Application by Streem Pty Limited [2018] ACopyT 1

COPYRIGHT TRIBUNAL OF AUSTRALIA

Application by Streem Pty Limited [2018] ACopyT 1 File number: CT 1 of 2018

The Tribunal: GREENWOOD ACJ (PRESIDENT)

Date of decision: 28 June 2018

Legislation: Copyright Act 1968 (Cth), ss 157(3), 157(6B), 160 and 164

Date of hearing: 22 June 2018

Date of last submissions: 22 June 2018

Category: No Catchwords

Number of paragraphs: 32

Counsel for the Applicants: Ms P L Arcus

Solicitor for the Applicants: Corrs Chambers Westgarth

Counsel for the Respondent: Mr C Dimitriadis SC with Ms E Whitby

Solicitor for the Respondent: MinterEllison

COMMONWEALTH OF AUSTRALIA

Copyright Act 1968 IN THE COPYRIGHT TRIBUNAL CT 1 of 2018

application by: STREEM PTY LIMITED (CAN 600 621 627)

BETWEEN: STREEM PTY LIMITED (ACN 600 621 627) First Applicant AND: COPYRIGHT AGENCY LIMITED (ABN 53 001 228 799) Second Applicant

TRIBUNAL: GREENWOOD ACJ (PRESIDENT)

DATE OF ORDER: 28 JUNE 2018

THE TRIBUNAL DIRECTS THAT:

1. The parties confer for the purpose of submitting proposed Orders to the Tribunal within seven days.

REASONS FOR DETERMINATION

GREENWOOD ACJ (PRESIDENT): 1 These proceedings are concerned with the question of the terms upon which an interim order ought to be made under s 160 of the Copyright Act 1968 (Cth) which will operate until the Tribunal's final decision on an application made by Streem Pty Limited (Streem) under s 157(3) of the Act. 2 Section 157(3) of the Act provides that a person who claims that he or she requires a licence in a case to which a licence scheme does not apply, and claims that a licensor proposes that a licence should be granted subject to the payment of charges or subject to conditions, that are "unreasonable", may apply to the Tribunal under the section. Streem makes such a claim and seeks an order under s 157(6B) which provides that if the Tribunal is satisfied that Streem's claim made under s 157(3) is "well-founded", the Tribunal must either make an order specifying the charges, if any, and the conditions, that the Tribunal considers reasonable "in the circumstances in relation to the applicant"; or order that the applicant be granted a licence in the terms proposed either by the applicant or the licensor concerned or, where relevant, another party to the application. 3 Section 160 of the Act contemplates the making of "interim orders" and provides that where an application (or reference) is made to the Tribunal under the Act, the Tribunal "may make an interim order having effect until the final decision of the Tribunal on the application or reference". 4 The parties agree that the relevant principles governing the exercise of the power conferred upon the Tribunal by s 160 of the Act are these: 1. The Scope of the power to make interim orders under s 160 of the Act has been considered by the Tribunal in a number of decisions and has been construed widely: see Universal Music Australia v EMI Music Publishing Australia Pty Ltd [2000] ACopyT 5; 155 FLR 362; 48 IPR 99 (Universal v EMI) at [19]-[22]; Australasian Performing Right Association Limited v Federation of Australian Commercial Television Stations [1995] ACopyT 2 at pages 10-12. 2. The Tribunal's power to make interim orders under s 160 is not confined by the nature of final relief that may be granted under s 157: Universal v EMI at [19]-[22]. 3. It is important to bear in mind that the present hearing concerns an application for interim, not final, relief. It is inappropriate for the Tribunal to determine the reasonableness of the method of calculating licence fees ahead of the final hearing: Universal v EMI at [15] and [24]. 5 The background to the present application is this. 6 Mr Alexander Murphy is a solicitor employed by the solicitors for Streem, Corrs Chambers Westgarth. Mr Murphy says that he makes his affidavit in support of Streem's application for interim relief on the basis of instructions he has received from the Chief Executive Officer of Streem "having regard to Section 164(b) of the Act". Section 164 has things to say about the procedure to be adopted by the Tribunal in the conduct of proceedings. Section 164(b) provides that the Tribunal "is not bound by the rules of evidence". The section also provides that proceedings shall be conducted "with as little formality and with as much expedition, as the requirements of the Act and a proper consideration of the matters before the Tribunal permit". These matters have some significance for para 20 of Mr Murphy's affidavit and in particular a set of financial schedules set out at Exhibit AWM-5 of Mr Murphy's affidavit. 7 Mr Murphy says that Streem is a media monitoring organisation. He says that the other major participants for like services in Australia are Isentia Pty Limited which is said to have approximately 80% of the market and Meltwater Australia Pty Ltd which has 16% of the market. He says that Streem, like these other participants, requires a licence from Copyright Agency Limited ("CAL") in order to conduct its business. Streem's core service involves the identification, reproduction, communication and analysis of particular "works" in respect of which CAL has authority to licence. Those works are described as "Licensed Works" (apart from any "Excluded Work") for the purposes of a licence agreement which was entered into between Streem and CAL in July 2017 although operative from 1 March 2017. 8 I will return to that licence later in these reasons. 9 Mr John Fairbairn of MinterEllison is the solicitor for CAL. CAL resists the particular form of order sought by Streem under s 160 and relies upon Mr Fairbairn's affidavit in doing so. Mr Fairbairn explains that CopyCo Pty Ltd was formed in 1999 to represent the interests of publisher members of that company with respect to the licensing of newspaper and magazine articles in which publisher members or their related corporations own the copyright subsisting in those works. The current shareholders of CopyCo are Fairfax Digital Pty Limited, News Limited, Bauer Media Pty Limited, Rural Press Pty Limited and APN Newspapers Pty Ltd. CopyCo has entered into agreements with 10 publishers each of which has granted CopyCo a non-exclusive licence to sub-license specified rights in particular publications from time to time. CopyCo on 20 March 2000 entered into an Agency Agreement with CAL under which it appointed CAL to act as its agent to sub-license these licensed rights, collect fees payable in respect of each sub-licence and distribute the proceeds of the licence fees. 10 These arrangements are entirely different to particular statutory licences under the Act. CAL is a declared collecting society for each owner of the copyright in a relevant work for the purposes of the statutory Educational Licence contained in Pt IVA, Div 4 of the Act, and for government copies of relevant works and published editions of works for the purposes of the statutory Government Licence contained in Pt VII, Div 2 of the Act. 11 As to media monitoring organisations, CAL's right to grant sub-licences to those entities in respect of copyright owned or controlled by a CopyCo publisher is by means of the Agency Agreement. 12 It is now necessary to say something about the "Press Monitoring and Online Monitoring Licence" (the "Licence Agreement") between CAL and Streem which commenced on 1 March 2017 although entered into in July 2017. In respect of a number of these matters, it is necessary to be circumspect or a little oblique as many of the commercial aspects of these arrangements are said to be highly confidential. 13 It seems to me that the following matters are not confidential. 14 The Licence Agreement was negotiated between Mr Suckling (the CEO for CAL), Mr Johnson, Ms Johnston and Ms Morrison (a senior solicitor at CAL), for CAL, and Mr Welch, Mr Samuels AC and Mr Forbes, for Streem. In February 2017, exchanges took place between CAL and Streem as a result of which it became apparent to CAL that Streem intended to launch a full-service offering as a media monitoring organisation. In March 2017, discussions about a licence took place. Those discussions continued and resulted in the negotiation and execution of the Licence Agreement. Mr Murphy says that the Licence Agreement was entered into on 31 July 2017. Mr Fairbairn says that at the time of the discussions in March 2017 CAL was in the process of preparing an industry-wide licensing model for full-service media monitoring organisations although the model had not been developed to the point where it could be put to Streem as at March 2017. Mr Fairbairn says that, consequently, CAL offered a licence to Streem on an interim basis pending finalisation of the industry-wide licensing model. Although entered into in July 2017, Mr Fairbairn says that the licence was backdated to 1 March 2017 to ensure that Streem was appropriately licensed for its activities in the period from 1 March 2017 to 31 July 2017. 15 Mr Murphy says that he is instructed that the Licence Agreement was agreed to by Streem on the basis of representations by CAL that an industry-wide replacement agreement was imminent and because Streem had no practical alternative other than to enter into the Licence Agreement if it wished to commence "full operation" which was to occur shortly after it obtained the Licence Agreement (although that seems to have been from March 2017 rather than July 2017). In any event, the term of the licence was from 1 March 2017 until 30 November 2017. Recital C recognises the possibility of an extension of the term until 28 February 2018 and a further extension until 30 June 2018 provided certain conditions were met at each stage. Recital C recites that the term of the interim agreement would not be extended beyond 30 June 2018 "in any circumstance". The extensions are contained in cl 5.6. Good faith negotiations for a new licence were to commence no later than 1 September 2017. 16 The Licence Agreement by cl 5 makes provision for the payment of a licence fee by reference to Annexure A. The licence provides for a fixed fee to be paid pro-rata for particular periods and a variable fee in particular months. However, the variable fee for the term of the agreement provides for the greater of a certain amount and an amount calculated at a particular rate having regard to usage, in relation to "Press clips" and the greater of a certain amount and a percentage of "Online Monitoring Revenue" in respect of "Online content". It also provides a similar mechanism in respect of what is called "Downstream use". 17 As things transpired, Streem requested an extension of the Licence Agreement in September 2017 which was initially refused. On 19 October 2017, Streem's solicitors sought an extension of the licence until 30 June 2018 (notwithstanding particular allegations made by them in the letter to CAL). Negotiations continued in relation to the terms of a possible industry-wide licence being adopted. CAL's solicitors responded to the letter of 19 October 2017 and rejected Streem's request for an extension of the Licence Agreement to 30 June 2018. Notwithstanding those matters, without prejudice commercial discussions took place concerning the terms of an agreement. Further discussions took place and at Streem's request, the Licence Agreement was extended on 21 November 2017 until 28 February 2018. It was extended again on 2 February 2018 until 30 June 2018. The Licence Agreement will come to an end on 30 June 2018 and thus Streem requires an interim order providing it with a licence until the Tribunal's final decision on the primary application is made. The issue now is the terms upon which such a licence might be granted so as to preserve Streem's capacity to conduct its business pending the final decision. 18 Put simply, Streem's objection to the formulation of the licence fee clause in the existing Licence Agreement is that it contains a minimum fee structure which guarantees a minimum level of fees to the licensor which, having regard to the revenue derived by Streem from exploiting the licensed rights, is said to be entirely disproportionate, burdensome and prejudicial. Thus, in terms of an interim order, so as to preserve its capacity to conduct the business, Streem proposes an order which eliminates the minimum payments and provides for a fee based only on a percentage of the revenue derived through the degree of actual use or exploitation of the licensed rights. 19 CAL says that a licence, on an interim basis pending the determination of the application, on the footing of a variation to the existing Licence Agreement so as to extinguish the minimum payment provision, engages the Tribunal, on an interim basis, in a determination of what might or might not be said to be reasonable or unreasonable. CAL says that engaging in that analysis for the purpose of determining an interim order is entirely inappropriate. CAL has now offered Streem a licence on the basis of the industry-wide terms it has been seeking to formulate for some time. Streem says that that licence is also unreasonable and seeks to resist it in the primary proceeding. It has refused to accept that licence for the purposes of an interim arrangement pending determination of the primary proceeding. CAL says that if the status quo is to be maintained pending the determination of the primary application, the interim order ought to provide for the grant of a licence to Streem on the terms and conditions of the existing Licence Agreement, as written, without any reduction in the minimum fee provision. In addition, CAL says that eliminating the minimum fee benchmarks distorts the commercial bargain because, the Tribunal can infer, that had there been no minimum fee benchmarks, the variable rate for Press clips and the percentage of revenue in relation to the exploitation of other rights would likely have been very different. 20 CAL also says that the existing Licence Agreement was negotiated by the individuals for each side as described in Mr Fairbairn's affidavit. They are experienced people. The parties were represented by lawyers. The agreement was struck in July 2017 and then extended to 28 February 2018 and then extended again to 30 June 2018 on the same terms throughout. Mr Fairbairn says that Streem did not raise concerns with the minimum annual payment formulation in the agreement during the negotiations and nor did it characterise those terms as a barrier to entry into the market for the relevant media monitoring services. 21 CAL says that the current Licence Agreement is the status quo. I accept that an agreement struck as recently as July 2017 and then extended by agreement between the parties on 21 November 2017 to 28 February 2018 and then extended again as recently as 2 February 2018 until 30 June 2018 is the best evidence of a bargain struck between the parties which seeks to allocate risk according to the terms and conditions of the document including the licence fee arrangements. The Tribunal ought to be reluctant to make an interim order that re-casts the balance struck so recently between the parties in distributing rights, risks and revenue. 22 Streem accepts that it is not the function of the Tribunal on an interim application under s 160 to engage in the question of whether terms in contest in the principal application by reason of competing versions of preferred terms are reasonable or not. However, Streem says that notwithstanding that consideration as a matter of principle, it nevertheless remains relevant to consider the extent to which the Licence Agreement imposes prejudice upon Streem as a factor to be taken into account in the exercise of the discretion under s 160 of the Act as to an appropriate interim order. In effect, Streem says that without necessarily descending into a qualitative debate about what is reasonable or not, the Tribunal ought to take into account, in the exercise of the discretion, steps which might ameliorate the prejudicial effect of the fee clause on an interim basis. That is said to be particularly so in the context of the financial analysis reflected in two of the Schedules in Exhibit AMW-5. 23 As to that Exhibit, CAL objected to the admissibility of para 20 and Exhibit AMW-5 on the footing that the affidavit fails to properly identify the source of the information; the person who undertook the analysis and prepared each Schedule; the authority or expertise of the individual to undertake the analysis; and the basis upon which such a person aggregated revenues so as to be in a position to assert the revenue for "Print", "Online" and "Print & Online Analysis" are the figures set out in each Schedule. CAL also says that if Exhibit AMW-5 is to be admitted (along with the paragraph that supports it), very little weight should be attributed to it not only for reasons of lack of authority for the analysis but also because other aspects of Streem's revenues are not identified. 24 The point of these Schedules is this. In the first example, the financial analysis seeks to demonstrate that fees paid to CAL in accordance with the fee clause in the current Licence Agreement, taking into account, most relevantly, the minimum fee payment condition, results in fees payable to CAL, as a percentage of Streem's actual derived revenue from "Print, Online and Print & Online Analysis" activities, represents much more than the total revenue derived by Streem from exercising the Licensed rights. In the second example, the financial analysis seeks to demonstrate that the fees payable to CAL under the fee clause in the current Licence Agreement absent the minimum guarantee provision represents, at least less than Streem's total revenue derived from exercising the Licensed rights, but nevertheless represents, as a fee payable to CAL, a substantial percentage in any event of Streem's actual revenue from exploiting the various classes of rights. 25 CAL says that these calculations have no probative value whatsoever and do not speak to prejudice to Streem because it is simply not clear whether the proportion of Streem's total gross revenue (including and excluding GST) attributed to Streem's Print, Online and Print & Online Analysis activities is accurately attributed which, in turn, affects the various percentage calculations said to reveal the inherent prejudice in the working operation of the licence fee clause. 26 In the course of the hearing I admitted Exhibt AWM-5. It seems to me that the Exhibit is supported by the paragraph of Mr Murphy's affidavit which suggests that the affidavit and the exhibits to it are made on the basis of instructions from Streem's Chief Executive Officer. I infer that if Streem's CEO did not prepare the financial schedules, they have been adopted by the CEO and form the basis of data provided to Mr Murphy based on an analysis of the financial accounts. However, I do not propose to attribute great weight to the two particular financial schedules upon which emphasis is now placed because they need a little more explanation. I accept that on the face of the Schedules alone, without more, the first financial analysis suggests what might be described as a distorting effect of the licence fee calculation in accordance with the Licence Agreement, at least relative to what is said to be the revenue derived by Streem attributable to exercising the Licensed rights in respect of which a licence fee is payable. 27 The financial schedules postulate a position based on the current 2018 financial year to date. Streem says that CAL and its lawyers have had the financial information for about 11 days and no affidavit has been put on contesting the financial analysis and in particular contesting the contended prejudicial relativities between revenue derived from exercising the Licensed rights and fees payable to CAL. Streem says that an inference should be drawn that CAL has nothing qualitatively to say on the merits of the financial analysis and in any event CAL has had the 2017 financial results and could have said something on the basis of that information. CAL says that they have not had the 2018 financial year information for very long at all which is said to explain why no response to the schedules has been forthcoming. 28 I accept that a particular fee structure proposed by a licensor might well operate differentially in terms of what might be prejudicial (and, for that matter, thought to be reasonable or unreasonable) as between a mature business and a new entrant business. A mature business with a particular market position and revenues which bear some relation to that market position might well be able to amortise the cost of the right to exercise the Licensed rights (in the form of fees payable to CAL) over total revenues which results in a less prejudicial impact of the relevant fee structure for that business as compared with a new entrant business. However, in terms of an interim order, I regard the circumstance that the parties have very recently struck a bargain and on two separate occasions Streem elected to extend the licence on the terms of that bargain, as very influential in determining the terms of the licence which ought to prevail on an interim basis. 29 I note that the parties were represented by experienced people with the assistance of lawyers. I note that in the case of Streem, one of the negotiators was Mr Samuels AC. Mr Samuels is highly regarded in the Australian commercial, legal and regulatory communities. I have no doubt that the commercial negotiators for Streem had a complete understanding of the mix of debt and equity available to Streem and the capacity of Streem to assume the financial obligations recited in the Licence Agreement. There does not seem to be any suggestion that the representatives of Streem were in any doubt about the elements of the fee clause or its working operation or the capacity of Streem, with its debt and equity mix, to meet the burden of the clause. 30 However I accept that there needs to be an adjustment mechanism built into the orders for interim relief. If the Tribunal is satisfied that the claims of Streem under s 157(3) are "well-founded" the Tribunal might make an order under s 157(6B) which results in licence fees payable to CAL which are less than the interim fees payable under the current Licence Agreement. The Tribunal might make an order that results in licence fees payable to CAL which are greater than the fees contemplated by the current Licence Agreement. 31 Accordingly an order in terms of Order 3 of Version 1 of the Orders suggested by Streem ought to be adopted as a mechanism for addressing, first, the contended prejudice Streem says it will suffer by extending the terms of the current Licence Agreement pending the determination of the principal application (on the footing that Streem will seek to demonstrate that the terms of the Licence Agreement and the terms of CAL's industry-wide licence agreement are both unreasonable) and second, in addressing the possibility that the interim fee is less than the fee ultimately determined by the Tribunal. 32 Accordingly, the Tribunal orders that the Licence Agreement which operated from 1 March 2017 to 30 June 2018 be extended pending the Tribunal's decision in the principal application. The orders are to incorporate an order in terms of Order 3 of Streem's Version 1. There are consequential and related Orders to be made. The parties are directed to caucus about the terms of the interim orders to be made and any other orders to be made with a view to submitting an agreed proposed set of orders to my Associate for the Tribunal's consideration. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Determination herein of the Honourable Justice Greenwood, Acting Chief Justice (President).