Five interesting things you might not have spotted about Case C-351/12, OSA (AKA the “Czech Spa” case)

12.03.2014

The competition law points of interest are highlighted below, but it’s worth beginning with the usual summary of facts. A Czech spa provided guests with music, but without having entered into a licence with the Czech collecting society, OSA. In response to the OSA’s claims for royalties, the spa claimed (amongst other things) that the OSA was abusing its dominant position because the royalties charged were disproportionately high compared to those charged by collecting societies in neighbouring countries. In light of its international clientele, it also claimed that this affected its ability to compete with other spas in neighbouring countries, thereby restricting its freedom to provide services. The Czech Regional Court referred a number of questions to the CJEU, the third being of most relevance to competition law.
“Must Article 56 [TFEU] et seq. and Article 102 [TFEU] […] be interpreted as precluding the application of rules of national law which reserve the exercise of collective management of copyright in the territory of the [Member] State to only a single (monopoly) … collecting society and thereby do not allow recipients of services a free choice of a collecting society from another [Member] State of the European Union?”
Given that the Court’s analysis on the freedom to provide services (Article 56) dovetails with some of the earlier competition law cases concerning music copyright, it’s worth a few words on this before looking at the Article 102 analysis.
The freedom to provide services
Unsurprisingly, the Court ruled that collecting societies are subject to the provisions of Article 56. Given that they operate in two-sided markets, the Court explicitly referred to the services provided by: (i) a collecting society for the copyright holder (i.e. upstream), and also (ii) a collecting society to the user of the repertoire (i.e. downstream). The Court needn’t have articulated this, but chose to do so (see fifth point below).
The Court held that the Czech legislation which mandated a single Czech collecting society, was liable to prevent the spa from benefiting from the services of a collecting society in another Member State, i.e. that it prevented cross-border services. Given the reciprocal representation (i.e. licensing) agreements in place between the Member State collecting societies, whereby each is responsible within its territory for licensing the repertoire of the others, this again is hardly surprising.
The Court then considered whether the restriction served any overriding ‘public interest’, and whether it went beyond what was necessary to attain it. The licensing of IP rights did, in its view, constitute “such an overriding public interest” and the legislative monopoly over the management of copyright was considered to be “suitable for protecting intellectual property rights, since it is liable to allow the effective management of those rights and an effective supervision of their respect in that territory”. The collecting societies’ reciprocal representation agreements were not held to go beyond what was necessary – to support this the Court referred to Tournierand Lucazeau, which concerned public performance rights (see also fourth point below).
First: in effect, the spa had sought to criticise the network of reciprocal representation agreements, which are premised on a system of national monopolies across the EU – the Court declined to follow that route. The Commission had criticised this network of monopolies in its 2008 CISAC decision, only for the General Court to annul the relevant part of the decision in 2013 (some 13 years after the first complaint had been made) on the basis that a ‘concerted practice’ to coordinate the territorial scope of the agreements had not been proven. Despite the urgings of the spa, Article 56 was not seen as the solution by the Court.
The Court said that it had not been shown that, as EU law stood at the time of its ruling, there was another method of allowing the same level of copyright protection as the existing system of territory-based protection. There are a number of legislative initiatives aimed at adapting copyright for the digital age, including the EU Parliament’s very recent adoption of the Collective Rights Management Directive, creating a legal framework for the efficient multi-territorial collective management of copyright, in particular in the music sector. In future therefore, the assessment of public interest and the requirement to go no further than necessary, might well be different depending on the facts of the case, the copyright concerned and the applicable legislative framework.
Second: an interesting point for academic debate is to what extent (i) the requirement under Article 56, to go no further than necessary to achieve the public interest, is equivalent to (ii) the requirement under Article 101(3) that the restriction on competition must be ‘indispensible’ to achieve the identified efficiencies. If anyone really knows what is required by the indispensability requirement under Article 101(3), please do send answers on a postcard!
Establishing an abuse of a dominant position
So, what did the Court have to say on Article 102? Well, not much as it happens: only 12 paragraphs, but some fascinating points do emerge.
The Court noted that “the mere fact that a Member State grants a collecting society […] a monopoly over the management of copyright relating to a category of protected works in [that] Member State, is not, as such, contrary to Article 102”. This is really as far as the Court needed to go to answer the third question referred to it, which asked whether Article 102 precluded “the application of rules of national law” which awarded the monopoly.
Third: despite the fact that there was nothing that required the Court to do so, the Court then stated that “a collecting society […] which has a monopoly over the management in the territory of a Member State of copyright relating to a category of protected works [i.e. all of the Member State collecting societies], has a dominant position in a substantial part of the internal market within the meaning of Article 102.” The Court, inevitably aware that the issue of music copyright licensing has clearly not gone away, seems to have signalled to anyone aggrieved by a collecting society, that an Article 102 complaint/claim might be worth pursuing. The first hurdle, establishing dominance, appears to be easily met in the Court’s view.
(It is interesting to compare the position of the Court with that of the Advocate-General, who stated merely that “a statutory monopoly may constitute a dominant position”.)
Fourth: the Court also stated that where a collecting society “imposes fees for its services which are appreciably higher than those charged in other Member States and where a comparison has been made on a consistent basis, that difference must be regarded as indicative of an abuse of a dominant position.” It even goes as far as saying that “[i]n such a case it is for the collecting society in question to justify the difference by reference to objective dissimilarities between the situation in the Member State concerned and the situation prevailing in all other Member States” (87). The ruling therefore breathes life into the Court’s earlier judgments in Tournier andLucazeau, both of which had made these points, albeit in a different context. In repeating this now, the Court again encourages the disgruntled to bear Article 102 in mind.
(Interestingly again, the Advocate General simply stated: “[w]hether those fees are in fact excessive is a matter for the national court to determine”.)
Fifth: As is by now apparent, most are upset with collecting societies over (you guessed it) money: (i) rights holders grumble because the fees for services are too high, and (ii) licensees grumble because royalties are too high. The referral arises from a dispute between the collecting society and a spa, i.e. a potential licensee. The factual matrix before the Court therefore firmly falls within the latter category. Rather than refer to royalties though, the Court refers throughout its judgment to “fees”. Which brings me to my last point of interest.
It is entirely possible that the Court has specifically used the word “fee” to leave the door open for both licensees and licensors to raise competition law arguments on the basis of Article 102. This is supported by the explicit reference to those upstream and downstream to collecting societies, as well as the uncharacteristically liberal comments on dominance and abuse. Or, of course, it just could be a question of Euro-speak, as Tournier and Lucazeau also referred to “fees”…
References to the Court are often evasive and conservative, with crucial determinations of law and fact often being sent back to the referring Member State court (as suggested by the Advocate-General in respect of the ‘excessive fees’ point in this case). Clearly, the Court in this case was in a more bullish mood, which makes me wonder whether there was something in the counterfactual which isn’t immediately obvious from a reading of the Court’s judgment – Czech competition lawyers please get in touch to explain if so!
Certainly, anyone who thought that the collisions of competition law, rights owners and rights users were now over, or would be dealt with through regulation rather than competition complaints, appears to be mistaken.