Notice pursuant to Article 19(3) of Council Regulation No 17(1) concerning an application for negative clearance or exemption under Article 81(3) of the EC Treaty

(Case COMP/C2/38.014 - IFPI "Simulcasting")

(2001/C 231/04)

(Text with EEA relevance)

I. THE NOTIFICATION

1. On 16 November 2000 the International Federation of the Phonographic Industry (IFPI) applied to the Commission, pursuant to Article 4 of Regulation No 17, for negative clearance or, alternatively, for exemption under Article 81(3) of the EC Treaty in respect of a model reciprocal agreement (hereinafter the "Reciprocal Agreement") between record producers' collecting societies to facilitate the grant of international licences to radio and TV broadcasters who wish to simultaneously transmit via the Internet sound recordings included in single channel and original free-to-air broadcasts of radio and/or TV signals in compliance with the respective regulations on provision of broadcasting services ("simulcasting").

2. On 21 June 2001 IFPI submitted an amended version of the Reciprocal Agreement. The effect of the amendment is that simulcasters located in the EEA are able to seek and obtain a multi-territorial licence from any one of the collecting societies established in the EEA to simulcast into the signatories' territories.

3. IFPI submitted the notification on behalf of a number of collecting societies which administer the broadcast and public performance rights of their record company members.

II. THE PARTIES

IFPI

4. IFPI is an international trade association incorporated in Switzerland and with its principal place of management in London, whose members comprise a large number of record and music video producers. On their part, the record and music video producers are members of national collecting societies which administer on their behalf the copyrights and neighbouring rights of which they are the legitimate holders.

5. IFPI submits the notification on behalf of the record producers' collecting societies which are party to the agreement but is not itself party to the agreement, since it is not mandated to collect revenues on behalf of its members. IFPI assisted the collecting societies to set up the arrangements that are the subject of the notification as the international representative of its record producer members.

The collecting societies

6. The parties to the originally notified model agreement are 40 record producers' collecting societies from western and eastern Europe, Asia, northern and Latin America, Australia, New Zealand and South Africa. At the date of notification of the amendment, 11 of the participating societies had signed. IFPI will inform the Commission as and when further collecting societies sign the amended agreement.

7. The main function of collecting societies is the administration of the broadcasting and public performance rights of their record producer members. This includes the licensing of copyright in the sound recordings of their members to users, determining tariffs for that use, collecting and distributing royalties, monitoring the use of the copyright material and, where necessary, enforcing their members rights.

III. PRODUCTS/SERVICES

8. The case concerns the following services:

(a) rights administration services;

(b) licensing of the simulcasting right.

IV. THE NOTIFIED AGREEMENT

Scope

9. Digital technology and the worldwide web have enabled broadcasters, who traditionally operate on a national or regional basis under limited territorial licences, to exploit globally the sound recordings administered by the collecting societies by simulcasting their programming onto the global digital network of the Internet. According to the parties, the Reciprocal Agreement is intended to facilitate the grant of a multi-territorial licence for this activity.

10. Collecting societies traditionally have the right to grant licences for exploitation of sound recordings in their own national territory only. Therefore, the right to simulcast, given that it involves transmission of signals in a number of territories, is not covered by existing licences granted by collecting societies to broadcasters. According to the parties, the Reciprocal Agreement is therefore intended to facilitate the creation of a new category of licence.

11. The notified Reciprocal Agreement is intended to establish a framework to ensure effective administration and protection of producers' rights in the face of global Internet exploitation. At the same time it will enable collecting societies to grant "one-stop" licences covering all the territories in which the local producers' collecting society is a party to the Reciprocal Agreement. In this way, simulcasters will have a simple alternative to obtaining a licence from the local society in every country in which their Internet transmissions are accessed, although this latter approach will still be available to them.

12. The Reciprocal Agreement is intended to operate for an experimental period of one year only, after which its nature, scope and operation will be reviewed. The amended version of the agreement entered into force on 1 June 2001 and will end on 31 May 2002.

Content

13. The Reciprocal Agreement provides for each participating collecting society to grant to the other participating societies the right (in respect of its members' repertoire) to authorise simulcasting, or to claim equitable remuneration in its territory (as appropriate) on a non-exclusive basis. Each party to the Reciprocal Agreement will enter into bilateral contracts individually and separately with each other party in terms following the model of the Reciprocal Agreement.

14. More specifically, the Reciprocal Agreement will enable each participating collecting society:

(a) in the case of an exclusive right, to authorise, whether in its own name or in the name of the right owner concerned, simulcasting of sound recordings in the repertoire of the other contracting party and where claiming equitable remuneration, to collect all remuneration, to receive all sums due as indemnification or damages and to give due and valid receipt for the aforementioned collections;

(b) to collect all licence fees required in return for the authorisations, and to receive all sums due as indemnification or damages for unauthorised simulcasts;

(c) to commence and pursue (in full cooperation with the other collecting society parties to the agreement) either in its own name or in that of the rights holder concerned, upon request and with explicit consent, any legal action against any person or corporate body and any administrative or other authority responsible for an illegal simulcast.

Commercial terms

15. The Reciprocal Agreement does not deal with any commercial terms. These will need to be independently negotiated between the user and the collecting societies and will include the level of royalty or tariff to be charged. The calculation of an appropriate royalty level is therefore a matter for each individual collecting society.

16. The Reciprocal Agreement determines that any disputes between participating collecting societies and broadcasters relating to royalties will be subject to national arbitration procedures where such exist. In circumstances where the national arbitration system does not exist or is unlikely to be effective, the parties will refer to a forum for international arbitration, such as the WIPO Arbitration and Media Centre.

The amendment

17. Under the originally notified agreement, a collecting society was empowered to grant an international simulcasting licence only to broadcasting stations whose signals originated in its territory. This meant that broadcasters in the EEA were required to approach the producer's collecting society in their own Member State in order to be granted a multi-territory simulcasting licence.

18. Following discussions with the Commission, on 21 June 2001 IFPI notified to the Commission an amendment to the Reciprocal Agreement such that broadcasters whose signals originate in the EEA will be able to approach any EEA collecting society established in the EEA in order to seek and obtain a multi-territorial simulcasting licence.

19. The relevant provision (a new sub-paragraph under Article 3.1. - "reciprocal authorisation to administer") reads as follows:

Notwithstanding the provisions of the previous paragraph, each contracting party agrees that the right referred to in Article 2 for simulcasting in and into its own territory is conferred on a non-exclusive basis on any contracting party established in the European Economic Area (EEA) with regard to those broadcasting stations whose signals originate in the EEA. For the avoidance of doubt, any broadcasting station whose signals originate in the EEA shall therefore be entitled to approach any contracting party established in the EEA for its multi-territorial simulcast licence.

V. ARGUMENTS OF THE PARTIES

20. According to the parties, the aims of the Reciprocal Agreement are:

- to provide a basis for the legal exploitation of sound recordings throughout the world and to create a culture of legality on the Internet,

- to offer the most effective and efficient way to allow exploitation of producers' rights on a global or multi-territorial basis,

- to offer a flexible solution that can adapt to the market as it develops,

- to ensure that producers retain their individual rights with regard to electronic delivery. Mandates granted to societies should therefore remain non-exclusive,

- to create a market place that encourages broadcasters to exploit their signals via the Internet on the basis of necessary and legitimate licences,

- to minimise administration costs both for collecting societies and users, and

- to provide a valuable service to simulcasters in the form of a one-stop global or multi-territorial licence.

21. Simulcasting involves the transmission of a signal to audiences on a cross-border basis. In the absence of reciprocal agreements between collecting societies, simulcasters would be obliged to contact the collecting society or right-holder in every territory in which users access their service and obtain a licence. This would impose a significant administrative and economic burden on simulcasters and could lead to the widespread non-respect (and therefore infringement) of copyright. Inherent in the reciprocal licensing is therefore, according to the parties, a substantial improvement in the exploitation of sound recordings over the Internet which clearly promotes technical and economic progress. The arrangements avoid the necessity for a multiplicity of individual lengthy negotiations by users with each collecting society since the reciprocal framework reduces transaction costs significantly and contributes to the creation of an EEA-wide market for the licensing of simulcast transmissions.

22. According to the parties, the amendment to the Reciprocal Agreement has the effect of further increasing the pro-competitive nature of the arrangements, since it encourages competition between producers' collecting societies in the EEA. Broadcasters whose signals originate in an EEA Member State are now able to approach any EEA-based collecting society for the simulcast licence.

23. The parties also underline the fact that Community's competition law serves the essential goal of creating and sustaining a single market. The Reciprocal Agreement will enable EEA broadcasters not only to obtain a one-stop licence of the necessary bundle of rights to enable legitimate simulcasting of their signals but also to obtain such licence from the EEA collecting society of their choice. This will allow for competition between EEA societies to grant these new multi-territorial licences and furthering the single market goal.

24. As regards the distinction between those societies in territories within the EEA, who will be able to issue international simulcast licences to any simulcaster whose signal originates within the EEA, and those societies outside the EEA, who will only be able to license users whose signals originate in their own territory, the parties say that the distinction is based on the harmonised regimes of copyright that operate in the EEA and in particular the fact that many territories outside the EEA do not provide the same level of copyright protection and/or do not have legal systems and procedures in place which would allow effective enforcement of IP rights. Legal certainty and copyright protection are crucial features without which the reciprocal licensing system would not work. The protection that the reciprocal arrangements represents is indispensable in the fight against piracy and will contribute to the expansion of the industry's programme of investment, marketing of new digital formats and more efficient and effective distribution methods with the subsequent accrual of benefits for consumers. The creation of a legitimate marketplace for simulcasting will stimulate competition to the benefit of consumers who will get easier and wider access to a range of music, while ensuring that right holders and artists are properly remunerated.

25. Technology allowing for simulcasting has been available since the end of 1995. Since then, a growing number of broadcasters has embraced this technology and started to make their programming available over the Internet, simultaneously with the analogue terrestrial broadcasting of the same programming. This technology is currently used by over 5000 broadcasters worldwide, 1800 of which are located in Europe. The parties underline the fact that the Commission has acknowledged in the guidelines on the applicability of Article 81 to horizontal cooperation agreements(2) that companies need to respond to a "changing market place driven by globalisation, the speed of technological progress and the generally more dynamic nature of markets"(3). The Reciprocal Agreement represents an attempt by the sound recording industry to provide a licensing framework pursuant to which simulcasting technology can be used legitimately. It fills a vacuum, making available a licensing facility that previously did not exist.

26. According to the parties, the facilitation of a one-stop shop global licence for the benefit of both rights holders and rights users is pro-competitive. Whilst the establishment of the Reciprocal Agreement will require a degree of cooperation between the societies, it will not be replacing any existing activities, since it is geared to the development of an entirely new licensing facility.

VI. CONCLUSION

On the basis of the above, the Commission intends to take a favourable view in respect of the notified agreement. Before adopting a favourable opinion, the Commission invites third parties to send their observations within six weeks of the publication of this notice by e-mail (Miguel.Mendes-Pereira@cec.eu.int), by fax ((32-2) 295 01 28) or by mail, quoting the reference Case COMP/C2/38.014 - IFPI, to: European Commission Directorate-General for Competition

Anti-trust Registry

Rue Joseph II/Josef II-straat 70

Office 0/28

B - 1000 Brussels.

If a party considers that its observations contain business secrets, it must indicate the passages which in its opinion ought not to be disclosed on the ground that they contain business secrets or other confidential material, and state the reasons. If the Commission does not receive a request with reasons it will assume that the observations do not contain any confidential information.

(1) OJ 13, 21.2.1962, p. 204/62.

(2) Commission notice "Guidelines on the applicability of Article 81 to horizontal cooperation agreements" (OJ C 3, 6.1.2001, p. 2).

(3) Paragraph 1.1.2.