Cautionary Tales About Collective Rights Organizations, Part 2

Jonathan Band and Brandon Butler
Upated; May 22, 2018

In 2013, we published Cautionary Tales About Collective Rights Organizations, 21 Michigan State Int’l L. Rev. 687 (2013). We acknowledged that properly regulated collective rights organizations (“CROs”) in some circumstances enhanced efficiency and advanced the interests of rights holders and users. At the same time, we observed that CROs had a long history of corruption, mismanagement, lack of transparency, and hostility towards users and artists alike. The 2013 article compiled episodes detailing this history to provide balance to any policy discussion that addressed collective licensing and CROs.

In the five years that have passed since we published that article, CROs around the world have continued to misbehave, often serving their own interests at the expense of artists and the public. We decided it was time to recount these latest episodes. We note that in 2014, the European Union adopted a Directive on the collective management of copyright and related rights. The Directive established rules on transparency and good governance for the collective management of copyright and related rights. The Member States hoped the Directive would address CROs’ chronic lack of transparency and abusive practices. Some of the malfeasance described below appears to have come to light as a result of the transparency reforms mandated by the Directive. It remains to be seen whether the Directive will prevent such malfeasance from occurring in the first place.

We encourage readers to provide us with other episodes of CRO misconduct so that our compilation can be as complete as possible.

Australia

In April 2017, the Australian Productivity Commission revealed that the Copyright Agency, Australia’s government-mandated CRO for collecting copyright fees from schools and universities on behalf of authors, illustrators, photographers, and publishers, had diverted $15.5 million to lobby against changes to the copyright law. This diversion, undisclosed in its annual reports, had been underway since 2013.

The Productivity Commission learned that the Copyright Agency had the practice of retaining, rather than returning to the schools and universities, millions of dollars collected from schools and universities on behalf of the owners of orphan works who couldn’t be traced. The Copyright Agency confirmed the existence of the fund, which it said it had been set up to support member advocacy. In particular, it lobbied against the adoption of a U.S.-style fair use privilege.

The Copyright Agency stated that it planned to cap what it called “The Future Fund” at $15 million and begin distributing money collected for orphan works to its members once again.[1]

Belgium

In November 2013, the Belgian Federal Public Service Economy (“FPS”) agency ruled that music CRO SABAM had wrongly pursued legal action against Belgacom, Voo, and Telenet for 3.4 percent of their revenue as compensation for online piracy. FPS determined that SABAM’s demand was inconsistent with the EU’s e-Commerce Directive. FPS initiated its own legal action against SABAM to force it to drop its lawsuit against the ISPs. FPS requested a penalty of € 100,000 for each day SABAM refused to terminate its lawsuit.[2]

Bulgaria

In January 2017, the Bulgarian CRO Musicautor barred Bulgarian National Radio (“BNR”) from playing 14,000,000 musical pieces from around the world, including classical music and jazz, because of a licensing dispute. Musicautor was demanding an increase in the licensing fee from one percent of BNR’s state subsidy to three percent.[3]

Greece

In March 2017, an audit of the Greek CRO AEPI revealed a capital deficit of € 20 million, losses in the period 2011–2014 of € 11.3 million, unallocated royalties to members of € 42.5 million, and retention of a commission of € 1.6 million from the distributed rights of its foreign repertoire during the period 2011-2014, of which € 1.2 million were used for maintenance and enrichment of the AEPI. Moreover, AEPI’s IT system could not generate a report comparing royalties collected on behalf of an artist with royalties paid. Meanwhile, its management team profited. The CEO received an annual salary of € 625,000. These revelations led the Minister of Culture and Sports in April 2017 to appoint a temporary Commissioner to oversee AEPI’s operations and ensure proper collection and disbursement of funds. In January 2018, the mandate of the temporary Commissioner was extended.[4]

Iceland

In May 2014, the Icelandic media reported that the board of trustees of Samtök myndrétthafa á Íslandi (“SMÁÍS’), the Icelandic association of rightsholders of audiovisual works, had asked the state prosecutor to file charges against the former managing director of SMÁÍS, Snæbjörn Steingrímsson, who had resigned at the end of 2013. The board made the request after auditing the association’s finances.[5]

In August 2014, the Reykjavík District Court declared SMÁÍS bankrupt.[6]

In December 2016, the state broadcaster RÚV reported that Snæbjörn Steingrímsson was formally charged by the state prosecutor with embezzlement, breach of fiduciary duty, failure to keep the organization’s books from 2008 to 2014. The SMÁÍS bankruptcy estate also filed a civil claim against him for ISK 4.9 million (about $45,000).[7]

Japan

In May 2017, the Japanese Society for the Rights of Authors, Composers and Publishers (“JASRAC”) informed private music schools in Japan that they must pay license fees of 2.5 percent of the schools’ tuition for the use of sheet music under JASRAC’s control. JASRAC argued that the use of music in the course of teaching student how to play instruments infringes the performance right. The schools announced they would file a lawsuit to prevent JASRAC from collecting the fee.[8]

Kenya

In August 2015, the Kenya Copyright Board (“KECOBO”), a government agency, accused the Music Copyright Society of Kenya (“MCSK”) of spending too much on administrative costs and not distributing sufficient royalties to artists. According to the board, only 30% of the revenue collected were distributed to artists.[9]

In January 2016, KECOBO decided not to renew the registration of the Reproduction Rights Society of Kenya (“KOPIKEN”) as a collecting society due to its inability to collect frees and minimize expenses.[10]

In March 2016, MCSK suspended Maurice Okoth, its Chief Executive Officer, and his management team, because of criminal allegations against them relating to misappropriation of funds. Soon thereafter, Okoth resigned. In the meantime, a court froze MCSK’s accounts pending the criminal investigation.[11]

In March 2017, MCSK lost it license to operate as a CRO. KECOBO revoked MCSK’s license when MCSK failed to submit audited financial statements and amounts paid in royalties. Artists had argued that MCSK hadn’t paid them royalties in years.[12]

In June 2017, a court ordered MCSK to cease collecting royalties. The court found that MCSK did not have the authority to collect royalties on behalf of artists because it had lost is license to operate as a CRO.[13]

Latvia

In 2013, the Latvian Competition Council fined CRO Akka-Laa for abusing its dominant position by imposing inflated rates for its services. Akka-Laa enjoyed a monopoly on the collection of copyright fees for the public performance of musical works in Latvia.

The Competition Council found that Akka-Laa’s rates were at least twice as high as those applied in Estonia and Lithuania for catalogs of comparable size. The rates were also 50% to 100% above the average of twenty other EU countries, as adjusted through the purchasing power parity (“PPP”) index.

The case rose to the Latvian Supreme Court, which posed two questions to the Court of Justice of the European Union (“CJEU”): whether a limited comparison with a hand-picked sample of countries was sufficient to find an abuse; and how the CRO could prove that its rates were nonetheless justified. The CJEU issued its decision in September 2017.

The CJEU answered that there was no minimum required number of countries for a rate comparison. However, competition authorities must choose a benchmark following objective, appropriate and verifiable criteria (e.g., consumption habits, GDP, culture, and history). PPP-adjusted EU averages may help confirming the results of small geographic benchmarks.

The CJEU also held that there is no single appropriate method to investigate rates. Competition authorities do not have to assess the overall fairness of an entire rate system. They enjoy “a certain margin to maneuver” and may single out only the rates they suspect are too high.

Pursuant to prior case law, even “appreciable” differences from the rates in other Member States were not sufficient to find an abuse. They merely shifted the burden on dominant companies to prove that their rates were fair. The Latvian court asked how much of a difference would trigger this presumption of unfairness, because Akka-Laa’s rates were not as high as in previous abuse cases. Here too, the CJEU found that there was no minimum threshold. However, the difference from the benchmark must be both “significant” and “persistent.”

As to the evidence needed to rebut a presumption of abuse, the CJEU stated that CROs may point to differences between the compared countries. In general, copyright management is considered efficient if collection, administration and distribution expenses are much smaller than royalties paid to copyright holders. For example, management expenses totaling 20% of the revenues would be acceptable. Moreover, local regulation or other market features could justify higher management expenses. Legislation on fair remuneration could warrant broader remuneration to copyright holders.[14]

Macedonia

In September 2016, ZAMP, the Macedonian music CRO, forced all Macedonian music off the airwaves because of government recognition of a competing CRO, SOKOM MAP. ZAMP claimed that recognition of SOKOM MAP was a government effort to divide artists and control the revenue collected. ZAMP also protested stricter rules for the collection of fees and distribution of royalties imposed by the Ministry of Culture. SOKOM MAP denied that it was controlled by the government. While their songs were off the air, Macedonian artists collected no royalties.[15]

Nigeria

In December 2017, an acrimonious dispute broke out among factions of the Governing Board of the Copyright Society of Nigeria (“COSON”). The dispute occurred at the December 19, 2017, Extraordinary General Meeting of COSON to approve royalty distribution. Earlier in December, the Governing Board had removed Chief Tony Okoroji as Chairman of the Governing Board. At the December 19 meeting, Okoroji was reinstated and six of the members of the Governing Board who had voted to remove Okoroji were themselves removed. The ensuing chaos led to an investigation by the Nigerian Copyright Commission, the government body responsible for supervising CROs. The Commission issued a directive nullifying the actions at the December 19 meeting and calling for the election of a new board. In February 2018, Okoroji initiated a lawsuit seeking a declaration that he was the Chairman of COSON.[16]

Paraguay

Pablo Aguero Gonzalez, the President of the Paraguayan Association of Artists and Performers (“AIE Paraguay”), was indicted for breach of confidence. Several other CROs had given AIE Paraguay the right to collect fees on their behalf, but these CROs allege that AIE Paraguay did not distribute the royalties to them.[17]

Peru

In March 2014, the Peruvian Copyright Office determined that the Peruvian Association of Authors and Composers (“APDAYC”) was applying questionable rules for measuring popularity and distribution of royalties among its associates. This persuaded the National Institute for the Defense of Competition and the Protection of Intellectual Property (“Indecopi”) to suspend APDAYC’s board of directors.[18]

Russia

In June 2016, Sergei Fedetov, the director general of the Russian Authors’ Society (“RAO”), was arrested on suspicion of theft and transferring funds abroad. The Russian General Prosecutors Office initiated criminal proceedings against Fedotov and other top managers of RAO, estimating the potential embezzlement at 1 billion rubles (approximately $40 million). In response to the prosecutors’ request, a court froze the RAO’s bank accounts. The RAO denied all charges, and claimed that they were based on allegations made by people jealous of the RAO’s status and financial success.[19]

South Africa

Gospel singer Hlengiwe Mhlaba accused CRO South Africa Music Rights Organization (“SAMRO”) of underpaying royalties due her for 24 songs. The songs consist of new arrangements of traditional songs, and SAMRO has taken the position that it can retain 83.3% of the royalties in derivatives of public domain works. It is suspected that SAMRO distributes much of the retained royalties to major multinational publishers and leading independent publishers operating in South Africa, which dominate SAMRO’s board. Mhlaba’s lawyer suspects that SAMRO has diverted over R1.2 billion since 1963.[20]

Spain

In November 2014, Pedro Farre, the former head of corporate relations for the Spanish Society of Authors and Publishers (SGAE), received a 30-month sentence after the National Court found him guilty of embezzlement and faking work-related documents. The court found that Farre had paid $50,000 during trips to brothels, then created and submitted false receipts for catering services for SGAE clients to receive reimbursement. During the legal proceedings, Farre claimed that he visited the brothels to determine if they were performing music without a license.[21]

In June 2016, eighteen members of SGAE and employees of television networks were arrested for a fraudulent scheme where the SGAE members registered public domain works which the television network employees then arranged to be broadcast in the early morning hours. These broadcasts triggered payment of over € 25 million.[22]

In October 2017, the Spanish National Commission on Markets and Competition initiated a disciplinary action against SGAE concerning possible anti-competitive practices in the market for the management of intellectual property rights. SGAE allegedly imposed contractual restrictions on partners that impeded new entrants in the collective licensing market. Additionally, SGAE allegedly imposed discriminatory rates for performances in hotels and restaurants.[23]

United Kingdom

In August 2015, PRS, the UK’s music publishing CRO, told its members that it would temporarily increase the administrative fees on the royalties its collected from television companies to cover the legal costs of a copyright tribunal initiated by the television station ITV.

All deals made by CROs in the UK are subject to additional regulations in order to satisfy competition law. If the CRO and a licensee cannot reach an agreement, the matter can be taken to a copyright tribunal. When ITV and PRS could not reach an agreement for television broadcasts, ITV requested a proceeding before the copyright tribunal. In a letter to members, the PRS board music explained that to pay for the proceeding, it would increase the administrative fee on all income generated, not only income from ITV. The board stated that it “approved a proposal for a one percent increase in our TV admin rates for a period of one year, this being the fairest way of covering the expected costs in defending this referral. While the tribunal will only rule on the ITV licence, it is an important decision for all members whose music is played on TV, meaning we are sharing the cost across all our TV revenues.”[24]

In March 2017, it was announced that David Wood, the former head of anti-piracy at the British Phonographic Industry (“BPI”), was under police investigation. He was dismissed from BPI in 2015 for gross misconduct. Wood allegedly misappropriated large sums from BPI.[25]

United States

In March 2014, the ASCAP rate court in New York denied ASCAP’s request to nearly double the rates it charged streaming service Pandora. The opinion revealed that ASCAP had violated its consent decree with the U.S. Department of Justice by allowing music publishers to selectively remove certain works from the ASCAP license in order to force Pandora to pay higher rates for these works when licensing directly with the publishers. These higher rates could then be used as evidence justifying an increase in the rates for the ASCAP license.

However, allowing the publishers to withdraw their songs harmed songwriters because the publishers weren’t as transparent about royalties collected as ASCAP. In essence, the court found that ASCAP colluded with the publishers to the detriment of the songwriters as well as Pandora.

The court held that ASCAP, Sony, and Universal Music Publishing Group did not act as if they were competing with each other in their negotiations with Pandora. Because their interests were aligned against Pandora, and they coordinated their activities with respect to Pandora, the very considerable market power that each held individually was magnified. Further, the judge found Sony and ASCAP’s behavior in withholding songs from Pandora incredibly suspect, and that the testimony from Sony’s representative was simply “not credible” on this issue.[26]

 

April 2018

[1] Peter Martin, “Copyright Agency diverts funds meant for authors to $15m fighting fund,” Sydney Morning Herald (April 21, 2017), https://www.smh.com.au/politics/federal/copyright-agency-diverts-funds-meant-for-authors-to-15m-fighting-fund-20170420-gvol0w.html.

[2] Loek Essers, “Copyright levy for ISPs violates EU regulation, Belgian government says,” IT World (Oct. 30, 2013), https://www.itworld.com/article/2702340/it-management/copyright-levy-for-isps-violates-eu-regulation–belgian-government-says.html.

[3] Glyn Moody, “Bulgarian Public Radio Forbidden To Play 14 Million Pieces Of Music By Copyright Collection Society,” TechDirt (Jan. 17, 2017), https://www.techdirt.com/articles/20170106
/09081336416/bulgarian-public-radio-forbidden-to-play-14-million-pieces-music-copyright-collection-society.shtml.

[4] Glyn Moody, “More Financial Scandals Involving A Collecting Society: Remind Me Again Why They Are Credible Representatives of Artists?,” TechDirt (March 27, 2017), https://www.techdirt.com
/articles/20170321/03154736962/more-financial-scandals-involving-collecting-society-remind-me-again-why-they-are-credible-representatives-artists.shtml; Tatiana Synodinou, “The adventures and misadventures of the implementation of the Directive on collective management of copyright in Greece and Cyprus (Part I),” Kluwer Copyright Blog (March 27, 2018), http://copyrightblog.kluweriplaw.com
/2018/03/27/adventures-misadventures-implementation-directive-collective-management-copyright-greece-cyprus-part/#_ftn4.

[5] Stefán Ó. Jónsson, “Smais appeals to Snæbjörn to a special prosecutor,” Visir (May 30, 2014), http://www.visir.is/smais-kaerir-snaebjorn-til-serstaks-saksoknara/article/2014140539877.

[6] “Smais urskurdad gjaldprota,” Vidskiptabladid (Sept. 8, 2014), http://www.vidskiptabladid.is
/frettir/smais-urskurdad-gjaldthrota/109183.

[7] “Fyrrverandi framkvaemdastjori Smais akaerdur,” RUV (Dec. 19, 2016), http://www.ruv.is/frett/fyrrverandi-framkvaemdastjori-smais-akaerdur.

[8] Magdalena Osumi, “Music schools to sue Japan’s largest copyright collection group over plan to collect fees,” Japan Times (May 16, 2017), https://www.japantimes.co.jp/news/2017/05/16/national/crime-legal/music-schools-sue-japans-largest-copyright-collection-group-plan-collect-fees/#.WtoxMtPwai6.

[9] Dominic Wabala, “Kenya: Copyright Board Accuses Music Society of Spending Artists’ Cash,” The Star (Aug. 26, 2015), http://allafrica.com/stories/201508260289.html.

[10] Victor Nzomo, “Uncertain Future for Reprographic Rights in Kenya as KOPIKEN Collecting Society Registration Not Renewed,” IP Kenya (Feb. 8, 2016), https://ipkenya.wordpress.com/2016/02
/08/uncertain-future-for-reprographic-rights-in-kenya-as-kopiken-collecting-society-registration-not-renewed/.

[11] Victor Nzomo, “MCSK Board Unceremoniously Removes Long-serving CEO,” IP Kenya (April 4, 2016), https://ipkenya.wordpress.com/2016/04/04/mcsk-board-unceremoniously-removes-long-serving-ceo/#more-6188.

[12] Karen Mbuya Muriuki, Kenya: Music Society Loses License to Collect Royalties, Daily Nation (March 27, 2017), http://allafrica.com/stories/201703280100.html.

[13] Timothy Geigner, “Judge Orders MCSK To Cease Collecting Royalties For Kenyan Musicians,” TechDirt (June 12, 2017), https://www.techdirt.com/articles/20170602/09552637504/judge-orders-mcsk-to-cease-collecting-royalties-kenyan-musicians.shtml.

[14] Marco D’Ostuni and Marianna Meriani, “Excessive pricing and copyright industry: still blurred lines?,” Regulating for Globalization (Dec. 6, 2017), http://regulatingforglobalization.com/2017/12/06
/excessive-pricing-copyright-industry/.

[15] Timothy Geigner, “Macedonia Copyright Collection Group Forces All Macedonian Music Off Of All Macedonian Broadcasts,” TechDirt (Sept. 23, 2016), https://www.techdirt.com/articles/20160921
/09435335585/macedonia-copyright-collection-group-forces-all-macedonian-music-off-all-macedonian-broadcasts.shtml.

[16] Press Release, Nigerian Copyright Commission, Text of Press Briefing by the Director General, Nigerian Copyright Commission, Mr. Afam Ezekude, on the Dispute in the Governing Board of Copyright Society of Nigeria Ltd/Gte (COSON) (April 12, 2018), http://www.copyright.gov.ng
/index.php/news-events/item/427-text-of-press-briefing-by-the-director-general-nigerian-copyright-commission-mr-afam-ezekude-on-the-dispute-in-the-governing-board-of-copyright-society-of-nigeria-ltd-gte-coson.

[17] “Imputan a directivos de AIE Paraguay por lesion de confianza,” La Nacion (Dec. 21, 2017), https://www.lanacion.com.py/pais/2017/12/21/imputan-a-directivos-de-aie-paraguay-por-lesion-de-confianza/.

[18] Mike Masnick, “Yet Another Music Colleciton Society Corruption Scandal May Lead To Real Copyright Reform In Peru,” TechDirt (April 3, 2014), https://www.techdirt.com/articles/20140402/17490026782/yet-another-music-collection-society-corruption-scandal-may-lead-to-real-copyright-reform-peru.shtml.

[19] “Russian IP Industry at Center of Massive Scandal,” IP Watch (June 29, 2016), https://www.ip-watch.org/2016/06/29/russian-ip-industry-at-center-of-massive-scandal/?utm_source=IP-Watch+Subscribers&utm_campaign=716ebfba18-DAILY_SUMMARY&utm_medium=email
&utm_term=0_b78685696b-716ebfba18-352143273.

[20] Charl Blignaut, “Gospel Shocker: How black musicians got screwed,” City Press (April 1, 2018), https://city-press.news24.com/News/gospel-shocker-how-black-musicians-got-screwed-20180401.

[21] Timothy Geigner, “Spanish Copyright Executive Claims $50k Brothel Bill Was For Work-Related Activities,” TechDirt (Nov. 13, 2014), https://www.techdirt.com/articles/20141112/06190329113/spain
-copyright-executive-claims-50k-brothel-bill-was-work-related-activities.shtml.

[22] Tommaso Koch, “18 arrested in an operation in which several television employees and members of the SGAE are investigated,” El Pais (June 22, 2017), https://elpais.com/cultura/2017/06/20/actualidad
/1497951660_942877.html.

[23] Press Release, National Commission on Markets and Competition, The CNMC initiated a disciplinary action against the General Society of Authors and Publishers (Oct. 25, 2017), https://www.cnmc.es
/node/365321.

[24] Chris Cooke, “PRS to increase admin fees on TV income to fund copyright tribunal costs,” Complete Music Update (Aug. 18, 2015), http://www.completemusicupdate.com/article/prs-to-increase-admin-fees-on-tv-income-to-fund-copyright-tribunal-costs/.

[25] “Police Investigate Former BPI Anti-Piracy Chief & PIPCU Board Member,” Torrent Freak (March 17, 2017), https://torrentfreak.com/police-investigate-former-bpi-anti-piracy-chief-pipcu-board-member-170317/.

[26] Peter Fakler, “ASCAP Rate Court Pandora Decision Reveals Publishers’ Abuse of Market Power,” Title 17: The S©ite for Copyright Law (March 19, 2014), http://title17.net/archives/382.