15 July, 2019
What you need to know
- The ACCC has published new guidelines to assist the Copyright Tribunal in determining the reasonableness of copyright remuneration in proceedings relating to voluntary licences and licence schemes.
- The pricing principles in the ACCC guidelines aim to counter the market power of collecting societies and facilitate pricing outcomes that preserve the competition between individual copyright owners.
What you need to do
- Copyright licensors and licensees should review the ACCC guidelines when considering the reasonableness of pricing terms and conditions of existing licence agreements. The guidelines should also be consulted when negotiating or drafting future arrangements for licensing copyright materials.
- Monitor upcoming Copyright Tribunal cases which refer to the ACCC guidelines when determining the reasonableness of licence fee terms to understand how they are interpreted and applied by the Copyright Tribunal.
Background
In April 2019, the ACCC published guidelines to assist the Copyright Tribunal in the determination of copyright remuneration (the Guidelines). Specifically, the Guidelines provide guidance on how to decide whether copyright fees are reasonable or not in respect of licences and licence schemes for proceedings brought before the Copyright Tribunal.
Under the Copyright Act 1968 (Cth) (Copyright Act), the Copyright Tribunal acts as a constraint on the exercise of the market power of collecting societies (who act on behalf of copyright owners to facilitate the administration of copyright licences) by making decisions with respect to the reasonable terms and conditions of copyright licences, including licence fees.
The purpose of the Guidelines is to be a point of reference for the Copyright Tribunal, licences and licensors and to assist in countering any market power held by collecting societies, whilst balancing this against the financial incentives needed to encourage the creation of copyright works. It is hoped that the guidelines will facilitate licence negotiations and minimise resort to the Copyright Tribunal for determination.
When do the guidelines apply?
The Guidelines have been released since April and will be referred to by the Copyright Tribunal during proceedings relating to a voluntary licence or licence scheme, if requested to do so by a party to those proceedings.
Section 157A of the Copyright Act states that when considering a voluntary licence or licence scheme, the Copyright Tribunal is required to have regard to any relevant guidelines made by the ACCC, if requested by a party or on application. The relevant guidelines referred to under s 157A will now include these Guidelines. Voluntary licences are distinguished from statutory licences and are defined in the Guidelines as 'the result of negotiation between a copyright owner or its representative and a licensee'.
In Australia, owners of copyright commonly assign their rights to collecting societies that establish licence schemes for particular industries or classes of users under which they offer ‘blanket’ protection with standard fees and conditions'.
The ACCC may also be made party to proceedings where requested but only if the Copyright Tribunal is satisfied that it is appropriate to do so. This will generally only occur where the ACCC considers it to be in the public interest.
What do the Guidelines recommend?
Pricing methods
The ACCC recommends that the following methods for pricing copyright materials be adopted where practicable:
- benchmarking by using existing appropriate rates (which should be grounded in a more competitive market where possible) as a source of information for determining remuneration; and
- the construction of a hypothetical bargain between a willing (but not anxious) licensor and licensee by applying an economic model to construct an appropriate licence fee level.
Parties should cross-check both approaches against one another to ensure that significant price discrepancies between the two approaches do not exist.
Benchmarking
Benchmarking uses 'existing rates' or 'a rate actually being charged' as a source of information for determining reasonable remuneration. These should only act as a benchmark where it is established that the bargaining power between parties who negotiated the existing rates is relatively equal. This approach aims to find price indications that are more reflective of competition (which may not be the case for blanket licences).
The following examples were identified as potentially appropriate benchmarks depending on the circumstances:
- the existing rate for the licensing material. This could be a rate determined by previous negotiations or by previous determinations;
- rates or tariffs paid for the use of the same copyright material in different uses;
- rates or tariffs paid for the use of similar copyright material in other jurisdictions; and/or
- rates or tariffs paid in comparable, more competitive markets.
Constructing a hypothetical bargain
The variable characteristics of copyright material, for example its type, volume and utility, means that it is very difficult to quantify.
Therefore, the ACCC considers that a hypothetical bargain approach rather than a cost-based approach to determining licence fees is more appropriate.
This approach involves the following steps:
- estimate the willingness to pay of the licensee and/or end user;
- estimate the willingness to supply of the licensor;
- calculate the economic surplus that is likely to be generated from the licensing arrangement (which is the difference between (1) and (2)); and
- divide the surplus between the negotiating parties by setting a price.
The ACCC is of the view that this method produces prices that are reasonably reflective of those that may arise if the parties to the hypothetical bargain had equal bargaining power.
For further information, please contact:
Anita Cade, Partner, Ashurst
anita.cade@ashurst.com
