US tripped up over public performance exemptions

The European Union and the United States announced last week that they had reached a “procedural agreement” to agree the means by which the US will compensate European performing right organisations for the US’s failure to comply with a World Trade Organisation ruling.

In 1996, the Irish Music Rights Organisation asked the Irish Government and the EU to challenge the so-called “homestyle exemption” under US copyright law. Put simply, this exemption means that certain types of small business are not infringing US copyright law by playing broadcast music to their customers at their premises. Similar European establishments are not exempt in this way under their domestic law. These European establishments are therefore liable to pay music licensing fees on broadcast music whereas their US counterparts are not. Accordingly, US performing right organisations receive European income which their European counterparts are not entitled to in the US.

Whilst the EU was considering whether to refer IMRO’s complaint to the WTO, the US amended the homestyle exemption significantly to extend it to cover an estimated 70% of bars and restaurants and 45% of other retail establishments in the US. The newly exempted establishments fell within the so-called “business exemption”.

The EU concluded that both the homestyle and business exemptions breached the US’s obligations under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). After negotiations to reach a mutually acceptable resolution failed, the EU referred the matter to the WTO.

In May 2000, the WTO ruled that the business exemption, but not the homestyle exemption, breached the US’s obligations under TRIPS. The WTO required the US to remove the business exemption from US copyright law within a reasonable time of its ruling. To date, the US has not done so. This failure renders the US liable to pay compensation to European performing right organisations at a rate to be agreed. Failure to agree a compensation rate renders the US liable to trade sanctions. The original deadline for agreeing a compensation rate expired on 27 July 2001. This deadline has been extended by the WTO until the end of the current US Congressional session in October.

The decision to amend US copyright law ultimately rests with Congress. Until it is amended, the US remains liable to pay compensation to European performing right organisations for such failure. Accordingly, European performing right organisations (and therefore their members) can expect compensation payments estimated by some to be in the region of tens of millions of dollars. How these payments are to be distributed amongst European publishers and writers remains to be seen.

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