98/731/EC: Commission Decision of 11 December 1998 under the provisions of Council Regulation (EC) No 3286/94 concerning section 110(5) of the Copyright Act of the United States of America (notified under document number C(1998) 4033)
Date: 1998-12-11
Institutions: European Commission
Subjects: broadcasting, copyright, financial loss, marketing, music, trade licence

L 346/60

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Official Journal of the European Communities

22. 12. 98

COMMISSION DECISION

of 11 December 1998

under the provisions of Council Regulation (EC) No 3286/94 concerning section
110(5) of the Copyright Act of the United States of America

(notified under document number C(1998) 4033)

(98/731/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

(4)

Having regard to Council Regulation (EC) No 3286/94 of
22 December 1994 laying down Community procedures
in the field of the common commercial policy in order to
ensure the exercise of the Community’s right under inter-
national trade rules, in particular those established under
the World Trade Organisation (1), as
the auspices of
amended by Regulation (EC) No 356/95 (2), and in par-
ticular Articles 13 and 14 thereof,

After consulting the Advisory Committee,

Whereas:

(5)

A. PROCEDURE

(1)

(2)

On 21 April 1997 the Commission received a
complaint pursuant to Article 4 of Council Regula-
tion (EC) No 3286/94 (hereafter ‘the Regulation').
The complaint was lodged by the Irish Music
Rights Organisation (IMRO) with the unanimous
support of the Groupement europ(cid:130)en des soci(cid:130)t(cid:130)s
d’auteurs et compositeurs (GESAC).

The complainant alleged that Section 110(5) of the
1976 Copyright Act of
the United States of
America is inconsistent with several provisions of
the Agreement establishing the World Trade Or-
ganisation (hereafter ‘the WTO Agreement') and its
annexes. On that basis the complainant asked the
Commission to take the necessary actions
to
convince the United States of America to repeal
this measure.

(3)

The complaint contained sufficient prima facie
evidence to justify the initiation of a Community
examination procedure pursuant to Article 8 of the

(1) OJ L 349, 31. 12. 1994, p. 71.
(2) OJ L 41, 23. 2. 1995, p. 3.

Regulation. Consequently,
initiated on 11 June 1997 (3).

such procedure was

Following the initiation of the examination pro-
cedure the Commission conducted an in-depth
legal and factual investigation into Section 110(5) of
the US Copyright Act as well as into the amend-
ments to the statute as discussed in US Congress at
the time of the investigation and enacted mean-
while. Based on the findings of this investigation
the Commission reached the conclusions which are
indicated below.

B. FINDINGS REGARDING THE EXISTENCE OF

AN OBSTACLE TO TRADE

single

receiving apparatus of

Although under the US Copyright Act the right
holder of a musical work has the exclusive right ‘to
perform the copyrighted work publicly', Section
110(5) of the US Copyright Act exempts certain
public performances from protection. Before the
recent addition of a new subparagraph widening
the scope of the exemption (see further under item
‘Notwithstanding the provi-
D) it read as follows:
sions of Section 106, the following are not infringe-
ments of copyright: ( . . . ) communication or trans-
mission embodying a performance or display of a
work by the public reception of the transmission
on a
a kind
commonly used in private homes, unless (a) a direct
charge is made to see or hear the transmission or
(b) the transmission thus received is further retrans-
mitted to the public'. The exemption covers the use
of a radio or television set ‘of a type commonly
found in private homes' in a shop, a bar, a restau-
rant or any other place frequented by the public.
As a result of its vague and ambiguous statutory
language, Section 110(5) has given rise to a very
broad interpretation of what is commonly referred
to as the ‘homestyle exemption'. For example, it
has been held that the exemption can also apply to
companies
stores
throughout the country and using the playing of
music in stores as part of
their commercial
policy (4).

operating

chains

large

of

(3) OJ C 177, 11. 6. 1997, p. 5.
(4) See BMI v. Edison Bros Stores Inc. United States Court of
the Eighth Circuit, No 91-2115 and BMI v.
the

Appeals
Claire’s Boutiques United States Court of Appeals for
Seventh Circuit, No 91-1232.

for

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Official Journal of the European Communities

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(6)

(7)

(8)

loudspeaker or

the WTO Agreement on
Under Article 9(1) of
Trade-Related Intellectual Property Rights (here-
after ‘TRIPs'), members must comply with Articles
1 to 21 of the Berne Convention for the Protection
of Literary and Artistic Works (hereafter the ‘Berne
Convention'). Article 11bis(1) of the Berne Conven-
tion, as revised by the Paris Act of 1971, grants the
right holders of literary and artistic works (which
include musical works)
the exclusive right of
authorising not only the broadcasting and other
wireless communication of their works, but also the
public communication of a broadcast of their works
instrument. By
by
analogous
permitting qualifying locations
to use music
without being licensed by the right holders and
without payment of royalties, the US exemption
deprives right holders of the protection to which
they are entitled under Article 11bis(1)(iii) when
broadcasts of
their works are publicy commun-
icated by loudspeakers or analogous instruments
and under Article 11(1)(ii) when direct cable trans-
missions of their works are publicly communicated
by such instruments. Article 11bis(1)(iii) or Article
11(1)(ii) clearly cover situations where broadcast
music or music transmitted by cable is further
transmitted to the public by a radio or a television
apparatus (such as under the homestyle exemption)
or any other means since it addresses the issue of
public communication of broadcast works and not
the technical specifications of the means used for
that purpose.

Article 11bis(2) of the Berne Convention provides
that, while countries may place conditions on the
exercise of the exclusive rights set out in Article
11bis (1), such conditions may not be prejudicial to
the right holders’ right to obtain equitable remu-
neration. Section 110(5) of the US Copyright Act is
prejudicial to the right holders’ right to obtain such
remuneration, as it deprives them of all remu-
neration in respect of the use of their works in
situations covered by the homestyle exemption.

through the US

and the
commercial basis
economic losses incurred by Community right-
holders are important, ranging between 13 to 24 %
of the US performing rights organisations’ annual
distributions to Community collecting societies
representing composers and arrangers of music,
lyricists and publishers.

(9)

Since Article 9(1) of TRIPs imposes a mandatory
obligation on WTO members to comply with
Articles 1 to 21 of the Berne Convention, a WTO
member is in breach of its obligations under the
TRIPs Agreement where it fails to comply with the
Berne Convention. Therefore, since Section 110(5)
of
the US Copyright Act contravenes Article
11bis (1), bis (2) and (1) of the Berne Convention,
Section 110(5) of the US Copyright Act is in breach
of Article 9(1) of TRIPs. Also, the Commission
holds the opinion that Article 13 of TRIPs cannot
be invoked by the United States to justify the
homestyle exemption, as this provision limits the
scope of existing exemptions under the Berne
Convention to special cases which do not conflict
with a normal exploitation of the work and do not
unreasonably prejudice the legitimate interests of
the right holder. It does not allow additional
exemptions to the rights protected under the Berne
Convention.

(10) Under

the Commission
circumstances
these
considers that
the complainant’s allegations are
well-founded and that Section 110(5) of the US
Copyright Act constitutes an obstacle to trade
within the meaning of Article 2(1) of the Regula-
tion, that is ‘a practice adopted or maintained by a
third country in respect of which international
trade rules establish a right of action'.

(11)

The Commission none the less considers that refer-
ence to the above legal bases does not rule out
recourse to any other pertinent provision of the
WTO Agreement and of the Agreements annexed
to it, which could be of use in procedures before
the WTO.

The Commission also reviewed the homestyle
exemption from the point of view of ‘minor reser-
vations', a category of exceptions which might be
considered to apply on the exercise of the exclusive
rights under the Berne Convention, but concluded
that, even where ‘minor reservations' were applic-
in Article
able to the exclusive rights set out
11bis (1)(iii) and (1)(ii), it would still remain that the
homestyle exemption is clearly not a minor reser-
vation. The exemption is widely applied on a

C. FINDINGS REGARDING ADVERSE TRADE

EFFECTS

(12)

Section 110(5) of the US Copyright Act curtails
Community right holders in the full and normal
exercise of their exclusive rights under the Berne
Convention and the TRIPs Agreement. The right

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22. 12. 98

holders are deprived of the possibility to license the
performing right of their work (either directly or
through collecting societies) and of the possibility
to obtain remuneration for the communication of
their works to the public.

(13)

(14)

(15)

The most direct effect of Section 110(5) is that it
deprives right holders of their remuneration for
certain communications to the public. Estimations
made by the Commission reveal that the direct loss
of licensing income to Community right holders
for performing rights in music (i.e. composers and
arrangers of music, lyricists and music publishers)
resulting from the application of Section 110(5)
amounts to between USD 3,8 and 6,8 million a
year. These amounts represent 13 to 24 % of the
US
annual
distributions to Community collecting societies
representing these three categories of right holders.
This shows that the losses caused by the homestyle
exemption to the Community right holders are
important.

organisations’

performing

rights

The homestyle exemption also entails
indirect
losses to the Community right holders as it acts as
a disincentive to the US performing right organ-
isations to effectively and efficiently license bars,
shops, restaurants and others in markets where no
exemption exists and leads to a reduction of the
efficiency of US organisations when trying to
license such venues. The result of the very exist-
ence of Section 110(5) is that even those venues
which clearly do not qualify for the exemption are
not always properly licensed.

Further indirect losses are also caused by the fact
that the homestyle exemption has acted as a cata-
lyst
for negative public and private attitudes
towards licensing of non-dramatical musical works
in the US. Powerful lobbies of music users have
systematically (and successfully) resisted efforts by
the collecting societies to effectively license and to
collect reasonable fees for the communication of
music to the public.

(16) As a result of Section 110(5),

the prospective
revenue a right holder can expect
from the
licensing of his work in the US is less than it
should be. This reduced prospective income may

have a negative impact on the stimulus to export
music to the US.

(17) Under

circumstances
the Commission
these
considers that
the complainant’s allegations are
well-founded and that Section 110(5) of the US
Copyright Act
is causing adverse trade effects
within the meaning of Article 2(4) of the Regula-
tion.

D. RECENT AMENDMENTS TO SECTION 110(5)

OF THE US COPYRIGHT ACT

(18) While the Commission was

investigating the
homestyle exemption, US Congress was examining
a bill amending Section 110(5) of the US Copyright
Act in view of widening its scope.

(19) On 6 and 7 October 1998, the bill, entitled ‘Fair-
ness in Music Licensing Act', was adopted by,
respectively, the US House of Representatives and
the US Senate. The bill consists of adding a new
subparagraph B to Section 110(5) of the US Copy-
right Act which provides for a further exception to
the rightholders’ exclusive right to authorise public
communication of their works, while the homestyle
exemption remains unchanged under subparagraph
A. The new subparagraph B now applies to a much
wider
eating,
range of beneficiaries, namely
drinking and other commercial establishments
provided that they fulfil a certain number of condi-
tions, mainly with regard to the surface of the
loudspeakers
establishment and the number of
used. It covers the use of any type of audiovisual
device, and is thus not limited to the use of a
‘homestyle' apparatus only.

(20)

(21)

The bill was signed by the President of the United
States on 27 October 1998, to enter into force 90
days after enactment. Since this means that, from a
legal point of view, the bill is now part of the US
legal order, although its entry into effect has been
delayed for 90 days, it can already be the object of a
dispute settlement procedure under WTO.

From a legal point of view, the new paragraph B of
Section 110(5) also deprives right holders to the
under Articles
protection they
11bis (1)(iii) and 11(1)(ii) of the Berne Convention
when broadcasts of their works or cable transmis-
their works are communicated to the
sions of

entitled

are

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public. Therefore, the Commission’s analysis of the
1976 version of Section 110(5) of the US Copyright
Act (now under subparagraph A of the section)
fully applies to the new version of the Statute,
the Berne
which is thus equally in breach of
Convention and the TRIPs Agreement.

(22) As far as the adverse trade effects are concerned, it
is clear that they will be seriously amplified by the
widening of the Statute’s scope in terms of benefi-
ciaries and type of audiovisual devices used to
perform music in public establishments. Whereas
the Commission estimated that the 1976 homestyle
exemption applied to between 20 and 35 % of US
business establishments categorised as small busi-
ness by US Government and employing fewer than
20 persons, and to between 6 and 12 % of US
business of
the same category employing more
than 20 persons, the US collecting societies esti-
mate that, only where eating and drinking business
is concerned, the new Bill would already exempt
70 % of all US bars and restaurants, as they fall
below the surface thresholds under the new Section
110(5)B.

E. COMMUNITY INTEREST

(23)

Ensuring that WTO partners fully comply with
their obligations is of the utmost importance for
the Community which has committed itself to the
same obligations. Therefore,
the Community
should immediately challenge Section 110(5) of the
US Copyright Act.

F. CONCLUSIONS AND MEASURES TO BE

TAKEN

(24) Meetings have been held and letters have been
exchanged with the relevant US authorities to
discuss this matter further and aimed at finding an

amicable solution to the problems concerning the
licensing of music works but the US authorities
have not forwarded any proposals in view of such a
solution.

(25)

In these circumstances, it appears that the interests
of
for initiation of WTO
dispute settlement proceedings,

the Community call

HAS DECIDED AS FOLLOWS:

Article 1

Section 110(5) of the Copyright Act of the United
1.
States of America appears to be inconsistent with the
obligations of that country under the Marrakesh Agree-
ment Establishing the World Trade Organisation and
constitutes an ‘obstacle to trade' within the meaning of
Article 2(1) of Regulation (EC) No 3286/94.

2.
The Community, will commence action against the
United States of America under the Understanding on the
Rules and Procedures for the Settlement of Disputes and
other relevant WTO provisions with a view to securing
removal of the obstacle to trade.

Article 2

This Decision shall apply from the date of its publication
in the Official Journal of the European Communities.

Done at Brussels, 11 December 1998.

For the Commission

Leon BRITTAN

Vice-President