The Hong Kong Copyright Tribunal ("Tribunal") was established in 1997 as an independent quasi-judicial body to determine disputes relating to copyright licensing and licensing schemes. It recently handed down its first decision in Neway Music Limited v Hong Kong Karaoke Licensing Alliance Limited CT 2/2010 ("Neway decision"). Neway Music Limited ("Neway") requested the Tribunal to determine the reasonableness of fees in respect of reproducing karaoke music videos ("KMVs") under a licensing scheme.

The Facts

From July 2010 to June 2015, Neway entered into a licensing scheme ("Scheme") with Hong Kong Karaoke Licensing Alliance Limited ("HKKLA"). HKKLA is a licensing body authorised by Sony Music, Warner Music and Universal Music (collectively, "Record Companies") to negotiate and grant KMV licences to karaoke establishments in Hong Kong.

Under the Scheme, HKKLA granted licences to Neway for the reproduction of KMVs in its karaoke outlets.1 Also under the Scheme, KMVs are categorised into two types:

  1. "Back catalogue" - defined as any KMV which is not a "New Release"; and
  2. "New Releases" - defined as KMVs which are commercially published by HKKLA at any time during a Scheme year; concert KMVs; or KMVs which have been expressly excluded.

The licence fees for the use of "back catalogue" KMVs are calculated by reference to the number of rooms installed with karaoke facilities, rather than the actual usage of KMVs. Below is a brief illustration of the licence fees in respect of "back catalogue" KMVs2 :

957062a.jpg

The key issue for the Tribunal's determination was whether the licence fees under the Scheme in respect of the "back catalogue" KMVs were reasonable.

The Neway Decision

APPROACH

When determining whether a licensing scheme is reasonable, the Tribunal must take into account matters listed under section 167 of the CO, which include:

  1. the availability and the terms of comparable schemes;
  2. the nature of the work concerned;
  3. the relative bargaining power of the parties; and
  4. the availability of information relevant to the scheme in question to the licensees, or prospective licensees.

The Tribunal should also ensure that there is no unreasonable discrimination between licensees or prospective licensees under the licensing schemes.

HOW TO MAKE A REASONABLE VALUATION OF FEES

In assessing what is considered to be a reasonable level of fees, the Tribunal considered the following three approaches:

  1. an economic benefits approach – where part of the profits which the licensee is expected to receive from the use of the copyright work under licence is identified as a reasonable licence fee;
  2. a cost of substitution approach – where the reasonable licence fee should be determined by reference to the cost of obtaining alternative intellectual property rights (in the present case, this would be the cost of obtaining licences from the Record Companies for reproduction licences or synchronisation licences and the cost of production of the KMVs by Neway); and
  3. a comparable approach – where the reasonable licence fee is determined by comparison to other licensing schemes.

The Tribunal applied the comparable approach. The Tribunal then proceeded to review several historical KMV licensing schemes in Hong Kong but eventually decided that none of these schemes are suitable comparisons to the Scheme.3

The Tribunal found that the Scheme was reasonable and its terms did not require any variation. The Tribunal considered that the structure of the Scheme aligned with the principle that the more one uses a copyright work, the more licence fee a user should pay. It was decided that the Scheme gave due consideration to the fact that a larger karaoke outlet with more rooms would have more usage of the KMVs, and therefore would be charged increased licensing fees. Further the Scheme did not discriminate against smaller karaoke establishments by charging larger establishments disproportionately less amount of licence fees per room.

The Tribunal made an order for payment of the licence fees by Neway to HKKLA for "back catalogue" KMVs for the five-year period during which the Scheme was in operation.

THE TRIBUNAL'S POWERS UNDER SECTION 156(4) OF THE CO

Neway also applied to the Tribunal for an order under section 156(4) of the CO to protect Neway from any potential copyright infringement proceedings by the Record Companies in respect of the use of its KMVs (after the Scheme ceased operation in mid-2015).

While section 156(4) of the CO empowers the Tribunal to make an order which should be "in force indefinitely or for such period as the Tribunal may determine" when confirming or varying a licensing scheme, the Tribunal ruled that section 156(4) of the CO does not allow it to determine the life of a licensing scheme. In other words, the Tribunal cannot extend a licensing scheme after it has ceased operation, and therefore, Neway would still be exposed to potential copyright infringement proceedings in respect of its use of KMVs post expiration of the Scheme.

Conclusion

As the Tribunal's first ever substantive determination, the Neway decision sheds some light on the interpretation and application of some of the relevant provisions of the CO. Neway recently filed an appeal to the High Court. It seems the music will play on for a while yet.

Footnotes

1. Copyright subsists in KMVs as they fall within the definition of "film" under section 7 of the Copyright Ordinance (Cap. 528). As the reproduction and playback of KMVs constitute an act of "copying" under section 23 of the Copyright Ordinance, karaoke operators need to obtain appropriate licences to lawfully reproduce KMVs.

2. See paragraphs 192 and 193 of the Decision. The calculation of licence fees was submitted by HKKLA and accepted by the Tribunal.

3. Reasons for this include the fact that other licensing schemes were designed for independent karaoke outlets (not karaoke chains), and under another licensing scheme, a lump sum annual licence fee was charged instead of a scale fee.

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.