THE AUSTRALIAN COMPETITION TRIBUNAL
Re: APPLICATION FOR REVIEW BY APRA
Members: JUSTICE VON DOUSSA, DR B I ALDRICH & PROFESSOR R C DUNCAN
Date: 16 JUNE 1999
Place: SYDNEY
SUMMARY STATEMENT
(Read upon delivery of the Reasons for Decision)
This matter is listed today for the Tribunal to announce its decision and to publish Reasons. We shall do so shortly. First, we propose to read a summary of our main conclusions. This summary is not intended as a substitute for or as an addition to our published reasons which constitute the only authoritative pronouncement of the Tribunal’s decision.
These proceedings comprise two applications by Australasian Performing Right Association Limited (APRA) brought under ss 101 and 101A of the Trade Practices Act 1974 (Cth) (the Act) to review a determination of the Australian Competition and Consumer Commission (the Commission) dated 14 January 1998.
APRA is a voluntary collecting society. Its members are either original music composers or lyricists or their heirs or assignees. Under APRA’s framework of collective administration, writers and music publishers grant an exclusive assignment of copyright in the performing right of all their musical works to APRA. APRA licences the use of the musical works on conditions and against fees which it determines, subject only to constraints that might be imposed by the Copyright Tribunal. APRA monitors the public performance use of the works, collects licence fees and distributes them amongst its members.
This matter has a long history including disputation between APRA and the Federation of Australian Commercial Television Stations (FACTS) which has gone on for some years, including proceedings before the Copyright Tribunal and before the Federal Court of Australia. Relevant to these proceedings, on 15 October 1997 APRA lodged with the Commission eight applications for authorisation and a notification relating to APRA’s system as it would operate after the making of a number of proposed changes to APRA’s Articles. The proposed changes included the introduction of a new Article 17(b) intended to modify the obligation of members to grant APRA an exclusive assignment of performing rights. The new Article 17(b) would allow a member to withhold, or to obtain a reassignment of, entire categories of works from APRA’s repertoire.
The applications for authorisation related to four aspects of APRA’s system, namely the input arrangements under which performing rights in musical works are assigned to APRA; the output arrangements under which APRA licences users of musical works; the distribution arrangements under which APRA distributes fees collected from licensees; and overseas arrangements which APRA has with similar collecting societies around the world.
FACTS submitted to the Commission that APRA had a monopoly on the supply of performing rights in music which gave rise to anti-competitive detriment. FACTS contended APRA’s Articles and distribution rules had the effect of preventing a member from licensing performing rights in musical works directly to a user, even if the works were commissioned by that user. FACTS was critical of the use by APRA of blanket licences which made no provision for fee adjustment. It was said that this left commercial broadcasters with no alternative but to acquire the whole of APRA’s repertoire for a fee which was fixed irrespective of the amount or type of use made of works within the repertoire. It was also said that the so-called fifty per cent rule which APRA applied in making distributions to its members was a further disincentive to direct dealing. That rule required that there be an allocation of not less than fifty per cent of performing right royalties to a writer or composer.
By its determination on 14 January 1998 the Commission granted authorisation in respect of the overseas arrangements, but refused authorisation in respect of the input arrangements, the output arrangements, and the distribution arrangements. The Commission also determined to give notice to APRA under s 93(3) of the Act.
The Commission concluded that the new Article 17(b) did not answer FACTS’ complaints because it only provided for members to opt out of the APRA system in relation to entire categories of works, and did not provide for the adjustment of blanket licence fees. The Commission was not satisfied that the input, output and distribution arrangements gave rise to a balance of public benefit over anti-competitive detriments, that being the relevant test that had to be met before authorisation could be granted. However, the Commission expressed the view that if three modifications occurred to the APRA system, those changes would effect an alteration in the balance sufficient for authorisation to be granted. Those three changes involved first, the introduction of an opt out system incorporating certain key features which would permit members to opt out of the APRA system on a work by work basis; secondly, the introduction of an appropriate appeal mechanism which would enable the resolution of small disputes in a more simple and less expensive way than was possible through the Copyright Tribunal; and thirdly, the modification of the fifty per cent rule so that it did not apply in circumstances where a member assigned a work to a third party. The Commission considered that the introduction of these changes would lead to the real possibility of competitive pressures being exerted on APRA. They would also have the effect of allowing direct dealing between composers and producers such as the members of FACTS.
APRA, FACTS and the Commission by counsel participated in the hearing before the Tribunal. FACTS continued to oppose authorisation, basically on the same grounds that it had advanced before the Commission. The Commission argued that authorisation should be denied unless the three changes identified in its determination were made.
In addition to material gathered by the Commission, the Tribunal received extensive evidence from the parties. The evidence covered in detail the operations of APRA, criticisms made of its system by certain users of music, and the operations and regulation of similar collecting societies in the United Kingdom, Ireland, Europe and North America.
Economists who gave evidence differed slightly in their definitions of the relevant market in which the Tribunal should evaluate public benefits and anti-competitive detriments. Dr Walker who gave evidence for the Commission preferred a definition of the relevant market as the “market for the supply of performing rights in Australia”. However neither she, nor Professor Williams who gave evidence for APRA, believed that market definition was a particularly critical issue in the proceedings. The Tribunal agrees with that view.
The economists were agreed that APRA’s system of collective administration is a natural monopoly. That natural monopoly exists for the purpose of enforcing copyright in music composition, and given that it is not in society’s interest to have more than one such collecting society, the Tribunal agrees that it is imperative that there is, where possible, appropriate regulation to ensure competition in the provision of enforcement of copyright, and an acceptable balance between the rights of composers and the rights of the rest of society. We agree with the parties that the Commission and this Tribunal has power, if necessary, to regulate competition, but we consider the Copyright Tribunal is the body with primary responsibility to adjudicate an acceptable balance between private and social issues. Whether the Copyright Tribunal performs this regulatory function effectively was one of the questions agitated by the parties before us.
In its determination the Commission considered that public benefits that arose purely from APRA’s role as a collecting society, and not from the restrictions for which authorisation was sought, were not relevant in weighing the public benefits and anti-competitive detriments flowing from APRA’s system. The Tribunal does not agree with that approach. We consider that the proper approach is that which has been followed in overseas inquiries and decisions to which we refer in our Reasons. We think the correct approach is to ask whether the particular features of APRA’s Articles and Rules which have been questioned as anti-competitive are essential to the operation of APRA as an efficient collecting society. The input and output arrangements, in particular, underpin the functioning of APRA and we consider that without the essential elements of the input and output arrangements the likelihood is that APRA could not continue to operate. In so far as aspects of APRA’s system, which have been criticised by FACTS and the Commission, are essential to the future operation of APRA, we consider that authorisation should be granted, notwithstanding that there are anti-competitive detriments, as the public benefits arising from APRA’s operation outweigh those detriments. On the other hand, in so far as aspects of APRA’s collective administration which are identified as anti-competitive can be modified so as to remove or lessen the potential for detriment without impairing essential components of APRA’s operation, then authorisation should be granted on terms that bring about those modifications.
Steps have been taken in other jurisdictions about which we heard evidence to curb the exercise of monopoly power by collecting societies in their dealings with their licensees. Bodies such as the Copyright Tribunal have been established for that purpose to regulate charges and conditions of licences granted by the relevant society under its output arrangements. The establishment of these bodies has been seen as having no adverse effect on the continuation of the operation of the collecting societies concerned. Whilst the procedures of the Copyright Tribunal have been criticised before us as being expensive and complex, we consider that the Copyright Tribunal does provide an effective constraint on APRA’s dealings with its major licensees. The expense and complexity of proceedings before the Copyright Tribunal is an inevitable incident of the nature of the disputes which the Tribunal has been asked to determine between APRA and major licensees.
However, in the case of small users of music and in respect of small disputes, we consider that criticisms about the Copyright Tribunal’s procedures have weight as the cost of presenting a dispute to the Tribunal in those situations may be disproportionate to the licence fees likely to be payable. We think there is force in the submission that there should be a simple, quick procedure for dealing with small disputes, and that the imposition of such a procedure will not undermine essential aspects of APRA’s operations. APRA acknowledges that there is a place for an alternative dispute resolution system but disagrees with the Commission’s proposal. We do not think that the schemes suggested by either party are satisfactory, and we have suggested features which we think should be incorporated in such a scheme.
APRA’s output arrangements rely centrally on the issue of blanket licences. These licences provide a cost efficient way for the vast majority of licensees to obtain the lawful right to use virtually the worldwide repertoire of music. The blanket licences were criticised in the course of the hearing but that criticism was misplaced. The blanket licence format is offered by collecting societies worldwide, and is generally recognised as an essential device for efficient licensing. However, the way in which a fee for a blanket licence should be set, and whether there should be provision for adjustment to reflect actual use of the APRA repertoire, is another question.
The contentions that the input arrangement should be modified to allow direct dealing between composers and users such as television broadcasters, and that in relation to the output arrangements there should be a mechanism for fee adjustment are interrelated. Unless there is a resolution of both matters, the introduction of change to the input arrangements is likely to have little practical effect.
FACTS sought initially to address the question of a licence fee adjustment by applying to the Copyright Tribunal which has jurisdiction in respect of the output arrangements. However, it is the question of the input arrangements that has come on for hearing first before this Tribunal. As neither Tribunal has complete jurisdiction over both the input arrangements and the output arrangements, we consider we should proceed to determine the question of the input arrangements, and do so on the footing that it will not be impossible for the parties or the Copyright Tribunal to arrive at a method and formula for adjusting licence fees, and moreover to arrive at a result that is not influenced by any inappropriate exercise of monopoly power by either side.
In our Reasons we discuss the modifications that have been required by competition authorities to the input arrangements of overseas collecting societies to weaken the requirement of an exclusive assignment of all works. We note that the overseas precedent on which Article 17(b) is based is directed not to possible self-administration by writers and publishers, but to removing a barrier to entry to the relevant market by another collecting society. We conclude that the proposals of both the Commission and FACTS go significantly beyond the modifications that have been required by competition authorities in the United Kingdom and Ireland. We consider it is significant that the changes in those countries to the obligation of exclusive assignment operated only in narrow and precisely defined situations, primarily to permit live performances by a songwriter member. We consider it is notable that notwithstanding pressures from major users for more liberal modification to the exclusivity rule, the changes settled upon were so restricted in their application. We think this reflects a recognition that the exclusivity rule is central to the operation of a collecting society, and that great caution is called for if that rule is to be modified at all.
We have concluded that the introduction of an opt-out system on a work by work basis which permits a member either to withhold a commissioned work, or to obtain a reassignment of a work already within APRA’s repertoire, should not be required as a condition of authorisation. We think the risk of harm to the essential structure of APRA if works are withheld or withdrawn from the repertoire is too great. On the other hand, an opt out system under which a member could obtain from APRA a non-exclusive licence for a specific work or works would carry fewer risks. In particular a non-exclusive licence would not create a “hole” in APRA’s repertoire, and in the interests of the member, would leave in place a structure under which royalties would be collected for local use by other licence holders, and for overseas use. We have concluded that the introduction of a non-exclusive licence-back scheme containing the features suggested by ACCC, including two of the variants to that proposal could be introduced without damaging essential features of the APRA system. Further, we think that such a modification should be made as it would be a cautious first step towards encouraging APRA to respond to the interests and concerns of music users, which the Tribunal considers at times have not been adequately addressed by APRA.
In our opinion the evidence leaves a question mark over the practical utility of such a scheme and whether it would be used. Nevertheless, we think there is force in the submissions of the Commission that until the exclusivity rule is modified competitive potential that might accompany the change will not emerge. We consider the Articles of APRA should be modified in the manner suggested to test if and how the change affects competition.
APRA led much evidence about the incompatibility of the administrative systems of APRA and overseas collecting societies with the changes proposed. Much of that evidence concerned difficulties that would arise in respect of overseas performances of APRA’s Australian repertoire. Those difficulties could be avoided by limiting a non-exclusive licence to Australian performances. The Tribunal considers that, for the time being, the non-exclusive licence-back proposal should be restricted to performances in Australia.
We have considered the criticisms made of the fifty per cent rule. Whilst that rule appears to be only a recommendation of the international body, CISAC, the rule appears to be generally applied worldwide. The Tribunal considers the rule to be of only incidental significance. In practical terms, the rule does not prevent a writer and a producer agreeing to share royalties on some other basis. We doubt that the rule gives rise to any significant anti-competitive detriment, but if it does, that detriment is overridden by the risk of damage to APRA’s international affiliations that could happen if APRA were compelled to abandon the rule. We do not consider modification of the rule should be a prerequisite to authorisation.
In summary the Tribunal has concluded that the input arrangements of APRA which require an exclusive assignment of performing right subject only to the new Article 17(b) can and should be modified by the introduction of a non-exclusive licence-back scheme, and that a simplified dispute resolution process should also be designed and introduced.
Having reached these conclusions, we consider that the appropriate course for the Tribunal to take is to adjourn the proceedings for a period of about nine months to enable APRA to design rules both for a non-exclusive opt-out system, and for an alternative dispute resolution procedure, which incorporate the features that are proposed in the Tribunal’s Reasons for Decision. We do not think the adjournment should be for a shorter period as we recognise that the task of designing proposals along the lines envisaged, and obtaining comment from members and licensees who may wish to utilise an opt out scheme will not be an easy one.
In the meantime, an interim authorisation should be given in respect of the six applications that were not authorised by the Commission.
It also follows from the Tribunal’s conclusions that the notice given by the Commission under s 93(3) should be set aside.
[The Full Text of the Tribunal’s Reasons for Decision delivered on 16 June 1999 is available at http://www.austlii.edu.au/au/cases/cth/ACompT/]