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High Court: Music TV royalty ruling flawed

Copyright Tribunal 'misunderstood' evidence

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The Copyright Tribunal did not have a sound basis for the royalty rate it set in a dispute between rights holders and a music TV broadcaster, the High Court has said. The Tribunal set a new rate on spurious grounds and misunderstood evidence, it said.

Video Performance Ltd (VPL) and CSC Media Group were in dispute about how much in royalties CSC's seven pop video TV stations should pay VPL for it to pass on to the artists.

CSC said that the 20 per cent of revenues it paid to VPL was too high, whereas VPL argued that it was fair and was the basis of other licensing deals.

CSC wanted to pay 8.5 per cent and claimed that a fair comparison was with the radio industry, where the highest rates were five per cent. The percentages were pro-rated, meaning that they applied to a proportion of income equal to the proportion of broadcast material that was licensed through VPL.

The Copyright Tribunal has a wide discretion to consider such cases based on the evidence it hears and on market practice. It is charged with finding a 'reasonable' settlement.

The High Court said that the Tribunal failed to take proper account of other deals in the market. It said it only looked at comparators after it had already restricted the rate it would set to a 'window' of 10-15 per cent.

"If at this point in the decision the Tribunal was merely reaching a provisional conclusion as to the approximate range within which the royalty would lie, then it would not matter that this conclusion was arrived at without considering all the evidence, provided that it went on to factor in the effect of that evidence," said Mr Justice Floyd of the setting of that window before considering comparators.

"Reluctantly, I have concluded that the Tribunal reached a concluded as opposed to a provisional view on the range of royalty without regard to the matters discussed subsequently," he ruled.

The High Court said that the Tribunal could reasonably discount the terms of some licences, such as MTV's, but that one held by BSkyB should have formed the basis for a comparison.

The Court said that the Tribunal should also have taken more account of the 'available profits' approach, which showed that CSC would be left with very little in earnings if it paid the 20 per cent royalty rate.

"I have concluded that the Tribunal had come to a concluded view that the royalty should lie within the 10-15% diminished window, without consideration of the BSkyB licence (or other comparable music video licences other than CSC)," the Court said. "There would, I suppose, be nothing wrong in that approach were it clear that the remaining materials considered later in the decision also pointed clearly to a royalty in that range. But that was far from being the case.

"The BSkyB licence was at 20% with limited pro-rating. The available profits approach indicated that 20% was too high, but the Tribunal formed, or at least recorded, no view on what royalty the available profits approach indicated," it said.

Mr Justice Floyd said that the Tribunal did not follow the correct procedure in setting a rate of 12.5 per cent.

"It seems to me that it is wrong in principle to relegate the single most significant comparable to the role of fine tuning a royalty rate which has already been decided to lie in a range considerably below the rate appearing in that licence. That is particularly so where the diminished window has itself been fixed by reference to a comparable (radio) which the Tribunal considered less relevant," he said.

"The Tribunal has fallen into error here. Although the Tribunal clearly set out to apply the statutory obligation to have regard to comparables in general, the two stage process which it applied has prevented it from doing so."

The Tribunal also changed the basis on which the 'pro-rating' would be calculated. An earlier deal between the companies had set the basis of pro-rating to be the proportion of total broadcast hours taken up by VPL-licensed content.

A subsequent deal, though, set it at the proportion of music broadcast that was made up of VPL-licensed content. The Tribunal claimed that this meant that VPL was claiming pay for material that it did not represent.

The High Court found that the Tribunal had not properly understood the second arrangement, and that it should not have interfered in a part of the deal where the two companies were in agreement.

"Where the parties are agreed on a particular term, and where the case has been argued on the footing of that term, it would, I think, be an unusual case where the Tribunal was justified in departing from that term. The fact that neither party is prepared to argue that the term itself is unreasonable is a powerful factor on its own for concluding that it is not. Certainly, the departure from the agreed term would have to be supported by valid reasoning," said Mr Justice Floyd.

"I do not consider that the Tribunal had a proper or rational basis for departing from the agreed formula. The reason it gave, that VPL was charging for programmes made by the licensee, was wrong," he said.

Mr Justice Floyd said that the case should be heard again, this time by a different Copyright Tribunal.

Copyright © 2010, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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