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Stanford – Vienna Transatlantic Technology Law Forum A joint initiative of Stanford Law School and the University of Vienna School of Law TTLF Working Papers No. 44 Rate-setting under EU and US Copyright Law Martin Miernicki 2019 TTLF Working Papers Editors: Siegfried Fina, Mark Lemley, and Roland Vogl About the TTLF Working Papers TTLF’s Working Paper Series presents original research on technology, and business- related law and policy issues of the European Union and the US. The objective of TTLF’s Working Paper Series is to share “work in progress”. The authors of the papers are solely responsible for the content of their contributions and may use the citation standards of their home country. The TTLF Working Papers can be found at http://ttlf.stanford.edu. Please also visit this website to learn more about TTLF’s mission and activities. If you should have any questions regarding the TTLF’s Working Paper Series, please contact Vienna Law Professor Siegfried Fina, Stanford Law Professor Mark Lemley or Stanford LST Executive Director Roland Vogl at the Stanford-Vienna Transatlantic Technology Law Forum http://ttlf.stanford.edu Stanford Law School University of Vienna School of Law Crown Quadrangle Department of Business Law 559 Nathan Abbott Way Schottenbastei 10-16 Stanford, CA 94305-8610 1010 Vienna, Austria About the Author Martin Miernicki is a post-doctoral Research and Teaching Fellow at the Institute of Business Law at the University of Vienna. Martin studied Law, Romance Studies (with a concentration in Spanish) and Earth Sciences at the University of Vienna and received his doctorate in Law in 2017. His doctoral thesis, ‘Collective Management of Copyrights Between Competition, Regulation and Monopolism’ was honored with the 2018 Jean Monnet Research Prize for European Union Law in Austria. Martin has worked at the University of Vienna’s Center for Legal Informatics and participated in an exchange program at Santa Clara University School of Law in California, where he studied US intellectual property law and international law. His research interests include business law, technology law, IP law, and the legal implications of fintech and crypto-assets. Martin has been a TTLF Fellow since December 2015. General Note about the Content The opinions expressed in this paper are those of the author and not necessarily those of the Transatlantic Technology Law Forum or any of its partner institutions, or the sponsors of this research project. Suggested Citation This TTLF Working Paper should be cited as: Martin Miernicki, Rate-setting under EU and US Copyright Law, Stanford-Vienna TTLF Working Paper No. 44, http://ttlf.stanford.edu. Copyright © 2019 Martin Miernicki Abstract While the rates for the use of copyrighted content are usually determined by negotiations between right holders and users, there are important exceptions to this rule in the fields of statutory licensing and the collective management of rights. In these fields, the amounts payable to right holders are often set by public authorities or courts; however, the law frequently only provides for very general guidelines and standards for rate-setting decisions. This paper explores the different standards that exist in the United States and the European Union and compares their interpretation and application in the two jurisdictions. Table of Contents I. Introduction ...................................................................................................................................... 2 II. Institutional background and scope of research ............................................................................... 3 III. The different rate-setting regimes ................................................................................................ 5 1. TFEU article 102 .......................................................................................................................... 5 2. Copyright Directive article 5 ........................................................................................................ 6 3. Rental and Lending Rights Directive article 6, 8(2) .................................................................... 7 4. Collective Management Directive article 16 ................................................................................ 8 5. U.S. Consent Decrees .................................................................................................................. 8 6. U.S. Copyright Act § 114............................................................................................................. 9 7. U.S. Copyright Act § 112........................................................................................................... 10 8. U.S. Copyright Act § 115........................................................................................................... 11 9. Audio Home Recording Act ...................................................................................................... 12 IV. The different rate-setting rules and standards ............................................................................ 13 1. Unfair purchase or selling prices ............................................................................................... 13 2. Objective and nondiscriminatory licensing terms and appropriate remuneration ...................... 15 3. Equitable remuneration .............................................................................................................. 18 4. Fair compensation ...................................................................................................................... 19 5. Reasonable fee ........................................................................................................................... 23 6. Reasonable rates and term .......................................................................................................... 26 6.1. Willing buyer/willing seller ....................................................................................................... 27 6.2. Section 801(b)’s four factor policy standard .............................................................................. 32 6.3. Rates under the AHRA .............................................................................................................. 33 V. Modifications by the Orrin G. Hatch-Bob Goodlatte Music Modernization Act .......................... 34 VI. Comments on the different rate-setting regimes ........................................................................ 37 1. From standards to calculation .................................................................................................... 37 2. Market rates and benchmark agreements ................................................................................... 39 3. Amount of use, harm and economic value ................................................................................. 42 4. The special role of EU competition law ..................................................................................... 45 VII. Concluding remarks ................................................................................................................... 46 I. Introduction The royalties arising from statutory licenses or rights to remuneration constitute an important part of the income of many copyright holders. Prominent examples are private copying levies, or the fees received for the public performance of sound recordings. Both in the United States and in the European Union, the royalties due for the uses covered by such licenses are often determined by (collective) negotiations between users and right holders. However, if the parties cannot agree on a license fee, a court or governmental agency usually assumes the task of setting the rates. Moreover, the law provides for a periodic adjustment or re-determination of the applicable rate in certain cases. Furthermore, rates charged for the use of copyrighted content are also relevant in the competition law context, such as when antitrust authorities assess a potential abuse of market power. Rate-setting1 is practiced primarily in two respects: The operations of collective management organizations (CMOs) and rights to remuneration or statutory licenses.2 A common feature of these two fields involves, to differing extents, governmental intervention in the determination of copyright license fees. In order to exercise this control, the law provides for different rules and standards3 that offer guidance for the competent authorities when establishing license rates.4 However, these standards are 1 Even though competition authorities do not typically set but rather control rates (at least in the European Union), they are also referred to under the term “rate-setting” for the present purposes; see section VI.4. 2 Since the royalties due under statutory licenses are usually administered by CMOs, these two areas – though conceptually distinct – overlap to a certain extent. 3 See, on the difference between the two concepts, Justin Hughes, Fair Use and Its Politics – at Home and Abroad, in Copyright Law in an Age of Limitations and Exceptions 234, 237-240 (Ruth L. Okediji ed., 2017); see also Thomas B. Nachbar, Rules and Standards in Copyright, 52 Hous. L. Rev. 583 (2014). 4 Infringement proceedings also involve processes that could be referred to as “rate-setting”: If somebody uses protected content without permission (and this conduct is found to constitute copyright infringement), courts