Memorandum 6
Submission from the British Music Rights
THE WORK AND OPERATION OF THE COPYRIGHT TRIBUNAL
INTRODUCTION
1. British Music Rights is the consensus
voice of Britain's composers and songwriters, music publishers
and their collecting societies. The members of British Music Rights
are the British Academy of Composers & Songwriters, the Music
Publishers Association (MPA), the Mechanical-Copyright Protection
Society (MCPS) and the Performing Right Society (PRS).
2. We welcome the initiative by the Innovation,
Universities and Skills Select Committee to look into the work
and operation of the Copyright Tribunal with specific reference
to the final Recommendations of an independent review put forward
in 2007.
3. We are at the disposal of the Innovation,
Universities and Skills Select Committee to expand further on
our submissions below and also to answer any specific questions
the Select Committee may have regarding our members' most recent
experience of the Copyright Tribunal in the reference concerning
tariffs for the online and mobile delivery of music.[12]
I. EXECUTIVE
SUMMARY
4. The Copyright Tribunal has a pivotal
role to play in settling the terms and conditions of licences
and licensing schemes proposed by collecting societies in cases
where potential licensees claim they are unreasonable. Accordingly
the Copyright Tribunal is of considerable importance to the UK's
composers, songwriters and their music publishers whose livelihood
depends upon the licensing of their music by their collecting
societies.
5. Referral to the Copyright Tribunal is
typically instigated by commercial music users such as broadcasters,
record companies and telecommunications companies as well as by
licensees whose businesses are not premised predominantly on music
use, such as airlines.
6. MCPS and PRS represent some 50,000 composers,
songwriters and music publishers, all of whom (with the exception
of fewer than 10 multinational publishers) are either individuals
or SMEs. Their members derive well over 80% of their income from
the use of their music in the UK from the licensing and royalty
collecting activities of MCPS (in respect of the reproduction
of their music in recorded form) and PRS (in respect of the performance
and broadcast of their music).[13]
The amount they each earn from individual uses of their music
licensed on their behalf by MCPS and PRS respectively can usually
be counted in pence or, more commonly in fractions of a penny.
It is only through the multiplicity of licences that MCPS and
PRS are able to secure on their behalf that some of them are able
to derive a meaningful income. It should be noted that even this
is not always achievable. In 2006 over 90% of PRS members earned
less than £5,000 in royalties from PRS, and less than 5%
earned over £20,000.
7. The experience of MCPS and PRS of the
operation of the Copyright Tribunal since its inception has been
that cases referred to it have turned out to be unduly lengthy
and costly, involving complex and legalistic procedures, with
the result that their members are invariably prejudiced, regardless
of the final decision. Any delay in promulgating new licences
and licensing schemes has a direct impact on the individual members
of MCPS and PRS, both in terms of having to wait longer to be
paid for the use of their music and in terms of such payments
being depleted by virtue of their share of the costs of Copyright
Tribunal proceedings.
8. As new means of delivering music emerge
and new business models are being developed and implemented in
the online and mobile environments the incidence of users seeking
to challenge new licences and licensing schemes is set to grow
exponentially. Reform of the working and operation of the Copyright
Tribunal is not only long overdue—we have been pressing
for reform since well before the Leggatt Review launched in 2000[14]—but
it is now critical for the health of the music industry and the
growth of the UK economy that reform is both thorough and swift.
II. RECOMMENDATIONS
OF THE
COMPLETED REVIEW
OF THE
COPYRIGHT TRIBUNAL[15]
9. British Music Rights welcomes the recommendations
made by the UK Intellectual Property Office following its comprehensive
review of the Copyright Tribunal. The recommendations address
most of our long standing concerns for a more commercial approach
and for greater transparency and efficiency in the workings of
the Tribunal.
10. We welcome the proposal for a more commercial
approach generally and the following recommendations in particular:
(1) a more even handed approach to the parties
on each side to a reference including:
(a) the recommendation that any challenge
to a licence should be based on fact to balance the requirement
that the workings behind any proposed licence are also disclosed;
and
(b) the recommendation that licensing bodies
(collecting societies) should be able to refer their proposed
schemes to the Copyright Tribunal in the same way that users are
entitled to refer schemes to which they object; we believe this
will avoid abuses of the system and consequent delays;
(2) active case management, which we believe
will lead to greater efficiency and therefore cost effectiveness
in the handling of cases by the Copyright Tribunal;
(3) the adoption of the Civil Procedure Rules,
so bringing the Copyright Tribunal into line with the Woolf reforms
implemented in the civil courts in 1999 and which are likely to
result in less adversarial proceedings;
(4) the encouragement of the parties to consider
alternative dispute resolution; and
(5) the commitment to funding the work of
the Copyright Tribunal.
11. We attach[16]
some specific concerns of MCPS and PRS about the proposal for
the UK Intellectual Property Office to become involved in developing
licensing schemes and which should be taken into account in the
implementation of the Recommendations.
12. Subject to these, we look forward to
assisting the UK Intellectual Property Office in whatever way
may be required in order to achieve the swift implementation of
those Recommendations and we urge this Select Committee to do
everything within its power to expedite such implementation.
III. FURTHER
ISSUES
13. Notwithstanding the excellent outcome
of the UK Intellectual Property Office's Review of the Copyright
Tribunal, subject to prompt implementation of its recommendations,
we invite the Select Committee to take into account our views
on the following issues:
The structure of the panel
14. The Copyright Tribunal is often required
to adjudicate on licensing schemes involving millions of pounds
over their lifetime. These schemes, once settled upon, are often
in place for generations and have strong precedential value. We
therefore maintain that the chairman of the Copyright Tribunal
should be a judge of high standing and certainly at least a High
Court judge. We note that other jurisdictions, notably Australia,
the USA and Canada to name but three appoint senior judges to
chair their equivalent bodies.
15. The criteria for appointing the lay
members of the Copyright Tribunal have been less than transparent.
Our members' experience is that the expertise or relevant experience
of many of the lay members has all too often been hard to discern.
Indeed we note that the UK Intellectual Property Office Review
established that lay members appear not to have been chosen for
their expertise.
16. Whilst we agreed with the UK Intellectual
Property Office's recommendation that lay members should be abolished
in the light of the reasoning they put forward, the Select Committee
should nevertheless be aware that we have previously proposed
that lay members should be selected for relevant expertise or
that, alternatively, they should be provided with adequate training.
We still believe that this could be beneficial and, indeed, a
great support to the Chairman. Some of the cases which come before
the Copyright Tribunal involve complex economic arguments and/or
require the benefit of some experience or knowledge of the music
industry.
17. A more usual approach in the context
of tribunals would be for each side to nominate an appropriate
lay member who would not have a conflict of interest but who would
have some understanding of that side's field of operation. We
also remain ready and willing to contribute towards some appropriate
training for lay members.
18. In the circumstances we would not wish
the lay members to be abolished if our above proposals are put
into effect.
Double Jeopardy
19. It is vital that the Copyright Tribunal
confines its remit to the supervision of licensing terms and conditions
and that it does not become involved in considering any regulatory
aspects of the workings of collecting societies. The latter are
within the jurisdiction of the Office of Fair Trading and, in
the case of matters affecting interstate trade, DG Competition
of the European Commission. The collecting societies must not
be subjected to double jeopardy.
Orphan works
20. It has been suggested that the Copyright
Tribunal should be empowered to license works in cases where the
copyright owner cannot be identified or traced upon reasonable
inquiry. We understand that section 190 of the Copyright Designs
and Patents Act 1988, which provides a mechanism for addressing
this problem when it arises, has only ever been invoked twice.
21. To the extent that the copyright owners
of musical works may be unidentifiable or untraceable, we believe
that the scale of this problem is de minimis. The royalty
collecting societies, both in the UK and across the world, have
between them very comprehensive databases containing all the relevant
information about virtually all the millions of works protected
by copyright. Therefore anyone making reasonable inquiries should
approach the relevant collecting society as a matter of course.
In the rare case of the collecting societies not being able to
provide the inquirer with the information required we would agree
that the Copyright Tribunal should be the final resort for obtaining
the necessary licence.
22. We suggest, however, that it is premature
to make any decision on the role of the Copyright Tribunal in
the case of orphan works as their treatment is currently being
considered both by the UK Intellectual Property Office and the
European Commission following the recommendation in the Gowers
Report[17]
that there should be an exception to copyright for orphan works.
January 2008
APPENDIX 1
REVIEW OF THE COPYRIGHT TRIBUNAL MCPS-PRS
ALLIANCE RESPONSE
1. INTRODUCTION
The Mechanical-Copyright Protection Society
("MCPS") and the Performing Right Society ("PRS")
are the mechanical rights and performing rights collecting societies
respectively operating in the United Kingdom in respect of musical
works. Whilst remaining separate societies, MCPS and PRS operate
through an operational alliance. Together they represent some
50,000 thousand individual UK songwriters and composers of musical
works and their publishers, the majority of which are SMEs, as
well as hundreds of thousands more right holders from abroad via
arrangements with overseas collecting societies.
Right holders earn on average some 80% to 90%
of their income from the collective management of their rights
by collecting societies. Collective management benefits licensees
using high volumes of music and who wish to have access to the
full repertoire, both national and international, without the
need for individual prior clearance. It is also beneficial to
individual right holders for whom the low unitary value for each
individual usage of their music makes the licensing and collection
of royalties from users both unreasonably onerous and uneconomic.
It is important to keep in mind that the societies represent vast
numbers of small individuals and that for the most part they each
earn a small amount from each scheme or tariff promulgated by
their societies.
MCPS-PRS is a member of British Music Rights
and the submission of BMR fully reflects our views on the recommendations
as to reform of the Copyright Tribunal (CT). It was felt, however,
that it may be useful if, as the parties directly involved on
a day to day basis in scheme development and negotiation with
licensees, we offer some more detailed observations regarding
the practical implications of Recommendations 5, 6 and 7. We hope
these observations may prove useful in further consultation in
the creation of practice directions or other guidelines or set
methodologies as envisaged by the Recommendations.
2. RECOMMENDATION
5: THE REASONING
BEHIND LICENCE
SCHEMES AND
TARIFFS SHOULD
BE CLEARLY
SHOWN
MCPS-PRS welcomes this Recommendation. In our
experience we find generally that an open and transparent approach
to scheme development enables more effective negotiation with
licensees and licensee groups. We believe, however, that there
are some practical considerations to be borne in mind when setting
out the extent and detail of the reasoning that will have to be
shown, particularly in the light of some of the points made in
paragraphs 7.17-7.22 of the Review.
2.1 Establishing a tariff
The main area of difficulty in licence negotiations,
and therefore of contention, tends to be in determining and agreeing
the underlying "unit price". How much is a minute of
music worth? Ultimately this is a point for commercial negotiation
between a buyer (the music user) and a seller (the collecting
society on behalf of all its right holder members). The value
of music is not measurable on a scientific basis involving "actuarial
figures and projections" but rather is dependent on finding
the right balance between three factors, namely:
— the value as perceived by our members;
— the value to the licensee's business,
which is often a new business where a new licensing scheme is
being developed, as perceived by the licensee; and
— accepted precedents and/or comparables
established via existing tariffs if and to the extent there may
be any that are relevant in the case of a new business.
Once the underlying value has been determined
we rely on concrete factors wherever these exist to set the guidelines
for establishing a tariff based on that underlying value. These
include, for example, box office takings or other licensee revenues,
size of the premises, product sales, audience figures, music usage
and so on.
Our methodology for setting tariffs for new
areas of business is necessarily reliant on licensees providing
realistic estimates and projections about their new businesses
and a high degree of co-operation from them. However, regardless
of the depth of research conducted in advance and the level of
co-operation from licensees, market predictions and revenue projections
relating to new products are, in our experience, notoriously unreliable.
We also have to be responsive to the fact that
a user may want to launch their new product to market before the
evidence exists to enable us to make realistic projections. Rather
than insisting on a systematic approach based on "actuarial
figures and projections", which will only cause unwelcome
delay in some cases and may in any event be impossible prior to
launch, we need to be flexible. This can sometimes involve offering
a flat-fee non-precedential trial licence which allows the licensee
to launch their product and gives us the chance to make an informed
licence proposal once the market for the product is more established.
Furthermore, the scale and nature of any dispute
may be relevant to what sort of detail on the reasoning behind
any scheme should be given. If a long established scheme is sought
to be varied by a licensee, then perhaps the onus should be more
on the licensee to justify the reasoning behind the need to vary.
Also some regard should be had to the "value" of the
actual licence in dispute so that any obligation to provide reasoning
is proportionate.
Because of all the above factors it is very
important that any rules or guidance as to what has to be provided
and how it has to be provided is flexible and not too systematic
or prescriptive.
2.2 Disclosure of methodology
An essential part of the process in establishing
any scheme is to explore all possibilities, whether internally,
with our members or with other third parties, before promulgating
any scheme. Many possibilities may be rejected in the process.
This may well involve confidential and/or commercially sensitive
discussions and exchanges which neither we nor our members would
wish to have to disclose. Whilst we accept that societies should
be required to explain their reasoning to the CT in the event
that a scheme or tariff is disputed, they should not be subject
to an unreasonably onerous or oppressive obligation to divulge
all prior documentation and reasoning.
Furthermore, the extent and scope of information
and documentation that the CT should require to be disclosed should
be proportionate to the value of the licence at issue and relevant
to the aspects in dispute.
3. RECOMMENDATION
6: A CHALLENGE TO
THE TERMS
OF A
LICENCE SHOULD
BE BASED
ON FACT
We agree that licensees should be required to
support their objections to the terms of a licence with fact,
and the disclosure of the figures as envisaged in paragraph 7.23
of the Review. We also consider they should also justify the reasoning
behind their position or any alternative licensing terms that
they promulgate.
4. RECOMMENDATION
7: THE CT (WITH
THE EXTRA
RESOURCES MENTIONED
IN RECOMMENDATION
18) SHOULD TAKE
AN ACTIVE
PART IN
FORMULATING METHODOLOGIES
FOR THE
OBJECTIFICATION OF
THE CRITERIA
FOR THE
CONDITIONS OF
A LICENSING
SCHEME
4.1 Role of Tribunal in scheme development
We welcome and support the opportunity of working
with the officials of the CT in order to assist with understanding
the schemes and tariffs at issue in any particular case and so
to promote efficiencies within CT proceedings.
However, we would welcome some clarification
as to the scope of this Recommendation and, in particular, whether
it is envisaged that the officials are to be consulted at any
stage during the development of a scheme or tariff or whether
they are only to become involved if and when a scheme or tariff
has been referred to the CT. If it is to be at the former stage,
is such consultation with CT officials to be compulsory? MCPS-PRS
is concerned that the CT's involvement will create an additional
layer of consultation and complexity and could delay the introduction
of new or revised schemes to the detriment of right holders and
licensees.
Alternatively, is it proposed that the Tribunal
and societies together will formulate a series of general overarching
principles to which societies must have regard in respect of any
licensing scheme?
4.2 Resource
We note that it is proposed that two members
of CT staff should undertake the work envisaged in paragraph 7.29
of the Review.
Subject to the clarification sought above, it
should be noted that scheme development is an ongoing and key
element of the societies' business in which we invest considerable
resource as well as time and effort in training that resource.
Several members of our staff are engaged full time in developing
and consulting on new schemes as well as in reviewing, amending
and renewing existing schemes and tariffs. They also draw on support
and expertise from other areas of the societies' business including
the legal, research and distribution teams. They have, as a consequence,
developed considerable breadth and depth of knowledge and expertise
not only on the schemes and tariffs promulgated by the societies
but also in relation to the markets in which their licensees operate.
It would be quite an undertaking to raise the
expertise of CT staff in such a wide range of markets and music
users, quite apart from other rights users, to a sufficient level
to assist in the scheme development process. Furthermore, in the
context of a dispute, the knowledge of Tribunal staff could not
be a substitute for evidence supplied by the parties.
We also stress the importance for licensees
of the timely introduction of licensing structures. It would be
very important to ensure that Tribunal involvement in scheme development
does not create unacceptable delays.
4.3 Publication of a practice direction as
to what data should be provided to support the basis for terms
and conditions of licences
Guidance as to what data needs to be provided
will be of great assistance and we do agree that this should lead
to increased efficiency of the Tribunal. It is important, however,
that any such guidance takes account of the sheer breadth and
variety of the relevant licences. We do have genuine concerns
that it may prove impossible to draft a meaningful Practice Direction
that would fit all the possible licensing schemes for the use
of music and that this is likely to be restrictive rather than
helpful in developing new schemes. We operate a wide range of
over 100 schemes and tariffs, each of which is tailored to specific
circumstances of music usage, whether offline or online and whether
involving performing rights, mechanical rights or both. These
are subject to periodic review, amendment or renewal at different
times. We also develop new schemes and tariffs at an increasing
rate in consultation with users to meet new market and technological
demands and the criteria for each of these vary according to the
individual circumstances. It is vital that societies should have
the freedom to be responsive to market demands.
4.4 Discussions with CT officials should not
be seen to indicate approval
We completely endorse the concern that the impartiality
of the Tribunal should not be prejudiced in any way and therefore
it is also important that the discussions with the CT are not
at a deep enough level as to affect the commercial terms but are
directed more at the presentation of the explanation of them.
We also repeat that, for the reasons set out above, we are concerned
that such discussions should not unduly delay the licensing process
for users as this would be against the interest of all parties.
5 September 2007
12 "Online" decision CT84-90705: http://www.ipo.gov.uk/ctribunaldownloadingdecision.pdf Back
13
Whilst the majority of members have traditionally derived the
greatest share of their income from MCPS, this balance has shifted
with the recent decline in CD sales with the result that the balance
between the two income sources is, on average, more or less even. Back
14
Published August 2001. See http://www.tribunals-review.org.uk/index.htm Back
15
BMR detailed comments on specific recommendations, August 2007
http://www.bmr.org/page/submission-48 Back
16
See Appendix 1. Back
17
Published December 2006. See: http://www.hm-treasury.gov.uk/media/6/E/pbr06_gowers_report_755.pdf Back
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