When the court sets the royalty rate, applied to the user of collective management organisation, lower than requested by CMO, does it infringe CMO’s property rights?

The CMO, SIA AKKA/LAA, complained to the European Court of Human Rights that the domestic courts had restricted the copyright of authors whose musical works were collectively managed by the CMO. They complained, in particular, that as a result of the domestic proceedings in which the domestic courts had ordered the CMO to conclude licence agreements with broadcasting organisations and had set a royalty rate, the authors’ exclusive rights to freely conclude licence agreements for the use of their musical works had been restricted, contrary to Article 1 of protocol No. 1of the Convention of Human Rights.

Pursuant to part 3 of the articles of association of the SIA AKKA/LAA, the CMO has its own property which consists primarily of deductions from the collected royalty payments. The income exceeding the administration expenses was put into savings to be used by the CMO following the decisions of its shareholders – that is to say the authors. On the basis of the standard representation agreements concluded between the CMO and authors for the protection of authors’ rights, the CMO has rights in its own name to, without obtaining additional authorisation, carry out all procedural matters in court proceedings, to bring claims, and lodge appeals, and to receive court awarded damages. The CMO was mandated to deduct no more that 25% of the collected sums as remuneration for the services provided, whereas the authors agreed not to, inter alia, defend or carry out any activities associated with any of the rights entrusted to the CMO.

The Government argued in substance that the contested domestic proceedings related to the setting of royalty rates and not to property rights. The CMO contested the Government’s argument. The Court observed that the domestic courts in the course of the impugned civil proceedings acknowledged, among other issues, the infringement of the copyright of authors represented by the CMO. The protection of musical works and the economic interests deriving from them thus fall within the scope of rights protected under Article 1 of Protocol No. 1. Consequently, the Court dismissed the objection raised by the Government in this regard.

The Government contended that the CMO had acted merely as an intermediary between the users of artistic works and the authors, who had transferred only the implementation of part of their pecuniary rights to the CMO. The Government argued that the CMO had not been directly affected by any measures and it had not by virtue of its administrative and representative function acquired any “possession” within the meaning of Article 1 of Protocol No. 1 to the Convention. The recognition of the CMO’s locus standi in the domestic proceedings according to the Government did not automatically envisage compliance with Article 34 of the Convention. The Government maintained that the CMO could not claim to be a victim of a measure that infringed the rights guaranteed by the Convention to its members.

The CMO argued that under domestic law and following the practice of the domestic courts they were the only entity under the national law that had the legal capacity to exercise the copyright of authors’ works and to protect and manage authors’ rights in legal relationships with users of such works, including the protection of the fundamental rights of the authors. It emphasised that the contested domestic proceedings had been brought in the name of the organisation itself as, under domestic law, the authors themselves could not enter into licence agreements with the broadcasters or bring claims. This, in the CMO’s opinion, proved that they should be considered as a direct victim in the light of the Convention. In the alternative, the CMO asked the Court to recognise it as an indirect victim on the ground of the CMO’s very close link to the direct victims, notably, the authors. Under domestic law the latter had been obliged to establish the applicant organisation which had since been managing and protecting their artistic works.

In this case the CMO’s arguments at first sight appear to concern the protection of the authors’ rights. However, given the status and role of the CMO, the Court cannot share the Government’s view that the only legitimate victims vis-à-vis the Court’s proceedings were individual members of that organisation. The Copyright Law provided that in relation to certain types of use of artistic work, such as the broadcasting of music, the economic rights of copyright holders were only to be administrated collectively.

For that reason Latvian authors founded the CMO and vested it with the powers to set royalty rates for the use of their works, to license broadcasters in Latvia and abroad to use those works, and to distribute to the authors the collected royalty payments. For the CMO to be able to carry out the above functions, it had its own property which consisted primarily of deductions from the collected royalty payments. The Court observed in particular that the CMO had broad powers in relation to the matters falling within the collective management of certain type of copyright. The authors have explicitly given up their rights to, inter alia, represent their interests in any court proceedings, and they have vested these rights in the CMO.

The Court considered that once the domestic legal order attributes the protection of authors’ rights to an organisation founded by the authors for this purpose, and vests it with independent rights transferred from the authors, including the right to have its own property made up primarily of deduction from royalty payments, then that organisation must be regarded as the victim of measure affecting these rights. In this case, as a result of the contested civil proceedings the CMO was ordered to conclude written licence agreements with the defendant organisations. The domestic courts set the royalty rates in the licence agreements with broadcasters, and thus interfered with the functions and economic interests of the CMO. In these circumstances the CMO’s rights were directly affected by the impugned civil proceedings. In the light of these circumstances, the Court dismissed the Government’s objection as to the CMO’s victim status.

The Government submitted that the rights and obligations stemming from representation agreements concluded between the CMO and authors had not created a separate right or asset that could be regarded as a possession for the purpose of Article 1 of Protocol No 1. The CMO contended that because the CMO had collectively managed the authors’ intellectual property rights, those property rights had been deemed its possessions within the meaning of Article 1 of Protocol No. 1 to the Convention. In the case of non-physical assets, the Court has taken into consideration, in particular, whether the legal position in question gave rise to financial rights and interests and thus had an economic value. The CMO held the rights transferred to it by its members, that is to say the authors of musical works. Accordingly, in the light of Article 1 Protocol No. 1 to the Convention the CMO’s rights constituted “possessions” in the form of musical works and the economic interests deriving from them.

The Government argued that even though the domestic courts had restricted the authors’ freedom to conclude licence agreements by putting an end to the civil dispute between the parties, the domestic courts had carried out the State’s positive obligation to ensure that authors could effectively enjoy the rights guaranteed to them under the Convention. The CMO contended that as a result of the domestic proceedings it had been ordered to conclude compulsory licence agreements with broadcasters on terms set by the courts. The above measure constituted control of its possessions and the respondent State had failed to comply with their negative obligation not to interfere disproportionally with the peaceful enjoyment of the authors’ property rights.

In this case, as a result of two sets of civil proceedings the applicant organisation was ordered to conclude written licence agreements with defendant organisations. Certain terms and conditions were set by the domestic courts and thus attested to the limits imposed on the freedom to enter into contracts in relation to the broadcasting of music. The Court considered that there has been interference with the CMO’s possessions in the form of a control of the use of property which will accordingly be examined under the third sentence of Article 1 of Protocol No. 1.

The Government relied on the limits of the Court’s competence pertaining to the interpretation and application of the domestic law and contended that the domestic legal instruments, specifically the Copyright Law, as interpreted by the domestic courts, had served as a valid legal basis for the alleged interference. The CMO argued that the fact that in the contested proceedings the domestic courts had ordered it to enter into a licence agreement either lacking any legal basis in national law or on the basis of insufficiently accessible and unforeseeable law. They considered that there was no legal basis for the domestic courts to conclude that the draft licence agreement could have had the same weight as a concluded agreement, and that in both proceedings the same norms had been applied differently, thus attesting to its insufficient clarity.

The Court observed that according to the domestic courts’ reasoning, its competence to order the parties to enter into a licence agreement and to set an equitable royalty rate in the particular cases was determined by virtue of sections 15, 41 and 65 of the Copyright Law, interpreted in the light of Article 11bis of the Berne Convention and section 5 of the Civil Law. In the first set of proceedings the domestic courts established that both parties had agreed on a draft licence agreement, except for the terms of remuneration, whereas in the second set of proceedings the parties had in principle agreed to conclude a licence agreement but they had not agreed on its terms. For the Court it was sufficient to conclude that the domestic courts’ competence to deal with the issue had some basis in the domestic law.

The Court held that in the particular circumstances where the parties had expressed their intent to enter into a licence agreement, the application of the relevant provisions of Copyright Law could not be considered to have been arbitrary. In both sets of proceedings the domestic courts provided reasons as to the setting of royalty rates and the legal basis for conclusion of the licence agreements. The Court therefore concluded that the interference was “prescribed by law”. The Government contended that the adopted measure had been aimed to serve the interests of the community as end users of the musical works, as well as the interests of the rightsholders to enjoy public use of their works.

According to the CMO, the interference with the authors’ rights to freely negotiate the use of their works served no general interest for the following reasons. Firstly, the contested measure had been aimed at solving a legal dispute between two private parties and furnishing commercial benefits for the broadcasters. Secondly, by exercising the freedom to enter into contracts granted to authors under domestic law, the CMO had a right to negotiate with the users upon equitable terms for their works and even to prohibit the use of their works in order to motivate the radio stations to conclude equitable licence agreements. The domestic courts had restricted this freedom and therefore the contested measure had not been aimed at protecting the authors who had been bound by the activities of the CMO as their representative.

It appears from the decisions adopted by the domestic courts that over an extended period of time protected works were being broadcast without a valid licence, and that this situation was to a certain extent due to the CMO’s limited efficiency in carrying out negotiations with the defendants. These observations attest to the domestic court’s efforts to maintain a balance between the rights of the CMO to obtain equitable remuneration from the use of musical work, on the one hand, and the defendants’ interest to obtain a licence allowing them to legally broadcast rights-protected work. In the light of the above, the Court considers that the measures complained of pursued a legitimate aim within the meaning of Article 1 of Protocol No. 1.

The Government argued that by adopting the contested decisions the domestic courts had balanced the interests of copyright holders and the public in general. Furthermore, the Government underlined that in reaching the decision the domestic courts had done their outmost to assist the parties in reaching a settlement. After the failed attempts to reach an agreement, the domestic court had had two alternatives: ordering the conclusion of a written licence agreement and setting the amount of remuneration, even if it had been lower than what the CMO had requested; or upholding the CMO’s application to have the use of the musical work banned until the conclusion of a licence agreement. As the latter option would not have served the interests of the copyright holders and the general public, the domestic court had had to intervene and set an adequate royalty rate.

The CMO maintained that by having been ordered to enter into a licence agreement with terms of remuneration which did not compensate the authors for the use of their works, the domestic courts had manifestly breached the balance between the right to receive remuneration for the use of musical works and the general interest. They also argued that the above restriction had not been justified by any public interest because the defendant in the first set of proceedings had been a commercial broadcaster and had transmitted authors’ work to gain profit. They added that in any event any public interest to have access to musical works could have been satisfied by those broadcasters in Latvia which had concluded a licence agreement with the CMO. In reply to the Government’s argument that by the contested measures the domestic courts had solved a long-running dispute, the CMO contended that the resolution of the case had not been in favour of the authors. In this connection they argued that before the contested proceedings the broadcasters had used the musical work without any licence and that the CMO had done everything to reach an out-of-court settlement in the dispute with them.

Firstly, before laying down the royalty rate, the domestic courts endeavored to provide the parties with time to reach an agreement during the court proceedings. Since it was not possible, the domestic court relied on the fact that in the first set of proceedings the parties had already reached an agreement on the method for calculation of the royalty rate. In the second set of proceedings the domestic court referred to the method used in other valid licence agreements concluded between the CMO and other broadcasters, and the rate set by the courts was not considerably lower than the rate negotiated by the parties in their previous licence agreement. Secondly, observing the interests of the copyright holders, the national courts had established that in the circumstances where the parties in principle were willing to enter into an agreement, banning the broadcast of the music would not suit the best interests of copyright holders, that is to say to receive the maximum benefit from the oeuvres.

Thirdly, as far as the courts’ orders for the parties to enter into a licence agreement was concerned, the measure was limited in scope and time. In the first set of proceedings the royalty rate was set for a period of three years, which had already been agreed by the parties. Whereas in the second set of proceedings the domestic court took note of the scope of the claim and the counterclaim and imposed on the parties merely a general obligation to conclude a licence agreement. Accordingly, the parties were not prevented from renegotiating the rate. It follows that the authorities had minimally restricted the right of the CMO to renegotiate terms and conditions with the defendants and other broadcasting companies. The foregoing considerations are sufficient to enable the Court to conclude that the Latvian authorities did strike a fair balance between the demands of the general interest and the rights of the CMO. There has accordingly been no violation of Article 1 of Protocol No. 1 to the Convention.