THE AUSTRALIAN COMPETITION TRIBUNAL

 

Re Applications by Australasian Performing Right Association Ltd [1999] ACompT 3

Matter Nos 4 and 5 of 1998

 

RE APPLICATIONS BY AUSTRALASIAN PERFORMING RIGHT ASSOCIATION LTD PURSUANT TO SS 101 AND 101A OF THE TRADE PRACTICES ACT 1974

 

 

 

 

 

 

 

 

 

VON DOUSSA J, DR B I ALDRICH & PROFESSOR R C DUNCAN

SYDNEY

16 JUNE 1999

INDEX

 

		Paragraph No.
1.	INTRODUCTION	1
	Background to proceedings	1
	Statutory regime under the TPA	17
	Copyright in original literary and musical works	34
	Protection of foreign works	45
	Collecting societies	50
2.	APRA’S STRUCTURE AND RULES	63
	Input arrangements	63
	Output arrangements	69
	Distribution arrangements	70
	Overseas arrangements	78
3.	THE CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS AND THE ALLEGED ANTI-COMPETITIVE CONDUCT IN ISSUE	79
4.	THE ACCC DETERMINATION ON 14 JANUARY 1998	89
	Opt-out system proposed	97
	Appeal mechanism proposed	98
	The fifty per cent rule	100
5.	THE HEARING BEFORE THE TRIBUNAL	101
	APRA’s contentions	103
	ACCC’s contentions	109
	FACTS’ contentions	115
6.	APRA’S ADMINISTRATION OF PERFORMING RIGHTS	120
	Collective administration	120
	The assembly of APRA’s repertoire	131
	Licensing of music users	133
	Collection and enforcement of royalty payments	148
	Distribution	151
	International cooperation	166
	Cost of administration	176

7.	CHANGING CIRCUMSTANCES	183
	The changing market for music	183
	Growing user resentment of APRA’s administrative practices	187
	Criticisms of the APRA blanket licence	196
8.	REGULATION OF PERFORMING RIGHT COLLECTING SOCIETIES	210
	Australia – the Copyright Tribunal	210
	The European Union	220
	United Kingdom	229
	Ireland	239
	Canada	247
	United States of America	258
9.	PUBLIC BENEFITS AND ANTI-COMPETITIVE DETRIMENTS	286
	The relevant market	286
	Benefits and detriments	293
10.	CONCLUSIONS	307
	Determining the public benefit	307
	The Copyright Tribunal	312
	A new dispute resolution mechanism	316
	The blanket licence	332
	The fifty per cent rule	336
	Encouraging response to changing circumstances	344
	Evaluation of the opt-out proposals	347
	Summary	359

 

THE AUSTRALIAN COMPETITON TRIBUNAL	NOS. 4 & 5 OF 1998

 

RE:	APPLICATION FOR REVIEW OF THE DETERMINATION OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION MADE ON 14 JANUARY 1998 DENYING AUTHORISATION IN RELATION TO APPLICATION NOS A30186, A30187, A30188, A30190, A30191 AND A30193; AND OF THE GIVING OF NOTICE BY THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION ON 14 JANAURY 1998 UNDER SUBSECTION 93(3) IN RELATION TO NOTIFICATION NO. N30751 (STANDARD ARRANGEMENTS FOR THE ACQUISITION AND LICENSING OF THE PERFORMING RIGHTS IN APRA’S MUSICAL REPERTOIRE)
BY:	AUSTRALASIAN PERFORMING RIGHT ASSOCIATION LIMITED   Applicant
MEMBERS:	JUSTICE VON DOUSSA, DR B I ALDRICH & PROFESSOR  R C DUNCAN
DATE:	16 JUNE 1999
PLACE:	SYDNEY

 

REASONS FOR DECISION

1.         INTRODUCTION

Background to proceedings

1                     These are two applications for review.  The first is brought under s 101 of the Trade Practices Act 1974 (Cth) (the TPA) to review the determination of the Australian Competition and Consumer Commission (ACCC) dated 14 January 1998 to refuse six out of eight applications for authorisation made by Australasian Performing Right Association Limited (APRA).  The second is made under s 101A of the TPA in respect of the determination made on the same date by ACCC to give notice to APRA under s 93(3) of the TPA. 

2                     APRA is a voluntary collecting society.  Its members are either original music composers or lyricists or their heirs or assignees.  In these reasons we adopt the term “writer” in relation to musical works to include both the composer of the music and the author of any associated lyrics.  Under APRA’s framework of collective administration, writers and music publishers (who have acquired copyright rights from writers) assign copyright in the performing rights in musical works to APRA.  APRA licences the use of the musical works on conditions and against fees which it determines as appropriate, collects the fees and distributes them amongst its members.  APRA monitors the public performance use of the works and takes appropriate action to enforce copyright rights. 

3                     The applications for authorisation concerned four aspects of APRA’s collective administration system:

·               Input Arrangements – the terms upon which membership of APRA is granted, and the assignment of copyright performing rights by members to APRA;

·               Output Arrangements – the licensing arrangements between APRA and the users of musical works;

·               Distribution Arrangements – APRA’s arrangements pursuant to which it distributes fees collected from licensees to its members, and in particular a distribution rule that purports to guarantee that composers receive at least fifty per cent of the distribution in respect of works composed by them; and

·               Overseas Arrangements – reciprocal arrangements entered into between APRA and similar overseas collecting societies pursuant to which each grants the other exclusive rights to licence works in their repertoires within their respective geographical areas.

4                     The history of APRA, and overseas collecting societies with which it is affiliated, is discussed in detail later in these reasons.  APRA has operated in Australia since 1926.  With the advent of television in Australia in 1956, television broadcasters became substantial users under licence of musical works in APRA’s repertoire.  From 1963 the terms of agreements between APRA and the television operators were governed by an award made by the Hon Mr Justice Spicer, Chief Judge of the Commonwealth Arbitration Court, pursuant to an arbitration under s 13A of the Copyright Act 1912 (Cth).  The award provided for fees fixed as a percentage of gross earnings of licensees.  Over the next ten years there were a number of disputes between APRA and various television operators, and the Federation of Australian Commercial Television Stations (FACTS).  The disputes were resolved in 1973 when a new licence scheme for television stations was set in place.  That scheme also provided for fees fixed as a percentage of gross earnings calculated according to an agreed formula that allowed certain deductions from gross revenue.  That scheme operated until 22 October 1993, with APRA offering the 1973 licensed scheme to all existing and new operators of commercial television stations.

5                     On 17 May 1993 FACTS, on behalf of all commercial television licensees, purported to terminate their APRA licences from midnight on 30 June 1994.

6                     On 10 September 1993 APRA referred a proposed licence scheme to the Copyright Tribunal under s 154 of the Copyright Act 1968 (Cth).

7                     On 17 September 1993 FACTS filed an application in the Copyright Tribunal under s 157 of the Copyright Act 1968, and on 2 March 1994 each FACTS member also filed a similar application.

8                     APRA had traditionally offered to its licensees, including the television stations, a blanket licence covering all works in APRA’s repertoire.  In the Copyright Tribunal proceedings FACTS contended that the fees payable by licensees should not be calculated by reference to gross earnings, and other methods for determining fees were proposed, including a scheme under which a broadcaster would hold six separate licences, three being blanket licences, and three being “per program” licences, with payments calculated in arrears.  FACTS asserted that the fees currently being paid by licensees were too high, and the new scheme being proposed by it would result in a substantial overall reduction in fees paid by each television operator.  APRA opposed the scheme proposed by FACTS on a number of grounds.

9                     In the Copyright Tribunal proceedings FACTS and its members also alleged that APRA’s activities contravened provisions of the TPA.  FACTS argued that the blanket licences were anti-competitive, and that the APRA system prevented FACTS members competing directly in the market for music rights.  FACTS argued that its members should be able to acquire performing rights direct from writers, and to commission works which would be taken into account in calculating licence fees payable to APRA.  In other words, FACTS was seeking to establish a situation where writers could “opt out” of the APRA system in respect of individual works.  The question of “opting out” has remained a central issue of contention.

10                  On 9 May 1995 Amalgamated Television Services Pty Ltd commenced proceedings in the Federal Court of Australia under the TPA against APRA and one of its members, alleging that aspects of APRA’s collective administration system contravened ss 45, 45A, 46 and 47 of the TPA.

11                  On 17 November 1995 APRA lodged eight applications for authorisation under s 88(1) and one notification under s 93(1) of the TPA in relation to the arrangements complained about by FACTS and its members in the Federal Court proceedings.

12                  On 16 October 1996 ACCC issued a draft determination in respect of the 1995 application.  ACCC proposed to deny authorisation on each application.  A pre-decision conference was held on 3 December 1996.

13                  On 27 August 1997 following a number of conferences between APRA and the ACCC, and correspondence between APRA, FACTS and ACCC, APRA offered to make certain changes to its system.  ACCC did not consider the proposed changes sufficient to justify the grant of authorisations. 

14                  On 15 October 1997 APRA withdrew the 1995 applications for authorisation and notification and lodged eight new applications and a notification relating to APRA’s system as it would operate after the making of the proposed changes.  Those changes are detailed in para 68 of these reasons.  The applications and notification related to APRA’s arrangements with its members (in particular the input arrangements and the circumstances in which a member could obtain a reassignment of performing rights or some of them), the output arrangements constituted by APRA’s blanket licences, the distribution arrangements, and the overseas arrangements with affiliated collecting societies.

15                  On 3 December 1997 ACCC issued a draft determination indicating that it would deny authorisation to all the arrangements other than those relating to contracts with affiliated societies and that it would issue a notice under s 93(3).  A final determination to that effect was issued on 14 January 1998.  The ACCC’s reasons for its determination are discussed in Section 4 below.

16                  In the present proceedings before this Tribunal APRA seeks to challenge those aspects of the determination which were unfavourable to it.  APRA has contended that the aspects of its collective administration system which were the subject of its applications and notification to ACCC should be authorised.  FACTS has intervened in the proceedings before the Tribunal to oppose the orders sought by APRA.  ACCC has also appeared and presented a case which opposes the orders sought by APRA, substantially upon the grounds on which it refused authorisation, and gave notice under s 93(3).

Statutory regime under the TPA

17                  The eight applications for authorisation lodged with ACCC by APRA on 15 October 1997 were lodged pursuant to s 88(1) of the TPA and relate to possible breaches of s 45 of the TPA.  Section 45 prohibits a corporation from making or giving effect to a contract or arrangement or arriving at an understanding if the contract, arrangement or understanding contains an exclusionary provision or has the purpose or has or is likely to have the effect of substantially lessening competition.  Section 4D provides that a provision shall be taken to be an exclusionary provision if the contract, arrangement or understanding is between persons any two or more of whom are competitive with each other, and the provision has the purpose of preventing, restricting or limiting the supply of goods or services or the acquisition of goods or services from particular persons, classes of persons, and in particular circumstances or conditions.

18                  Section 93(1) of the TPA provides that a corporation that engages, or proposes to engage, in conduct of a kind referred to in s 47(2), (3), (4) or (5), (6), (7), (8) or (9) may give to ACCC notice, in prescribed form, setting out particulars of the conduct or proposed conduct.  Section 47 prohibits a corporation from engaging in the practice of exclusive dealing which has the purpose or has or is likely to have the effect of substantially lessening competition.  Where a corporation has lodged a notification under s 93(1) the corporation’s conduct is deemed not to have a substantial lessening effect on competition for the purposes of s 47 unless ACCC gives a notice under s 93(3).

19                  Section 88(1) of the TPA empowers ACCC upon application by a corporation, to grant an authorisation to the corporation to make a contract or arrangement, or arrive at an understanding where a provision of the proposed contract, arrangement or understanding would be, or might be an exclusionary provision or would have the purpose, or have or might have the effect of substantially lessening competition within the meaning of s 45, and to give effect to such a provision.  Under s 90(6) ACCC is directed not to make a determination granting an authorisation under s 88(1) in respect of a provision (not being a provision that is or might be an exclusionary provision):

“unless it is satisfied in all the circumstances that the provision of the proposed contract, arrangement or understanding…would result, or be likely to result, in a benefit to the public and that that benefit would outweigh the detriment to the public constituted by any lessening of competition that would result, or be likely to result, if -

(a) the proposed contract or arrangement were made or the proposed understanding were arrived at, and the provision concerned were given effect to…”

20                  Under s 90(8) ACCC is directed not to make a determination granting an authorisation under s 88(1) in respect of a provision of a proposed contract, arrangement or understanding that is or may be an exclusionary provision:

“unless it is satisfied in all the circumstances that the proposed provision or the proposed conduct would result, or be likely to result, in such a benefit to the public that the proposed contract or arrangement should be allowed to be made, the proposed understanding should be allowed to be arrived at, or the proposed conduct should be allowed to take place…”

21                  In Re Media Council of Australia (No.2) (1987) ATPR 40-774 at 48,418 and Re 7‑Eleven Stores [1994] ATPR 41-357 at 42,654 the Tribunal observed that in substance, the tests postulated in ss 90(6) and 90(8) are the same.

22                  In substance the same test is also to be applied by ACCC in considering whether to give a notice under s 93(3) of the TPA.  ACCC is empowered to give such a notice if it is satisfied that the engaging by a corporation in conduct or proposed conduct has the purpose or has or is likely to have the effect of substantially lessening competition and that in all the circumstances the conduct or proposed conduct has not resulted or is not likely to result in a benefit to the public, or any such benefit to the public would not outweigh the detriment to the public constituted by any lessening of competition.

23                  An application for authorisation can be sought and granted for a series of contracts that are in similar terms, subject to the requirements of ss 88(13) and 88(14).  In support of its applications for authorisation, APRA supplied ACCC with current lists of its members, licensees and overseas affiliates, and ACCC proceeded to consider the applications on the basis that authorisation was sought in relation to all the parties to the proposed contracts, arrangements or understandings that were the subject of the applications for authorisation and the notification.

24                  On application to the Tribunal for review under s 101, the Tribunal is empowered to make a determination affirming, setting aside or varying the determination of the ACCC, and for the purposes of the review may perform all the functions and exercise all the powers of ACCC including the imposition of conditions: s 102(1).  Such a determination by the Tribunal shall be deemed to be a determination by ACCC: s 102(2).  The function of the Tribunal is therefore to review, by way of rehearing, the decision of the ACCC, and to reach its own conclusions on the application of the relevant tests set out in ss 90(6) and 90(8) of the TPA.

25                  The function of the Tribunal on the application under s 101A to review the notice under s 93(3) is similar.  The Tribunal is directed by s 102(4) to apply the same test which ACCC was required to apply under s 93(3), and if satisfied that in all the circumstances that a benefit to the public exists which outweighs the detriment to the public constituted by any lessening of competition, to set aside the notice, and if not so satisfied to affirm the notice.

26                  The assessment of benefit and detriment requires the identification of a relevant market or markets.  In Re Concrete Carters Association (Vic) (1977) 31 FLR 193 at 202 the Tribunal said that the assessment “can only be made in the overall context of the function performed by the applicants, of the industry in which they operate, and of the market or markets which would be affected by such conduct.”

27                  The Tribunal must make its own findings of fact having regard to the totality of information before it, and reach its own conclusions.  The material before the Tribunal in this case comprised the evidentiary material available to ACCC at the time of its determination, supplemented by extensive oral and documentary evidence adduced by the three parties which participated in the hearing – APRA, FACTS and ACCC.  It is the determination, not the published reasons, of ACCC which is the subject of review before the Tribunal and it is normally no part of the function of the Tribunal to “review” what ACCC determined as right or wrong on the material before it: Re Herald and Weekly Times Limited (1978) 17 ALR 281 at 295-296.  In the present case, however, the published reasons of ACCC have received unusual prominence in the conduct of the review as they identify a limited number of discrete aspects of APRA’s system which ACCC considered tilted the balance against APRA’s system (save in respect of the overseas arrangements) even though there was a clear net public benefit in other respects.  These discrete matters of concern, and others identified by FACTS, have been central to the evidence and submissions led on the review.  An unusual feature of the case has been that ACCC and FACTS, in addition to criticising specific aspects of the APRA system, have advanced their own alternatives which they contend would provide additional benefits such that authorisation would be appropriate.  Notwithstanding these features, the function of the Tribunal is to examine and weigh, on the one hand, anti-competitive aspects of the conduct, proposed conduct, and relevant provisions of the proposed contracts, arrangements or understandings in respect of which APRA has sought authorisation and given notification, and, on the other hand, the public benefits arising therefrom.

28                  In weighing relevant public benefits and detriments, the Tribunal must compare the position which would or would be likely to exist in the future, on the one hand if authorisation were to be granted, and on the other hand if it were absent.  This has been called the “future with-and-without test”, which the Tribunal has consistently applied in its decisions: Re Queensland Independent Wholesalers Limited [1995] ATPR 41-438 at 40,928 & 40,960; Re Media Council of Australia [1996] ATPR 41­497 at 42,241; and Re: AGL Cooper Basin Natural Gas Supply Arrangements [1997] ATPR 41-593 at 44,175.  The Tribunal has given a wide meaning to the notion of “benefit to the public” in the statutory tests.  In Re 7-Eleven Stores at 42,677 the Tribunal said:

“Public benefit has been, and is, given a wide ambit by the Tribunal as, in the language of Queensland Cooperative Milling Association Limited, Defiance Holdings Limited [1976] ATPR 40-012 (at 17,242), ‘anything of value to the community generally, any contribution to the aims pursued by the society including as one of its principal elements (in the context of trade practices legislation) the achievement of the economic goals of efficiency and progress’.  Plainly the assessment of efficiency and progress must be from the perspective of society as a whole: the best use of society’s resources.  We bear in mind that (in the language of economics today) efficiency is a concept that is usually taken to encompass ‘progress’; and that commonly efficiency is said to encompass allocative efficiency, production efficiency and dynamic efficiency.”

29                  It is necessary to note the provisions of s 51(3) of the TPA which provides:

“A contravention of a provision of this Part other than section 46, 46A or 48 shall not be taken to have been committed by reason of –

(a)       the imposing of, or giving effect to, a condition of –

(i)        a licence granted by the proprietor, licensee or owner of a …copyright…

(ii)       …

to the extent that the condition relates to –

(iii)      …

(iv)      …

(v)       the work or other subject matter in which the copyright subsists…

(vi)      …”

30                  This section was not the subject of detailed submissions by any party in the course of the hearing.  ACCC in its determination noted the provision, and a submission from APRA that, because of s 51(3), the output arrangements did not require authorisation.  ACCC observed, correctly, that whether or not APRA’s licences which comprised the output arrangements are covered by the exemption in s 51(3) was not a matter for ACCC to decide.  Rather, the issue was whether ACCC should grant authorisation having regard to the tests provided in s 90 of the TPA.  The power to grant authorisation exists where the making or giving effect to a provision of a contract, arrangement or understanding “might be” of a prescribed kind.  It is irrelevant that the application for authorisation may be unnecessary: Re Concrete Carters Association.  In that decision, the Tribunal at 245­246 said:

“we agree with the view propounded by the commission in the Shell case (Re Shell Co. of Australia Ltd. [1975] ATPR 35.220) and adopted by this Tribunal in Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd. (1976) 25 FLR, at p 180 that where an applicant believes on what appear to him to be good grounds, that his conduct (if not authorized) may be in breach of the Act and he applies for authorization accordingly, the tribunal’s duty, on an application for review, is to decide the application on the public benefit grounds spelt out in the Act and it is not one of those grounds that the application might appear to be unnecessary.”

31                  In the present case there were reasonable grounds for APRA to apprehend that its conduct if not authorised might be in breach of the TPA, as breach had been asserted by FACTS in the Federal Court proceedings.

32                  Section 51(3) by its terms has limited application.  It covers only conditions in a licence granted in respect of a work in which copyright exists.  It does not cover future intellectual property, and could not apply to protect APRA’s input arrangements insofar as they cover future works.  It would not apply to a case where APRA refused to grant a licence, for example where APRA refused a request to grant some form of licence other than a blanket licence.  Further, it does not purport to apply to the granting or assignment of licences.

33                  Whilst further reference will be made to s 51(3) of the TPA in the course of these reasons, our decision is not dependent upon that subsection and would be the same even if it were not in the TPA.  We mention this as the National Competition Council in its draft report “Review of Sections 51(2) and 51(3) of the Trade Practices Act 1974”, November 1998 proposed recommending to the Federal Government that s 51(3) should be repealed.

Copyright in original literary and musical works

34                  Section 31(1) of the Copyright Act 1968 provides:

“(1)     For the purposes of this Act, unless the contrary intention appears, copyright, in relation to a work, is the exclusive right:

(a)       in the case of a literary, dramatic or musical work, to do all or any of the following acts:

(i)        to reproduce the work in a material form;

(ii)       to publish the work;

(iii)      to perform the work in public;

(iv)      to broadcast the work;

(v)       to cause the work to be transmitted to subscribers to a diffusion service;

(vi)      to make an adaptation of the work;

(vii)     to do, in relation to a work that is an adaptation of the first-mentioned work, any of the acts specified in relation to the first-mentioned work in subparagraphs (i) to (v), inclusive…”

35                  The performing rights which are collectively administered by APRA comprise the rights of the kind specified in subparagraphs (iii), (iv) and (v), the rights of public performance, broadcasting (including television) and transmission by a diffusion service.

36                  The rights recognised in s 31(1) are, by s 13 the acts comprised in the copyright in a work.  A work is defined in s 10 to mean a literary, dramatic, musical or artistic work.

37                  The Act distinguishes between copyright in a work, and copyright in subject matter other than works.  In particular, s 85 provides for copyright in sound recordings, s 86 for copyright in cinematographic films, s 87 for copyright in television broadcasts and sound broadcasts, and s 88 for copyright in published editions of works.

38                  Section 32 specifies the circumstances in which copyright subsists in an original work.  Broadly, the work must be either published in Australia or be made by an Australian citizen. Copyright subsists upon the work being made.  It is not dependent upon registration.

39                   Section 33 provides for the duration of copyright, in general fifty years after the death of the author of the work.  Section 35 deals with ownership of copyright in original works; in general, the owner of the copyright is the author except where the work is made by the author in pursuance of terms of his or her employment. 

40                  Section 196 provides that copyright is personal property and, subject to that section, is transmissible by assignment by will or by devolution by operation of law.  Copyright may be assigned either totally or partially (s 196(3)) or may be the subject of a licence (s 196(4)), which may be either an exclusive licence or a non-exclusive licence.  Section 197 provides for the assignment or licence of future copyright, that is copyright in works yet to be made. Copyright once assigned, may be the subject of further assignment.

41                  The Act makes provision for the enforcement of copyright by action for infringement: see ss 36 to 39A and 114 to 131.  An action for infringement may be brought by the owner of copyright.  Under s 119, an exclusive licensee has the same rights of action and is entitled to the same remedies as an owner, and concurrently with the rights and remedies of the owner.  Section 120 makes provision for the joinder of an owner and exclusive licensee as parties to an infringement action in which both the owner and licensee have concurrent rights.  Where, however, the original owner of the copyright assigns it to another, the assignee thereby becomes the owner of the copyright, and may bring an action for infringement in the name of the assignee alone.  This right is of central importance to APRA when it seeks to enforce copyright against a user who is not appropriately licensed.

42                  The notion that an assignment of copyright or future copyright may be either total or partial is further expanded in ss 30 and 196(2).  Section 30 recognises that different persons may be the owners in respect of the doing of different acts or classes of act and s 196(2) provides that an assignment of copyright may be limited in any way including so as to apply to only one or several of the classes of act that s 31(1) provides that an owner shall have the exclusive right to do.  Thus it is recognised that the original owner of copyright in a literary or musical work, relevantly a writer, may assign the exclusive right to do some only of the acts specified in s 31(1).  Of importance to this case, the Act recognises that a writer may assign the performing rights whilst retaining, or assigning to another person, the right to do other acts pertaining to the copyright.

43                  In the music industry the following terms are frequently used to describe rights of copyright owners:

·               The mechanical right is the right to record music (and if applicable the words of a song) on to record, cassette or compact disc (the right arising under s 31(1)(a)(i));

·               The synchronisation right is the right to use music and lyrics on a soundtrack of a film or video (s 31(1)(a)(i)); and 

·               Performing rights, which, as already noted, are the rights to perform in public, to broadcast (including television), and to transmit by cable (s 31(1)(a)(iii), (iv) and (v)).

44                  The role of publishers in the music industry is extensive.  Publishers usually acquire from writers mechanical rights and the right to publish sheet music.  They may also acquire synchronisation rights and performing rights.

Protection of foreign works

45                  Whilst under the Copyright Act 1968, s 32, copyright subsists in works first published or made in Australia, copyright protection is also extended to authors of works in foreign countries.  Part VIII of the Copyright Act 1968 makes provision for the Act to be applied in relation to specified countries other than Australia.  This is achieved by the Copyright (International Protection) Regulations 1969 (Cth).  The effect of these regulations is that protection is given in Australia to certain foreign works, recordings, films and published editions (including the performing rights in relation to musical works), on the same basis as protection is given to like Australian works.  The countries in relation to which the Copyright Act 1968 has been applied include member countries of the Berne Convention and the Universal Copyright Convention and now exceed some 150 countries: see Schedule 1, Parts I, II, III and V of the Regulations. 

46                  The Berne Convention for the Protection of Literary and Artistic Works was concluded in Berne in 1886, was revised at Berlin in 1908, at Rome in 1928, at Brussels in 1948, at Stockholm in 1967 and at Paris in 1971.  A detailed account of the history of the Berne Convention and its provisions may be found in Lahore “Copyright and Designs”, Butterworths, paras [2085] and [56,000] and following.  Australia acceded to the Paris revision of the Convention on 1 March 1978.  However, Australia has been bound by the Berne Convention since its inception, originally as a result of the ratification by the United Kingdom of the first Convention of 1886.  Following the signing of the Berne Convention, the Berne Union was established, and Australia became a member of the Berne Union in its own right on 14 April 1928.  The Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) concluded in 1994 now requires all World Trade Organisation members to apply the provisions of the Berne Convention in relation to the subject matter and rights accorded by it.

47                  The Universal Copyright Convention was prepared and organised under the auspices of UNESCO.  It was signed at Geneva in 1952, and revised at Paris in 1971 (concurrently with the revision of the Berne Convention).  Australia acceded to the Universal Copyright Convention on 1 May 1969, and to the Paris revision on 28 February 1978.

48                  The Berne Convention establishes three basic principles for the international protection of copyright, and also establishes certain minimum standards of protection relating to the works protected, the scope of the protection and the duration of the protection.  The three basic principles are:

·               National treatment.  Article 5(1) (of the Paris Act) provides that authors shall enjoy, in respect of works which are eligible for protection under the Convention, in countries of the Berne Union other than the country of origin, the rights which their respective laws grant to their nationals, as well as the rights specially granted by the Convention;

·               Automatic protection.  Article 5(2) provides that the enjoyment and exercise of protection under the Convention shall not be subject to any formality.  In particular this Article has the consequence that no formality such as registration of copyright is required for protection in a country other than the country of origin of the work; and

·               Independence of Protection.  Article 5(2) further provides that the enjoyment and exercise of the protected rights shall be independent of the existence of protection in the country of origin of the work.  This has the consequence that the extent of protection, as well as the means of redress to protect those rights, shall be governed exclusively by the laws of the country where protection is claimed.

49                  The Universal Copyright Convention also provides for similar national treatment (Articles I and II).  The Convention makes provision to accommodate the principle of the Berne Convention that the enjoyment and exercise of rights shall not be subject to any formality.  The United States of America acceded to the Berne Convention in 1989.  The USA had hitherto maintained systems with strict formalities as to notice and registration.  Changes which occurred in the United States laws after 1989 regarding registration are of importance in understanding evidence led before the Tribunal regarding the protection of performing rights under the United States law.

Collecting societies

50                  The exclusive rights attaching to copyright may be exercised individually by the owner of the right but in many instances, including in respect of performing rights, this is not a practical option.  The authors of a study by the World Intellectual Property Organization (WIPO) entitled “Collective Administration of Copyright and Neighboring Rights”, Geneva 1990, observe:

“As early as at the time of the establishment of the international copyright system, there were, however, certain rights—first of all, the right of public performance of non-dramatic musical works—that could, only with difficulty, be exercised individually, and since then, with the ever newer waves of new technologies, the field in which individual exercise of rights is impossible or, at least, impractical, has been constantly and rapidly widened.  There are ever more cases where individual owners of rights are unable to control the use of their works, negotiate with users and collect remuneration from them.”

51                  The study observes that a possible solution to these practical difficulties is a non-voluntary licensing system.  However, the study continues:

“There is a much more appropriate option, namely the collective administration of exclusive rights.

In the framework of a collective administration system, owners of rights authorize collective administration organizations to administer their rights, that is, to monitor the use of the works concerned, negotiate with prospective users, give them licenses against appropriate fees and, under appropriate conditions, collect such fees and distribute them among the owners of rights.  This can be considered as the definition of collective administration.

It cannot be denied that, with such collective administration, the control by the owners of rights over certain elements of exercising their rights becomes more or less indirect, but, if the collective administration system functions appropriately, those rights will still preserve their exclusive nature and—although through collective channels—they can prevail in the fullest manner possible under the present circumstances.

Although a collective administration system serves primarily the interests of owners of copyright and neighboring rights, such a system also offers advantages to users who, thus, can have access to the works needed by them in a simple manner, and—because collective administration decreases the costs of negotiations with users, of monitoring users and of collecting fees—fairly cheaply.”

52                  The study notes that voluntary collecting societies were founded as early as the mid-nineteenth century, with one of the early ones being the French Society, “Société des auteurs, compositeurs  et éditeurs de musique” (SACEM).  The study continues:

“At the end of the last century and during the first decades of this one, similar authors’ organizations (so-called performing rights societies) were formed in nearly all European countries and in some other countries as well.  Cooperation developed rapidly among those organizations and they felt a need for an international body to coordinate their activities and contribute to a more efficient protection of authors’ rights throughout the world.  It was in June 1926 that the delegates from 18 societies set up the International Confederation of Societies of Authors and Composers (CISAC).  The membership of CISAC has been constantly widening since then and now also includes, in addition to the more traditional ones, societies dealing with other types of works (such as works of fine art and audiovisual works)."

53                  Collecting societies in respect of performing rights were established in the United States in 1914, the American Society of Composers, Authors and Publishers (ASCAP), and in the United Kingdom in 1914, The Performing Right Society (PRS).  APRA was founded in 1926 in Australia, with PRS as one of its founding members.  These collecting societies have remained as permanent institutions.

54                  APRA was and remains a full member of CISAC.  CISAC is an international non-governmental, non-profit making organisation whose statutes provide that its principle aims are:

“a)      to ensure the safeguarding, respect and protection of the moral and professional interests attaching to every kind of literary or artistic production;

b)         to watch over and contribute to the respecting of the economic and legal interests attaching to the said productions both in the international sphere and that of national legislation;

c)         to co-ordinate the technical activities of the Authors’ and Composers’ Societies and ensure their collaboration in this field, subject to the understanding, however, that each Society is master of its internal organisation;

d)         to constitute an international centre of research and information.”

55                  CISAC has established a “Model Contract of Reciprocal Representation between Public Performance Rights Societies”.  This model contract forms the basis of agreements between collecting societies around the world.  It forms the basis of APRA’s agreements with its affiliated societies which establish reciprocal arrangements under which a performing rights society in a particular country controls, for the purposes of issuing licences and collecting royalties, virtually the world repertoire of musical works.  APRA now has reciprocal arrangements with fifty-eight countries. 

56                  The evidence led before the Tribunal is to the effect that the performing rights collecting societies with which APRA is affiliated all adopted basically similar collective administrative systems which remain in operation, subject only to changes which have been imposed on the societies in some countries by competition laws.  The nature of these changes has been the subject of detailed evidence and submissions before the Tribunal, and is discussed later in these reasons.

57                  Central to the collective administration system is the expectation that writers will in practice assign copyright in the performing right to the collecting society.  The society, as owner, then has the capacity to licence performing rights to users.  The long established activities of APRA in the Australian music industry has resulted in it becoming the owner of the performing rights in almost all musical works in this country, and through its affiliations with overseas collecting societies, as assignee, controls virtually all the worldwide repertoire of musical works.  The collecting societies in other countries are in a similar position.  This control plainly has the potential to restrict competitive negotiations as to the terms and conditions of use of the copyright work and may affect both access to the material and the price to be paid for it.  Dissatisfaction between the groups of users and collecting societies is commonplace.  In 1932 a Royal Commission was established in Australia to enquire into and report on the exploitation of performing rights.  The Commissioner, the Hon Mr Justice Owen, in his report published 24 May 1933 concluded that the evidence before the Commission established that APRA was “to all intents and purposes, a super-monopoly controlling or claiming to control most of the music which users in public must use and is able to dictate its own terms”.  On the other hand, the Commissioner found that there was a substantial public interest promoted by the activities of APRA.  The Commissioner said:

“When questions such as have been discussed before this Commission are under consideration, there may be a tendency to overlook the fact that authors, composers and publishers have rights which have been for long and are still recognized by law and that the performing right is one of the most valuable of such rights and is assignable.  The right of authors, composers and publishers, who individually cannot effectively protect their interests, to form organizations such as the Performing Right Society (England) and the Australasian Performing Right Association may be questioned by some, but that right has been well established and the necessity for such organizations, in the interest both of the owners of copyright and of users, has been recognized by the Courts in England.”

58                  The Commissioner recommended that in order to protect the interests of the public against disputation between APRA and broadcasters a tribunal should be established to determine disputes arising out of the performance in public of musical works, and/or the use of records in public.  This led to the insertion in 1933 of s 13A into the Copyright Act 1912 which provided a means for voluntary arbitration of disputes by an arbitrator appointed by the Governor-General.

59                  In 1951 in the United Kingdom a Committee (the Gregory Committee) was established to report on the law of copyright.  Its terms of reference were wide and included the activities of performing right societies, as there was a strong current of resentment against the licensing practices of PRS.  The Committee concluded that there should be a standing tribunal to determine disputes between collecting organisations controlling performing rights and would-be users (Recommendation 42).

60                  The Gregory Committee report led to the establishment by the Copyright Act (UK) 1956 of a Performing Right Tribunal, now the Copyright Tribunal, with power to review the reasonableness of licensing schemes and fees of collecting societies.  In Australia, a Copyright Tribunal was established in 1968 by Part VI of the Copyright Act 1968 following another inquiry into Copyright Law by the Spicer Committee, appointed in 1959.  The Spicer Committee, at paras 343-357, gave reasons for recommending the establishment of a body similar to that recommended by the Gregory Committee. 

61                  The Copyright Act 1968 was framed to enable Australia later to accede to the Berne Convention Australia (along with the UK and a number of other countries) having reserved the right when acceding to the Berne Convention to enact legislation necessary in the public interest to prevent any abuse of monopoly rights by copyright owners.  (See Sam Ricketson “The Berne Convention for the protection of literary and artistic works: 1886-1986” (1987) at para 9.72-9.73.  A similar right is also recognised in Article 40 of the TRIPS Agreement.)  In the Second Reading Speech on the Bill for the Act the Attorney-General of the day, the Hon Nigel Bowen QC, MP, restated that the law of copyright was to protect creative works so that authors and composers (among others) could, during the continuance of copyright protection, control the uses to which their works were put and get some return from the exploitation of their works.  He said the main function of the Copyright Tribunal would be to arbitrate disputes between copyright owners and persons who wished to make public performances and broadcasts of protected works.

62                  Plainly a legislative purpose of the Copyright Tribunal in Australia is to act as a curb on potential abuse of the monopoly or near monopoly power gained by a voluntary collecting society by aggregating the rights of individual copyright owners.  The effectiveness of the Copyright Tribunal in that respect, and the scope of its powers and functions have been canvassed by both parties to these proceedings.  An issue for determination is whether the Copyright Tribunal provides a sufficient restraint on APRA to prevent it acting in a manner that substantially lessens competition.

2.         APRA’S STRUCTURE AND RULES

Input arrangements

63                  APRA was incorporated in New South Wales on 4 January 1926 as a company limited by guarantee.  It is a non-profit association of writers, music publishers and other music copyright owners who allow APRA to administer certain performing rights on their behalf.  APRA’s structure, as well as its mode of operation, generally accords with standards specified by CISAC.

64                  At times material to these proceedings, the Memorandum and Articles of Association defined “Performing Right” in the following way:

“‘Performing Right’ shall mean and include, subject to the exceptions set out below, the rights in relation to a copyright work of performing in public, broadcasting (including televising), and causing to be communicated or transmitted to the public other than by way of performing in public or broadcasting but including transmission to subscribers to a diffusion service, in all parts of the world, by any means and in any manner whatsoever, and the right of authorising any of the said acts, but shall not include the right of performing in public, broadcasting (or televising), or causing to be communicated or transmitted to the public other than by way of performing in public or broadcasting but including transmission to subscribers to a diffusion service or of authorising any of the said acts, in relation to any of the following classes of works performed in the following manner, unless performed by means of a cinematograph film:

(i)        dramatico-musical works performed in their entirety;

(ii)       in the case only of a public performance, any works or excerpts therefrom, performed in a dramatic context;

(iii)      oratorios and large choral works (that is, choral works written to exceed 20 minutes duration), performed in their entirety;

(iv)      the whole or any part of any music and of any words associated therewith composed for or used in conjunction with a ballet, if accompanied by a visual representation of that ballet or part thereof.”

65                  The effect of this definition is to define performing rights as a portion of an author’s public performance, broadcasting and diffusion rights under s 31(1)(a)(iii), (iv) and (v) of the Copyright Act 1968.  That proportion is known as the “small rights” or “performing rights”.  The exceptions contained in the definition are known as the “grand rights” which are retained by the writer and do not form part of the rights which are collectively administered by APRA.  Article 3 contains further definitions of “dramatico-musical work”, “dramatic context”, “ballet” and other expressions which are used. 

66                  Article 6 defines eligibility for membership which is open, in particular, to any composer, author or publisher of a copyright work (paragraph 6(a)), and to a person who owns or controls the performing right in a copyright work or any interest in the performing right (paragraph 6(b)).  An applicant for membership must apply on a form prescribed by the Board: Article 7.  A person may be admitted to membership as a Writer Full Member or a Publisher Full Member, or as an Associate Member.  Associate members (who will include members admitted under paragraph 6(b)) are not entitled to notice of, or to attend or vote at general meetings, but in other respects have the same rights and privileges as full members (which includes the right to receive a distribution).  The eligibility rule is not subject to any geographical limitation either as to residence or place of origin of the copyright.  APRA presently has members in Australia, New Zealand and a number of South Pacific countries.

67                  Important to these proceedings are Articles 9, 17 and 22, together with the application form for membership.  Immediately prior to amendments passed by the members in March 1998 (to effect changes proposed by APRA following the pre-decision conference with ACCC) Article 9 provided that a member by not less than three years notice in writing to the Secretary to expire on a 30 June could determine his or her membership of APRA.  Article 17(a) required that every member shall, on election and at any time thereafter, on request of APRA assign to it the performing right in all or any works or parts of works present or future of which the member is the composer, author and/or publisher, such assignment to operate for and during the period of the assignor’s membership, subject to termination as provided by the Articles.  Article 17(b) provided that pending such assignment every member, by virtue of his or her election, granted to APRA the sole power and authority to authorise, permit or forbid the exercise of the performing right in respect of all or any works or parts of works, present or future of which the member is the composer, author and/or publisher, to grant licences for the exercise of the performing rights, to collect fees due on the grant of such licences or by way of damages or compensation for infringement of the performing right, to institute enforcement proceedings, and to protect generally the performing right in the works.  This provision, and a corresponding one in the application for membership form, meant that APRA obtained copyright in the performing rights in musical works at the time of creation, not at the later point when the work was formally notified to APRA and assigned.  This remains the usual position under the amended Articles.  Article 22 provided that no member shall be at liberty to alienate or exercise the performing right vested in APRA by the member, or controlled by it by virtue of the membership; nor enter into any contract to write or compose any work for any non-member without reserving the performing right; nor institute or undertake legal proceedings without the sanction of APRA’s Board in respect of the performing right of any work being controlled by APRA.

68                  The amendments passed in March 1998, which are those which govern the rules of APRA for the purposes of the applications for authorisation and notification now under review, have the following effect:

·               Article 9.  The notice period for cessation of membership has been reduced to six months expiring on either a 30 June or 31 December;

·               Article 17 now makes provision for a member at any time after admission to membership to require APRA to reassign, or may on admission reserve, one or more of the categories of performing right in all of the members’ works which would otherwise be under the control of APRA.  This opt-out provision, in form, follows rulings of the Commission of the Economic Communities which required the German performing right collecting society Gesellschaft für musikalische Aufführungs- und mechanische Vervielfältgungsrechte (GEMA) to include a similar provision in its membership rules.  The GEMA decisions are discussed later in these reasons.  As amended, Article 17(a) and (b) now provide:

“(a)     Subject to the provisions of this Article, every member shall on request by the Association assign, or cause to be assigned to the Association:

(i)        the Performing Right in all or any works or parts of works, present and/or future, of which he is the composer, author and/or publisher; and/or

(ii)       the whole or any part of the Performing Right in any work or part of a work to the extent that any such right or part of a right is or shall during his membership be or become vested in him.

Such assignment shall be in the form prescribed from time to time by the Association and shall operate for and during the period of the assignor’s membership, subject however to earlier or later termination as may be provided by these Articles.

(b)       Every member may at any time after admission require (subject to Article 17(c)) the Association to assign to him, or may on admission reserve to himself one or more of the following categories of the Performing Right in all of his works:

(i)        the right of performance in public;

(ii)       the broadcasting right;

(iii)      the right of communication or transmission to the public other than by way of public performance or broadcasting but including transmission to subscribers to a diffusion service;

(iv)      the right of live performance in public;

(v)       the right of performance in public by the exhibition of cinematograph films;

(vi)      the right of performance in public by other means;

(vii)     the sound broadcasting right;

(viii)    the television broadcasting right;

(ix)      the right of communication or transmission to the public by cable television; and/or

(x)       the right of communication or transmission to the public by other wired means.”

Article 17(c) provides that before 1 January 2000 a member may give not less than six months notice in writing, and after that date not less than three months notice in writing to APRA requiring it to “assign to him one or more of the categories of the Performing Right listed in Article 17(b) in all of his works”.  Article 17(d) provides that a member seeking to have one or more of the categories of performing right assigned shall comply with reasonable conditions for the assignment prescribed by the Board, shall provide APRA with a written consent and release from all persons interested in the works in the relevant categories of the performing right and releasing APRA from obligations to collect royalties; and shall provide APRA with a written indemnity against actions arising from the use by any licensee of APRA of the members’ works in the relevant categories of the performing right.  Article 17(e) provides that where a member reserves a category of performing rights or obtains an assignment of them, those rights shall not be assigned or reassigned to APRA for at least twelve months.  Consequential amendments have been made to the former Article 17(b) which has been renumbered Article 17(f); and

·               Article 22, whilst amended, continues to require that no legal proceedings shall be instituted or undertaken by a member without the sanction of the Board in respect of the performing right of any works for the time being controlled by APRA.

Output arrangements

69                  The objects of APRA include the power to grant licences, permits or authorities for the use and exercise by others of performing rights acquired from members, and to charge and collect fees for such use.  The output arrangements with licensees are made pursuant to these general powers in the Articles.

Distribution Arrangements

70                  The distribution of licence fees, royalties and other moneys collected from licensees is governed by Article 93.  All moneys received by APRA are to be applied first to the payment of expenses of and incidental to the conduct, management and operation of APRA, and then, subject to Article 95, shall be allocated and distributed amongst the members and affiliated societies in accordance with a method of entitlement to be fixed from time to time by the Board: Article 93(a).  Article 93(b) requires that the method of entitlement fixed by the Board shall comply with the terms and conditions of any agreement in force from time to time between APRA and any member or affiliated society.  APRA asserts that this Article has the effect that the Board is required to comply with the terms and conditions of APRA’s agreement with CISAC. Article 95 makes special provision for allocation before distribution of moneys to superannuation, benevolent, pension or similar funds, for the promotion of works written by APRA members, and to establish a reserve fund. 

71                  The distribution rules fixed by the Board contain a complex formula intended to achieve a fair distribution to members based on the use of the performing rights assigned by members to APRA, and the value attached to that use.  The formula is based on “performance credits”, which are performance credit points allotted to a musical work based on logged performances.  Revenue received is allocated to one of twenty-one different distribution pools and then distributed according to performance credits to each of the members in respect of whose works revenue has been received.  The distribution pools cover use in the following broad categories, television, radio, mechanical performance, live performance, concerts, cinema and discos.  Where there are two or more joint writers, or a publisher who has an interest pursuant to contract, the distribution rules provide for an apportionment of the receipts in respect of a particular work between the composer, the lyricist and the publisher as the case may be.

72                  Two aspects of the distribution rules have assumed importance in the course of the proceedings.  The first aspect has been referred to as the “fifty per cent rule”, and the second concerned an apparent anomaly regarding the distribution of revenue to an associate member.  In the course of evidence it was explained that this apparent anomaly arose because the literal interpretation of the distribution rules did not reflect actual practice.  The distribution rules have since been amended by resolution of the Board notified on 16 December 1998, and this aspect is no longer an issue.  Associate members are rewarded in the same way as full members under the distribution rules.

73                  The fifty per cent rule is applied as a matter of policy as the APRA Board understands this to be a requirement of CISAC.  The effect of the rule is that the share of performing right royalties allocable to a writer or writers of a work shall not be less than fifty per cent.  The evidence is to the effect that APRA will not accept as a member a copyright holder who has acquired that interest from a writer if the contracted entitlements result in the writer receiving less than fifty per cent of the royalties.

74                  In the course of consideration of APRA’s applications for authorisation by ACCC, APRA asserted, and ACCC accepted, that APRA was bound by the rules of CISAC not to countenance any variation from this rule.  APRA asserted that if it were to abolish the rule, that would threaten APRA’s continued membership of CISAC, and APRA’s reciprocal arrangements with overseas affiliates. 

75                  The fifty per cent rule is not expressed in the Articles or other contractual documents entered into between APRA and its members.  The rule finds expression in rule 4.04 of the distribution rules fixed by the Board under Article 93(a).  Rule 4 deals with “allocation of shares”.  Rule 4.02 says that member shares are entitled to a royalty allocation in accordance with APRA’s rules.  Rule 4.03 provides a formula for the allocation of shares of a musical work between a composer, a lyricist and a publicist “in the absence of specific notification of contractual agreement to the contrary”.  Rule 4.04 provides:

“Contractual variations to the above rules are subject to the overriding rule that the share allocable to the writer or writers of a work cannot be less than 50%.”

76                  It was conceded by all parties in the course of the hearing, that this rule does not impose any contractual or other restriction upon a writer from entering into some other arrangement with a publisher or producer, for example the assignment of all revenue arising from the performing right in a work to a publisher or producer.  At the most, the rule requires only that APRA in the first instance distributes fifty per cent of the revenue to the composer.  Other contractual arrangements between the composer and others would then operate to require the composer to account for the money to those to whom the revenue had been assigned.

77                  So far as APRA asserts that the fifty per cent rule is an overriding requirement of CISAC, distribution rule 2 provides:

“2.01  In formulating Distribution Rules the Board is bound by Article 93 to observe and comply with the terms and conditions of agreements between the Association and

(i)  its members

(ii)affiliated societies.

2.02     Although not binding, the Board endeavours as far as possible to comply with resolutions of the International Confederation of Societies of Authors & Composers (‘CISAC’) related to principles governing the fair and equitable distribution of royalties.”

There is nothing in the Statutes of CISAC referring to the fifty per cent rule, and Article 29 of the Statutes says that decisions of CISAC “have the character of recommendations only.”  Nevertheless, the evidence indicates that the fifty per cent rule is adhered to by CISAC members around the world.

Overseas arrangements

78                  As owner by assignment of performing rights in musical works, APRA is entitled to protection overseas of that copyright under the Berne Convention and the Universal Copyright Convention.  Under arrangements with affiliated societies APRA exercises those rights in respect of overseas performances.  Pursuant to Article 18, APRA, under its reciprocal obligations, also exercises and enforces in Australia the performing rights in overseas works on behalf of members of affiliated societies.

3.         THE CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS AND THE ALLEGED ANTI-COMPETITIVE CONDUCT IN ISSUE

79                  Four of the authorisation applications and the notification lodged by APRA are concerned with the input arrangements.

80                  Application A30187 relates to alleged exclusionary provisions contained in contracts between APRA and each of its members whereby each member is to assign to APRA the performing right in any musical and associated literary works in which the member owns the copyright, subject to APRA’s Articles.  These contracts will be constituted by the proposed standard form of assignment for APRA members.

81                  Application A30190 relates to alleged agreements affecting competition constituted by contracts between APRA and each of its members evidenced by the standard form of assignment.

82                  Application A30193 relates to alleged agreements affecting competition constituted by proposed contracts between APRA and each of its members constituted by the Articles of APRA.  The relevant provisions of the Articles are the eligibility provisions of Article 6, and Articles 17 and 22 as now amended.

83                  Application A30188 relates to alleged exclusionary provisions contained in contracts between APRA and each of its members constituted by the Articles 9, 17 and 22 of APRA’s Articles, as amended.

84                  Notification N30751 relates to alleged exclusive dealing constituted by APRA’s method of acquiring members’ performing rights.  It covers members’ assignments, the eligibility provisions of Article 6, and Articles 17 and 22 as amended.

85                  Two applications relate to the output arrangements.  Application A30186 concerns alleged exclusionary provisions contained in proposed contracts between APRA and each of its licensees by which APRA will grant a licence to exploit performing rights in the works contained in its repertoire under a non-exclusive blanket licence.

86                  Application A30191 relates to alleged agreements affecting competition which would be constituted by contracts between APRA and each of its licensees.

87                  One of the above applications was considered by ACCC to also concern the distribution arrangements.  Application A30193 relates to alleged agreements between APRA and its members affecting competition, constituted by APRA’s Articles.  The application was considered to extend to APRA’s distribution rules, including the fifty per cent rule.

88                  Two applications relate to the overseas arrangements.  Application A30189 relates to alleged exclusionary provisions of proposed contracts between APRA and each of its affiliated societies overseas whereby the affiliated society will assign to APRA the performing right in works in the society’s repertoire for the territories controlled by APRA.  Application A30192 relates to alleged agreements affecting competition which would be constituted by the proposed contracts between APRA and each of its affiliated societies.

4.         THE ACCC DETERMINATION ON 14 JANUARY 1998

89                  Whilst APRA’s operations extend beyond Australia, the relevant market to be considered was that within Australia and its Territories: s 4E of the TPA.  ACCC appears to have accepted, broadly, that the relevant market was the market for the acquisition and supply by assignment, licence or otherwise of performing rights in relation to musical and associate literary works in which copyright exists.  ACCC considered it was inappropriate to separate input and output markets saying:

“The Commission considers that such a separation does not encompass potential substitution possibilities or assist in the analysis of competitive effects or public benefits.  APRA is essentially a joint venture of composers, which replaces direct supply by composers to users.  Defining separate input and output markets would ignore the possibility of direct dealing and thereby miss the claimed anti-competitive effects and the claimed public benefits (in terms of reduced costs) of the APRA System.

The Commission agrees that little will turn on market definition in this matter.  In the circumstances, it is unnecessary to define the market more particularly than is required to weigh up the public benefits and anti-competitive detriments of the APRA System.”

90                  The Commission undertook an assessment of anti-competitive detriments, and then of public benefits.

91                  The following anti-competitive detriments were identified:

·               Concentration.  The input arrangements restricted the ability of users to obtain access to a portion of the composer’s or publisher’s rights and therefore limited the opportunity for members to compete with each other for user licences and in respect of price.  Some users did not always require a blanket licence.  The proposed opt-out scheme (now Article 17(b)) would introduce some scope for direct dealing, but the requirement that members opt out in relation to whole categories or forms of utilisation of rights for all their works, rather than on a work by work basis, plus a lack of commitment by APRA to adjust blanket licence fees in line with direct licensing, made it unlikely that opt out would occur;

·               Import competition.  Australia is a net importer of copyright material.  APRA’s reciprocal arrangements had the effect of preventing or discouraging overseas societies from competing in Australia by providing direct access to their repertoire to Australian users, although ACCC noted the possibility of direct dealings with copyright owners in the United States, and possibly with European and Irish composers under opt-out provisions which existed in the rules of collecting societies in those countries;

·               Barriers to entry.  ACCC took the view that the sophisticated administrative and enforcement systems required for successful collective licensing arrangements posed a considerable hurdle for the creation of alternative mechanisms or new entrants into the market, and that the current input arrangements further reduced the likelihood of entry.  Whilst the proposed amendments (now the reduced requirement of notice of termination in Article 9, and the opt-out provision of Article 17(b)) would help facilitate the creation of alternative mechanisms or new entry into the market, the scope for that was limited.  APRA’s blanket licences also limited the likelihood that other collecting societies would enter the market as there was very little incentive for a user to acquire rights from a niche society or directly from composers or publishers in the absence of some adjustment to the blanket licence fee;

·               Countervailing power.  ACCC was not persuaded by APRA’s submissions that the Copyright Tribunal provided adequate countervailing power to protect users against an abuse by APRA of its position as a monopoly supplier; and

·               Monopoly conduct of APRA.  ACCC considered that the APRA system and associated barriers to import competition, market entry or the creation of alternative mechanisms meant that users were currently excluded from entering into direct arrangements with members of APRA, and were prevented from negotiating the price paid for the vast majority of music works or the basis on which those works were made available.  The likelihood of direct dealing was not significantly improved by the then proposed amendments to the Articles. 

ACCC considered that as music performing rights were “public goods”, in which consumption is non-rivalrous (i.e., one person’s consumption does not diminish the amount available for another), APRA’s monopoly position which enabled it to “give less and charge more” would find expression in the limitation of access to musical works, both new and old.  ACCC considered this represented a misallocation of resources in both the short and long run as APRA’s ability to charge monopoly prices would tend to encourage excessive production of new works and membership of APRA.

As to the distribution arrangements ACCC considered any method for allocation and distribution of funds to members had the potential to be anti-competitive, and would be a price agreement deemed to be anti-competitive.  It recognised however that it would not be feasible to have all members nominate a price for their music.  ACCC concluded that the combination of the input arrangements and the fifty per cent rule effectively made it impossible for a user wishing to commission works to acquire all rights and entitlements to the commissioned work composed by an APRA member, giving rise to inefficiencies and misallocation of risk bearing in relation to such works.

ACCC considered that the APRA system limited competition between members.  Whilst members might still compete in relation to the amount of airplay, record sales, etc., there could be a flow-on effect in terms of distributions by APRA, the APRA system displacing price competition between members and preventing the development of alternatives that might deliver a more efficient and competitive outcome.  

ACCC considered there was actual evidence of monopolistic behaviour by APRA in the dealing with some of its customers, reference being made to the situation of the Greater Union Organisation and Village Roadshow which had made submissions.  On the question of monopoly conduct ACCC concluded:

“…it can be seen that the APRA System has the overall effect of limiting arrangements between composers and users.  They are, for practical purposes, prohibited from dealing with each other directly and setting their own terms.  Arrangements must be made between the users and APRA, even in respect of performing rights that exist in works contained in repertoires of overseas societies.  It is clear that some licensees are not satisfied with the arrangements offered by APRA and seek alternative options.  For those licensees, the failure by APRA to offer products that meet the requirements of the market gives rise to anti-competitive effects.”

92                  The following public benefits were identified:

·               Lower transaction costs.  ACCC accepted that there is a measure of public benefit arising from low transaction costs resulting from the input arrangements and the collective administration monitoring and enforcement of performing rights in music. ACCC accepted that if restrictions on members in the input arrangements were removed completely, members would have a choice as to how to administer their rights or part of their rights, and this would lead to an increase in administration and monitoring costs, but considered that it was unlikely that the majority of members would wish to administer performing rights in their own works so that the impact on associated administrative costs was unlikely to be great;

·               Certainty.  There was a public benefit in the certainty provided by APRA’s ability to give a comprehensive licence in respect of virtually all musical works available worldwide.  ACCC noted APRA’s claim that if it were to depart from the blanket licence system there would be a loss of certainty in protection to users, and increased administrative and transaction costs.  However, ACCC said:

“This, of course, assumes that an ‘opt-out’ arrangement would be based on an assignment-back system (as exists in the UK) as opposed to (say) a licence-back arrangement or combination of assignment and licence-back, which would be less likely to result in removal of rights from the repertoire, creating a ‘hole’ in the repertoire.”

Whilst the removal of some works from the repertoire might give rise to the need for users, particularly broadcasters, film makers and producers of live productions, to obtain more than one licence, the public benefits claimed by APRA arising from the single licence were not clear cut and might differ between different users.  In the case of large users such as those just mentioned, ACCC considered that there was, and should be, greater scope for flexibility in licensing arrangements.  In the case of smaller users, and those where the use of music was spontaneous and unpredictable there was a greater public benefit in the certainty given by a blanket licence.  ACCC concluded:

“The Commission accepts that there would be greater costs for APRA in administering, negotiating and monitoring additional licences.  However, it would appear that the majority of licensees, particularly those that have spontaneous and unpredictable use, would continue to choose the blanket licence.  The transaction cost increase to APRA of offering other licences would therefore be likely to be limited to and should be able to be offset by APRA against those users who choose licences other than blanket licences, although the Commission notes that APRA has expressed some doubt in this regard.”

·               Copyright protection and enforcement efficiencies.  ACCC accepted that there were significant public benefits from containment of costs of enforcement and encouragement of compliance arising from blanket licences in respect of users who are small or whose requirements are spontaneous and unpredictable, and that there were limited public benefits in respect of users who were large or whose requirements were predictable and planned;

·               Countervailing market power.  ACCC considered it was difficult to predict in many situations who would have the stronger bargaining power, but concluded, on balance, that some users such as film producers and radio and television broadcasters may have significant bargaining power in respect of the majority of members and that there was a significant risk that those users would force down the prices that would be paid to composers for access to their works; and

·               Encouragement of creative and cultural activity.  The Commission recognised that there are public benefits arising from encouraging creative and cultural activity and that the potential for “free riding” in relation to musical works might inefficiently discourage the creation of new works.  However, ACCC was not convinced that the public benefits claimed arose from the activities in respect of which authorisation had been sought and notification made.

93                  ACCC qualified its findings of public benefit by saying that many of them arose  purely from APRA’s role as a collecting society and not from the restrictions for which the authorisation has been sought and notification given, and were therefore not relevant to the question of whether there is overall a net public benefit.

94                  After reviewing the operation of a number of overseas collecting societies, ACCC, whilst noting the differences in overseas markets, expressed its satisfaction that overseas collecting societies demonstrate that input and output arrangements which are different to APRA’s current arrangements are feasible and can be effective. 

95                  In its final assessment of the net public benefit ACCC concluded its determination as follows:

“8.5     Conclusions about the applications for authorisation

8.5.1    In the Commission’s view, there have been many market changes since APRA’s establishment in 1926 and, given the advancements in new technology, there may now be more reasons and opportunities than ever before for niche societies and alternatives to APRA to develop.

8.5.2    The Commission believes that the proposed input, output and distribution arrangements do not give rise to a balance of public benefits over anti-competitive detriment such that authorisation can be granted.  In the Commission’s view the ‘opt out’ system proposed by APRA is unlikely to be utilised because it only provides for members to ‘opt out’ in relation to entire categories or forms of utilisation of works and does not provide for the adjustment of blanket licence fees.  However, the Commission believes that if an ‘opt out’ system incorporating the key features identified by the Commission in paragraph 8.4.24 was introduced, there would be a real possibility of competitive pressure being exerted on APRA.  The Commission also considers that the introduction by APRA of an appropriate appeal mechanism, and the alteration of its distribution arrangements so that the 50 per cent rule does not apply in circumstances where a member assigns all rights to a work to a third party, are required to effect a change in the balance of public benefits and anti-competitive detriment sufficient for authorisation to be granted in respect of the proposed input, output and distribution arrangements.

8.5.3    The Commission considers that the overseas arrangements are likely to give rise to a balance of public benefits and anti-competitive detriments such that authorisation can be granted provided that the standard agreement comprising the overseas arrangements is altered so as to entitle the parties to the agreement to terminate the agreement by provision to the other of six months’ notice in writing.  Alteration of all overseas arrangements is to be effected by 31 December 1998.

8.6       Conclusions about the notification

8.6.1    Consistent with the above conclusions, the Commission is satisfied in respect of APRA’s notification of exclusive dealing conduct constituted by the proposed input arrangements, that the conduct would have the purpose or is likely to have the effect of substantially lessening competition, and any benefit to the public would not outweigh the detriment to the public constituted by the lessening of competition that is likely to result from the conduct.”

96                  It will be noted that ACCC considered that three alterations to the input, output and distribution arrangements would alter the balance of public benefits and anti-competitive detriment sufficient for authorisation to be granted.  These three matters had been raised in the draft determination, and discussed with APRA in the pre-decision conferences.  However, APRA refused to accept that the requirements were necessary, and chose, instead to seek authorisation on the basis of the proposed amendments to Articles 9, 17 and 22 of the Articles.  It is upon these three factors in particular that evidence and submissions before the Tribunal have focussed.  Each factor was discussed in detail in the determination.

Opt-out system proposed

97                  Paragraph 8.4.24 referred to in the conclusion reads as follows:

“After reviewing overseas arrangements and the needs of users and composers, the Commission has concluded that an ‘opt out’ option which formed part of an overall collecting system that delivered public benefits outweighing the adverse effects on competition, should incorporate the following key features:

·               composers are able to opt out on a work by work basis as well as by category of right or form of utilisation;

·               ‘opting out’ may be by way of either assignment of commissioned works or through a licence back;

·               blanket licence fees should be adjusted to reflect direct dealing; and

·               where commissioned works are assigned to a new owner, the 50% distribution rule should no longer apply.

These features will facilitate maximum use of direct dealing, where this is efficient, with minimum impact on APRA’s repertoire and costs.  They will also encourage the efficient allocation of risk taking through the commissioning and assignment of works where appropriate.”

Appeal mechanism proposed

98                  ACCC considered that some mechanism, other than the Copyright Tribunal, was necessary to enable disputes between APRA and small users, or over small issues, to be resolved in a cost effective way.  This was seen as an important protection against the exercise of monopoly power by APRA.  ACCC proposed an appeal mechanism similar to that implemented by another collecting society, the Phonographic Performance Company of Australia Limited (PPCA), which licences the broadcast and public performance rights in sound recordings and music videos, although ACCC considered that the model should be altered to provide that APRA should assume responsibility for the costs of proceedings.  The PPCA standard licence agreement provided for a dispute resolution system under which the licensee could refer to a Board of Review any of the terms and conditions of a licence on one month’s notice.  The Board of Review consists of three members, one nominated by PPCA, one by the Australian Institute of Arbitrators, and one by a trade association most closely associated with the business in which the licensee operated.  Legal representation is not allowed.  The Board has no power to award costs.  The proceedings of the Board are informal, and a party aggrieved by the decision can make application to the Copyright Tribunal (which has the jurisdiction to decide the dispute in any event).  The cost of proceedings before the Board, including but not limited to any professional costs incurred by any Board member, stenographer’s fees and fees for hiring of a hearing room are shared equally between the licensee and PPCA.

99                  In so determining, ACCC rejected an alternative proposal put forward by APRA that there be a scheme for mediation of disputes available to both current and proposed licensees by a suitably qualified mediator, such as a retired senior judicial figure.  APRA would pay the fees of the mediator, but other expenses would be shared equally.  Legal representation would not be permitted, and the parties insofar as they incurred personal costs of presenting their case would bear those costs themselves.

The fifty per cent rule

100               Reference has already been made to the fifty per cent rule.  The determination of ACCC appears to rest on the assumption that the rule constitutes a bar to a writer assigning more than fifty per cent of the revenue to be earned from the exploitation of the performing rights.

5.         THE HEARING BEFORE THE TRIBUNAL

101               Whilst the three factors just identified received particular focus before us, evidence adduced by the parties ranged over:

·               APRA’s administrative system;

·               the changing market for music;

·               the role of the Copyright Tribunal; and

·               overseas regulation of performing right collecting societies.

102               We propose to consider each of these topics in turn, but before doing so we shall briefly outline the cases advanced before the Tribunal by each of the parties.

APRA’S contentions

103               APRA opposed any of the modifications to its system contended for by ACCC and FACTS and maintained its position that authorisations should be granted in accordance with its applications, and that notification under s 93(3) should not have been given.

104               APRA stressed the importance of intellectual property rights, including performing rights, which it contended are recognised by governments throughout the world as the most appropriate way to reward and encourage creative activity.  Similarly, the importance of collecting societies as a vehicle to enable the proper enjoyment of the exploitation of copyright is universally recognised, and findings of various inquiries, courts and tribunals in many countries support rules of the kind reflected in APRA’s present Articles. This system of administration, APRA asserted, is the most efficient mechanism for ensuring the balance of rewards to creators and access for users.

105               APRA emphasised the enormity of the administrative tasks which confront collecting societies such as APRA.  APRA contended that departures from the basic structure of the APRA rules, for example so as to allow individual works to be withdrawn by writers or copyright owners from the repertoire, are impracticable.  Departures would add greatly to the administrative costs of APRA and involve the creation of an entirely new system of administration, particularly as to the recording and verification of information about the works of the member concerned.  The necessary recording in such a new system would not be compatible with existing international systems of administration and the universally recognised recording systems used as tools to effect proper revenue collection world wide, and distribution.  Licensees would lose the advantage of near total freedom to choose the musical works they wish to utilise, knowing that, on obtaining a blanket licence from APRA, the chances of them infringing copyright are almost nil.  There would be the added transaction costs for users who would be required to seek out and obtain licences from the different copyright owners.

106               APRA contended that it is essential to the efficient and cost effective administration of its collecting system for it to obtain exclusive ownership rights from its members, subject only to a limitation of the kind now reflected in Article 17.  APRA’s enforcement costs and infringement proceedings would also increase enormously if APRA did not operate in a situation where it was, in practical terms, the owner of copyright in all musical works in use in the community.  If copyright ownership were fragmented, APRA contended that it is likely that the unlicensed use of music, particularly by small users, would become prevalent as the risk of detection and punishment would decrease.

107               APRA contended that individual writers have little bargaining power against powerful users such as film and television producers, concert promoters, and venue proprietors.  APRA provides a countervailing influence which ensures a reasonable return to writers, and maintains an economic incentive for creative artistic and cultural works, as well as for the potential for export earnings.

108               APRA asserted that there is no pressure from its members to change its collecting system to allow freedom to depart from the input arrangements and that generally there is a high level of satisfaction by the members. APRA is subject to the control of its writer and publisher members, and this provides an incentive for it to maintain efficiency in its operations.  Nor is there widespread pressure from the users to alter the blanket licence system.  Express dissatisfaction comes from limited sources, and in particular FACTS and certain categories of user whose complaint is, at base, about the amount of the licence fees.  APRA contended insofar as this dissatisfaction raises competition issues, that the Copyright Tribunal exists to resolve disputes, and to ensure that monopoly power by licensors such as APRA is not exercised to the detriment of the public benefit.

ACCC’s contentions

109               The ACCC took an active role in the proceedings before the Tribunal, including calling evidence and making detailed submissions both as to the evidence and the cases of APRA and FACTS.  Whilst ACCC sought to persuade the Tribunal that the conclusions reached in its determination correctly evaluated anti-competitive detriments and public benefits, senior counsel for ACCC acknowledged that the role of the ACCC was to assist the Tribunal in the manner discussed in Re Queensland Co-operative Milling Association Limited; Re Defiance Holdings Limited (1976) 25 FLR 169 at 173-174.  The ACCC did not seek to align its position with that of FACTS.  ACCC stressed that its interest in the matter was not confined to commercial television broadcasters, but was directed generally to exploring means to increase competition in ways that could have a practical impact in the market.

110               ACCC contended that the new Article 17(b) did not provide a practical means for a member to opt out.  ACCC contended that it was unlikely that any member would make use of the option as the requirement to opt out a whole category of works was a major disincentive, as were the notice provisions which applied.  It was contended that APRA’s rules needed to allow a member to opt out on a work by work basis.  It was contended that the fifty per cent rule was an additional disincentive to users who might wish to commission works on a direct deal basis.

111               By the conclusion of the hearing before the Tribunal, the position taken by ACCC had modified somewhat from that expressed in the determination.  Presumably in recognition of the force of the case presented by APRA that to allow a member to opt out by assignment back to them on a work by work basis could create an unacceptable “hole” in the comprehensive scope of APRA’s blanket licences, and add substantially to APRA’s transaction costs, ACCC argued primarily for a licence back system as a condition for authorisation.  The licence back system proposed was said to be modelled upon a system recently adopted by the Irish Music Rights Organisation Limited (IMRO), following a report by the Irish Competition Authority.  The proposal was as follows:

“ACCC LICENCE BACK

1.         Composers would continue to join APRA on terms that APRA is the ‘assignee’ of the performing right in present and future works of the composer.

2.         APRA’s rules would be amended to authorise a composer to grant a licence to a user of the performing right in one or more musical works of that composer provided that:

(a)       any such licence is in writing;

(b)       any such licence has the written consent of all persons having a proprietary interest in the exercise by the composer of the direct licence right, eg. a publisher to whom a composer has assigned a percentage of his APRA royalty entitlement;

(c)        the terms of the licence specify the licensee, the nature and medium of permitted use of the performing right and the geographical area of permitted use;

(d)       all of the terms of any such licence along with the written consent of the persons referred to in (b) are notified to APRA in advance;

(e)        APRA as ‘assignee’ retains the right to grant licences in respect of the same work or works in respect of which a composer has notified a direct licence agreement.

3.         Possible variants:

(a)       a composer must request APRA to grant a licence back to him or her for each proposed direct licence rather than a composer having a general authority to direct licence;

(b)       a direct licence is not effective until a period of time after requisite notice has been given to APRA;

(c)        insofar as a direct licence extends to an overseas territory it is only effective upon written notification of the licence to the relevant overseas collecting society.”

112               ACCC also advanced an additional proposal which, on its face, is inconsistent with paragraph one of the above proposal.  It was contended that members should be permitted to agree to compose commissioned works on terms that the commissioner becomes the assignee of the performing right.  This option, it was suggested, would most likely be utilised by television producers and film makers.  Once the commissioned work was assigned, it would be up to the commissioner to decide whether or not to enter the work into APRA’s repertoire, and if the commissioner put the work into APRA’s repertoire, ACCC contended that the fifty per cent rule should not apply.  It was suggested that the type of music commissioned could be specific for the program or film, and not have any wider public appeal that would warrant entering it into APRA’s repertoire.

113               To render the right to direct deal meaningful, ACCC’s case recognised that a necessary corollary would be some means of adjustment to fees payable for blanket licences where the user also dealt direct with a writer.  Unless a blanket licence holder were to receive a discount on the licence fees otherwise payable for a blanket licence, there would obviously be no incentive to direct deal.  Any proposal for direct dealing must therefore necessarily be connected with proposed ways and means for making that adjustment.  Whilst it is easy enough to state the need to adjust the blanket licence fees, it is not easy to identify a practical, cost-efficient way of doing so.  The ACCC case offered no proposal on that score.

114               Whereas in the ACCC determination the fifty per cent rule was criticised as a general disincentive to the assignment of works by a writer to someone other than APRA, before the Tribunal the contention was that the fifty per cent rule operated as a disincentive to the commissioning of works on a direct deal basis because, if the commissioner were to enter the works into the APRA repertoire, fifty per cent of the royalties would have to pass through the writer’s hands.

FACTS’ contentions

115               FACTS contended that the APRA system prevented a member from licensing any of the performing rights in musical works directly to the user, even if the works were commissioned by that user.  By following the CISAC standards, APRA and its affiliates reinforced their monopoly rights both in their domestic market and at the international level.  FACTS pointed out that APRA would only licence the broadcasting rights in the works under its control on the basis that the user obtained a blanket licence for APRA’s complete repertoire.  In the commercial television broadcasting industry the licence fee is linked to a fee calculated as a percentage of the broadcaster’s gross advertising revenue.  This led to the position that a commercial broadcaster had no alternative but to acquire all the repertoire for a fee which was fixed irrespective of the amount or type of use made of works within the repertoire. 

116               FACTS contended that the APRA system fitted ill in a market where other commercial broadcasters now produce or commission in excess of fifty per cent of their television content.  FACTS stressed that television broadcasters, unlike other music users, created music for their own special needs, and incorporated it into films.  As the film makers negotiated synchronisation and all other rights to the music (except performing rights) at the time of production, they were in a unique position.  FACTS contended that the relevant market in which APRA’s conduct had effect was the market for the supply of musical broadcast rights to producers of television programs.  In that market, FACTS contended, the APRA system had the effect of preventing direct dealings between producers of television programs and writers, and also prevented competition between writers for television broadcast rights (although FACTS acknowledged vigorous competition existed between writers for synchronisation rights in musical works).  FACTS was critical of the powers and role of the Copyright Tribunal, arguing that it did not provide an effective restraint of monopoly power, and lacked power to deal with APRA’s monopolistic behaviour insofar as it stemmed from the restrictions in APRA’s Articles relating to input arrangements.

117               FACTS contended that at least in respect of television broadcast rights APRA’s rule should contain a work by work opt-out scheme which permitted writers to deal with television stations in respect of future commissioned works, and provide for adjustment of blanket licence fees where such works were assigned or licensed to the broadcaster outside the APRA system.  FACTS did not offer a view whether the scheme should extend beyond television broadcast rights.

118               FACTS argued that direct dealings between television producers and writers would be likely to reduce transaction costs for both parties, and increase the return to successful writers for performance rights in the work created, thereby enhancing competition.

119               Whilst contending that APRA’s rules should contain a scheme which permitted work by work opt-out and corresponding licence fee adjustment on blanket licences, it was not part of FACTS case to suggest how these features could or should be achieved.  FACTS did not argue against the licence back scheme suggested by ACCC.  FACTS did not indicate how commercial television broadcasters might supply to APRA information in the detail and time frame required to allow adjustments to blanket licence fees.

6.         APRA’S ADMINISTRATION OF PERFORMING RIGHTS

Collective administration

120               Three APRA executives gave written and oral evidence about the administrative system adopted by APRA to implement its Articles and Rules — Mr Cottle, Chief Executive; Ms Howland, Director of Member Services; and Mr Stern, Director of Distribution.

121               The nature of a collecting society, as the practical alternative to self-administration of certain rights by the author of a copyright work, has been indicated already in these reasons. APRA’s operations in Australia are directed to the management of the complex sequence of procedures that have been developed for the collective administration of performing rights, namely:

·        contractual arrangements with large numbers of music copyright holders to administer their performing rights exclusively, and the assembly thereby of a comprehensive repertoire of musical works that are available for licensing;

·        the maintenance of a database that comprehensively records copyright ownership and royalty entitlements for the works in the repertoire;

·        the licensing of music users, with the form of the licence differing between classes of user according to the manner of use and the right being exercised;

·        monitoring of public performances of music and the enforcement of compliance where infringements are detected;

·        collection of licence fees from users;

·        cooperative arrangements with similar bodies in other countries so that APRA and the other bodies have access to each other’s repertoires for licensing, and so that performing rights of members of APRA and of the other bodies are enforced across national boundaries; and

·        distribution of collected royalties to copyright holders.

122               The thrust of the evidence from APRA was that administration of the performing rights of Australian writers of copyright music through a collecting society is necessary for the effective exercise of those rights, as the only practical way that is open to copyright owners to assure income from the performance of their works.  APRA contended that copyright holders elect to be members of APRA accordingly, fully aware of the trade-offs in their commercial interest that are inherent in doing so.

123               A writer of music could self-administer all or part of the performing right for a personal repertoire of works, or could elect instead to become a member of APRA.  The choice has consequences for the writer’s commercial interest.  Self-administration allows the widest choice as to the policy and procedure adopted for particular works.  The individual writer could consider that each work is distinctive and of different worth, so that each might be licensed on different terms.  A different pricing logic might be adopted for different works.  The writer may wish to control when or where a work is performed, so that, for some would-be users, performance might be licensed only on certain conditions or not at all.  The writer might also be selective in offering, to gain some perceived advantage, different terms to different but otherwise similar users.  The writer might also conclude that, for particular works, the royalties to be gathered from certain uses or in certain markets are not worth the trouble and cost involved in pursuing them.  In short, the writer who self-administers copyright can be very flexible as to how it is done, but assumes an administrative burden as the price of that flexibility.

124               The scale of APRA’s administrative task is larger than for the self-administering writer by several orders of magnitude.  APRA has more than 25,000 members in Australia and New Zealand, and the latest APRA annual report available to the Tribunal (for 1996-97) states that the membership rose by 11.5 per cent during that year.  Under reciprocal agreements with other performing right collecting societies, APRA represents in the order of a further one million music writers and publishers in other countries.  The number of musical works subject in Australia to APRA’s administration of performing right is some multiple of that number of members and overseas copyright owners; the active repertoire was estimated by Ms Howland in evidence at 3.5 million works. 

125               Obviously, given such numbers of copyright owners and musical works, APRA cannot be as flexible as an individual copyright holder might be in administering performing right obligations.  Nor do the practicalities allow APRA to respond to every commercial opportunity that may open in regard to particular members or particular works.  With so many members and such a large active repertoire of works, APRA is obliged to identify groups of members and groups of music users and groups of musical works that each have some common characteristics, and to administer them according to common policies and standardised practices that are devised to suit the interest of the greatest number, while also as far as possible avoiding any serious disadvantage to.  The use of common policies and standardised practices also allows the greatest efficiency of operation, which can be in the interest of the body of members as a whole, and in the public interest. 

126               There is nothing unusual or intrinsically anti-competitive in APRA simplifying its administrative processes by applying standardised practices to aggregates of members, users and works.  Equivalent procedures, directed to efficient and reliable administration that is capable of audit, are routinely applied in any large administrative structure or to any complex administrative task, in both the public and private sectors.  The Tribunal accepts in principle that the imperatives of efficient administration and the generality of APRA’s obligations to members require standardised procedures and rules that apply to all its members and to all the works it administers.  We accept also that, as APRA contends, members of APRA have not become members thoughtlessly, but recognise the compromise implicit in membership — that they largely forego the flexibility in copyright management and in control of use of their works that self-administration would provide, so as to better assure their income.

127               The Tribunal accepts that the performing right is a right that writers and publishers might properly wish to have administered on their behalf by a collecting society such as APRA, and also accepts that such collective administration need not be inconsistent with the public interest.  In reaching this view, we have relied on the evidence that:

·        collecting societies corresponding to APRA and carrying out approximately the same function exist in numerous other countries, including the developed countries of Europe and North America;

·        it seems indisputable that most copyright holders would find it impossible to administer their performing right alone, even for performances within Australia, and hence could not expect to receive the due recompense that copyright law envisages: APRA offers them a means to do so, and appears to be the only body that does so in Australia;

·        APRA cooperates with other collecting societies, under international conventions to which Australia subscribes, to enforce the performing right of Australian copyright owners in the other countries, and that no other generally applicable device for that purpose seems to be available; and

·        the Copyright Act 1968 provides that certain statutory rights can be administered by an approved collecting society (and in practice they are so administered), demonstrating legislative approval of collecting societies in appropriate circumstances.

128               However, the Tribunal also recognises that, as with any other administrative task in the public or private sectors, the application of standardised procedures and policies on APRA’s part might be pursued too far. The need for standardisation might be taken to excuse faulty procedures that actually are susceptible to economical remedy.  Perhaps the copyright owner’s loss of commercial flexibility is more severe than it need be, and might be usefully improved without undue impact on the advantages that common administration provides.   However it cannot be taken for granted that a copyright owner’s every preference can be accommodated.  A parallel tension arises in regard to licensees and groups of licensees.  Their commercial choices are certainly limited by APRA’s effective monopoly of the licensing of the performing right repertoire in Australia, compounded in their effect by the administrative simplifications adopted by APRA.  However a variation in procedure that allows licensees wider commercial options may not be practicable without seriously detrimental consequence to the overall functioning of the administrative process.

129               Issues as to the necessity for, and effects of, standardised practices are relevant also to the assessment of the merits of the separate proposals put by FACTS and by ACCC.  Both have proposed the supplementation of APRA’s licensing arrangements, with the aim of introducing more commercial choice into the market for performing rights.  In weighing the balance of benefit and detriment from these proposals, the Tribunal must examine considerations of administrative practicality in addition to the considerations that more usually arise in matters before the Tribunal. 

130               The issue of administrative practicality has a further dimension which was very apparent in the evidence.  The primary benefit of standardised administrative practice comes from the efficient and low-cost operations that are thereby facilitated, and in particular through the use of computers.  Exceptions to standardised practice may have to be handled manually,  at a much higher cost per transaction.  A distinction therefore needs to be made between new demands on the administrative process that can be accommodated by adjustment of generally applicable computerised systems, and new demands that inevitably must be — at least in the short term — managed as exceptions, by costly manual administrative procedures.  In the longer term, such exceptions still may not be capable of ready incorporation into the computerised routine, continuing as a source of significant cost.  Hence it does not follow that a capacity for APRA somehow to accommodate proposed new exceptions manually can be interpreted as “administrative practicality” in any reasonable sense.  Considerations of efficiency and cost also enter the equation, among others.

The assembly of APRA’s repertoire

131               Under its input arrangements APRA has full legal authority to administer the performing rights assigned to it by its members.  APRA acts in this way for 25,000 members in Australia and New Zealand, and for a further one million music writers and publishers in other countries that are members of affiliated societies.  The repertoire of music that APRA can license to a user is very comprehensive.  Indeed, the undisputed evidence was that the proportion of music writers and publishers in Australia and in relevant countries overseas who elect to have their performing rights administered by a cooperating collecting society is so high as to amount to an effectively complete “world repertoire”.  The typical user of music in Australia is able to assume that APRA is able to grant a licence that, for all practical purposes, will cover all their performing right obligations.  This offers an obvious convenience to users of music.  Furthermore, owners of music copyright will be attracted towards participation in such a system of world-wide performing right administration, with participation available through a single membership.

132               Three administrative simplifications consequent on APRA’s terms of membership were argued as supporting the comprehensiveness of APRA’s repertoire, assisting administrative efficiency, and facilitating APRA’s enforcement of the performing right administered by APRA for its members and affiliates: 

·               Assignment of the performing right.  The requirement that members assign the performing right to APRA precludes other forms of relationship between the copyright owner and APRA, for example the appointment of APRA as the copyright owner’s agent.  Members of APRA do not have the option of any arrangement where they share the performing right of any work with APRA while they are members.  The performing right to works is assigned exclusively to APRA (subject to permissible exceptions for works in a defined category, under the new Article 17(b)), or else the copyright owner cannot be a member.  Assignment gives APRA complete administrative control over the use of the musical work, including the setting of the terms of any licence to use the work, and patently allows APRA the freedom to set up standard administrative procedures that apply in common to all members.  APRA evidence further justified the use of the assignment device over others, on the ground that assignment simplifies enforcement of copyright by making APRA the sole litigant in any proceedings for breach and by simplifying proof of copyright ownership;

·               “All past and future works”.  The requirement that all past and future works of a member be assigned to APRA without exception allows APRA, in its administrative procedures, to equate a specific member with rights to a readily defined body of works.  APRA gave evidence that its internal processes are thereby much simplified and are correspondingly more efficient.  Moreover the practice is consistent with the practice of other collecting societies, which in turn facilitates the reciprocal arrangements between collecting societies that permit writers and publishers to earn income from performances in other countries, by allowing the use of common documentation.   APRA contended that any severing or watering-down of this requirement, by allowing any general or limited right for members to opt out in respect of particular works, would introduce so much complexity and cost into performing right administration, both within Australia and in relations with overseas collecting societies, that it would seriously damage the interests of the generality of APRA members.  Potentially, in APRA’s contention, APRA’s capacity to sustain its operations would be threatened.   APRA claimed also that the interests of users would be affected, because the ambit of APRA’s repertoire would be diminished, arousing uncertainty about whether the holding of an APRA licence would suffice to reassure the user that copyright obligations had been met; and

·               Reserving all works in a category under Article 17(b).  This requirement corresponds to the “all past and future works” requirement noted above, and might be considered to constitute a corresponding detriment for some copyright owners who might see advantage in reserving a particular work.   Article 17(b) allows a category of right to be reserved to the copyright owner in respect of all the owner’s works, but does not allow a particular work to be reserved.   APRA evidence again stressed the administrative importance of equating a copyright owner’s performing rights to a defined body of work, pointing to the high administrative cost of documenting differing entitlements among the individual works of one writer, damage to member income and user confidence, and implications to international cooperation of anomalous arrangements being adopted in Australia.

 

Licensing of music users

133               Whereas a writer self-administering the performing right might conceivably devise forms of licence specific to particular users, APRA, with more than 62,000 licensees, is obliged by considerations of good administrative order to limit to a manageable number the forms of licence that it offers.  APRA will negotiate specific licensing arrangements for single events such as live concert performances, particularly where the performer is also the writer of any work, where the event is attached to a specific location, and the titles of the relatively few works to be performed are known in advance.  Licences of this kind are the exception.  Usually users are offered one of several standardised “licence schemes”, each designed for a particular class of user.  The concept of a licence scheme is included in the Copyright Act 1968, being defined in s 136.  In practice, a user of music who can be considered to be one of a class of users is offered only one form of licence by APRA.  It follows that all users in that class are subject to the same licensing terms.

134               Most licence schemes that APRA offers are for blanket licences.  Blanket licences provide that users may perform any work or works in the APRA repertoire, which (as already described) not only includes all the works of the overwhelming proportion of Australian composers, but also includes the repertoires of all affiliated collecting societies (including the various collecting societies of North America, the United Kingdom and Europe).  In short, the blanket licence allows performance of effectively any copyright music that a user might want.  Obviously, many users will find the blanket licence a simple and reassuring way to satisfy their performing right obligations.  In any situation where the music to be performed is not known in detail well in advance of the performance (so as to allow time for the administrative processes needed to grant a specific licence), copyright would be infringed by the user unless some form of blanket licence is held.  No generally applicable alternative to blanket licensing was put to the Tribunal.  The proposals put forward by ACCC and by FACTS did not purport to substitute for the blanket licence in its general application; rather they would allow an alternative licensing procedure in certain defined circumstances.

135               The freedom in use of music granted to the blanket licensee precludes in the general case the setting of the licence fee prior to the performance. Ideally a blanket licence fee would be calculated as the sum of the component licence fees due for each performance of every musical work by the licensee, but this would impose a demanding basis for the administration of blanket licences, which probably could never be achieved in practice.  It is manifestly reasonable that the large user of music should pay a proportionately larger licence fee than the small user, and that the very large user should pay proportionately more again.  Further, the performance that reaches a large audience should in fairness (both to APRA members and to the smaller user) attract a proportionately higher licence fee than a performance directed to a small audience.  Where the performance of music is central to a commercial operation, the licence fee payable will reasonably be higher than in situations (otherwise comparable in music use and audience) where the music is an incidental element of a public environment.  APRA cited relevant decisions, of the Hon Mr Justice Spicer in 1963 and of the Copyright Tribunal in 1986, in support of this view as to the correct approach to the setting of licence fees for a blanket licence.

136               It follows that, where the right to perform any music at any time is to be granted under a blanket licence:

·        the licensee might reasonably be required under the licence to report to APRA the detail of actual music use, so that a licence fee can be determined to reflect both usage and audience, according to a defined formula;

·        alternatively, to avoid burdensome keeping of records, licence fees might be charged according to a formula (suited to a specific industry) that sufficiently mirrors the commercial value of the performing rights that the particular licensee has exploited;

·        the rate adopted in the licence fee formula should in principle be higher in circumstances where the use of music is more central to the conduct of the user’s business i.e., has a higher commercial value to the user; and

·        the terms of the blanket licence will also allow APRA access to such additional information from the licensee as is needed for distribution of the collected licence fees among the relevant copyright owners.

 

Two distinct kinds of information are in this list — information as to the user’s total music use (which bears on the blanket licence fee payable), and sufficient particulars as to the works performed (which is needed by APRA to  distribute collected licence fees to the relevant copyright owners). 

137               In practice, certain of APRA’s blanket licence schemes straightforwardly set the licence fee at a percentage of the revenue derived in conjunction with the use of copyright material — an approach known in APRA as the “box office principle”.  For example, the cinema exhibitor’s annual licence fee has been assessed since 1992 at  a small fixed percentage of net box office takings.  Licence fees for the use of recorded music for dancing are assessed in relation to the licensee’s total annual admission charges.  In less clear cut cases, another numerical indicator, pertinent to the performance of music by a class of users in a particular industry, can be used.  Licence fees for background music in retail outlets etc., vary with the number of loudspeakers used.  Licence fees for live performances are based on a percentage of the licensee’s expenditure on performing artists and musicians.  Music used at aerobics classes is licensed on the basis of a small sum being payable per class.  Employers using music in the workplace pay licence fees of a small sum per employee, with a minimum annual fee stipulated.  All of these examples relate to licence schemes for public performance.  The common thread is evident — that the blanket licence fee is related to some readily determinable measure that has regard to scale of music use, size of audience, and whether the use of music is central or marginal to the user’s business, these being the key factors bearing on the commercial value of the performance of copyright music.

138               The overwhelming majority of the licences granted by APRA relate to the public performance right.  Mr Cottle gave evidence that APRA has more than 58,000 licence agreements for public performance in place, at more than 65,000 premises in Australia, yielding gross revenue in 1996/97 of $13.5 million — from which it can be calculated that the average annual public performance licence fee is of the order of $200.  Many licensees pay a lower fee; a retail shop with a CD player playing background music audible to its customers pays an annual licence fee of $55.40.  On the other hand, cinemas, concert promoters and night clubs pay annual fees above the average because their music use and audiences are on a larger scale than for the typical public performance licensee. 

139               Although APRA’s gross revenue in 1996/97 from public performance licences is substantial in total, such licences yielded only 25 per cent of gross APRA revenue from all domestic licences.  Licences for broadcast and transmission rights generated the remainder, 48 per cent of the total from TV and 27 per cent from radio in 1996/97, derived from only 611 licence agreements in Australia pertaining to broadcast and transmission rights.  The disparity is startling — the overwhelming majority of APRA’s licences relate to the right of public performance of music, yet the greatest part of APRA’s revenue is generated by the 1 per cent of its licensees that attract liability by broadcasting music or transmitting music to subscribers.

140               Of the 611 blanket licences presently granted by APRA in Australia for broadcast and transmission of music, commercial radio stations hold 211, commercial television stations forty-four, and pay television ten.  The other licensees are the public broadcasting services (ABC and SBS), community and narrowcast broadcasters, and telephone services. 

141               The licence scheme with APRA entered into by commercial radio stations was described in evidence by Mr King, Chief Executive Officer of the Federation of Australian Radio Broadcasters Limited (FARB). Under the scheme presently applying, commercial radio stations have separate blanket licensing agreements, but FARB conducts the negotiations with APRA.  The current scheme is that which applied until the end of 1995, since when it has operated on an interim basis because APRA and FARB have been unable to agree on future terms.  The issue has been referred to the Copyright Tribunal.  The current scheme is for a blanket licence, with the annual fee determined for each radio station as a percentage of gross annual advertising revenue, which has been taken to be a sufficient indicator of the “box office”.  The percentage applying for any station is at one of eight levels, according to whether the percentage of station airtime when music is played falls into one of eight stepped ranges.  This arrangement allows licence fee levels to vary to suit program formats that use more or less music.  Most radio stations play a lot of music — 88 per cent play music for more than 60 per cent of their air time, but a station with a “news/talk” format might play music for less than 10 per cent of air time.

142               Radio broadcasters maintain “play lists” of the music that they broadcast, which when made available to APRA under the terms of the blanket licence, provide the basis for distribution of fees collected to the copyright holders.  Records of music use are now commonly supplied to APRA in computer-readable form.  Such records are known as  “electronic logs”.

143               The general form of the blanket licence agreements under which commercial free-to-air television broadcasters operate was examined by the Hon Mr Justice Spicer in an arbitration in August 1963, as already described, leading to the introduction of licence agreements for commercial television that set fees at a percentage of gross advertising revenue.  Following subsequent disputes between FACTS and APRA, the most recent agreements (developed in 1973) followed a negotiated compromise that adjusted the content of the basis revenue figure, and set  the fee at 0.9 per cent of that figure.  Since 1993, when FACTS terminated the agreements on behalf of all its member stations, and pending resolution of matters before the Copyright Tribunal, the Federal Court, and this Tribunal in the present proceeding, APRA continues to offer the 1973 licence scheme to commercial television stations, and in practice the stations continue to pay licence fees and to report music use.  Electronic logging of programs for APRA’s use has not been adopted by commercial television broadcasters.

144               The broadcast licence arrangements for ABC television and radio were the subject of determination by the Copyright Tribunal in 1986.  Fees are calculated as a percentage of the ABC’s parliamentary appropriation, and the supply of music use information is a term of the licence.  The licence to SBS follows a similar format.  Both have adopted electronic logging of their programs.  Pay television companies pay licence fees according to the number of subscribers to the service.  Their licence scheme requires provision of program content information similar to those applying to television broadcast licences, and electronic logging of programs is used.

145               Licences have been concluded by APRA with Telstra and Optus relating to “music on hold” telephone services, following a High Court decision that the telephone service company is liable for transmissions  of music onto telephone lines by the PABX systems of telephone customers: see Telstra Corporation Ltd v Australian Performing Right Association Ltd (1997) 146 ALR 649.

146               Obligations to advise APRA as to the detailed use of music, so that royalties can be distributed to relevant members, are imposed by all blanket licences to broadcast or transmit music.  The information requirements are potentially onerous for broadcast and transmission right licensees, because of the quantity and variety of music that they use and the significance of their program content to the correct distribution of royalties to writers and publishers.  In the case of radio, where music is commonly played from commercial recordings, it is relatively straightforward for an electronic log of the station’s play list to be supplied to APRA.  However the obligations of television licensees to report the music used in their programming are more difficult to meet.  Electronic logging of program material would be helpful, but is not of itself sufficient to the need.  (The commercial free-to-air television stations choose not to use electronic logging anyway.)  It is also necessary that a “cue sheet” be supplied to APRA in respect of each film or pre-recorded program, setting out the often intricate detail of the music that has been incorporated into the soundtrack.  Cue sheet information originates with the producer of the program or film i.e., with a party that is often not the television station granted the APRA licence. 

147               The Tribunal identifies the standard blanket licence format employed in most of APRA’s licensing schemes as an important simplification in APRA’s administrative arrangements for licensing users.  The blanket licences offer self-evident convenience to music users, by avoiding any obligation for the user to stipulate in advance what music will be performed, as a prerequisite to granting a licence.  The blanket licence allows users the freedom to choose music for performance at short notice from a “world repertoire” of musical works, without concern about breach of copyright.   The compliance cost of subsequently supplying detailed information on music use to APRA can be significant for some larger licensees, but it might also be considered to represent a reasonable price for the operational convenience of a blanket licence. 

Collection and enforcement of royalty payments

148               The typical APRA licence is issued subject to payment of the annual licence fee.  Where the licence fee varies with usage according to some formula, a provisional fee is invoiced on the basis of information for that licensee for the previous year.  All APRA public performance licences (except those that refer to a single event) provide for reassessment of the fee at the end of each annual period.  The actual information for the past year is used to adjust the fee for that year, and a provisional fee is invoiced for the coming year.

149               Mr Cottle gave evidence of difficulties in obtaining information used to assess licence fees and changes in fees.  This cannot be surprising; the maintenance by licensees of records that may be of little value for them, but are useful to an organisation that exacts levies on them, cannot be expected to be given much priority.  APRA employs “licensing representatives” in each State with a role in checking information from public performance licensees for obvious lack of credibility, and in pursuing defaulters in the supply of information that is a contractual term of the APRA licence.  APRA also employs compliance staff at headquarters, and legal staff who institute proceedings against parties who breach copyright.  In August 1998, APRA’s legal department was handling sixty copyright infringement matters.

150               The larger users of music, especially those from whom royalties are due under broadcast right and transmission right licence schemes, typically do not require conventional enforcement processes on APRA’s part.  Their disputes with APRA rather relate to the large principles of the licence arrangements that APRA proposes for their class of user, and such disputes are matters for negotiation or for reference to the Copyright Tribunal.

Distribution

151               Mr Stern described distribution as the process by which licence fees are apportioned between the writers and other copyright owners whose works are known to have been performed by a particular means during a defined period.

152               Collection of licence fees from performances of copyright music provides APRA with revenues that, when the cost of administration is deducted, are available for distribution among the owners of the performing right, who might be members of APRA or an overseas affiliated society.  APRA distributes royalties twice a year, in June and November, for performances occurring during the prior calender half-year.  The administrative procedures adopted by APRA were described fully to the Tribunal in written and oral evidence by Mr Stern, but need not be described in detail here.  The Tribunal was impressed by the thoroughness of the analysis of music use that underlies the distribution, and the care taken in the conduct of the distribution to ensure precision in apportionment of royalties. 

153               For the purposes of these proceedings, we note especially that the efficient and accurate distribution of collected royalties by APRA among owners of music copyright relies crucially on APRA having ready access to information in two respects:

·        APRA needs to have information as to the musical works performed under licence, especially for blanket licences where the detail of licensed music use is not known in advance of performance.  The collection and analysis of this information is a formidable task; and

·        for any musical work that has been performed in Australia, the party or parties that own the performing right need to be identifiable by APRA, and their entitlements to a share of the royalties sufficiently documented in the APRA database, or available to APRA from an affiliated society.  Correspondingly, affiliated collecting societies must be able to identify the copyright owners of Australian works if royalties due from performances in other countries are to be forwarded to APRA for distribution.

 

154               In the latter regard, it follows that the quality and integrity of the APRA database that records the ownership of rights to any musical work, and a sufficient confidence that the information is current, are essential to accurate distribution of royalties. The database is thus a critical resource for the carrying out of APRA’s function as a collecting society.  It follows further, in respect of Australian works, that APRA necessarily maintains records of relevant aspects of contractual arrangements between writers and publishers, and of any agreements with other parties that affect the sharing of royalty entitlements, for its own use and for advices to affiliated societies.  Similarly, the quality of the information about the authorship and publishers’ rights for particular works that are administered by an affiliated society, and its availability to APRA, is critical to APRA’s distribution of the royalties due to the overseas members of the affiliated society. 

155               Detailed information about the works that have been performed under a licence is necessarily provided by the licensees, unless some alternative means can be devised. Obviously the provision of such information can be burdensome for licensees, and indeed could even be impractical for some.  Moreover, and regardless of a licensee’s contractual obligation, as a term of the licence, to provide the accurate information needed for distribution of royalties, its timely provision will depend significantly on the licensee’s goodwill.  In some cases, the resulting problem can be circumvented.  For some of the public performance licence schemes involving a large number of small licensees, APRA has been able to avoid the parallel provision of detailed music use information by numerous licensees by employing an equivalent source of information that is considered statistically adequate for distribution of royalties from the class of licensees, although the comparison might be poor in respect of individual licensees.  For example, the play lists of certain radio stations have been found to closely typify the recorded music that is played by certain classes of small user, and are considered by APRA to be adequate for distribution of the aggregated pools of licence fees for those classes of licensees.

156               The quality and timely provision of detailed usage information by broadcast and transmission licensees is particularly important for the efficient and precise distribution of royalties to those with performing right entitlements, because of the significance of these licence fees in the aggregate of APRA revenues.  Radio licensees and some television licensees facilitate APRA’s distribution by supplying usage information in electronic form, for their total program output.  Pay television operators supply reports for both programs and interstitial music in an electronic format designed by APRA to facilitate efficient processing of large volumes of information.  Information on music use that is supplied in computer-readable form can be quickly matched with identified items of music in APRA’s database, which records the performing right entitlements for each work.  Mr Stern summed this up as follows:

“APRA’s operations and activities hinge on the efficient acquisition and processing of information.”

 

157               For commercial television broadcasters, who do not use electronic logging, computer-readable records of music use need to be assembled within APRA, derived from two types of paper record that the stations provide:

·        a log, which is a record of the program content (films, feature programs, episodes of a program series, advertisements, station identifications and promotions) together with times of day, and music content and duration for items that do not have separate cue-sheets; and

·        a cue sheet for each film and major program, listing the detail of soundtrack music.

 

158               The provision by commercial free-to-air television stations of typed lists of program content (whether logs or cue sheets) is plainly onerous and subject to error.  Important information, for example the name of the composer, will not uncommonly be omitted.  In such cases, the manual assembly of written information into computer-readable form within APRA needs to be supplemented by research directed to completing the written record. 

159               Both Mr Cottle and Mr Stern referred to the persistent difficulties that APRA experiences in assembling the complete information that is required for distribution of royalties, particularly from commercial television stations.  However Mr Stern qualified his criticisms:

“Music usages … by commercial television stations comprise, for the most part, vast numbers of individual uses of music.  I doubt whether even the most efficient and responsible of commercial television broadcasters could provide the mass of detail which would be required for a [full] analysis for the purposes of distribution…”

 

Mr Stern indicated how the problem has been addressed:

 

“…some regard must be paid to the size and resources of the collecting society, and the ability of the user to provide comprehensive information in a cost efficient manner.  It would not serve the interests of APRA’s members and affiliates, nor the interests of proper administration, if the process of analysis became so expensive that the cost of analysis outweighed the benefits…Collecting societies and the users of their [intellectual] property have therefore had to make certain compromises with respect to the level of reporting required…with users providing the societies with sufficient information on a sample basis…”

 

160               The sampling procedure adopted pays regard to the program structure of Australian commercial television, where stations are predominantly grouped into three networks, each comprised of a mix of directly controlled stations and affiliates.  Expert statistical advice is applied to the design of sampling procedures that weight the sample with regard to the audience reached by each station, so that fifty-two weekly logs are collected and analysed annually for each network.  Separate sampling arrangements cover unaffiliated stations.

161               The availability and accuracy of the cue sheets for pre-recorded programs and films is a wider issue for APRA.  Pay television, the ABC and SBS also use films and pre-recorded programs, and commercial radio will on occasion broadcast pre-recorded programs from other sources.  Cinemas screen films that contain sound track music. 

162               The evidence indicates that the problem of obtaining accurate cue sheets exists for all performing right collecting societies, and that it has three strands:

·        the holder of the relevant performance licence may be indifferent as to whether cue sheets are supplied to the collecting society in a timely fashion or at all.  Doing so is probably not directly relevant to the level of licence fees paid by the licensee, so that there is little incentive attached unless the collecting society adopts the most unlikely course of litigating for breach of licence terms.  Licensees tend to give the supply of cue sheets a low administrative priority.  Mr Lyle of the Nine Network in oral evidence described cue sheets as “a drudge rather than something that matters to the show”;

·        the party in the best position to provide an accurate cue sheet is the company or production unit making the film or pre-recorded television program, which will be the television station (or more generally the performing right licensee) in only some instances.  The actual producers may have little incentive to generate and supply accurate cue sheets detailing the music content of the soundtrack.  Again in oral evidence, Mr Lyle, referring to television program producers, said that “they see the cue sheets as being at best something from Admin and at worst something from APRA”; and

·        the collecting society will often need to develop its own procedures for procuring cue sheets from sources other than the licensee.  For films and television programs that enter wide international use, the collecting societies cooperate in collecting cue sheets and exchanging copies.  In APRA’s case, publisher members are also able to assist.  Film distributors supply APRA with cue sheets because the cinemas refuse to do so.  APRA maintains extensive microfiche files of cue sheets of local and foreign origin.

 

163               Inevitably, some cue sheets are not available in a timely manner.  Mr Stern estimated that about 5,000 cue sheets are overdue at the time of each six-monthly distribution of royalties, so that the owners of the performing right receive no royalty in respect of the performance of their music in the relevant programs.  At the same time perhaps 4,000 previously missing cue sheets will enter the distribution.

164               The accuracy of the cue sheets that are received can also be in doubt.  In 1991-93, Mr Stern’s department undertook the formidable task of monitoring the music use of 131 episodes of locally produced programs broadcast by the three networks, and cross-checking the results against logs and cue sheets supplied to APRA.  The information reported by the stations proved to be significantly inaccurate, commonly of the order of 20 per cent, with considerable variation in accuracy between networks.  APRA also, from time to time, has directly monitored the music use of network television stations, by taping and subsequently analysing broadcasts over extended periods.  Such direct monitoring exercises are expensive and time consuming; nevertheless they can be useful in checking the quality of licensee reporting of music use.  Comparisons in 1992 and 1994 with information reported by the stations showed significant under reporting of music use, serving to emphasise the difficulties for correct royalty collection and distribution that can arise with manually produced logs and cue sheets.

165               The Tribunal has identified two relevant administrative simplifications that APRA adopts in performing its royalty distribution function:

·               All musical works are assumed to have equal value.  This important assumption is implicit in all of APRA’s distribution practices, and in the practices of other collecting societies. The value of the music to the user is considered to depend only on the size of the audience that hears it and the degree of centrality of the music to the audience’s attention.  No difference in value is imputed between works — a minute of television broadcast of one copyright work attracts the same royalty as a minute of another broadcast in the same time slot.  It is certainly hard to postulate another basis for royalty distribution that could be adopted by a collecting society.  However, the assumption of equal value adds a further dimension to the trade-off that a writer accepts when choosing to become a member of APRA so as to ensure due income from the performing right.  A successful writer of music, whose works might demonstrably have high commercial value, might well see an incentive for selective self-administration of the performing right in certain promising markets if the option to do so were available and the transaction costs were less than the benefits; and

·               Allocation of administrative costs.  APRA’s administrative practice is to allocate administrative costs evenly, charging the same percentage deduction against revenues derived from all classes of licensee.  This issue is discussed further below.

 

International cooperation

166               The obligation for national treatment that is explicit in the Berne Convention implicitly requires that the facility should exist in Australia (and in other countries acceding to the Convention) for the copyright of foreign nationals in a literary or musical work to be administered appropriately.  The intellectual property of writers in their works is thereby given world wide effect.  In respect of the performing right, where separate administration by the individual copyright holder is not usually practicable, the national obligation is satisfied in Australia by APRA having bilateral cooperative arrangements with affiliated collecting societies in all relevant countries.

167               The repertoire of copyright music that collecting societies have each assembled and made available to licensees in their own country is also made available to licensees in other countries by dint of reciprocal agreements and administrative cooperation between the collecting societies, allowing music users everywhere licensed access to the world repertoire of copyright musical works.  The reciprocal agreements also facilitate the collection of royalties on performances of copyright works outside the country of origin.  Yet copyright law certainly exhibits no world-wide uniformity, despite the harmonising effects of the Berne Convention.  Relevant legal practice inevitably differs between jurisdictions.  It follows that the administrative practices adopted by collecting societies in different countries will not be identical, but need to be sufficiently compatible, if the required administrative cooperation is to be practicable and effective.

168               Compatible administrative practice among collecting societies has presumably been assisted by the international copyright conventions, in that they have encouraged copyright law in the various national jurisdictions to converge and to exhibit some common shape, particularly with the accession of United States of America to the Berne Convention in 1989.  However, compatible practice has been more particularly facilitated by the participation of APRA and other performing right collecting societies in the international peak body of collecting societies (CISAC) where the scope for common policies can be considered, and harmonised administrative practices developed: see para 54 above. 

169               APRA has entered agreements with numerous other performing right collecting societies, with most agreements conforming to the CISAC model contract: see para 55 above.  The contracts with the three United States collecting societies differ, reflecting United States anti-trust requirements.  The following provisions are characteristic of APRA’s reciprocal agreements with affiliated societies:

·        each collecting society assigns or licenses to the other the rights to the performing rights to the national repertoire;

·        each undertakes to licence the other’s repertoire in its territory, effectively and efficiently, and to deal with the affiliated society’s repertoire under the same standards, rules and conditions as its own; and

·        each undertakes to account in a proper and timely way for royalties due to the other.

170               Australia is a net importer of copyright musical works, reflecting the choice of music by consumers and in turn the choice of music by commercial broadcasters.  In oral evidence, Mr Cottle estimated that about 45 per cent of APRA’s distributions of royalties are paid to affiliated societies for on-payment to their members.  However, Australian music is increasingly performed in other countries, notably because of the screening of Australian films and television programs.  The performing right earnings of Australian music copyright holders has increased in ten years from $2.7 million to $7.8 million in 1996/97.  In oral evidence, Mr Cottle estimated that gross APRA revenues from overseas performances in 1997/98 amounted to $12 million, and will be about $14 million in the current year.  Of this total, more than half will be derived from “audio-visual works” i.e., Australian films and television programs.

171               The critical information about a work of a foreign copyright holder that must be available to a collecting society relates to copyright entitlements, and the identity of the collecting society that distributes royalties to the owners of those entitlements.  Due documentation of the entitlements of Australian performing right owners to share in revenue generated overseas, and the ready availability of this documentation to overseas affiliated societies, is essential for:

·        the identification of performances of APRA works in other countries; and

·        the collection and payment to APRA of overseas royalties for distribution to Australian copyright holders.

172               The availability of corresponding documentation to APRA, in respect of the entitlements attached to overseas repertoire, is similarly essential to administration of those entitlements by APRA.  Several standardised documents, protocols and statements of practice have been developed by CISAC to facilitate the efficient transfer of information between collecting societies.  They are under continuing review in response to changing circumstances, and in some instances modifications are already envisaged. 

173               In comprehensive evidence in respect of this internationally standardised documentation, APRA witnesses drew attention also to limitations that the documentation might be considered to impose, presently and prospectively, on variations to APRA’s practices and procedures, if APRA is to continue to work cooperatively with other collecting societies.  Ms Howland gave evidence that standardised formats and centralised databases in use internationally do not presently admit the recording of entitlements differentiated by work, and also that up-grading now in progress will not admit that practice.  The possibility that international documentation practices could limit mooted change in APRA practices and policies is relevant to the Tribunal’s consideration of the separate proposals of ACCC and FACTS that a member of APRA should be able to opt out of assignment to APRA for a particular musical work. 

174               We have already remarked that the adoption of standardised procedures is necessary for the efficient administration of large numbers of transactions, and that the procedures adopted will be based on assumptions that are seen at the time to be acceptable.  We note further that whereas, in respect of its internal administration, APRA is able in principle to modify its practices and procedures to meet new requirements, APRA in its international relationships necessarily pursues the interest of its members within  a framework where it may have little influence over the structure and forms of documentation used.  APRA witnesses pointed out, and the Tribunal accepts, that international documentation of performing rights use has developed, and will develop further, with particular regard to the preferences of the larger collecting societies of Europe, United Kingdom and North America.  Any collecting society will use such shared documentation in the context of its own local procedures, and the procedures and practice of the more significant collecting societies will carry most weight in the detailed design of arrangements for international cooperation between societies.  Where differences in legislation or changing circumstances require collecting societies in the smaller, less influential countries, such as Australia, to adopt policies that larger sister societies and jurisdictions might see as anomalous, the standard documentation becomes less suited to their information needs, but is unlikely to be altered nonetheless.  Information that is not transferable using standard document formats becomes an administrative exception internationally, to be handled manually with attendant costs, delays, and uncertainties as to outcome. 

175               It follows that the administrative efficiencies that result from the harmonisation of international performing rights administration might be limited to the ambit of operations in which APRA’s practices conform to international norms.  Moreover, it appears to be arguable that, if internationally unusual practices in performing right administration were introduced in Australia, countervailing detriments to the general interest of Australian music copyright owners could result, which would need to be weighed against the intended benefits.

Cost of administration

176               APRA is far from the largest collecting society in the world. Nevertheless, APRA’s costs of administration appear to compare very well with the costs incurred by other major collecting societies.  In its report on “Performing Rights” in February 1996 the Monopolies and Mergers Commission (UK) appended at Appendix 97 a summary of administrative costs of many collecting societies (the summary related to 1993) APRA’s total administrative costs in relation to total revenue were the lowest by nearly two percentage points.  In a review of APRA’s costs and revenue efficiency ratios conducted by KPMG in November 1995, the authors concluded that “APRA’s expenses to revenue ratio is 49.3 per cent below the average expense to revenue ratio of other collecting societies in the developed world”.

177               In 1996/97, the latest year for which audited financial results were available at the time of the hearing, reported expenses amounted to 13.5 per cent of gross operating revenue. Ms Lowe, who gave evidence as a solicitor at PRS in the United Kingdom, said in oral evidence that, in the most recent year, the overall ratio of costs to revenue for PRS was 14.4 per cent.  It appears from limited evidence that APRA’s administrative efficiency is highly regarded among peer societies.  Counsel for ACCC put it to Mr Cottle, and he agreed, that APRA considers itself at the cutting edge of computerised administration of the performing right.

178               No submissions were made to the Tribunal impugning the efficiency of APRA’s administrative processes.  However, issues in regard to the cost of administration arise in two respects:

·        the pursuit of licence fees in circumstances where the revenue may not exceed the cost of collecting them; and

·        internal policies adopted in the allocation of costs against streams of revenue, with effect on the net revenues for distribution from the various sources of licence fees.

179               The principle that licence fees should reflect use of music and size of the relevant audience cannot, in the view of the Tribunal, be pursued without regard to the costs of the administration associated with the licensing and collection procedures. On the face of it, it appears pointless for APRA to devote resources and effort to the identification and licensing of music users where the fee collected is at best similar to the associated cost of administration. In oral evidence, Mr Cottle described the substantial resources applied by APRA to policing the licensing of small business users of music, and agreed that:

“…certainly the costs of administration and enforcement in the public performance area,…are far greater than the administration costs associated with licensing major users such as radio and television stations.”

 

Yet in further cross-examination, Mr Cottle defended APRA accepting high administrative costs in some circumstances:

“…the Association does operate on a very clear principle that … it considers as part of its duty to its member, part of the bargain that it makes with its members that it will endeavour to ensure the widest possible compliance with the provisions of the Copyright Act even in circumstances where it may be at marginal cost or at marginal benefit.”

180               It is of interest in this connection that, following recent examination of the issue (in “Don’t stop the music: A report of the inquiry into copyright, music and small business”, May 1998) by a House of Representatives Standing Committee, APRA has adopted a policy of issuing complementary licences to small businesses in certain circumstances.  APRA has also considered whether licence fees for public performance of music might be increased to show more regard to the associated administrative cost.  According to Mr Cottle, APRA’s public performance fees have not been adjusted for thirty years and are much lower than fees payable in other countries.

181               The manner of allocation of costs and overheads against streams of revenue is a matter for somewhat arbitrary choice in any administrative system, and there seem to be no generally applicable professional rules.  A policy of equal allocation takes all costs to be overheads that are generally applicable, and this accounting policy has been adopted by APRA in charging costs against revenues for distribution.  However, it is common in many other organisations, as far as is practicable, to allocate particular costs against the revenues from the activity where the costs were generated.  The conventional argument for doing so rests on a concern that otherwise the understanding of an organisation’s management and board of directors, about the operational efficiency of elements of the business; about the allocation of resources to particular purposes; and about correct pricing policy for separate products, would be incomplete and possibly distorted.

182               In respect of APRA’s arrangements with its members and its licensees, it is possible that a more precise allocation of costs would have consequences in two respects:

·        in the assessment of licence rates properly applicable to its licence schemes; and

·        in the apportionment of distributed revenues among APRA’s members.

 

However the Tribunal heard no evidence that would allow a view to be reached as to the significance of any such effects in practice, and neither ACCC nor FACTS made submissions relating to the allocation of administrative costs by APRA.

 

7.         CHANGING CIRCUMSTANCES

The changing market for music

183               The manner in which the performing right is administered in Australia, as described in the preceding pages, might be considered unexceptionable and even praiseworthy.  APRA does the job that it was set up to do, of administering the performing right of all Australian writers of music that wish to join, and of distributing collected royalties to them. That task is given legitimacy by the terms of the Copyright Act 1968 and of the Berne Convention, which are directed to ensuring that the interests of the creators of literary and musical material are duly protected, and that their work is not pirated or otherwise used without due reward to the writer.  Despite the scale, complexity and international reach of the task, APRA appears to do its job comprehensively, systematically and with a pleasing efficiency.  It is possible to cavil at certain details of procedure, but it is inevitable that the administration of very large numbers of performances require that some simplifying assumptions be adopted.

184               Yet the evidence to the Tribunal shows that APRA’s role is increasingly being played out in a wider context and in changing circumstances.  A focussed regard by APRA for the interests of the copyright holders is considered in some quarters not to represent an adequate response to the commercial environment, nor to satisfy relevant dimensions of the public interest.  APRA faces two considerable problems, each with several facets:

·        that the regulatory environment has changed, not only in Australia but in other relevant countries, so that the monopoly status of the collecting society is being questioned, and ways of modifying its monopoly behaviour are being sought, short of doing damage to the performance of the collecting society’s legitimate function; and

·        that the commercial environment in which APRA operates has changed and continues to change in a number of respects: in the structure of the market for music; in a new hostility among small music users to APRA’s compliance practices; and in the unwillingness of major users of music to accept APRA’s prescription as to the manner in which the use of music is licensed.

 

185               Several witnesses commented, and other documentary evidence supports the conclusion, that the market for performing rights in copyright music has been subject to considerable change over recent years, and will continue to be, because of:

·        changes in the patterns of music use, resulting most notably in the present importance of radio and television as users of music;

·        changing technologies in the publishing, reproduction and playing of music, with sheet music and the vinyl disc being supplanted by cassette tapes, compact discs, digital recording technologies and the like;

·        the emergence of new communication technologies such as the internet, that must impact on the availability of music;

·        changing commercial structures in music use, notably in the networking of radio and television, coupled with  the separation of program production from broadcasting;

·        the emergence of audio visual products where visual images and sound are integrated:  limited initially to film, the products now extend to pre-recorded television programs and are currently extending further; and

·        growth in the performance of Australian music, and audio visual products containing music, in markets outside Australia.

 

186               It is unnecessary that we explore these changes at any length.  Yet they provide a necessary perspective for the Tribunal, reminding us that APRA does not operate in a market that is static.

Growing user resentment of APRA’s administrative practices

187               APRA’s function is performed in the wider context of the other rights that also attach to musical works under the Copyright Act 1968.  Situations are not uncommon where a particular use of music will have more than one right attached, and where the relevant administrative procedures differ between one right and another.  Certain rights can involve the user in significant compliance cost and effort, which the user may not accept as being necessary.  It is plain from the evidence that many users find the procedures needed to satisfy their total copyright obligations both confusing and irritating, and that their attitudes towards copyright obligations can be antagonistic in consequence.  It further appears that much user antagonism has focused on APRA, as the most demanding system of copyright administration that bears on them.

188               An example of antagonism to APRA associated with the user’s need to satisfy more than one right is evident in the stance of FACTS in these proceedings.  The synchronisation right is a right attached to a musical work that requires its reproduction onto the soundtrack of a film or recorded audio visual program to be licensed.  Customarily, the licensing of the synchronisation right is negotiated by the film or program producer, directly with the copyright owner, and is recompensed by a single payment to the copyright owner which can be included in the production budget.   Television networks have found it irritating that the broadcast right of the same work cannot be settled at the same time, but rather is administered by a different collecting society on the basis of documented use, independently of program production.  However the distinction is self-evident — licensing of the synchronisation right involves payment for one-off reproduction of music on to a sound track, while licensing of the broadcast right involves payment for subsequent performances of the sound track.

189               The incidental use of music by small businesses is another source of recent hostility to APRA.  The House of Representatives Standing Committee on Legal and Constitutional Affairs, in its inquiry in 1998 (see para 180 above), examined the consequences for the small business user of music of the public performance right being administered by two separate collecting societies — APRA in respect of the performance of the musical work, and PPCA in respect of the use of a sound recording (in the event that a CD or cassette player is being employed, rather than a radio).  The different approaches adopted by APRA and PPCA in pursuing compliance with relevant copyright obligations were compared by the Committee in their report. 

190               APRA’s national compliance campaign in 1996 and 1997, and parallel activity by PPCA, had been directed towards the correction of widespread copyright infringement.  The overwhelming majority of small businesses that were using music did not have licences to do so.  APRA’s campaign, conducted by mail and telephone, was both intensive and aggressive in style, and the Committee reported on it as follows:

“3.12   The evidence shows that the universal response…was one of confusion, disbelief and outrage…

3.13     Many business operators had not heard of APRA until they received correspondence…demanding payment of money…

3.16     Many witnesses believed that the demands for payment were a hoax or a scam.  Others found the material to be threatening, intimidating confusing and overly legalistic.”

 

191               By contrast, the Committee noted that PPCA forwarded an information package to businesses that sought to explain copyright obligations, and supplemented it with communications programs, representative meetings and seminars.  The Committee received no specific complaints about the tone of PPCA material.

192               The Committee concluded that:

“3.34   There is a high level of confusion and misunderstanding about the nature of the public performance right and the collecting societies which administer the right…  

 

Information sent to small businesses… [by APRA] did not have a customer focus or take a business friendly approach.  …[It] was highly legalistic and focused on compliance rather than explanation.  The material seemed to be based on an underlying presumption that the business was using music, demanding that either a licence or exemption form be completed immediately, rather than making an initial inquiry about whether music was being used at all.”

 

193               The Tribunal considers this evidence to be important as illustrating a distinction that lies at the heart of this present matter.  On one hand, APRA is conducting a function that is directed to worthy ends, and that is consistent with public policy on copyright.  On the other hand, the manner in which APRA recently performed its role in a particular but significant respect has received damaging criticism.  The parliamentary inquiry’s conclusions suggest that, in today’s circumstances, assessment of the public interest in regard to the conduct of APRA’s function will necessarily look beyond administrative efficiency and the achievement of compliance.  For the Tribunal, two very different questions emerge — whether a function that is perhaps most efficiently performed by a monopoly can nevertheless in theory be performed in the net public interest, and whether the manner it in fact bears on others is in the net public interest.  The proceedings, in the opinion of the Tribunal, very properly focussed more on the second question than the first. 

194               Other criticisms of APRA’s administration of the performing right are made in the evidence.  Both ACCC and FACTS led written and oral evidence from several witnesses from industries where music is used in the normal course of business, whose complaints exhibited some common themes that were not, however, all relevant to the matter.  Some witnesses appeared to believe that their industry should not pay performing right royalties at all  — copyright obligations, they suggested, were adequately satisfied by payments made in regard to other rights.  Others seemed to be motivated by a narrow commercial interest in substantially reducing performing right payments, rather than by any wider justification.  The Tribunal attaches no direct weight to such arguments.  More importantly, several witnesses asserted that APRA exhibits monopoly behaviour in its dealings with licensees, in various alleged respects:

·               by not responding as it should to new or emerging circumstances;

·               by insisting unilaterally and unreasonably on the application of unsuitable licence schemes, and being unwilling to discuss alternatives;

·               by not offering users a choice between licensing options; and

·               by requiring unsuitable and demanding administration by the user as a term of the licence.

195               No satisfying evidence was led in rebuttal of these opinions – no evidence suggesting that APRA is concerned to anticipate change in its market and to respond pro-actively to it, in the manner that an organisation exposed to competition would do.  Rather it appeared that APRA’s prime focus is restricted to the maintenance of present arrangements, the improvement of internal efficiencies, and the maximisation of income through the pursuit of compliance.  The Tribunal accepts that APRA should be concerned to pursue the interest of its members, to protect its investment of money and resources in present regimes and procedures, and not lightly to put either at risk.  However, we consider it to be incumbent on APRA (as for any organisation with a monopoly advantage) also to respond sensitively and prudently to the changing needs and expectations of its market, as a proper element of its duty.  The responsibility of a monopoly to the community is not confined to seeking maximum short term benefit for its members.

Criticisms of the APRA blanket licence

196               The typical APRA licence is a blanket licence, whether it be for public performance, broadcast, or diffusion to subscribers.  Commercial criticism of the blanket licence was made by witnesses from the film, radio and television industries.  This criticism was offered in a context of an expressed preference for additional commercial options in performing right licensing for their industries.  The licensing alternatives available in the United States were frequently mentioned in favourable terms.

197               Commercial radio broadcast licences are presently granted by APRA only as blanket licences, with fees payable at a percentage of gross advertising revenues, and an electronic log of music use supplied by the radio station to facilitate APRA’s distribution of royalties to copyright holders.   

198               Mr King of FARB annexed to his written statement a detailed submission to ACCC in respect of APRA’s application.  This submission contains useful commentary on the issues in this matter, in particular in regard to the blanket licence concept, and to APRA’s awareness of the distinct characteristics of the numerous markets where the performing right is licensed.  In noting this commentary, we do not imply our general acceptance of its premises.  FARB considers the APRA arrangements to be inappropriate, because no radio broadcaster is able to clear particular music uses at source (for example for advertisements, pre-recorded programs, and programs containing very little music).  APRA’s monopoly status, it was claimed,  encourages a “take-it-or-leave-it” attitude when licence agreements are being negotiated.  Mr King said that pre-recorded programming is increasing in radio, which (on other evidence) will decrease the scope for electronic logging of music and require the supply of cue sheets for the pre-recorded programs. In the emerging circumstances, radio stations, he said, might wish to explore alternatives to the present blanket licensing of the broadcast right, such as:

“…direct licensing from the composer (direct dealing) where themes or jingles are commissioned or licensing on a per-program basis.  However, APRA’s exclusive acquisition of rights effectively prevents direct dealing and deters alternative licensing arrangements because it means that there is no competitive pressure on APRA to accommodate the various licence needs of users.”

 

Mr King said further that:

 

“…a broadcaster…would, under the present regime, still require a blanket licence to cover its remaining needs (particularly unplanned or unpredictable uses of music).  For there to be any incentive…there would need to be an adjustment in the blanket licence fee to take account of the direct deals…”

 

199               Film exhibitors (cinemas) are granted a performing right blanket licence by APRA, and pay fees at 0.33 per cent of gross box office takings.  This licence scheme has been maintained since 1992. The level of blanket licence fees payable were disputed in 1995 between the exhibitors and APRA, with the exhibitors seeking a reduction in the licence fee rate, and some other concessions.  APRA would not agree to the proposals.  In the upshot, the cinema industry entered a five year agreement with APRA for blanket licensing, without the issue being taken to the Copyright Tribunal.  In addition, a licence fee is paid by cinemas to PPCA in relation to rights in sound recordings incorporated in films.  Cue sheets are either supplied by the film distributor or obtained by APRA from another collecting society.  The blanket licence also covers music played in the cinema foyer.

200               Ms Kanost gave evidence for Village Roadshow Limited (Village), Australia’s largest film distributor, and operator of a large chain of cinemas, in addition to conducting other businesses in film production, radio broadcasting and leisure activities.  She described the licensing structure as introducing a needless administrative burden, and pointed to arrangements relating to film copyright in the United States as being preferable.  She characterised the United States arrangements as allowing film producers to negotiate clearance for all forms of copyright with the copyright holders, so that no public performance licence fees are paid by film exhibitors in the United States.  She said that Village sees room for a corresponding scheme in Australia, where performing rights clearance would be negotiated directly, with a single fee payment by the film producer that removes the present obligation for every film exhibitor to pay fees for a blanket licence.  However she also agreed in cross examination that the corresponding scheme that she postulated would apply to Australian films and to screening in this country, where Australian films presently amount to only the 1.5 per cent of total screenings.

201               Mr Pannell gave evidence for another major film exhibitor, Hoyts Cinemas Limited (Hoyts).  He stated that Hoyts believes that source licensing, that is direct dealing between the user and the copyright holder in the licensing of rights, would be an appropriate alternative to obtaining a blanket licence from APRA, for the film exhibition industry:

“It would appear to be of great benefit to film exhibitors, distributors and copyright holders , and a more efficient means of collection of performing rights fees, if an option existed where all forms of film based copyright could be bundled together and could be negotiated at the one time with the various copyright holders.  Film producers would pass the cost of negotiating the performing rights fee on to distributors who would build it into the cost to exhibitors… 

 

A similar consideration would apply to…music played as part of advertisements…[which] are received in package form…The screen advertiser pays Hoyts to screen them.  If there was scope for direct dealing with composers, the commissioner of an advertisement would, more than likely, pay slightly more…to reflect the negotiation of the performing right.”

 

And later he said in cross examination:

 

“…there is no alternate mechanism.  There is no opt out, we can’t extend the US source licensing, it’s literally a fait accompli.”

202               Asked by counsel for APRA whether he considered that the reaching of the 1995 agreement was a result of the operation of market forces,  Mr Pannell replied: “Not when you’re dealing with a monopoly, no”.

203               Yet he acknowledged that there had been correspondence between the cinemas and APRA and the fees had been agreed.  He thought the agreement was the product of APRA’s monopoly position because APRA said that if a particular fee offered was not accepted, the matter could go before the Copyright Tribunal and APRA would contend for a higher fee.  There seems to have been a concern by the cinemas that a higher fee could be awarded, so the cinemas accepted the offer.  This provides no evidence of monopoly behaviour by APRA.

204               Mr Robinson gave evidence as Financial Controller of Greater Union Organisation Pty Limited, (Greater Union) which owns Greater Union Cinemas and has shareholdings in other film exhibitors, primarily directed to describing the 1995 negotiations between APRA and the film exhibitors.  Greater Union’s submission to ACCC in December 1996, in connection with the APRA application for authorisation of the relevant conduct, was annexed to Mr Robinson’s statement.  In that submission, it was contended that the use of market power by APRA in the 1995 negotiations of licence arrangements was evident as follows:

“•        the insistence that the exhibitors obtain a blanket licence, even though only a restricted number of sound tracks on films exhibited are mainly played; and

•          producers being precluded from negotiating directly with the APRA members to obtain the public performance rights to the sound track at the outset for a flat fee.  This has resuled in the liability passing to exhibitors.”

 

205               In the first respect, Greater Union in late 1996 appears to have been under a misapprehension as to the nature of a blanket licence, apparently assuming that access to the complete APRA repertoire implies payment for unwanted music.  The Greater Union example typifies several similar indications in evidence that some users do not understand the blanket licence concept, and assume that, by offering a blanket licence for use of a large repertoire, APRA is forcing them to pay needlessly high licence fees.

206               There is no point in the Tribunal speculating as to whether this misapprehension may have exacerbated user resentment of APRA’s arrangements, by fostering an impression — for which the Tribunal finds neither evidence nor logic — that APRA’s licence fees have somehow been deliberately inflated by APRA’s general adoption of the procedure of blanket licensing.  Rather, we observe that the blanket licence — by offering the user the freedom to use any music as required, and later to document and pay for whatever is used — offers such obvious advantages for both user and collecting society that it is widely adopted for performance right administration in all countries on which we received evidence.  In the general case, competition authorities and judicial decisions in other countries have not found fault with the use of the blanket licence, but rather have commented favourably on its administrative usefulness; their strictures have rather been directed at situations where the blanket licence is offered at a fixed rate as the only mode of licensing the performing right.  In the United States, to which many witnesses pointed as a model to be emulated, the blanket licence remains the general form of licence in use, and alternative licence forms supplement it in special circumstances. 

207               We further note that the evidence does not support any claim that APRA fees are high in comparison with other countries.  One example of evidence in this respect suffices here.  Tabulations were exhibited of the percentages of cinema gross revenue payable as blanket licence fees for the performing right in numerous other countries.  None is as low as the 0.33 per cent payable in Australia; all are significantly higher; and in several European countries, the rate exceeds 1 per cent.  It appears that, if the blanket licence is a device for predatory copyright administration, then APRA is behindhand in its exploitation.

208               The second of the Greater Union contentions supports those of the other film exhibitors and of other major users in radio and television on whose behalf evidence was  given — in essence that APRA, having a monopoly on the licensing of the performing right of music, imposes licensing terms that do not allow the music user any commercial or administrative flexibility, and that preclude the user from testing the price of the licence in the marketplace.  These contentions are not at bottom criticisms of the blanket licence in principle, but rather complaints that alternative licensing regimes, such as those available in the United States for some industries, are not open for adoption by an Australian user of music.

209               Both the generalised criticism of the blanket licence by some users, and their qualified acceptance of its value in some circumstances, are expressed in the context of a broader dissent.  APRA’s ability to offer the blanket licence relies on a sufficient comprehensiveness of the repertoire of musical works for which APRA can offer to license the performing rights.   The comprehensiveness of the repertoire in turn relies on two elements of APRA’s arrangements, first the requirement that members assign the performing right of effectively all their works to APRA for administration on their behalf, and secondly APRA’s reciprocal agreements with other collecting societies.  It follows that these last two elements of APRA’s conduct, rather than the blanket licence of itself, are the cause for the dissent.

8.         REGULATION OF PERFORMING RIGHT COLLECTING SOCIETIES

Australia - the Copyright Tribunal

210               The genesis of the Copyright Tribunal has already been mentioned: paras 57-62.  The potential for collecting societies to exert monopoly power has been recognised by a succession of inquiries in Australia.  The Copyright Tribunal was established to resolve disputes between licensors and licensees or potential licensees over access to copyright material and over prices – that is to determine the reasonableness of charges and conditions on which licences were to be made available.  However, as the underlying purpose of establishing the Copyright Tribunal was to provide a means of curbing monopoly power, the protection of the public interest was plainly intended.

211               The submissions of the parties disclose widely differing opinions on whether the jurisdiction of the Copyright Tribunal is sufficiently broad to enable it to effectively and sufficiently control the extent of APRA’s anti-competitive conduct. 

212               The functions of the Copyright Tribunal relevant to these proceedings arise under ss 154 to 160 of the Copyright Act 1968.  In particular, under s 154 a licensor who proposes to bring a licensing scheme into operation may refer the scheme to the Tribunal which is empowered either to confirm or vary the scheme.  Under s 157 which enables a user or potential user to apply to the Tribunal, the Tribunal is empowered to determine reasonable charges and licence conditions.  Pursuant to one or other of these sections all licences granted by APRA are subject to the jurisdiction of the Copyright Tribunal, and under s 157 a user seeking a form of licence which is outside of any of APRA’s existing licence schemes can also apply to the Tribunal.

213               ACCC accepted criticisms made of the power and role of the Copyright Tribunal.  Notwithstanding the powers of the Tribunal under ss 154 and 157, ACCC concluded (at paras 8.1.13, 8.1.14) that:

“In determining whether or not the scheme is unreasonable it is unclear whether and to what extent the Tribunal may consider competition issues.  Even accepting that it may, the provisions of the Act are such that it is open to the Tribunal to decide that a scheme is reasonable, notwithstanding it is anti-competitive.  Further, even if the Tribunal decides that the scheme is unreasonable, there is no requirement for the Tribunal to consider competition issues when imposing its own conditions and charges.

The Commission takes the view that the Tribunal does not have the power and is not such an accessible resource that it can regulate APRA’s activities so as to completely remove any ability APRA may have to abuse its monopoly position, particularly in respect of small users and matters such as the types of licensing schemes offered by APRA…”

214               ACCC had before it advice from the Office of General Counsel in the Attorney-General’s Department as to the jurisdiction of the Copyright Tribunal.  The advice was that in carrying out its functions under ss 154 and 157 the Tribunal could have regard to competition issues in considering what was reasonable.  However, it was not bound to consider those issues as paramount when deciding what order to make.  ACCC and FACTS urge similar views, and in addition contend that the capacity of the Copyright Tribunal to adequately take into account competition issues is further limited as on a proper construction of ss 154 and 157, it can only impose charges and conditions which it considers to be reasonable where it is satisfied that a licence scheme, where one applies, is not reasonable.  In other words, if an existing licence scheme on offer from APRA contains reasonable charges and conditions, the Copyright Tribunal is not empowered to substitute other charges and conditions which it considers to be more reasonable: see Reference by APRA Ltd; re Australian Broadcasting Corporation (1985) 5 IPR 449 at 459.

215               It is for the Copyright Tribunal in the first instance, and ultimately for the Federal Court or the High Court, to determine the limits, if any, on the powers of the Copyright Tribunal to take into account and reflect competition issues in its decisions.  This Tribunal cannot do so.  We consider that the approach which we should take is to note that the power of the Copyright Tribunal may be limited to some extent, and to take that into account.  However, we think that any limitation on the power of the Copyright Tribunal in this respect is of very limited significance in the overall assessment which this Tribunal must make.

216               The Copyright Tribunal plainly has very wide power, even if not wholly comprehensive power, to control the exertion of monopoly power by APRA.  APRA is obliged to, and on the evidence does, act having regard to the undoubted power of the Copyright Tribunal to control charges and licence conditions.  Whilst the Copyright Tribunal might not be obliged to treat competition issues as paramount, we cannot accept that it would not take them into account and strive to determine what constitutes reasonable charges and conditions having regard to the wider public interest, as well as to the interests of the immediate parties before it.  We think the ACCC unduly discounted the constraining influence and powers of the Copyright Tribunal over the conduct of APRA.

217               Subject to the complaint that the procedures, formalities, and expenses associated with an application to the Copyright Tribunal render access to it difficult, particularly for small users (an issue we address elsewhere in relation to an alternative dispute resolution precedent), the role and function of the Copyright Tribunal provides the answer to complaints which have been made before us by a number of users that the charges demanded by APRA are excessive.

218               The jurisdiction of the Copyright Tribunal, however, only applies to licensors, that is to owners or prospective owners of the copyright in the work from whom a licence is sought or obtained: s 136(1) of the Copyright Act 1968.  In other words, the jurisdiction operates in respect of the output arrangements of APRA.  The Copyright Tribunal has no jurisdiction over APRA’s input arrangements.  The existence of the Copyright Tribunal is therefore irrelevant to the arguments mounted by ACCC and FACTS that APRA’s input arrangements are unnecessarily anti-competitive, and require modification to remove restrictions on direct dealings for commissioned works, and to permit direct negotiation between a writer and a broadcaster on a work by work basis.

219               Counsel were agreed before us that the Copyright Tribunal has no jurisdiction over APRA’s input arrangements.  Counsel were agreed that it was for this Tribunal, and not the Copyright Tribunal to be concerned with the input arrangements, and to “determine the structure” under which the role of the Copyright Tribunal, envisaged by Part VI of the Copyright Act 1968, will function.

The European Union

220               Reference has been made to the GEMA decisions of the Commission of the European Communities on which the present Article 17(b) of APRA’s Articles is modelled.

221               GEMA is a collecting society formed under German law for the protection of composers, authors and music publishers.  Under its constitution prior to 1971, composers, authors and publishers wishing to make use of its services, assigned all their present and future copyright rights to GEMA for at least six years (regardless of the length of the members’ continued affiliation with GEMA).  GEMA was authorised in its name to use the rights ceded to it by the copyright holders, and to exploit those rights.  GEMA was the only society managing in Germany the rights of writers of musical works.  The situation of GEMA was comparable to that of other societies in France, Belgium and Holland (and indeed to others around the world, including APRA).  In Re: GEMA (1971) CMLR D35 the Commission found that in fact every writer and publisher established in Germany used the services of GEMA, as individual management of authors’ rights was in practice so difficult as to be virtually non-existent.  The Commission recognised the need for joint copyright protection by collecting societies to counter balance the market strength of users.  The Commission held that GEMA had infringed Articles 86 of the EEC Treaty by improperly exploiting its dominant position within the common market by binding its members to obligations that exceeded those that were necessary for copyright protection of the members.  The Commission observed at D48:

“While it is true that an author’s rights society is necessary for the management of most of the author’s rights, GEMA confuses this necessity for a collective management with management by a single society which establishes and defends its exclusive position by improper means.”

222               The Commission found that GEMA’s constitution “unfairly complicate the movement of its members to another society” (D48).

223               GEMA was required to amend its constitution to permit a member, on one year’s notice, to withdraw from GEMA’s administration one or more of the following categories of work (D49):

1.         the general performing right;

2.         the broadcasting right, including transmission right;

3.         the right of cinematographic representation;

4.         the right of mechanical reproduction and diffusion, including the right of transmission;

5.         the right of cinematographic production;

6.         the right to produce, reproduce, diffuse and transmit on bases for optical sound; and

7.         the rights of exploitation resulting from technical development or a change in the law in the future.

224               GEMA was also required to allow members the ability to opt out of comprehensive assignment of works in respect of a defined country or territory outside Germany. 

225               In Re: GEMA (No.2) [1972] CMLR (RP supplement) D115 the order of the Commission was varied to add an alternative so as to permit a member either to withdraw categories of work on one year’s notice (the original decision) or to withdraw specified forms of utilisation at the end of a period of three year’s notice.

226               As we understand these decisions, the amendments to GEMA’s constitution were not intended to facilitate individual administration of a copyright work by a writer.  Rather, the intention was to facilitate the possibility that another collecting society could enter the market and provide administration services to writers or publishers.  The effect of the decision was to remove an unnecessary barrier to entry which would otherwise confront another collecting society.

227               For present purposes, importantly the decision did not provide for a member to opt out of GEMA in respect of a body of work other than by category, by form of utilisation and by territory;  in particular it did not provide for opting out for defined single works, as both ACCC and FACTS have proposed in this matter.

228               A further decision of the Commission of the European Communities some ten years later, Re: The GEMA Statutes [1982] 2 CMLR 482 again considered the role of GEMA as a collecting society.  The Commission reaffirmed the need for joint copyright protection by collecting societies and observed, at 491-492:

“Collecting society membership is above all necessary in relation to communication to the public and broadcasting rights, where copyright holders are up against powerful users of music and the demand side, i.e. the listener, can exert only very limited influence on these users.  Only through the collecting societies therefore can the copyright holders obtain the fair compensation due for their intellectual labour.

The basis for any effective activity on the part of GEMA is the collective administration of copyright for the purpose of joint exploitation with respect to users.  It is indispensable that GEMA have joint, uniform control of the rights assigned it.”

United Kingdom

229               The PRS has operated in the United Kingdom as the sole collecting society administering performing rights (and also film synchronisation rights) on behalf of writers and publishers of musical works since 1914.  There are close analogies between the operation of PRS and APRA, which is hardly surprising as the constitution and rules of APRA were modelled on PRS.  PRS administers in the United Kingdom the separate rights of public performance, broadcasting and diffusion by cable comprised in copyrights existing in musical works, and in most countries of the world under reciprocal arrangements with other societies which are affiliated under CISAC.  Of particular relevance, Article 7 of the PRS Articles of Association required that writers and publishers assign to PRS all their performing rights for the whole world for PRS to administer.

230               The operations of PRS are subject to applicable competition laws in the United Kingdom, in particular the Restrictive Trade Practices Act 1976 (UK), the Competition Act 1980 (UK), and the Fair Trading Act 1973 (UK).  PRS was the subject of an inquiry by the Monopolies and Mergers Commission (MMC) under the Fair Trading Act 1973 which published its report in February 1996.  The terms of reference required MMC to investigate whether a monopoly situation existed in relation to the supply in the United Kingdom of the services of administering performing rights and film synchronisation rights on behalf of writers and publishers of musical works, and if so, to consider whether PRS was taking steps (by way of anti-competitive practices or otherwise) to exploit or maintain the monopoly situation which operate against the public interest.

231               PRS contended before MMC that it was essential for it to hold an exclusive assignment of performing rights in order that it could effectively and efficiently administer those rights, and where necessary enforce them in the event of infringement.  Similar arguments were advanced in favour of exclusivity by PRS to the MMC as have been advanced to this Tribunal by APRA.

232               The MMC found that as PRS was the sole supplier in the United Kingdom of services of the kind provided by it, a monopoly situation existed in favour of PRS.  After receiving extensive submissions and evidence, MMC concluded that PRS was acting in a number of respects that were attributable to the existence of its monopoly situation.  Relevant to the matters before this Tribunal are the conclusions in relation to the exclusive assignments of performing rights by members under Article 7.  MMC accepted the submissions of PRS that it was bound to comply with the GEMA decision as part of the EC law, but found that PRS had failed to make clear to its members that they could self administer the categories of performing rights set out in the GEMA decision.  Further, the MMC found that PRS was exploiting its monopoly power by refusing to allow members to administer their own rights in respect of live performances.  In its recommendations addressed to these findings the MMC said:

“2.111.            We considered first whether the most appropriate remedy to deal with the adverse effects we had identified would be the introduction at this stage of another society into the UK market for the collective administration of performing and film synchronisation rights.  We were struck, first, by the fact that none of the parties from whom we took evidence had seriously argued in favour of the creation of a second collecting society duplicating all the PRS’s functions.  Although there is no legal reason why such a competing society could not be formed if thought necessary by sufficient publishers and writers, users, in particular, did not want to deal with more than one society.… Second, we felt that a break-up of the PRS or the introduction of direct competition from other collecting societies might reduce scale economies in the operation of the business in a market of the size of the UK.  We noted in this context that Canada had recently reverted from two competing organizations to one monopoly performing right society, and we became aware of only two jurisdictions, Brazil and the USA, where there were competing societies.  Finally, we thought that, although it could be done, the creation of competing collecting societies in the UK was unlikely to bring benefits to the members.  What some categories of member are likely to benefit from, however, is a single society which has less rigid rules and policies, particularly concerning exclusivity, than those the PRS currently applies.

2.112.  We therefore believe that a preferable recommendation is for the PRS to allow its members greater freedom to choose which rights to self-administer.… The PRS told us that it would permit members to self-administer the categories of rights set out in the GEMA decision.  But no one had asked to self-administer a GEMA category.  The GEMA categories are not necessarily the ones that some members consider that they can administer at least as effectively as the PRS.  If the rules concerning exclusivity were weakened, this should allow for a gradual introduction of competition into certain aspects of the PRS’s operations, which could be extended at a later date if it proved successful.  Because the PRS is a de facto and not a statutory monopoly, market forces would shape the way in which such competition came about.  Technological developments should also make self-administration easier in the future.

2.113.  We expect that this approach, involving a further relaxation of the rules concerning exclusivity as elaborated in paragraphs 2.124 to 2.127, will mean that the PRS remains a de facto monopoly for the administration of performing rights.”

…

2.124   In order to remedy the adverse effects arising from the PRS’s insistence on exclusivity, … and so as to contribute to remedying the adverse effects deriving from our other findings, we consider that Article 7 of the PRS’s Articles of Association should be amended to enable those members who choose to do so to administer their own live performing rights.  In addition, Article 7 should be amended to make it clear that self-administration of those categories of performing rights specified in the GEMA decision is permitted.”

233               In the following paragraphs 2.125 to 2.127 the MMC recognised that self-administration of live performances would have administrative implications particularly in respect of self-administration of live performances outside the United Kingdom.  It was recognised that PRS would have a continuing duty to collect royalties in respect of works performed at live performance concerts which belonged to members who had not chosen to self-administer, and that PRS would incur costs in doing so, including monitoring costs.  The MMC considered that those who chose to self-administer should be responsible for meeting the reasonable additional costs of PRS.

234               Reasons given by the MMC for its recommendation that members be entitled to administer their own live performance rights emphasised that the circumstances in which this would occur would be tightly and clearly defined, and that live performances, such as major pop tours were in many respects similar to performances of operas and ballets which are classed as grand rights where the Articles of Association permit direct agreement between their copyright holder (who did not vest grand rights in PRS) and the organiser of the performance.

235               Following the report of the MMC the Articles of Association of PRS were amended to allow a member to reserve at the time of admission, or to require reassignment of, categories of rights or forms of utilisation of rights in accordance with the GEMA decision.  The rules were also amended to permit self-administration of live performing rights, however the rules permitting this, approved by the Office of Fair Trading, impose significant conditions on the member.  A member is required to give sixty days advance notice to PRS, together with a list of the works to be performed, to produce signed consents by all interested parties in the works, to pay additional charges incurred by PRS, and to indemnify PRS against costs and damages arising from self-administration.

236               We have set out the above conclusions of MMC, as they were reached after an extensive investigation in circumstances which bear similarity to the position of APRA in Australia, and after considering arguments very similar to those which have been addressed to the Tribunal.

237               Before us evidence was tendered from Ms Lowe, the International Counsel for a company jointly owned by PRS and Mechanical Copyright Protection Society Limited in the United Kingdom.  Ms Lowe said that the opt-out provisions introduced following the MMC report have been used in one instance only.  A well-known rock band which had been active in promoting the right to self-administer for live performances, took out licences under the new PRS Article for four concerts in three European countries.  In the event, great difficulty was experienced with other parties concerned about satisfying the requirements of the country where the concerts were to be held, and the performance royalties directly due for the self-administered licences have in the most part not been received.  It is not without significance that in recommending the live performance rule, the MMC noted that:

“If experience, however, shows the expectations of such writers and publishers to be unfounded, they may leave the administration of such rights with PRS.”

It seems to date that this has occurred save for the one instance just mentioned.  However, this is not to say that given time, and with the advance of technology, the right to self-administer live performances might not be used more frequently, particularly within the United Kingdom where difficulties with local licensing authorities in other countries would not arise.

238               Ms Lowe also gave evidence confirming that the fifty per cent rule is enshrined in the PRS distribution rules which, she said, was consistent with the rules of collecting societies world wide.  The fifty per cent rule was not the subject of adverse criticism by the MMC.

Ireland

239               At para 111 we noted that the licence back system proposed by the ACCC was said to be modelled upon a system recently adopted by IMRO, following a report by the Irish Competition Authority.

240               IMRO was the Irish subsidiary of PRS until 16 December 1994.  In October 1991 PRS and IMRO jointly notified the Competition Authority in relation to three standard forms of assignment agreements.  At that time IMRO was conducted under Articles of Association similar to those of PRS, including Article 7 which required an assignment of all performing rights world wide to IMRO.  The Competition Authority published its decision on the notification on 18 May 1994.  Relevantly the authority concluded:

“A mechanism for creators/publishers to assign their works to PRS is necessary to enable PRS to be in a position to license its repertoire.  Those provisions, without which PRS could not exist at all, are clearly indispensable.  The Authority believes that preventing the members from granting non-exclusive licences to individual users for particular purposes is not essential for PRS to operate effectively as a collective copyright enforcement agency.  In the Authority’s view such a restriction is not indispensable for the achievement of the efficiencies and other benefits which a collective copyright system produces.  The experience in the US over the past 50 years indicates that collective administration of performing right is not incompatible with allowing creators/publishers to grant individual non-exclusive licences.  The Authority considers that members of PRS should have the freedom to choose whether to allow PRS alone to administer all or part of the performing right, or to administer it themselves on individual occasions.”

241               The Authority criticised aspects of the existing Article 7, and also the Article which permitted a member to terminate his or her membership only at three yearly intervals.

242               In January 1995, after IMRO had become an independent company, it again notified the Competition Authority in relation to new standard form assignment agreements which included a provision for the licence back of performing rights to a member on individual occasions.  In addition, it seems to have been acknowledged that the application of EC law required that a member could reserve, or obtain a reassignment of, the GEMA categories of performing rights.  These two qualifications to the requirement of exclusive assignment were thought to meet the conclusion of the Competition Authority set out above. 

243               The conditions for the proposed licence back were further amended by IMRO in October 1995, and in the amended form were approved by the Competition Authority which granted licences in respect of the notified standard agreements for fifteen years in a decision published on 15 December 1995.  The licence back provision intended to cater for individual occasions was contained in Article 7(g).  The Authority noted that Article 7(g) had been drafted so as to preserve the integrity of the assignment from the members to IMRO, in order to ensure that IMRO could bring proceedings for infringement of the performing right in its own name.

244               The terms of Article 7(g) and IMRO’s associated rule 10 dealing with the grant of a non-exclusive licence under Article 7(g) are important as the opt out right bestowed under them is subject to very significant limitations.  Article 7(g) reads:

“(g)     Any member may (subject to compliance by the member with the Rules), require the Company to grant to the Member a non-exclusive licence to permit the Member to exercise all or part of the Performing Right in respect of any particular work or works, the Performing Right in which has been assigned to the Company by such Member as the Composer, Author, Publisher or Proprietor thereof.”

245               Rule 10 provides for a grant of a non-exclusive licence under Article 7(g) where:

“(a)     two months’ advance written notice is given to IMRO;

(b)       of the date(s) on which the rights are proposed to be exercised;

(c)        the place(s) within the Republic of Ireland at which the rights are proposed to be exercised;

(d)       the particular Work(s) to be exercised; and

(e)        written consent and release from everyone interested in the

            Performing Right in the Works to be performed and releasing IMRO from any obligation to collect any sums in respect of Performing Rights as a result of the member’s exercise of the rights granted to him.”

246               Under Article 7(g) the non-exclusive licence is to the member to permit the member to exercise the performing rights.  The right is of limited duration – to particular dates on which the rights are proposed to be exercised.  Moreover, the right is in respect of a performance at a place within the Republic of Ireland.  There are also the procedural requirements of two months advance notice and written consent and release from everyone interested in the performing right, requirements which are considered necessary for administrative purposes but which are likely to make the right a difficult one to exercise.  This has apparently been borne out in practice.  Information given to ACCC by IMRO in March 1997 was that, although the opt out choice had been available for almost two years, only one writer had sought to exercise the right.  The writer did so in respect of a large contract, but failed to meet the time constraints set down in the rule.  IMRO refused the request, and explained the administrative necessity for the time constraint.  That incident occurred in 1995.  In 1996 when the same songwriter had another series of concerts he did not look for a licence back arrangement and was satisfied with the operation of IMRO.

Canada

247               The Society of Composers, Authors and Music Publishers (SOCAN) has been the sole performing rights collecting society in Canada since 1990 when Composers, Authors and Publishers Association of Canada, Limited and Performing Right Organisation of Canada Limited, two collecting societies that had previously operated in Canada, merged.  At that time concerns held by the relevant competition authority, the Director of Investigation and Research under the Competition Act R.S.C. 1985 c.C-34(Canada), that the proposed merger would have an impact on barriers to new entrants, were removed by an amendment to SOCAN’s rules that reduced the notice period for members to terminate membership from five years to two years. (Under the amended APRA rules the corresponding period is now six months).

248               Mr  Spurgeon, the General Counsel of SOCAN gave evidence before the Tribunal.

249               SOCAN is similarly constituted to APRA.  Under SOCAN’s rules a member is obliged to assign all performing rights in musical works to SOCAN which undertakes similar licensing activities and royalty recovery and distribution to APRA.

250               Under the Copyright Act R.S.C. 1985 c.C-42 (Canada) SOCAN is obliged annually to have its licence tariffs approved by the Copyright Board of Canada.  The Copyright Board exercises a function similar to that of the Copyright Tribunal.  SOCAN is required to file a statement of all royalties that it proposes to collect in the ensuing year for the grant of licences.  The Copyright Board is required to “certify the statement as approved, with or without such alterations to the royalties and related terms and conditions specified therein as the Board may make” (s 67.2(1)(a)).

251               Since 1985 SOCAN and the Canadian Association of Broadcasters (CAB), a trade association representing Canadian commercial television stations, have been in constant dispute over tariff rates.  Each year CAB has challenged SOCAN’s statement of proposed tariffs, and has argued for the introduction of a “modified blanket licence” (MBL).  SOCAN only offered blanket licences covering its complete repertoire at the fixed tariff rate.  Until the 1997 hearing the Copyright Board had rejected CAB’s case for an MBL.  However, in a majority decision in 1997 the Copyright Board handed down a decision which reduced the tariffs for blanket licences by 15 per cent, from 2.1 per cent of station revenues to 1.8 per cent, and introduced an MBL.  (The blanket licence tariff compares with APRA’s Australian rate of 0.9 per cent of station revenues after certain adjustments).

252               SOCAN sought judicial review of the decision by the Federal Court of Appeal in Canada.  SOCAN argued that the Board exceeded its jurisdiction under s 67.2(1)(a) by taking into account competition issues in arriving at its decision to introduce the MBL, and that the decision to lower the tariff was “patently unreasonable”.  In a decision handed down on 19 March 1999 the Court of Appeal dismissed the application for review.  The Court held that the Copyright Board’s powers under s.67.2(1)(a) extended to protecting copyright users from monopolistic powers of performing right societies, and endorsed a statement from an earlier decision (Canadian Association of Broadcasters v Society of Composers, Authors and Music Publishers of Canada (1994) 58 CPR (3d) 190 (FCA)) that “the Board properly understood its function when it stated that it had to regulate the balance of market power between copyright owners and users”.  Accordingly the argument of SOCAN about the Board’s power to introduce the MBL was rejected.  The Court summarised that argument as follows:

“Essentially, the MBL enables stations to reduce their royalty obligations to SOCAN by allowing them to deduct from their gross advertising revenues those revenues attributable to programs which do not contain music from SOCAN’s repertoire, that is, music which is ‘cleared at source’.  SOCAN submits that the MBL will reduce SOCAN’s revenues which, in combination with a lower tariff rate, will reduce composers’ income, causing them to enter into direct negotiations with broadcasters in an attempt to earn more income.  But because SOCAN requires composers to grant it an exclusive license over performing rights for two years, composers will be forced to leave SOCAN in order to negotiate those rights with broadcasters.  SOCAN submits that not only will the collective administration of composers’ rights be threatened, but composers will ultimately earn less income, because broadcasters have much more market power than composers and are overtly interested in reducing costs.  This change in institutional arrangements is extraneous to the Board’s mandate of fixing royalties, according to SOCAN.”

253               The opposing argument by CAB was also summarised by the Court:

“The CAB contends that the MBL is an optional, alternative tariff structure, which does not force composers to leave SOCAN, but which enables composers to negotiate directly with broadcasters on a more-or-less even footing.  While the CAB concedes that the combination of lower tariffs and the MBL may prompt composers to leave SOCAN, and cause SOCAN to abandon its exclusive licensing requirement, the CAB argues that these changes are not necessarily detrimental to the interests of composers, since many composers already negotiate directly with producers, for example, with respect to commissioned music and synchronization rights.  Counsel for the CAB, Mr. Kent, proffered the analogy of a double locked door – with one side locked by SOCAN’s exclusive licensing requirement, and the other by the CAB’s desire for a permissive regime in which composers can negotiate directly with broadcasters – in order to make the argument that the Board had to start somewhere, so it ‘unlocked’ the CAB’s side of the door, as it lacked the jurisdiction to compel SOCAN to abandon its exclusive licensing requirement.”

254               Relevant to this Tribunal’s inquiry, it is significant to note that the issue before the Court concerned the power of a body similar to the Copyright Tribunal, not the power of a competition authority.  Accordingly, even though the Copyright Board could take into account competition issues in deciding upon a tariff regime, it had no power to regulate the input arrangements between music writers and publishers on the one hand and SOCAN on the other hand.  Hence, the MBL was introduced in order to “unlock” one element in the institutional arrangements.  In the present case, however, this Tribunal has power to act in respect of the input arrangements.  If some form of opt-out provision were introduced to modify APRA’s input arrangements, this could remove the ground upon which the Copyright Board acted to introduce the MBL, and may not carry with it the dire consequences which SOCAN asserts will follow in Canada if the MBL is frequently utilised.

255               Whether the MBL will become a common feature in Canada remains to be seen.  If the utilisation of MBLs has the dire consequences forecast by SOCAN, the Copyright Board would have the power on annual tariff reviews to redress the situation.

256               The 1997 decision of the Copyright Board was influenced to a significant degree by local factors.  Members of CAB had ready access to the United States market and to United States writers from whom music could be “cleared at source”.  Canadian writers, who remained members of SOCAN, could not negotiate directly with producers with respect to commissioned works or individual works, and to do so would have to resign from SOCAN.  However, music writers across the border were not so constrained by their membership of a United States collecting society.  These factors, and the further factor that royalties for the use of music were significantly lower in the United States were taken into account by the Copyright Board.

257               No evidence was led before this Tribunal that the competition authority in Canada had taken any action in relation to SOCAN’s operations, other than at the time of the merger in 1990.

United States of America

258               As ACCC observed in its determination (para 4.2.1) the United States television, radio, music and other markets in which music is used, and the United States copyright environment, are all quite different to those in Australia.  A most significant difference is that until United States acceded to the Berne Convention in 1989, United States copyright law had since 1790 imposed a system of copyright registration and deposit of material for the purpose of identifying each work being registered.  The registration system enabled easy proof of title in infringement proceedings, so one principal reason for exclusivity in the input arrangements of collecting societies in other countries did not exist.

259               The United States is a net exporter of copyright material, particularly in respect of musical works, and is one of the largest producers of such works in the world.  The evidence led before the Tribunal was directed to the operation of music performing rights associations in the United States, and in particular in relation to the licensing of music to commercial television operators.

260               The evidence placed before the Tribunal shows that the American television and broadcasting industry is large and complex.  There are three principal layers of television services in the United States, namely:

·               networks (over the air);

·               local television stations (over the air); and

·               cable (including cable television networks and pay cable services).

261               There are three major national commercial television networks owned and operated by ABC Inc., National Broadcasting Company Inc., and CBS Inc.  The television networks operate a relatively small number of “owned and operated television stations” and otherwise air their programs as part of an affiliation arrangement with local stations throughout the United States.  The three networks have approximately 650 affiliated local stations, and in addition there are close to 400 independent local stations.  The networks have thirty-eight owned and operated local stations in the larger viewing markets.  There are some 12,000 cable systems operating.

262               There are three music performing right associations in United States.  The American Society of Composers, Authors and Publishers (ASCAP) is the largest.  It is an unincorporated membership association of writers and publishers of music.  Until 1950, ASCAP effectively obtained the exclusive right to authorise the public performance and broadcast of musical works in its repertoire in a manner comparable with other performing right societies around the world at that time.  The licensing arrangements of ASCAP have attracted attention in the proceedings before this Tribunal as FACTS in its statement of points in support of its application before the Copyright Tribunal under s 157 of the Copyright Act 1968 sought a scheme which it said resembled in some respects the ASCAP scheme.

263               Broadcast Music Inc., (BMI) was created in 1939 by radio broadcasters to provide them with an alternative source of music, there being at the time a fee dispute with ASCAP.  ASCAP and BMI are now the major collecting societies.

264               The third competitor is SESAC Inc., (SESAC).  It was established in 1930 as a privately owned corporation, and it remained privately owned until the last few years.  SESAC at one time specialised in “country and gospel” music and presently represents European and American works.  Writers can become members of ASCAP and BMI simply by satisfying entry requirements.  Membership of SESAC is, however, by selective invitation.  Each organisation has affiliations with overseas collecting societies.

265               From 1940 a series of anti-trust actions against collecting societies were pursued.  In 1941 the Department of Justice sued ASCAP for anti-trust violations alleging that the issue of annual fixed fee blanket licences, being the only licences then offered by the society, was an unreasonable restraint of trade.  A consent decree was entered in 1941, and amended in 1950 to take account of changed circumstances.  The 1950 amended decree has since then governed most of the licensing activities of ASCAP.  A similar consent decree also applies in relation to BMI.

266               In consequence of the anti-trust actions, and consent decrees, ASCAP and BMI obtain copyright title only by means of non-exclusive arrangements with members and affiliates.  SESAC is not the subject of a consent decree but nevertheless obtains only a non-exclusive licence from members.  Thus, in the United States, writers are free to enter into direct negotiations with users; producers are able by direct negotiation to incorporate music “cleared at source”.  No one collecting society has a geographical monopoly.

267               A principal feature of the amended decrees is the creation of a mechanism for the judicial fixing of licence fees if a licensee and ASCAP are unable to agree on terms.  This mechanism is referred to as the “Rate Court” which has handed down a number of decisions on disputes between network stations and ASCAP.

268               The consent decrees provide for either a blanket licence or per program licence at the election of the licensee.  A blanket licence grants access to the whole repertoire of the society at an annual fee that is not subject to adjustment according to the amount of licensed music broadcast.  A per program licence also grants access to the whole repertoire, but the fee is directly related to the licensee’s use of works within the repertoire.  Per program licences contain detailed reporting requirements to enable fee calculations and adjustments.

269               The consent decrees also require the societies to offer to non-broadcasters “per use licences” or “per composition licences” permitting the use of specific music composition.  However, the provisions for limited licences of this kind are permissive but not mandatory, and the societies are not obliged to issue licences for less than their entire repertoire.

270               The consent decrees require that licences granted to television networks contain “through to the viewer” terms which permit the networks and their affiliated local television stations to broadcast network programs without requiring further payment of performing right royalties for each individual station.  Typically, affiliated local stations program between eleven to sixteen hours of network programs and, for the balance of the time on air, broadcast locally produced programs, such as news programs, and syndicated programs – some of which inevitably incorporate the use of music for which a blanket licence of some sort is required.

271               The consent decrees also prohibit enforcement against motion picture exhibitors (cinemas) of the performing right attaching to films; rather licences are to be granted to motion picture producers which clears the music through to the cinema viewers.

272               In consequence of rulings brought down in the Rate Court by Magistrate Judge Dolinger in USA v ASCAP (Application by Buffalo Broadcasting Co Inc) Civ. 13-95 WCC on 26 February 1993, and subsequent negotiations between the parties, an order and judgment dated 6 January 1994 was recorded fixing licence fees for both blanket licences and per program licences covering the period from 1 October 1995 through to 31 March 1998. The decision of Magistrate Judge Dolinger was appealed but ultimately most of the issues  between the parties were settled.  Nevertheless Judge Connor in the US District Court, Southern District of New York, in hearing that part of the appeal which proceeded, generally upheld the rulings of Magistrate Judge Dolinger in relation to the basic formula in respect of the per program fee (judgment 2 September 1994).

273               The fee formula determined by Magistrate Judge Dolinger was intended to achieve a situation where local stations had a “genuine choice” whether to operate under a traditional blanket licence or a per program licence when broadcasting other than network programs.  The formula proceeded on the assumption that a typical local station would broadcast non-network programs, 25 per cent of which had no licensed music content.  As fees would be paid under a per program licence according to the percentage of non-network programs containing ASCAP music, the fee for a per program licence was fixed at a maximum of 133 per cent of the appropriate blanket licence base fee.  A further 7 per cent was added for ASCAP’s additional administration fees, and a further amount again for the “incidental use” of music in commercial and promotional announcements.

274               The gross fee so calculated was then subject to adjustment up or down to reflect the actual percentage use of ASCAP music in non-network programs.

275               If a local station programmed broadcasts without music, or programs using other than ASCAP music (e.g. music in the public domain, or music cleared at source), for significantly more than twenty-five per cent of the time under a program licence, actual fees after adjustment would be less than the ordinary blanket licence fee.

276               This Tribunal was informed that about 200 affiliated local stations had obtained per program licences.  Stations that were accounting to ASCAP under those licences tended to be heavily “news” based where music usage was generally confined to opening and closing program themes, and where a significant proportion of the broadcast day was otherwise filled with programming supplied by networks (for which the networks, not the local stations, paid the performing right licence fees).  Seven unaffiliated stations had also obtained per program licences.  The networks themselves had not done so.

277               Mr Reimer, ASCAP’s Vice President – Legal Services, and Mr Zwaska, the Executive Director of Television Station Music Licensing Committee which acts in the United States on behalf of the free-to-air television industry, who gave evidence before this Tribunal, were in disagreement as to whether the per program licences had promoted competition.  Mr Reimer was of the opinion that they had not done so.  Mr Reimer was also critical of the per program licences on the basis that they had the potential to undermine the fair collection and distribution of royalties to writers.  In the United States (as in Australia) a copyright holder may orally grant a non-exclusive licence.  Mr Reimer observed that if such a licence were granted by a writer and not reported to the collecting society, “duplicative licensing” and royalty “double dipping” could occur.

278               Mr Zwaska on the other hand gave detailed reasons why, now that local stations and writers are becoming familiar with the options opened by per program licences, competitive benefits are emerging.  As he put it “for the first time in their history, television broadcasters can meaningfully examine the nature of their music use with an eye to the cost implications of using particular musical compositions in locally produced programming and, for the first time, have incentive to discuss with their program suppliers the delivery of music on a cost-effective basis”.  Mr Zwaska considered that the per program licence was not utilised until the decision of Magistrate Judge Dolinger as hitherto ASCAP and BMI had sought per program licence fees which were exorbitantly high.

279               The Tribunal found Mr Zwaska’s evidence compelling, and accepts that the emerging experience in the United States under the per program licences is that there will be increased competition between writers for the use of their works, and as to licence fees, if the licensing system in force gives broadcasters an incentive to reduce costs by choosing a licence scheme that allows adjustment to royalties payable to the collecting society according to the amount of licensed music that is used.

280               On the topic of the fifty per cent rule, Mr Reimer in his oral evidence said that whilst the rules of ASCAP, and the other collecting societies in United States, do not expressly provide that fifty per cent of performing right royalties will be returned to the writer, in practice royalties are distributed on this basis.  Where a work is directly commissioned, industry practice is that the commissioning agreement will provide for the writer to receive fifty per cent of the performing right royalties collected by the relevant society (although Mr Reimer acknowledged that the writer could independently contract with a third party to pay some or all of the royalties received from the society to the third party or back to the publisher).  The only exception to this industry practice is in the case of cinema exhibition of films, presumably reflecting the consent decree condition.  However, if the film is broadcast on over-the-air or cable television, fifty per cent of performing right royalties will be distributed to the writer.  It emerged from Mr Zwaska’s evidence that when direct dealing occurs between writers and producers, in the vast majority of cases the producer does not “buy out” all the copyright interests of the writer.  On the contrary, agreement is reached as to the payment or series of payments for use for a fixed period of time beyond which further use is renegotiated.

281               Mr Zwaska perceptively observed in his evidence that the framers of the consent decrees may have secured competition principles through a variety of techniques but, for better or for worse, the per program licence was chosen.  Mr Zwaska said that he did not think the United States licensing options were the best possible ones, and he acknowledged that there are difficulties for both parties to a per program licence in administering the information requirements imposed by the licence.   To this can be added the observation that differences between the United States and Australia copyright environment may mean that a technique that works in one place may not work in the other. 

282               Mr Zwaska also informed us that the Justice Department is presently undertaking an inquiry into the scope, operation and efficiency of the consent decrees.  This adds a further difficulty to placing much weight on the American experience.

283               The United States collecting societies, working within a regulatory framework that is quite different to that applying in other countries, have been able to enter reciprocal agreements with collecting societies in other countries, so that the performing right of musical works can be administered globally.  How can this be so, with so much of the world’s copyright music, television and film originating in the United States?  Has not APRA given comprehensive evidence of the compatibility problems that arise when entitlements do not conform, even at an approximation, to the rules applying elsewhere, and take forms that cannot be accommodated by standard international documentation?

284               The explanation, insofar as it can be discerned from the evidence, is a simple one — that performing right entitlements for music that have legal force within the United States, and which may on their face be exercised in other countries, are not in practice so exercised.  For example, the agreements between film producers and writers, and which clear the film for screening without cinemas being obliged to licence the performing right, do not have effect in Australia (or in other countries outside North America).  Here, APRA requires that a licence be granted to cinemas.  Licence fees are paid by cinemas, and the royalties transferred to ASCAP or BMI for distribution according to entitlements.  The consent decree requirement that prevents a collecting society in the United States from obtaining an exclusive assignment of performing rights is overcome by the practice of American music publishers (who will commonly share the entitlement to the performing right) of granting exclusive rights to their agents in other countries.  In Australia, the right is administered by APRA as if it were an exclusive assignment. 

285               This evidence might be thought to suggest how  the problems that APRA foresees in introducing further opt-out licensing arrangements in Australia could be minimised — by devising ways of confining the application of the alternative license arrangements to Australian uses, while maintaining the internationally conventional arrangements for foreign uses.  In effect, this is the procedure that United States film and TV producers have adopted, so that their intellectual property rights can be administered satisfactorily in other countries with significantly different frameworks of law and practice.

9.         PUBLIC BENEFITS AND ANTI-COMPETITIVE DETRIMENTS

The relevant market

286               As with other forms of intellectual output, writers of music and musical lyrics are granted copyright over their work.  The copyright establishes the writer’s property right to the composition.  This is a necessary first step in ensuring that writers are rewarded for the consumption of their output, given the “public good” nature of intellectual output (i.e., it is a non-rivalrous product in that its consumption by one person does not reduce the amount available for consumption by others: as a result, it is also difficult to prevent people from consuming the output without paying for it).  A further essential step in ensuring that the writer is rewarded for any use made of the work is enforcement of the property right, preferably in an environment that involves low transaction costs in reaching agreement to have the right to use the composition in exchange for payment, monitoring of use, and extracting payment.  If composers have difficulty in enforcing their property right, i.e., difficulty in identifying when their music is played and by whom, the value of their property right will be reduced and they will not invest as much time and effort in music composition as they otherwise would, and there will be under-production of music from society’s point of view—a market failure.  We have seen that the world-wide solution to this problem of enforcement is the establishment of collecting societies.

287               Professor Williams who gave evidence for APRA, suggested that the policing or enforcement of property rights to musical composition is one of three interdependent markets:

·        the market for composition of musical works (composing);

·        the market for performance (such as the broadcast of works by users); and

·        the market for policing of property rights.

288               Under these conditions, Professor Williams saw the markets for composing and performing as being fully competitive, with no barriers to entry and the only limit to market entry being talent.  However, the monopoly that collecting societies have in nearly all cases is held to be due to the “…substantial barriers to entry due to the scale economies of centralised administration”.  The substantial barriers to entry existed because:

“…many of the aspects of copyright enforcement contain a high proportion of fixed costs…[including] establishment of the systems for monitoring users and registering works.  By contrast, once these systems are in place, the incremental cost of accepting another composer or new work into the system is insignificant.  If these fixed costs are high enough over the relevant output range, then the average costs of enforcement will be also declining and the lowest costs are incurred by society by being served by a single collecting society.”

 

 

For this reason Professor Williams argued that collecting societies possess the characteristics that can define a natural monopoly.

289               Whereas a general concern about monopolies from society’s point of view is their tendency to restrict output and raise prices above their socially-optimal level, Professor Williams argued that a monopoly collecting society is not concerned with restricting entry or limiting compositional activity.

“Rather, the collecting societies maximise available revenue by acting as a price discriminating monopolist—establishing different prices (licence fees) for different users.  The net effect of this price discrimination is to ensure levels of output consistent with levels required for allocative efficiency.”

 

290               Dr Walker, who gave evidence for ACCC, disagreed with Professor Williams’ understanding of the policing of music copyright as a separate market from the market for the supply or licensing of performing rights.  Dr Walker preferred a definition of the relevant market as the “market for the supply of performing rights in Australia”.  According to Dr Walker, no other right is substitutable for performing rights, including mechanical and synchronisation rights.  However, neither Professor Williams nor Dr Walker, nor ACCC for that matter, believed that market definition was a particularly critical issue in the proceeding.  Although Dr Walker thought that it may be useful to distinguish separate sub-markets of performing rights such as television and radio broadcasting rights and cinema, retail and fitness centre public performance rights.

291               FACTS argued that a sub-market of television broadcast rights was relevant to its complaint that APRA’s conduct prevented competition between writers for television: see para 116 above.  However, we do not believe that it is helpful to our considerations to distinguish markets on this basis as the same argument could be made for competition between writers in any other area such as radio or cinema.  We agree with ACCC (see para 89 above) and Dr Walker that little turns on market definition in this matter.  As Dr Walker stated:

“…as all such rights derive from the same underlying work and they are all administered by APRA, it would seem useful to include them in a single market.”

 

292               Dr Walker, and Professor Forsyth who gave evidence for FACTS, agreed with Professor Williams that APRA was a natural monopoly, although Dr Walker saw the natural monopoly deriving more from economies of scope (i.e., from the joint enforcement and licensing of rights) rather than from economies of scale emanating from the large fixed costs of establishment.  Given the existence of a natural monopoly 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, it is imperative that there is appropriate regulation to ensure competition in the provision of policing of copyright where possible and an acceptable balance between, in this case, the rights of writers and the rights of the rest of society.  We agree with the parties that ACCC and this Tribunal has the power, if necessary, to regulate competition, but we consider the Copyright Tribunal is the body with primary responsibility to adjudicate an acceptable balance between the private and social interests.  Two questions have arisen in this respect.  Whether the Copyright Tribunal is performing this regulatory function effectively?  Secondly, whether all of APRA’s input and output arrangements are an integral part of the natural monopoly, or whether competition can be introduced into some of its arrangements?

Benefits and detriments

293               The existence of only one collecting society in virtually all member countries of CISAC, except in the unusually large United States market, appears to confirm that a collecting society is a natural monopoly in these circumstances.  However, this does not necessarily mean that all aspects of the supply of performing rights are integral to the natural monopoly.  Therefore, the Tribunal has considered the benefits and costs of changes to the APRA system as well as the benefits and costs of the existing system.  It should also be pointed out that while a natural monopoly may be anti-competitive, such anti-competitive behaviour may not necessarily constitute a public detriment.  Since average costs decline as output increases, society is best served by the single monopoly.  The key issue is regulation of its operations to ensure that it does not take advantage of its monopoly position.

294               The Tribunal gives a wide interpretation to public benefit, to include benefits to participants in the market as well as benefits to society at large.  Therefore, the benefits to writers from the formation of a collecting society and the consequent reduction in the transaction costs of monitoring performance of their works and enforcing payment, and to users from being able to gain access easily to the right to perform music in the whole repertoire, are recognised as part, indeed a large part, of the public benefit of APRA.  ACCC accepted that there were public benefits from the existence of APRA arising from the lowering of transaction costs to both parties (writers and users) on the one hand, and from the avoidance of “free riding” on the other (free riding in this case refers to the consumption of a “public good” while avoiding paying for it); from the certainty provided by APRA’s ability to give a comprehensive licence in respect of virtually all musical works available world-wide; and from APRA’s ability to countervail the monopoly power that some users such as film producers and radio and television broadcasters could exert over individual composers of works not in the APRA repertoire.

295               There was no disagreement from witnesses to the proposition that APRA considerably reduces the transaction costs of monitoring the use of music and enforcing performance rights.  Argument was focussed on whether APRA’s administration and enforcement costs were as low as they might be or distributed as efficiently as possible; or whether some relaxation of the exclusive assignment of rights by members would increase benefits to users and individual composers; or whether such relaxation would lead to a breakdown of the APRA system or, at least, to an unacceptably high increase in administrative and enforcement costs.

296               ACCC had qualified its findings of public benefits by saying that they mainly arose from APRA’s role as a collecting society and not from the restrictions for which the authorisation has been sought and notification given, and were therefore not relevant to the question of whether there is, overall, a net public benefit.  It appears to the Tribunal that the nexus between APRA’s ability to assure users that they have certainty of coverage of all a writer’s works and the viability of the whole system is vital.  It seems, therefore, that the exclusive assignment demanded by APRA as a condition of membership is as much as anything a mechanism for providing certainty to users and the use of the blanket licence is a means of reducing the costs to users.  ACCC admits as much by its preference for a licence-back rather than the assignment-back arrangement in the United States, and by its agreement that for small users and those for whom the use of music is spontaneous and unpredictable, there is a greater public benefit in the certainty given by a blanket licence.

297               Dr Walker agreed that exclusivity and blanket licensing provide some additional savings in enforcement costs and blanket licences provide further savings in transaction costs over and above the benefits of the existence of APRA per se.  Dr Walker noted the benefits of exclusivity in “minimising the cost of establishing a breach of rights”.  The blanket licence was seen as being beneficial in enabling “APRA to focus its enforcement efforts on establishing whether users are licensed or not, rather than having to establish whether licences have been obtained for the particular works being performed”.  Blanket licences were also seen to provide further savings in transaction costs “since licensees need only enter into a simple transaction with APRA for all their needs, known or unforseeable”.

298               While the Tribunal agrees with this evidence, it believes that exclusivity and the blanket licence are not optional parts of the system that provide additional benefits, but are integral parts of the system that determine its effectiveness.  As Professor Williams notes:

“…the exclusive copyright access a collecting society has over a copyright owner’s works is an important element in ensuring the cost-effective enforcement of copyright.  By contrast, the assignment of non-exclusive rights creates practical difficulties in obtaining proof of copyright control, substantially greater legal costs and unavoidable delays.  This may result in copyright-collecting societies being more selective in which sources of copyright they choose to enforce and opens up the door to widespread infringement of copyright.”

 

299               Dr Walker also argued that exclusivity and blanket licences did not provide as great efficiency gains for “large easily identifiable users” (presumably such as TV and radio broadcasters) as for small users.

“…for some users, the transaction costs of the APRA system are not obviously less than direct dealing between composers, and/or their publisher or other agents, and users.”

 

300               While it may be the case that the few Australian writers who write for film, TV and radio can deal directly with these users at transaction costs close to dealing through APRA, the question at issue is the impact that this relaxation of the input arrangements would have on the efficiency of the overall APRA system.  This was an issue that was discussed at length in evidence but with nothing other than speculation offered as to which direction the costs and benefits would move.

301               Dr Walker reaffirmed the ACCC’s arguments about the anti-competitive detriments in APRA’s system (see para 91 above), particularly that the exclusive assignment of rights and blanket licences eliminates price competition between writers.  Dr Walker also argued that APRA’s dominant position in the market and its arrangements with other collecting societies throughout the world were public detriments in that they make it difficult for the entry of other performing right collecting societies in Australia.  Dr Walker also suggested that there may be a misallocation of resources, and therefore a public detriment, in the form of over production of music composition.  Because of APRA’s averaging of revenue payments to composers, they will produce new works until the average revenue received equals the marginal cost of producing an extra composition.  This would be at a level of production beyond the point where marginal revenue of production equals the marginal cost of production of new musical works—the socially-optimal point of production.

302               Professor Forsyth  also argued that there is an efficiency cost from the pricing behaviour of APRA:

“One common characteristic of monopolies is that they are slack.  APRA is slack in that it does not encourage or permit matching of users’ demands with producers’ willingness to supply; the very averaged pricing structure may be easy to operate, but it has an efficiency cost.”

Professor Forsyth saw that this efficiency cost could be reduced by APRA offering scope for direct dealing or through offering a more flexible and precise pricing structure.  However, he acknowledged that the latter would increase the transaction costs for the APRA system:

“Permitting direct dealing has the effect of forcing APRA to provide the service that producers and users want, and it forces it to keep the price it charges close to cost.”

 

303               These two efficiency-related points about APRA’s pricing were the major areas of disagreement between the economic experts; between Professor Williams on the one hand and Dr Walker and Professor Forsyth on the other.  The disagreements can be summed up in what Professor Williams said of ACCC’s decision:

“…the ACCC in its determination made two mistakes…: First of all, APRA’s pricing, because it is a monopoly leads to a lower rate of use of compositions than would otherwise be the case.  I just think that’s wrong.  The other mistake was that APRA’s monopoly pricing leads to too much of society’s resources being devoted to the activity of composition.  I just think that’s wrong as well.”

 

304               The economic experts agreed that it is possible for direct dealing by writers to lead to lower transaction costs in total and to more efficient pricing.  However, there was disagreement about the likelihood of direct dealing outside the APRA system leading to more efficient pricing and the importance of such effects.  At the same time there was no evidence offered that would allow the Tribunal to draw firm conclusions.

305               On the issue of the share of the economic surplus over and above the opportunity cost of composition received by writers and the impact on music composition, Dr Walker and Professor Williams agreed that it would come down to a question of bargaining power between APRA, on the one hand, and the users or their associations, on the other.  Dr Walker’s view was that writers would receive too large a share of the revenue and that there would be a tendency for over-production, while Professor Williams had no firm opinion on the extent of the bargaining power of the parties but did not think that it would be too one-sided.  The Tribunal would add that there is another relevant party which is the Copyright Tribunal whose function is to see that there is a socially-optimal balance in the distribution of the benefits arising from music composition.

306               As regards the extent of “slackness” or inefficiency in APRA’s operations as the result of its monopoly status, the economists agreed that this is always possible with such cooperative forms of management as a collecting society.  However, no evidence was offered to substantiate any claims of such inefficiency.  The Tribunal notes from other evidence that APRA compares very well with overseas collecting societies in terms of the proportion of revenues going to administration.  Further, the evidence was that there is pressure on APRA to perform well in this regard from other collecting societies and from its own members.

10.       CONCLUSIONS

Determining the public benefit

The Tribunal disagrees with ACCC’s submission that public benefits that arise purely from APRA’s role as a collecting society should be ignored.  Components of conduct that are essential to APRA’s operation should be authorised.

307               The overwhelming conclusion arising from the evidence, and from the review of overseas experience, is that bodies like APRA that engage in the collective administration of performing rights in music are considered as necessary and desirable to ensure the proper enjoyment by writers and publishers of their copyright interests and to provide, in the vast majority of cases, an efficient, cost effective means of enabling users of music to obtain lawful access to a virtually unlimited repertoire.  The achievement of these ends is recognised as being strongly in the public interest.  No other way of administering performing rights in music is suggested by the evidence.

308               The ACCC in weighing the anti-competitive detriments and public benefits identified by it qualified the public benefits by observing at para 8.3.2 of the determination that:

“The Commission must consider the public benefits of the input, output, distribution and overseas arrangements.  Public benefits that arise purely from APRA’s role as a collecting society and not from the restrictions for which authorisation has been sought and notification given, are not relevant.”

309               We disagree with that approach.  The input and output arrangements, in particular, underpin the essential functioning of APRA.  In applying the “future with-and-without” test, the future without the essential elements of the input and output arrangements would in all likelihood be no collecting society at all.  No one has suggested that such a future should be encouraged.  It is notable that the WIPO study in 1990 considered that with “the ever newer waves of new technologies” the need for collecting societies is even greater than in the past: see para 50 above.

310               We think that the proper approach is that which has been followed in the overseas inquiries and decisions which we have reviewed: Is a particular feature of APRA’s Articles and Rules essential to the operation of APRA as an efficient collecting society?  This test of necessity was implied in the GEMA decision (see para 221 above); by MCC (see para 232 above), and by the Irish Competition Authority (see para 240 above).  See also Application of Broken Hill Pty Co Ltd re Koppers Pty Ltd (1981) ATPR 40-203 at 42,843 paras 11.6-11.9.  Only if a particular feature is not essential would it then be appropriate to consider whether that feature, standing alone, has a net public benefit.  We have already expressed our view that collective administration of performing rights may not be inconsistent with the public interest: see para 127 above.  At the end of the day, whether the conduct of a particular collecting society attracts a net public benefit that justifies authorising its operations should, we think, be decided in this way.

311               Reviews such as the Owen Royal Commission and the Spicer Committee in Australia, and the Gregory Committee and the MCC report in the United Kingdom have recognised that collective administration by a single society gives that society, within its geographical area of operation, a monopoly over the acquisition and supply of performing rights and musical works.  Plainly APRA’s role as a sole collecting society gives it the characteristics of a monopoly in Australia, and its mode of administration of those rights gives rise to actual or potential anti-competitive detriments, including the restriction on direct dealing between writers and users of music about which FACTS complains.  However, if the modifications to APRA’s administration suggested by ACCC and FACTS would undermine essential features of its collective administration, then, notwithstanding the anti-competitive detriments, we consider the authorisation sought by APRA should be granted, as the public benefits of APRA’s collective administration outweighs the detriments.  On the other hand if 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 operations, then authorisation should be granted on terms that bring about those modifications.

The Copyright Tribunal

The Copyright Tribunal provides an effective constraint against APRA abusing monopoly power in dealing with major users of music.  Expense and complexity are intrinsic to the resolution of large disputes.  However, a new dispute resolution procedure is needed for small disputes.

312               Steps have been taken in the jurisdictions about which we have heard evidence to curb the exercise of monopoly power by the collecting societies in their dealings with users of music by the establishment of a body with power to regulate charges and conditions of licences.  The establishment of these bodies has been seen as having no adverse effect on the continuation of the operation of the collecting societies concerned.  The powers of these bodies concern only the output arrangements, and do not undermine essential aspects of the operation of the collecting societies.

313               In Australia the powers of the Copyright Tribunal are extensive, and extend to the consideration of licence schemes generally, not just to schemes involving the traditional form of blanket licences.  So much was recognised by FACTS in its 1993 application to the Copyright Tribunal for an order specifying a complex scheme incorporating multiple categories of blanket and per program licences, based on new fee structures.  In the determination of conditions and charges under such a licence scheme by the Copyright Tribunal it is difficult to see how APRA (or FACTS, for that matter) could exert any monopoly power over the result.

314               The procedures of the Copyright Tribunal have been criticised as being expensive and complex, but expense and complexity is likely to be inevitable in any tribunal hearing where the amount at stake is high, the issues are complex, and the parties choose to lead a great deal of technical and expert evidence.  Long and expensive battles between collecting societies like APRA and major groups of users like FACTS to determine tariffs and licence conditions are likely to continue in Australia, as they have done overseas, even if APRA’s Articles and Rules are modified in the ways suggested by ACCC and FACTS.  The criticisms that have been made about the Copyright Tribunal do not persuade us that it does not operate as an effective constraint against APRA’s ability “to give less and charge more” under its output arrangements in dealings with major users of music.

315               The criticisms about the Copyright Tribunal have more weight in relation to small users, where the cost of presenting a dispute to the Copyright Tribunal will be disproportionate with the licence fees likely to be payable.  In relation to small users we think there is force in the argument that a simple, quick procedure for dealing with small disputes should be available, and the imposition of such a procedure would not undermine essential aspects of APRA’s operations. 

A new dispute resolution mechanism

The Tribunal does not agree with either proposal that has been put forward.  The Tribunal outlines desirable features for a new mechanism.  APRA must develop an acceptable proposal, the introduction of which will become a condition of authorisation.

316               As earlier recorded, ACCC in its draft determination indicated it would require as a condition of authorisation that APRA set up an independent appeal mechanism to handle complaints from the users.  In its determination ACCC  proposed the PPCA standard licence agreement conditions as the appropriate model, subject to a variation that would require APRA to pay the costs of the process. It is convenient to refer generally to the process proposed by the parties for some form of appeal mechanism as “the ADR process”.

317               APRA contended that the primary means of resolving disputes between it and licensees is through the Copyright Tribunal.  APRA acknowledged that proceedings before the Copyright Tribunal can be lengthy and expensive, but observed that these are characteristics of any dispute resolution mechanism where the dispute involves large sums of money and substantial parties.  However, both before ACCC and the Tribunal, APRA has acknowledged that there is a place for a more informal ADR process which would be primarily intended to deal expeditiously with disagreements with users for whom the Copyright Tribunal does not constitute a practical alternative.  The Tribunal notes that in the report prepared for the Minister for Communications and the Arts and the Minister for Justice by Shane Simpson entitled “Review of Australian Copyright Collecting Societies” (1995) it is recorded at par 32.4:

“It was the view of most of the societies and other parties who made submissions to the Inquiry, that proceedings before the Copyright Tribunal are expensive, slow and unnecessarily legalistic.  As such they are only considered as a last resort.”

Similar views were expressed to the Tribunal by a number of witnesses.

318               The Tribunal agrees that some form of ADR process is desirable, and would lessen one potential anti-competitive consequence of the APRA system.  We consider that the introduction of such a process would encourage APRA to be more receptive to the complaints of its users, and lessen the types of complaints we heard about APRA’s inflexibility and resistance to modifying licences to meet changing circumstances.

319               Before the Tribunal APRA proposed the following ADR process:

“1.      APRA would undertake that its licence agreement would contain a provision under which the parties would agree in certain cases of dispute to engage in mediation (that is, assisted negotiation), on the following terms.

2.         There would be a single mediator, such as a retired senior judicial figure, agreed between the parties or appointed by the Australian Commercial Disputes Centre.

3.         APRA would pay the mediator’s fee.  Other costs such as room hire, would be shared between the parties unless otherwise agreed.

4.         The parties would otherwise bear their own costs.

[4.       If desired by the Tribunal, legal representation would not be permitted unless the parties otherwise agree]

5.         The mediator would deal with disputes between APRA and its existing licensees relating to:

(a)       which licence scheme governs a particular type of performance

(b)       the application of the relevant scheme to the particular licensee

(c)        terms and conditions of licence schemes (including, for example, fees, the conduct of APRA’s licensing representatives, and other conditions.

6.         If there is a relevant representative body, such as a trade association, that body could represent its members at the mediation.

7.         No mediation would oust the jurisdiction of the Copyright Tribunal or otherwise bind the parties unless they agree in writing.

8.         The mediator would not be able to determine questions of law such as whether a particular performance was a performance in public for the purposes of the Act.  (The Federal Court offers a mediation service).”

320               The Tribunal has been invited to indicate an appropriate model to resolve the differences in the proposals advocated by ACCC and APRA. 

321               We do not think that either model proposed by ACCC and APRA is entirely appropriate. 

322               At the outset it is to be noted that APRA’s proposal is significantly limited in its scope by paragraph one.  As the proposal would find expression in the terms of a licence agreement, it would only apply as between APRA and a licensee.  APRA has indicated that it has many disputes with potential licensees, either as to whether a particular activity is a public performance, or whether a particular performance attracts one kind of licence or another.  In both these situations, there is and will be no licence until the dispute is settled.  APRA’s proposal would have no application in either situation.  Further, these may not be situations in which the Copyright Tribunal has jurisdiction.  In the absence of resolution of such a dispute under an ADR process, one or other party might have to seek a declaration in a court of competent jurisdiction (typically a Supreme Court of a State, or the Federal Court of Australia), or allow the matter to be resolved ultimately in infringement proceedings if APRA maintained that a use was not appropriately licensed.  Proceedings for a declaration are likely to be expensive, and as a means of resolving a dispute, just as expensive as proceedings in the Copyright Tribunal.  The PPCA model suggested by ACCC is similarly limited to resolving disputes between parties to existing licences.

323               APRA urges a system of mediation.  We understand the role of a mediator to be a facilitator who helps the parties reach an agreement.  If the parties are unable to agree, the dispute remains unresolved.  Such a model seems to us to be inappropriate as it may not lead to a result.  There should be an adjudication that produces a decision. 

324               The PPCA model prepared by ACCC requires a panel of three adjudicators.  APRA contends that such a panel would be expensive to convene, and would be productive of delays in arranging hearings. We understand the aim of the proposal to be the quick, cheap and efficient resolution of small disputes.  To achieve this end we think it would be counter productive to appoint a panel of three people.  We agree that this would not only incur considerable expense, but lead to delays and many administrative problems, particularly as disputes will arise in locations around Australia.  We consider that the ADR system should provide for adjudication by a single person.

325               ACCC contends that APRA should pay all the costs of the ADR process.  These costs would include the costs of the adjudicator, room hire, stenographers and so on, but not the personal costs which either party to the dispute may incur in the preparation of their respective cases.  APRA offered, under its model, to bear the costs of the “mediator”, but contended that the other administrative costs should be shared between the parties, arguing that a hearing paid for by one party alone would be unlikely to be seen as independent, and would impose a considerable and unfair financial burden on APRA, often out of proportion with the licence fees that could be involved.  APRA argued that a mediation scheme funded entirely by APRA would act as an invitation to licensees to refer spurious disputes to mediation, and that to have one party only liable for the costs would be contrary to the principles of mediation.  APRA argued that both parties should have a vested interest in the positive and speedy resolution of the dispute. We consider that the costs of the adjudication process should be borne in the manner proposed by APRA, basically for the reasons it advances.  APRA should pay the cost of the adjudicator, but other administrative costs should be shared equally between the parties.

326               We do not think it is desirable to exclude legal representation in every case.  We consider there should be a provision that legal representation would not be permitted unless the parties otherwise agree.  There may be cases where both parties wish to be represented, particularly if the dispute is between APRA on the one hand and a trade association on the other.  As proposed by APRA we agree that if there is a relevant representative body that body should be allowed to represent its member or members at the adjudication.

327               We see no justification for limiting the role of the adjudicator to matters other than questions of law.  Many of the disputes that are likely to arise will involve questions of law, or mixed law and fact.  If the adjudicator is to be a retired senior judicial figure it seems odd to remove questions of law from the process.  We consider that all disputes should be amenable to the ADR process. 

328               Insofar as disputes that may be submitted to the ADR process arise between APRA and a licensee under an existing licence, it is probable that the Copyright Tribunal would have jurisdiction.  The ADR process should not oust the jurisdiction of that Tribunal, and the rules of the ADR process should provide that either party dissatisfied with the adjudication has the right to take the dispute to the Tribunal for hearing afresh.

329               If the ADR process is to provide a buffer against the possibility of APRA exercising its power against small users in a manner that inhibits competition, it is necessary that the process be available to potential licensees, as well as licensees.  In our opinion this could be achieved by APRA undertaking to provide an optional ADR process on the terms discussed above to either licensees or potential licensees with whom it is in dispute.  The licensee or potential licensee should have the option of pursuing the ADR process on condition that the result will be binding on both parties, unless a party dissatisfied with the result within, say, twenty-eight days, either applies to the Copyright Tribunal, in the event that the Tribunal has jurisdiction, or makes application to another court of competent jurisdiction to have the dispute heard afresh.  In either of these events, the decision of the adjudicator would give way to the decision of the Copyright Tribunal or court.

330               The Tribunal notes that in the United States, ASCAP has a Board of Review to deal with disputes between ASCAP management and members, and that the MMC recommended that a similar body be introduced by PRS (Recommendation 35).  APRA may wish to consider whether the ADR process should also be available to members in the event of a dispute with APRA.  If the ADR process were extended to members this would make provision to deal with the argument raised in the economists’ evidence that in theory APRA’s monopoly position could lead to inefficiencies in its internal administration.  Whilst the evidence suggested many aspects of APRA’s administration were efficient, even praiseworthy – particularly with respect to the levels of administrative costs and licence fees – there was evidence, to which we have referred, suggesting that APRA is not as responsive as it might be to the changing requirements of its licensees.  This kind of lack of responsiveness might be perceived by members as indicative of administrative inefficiency that could impact on their distributions.  APRA may consider it prudent to make a preemptive change that would provide a practical avenue for dissatisfied members to air their grievances.

331               The precise form of a new ADR process should now be developed by APRA, taking into account the features outlined above.  The Tribunal envisages that the implementation of a satisfactory ADR process would become a condition for the grant of authorisation.

The blanket licence

Blanket licences are essential for efficient licensing.  The task of devising a scheme which allows for the adjustment of a blanket licence fee to reflect music use is a task for the Copyright Tribunal.

332               APRA’s output arrangements, which rely centrally on the use of the blanket licence, provide a cost efficient way for users of music to obtain the lawful right to use virtually the world wide repertoire.  In the vast majority of cases the users are small businesses which could not otherwise obtain lawful access to most of this music, and could gain access to any part of it only at considerable expense.  Under the output arrangements, they can do so, often under only one annual transaction.  Compliance in this way with the law ensures that royalties are collected and distributed to the creators of the works - a recognised public benefit that the notion of copyright enshrined in the Copyright Act 1968 is intended to achieve.

333               Blanket licences have been criticised by certain users as requiring users to pay for music that they do not want.  As noted earlier in these reasons (see para 197 above and following) this is a misplaced criticism arising from a misunderstanding of the blanket licence.  The blanket licence format is offered by collecting societies worldwide, and is generally recognised as the essential device for efficient licensing of the use of music in all but a few circumstances.  The Tribunal agrees with this view of blanket licences.

334               The proposed MBL in Canada and the per program licences in the United States are blanket licences, and differ only from those offered by APRA in that they provide for adjustment of the fee in respect of programs broadcast by the licensee which do not contain licensed music.  It is plainly within the power of the Copyright Tribunal to approve or devise a similar (or different) scheme that allows for a fee adjustment to blanket licences in Australia.  The real and substantial difficulty that besets the introduction of a blanket licence that allows for such a fee adjustment in Australia is not the monopoly power of APRA but the complexity of working out how to provide for the calculation of the adjustment – and for the reporting of music use that underlies such a calculation – in a way that does not so increase transaction costs as to defeat the exercise.  The parties did not offer a solution to that difficulty in evidence before the Tribunal.  We have noted the nature of the schemes devised in the United States and Canada for adjusting blanket licences’ fees to reflect the amount of use of licensed music.  There is no reason to believe that a scheme for adjusting blanket licences could not be devised for the Australian copyright environment.  That task is, however, one for the Copyright Tribunal, assisted with evidence and submissions directed to the task. 

335               APRA also pointed out another factor that would influence the utility of a scheme that allowed broadcasters to adjust a blanket licence fee to reflect use of directly commissioned works licensed to the broadcaster under an opt-out scheme of the kind proposed by ACCC and FACTS.  If the reduction in the blanket licence fee (after allowing for the added reporting and other administration costs) were less than the licence fee paid to the writer, there would be little point in the broadcaster using the modified licence.  Commissioned music could be used under the existing regime as it would be covered by the ordinary blanket licence.  Thus the fee likely to be offered to the writer would for this reason be pegged at a level which would give little or no incentive to the writer to undertake self-administration of the work.  The evidence leaves a large question mark over whether there is likely to be any practical utility in opt out schemes like those proposed by ACCC and FACTS.

The fifty per cent rule

Whilst only a recommendation of CISAC, the rule appears to be generally applied world wide.  The Tribunal considers the rule is 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.  If any anti-competitive detriment arises from the rule it is overridden by risk to APRA’s international affiliations if it were removed.  Modification of the rule should not be a pre-requisite to authorisation.

336               We have earlier commented that the evidence before the Tribunal does not establish that the fifty per cent rule reflected in distribution rule 4 is any more than a recommendation by CISAC.  However, as a matter of practice, Mr Cottle, who is a member of the Administrative Council and the Asian Pacific Committee of CISAC considers that the rule must be complied with.  He believes that departure from it would threaten APRA’s continued affiliation with CISAC and its position as a member of the world community of authors’ collecting societies.  Evidence as to the position in overseas societies lends support to Mr Cottle’s opinion.

337               Both ACCC and FACTS contended that the fifty per cent rule has a significant anti-competitive effect.  ACCC submitted that the rule has the potential to inhibit direct commissioning of works by users because it is likely that users and composers will wish to agree to an up-front payment in respect of the commissioned works (with or without provision for the payment of a royalty stream in addition).

338               In our opinion the rule is only of incidental significance.  It is not the fifty per cent rule which prevents producers and others dealing direct with writers for an assignment or licence of performing rights.  That restriction arises from the obligation assumed by the writer under the input arrangements constituted by Article 17, and the application for membership.  In the absence of that restriction the writer would be free to enter into an arrangement of any kind for the assignment of performing rights and associated revenue, and that would also become the position in the event that a writer opted out of the Article 17 restriction (either under the existing Article 17(b) or, if the rules are amended to permit it, on a work-by-work basis).

339               In its determination, ACCC sought as a condition for authorisation “the alteration of (APRA’s) distribution arrangements so that the fifty per cent rule does not apply in circumstances where a member assigns all rights to a work to a third party”.  If the member were freed from the input arrangement to assign all rights of work to a third party, the distribution rules would for this reason have no application anyway to the works assigned unless the assignor as a member of APRA, later sought to enter them into APRA’s repertoire.

340               If there were a modified opt-out system which allowed a writer to obtain a non-exclusive licence, revenue received by the writer in respect of the writer’s dealings with performing rights under a sub-licence would not be subject to APRA’s distribution rules.  The revenue would go direct to the writer, or at the writer’s direction.  The only revenue received by APRA in respect of the performing rights on the work would come from revenue derived from use by other APRA licensees. 

341               In its submissions to the Tribunal, ACCC argued that the rule potentially inhibited the commissioning of works even in situations where the performing rights were assigned to APRA, because the commissioner might wish to receive more than fifty per cent of the royalty stream.  The thrust of FACTS’ case was that producers wished to acquire the right to all royalties for exploitation of the performing rights, that is, to buy out the performing rights so that the music was “cleared at source”.

342               We have noted earlier that the evidence is clear that the distribution rule does not purport to prevent, and does not in fact prevent, writers entering into agreements with publishers and others whereby they receive less than a fifty per cent share of revenue from the performing rights.  It is open to writers, producers and to publishers to arrive at whatever allocation they wish for the revenue stream as between themselves.  There was no evidence that they felt inhibited from entering into such an agreement by the fact that there may have to be some accounting between them outside the APRA distribution system.  Moreover, the evidence of Ms Howland acknowledged that if APRA receives an authority from a member to pay a distribution due to the member to a third party, APRA will act on that authority.  This would provide a simple means whereby the writer could direct payment to the commissioning party.

343               The rule has its rationale in the belief that generally writers are in an inherently inferior bargaining position in their relationships with users, and that, through the collecting societies, the rule works to ensure the continuation of creative output from writers by guaranteeing to them a fair return for the use of their works.  APRA’s affiliations with other international collecting societies ensures that the performing right interests of its Australian members are appropriately administered overseas.  It would be a very substantial detriment to the Australian members, and would threaten the due payment of overseas earnings to them if APRA’s membership of the international collecting society community were threatened.  On the evidence, that risk must be accepted as a real one.  If there is any anti-competitive detriment arising from the continuation of the fifty per cent rule, which is open to doubt, the detriment is outweighed by the obvious public benefit of APRA retaining its international affiliations. 

Encouraging response to changing circumstances

At times APRA has shown an indifference to the interests and concerns of users in the changing market for music which produces resentment and hostility amongst some users.  This is damaging to APRA’s reputation.  The Tribunal considers that modification to the input arrangements that allow opt out for single works for performance in carefully defined circumstances would encourage APRA to respond to change.

344               In paragraphs 183-195 we considered evidence concerning the changing market for music, and APRA’s responses to the changes.

345               At present APRA’s policies are pitched to achieve user compliance and efficient internal administration, and show a degree of indifference to the interests and understandable concerns of users.  Only a little choice of licensing schemes is offered, and schemes on offer are designed to suit public performance licence administration, even in the case of television and diffusion licences.  This behaviour is suggestive of a monopoly, convinced of its virtue, and encourages resentment and hostility among users.  The Tribunal considers this behaviour is damaging to APRA’s reputation, and potentially a public detriment that could weigh against APRA in future reviews of APRA’s system under competition law.  It is to the public benefit that APRA understands and responds to changes in the market for music in ways that seek to accommodate the needs of music users.  Competition laws require as much from the holder of a privileged monopoly.  It is not suggested that APRA should resile from the pursuit of its members’ interests, but timely and sufficient responses to reasonable user concerns should mark future policies and behaviour of APRA, both in the public interest and in the interests of its members.

346               The Tribunal has considered how to encourage response to changing circumstances.  We consider that if APRA’s input arrangements were modified to allow opt out for single works for performance in carefully defined circumstances that would be a significant first step.  The Tribunal recognises that such a modification would have potential risk to the integrity and utility of the APRA system, and would need to be monitored closely.

Evaluation of the opt-out proposals

The Tribunal considers a scheme which permits a non-exclusive licence back to a member of APRA of the performing rights in Australia for a specific work or works to allow the member to grant a sub-licence would not threaten the integrity of the APRA system, and should be required.

347               The submissions of ACCC and FACTS that APRA’s input arrangements should be modified to allow direct dealing between writers and users such as television broadcasters, and that there should be a mechanism for fee adjustment built into the output arrangements are interrelated matters.  Unless there is a resolution of both matters, the introduction of changes to the input arrangements is likely to have little practical impact.  FACTS sought initially to address the question of licence fee adjustment by applying to the Copyright Tribunal which has jurisdiction over the output arrangements.  That application was not necessarily dependent on a weakening of APRA’s input arrangements as adjustments were sought in respect of non-music programs, and could have been sought also in respect of programs that used music that was not in APRA’s repertoire – e.g., music in the public domain, or music acquired from a music library in the United States that had not been entered into the repertoire of a collecting society.  However, it is the question of the input arrangements that has come on for hearing first, before this Tribunal.  As neither Tribunal has jurisdiction over both matters, we think 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.

348               APRA’s input arrangements presently depend on the requirement of exclusive assignment, subject only to the GEMA exception in Article 17(b).  Article 17(b) is criticised by ACCC and FACTS on the ground that it is not likely to be utilised by a writer because the difficulties of self-administering a category of works are too great.  The GEMA exception, as we have pointed out, was proposed by the Commission of the EC not to facilitate individual administration of a copyright work by a writer, but to remove a barrier to entry which would confront another collecting society.  As such, we consider Article 17(b) provides a measure of constraint on the monopoly position of APRA, and would assist, for example in the establishment of a collecting society in a niche market for a particular type or types of music. Overseas competition authorities have also required that the notice provisions for termination of membership be reduced to lessen the barriers to entry to one year under the GEMA decisions, and to two years in Canada.  Under APRA’s amended Article 9, the notice period is significantly shorter and, we think is likely to be the minimum period required to enable APRA to process changes to its records and notification of the changes to affiliated overseas collecting societies.

349               The GEMA exceptions were considered by the MMC and the Irish Competition Authority to have a wider importance on the basis that they provided an avenue for self-administration.  However, there is no evidence that such a use has been made of the amended rules by individual writers, presumably because of the difficulties of administering at large a number of works.  It is notable that in recommending further modification of the exclusivity rule, both MMC and the Irish Competition Authority limited the further exception which they required from PRS and IMRO to a very narrow and precise situation.  Both exceptions were limited to specific works to be performed on specific occasions.  But by far the most limiting requirement was that the assignment (in the case of PRS) or the non-exclusive licence (in the case of IMRO) was to be to the member to enable the member to perform the specified work or works on the specified occasions.  The exception was to facilitate live performances by a songwriter member.  Where the writer is conducting a live performance, monitoring functions such as those normally carried out by a collecting society to detect the use of a work, and to recover appropriate royalties would not arise. 

350               In our opinion it is notable that notwithstanding pressures from major users for a more liberal modification of the exclusivity rules, the changes settled upon in the United Kingdom and Ireland 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.  Unless the collecting society is able to obtain and retain the ability to licence a comprehensive repertoire of works, the many benefits which have maintained the viability of collecting societies will be lessened.  Licensees will not simply obtain comprehensive protection against infringement, transaction costs for licensees will increase, administration costs of the society in respect of recording input information, monitoring use, and effecting distribution will increase significantly, and monitoring and enforcement of copyright by the society will become difficult.  Those who attempt self-administration are likely to face an imbalance of bargaining power when dealing with producers and large users of music, and to encounter considerable difficulty in policing their copyright, particularly in respect of overseas performances, and will be at risk of losing royalties.  It is understandable that suggested modifications to the requirement of exclusive assignments have been approached with great caution, and we think this Tribunal should proceed in the same way.

351               The opt-out proposals contended for by ACCC and FACTS seem to disregard the deliberate limitation to the exceptions granted to the requirement of exclusivity imposed by the Articles of PRS and IMRO.  The opt-out proposals, even those restricted to a scheme permitting non-exclusive licences to members, envisage that the member could then deal freely with the performing right attaching to the work or works opted out so as to grant to a third party a sub-licence to exploit performing rights, e.g., to a television producer, in consideration, perhaps, of a once-and-for-all, up-front payment.  The proposals go far beyond the modifications to the Articles of PRS and IMRO.  As APRA points out in its submissions, s 36 of the Copyright Act 1968 provides that it is an infringement of the copyright in a work to do an act comprised in the copyright without the licence of the owner of the copyright.  Under a non-exclusive licence on terms similar to those available to a member of IMRO, APRA would remain the owner of the copyright and the third party would still require a licence from APRA to perform the music.  APRA’s submissions acknowledge that the apparent intent of the licence-back proposals suggested by ACCC could be achieved by the writer retaining or receiving back the right to grant a sub-licence, or by APRA appointing the composer as APRA’s agent.  Neither of these proposals were directly explored in evidence before us.  There was no suggestion that APRA should appoint a member as its agent.  The implications of allowing a member to grant a sub-licence were, however, indirectly explored in that APRA witnesses gave evidence about administration difficulties that would arise if third parties, like producers, could obtain permission to exploit performing rights direct from the writer.

352               It is not suggested by APRA that a scheme could not be devised by which, under a non-exclusive licence to a member, APRA authorised the member to grant a sub-licence to another person.  We therefore proceed on the footing that this is possible.

353               We consider that the introduction of an opt-out system on a work-by-work basis which permitted a member either to withhold commissioned work, or to obtain a reassignment of the work already within APRA’s repertoire, should not be required as a condition of authorisation.  We think that the risk of harm to the essential structure of APRA, in the ways mentioned above, 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, the 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 are collected for local use by other licence holders, and for overseas use.

354               A non-exclusive licence back to a member subject to the same limitations as the IMRO rules would not provide FACTS with the latitude that it is seeking to deal directly with writers.  Indeed, such a modification would probably be used no more than it has been in Ireland under the IMRO modification or anywhere under the PRS modification.

355               The non-exclusive licence-back proposal contended for by ACCC, set out in para 111 above, would permit a producer of television programs to negotiate directly with a writer, but without the need to specify where and when the production would later be broadcast. 

356               We have already commented that the evidence leaves a question mark over the practical utility of such a scheme, and whether it would be used.  However, there is force in the submissions of ACCC that until the exclusivity rule is modified, competitive potentials that might accompany the change will not emerge.  We think the appropriate course is to authorise rules that cautiously relax the requirement of exclusive assignment, to test if and how that change affects competition.  At the same time the modifications should not be so extensive that they carry the risk of damaging the essential structure of APRA as a collecting society.  For that reason, we think that the possible variants 3(a) and (b) to the licence-back proposal suggested by ACCC should be incorporated.

357               Much of the evidence as to incompatibility of systems between APRA and overseas operators concerns difficulties that would arise in respect of overseas performance of APRA’s Australian repertoire.  Those difficulties could be avoided by limiting a non-exclusive licence under the ACCC proposal to Australian performances.  To allow the proposed scheme to operate in respect of overseas performances would give rise to incompatibility problems between the systems of different overseas collecting societies, and would be likely to give rise to the sorts of problems encountered by the live performer who endeavoured to self-administer works at concerts in Europe under the PRS rule: see para 237 above.  We are persuaded by evidence led by APRA that these problems would not be satisfactorily overcome by variant 3(c) to the ACCC proposal as overseas collecting societies, whose systems would not accommodate such notification, would probably ignore it.  On balance, we are not satisfied that a system which permitted opting out by a member on a work by work basis in respect of performances outside Australia should be authorised.  We think the risk to the continued efficient operation of the APRA system is, at this time, too great.

358               The grant of a non-exclusive licence is likely to result in administrative expense for APRA.  These added expenses should fall on the member seeking the non-exclusive licence, not on other members of APRA.  The PRS rules approved by the Fair Trading Office contain the requirement that:

“The member shall pay to the Society such sum as may be calculated from time to time by the Board.  In calculating such sum, the Board shall only be entitled to take into account any expenses which may be reasonably incurred by the Society in connection with and/or arising out of the granting of the assignment”. (Rule 11A(e))

We think that a term along these lines should also be included.

Summary

359               In summary, the input arrangements of APRA, which require an exclusive assignment of performing rights subject only to Article 17(b), could be modified in the manner that we have mentioned without creating undue risk to the essential elements of APRA’s role as a collecting society and should be modified in that manner.  Similarly, we think a case for a simplified dispute resolution process has been established.

360               Whilst we consider that the public benefits arising from APRA’s collective administration of performing rights exceed the anti-competitive detriments flowing from its operations, we consider that authorisation should be withheld until these two matters have been put in order by APRA.  We think the appropriate course is to adjourn the proceedings to enable APRA to design rules for a non-exclusive opt-out system on a work-by-work basis, and an alternative dispute resolution procedure. A similar course was followed by the Tribunal in Re Media Council (No 2) at 48,455. 

361               It also follows from these conclusions that pursuant to s 102(4) of the Trade Practices Act the notice given by ACCC to APRA under s 93(3) should be set aside.

362               Subject to these matters being attended to, we think it would be appropriate to grant an authorisation until 30 June 2004.  We do not think the authorisation should be for longer as technological and other changes are constantly having an effect on aspects of the relevant market. 

363               We think the matter should be adjourned for about nine months.  This is a substantial time, but we recognise that the task of designing a proposal 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.  The matter will then be relisted for the Tribunal to consider APRA’s proposals for change with a view to granting authorisation if the proposals are approved by the Tribunal.  In the meantime an interim authorisation should be given in respect of the six applications that were not authorised by ACCC. 

364               The notice given by ACCC to APRA under s 93(3) is set aside.

I certify that the preceding three hundred and sixty-four (364) numbered paragraphs are a true copy of the Reasons for Decision herein of the Tribunal.

Associate:

Dated:              16 June 1999

Counsel for APRA                   :           Mr D K Catterns QC with Mr A I Tonking

Solicitor for APRA                   :           Banki Haddock Fiora

Counsel for FACTS                 :           Mr W H Nicholas QC with Mr C P Comans

Solicitor for FACTS                 :           Boyd House & Partners

Counsel for ACCC                   :           Mr A J L Bannon SC with Mr J R J Lockhart

Solicitor for ACCC                  :           Australian Competition and Consumer Commission

Dates of hearing                        :           26, 27, 28, 29 & 30 October 1998 & 2, 3, 4, 5, 6, 9, 11,

                                                            12 & 13 November 1998

Date of decision                        :           16 June 1999