On 11 April 2019, following a public consultation on a draft version of the Copyright Guidelines in late 2018, the ACCC published final Copyright Guidelines which will form a key consideration of the Copyright Tribunal when presented with the challenge of determining the reasonableness of pricing terms under certain licences and licence schemes.
When will the Copyright Guidelines be used?
The Copyright Tribunal must, if requested by a party to a proceeding, have regard to any relevant ACCC guidelines, including the Copyright Guidelines, when considering an application in relation to the reasonable remuneration for copyright materials pursuant to a voluntary licence or licence scheme.
While the guidelines have primarily been developed to assist the Copyright Tribunal with those proceedings, they may also assist collecting societies, copyright owners and end users when negotiating reasonable copyright remuneration in circumstances outside of Copyright Tribunal proceedings.
What key matters do the Copyright Guidelines address?
The Copyright Guidelines set out various economic principles that the ACCC considers relevant to determining an appropriate methodology for pricing copyright materials and focus on countering market power held by collecting societies in the provision of blanket licences. They are not intended to provide guidance on non-price terms of copyright licences.
What changes were made to the draft Copyright Guidelines following public consultation?
Having reviewed submissions from ten stakeholders as part of the public consultation, the ACCC made a number of changes to the draft Copyright Guidelines. These include:
Market power
- Incentives to create: the ACCC clarified its stance regarding the economics of copyright by explaining that because copyright materials tend to be differentiated products, each producer possesses a degree of market power as each can raise prices without losing all of their demand. It also clarifies that the mere grant of exclusive rights rarely raises competition concerns because while for some individual works there are few alternatives for consumers, for most works substitutes are readily available.
- Bargaining power of licensees: the Copyright Guidelines were amended to address the potential lack of bargaining power by all relevant parties including licensees in negotiations with licensors. In this regard, the ACCC states that the hypothetical bargain approach or using an existing market rate are possible solutions to determining a reasonable remuneration for certain materials in the absence of feasible cost-based approaches. Those methods are designed to counter the market power of collecting societies and lead to better pricing outcomes by balancing the bargaining power of the negotiating parties.
Pricing of copyright materials
- Surveys: several stakeholders submitted that a number of difficulties may arise in conducting useful surveys to estimate willingness to pay for copyright materials. The ACCC has addressed this concern by providing that the hypothetical bargain approach is a pragmatic response to the difficulties of applying cost-based approaches and, where it is too costly or difficult to carry out a survey, the Copyright Tribunal should consider what information is available and/or other approaches which may be more viable.
- Incentives: although the draft Copyright Guidelines identified issues regarding the effect of pricing on incentives to create new works, they did not sufficiently identify the impact that pricing may have on decisions to invest in new distribution methods or innovative applications (for example Netflix). Accordingly, the Copyright Guidelines were amended to include an explanation regarding the way in which pricing can affect social welfare by developing new applications such as applications that assist consumers to identify copyright work and recognise how it can be accessed.
- Benchmarking approach: discussion in the Copyright Guidelines on the benchmarking approach has been updated to reflect that benchmarking is about finding price indications that are more reflective of competition than may be the case for blanket licences.
- Construction of the hypothetical bargain: in response to a concern regarding the practical application of this approach, the ACCC explains that the marginal user's willingness to pay does not imply that the price of that material ends up being equal to marginal cost. Rather the division of surplus means that price will exceed marginal cost, and prices that exceed marginal cost contribute to the recovery of fixed costs and are part of the incentive for the creation of new works.
Are the Copyright Guidelines determinative?
The Copyright Guidelines explicitly acknowledge that the frameworks and methodologies set out in it may not be feasible or appropriate in certain situations. To this end, while the principles will no doubt form a key consideration for the Copyright Tribunal when determining the reasonableness of any pricing terms under an existing or proposed licence or licence scheme, the Guidelines make clear that they are not determinative and should not restrain the discretion of the Tribunal to adopt other pricing methodologies.
What next?
The Copyright Tribunal's approach to the Copyright Guidelines is yet to be tested in any proceeding before the Tribunal. However, it is likely that the principles set out in the guidelines will form a significant consideration of the Copyright Tribunal when determining the reasonableness of licence fee terms that are considered by it.
Copyright licensors/licensees should review the Copyright Guidelines having regard to the reasonableness of pricing terms under any existing licence or during negotiations of any future arrangements for the licensing of copyright materials.
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