On 14 September 2017, the European Court of Justice answered preliminary questions from the Latvian Supreme Court. The Latvian Court sought guidance on how to establish whether the fees charged by a collective rights management organisation (CMO) are excessive and therefore constitute abuse of a dominant position in the sense of Article 102 TFEU. The Court of Justice confirmed that comparing the prices with those applied in other Member States, is an appropriate method to establish whether Article 102 TFEU has been infringed.
If the difference observed is significant and persists for a certain period of time, it may be qualified as appreciable, which in turn is an indication of abuse of dominance.
The Latvian competition authority had investigated the royalty fees charged by the Latvian CMO to shops and service centres. CMOs manage copyrights in musical works on a collective basis, which includes the granting of licences to users as well as collection of royalties. In many Member States, including Latvia, CMOs are monopolists.
Firstly, the Court of Justice explicitly confirmed that trade between Member States may be affected by the level of fees charged by a CMO which holds a monopoly and also manages the rights of foreign copyright holders. Article 102 TFEU is therefore applicable in these situations.
Secondly, the Court of Justice confirmed that the method based on a comparison of fees applied by comparable CMOs in other Member States is a valid method to determine whether the price charged by a CMO is excessive. The Court clarified that for such a comparison, it is not necessary for the competition authority to include all Member States as long as the reference Member States "are selected in accordance with objective, appropriate and verifiable criteria". The Court added that these criteria may include, among other things, economic and socio-cultural factors such as gross domestic product per capita and cultural heritage. In addition, the Court noted that there are siginicant differences in price levels for identical services between Member States, as expressed in the purchasing power parity (PPP) index. Consequently, the Court of Justice ruled that when comparing prices for identical services in Member States with different living standards, the PPP index must be taken into account.
Thirdly, the Court of Justice confirmed that there is no minimum threshold above which a fee must be regarded as "appreciably higher". However, the difference must be significant and persist for a certain length of time in order to be appreciable and therefore indicative of an abuse. In this specific case, the fees charged by the Latvian CMO were twice as high as those charged in the reference Member States and 50-100% higher than the EU-wide average. The fees were introduced about two years before the Latvian authority fined the CMO.
Next, the Court of Justice noted that even when it is established that there is an appreciable difference, it may be possible for a CMO to justify its prices and show that they are fair by reference to objective factors that have an impact on management expenses or the remuneration of rightholders.
While the preliminary ruling of the Court of Justice in this case addresses questions that are very specific to the area of royalty fees charged by CMOs for use of copyrighted music, they may also be relevant for assessing excessive pricing in other industries.
This article was published in the Competition Law Newsletter of October 2017. Other articles in this newsletter:
- Court of Justice landmark judgment: Intel's EUR 1.06 billion fine is sent back to the General Court
- Court of Justice upholds fine imposed on Philips and LG in the cathode ray tubes cartel
- Court of Justice clarifies that a change from sole to joint control requires EU clearance only if the joint venture is "full-function"
- Curaçao Competition Act entered into force on 1 September 2017
- District Court of Rotterdam dismisses Vodafone claims of abuse of dominance by KPN