Australasian Performing Right Association Ltd v Federation of Australian Radio Broadcasters Ltd

[1999] ACopyT 4

COPYRIGHT TRIBUNAL OF AUSTRALIA

Australasian Performing Right Association Ltd v Federation of Australian Radio Broadcasters Ltd [1999] ACopyT 4

COPYRIGHT – whether a licence scheme proposed by APRA for licences to broadcast music by radio was reasonable – fixing of rates according to music usage – whether a higher penalty rate should be provided where prompt payment is not made, or interest should be payable – whether current accounting should be adopted and on what basis – whether an earlier agreement reached in difficult financial conditions could be regarded as setting a “going rate” – whether an agreement, once made, has a binding effect on rates – whether changes in the industry justified new rates – discussion of the proposition that stability in rates required they should not be fixed according to the health of the industry at a particular time – effect of international comparisons.

Berne Convention, Art 11
Copyright Act 1968 (Cwth), ss 136, 154

General Tire and Rubber Company v Firestone Tyre and Rubber Company Limited [1976] RPC 197 applied
Copyright Agency Ltd v Department of Education of New South Wales (1985) 59 ALR 172 applied
Fair Fitness Music Association v Australasian Performing Right Association Ltd (1998) 43 IPR 67 referred to
Audio-Visual Copyright Society Ltd v New South Wales Department of School Education (1997) 37 IPR 495 applied
University of Newcastle v Audio-Visual Copyright Society Ltd (1999) 43 IPR 505 referred to
British Airways Plc v Performing Right Society Ltd (Copyright Tribunal (UK), 12 January 1998, unreported) referred to
Copyright Agency Ltd v University of Adelaide (1999) 42 IPR 529 applied

AUSTRALASIAN PERFORMING RIGHT ASSOCIATION LIMITED v FEDERATION OF AUSTRALIAN RADIO BROADCASTERS LIMITED

CT 2 of 1995

Burchett P, Professor Pearce and Ms Bowne

Sydney

17 September 1999

COMMONWEALTH OF AUSTRALIA

COPYRIGHT ACT 1968

IN THE COPYRIGHT TRIBUNAL  No 2 of 1995

REFERENCE BY: AUSTRALASIAN PERFORMING RIGHT ASSOCIATION LIMITED UNDER S 154 OF THE COPYRIGHT ACT 1968

FEDERATION OF AUSTRALIAN RADIO BROADCASTERS LIMITED

Respondent

TRIBUNAL:             BURCHETT P, PROFESSOR PEARCE AND MS BOWNE
PLACE:  SYDNEY

DATE:  17 SEPTEMBER 1999

THE TRIBUNAL DIRECTS THAT:

The applicant bring in, on a date to be fixed, short minutes of orders appropriate to be made in the light of these reasons.

COMMONWEALTH OF AUSTRALIA

COPYRIGHT ACT 1968

IN THE COPYRIGHT TRIBUNAL  No 2 of 1995

REFERENCE BY: AUSTRALASIAN PERFORMING RIGHT ASSOCIATION LIMITED UNDER S 154 OF THE COPYRIGHT ACT 1968

FEDERATION OF AUSTRALIAN RADIO BROADCASTERS LIMITED

Respondent

TRIBUNAL:             BURCHETT P, PROFESSOR PEARCE AND MS BOWNE
PLACE:  SYDNEY

DATE:  17 SEPTEMBER 1999

REASONS FOR DECISION

THE TRIBUNAL

1. By s 154 of the Copyright Act 1968 it is provided (inter alia):

   “1.Where a licensor [an expression defined in s 136] proposes to bring a licence scheme [also an expression defined in s 136] into operation, he or she may refer the scheme to the [Copyright] Tribunal.

   2.        The parties to a reference under this section are:

   (a)       the licensor referring the scheme; and

   (b)such organizations or persons (if any) as apply to the Tribunal to be made parties to the reference and, in accordance with the next succceeding subsection, are made parties to the reference.

   ...

   4.The Tribunal shall consider a scheme referred under this section and, after giving to the parties to the reference an opportunity of presenting their cases, shall make such order, either confirming or varying the scheme, as the Tribunal considers reasonable in the circumstances.”

   This broad power to confirm or vary a licence scheme has its source in a declaration made by the United Kingdom at the Brussels Conference, convened in 1948 to consider the Berne Convention.  Referring to the exclusive right of authorizing the public performance of dramatic, dramatico-musical and musical works conferred on their authors by Article 11, the United Kingdom declared, and a number of other countries, including Australia, associated themselves with this declaration, that it “reserved its freedom to promulgate legislation where necessary in the public interest to oppose or remedy the abuse of this right by copyright owners within the UK”:  Ricketson, The Berne Convention for the Protection of Literary and Artistic Works:  1886-1986 (1987) 111.  The remedy adopted in Australia was the establishment of the Copyright Tribunal, following a recommendation of the Spicer Committee.  The Tribunal has been made the guardian of the public interest in the fixing of the terms upon which various licences may be granted.

2. In the present case, Australasian Performing Right Association Limited (APRA) has referred to the Tribunal a licence scheme in respect of the licensing of commercial radio broadcast stations to broadcast copyright music.  APRA has been long established (since 1926) to provide a centralized means of granting licences for the performance in public or broadcast of copyright music, and the distribution of royalties to composers, writers of songs and music publishers.  It owns or controls these rights for Australia in substantially all copyright music.  The Federation of Australian Radio Broadcasters Limited (FARB) is an organization representing commercial radio broadcasters, which was made a party to the reference.

3. The licence scheme, the confirmation of which is sought by APRA, involves a form of licence to broadcast “any and all works within the Association’s repertoire”, upon certain terms and conditions, for a fee calculated in accordance with the schedule to the licence.  It is unnecessary to set out the whole of the terms of the licence, many of which are not in dispute, but it is necessary to reproduce the schedule, which reads as follows:

   “In this Schedule:

   ‘music use percentage’ means the aggregate percentage of airtime occupied by the            broadcasting of musical works.

   ‘percentage fee’ means the percentage of the Licensee’s gross earnings payable to the Association as licence fees.

   1.The Licensee shall pay to APRA the percentage fee as specified in this Schedule calculated in accordance with the music use percentage determined by APRA in accordance with clause 2 below.

   2.FOR the licence year commencing 1 July 1996 and for each succeeding licence year the percentage fee shall be calculated as follows:

   (a)for the period 1 July 1996 to 30 June 1997 and each succeeding licence year the Association shall:

   (i)add the total duration of all musical works reported as broadcast by the Licensee in the logs provided by the Licensee during the 12 months period ended 30 June immediately preceding the licence year in question and calculate the percentage of airtime occupied by such musical works for the period covered by the logs; and

   (ii)add 3 percentage points which shall be attributed for the purposes of this Licence Scheme to the broadcasting of music in commercials, community service announcements and promotions

   to calculate the music use percentage occupied by the broadcast of musical works during the relevant licence year;

   (b)the percentage fee shall then be determined in accordance with the music use percentage specified in the Table below:

Music Use Percentage	The Percentage Fee (see clause 3(a) below)	The Discounted Percentage Fee (see clause 3(b) below)
80%+	4.125%	3.75%
75-79.99%	3.85%	3.5%
70-74.99%	3.3%	3%
65-69.99%	2.75%	2.5%
60-64.99%	2.475%	2.25%
55-59.99%	2.2%	2%
50-54.99%	1.925%	1.75%
45-49.99%	1.65%	1.5%
40-44.99%	1.375%	1.25%
30-39.99%	1.1%	1%
10-29.99%	0.55%	0.5%
0-9.99%	0.055% for each percentage point (or part thereof) of music proportion	0.05% for each percentage point (or part thereof) of music proportion

3.        The Licensee shall:

(a)no later than 30 days after the end of each month pay to the Association the percentage fee of the Licensee’s gross earnings for that month; but if

(b)any monthly instalment referred to in sub-clause (a) is paid to the Association within 20 days of the end of the relevant month, then the percentage fee for that month shall be reduced by 10% (‘the discounted percentage fee’).

4.Each instalment of percentage fee shall be accompanied by a statement verifying the Licensee’s gross earnings during the relevant month.”

1. The principal issues in this Reference are whether the effective licence fees should vary in accordance with the twelve levels or “bands” of music use percentage shown in the Schedule, and whether the effective licence fees should be the discounted fees shown in the third column under clause 2(b) of the Schedule.  FARB argued that the bands should be reduced to the smaller number of bands provided for by an agreement negotiated in 1990, and that the percentage fees should be those agreed at that time, which were lower.

2. Before proceeding further, it is convenient to dispose at once of a matter which perhaps took up too much time at the hearing.  The percentages shown in the second column under para 2(b) were never intended to measure effective fees; as is made clear by para 3, they were intended merely to ensure payment within 20 days.  It was objected by FARB that, since these higher percentages were not claimed to be reasonable percentages in themselves, and since payment in 30 days, not 20 days, is a general standard in the industry, it would not be reasonable to confirm the licence scheme, so far as it provides for the calculation of fees on the basis set out in the second column.  The Tribunal agrees.  At the same time, it considers FARB could not properly complain of a term that simple interest should be payable at an appropriate rate, perhaps the rate payable on judgments in the Federal Court, where a monthly payment is more than 30 days overdue.  We shall hereafter speak of the percentage figures in the third column as the proposed percentages the reasonableness of which is at issue in this Reference.

3. Another matter which can be disposed of at the outset relates to the effect of the current accounting involved in the licence scheme.  The percentages fixed under the Schedule are payable within the specified period after the end of each month; and it is not suggested that there is any difficulty, under modern accounting practices, for the radio stations in calculating their liability in time to comply.  However, for historical reasons, related to past accounting practices, to the terms of past arrangements between FARB and APRA, and to past reporting practices in the industry, fees payable to APRA by radio stations have always been paid by reference to gross advertising revenue received over a period ending 18 months earlier.  There can be no logical objection to the use of the recent figures now available, except that in times of rising revenues - and the gross advertising revenues of commercial radio broadcasters are rising - the leap into modernity would involve a sharp increase in the fees payable.  Of course, APRA points out that it has suffered, during many years, by reason of the constant deferral of increased earnings.  The Tribunal accepts that APRA has been disadvantaged, but if the licence scheme is to be confirmed or varied in a manner that involves an increase in licence fees, the introduction at the same time of current accounting could accentuate the impact on radio stations.  The Tribunal considers that current accounting should be introduced, but over a period of two years, rather than all at once.

4. We turn now to the main question of the bands and the percentages, a question best understood against the background of an outline of some of the history of the relations between the parties.  It is unnecessary to go further back than to 16 December 1964.  On that date, APRA and the predecessor of FARB (or FARB under another name) agreed to a scheme for payment for the broadcasting of music to operate for ten years, and thereafter until terminated by twelve months written notice.  The scheme provided for incremental increases in licence fees, over five years, to two percent of gross advertising revenue.  There were no bands, so that the percentage applied across the industry, regardless of the amount of music played by an individual station.  In 1982, radio station 2GB sought a reduction of its licence fee on the basis that it broadcast much less music than the majority of stations.  This led to a reappraisal of the scheme.  Notice was given by APRA to terminate the existing agreement as from 31 December 1983.  There followed a period of negotiations during which APRA sought a banded structure, involving percentage fees of less than two percent for low music use stations and higher percentages for higher music use stations (for example, in a letter of 15 May 1985, APRA sought 2.5 percent where a station’s music usage percentage figure exceeded 75 percent and three percent where it exceeded 90 percent).  However, APRA was unable to achieve agreement to this proposition.  In late 1989, the parties were still debating whether the industry should be paying a global amount exceeding two percent, although FARB was proposing a period of data collection with a view to change in the future.  In a letter dated 25 October 1989, the Federal Director of FARB referred to “major changes to formats and music usage that will occur as FM conversion happens in Melbourne, Adelaide, Perth and Brisbane early to mid 1990”.  In a reply dated 27 October 1989, APRA referred to its perception that “there has been a substantial increase in the usage of [copyright materials] by the commercial radio stations since the 2% formula was struck in the 1960’s.”

5. At the hearing, there was much debate about the reality of the increase in music usage claimed by APRA, a claim which related to the period up to this proceeding.  Over the years, the measures applied to the broadcasting of music have differed, so as to make comparison difficult.  However, the Tribunal does not find it necessary for the purposes of the present case to make precise findings covering the lengthy period since 1964.  It is apparent that there have been changes over that period in the character of the use of music by radio broadcasters.  Those stations which make high use of music have developed techniques and practices to focus a station’s image with great precision on the particular type of music broadcast by it.  For these stations, their music is their defining feature.  There has been a qualitative change in their use of music.  In broad terms, the Tribunal accepts that there has also been a quantitative increase in the percentage of broadcasting time occupied by music.

6. In September 1990, APRA and FARB agreed on the terms of a licence which was to be terminable after five years, but if not terminated, was to continue.  This was the embodiment of the licence scheme that APRA now seeks to replace.  It provided for fees based on percentages of gross earnings in accordance with eight bands, described as bands of “Music Use Percentage”.  The following table represents the position under this scheme:

   Music Use Percentage    Percentage of Gross Earnings
              75%+  2.66%
              60-74.99%  2.33%
              50-59.99%  2%
              40-49.99%  1.66%
              30-39.99%  1.33%
              20-29.99%  1%
              10-19.99%  .66%

   0-9.99%.033% for each percentage point (or part thereof) of music proportion.

7. Both parties, the evidence made it clear, appreciated that the 1990 agreement marked a change, insofar as APRA could no longer count on receiving two percent of the gross advertising revenue of the industry.  Its receipts depended on the percentages received from the individual stations.  However, it is also clear that the percentages allocated to the bands agreed upon were expected to yield a result slightly in excess of two percent of the gross advertising revenue of the industry.  In the negotiations, APRA had sought more, but  FARB had resisted that, relying (amongst other things) on difficulties then being experienced by the industry as demonstrating that the time was not ripe for the granting of substantial increases on the amounts already paid by radio stations.

8. A great deal of detailed evidence was put before the Tribunal concerning developments in the use of music by commercial radio stations over the past twenty to twenty-five years, the way the industry operates, comparable rates payable overseas, and the tortuous course of negotiations between the parties that led to the 1990 agreement.  However, the dispute ultimately centred upon some fairly precise questions of principle.  Both parties accepted that it is not possible to calculate mathematically a “right” licence fee.  APRA asked the Tribunal to make a broad evaluation of the changes that have occurred over many years in the use of music in radio broadcasting, and to take account, in a general way, of rates payable overseas, particularly in the United Kingdom, the United States and Canada, and of factors indicating that the current value of the use made of music in radio broadcasting exceeds the values accepted in the past, and particularly in the 1990 agreement.  Senior counsel for APRA put the proposition that the Tribunal should take a fresh look at the matter; but he also put that, so far as the Tribunal might find guidance in the levels of rewards set by the 1990 agreement, it should adjust those levels upwards on the basis that they were depressed by the state of the industry at the time.  Against these propositions, senior counsel for FARB took a stand squarely on the submission that the 1990 agreement established a “going rate”, from which the Tribunal should not depart.

9. The first question raised by these contentions is whether an agreement, once reached, binds a party in proceedings before the Tribunal indefinitely.  The answer to this question, on the authorities, is that such an agreement is a very important factor to be taken into account, but it cannot preclude the Tribunal exercising its statutory function of determining whether what is now proposed is “reasonable in the circumstances”, which must mean the circumstances as they now appear.  Otherwise, as senior counsel for APRA pointed out, parties would be deterred from reaching sensible agreements for fear of prejudicing their positions more or less permanently.  In Audio-Visual Copyright Society Ltd v New South Wales Department of School Education (1997) 37 IPR 495 at 520-521, Sheppard P said:

   “I reject submissions ... that AVCS should be bound indefinitely by the rate to which it agreed in 1990 so that the rate would go on as it was fixed in the agreement subject to increases in accordance with the Consumer Price Index.  In Reference by Australasian Performing Right Assn Ltd; Re Australian Broadcasting Corp (1985) 5 IPR 449, the tribunal said (at 478) that the parties to an ongoing relationship such as that in question in that case were not tied to a basis of remuneration earlier agreed upon for all time.”

   In Copyright Agency Ltd v University of Adelaide (1999) 42 IPR 529 at 550, Burchett P referred to this passage as authority for the proposition that the “agreements between the universities and the applicant, by which [a particular] decision was implemented and continued over some years, are relevant, but not binding in relation to the present application”.

10. But even though the 1990 agreement is not binding in itself, did it establish a “going rate” which the Tribunal should now apply, as FARB would have it do, by way of variation of the proposed licence scheme?  The concept of a going rate has been discussed in a number of decisions, particularly in General Tire and Rubber Company v Firestone Tyre and Rubber Company Limited [1976] RPC 197 at 212-213, per Lord Wilberforce, and in the Tribunal decisions in Copyright Agency Ltd v Department of Education of New South Wales (1985) 59 ALR 172 at 181-183 and Fair Fitness Music Association v Australasian Performing Right Association Ltd (1998) 43 IPR 67. But a going rate implies comparability. A reference to a going rate is not a reference to a rate for a licence on quite different terms, or granted in significantly different circumstances, or relating to a changed product. The same logic demands that reasonable contemporaneity is also implicit in the adoption of such a rate. As time passes, a rate once adopted may require reappraisal, if not revision. It cannot continue indefinitely to be taken as the measure of what freely bargaining parties would necessarily now agree. Whether it is or not requires to be determined. In the present case, when the 1990 rate was fixed, the parties agreed that it was to operate for five years, after which they expressly provided that the agreement embodying it was to be terminable.

1. If the concept of a going rate is to be applied appropriately, it is essential to bear in mind the warning given by Lord Wilberforce in General Tire and Rubber Company at 213:

   “Before a ‘going rate’ of royalty can be taken as the basis on which an infringer should be held liable, it must be shown that the circumstances in which the going rate was paid are the same or at least comparable with those in which the patentee and the infringer are assumed to strike their bargain.”

   This, of course, was said in the context of patent infringement, but the principle is equally applicable to the use sought to be made of the concept in the present case.  Sheppard P recognized that in Copyright Agency Limited v Department of Education of New South Wales at 183, when he qualified the possible application of a “going rate” by the words “[i]f the circumstances are comparable ... .”  Cf. University of Newcastle v Audio-Visual Copyright Society Ltd (1999) 43 IPR 505 at 522-523.

2. APRA contends that the circumstances today are not comparable with those under which the bargain was struck in 1990.  Mr Cottle, the Chief Executive of APRA, gave evidence which the Tribunal accepts about the negotiations for the 1990 agreement:

   “Well, it was put to us that the radio industry was at that time entering what seemed at the time to be one of its worst ever years of financial performance.  I think it had just come from a year in 1989 when the industry was just in profit across the entire industry.  But many more stations at that stage in the first few months of 1990 had suffered a reduction in advertising revenue and it looked to be heading into one of the worst ever years.”

   One of FARB’s witnesses, Mr J H Martin, agreed that 1990 “was one of the years where the available advertising dollars did go backwards”.  Asked, “Do you remember whether you raised that with Mr Cottle in the negotiations?” he answered:  “It would have been raised at the time because at that particular time a number of the stations had quite significant debt levels, and it’s all very well to be losing market share, but it’s not something encouraging when you see the market actually going backward itself”, that is, the market “we’re all sharing”.  A minute prepared for a committee of FARB in connection with the negotiations with APRA, dated 3 August 1990, includes the statement: “APRA are aware that times are tough and likely to remain so for the foreseeable future.  Therefore a deal which results in significant cost increases for broadcasters would be counterproductive as some broadcasters may simply not be able to pay.”  This minute was put, in evidence, to one of FARB’s witnesses, Mr N S Milan, the Managing Director of the Special Broadcasting Service, who commented:

   “No, I don’t think it was as much a downturn in the industry, though I think ‘91 was a year - a recession year.  In fact, the actual revenue figures were only off very slightly.  What was the real problem is - you might recall, through the late ‘80s, there had been that explosion in the value of media shares and a lot of companies had exchanged hands at very inflated prices, and it was a very debt burdened industry.  So it wasn’t so much a revenue problem, rather a debt problem, that was the cause of the industry’s pain.”

   He agreed that he “may well have said to APRA, ‘Look, this industry is burdened by a lot of debt at the moment and has a problem’”.  In fact, a letter from FARB to Mr Cottle dated 27 August 1990 includes the statement:

   “The percentages outlined in your scheme represent an increase that we believe is somewhat high and unsustainable given the state of our industry now and in the foreseeable future.”

3. It would not be right for the Tribunal, in making its own determination under s 154(4) of what it “considers reasonable in the circumstances”, to give too much weight to some possibly temporary vicissitude, whether favourable or unfavourable, affecting the industry concerned just at the time of the particular decision. That way would lie instability in the rates fixed pursuant to licence schemes. But when the Tribunal is asked to treat as a “going rate” an agreement negotiated during a period of great financial difficulty that was expected to last into the then foreseeable future, it must be wary of doing so. On all the evidence, and having regard particularly to the passages in the evidence to which we have referred, we conclude that the rates fixed in 1990 were influenced by an exceptional, and fortunately transient, situation. That means they cannot constitute a “going rate”.

4. But we wish to make it quite clear that, although this conclusion disposes of any suggestion we should simply apply a “going rate” fixed in 1990, nevertheless, in reaching our own conclusion as to what we consider reasonable in the circumstances, we will not swing to the opposite pole of increasing the rates simply because the industry is currently doing well.  Rather, the logic of the situation is that we should take account of the 1990 agreement as a piece of evidence pointing to a reduced level of rates which, subject to all other relevant factors, may now require to be restored to a proper level. 

5. APRA also called evidence to show that the rates payable under the 1990 agreement are lower than the comparable rates in the United Kingdom, Canada and the United States.  It is accepted that precise comparisons are difficult because of differences in the way records are compiled and rates are fixed.  Nevertheless, the Tribunal is satisfied that there is a disharmony between the rewards payable to copyright owners in the United Kingdom, Canada and the United States as compared with Australia.  The rates proposed by APRA would still be below those in the United Kingdom and Canada, though slightly above those in the United States.  Despite the difficulty in comparing rates as between different countries, a broad comparison may provide a helpful pointer to what may be reasonable, particularly in relation to an industry with international ramifications.  The United Kingdom Copyright Tribunal (Christopher Floyd QC, Chairman; Mrs Angela Howorth; Sir Michael Lickiss) in the particular circumstances of British Airways Plc v Performing Right Society Ltd (Copyright Tribunal (UK), 12 January 1998, unreported) treated foreign rates as an important factor.  The Tribunal said:

   “We accept however that the evidence of foreign rates which we have justifies some reduction in the rates payable in the UK.” 

   Subsequently, the Tribunal said:

   “Were it not for the foreign rates which were drawn to our attention we would not have viewed the other arguments for a reduction of the total amount payable by British Airways under Tariff AC as very persuasive.  However we were impressed by the suggestion that for an international product in an international market place there is much to be said for attempting to level out the rates between different countries.  …  For that reason we consider that a reduction in the total amount payable is justified.  But the levelling out should occur much closer to the current level of royalty than to the US rate.”

6. Ultimately, in each reference under s 154, a value judgment must be made as to what the Tribunal considers reasonable in the circumstances. We are persuaded by the matters that we have discussed, in the light of the whole of the evidence, that some increase should be allowed over the remuneration provided for in the 1990 agreement. But we have not concluded that it would be reasonable to allow all of the proposed percentages. It will be observed that the bands in the middle of the table under para 2(b) of the schedule to the proposed licence rise by .25%; but two of the three highest bands rise by .5%, to 3% and 3.5% respectively, and then the last band is raised to 3.75%. The Tribunal considers that it would be reasonable that the final three bands should rise by .25%, .25% and .5% respectively, that is, to 2.75%, 3% and 3.5%. With those variations, the scheme, so far as concerns the fixing of the bands and the rates, should be confirmed.

7. There was some discussion, during the hearing, about digital broadcasting.  The licence scheme the subject of the reference does not provide for the use of music broadcast by this still evolving technology.  The Tribunal merely notes, at this stage, that the question of what would be reasonable in the circumstances of a licence relating to digital transmission has not been considered by it.  That will be for the future.

8. The order of the Tribunal is that APRA bring in, on a date to be fixed, short minutes of orders appropriate to reflect these reasons.  Some minor matters that were raised at the hearing, but did not become disputed issues, should be resolved finally at the same time.

I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Decision herein of the Tribunal.

Associate:

Dated:             17 September 1999

Counsel for the Applicant:	Mr D K Catterns QC
Solicitors for the Applicant:	Banki Palombi Haddock & Fiora
Counsel for the Respondent:	Mr M J Slattery QC and Mr M Ellicott
Solicitors for the Respondent:	Boyd House & Partners
Date of Decision:	17 September 1999