Fair Fitness Music Association v Australian Performing Right Association

[1998] ACopyT 4

CATCHWORDS

COPYRIGHT – Copyright Tribunal – application under s 157(2) of the Copyright Act 1968 – effect of establishment of a “going rate” – whether the applicant would in the circumstances in relation to the applicant be subject to the payment of charges or to conditions that are not reasonable – whether the Tribunal should make a determination in the nature of a declaration of rights in hypothetical circumstances.

Copyright Act 1968, s 157

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
AEI Rediffusion Music Limited v Phonographic Performance Limited [1998] RPC 335, referred to
British Airways Plc v Performing Rights Society Limited, Copyright Tribunal of the United Kingdom, 12 January 1998, referred to

FAIR FITNESS MUSIC ASSOCIATION v AUSTRALASIAN PERFORMING RIGHT ASSOCIATION

CT 1 OF 1997

Burchett P, Professors Ricketson and Pearce
Sydney (heard in Adelaide)
1 October 1998

COMMONWEALTH OF AUSTRALIA
COPYRIGHT ACT 1968

IN THE COPYRIGHT TRIBUNAL

 CT 1 of 1997

BETWEEN:

FAIR FITNESS MUSIC ASSOCIATION
APPLICANT

AND:

AUSTRALASIAN PERFORMING RIGHT ASSOCIATION LIMITED
RESPONDENT

MINUTES OF ORDER

TRIBUNAL:

BURCHETT P
PROFESSOR RICKETSON (MEMBER)
PROFESSOR PEARCE (MEMBER)

DATE:

1 OCTOBER 1998

PLACE:

HEARD IN ADELAIDE

THE TRIBUNAL:

1. Dismisses the application of Fair Fitness Music Association;

1. Makes no order as to costs.

COMMONWEALTH OF AUSTRALIA
COPYRIGHT ACT 1968

IN THE COPYRIGHT TRIBUNAL	CT 1 of 1997
BETWEEN:	FAIR FITNESS MUSIC ASSOCIATION APPLICANT
AND:	AUSTRALASIAN PERFORMING RIGHT ASSOCIATION LIMITED RESPONDENT
TRIBUNAL:	BURCHETT P PROFESSOR RICKETSON (MEMBER) PROFESSOR PEARCE (MEMBER)
DATE:	1 OCTOBER 1998
PLACE:	HEARD IN ADELAIDE

REASONS FOR DECISION

BURCHETT P, PROFESSOR RICKETSON AND PROFESSOR PEARCE:

On 15 March 1995, the Tribunal (Sheppard P, Ms M Barron and Dr J Scutt, Members) confirmed a licence scheme proposed by Australasian Performing Right Association (APRA) and referred by it to the Tribunal under s 154(1) of the Copyright Act 1968. A number of bodies were respondents to the reference, the Fitness Industry Confederation of Australia, the Victorian Fitness Industry Association, the Registered Clubs Association of New South Wales, the YMCA, and Quality Health and Fitness Centres, and affidavits were filed on their behalf, but at the door of the Tribunal, so to speak, an agreement was reached, ending all opposition to the confirmation of the licence scheme. The Tribunal noted that, before the hearing, “[t]he application made to the Tribunal was widely advertised and was also notified to interests which it was thought might have an interest in its outcome”. Nevertheless, in the absence of a contending party to bring to notice any difficulties the scheme might harbour, the Tribunal gave careful consideration to the material, for itself, before deciding in favour of confirmation. In their joint reasons, Sheppard P and Ms Barron stated:

“One of the concerns that the Tribunal has is that its confirmation of the licence scheme here will tend to make it something of a common rule in this section of the industry.  It will not in fact be a common rule because no person will be bound by the licence agreement unless he or she agrees to sign it.  If persons consider the terms of the licence agreement unreasonable in the particular circumstances of their cases, it is always open to them to approach the Tribunal pursuant to s. 157 of the Act.  Subsection 157(2) thereof provides that a person who claims, in a case to which a licence scheme applies, that he or she requires a licence but that the grant of a licence in accordance with the scheme would, in that case, be subject to the payment of charges, or to conditions, that are not reasonable in the circumstances of the case, may apply to the Tribunal under the section.  The Tribunal’s jurisdiction to make an appropriate order in such a case is provided for in subsec. 157(6).”

The licence scheme which was thus confirmed related to the performance of musical works within APRA’s repertoire, as an accompaniment to physical exercise, during fitness, health and aerobics classes.  It involved the introduction of licence fees calculated, not by reference to the sizes of classes, but by reference to their type.  The fees introduced, following a period of phasing in, were 70 cents per aerobics class and 35 cents per circuit class, with CPI adjustments which by 1998 had brought these fees to 72 cents and 36 cents respectively.

The possibility, to which the Tribunal adverted when confirming the licence scheme, that an application might in the future be brought under s 157(2) has now eventuated. Such an application, which is the subject of these reasons, has been brought by Fair Fitness Music Association, an unincorporated association representing some holders of licences for music used during fitness and aerobics classes, but more particularly the Body Workshop group of centres in the city and suburbs of Adelaide. The moving spirit in the association and in the Body Workshop centres is Mr Rizos, who gave evidence before the Tribunal. A number of other persons associated with the Body Workshop centres also gave evidence, and the Tribunal had an opportunity to see several of the centres in operation. For APRA, its Chief Executive, Mr Cottle, gave evidence, and two undercover witnesses, with expertise both in music and in the operation of fitness classes, were called under the designations AB and XY.

Section 157(2) provides:

“A person who claims, in a case to which a licence scheme applies, that he or she requires a licence but that the grant of a licence in accordance with the scheme would, in that case, be subject to the payment of charges, or to conditions, that are not reasonable in the circumstances of the case may apply to the Tribunal under this section.”

Some light is cast upon the intent of this provision by sub-s (6) of the same section, which relevantly provides:

“Where an application is made to the Tribunal under subsection … (2) …, the Tribunal shall give to the applicant, to the licensor concerned and to every other party (if any) to the application an opportunity of presenting their cases and, if the Tribunal is satisfied that the claim of the applicant is well-founded, the Tribunal shall make an order specifying, in respect of the matters specified in the order:

…

(b)in the case of an application under subsection (2) … - the charges, if any, and the conditions, that the Tribunal considers reasonable in the circumstances in relation to the applicant … .”

It will be observed that the person entitled to make an application under s 157(2) is a person who “requires a licence”, but claims that the grant of a licence in accordance with the scheme would be subject to charges or conditions “that are not reasonable in the circumstances of the case”. No objection was taken by APRA to the standing of Fair Fitness Music Association to make an application under this provision, and in fact, at the hearing, the matter was pursued by reference to the circumstances of the case of the Body Workshop centres.

Aerobics classes and circuit classes, as conducted in fitness centres of the type envisaged by the licence scheme, both utilize recorded music, which is provided by the playing of cassettes.  Both types of classes have an instructor who leads and motivates the class, talking over the music as necessary.  It is the instructor who has chosen the music.  In an aerobics class, exercises are performed in a “choreographed” fashion in time with the music.  The exercises are not performed in time with the music in a circuit class, in which the participants move around the circuit of instruments of exercise, so that, at any one moment, each is doing something different, rather than performing a routine in unison.  In both cases, however, the applicant claimed that the music is merely an inessential background, the quality of which is not important, and which could even be dispensed with.  However, it was not suggested that in ordinary practice music ever is dispensed with.  Having considered all the evidence, illustrated as it was by the Tribunal’s attendance at a number of centres, we find that the music is an integral part of the lively activity of the classes, both motivating and entertaining the participants.  The intensity and elan which are generated, both at aerobics classes and at circuit classes, could not be imagined without the music.  As the witness XY said, “the enjoyment and motivation of a class is closely connected with the use of music”, and it is “of central importance”.  Miss Anderson, a fitness class leader who was one of the principal witnesses called for the applicant, said:  “Music is a tool of our trade”.  Certainly, the purpose of the classes, for most of the participants, concerns fitness, weight loss and the companionship inherent in any social activity.  But the classes give expression to their members’ needs in these respects, utilizing music as a significant part of the whole performance.  It is probably less significant in the case of aquarobics than in the case of aerobics and circuit classes, because in aquarobics the sound of movements in water makes the music harder to hear; but the difference is only relative, and aquarobics classes are a minuscule proportion of the total number of classes.

A point emphasized in the applicant’s case was the variation in sizes of classes between different Body Workshop centres.  Some were very small, with only a few participants.  But the applicant made no attempt to demonstrate that class sizes are not similarly varied within other organizations controlling fitness centres, and in other parts of Australia.  It is to be remembered that the confirmed licence scheme abandoned any differentiation on the basis of class sizes at the request of the bodies which negotiated it on behalf of fitness centres around Australia.  APRA had originally proposed that the size of classes be taken into account in the calculation of licence fees.  That was rejected by representatives of fitness centres during the negotiations which took place before the decision of the Tribunal confirming the licence scheme.  It was felt that the maintenance of attendance records for all classes would pose undesirable administrative difficulties, and that a flat rate for each of the two types of classes, aerobics classes and circuit classes, was preferable.  APRA’s original position had been that in respect of all fitness classes a tariff of $1-00 per class of 26 or more persons, or 50 cents per class of 25 persons or less, should be paid.  It was as a result of the representations of fitness associations that two fundamental changes were made in the structure of the scheme:  (1) there was to be no difference in the fee according to class size; but (2) there was to be a marked difference between aerobics classes and circuit classes, recognizing the lesser role of music in the circuit classes.  The reason given, on behalf of the fitness industry, for a flat fee for each type of class was not that classes were uniform, but rather that there was “a whole range of class sizes”, as Mr Cottle recalled the matter, and that administrative difficulties should be minimized.

The applicant argued that the figures on which Mr Cottle based his negotiating position in 1993 and 1994 were flawed.  It was suggested that Mr Cottle wrongly assumed the average class had of the order of 30 participants.  In fact, Mr Cottle did assert, in an affidavit sworn 17 September 1993 in the confirmation proceedings, that he had made calculations of “typical … but … notional” revenues per class using “attendance figures of 20 and 40, which were, according to our observations, fairly typical of aerobic classes in practice”.  But, as Mr Catterns QC pointed out in argument, Mr Cottle was negotiating with industry representatives who knew precisely what the position was as regards class sizes, revenues and profitability.  Mr Cottle’s assumptions were part of the raw material of his estimates, but they were ground fine by the mills of negotiation, from which the licence scheme issued in a radically changed form.

After the approval of the licence scheme by the Tribunal in early 1995, according to the evidence of Mr Cottle, licences in accordance with the scheme were “accepted by virtually all persons notified by APRA who required a licence”, and “more than 800 fitness and aerobic licences under the withdrawn scheme were terminated so that new licences could be granted in accordance with the licence scheme” confirmed by the Tribunal.  Mr Cottle swore that the transition to the new scheme “was one of the smoothest ever encountered in my experience”.  Only in the case of the present application has there been opposition of the kind raised by Mr Rizos, and the present application, though Fair Fitness Music Association has attracted some 100 members, has been pursued entirely through the Body Workshop centres controlled by Mr Rizos.  We accept the evidence of Mr Cottle, and we think it is significant.  In a passage we have cited from the reasons of the majority of the Tribunal in the confirmation application, it was pointed out that the confirmation would not make the licence scheme a “common rule”, because no-one would be bound by it unless willing to enter into an agreement in accordance with it.  But what has happened since has had the effect of establishing a common rule and a “going rate” in the industry.

Numerous decisions have shown the importance of a going rate, and the conditions upon which it may be taken as a yardstick.  A well known starting point is the decision of the House of Lords in General Tire and Rubber Company v Firestone Tyre and Rubber Company Limited [1976] RPC 197, a decision given in the context of an assessment of damages for patent infringement. There, Lord Wilberforce referred (at 213) to a statement by Sargant J in an earlier case, concerning the ascertainment of the appropriate amount of damages by looking at what “the infringer would have had to pay if, instead of infringing the patent, he had come to be licensed under the patent”. Sargant J said:

“I do not mean by that that the successful patentee can ascribe any fancy sum which he says he might have charged, but in those cases where he has dealt with his property merely by way of licence, and there have been licences at certain definite rates, there prima facie, apart from any reason to the contrary, the price or royalty which has been arrived at by means of a free bargain between the patentee and the person desiring to use the patented article has been taken as being the price or royalty that presumably would have to be paid by the infringer.”

Similarly, Fletcher Moulton LJ, in another judgment cited by Lord Wilberforce (at 214), said:

“There is one case in which I think the manner of assessing damages in the case of sales of infringing articles has almost become a rule of law, and that is where the patentee grants permission to make the infringing article at a fixed price – in other words, where he grants licences at a certain figure.”

Lord Wilberforce, in adopting these statements of the approach to be taken in such cases, commented (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.”

In Copyright Agency Ltd v Department of Education of New South Wales (1985) 59 ALR 172 at 183, Sheppard P, having referred to what Lord Wilberforce had said in the case we have cited, continued (at 183):

“I think a proper analysis of what Lord Wilberforce and Fletcher Moulton LJ have said discloses that the preferred approach is to see first of all whether there is a normal rate of profit or royalty.  If the circumstances are comparable, this will establish a going rate which is the best guide to what the parties themselves would have agreed upon if they were treated notionally as a willing, but not anxious, licensor and a willing, but not anxious, licensee.  In cases where the evidence does not disclose a going rate of profit or royalty, it may nevertheless be possible to approach the matter upon the basis of a hypothetical bargain.  There may be evidence which would enable a court or tribunal to conclude that in the circumstances of the instant case willing but not anxious parties would have arrived at a particular figure for a licence. But the evidence will need to be carefully scrutinized to ensure that comparisons with other cases do not lead to a result which is artificial.

If the notional bargain approach is not available or thought to be fallible in the circumstances of a given case, the task becomes one of judicial estimation, the court or tribunal doing its best in the circumstances upon the basis of the evidence which there is.”

The same approach guides the Copyright Tribunal of the United Kingdom, as is evidenced by a recent decision of that Tribunal (Mr A Watson QC, Chairman;  Mr L P Farrington; and Mrs A Howorth) in AEI Rediffusion Music Limited v Phonographic Performance Limited [1998] RPC 335 where the Tribunal said (at 347):

“It is well established that, if the Tribunal is satisfied that there exist other licences which are sufficiently comparable to the licence they are being asked to settle, the Tribunal should adopt a similar rate absent any special circumstances … .  Thus had there been a number of pre-existing licences for satellite broadcast background music which the Tribunal had either settled, or was satisfied had been entered into consensually by parties with equal bargaining power, the Tribunal would adopt similar if not identical rates and conditions.”

In the present case, the Tribunal has confirmed a licence scheme, and parties not bound by it, who could have sought determinations for themselves under s 156 or s 157, have accepted it. The applicant seeks a determination, within the words of s 157(2) of the Act, “that the grant of a licence in accordance with the scheme would, in that case [ie the case of the Body Workshop centres], be subject to the payment of charges, or to conditions, that are not reasonable in the circumstances of the case”. But no attempt has been made to differentiate the case of the Body Workshop centres from the cases of other fitness centres, whether located in South Australia or elsewhere, which are licensed under the scheme. What the applicant has done has been to mount an attack on Mr Cottle’s early assumptions about fitness centres. Those assumptions are not the same thing as the going rate which has now been established, nor were they ever the real point. In the confirmation application, the real point was what rate and terms would be equitable, and the parties negotiated away from Mr Cottle’s position. As the United Kingdom Copyright Tribunal (Christopher Floyd QC, Chairman; Mrs Angela Howorth; Sir Michael Lickiss) said in British Airways Plc v Performing Rights Society Limited (12 January 1998):

“If the price is right then the basis of calculation ceases to be unreasonable. … The basis of calculation is a subsidiary issue.”

What it was necessary for the applicant to do, in the present case, was to differentiate the Body Workshop centres from the fitness centres to which the licence scheme applies generally; for that purpose, it would not be sufficient to show that Mr Cottle’s understanding of the industry was less than complete and perfect.  At the same time, it should be said that the Tribunal is not satisfied either that Mr Cottle was significantly in error or, certainly, that any such error found its way into the ultimate agreement to adopt the licence scheme.

A separate matter raised on behalf of the applicant was a contention that international comparisons showed the licence fee paid to APRA to be too high. This also is an argument which does not grapple with the real issue thrown up by s 157(2). But in any case, it was not shown that the licence scheme is at odds with some rate generally accepted in comparable countries. In fact, rates overseas show considerable variation, but the rate payable under the licence scheme is broadly similar in effect to the rates applicable in a number of comparable countries, and particularly in the United States.

The applicant contended there was unfairness in APRA’s assumption that all, or virtually all, of the music played at the Body Workshop centres belonged to the APRA repertoire. It was suggested there should be a lower licence fee for an operator who might choose to play a substantial percentage of other music, or even to have no music for some classes. It was this contention, combined with a suggestion that the Body Workshop centres played particular music not belonging to APRA’s repertoire, including certain Greek and Lebanese music, which led APRA to send AB and XY to investigate how the Body Workshop centres were actually run. The Tribunal has no doubt, having heard them cross-examined, that they were truthful witnesses, and it concludes that all, or virtually all, of the aerobics, aquarobics and circuit classes conducted at Body Workshop centres are so conducted exclusively, or almost exclusively, with the use of music belonging to the APRA repertoire. The Tribunal is not satisfied that either Greek or Lebanese music is played to a significant extent, but even if it is, music of either of these kinds, would be likely to belong to the repertoire of an organization with which APRA is affiliated. Indeed, the questions of fact we are now discussing were not seriously contested at the hearing. In the absence of a factual basis, we do not think it is the Tribunal’s function to make something in the nature of hypothetical declarations of right. Section 157(2) is concerned with a specific problem, and in a proceeding appropriately constituted for the resolution of such a problem, in which all the parties who would be interested in the resolution of a different problem are not represented, it would not be desirable that the Tribunal should make broad statements about what the Body Workshop centres might or might not be entitled to do if they operated differently from the way in which they do operate.

The Tribunal is not satisfied that the application is well-founded, and accordingly it determines that the application be dismissed.  As a costs order is not sought by APRA, there will be no order as to costs.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Decision herein of the Copyright Tribunal constituted by Burchett P, Professors Ricketson and Pearce.

Associate to the President:

Dated:             1 October 1998

Counsel for the Applicant:	Mr S Stretton
Counsel for the Respondent:	Mr D K Catterns QC
Solicitors for the Respondent:	Faulkner & Associates
Date of Hearing:	15, 16, 17 and 18 June 1998
Date of Decision:	1 October 1998