Google respond to NewsCorp

In our last CopyKat we noted that NewsCorp's CEO Robert Thomson had written to the European Union Competition Commissioner Joaquín Almunia criticising Google, accusing it of anti-competitive practices, and of failing to play its part in combating online piracy. Well - Google have now responded via a blog posting  from Rachel Whetstone, SVP Global Communications that notes that "Google has done more than almost any other company to help tackle online piracy" and details the web firm's adherence to copyright takedown notices and that the system the web giant  uses has to deal with a vast number of takedowns - and that Google is proud that "the average take-down time is now just six hours", provides the ContentID software on YouTube and "we downgrade websites that regularly violate copyright in our search rankings.". Google also points out that it has helped NewsCorp monetise its content, and take umbrage about the accusation that it has become "a vast, powerful, often unaccountable bureaucracy" and that "The shining vision of Google's founders has been replaced by a cynical management" saying founders "Larry Page and Sergey Brin are still very much at the helm of Google" and continue to innovate. Finally turning to web dominance and competition issues (perhaps the most dangerous of Newscorp's claims given the recipient's job and complaints made by other European media owners such as Axel Springer, Germany's largest newspaper publisher) the blog says "As The Economist reported last week 'mobile devices have changed the way people travel the internet. Users now prefer apps to websites' home pages'. In this world Google Search is an app alongside many others. The same article adds 'the rise of social networks such as Facebook, Twitter and Pinterest ... have become an important navigation system for people looking for content across the web'. It's why many newspapers get an increasing number of referrals from Facebook and Twitter".

OSA ruling: no Czech exemption from health-spa music royalty payments

Today was the day that the Court of Justice of the European Union (CJEU) gave judgment in Case C‑351/12, OSA – Ochranný svaz autorský pro práva k dílům hudebním o.s. v Léčebné lázně Mariánské Lázně a.s., a reference for a preliminary issue from a Czech court, the Krajský soud v Plzni. This case has already been eloquently and elegantly explained by Eleonora on the IPKat weblog, here, so I shall content myself with reproducing the Cura press release and adding the occasional comment. According to the press release:

A spa which transmits protected musical works to its guests by means of devices located in their bedrooms must pay copyright fees

The territorial monopoly granted to copyright collecting societies is not contrary to the freedom to provide services

OSA, a copyright collecting society, holds the exclusive right in the Czech Republic to collect fees, on behalf of authors, for the use of their musical works. The company Léčebné lázně Mariánské Lázně, which manages a spa, installed radio and television sets in the bedrooms of that establishment in order to make works managed by OSA available to its guests. However, Léčebné lázně Mariánské Lázně did not enter into a licence agreement with OSA and refused to pay fees to it on the ground that, under the Czech legislation, health establishments may freely transmit protected works. OSA, being of the view that the national legislation is contrary to the EU Copyright Directive, brought an action before the Czech courts claiming that Léčebné lázně Mariánské Lázně should be ordered to pay fees for having made protected works available to its guests.

The Krajský soud v Plzni (Plzeň Regional Court, Czech Republic) asked the Court of Justice whether the Czech legislation under which health establishments are exempt from the payment of copyright fees is in accordance with the directive, inasmuch as that directive does not provide for an exemption of that kind. The Czech court also wishes to know whether OSA’s monopoly over the collection of fees in the Czech Republic is compatible with the freedom to provide services and with competition law.

By its judgment delivered today, the Court points out, first, that by transmitting protected works by means of television and radio sets located in the bedrooms of its guests, a spa carries out a communication to the public of those works. Such a communication must be authorised by the authors, who must, in principle, receive adequate compensation.

In that respect, the Court notes that the directive does not exempt a spa from the payment of fees where it transmits protected works to its guests. Consequently, the exemption laid down by the Czech legislation does not comply with the directive [It's difficult to see how the CJEU could have credibly reached any other conclusion on this point].

Secondly, the Court notes that the territorial monopoly granted to OSA constitutes a restriction on the freedom to provide services inasmuch as it does not allow users of protected works to choose the services of a collecting society established in another Member State. The Court emphasises however that the restriction in question is justified, since that system is appropriate and necessary for attaining the objective of the effective management of intellectual property rights. As EU law stands at present, there is no other method allowing the same level of copyright protection [despite dreams that have been entertained from time to time of a "perfect world" in which competing collecting societies continue to undercut each other until the copyright owners are assured of the closest sum to zero that the market will allow them ...]. The Court therefore concludes that the monopoly granted by the Czech legislation to OSA is compatible with the freedom to provide services.

The Court notes, however, that the imposition by a national copyright collecting society of fees which are appreciably higher than those charged in other Member States or the imposition of prices which are excessive in relation to the economic value of the service provided is indicative of an abuse of a dominant position [this is an interesting topic: "appreciably higher" can be measured in percentage terms or absolute terms, obtaining quite different results -- and "excessive in relation to the economic value of the service provided" is a phrase that screams "litigate me!"]. Nevertheless, it is for the Czech court to examine whether such a situation exists in the present case.

Breaking news: CISAC, others, gain partial cancellation of Commission decision

The General Court (Sixth Chamber) of the European Union has just given its keenly-awaited judgment in Case T‑442/08 International Confederation of Societies of Authors and Composers (CISAC), supported by European Broadcasting Union (EBU) v European Commission. According to the Curia media release:

The General Court partially annuls the Commission decision finding anti-competitive conduct on the part of copyright collecting societies

The International Confederation of Societies of Authors and Composers (CISAC) is a non-profit non-governmental organisation which represents, in over a hundred countries, collecting societies managing copyright relating to, inter alia, musical works.

The collecting societies acquire the management of those rights either by direct transfer from the authors or by transmission from another collecting society managing the same categories of rights in another country. They grant exploitation licences to commercial users, such as broadcasting undertakings or organisers of live shows. The prices of those licences are the source of the royalties that the authors receive, after the management expenses of those collecting societies have been deducted.

In 1936, CISAC drew up a model contract for reciprocal representation agreements between its members. That contract serves as a non-binding model for reciprocal representation agreements concluded between its members for the purposes of conferring licences covering public performance rights of musical works. Each collecting society agrees, reciprocally, to confer the rights over its repertoire to all of the other collecting societies for the purposes of their exploitation in the respective territories of those collecting societies. Because of the network created by all of those reciprocal representation agreements, each collecting society can propose a worldwide portfolio of musical works to commercial users, but only for use in its own territory. In 2000, RTL lodged a complaint with the Commission against a member of CISAC concerning its refusal to grant it a Community-wide licence for its music broadcasting activities. In 2003, Music Choice Europe, which provides radio and television broadcasting services on the internet, lodged a second complaint against CISAC concerning its model contract.

By its decision of 16 July 20081, the Commission prohibited 24 European collecting societies from restricting competition, in particular by limiting their ability to offer their services to authors and commercial users outside their domestic territory. The Commission decision, which concerns solely the exploitation of copyright via the internet, satellite and cable retransmission, does not call into question the very existence of reciprocal representation agreements. It does, however, prohibit: - membership clauses: clauses in the model contract which restrict authors’ ability to affiliate freely to the collecting society of their choice;

- exclusivity clauses: clauses in the model contract which have the effect of providing all collecting societies, in the territory in which they are established, with absolute territorial protection vis-à-vis other collecting societies as regards the grant of licences to commercial users;

- a concerted practice which was found to exist between the collecting societies and by which each collecting society limits, in the reciprocal representation agreements, the right to grant licences relating to its repertoire in the territory of another collecting society party to the agreement.

The Commission did not impose fines on the collecting societies but did require that they remove the clauses in question from the model contract and bring an end to the concerted practice. Most of the collecting societies concerned and CISAC brought an action before the General Court of the European Union against the Commission’s decision.

By today’s judgments, the General Court annuls, for CISAC and for 20 of the collecting societies concerned, the Commission’s decision in respect of the finding of the concerted practice [nb At the end of the media release, but not reproduced here, is a list of the outcomes of all 22 actions consolidated in this action, together with a 'scorecard' indicating the outcome. In that respect, the General Court considers that the Commission has not provided sufficient evidence. The Commission, first, did not have documents proving the existence of concertation between the collecting societies as regards the territorial scope of the mandates which they grant each other and, secondly, did not render implausible the applicants’ explanation that the parallel conduct of the collecting societies at issue was not the result of concertation, but rather of the need to fight effectively against the unauthorised use of musical works.

The General Court rejected the applications in so far as they sought the annulment of the Commission decision in respect of the membership and exclusivity clauses.

As regards the Stim case, the General Court rejected all of the arguments put forward by that collecting society, which had not raised in sufficient time the issue of the lack of proof of the concerted practice.

All at sea with innovation and incentives

It can be interesting when two different subject areas collide, hence my attendance at a half day conference held in the very pleasant surroundings of the Competition Appeals Tribunal in London yesterday, hosted by University College London, and titled 'Competition Law and Intellectual Property Rights: Whose balance of innovation and Incentives? 

The event was billed such that it would "explore the tension between competition law and intellectual property law and will look at the different focuses on static versus dynamic efficiencies. It will explore the differences from the view points of the courts, IP authorities and competition authorities" but I have to say I spent three and a half hours in a fairly baffled state as a succession of speakers made their points, almost all of which soared way way above me.

The event had an illustrious line up and was hosted by Professor Sir Robin Jacob and Dr Ioannis Lianos from UCL, and featured Mr Justice Barling, President of the Competition Appeal Tribunal, Giovanni Pitruzella, chair of the Italian Competition Authority,  Judge Gabriella Muscolo from the specialist competition law and IP division at the Rome District Court, Ameila Fletcher, Chief Economist at the UK's Office of Fair Trading (OFT), Howard Shelanski, Director of the Bureau of Economics at the US Federal Trade Commission (FTC), Tony Clayton, Chief Economist at the UK's Intellectual Property Office (IPO), Henning Leupold from European Commission, Antonio Bavasso from Allen & Overy, Damien Geradin from Covington & Burling LLP and Dr Peter Davies from Compass Lexecon.

Now these are all really expert speakers, but the trouble was that, apart from the talks from Sir Gerald Barling, Ms Fletcher and Mr Shelanski, I didn't really have a clue what was going on. It took until half way through the second panel (already running alarmingly late) that economist Dr Cristina Caffara from CRA gave some basic definitions - particularly what the key term 'dynamic efficiencies' actually meant in this context. I am sure the compwetition lawyers were up to speed but although I did study one module focussed on economics during my undergraduate years (jointly hosted by the London School of Economics, so worth a visit for a King's student for the terrifying Paternoster lifts alone!) and I profess an interest in competition law, I found that the talks from Henning Leupold, Damien Geradin and Dr Peter Davies way way over my head - some of the graphs Dr Davies put forward as simple explanations - of - well something, were all very relevant, but having spoken to my neighbours, they completely outwitted a number of us. 

I had to leave at the scheduled finish time - but there was still a full panel yet to be heard on 'Dynamic efficiencies: Institutional Arrangements' which I missed, but I suspect it would not have added much clarity to my own much confused state. Now I do music, copyright and trademark,s and patents and pharma, and even technology, can be outside of my comfort zone, but at least I have a basic understanding - and I was sort of expecting something which I could at least I could engage with - more akin to MPS v Murphy - or even the CISAC case, but neither were mentioned in the two panels I could attend.

So a plea to conference organisers - when you bring together different subject areas you might need to provide some basic explanations before ploughing ahead into detail - however expertly it is presented. For both subjects! Even Sir Robin, who chaired the second panel "Dynamic Efficiencies: The Courts, IP and Competition Authorities", professed to be confused by some of the content on the first panel more simply titled "The opposition between competition law and IP law". And run to time! That said, If I can find a link to a blog that gives a more pertinent report than this, l then rest assured I will!

The thorny issue of competition in the music industry

Sony and UMG - big fishes in a small pond?

Three news items caught my eye this week, all of which made me think about the impending sale of EMI's recorded music division to the Universal Music Group, creating a super music major with a near 50% share of the market in the creation and supply of recorded music in some territories.

The first story concerned reports that a Nielsen survey showed that ownership of smartphones amongst young teenagers (13-17 years old) in the USA had reached nearly 60%, and a whopping 73% of the 25-34 year old sector own smartphones. Overall across all age groups the rise of the smartphone has resulted in a 55% market penetration - and these are users who want content, and they want it now. and they WILL get it, legally or otherwise. Everything is just one click away.

Secondly was a report in the US press that showed that cinema attendance levels in the USA last weekend had reached their lowest level for two decades. The figures have reinforced Hollywood's fears that it is losing its allure to the internet, to competition from video games and of course to internet piracy. Its a situation the music industry faced some time ago and many commentators will just say that the film studios should have seen this coming and should have put in place new business models fit for the broadband era years ago.

Neelie Kroes

Thirdly was a report on the IPKat about comments made by EU Digital Agenda Commissioner Neelie Kroes at the 2012 Intellectual Property and Innovation Summit where Kroes compared the fragmented EU market with the American market - one territory governed by one federal copyright law - asking whether the European system was "consistent and relevant within the real world" adding that in an assessment of whether more changes were necessary to promote growth and stimulate innovation she was open to ideas, saying "Each day we fail to respond, we are missing out. Consumers miss out on easy legal access to their favourite products. The creative sector misses out on new markets, new innovations, new opportunities.  We miss out on new ways to share, recognise and appreciate our cultural heritage. And our economy misses out on the chance of new growth". Kroes had previously said that "too many barriers still block the free flow of online services across national borders" and resolved to rectify that within the EU.

The rhetoric echoes claims from new market entrants that the complexity of licensing for digital start ups is maddening and frustrating, sometime terminally. These are global businesses having to seek content licences on a country by country basis - even within the EU's 'single market'. 

In the EU and elsewhere, the recorded music sector and the allied music publishing sector are interesting examples of the tension between the need to establish business models fit for the 'real world' and the fear that ever ongoing consolidation is a real risk to diversity, and will result in a real lack of competition - to the detriment of consumers, artists and innovative new businesses. The fact remains that for a new digital start up in the European Union wanting to enter the music market, they will usually need to deal with collection societies in all 27 member nations, which are organised on a national basis, and that's just for Europe. The EU have looked long and hard at how collection societies operate and the Commission has brought an action before the European Court of Justice to determine the legality of the collection societies business methods and reciprocal representation mandates, and whether these constitute concerted unlawful practice which would fall foul of EU competition law and are an unlawful partitioning of the single market (the 'CISAC case). A final judgment is still awaited. The architect of the UK's proposed Digital Copyright Exchange, Richard Hooper, noted in his final report that the EU has 30 plus potential music licensors and that the EU should attempt to make the licensing regime multi-territorial, reducing the number of licensing bodies to perhaps 6 -10, each offering different, competitive repertoire. But why not reduce it to just one collection society for music - and one for recorded music? Or just one!  Now that would be an effective 'one stop' shop!

A combined EMI-Universal would have a 37.8% market share (2011 figures) for recorded music - and the already approved Sony-EMI tie up has a 31.1% market share in music publishing. If  UMG and Sony were to work in tandem, they would control 58.7% of the recorded music sector and 53.3% of the music publishing market - and that is starting to look like a 'one stop' licensor one its own - and surely would fit the needs outlined by Neelie Kroes.

The $2.2 billion sale of EMI's music publishing business to a Sony led consortium was approved by both US and EC competition regulators with the latter saying that the fact that Sony music publishing (Sony-ATV) was already run as a partnership with Michael Jackson's estate, and the new investors who came on board as part of a consortium for the purchase, coupled with divestment of EMI's Famous Music and Virgin Music catalogues, allayed competition concerns. But just how relevant those factors are remains to be seen.

Whilst it might make licensing sense, there are real fears of anti competitive behaviour should UMG get permission to buy EMI. Unfortunately the major labels, Sony and UMG included, have a poor track record to, say the least. Back in 2004 the then five major record labels  and the then three leading music retailers in the USA agreed to a $143 million court settlement for fixing the price of CDs in the USA at artificially high levels - which is not good for consumers! And artistes have perhaps fared even worse, and even after repeated success in the UK courts on the grounds of unreasonable restraint of trade, recording industry contracts often remain appallingly one sided and unfair: the recent spate of claims brought by artistes over artificially reduced digital royalties and other long established business practices  have been further witness to this.

But what of the third fear - that working together Sony and UMG could block new entrants to the digital market. well again, there is history, and perhaps history the major labels would like us to forget. Back when the internet was a young thing, between them the majors created two services, PressPlay (Sony and UMG) and MusicNet (Warners, BMG and EMI) which they launched as the solution to the sale of music on the internet. More recently the majors have failed to have an anti-trust case (Starr v Sony) dismissed in the US appellate courts which charges the majors with an attempt to monopolise the distribution of digital music and fix the price and terms on which is was supplied through those two platforms. The case is ongoing. More interestingly one could look at at the ownership of two of the current 'big' players providing new music platforms - the streaming service Spotify and the video platform Vevo. Sony owns 5.8% and UMG 4% of the former, and jointly own the latter along with investment from the Abu Dhabi Media Company. 

The success of Apple's iTunes re-taught the majors the importance of ownership of distribution channels - they lost control to Apple - and now Vevo and Spotify are two of the most important new channels. It also taught the majors the importance music has in creating new value and new business. Until iTunes launched, Apple was a successful but still niche computer company. It's now the second most valuable company in the USA. One of the arguments put forward in support of allowing UMG and EMI to merge is that artistes now have many ways they can independently reach consumers without needing a record label - but that becomes more clouded when those 'independent' pathways are owned by .... the record labels. But there again, UMG and Sony are minnows when compared to Amazon, Google, Facebook and Apple ........ so what's the worry?

What we seem to have are competition regulators applying 'analogue' solutions to a 'digital' issue. I am not sure that requiring UMG to sell off catalogues makes any sense at all (Parlophone, Mute,Virgin and the Chrysalis catalogues have all been suggested) . Nor do I think that issues of ownership (rather than control) has much relevance now. Indeed, one could argue we should allow MORE mergers to proceed to facilitate easier end-use licensing. Is that what Neelie Kroes needs? 

I am giving a talk at the Reeperbahn Festival Campus in Hamburg next week exploring what should and could be done by competition regulators, not least to protect diversity in the music industry, but the underlying issue that remains is that with the internet we have a global market, whether we like it or not, and if new entrants are barred from entering that market because of licensing complexities and there is failure to provide compelling legal services, we will end up with compelling illegal services. Its as simple as that. But conversely, allowing one or two companies to completely dominate the supply chain from the creation of music to the distribution of music to the provision of music to consumers could effectively bar any new entrants from entering the market without their permission, as well as allowing the potential for monopolistic behaviour with both consumers and the creators of music and songs. If licensing copyrights is the key, then it's licensing copyrights that the regulators should focus on, not the divestment of catalogue. The question is how? What would stop the UMG-EMI merger impeding investment, innovation and competition in the future? What would stop UMG and Sony shaping the digital future to suit their own ends? A requirement on UMG and Sony to licence other digital businesses openly, transparently and fairly? Might that protect new market entrants and consumers? An obligation to withdraw from platforms that interface with consumers (eg the sale of shareholdings in Vevo and Spotify) and a bar against future ownership - would that deliver a competitive market open to all? Or would a future requirement that UMG and Sony owe a fiduciary duty to songwriters and recording artistes offer protection to the creators of copyrights, especially if backed with criminal sanctions and a bar on so called 'royalty reducers'? The Murphy case brought into sharp relief the tensions between copyright and competition - and they can be complex, and the solutions even more so.

In the UK, the Copyright Tribunal has been an effective regulator of copyright licensing schemes. In the European Union the EC can fulfil this function. But if we need 'global licensing' then we would need 'global regulation' and no such thing exists - nor do I know of any such  plans on any politician's agenda anywhere. One to ponder, but we will know soon enough about EMI and UMG in Europe at least, with an EU set deadline of September 27th for a decision.

Detail on the Reeperbahn Festival Campus sessions "Diversity at Risk?" here and here 

Image of Neelie Kroes: European Parliament Flickr photostream and more on her address here on this Blog .

The Commission v The Collecting Societies: this week's hearing

This week's Curia agenda contained the following item on Monday:

Hearing: Joined cases

T-413/08  SOZA v Commission 

T-414/08  Autortiesību un komunicēšanās konsultāciju aģentūra v Latvijas Autoru apvienība / Commission

T-415/08  Irish Music Rights Organisation v Commission

T-416/08  Eesti Autorite Ühing v Commission 

T-417/08  Sociedade Portuguesa de Autores v Commission 

T-418/08 OSA v Commission 

T-419/08  LATGA-A v Commission 

T-420/08 Sazas v Commission 

Annulment of Commission Decision C(2008) 3435 final of 16 July 2008 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case COMP/C2/38.698 – CISAC), concerning an agreement in connection with the conditions of management and licensing of public performance rights for musical works by collecting societies relating to the use, in reciprocal representation agreements, of the membership restrictions contained in the model contract of the International Confederation of Societies of Authors and Composers (‘the CISAC model contract’), or the de facto application of those membership restrictions 

Were any 1709 Blog readers there? Can they give us a blow-by-blow account of what was said at the hearing?