The long-running mechanical-royalty rate dispute between authors' rights society GEMA and the German affiliate of the International Federation of the Phonographic Industry came to an end May 18, when

HAMBURG -- The long-running mechanical-royalty rate dispute between authors' rights society GEMA and the German affiliate of the International Federation of the Phonographic Industry came to an end May 18, when an arbitration tribunal deadline passed without appeal.

GEMA had challenged the IFPI since the labels body sought to reduce the royalty rate on mechanicals early last year. On behalf of German labels, the IFPI announced in January 2004 that they would seek to reduce the rate to 5.6% of the published price to dealers (PPD), later increased to a proposed 6.6% of PPD.

Since the dispute began, labels stopped paying the full rate negotiated between societies and labels under an expired contract and placed in escrow funds equal to the difference between the previous mechanical rate and the new proposed rate.

The arbitration tribunal of the German Patents and Trademarks Officer ruled in April that the mechanical royalty rate would remain fixed at its current level of 9.009% of PPD. In the absence of an appeal, that rate will now remain in effect.

GEMA chairman Reinhold Kreile welcomed resolution of the issue. "A costly legal dispute lasting years has been avoided," he says.

GEMA says it will take all the necessary measures to ensure that the royalties withheld will be promptly paid to rights holders. Sources familiar with the dispute suggest that GEMA will receive back-payments of €40 million ($50 million).

"At first glance, the arbitration tribunal's decision appears to be a success for GEMA. However, in the long term, it will harm us all," says Sony BMG Germany managing director Rolf Gilbert.

The German IFPI office declined to comment. Last year when the dispute arose, Gerd Gebhardt, chairman of IFPI Germany and labels' association BPW, said, "This is a normal process when contracts expire and are up for renegotiation. However, it should also be remembered that the German record market is experiencing the worst slump in its history, while GEMA has reported its best-ever results. That is why the structures underlying the agreements must be reviewed."