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Quashing Competition

It's a rare case where creators or creators' representatives are the defendants in Internet-related copyright proceedings. They're usually the victims seeking redress for infringement of their works or those of their clients.

In the typical case, a large music publisher or copyright collective is chasing a peer-to-peer file-sharing enterprise or individual downloaders with allegations that users have been stealing copyright works at the expense of creators and their publishers.

Ironically, the European Commission's (EC) Competition Directorate has now decided that both creators and commercial users are suffering at the hands of an unlikely source: the very collectives that protect the rights of creators.

In February 2006 the Competition Directorate filed a Statement of Objections against the International Confederation of Societies of Authors and Composers (CISAC) and the 24 national collecting societies in the European Economic Area that are members of the organization.

The Statement of Objections in this case alleges that CISAC's model contract is anti-competitive because it forces creators and commercial users, such as Internet sites that sell legal music downloads, to deal separately with the national collecting societies of each jurisdiction in which it seeks rights.

"The core of the EC's case is that CISAC and its members contribute to the fragmentation of the internal market by the way that they deal with users on a country by country basis within Europe," says Trevor Cook, an IP partner at Bird & Bird in London.

But because CISAC is an international organization, the repercussions of this case could reverberate globally. The case has the potential to revolutionize the way authors and musicians license the rights to their works to publishers, broadcasters and Web distributors.

Protecting Rights

Founded in 1926 and based in Paris, CISAC is the umbrella organization for 210 performing societies from 109 countries around the world. CISAC indirectly represents more than two million artists, musicians, authors and composers.

CISAC's goal is to protect and improve the position of authors and composers and enhance the quality of the administration of their rights globally.

"Creators have an uphill battle maintaining their revenues," says Paul Spurgeon, chair of CISAC's legal committee. "CISAC and its members give creators a unique collective bargaining power against the powerful music industry in particular."

From the perspective of RTL Group S.A., Europe's largest broadcaster, however, CISAC has too much power. Owned by Germany's Bertelsmann AG, RTL filed a complaint with the EC in 2000, alleging that by forcing commercial buyers of Internet, satellite transmission and cable retransmission music rights to deal only with national societies in each domestic market, CISAC and its members were engaging in anti-competitive practices that offended the notion of a common EU market.

Three years later, U.K.-based Music Choice Europe plc, the EU's largest digital audio service, made a similar complaint. Music Choice Europe and other providers of content over the Internet are unhappy with the current regime because it forces them to segment their services based on national boundaries--an inefficient and burdensome way to deliver content over the Web.

Yet in keeping with the notoriously slow pace of Competition Directorate investigations, three years went by before the EC decided to proceed against CISAC.

Restricting Competition

In any event, the Statement of Objections focuses on three aspects of CISAC's model contract, which it calls the "membership restrictions," the "territorial restrictions," and the "network effects."

In particular, the EC points to the provision of the model contract that requires authors to transfer their rights only to their own national collecting society. Although authors aren't obliged to join their national societies, the interlocking reciprocal representation agreements between the European societies and the lack of competition from other groups means that authors cannot sell their rights except through the aegis of the national society.

Similarly, the contract's territorial restrictions oblige commercial users of copyright works to obtain domestic licenses from the domestic collecting society. These licenses are limited to the domestic territory. Again, interlocking agreements between the societies mean that users wishing to obtain multi-jurisdictional licenses can deal only with the national society of each country in which the user intends to exploit the rights.

As the EC sees it, the effect of the network of interlocking agreements is that the membership and territorial restrictions combine to guarantee to collecting societies an "absolutely exclusive position" in their domestic markets.

"The historical de facto monopoly is strengthened and potential new entrants are prevented from entering the market for the management of copyright," the EC said in a Feb. 7, statement.

Cook agrees. "If the Belgian society or another competing entity wanted to deal with rights in France at a lower cost to creators, why shouldn't it be allowed to do so in an open market?" he asks.

For its part, CISAC has condemned the complaint as "a narrow and formalistic approach" to the "complex issue" of collective copyright management.

"The EC's objections are misguided," Spurgeon says. "The EC has not considered the model contract as a whole and there are inaccuracies in the objections that show a complete misunderstanding of the collective administration of performing rights."

He points out, for example, that the model contract no longer contains a mandatory affiliation clause and that it includes a provision recognizing non-exclusivity in reciprocal agreements.

Still, at the heart of CISAC's defense is the distinction between performing rights and goods and services.

"Performing rights are different from widgets and bananas because the same kind of branding doesn't exist," Spurgeon says. "Nobody buys music based on where it comes from or who publishes it, so interbrand competition between European societies will not benefit music fans."

The EC wouldn't comment on CISAC's stand. But indications are that there will be a compromise resolution.

Beyond The EU

CISAC had until April 10 to respond to the Statement of Objections. At press time, David Uwemedimo, CISAC's director of legal affairs, indicated that CISAC would meet the deadline. CISAC also will request a formal hearing, which will likely be held in May.

"But CISAC's policy has always been to promote open discussion," Uwemedimo says. "And we will pursue a negotiated solution."

CISAC has already embarked on that course, meeting with Charlie McCreevy, European Commissioner for Internal Market and Services on Feb. 21.

Still, Cook believes that CISAC will have to make significant concessions.

"The EC is not against collective management, but at the very least the national societies will have to open themselves to competition from other jurisdictions," he says.

If Cook is right, CISAC will be altering a fundamental term of its model contract. And because national societies around the globe base their agreements on the CISAC model, the EU proceedings could provoke a whole new, more competitive international regime of rights negotiation for the music industry, other performing rights sectors, content providers and creators.

Contributing Author

Julius Melnitzer

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