Recently, Kenya Copyright Board (KECOBO) published on its website here the proposed 2016 collecting society joint tariffs for musical works, sound recordings and audio-visual works. A copy of these joint tariffs is available here. In order to ensure public participation before the approval of these tariffs, KECOBO will convene an open half-day public forum to be held next week on February 10th 2016 at the Auditorium of NHIF Building starting at 8:30am.
This blogpost will focus on the tariffs for sound recordings since they have recently been the subject of thorough debate and analysis in South Africa’s Supreme Court of Appeal. It is hoped that the South African experience will be useful to Kenyan users in their negotiations with collecting societies on reasonable tariffs to pay for use of copyright works.
In a previous post here, readers will recall a discussion of the South African Copyright Tribunal’s decision in the case of Foschini Retail Group (Pty) (Ltd) and 9 (Nine) Others v South African Music Performance Rights Association (0003/2009)  ZAGPPHC 304. In this case, the Tribunal determined that SAMPRA’s tariffs were unreasonable and then proceeded to set tariffs to be applied by SAMPRA. Aggrieved by the Tribunal’s decision, SAMPRA moved to the Supreme Court of Appeal (SCA) – South Africa’s apex court on non-constitutional law matters. The SCA’s judgment on this matter is the subject of this blogpost.
The central issue in the SCA case of SAMPRA v Foschini Retail Group (Pty) Ltd (50/2015)  ZASCA 188 was whether there was sufficient evidence placed before the court for it to be satisfied that the claim of the retailers was well-founded in that the tariff proposed by SAMPRA was unreasonable. From the expert evidence presented before the Tribunal, the SCA distilled three possible methods which could be utilised to determine the tariff of a collecting society. The first method was the determination of the currency value to the retailers of playing music in their stores. The second and third methods were the market-based solution and the use of tariff levels in foreign jurisdictions as a benchmark.
With regard to the first method on currency value, the SCA found that a study on the rand value Foschini and the other retailers derive from the use of sound recordings would be prohibitively expensive and impractical as it would take too long to complete. In addition, it cannot be said that any conclusion reached could be applied to all of the retailers. Therefore the SCA disagreed with SAMPRA that in order for the latter’s tariffs to be challenged as unreasonable, it was necessary for the retailers to lead evidence of the rand value to them of playing music in their stores, in order for the tribunal to be satisfied that their claim was well-founded.
The SCA quickly dismissed the second method based on market forces because it is not consistent with the copyright law framework which expressly directs that the Tribunal shall determine tariffs in the absence of agreement between users and owners rather than leaving the determination of tariffs to the operation of market forces.
With regard to the third method on bench-marking, the SCA accepted that in principle, international benchmarking (i.e. comparing and contrasting tariffs levied by collecting societies in foreign jurisdictions) was the most appropriate method of preventing economic arbitrariness in setting the tariff. In practice however, the SCA appears to have been (mis)guided by expert witnesses (particularly one Prof. Ross) to carry out the benchmarking exercise using purchasing power parity (PPP) as the conversion factor for comparison of tariffs rather than the simpler conversion factor based on the exchange rate. However, the court heard expert testimony that a comparison of the SAMPRA tariff with the PPCA tariff (from Australia) indicated that the tariff in South Africa was substantially higher than the tariff in Australia. This was the case regardless of whether PPP, or the exchange rate, was used as a conversion. Therefore the retailers argued that SAMPRA’s tariff should be equivalent to the PPCA (Australian) tariff converted to rands, using PPP as calculated by Prof Ross.
Another area of bench-marking was a comparison between the tariffs of SAMPRA and the tariffs of South African Music Rights Organisation (SAMRO), which administers rights in musical works akin to Music Copyright Society of Kenya (MCSK). SAMPRA argued as justification for the amount of the tariff that its tariff should be higher than that of SAMRO. This was based upon SAMPRA’s unfounded view that the value in the sound recordings was worth more than the value in the underlying composition, at least in the bulk of the music used by the retailers. However, the court disagreed citing another SCA decision in the case of National Association of Broadcasters v South African Music Performance Rights Association & another  ZASCA 10; 2014 (3) SA 525 (SCA) where it was found that ‘[i]t does not appear that royalty rates for sound recordings internationally exceed composer royalty rates. It is arguable, though not definitive, that composers are the key component in relation to the production of music.’ Accordingly the SCA in the present case found that there was no rationally justifiable basis for SAMPRA’s decision to adopt a tariff level considerably higher than that of SAMRO.
In determining that the tariff determined by the Copyright Tribunal was not reasonable in the circumstances, the SCA faulted Tribunal for placing a limit on the tariff in stores with a floor area of 1750 square metres. After 1750 square metres, the Tribunal fixed the without regard to the increasing size of the store giving no reasons in its judgment for this radical departure from the approach of SAMPRA and the retailers that there should be a progressive increase in the rate, based upon the increased size of a store. In addition, no reasons were furnished in the judgment why a particular tariff was determined for each category.From the table above, it is also clear that the tariff set by the Tribunal is considerably less than the tariff set by SAMPRA.
In the final analysis, SCA found that the tariffs in the fourth column of the above table would be fair to both parties and is reasonable in all of the circumstances as proposed by the retailers. In other words, the SCA agreed with the submission of the retailers that SAMPRA should be awarded 30 per cent of the tariff set by it. The resultant tariff set out in the fourth column of the table is higher than the tariff awarded by the Tribunal in stores with an area exceeding 1000 square metres. In addition, except for stores up to 50 square metres, it is higher than the tariff recommended by Prof Ross for the retailers in each category.
Returning back to Kenya, the joint collecting society tariffs published for public comment appear to be identical to gazetted tariffs in 2015, at least with regard to use of sound recordings as background music in stores. Based on simple arithmetic, the sound recording tariff for 1000sqft of public space appears to be three times higher than SAMPRA’s tariff as determined by the SCA for the same size of store.
Therefore there is need for users in Kenya to constructively engage the collecting societies as well as the Office of the Attorney General through KECOBO to ensure that the tariffs that are approved and gazetted in 2016 are reasonable for all parties and compare favourably with tariff levels in other emerging economies in Africa and elsewhere in the world.