| "HOW PRIVATE IS A HOTEL ROOM?"
CLAIMS BY ROYALTY COLLECTING SOCIETIES FOR COMPOSERS, WRITERS, PRODUCERS AND PERFORMERS by Carmit Bar-on
1. The right of composers, writers, producers and performers in Israel to collect royalties is governed by two laws: (1) The Copyright Law, 1911 (2) The Performers Rights Law, 1984 As in most countries, there is no legislation that deals with the establishment of "Collecting Societies" and such societies are usually founded by the composers, writers, producers and performers themselves who assign their rights to the Collecting Society. Such rights include the right to receive royalties for the use of their works. 2. The lack of legislation and regulation with regard to Collecting Societies leads to the establishment of numerous Collecting Societies. Sometimes new collecting societies are created by owners of protected works that leave their existing Collecting Society, for different reasons, and establish a new collecting society. Thus, a small hotel may find itself receiving claims from the following Collecting Societies: (1) ACUM – Israeli Music Society for Composers, Writers and Publishers. (2) IFPI Israel - The Federation for Records and Cassettes Ltd. (3) HAPIL –The Federation for Israeli and Middle-Eastern Music Ltd. (4) Eshkolot – The Israel Artists Society for Performers Rights Ltd. (5) Eilam – The Israeli Company for Musician Rights Ltd. (Performers) (6) Teli – The Royalties Company for Israeli Television and Cinematographic Works Ltd. (7) Tehanim – The Israeli Collective Management Company for Television and Cinema Producer's Rights Ltd. The hotels do not always have the knowledge and the resources to respond to such claims. Small hotels do not always have legal consultants with expertise in the field of Copyright Law. For this reason the Israel Hotel Association decided to assist the hotels and to deal with the Collecting Societies jointly for its members.
For many years the Israel Hotel Association has negotiated with ACUM and with IFPI Israel and has entered into annual agreements for the purchase of Blanket Licenses by the hotels. The Hotel Association agrees on prices to be paid by the hotels on the basis of number of rooms, type of facilities and size of public areas. In the year 2000, after many years of securing Blanket License Agreements with ACUM and IFPI Israel, the issue of Collecting Societies took a turn; Not only was there suddenly a growing number of new Collecting Societies (as set out in section 2 above) attempting to collect royalties, but the Israel Antitrust Authority intervened and declared that IFPI and HAPIL are Monopolies and as such, their activities require the approval of the Antitrust Tribunal. The Israel Hotel Association was also required to obtain an exempt according to The Law of Anitrust, 1988 in order to negotiate with the Collecting Societies. The exempt was granted in October 2002.
The Israel Hotel Association joined the proceedings that took place before the Antitrust Tribunal as opponents. The Hotel Association claimed that the rates of the royalties fixed by IFPI and HAPIL are not only high and arbitrary, but are also decided upon by the Collecting Society without any real negotiations with the consumers. Thus without legislation or regulation, the Collecting Society has unlimited power to impose arbitrary rates and can refuse to allow protected works to be used by consumers that have not paid the royalties requested by the Collecting Society. The Israel Hotel Association also claimed that the proportion of payments by members of the Hotel Association is unreasonable; in 1998, the income of IFPI Israel from the members of the Israeli Hotel Association was second only to the broadcasting organizations! (Hotels are well organized and stable entities which make easy targets for Collecting Societies, as opposed, for example, to DJs). The Hotel Association also suggested that a list of criteria for imposing royalties on hotels be adopted by the Collecting Society, including, occupancy rates, the rating of the hotel etc. One of the more interesting pleadings of the Hotel Association in the Antitrust Tribunal was that in many cases hotels do not play music in public areas and the only broadcasts transmitted are via radio or television sets in the hotel rooms. The Hotel Association claimed that a hotel room is "a man's home away from home" and as such is no different from a private dwelling, Therefore, if a guest turns on a radio or television set in his hotel room this does not constitute a "public performance" and the Collecting Societies are not entitled to collect royalties for such use. The Hotel Association brought both local and foreign court precedents to support this claim. Judge Jonathan Adiel of the District Court in Jerusalem sitting as the Chief Justice of the Antitrust Tribunal, ruled that indeed such use does not constitute a "public performance" and that the Collecting Societies may not prevent a blanket license from a hotel if the hotel refuses to pay for both the public areas and the rooms. According to the Judge's decision, the Collecting Society must, at the hotel's request, issue a separate blanket license for the Public areas. The proceedings and the decision resulted in a substantial reduction in IFPI's rates for hotel blanket licenses. Although HAPIL has also been approved by the Antitrust Tribunal, an agreement has not been signed with the Israel Hotel Association, and currently 20 hotels have been sued by HAPIL as the rates of the royalties have not been agreed upon. The Agreement between the ACUM (Israel's largest Collecting Society) and the Israel Hotel Association has recently been renewed and as in past years, the situation of the Hotel Industry has been taken into account granting considerable reductions in the rates that the members of the Hotel Association will be entitled to. 5. The Israel Hotel Association does not have agreements for Blanket Licenses with any of the new Collecting Societies. Apart from the new judgment according to which use of radios and TVs in hotel rooms does not constitute a public performance which entitles the owners of protected works to collect royalties, the new Collecting Societies do not have the approval of the Antitrust Tribunal and therefore according to law, the Hotel Association cannot reach agreements with them. Once a new Collecting Society obtains such approval the hotels will have to reach arrangements (either by agreement or after court proceedings that will affix the rates of such royalties). There is no doubt that the lack of a central or collective Collecting Society not only imposes difficulties on the part of the hotels but also affects the ability of the Collecting Societies to collect royalties. 6. In the year 2000, a bill for a new law for the establishment of a Royalties Tribunal was initiated by the Israeli Parliament. The Israeli Hotel Association has been active in the deliberations in the Parliament Committee. The Collecting Societies are opposed to the bill (as it will prevent them from affixing rates for royalties at their discretion) and as of today the bill has not been passed. The Hotel Association has been successful in bringing its standpoint to the attention of the legislator. Antitrust Case 3574/00 & 3666/00: The Federation for Records and Cassettes Ltd. & The Federation for Israeli and Middle-Eastern Music Ltd. Et. Al. v. The General Director of the Antitrust Authority, the Israeli Hotel Association & the Event Hall Owners Association On the 30.4.04 the Antitrust Tribunal seated in Jerusalem (Honorable Judge Jonathan Adiel) gave its ruling concerning the approval of restrictive arrangements between the record companies and the abovementioned collecting societies. The collecting societies manage the collection of royalties, for composers, writers, producers and performers, who grant these societies the right to collect royalties in their name. A collecting society grants users specific licenses or general licenses (Blanket Licenses). Currently there are two societies, of this nature that represent the rights of record companies operating in Israel – the IFPI (The Federation for Records and Cassettes Ltd.) and HAPIL (The Federation for Israeli and Middle-Eastern Music Ltd.). Let it be noted that that ACUM, the Israeli Music Society for Composers, Writers and Publishers (which was declared a restrictive arrangement by the General Director of the Israeli Antitrust Authority on the 30.3.04) operates as a collecting society that incorporates composers and lyricists, in addition to other collecting societies who deal with performers rights. Both IFPI and HAPIL, where declared "restrictive arrangements", resulting from the monopolistic nature in which rights, in their authority, are granted. Therefore a petition was made to the Antitrust Tribunal according to section 7 of the "Law of Antitrust 1988", in order to approve them as restrictive arrangements. The General Director of the Antitrust Authority, who declared the agreements between the record companies, IFPI and HAPIL as restrictive arrangements, noted that the incorporation of copyrights owners in order to grant "blanket licenses" are principally, in favor of the public interest, for they serve as an incentive to increase output, strengthen copyright protection and lower business transaction and enforcement costs. The General Director of the Antitrust Authority recommended the approval of the said restrictive arrangements subject to terms dealing with the reduction of IFPI's and HAPIL's market power while negotiating with users who wish to obtain licenses. Two objections where submitted, against the request for approving those restrictive arrangements, by organizations acting as users' representatives: The Event Hall Owners’ Association who opposes the fact that royalties are collected from the owners of the event halls rather then from the D.J's, who play the music in the event halls, that are the actual infringers of the record companies rights.
The Israeli Hotel Association (represented by Adv. Carmit Bar-On and Adv. Shelly Bakshi of Yehuda Raveh & Co. Law Offices) who object the price discrimination policy implemented by the IFPI. In addition, the Israeli Hotel Association opposes the arbitrary nature in which royalties are charged. The Israeli Hotel Association, through their mentioned legal counsels, claimed that the broadcasting of music to the hotel rooms, does not constitute a "public performance" as defined in The Copyright Law (1911), which is subject to payment of royalties and that public playing of foreign voice listings, composed outside of Israel, does not entitle IFPI to royalties.
Hereinafter, in short, are the honorable Judge Adiel's rulings, concerning the claims brought to the Tribunal by The Israeli Hotel Association in their objection presented within the framework of the petition to approve the IFPI and HAPIL’s restrictive arrangements: Price discrimination:
In accordance with the marketing method in which blanket licenses are granted, different prices are affixed for different users. These prices are derived from the role, which playing music has, in the user's business. In the IFPI’s price list, businesses are categorized in the following manner: Places in which music has a direct effect on the business's income – amongst - hotels, event halls, discotheques and ice arenas.
Places in which music has an indirect effect on the business's income – amongst - coffee houses, restaurants, pubs, swimming pools and theaters.
Places that play background music – amongst – sport centers, gyms and community centers.
Places in which music is played as a background to another business operation – amongst – shops, malls, barbers, clinics and buses.
"Mixed public use" – mainly by municipalities.
Each category takes into account additional factors such as the size of the audience, as well as the size of the area in which the music is played, along with the frequency the music is played. The Tribunal accepted the expert opinion presented by the Antitrust Authority economist, as well as the IFPI's approach, claiming that price discrimination by the IFPI is a policy more effective than a fixed pricing policy, stating that it allows more users to purchase playing licenses, legitimately, under the assumption that IFPI users are different, in essence, in their demand or necessity for playing music. In addition, the Antitrust Tribunal held that price discrimination, as long as it is based on the importance that playing music has to the business, is not an abuse of the monopolistic position (section 29 a (b) (3) of The Antitrust Law 1988), for it does not constitute establishment of different contractual conditions for similar transactions in a manner which is liable to accord certain customers or suppliers with an unfair advantage versus their competitors. The Tribunal reached this conclusion, realizing that businesses, where playing music has different importance – are not competitors. In light of this, the Tribunal concluded that price discrimination does not undermine the public’s interest and does not prevent the approval of the restrictive arrangement. Reasonableness of IFPI prices The market power held by IFPI and HAPIL raises concerns that monopolistic prices will be charged. The IFPI claims that its price list is reasonable, in comparison with foreign price lists in countries similar to Israel. This claim was supported by an expert opinion presented by Prof. Steinberg. The Israeli Hotel Association, on the other hand, claimed that the royalties charged by IFPI are substantially higher then those imposed to other business sectors, without any economical justification. For example, the IFPI income from hotels was almost as high as their income from broadcasting organizations (channel 2 operators, cable and radio companies). According to The Israeli Hotel Association, the prices charged by the IFPI are without proportion to the nature of the hotel business and the extent in which music is played in such businesses. To support their claims the Israeli Hotel Association presented an expert opinion prepared by Shimshon Adler, CPA. The Tribunal held that as the request to approve the restrictive arrangement was presented by IFPI and HAPIL, the burden of proof is laid on their shoulders to show that the arrangement is in the public's best interest, and as the burden of proof was not met, there is doubt whether the restrictive arrangement should be approved. The Tribunal ruled, that after taking into consideration its ability to approve the restrictive arrangement without examining the reasonability of the IFPI's and HAPIL's price lists, that there is no room for him to question the reasonability of the price lists, on its own initiative in this procedure. The Tribunal accepted the General Director of the Antitrust Authority's opinion, which states, that the appropriate way to establish the correct level of prices, is in a stepwise manner by the court ruling in each individual case. The Tribunal bases this ruling on the fact that some of the parties in concern where not represented in this procedure, and could not bring their allegations before the Tribunal and on its assumptions that the restraining mechanisms set out by it in this procedure will lead to a change in the IFPI tariffs. Restraining Mechanisms
The Antitrust Tribunal accepted the General Director's position and held that in the procedure of approval (of restrictive arrangements) restraining mechanisms are sufficient to restrain the IFPI's market power, in a way that customers needing the IFPI services who oppose the prices offered, will enjoy improved bargaining power ability and enable fair prices to be agreed upon. The Tribunal adopted the terms in which the General Director approved the arrangement. These terms include, amongst others, the prohibition of exclusivity, limiting market power held by the IFPI, allowing new members to join the IFPI and the elevation of bargaining ability held by the users by limiting the legal measures available to the IFPI when collecting license fees from contesting users. Criterions for asserting license fees In this matter the Tribunal decided not to accept the General Director's proposition that it should take in to its considerations the criterions set out in section 5(a) of the Copyright Law (Jurisdiction Concerning Royalties) bill of 2001. This proposal sets out criterions such as, the nature of the use of the composition, the purpose and the part played by the composition in the user’s activities, the advantage the owner of the copyright gains by the playing of the composition and the extent of use and the size of the audience. The Tribunal held that it was not presented with sufficient legal, professional or factual foundations in order to establish criterions and that if those criterions would to become part of the legislation, there will be no need for court rulings on the matter anyway. For those reasons the Tribunal decided not to establish criterions in this procedure. Specific arguments presented by the Israeli Hotel Association concerning the right to collect royalties
Royalties collection based on the use of radio and TV usage in the hotel rooms:
In his ruling, Honorable Judge Adiel, analyzes in detail the local and foreign references brought by the parties with regards to IFPI’s contention that listening to radio and watching TV in a hotel room constitutes a "public performance" of protected works. Judge Adiel refers to this issue as a "substantial issue" one, which has received different treatment by each court it was discussed in, stating that the Supreme Court has yet to be confronted with this issue. This analysis brought Judge Adiel to the conclusion (even though he states that it was not without doubt) that stationing simple TVs and radios, even if it generates a potential for further income to the hotel owners, does not constitute a "public performance" of the broadcasted works. The Tribunal, as stated by Judge Adiel, held that the stationing of a radio or a TV is by nature, closer to renting such devices to the guests, rather then public performance of the work by the hotel. Even though the Tribunal reached the conclusion that this matter does not constitute public performance, it presents a long and detailed analysis of the question whether the reception of television and radio broadcast in the guest's rooms by the guests is in fact a public performance. Following a comprehensive discussion (including references to local and foreign precedents) the Tribunal held that: "…in order to establish a "public performance" the elements of performance and public are to cumulatively exist. The only conclusion from this analysis, even though not without doubt, shows that performing protected works in the hotel's guests rooms are not to be referred as public performance in the sense of violating the copyright owner's right "to perform…. in public". Thus, the petitioner has no right to collect royalties resulting from the stationing of radio and television sets in hotel rooms (section 171 pg. 94 of the court's ruling).
The Tribunal examined the question of the monopoly's financial damage as a basis for its conclusion. In the case in which the performer "bypasses" the copyright owner right by performing, free of charge, the owners protected work which otherwise would have entitled him to royalties, the performance will be considered a "public performance" that violates the economical rights of the copyright owner, meaning, had the performer not performed the protected work, the audience would have paid the copyright owner. That, along with the fact, that the mentioned performance enables the audience to "bypass" this payment or to divert the payment from its rightful owner to the performer, in this case, the court will hold such performance as such that violates copyrights. In the Tribunals’ opinion, listening to radio or watching TV held in the guest's room does not constitute a bypass of the copyright owner, that is, because if the individual was not staying in a hotel, he would be home listening to or watching the same program. If the guest was watching television at home he would have paid the television fee or the cable company. As for a hotel, it pays such payments for its guests. The Tribunal rejected IFPI’s argument which stated that whereas listening to radio or watching TV in the hotel room are a part of the diverse services offered by the hotel to its guests and the hotel profits from this service, therefore it constitutes a public performance. The Tribunal held that the extent of the monopoly's legal protection will not be established solely by the wrongful enrichment of one the parties. The Tribunal also rejected IFPI’s claim asserting that, as there is a frequent exchange of guests in hotel rooms the performance is in front of a larger audience, therefore constituting a public performance. The Tribunal accepted the claim presented by the hotel association, characterizing hotel rooms as "A mans home away from home", in this case there is no difference between the act of listening to radio or watching TV at a hotel then the same action if performed at home. Let it be noted, that in another section of the Tribunal’s ruling, the Tribunal precisely indicates that such broadcasting (to hotel rooms) does not establish a "public performance" solely in the case in which the hotels do not broadcast from a central unit of some kind. We can expect the IFPI to stress this differentiation in the future.
Copyrights concerning foreign works In their summation, the hotel association designated a substantial part to their argument, asserting that foreign works are legally protected exclusively from copying and duplication, but not from public performance. The Tribunal rejected IFPI’s claim that their entire foreign repertoire is entitled to legal copyright protection. Nevertheless, the Tribunal held that a portion of this repertoire should entitle legal protection, though stating that it cannot establish which portion that might be. The Tribunal stated that it does not see reason to exclude such repertoire from the general approval. In the Tribunal’s opinion this issue should be dealt with in a civil legal litigation procedure not in a procedure to approve restrictive arrangements. Approval of the restrictive arrangements concerning music played in hotel rooms Following the Tribunal's conclusion, that playing music in hotel rooms does not constitute a public performance, the Tribunal sets a very important assertion for the hotel association, requiring the IFPI to sell partial licenses excluding music played in the hotel’s rooms. Additionally, the Tribunal holds that IFPI cannot stipulate a requirement to purchase a license for the hotel rooms, as a condition for granting license permissions for public spaces. The Tribunal did not discuss the price of such a license, nevertheless, it states that splitting the license should have an effect on its price. "Apparently this issue should not raise any problem, being that the current tariff already includes a different tariff for rooms" (section 236 to the Tribunal’s ruling pg. 117). The Tribunal chose not to adopt a similar arrangement concerning the foreign repertoire (meaning representing a condition that binds the IFPI to issue separate licenses for performing local works). Rejection of arguments made by The Israeli Event Hall Owners Association The Tribunal rejected the Israel Event Hall Owners’ Association's objection, which in essence, stated the fact that royalties are collected from the owners of event halls and not from the DJs, and that no attempt was even made, so far, to collect such royalties. The Tribunal came to the conclusion that such a policy does not represent an abuse of market power, for the reason that the owners bear responsibility for any wrongful act carried out in their event hall. Additional issues discussed The Tribunal also discussed several issues concerning synchronization rights and Internet broadcasting rights, both are of no concern to the hotel association. Summary:
The Tribunal finds in favor of approving the restrictive arrangements of the IFPI and HAPIL, subjected to operational terms asserted by the General Director of the Antitrust Authority. The approval was granted for the limited period of three years, commencing from the day of the decision (that is to say until 29.4.07). The Tribunal additionally instructed that the "IFPI will grant hotels licenses which exclude guest rooms insofar as the music played in the rooms is performed by when guests activate their TVs or radios, when such activation is not made by a central unit or the hotel". | 
