trade Marks and Designs.  The Competition Authority, therefore, had no jurisdiction to consider the provisions of the notified licence agreement.  IMRO also stated that the Court of Justice of the European Communities had recognised that copyright management societies pursued a legitimate aim when they endeavoured to safeguard the rights and interests of their members vis-a-vis the users of recorded music (Ministere Public v Tournier and Lucazeau v Sacem).  The contracts concluded with users for that purpose, therefore, could not be regarded as restrictive of competition for the purposes of Article 85 unless the practice exceeded the limit of what was necessary for the attainment of that aim. 

14.   They also stated that the Court of Justice had also accepted that the right to receive a fee was an essential feature of the property itself and had acknowledged the necessity of guaranteeing proper remuneration for the intellectual accomplishment and associated financial risk of the creator.  Implicit in this was an acceptance that, without such remuneration, the incentive to produce musical works would be very significantly reduced, in the absence of other forms of public financial support.  This would obviously have been very much to the detriment of the ultimate consumers, the general public, but also of the licensed users who earned part or all of their livelihood in providing public performances.  As to what constituted proper remuneration, statute had provided a method of resolving the issue (Controller of Patents, Trade Marks and Designs) thus removing control over pricing from PRS/IMRO and the creators and therefore from the scope of the consideration by the Authority.  It was believed that, as far as the ultimate consumer - the listening public - was concerned, the arrangements were very beneficial indeed.  Once the appropriate royalties had been paid, a licence could be obtained for the performance of any work in the IMRO repertoire, with no restrictions.

15.	 RTE stated in April 1992 that the notified agreement between IMRO and RTE did not have as its object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State.  RTE also stated that royalty payments based on a percentage of RTE's revenue had put IMRO in a favoured position vis-a-vis other music interests and said that they favoured an agreed lump sum payment to IMRO for royalties (which as mentioned in paragraph 11 above has been the agreed method of calculating the royalty payments by RTE to IMRO since 1991).

(g)   EU Law

16.    Since December 1994 IMRO has had a non-exclusive reciprocal arrangement with PRS, whereas previously users could only obtain the PRS repertoire through IMRO. In 1989 the European Court of Justice held that

"Article 85 of the EEC Treaty must be interpreted as prohibiting any concerted practice by national copyright-management societies of the Member States having as its object or effect the refusal by each society to grant direct access to its repertoire to users established in another Member State."

Assessment

(a)    Section 4(1)

17.	  Section 4(1) of the Competition Act, 1991 prohibits and renders void 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 trade in any goods or services in the State, or in any part of the State.

(b)	  The Undertakings

18.	  The term "undertaking" is defined in Section 3 (1) of the Competition Act, 1991 as "a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service."

19.	  IMRO is a corporate body engaged for gain in the licensing of music performing rights and is therefore an undertaking.  While part of RTE's revenue is provided by the State through the levying of broadcasting licence fees, over 60% of its revenue is derived from advertising, sale of programmes and publications. It is therefore an undertaking. The notified agreement is an agreement between undertakings. The agreement has effect within the State

20.     In its submission IMRO argued that because of the mechanisms provided in Part V of the Copyright Act 1963 for regulating the market between copyright owners and persons requiring licences, the Authority had no jurisdiction to consider the provisions of the notified agreement. The Authority rejects this argument. While Part V of that Act makes provision for the determination by the Controller of Patents, Trademarks and Designs of disputes relating to royalties, remuneration and certain other copyright matters, the provisions of the Competition Act 1991 apply to all agreements between undertakings. 

(c)	  Applicability of Section 4(1)

21.	  In this decision the Authority is concerned with the relationship between IMRO and RTE. The licence granted by IMRO is a non-exclusive licence authorising the public performance by radio and television broadcast, as well as public performance, of all musical works in the IMRO repertoire.  The IMRO repertoire consists of those works assigned to it by its members and works assigned by their members to those collecting societies, with which IMRO has entered into non-exclusive reciprocal arrangements.  Thus the licence granted by IMRO is, in effect, a blanket licence to use all copyright music. 

22.     The IMRO blanket licence however is not the only means by which RTE can secure the right to use copyright music. By virtue of the amended arrangements between IMRO and its members, which are described in the Authority's Decision No. 445, it has been open since October 1995 to RTE to offer to deal directly with individual Irish creators and publishers if they so wish.  As the arrangements between IMRO and other collecting societies are non-exclusive, it has also been open to RTE to deal directly with overseas societies in respect of their musical repertoire since December 1994 when IMRO became an independent company.   
23.     The Authority recognises however that the conclusion by RTE of individual agreements with large numbers of creators and publishers would involve substantial transactions costs which would make such agreements highly impractical.  For this reason it considers that the IMRO blanket licence is an alternative to such individual agreements and is primarily designed to reduce transactions costs and facilitate both creators/publishers and users.  In the absence of a blanket licensing system for copyright music the transactions costs involved in concluding individual agreements could be very high.  For these reasons it believes that the blanket licence, even though it means all copyright music is sold collectively, does not constitute an anti-competitive arrangement per se.

24.	  The IMRO licence is non-exclusive and IMRO places no limits on licence numbers.  Thus any radio or television station, competing with RTE, wishing to use copyright music may do so by obtaining a licence from IMRO in return for payment of the appropriate fee.  RTE is not compelled by the licence to play only music included in the IMRO repertoire.  It can play other music, primarily music no longer subject to copyright protection.  Nor is the user obliged to play any particular selections from the IMRO repertoire. The Authority therefore concludes that the notified arrangements do not have as their object or effect the prevention, restriction or distortion of competition within the State or any part of it and consequently do not offend against Section 4(1) of the Competition Act.

(d)    The Decision

25.     In the Authority's opinion Irish Music Rights Organisation Ltd and Radio Telefis Eireann are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified copyright music licence arrangements, as novated and amended on 15 October 1992, and as subsequently extended in duration, is an agreement between undertakings.  In the Authority's opinion the notified arrangements do not offend against Section 4(1) of the Competition Act, 1991, in the context that it is open to RTE to obtain licences from the individual owners of the copyright material, who are members of IMRO, and from overseas licensing organisations.

       The Certificate

26.     The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the copyright broadcast music licence agreement between Irish Music Rights Organisation Ltd and Radio Telefis Eireann dated 12 December 1984, notified under Section 7 on 3 October 1991 (notification no. CA/4/91E) and as novated and amended by the agreement dated 15 October 1992, and as subsequently extended in duration, does not offend against Section 4(1) of the Competition Act, 1991 in the context that it is open to RTE to obtain licences from the individual owners of the copyright material, who are members of IMRO, and from overseas licensing organisations.

For the Competition Authority.

Des Wall
Member
21 December 1995