The Helsinki Court of Appeal recently had to decide whether pricing changes introduced by the Finnish Composers Copyright Society Teosto in 2006 were abusive.
On June 30 2011 the Helsinki Court of Appeal held that Teosto had abused its dominant market position when it implemented a new pricing model in 2006. Teosto is the copyright organisation for composers, lyric writers, arrangers and music publishers. It has a factual monopoly in providing licences to perform and reproduce copyrighted music. The Finnish Competition Authority has previously investigated Teosto's conduct in other cases and Teosto's dominant position was not disputed in this case.
A group of hotel and restaurant businesses which were affected by the new pricing model had refused to pay Teosto's new prices and had instead paid a lower rate suggested by their industry association. They filed a claim in the Helsinki District Court in 2007 requesting the court to confirm that they owed money to Teosto only according to their self-imposed rate.
The group claimed that Teosto's price increases, which for larger customers amounted to several hundred percent, were unfair and unreasonable. The claimants further stated that replacing the previous pricing model of different tariffs for live music played in restaurants and dance halls with a new, more uniform pricing model (which led to significant price increases for restaurants) was unjustified. According to the claimants, the demands for payment based on the new prices were null and void as they constituted abuse of a dominant market position.
Teosto subsequently filed a counterclaim in which it demanded that the district court issue a declaratory judgment that Teosto's receivables existed in accordance with its new pricing model.
The district court rejected the claims of both sides. The claimants' original claim was rejected because the court did not want to declare the claimants' own rate to be correct and thereby act as a price regulator. Teosto's counterclaim was rejected because the court found that, in relation to the claimants, the new pricing model amounted to an abuse of dominant market position under Finnish competition law, and that the receivables Teosto demanded from the claimants were null and void. Both the claimants and Teosto appealed.
After a two-to-one vote, the Helsinki Court of Appeal upheld the district court's judgment. It considered that although the price increase in absolute monetary terms was not large considering the size of the claimant companies, the percentage increase was large and Teosto's failure to provide objective reasons for such an increase made it abusive. The court noted that Teosto's staggering of the price increases indicated that Teosto itself understood that the price increases were severe for some customers. The court also stated that Teosto's price increases had historically been moderate, so that a sudden drastic price increase was unforeseeable.
Furthermore, the court found that since Teosto's factual monopoly covered the whole of Finland, and since it also represents foreign composers, Teosto's pricing model had an appreciable effect on trade between EU member states and the criteria for applying Article 102 of the Treaty on the Functioning of the European Union in parallel with national competition law were fulfilled.
The parties have until August 29 2011 to apply for leave to appeal to the Supreme Court.
Allegations of abuse in Finland are usually investigated through an administrative procedure. Contractual disputes involving competition law issues are often dealt with in arbitration proceedings. Standalone cases in ordinary courts remain rare. This case confirms that a prior administrative infringement decision by the competition authority is not always necessary for an individual claimant to successfully prosecute a private action. This is an important sign for those concerned about the possible effects on individual undertakings arising from the authority's increased right to prioritise cases under the new Competition Act.
The court's ruling did not address the question of what price increases Teosto might reasonably have introduced. Furthermore, the decision opens up the possibility that those hotel and restaurant undertakings which have not disputed Teosto's new pricing model but which were similarly affected, could now apply for a refund of the excessive prices they have paid since 2006.
For further information on this topic please contact Hanna Laurila or Toni Kalliokoski at Dittmar & Indrenius by telephone (+358 9 68 1700), fax (+358 9 65 2406) or email ([email protected] or [email protected]).