Hargreaves Review of Intellectual Property

Joint written evidence submitted by

The British Beer & Pub Association, Association of Licensed Multiple Retailers, British Beer & Pub Association, British Hospitality Association, NOCTIS

Executive Summary

Evidence (Recommendation 1)

· The debate on intellectual property in the 21st Century needs to be broadened, encompassing all those with an interest in it. We would, therefore, welcome more openness and transparency in policy development, and indeed across the whole of the intellectual property system, particularly in our dealings with the collecting societies, where, in our experience, a sound evidence base to support proposed increases in tariffs is often lacking.

Copyright Licensing (Recommendation 3)

· Our Associations fully support the recommendations in the Hargreaves Review for a cross sectoral Digital Copyright Exchange operating across European borders in the interests of making copyright more accessible.

· We strongly support the requirement for collecting societies to adopt Codes of Practice, which will be voluntary, but will contain minimum standards. We have welcomed the introduction of the PRS for Music Code of Conduct, which has had resulted in a marked reduction in the number of complaints. PPL has yet to publish a similar Code, although it did consult earlier in the year with the Music Users Council on an initial draft.

· While a Code of Conduct alone would not prevent the collecting societies from putting forward proposals on tariff values such as those currently being consulted on by PPL, we believe that if the minimum standards for the Codes included the following, they would be extremely helpful in securing the proper process for discussion:

o Consultation with a wide range of stakeholders and compulsory negotiation with the leading representative sectoral bodies;

o Transparent reporting on income, collection and distribution of monies;

o Robust complaints procedures for individual licensees, eg. an independent Ombudsman, such as that established by PRS for Music under their current Code of Conduct

· We would prefer to see a firmer commitment in the timetable contained at Annex A of the Government’s Response to the Hargreaves Review to the implementation of the Codes of Conduct, which we believe need to be introduced as a matter of urgency. In the absence of even a voluntary Code, PPL are not currently bound to negotiate on the SFE tariff proposals beyond the closing date of the consultation in October 2011.

Enforcement of IP Rights (Recommendation 8)

· We support the proposals to introduce a small claims track for low monetary value IP claims, and the renaming of the Patents County Court to the Intellectual Property County Court.

· It is important that collecting societies ensure that those unlicensed businesses using music obtain the necessary copyright licences. A wider reach in terms of licensing would increase revenues for the collecting societies and could alleviate the pressure on copyright values overall.

Small Firm Access to IP Advice (Recommendation 9)

· It is crucial that small businesses should have easy access to the right information on their copyright obligations so that they can obtain the correct licences. We very much welcome, therefore, the recommendation in the Hargreaves Review that the IPO address this issue and the Government’s commitment to confirming the way forward on this by the end of this year.

An IP System Responsive to Change (Recommendation 10)

· We fully support the proposal to strengthen the role of the Copyright Tribunal to allow it to focus on innovation and growth and the Government’s plans for a copyright opinions service.

Introduction

1. Our associations represent a wide range of SMEs. For example, of the 52,000 pubs in the UK, 43,000 are small, independently run businesses. The vast majority of our members’ businesses will use music as part of their business offering, either as background or "specially featured", for example in nightclubs, where the provision of music and dancing is integral to the business model. These businesses will obtain the relevant copyright licences from PRS for Music, PPL and, to a lesser extent, VPL. We recognise the value of collective licensing, and fully support this approach.

2. We welcome this opportunity to respond to the BIS Inquiry into the Hargreaves Review of Intellectual Property and the Government’s response. We support many of the overall objectives and findings of the Hargreaves Review on Intellectual Property, but for the purpose of this Inquiry, our key interest is in the following recommendations and we are pleased to comment further on these below:

· Evidence (Recommendation 1)

· Copyright Licensing (Recommendation 3)

· Enforcement of IP Rights (Recommendation 8)

· Small Firm Access to IP Advice (Recommendation 9)

· An IP System Responsive to Change (Recommendation 10)

3. We are also supportive of the Government’s proposed actions to implement the recommendations of the Hargreaves Review. We particularly note its commitment to reducing barriers to creating viable IP using small firms in existing industries such as ours or in new niches, and would therefore urge the Government to ensure that the actions identified in its response are delivered as soon as possible and in accordance with the timetable.

4. We comment further below on the tariff system which governs our particular sectors, and our experience of the collecting societies.

Evidence (Recommendation 1)

5. We wholeheartedly support the recognition that there is a balance between the economic objectives and needs of various groups. The imposition of uncompetitive and unrealistic costs for copyright material is potentially damaging to businesses wishing to utilise that material as part of their business offer. The debate on intellectual property in the 21st Century needs to be broadened, encompassing all those with an interest in it. We would, therefore, welcome more openness and transparency in policy development, and indeed across the whole of the intellectual property system, particularly in our dealings with the collecting societies, where, in our experience, a sound evidence base to support proposed increases in tariffs is often lacking.

Copyright Licensing (Recommendation 3)

6. We fully support the recommendations in the Hargreaves Review for a cross sectoral Digital Copyright Exchange operating across European borders in the interests of making copyright more accessible.

7. We strongly support the requirement for collecting societies to adopt Codes of Practice, which will be voluntary, but will contain minimum standards. We have welcomed the introduction of the PRS for Music Code of Conduct, which has had resulted in a marked reduction in the number of complaints. PPL has yet to publish a similar Code, although it did consult earlier in the year with the Music Users Council on an initial draft.

8. The values of our members’ music copyright licences are governed by tariffs, which have traditionally been negotiated by the leading sectoral trade bodies with the collecting societies themselves over many decades. Tariff negotiations have always aimed to achieve a fair price for music, which is acceptable to the collecting societies and music users. For the latter group, this generally means what the market will bear. Compromises have been made on both sides over the years. Once agreed, tariffs have tended to be in place for many years until the collecting society concerned decides to review and re-negotiate.

9. By way of example, the BBPA last negotiated with PRS for Music on Tariff P for pubs in 1998, and the tariff has increased in line with RPI every year since then. While we have had some discussion with PRS for Music on the structure of the tariff in the interim period, since it would benefit from some simplification, there has been no further discussion on the value of the tariff itself.

10. We regret to say that our recent experiences with PPL on tariff reviews have been less satisfactory. The BBPA and the BHA won a Copyright Tribunal case in 2010 which resulted in PPL refunding in the region of £20 million to retail and hospitality businesses as result of imposing average increases of 200-300% on its background music tariff following the introduction of a new right to charge for the public performance of broadcast music. The new, higher rates were introduced in 2005 following a one month consultation exercise and virtually no consultation, despite the efforts of the then Patent Office to broker discussions. The case was referred to the Copyright Tribunal in 2006 by the Secretary of State for Trade and Industry, under a new legal process which has since been repealed.

11. The final ruling of the Copyright Tribunal in this case increased the tariffs concerned by 10% in recognition of the new broadcast right.

12. PPL have consistently criticized the Copyright Tribunal for this decision, and in responding to the Call for Evidence for the Hargreaves Review suggested that the Copyright Tribunal is not making valuation decisions "that are achieving a proper market value". We fundamentally disagree. The value of music must relate to what the market will bear. During the period that the higher PPL tariff was in place, in the region of 6,000 pubs closed. There is no doubt that the additional cost imposed by PPL will have been a contributing factor to the demise of a number of these businesses. In discussions with PRS for Music last year, they advised us that they had seen their revenue from pubs drop by 2% in the previous twelve months as a result of the great economic pressure on the sector.

13. Our organsiations are once again in the process of responding to a consultation issued by PPL in July on its Specially Featured Entertainment (SFE) Tariff, which proposes excessive and unwarranted increases to the existing tariff on the basis of a choice modelling study carried out by FTI on what consumers perceive the value of music to be. The average increases for BBPA and ALMR pub members are in the region of 2000%, but for others it is much more than that. .

14. A wide range of businesses are affected by the proposals, including holiday centres and caravan parks. The proposals would devastate the nightclub sector. PPL may consider their proposals to reflect "proper market value", but this cannot be the case when the impact of such proposals will be to render many well established businesses unviable.

15. While a Code of Conduct alone would not prevent the collecting societies from putting forward proposals on tariff values such as those currently being consulted on by PPL, we believe that if the minimum standards for the Codes included the following, they would be extremely helpful in securing the proper process for discussion:

· Consultation with a wide range of stakeholders and compulsory negotiation with the leading representative sectoral bodies;

· Transparent reporting on income, collection and distribution of monies;

· Robust complaints procedures for individual licensees, eg. an independent Ombudsman, such as that established by PRS for Music under their current Code of Conduct

16. We would have welcomed a firmer commitment in the timetable contained at Annex A of the Government’s Response to the Hargreaves Review to the implementation of the Codes of Conduct, which we believe need to be introduced as a matter of urgency. In the absence of even a voluntary Code, PPL are not currently bound to negotiate on the SFE tariff proposals beyond the closing date of the consultation in October 2011, although we will make every effort to ensure that further negotiation takes place. Ideally, there would be no changes to tariffs and charges (over and above RPI) until the Codes of Conduct have been implemented by the collecting societies.

17. We are aware that the collecting societies believe that they should also have the right to refer a dispute to the Copyright Tribunal, as well as licensees. We would take this opportunity to express our deep concern that this could have the effect of removing an important protection for music users from the current monopoly position of these organisations.

18. Enabling collecting societies to refer tariffs to the CT would potentially allow them to win increases by outspending trade associations who couldn’t afford the legal costs. The ease with which the collecting societies would be able to refer tariffs to the Tribunal could undermine the proposed Code of Conduct, as it would weaken even further the effectiveness of negotiations and strengthen their ability to rely on the legislative process to push through tariff increases.

19. The proposal contained in the Hargreaves Review to lift barriers across the EU would have the effect of making collecting societies more competitive on price and in other areas such as service. Further consideration could only be given to allowing collecting societies to refer cases to the Copyright Tribunal in the event of a more open and competitive European market, where music users would have choice across a number of collecting societies in terms of licensing.

Enforcement of IP Rights (Recommendation 8)

20. We support the proposals to introduce a small claims track for low monetary value IP claims, and the renaming of the Patents County Court to the Intellectual Property County Court. We would also take this opportunity to make the following observations on enforcement based on our experience with the collecting societies.

21. According to papers submitted as part of the Copyright Tribunal hearing on the background music tariff for hotels, restaurants, pubs and bars, shops and stores and factories, in 2005 licensed 21,005 pubs and bars, 12,922 restaurants and cafes and approximately 4,000 hotels. To the best of our knowledge, these figures have not substantially changed.

22. Given the many thousands of premises in our sectors, we do not consider PPL to be robust enough in ensuring that those unlicensed businesses using music obtain the necessary copyright licences. In this context, the effect of major tariff increases is to further penalise those who are already paying, rather than addressing the need to licence those who are not. A wider reach in terms of licensing would increase revenues for the collecting societies and could alleviate the pressure on copyright values overall.

23. Improvements in enforcement should go hand in hand with improved education on copyright obligations in general. Again, the proposed Codes of Conduct for the collecting societies could help inform small businesses of their legal obligations in this area. We comment further on this below. We do not subscribe to the view expressed by PPL that ignorance of the need for a PPL licence is a "tactic" to avoid licensing. While our associations are a source of information, many small businesses outside membership of any trade body will be genuinely unaware of the existence of the collecting societies.

Small Firm Access to IP Advice (Recommendation 9)

24. It is crucial that small businesses should have easy access to the right information on their copyright obligations so that they can obtain the correct licences. We very much welcome, therefore, the recommendation in the Hargreaves Review that the IPO address this issue and the Government’s commitment to confirming the way forward on this by the end of this year.

An IP System Responsive to Change (Recommendation 10)

25. We fully support the proposal to strengthen the role of the Copyright Tribunal to allow it to focus on innovation and growth and the Government’s plans for a copyright opinions service. We have always found the IPO to be very approachable and helpful with regard to information and advice on copyright issues, and we would welcome their enhanced role in ensuring the modernisation and improvement of the copyright landscape in our new digital age.

5 September 2011