The European Commission is generally reluctant to condemn abuses of a dominant position when they arise from excessive prices, particularly in competitive open markets, because they tend to self-regulate. This reluctance is also understandable, given the practical difficulties in certain circumstances of establishing the excessive nature of pricing.
The EU Court of justice recently had the opportunity to clarify the principles that apply to this kind of abusive practice, to the detriment of clients, when the undertakings concerned have a legal monopoly, as it is the case of copyright management organizations.
The judgment was issued under the preliminary ruling procedure in the matter of fees collected by a copyright management organization in Latvia. This copyright management organization was ordered by the Latvian competition authority to pay a fine for the abuse of its dominant position as a result of the imposition of excessively high rates. This decision was challenged first before the Regional Administrative Court of Latvia, then before the Supreme Court.
In this particular case, the Latvian Supreme Court (Administrative Cases Division) wanted a clarification of the interpretation of point (a) of the second paragraph of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) which prohibits abuses of dominant position.
Among the issues raised by the Latvian jurisdiction, the following questions were addressed:
- Do the activities of a copyright management organization have an impact on trade between Member States?
- Is the method used to determine the unfair nature of the prices, which includes a comparison of the rates applied in the neighbouring Member States, a valid one?
- Should the remuneration collected for the rightsholders be taken into account in the calculation of the fine (which could be up to 10% of the total turnover in the preceding business year)?
Regarding the first question, the EU Court of Justice recalled, according to well-established case law, that copyright management organizations are subject to competition law, and in particular to the prohibition of abuses of dominant position when applying rates. Indeed, trade between Member States may be affected by the rates charged by a copyright management organization which has a monopoly in its Member State and which also manages the rights of foreign rightsholders in that State.
The second question concerned the methodology applied in determining the unfair nature of a price. In this particular case, a comparison had been carried out by the competition authority between the rates applied in Latvia for the use of musical works in shops and service centres and those applied in the neighbouring Member States and markets of Lithuania and Estonia. Besides, it also had recourse to the purchasing power parity index in order to compare the fees applied in approximately 20 other Member States. The competition authority then found that the rates payable in Latvia exceeded the average level of those charged in those other Member States by 50% to 100%.
In this case, the Court ruled that for the purposes of examining whether a copyright management organization applies unfair prices within the meaning of point (a) of the second paragraph of Article 102 TFEU, a comparison of its rates with those applicable in neighbouring Member States, as well as with those applicable in other Member States adjusted in accordance with the power parity index, is totally appropriate. The reference Member States nevertheless have to be selected in accordance with objective, appropriate and verifiable criteria. Furthermore, the comparisons have to be made on a consistent basis. The Court also pointed out that it is permissible to compare the rates charged in one or several specific user segments (in this case, the user segments were shops and service centres of a specific surface area) if there are indications that the excessive nature of the fees affects those segments.
The difference between the rates compared must be regarded as appreciable if that difference is significant and persistent. Such a difference is indicative of abuse of a dominant position and it is for the copyright management organization holding a dominant position to show that its prices are fair by reference to objective factors that have an impact on management expenses or the remuneration of rightholders. The Court reverses the burden of the proof onto the copyright management organization once there are suspicions of excessive tarification.
As far as the calculation of the fine is concerned, where the infringement referred to in point (a) of the second paragraph of Article 102 TFEU is established, remuneration intended for rightholders must be included, for determining the amount of the fine, in the turnover of the copyright management organization concerned. That remuneration nevertheless has to form part of the value of the services provided by that organization and that inclusion is necessary in order to ensure that the penalty imposed is effective, proportionate and dissuasive.
The aims of the 2014/26/EU directive on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market were in particular (i) to ensure that rightholders have a say in the management of their rights and (ii) to encourage a better functioning of collective management organizations. In many countries, these objectives were not achieved. European case law therefore establishes a framework for the activities of such organizations benefiting from a legal monopoly.