Report for the Hearing delivered in Case 402/85

I — Facts and procedure

1. Parties to the main proceedings

The main proceedings are between the Société des auteurs, compositeurs et éditeurs de musique (hereinafter referred to as SACEM), the French copyright-management society, and Gérard Basset, who operates a discotheque in France. The proceedings are concerned with the payment of royalties to which Sacem claims to be entitled and which Mr Basset considers to be contrary to Community law.

The objects of SACEM are to collect and distribute copyright royalties whenever the musical works in its repertoire are used; the repertoire consists not only of the works of its members but also works deriving from foreign copyright societies which have appointed SACEM to represent them in France. SACEM's members assign to it the sole rights over their works as soon as they are created. Under the terms of its membership rules and in accordance with its articles of association SACEM is therefore the only body empowered to authorize or prohibit the use of its members' musical works and to receive the corresponding copyright fees.

2. French legislation on literary and artistic property

Under Article 26 of French Law No 57-298 on literary and artistic property of 11 March 1957, an author's right of exploitation includes the right of performance and the right of reproduction. According to the original wording of Article 27 of that law, performance means the direct communication of the work to the public, in particular by means of... dissemination by any method; a law of 3 July 1985, which came into force on 1 January 1986, amended Article 27 by deleting the word direct. Under Article 28, reproduction is to be understood to mean the material fixation of the work by all methods which permit indirect communication to the public, and in particular by mechanical recording. Under Article 30 an assignment of the right of performance does not imply the assignment of the right of reproduction, and vice versa. The third paragraph of Article 31 further provides that the transfer of the author's rights is subject to the condition that each of the rights assigned shall be separately specified in the instrument of assignment and that the extent and purpose of the use of those rights shall be defined ... .

It is common ground that, by virtue of the above provisions and in particular Articles 30 and 31 of the Law of 11 March 1957, the author of a musical work is entitled to authorize its reproduction by reference to a specific purpose and to refuse consent for any other purpose. It further appears from the documents before the Court that, in practice, the author assigns the reproduction rights to the manufacturer of gramophone records or other sound recordings with a view to their manufacture and marketing for private use, that is, for use within the family circle. Having collected from the manufacturer a reproduction fee relating solely to the marketing of his work for purposes of private use, the author is further entitled to demand a royalty known as a supplementary mechanical reproduction fee (droit complémentaire de reproduction mécanique) from any user who, after purchasing the phonogram, makes public use of it, for example in a radio station, a discotheque or a jukebox installed in a public place.

3. Background to the dispute

The appellant in the main proceedings, Mr Basset, has since 1974 been operating a discotheque at Fréjus, known as La Playa. In 1975 he concluded agreements with SACEM for two blanket performance licences, running successively from 1 April to 30 September 1975 and from 1 October 1975 to 31 March 1976. Under those licences SACEM allowed him to choose from its repertoire whichever works he wished to use for the purposes of his discotheque. In return, SACEM was to be paid a copyright royalty expressed as 8.25% of his total receipts. The rate of the royalty is made up as follows: 6.60% by way of performing fee and 1.65% as the supplementary mechanical reproduction fee.

Mr Basset failed to pay the agreed royalties and in 1977 SACEM brought proceedings before the tribunal de grande instance (Regional Court), Draguignan, which ordered Mr Basset to pay most of the sums claimed. Mr Basset appealed against that judgment to the cour d'appel (Court of Appeal), Aix-en-Provence, arguing that the two licences on the basis of which the royalties were demanded were void as being contrary to Articles 85 and 86 of the EEC Treaty, claiming in the first place that the agreement between SACEM and its foreign counterparts was unlawful and secondly that SACEM, by virtue of its de facto monopoly on the French market, occupied a dominant position which it abused by charging prices which were excessive in relation to the service provided. In 1980 the cour d'appel held that the Community provisions invoked could not be applied in this case, but by judgment of 13 December 1983 the cour de cassation (Court of Cassation) quashed that judgment and remitted the matter to the cour d'appel (Court of Appeal), Versailles.

4. Questions referred for a preliminary ruling

When the case came before it, the cour d'appel, Versailles, by judgment of 20 November 1985, decided to stay the proceedings and refer to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty two questions on the interpretation of Articles 30 and 36 and of Article 86 of the EEC Treaty:

In its order for reference, the cour d'appel, Versailles, expressly dismissed Mr Basset's complaint alleging an unlawful agreement, on the ground that the relations between SACEM and its foreign counterparts were not such as to constitute an agreement between undertakings or a concerted practice within the meaning of Article 85 of the Treaty. As regards the level of the royalties to which SACEM claims to be entitled, the cour d'appel notes that the rate for French discotheques (8.25% of gross turnover) is particularly high by comparison with the rates applied by most foreign copyright societies or by SACEM itself in respect of other public uses made of its repertoire (by circuses, cinemas and radio and television stations, for example). It takes the view, however, that the royalty charged to discotheques cannot be described as excessive because such establishments play a very large amount of music and, indeed, depend for their profitability on the use of copyright material.

In those circumstances the national court considered it necessary to ask the Court of Justice inter alia whether it was in conformity with the provisions of Community law, and in particular Articles 30 and 86 of the EEC Treaty, for SACEM to collect an aggregate charge consisting of a performance fee and a supplementary mechanical reproduction fee for the public use of phonograms by discotheques, even in the case of phonograms imported from another Member State in which there was no statutory provision for the collection of such a supplementary fee.

5. Procedure

The reference for a preliminary ruling was lodged at the Court Registry on 5 December 1985.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by Gerard Basset, the appellant in the main proceedings, represented by P. Montier, of the Paris Bar, SACEM, the respondent in the main proceedings, represented by Olivier Carmet and Georges Kiejman, of the Paris Bar, the Government of the French Republic, represented for that purpose by E. Belliard and J. Myard, acting as Agents, the Government of the Italian Republic, represented by Oscar Fiumara, Avvocato dello Stato, and the Commission of the European Communities, represented by Guiliano Marenco, its Legal Adviser.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. However, it called on the Commission and SACEM to answer two questions which they did within the specified period.

II — Summary of the written observations submitted to the Court

General remarks

In reply to a question raised by the Court as to the economic reasons for collecting a supplementary fee on the public use of gramophone records where the royalties for both the reproduction right and the right of performance (performing right) have already been paid in another Member State in which the records were manufactured, SACEM, the respondent in the main proceedings, and the Commission of the European Communities explain that under French legislation the supplementary reproduction fee — despite its name — falls due by reason of the public performance of a protected work, not its reproduction. They also point out that the collection of the fee in France certainly does not involve payment of fees which have already been discharged in the Member State of manufacture. Royalties for the performing right are never paid once and for all in France, because the performance fee falls due with every public performance without the right ever being exhausted. On the other hand, every performance gives rise to royalties which must be paid in accordance with the legislation in force in the territory in which the performance takes place. Moreover, as far as the reproduction right is concerned, whilst the national legislation of some Member States does admittedly treat it as being exhausted on assignment to the phonogram manufacturer, in none of those Member States does such assignment imply the assignment of the performing right.

The Commission adds that the charging in France of the supplementary reproduction fee following the public use of imported gramophone records is explained by the national treatment principle enshrined in the international copyright conventions; that is to say, since France has undertaken to protect foreign authors in the same manner as national ones, royalties paid for public use in French territory are paid not only on French-made records but also on imported ones. Consequently, to abolish the supplementary mechanical reproduction fee on imported records would effectively favour French authors to the detriment of foreign authors. The Commission further observes that if the right to charge a supplementary - reproduction fee were removed altogether, Sacem, which is free to determine the level of the royalties, could take steps to collect from discotheques the same total sum by way of a performance fee alone.

In that connection Sacem also submits that the collection of the supplementary fee in question means that the financial return for authors can be more closely related to the actual use made of their works and that the cost can be borne by those who profit from their use. The scheme is a better solution than that of demanding a greater financial return from the phonogram manufacturer on the ground that his phonograms may be played in public by third parties. If that were so, the return might well be set arbitrarily for lack of precise information as to whether or not a work had subsequently found favour with the public.

First question

Mr Basset, the appellant in the main proceedings, argues that French discotheques use mainly imported phonograms, since the French have long shown a strong preference for British and American music. Consequently, the fact that French legislation on literary and artistic property permits the collection of both a performance fee and a supplementary reproduction fee principally affects imported phonograms. He concludes that the application of national legislation thus in effect authorizes the introduction of an import levy on goods already in free circulation in the Community, on account of their crossing a frontier. He also maintains that in this instance the level of the charge, namely 8.25% of the total receipts of a discotheque (which makes it the highest rate in the Community), is certainly such as to obstruct trade between Member States. That being so, the first question should be answered in the affirmative.

SACEM, the French Government, the Italian Government and the Commission, on the other hand, urge that the first question be answered in the negative. In their opinion the question serves no practical purpose, since there is no discernible obstacle to trade between Member States in this case. In support of that contention, SACEM, the French Government and the Commission emphasize that the French rules leading to the collection of a supplementary reproduction fee are not designed to control, either directly or indirectly, the patterns of trade within the Community, nor do they have the effect of treating phonograms produced in France more favourably than those from other Member States. Indeed, the reproduction fee is charged only in respect of the public use of phonograms sold in France, irrespective of their national origin. The French rules thus ensure that foreign authors are protected on the same terms as those established in France. That being so, it cannot properly be maintained that those rules, which apply equally to national and imported phonograms, constitute a measure having equivalent effect to a quantitative restriction on imports, in contravention of Article 30 of the Treaty.

The French Government also argues — and the Italian Government expresses the same view — that the above conclusion must prevail regardless of the fact that no supplementary reproduction fee is payable in other Member States. That fact is of no relevance to this case since copyright (like all intellectual property rights) is territorial in scope.

SACEM, the Italian Government and the Commission further submit that the circumstances of this case differ from the case on which the Court gave judgment on 20 January 1981 (Joined Cases 55 and 57/80 Musik- Vertrieb Membran v GEMA [1981] ECR 147). Whereas that case was concerned with a royalty which was claimed on the importation into a Member State of phonograms from another Member State, solely by virtue of such importation, and charged merely on account of their crossing a frontier, the royalty at issue in this case falls due only when phonograms, whether imported or not, are used in public. The Commission adds that the contested royalty in Joined Cases 55 and 57/80 was actually liable to affect imports from another Member State, since its abolition would make them more attractive. On the other hand, the abolition of the supplementary fee in respect of imported phonograms would probably lead to French authors being treated more favourably than foreign ones, even though the latter's works would continue to be used by French discotheques according to popular demand.

Second question

Mr Basset has not submitted any observations on the second question.

SACEM, the French Government, the Italian Government and the Commission contend that, in principle, Article 86 does not prevent SACEM from collecting the supplementary reproduction fee. In the context of the territorial character of copyright, French legislation permits copyright holders to receive a royalty, and the mere fact that in practice that royalty is collected by a copyright-management society enjoying a de facto monopoly is certainly not liable to affect it in its underlying principles.

The Commission further notes that whilst the collection of the contested fee does not in itself constitute an abuse of SACEM's dominant position, an abuse might arise if the level of the fee charged were unfair within the meaning of indent (a) of Article 86. In that connection it should be noted that the royalties charged by SACEM to French discotheques are several times the amount of those charged by SABAM in Belgium for example. The Commission adds that it is at present conducting an inquiry into the royalties charged by SACEM covering both the rate of those royalties and the basis on which they are assessed.

1 Language of the Case: French.