Monopoly of collecting societies and sweeping obligation to pay royalties upheld by Constitutional Court

On the day when the post about Serbian Music Authors’ Organization – The travails of SOKOJ – appeared on this blog (18 July 2012), the Official Gazette of Serbia published the decision by the Constitutional Court of Serbia concerning one aspect of the work of the copyright collecting societies. The decision, which the Court had adopted on 13 June 2012, analyzes the constitutionality of the two sets of provisions in the Serbian copyright legislation: the provisions conferring legal monopoly upon the collecting societies, and the provisions on the obligation to pay royalty to a collecting society when the use of works of authorship does not yield any profit to the user. The Court found both sets of provisions to comply with the Constitution.

Legal monopoly of collecting societies

The Serbian copyright legislation provides that only one collective society can be authorized to manage the particular type of copyright or a neighboring right. The current law, from 2009, states this explicitly: “Only one organization may receive authorization for collective management of copyright or related rights for the same type of right on the same type of works” (Article 157(2)). The law from 2004, which was in force when the Constitutional Court granted the certiorari, lacked an explicit provision on the matter, but the cumulative meaning of three different provisions of the law led the court to conclude that a legal monopoly existed. This, in the Court’s opinion, raised the issue of conformity of the law with Article 84 of the Constitution which states that: “(1) Everyone shall have equal legal status on the market. (2) Acts which are contrary to the Act and restrict free competition by creating or abusing monopolistic or dominant status shall be prohibited. (…)”.

In the proceedings before the Constitutional Court, the Legislative Committee of the National Assembly argued that the non-profit status of the collective organizations diminishes the need for competition. The existence of only one society for protection of a particular type of right was the only way to ensure legal certainty, simplicity and low costs. If more than one society existed, the sheer amount of the works of authorship would make it difficult for the broadcasters, concerts organizers, and other users, to keep track of different repertoires belonging to different collecting societies. That would increase the likelihood of a breach of copyright or related rights, in addition to making cumbersome the reporting about the use of works from the repertoires. Furthermore, the non-profitable authors, including the composers of the so-called serious music, would, in the presence of competition, face a danger of remaining outside any collective management. It is telling that, apart from the United States, no other country provides for competition in the management of copyright and related rights.

The Legislative Committee went further to state that, as far as the negative consequences that may result from the monopoly are concerned, the risk of such consequences is attenuated by the copyright law’s provisions prohibiting the abuse of monopoly, as well as by the external supervision and control. The Committee singled out the provision mandating that the collective organizations grant non-exclusive licenses to all interested users, under equal terms (Article 168 of the 2004 law, which has become Article 183 in the current law).

The Constitutional Court was receptive to these arguments. The Court emphasized that Article 84 of the Constitution prohibits abuse of monopoly, not the monopoly itself. The copyright law provides for safeguards against abuse by leaving it to the State to control whether a collecting society meets the conditions for receiving an authorization to work, to withdraw the authorization, and to supervise the operation of the society. Finally, the rights holders are free to manage their rights individually.

Obligation to pay royalties regardless of whether the use of copyright work generates income

As regards the second issue the Constitutional Court addressed – that of the payments for a communication to the public – in July 2009, when it granted certiorari, the Court appeared to consider that, where no profit from the communication exists, statutory provisions compelling the user to pay royalty may contravene Articles 84(1) and Article 90 of the Constitution. Article 84(1) stipulates that “everyone shall have equal legal status on the market.” There may be no equality in the market if the participant who makes no profit from the use of a copyright work must pay for the use under the same conditions as the participant who does make profit. The Court suggested at the time that users making no profit are not really users in the proper sense of the term: instead, they are consumers. Consumers, in turn, are protected by Article 90 of the Constitution (“The Republic of Serbia shall protect consumers. Activities directed against health, security and privacy of consumers, as well as all other dishonest activities on the market, shall be strictly prohibited”). The obligation to pay is arguably directed against the consumer’s privacy.

The reasoning above was sufficient for the Court to decide in 2009 to open the formal proceedings. Three years later, the Court came to the conclusion that there was no breach of the Constitution.

The Law on Copyright and Related Rights provides that royalty should be paid even if the user did not make any profit from the use of copyright or related right work or such profit, if any, cannot be accurately determined. The issue for the Court to decide was whether the obligation to pay a royalty for the communication to the public in these instances was in accordance with the Constitution. The Court answered in the affirmative.

The arguments contained in the communication from the parliament’s Legislative Committee again carried considerable weight. The Committee stressed that the general rule, expressed in Article 19(2) of the Copyright Act, is that “an author shall be entitled to remuneration for the use of his work by another person, unless otherwise provided by this Law or a contract”. This fundamental rule applies irrespective of the nature of the use (commercial or non-commercial). For example, the use of music protected by copyright at a charity concert does not release the organizer from the duty to pay a royalty for the use of music. Only a private, non-commercial use would fail to trigger the obligation of payment. Whether the specific instance of the use of the work represents private use or a communication of the work to the public depends on who is on the receiving end. In the examples used by the Legislative Committee, the use of music in clubs, cafés, waiting rooms, physicians’ offices, or artisan shops, is a communication to the public, not a private use – because there is the “public” to whom the work is communicated.

The Legislative Committee argued that the payment of royalties by the users who do not profit from the use of copyright works, or such profit cannot be accurately determined, did not mean that these users were discriminated against in the market. These users, like everyone else, must pay for the non-private use of works protected by copyright and related rights. The Legislative Committee further argued that Article 90 of the Constitution is inapplicable because it pertains to consumers, whereas the persons who communicate works of authorship to others are users.

The Constitutional Court fully agreed. Whereas in 2009 the Court appeared to consider communication to the public to exist only if, by virtue of the use of a copyright work, the user makes profit, in 2012 the Court embraced as the sole criterion the presence of other persons to whom the work is communicated. In a helpful clarification – in fact a definition – the Court stated that a “consumer” is a person who uses a product for his, or her, personal needs or the needs of the household. Where that is not the case, we are confronted with a user, and with his or her communication of protected work to the public.

The Constitutional Court got the core of the argument right, but it may have gone too far in the selection of examples of a communication to the public. Specifically, the Court included waiting rooms and physicians’ offices among the locations in which playing music from the CD amounts to communication to the public. However, in light of the recent jurisprudence by the European Court of Justice (ECJ), the matter may be more complicated. The ECJ’s Third Chamber held on 15 March 2012, in the case of Società Consortile Fonografici (SCF) v Marco Del Corso, that the persons who have access to phonograms within private dental practices do not constitute “the public” triggering the obligation (on the part of the dentist) to pay a royalty. The term “public” refers to

an indeterminate number of potential listeners, and, in addition, implies a fairly large number of persons,


the number of persons present in [a dentist’s] practice at the same time is, in general, very limited. Moreover, although there are a number of patients in succession, the fact remains that, as those patients attend one at a time, they do not generally hear the same phonograms, or the broadcast phonograms, in particular

(paragraphs 84 and 96 of the Marco Del Corso judgment). The ECJ also propounded an argument which the Serbian Constitutional Court was sympathetic to in 2009: that the profit-making nature of the use is a factor determining whether a “communication” raising the obligation to compensate occurred (para. 88 of the Marco Del Corso judgment). The ECJ found that

a dentist who broadcasts phonograms, by way of background music, in the presence of his patients cannot reasonably either expect a rise in the number of patients because of that broadcast alone or increase the price of the treatment he provides. Therefore, such a broadcast is not liable, in itself, to have an impact on the income of that dentist

(para. 97 of the Marco Del Corso judgment).