Czech Republic: Groundbreaking Decision On Supervision Of Collective Management Of Copyright Works

At the end of last month, the Regional Court in Brno declared null and void two decisions of the Office for the Protection of Competition, which fined collective management entities, OSA and INTERGRAM, for alleged abuse of dominant position. The Court (in line with the reasoning proposed by HAVEL & PARTNERS) concluded that the activities of collective management entities carried out under the Copyright Act should be supervised by the Ministry of Culture, not by the Office for the Protection of Competition. The judgment is relevant not only for competition law, but also for the whole field of collective management and enforcement of intellectual property rights.

The Czech Office for the Protection of Competition (the "Office") imposed fines on two collective managers of copyright works in 2020 and 2021 for alleged abuse of a dominant position. The Office reproached them for not taking into account room occupancy when setting the royalty rates charged to operators of accommodation facilities. Ochranný svaz autorský ("OSA") was fined almost CZK 11 million by the Office. The other collective rights manager, INTERGRAM, was fined almost CZK 21 million for the same conduct.

Both cases are interesting from the competition law perspective. The Office found that both cases involved abuse of a dominant position in the form of the application of unreasonable commercial terms. It follows from the published decisions that the Office did not consider whether the final rates could be considered to be excessive or whether the conduct had an impact on end consumers.

Thus, the Office followed a different methodological approach than, for example, the Slovak Competition Authority in the case of the collective manager LITA in which it assessed a similar practice as charging excessive prices (i.e. it assessed the final amount of the rates, not the way they were determined). Indeed, the incorrectness of the Office's procedure in this respect was also argued by OSA during the administrative and judicial proceedings, as the Office replaced the established competition law test with a vague "reasonableness" assessment.

Both OSA and INTERGRAM defended themselves against the respective decisions of the Office by filing a lawsuit with the Regional Court in Brno. In addition to competition law arguments, OSA argued that the Office had no authority whatsoever to assess the conduct in question. This reasoning follows from Section 102(3) of the Copyright Act, pursuant to which: "The supervision of the Ministry [of Culture] is without prejudice to the supervision of the [Office for the Protection of Competition] under the Competition Act to the extent that the conduct is not covered by the Copyright Act."

The court upheld OSA's reasoning and in its judgment of 27 June 2023 declared the decision of the Office null and void on the ground of the lack of subject-matter authority of the Office. The Regional Court stated that the conduct consisting in the application of royalty rates undoubtedly falls under the regulation stipulated by the Copyright Act and should therefore be supervised by the Ministry of Culture. This excludes the authority of the Office. However, this conclusion led to the court's failure to address OSA's competition law arguments, including the objection that the legal qualification of the investigated practice was not pertinent.

This judgment has implications for the entire collective management industry. A perfect illustration of this is that the same court, just minutes later, declared the decision of the Office in the INTERGRAM case null and void as well. The judgment sets a boundary between which conduct of collective managers falls under the authority of the Ministry of Culture and which under the authority of the Office. The only relevant criterion is whether the specific conduct of the collective manager falls under the Copyright Act (then the Ministry of Culture supervises it) or not (then the supervision of the Office applies).

We welcome the court's ruling also because we have supported OSA in the case from the very beginning and we believed that they he had done nothing illegal. At the same time, we are happy that our detailed argumentation has been instrumental in providing a case-law clarification of the decision-making powers of the Office in the area of collective management.

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