US ordered to pay compensation to EU music copyright holders

The US Government has been ordered to pay compensation to EU music rights holders of US$1.1m (approximately £765,000) per year by a World Trade Organisation (WTO) Arbitration Panel in respect of the use of musical works by certain US businesses.

The ruling relates to a finding by the WTO that a provision of US copyright law is incompatible with the Trade Related Aspects of Intellectual Property Agreement (TRIPS).

This provision permits small businesses (such as bars and restaurants) to allow their customers to enjoy radio and television broadcasts on their premises without paying the owners of the copyright in musical works that are embodied in the broadcasts. If it were not for this provision, these businesses would have to obtain and pay for a licence from the relevant copyright owners (usually via a collection society).

The EU complained to the WTO that this exemption conflicts with the US’s obligations under TRIPS which provides that copyright owners should have the exclusive right to authorise “the public communication by loudspeaker … transmitting the broadcast of their work.” The essence of the EU’s complaint was that because similar European businesses are not exempt from having to pay for this particular usage, US collection societies receive income from the use of their members’ works in Europe, whereas European collection societies do not receive payment in respect of the same use of their members’ works in the US.

In June 2000, the WTO Panel ruled in the EU’s favour and requested that US copyright law be brought into line with TRIPS. The US failed to comply with this request.

The issue of compensation was subsequently referred to arbitration. The EU argued that the level of compensation should reflect the amount of royalties that would have been paid if all the exempt businesses had been required to obtain a licence (they estimated this to be around US$25.5m per year). The US argued that the level of compensation should reflect the royalties that were payable prior to the introduction of the offending provision in 1998. These were between US$400,000 and US$700,000. The arbitrators preferred the US’s arguments and on 9 November awarded compensation of US$1.1m per year.

There are still issues about how the award will be distributed amongst the European collection societies and rights owners and about how those societies apportion the compensation between their publisher and writer members.

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