Soundreef case: is this really the end of SIAE monopoly?

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On the 12 September 2014, the Court of Milan held that the service offered by Soundreef, a small start-up carrying out a rights management and royalty collecting service, is legitimate and does not infringe any provision of law and it does not violate the special role assigned by the Italian Copyright Act (“ICA”) to the Italian society of authors and publishers (“SIAE”) and in particular by Article 180 ICA which provides that “the intermediation activity (…) is reserved on an exclusive basis to SIAE“.

The legitimacy of the exclusive mandate granted to SIAE has been challenged several times; the Italian Courts have constantly reiterated that it is fully compatible with the rules and the purposes set out by the Italian legislator.

The Italian Constitutional Court even stated that the SIAE would not operate in monopoly regime as the Article 180 ICA does not prevent the authors to directly protect or exercise their rights (i.e. without the intermediation of SIAE)[1].

In the 90’s the same Court has recognized that the work of SIAE would be irreplaceable – given the huge number of works – and that the possibility that the authors may directly exercise their rights should be deemed as purely theoretical[2].

In a context whereby SIAE position has been strengthened by several favourable rulings, this last adjudication should be certainly considered important as it clarifies some principles of law and better defines the limits of the intermediation activity of SIAE.

 

The proceeding

Soundreef is a UK based company that “gathers and distributes royalties on behalf of authors and publishers, providing an alternative to traditional copyright collection societies[3]”.

It acts through two different divisions: (i) “Soundreef In Store” which licenses music to be used in the stores (chain stores and small shops) by making available a number of tracks that users may select in order to create their playlists; and (ii) “Soundreef Live” which allows the artists to register their tracks with Soundreef and receive the royalties deriving from the public performance.

Its activity is aimed to offer (partial) alternatives to the licensing system put in place by traditional collecting societies, including SIAE.

One of the most interesting aspects of the case is that the dispute has not been promoted by SIAE[4] but by an individual, Laura Piccinelli (hereafter the “Claimant”), acting as author, performer and phonogram producer of musical tracks.

Nevertheless, SIAE results to be fully aware of the service offered by Soundreef and indeed it published a note on its official website that clearly summarizes the position of SIAE on the services offered by Soundreef[5]. According to the Italian collecting society:

(i)             The use of Soundreef is not free of risks as it does not offer the same guarantees of SIAE in terms of transparency, reliability and responsibility;

(ii)           Soundreef does not operate on the basis of a legitimate mandate as the authors formerly associated to SIAE should terminate the mandate conferred to SIAE before assigning a new one to Soundreef.

(iii)          The indemnification offered by Soundreef would not protect the users against the risk of criminal action for the potentially abusive use of the musical compositions that are no longer managed by SIAE;

(iv)          The repertoire managed by Soundreef is limited and does not include the most famous music tracks (managed by SIAE).

Based upon the above, someone may observe that it would have been interesting if SIAE would have directly engaged a frontal assault against Soundreef instead of witnessing the battle from the rear.

It’s worth noting that the Claimant filed a precautionary injunction for the following reasons:

(a)   The activity of Soundreef would have infringed the rule set out in the above mentioned Article 180 ICA;

(b)  With regards to neighbouring rights of artists and performers the activity of Soundreef  would have infringed the applicable rules of the Decree of the Prime Minister dated 19 December 2012 (“Decree”) setting out the minimum requisites that the intermediaries must hold; and

(c)   The activity of Soundreef would constitute an unfair competition conduct.

The Court of Milan rejected the injunction as it considered the absence of the prerequisites of preliminary injunction claim consisting of (i) sufficient legal basis (fumus boni iuris) and (ii) danger of imminent and irreparable damage (periculum in mora). Moreover, in the opinion of the judge the Claimant may not be considered as a competitor of Soundreef as the Claimant does not act directly but through an assignment of rights to SIAE.

The opinion of the judge was that the CISAC case[6] and the EU Directive 2014/26/UE on collective rights management and multi-territorial licensing of musical works for online use are crucial for the creation of the digital single market and would reveal the obsolescence of the exclusive mandate attributed to SIAE by Article 180 ICA.

The Court also held that there was not a serious risk of an imminent and irreparable damage given the disproportion between the market share possessed by Soundreef (2%) and the SIAE (98%).

 

The appeal

Further to the decision of the Court of Milan, the Claimant filed an appeal against the order issued by the Court based upon the following arguments:

(i)             The strictly national definition of the territories managed by the collective societies is a “natural” market result and it is not based on a concerted practice[7];

(ii)           The EU Directive 2014/26/UE mentioned by the Court refers to online works only;

(iii)          With regards to the intermediation activity, the ECJ decision C-351/12 (OSA v. Lécébné) recognized the legitimacy of legal monopolies[8];

(iv)          The Claimant would have suffered an extra-contractual damage caused by the unfair competition conduct consisting in the infringement of the provision contained in the Article 180 ICA. The Clamaint would have a legitimate interest in a fair competition and in this respect Soundreef would have illicitly acted against the representatives of the Claimant (i.e. SIAE) and against the Claimant itself which should be considered an entrepreneur according to the definition set out by the Italian law;

(v)           The activity carried out by Soundreef caused to SIAE revenues a loss of the 23% and indirectly a prejudice to the Claimant.

The defence of Soundreef has been structured on the following main arguments:

(i)             the Claimant is not legitimate to promote the proceeding and she cannot be considered as an entrepreneur as there is no evidence that she acts in the market of the intermediation of rights;

(ii)           the Claimant does not notice any copyright infringement but only a generic loss of earnings opportunities;

(iii)          Soundreef has no extra-contractual liability as there is no unfair damage connected to the asserted loss;

(iv)          Soundreef is acting lawfully as the Article 180 ICA cannot be read in contrast with the Article 56 TFUE (that states the free circulation of services within Member States);

(v)           In the CISAC decision the EU Commission has considered unlawful the agreements whereby the collecting societies reciprocally undertook to (a) not to directly license their repertoire in a Member State where another collecting society is based and (b) to grant a mandate to manage the repertoire to such collecting society;

(vi)          The assumed infringement of Article 180 ICA has no prominence under a competition standpoint. Soundreef did not put in place any anti-competitive conduct. The cost effectiveness of its activity derives from the use of efficient software and technological platforms;

(vii)        Soundreef does not carry out in Italy any intermediation activity of copyright and neighbouring rights. Its service would be similar to a mere distribution of contents based on a mandate granted to Soundreef by foreign authors and entities. Indeed any restriction in this matter imposed by the national legislation would result illegitimate under the EU principles.

 

The decision of the Court

The Court of Milan has preliminarily observed that there is not a competitive relation between the Claimant and the defendant. The Claimant cannot be considered as an entrepreneur as it does not carry out any organized activity for the purpose of the production or the exchange of goods and/or services. On the other hand, Soundeef is not a mere phonogram producer as it manages the rights of tracks produced by third parties.

The most crucial point of the decision is the statement made by the Court of Milan according which there is no ground to consider the activity of Soundreef unlawful pursuant to Article 180 ICA.

Most of the musical compositions managed by Soundreef are owned by foreign composers and performers and this would imply that there is no violation of the prerogative of SIAE. The judge clarified that in accordance with the territorial principle, the exclusive recognized to SIAE by ICA applies to musical compositions composed by Italian authors or by foreign authors domiciled in Italy and published for the first time in Italy (in accordance with Article 185 ICA).

Moreover, pursuant to the International Conventions (referenced to by the Article 186 ICA), including the Berne Convention, “the enjoyment and the exercise of [the] rights shall not be subject to any formality“, including the association to a collecting society such as SIAE.

Indeed there is no obligation imposed by the Italian law for foreign authors to be associated to SIAE nor for the performers and artists to confer a mandate to a collecting society managing performer’s neighbouring rights.

The order of the Court of Milan does not rebuild the rules and it will not lead to the end of the monopoly of SIAE. The Court has merely and correctly observed the rules set out by the ICA. Nevertheless, this adjudication is significant as it contributes to deconstruct certain positions aimed to expand the limits of the exclusive prerogatives attributed to SIAE beyond the letter of the applicable law.

 

 

 



[1] Constitutional Court n.72/1965

[2] Constitutional Court n. 241/1990

[4] In the opinion of the Court “(…) It causes concerns the ascertainment that this battle is not conducted by SIAE or Soundreef competitor (Nuova IMAIE, SCF and other collecting societies or intermediary entities) but by a single isolated author that has freely decided to entrust the management of his interest to entities [SIAE” Ed.] that operate likewise freely in the market and that currently does not feel threatened, or better – if they feel threatened – does not consider to start any legal action (…)” Paragraph 7, last sentence.

[6] In 1936, CISAC drew up a non-binding model contract for reciprocal representation agreements between its members for the purposes of conferring licences covering public performance rights of musical works. Each collecting society agrees, reciprocally, to confer the rights over its repertoire to all of the other collecting societies for the purposes of their exploitation in the respective territories of those collecting societies.

By the decision dated 16 July 2008 (COMP/C2/38.698), which concerns solely the exploitation of copyright via the internet, satellite and cable retransmission, the Commission prohibited:

–        membership clauses: clauses in the model contract which restrict authors’ ability to affiliate freely to the collecting society of their choice;

–        exclusivity clauses: clauses in the model contract which have the effect of providing all collecting societies, with absolute territorial protection vis-à-vis other collecting societies as regards the grant of licences to commercial users.

[7] In the CISAC case, the Commission also challenged the existence of a concerted practice between the collecting societies in the reciprocal representation agreements. On the 12 April 2013, the General Court annulled for CISAC and for 20 of the collecting societies concerned, the Commission’s decision in respect of the finding of the concerted practice. In that respect, in the General Court’s opinion, held that the Commission (i) did not have documents proving the existence of concertation between the collecting societies as regards the territorial scope of the mandates which they grant each other and, (ii) did not render implausible the applicants’ explanation that the parallel conduct of the collecting societies at issue was not the result of concertation, but rather of the need to fight effectively against the unauthorised use of musical works.

[8] In the OSA v. Lécébné case, the ECJ held that “Article 16 of Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market, and Articles 56 TFEU and 102 TFEU must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which reserves the exercise of collective management of copyright in respect of certain protected works in the territory of the Member State concerned to a single copyright collecting society and thereby prevents users of such works, (…), from benefiting from the services provided by another collecting society established in another Member State”.

 

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