Treating licensees differently to their competitors does not constitute unreasonable discrimination, Copyright Tribunal

The Tribunal said that the Mechanical Copyright Protection Society (MCPS) had been within its rights to charge Archive Media Publishing (AMP) differently from rivals, even though it meant the firm was financially disadvantaged.

Such behaviour was not "unreasonable discrimination" under the Copyright Designs and Patents Act, it said.

The case reached Tribunal after AMP discovered that what it paid monthly in royalties for its licence with MCPS to sell copyright material on DVDs was substantially greater than it would have paid under an alternative payment that rival firms had signed up to with MCPS.

AMP's monthly royalties rate was based on projections about the number of DVDs the company planned to manufacture. The alternative payment method would have charged AMP every quarter in arrears according to the number of DVDs made.

AMP claimed it had paid MCPS £6,668 in royalties during a period when it had suffered a delay in launching its product. The Tribunal ruling said AMP claimed that under the alternative system it would have paid £23.17 in the same period.

AMP took the case to Tribunal after MCPS refused to change the arrangements to allow it to pay under the alternative system.

The Copyright Tribunal was established by the Copyright, Designs and Patents Act to rule on commercial licensing disputes between businesses and the collecting societies that act on behalf of copyright owners.

"The MCPS are entitled to treat licensees which are small companies and/or of lesser financial standing differently from other licensees, provided of course the manner in which they do so is itself reasonable," the Tribunal ruling said (15-page / 795KB PDF).

"As part of this process the MCPS are entitled to make the grant of a ... licence conditional on terms which amount in effect to the provision of a form of financial guarantee in the form of advances," the ruling said.

The ruling was based on the principles outlined in a case brought before the Copyright Tribunal in 1991, the ruling said. On that occasion the Tribunal found that it was legitimate for the MCPS to charge record companies differing royalties rates.

"Small companies and companies of lesser creditworthiness must be treated differently. One could not dictate to a bank manager that he must give credit unless good cause is shown otherwise. So also with the MCPS," the 1991 ruling said.

"We do accept ... that the MCPS should be protected against financial or other failure of the small company. The MCPS can, we hold, require payment in advance in respect of all potential sales, namely on all actual pressings," the 1991 ruling determined.

The Copyright Tribunal said that the 1991 ruling was as applicable today as it was then and said that AMP's own assertion that it was a small company meant MCPS could treat it differently.

The Tribunal had considered the Copyright Designs and Patents Act to determine whether AMP had a case for "unreasonable discrimination".

"In determining what is reasonable on a reference or application ... relating to a licensing scheme or licence, the Copyright Tribunal shall have regard to the availability of other schemes, or the granting of other licences, to other persons in similar circumstances and the terms of those schemes or licences, and shall exercise its powers so as to secure that there is no unreasonable discrimination between licensees, or prospective licensees, under the scheme or licence to which the reference or application relates and licensees under other schemes operated by, or other licenses granted by, the same person," the Copyright Designs and Patents Act says.

AMP had argued that it was financially disadvantaged in its agreement with MCPS because it could enjoy better rates under the alternative payment scheme. This did not prove unfair discrimination, the Tribunal ruled.

"The justification for requiring [monthly terms in advance] relates to the standing of the company seeking the licence and ultimately the MCPS' assessment of the financial risk. Necessarily two companies competing with each other in the same market may well represent different financial risks to the MCPS. The fact they compete does not establish unreasonable discrimination," the Tribunal ruled.

The trading history a company has with the MCPS is a "relevant factor" in determining the terms of royalties a firm should pay in a licence agreement, the Tribunal said.

The Tribunal said that AMP's inflated estimations of what it would produce had contributed to its financial disadvantage.

"One of the problems we perceive in this case was caused by AMP's own estimate of what the annual royalty was likely to be when the direct debit was set up," the Tribunal ruling said.

An MCPS quarterly review had adjusted the payments to reflect this overestimation, the Tribunal said.

The Tribunal said the MCPS should prepare a written statement that details the terms of its monthly royalties payment agreement, and also tell companies why they had chosen to apply the monthly terms to them.

The ruling was the first made since Copyright Tribunal procedures were streamlined. The ruling was based solely on written submissions. 

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