Collective societies, rates, monopoly positions and a EU Court decision

european_court_justiceweb-thumb-largeThe European Court ruled in case C‑177/16 Autortiesību un komunicēšanās konsultāciju aģentūra / Latvijas Autoru apvienība v Konkurences padome. This case concerns the following:

The AKKA/LAA, a collective management organisation handling copyright for musical works, is the only entity authorised in Latvia to issue, for consideration, licences for the public performance of musical works in respect of which it manages the copyright. It collects the fees from which Latvian copyright holders are remunerated as well as, through contracts concluded with foreign collecting societies, those from which foreign copyright holders are remunerated. Holders of its licences include shops and service centres, as users of works protected by copyright and related rights.

By decision of 1 December 2008, the Competition Council imposed a fine on the AKKA/LAA for abuse of a dominant position as a result of the application of excessively high rates. The AKKA/LAA subsequently adopted new rates applicable from 2011. On 31 May 2012, the Competition Council opened a procedure to examine those new rates.

In the context of that procedure, the Competition Council first compared the rates applied in Latvia for the use of musical works in shops and service centres with those applied in Lithuania and Estonia as neighbouring Member States and markets. The Competition Council found that the rates applied in Latvia were higher than those applied in Estonia and, in most cases, higher than those charged in Lithuania. Although, in those three Member States, rates are set according to the surface area of the shop or service centre concerned, the Competition Council observed that, for surface areas of between 81 m² and 201-300 m², the rates applied in Latvia were two to three times higher than those applied in the other two Baltic States.

Secondly, the Competition Council, having recourse to the purchasing power parity index (‘PPP index’), compared the fees in force in approximately 20 other Member States and found in this regard that the rates payable in Latvia exceeded the average level of those charged in those other Member States by 50% to 100%. More specifically, in the case of shops or service centres with surface areas of between 85.5 m² and approximately 140 m², only the rates applied in Romania were higher.

Having taken the view that the fees in force in Latvia, in the segments where they were significantly higher than in Estonia and in Lithuania, were unfair, the Competition Council, by decision of 2 April 2013, imposed a fine of 45 645.83 Latvian lats (LVL) (approximately EUR 32 080) on the AKKA/LAA for abuse of a dominant position pursuant to Article 13(1)(4) of the Law on competition and point (a) of the second paragraph of Article 102 TFEU (‘the contested decision’). The Competition Council calculated the amount of that fine on the basis of the AKKA/LAA’s turnover, considering in this regard that remuneration collected for rightholders constituted an integral part of that organisation’s turnover and had to be taken into account.

The AKKA/LAA brought an action before the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia) seeking the annulment of the contested decision, raising, in essence, four pleas in support of that action. First, it argued, the Competition Council essentially restricted the comparison of the rates applicable in Latvia to those applicable in neighbouring Member States, namely Estonia and Lithuania, whereas, in respect of gross domestic product and price levels, the situation in Latvia is also comparable to those in Bulgaria, Romania, Poland and Hungary. Secondly, it submitted, the Competition Council did not state clearly the method used to calculate the reference rates. Thirdly, in its opinion, the Competition Council erred in taking the view that it was incumbent on the AKKA/LAA to justify the level of its rates. Fourthly, it submitted, the Competition Council should not have taken into account, when calculating the AKKA/LAA’s fine, the sums collected for the remuneration of authors, given that those sums do not form a part of the assets of that organisation.

By judgment of 9 February 2015, the Administratīvā apgabaltiesa (Regional Administrative Court) partially annulled the contested decision. That court held that the Competition Council was right to find that there had been an abuse of a dominant position by the AKKA/LAA. It also took the view that the comparison of rates for the same type of services between Latvia, Estonia and Lithuania was justified and that the AKKA/LAA had provided no explanation for the fact that the rates applicable in Latvia were significantly higher than those applicable in Estonia and Lithuania. However, since it found that the Competition Council had, for the purpose of calculating the fine, improperly taken into account the sums collected for the remuneration of authors, that court ordered the Competition Council to recalculate the amount of the fine within two months following the delivery of its judgment.

The AKKA/LAA appealed in cassation against that judgment to the referring court on the ground that that judgment had not given it full satisfaction. The Competition Council, for its part, also appealed against that judgment on the ground that, by that judgment, the Administratīvā apgabaltiesa (Regional Administrative Court) had annulled the provisions of the contested decision concerning the fine imposed.

According to the AKKA/LAA, the Administratīvā apgabaltiesa (Regional Administrative Court) had not set out objective and verifiable criteria to justify its view that the rates applicable in Latvia were capable of being compared with those in Estonia and Lithuania. Thus, it argued, that court had not based its reasoning on economic criteria, but on criteria relating to the territorial, historical and cultural situation common to those States.

The AKKA/LAA challenges, in particular, the finding that the geographical proximity of the other Baltic States could be a decisive factor.

The Competition Council, for its part, argues that the fine imposed is consistent with the national legislation in force. It emphasises in particular that, in competition law, ‘turnover’ means the total amount of all revenue resulting from the economic activity, which, in the present case, includes the sums collected by the AKKA/LAA for the remuneration of authors.

The Augstākā tiesa, Administratīvo lietu departaments (Supreme Court, Administrative Cases Division, Latvia) is uncertain as to the proper interpretation of point (a) of the second paragraph of Article 102 TFEU. First, that court is unsure whether the AKKA/LAA’s activities have an impact on trade between Member States, and, therefore, whether the case at issue in the main proceedings comes within the scope of that provision. Secondly, that court has doubts as to the method used to determine the unfair nature of the prices. Thirdly, it has reservations concerning the calculation of the fine, in particular as to whether the remuneration collected for the rightholders should have been taken into account for that purpose.

Concerning the first point, the referring court notes that, in the contested decision, the Competition Council stated that the AKKA/LAA had also collected fees in respect of musical works originating in other Member States and that, consequently, unfair prices were liable to deter the use in Latvia of works of authors from other Member States.

As for the second point, concerning the method used to determine the unfair nature of the prices, the referring court takes the view, on the one hand, that, when rates charged in a Member State correspond to a multiple of rates applied in the other Member States, as in the case that led to the judgment of 13 July 1989, Lucazeau and Others (110/88, 241/88 and 242/88, EU:C:1989:326), that circumstance is indicative of an abuse of a dominant position. On the other hand, it draws attention to the fact that uncertainty still persists as to how rates are set in situations different to the one in that case.

In the present case, the question is whether the comparison of the rates applicable in Latvia with the rates applicable in Estonia and Lithuania is sufficient. Such a limited comparison could, however, prove itself counter-productive in the sense that organisations in neighbouring Member States could, in concert, raise their rates without that being perceptible. In the event that such a method of comparison were not to be valid, the referring court is uncertain whether it would be appropriate also to compare the rates in all the Member States adjusted in accordance with the PPP index.

Subsequently, the referring court is uncertain under what conditions rates are to be considered ‘appreciably higher’ within the meaning of paragraph 25 of the judgment of 13 July 1989, Lucazeau and Others (110/88, 241/88 and 242/88, EU:C:1989:326), and the undertaking concerning is under an obligation to ‘justify the difference by reference to objective dissimilarities between the situation in the Member State concerned and the situation prevailing in all the other Member States’, within the meaning of that same paragraph.

As for the third point, concerning the calculation of the amount of the fine, the referring court points out that a situation such as that in the main proceedings, in which a fine has been imposed on a copyright management organisation, has not yet been ruled adjudicated on by the Court. Thus, it is necessary to clarify the question of whether the sums collected as remuneration for copyright holders should be taken into account.

In those circumstances, the Augstākās tiesas, Administratīvo lietu departaments (Supreme Court, Administrative Cases Division) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

‘(1) Is [point (a) of the second paragraph of] Article 102 TFEU applicable to a dispute concerning the rates laid down by a national copyright management organisation if that entity also collects remuneration in respect of works of foreign authors and the rates laid down by it may be a deterrent to the use of those works in the Member State in question?

(2) For the purpose of defining the concept of “unfair prices” used in [point (a) of the second paragraph of] Article 102 TFEU, in the context of the management of copyright and related rights, is it appropriate and sufficient —– and in which cases —– to draw a comparison between the prices (rates) in the market in question and the prices (rates) in neighbouring markets?

(3) For the purpose of defining the concept of “unfair prices” used in [point (a) of the second paragraph of] Article 102 TFEU in the context of the management of copyright and related rights, is it appropriate and sufficient to use the PPP index based on gross domestic product?

(4) Must the comparison of rates be made for each separate segment thereof or in relation to the average level of the rates?

(5) When must it be considered that the difference in the rates examined in connection with the concept of “unfair prices [(rates)]” used in [point (a) of the second paragraph of] Article 102 TFEU is appreciable, with the result that it is incumbent upon the economic operator enjoying a dominant position to demonstrate that its rates are fair?

(6) What information can reasonably be expected from an economic operator to prove the fair nature of the rates for works covered by copyright, within the scope of [point (a) of the second paragraph of] Article 102 TFEU, if the cost of those works cannot be determined in the same way as that of products of a material nature? Is it solely a question of the cost of administering the copyright management organisation?

(7) In the event of infringement of competition law, is it appropriate to exclude from the business turnover of a copyright management organisation, for the purposes of determining a fine, the remuneration paid to authors by that economic operator?’

The Court’s decision:

1. Trade between Member States is capable of being affected by the level of rates set by a copyright management organisation that holds a monopoly and also manages the rights of foreign copyright holders, with the result that Article 102 TFEU may be applicable.

2. For the purposes of examining whether a copyright management organisation applies unfair prices within the meaning of point (a) of the second paragraph of Article 102 TFEU, it is appropriate to compare its rates with those applicable in neighbouring Member States as well as with those applicable in other Member States adjusted in accordance with the PPP index, provided that the reference Member States have been selected in accordance with objective, appropriate and verifiable criteria and that the comparisons are made on a consistent basis. It is permissible to compare the rates charged in one or several specific user segments if there are indications that the excessive nature of the fees affects those segments.

3. The difference between the rates compared must be regarded as appreciable if that difference is significant and persistent. Such a difference is indicative of abuse of a dominant position and it is for the copyright management organisation holding a dominant position to show that its prices are fair by reference to objective factors that have an impact on management expenses or the remuneration of rightholders.

4. In the case where the infringement referred to in point (a) of the second paragraph of Article 102 TFEU is established, remuneration intended for rightholders must be included, for the purpose of determining the amount of the fine, in the turnover of the copyright management organisation concerned, provided that that remuneration forms part of the value of the services provided by that organisation and that that inclusion is necessary in order to ensure that the penalty imposed is effective, proportionate and dissuasive. It is for the referring court to verify, in the light of all the circumstances of the case, whether those conditions are met.

 

 

 

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