European Court ruling on copyright royalties

23 January 2009

Richard Eccles

The European Court of Justice (“ECJ”) has issued an important judgment in December 2008 on excessive and discriminatory pricing issues in respect of copyright royalties by a copyright collection society STIM, on a reference from the Swedish courts under Article 234 EC on a claim by the commercial broadcasters Kanal 5 Limited and TV4 AB.  The ECJ held that the remuneration model applied was not excessive for purposes of the EC rules on abuse of dominance, on the basis that the royalties were assessed by reference to the revenue of the relevant TV channels and proportionately by reference to the quantity of copyright-protected musical works actually broadcasted.  It could only have been regarded as excessive if there existed another royalty model which would enable more precise identification of the use of the works and of the audience, without resulting in a disproportionate increase in the relevant costs.  The ECJ further held that a question of whether the royalty collection society were abusing a dominant position by charging differential (discriminatory) royalties to the private sector and public service broadcasters, must be assessed factually by the national court by reference to the respective operating conditions of the different broadcasters and the question of whether the differential royalties place the relevant parties, in particular the private sector broadcasters, at a competitive disadvantage. 

The STIM, the Swedish copyright royalty collection society for musical works, imposes on the private sector broadcasters Kanal 5 and TV4, the payment of remuneration corresponding to a percentage of their revenue derived from television broadcasts and/or subscription sales.  These percentages in turn vary according to the amount of music broadcasts.  By contrast, the public broadcast channel, Sveriges Television (“SVT”) is required to pay STIM a lump sum agreed in advance. 

The Swedish referring court stated that STIM held a de facto monopoly in the Swedish market for making available music protected by copyright for television broadcasts.  On the issue of whether the royalty levels applied by STIM were excessive, for the purposes of the rules on abuse of dominance, the ECJ stated that STIM’s remuneration model takes account of the number of works protected by copyright actually broadcast, insofar as the amount of the royalties varies in accordance not only with the revenue of the television broadcasting company but also the amount of music broadcast.  The ECJ referred to Case 395/87 Tournier [1989] ECR 2521 on the principle that a flat rate royalty is contrary to Article 82 EC only of other methods might be capable of attaining the same legitimate aim, namely the protection of the interests of authors, composers and publishers of music, without thereby increasing the costs of managing contracts and monitoring the use of the protected musical works.

In the present case, the questions referred by the Swedish court indicated that it was possible to identify and quantify the music performed and the viewing audience.  Despite this, the ECJ concluded that the STIM did not abuse a dominant position where it applies a remuneration model by which the amount of the royalties corresponds partly to the revenue of those channels, provided that that part of the revenue is proportionate overall to the quantity of copyright-protected musical works broadcast (or likely to be broadcast), unless another royalty collection method existed which would enable more precise identification of the use of those works and of the audience, without resulting in a disproportionate increase in the costs incurred for the management of contracts and the supervision of the use of those works. 

On the question of whether the flat rate royalty model used for SVT (the public service broadcaster) amounted to abusive discrimination against the private sector broadcasters, Kanal 5 and TV4, the ECJ stated that this was an issue to be assessed by the national court on the facts of the case.  In particular, the national court must examine whether the STIM was applying dissimilar conditions to equivalent services, and whether the private sector broadcasters were, as a result, placed at a competitive disadvantage.  For this purpose, the national court must first assess whether the private sector broadcasters are operating on the same market as the public sector broadcaster SVT.  In assessing the royalty differentiation, the national court must take account of the fact that unlike Kanal 5 and TV4, SVT does not have either advertising revenue or revenue relating to subscription contracts, and must take account of the fact that the royalties paid by SVT are collected without taking account of the quantity of broadcast musical works protected by copyright.  If an abuse is prime facie found, the court must then assess whether the practice in question is objectively justified. 

In conclusion on this issue, the ECJ held that a copyright royalty collection society is likely to be abusing a dominant position if it applies dissimilar conditions to equivalent services provided to commercial broadcasters or public service broadcasters respectively, so as to place any such broadcaster at a competitive disadvantage, unless such practice may be objectively justified.

The ECJ’s ruling on the first issue is a consistent development of the previous case law, in particular the Tournier judgment, on the question of whether copyright royalty models result in excessive remuneration to the collection society.  On the second question of discrimination between private and public sector broadcasters, the ECJ in effect concluded that the question of whether differential royalty models are an abuse of dominant position depends on assessment of all the relevant operating conditions and of the competitive consequences.  In particular the ECJ confirmed that royalty differentiation can only be abusive if it is considered in relation to equivalent transactions and if it results in a competitive disadvantage.  The ECJ has provided confirmation that discriminatory pricing is not an abuse of dominant position per se but can only be an abuse when assessed in its overall economic context.