Amended Article 11 of Enforcement Decree to the Copyright Act Seeks Expansion of Music Performance Rights Under Article 29, Section 2 of the Copyright Act, performances of commercial phonorecords without benefit in return (i.e., playing of music at business establishments) generally require no license from the copyright owner, unless the establishment is one of the types of venue specifically designated under Article 11 of the Enforcement Decree to the Copyright Act as being subject to the copyright owner’s performance right. Performance right in music is the exclusive right recognized under the Copyright Act to perform or authorize the performance of the music publicly. The foregoing legal framework, however, has come under criticism for being an excessive restriction on the performance right of copyright owners, and this was particularly pertinent when compared with the relevant practices in other countries. As a result, Article 11 of the Enforcement Decree to the Copyright Act (“Article 11”) has been amended to include additional types of establishment that are subject to the performance license. This newsletter sets forth the main points and the legal implications of the Article 11 amendment which took effect on August 23, 2018. 1. Amendment to Article 11 Under the pre-amendment Article 11, the following types of business establishment were subject to performance license: Pre-amendment Article 11 - Bars and other business establishments whose main business is performance of music or audio-visual content using the equipment located on the premises within the establishment. - Horse race tracks, bicycle race tracks, and rowing competition venues - Golf courses, ski areas, aerobics venues, dancing arenas, martial arts schools, and professional sports facilities - Passenger aircrafts, passenger vessels, passenger trains - Hotels, vacation condominiums, casinos and recreational facilities - Large grocery stores, specialty shops, department stores and shopping malls - Accommodations and spas September 4, 2018 This update is intended as a summary news report only, and not as advice. For legal advice, please inquire with your contact at Bae, Kim & Lee LLC, or the following authors of this bulletin: LEGAL UPDATE | KOREA LEGAL UPDATE | | KOREA September 4, 2018 As amended, Article 11 has expanded the above list to expressly include the following types of business establishments: - coffee shops and other non-alcoholic beverage shops, draft beer bars and other business establishments serving alcohol, as such terms are defined under the Enforcement Decree to the Food Sanitation Act - fitness facilities as such term is defined under the Act on the Establishment and Use of Sports Facilities - Large stores as defined under the Act on Promotion of Distribution Industry, but excluding traditional market places In deciding on these additional types of business establishment to be subject to the performance license, the legislators took into consideration the frequency and the importance of the use of music to the particular business. As the result of the amendment, effective as of August 23, 2018, coffee shops, draft beer bars and other alcoholic beverage establishments, fitness facilities, and multi-purpose shopping malls must pay performance royalties for playing music (i.e., commercial phonorecords) on the business premises. 2. Post-Amendment Clearance of Rights for Music Performance The clearance of rights for the performances of commercial phonorecords involves the payment of royalties with respect to the musical composition (i.e., payment to composers and lyricists) and the sound recording (i.e., payment to performing artists and record labels). (1) Clearing of Rights with Copyright Owners Korea Music Copyright Association (KOMCA) is Korea’s leading performance rights organization and represents the vast majority of composers and lyricists who are the copyright owners of the musical composition pursuant to the entrustment agreement entered into between KOMCA and the copyright owners. Accordingly, the user of a musical work of a KOMCA-member composer or lyricist needs to clear the performance right with KOMCA. In response to the latest amendment to Article 11, KOMCA has revised its collection regulations to also provide for the performance license applicable to those establishments which have newly become subject to Article 11, as follows: Types of Business Establishment Fixed monthly royalties based on the size of the business venue (in Korean Won) Coffee shops, Non-alcoholic beverage shops, Draft beer bars, and Other types of bars (Article 7, Section 9 of KOMCA’s Collection Regulations) At least 50㎡ and under 100㎡: 2,000 At last 100㎡ and under 200㎡: 3,600 At least 200㎡ and under 300㎡: 4,900 At least 300㎡ and under 500㎡: 6,200 At least 500㎡ and under 1,000㎡: 7,800 At least 1,000㎡: 10,000 2 3 LEGAL UPDATE | KOREA September 4, 2018 Fitness facilities (Article 7, Section 10 of KOMCA’s Collection Regulations) At least 50㎡ and under 100㎡: 5,700 At least 100㎡ and under 200㎡: 11,000 At least 200㎡ and under 300㎡: 14,400 At least 300㎡ and under 500㎡: 18,500 At least 500㎡ and under 1,000㎡: 23,200 At least 1,000㎡: 29,800 Large stores (Article 12 of KOMCA’s Collection Regulations) At least 3,000㎡ and under 5,000㎡: 80,000 At least 5,000㎡ and under 10,000㎡: 150,000 At least 10,000㎡ and under 15,000㎡: 300,000 At least 15,000㎡ and under 20,000㎡: 500,000 At least 20,000㎡ and under 30,000㎡: 700,000 At least 30,000㎡ and under 40,000㎡: 900,000 At least 40,000㎡ and under 50,000㎡: 1,100,000 At least 50,000㎡: 1,300,000 (2) Clearing of Neighboring Rights Performing artists (e.g., singers and instrumentalists) and record labels have the right to collect for the performance of commercial phonorecords, and this is typically done through their respective collecting societies, KFMA (Korean Federation of Music Performers) and RIAK (Recording Industry Association of Korea). See Article 76-2 and Article 83-2 of the Copyright Right Act. Both KFMA and RIAK collect from the business establishments listed in Article 11. The current rate applied by KFMA and RIAK to those business establishments that have been newly added to Article 11 is at fifty percent (50%) of the rate applied to such establishments by KOMCA. 3. Legal Implications of Post-Article 11 Amendment The legislative intent for amending Article 11 is to expand the scope of the performance right by expanding the types of establishments subject to performance licenses. Failure by an Article 11 establishment to clear performance rights with the rights holders as provided above will constitute copyright infringement which carries both civil (money damages) and criminal (up to 5 years of imprisonment or KRW 50 million in fine) liabilities. See Article 125 and Article 136, Section 1 of the Copyright Act. Therefore, in the era of post-Article 11 amendment, business operators need careful planning when playing music on the premises of their business, and such planning will necessarily entail the determination of whether the particular establishment is subject to Article 11 and, if so, the most efficient measures for clearing the performance rights in the music. Meanwhile, the determination of whether a given establishment constitutes an Article 11 establishment and is thus subject to performance licenses will depend upon the characterization of the relevant establishment. In this regard, there is presently no clear statutory guidance on whether such determination would be based on the registered business purposes or the actual business carried out on the premises of the establishment. As such, how the latest amendment to Article 11 will be applied in practice remains to be seen and careful planning by business operators is therefore required.