[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	High Court of Ireland Decisions
You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Carrickdale Hotel Ltd. v. Controller of Industrial and Commercial Property & Anor [2004] IEHC 86 (12 May 2004) URL: http://www.bailii.org/ie/cases/IEHC/2004/86.html Cite as: [2004] IEHC 86, [2004] 3 IR 410, [2004] 2 ILRM 401

[New search] [Printable RTF version] [Help]

HC 185/04

THE HIGH COURT

RECORD NO. 2002/350SP

IN THE MATTER OF THE COPYRIGHT ACT, 1963
 


AND IN THE MATTER OF AN ARBITRATION PURSUANT TO SECTION 41(1)(b) OF THE COPYRIGHT ACT, 1963

AND IN THE MATTER OF AN APPEAL PURSUANT TO SECTION 41(3) OF THE COPYRIGHT ACT, 1963 AND ORDER 94, RULES 45-49 OF THE RULES OF THE SUPERIOR COURTS, 1986, FROM A DECISION MADE BY AN ARBITRATOR APPOINTED BY THE CONTROLLER OF INDUSTRIAL AND COMMERCIAL PROPERTY PURSUANT TO SECTION 41(1)(b) OF THE COPYRIGHT ACT, 1963.

BETWEEN:

CARRICKDALE HOTEL LIMITED

PLAINTIFF

AND THE CONTROLLER OF INDUSTRIAL AND COMMERCIAL PROPERTY AND PHONOGRAPHIC PERFORMANCE (IRELAND) LIMITED

DEFENDANTS

Judgment of Miss Justice Laffoy delivered on 12^th May, 2004.

1. Background

The background to these proceedings is a long running dispute between certain owners of nightclubs and discotheques who are members of the Irish Hotels Federation (IHF) and the Irish Nightclub Industry Association (formerly known as the Irish Dance and Entertainment Industry Association) (INIA), on the one hand, and the second named defendant (PPI), on the other hand. PPI, which is a limited company incorporated in this State is, in effect, a collective organisation of record companies, for example, Sony Music, which produce records, compact discs and such like of sound recordings. In broad terms the function of PPI is to protect the interest of the record companies as owners of copyrights subsisting in sound recordings, formerly by virtue of the provisions of Part III of the Copyright Act, 1963 (the Act of 1963) and currently by virtue of the Copyright and Related Rights Act, 2000 (the Act of 2000), which came into force on 1^st January, 2001. That function is fulfilled in part by collecting, on a collective basis, the remuneration payable by copyright users who cause a sound recording or a reproduction thereof, inter alia, to be heard in public or to be broadcast, on behalf of the record companies and distributing it amongst them.

The dispute has been ongoing since 1988. In fact it has been going on for so long that these proceedings are in something of a time warp. Since the dispute started and the matters at issue became the subject of the dispute resolution mechanism proved for in the Act of 1963 the repeal of all of the relevant sections of that Act has become operative by the coming into operation of the Act of 2000. Notwithstanding that, these proceedings have been commenced and prosecuted on the basis that the Act of 1963 still governs the issues. This judgment reflects that position.

One aspect of the dispute was resolved by the decision of the Supreme Court, delivered on the 11^th October, 1995, in two judicial review proceedings which were heard together and are reported as Phonographic Performance v. Controller of Industrial Property [1996] 2 I.R. 560 (the Judicial Review proceedings). At issue in those proceedings was the interpretation and application of certain provisions of the Act of 1963. Section 17 of the Act of 1963 deals with copyright in sound recording. Subs. (4) of that section sets out the acts which are restricted by the copyright in a sound recording, including –

"(b) in the case of a published recording, causing the recording or any reproduction thereof to be heard in public, or to be broadcast, or to be transmitted to subscribers to a diffusion service, without the payment of equitable remuneration to the owner of the copyright subsisting in the recording . . . "

Subsection (5) of section 17 provides as follows:

"Where –

(a) either party to a dispute in relation to the amount of remuneration payable under paragraph (b) of subsection (4) of this section undertakes to refer the dispute to the Controller under section 31of this Act, and

(b) an undertaking has been given to the owner of the copyright subsisting in the recording by the other party to the dispute to pay to him the amount of remuneration determined under the said section 31,

the copyright in the recording is not infringed on the ground of non-fulfilment of the condition specified in the said paragraph (b)."

Subsection (3) of section 31 provides as follows:

"Where a dispute arises between a person who causes a sound recording, or any reproduction thereof, to be heard in public, or to be broadcast, and the owner of the copyright existing in the recording regarding the equitable remuneration payable under paragraph (b) of subsection (4) of section 17 of this Act in respect of the recording, the dispute may be referred by either party to the Controller who shall consider the case and either determine the amount of the remuneration so payable, or refer the case to an Arbitrator in pursuance of the provisions of section 41 of this Act, for such determination."

The Supreme Court decided that, on their proper construction, the foregoing provisions envisage the equitable remuneration payable by the copyright user to the copyright owner being paid after the recordings have been utilised. In the event of a dispute as to the amount, provided an undertaking is given by the other party to the owner of the copyright to pay the amount determined under s. 31, the copyright is not infringed. One of the bases on which Blayney J. arrived at those conclusions is set out in his judgment at p. 570 as follows:

"Finally, it seems to me that the use of the word 'remuneration' implies that the payment is to be made after and not before the event. The basic meaning of the words 'to remunerate' is 'to pay for service rendered'. So, 'remuneration' is a payment for a service which has been rendered in the past – in the present case the facility of utilising PPI's published recordings. It follows that it is only after a recording has been utilised that there can be an obligation to pay remuneration."

In summary, the decision of the Supreme Court determined when equitable remuneration is to be paid in accordance with s. 17(4) (after the use of the copyright), and the course to be adopted to avoid a breach of copyright (either to pay agreed equitable remuneration subsequent to use, or, in the event of a dispute as to the amount of the equitable remuneration, to undertake to make a reference under s.31(3) to the first named defendant (the Controller), and to pay the amount determined under that provision). The Supreme Court recognised that the copyright owner and the copyright user could enter into an agreement in respect of future periods.

The nightclub owners remained in dispute with PPI as to the proper quantum of equitable remuneration. The practice of PPI is to publish a Tariff Book annually, setting out what is considered the appropriate tariff payable by way of equitable remuneration by the various categories of copyright users who use its repertoire. Tariff No. 2 is described as pertaining to the public use of sound recordings as "specially featured entertainment" in "commercial discotheque and nightclub venues". The nightclub owners who have been in dispute with PPI contend that since 1988 the rate of tariff claimed by PPI is excessive, unfair and inequitable.

2. These Proceedings

The plaintiff is the owner of a nightclub known as "Laceys" in Co. Louth. It is a member of IHF and INIA. It has been in dispute with PPI since 1991, or earlier, as to the amount payable by it by way of equitable remuneration for use of the PPI repertoire. On 12^th November, 1991 it gave an undertaking to PPI in accordance with s. 17(5) of the Act of 1963. On 11^th December, 1991 it referred the dispute in relation to "Laceys" to the Controller. Following the final determination of the Judicial Review proceedings, which had been commenced in October, 1991 and in which PPI had sought orders quashing a decision of the Controller to proceed with a reference under s. 31(3) in relation to another nightclub, the Controller decided that the references in relation to nightclubs should be dealt with under s. 41(1)(b) of the Act of 1963. That provision gives the Controller a discretion, if the case requires any prolonged examination of documents or other investigation which, in his opinion, could not be conveniently made before him, to order the case to be referred to an Arbitrator. On 15^th July, 1996 Mr. John McStay (the Arbitrator), who is a chartered accountant, was appointed by the Controller as arbitrator to deal with the reference.

In fact in all some fifty-six disputes in relation to nightclubs were referred to arbitration. Having, with the parties' agreement, segregated the references into classes, the Arbitrator randomly selected two disputes for hearing. One was the dispute the subject of the plaintiff's reference. The other was a reference by Carnabine Holdings, the owner of Shambles Nightclub in Co. Monaghan. Both arbitrations were heard together and both nightclub owners had the same legal representation.

The course of the arbitration was as follows:

(a) In August 2000 and October, 2000, each party furnished written submissions to the Arbitrator, the first dealing with the subject of "equitable remuneration" and the second "including numeric computations etc.".

(b) Oral hearings were conducted on seven days between 20^th November, 2000 and 22^nd January, 2001. The Arbitrator heard the testimony of twelve witnesses.

(c) Final written submissions were made by the plaintiff in February, 2001 and served on PPI and final written submissions were made by PPI on 21^st March, 2001.

(d) Final oral submissions were taken by the Arbitrator on 26^th March, 2001.

The Arbitrator made his award on 3^rd June, 2002, in which he set out his decision as to the equitable remuneration to be paid by the plaintiff to PPI. The award was a comprehensive, reasoned award in which he summarised the evidence and submissions made to him and the basis on which he reached his determination.

These proceedings are by way of an appeal from the whole of the award and decision of the Arbitrator and are brought pursuant to s. 41(3) of the Act of 1963. That subsection provides that an appeal shall lie to this Court from any award made by an Arbitrator in pursuance of a reference under s. 41(1)(b). It empowers this Court to make such order confirming, annulling or varying the award of the Arbitrator as it seems fit. In the proceedings the plaintiff claims an order annulling the award of the Arbitrator and, in the alternative, an order varying the award so as to provide for the payment of remuneration at an appropriately equitable rate to PPI.

Although the Controller is a party to the proceedings, he did not participate save to file an affidavit stating his view that he became functus officio on the appointment of the Arbitrator, and that he had no involvement whatsoever in either the choice of the Arbitrator, whom he appointed with the express consent of the parties, or in the arbitration proceedings. The Controller indicated that he would be bound by the order of the Court.

There was also an appeal by Carnabine Holdings from an award made by the Arbitrator on 3^rd June, 2002, in relation to Shambles Nightclub (Record No. 2002/351 SP) which was heard together with this appeal. This judgment covers both appeals.

While this point was not in issue on the appeals, it should be noted that in his award the Arbitrator recorded the fact that neither arbitration was a "test case", but each was merely an indicative case selected from stratified or segregated cases.

3. Nature of Appeal/Standard of Review

Although the Act of 1963 had been in place for almost forty years when it was repealed, it is understood that this is the first appeal to this Court under s. 41(3) of that Act, or under s. 40, which provides for an appeal from an order or decision of the Controller in relation to the fixing of equitable remuneration.

By order of the Court (Kelly J.) dated 10^th February, 2003, it was ordered, by consent, that the appeal should be by way of a re-hearing based upon the materials and transcripts used at the hearing before the Arbitrator with an entitlement to the Court to allow at its discretion additional evidence to be presented. However, it was noted that PPI would object to the presentation of additional evidence but agreed that whether such evidence was to be admitted was a matter for decision by the trial judge who should hear the appeal. It was also noted that it was agreed that the plaintiff would proceed first on the hearing of the appeal.

When the appeal came on for hearing, at the outset, an issue was raised as to the standard of review which the Court should apply on the appeal. Having heard the submissions of the parties, I dealt with this issue in a judgment delivered on 10^th February, 2004, in which I decided that the appropriate test in determining whether the plaintiff is entitled to the relief claimed is whether it has established as a matter of probability that, taking the adjudicative process as a whole, the decision reached by the Arbitrator was vitiated by a serious and significant error or a series of such errors. In applying such test, regard must be had to the degree of expertise and specialist knowledge which the Arbitrator has.

4. Application to Adduce Additional Evidence

In the course of the hearing of the appeal the plaintiff sought to adduce additional evidence. The evidence sought to be adduced was Tariff No. 29 in the PPI Tariff Book. That tariff relates to the public use of sound recordings in "venues operating outside normal licensing hours with Special Exemption Orders", although in the index to the Tariff Book it is described as relating to "venues with special restaurant certificates". There was controversy as to the nature of the venues which Tariff No. 29 was designed to cover. In an affidavit sworn in the proceedings Dick Doyle, the Chief Executive of PPI, averred as follows:

"Tariff 29 as operated by PPI is only granted to venues which operate as licensed premises beyond normal licensing hours (as the licensing hours were before the Intoxicating Liquor Act, 2000) which do not have a dance floor and which do not permit dancing."

The plaintiff took issue with that proposition and contended that, since Tariff No. 29 specifically referred to venues operating "with Special Exemption Orders", as a matter of fact, it was designed to apply to the same type of venue as Tariff No. 2: a venue in which the event is taking place in a ballroom licensed under the Public Dance Halls Act, 1935.

There was no controversy as to the criteria which the Court should apply in determining whether to allow the additional evidence. It was common case that the general principles on which the Supreme Court admits additional evidence, as set out by the Supreme Court in Murphy v. Minister for Defence [1991] 2 I.R. 161, are applicable, namely:

1. The evidence sought to be adduced must have been in existence at the time of the trial and must have been such that it could not have been obtained with reasonable diligence for use at the trial;

2. The evidence must be such that if given it would probably have an important influence on the result of the case, though it need not be decisive.

3. The evidence must be such as is presumably to be believed or, in other words, it must be apparently credible, though it need not be incontrovertible.

The application of the third principle presents no difficulty: the content of Tariff No. 29 is incontrovertible. As regards the application of the second principle, while I have found it impossible to satisfactorily resolve the controversy as to the application of the Licensing Acts to the venues and events in respect of which Tariff No. 29 has been operated, I find, on the evidence, including an internal memorandum dating from 1995 exhibited by Mr. Doyle, that it was not designed by PPI to apply to the same type of venue as Tariff No. 2 applies. In the circumstances, I cannot conclude that the admission of Tariff No. 29 would have an important influence on the outcome of the appeal.

In relation to the application of the first principle, the evidence before the Court is that Tariff No. 29, which was originally designated Tariff No. 2A, has been operated by PPI since 1995 and evidence of its contents was in existence throughout the course of the arbitration. It was argued on behalf of PPI that the plaintiff had not established that such evidence could not have been obtained with reasonable diligence for use at the arbitration. In the course of the exchanges on affidavit on this point, it was averred on behalf of PPI that Farrell Grant Sparks, Chartered Accountants, whose report will be referred to later, had a copy of the PPI Tariff Book for 1998 which contained reference to Tariff No. 29. Whether that averment was correct or not it was not addressed by the plaintiff, as it was open to the plaintiff to do.

The report of Farrell Grant Sparks, to which I will refer later, contains a table which sets out increases in various PPI tariffs from 1988 to and including 1998. The table includes a wide selection of tariffs, including Tariff No. 27 (Doctors' and Dentists' Waiting Rooms), Tariff No. 40 (Election Campaigns) and Tariff No. 43 (Office Reception Areas). The source of the information contained in the table is stated to be the PPI Tariff Sheets. If the existence of Tariff No. 29 was not known to Farrell Grant Sparks when they were preparing the report for the purposes of this arbitration, on the evidence, it is difficult to conclude that the content of Tariff No. 29 could not have been obtained with reasonable diligence for use at the arbitration.

Accordingly, I consider that evidence of Tariff No. 29 is not admissible.

5. The Issue

What the Arbitrator was asked to do was to determine the amount of equitable remuneration payable by the plaintiff to PPI for the use by the plaintiff of the repertoire of PPI in "Laceys" in accordance with the reference which was made in 1991. He performed that task. The plaintiff contends that the rate he fixed does not constitute equitable remuneration, is excessive and that the award should be annulled or varied. The position of PPI is that there is no basis for the plaintiff's challenge to the award, that it is clearly reasoned and based on the evidence which was before the Arbitrator and that it should be confirmed. Accordingly, the issue for the court is whether in his award the Arbitrator, in fixing the equitable remuneration payable by the plaintiff to PP1 in accordance with s. 17(4)(b) and on the basis of the evidence before him at the arbitration, achieved a result which is or is not vitiated by a serious and significant error or by a series of such errors.

For the purposes of identifying the areas of disagreement between the parties in relation to the Arbitrator's decision, the approach I propose adopting is to outline the following:

(a) the methodology for determination of equitable remuneration contended for by the plaintiff at the arbitration and its rationale;

(b) the tariff and underlying rationale proposed by PPI at the arbitration;

(c) the differences between the methodology and approach put forward by the plaintiff and PPI;

(d) the remuneration structure embodied by the Arbitrator in his award, emphasising how it differed from the approach of the parties, and his resulting computation of the equitable remuneration for "Laceys" and

(e) the rationale underlying the approach adopted by the Arbitrator.

For the purposes of the arbitration it was agreed between the parties that the Arbitrator should assume that PPI is the owner of 100% of the copyright in sound recordings utilised by the plaintiff. The same assumption applies for the purposes of these proceedings.

In the period with which the Arbitrator was concerned, 1991 (in the case of this plaintiff) to 2000, it was the practice of PPI to increase Tariff No. 2 annually in accordance with the Consumer Price Index (C.P.I.) published by the Central Statistics Office. As I understand it, the plaintiff accepts that it is appropriate to make provision for inflation from year to year by reference to the increase in C.P.I. Therefore, insofar as the rate of equitable remuneration is computed on the basis of figures relevant to the year 2000, my understanding is that it is agreed that the figures should be adjusted downwards by reference to the appropriate CPI index base of 100 in 1991 rising to 124.3 in 2000, as the Arbitrator did in his award.

For consistency and ease of comparison, I propose setting out all amounts in money in Irish Pounds.

Other copyright collecting societies which featured in the submissions made to the Arbitrator and in the authorities which were suggested by one or other of the parties as affording guidance include:

(a) Irish Music Rights Organisation (IMRO), which represents the owners of the authors', composers' and publishers' copyright (the authors' right) protected by Part II of the Act of 1963, which evolved from its counterpart in the United Kingdom referred to at (b) below, was set up by the latter (which had an established branch in this jurisdiction since 1957) in 1989, and separated from it in 1995.

(b) Performing Rights Society (PRS), which represents the owners of the authors', composers' and publishers' copyright in the United Kingdom.

(c) Phonographic Performance Limited (PPL), which is the counterpart of PPI in the United Kingdom and protects and manages the rights which PPI has protected and managed in this jurisdiction since 1968.

6. The Plaintiff's Suggested Methodology

The plaintiff's suggested methodology for determining equitable remuneration was based on a study carried out by Farrell Grant Sparks (FGS), Chartered Accountants, on behalf of the IHF and the INIA. As part of this study, FGS conducted a survey in 1996, which was updated in 1998 and revisited in 2000, in which it compared tariffs charged by royalty collection agencies in other jurisdictions on a "per event" basis in relation nightclubs with a capacity or average attendance of 1,000. The study conducted by FGS, including the results of the survey, was contained in a written report of August, 2000, which was submitted to the Arbitrator. Mr. McAuley, the member of FGS responsible for the study, testified at the hearing, before the Arbitrator.

The methodology proposed on behalf of the plaintiff to the Arbitrator for determination of equitable remuneration was as follows:

(a) The plaintiff copyright user should pay a tariff per event.

(b) There should be a benchmark tariff which would be subject to adjustment in accordance with –

(i) the duration of the event (event length),

(ii) the capacity of the venue, and

(iii) the admission charge.

(c) The benchmark tariff should be IR£25. In their report, FGS stated that this figure was based on "a European average, as established by our research". In the course of his evidence, Mr. McAuley revised the benchmark figure to IR£23.18.

(d) There should be adjustment for event length in accordance with the following table:

Event Length

Hours Adjustment Factor

0 – 159 0.55

2 – 2.59 0.85

3 – 3.59 1.00

4 – 4.59 1.15

5 – 5.59 1.30

6 + 1.45

(e) There should be an adjustment by reference to the capacity of the venue in accordance with the following table:

Capacity

Capacity Adjustment Factor

0 – 199 0.60

200 – 299 0.65

300 – 399 0.70

400 – 499 0.85

500 – 749 1.00

750 – 999 1.15

1000 + 1.45

(f) In relation to (d) and (e) above, FGS submitted that the tariff per event should be based on the revenue generation potential of a venue rather than on its actual performance. The tariff per event should be based on a sliding scale, based on capacity (as per the fire certificate) and the duration of the event (as per the terms of the liquor and/or dance licence). These two criteria, it was suggested, could be easily determined and verified by independent sources and represented a transparent method of determining the potential revenue which could be generated by a single venue. I assume that the reference to the fire certificate is a reference to a document recording the capacity of the venue as recommended by the relevant local authority in connection with the renewal of the dance licence.

(g) The benchmark tariff should also be adjusted by reference to the admission charge in accordance with the following table:

Admission Charge

Admission Charge Adjustment Factor

IR£

0 – 2.53 0.55

2.54 – 3.78 0.70

3.79 – 4.99 0.85

5.00 – 6.30 1.00

6.31 – 7.54 1.15

7.55 – 8.80 1.30

8.81 – 10.08 1.45

FGS submitted that the admission fee has a huge impact on the revenue generating potential of a nightclub and any tariff calculation that does not recognise this factor would have to be deemed inequitable.

(h) The formula for calculation of the tariff should be as follows:

Benchmark (IR£25) x event length x venue capacity x admission charge

(i) On the basis of an assertion that, as a matter of law, the sound recording copyright owned by PPI was a secondary right and, by implication, inferior to the author's copyright protected by Part II of the Act of 1963, which is collected by IMRO, the rate of remuneration payable to PPI should be less than the rate payable to IMRO, 50% of the IMRO rate being the contention at the hearing before the Arbitrator. In the year 2000 the maximum tariff charged by IMRO under its Standard Tariff HR for licensed performances was IR£15.23.

The reasoning advanced for the assertion at (i) above was based on a fundamental difference between copyrights protected by Part II and Part III of the Act of 1963. Subject to exceptions, it is an infringement of copyright to use the former without the licence of the copyright owner, whereas, as the Supreme Court decided in the Judicial Review proceedings, liability for equitable remuneration arises after the use of the copyright. The owner of the sound recording copyright, or, as it is sometimes referred to, the related right, has no power to veto use. This difference, it was contended, puts IMRO, as copyright owner, in a better bargaining position than PPI in terms of the royalty which can be extracted.

As I understand it, the position adopted by the plaintiff on the appeal was somewhat different from the position adopted before the Arbitrator. On the appeal the plaintiff's case was that the IMRO rate is the most appropriate comparator and should be the starting point in determining equitable remuneration payable to PPI, but the IMRO rate should be reduced because of the lesser degree of copyright protection afforded to the copyright owner in the case of the sound recording copyright. It was not contended on the appeal that the PPI rate should be 50% less than the IMRO rate.

7. Methodology Suggested by PPI

While evidence of alternative approaches was adduced by PPI before the Arbitrator and, indeed, considered by the Arbitrator in his award, in essence, the case made by PPI was that Tariff No. 2 as contained in its Tariff Book for the year commencing on 1^st January, 2000 represented equitable remuneration.

The structure of Tariff No. 2 is that a fee "per event" is charged. There is a baseline fee which varies in accordance with average attendance, that is to say, actual attendance. The scale of baseline tariffs applicable to commercial discotheques and nightclubs effective from 1^st January, 2000 under Tariff No. 2 is shown on the following table:

PPI Methodology

Average Attendance Fee per Event

IR£

0 – 25 3.82

26 – 50 9.34

51 – 75 16.57

76 – 100 25.52

101 – 150 43.40

151 – 200 64.70

201 – 250 89.43

251 – 300 110.24

301 – 350 132.39

351 – 400 155.24

401 – 450 179.50

451 – 500 204.36

501 – 550 230.21

551 – 600 257.62

601 – 650 285.47

651 – 700 314.99

701 – 750 344.86

751 – 800 375.70

801 – 850 408.38

851 – 900 441.24

901 – 950 476.03

951 – 1000 510.90

Tariff No. 2 provides that a fee per event for average attendances above 1,000 shall be by direct negotiation with PPI. The evidence before the Arbitrator was that there were very few such establishments in the State: around five at most.

The baseline rates under Tariff No. 2 are applicable to events where the gross admission charge lies in the range of IR£5 to IR£6.30. Outside this range an admission price adjustment factor is applied, which operates in exactly the same way as the admission price adjustment proposed by FGS. In fact it is clear from the FGS report that it adopted the PPI admission price adjustment. By way of example, in the case of an admission price in the range of IR£6.31 to IR£7.54 a 15% increase is applied to the baseline. Tariff No. 2 provides for a pro rata admission price adjustment to admission prices above IR£10.08.

In support of the contention that Tariff No. 2 represents equitable remuneration, PPI furnished a report dated 13^th October, 2000 of a review and analysis of the Irish nightclub industry carried out on its behalf by BDO Simpson Xavier Consulting (BDO). The specific objectives of the review were to comment on the FGS submission and to give their expert opinion of the appropriate level of equitable remuneration applicable to, inter alia, "Laceys". Mr. Derry Gray of that firm gave evidence at the hearing. The approach of BDO was to attempt to identify the likely profitability of four types of notional nightclubs which had been presented in the FGS report. BDO's analysis of the information provided by FGS suggested that nightclubs were profitable businesses, suggesting profit margins before tax in a range between 39% and 53%. BDO deconstructed both the rate proposed by FGS and the average rate charged under Tariff No. 2 on a charge per attendee basis, which produced a charge in the range of 5p to 11p per attendee in the case of the former and an average of 36p per attendee in the case of Tariff No. 2. BDO argued that the proposal of FGS did not reflect the value of PPI's repertoire and was not linked to the benefits that nightclub operators derived as a result of using their repertoire. Tariff No. 2, on the other hand, was "sensitised to take into consideration attendance, the admission price paid and the resulting revenue generated".

BDO also did an exercise to determine the profitability of, inter alia, "Laceys". They produced what were described as "illustrative financial statements" based on information available to them. In the case of "Laceys", assuming an admission charge of IR£5 and a bar spend of IR£10 per person, they calculated that the Tariff No. 2 represented 3.6% of turnover.

The approach of PPI was also supported by a report dated August 1994 from Price Waterhouse, Chartered Accountants, who had carried out a review of Tariff No. 2 on behalf of PPI in 1994 and had concluded that the individual rates of tariff as contained therein were fair and reasonable. Mr. Ronan Murphy of Price Waterhouse Coopers gave evidence before the Arbitrator.

The evidence before the Court indicates in general terms the build-up of the baseline rates in Tariff No. 2 which, I understand, originated from changes introduced in 1988 and a major overhaul of the existing rates and structure following a review in 1990/1991. Historically, in 1983 the relevant rates had represented 110% of the rates charged by PPL in the United Kingdom. Such evidence was also available to the Arbitrator.

First, they were based on an assumed admission price of IR£5 and an assumed bar spend of IR£5 per person attending the event. The BDO report (para. 10) disclosed to the Arbitrator that those assumptions were "PPI's original basis for its definition of equitable remuneration", suggesting that they greatly understated reality. Similarly, Price Waterhouse, in their report (para. 1.6.2) recorded their view that Tariff No. 2 "which factors in an anticipated bar spend as well as the average admission prices, when calculating the percentage of turnover it represents, is appropriate", adding that the average bar spend of IR£5 per head included was unlikely to be overstated. Subsequently in that report (para. 2.4) it was stated that Tariff No. 2 was "based on a percentage of turnover which assumes a IR£5 admission charge at the door and a IR£5 bar spend for each attendee".

Secondly, the baseline rates have increased since 1991 in accordance with the C.P.I..

Thirdly, the Arbitrator in his award recorded a closing submission made on behalf of PPI urging that Tariff No. 2 is equitable because, while not directly based on turnover, certain calculations have been done to equate it with a percentage of the notional or assumed turnover. There is a considerable degree of opacity as to the percentages which the tariffs represent. In its initial submission to the Arbitrator of 16^th August, 2000, PPI stated that the tariff range established by it using the IR£10 average spend resulted in a tariff range which claimed an average of 3.6% of the average revenue generated by each customer. The internal memorandum of PPI exhibited in an affidavit of Mr. Doyle filed on behalf of PPI referred to earlier and originating from July, 1995 discloses that the average Tariff No. 2 licence fee (i.e. fee per event) worked out at approximately 3% of turnover, presumably, based on the foregoing notional admission price and bar spend.

Fourthly, the "actual percentage of turnover payable by a venue" increased as the turnover level rose (Price Waterhouse report at para. 1.6.1). The degree of variation upwards of the percentage was not indicated. While it is clear that Price Waterhouse (paras. 1.6.2, 1.7 and 2.3) had misgivings about the concept of a "tiered charge", rather than a straight line charge, they stated that the percentages which formed the basis of the charges in 1994 for all attendance bands appeared reasonable.

8. Differences between the methodology suggested by the plaintiff and Tariff No. 2

A comparison of the methodology for determining equitable remuneration suggested by FGS and Tariff No. 2 discloses the following areas of divergence:

(a) FGS have chosen a benchmark which is stated to be based on an average of European comparators, although the plaintiff suggested that a benchmark below the IMRO rate is the appropriate benchmark. In Tariff No. 2 PPI have constructed a tariff structure in which the baseline rates are related to notional turnover on an incremental basis.

(b) The FGS model incorporates an event length adjustment, whereas Tariff No. 2 does not.

(c) The FGS model is adjusted according to the capacity of the venue, whereas the Tariff No. 2 structure is based on actual attendance at the event. Both at the arbitration and on the appeal PPI indicated that this divergence was not irreconcilable. It was indicated that PPI was prepared to accept capacity of the venue, rather than actual attendance at an event, as the yardstick if the fire certificate was in fact available.

(d) In the FGS model the band width of the capacity bands is broader than that of the attendance bands in Tariff No. 2, allowing for more frequent variation upwards in the baseline rates in the latter.

9. Approach adopted by the Arbitrator in his award in outline

It has to be acknowledged that the evidence presented, and the submissions made by the parties, to the Arbitrator as to what constituted equitable remuneration presented him with two positions which can only be described as being poles apart and, in consequence, an extremely difficult task.

In his award, the Arbitrator determined that equitable remuneration payable by a nightclub owner to PPI should comprise two elements.

The first element should be a fixed fee in the nature of a standing charge in recognition of the commercial entitlement of PPI to receive remuneration even if one record, which forms part of the repertoire of PPI, is played. This fixed fee should be paid by way of an initial on-account payment covering the entitlement to play the first and any subsequent record for a period of one year. The amount of the fixed fee for the year 2000 was fixed at IR£200, the relevant fixed fee in relation to earlier years being adjusted in accordance with the C.P.I. I did not understand the plaintiff to have any objection with this element of the equitable remuneration as determined by the Arbitrator.

In relation to the second element of the equitable remuneration, the Arbitrator created a tariff structure similar to Tariff No. 2. This provided for a baseline rate on the basis of attendance as illustrated in the following table:

Tariff Rate Bands

Attendance Tariff Rate

(adjusted) IR£

0- 50 11.75

51 – 100 35.49

101 – 150 58.99

151 – 150 82.49

201 – 250 105.99

251 – 300 129.49

301 – 350 153.00

351 – 400 176.50

401 – 450 200.00

451 – 500 230.21

501 – 550 262.05

551 – 600 295.59

601 – 650 330.91

651 – 700 368.08

701 – 750 407.18

751 – 800 448.30

801 – 850 491.52

851 – 900 536.93

901 – 950 584.63

951 – 1000 634.70

The award provided that in the case of an attendance in excess of 1,000 the baseline rate was to be by agreement with PPI.

While the Arbitrator chose actual attendance, rather than venue capacity, he determined that the applicable attendance band for the calculation of the tariff should be 80% of the actual attendance to allow for the fact that admittance to the nightclub may have been on a concessionary basis and also for the fact that all of the patrons may not stay on the premises for the entire duration of the event.

In his award the Arbitrator also provided for the following:

(a) An event length adjustment, although he did not illustrate its effect in tabular form. He suggested that a range of three to four hours is the norm for an event and that any deviation from that should be the actual length of the event as a proportion of 3.5 hours.

(b) An admission price adjustment factor, which, as the following table illustrates did not follow the price adjustment factor provided for in Tariff No. 2, which was adopted by FGS:

Price Adjustment Factor

Gross Admission Adjustment Factor

Price Range (IR£)

Nil - 3.00 0.50

3.00 – 4.99 0.67

5.00 – 6.99 1.00

7.00 – 8.99 1.35

9.00 – 10.99 1.68

Higher prices should be adjusted pro rata thereafter.

To compute the equitable remuneration for the venue the subject of the reference, the Arbitrator applied the foregoing structure to "Laceys", assuming:-

(i) an actual attendance of 852 and an adjusted attendance of 682 (i.e. 80%),

(ii) no event length adjustment, and

(iii) no admission price adjustment.

The per event charge in 2000 worked out at IR£368.08. Adjusted in accordance with the CPI the per event charge in 1991 worked out at IR£296.12.

By comparison, under Tariff No. 2 the per event charge on the same assumptions other than adjusting the attendance (i.e. assuming an attendance of 852), would have been IR£441.24 in 2000.

Applying the FGS formula on the basis of assumptions (ii) and (iii), and on the basis of the evidence contained in the BDO report (Appendix 4) that the capacity of "Lacey's" was 714, the per event charge, at its highest, would have been IR£25 in 2000. This figure does not take account of the submission by the plaintiff that the IMRO rate (IR£15.23) should be the upper limit of the PPI rate.

In summary, as regard the per event tariff, ex facie, the Arbitrator's award draws on both the FGS model and Tariff No. 2 as follows:

I. It is structured in the same way as Tariff No. 2.

II. The structure is predicated on the rate varying in accordance with actual attendance, as in Tariff No. 2, but subject to a reduction of 20%. The bands also differ up to the 100 attendance level, but this is a minor divergence.

III. Following the FGS model, it incorporates an event length adjustment.

IV. The price adjustment bands are not in line with those in Tariff No. 2, which were adopted by FGS.

According to a table put before the Court by Counsel for PPI, the Arbitrator's baseline rates, taken at the mid point in the attendance bands and allowing for the 20% reduction, represent a fee per attendee in a range from IR£0.38. to IR£0.52.

I now propose considering the award in depth to ascertain how the Arbitrator has rationalised his determination.

10. Rationale underlying the per event fee as disclosed in the award

In giving a resumé of the evidence adduced before him, the Arbitrator recorded that the combination of a number of key factors, of which music was only one, was widely accepted by the parties as giving rise to the success of a nightclub. However, the "degree of importance of music and the other factors, especially drink was a matter of difference" between the witnesses. Notwithstanding such differences, the Arbitrator unequivocally concluded that the use of recorded music in a nightclub where recorded music, as opposed to live music, is the choice of the proprietor, is "the driver whereby the entire package is provided". He expanded on this proposition as follows:

"Without music there is no dance licence. With the dance licence comes the ability to provide a late night venue where without doubt the ability to sell drink is the key issue. The circumstances whereby this comes about depends upon the music. This is a function of our drink licensing laws. In a nutshell music is a key requirement and as a consequence warrants a substantial payment."

It is clear from the award that the Arbitrator considered that, in reaching his decision, he was not bound by the submissions of the parties as to the alternative approaches which he should use. He stated that he was not choosing between the alternatives placed before him. He noted the approach adopted in some of the authorities which had been cited to him. He also had regard to dictionary definitions of, for instance, "equitable" and "remuneration". He expressed the view that the authorities and the definitions all pointed to the overall proposition that he might fix the amount of the remuneration by reference to any individual basis subject to the proviso that the basis should be "fair or equitable in all the circumstances". He reiterated that there were no absolute yardsticks and he was forced to rely upon his own judgment applying the criteria he had identified to fix on a level he believed to represent "fair payment in all the circumstances". He stated that his decision reflected many of the underlying criteria urged upon him by the plaintiff, while incorporating much of the existing PPI tariff which he considered was broadly a fair structure incorporating many of the key ingredients which he considered appropriate and many of the international factors listed in the FGS report.

I propose considering first the features of the Arbitrator's decision in relation to the per event fee which are non-controversial or, alternatively could not, in my view, be regarded as constituting a significant error which would have a vitiating effect. These are:

(a) The event duration adjustment:

The Arbitrator's approach to this feature is in line with the approach suggested by the plaintiff and requires no further consideration.

(b) The attendance adjustment:

The Arbitrator chose actual attendance, as advocated by PPI, rather than potential attendance based on the capacity of the venue, as advocated by the plaintiff, as the basis of the adjustment but, for the reasons he indicated, on the basis of 80% of actual attendance. He was of the view that a tariff band which reflected actual attendance was inherently fairer than one which was based on notional attendance, because notional attendance might not be achieved in a particular premises. However, he qualified his decision on this feature in stating as follows:

"In reaching my decision I have based it upon an underlying level of actual attendance and a requirement on the part of the promoter to provide that information on request to PPI. I am, however, prepared to accept that at a practical commercial level the parties can agree to substitute the fire officer's certificate for the actual attendance."

It is clear that it was indicated to the Arbitrator that PPI was prepared to compromise on the underlying basis of the attendance adjustment. In the circumstances, it requires no further consideration.

(c) The admission price adjustment:

Both the plaintiff and PPI recognised that fairness required that a price adjustment figure be incorporated into the tariff structure and, as I have indicated, the plaintiff adopted the PPI price band range. The price band range adopted by the Arbitrator differed from the range which had been suggested to him. He explained his approach to this feature as follows:

"The price adjustment factor should in my view be weighted in such a way that those with higher prices than the norm should pay proportionately more as I consider that in such cases the concept of break-even analysis suggests that with generally comparable standards and cost factors they gain more on a per person basis from the promotion of such events."

The theory underlying the weighting and its appropriateness will be considered later. At this juncture, all that it is necessary to record is that the application of an admission price adjustment is non-controversial.

The major areas of contention in relation to the fee per event fixed by the Arbitrator are the manner in which he stratified the attendance into bands and the baseline rates assigned to each band. It was contended on behalf of the plaintiff that it is impossible to work out why the Arbitrator picked the particular baseline figures he picked. I propose analysing the award to see to what extent that contention is borne out.

It is clear that the Arbitrator rejected the plaintiff's contention that the IMRO rate should represent the upper limit of the PPI rate. Moreover, he rejected the IMRO rate as a comparator. He also, in reality, disregarded the European comparators proffered by the plaintiff. At the end of his award he stated:

"In my decision, I clearly reject the suggested amount put forward by the applicant in the referral as being entirely inadequate".

The following observations made by the Arbitrator give insight into his overall approach to the matter:

(i) He referred to evidence which had been given as to the arrangement with some of the smaller commercial radio stations under which the rate of tariff as a percentage increases as the turnover increases, which he considered to be inherently fairer than the approach adopted by IMRO. Prefacing his remarks by saying that it was not directly relevant, he recorded evidence of the agreement between PPI and the major commercial radio stations under which the tariff applicable to the stations is based on a percentage of total turnover (including advertising, promotions and sponsorship), the relevant percentages being 4.2% of the first IR£1 million, 4.5% between IR£1 million and IR£4 million and 5.2% above IR£4 million.

(ii) Both in the context of rejecting the IMRO rate and in outlining the factors which had informed his decision, he laid particular emphasis on the provision contained in s. 22(4) of the Act of 1963 which empowers a court, in assessing damages for infringement of copyright, to have regard to "any benefit shown to have accrued to the defendant by reason of the infringement". In my view, in so doing, he misinterpreted the legal position because that provision is concerned with the quantification of damages for a civil wrong, not with quantification of equitable remuneration. However, from the position he adopted, he suggested that it was reasonable to infer that "the larger the number of people present the greater the benefit accruing to the user of the music" and that equity demanded that "the larger the number of people availing of facilities provided directly by the use of the PPI repertoire the more the commercial venue should pay for that entitlement". Later he observed that the overall benefit to the operator of the venue is a total package of admission price and similar charges and the profit derived from the sale of alcohol.

(iii) He theorised that in any commercial enterprise there is a critical financial point, generally described as the break-even level, at which gross profit generated is sufficient to cover the fixed overheads. Thereafter the rest is "real profit". He considered that an equitable approach required him to take into account that the profitability of the venue rises significantly once the break-even level has been achieved. Accordingly, his selected level of charges, after a certain point, rises at a rate faster than the rate of increase in the attendance.

(iv) He rejected the notion of a tariff based on turnover, obviously meaning actual turnover, largely for reasons of commercial confidentiality and practicability of its application.

(v) Focusing on commercial reality, he anticipated that a tariff based on a percentage of admission revenue alone could be thwarted by "rebalancing of the overall revenue gathering package".

(vi) He rejected a fee based on profitability because many factors contributed to the success of a nightclub other than music, and also for reasons of administrative difficulty and confidentiality. Later, he reiterated his finding as to the profitability of a nightclub in the following terms

"I accept that the ultimate success of the venue is not a direct function of the PPI repertoire."

(vii) A tariff based on revenue and a tariff based on the number of people in attendance for the duration of the event are general concepts which he has incorporated in his final decision.

(viii) The increments he chose were more in line with the current IMRO rate, than, presumably with Tariff No. 2, but without the upper limit, which, prima facie, seems inconsistent with his analysis of the relevance of the IMRO rates in the context of fixing equitable remuneration.

(ix) Based upon the various estimates for profitability of a nightclub such as "Laceys", he considered the magnitude of the payment scale he devised to be equitable. Earlier in his award he had regretted the absence of actual information as to trading profitability. For the purposes of the arbitration he had accepted that the figures provided by BDO indicated the general magnitude of profitability of nightclubs such as "Laceys".

From the foregoing, it seems clear that the concept of revenue, turnover and profitability are factored into the baseline rates assigned by the Arbitrator to the various attendance bands. Therefore while he disavowed basing his charges on those previously sought by PPI, it would appear that he adopted an approach to the baseline rates similar to that embodied in Tariff No. 2. What is not apparent is –

(I) the notional or assumed revenue (admission price revenue and bar spend) on which the baseline rates are based, or

(II) the range of percentages which underlie the assessment that the per event fee bears an equitable relationship to profitability.

The plaintiff's major criticism of the Arbitrator's award is that the Arbitrator failed to take account of the fact that the music in a nightclub, while essential to the operation of the nightclub, does not contribute to profitability. In fixing a tariff on the basis that fairness and reasonableness is derived from a profitability-related concept the Arbitrator has fallen into significant error which is a vitiating error, it was contended. Allied to that criticism is a secondary criticism that the Arbitrator erred significantly and in a vitiating manner in rejecting the comparisons proffered by the plaintiff, which it was contended he rejected for inappropriate reasons.

It is necessary to consider what guidance can be derived from the authorities on both of those topics.

11. Tariff reflecting turnover and/or profitability: the Authorities:

Insofar as he did so in reliance on authorities, Counsel for the plaintiff supported his main criticism of the Arbitrator's award – that, in fixing a tariff on the basis of fairness or reasonableness derived from a profitability related concept, he committed a vitiating error – primarily by referring to decisions of the Copyright Tribunal in the United Kingdom and the Chancery Division of the High Court on appeal from that body.

The most pertinent of the authorities for present purposes is Performing Right Society Limited v. The British Entertainment and Dancing Association Limited (BEDA), 1989, unreported, the Performing Right Tribunal, the forerunner of the Copyright Tribunal. That case was concerned with the level of royalty payable to PRS by the operators of commercial dancehalls and commercial discotheques. PRS proposed a royalty based on a percentage of takings from all sources. This was rejected by the Tribunal. In analysing the proposal, the Tribunal referred to the evidence given by economists who were in agreement that in economic theory they would expect the licence fee to be based on total takings only where there was a close causal relationship between the music and the extent of the takings. On the evidence, the Tribunal found that there was no close direct relationship between the PRS music and the total receipts of a discotheque, nor did PRS share the risk of the enterprise. Having regard to the discotheques with which it was concerned generally, the Tribunal concluded that music was part, though not always the most important part, of the entertainment package which generated the turnover. Moreover, it was of the view that in the case of an individual discotheque it would be difficult to attribute a particular portion of turnover to music and, even if such attribution could be made, it would vary widely from one discotheque to another for the reasons stated in the following passage from the judgment:

"Because the same repertoire of music is effectively used by all discos for the same number of hours, the music used cannot account for the wide variations in turnover, either in total or in proportion to capacity or attendances. As already mentioned other factors in the package such as the level of investment in premises, equipment, furnishings and décor and less tangible factors such as management skills, including advertising and promotion and the skills of disc jockeys in programming and presenting the music and acting as hosts vary from disco to disco and are, in our view, largely responsible for differences of takings. The location of a disco – itself often the result of management decisions – probably accounts for any remaining variation in takings. It would follow that any proportion of turnover which could be attributed to the music would be at its lowest where takings were highest".

Therefore, the Tribunal determined that it would not be reasonable to calculate the licence fee as a proportion of receipts or turnover. The Tribunal also determined that it would not be reasonable to fix the fee as a proportion of admission receipts, on the basis that many of the same arguments applied. In relation to a fee based on profits, while superficially it might seem to have an advantage over a fee based on all receipts or a fee based on admission receipts in taking more account of ability to pay, it was also rejected on the basis of the same arguments.

The appeal from the Tribunal to the Chancery Division of the High Court in BEDA case is reported as the Performing Rights Society Limited v. The British Entertainment Dancing Association Limited [1993] E.M.L.R. 325. In dismissing the appeal, applying an "irrationality" test, Hoffman J. in noting why the Tribunal rejected the PRS proposal, stated as follows in his judgment:

"The PRS scheme was rejected on the ground that there was an insufficient causal relationship between the musical works and the gross receipts. It was true that one could not very well operate a disco without music, but then one could not operate it without electricity and many other things either. It could not be suggested that it would be fair for the suppliers of such utilities to have a percentage of the gross receipts. All discos played much the same music, but their takings varied widely. The variations were attributable to their ambience, location, quality of food and drink and so on."

In The Association of Independent Radio Companies Limited (AIRC) and Anor. v. Phonographic Performance Limited [1993] E.M.L.R. 181 the issue before the Copyright Tribunal was the settlement of the terms on which commercial radio stations were to be licensed to broadcast sound recordings in the repertoire of PPL. Both parties had agreed that a revenue-based approach was appropriate. Nonetheless, the Tribunal made some observations on the appropriateness of a revenue-based approach. It pointed out that it was an imperfect measure of value because the revenue on which the royalty would be based was created by the station's entire broadcast output, its promotion of itself and its image as an advertising medium. PPL's music was only part of that. In the case of a "talk" station, a station having use of the repertoire of PPL for less than 15% of total broadcast hours, in its determination the Tribunal assigned a separate rate of royalty, which it described as being "nominal". In considering whether the tariff should be based on a flat rate or graduated percentage of revenue the Tribunal stated as follows:

"The PPL proposal for graduated bands of revenue with increasing percentage rates of charge is based on the view, which the evidence bears out, that increasing revenue leads in general to increasing profitability. PPL therefore argued that to larger stations the use of the PPL repertoire which produces greater profit has a greater value. To the extent that it assumes a broad correspondence between revenue growth and profitability, a tariff based on bands of revenue at escalating rates is in essence an indirect claim for profit sharing. We reject this approach … In a sense it would be better for PPL than profit sharing because it would provide them with an increasing share of increasing revenue regardless of the profitability of the individual station. While in general increasing revenue leads to increasing profitability, that is not so in all cases. …"

In its determination, the Tribunal adopted a single standard rate of royalty, but gave relief in the form of concessionary rates for stations which were likely to be on the margins of profitability, the relevant revenue threshold being indexed linked.

Later in its decision, in outlining the basis of its determination, the Tribunal in reviewed the many considerations which, in its view, severely restricted the value of the PPL licence to any individual user, including the fact that the PPL licence was not of itself sufficient for a broadcasting licence to be made effective. The broadcaster also required a licence from the PRS in respect of the author's copyright. Although it had adopted a tariff structure which was different from that which had been agreed between the applicants and the PRS, and although it had not accepted the principle of escalating rates in revenue bands, the Tribunal nonetheless considered that the overall yield on the PRS tariff was relevant. Although, perhaps, more pertinent to the issue of the use of comparators, which will be dealt with later, it is convenient to record at this juncture the views of the Tribunal on the argument advanced by the applicants that the PPL licence should be worth less than the PRS licence because the latter related to the primary product, the song, whereas the former related to a secondary exploitation, the recording. The Tribunal stated as follows:

"We do not accept that that can be a general principle. In many cases a hit succeeds because of the artist's treatment of the song. In many cases the artist is also the composer. The applicants have also argued that allowance should be made for the greater extent of the PRS repertoire used on commercial radio. We do not regard this as a significant point. There are previous decisions … on related copyright issues the effect of which seems to have been to put the PPL tariff at an advantage to that of the PRS … We do not consider that we are bound in principle to maintain any fixed relativity between the yields of the tariffs. The licensed use of both copyrights is essential to the applicants. Taking all these matters into account we consider that the royalty yield of both tariffs should be in the same general range. In reaching this view we recognise that by reason of the differences in the tariff structures and the licence conditions it is unlikely that any precise overall comparison will ever be possible; that in case of individual stations the two tariffs may have significantly different impacts, and that industry-wide the relative impacts of the two tariffs may fluctuate."

Of course, in urging for a differential between the PPI rate and the IMRO rate, counsel for the plaintiff was relying on the assertion that the IMRO protected copyright was more valuable than the PPI protected copyright because, in the case of the former, of the copyright owner's power of veto under the statutory framework created by the Act of 1963, which is a different argument to the argument advanced in the AIRC case. Moreover, it should also be emphasised that under the relevant legislation in the United Kingdom the Tribunal was determining the terms of licences, including royalty rates, for use of both the author's copyright and the sound recording copyright on the basis of what was reasonable in all the circumstances.

The most recent decision of the Copyright Tribunal in which a "revenue-based" proposal for the determination of a royalty was considered was British SKY Broadcasting Limited (SKY) and Anor. v. The Performing Rights Society Limited [1998] E.M.L.R. 193. In that case, the Tribunal was asked to fix the royalty payable by SKY, a satellite television broadcaster, under a licence to broadcast musical works from the repertoire of PRS for a five year period from the date of the reference. PRS sought a royalty of 3% of SKY's total relevant revenues. The Tribunal reviewed its, and its predecessor's, previous decisions involving a "revenue-based proposal" including the following:

(a) It considered the decision of its predecessor, the Performing Right Tribunal, in The Independent Television Companies Association Limited (ITCA) and Independent Television News Limited v. The Performing Right Society Limited (PRT No. 38/81), unreported, to which I will be referring later in the context the use of comparisons. The Tribunal quoted the following passage from the decision of its predecessor:

"The Tribunal is unable to accept that there is any adequate correlation between the use of music from the PRS repertoire by the Companies and the [revenue] of those Companies … The question is … whether the fact that music is – or may be to a greater or lesser extent – part of the package which attracts the television audiences and accordingly generates [revenue], establishes or helps to establish a sufficient connection between music and revenue, to make it reasonable to relate the royalty for the music use directly to [revenue]. We are satisfied that it does not. First, the television programme or commercial is the product of a wide variety of artistic and technical skills, of which music is only a part and not we think in general the predominant part; the smaller the significance of the contribution of a part to the whole, the less certain can any attribution of a generative effect be. (The contrast with sound radio and, say, grand opera, is we think illuminating). Second, many factors influence [revenue] which are wholly irrelevant to the music component in the programmes; we particularly instance the success of television advertising as against all other forms of advertising, and the commercial evaluation by sales directors of companies of whether their companies' advertising is best to be placed for the greatest cost effectiveness."

(b) In relation to the BEDA decision, and in particular, the observations of Hoffman J. on appeal, the Tribunal stated as follows:

"The analogy with electricity is, with respect, not entirely fair. Music, unlike electricity, is undoubtedly a part of what the SKY subscriber is buying. What offends one's common sense is that a single component of a complex final product such as a television programme should be remunerated on a basis which rises and falls with the revenues obtained from the final product, when that component may have had nothing at all to do with those changes in revenue."

(c) Apropos of the decision of the copyright Tribunal in the AIRC case to adopt a percentage of advertising revenue basis as a tariff for commercial radio stations, it was pointed out that the course was adopted because both parties urged that solution on the Tribunal, notwithstanding which the Tribunal expressed reservations.

The Tribunal also referred to a decision of the US District Court for the Southern District of New York, (United States v. ASCAP [1993] 1 Trade Cases 69644), a case concerning commercial television, in which the court regarded a revenue formula as inappropriate because "the value of the rights acquired … is not ordinarily a direct function of the station's revenue". It also referred to two other foreign decisions, which had been put forward by PRS: a decision of the Australian Copyright Tribunal in 1985 and a decision of the Singapore Copyright Tribunal, both of which it rejected, implying that they were not helpful.

On the basis of the authorities it had reviewed, the Tribunal stated as follows at para 6.10:

"What the decided cases show is that, before one can use revenue as a measure of the value of music to a broadcaster, one must be satisfied that there is an adequate nexus between the use of the music and the revenues earned."

On the facts of the case before it, the Tribunal determined that it would be unreasonable to adopt a percentage of revenue basis. It would be particularly unreasonable to allow the PRS a direct percentage share in the applicants' revenues since the PRS was not a co-adventurer with the applicants in their broadcasting business.

To properly assess the significance and relevance of the foregoing authorities a number of factors have to be borne in mind. These are:

(i) The jurisdiction enjoyed by the Copyright Tribunal (and its predecessor) was to resolve the dispute in issue or continue the licence in issue on such terms "as the tribunal may consider to be reasonable in the circumstances." In the SKY case, the Tribunal emphasised that it would not be correct to approach the issue before it as one of whether a revenue basis was correct in principle; its task was to determine which approach was reasonable in the circumstances of the SKY case, a point which is expressly alluded to by the Arbitrator in his award.

(ii) In both the AIRC case and the SKY case the Tribunal recognised that it had a duty to moderate the monopolistic position of the collecting society in setting a reasonable royalty, a point which was also expressly alluded to by the Arbitrator in his award.

(iii) The nature of the revenues in which the copyright owner was claiming a stake in the various enterprises in issue needs to be considered. In the case of the "disco" enterprise in the BEDA case, PRS was seeking a percentage of annual gross takings from admission receipts and all activities conducted at the establishment including sums paid for food and drink. The evidence before the Tribunal was that something like two-thirds of the turnover at discos was then derived from the provision of food and drink. In the AIRC case the Tribunal redefined the revenue base to consist of revenue from advertising plus revenue from sponsorship other than "off-air sponsorship", finding that certain specified deductions should be made to arrive at the net revenue of the commercial radio stations on which the royalty would be made. In the SKY case the revenue at issue was principally generated from charging users of the service (subscriptions and cable fees) and advertising. The proposal of PRS for a tariff based on a percentage of revenue related to total revenues after certain specified deductions. In the ITCA case the revenue at issue was net advertising revenue, being equivalent to 85% of gross income from advertising allowing a 15% reduction to cover advertising agents' at the commission. In all cases what was in issue was actual revenue or turnover.

The only decision which the parties identified in which a tribunal adopted a percentage of revenue approach in the context of nightclubs is the decision of the Copyright Tribunal in Australia in Reference by Australian Performing Right Association Limited under s. 154 of the Copyright Act, 1968 [1992] 25 I.P.R. 257. In that case, the Australian Performing Right Association Ltd., which appears to fulfil a similar function in Australia to IMRO in Ireland, reached agreement with two organisations which represented over two-thirds of existing nightclubs to a licence fee based on 1.69% of the gross sums paid for admission (not total turnover). Before the Arbitrator it was submitted on behalf of the plaintiff that this authority is of little assistance, a submission which it is difficult to gainsay.

12. Use of Comparators: the Authorities

Given that this is the first appeal under s. 40 or s. 41 of the Act of 1963, it is not surprising that all of the authorities referred to by the parties in their submissions as to the relevance of comparator evidence and its proper use are decisions of either foreign copyright Tribunals, foreign courts or the European Court of Justice.

Counsel for the plaintiff emphasised the fact that there is a shared concept of equitable remuneration both globally, through adherence to the provisions of the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations signed in Rome on 26^th October, 1961 (the Rome Convention), and, within the European Union, through application of Council Directive 92/100/EEC of 19^th November, 1992 on rental right and lending right and on certain rights relating to copyright in the field of intellectual property (the 1992 Directive). Australia and Canada are signatories to the Rome Convention.

Before considering the authorities, I propose, in the interests of clarity, outlining the manner in which the concept of equitable remuneration is deployed in the Rome Convention and in the 1992 Directive and the practical application of the provisions of both in this jurisdiction.

Article 12 of the Rome Convention provides as follows:

"If a phonogram published for commercial purposes, or a production of such phonogram, is used directly for broadcasting or for any communication to the public, a single equitable remuneration shall be paid by the user to the performers, or to the producers of the phonograms, or to both. Domestic law may, in the absence of agreement between the parties, lay down the conditions as to the sharing of this remuneration."

Article 1 of the Rome Convention provides that the protection granted thereunder shall leave intact and shall in no way affect the protection of copyright in literary and artistic works.

Article 8.2 of the 1992 Directive provides as follows:

"Member States shall provide a right in order to ensure that a single equitable remuneration is paid by the user, if a phonogram published for commercial purposes, or a reproduction of such phonogram, is used for broadcasting by wireless means or for any communication to the public, and to ensure that this remuneration is shared between the relevant performers and phonogram producers. Member States may, in the absence of agreement between the performers and phonogram producers, lay down the conditions as to sharing this remuneration between them."

Article 14 of the 1992 Directive provides that the protection of copyright-related rights thereunder shall leave intact and shall in no way affect the protection of copyright.

The concept of a single equitable remuneration embodied in both the Rome Convention and the 1992 Directive relates to the rights of the performer and the record producer, not to the author's copyright protected by Part II of the Act of 1963. The Court was informed by its counsel that, prior to the enactment of the Act of 2000, PPI made an ex gratia payment to performers out of the equitable remuneration it collected. The approach of the 1992 Directive is now reflected, and given effect to, in ss. 205 and 208 of the Act of 2000. By virtue of the provisions of s. 208(1) the performer has a right to equitable remuneration from the owner of the copyright in sound recording. The Court was informed that, in practice, this means that PPI, when licensing discotheques and such like, will include the performer's element in their tariffs to take account of the provisions of ss. 205(2) and 208. (See Clarke on Irish Copyright and Design Law, Butterworth's, Issue 2, May 2003 at E1023). Currently, the PPI's equitable remuneration is divided equally with the performers, but there is a single equitable remuneration. Counsel for the PPI pointed out that none of these matters had been taken into account in the criticism made of the Arbitrator in the course of the proceedings, nor were they taken into account by FGS.

In urging that the best guide in fixing equitable remuneration is by reference to other agreements which have actually been concluded in the market place between parties similarly situated to the plaintiff and PPI under agreements which relate to a similar type of product to the product in issue in these proceedings, counsel for the plaintiff cited, and commended the approach adopted in, the decision of the United States Court of Appeals for the Second Circuit in 1990 in American Society of Composers, Authors and Publishers (ASCAP) v. Showtime/The Movie Channel 912 F. 2d 563. ASCAP is one of the two major performing rights organisations in the United States of America. The other is BMI (Broadcast Music Inc.). The operations of ASCAP are governed by a consent decree in an anti-trust suit brought by the US Government against ASCAP in 1941. As amended in 1950, the consent decree requires ASCAP to offer users of music a so called "blanket license", the non-exclusive right to perform any music in the ASCAP repertory. The amended consent decree also provides that, in the event of a dispute concerning the amount of a fee for the blanket license, the District Court for the Southern District of New York is authorised to determine a reasonable fee. The proceedings being relied on by the plaintiff were the first challenge to a fee determination for a blanket license. The task of the court was to determine a "reasonable fee" for the blanket license. At first instance, the copyright user (STMC), the operator of two pay cable television network services, put forward a methodology other than a comparison methodology for the determination of the reasonable fee. That submission was rejected at first instance and was not pursued on appeal. At first instance the comparison methodology was adopted.

The comparators in issue were the terms of blanket licenses held by two other pay cable services, Home Box Office (HBO) and the Disney Channel from ASCAP, which were rejected at first instance, and the terms of blanket licenses granted by BMI to HBO and STMC, which were accepted at first instance subject to adjustments to account for the difference in value of the ASCAP license and the BMI license, by reason of, for example, ASCAP's repertory being three times the size of the BMI repertory. On appeal to the Court of Appeals for the Second Circuit, where judgment was delivered by Newman J., it was held that the court at first instance had not erred in rejecting the terms of the ASCAP licenses. Specifically, it was held that the court at first instance had not erred in concluding "that HBO had paid a price higher than fair value because of ASCAP's undue market power in the field of licensing music rights, i.e. a price higher than would have obtained if there existed a freely competitive market for music rights or at least a market more competitive than the one currently functioning". On the other hand, it was held that the court of first instance had not erred "in determining that the BMI licence to STMC was sufficiently comparable to provide guidance towards a reasonable rate for an ASCAP licence . . ."

While the decision of the United States court is helpful in drawing attention

to -

(a) "the general utility of comparable sales in determining the fair value of property" (per Newman J.), and

(b) the importance of a mechanism (the fixing of a reasonable fee by an

independent adjudicator) for "disinfecting" what would otherwise be an anti- competitive situation, which mechanism should not be a mere "placebo",

that is the limit of its usefulness for present purposes.

Two decisions of the European Court of Justice, in particular, were relied on by the plaintiff.

The earliest in time, Ministère Public v. Tournier (1989) ECR 2521 concerned questions referred by an appeal court in France to the Court of Justice for a preliminary ruling. The factual background was a complaint by the operator of a discotheque in France that the sums demanded by SACEM (Societé des Auteurs Compositeurs et Éditeurs de Musique), the French copyright-management society, were excessive and contrary to Community Law. In an earlier case, Basset v. SACEM [1987] ECR 1747, the national court had found that SACEM was to be regarded as an undertaking occupying a dominant position in the Common Market. In the Basset case the Court of Justice stated that the conduct of that undertaking would be contrary to the then Article 86 of the Treaty of Rome if it engaged in abusive practice such as, in particular, the imposition of unfair conditions. In the Tournier case the first and third questions referred by the French court concerned the level of royalties fixed by SACEM in the context of Article 86. The Court of Justice, giving judgment on 13^th July, 1989, stated as follows at para. 38:

"When an undertaking holding a dominant position imposes scales of fees for its services which are appreciably higher than those charged in other Member States and where a comparison of the fee levels has been made on a consistent basis, that difference must be regarded as indicative of an abuse of a dominant position. In such a case it is for the undertaking in question to justify the difference by reference to objective dissimilarities between the situation in the Member State concerned and the situation prevailing in all other Member States."

The Commission had carried out a comparative exercise of royalties charged by copyright management societies in EEC countries. The result was criticised by Advocate General Jacobs in his opinion. At para. 62 he outlined the most important criticism, which the Commission itself accepted, which was that a single comparative exercise was clearly insufficient to give an overall picture of possible disparities, particularly in view of the fundamental differences between the method of assessment used by SACEM as against the societies in other Member States. The Court took a less critical view stating at para. 37 of the judgment:

"[The Commission] stated that in conducting an inquiry into royalties charged to French discothèques by SACEM it asked all the copyright-management societies dealing with music in the Community to inform it of the royalties charged to a national discothèque with specific characteristics as regards the number of places, area, opening hours, location, cost of entry, cost of the most popular drink and total annual receipts including tax. The Commission concedes that this method of comparison does not take account of the appreciable differences which may exist from one Member State to another regarding the number of people who go to discothèques, which depends on various factors such as climate, social habits and historical traditions. Nevertheless, if a royalty is many times higher than that charged in other Member States then it is clearly inequitable, and that, the Commission says, was the finding indicated by its inquiry."

The second decision of the European Court of Justice relied on by the plaintiff is a decision of 6^th February, 2003 in SENA v. NOS (Case C-245/00). This was a reference to the Court from a court in the Netherlands which raised questions as to the application of the 1992 Directive. The questions were raised in the context of proceedings between the Association for Exploitation of Related Rights (SENA) and Netherlands Broadcasting Association (NOS) relating to the determination of the equitable remuneration to be paid to performance artists and phonogram producers for the broadcasting of phonograms by radio and television. The Court held that, in the absence of any Community definition of equitable remuneration, it was not for the Community judicature to lay down the specific method for determining what constituted uniform, equitable remuneration; that was for the Member States alone to determine in their own territory ensuring, within the limits imposed by Community Law, and particularly the 1992 Directive, and adherence to the Community concept. (para. 34). The role of the Court was to provide the national court with the information it needed to assess whether the national criteria were such as to ensure that performing artists and phonogram producers received equitable remuneration in a manner consistent with Community Law. (para. 40). Article 8.2 of the 1992 Directive does not preclude a model for calculating what constitutes equitable remuneration that operates by reference to variable and fixed factors including "the tariffs set by the public broadcast organisations in the Member States bordering on the Member State concerned…provided the model is such as to enable a proper balance to be achieved between the interests of performing artists and producers in obtaining remuneration for the broadcast of a particular phonogram, and the interest of third parties in being able to broadcast a phonogram on terms that are reasonable, and that it does not contravene any principle of Community Law." (para. 46).

Counsel for PPI submitted that the decisions of the European Court of Justice are of limited assistance for present purposes: the Tournier case was concerned with abuse of a dominant position, not with the quantification of equitable remuneration; and, given that the SENA case, established that it was for the Member State (not the European Court of Justice) to set the criteria for determining what constitutes equitable remuneration, the value of the European comparators is reduced.

The approach adopted by the Copyright Tribunal in the United Kingdom and by the Chancery Division of the High Court, on an appeal from that Tribunal, to comparisons, both domestic and international, was canvassed by counsel for both parties in support of arguments for and against the value of comparators. From an analysis of the authorities chronologically, what emerges is as follows:

(a) The Performing Right Tribunal in the ITCA case considered the relevance and significance of negotiations and agreements which had previously taken place between the parties since the inception of independent television – in the period from 1955 to 1980. The Tribunal stated, at para. 46:

"If in the event the parties' agreements have not turned out to give what the Tribunal considers to be proper weight to all of the factors which the Tribunal considers relevant then it does not regard itself as precluded by past agreements from establishing a reasonable basis for royalties from 1 April, 1980 onwards."

(b) In the BEDA case, the Performing Right Tribunal, rejected evidence of rates of royalties charged in other European countries and in the United States and Canada and elsewhere on the ground that it had not been able to make a comparison which it considered reliable and satisfactory because conditions were different. On appeal, Hoffman J. noted the dismissal by the Tribunal of the foreign comparables as being irrelevant without demur.

(c) In the AIRC case the Copyright Tribunal introduced its commentary on comparison evidence by the following statement:

"It is for the Tribunal in assessing transactions cited as comparable to decide to what extent the rights licensed are of the same or a similar kind, whether the transactions were concluded at arms length and with neither side affected by stress, and whether they were affected by legal factors which do not apply in this case. It is then for the Tribunal to adapt any relevant comparators to the case under review".

As has been stated, what was in issue before the Tribunal was the settlement of the terms on which the applicants, commercial radio stations, were to be licensed to broadcast sound recordings in the repertoire of PPL. The applicants had argued that the Tribunal should be guided by the decision in Ministère Public v. Tournier. However, the Tribunal found that on the evidence before it, it was unable to compare sound broadcasting royalties within the European Community on any consistent basis. Apropos of the evidence before it on the royalties payable for broadcasting of recorded music in various European countries, particularly France, Germany and Spain, the Tribunal stated as follows:

"It is sufficient to say that this evidence convinces us that the structure and the functions of the sound broadcasting industry in each of the countries referred to are so different from those in the industry in the United Kingdom that no useful comparison can be made. The contrived nature of the applicant's expert evidence on this matter satisfies us that to attempt such a comparison could be dangerously misleading. Even if conditions in the broadcasting industry in any of these countries had been closely comparable with those in the present case, we find it difficult to envisage how we could usefully have adapted the royalty rates in question in view of the different legal regime which applies in each case."

(d) In AEI Rediffusion Music Ltd. v. Phonographic Performers Limited [1998] RPC 335 the central issue before the Copyright Tribunal was the appropriate royalty rate applicable to the business of providing a satellite music delivery service to subscribers of AEI for use as background music in their premises. The Tribunal reiterated the approach to comparisons adopted in the AIRC case and quoted the first passage from the decision in the AIRC case which I have quoted earlier. It was accepted that it was well established that, if the Tribunal was satisfied that there existed other licences which were sufficiently comparable to the licence under consideration, it should adopt a similar rate, absent any special circumstances. Had there been a number of pre-existing licences for satellite broadcast background music which the Tribunal had either settled, or was satisfied had been entered into consensually by parties with equal bargaining power, the Tribunal would adopt similar if not identical rates and conditions. Dealing specifically with the contention of AEI that in the AIRC case the Tribunal held that licences of different legal rights cannot be relied upon as comparators, the Tribunal stated as follows at p. 348:

"We do not read the decision as having decided this as a point of principle. The Tribunal in our view was merely holding that, for the reasons given in the preceding paragraph, they could not see how they could 'adapt such royalty to the facts of this case with any confidence'. In our view, the Tribunal is entitled to find a licence of a different right to the one in dispute as being relevant as a comparator if, in all the circumstances, this is appropriate. Likewise, it can disregard a licence of the same legal right if it is inappropriate as a comparator. The task of the Tribunal is to settle rates of remuneration for the use of copyright material, and it seems to us that the driving consideration should be commercial reality."

(e) In the SKY case, in which, as has been stated, the Copyright Tribunal was concerned with the terms on which the satellite television broadcasters should be licensed to broadcast musical works from the PRS repertoire, the Tribunal considered whether European comparables were appropriate. Referring to the decision in the Tournier case, the Tribunal stated at para. 10.1 as follows:

"We have no difficulty with looking at European comparables: indeed we are bound to. But we do not accept that the Directive has given them more weight than previously. Tournier stands only for the proposition that rates that are higher than elsewhere may be indicative of abuse. It was suggested by the PRS that the rates were higher in Europe. Even if that were so it would not mean that the rates had to be raised here."

The Tribunal was critical of an "averaged royalty" from European agreements, which it considered unhelpful, the average being "meaningless" in the context of the diversity of royalties on which it was based.

The Tribunal later quoted, and agreed with, observations of the Monopolies and Mergers Commission in a report of 1996 on Performing Rights concerning the complexity of the task of comparison in the following passage:

"One method might be to compare tariffs in the U.K. with those abroad. Different tariff structures in different countries, however, make comparisons difficult, since directly comparable tariffs are typically not available. Moreover, the use of such comparisons must take account of a variety of international differences: music may be valued differently in different countries as a result of the various roles which different types of music assume in the society; some countries on the European Continent . . . have legislation based on somewhat different principles to that in the U.K.; lastly, foreign tariffs are also generally set by monopoly providers and are subject to the behaviour of different national regulators of copyright tariffs. The PRS told us that while direct comparison of tariffs was not impossible, it was a complex task to take into account all the different factors, revenue bases and methods of charging applied by different societies."

The Tribunal concluded on this issue by stating that the European agreements did not really help it to decide where within the range it had to ascertain the royalty should lie, except perhaps to be a little more generous than it would otherwise have been.

(f) The Copyright Tribunal was concerned with the appropriateness and value of foreign comparables in a different context in British Airways PLC v. PRS [1998] R.P.C. 581 – in the context of a dispute as to the royalty charged under the tariff of PRS for in-flight entertainment. The Tribunal, having stated that it must compare the foreign tariff and see whether it had been arrived at in the same or similar circumstances and applying the same or similar considerations, following such consideration concluded that the royalty in issue was at the extreme end of the range of foreign rates of which it had evidence. There was little in the evidence to guide it as to where in that range the U.K. should lie. However, it accepted that the evidence of foreign rates justified some reduction in the rates payable in the U.K. In particular, the Tribunal stated that U.S. rates proffered as comparables should be regarded with very great caution, having outlined the context in which ASCAP and BMI rates are determined: in the consequence of consent decrees in anti-trust law litigation.

(g) In the context of comparing the IMRO rate with the PPI rate, counsel for the plaintiffs referred to the decision of the Chancery Division of the High Court (Jacob J.) in PPL v. Virgin Retail Ltd. (VR) [2001] E.M.L.R. The appeal from the Copyright Tribunal in that case concerned the settlement of the terms of a licence from PPL to Virgin Retail Ltd. to broadcast sound recordings on Virgin Megastores Radio, a live music station located in its Oxford Street store which broadcast by satellite to its other stores. The central issue was whether the service should be equated with that of a small independent radio station and should pay in accordance with the Tribunal's decision in the AIRC case or, alternatively, whether the service was comparable to the "narrow casting" business carried on by AEI and the royalty should be the same as the royalty paid by AEI in accordance with the Tribunal's decision in the AEI case. The Tribunal held that there were "close similarities" between Virgin Megastore's radio and an independent radio station and, accordingly, based the royalty on that paid by an independent local radio station pursuant to the AIRC decision but with minor adaptations. Jacob J. holding that there was no, or no sufficient, material before the Tribunal to justify its conclusion, allowed the appeal and remitted the matter to a differently constituted Tribunal. The passage from his judgment upon which counsel for the plaintiff relied is at para. 29 and is as follows:

"The Tribunal also rejected as a comparator what has been agreed between VR and the Performing Rights Society (PRS) namely in 1999 IR23,000 (for performance rights) and IR£2,000 (broadcast right). Its reasons are not particularly convincing. The first was that there was no evidence as to how the sums were calculated. But one seldom has such evidence for any comparator. All you know is the bargain made and not the calculations or other private thought processes of the bargainers. The second is that PPL, unlike PRS, is not entitled to payment for the public performance of records (see s. 72). That is true, but at the end what really matters in determining what is 'reasonable in the circumstances' is the amount which must be paid overall – that is to concentrate on 'commercial reality'. . . . There is no cross-appeal from the Tribunal's finding however and so the PRS bargain is not, for the purpose of this appeal, to be taken as a comparator, though a fresh Tribunal might find the bargain of some use."

Clearly the foregoing observations were obiter dictae. In remitting the matter, Jacob J. stated, at para. 42, that the differently constituted Tribunal might find the PRS bargain of some use or it might not.

Counsel for PPI referred to two decisions of the Australian Copyright Tribunal, in which the appropriateness of international comparators was considered and the weight to be attached to them. In the later decision: Reference by Australian Performing Right Association Ltd., under s. 154 of the Copyright Act, 1968 (1992) 25 I.P.R. 257, the Tribunal, at p. 268, stated as follows:

"In the course of our review of the evidence we were taken to material giving some information of what currently is charged for this type of use in the United Kingdom, Canada, the United States and South Africa. In some cases gross revenue is used as the base; in others it is not. Comparisons are very difficult to draw. The evidence does not enable us to be certain that the use is substantially similar to the use in question here. There are difficulties in selecting appropriate exchange rates and also in drawing comparisons when one is uncertain of the comparative purchasing power of money in different countries. And there is the fact that the existence of a rate elsewhere does not of itself establish that it is inherently correct. To rely on it as a benchmark may be productive of error . . . ."

What can be deduced from the authorities as to the appropriateness and usefulness of comparators in determining what is equitable remuneration for the purposes of s. 17(4) of the Act of 1963?

By their combined operation, s. 17(4) and s. 31(3) of the Act of 1963 clearly envisage the copyright owner and the copyright user agreeing the quantum of equitable remuneration. It is only if they cannot agree, if there is a dispute, that it falls to the Controller or to an Arbitrator, on a reference by one or other of the parties, to determine the amount of the equitable remuneration. The authorities recognise the value of comparable bargains where a court or a Tribunal is required to fix a reasonable fee or settle terms of a licensing arrangement which are reasonable in all the circumstances where the parties have failed to reach agreement. On the basis of the reasoning applied in foreign forums, in my view, comparable bargains and determinations must be relevant in determining what is equitable remuneration for the purposes of s. 17(4).

However, the authorities demonstrate the difficulties which are encountered in practice in identifying a comparable determination or bargain, whether domestic or international or even between the same parties. What the authorities illustrate is that the comparison exercise must be done on a consistent basis. Counsel for PPI submitted that this means no more than that it must be a comparison of "like with like". That proposition seems to me to be fundamentally correct. The authorities also illustrate the circumstances in which what is proffered as a comparable bargain, or a comparable determination by an independent adjudicator, may not be a true comparison. In particular, the authorities illustrate the following:

(i) A putative comparable bargain is not such if it was not concluded at arms length with neither side affected by stress, as the Copyright Tribunal put it in the AIRC case, or if it was the product of "undue market power" in a market which is not freely competitive, as it was put in the ASCAP case.

(ii) The legal regimes, whether legislative or otherwise, within which the bargains or the determinations which are being compared were, and are to be, made must be similar: otherwise they are not comparable.

(iii) The factual circumstances, in particular the use to which the repertoire is put by the copyright users and the benefit it derives from such use, which give rise to the bargains or determinations which are being compared must be similar; otherwise they are not comparable.

(iv) In the case of foreign determinations there is the added difficulty of establishing that the bargain or determination relied on is inherently correct.

(v) Even agreements reached between the same parties previously may not have taken into account and given appropriate weight to all relevant factors, as the independent adjudicator is mandated to do, which may limit their value as comparators.

(vi) On the other hand, the authorities do suggest that, in the case of rates charged for use of sound recording copyright in the European Union, even if the comparison methodology is not such as to eliminate the differences which may exist from one jurisdiction to another, the existence of a glaring disparity between the rate charged in one jurisdiction and another or others should sound alarm bells and should put an independent adjudicator on inquiry as to whether the rate is so out of kilter that it could not be equitable.

13. Meaning of Equitable Remuneration

There is no definition of equitable remuneration in the Act of 1963, nor is the concept defined in the Rome Convention or in the 1992 Directive. The parties are in agreement that "equitable" in this context is synonymous with "fair". I have no doubt that they are correct. As stated earlier, in the Judicial Review proceedings, Blayney J. construed the word "remuneration" in s. 17 (4) as meaning "payment for a service." In short, equitable remuneration is a fair price for the service provided. In the context of the service which is the subject of this reference under s. 31(3), in my view, a fair price is a sum which fairly reflects the value to the nightclub owner of the use of PPI's repertoire, while fairly recompensing PPI for the availability of the repertoire.

14. Revenue related tariff – fair price?

I have analysed the authorities from the United Kingdom is some depth because I consider them the most useful precedents which are available. Historically, Part III of the Act of 1963 was modelled on the Copyright Act, 1956 in the UK, while also incorporating concepts derived from the Rome Convention. They are decisions concerning a similar subject matter, although only one of the four decisions concerns the sound recording copyright and the remaining three concern the author's copyright. They are decisions arrived at by applying the criterion whether a royalty was reasonable in the circumstances, which is broadly similar to the criterion to be applied by the Arbitrator in performing his task of fixing equitable remuneration for the purposes of s. 17(4). I found the authorities, as decisions of an independent adjudicating body with specialist experience of fixing terms and conditions, including reasonable royalties, governing the use of copyright, to be persuasive. I also found the rationale underlying the decisions to be adaptable to the legislative regime and the economic and commercial circumstances with which I am concerned.

The primary consideration identified in the authorities in determining whether it would be reasonable to fix a royalty by reference to turnover or profitability is whether it can be shown that the use of the copyright is connected with the level of turnover and profitability generated. The subsidiary consideration is the fact that a copyright owner does not share in the risks of the copyright user's enterprise. The only case in which a turnover related licence fee was approved was the AIRC case in which the parties were in agreement with that course. Apart from that, it is reasonable to infer that it would be easier to establish a link between music and revenue in a music oriented commercial radio station than in the case of a nightclub.

The authorities were concerned with the issue of a royalty linked to actual turnover. The Arbitrator did not, of course, link the equitable remuneration which he determined to actual turnover or actual profitability. The amount payable to PPI in accordance with his award does not fluctuate with fluctuations in revenue. What he did was to strike a fixed baseline charge for each of the attendance bands in his structure, which applies irrespective of the actual revenue or profit generated by the relevant event. However, that fixed charge is related to notional revenue which is assumed to be generated at the event, and has been assessed against notional profit. The question which must be considered is, whether in principle, this was a correct approach to fixing a price for the use of the PPI repertoire which is fair to the nightclub owner and to PPI.

The justification advanced for the approach adopted is that the use of the PPI repertoire, where the nightclub owner's choice is recorded rather than live music, is a sine qua non of the nightclub enterprise. A somewhat similar justification for a revenue based royalty was rejected in the BEDA case, albeit in the context of a royalty based on actual revenue. In the instant case, the justification is not so much that the music is an essential service or utility; rather the rationale is that it is essential for dancing which, in turn, is an essential prerequisite to the legal entitlement to sell drink after normal licensing hours in the venue.

It is undoubtedly the case that, given the monopolistic position of PPI, if an nightclub owner chooses to use recorded music, the repertoire of PPI is essential to him. Nonetheless, there are both practical and legal constraints on what PPI can charge him.

At a practical level, Price Waterhouse, in their report (para. 2.8) pointed out one of the constraints in the following passage:

"We are satisfied that it is not in the interest of PPI to abuse their monopoly position by setting prohibitive tariffs. It is important to PPI that as many discos as possible flourish and remain profitable so that the income base is as wide as possible. Therefore, it makes commercial sense for PPI to establish a tariff which strikes a proper balance between the price being charged for the licence and the value of the licence to the individual venues".

Whether PPI has had due regard to commercial sense is open to question on the evidence. The degree of acceptability of Tariff No. 2 within the nightclub industry was the subject of controversy before the Arbitrator, who recorded that he did not accept the contentions set out in the submission of PPI that 40% of the establishments was paying the full tariff.

The legal constraint is that the price which PPI can charge is regulated by
s. 17(4) and PPI is only entitled to receive a fair price for the reproduction of its repertoire, which, in default of agreement, is determined by an independent adjudicator, the Controller.

In my view, the reasoning of the Arbitrator on the basis of which he justified a revenue based tariff is flawed. It has not been shown that there is an adequate nexus between the use, on a non-exclusive basis, of recorded music in a nightclub and revenue generated from all sources – admission prices, sale of food and drink and cloakroom charges. Recorded music is an important feature of a nightclub, which justifies PPI in seeking a royalty which reflects the featured nature of the music and the size of the audience for which it is reproduced. It does not, however, justify PPI in seeking payment which is related to the revenue or profitability of the nightclub enterprise, whether notional or actual. The Arbitrator erred in basing his baseline rates on some level of notional revenue which appears to encompass admission price and bar spend and in purporting to justify their fairness on the basis that they represented what he considered to be a fair percentage of total notional profit. Moreover, if, as I understand to be the case, the percentage of total notional profit which the tariff structure accommodates increases as attendance level, and correspondingly notional turnover, increases, the error is compounded. There is no objective justification, in the context of fixing a fair price for reproduction of a record in a nightclub, for discriminating between big venues and small venues in this manner. The weighting of the price adjustment factor is similarly misconceived.

Before considering whether the error vitiates the award, I propose considering the relevance, or otherwise, of the comparators which were proffered by the plaintiff.

15. Rejection of Comparators – an error?

In reviewing the Arbitrator's approach to the comparators to which he was invited to have regard, I propose considering the foreign comparators in general first, then the comparators from the United Kingdom and, finally, the IMRO rate.

16. Foreign Comparators

In relation to the information on practices in other countries contained in the FGS report, the Arbitrator stated as follows:

". . . it is unfortunate . . . that they were not given guidance as to the applicable legislative background in each of the jurisdictions examined and that therefore they did not consider the legislative basis for these charges. [Mr. McAuley] accepted that they were comparing the end result without knowing what is the legal basis of the charge in any of the countries."

While the Arbitrator accepted that the international comparisons were indicative of the levels of payment made by discos to organisations broadly comparable to PPI, he went on to state:

"In the absence, however, of clear indications as to the legislative background it is impossible for me, based on the evidence presented, to form any view as to whether any of these alleged comparable tariffs are fixed on the basis that they represent equitable remuneration. As a consequence I find it impossible to accept the absolute validity of the conclusions reached in their report as to the benchmark level of the charge."

In my view, the Arbitrator was wholly justified in reaching those conclusions. The FGS report contained a table which summarised international comparisons based on "tariffs per event . . . for venues with a capacity or average attendance of 1,000" in 1998. The table covered tariffs payable to collecting societies in the USA, Germany, Netherlands, Spain, Belgium and the United Kingdom. France was not included because, as was stated in the report, the tariff charged by SACEM being 4.31% of gross income including admissions, food, drink and service charges, it was not possible to create a satisfactory model for comparison purposes.

In relation to the comparators which were included, the table revealed a huge disparity between the relevant tariff rate charged by PPI and the international comparisons. For example, the table revealed that the PPI rate was 818% of the combined tariff charged in Germany for the use of the author's copyright and the sound recording copyright at its highest level. However, as the Arbitrator found, it was not possible for him to conclude on the evidence that in comparing, for instance, the German tariff with the PPI rate he was comparing like with like and, in particular, that the former represented equitable remuneration within the meaning of the Act of 1963.

17. PPL/PRS Rates

In relation to the rates charged in the United Kingdom in 1998, the table disclosed that PRS collected the equivalent of IR£66.92p for the author's copyright and PPL collected the equivalent of IR£62.44p for the sound recording copyright, the relevant PPI rate representing 726% and 778% of those tariffs respectively. This information has to be viewed in the light of certain evidence which the Arbitrator accepted. Mr. John Sheehan, former Chairman of PPI and the then Managing director of Sony Music in Ireland, gave evidence before the Arbitrator. The Arbitrator recorded Mr. Sheehan's view that the rate charged by PPL in the late 1980s "was an old tariff, which did not reflect the modern commercial realities of the development of the totally new industry". The Arbitrator observed that Mr. Sheehan made this comment "notwithstanding that the content of the repertoire of PPI and PPL is virtually identical and there is a strong overlap in membership". Moreover, Mr. Sheehan accepted that "in a large disco operating in a city" in the United Kingdom, the commercial realities were not different from a discotheque operating in Ireland.

In outlining the alternative approaches open to him, the Arbitrator stated that he was conscious that "at an apparent overall level the charges of PPI are higher than those applicable in other jurisdictions". He recorded that he was struck by the disparity between the charges in Ireland and those that pertained in the United Kingdom. However, he went on to state that he was conscious of the difference in the legal background and he could not therefore approach his "task of deciding upon the absolute limit by undertaking crude comparisons". My understanding is that he was there referring to the generality of the comparators adduced in the FGS report. He reiterated the evidence of Mr. Sheehan and made a finding to following effect:

"Mr. Sheehan, properly in my view, acknowledged and accepted that in a large disco operating in a city in the U.K. the commercial realities are not different from a discotheque operating in Ireland."

Having regard to that finding, and in the light of the authorities from the United Kingdom to which he had been referred, in my view, the Arbitrator should have considered the rates of tariff applicable in the U.K. separately from the other comparators and he should have considered them relevant to the task he was performing. In particular, he should have considered the PPL rate as an appropriate comparator.

The information contained in the FGS report in relation to the basis of determination of the tariffs payable in the U.K. in 1998 was as follows:

(a) In relation to the PRS tariff, it was stated that it was calculated on the basis of "expected attendance". The annual fee, payable in advance, was equivalent to IR£66.92p for each unit of 1,000 persons (or part thereof) admitted to the nightclub during a licence period. This was the basis of the determination of the royalty for commercial discotheques established by the Tribunal in the BEDA case: at the time of that decision the charge per 1,000 attendance was Stg.£40.00 adjustable in accordance with the Retail Price Index.

(b) In the case of the PPL tariff, the report disclosed that the per event rate was based on two separate criteria: the average attendance at the event (this component recognising attendance as high as 2,500); and the duration of the record use. The tariff was negotiated with BEDA and was subject to adjustment annually in accordance with the Retail Price Index.

The evidence before the Arbitrator illustrated that in 1998 the rates payable to PRS and PPL were, inter se, "in the same general range", as the Copyright Tribunal had considered appropriate in the AIRC case, against the background of being statutorily mandated to determine both rates by reference to the criterion of what was "reasonable in the circumstances".

18. IMRO Rate

In outlining his views on the relevance or otherwise of the IMRO rate for his decision, the Arbitrator stated that the copyright protected by IMRO was a distinct and separate copyright from that protected by PPI to which he had to give consideration. It followed that he did not regard the IMRO rate as some arbitrary upper limit. In relation to the plaintiff's submission that he should consider the IMRO rate as a comparator he stated as follows:

"I accept logically that we are dealing with a broadly comparable right but I am forced to the conclusion that I was supplied with little evidence as to the basis upon which the IMRO rate is fixed and its relevance to the concept of equitable remuneration."

In outlining the rationale underlying the award, I have already alluded to some of the Arbitrator's observations in relation to the IMRO tariff. He pointed to certain features of the IMRO tariff which he considered were the antithesis of estimating a fair payment. The scale of charges did not increase proportionately with the increase in attendance; his suggested scale of charges would increase "at least" proportionately with the increase in attendance. It is clear that the unfairness he perceived was not merely failure to relate the tariff rate to audience size but also to the increased turnover which would be generated by a larger number of patrons. The upper limit in the IMRO tariff scale related to a capacity "in excess of 400", so that IMRO did not differentiate between the benefit accruing to a venue with a capacity of 401 and a venue with a capacity of 1,000. He found this to be incompatible with the concept of equitable remuneration.

The Arbitrator made a value judgment as to the appropriateness of the IMRO rate as a yardstick in determining equitable remuneration for PPI: to price the use of recorded music in a nightclub with the current IMRO rates would "totally underestimate its economic value", he concluded.

Section 21(2) of the Act of 1963 provides that where copyright subsists by virtue of Part III in a sound recording it "shall be additional to, and independent of, any copyright subsisting by virtue of Part II" (i.e. the author's copyright). The Act of 1963 does not bear out the assertion on which the plaintiff's argument that the rate of remuneration payable to PPI should be less than the rate payable to IMRO is predicated. The two copyrights, the author's copyright and the sound recording copyright, are separate and distinct, as the Arbitrator held. In the context of the task which the Arbitrator was charged with, determining equitable remuneration for the use of the sound recording copyright, there is no basis for the proposition that the sound recording copyright is inferior to the author's copyright. Therefore, the Arbitrator was correct in rejecting the plaintiff's contention that the IMRO rate should represent the upper limit of the PPI rate.

In my view, the Arbitrator was also correct in rejecting the IMRO rate as a comparator, despite the fact that it was strongly urged on behalf of the plaintiff that it was the most obvious and closest comparison in that –

(a) it represents payment for the same service as PPI's remuneration, the same play of the same disc at the event,

(b) it was agreed between the IHF and INIA, on the one hand, and IMRO, on the other hand, and

(c) it has received wide acceptance in the marketplace.

As against the foregoing arguments, it was submitted on behalf of PPI that –

(i) the IMRO rate is not required to be calculated on the basis of the concept of

equitable remuneration in the Act of 1963,

(ii) there was no evidence before the Arbitrator to explain the basis of the IMRO

rate or the considerations which were relevant to the agreement between the

parties, and

(iii) the sound recording copyright is qualitatively different from the author's

copyright, and to fairly remunerate the record companies regard must be had

to the investment they make and the risks they take.

The primary reason for the conclusion I have reached that the Arbitrator was correct in rejecting the IMRO rate as a comparator is that I cannot disagree with his conclusion that he had insufficient evidence as to the basis on which the IMRO rate was fixed and its relevance to the concept of equitable remuneration. The secondary reason is the disparity between the IMRO rate and the tariffs payable to both PRS and PPL in the United Kingdom. If the IMRO rates were posited on the concept of equitable remuneration, which I believe to be broadly similar to the concept of a rate which is reasonable in the circumstances, one would have expected that the IMRO rate would have been closer to the PRS and PPL tariffs.

I think it is important to emphasise that in rejecting the IMRO rate as an appropriate comparator in determining the equitable remuneration payable to PPI, the Court is not saying anything about the agreement which gave rise to it. In particular it is not in any way attempting to "second guess" the parties to the IMRO agreement in relation to their arrangements, or to make a value judgment as to the agreement they reached in relation to the use of the copyright with which they were concerned in the context in which they reached it.

19. Award vitiated?

I have concluded that the Arbitrator erred in assigning baseline rates to the various attendance bands in his tariff structure which are revenue and profit related and in weighting the baseline rates and the price adjustment factor so as to absorb a greater share of the "real profit" of the nightclub enterprise at higher attendance and higher price levels. I have concluded that he was correct in rejecting the foreign comparators, other than the PPL and PRS rates applicable in the United Kingdom, as appropriate comparators. I have also concluded that he was correct in rejecting the IMRO rate as an appropriate comparator. For the reasons I have stated, I have concluded that the Arbitrator should have considered the rates charged by PRS and PPL in the United Kingdom as relevant to the determination of equitable remuneration for PPI, and the PPL rate as an appropriate comparator. Because of the level of disparity between the rates fixed by the Arbitrator and the corresponding rates payable to PPL in the United Kingdom, which is not justifiable on any objective basis, I consider that the errors are of an order of significance as to vitiate the award.

In so deciding, I have had regard to the expertise and specialist knowledge which the Arbitrator has in the area of accountancy, business and commerce. To take one example, I think it would be inappropriate to go behind his finding, on the basis of Mr. Sheehan's evidence, as to the commercial realities of operating discotheques in this jurisdiction and in the United Kingdom.

However, to the extent that the determination which the Arbitrator was required to make turned on legal issues, the parties were in agreement that the Arbitrator was not owed any particular deference and none has been afforded.

20. Decision

In the light of the conclusions I have reached, there are only two options open to the Court, either to annul the award, in which case the process will have to start all over again, or vary the award. The award can only be varied by reference to the statutory criteria for determining equitable remuneration and within the parameters of the evidence which was adduced before the Arbitrator. The Arbitrator did not have, and the court does not have, the degree of latitude which the Arbitrator believed he had in determining what constitutes equitable remuneration in the context of the issue before him.

Having regard to the prolonged history of this matter, and being satisfied that, on the basis of the evidence which was before the Arbitrator, it is possible to determine a payment structure which represents a price for the PPI repertoire which is fair both to the nightclub owner and to PPI, I propose to vary the award. The tariff structure which will be reflected in the varied award will follow the structure adopted by the Arbitrator and, in broad terms, will accommodate the following features:

(a) As there is no controversy about the fixed fee element, that will stand.

(b) In relation to the fee per event element, there will be a tariff structure similar to Tariff No. 2.

(c) As they are fair, the attendance bands identified by the Arbitrator will be incorporated in the structure.

(d) As it has been indicated that it is possible to compromise on whether attendance will be based on venue capacity or actual attendance, that will be a matter for agreement between the parties, or, in default of agreement, at the election of PPI. If venue capacity applies, documentary evidence from the appropriate public authority of the capacity requirement must be provided to PPI. If actual attendance applies, there will be no adjustment of the attendance on the lines indicated by the Arbitrator because the reasons which the Arbitrator advanced will not have the validity they would have where the fee structure is revenue related. Every attendee enjoys the benefit of the PPI repertoire whether he pays an admission fee or not.

(e) A benchmark rate will apply to the attendance band from 501 to 550 which will be based on a rate of IR£80 for 1998, adjustable in accordance with the CPI. In choosing that benchmark I have had particular regard to the rate of tariff payable at the relevant time to PPL for the use of its repertoire in nightclubs in the United Kingdom.

(f) The tariff rate will decrease and increase around that benchmark rateably in accordance with attendance taken at the mid-point in each attendance band.

(g) The tariff rates will be subject to an event length adjustment on the lines of the FGS model.

(h) The tariff rates will be subject to an admission price adjustment in line with that provided for in Tariff No. 2.

I will hear the submissions of the parties as to how the foregoing should be formulated in the order of the Court.