Phonographic Performance Ltd v Candy Rock Recording Ltd

Factual and Procedural Background

The Appellants, an organisation acting as a licensing body for sound recordings in the United Kingdom, appealed against a decision by the Vice-Chancellor which partially dismissed their appeal against an interim decision of the Copyright Tribunal dated 10th November 1998. The dispute concerned the determination of the royalty to be paid by the Respondents, a smaller company engaged in the business of dubbing background music for commercial premises. The Respondents required a licence from the Appellants to dub and supply sound recordings to customers, who themselves also needed licences to perform the works publicly, except in certain cases such as charitable organizations.

The Copyright Tribunal had considered the terms of licences granted to similar businesses, including narrowcasters who distribute background music via satellite broadcasts, which have a different licensing structure under the Copyright, Designs and Patents Act 1988. The Tribunal set a royalty rate for the Respondents that accounted for differences in licensing fees paid by customers of dubbers versus narrowcasters. The Appellants challenged this approach, contending the Tribunal erred in law by adjusting the royalty to permit competition rather than strictly avoiding unreasonable discrimination between licensees.

The Vice-Chancellor upheld most of the Tribunal's approach but found error in the Tribunal's reliance on competition considerations under section 129 of the Act. The case was then brought before the Court of Appeal.

Legal Issues Presented

1. Whether the Copyright Tribunal erred in law by setting a royalty rate for the Respondents that took into account the competitive effect of site licence fees paid by customers of dubbers but not by customers of narrowcasters.
2. Whether the Tribunal was required under section 129 of the Copyright, Designs and Patents Act 1988 to avoid unreasonable discrimination solely by comparing licence terms, without regard to commercial realities affecting competition.
3. Whether the Tribunal could consider relevant commercial factors, such as site licence fees, under the general obligation in section 135 to have regard to all relevant considerations.
4. Whether the Vice-Chancellor erred in refusing to remit the case back to the Copyright Tribunal for further consideration despite incomplete evidence on the site licence factor.

Arguments of the Parties

Appellants' Arguments

• The Copyright Tribunal misdirected itself by attempting to equalize competition between dubbers and narrowcasters through adjusting royalty rates rather than strictly avoiding unreasonable discrimination between licence terms.
• The statutory scheme, including section 72 of the Act, creates a differential treatment between customers of dubbers and narrowcasters, which the Tribunal had no authority to neutralize.
• Section 129 requires comparison of licence terms granted by the same licensing body and does not permit adjustments for competitive advantages arising from statutory provisions.
• The site licence factor was not pleaded or supported by evidence and should not have been considered; the Vice-Chancellor erred by not remitting the matter for further evidence and consideration.

Respondents' Arguments

• The Copyright Tribunal correctly exercised its discretion under section 125 and 135 to consider all relevant circumstances, including the commercial reality of site licence fees affecting competition.
• The site licence fee difference, although arising from the Act, is a relevant commercial fact that must be taken into account to avoid unreasonable discrimination in practice.
• The Tribunal's approach was consistent with prior decisions emphasizing fairness and reasonableness, balancing the interests of licensors and licensees.
• The Tribunal did not err in its reasoning or in its conclusion that the royalty rate should reflect the economic impact of site licence fees on dubbers compared to narrowcasters.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court analysed the statutory framework under the Copyright, Designs and Patents Act 1988, focusing on sections 125, 129, and 135. Section 125 requires the Copyright Tribunal to determine reasonable licence terms, while section 129 requires regard to other licences to avoid unreasonable discrimination, and section 135 mandates consideration of all relevant factors.

The Court rejected the Appellants' submission that section 129 limits the Tribunal to a strict comparison of licence terms without regard to commercial realities. It held that a licence comparison divorced from the commercial context would be misleading and fail to achieve the statutory objective of reasonable licence terms. The Tribunal was entitled to consider the site licence fee difference as a relevant factor to avoid unreasonable discrimination between dubbers and narrowcasters.

Although the Tribunal's language suggesting it sought to enable competition was not strictly accurate, the Court interpreted this as the Tribunal's effort to avoid unreasonable discrimination. The Court concluded the Tribunal correctly recognized that the combined effect of royalties and site licence fees imposed a heavier burden on dubbers, justifying adjustment of the royalty rate.

The Court expressed concern that the site licence factor was not pleaded or supported by full evidence, noting that future references should properly plead this factor to allow thorough examination. Nevertheless, the Court agreed with the Vice-Chancellor that the Tribunal did not misdirect itself in law and that no substantial wrong or miscarriage occurred.

Holding and Implications

The Court DISMISSED the appeal, affirming the decision of the Vice-Chancellor and the Copyright Tribunal's approach to setting the royalty rate.

The decision confirms that the Copyright Tribunal has discretion to consider relevant commercial realities, including statutory licensing structures, to avoid unreasonable discrimination between licensees. However, it underscores the necessity for parties to properly plead and provide evidence on such factors to allow informed decisions. The ruling does not establish new precedent but clarifies the application of sections 125, 129, and 135 of the Copyright, Designs and Patents Act 1988 in licensing disputes.