In July 2008 the EU Commission delivered a decision bringing to end proceeding under Article 81 EC (now 101 TFUE) started in 2006 against 24 collecting societies of as many EEA member States (including the Italian SIAE), concerning the conditions of coordination among them for the management and licensing of copyright, with particular regard to the licensing of public performance rights of musical works, solely with respect to exploitation via Internet, satellite and cable retransmission.

The Commission found that the collecting societies had engaged in a concerted practice in breach of Article 81 EC, although it did not impose any fines. Such a concerted practice was made apparent by certain territorial limitations which all collecting societies (“CS”) had introduced in their dealings with each other, as a result of the clauses enshrined in the reciprocal representation agreements (“RRAs”) prepared by the CS. The RRAs are aimed at mutually conferring on each other the right to grant licenses to the end users of the repertoire of copyright works managed by each of them. Such RRAs were based on a non-binding model contract drawn up by the International Confederation of Societies of Authors and Composers (“CISAC”), which was also a party to the proceeding.

The territorial limitations challenged by the Commission were in particular those brought about by the “membership clause” and by the “exclusivity clause”. The membership clause would prohibit a CS from managing the repertoire of an author already affiliated to another CS or having the nationality of one of the countries in which another CS was active; the exclusivity clause, as applied, provided that CS would grant another, reciprocally, the exclusive right to grant authorizations for all public performances only in the territories in which the latter operated.

According to the Commission, the combination of these clauses would cause market segmentation, enabled by a concerted practice among the CS. In particular, the Commission considered that the practice unlawfully restricted competition among CS, in that each CS was the only one that could grant users multi-repertoire licenses for the EAA countries in which it is established. As a consequence, each CS could charge administrative costs for the management of rights and the granting of licenses, without facing competitive pressure on those costs from other CS.

CISAC and the CS appealed the Commission decision of July 2008. The General Court with its judgment of 12 April last upheld the appeal.

The Court in the first place has applied to the case the teachings of the PVC II case (joined cases T-305/94 to T-307/94 and others), according to which, if the Commission’s findings of breach of competition are based on the absence for an alternative explanation for the parallelism in the undertaking’s behavior other than concertation (so-called “logical evidence”), this presumption can be rebutted by the firms accused if they can prove circumstances that cast the facts in a different lawful light. However, in the same case, the Court also established that this principle is not applicable, if proof of concertation is not based on a mere finding of parallel market conduct, but on documents showing that the practices were the result of concertation. In this latter event, the company accused of breach of competition law must challenge the very existence of thos facts and not only provide a different explanation.

In the CISAC case, the Court determined that certain documents which the Commission had relied on did not qualify as “documents” as required by the PVC II case. The Commission had in fact equated to documents providing evidence of the concertation the same RRAs and other agreements among the CSs, which however did not serve per se any anticompetitive goal, given that the same Commission had recognized that the cross-border collective management of rights required a fair degree of cooperation among the CSs.

Hence, the Court reverted to considering whether the mere parallelism of conduct signaled by the very fact that all CSs invariably provided in the RRAs for territorial limitation clauses would be enough to conclude that the CSs had engaged in an unlawful concerted practice. The Court found several manifest errors in the Commission economic reasoning and concluded in favour of the applicants. Namely, the Court considered that there existed explanations – other than concertation – for the parallel behavior, centred on the need for a local presence to monitor effectively the exploitation of copyright and obtain royalties. In this context, the Court found inter alia that a local CS would have no incentive in cooperating for the management of rights with another CSs, if the two were competing with each other on the same territory for the same repertoire. Indeed, as each national CS is best placed to carry out the task of monitoring the local usage of repertoires in its territory, it would not make sense for a CS to pursue this task if the CS did not have the guarantee of recovering, from the revenue it receives from granting licenses, the expenses related to the monitoring, since this activity would not be economically viable. Therefore, the territorial limitations established in the RRAs according to the Court were not the result of concertaion, but as an economically rational and not collusive conduct.

The Court’s judgment proves interesting for competition law practitioners, particularly as it elaborates on the settled principles of EU competition law concerning the relevance of parallel behaviour as evidence of a cartel and demonstrates that in certain instances agreements, such as those aimed at partitioning the market, which would normally harm the competitive process, may indeed be required to by normal market conditions.