Universal Music Group International on Sept. 20 filed a complaint with the European Commission, arguing that 14 collecting societies, which manage musical composition copyrights, are national monopolies. Universal claims that they are restricting competition in the areas of licensing for online and mobile music services.
The EC is expected to contact the societies the week of Oct. 10 for a response.
Portions of the non-confidential part of the complaint, obtained by ELW, listing the parties and outlining the arguments, and the text of pertinent portions of the EC Treaty follow:
Universal is part of the Vivendi-Universal Group which is engaged in a variety of different business activities ranging from telecommunications and television to music and film.
The Universal Music Group, of which Universal forms part, carries on the business of recorded music, music distribution and music publishing under the Vivendi-Universal corporate umbrella. It is active in discovering, developing and promoting artists across the full spectrum of music genres and considers itself to be one of the companies at the forefront of innovation, developing new methods to distribute, market and sell music and music-related programming by exploring the potential of new technological platforms.
Universal is a member of the International Federation of the Phonographic Industry. The IFPI groups nearly 1500 member companies in 75 countries and incorporates a network of 46 national groups responsible for representing the record industry’s interests locally.
IFPI and its national groups represent member companies in the negotiation of licensing terms for mobile and online services, although Universal also has separate central licensing agreements with SABAM, the Belgian national collecting society. Generally, Universal does not negotiate directly with BIEM — the international organization that represents mechanical rights societies — or the individual Societies. However, Universal has participated in industry wide discussions on online and mobile licensing terms and the background to the most recent negotiations.
The Complaint is made against 14 Societies: Austria’s Austro-Mechana/AKM, Czech Republic’s OSA, Denmark’s KODA, Finland’s TEOSTO, France’s SACEM/SDRM, Germany’s GEMA, Greece’s AEPI, Hungary’s ARTISJUS, Ireland’s MOPSI/IMRO, Italy’s SIAE, the Netherland’s STEMRA/BUMA, the Nordic Countries’ NCB, Norway’s TONO, Poland’s ZAIKS, Portugal’s SPA, Spain’s SGAE, Sweden’s STIM and the U.K.’s MCPS/PRS.
These Societies comprise mechanical and performance societies responsible for the licensing and administration of mechanical and other rights for online and mobile services in the European Economic Area, each of which is generally responsible in its respective territory for the management of such rights arising under the relevant national copyright legislation.
Unlike the “physical” world, there is as yet no equivalent to the BIEM Standard Contract (which covers mechanical licenses) relating to online and mobile services. However, it is clear that the Societies collude, either by way of formal agreement or tacitly, in relation to the license terms which they are prepared to offer. In this sense there is an express or implied non-compete agreement operating between the Societies.
The market is transparent in terms of promulgated rates, making it easy for any one society to know what the others are doing. Moreover, as evidenced by the treatment of SABAM following its grant of online and mobile central licensing agreements to Universal, the Societies have colluded in punishing SABAM for not falling into line with the minimum licensing terms which the Societies seek to impose on all licensees.
Summary of Claims as Stated in the Complaint:
One cannot exaggerate the growing importance of online and mobile services as a way of delivering music to consumers and of music as a content driver for the take up of such online and mobile services. These digital services have an increasing share of the total recorded music market — estimated to constitute between 10% and 30% of the total market in five years.
Rates set for mobile and online delivery now will set a precedent for the future development of the market considered.
Universal believes that the development of online and mobile services — and competition in the market for those services — is being restricted and distorted by agreements and/or concerted practices operated between, and the anti-competitive behavior of, the Societies.
In particular, Universal submits that the Societies:
- maintain collectively a royalty rate which is excessive and the mechanism for which entirely forecloses competition between the Societies. The Societies are national monopolies which have agreed and/or colluded to maintain substantially the same royalty rates throughout the EU. The promulgated rates are excessive and disproportionate to the value of the rights granted. Yet Universal and other users have nowhere else to go for these rights. The Societies have therefore promulgated artificially high royalty rates; in effect, collectively establishing a floor price for those rates and other licensing terms on which they then refuse to negotiate.
- collectively refuse without objective justification to grant licenses in a way which would allow record companies to license fully cleared product; that is, on a commercially useful basis. They therefore foreclose any possibility for Music Service Providers and telcos to choose to obtain fully cleared product from record companies and force them to obtain licenses directly from the Societies and in that sense are proposing a collective refusal to supply which restricts output, restricts customers and, in turn, consumer choice and results in higher prices to consumers. This is a critical difference to physical product, where record companies have always been able to offer retailers fully cleared product. This restricts and distorts competition in the relevant market by creating significant barriers to entry and limits technical and economic progress, preventing record companies from meeting separate demand for the grant of licenses for sound recordings in which all rights have been cleared, thereby restricting downstream competition in the licensing of the relevant rights;
- insist that royalties be paid on the retail rather than the wholesale price; they refuse to discuss even as an alternative a royalty based on the wholesale price. This means that royalties are always charged not just on the value of the download or mastertone, etc., but to a large extent on the cost of carriage and other services which may be included in the retail price, thus raising the price of the service; creating barriers to entry, restricting and distorting nascent competition; and
- have, along with certain publishers, collectively agreed to frustrate the grant of pan-European licenses in order to maintain an artificially high royalty rate, thereby increasing transaction costs, impeding technical progress and undermining the commercial license agreements freely negotiated between Universal and SABAM, the Belgian collecting society. This is part of a coordinated strategy to punish SABAM because it has “stepped out of line” with the agreement and/or concerted practice concluded by the Societies to limit competition in the grant of pan-European licenses.
Universal is not seeking a decision from the Commission setting a royalty rate or other terms for the grant of licenses for mechanical and other relevant rights for online and mobile services. It is asking that the Commission rule on the compatibility of the agreement and/or concerted practices between the Societies, which establish minimum licensing terms, with Articles 81 and 82 of the EC Treaty.
In particular, Universal requests that the Commission rule that it is a breach of Article 81 for the Societies to collectively agree or collude to:
- charge a royalty on subject matter which falls outside the relevant rights which the Societies are purporting to license;
- without objective justification refuse to grant licenses direct to record companies so as to enable them to supply fully cleared products to third parties;
- foreclose price and non-price competition in the grant of licenses for the relevant rights for online and mobile delivery, thereby maintaining excessively high royalties; and
- frustrate or foreclose the grant of pan-European licenses for the relevant mechanical and relevant rights for online and mobile delivery, thereby increasing transaction costs and partitioning the EU.
Article 81 of the EC Treaty states:
1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: any agreement or category of agreements between undertakings; any decision or category of decisions by associations of undertakings; any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.
Article 82 states:
Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.