Application of Competition Law in the United Kingdom and Europe

The music industry operates by exploiting intellectual property; which is by its nature restrictive and monopolistic. The Copyright Design and Patents Act S16(1) delineates that these acts are restricted in relation to the work:

* To copy the work

* To issue copies of the work to the public

* To perform, show or play the work in public

* To broadcast the work or include it in a cable programme

* To make an adaptation of the work

It allows intellectual property holders to assign or license these acts to third parties. This can be the source of contention between other legislation which promotes competition and free-trade. The governmental Office of Trade Trading (OFT) states:

Open and vigorous competition is good for consumers because it results in lower prices, new products of a better quality and more choice. It is also good for fair-dealing businesses, which flourish when markets are competitive.

Competition laws endeavour to control the supply and the domination of a market. The EC Treaty has also been termed the Treaty of Rome, and it has been additionally supplied by the Treaty of Amsterdam. As the Office of Fair Trading (OFT) and European Parliament consistently refer to it as the EC Treaty, this text shall do so also.

Articles 81 - 89 EC Treaty encompass all 27 EU member states and are designed to ensure free-trade and maximise flow of goods.

Chapter 1 of the CA98 and Article 81(1) and (2) of EC Treaty exclude anti-competitive agreements that prevent, restrict or distort competition, or those that intend to do so. The OFT states that:

These agreements prohibit in principal:

 price fixing;

 limiting or controlling production, markets, technical development or investment;

 sharing markets or sources of supply;

 applying dissimilar conditions to equivalent transactions;

 making the conclusion of contracts subject to supplementary obligations that have no connection with the subject of the contracts.

(European Parliament 2001)

The law also governs concerted practices; cooperation and collaborations between companies which distort the market.

The European Parliament states that an infringement of the rules in Article 85(1) would mean that:

the agreement or practice automatically becomes void and has to be ended immediately. The Commission may impose fines on undertakings which do not exceed 10% of the turnover. It may also impose penalty payments of up to 20% of daily receipts, until the infringement has ended. However, it cannot grant damages to companies that have been affected. This is the responsibility of national courts, which, on the basis of the direct applicability of the provisions of Article 81, have the power to implement them. (European Parliament 2002)

Articles 82 of the EC Treaty refers to the abuse of a dominant position, Articles 81, 82 and 235 ECT encompass mergers, Article 83 ECT refers to the adoption of regulations and directives, Article 85 ECT incorporate the commission's investigative powers).

Chaper II of the CA98 and Article 82 ECT intend to prevent a monopolistic business which controls more than 10% of a market from abuse of the dominant position. The OFT states that:

Conduct which may be considered an abuse by a business in a dominant position includes:

* charging excessively high prices

* limiting production

* refusing to supply an existing long standing customer without good reason

* charging different prices to different customers where there is no difference in what is being supplied

* making a contract conditional on factors that have nothing to do with the subject of the contract.

(OFT 2007)

Small businesses may be able to avoid financial penalties under the CA98. They cannot claim immunity from price-fixing or in relation to infringements of Article 81 or Article 82 of the EC Treaty.

The OFT brought allegations of price-fixing to the European Comission's competition unit, following a complaint by UK consumer representative body "Which?" The UK's OFT claimed that Apples' iTunes unit restricted where consumers can buy music within the European Union and violated anti-trust law, referring the case to the EC stating "the Commission is better placed to consider this matter, in particular as Apple iTunes operates in more than three EC Member States" and that "the European Commission is in a better position fully to address the issues raised by Which? in the context of wider single market issues relating to how the online exploitation of music is licensed across Europe" (OFT 2007)

Butler (2007) states:

This is where anti-trust law, which targets monopolistic behaviour, collides with competition law, which creates a monopoly for copyright holders. Labels don't always have the right to grant distribution in every EU country.

iTunes charges UK consumers 79 pence per track music downloads, whereas in France it offers the same tracks for 0.99 euros. Here there is a discrepancy of around 20% in favour to the French market. In relation to Article 81 and 82 of the EC Treaty this is an attempt to discriminate between EU member states and fix prices, as the consumer can only buy music from the country in which his credit card is registered in. To obtain permission for digital distribution Apple has to deal with different licensors of the copyright in the tracks. These respective collection societies (the MCPS-PRS Alliance in the UK) and recording companies hold the rights restricted under s16 CDPA 1988; to issue a copy of the work to the public; to perform a work to the public. Because Apple must negotiate prices with various respective licensors from country to country, the company holds that the price-fixing is valid. In an April 3 (Butler 2007) memo, the EC competition unit headed by Neelie Kroes said:

The European Commission...sent a Statement of Objections to major record companies and Apple that restrict