Thanks to Luca Russo for collaborating on this article
The Italian Competition Authority opened an investigation into a potential anti-competitive agreement in connection with the creation of a joint venture between two copyright collecting societies.
On November 3, 2020, the Italian Competition Authority (AGCM or the “ICA”) opened a formal investigation into a potential anti-competitive agreement in breach of Section 101 TFEU in connection with the creation of a joint venture by two copyright collecting societies, “Nuovo Istituto Mutualistico per la Tutela degli Artisti Interpreti ed Esecutori” (“New IMAIE”) and SCF S.r.l. (“SCF”).
New IMAIE collects and distributes copyright-connected royalties to artists, actors, and performers (“Performers”) from those who use their music or audiovisual creations for communication to the public, such as TV and radio stations, hotels, discotheques, and so on (“users”). Nuovo IMAIE is currently the “incumbent” operator in the Italian market for the management and brokerage of rights connected to copyrights on behalf of Performers. SCF is the main operator active in Italy in the management and intermediation of the same rights on behalf of musical recording (or “phonogram”) producers, which are also SCF’s stakeholders (including the likes of Universal, Sony, and Warner).
The proceedings were prompted by a communication dated July 14, 2020 and filed with the ICA by New IMAIE and SCF. It illustrated their plan to create a joint venture, in the form of a limited liability company, to collect and manage certain copyright-connected rights for Performers and phonogram producers. More precisely, the joint venture would carry out the management and intermediation of the royalties payable by phonogram users to the rightsholders (i.e., Performers and producers) with regard to recordings in the parent companies’ catalogues. It would therefore negotiate fees and enter into licenses with the users of phonograms in such catalogues, availing itself of the parent companies’ database and support services to that end. Under the plan illustrated by the two parties, the joint venture would not develop its own catalogue of copyrighted recordings; instead it would offer its intermediation services to other collecting societies and would be open to allowing them to become stakeholders in the joint venture, as long as they met certain requirements.
According to the ICA, however, the joint venture would operate in a market adjacent to or overlapping with markets where New IMAIE and SCF would continue operating autonomously, and thus the joint venture would be “cooperative” in nature under Italian competition law. As a result, the joint venture could not be characterized as a concentration under national merger control rules and should instead be deemed equivalent to an agreement between independent and potentially competing companies. That in turn means it must be assessed in the context of the prohibition of anti-competitive agreements in Section 101 TFEU.
The legal and regulatory context
New IMAIE and SCF operate in the sector of intermediation of rights related to copyrights for Performers and producers (for example, “fair compensation” to the various Performers involved in the creation of copyrighted content and “private copy” fees payable to producers by manufacturers of devices). Section 73 of law No. 633/1941 (the Copyright Law, as recently amended) provides that such royalties shall be “paid, for each phonogram used, separately to the phonogram producer and to the performers.” This sector also was recently amended by legislative decree No. 35/2017, implementing Directive 2014/26/EU, which set forth the necessary requirements for managing and collecting fees for rights related to copyright. Further, in the past the ICA has clarified that this activity may be carried out either by producers/Performers directly and individually or through licensing agreements with organizations representing groups of rightsholders collectively (the “collecting societies”).
Relevant markets and critical competition issues
According to ICA case-law, the sector of management and intermediation of rights related to copyright may be segmented into separate markets depending on the type of rights, rightsholders, and users intermediated. However, the ICA points out that all such markets are adjacent and may partly overlap. Further, it holds that by combining and funneling a variety of intermediated rights, rightsholders, users and the related data into one or a few collecting societies that share services and customers within a single center of economic interest, the agreement risks generating network effects that would create persistent and potentially insurmountable barriers for new entrants. In this regard, the ICA preliminarily observes that, based mainly on information obtained from the parties’ competitors, New IMAIE and SCF each hold a share of approximately 85% in their respective market segments, while the main competitor have shares that range from 7% to 15% depending on the market segment concerned.
In conclusion, the ICA suspects that the joint venture between New IMAIE and SCF, by leveraging the “incumbent” positions of their parent companies and their unmatchable rightsholder and user databases, would recreate a “super collecting society” that could become the only plausible intermediary between rightsholders and users. Precluding third-party access to the parent companies’ database would de facto make it extremely difficult for competitors to overcome entry barriers or to make differentiated offerings, and thus may harm rightsholders and users by reducing their ability to choose from an array of competing offers for rights management services. This, according to the ICA, “could lead to homogenization of supply conditions and to reducing the degree of competitiveness of the markets, thus negatively affecting the timing, quality, and costs of rights management.”
Ultimately, the AGCM points out, even though New IMAIE and SCF mainly operate in the national market, they deal with the major foreign collecting societies that represent their rightsholders’ interests in Italy. Hence, the joint venture could potentially affect trade between Member States pursuant to Section 101 of TFEU. The investigation is provisionally set to close by December 2021.