Is STIM a bully? It all depends ...

Earlier this month the Court of Justice of the European Communities ruled on the criteria for establishing validity under European competition law of an allegedly abusive and discriminatory scheme for the licensing of copyright works by a copyright collecting society. This ruling can be found in Case C‑52/07, Kanal 5 Ltd and TV 4 AB v Föreningen Svenska Tonsättares Internationella Musikbyrå (STIM), a decision dated 11 December 2008, in response to a reference for a preliminary ruling from the Marknadsdomstolen (the Swedish Market Court) on February 2007.

In short STIM (the Swedish Performing Rights Society) operated three different methods for charging TV channels to use its members' music in television broadcasts:

* Kanal 5 and TV4 (both private commercial channels) were charged a proportion of their revenue derived from advertising and subscriptions, in relation to the amount of time for which STIM's works were transmitted, the charge being made at the end of each year.

* SVT (a public broadcaster) was charged a proportion of an annual hypothetical revenue sum, the charge being fixed at the beginning of each year and without taking into account the actual duration of broadcasts of STIM's works.

* TV channels that had yet to register any significant turnover were charged a minimal amount, taking into account (i) the actual duration of broadcasts of STIM's music and (ii) the number of viewers.

Kanal 5 and TV4 claimed that STIM was abusing its dominant position under Article 82 of the EC Treaty since STIM's fee model was discriminatory and, in their case, led to excessive charges; the companies also argued that there was insufficient linkage between the cost of STIM's licence and their actual revenues.

The Marknadsdomstolen stayed the proceedings and to refer the following questions to the Court for a preliminary ruling:

‘(1) Is Article 82 EC to be interpreted as meaning that a practice constitutes abuse of a dominant position where a copyright management organisation which has a de facto monopoly position in a Member State applies to or imposes in respect of commercial television channels a remuneration model for the right to make available music in television broadcasts directed at the general public which involves the remuneration being calculated as a proportion of the television channels’ revenue from such television broadcasts by those channels?

(2) Is Article 82 EC to be interpreted as meaning that a practice constitutes abuse of a dominant position where a copyright management organisation which has a de facto monopoly position in a Member State applies to or imposes in respect of commercial television channels a remuneration model for the right to make available music in television broadcasts directed at the general public which involves the remuneration being calculated as a proportion of the television channels’ revenue from such television broadcasts by those channels, where there is no clear link between the revenue and what the copyright management organisation makes available, that is, authorisation to perform copyright-protected music, as is often the case with, for example, news and sports broadcasts and where revenue increases as a result of development of programme charts, investments in technology and customised solutions?

(3) Is the answer to Question A or B [whatever happened to (1) and (2), the IPKat wonders] affected by the fact that it is possible to identify and quantify both the music performed and viewing?

(4) Is the answer to Question A or B affected by the fact that the remuneration model (revenue model) is not applied in a similar manner in respect of a public service company?’

The Court of Justice has given its answer:

"1. Article 82 EC must be interpreted as meaning that a copyright management organisation with a dominant position on a substantial part of the common market does not abuse that position where, with respect to remuneration paid for the television broadcast of musical works protected by copyright, it applies to commercial television channels a remuneration model according to which the amount of the royalties corresponds partly to the revenue of those channels, provided that that part is proportionate overall to the quantity of musical works protected by copyright actually broadcast or likely to be broadcast, unless another method enables the use of those works and the audience to be identified more precisely without however resulting in a disproportionate increase in the costs incurred for the management of contracts and the supervision of the use of those works.

2. Article 82 EC must be interpreted as meaning that, by calculating the royalties with respect to remuneration paid for the broadcast of musical works protected by copyright in a different manner according to whether the companies concerned are commercial companies or public service undertakings, a copyright management organisation is likely to exploit in an abusive manner its dominant position within the meaning of that article if it applies with respect to those companies dissimilar conditions to equivalent services and if it places them as a result at a competitive disadvantage, unless such a practice may be objectively justified".

In other words, the IPKat says, never mind the principle -- just focus on the detail. Licence revenue based on the licensee's income is not an abuse except where it is, while discriminatory charging is an abuse except where it isn't. The reality is that abusive licensing is determined by looking at (i) proportionality, (ii) the licensor's administrative convenience and (iii) objective justification. Merpel says, there are still some interesting questions for the Swedish court to ponder as to the nature of the market(s) in which TV channels operate. In one sense they all compete with one another for the viewer's attention, while in another they do not (eg a sports channel is hardly substitutable for a diet of soap operas or nature programmes). It will presumably be necessary to assess this issue as a preliminary to determining whether discriminatory licence terms can be justified.

IPKat note on the Advocate General's Opinion -- which is now available in fifteen EU official languages, including Maltese, but not English -- here
See what's on Swedish TV here
All the Swedish TV channels here

Copyright royalties and competition: the AG opines on yet another angle

Available so far in just nine European languages -- none of which is English -- the Opinion of the Advocate General opinion in Case C-52/07 Kanal 5 and TV 4 v STIM makes interesting reading (unless you don't read the right languages, in which case it looks quite menacing on the page). It seems to the IPKat that the copyright/competition law interface is becoming more important by the day, so he's getting very excited about the outcome of this case.

This reference arose out of a dispute between the Swedish music copyright collection society STIM and the Swedish television broadcasters TV 4 and Kanal 5. STM currently sets royalties for the use of its portfolio of works by TV 4 and Kanal 5 as a percentage of income. Separate royalty rates for advertising and subscription income were set by reference to the proportion of airtime devoted to music, using a banded structure. In contrast, for the State-funded broadcaster SVT, which had no advertising or subscription revenues, the music royalty was calculated on the basis of notional advertising income and an estimate of the proportion of airtime which that station devoted to music. As for smaller broadcasters, royalties were based on audience figures and the proportion of airtime devoted to music.

TV 4 and Kanal 5 were not happy about this: after the Swedish competition authority rejected their complaints they took the matter to the relevant Swedish tribunal, which referred four questions to the ECJ concerning the application of Article 82 EC. These questions sought advice on whether particular methods for the calculation of royalties would constitute an abusive exercise of their collective copyrights. In particular, TV 4 and Kanal 5 maintained that the calculation of royalties by STIM's method was abusive because

* that method failed to take account of available information about the actual use made of the copyright licences by the broadcasters: music is typically broadcast at periods of low audience, to which little advertising revenue is attributable. What's more, music is not broadcast very much in the middle of sports programmes which, being very popular, presumably help to drive up subscription income.

* it discriminated between them and the State broadcaster SVT (this submission presumably implies an allegation that there is a relevant form of competition between SVT and the commercial broadcasters).

The UK intervened, arguing that the questions to be determined were whether the charges were sufficiently linked to use and whether public and private broadcasters competed with each other, these both being matters for the Swedish court rather than the ECJ to decide.

According to the Advocate General:

* the law on exploitative abuse (e.g. is a dominant enterprise acting "to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition"?) governs the broadcasters' claims concerning the lack of link between use and royalties.

* the levying of a charge in respect of a fixed proportion of turnover without any reference to the amount of music broadcast would be abusive and could not be justified by administrative convenience.

* before a charging method could be found to be abusive due to an alleged lack of link between the royalties and the benefits to the broadcaster of using music, one must first identify an alternative method that might provide a more accurate, and to reject any objective justification of the less accurate method by reference to, for example, administrative costs.

* in general, no conclusion about the abusive character of a charging method can be reached in the abstract.

* a for discriminatory abuse, the ECJ should leave it to the Swedish court to decide (i) whether the difference in calculation methods is actually discriminatory and (ii) whether SVT competes with private broadcasters in a "downstream market for television".

The opinion does not discuss whether competition for audiences without a commercial purpose on the part of SVT would be a relevant form of competition for this purpose.

The IPKat thanks Franck Latrémolière (Reckon), for letting this monolingual moggie know what's going on.

Supply of legal information: scope for competition?

IPKat team member Jeremy attended yesterday's meeting of the SOLO IP group, at which a team from LexisNexis explained what legal and IP-related materials and search services it could provide and a group of sole and small practitioners explained what it was that they actually wanted. The meeting was a stimulating one, at which a variety of views were exchanged and a good deal of hard listening was done.

A sudden thought occurred to the Kats' representative at that meeting. It runs like this:

Many years ago in Magill, the European Court of Justice took the view that the failure of television companies to make their listings of forthcoming programmes available for publication in magazines -- thus forcing viewers to purchase separate magazines in respect of different TV channels which they wanted to watch -- should be viewed a an abuse of the copyright monopoly since it prevented the development of a products in a market that was not the TV companies' market but one that was tangential to it.

For all lawyers, and not just IP professionals, a similar situation exists. Each of LexisNexis and Westlaw owns and provides access to a large portfolio of databases including law reports, official materials and relevant professional and scholarly writing. In order for any practitioner to serve his clientele most effectively, he really needs to be able to have access to both. Would it not be at least arguable that a comparison can be made with the case of TV programme lists?

To resolve the problem, let LexisNexis, Westlaw and any other possessors of equivalent legal databases be encourage to make licences available to their competitors on FRAND ('fair, reasonable and non-discriminatory') terms, so that royalties will be secured in respect of their proprietary materials, leaving LexisNexis, Westlaw and the like to compete with one another in terms of their pricing to users and the quality of the facilities for interrogating the data?

Does anyone have any comments, asks the Kat.

No link between parallel trade and reduction in R&D, says AG

It's only available in ten official EU languages (naturally excluding English), but the IPKat thinks that the Opinion of Advocate General Dámaso Ruiz-Jarabo Colomer in Joined Cases C-468/06 to C-478/06 Sot. Lélos Kai Sia EE (and Others) v GlaxoSmithKline AEVE is worth paying close attention to. So, presumably does the European Court of Justice itself since it went to the effort of pinning a press release on the Opinion on to its website.

Right: it may provide relief from migraine, but Imigran is giving GSK a real headache in these proceedings before the ECJ

At the heart of this case, a reference for a preliminary ruling from Greece, lies the question whether GlaxoSmithKline can refuse to supply orders from wholesalers for pharma products that, it believes, will be pushed into the IP owners' favourite bugbear, parallel trade. The Advocate General has recommended the Court to rule that any attempt to use one's market dominance (and having patent and trade mark rights can create that dominance) in order to stop lawful parallel trade is an abuse of dominant position under Article 82 of the EC Treaty.

According to the press release, which gives a fuller picture:

"Through its subsidiary, GSK ... distributes in Greece certain pharmaceutical products for which it holds the patent (Imigran for migraine, Lamictal for epilepsy and Serevent for asthma). For a number of years, the applicants (intermediary wholesalers) have been buying those medicinal products in order to supply the market not only in Greece but also in other countries (Germany and the United Kingdom) where the amount reimbursed per medicinal product is higher than that obtained in Greece. In 2000, GSK changed its system of distribution in Greece, no longer meeting orders from wholesalers. It supplied hospitals and pharmacies through a company called Farmacenter AE. The dispute which then arose gave rise to a first reference to the Court of Justice of the European Communities for a preliminary ruling [Case C-53/03 Syfait and Others [2005] ECR 4609 ..., in which the Court declared that it had no jurisdiction to reply to the body which had referred the question to it (the Epitropi Antagonismou), since the latter was not a court or tribunal].

Before the Greek civil courts, Sot. Lélos and the other wholesalers maintained that GSK’s interruption of supplies, as well as its practice of trading through Farmacenter, amounted to anti-competitive conduct and abuse of dominant position.

The Trimeles Efeteio Athinon (Appeal Court of Athens) therefore sought a preliminary ruling on a number of questions concerning Community competition law and the abuse of dominant position, as well as parallel exports of medicinal products from Greece to other Member States.

Advocate General Dámaso Ruiz-Jarabo points out that the Treaty provision which prohibits abuse of dominant position does not admit of any exception. Moreover, he maintains that the Treaty does not provide a basis for attributing to undertakings in a dominant position conduct which is in itself abusive, even when the circumstances of the case leave no room for doubt as to its anti-competitive purpose or effect. On the contrary, such conduct may be objectively justified.

First, in the view of the Advocate General, the European pharmaceuticals market is an imperfect market, with a low level of harmonisation, characterised by State intervention in respect of pricing and public reimbursement systems and by the duty to supply and where, because of the industrial patents of pharmaceutical products, the holders of those industrial property rights can easily assume positions of dominance.

Nevertheless, the Advocate General believes that the price regulation system is not completely free from the influence of the manufacturers, who negotiate prices with the health authorities of the Member States. By the same token, the duty to supply does not justify cutting off supplies to rival wholesalers, because the needs of patients in a Member State are not subject to sudden changes, and the statistics for the various illnesses are reliable, offering companies a degree of predictability which enables them to adapt to the market.

Second, protection of legitimate business interests may justify conduct such as that of GSK, in accordance with certain case-law of the Court of Justice. However, in the present case, the Advocate General rejects the idea of a causal link between the loss of income because of parallel trading and the producer’s reduction of investment in research and development. In fact, the European Union offers undertakings a favourable environment in that respect, encouraging them to minimise the costs entailed by research and development by means of block exemptions for horizontal agreements of that nature.

Lastly, the Advocate General suggests that undertakings in a dominant position may be entitled to demonstrate the efficiency in economic terms of their potentially abusive conduct. As regards the circumstances of the present case, however, the Advocate General takes the view that – apart from the description of the negative consequences of parallel trade – GSK has not indicated any positive aspect resulting from its cutting down on medicinal supplies to wholesalers.

In consequence, the Advocate General proposes that the Court of Justice state in reply to the questions referred for a preliminary ruling that an undertaking in a dominant position which refuses to meet in full the orders of wholesalers of pharmaceutical products, with a view to reducing the harm caused by parallel trade, thereby engages in abusive conduct. However, it is possible that the undertaking can provide an objective justification for its conduct by showing that the regulation of the market compels it to behave in that manner in order to protect its legitimate business interests (it not being possible in the present case to rely on the pricing system for medicinal products, the duty to supply or the impact on innovation incentives)".

Says the IPKat, it would be good to see the basis upon which the Advocate General was able to conclude that there was no "causal link between the loss of income because of parallel trading and the producer’s reduction of investment in research and development". What is the nature of his evidence? And how, in the course of a reference to the ECJ on a preliminary legal issue, is it possible for a party to the proceedings to challenge such a conclusion?

Some cures for headaches here and here