Collecting Societies

1.1. The formation of collecting societies as a consequence of the development of authors' rights in the 19th century

Collecting societies have been in existence since the 19th century. Their development is marked by the societies created for the administration of music rights and their emergence is a consequence of the development of copyright, which in the 18th century had already experienced its philosophical diffusion and established its legal roots under the influence of the law of nature that was flourishing throughout Europe. After the constitution of the United States of North America of 1788 had placed intellectual property under the protection of the constitution and a "propriété littéraire et artistique" had been recognized in France by two laws from the revolutionary period dated 1791 and 1793, Prussia created the "Gesetz zum Schutze des Eigenthums an Werken der Wissenschaft und Kunst in Nachdruck und Nachbildung" [Law to protect ownership of scientific and artistic works against reproduction and copying] on 11th June 1837, which was the most comprehensive and simultaneously the most advanced copyright law of its time.

This was followed in 1870 by the "Gesetz betr. das Urheberrecht an Schriftwerken, Abbildungen, musikalischen Kompositionen und dramatischen Werken" [Law governing copyright in literary works, reproductions, musical compositions and dramatic works] and in 1901 the German Reich passed the "Gesetz betr. das Urheberrecht an Werken der Literatur und der Tonkunst" [LUG = Law governing copyright in works of literature and music]. It was not until 1965 that this was superseded by the "Gesetz über Urheberrecht und verwandte Schutzrechte" [Law governing copyright and neighbouring rights] of 9th September 1965, referred to as the Copyright Act (UrhG) (for the history of copyright cf. Schricker/Vogel, 2 A, Einleitung [Introduction] Margin No. 50 ff.).

In the second half of the 19th century, development of copyright was marked by the fact that the new copyright legislation granted other types of exploitation such as the right to public performance of dramatic, musical and dramatico-musical works to the authors, whose image had long been characterised by the dialectic between publishers and authors of books and who had traditionally only possessed reproduction and distribution rights in their works. In practice this fundamentally changed the situation for authors of musical works too, as regards the administration of their rights:

While reproduction of a book for example is usually only carried out by a publisher and the author thus only has one partner to deal with, the number of people who can perform a musical work for instance and so use the work in a manner otherwise reserved solely for the author is simply vast. Composers vested with the right of public performance are not in a position to supervise all public performances and to check whether their works were performed. It is also impossible for them to reach an agreement with every organiser wishing to perform their works about the granting of a licence and the royalty to be paid, still less to collect the royalty to be paid.

But nor is the organiser in a position to identify the relevant rights owners in a musical work or to obtain a performing licence from them.

The way was therefore open for the formation of institutions, i.e. collecting societies, to which authors could assign their rights for exploitation and which for their part issue the necessary performing licences, whether they be for individual works or for a comprehensive repertoire, and in addition supervise the public performances and arrange for collection of the agreed royalties.

With these extensive duties, collecting societies serve not only the interests of authors, but also those of users: only with the help of collecting societies can the objective inherent in granting performing rights be achieved, namely of giving due reward to the creative individual for his or her efforts. The users of the work for their part can receive the necessary licence for use comprehensively, quickly, without bureaucratic formalities and at low cost.

The traditional reasons which, from the point of view of rights owners and rights users alike, speak in favour of collective administration of rights, continue to apply in the so-called Internet age as well, for this is not going to change anything about the multitude of works, the millions of rights owners spread all over the globe and the ever-increasing fragmentation of rights, particularly onto publishers that are very different in nature. All this is making it more difficult for individual users to acquire rights, but even individual authors intending to exercise their rights individually will fail because of the multitude of users and acts of utilisation (cf. Reinhold Kreile and Jürgen Becker, Rechtedurchsetzung und Rechteverwaltung durch Verwertungsgesellschaften in der Informationsgesellschaft [Rights Enforcement and Management by Collecting Societies in the Information Society, in: GEMA Yearbook 2000/2001, pp. 85, 89).

1.2. From AFMA to GEMA

The world's first rights society for works of music in present-day terms was the French SACEM (Société des Auteurs et Compositeurs et Editeurs de Musique), which was founded in Paris on 28th February 1851. Its formation was preceded by the following event, which even now still illustrates the need for collecting societies to the layman in copyright matters:

In 1847, the composer Ernest Bourget visited the Paris Concert Café Ambassadeurs in the company of his colleague Victor Parizot. At the time, Bourget was a popular composer of chansons and chansonnettes comiques. Among other pieces, the orchestra played the music of Bourget. When the waiter presented the composer with the bill for the sugared water that he and his colleague had consumed as the fashionable luxury drink of the period, Bourget refused to pay claiming that the orchestra had repeatedly played his music - without paying anything: and so sugared water in return for playing his piece. The dispute between the composer and the owner was brought before the court. On 8th September 1847, the Tribunal de Commerce de la Seine prohibited the owner from playing works of the composer without his consent. The exclusive right of the author to public performances that had been anchored in the French law of 1791 was thus put into practice for the first time. And on 26th April 1849 the Cour d'Appel de Paris sentenced the owner of Ambassadeurs to pay compensation - i.e. in this case royalties - to Bourget.

In the light of this success, the composers Bourget, Parizot and Paul Henrion and the publisher Jules Colombier united to form an "Agence Centrale", the predecessor of SACEM, for the joint administration of performing rights in and to their musical works (cf. Ferdinand Melichar, Die Wahrnehmung von Urheberrechten durch Verwertungsgesellschaften [The administration of copyrights by collecting societies], 1983, p. 1).

Once the "Law governing copyright in works of literature and music" (LUG), which was passed in 1901 and came into force on 1st January 1902, had finally made it clear in Germany as well that no musical work was allowed to be performed in public unless the author had given his permission, the Institute for Musical Performing Rights (AFMA) was established on 1st July 1903 by the Cooperative of German Composers (GDT) that had been founded in the same year. Closely involved in the formation of this first music rights society in Germany right from the very start was a group of the most highly renowned and biggest music publishers including such publishers as Bock, Challier, Lienau and Simrock. Together with the board of directors of GDT, they drew up the basic principles for the Institute. GDT was headed by the composer Richard Strauss, who is therefore rightly considered to be the father of GEMA in its present form. Apart from Richard Strauss, other members of the board of directors and advisory council of GDT also included Engelbert Humperdinck, Friedrich Roesch, Eugen d'Albert and Gustav Mahler. During the preparatory stages leading up to the Copyright Act of 1901, GDT had already drawn up a plan for setting up an institute for musical performing rights and notified the government of the Reich pointing out that the legal situation created in 1901 would lead to serious confusion and would also upset public music culture, "unless a way was found to handle the whole spectrum of communication between the authors or other owners of performing rights and all organisers of public performances through a central organisation". The intent, purpose and working methods of AFMA are explained in a memorandum published by GDT early in 1904, half a year after the formation of AFMA ("Zur Aufklärung und Abwehr" [In clarification and defence]). On reading this memorandum, it is clear that the underlying principles and philosophy of this first German collecting society are still upheld and maintained by GEMA today – including in particular the principles established in 1903 which AFMA had already been taking as a basis in the pursuit of its work:

"The Institute does not pursue any private business ends. It acts only as an intermediary. It does not collect a reserve fund. There is no question of business profit. The administrative costs are deducted from the fees received, along with an amount of 10 % for the support fund of the association. All other receipts are distributed, down to the last pfennig, to the rights-owning composers, lyricists and publishers." (Die Anstalt für musikalisches Aufführungsrecht, Denkschrift der Genossenschaft Deutscher Tonsetzer [Institute for mechanical musical rights, Memorandum of the Cooperative of German Composers], Berlin 1904, p. 46.).

The road from AFMA did not lead straight to GEMA, but made some detours: by 1909 a separate society, the Anstalt für mechanisch-musikalische Rechte GmbH [Institute for mechanical musical rights] (AMMRE) had been founded for the exploitation of the so-called mechanical reproduction rights for phonograph records. This was joined in 1913 by an independent German branch of the AKM (Austrian Society of Authors, Composers and Music Publishers). In 1915 a group of rights owners left GDT and formed the old GEMA (Genossenschaft zur Verwertung musikalischer Aufführungsrechte [Cooperative for the exploitation of musical performing rights]), which is not identical to today's GEMA. The old GEMA joined the German branch of AKM in 1916 to form the Verband zum Schutze musikalischer Aufführungsrechte für Deutschland [Association for the protection of musical performing rights in Germany] (Music Protection Association).

Recognising that two competing collecting societies were in the interests of neither the authors nor of those organising music performances, GDT and the Music Protection Association joined forces in 1930 retaining the name Verband zum Schutze musikalischer Aufführungsrechte für Deutschland. This was not, however, a merger in the true sense; internally, the two performing rights societies remained unchanged. It was not until the adoption of the Law on the arranging of musical performing rights of 4th July 1933 (RGBl. I, p. 452), which subjected the collecting societies in the field of music to approval in order to create a monopoly society in this field, that GEMA and GDT united to create the STAGMA (Staatlich genehmigte Gesellschaft zur Verwertung musikalischer Urheberrechte [State-approved society for the exploitation of musical authors' rights]). On 28th September 1933, STAGMA was granted the monopoly to administer musical performing rights by virtue of the decree implementing the Law on the arranging of musical performing rights dated 15th February 1934 (RGBl. I, p. 100). In 1938, STAGMA was also joined by the then still independent society AMMRE.

After the war, STAGMA was empowered by resolution of the allied supervisory council to continue its former activities (Decree No. 55c dated 24th August 1947), but was renamed GEMA (Gesellschaft für musikalische Aufführungs- und mechanische Vervielfältigungsrechte [Society for musical performing and mechanical reproduction rights]). Our present-day GEMA is therefore identical to STAGMA; the STAGMA legislation was not rescinded until the Copyright Administration Act was passed (Art. 26) (for the history of GEMA cf. Angela Mauhs, Der Wahrnehmungsvertrag [The deed of assignment], 1990, p. 12 f. with extensive other references there in Fn. 9 as well as Erich Schulze, Urheberrecht in der Musik, 5th edition, 1981, p. 46 ff.; as above, Geschätzte und geschützte Noten, Zur Geschichte der Verwertungsgesellschaften [Appreciated and protected music, On the history of collecting societies], 1995).

In 2003, it was one hundred years since composers, lyricists and publishers in Germany had united to protect creative authors and their works by forming musical authors' societies, i.e. collecting societies for the administration of rights in musical works.

1.3. The German collecting societies other than GEMA

New technical and commercial ways of using intellectual works, which fall under the protection of the Copyright Act as other forms of use, have led to the formation of collecting societies outside the sphere of music:

The rights of literary authors and their publishers are administered by VG WORT, which was founded in 1958. In 1978, VG WORT was amalgamated with VG WISSENSCHAFT, which for its part had emerged from the former "Inkassostelle für urheberrechtliche Vervielfältigungsgebühren GmbH" [Collection agency for copyright reproduction fees], an institution of the Börsenverein des Deutschen Buchhandels [Association of German Publishers and Booksellers].

GVL (Collecting society for neighbouring rights), jointly formed (in 1959) by the Association of German Orchestras and the German National Group of IFPI (International Federation of Phonogram and Videogram Producers), is the most important collecting society in the field of neighbouring rights for performing artists, audio-carrier producers, video producers and film producers.

Alongside these three "old" collecting societies, other societies have been set up since the 1970s to administer the rights of creators of visual art, photographers, photo-journalists, photographic agencies, graphic designers, photo-designers, film authors and film producers as well as broadcasting companies, among others. These are:

• Verwertungsgesellschaft BILD-KUNST (VG BILD-KUNST = Visual arts collecting society): Creators of visual art; photo-journalists, graphic artists, designers, caricaturists, cartoonists, and picture archives; authors and producers in the areas of film, television and audiovision (directors, cameramen, cutters, film architects, costume designers);
• VG Musik-Edition (Music edition collecting society): Neighbouring rights in scientific editions and editions of posthumous works primarily in the field of music for scientific authors, editors and publishers; reprography rights in sheet music;
• Association de Gestion Internationale Collective des Oeuvres Audiovisuelles (AGICOA Urheberrechtsschutz GmbH= Association for the international collective administration of audiovisual works): Administration of cable retransmission rights, mainly for foreign rights owners;
• VG Satellit für Sendeunternehmen (VG Satellit Gesellschaft zur Verwertung der Leistungsschutzrechte von Sendeunternehmen mbH= Society for the exploitation of neighbouring rights of broadcasting companies): Neighbouring rights for broadcasting companies, in particular those related to cable retransmission;
• Verwertungsgesellschaft der Film- und Fernsehproduzenten (VFF= Collecting society for film and television producers): Independent film producers, e.g. producers holding (original) rights in (and to) commissioned and own productions for public and private television companies under Art. 94 UrhG; broadcasting stations and their advertising broadcasting companies – insofar as they produce films and animated pictures and are owners of synchronisation rights;
• Gesellschaft zur Wahrnehmung von Film- und Fernsehrechten (GWFF = Society administering film and television rights): Film producers, television producers, video programme synchronisers, authors;
• Verwertungsgesellschaft für Nutzungsrechte an Filmwerken (VGF = Collecting society for exploitation rights in cinematographic works): Film producers and synchronisers, authors, television producers, video programme producers (original and derivative rights);
• Gesellschaft zur Übernahme und Wahrnehmung von Filmaufführungsrechten (GÜFA = Collecting society for film performing rights): Copyright owners and holders of neighbouring rights including producers' rights in erotic and pornographic films.

It is not possible to provide details here about the legal form, structure and duties, etc. of the individual collecting societies. Reference is therefore made to the available literature (for legal form, object and responsibilities of the various collecting societies refer to their respective statutes, which have been documented by Hans- Peter Hillig [Urheber- und Verlagsrecht [Copyright and publishing rights], Beck'sche Textausgabe, 8th edition, 2001]).

What all collecting societies have in common is that they administer the exploitation and usage rights assigned to them by their members as well as statutory royalty claims, it being characteristic of the development of copyright and the right of the collecting societies that, with the exception of GEMA, all the other societies were founded primarily for the administration of statutory royalty claims. However, not only rights owners, but also users, have a vital interest in the activities of these societies, as the "centralisation of the collection process in a collecting society and the conclusion of general and/or standard agreements (provide) a practicable way for them to meet their statutory obligation to pay royalties at reasonable administrative expense" (Claudia Rossbach, loc.cit., p. 213).

2.1. The copyright system as the basis for the activities of collecting societies

Practising copyright lawyers adhere to the theory developed by Adolf Dietz that modern copyright in the sense of a comprehensive copyright system is to be understood not merely as a system providing a legal guarantee of exclusive rights to certain categories of protected works. On the contrary, modern copyright is rather an "integral system" made up of "at least four subsystems, namely so-called material copyright (with limitations to copyright), contract law pertaining to copyright, the right of the collecting societies and the neighbouring rights (droits voisins)" (Adolf Dietz, Das Urheberrecht in Spanien und Portugal [Copyright in Spain and Portugal], 1990, p. 13 f.). If this division is taken as a yardstick for a modern copyright system, then, as Dietz quite rightly concludes, it must logically also be used as a basis for a future European copyright system.

As a result of technological developments and hence of the constantly expanding and changing possibilities for exploitation – just think of the impact of digital technology (for details cf. Jürgen Becker/Thomas Dreier, Urheberrecht und digitale Technologie [Copyright and digital technology], UFITA, 1994; Martin Schippan, Die Harmonisierung des Urheberrechts in Europa im Zeitalter von Internet und digitaler Technologie [The harmonisation of copyright in Europe in the age of the Internet and digital technology], 1999) – the field of copyright has steadily developed on a scale barely equalled by any other legal field.

With material copyright, which grants authors exclusive exploitation rights and, wherever these are not enforceable, statutory royalty claims (cf. Articles 20 b, 27, 54 UrhG), the German lawmakers have created the material basis of copyright protection for creative individuals. They have enshrined the conditions for efficient implementation of authors' claims in the Copyright Administration Act (UrhWG), which codifies the right of the collecting societies: if, on the one hand, the state grants protection, because it has also "recognised the inseparable link between protection of authors, cultural development and a flourishing cultural industry and the media", it must, on the other, also lay the foundation for structures, on the basis of which this protection can be realised. This epitomises the "reciprocal relationship" of the individual aspects of the integral copyright concept (Dietz, loc.cit., p. 191).

Appreciation of the need for collecting societies has, in the meantime, become a fixed part of European copyright tradition. The European Commission also considers that there is a need for collecting societies in its efforts to harmonise certain fields of copyright in member states of the European Union and has meanwhile also conclusively anchored it specifically in the Directives on lending and rental rights (OJ No. L 346/61 dated 27th November 1992), satellite and cable broadcasting (OJ No. L 248/15 dated 6th October 1993), droit de suite (OJ No. L 272/32 dated 13th October 2001) and in the Directive on copyright and the information society (OJ No. L 167/10 dated 22nd May 2001).

2.2. The corporate nature of collecting societies

"A collecting society is a business undertaking like any other - just quite different". This is one conclusion arrived at from the practical day-to-day activities of collecting societies

If collecting societies can be compared with other business undertakings, this is because on the one hand they are classified as service undertakings under the broad economic and functional definition of undertaking or enterprise adopted by abuse and antitrust control on the part of the EU (in Articles 81 and 82 of the EC Treaty) (Koch, in Grabitz/Hilf, CEU, Article 85, Margin No. 7 and Article 86, Margin No. 12.) From the point of view of the European Commission, GEMA is "an undertaking within the meaning of Article 86; by arranging and administering musical copyrights in return for payment it exercises an entrepreneurial task constituting services both with respect to providers of music and users of music". [Decision of the Commission of 2nd June 1971 relating to a case under Article 86 of the Treaty <IV/26.760 – GEMA>, printed in: UFITA; Vol. 65, 1972, p. 344 ff. <355>). This estimation on the part of the Commission was also confirmed by the European Court of Justice in its SABAM III decision dated 27th March 1974 [GRUR Int. 1974, p. 342 ff.]. On the other hand, a collecting society like GEMA is subject to the same laws of modern corporate management as any other company of similar size, with the proviso, however, that the principle of maximising profits is only applied to a limited extent to collecting societies: GEMA does not make any profits. After deducting expenses, it distributes its revenue down to the last cent to beneficiaries in Germany and abroad (meaning composers, lyricists and music publishers), for whom the principle of equal treatment has been laid down in the Revised Berne Convention (Article 5) under the provisions on national treatment.

Pursuant to the German Companies Act, GEMA's Executive Board is appointed by the Board of Supervisors and its Chief Executive Officer must report to this Board in keeping with the provisions applicable to limited companies by presenting an annual balance sheet, an income statement with Notes (financial statements) and a management report (Art. 9 UrhWG (German Copyright Administration Act)).

The provisions of the German Copyright Administration Act clarify the major criteria accounting for the differences between collecting societies and conventional business undertakings. In view of their de facto monopoly status in their own specific fields (music, literature, photography, film, etc.), the German Copyright Administration Act subjects collecting societies to a special regime. This includes, among other things, a dual obligation to enter into contract with rights owners and users of protected works (Articles 6, 11), the obligation to draw up tariffs in respect of the remuneration they demand for the rights and claims they administer (Article 13), the obligation to maintain welfare and assistance schemes for their members (Article 8), the obligation to promote culturally important works and performances (Article 7), due regard to the religious, cultural and social interests, including the interests of youth welfare in establishing the tariffs (Article 13 (3)), special arbitration procedures for disputes between collecting societies and users (Article 14 ff.). Added to this is a supervisory role imposed by the State on collecting societies through the German Federal Cartel Office (Bundeskartellamt) as a result of their monopoly status, i.e. by the prohibition of discriminating practices in competition (Article 26 German Antitrust Act), the rules governing market-dominating undertakings (Article 19 Antitrust Act), entitling the Federal Cartel Office to prohibit collecting societies from taking certain measures and to nullify agreements and decisions representing abuse of their position in the market.

Apart from being supervised by the German Federal Cartel Office, collecting societies in Germany are also subject to concurrent parallel supervision by the German Trademarks and Patent Office (Article 18 Copyright Administration Act). Supervision of trusts and monopolies on a national German scale is complemented by European competition law (Article 81, 82 EC Treaty) (Cf. Kurt Stockmann, among others, Die Verwertungsgesellschaften und das nationale und europäische Kartellrecht [Collecting societies and national and European antitrust law], in: Jürgen Becker (Editor), Die Verwertungsgesellschaften im Europäischen Binnenmarkt Collecting societies in the Single European Market], 1990, p. 29, 31; Hans-Jürgen Menzel, Die Aufsicht über die GEMA durch das Deutsche Patentamt [Supervision of GEMA by the German Patent Office], 1986, p. 90 ff.; Ernst-Joachim Mestmäcker, Zur Rechtsstellung urheberrechtlicher Verwertungsgesellschaften im Europäischen Wettbewerbsrecht [On the legal status of copyright societies under European competition law], in: Commemorative publication for Fritz Rittner on his 70th birthday, 1991, p. 291 f.).

All this goes far beyond the obligations and controls otherwise imposed on monopolies in industry (Ernst-Joachim Mestmäcker, Europäisches Wettbewerbsrecht [European competition law], 1974, p. 663.).

Modern copyright legislation in the member states of the European Union and in the broader context of all industrialised states of a European-Atlantic character grants the authors of protected works a number of exploitation rights in the field of music, literature, photography, film, etc. that they can hardly exercise without the help of collecting societies. In this age of mass exploitation, the creators of works of music, for example, are no longer in a position to exercise their performing rights, their broadcasting rights or their reproduction and distribution rights in recordings of their works on audio or video carriers in such a way that they can enjoy all the fruits of their work. They therefore use the services of a collecting society to which they assign these rights for administration on their behalf. Furthermore, collecting societies in Germany in their capacity as mutual benefit societies are assigned cultural and social duties, which they perform specifically through their welfare and support funds and by promoting works and performances of cultural importance. They therefore take over a not insignificant proportion of the social and public cultural responsibility of the State. With such a wide range of duties, the activities of collecting societies assume a special legal quality.

The role played by GEMA in the economic life of Germany is thus portrayed by its description as an "organisation performing duties that relieve the State" (Cf. Berlin Court of Appeal, Decree of 28th April 1989 [Krt. U 5680/86], p. 38 with reference to Wilhelm Herschel, Die Verwertungsgesellschaften als Träger staatsentlastender Tätigkeit [Collecting societies as organisations performing duties that relieve the State], in: UFITA, Vol. 50, Part A, 1967 II, p. 22 ff.). In the course of their work, collecting societies perform both private and public duties and are therefore also subject to the State welfare system (Cf. Jürgen Becker, Verwertungsgesellschaften als Träger öffentlicher und privater Aufgaben [Collecting societies as organisations performing public and private duties], in: Becker/Lerche/ Mestmäcker (Editor), Wanderer zwischen Musik, Politik und Recht [Wanderings between music, politics and law], Commemorative publication for Reinhold Kreile on his 65th birthday, 1994, p. 27 ff.).

The European Commission has, nevertheless, refused to recognise either GEMA or any of the other collecting societies in the European Union as public undertakings within the meaning of Article 86, paragraph 2 of the EC Treaty (formerly Art. 90 paragraph 2 EC Treaty), i.e. as undertakings with special functions (Decision of the European Commission of 2nd June 1971, p. 365; see above).

In response to this decision, Ernst-Joachim Mestmäcker, being an expert in the special functions of collecting societies in general and GEMA in particular, passed the critical comment that the comparison drawn in the European Commission's decision "between general economic interest and general cultural and social interest" fails to recognise the fact that the special function of service undertakings within the meaning of Article 90, paragraph 2 is regularly substantiated, because the intention is to ensure that purposes other than those of a purely economic nature are fulfilled. A general economic interest is almost without exception associated with or even defined by cultural, social or other political interests, without the application of Article 90, paragraph 2 being excluded in the process" (Europäisches Wettbewerbsrecht (European competition law), 1974, p. 664.).

2.3. Collecting societies and their role between the private and public sphere

In Germany collecting societies derive their legal justification on the one hand from the protection of intellectual property guaranteed by the constitution and, on the other, from modern copyright laws granting authors a number of exploitation rights, which they can barely exercise without the assistance of collecting societies. In this age of mass exploitation, the creators of musical works are thus no longer in a position to exercise their performing rights, their broadcasting rights or their reproduction and distribution rights in recordings of their works on audio and video carriers in such a way that they can enjoy all the fruits of their work. They therefore use the services of a collecting society, to which they assign these rights for administration on their behalf. In the field of music, the only society available to them for this purpose is GEMA (Gesellschaft für musikalische Aufführungs- und mechanische Vervielfältigungsrechte), which has de facto monopoly status in Germany.

For users of musical works, GEMA's monopoly position has the advantage that they can obtain the worldwide repertoire of music from one source, quickly, at calculable cost and without any bureaucratic formalities. In the age of multimedia products combining a whole range of different rights, this advantage gains even more weight. The importance of collecting societies will therefore continue to increase in the digital age.

While the German copyright legislators originally still assumed that the authors could themselves exercise the exploitation rights granted to them by modern copyright legislation, even if only with some difficulty, they now presuppose – also in the case of material copyright – the existence of collecting societies by stipulating, for example, that royalty claims for renting and lending copies (Article 27 of the Copyright Act (UrhG)) and for copies intended for private use (Articles 53, 54 UrhG) can only be asserted through collecting societies.

By creating a levy on hardware and blank tapes (for details cf. Reinhold Kreile, Einnahme und Verteilung der gesetzlichen Geräte- und Leerkassettenvergütung für private Vervielfältigung in Deutschland [Collection and distribution of the statutory levy on hardware and blank tapes], in: GRUR Int. 1992, p. 24 ff.; Reinhold Kreile, Vervielfältigung zum privaten Gebrauch, eine Herausforderung an den Kulturstaat und seine Urheberrechtsgesetzgebung [Copying for private use, a challenge for the cultural state and its copyright legislation], in: ZUM 3/1999, p. 101 ff.; Jürgen Becker, Der Schutz des schöpferischen Menschen bei der privaten Vervielfältigung seiner Werke [Protection of the creative individual in the private copying of his or her rights], in VG WORT [Ed.] Geist und Recht [Intellect and law], 1992, p. 33 ff.) in the royalty provisions under Articles 53 and 54 of the Copyright Act, the legislators help to give the authors some, albeit small, compensation for the encroachment upon their intellectual property and for the losses they suffer as a result of the millions of private copies so easily produced from their works. "Since in these fields, in contrast to conventional use of works by companies operating in the so-called cultural industry, it is no longer possible to systematically control copyright infringements, while on the other hand exemption of all acts of (private) recording is unacceptable on account of the obvious encroachment upon traditional exploitation of copyright", the German lawmakers have devised statutory royalty provisions as "an indirect method of implementing authors' claims" that are considered an indispensable requirement by the collecting societies (Adolf Dietz, loc.cit., p. 136).

Moreover, under Articles 7 and 8 of the German Copyright Administration Act (UrhWG) the collecting societies in their capacity as mutual benefit associations are assigned cultural and social duties, which they perform specifically through their welfare and support funds and by promoting culturally important works and performances. Collecting societies in Germany are therefore not merely collecting organisations, but have the statutory mandate to encourage and protect creative individuals. They take over a by no means insignificant proportion of the social and public cultural responsibility of the State.

By performing such a wide range of duties, the activities of collecting societies in Germany assume a special legal quality: although their activities are organised under private law – GEMA, VG WORT and VG BILD/KUNST are granted the status of registered associations by charter under Article 22 of the German Civil Code (BGB) – in addition to their obligations resulting from the protection of intellectual property for the implementation of royalty claims they also traditionally perform duties which the State would otherwise have to assume itself, if there were no collecting societies. If it were not for GEMA, copyright as the economic basis for virtually all creative individuals, without whom there would be no culture nor any "cultural state" for the general public and the politicians alike to be proud of, would carry no weight at least as far as the field of music is concerned. It is therefore in the direct interests of the public to protect and secure the economic basis for creative individuals in a social and cultural state: it serves the common good (cf. Udo Steiner, Kulturauftrag im staatlichen Gemeinwesen [Cultural mandate in the community], in: VVDStRl 42, 1984, p. 16). By attending to these areas by virtue of their statutes, but also through their legal mandate (Articles 7 and 8 UrhWG, among others), the collecting societies perform public and/or governmental duties (to differentiate between public and state duties cf. Josef Isensee, in: Isensee/Kirchhof, Handbuch des Staatsrechts [Manual of State Law], Vol. III, 1988, Art. 57 Margin No. 136 ff.). On account of their effective and cost-saving collection activities, collecting societies are quite rightly also equated with the finance authorities of the state (see Adolf Dietz, in: Das Urheberrecht in der Europäischen Gemeinschaft [Copyright in the European Community], 1978, No. 46).

It is consistent with the system of public order in the Federal Republic of Germany, which is marked by the principle of subsidiarity particularly in the sphere covered by the State's social objectives (cf. Isensee, loc.cit., Margin No. 165 ff.), that tasks for the common good are also carried out by individuals or associations, "if they are willing and able to satisfy the public interests at stake" (Isensee, loc.cit., Margin No. 167).

GEMA does not need to produce evidence proving that it is willing and able to accomplish this requirement. The facts speak for themselves. With revenue of EUR 810.5 million earned in the 2001 financial year, GEMA secured the material basis of existence for thousands of creative people in the field of music (GEMA had 58,870 members in 2001) either wholly or partially with the help of an efficient and comparatively cost-effective administrative system (its administrative costs vary between 13 and slightly above 14 %). As already outlined above, it also performs a by no means trivial range of social and cultural services. The role played by GEMA in the economic life of Germany is therefore portrayed by its description as an "organisation performing duties that relieve the State" (Cf. Berlin Court of Appeal, Decree of 28th April 1989 [Krt. U 5680/86], p. 38 with reference to Wilhelm Herschel, Die Verwertungsgesellschaften als Träger staatsentlastender Tätigkeit [Collecting societies as organisations performing duties that relieve the State], in: UFITA, Vol. 50, Part A, 1967 II, p. 22 ff.). A correlate to the activities of collecting societies relieving the State of responsibility is a special obligation on the part of the State to provide for the welfare of these institutions and the creative people united in them.

Placing an organisation on State level or in the vicinity of the State does not preclude the use of one of the organisational forms under private law (cf. Walter Krebs, Verwaltungsorganisation [Administrative organisation], in: Isensee/Kirchhof, Handbuch des Staatsrechts [Manual of State Law], Vol. III, 1988, Art. 69 Margin No. 7). In the German legal system there are a number of examples, where the State uses private organisations to perform its duties. One prominent example is the Technischer Überwachungsverein (TÜV - Technical Inspection Authority), which relieves the State of its duty to ensure the safety of the population. In view of the duties carried out by collecting societies, the tertium comparationis is not too distant.

While collecting societies are not included in the state organisation and therefore are not a "satellite or off-shoot of public administration" (Gunnar Folke Schuppert, Die Erfüllung öffentlicher Aufgaben durch verselbständigte Verwaltungseinheiten [The performance of public duties by outsourced administrative units], 1981, p. 76), they are, however, singled out from the "administration of purely private, commercial interests and provided with the superior legitimacy and mandate to pursue an activity in the public interest" (this description by Martin Bullinger of "public duty" vested in the press can also be applied to the special role of collecting societies [Freiheit von Presse, Rundfunk, Film [Freedom of press, broadcasting, film], in: Isensee/Kirchhof, Handbuch des Staatsrechts [Manual of State Law], Vol. VI, 1989, Art. 142, Margin No. 67]). They act in response to a given mandate with a realisable sense of responsibility" (for Konrad Hesse this is a criterion for belonging to the public sector, in: VVDStRl 17, p. 11 ff.).

The definition found here for collecting societies in general and GEMA in particular is consistent with the empirical knowledge gained from governmental and administrative sources, which allow for "transitional, grey or intermediate areas" between the private and public sector, because in the field of private government and public administration it is an area where it is difficult to "establish unequivocal classifications and categories, but is rather a matter of looking out for criteria giving some contours to the respective organisations in the midst of all the fluid transitions" (Schuppert, loc.cit., p. 77 referring to Werner Weber, one of the best experts in the field of state organisations, and with other references).

2.4. The obligation to perform social and cultural services

For each of the four subsystems of the integral copyright system, the lawmakers have stipulated limitations. The situation is no different in other national copyright systems and is sanctioned by the international copyright conventions, in particular the Revised Berne Convention (RBC) (e.g. Art. 2bis, 9 (2), 10bis, 11bis (2), 13).

Compared with material property, intellectual property is particularly open to legislative construction. This is due to its very nature, because "until such time as the lawmakers have spoken", nothing is "tangible" (cf. Reinhold Kreile, Die Sozialbindung des geistigen Eigentums [The social commitment of intellectual property], in: Wege und Verfahren des Verfassungslebens [Methods and procedures in constitutional life], Commemorative publication for Peter Lerche on his 65th birthday, 1993, p. 256). The lawmakers therefore have the task of "stipulating proper standards in terms of the content of copyright, which guarantee appropriate exploitation and usage consistent with the nature and social significance of the right" (BVerfGE 49, p. 392).

It is therefore up to the lawmakers to define not only the content, but also the limits to copyright guarantees traversing the whole copyright system. For the authors, this means that their individual needs, their vested interests and powers, their "entitlement to reasonable use of creative work as guaranteed in the constitution and the legitimate interests of the general public" have to be brought "to a fair equilibrium and balanced relationship (by the lawmaker)" (BVerfGE loc.cit., p. 394). The German Federal Constitutional Court considers that the "social aspect of intellectual property" constitutes a special reason justifying limitations of copyright powers. Such limitations referred to as "social commitment" or "the constitutional requirement that the use of property should serve the public weal" restrict the comprehensive powers of the author to use and dispose over his or her works, in the same way as they also set limits on other "classical" forms of property in the interests of the common good. They must, however, be defined by the lawmakers and the courts in each particular case.

This mandate to specifically define the limitations has been fulfilled by the German legislators by the exceptions to the exclusivity of authors' rights, details of which are provided in Part Six of the German Copyright Act (Articles 45 ff.).

Irrespective of the fact that the restrictions on exploitation rights, which the legislators have imposed with the blessing of the Federal Constitutional Court, are sometimes felt by authors to be too far-reaching (cf. Kreile in the Commemorative Publication for Lerche, loc.cit., p. 259 ff.), the level of copyright protection and thus the possibility of commercial exploitation of protected works in Germany may absolutely be considered to be among the highest in the world.

It is not just by chance that Germany is the third largest music market in the world after the USA and Japan. Music authors from all over the world, but especially those from the Anglo-American region, who are not dependent on translations of their works, have access to the wide-open German market comprising some 80 million consumers for exploitation of their works. They are therefore major beneficiaries of the high level of copyright protection prevailing in Germany.

Limitations and conditions on the use of intellectual property are found, however, not only in material copyright, but also and in particular in the rights vested in the collecting societies, sub specie in the German Copyright Administration Act. This includes in particular the conditions and limitations imposed on collecting societies such as the obligation to administer (Art. 6), the very far-reaching obligation to contract (Art. 11), the obligation to draw up tariffs (Art. 13) and the whole procedure for settling rates disputes, which seriously restricts the author in the fixing of prices for his or her works (Art. 14 ff.), and finally the obligation of the collecting societies to promote culture (Art. 7 sentence 2) and set up welfare and support funds (Art. 8).

The legal admissibility of these restrictions follows from the criteria described above for material copyright; to date they have not been challenged.

Welfare and promotional funds represent a characteristic feature and fundamental principle of the continental European tradition of collecting societies. The underlying solidarity found in all the collecting societies is demonstrated impressively by these funds and could be assumed by the German lawmakers when enacting the Copyright Administration Act, having found the principle of solidarity to be a so-called pre- existing "constitutional" right vested in collecting societies (for basic details cf. Peter Lerche, Rechtsfragen der Verwirklichung kultureller und sozialer Aufgaben bei der kollektiven Wahrnehmung von Urheberrechten, insbesondere im Blick auf den sog. 10 %-Abzug der GEMA [Legal aspects of implementation of cultural and social duties in the collective administration of copyrights, with particular reference to GEMA's so-called 10% deduction], in: GEMA Yearbook 1997/1998, p. 80 ff.).

In Germany, the tradition of welfare and promotional funds is as old as GEMA itself and the societies preceding it. It was already one of the basic principles of the "Institute for Musical Performing Rights", founded in 1903 by Richard Strauss and others, that after deduction of the administration costs, an amount of 10 % was taken from the "incoming fees" for the association's benevolent fund (cf. Anstalt für Musikalisches Aufführungsrecht [Institute for Musical Performing Rights], Memorandum of the Cooperative of German Composers (GDT), 1904, p. 46 f.) (See 1.2 above.). For GEMA, the fulfilment of cultural and social tasks is a "fundamental factor codetermining its identity" and one of its "essential characteristics" (Lerche, loc.cit, p. 93 f.). The international umbrella organisation of collecting societies, CISAC (Confédération Internationale des Sociétés d'Auteurs et Compositeurs, Paris), has also included in the texts of its agreements pertaining to the administration of copyrights on the basis of reciprocal contracts, provisions permitting the collecting societies to deduct 10 % of the receipts from royalties accruing to another national collecting society for the benefit of its own pension, relief or welfare funds. CISAC's contractual provision for collecting societies represents an express endorsement of and respect for a form of welfare deduction as practised for decades on an international scale (cf. Christian Hauptmann, Die Vergesellschaftung des Urheberrechts [The incorporation of copyright], UFITA, Vol. 117, 1994, p. 76) and must also be viewed in connection with the principle of national treatment guaranteed by the Revised Berne Convention for all authors in the member states of the Berne Convention, who benefit from the respective national systems – as the German example illustrates so impressively. Anyone attempting to alter this practice must be aware that they are at the same time casting doubt on the principle of national treatment. For indeed, the authors' mutual benefit association does not stop at national boundaries, but on the contrary is effective worldwide.

Since the German Copyright Administration Law was enacted as part of the major copyright reform of 1965, Art. 7 of the said Act provides that "culturally important works and performances are to be promoted" and Art. 8 that the collecting society "shall" set up "welfare and assistance schemes".

The fact that statutory mandates are presented in the guise of so-called "shall clauses" leads renowned copyright experts to conclude that these provisions do not contain any binding legal basis for the cultural and social funds of the collecting societies, but only constitute moral appeals, recommendations or encouragements to self-help (cf. Nordemann, in: Fromm/Nordemann, 9th edition, 1998, Art. 7, 8 UrhWG, Margin No. 1; Schricker/Reinbothe, 2nd edition, Art. 8 UrhWG, Margin No. 2; Hauptmann, loc.cit., p. 71). However, under the stringent criteria of German administration law, which is the only source to be consulted regarding the interpretation of "shall clauses" also in the context of copyright, this understanding is wrong.

For Peter Lerche, Articles 7 and 8 UrhWG contain "a fundamental legal obligation... which only in specific cases does not need to not be met for overriding reasons". Lerche also considers that these clauses cannot be viewed merely as a "recommendation". According to him, the opposite view "is not applicable, because it does not automatically follow from the character of the provision being 'not enforceable' that it is only a 'recommendation' (in the form of merely a moral appeal, or the like). The typical nature of "shall" clauses which are not enforceable, but are still of a fundamental, binding nature rather than constituting merely a recommendation, is thereby ignored (loc.cit., p. 109 f.).

The creation of cultural and social funds is by no means left to the discretion of collecting societies. If, for instance, under German administrative law an administrative body "shall" take action, and in this respect a collecting society can be compared or equated with an administrative body, then it is obliged to do so and can only abstain from taking such action in exceptional cases or atypical situations. Such atypical circumstances are subject to control by the courts, i.e., a collecting society would have to demonstrate and prove why it does not have such fund schemes. From a financial perspective, the German collecting societies, all of which have a notable copyright income at their disposal, might find it difficult to prove such atypical situations. Failure to observe Articles 7, 8 UrhWG can certainly also entitle the members of collecting societies to assert claims against the societies (A. A. Nordemann, loc.cit.). "For the typical cases, a 'shall' in a legal provision therefore means 'must'" (cf. Eyermann, Verwaltungsgerichtsordnung [Administrative court system], 11th edition, 2000, Art. 114, Margin No. 15; Hartmut Maurer, Allgemeines Verwaltungsrecht [General administrative law], 13th edition, 2000, Art. 7, Margin No. 11; Wolff/Bachof/Stober, Verwaltungsrecht [Administrative law], Vol. 1, 11th edition, 1999, Art. 31, Margin No. 34; Ossenbühl, in: Erichsen, Allgemeines Verwaltungsrecht [General administrative law], 11th edition, 1998, Art. 10, Margin No. 13; Gunther Schwerdtfeger, Öffentliches Recht in der Fallbearbeitung [Public law on a case-study basis], 10th edition, 1997, Margin No. 84).

This interpretation of "shall clauses" is also based in particular on case law: in its verdict of 2nd December 1959, the German Federal Administrative Court ruled that – unless the administration can furnish evidence of particular circumstances permitting a departure from the rule on exceptional grounds – "shall clauses" are just as binding on the administration as "must clauses" (DVBl. 1960, p. 252 f.; identical text BVerwGE 16, p. 224 ff.; BVerwGE 49, p. 16 ff.; BVerwGE 40, p. 323 ff; BVerwGE 64, p. 318 ff.; OVGE Münster 15, p. 79 ff.).

For Karl Larenz, it makes no material difference whether the lawmakers "choose the wording that the infringing party 'is obliged' to pay compensation or 'shall' pay compensation. The intent is the same in both cases: imposing (and not only acknowledging) a requirement, an obligation" (Methodenlehre der Rechtswissenschaft [Methodological theory of law], 1969, p. 182).

In the opinion of the Federal Government represented by the former Federal Minister of Justice, Sabine Leutheuser-Schnarrenberger, the "10 % deduction for cultural and social purposes ... [is] quite clearly covered by the Copyright Administration Act. And what is more, it even complies as it were with the ideal constellation as foreseen by the law". Only with regard to the structural details of their cultural and social funds can the collecting societies decide at will; in this regard, according to the former Minister, legislators have deliberately refrained from "prescribing strict rules for the authors represented in the decision-making bodies of the copyright societies". This would mean "from a liberal point of view, forfeiting some of the autonomous control over their own affairs" (cf. Answers from the Minister to questions asked by GEMA, in: GEMA-Nachrichten, issue 149, May 1994, p. 8).

Against the background of their de facto monopoly status, the legal positioning of collecting societies in the grey area between State and society has an effect on the fulfilment of their duties: the fulfilment of social and cultural duties, for which GEMA has a financial basis through a 10 % deduction from royalties received for performing rights, is closely linked with the constitutional obligation of the State to promote the arts (cf. Udo Steiner, Kulturpflege [Cultivation of culture], in: Isensee/Kirchhof, Handbuch des Staatsrechts [Manual of State Law], Vol. III, 1988, Art. 86, Margin No. 3). This cannot of course mean that the State only concentrates on providing acceptable conditions of access to public culture. On the contrary this obligation also exists vis-à-vis those without whom there would be no cultural state in the first place. A direct point of reference between the duty of the State to "foster culture" and the constitutional social mandate is the concern for the material care and social security of creative individuals, to which the collecting societies also feel fully committed.

2.5. The Copyright Administration Act of 1965

The legal role of collecting societies in Germany is based on the tradition moulded by GEMA. The Copyright Administration Act (UrhWG) of 9th September 1965 forms the legal basis for the activities of collecting societies. The German lawmakers felt obliged to enact basic principles for collecting societies, because they viewed the rights of collecting societies as an unalienable part of the copyright reform of 1965. According to the lawmakers, the main reason for the legal provisions was the monopoly status of authors and their societies: "Copyright grants the author the exclusive right to use his or her work; the author thus has monopoly status guaranteed by law with respect to his or her work. By the authors of a country organising themselves into a collecting society and assigning the copyrights to this society, the society obtains the monopoly for a large number of similar rights and, if a state only has one society for one or more types of copyright, the monopoly for absolutely all rights of the type in question. Furthermore, when agreements of reciprocal representation exist with foreign collecting societies, the society virtually has the 'world monopoly' for the national sphere in its field of activity" (For the official statement of reasons for the Copyright Administration Act refer to UFITA, Vol. 46, 1966, p. 273).

The legislators have recognised that this monopoly position is in the interests of both the authors and the users. They do, however, point out that however "expedient and desirable the monopoly status of collecting societies" may be, one must not overlook the resulting "plenitude of power" that can also be abused. To prevent any abuse, but at the same time to acknowledge the useful work of collecting societies and their key role in the copyright system, the German legislators have with the Copyright Administration Act passed a law that regulates the rights and obligations of collecting societies in a manner unique throughout the world.

2.6. Compulsory authorisation

Activities of collecting societies in Germany are subject to authorisation (Art. 1 UrhWG) granted by the German Patents and Trademarks Office (Art. 2 in conjunction with Art. 18 UrhWG), which is the body in charge of supervision of the collecting societies. The condition for granting authorisation is linked with the following formalities: presentation of the statutes, details of the persons holding powers of representation and a declaration stating the number of persons who have entrusted the collecting society with the administration of their exploitation rights, authorisation rights or claims to remuneration and finally the quantity and economic importance of the rights and claims entrusted to the society for administration (Art. 2 UrhWG). In addition there are further conditions for the granting of authorisation e contrario under Article 3 of the Copyright Administration Act, definitively listing the reasons leading to refusal of authorisation. These reasons state that authorisation may be refused only if the statutes of the collecting society do not comply with the provisions of this Law, there is reason to believe that a person entitled by law or the statutes to represent the collecting society does not possess the trustworthiness needed for the exercise of his or her activity or it is unlikely, in view of the economic basis of the collecting society, that the rights or claims entrusted to it will be effectively administered (Art. 3 (1) No. 1 - 3 UrhWG) (for details regarding the control exercised by the German Patents and Trademarks Office cf. Katrin Meyer, Verwertungsgesellschaften und ihre Kontrolle nach dem Urheberrechts- wahrnehmungsgesetz [Collecting societies and their supervision under the German Copyright Administration Act] 2001, p. 32 ff.).

If these conditions cease to apply, authorisation can also be revoked (Art. 4 UrhWG). The German Patents and Trademarks Office is vested with authority to deal with such cases as well.

2.7. Legal definition and typical features

A collecting society is a legal entity or grouping administering the exploitation rights, authorisation rights or claims to remuneration, which are laid down in the Copyright Administration Act of 9th September 1965, on its own behalf or as agent for the account of several authors or owners of neighbouring rights for joint use. This definition is taken from Article 1 (4) in conjunction with (1) of the Copyright Administration Act (cf. Mauhs, loc.cit., p. 17).

The term "collecting society" therefore presupposes that it administers authors' rights or neighbouring rights on behalf of several rights owners, that is on a trustee basis, for joint exploitation. This means the administration of a large number of rights and claims - of a specific total repertoire if possible - with respect to users. On the basis of agreements of reciprocal representation, which GEMA for example has concluded with virtually all existing collecting societies throughout the world, GEMA is even in a position to license the use of the worldwide repertoire of musical works.

The terms and conditions, under which use is authorised, are set forth in tariffs drawn up by the collecting societies.

More recent copyright developments that are largely determined by technology, especially in the photocopying sector and in the field of private audio and video recordings using hardware and blank carriers and permit increasingly easy and free access to protected works – through the phenomenon of the "Internet" this trend is in the meantime assuming dramatic proportions – have induced the lawmakers to grant rights owners statutory royalty claims for authorised forms of exploitation described by the law over and above the traditional rights of exploitation and use. In virtually all cases, where such statutory royalty claims exist, the beneficiaries are, however, not in a position to enforce them by themselves, i.e. individually, especially since technology enables the described uses to take place in the users' private sphere. The rights owners can therefore only enforce their royalty claims with the assistance of collecting societies, which is the reason why the lawmakers have from the start made most of the statutory royalty claims subject to administration by collecting societies (for fundamental details cf. Claudia Rossbach, Die Vergütungsansprüche im deutschen Urheberrecht [Royalty claims under German copyright law], 1990).

One of the more recent developments of copyright is that the duties assigned by law to collecting societies include the assertion of royalty claims for renting and lending books, audio carriers, videos, etc. for instance (Art. 27 UrhG) and for private copying of books as well as music and films on audio or video recording media (Articles 53, 54 UrhG). But even if a collecting society only makes claims for a particular use of an individual work, as VG BILD-KUNST for example does with the 'droit de suite' claims (Art. 26 UrhG), this falls under the term "joint administration" in its broadest sense (cf. Eugen Ulmer, Urheber- und Verlagsrecht [Copyright and publishing rights], 3rd edition, 1980, p. 416).

The term "collective administration" is also used to describe joint administration and it has also become widespread in the language of foreign collecting societies.

The second feature of collecting societies, which the lawmakers also refer to as being typical, is their "trustee role" (Official statement of reasons for the Copyright Administration Act, loc.cit. p. 277). Although there is no legal definition for the term of trustee, the relationship between the rights owner and his or her society is by common consent generally referred to in case law and literature as a "trustee relationship". A characteristic feature of this relationship is the assignment of rights of such persons as composers, lyricists and music publishers to GEMA, which may only use these rights in the interests of the rights owners as stipulated in its Statutes and the Deed of Assignment. GEMA for example therefore acts as trustee for its members (composers, lyricists and music publishers) when it administers the rights assigned to it in line with the agreed objective, which Article 2 of GEMA's statutes describes as "protection of the author and administration of his [or her] rights within the scope of these Statutes". In exercising its duties as trustee, the collecting society acts in its own name vis-à-vis the users (Art. 3 of the GEMA Deed of Assignment) and itself becomes a party to the agreement.

2.8. The monopoly position and state supervision

As stated above, authors have a natural monopoly with respect to their works. They alone can determine whether and how their works may be used and as a general rule they can exclude anyone from using them. The collecting society, which has been assigned these rights by the individual author, therefore administers an aggregate number of monopoly rights. If a particular country only has one collecting society for a copyright category, then this society has the monopoly for all rights of this category. Under the agreements of reciprocal representation concluded with foreign collecting societies, in which it grants the foreign societies its rights for administration and vice versa, it holds the "worldwide monopoly" in the field of its activities for its national territory of administration.

STAGMA was by law provided with a monopoly that was lifted in 1945 by the Allied Supervisory Council. Today's GEMA therefore does not have any legal monopoly for the administration of musical rights, because the Copyright Administration Act does not make provision for a legal monopoly for any of the German collecting societies. As the only society administering musical rights in Germany, GEMA does, however, have a so-called "de facto monopoly" that is not contested by anyone and is also approved by the lawmakers. The monopoly status of GEMA, and similarly that of VG WORT, for example, as well, is further reinforced by the fact that an authorisation, which is needed for it to operate as a collecting society (Art. 2 UrhWG), may be refused if "it is unlikely, in view of the economic basis of the collecting society, that the rights or claims entrusted to it will be effectively administered" (Art. 3 (1) No. 3 UrhWG).

Monopolies are generally alien to a free and competitive economic system. They therefore require special justification. This also applies to the monopoly status of collecting societies. The concentration of all rights in the hands of one society is, according to the lawmakers – and general practice proves them right – "in the interests of both the authors and the users; only in this way can supervisory activities and the collection of fees be administered with economic efficiency and by the same token can it be made easier for users to obtain the necessary rights" (Official statement of reasons for UrhWG, loc.cit., p. 273). It is quite obvious that it would involve considerable extra organisational effort for the music users, if they had to approach several collecting societies to obtain the authorisation to perform music, to produce audio carriers and these days also to use music online. How, for instance, should they know which works are collectively used and where? Anyone wanting, for example, to use music in discothèques, at dances, in processions, marquees or for radio broadcasts, is not interested in obtaining the rights for certain individual pieces of music or for groups of musical works; what they want is to be able to use the whole (worldwide) repertoire. Only in this way is it possible for them to determine which musical works they wish to perform and when. Only a collecting society with a monopoly status can serve this interest of the organisers.

For the authors, competition among several collecting societies having similar repertoire would have the disadvantage that these societies could play off their rates against each other, which would have financial implications especially for the large number of those authors, whose works are not constantly right at the top of the charts. Only collecting societies with an extensive repertoire that is as comprehensive as possible are in a position to constitute a counterweight to the market power of works users which is steadily growing as a result of the mergers in the global media market (GEMA generates over 80 % of its audio-carrier revenue with just five record producers). Without such a counterweight those authors, who always struggle by on their own, would fall by the wayside. Moreover, if repertoire were to be spread over several societies this would also involve higher costs for administration, control and above all for distribution. For these reasons, there is broad consensus among authors, users of works and also the German lawmakers about the need for GEMA's de facto monopoly position today.

But in order to prevent collecting societies from abusing their monopoly status, they have to submit to rigid supervision and controls in Germany.

When the Copyright Administration Act (UrhWG) was enacted as part of the major copyright reform in 1965, the German lawmakers institutionalised the supervision of collecting societies and granted the German Patents and Trademarks Office (DPMA) (Art. 18 UrhWG) the mandate to control them in what is probably the most comprehensive system of supervision in the world. With this special form of supervision of collecting societies, the lawmakers intend to prevent possible abuses arising from their (de facto) monopoly status, which the lawmakers consider "expedient and desirable" in the interests of owners and users of works and performances (cf. Official statement of reasons for the UrhWG, printed in UFITA, Vol. 46, 1966, p. 273). Where in limited cases the laws of the market, which are primarily characterised by competition among the players in the market, do not apply or are eliminated for overriding reasons, special control instruments are required to avoid any economic disadvantages that may arise as a result. With precisely this in mind, GEMA - as the only collecting society in Germany at the time - agreed with the German Federal Ministry of Justice back in 1952, i.e. two years after it had been granted the licence to operate as a commercial association by the Allied and German authorities in Berlin, to submit to voluntary supervision. On account of his special experience in the field of intellectual property, the President of the German Patents and Trademarks Office was entrusted with this task (cf. Official statement of reasons for the UrhWG, loc.cit., p. 274; Schricker/Reinbothe, Art. 18, Margin No. 1).

Irrespective hereof, the German Federal Cartel Office had in 1960 by decree qualified GEMA as a market-dominating organisation within the meaning of Art. 19 of the German Antitrust Act (GWB), as in the course of its activities it is not exposed to any substantial competition, and thus subjected it to its supervision as well (cf. Heinz Hübner and Klaus Stern, Zur Zulässigkeit der Aufsicht des Deutschen Patentamtes über die Verwertungsgesellschaften nach dem Gesetz über die Wahrnehmung von Urheberrechten und verwandten Schutzrechten vom 9.9.1965 [On the reliability of supervision of the collecting societies by the German Patent Office as provided under the German Law on the Administration of Copyright and Neighbouring Rights of 9.9.1965], GEMA-Nachrichten, Issue 108, 1978, p. 86).

Today the German collecting societies are subjected to three forms of state supervision: the state supervision by virtue of Art. 18 UrhWG, the essence of which is defined in Art. 19 (1) UrhWG stating that the supervisory authority shall ensure that collecting societies faithfully discharge their obligations under the Copyright Administration Act; control of abuse under Art. 19 ff. GWB, which is exercised by the German Federal Cartel Office; and supervision under association law in accordance with Articles 22, 33 (2), 43 (4) of the German Civil Code (BGB) with regard to adherence to and amendment of the statutes for such collecting societies as operate in the legal form of a commercial association; for those collecting societies which operate in a legal form subject to company law (commercial law, law governing limited liability companies, companies law), the general supervisory controls under commercial and company law apply.

National state supervision is complemented by European competition law providing for application of the prohibition of restrictive trading and of concerted practices under Art. 81 of the EC Treaty (formerly Art. 85 EC Treaty) as well as application of the prohibition of abuse of a dominating position within the Common Market under Art. 82 of the EC Treaty (formerly Art. 86 EC Treaty).

Each form of supervision operates on an independent legal basis pursuant to the laws relating specifically to that supervision. The co-existence of cartel supervision and supervision by the Patents and Trademarks Office was confirmed in the high courts by the Berlin Court of Appeal as well as by the Federal Court of Justice (for details see Kurt Stockmann, Die Verwertungsgesellschaften und das nationale und europäische Kartellrecht [Collecting societies and national and European antitrust law], in: Jürgen Becker [Ed.], Die Verwertungsgesellschaften im Europäischen Binnenmarkt [Collecting societies in the Single European Market], UFITA, Vol. 91, 1990, p. 33 ff. For the co-existence of the two supervisory institutions cf. Schricker/Reinbothe, 2nd edition, Art. 18 UrhWG, Margin No. 3-5).

In the past, there has been a lively scientific debate about whether supervision by the German Patents and Trademarks Office is legal supervision and/or technical supervision (cf. Schricker/Reinbothe, 2nd edition, Art. 19 UrhWG, Margin No. 3). According to Reinbothe, "it is neither legal nor technical supervision in the administrative sense, but rather a mixed form, a supervision sui generis, which is more technical than legal" (cf. Schricker/Reinbothe, 2nd edition, Art. 19 UrhWG, Margin No. 3). However, to date there has been no practical opportunity for having the legal nature and scope of supervision by the German Patents and Trademarks Office clarified or defined by the courts.

Control over collecting societies in Germany is therefore extensive, tight and efficient. Only few institutions in Germany, whether public or private, monopolies or enterprises exposed to competition, are covered by such a dense control network. Although the collecting societies expressed constitutional reservations when the Copyright Administration Act was enacted (Schricker/Reinbothe before Articles 1 ff. UrhWG, margin No. 11), they now perceive this system of control "as an important pillar of their legitimation rather than as an obstacle " (cf. Jürgen Becker, Wanderer zwischen Musik, Politik und Recht [Wanderings between music, politics and law], in: Commemorative publication for Reinhold Kreile, 1994, p. 37 ff.; for details about control of collecting societies see Jürgen Becker,Verwertungsgesellschaften als Träger öffentlicher und privater Aufgaben [Collecting societies as organisations performing public and private duties], in: Commemorative publication for Reinhold Kreile, 1994, p. 27 [36] and Katrin Meyer, Verwertungsgesellschaften und ihre Kontrolle nach dem Urheberrechtswahrnehmungsgesetz [Collecting societies and their supervision under the German Copyright Administration Act], 2001; cf. also Martin Wirtz, Die Kontrolle von Verwertungsgesellschaften [Control over collecting societies] 2002).

3.1. Obligation to administer

For collecting societies there is a dual "contracting obligation". Under Article 6 (1) of the Copyright Administration Act, every collecting society is required, at the request of a rights owner, to administer the rights and claims relevant to its sphere of activity. This obligation to administer and to contract inwards exists alongside the contracting obligation outwards vis-à-vis users (Articles 11, 12 Copyright Administration Act) (Schricker/Reinbothe, Art. 6 Margin No. 1 ff.).

The obligation to administer is founded on the de facto monopoly status which GEMA, for example, enjoys in the field of music. As certain rights of authors and holders of neighbouring rights can only be effectively administered through collecting societies, refusal by the society to enter into a contract with a rights owner would cause serious economic prejudice to the latter. As GEMA, for example, is for the reasons outlined above strongly interested in worldwide musical repertoire, it would not be in its interest either to turn down a rights owner. The obligation to administer is thus restricted only in cases involving an "unreasonable burden on the collecting society": the collecting society is for instance only required to administer those rights and claims relevant to its sphere of activity which arise from its statutes or articles of association. As its name implies, GEMA's sphere of activity is restricted to works of music, while the statutes of VG WORT have limited the activities of this society to the administration of rights in literary works, works of a scientific and technical nature including corresponding photographic works and photographs (Art. 2 (1) sentence 1, 2 of the statutes of VG WORT).

The obligation to administer imposed on collecting societies applies not only with respect to German citizens, but also nationals of any other EU member state or of another contracting state of the Agreement on the European Economic Area. The 1995 amendment to Art. 6 UrhWG is based on the so-called Phil Collins ruling of the European Court of Justice regarding the ban on discrimination in the EU (ZUM 1993, p. 612 ff.; for the controversial question about the extent to which members of other states are also entitled to administration under Art. 6 (1) UrhWG by claiming the principle of national treatment pursuant to the RBC irrespective of a domicile in Germany, see Schricker/Reinbothe, Art. 6 Margin No. 9).

Compulsory administration also applies, when effective administration of rights or claims is not "otherwise" possible for a work, e.g. by means of individual administration of rights. The administration of rights should, however, be "possible in other ways", if there are several collecting societies operating in the same sphere and the rights owners can also approach another collecting society for administration of their rights (Official statement of reasons for the UrhWG, loc.cit., p. 280). Rights owners should not be able to claim compulsory administration until they have tried without success to have their rights administered by any of the other collecting societies. In view of GEMA's de facto monopoly position, this is not of any practical relevance.

Finally, Art. 6 (1) UrhWG requires the collecting societies to administer the rights and claims of rights owners on "equitable terms". The term "equitable" also used by the lawmakers in other spheres of life cannot be defined in abstract terms, but only with respect to a specific situation (Mauhs, loc.cit., p. 51 ff.). Although the lawmakers assume in the official statement of reasons for the Copyright Administration Act that the terms, "which the collecting society generally imposes on its members", are usually equitable, it must be assumed from prevailing doctrine that the requirement for equitableness applies not only to members, but to all rights owners entering into an administration agreement with the collecting society. "If, for example, the collecting society usually requires its members to assign all the rights and claims relevant to its sphere of activities, as is frequently the case because this is the only way to ensure cost-effective administration of rights and claims, then the collecting society can also make administration dependent on the rights owners assigning all rights" (Official statement of reasons for the UrhWG, loc.cit., p. 280). The requirement of "equitable terms" is a "necessary correlate" of the statutory obligation to contract "and ought to apply to all addressees of the obligation to contract without any explicit mention in the law" (Schricker/Reinbothe, Art. 6 Margin No. 13).

There is no concrete formula for judging whether deeds of assignment, distribution plans or statutes are equitable. Terms are considered to be equitable, "when a state of balance is reached between services rendered and services received, when the rights and obligations of the parties are therefore in a balanced relationship with each other as a whole, i.e. also with respect to the full content and duration of the administration agreement. The terms of the collecting society for administering the rights and claims entrusted to it by rights owners are therefore deemed to be equitable when they are consistent with the nature and scope of the said rights and claims and the principle of commensurability is upheld" (Schricker/Reinbothe, Art. 6 Margin No. 13).

3.2. Obligation to contract

As a general rule, every collecting society is required to grant exploitation rights or authorisations to any person so requesting on equitable terms in respect of the rights it administers (Art. 11 UrhWG). This contracting obligation results from the monopoly status of collecting societies, which, as described above, the lawmakers used to create the Copyright Administration Act modelled on GEMA. The monopoly status also means that, besides Art 11 UrhWG, Art. 20 GWB also applies, which likewise provides for an obligation to contract on non-discriminatory terms.

According to Munich Higher Regional Court, however cases are conceivable where GEMA could be "allowed, if not required, to refuse a licence". Refusal by a collecting society to grant a licence can be justified "when the interests of the collecting society can be considered to take precedence over the interests of the user" (Munich Higher Regional Court, in: ZUM, 1994, p. 306). In the hearing before Munich Higher Regional Court, which led to this court decision, GEMA's Executive Board submitted that the – in principle perfectly correct and necessary – obligation to contract should, however, be restricted in certain very specific cases, such as for example in the licensing of musical works with Nazi texts or other lyrics violating certain criminal laws. According to Wilhelm Nordemann, refusal to grant a licence is, for instance, justified when the user is "a notorious offender, who persistently fails to comply with agreements, repeatedly commits deliberate copyright infringements to the detriment of the collecting society or its rights owners, etc." (Urheberrecht [Copyright], 9th edition, 1998, Art. 11 UrhWG, Margin No. 2).

The obligation to contract applies to everyone, including every potential (music) user. The individualists among the authors, who have not assigned their rights to any collecting society for collective administration, are not covered by this provision. As a general rule, it may be assumed that every author, and hence the collecting society, wishes his or her works to be read, looked at, played, etc., in other words used. Only in a few exceptional cases are the rights owners interested in a ban, for example when there is a risk of the moral rights of authors being violated.

Art. 11 UrhWG provides that exploitation agreements be concluded on "equitable terms". It is therefore concerned with the commercial side of copyright and thus with services rendered and services received, in short equitable financial remuneration for the use of a work protected by copyright. The calculation of the remuneration must take account of the fact that the author should receive an appropriate share of the commercial use of his or her work, i.e. of the monetary benefits of such use. A point of reference for the remuneration is the commercial success of the user. In assessing what remuneration is equitable within the scope of an exploitation agreement entered into pursuant to Art. 11 UrhWG, the tariffs to be drawn up by the collecting society in compliance with the criteria set forth in Art. 13 UrhWG, can generally be taken as a basis. That tariff must be applied which has been drawn up for a specific use or whose terms approximate as closely as possible the nature and scope of the use in that particular case (German Federal Court of Justice GRUR 1983, 565/567 – Tariff review II).

3.3. Royalty rates and general agreements

Every society is required to draw up tariffs in respect of the remuneration it demands for the rights and claims it administers (Art. 13 UrhWG). This should ensure that in the general interest all equivalent cases are treated equally by the collecting society, but at the same time the collecting societies should in their own interests be spared having to conduct lengthy negotiations in every single case about the amount and type of royalties to be paid (Official statement of reasons for the Copyright Administration Act, loc.cit., p. 282). The collecting society is therefore required to publish the tariffs and any amendment thereto in the Official Bulletin (Art. 13 (2) UrhWG).

"The basis for calculating the tariffs shall normally be the monetary advantages obtained from exploitation" (Art. 13 (3) UrhWG). This is the fundamental principle stipulated by law dictating that the author should have a reasonable share of the economic benefit derived from his or her works. The criterion for this economic benefit can only be the commercial success of the user and his or her pecuniary gain from using the copyright, where such use has a bearing on this commercial success. This means that the turnover of the user should be considered in establishing the tariffs. In the case of uses, where the sole or primary purpose is to perform copyrighted music for example, this is easy enough to calculate: at concerts for instance from the admission fees, but also in the case of broadcasts from the subscriptions and advertising income, in restaurants, discothèques, Oktoberfests, etc. from the monetary benefit. When the monetary benefit can only be determined with difficulty, if at all, because there is no direct source of income, as in the case of background music in supermarkets, boutiques, shopping malls, etc., other methods can be adopted for calculating the rates (Art. 13 (3) Sentence 2 UrhWG), these usually being lump-sum rates based on hall capacities and the purpose and length of the performance, etc. (cf. Erich Schulze, Tarife und Gesamtverträge von urheberrechtlichen Verwertungsgesellschaften [Tariffs and general agreements of copyright collecting societies], in: GRUR 1989, S. 257 f.; cf. also Nordemann, in: Kommentar zum Urheberrecht [Commentary on copyright], 9th edition, 1998, on Art. 13 UrhWG).

Both the arbitration board of the German Patents and Trademarks Office and the Swiss Federal Court have issued rulings on what constitutes a reasonable percentage share for the use of musical works. They both hold the view that the copyright compensation ought not to exceed 10 % of gross income. The Swiss Federal Court has expressed the opinion that this 10 % compensation has "developed into a practicable ceiling and been adopted both at home and abroad as the generally accepted practice." The Swiss Federal Court considers this 10 % copyright compensation to be the only generally accepted guideline for assessing copyright compensations in cable operations for example (cf. Decision of the Swiss Federal Court dated 7th March 1986, in: Eidgenössische Schiedskommission für die Verwertung von Urheberrechten, Entscheide und Gutachten 1981-1990 [Swiss Federal arbitration commission for the utilisation of copyrights, Decisions and Expert Opinions], p. 183 [191]). The arbitration board of the German Patents and Trademarks Office also takes the 10 % share as a basis for its own arbitration awards for all authors, referring in this respect to Swiss and Austrian practice (cf. Sch-Urh 1/86, in: ZUM 1987, p. 183).

In the light of practical usage and jurisdiction the Swiss legislators have provided a legal structure for the principle of equitableness in the new Copyright Act of 9th October 1992.

The collecting societies are required to conclude general agreements (Art. 12 UrhWG) on equitable terms with "associations, whose members exploit works or performances protected under the Copyright Act or who are required to pay remuneration under the Copyright Act". In view of the large number of users of works protected by copyright, it would also be inexpedient for the collecting societies to conclude agreements with each user about the granting of an exploitation right and the amount of the remuneration that would cover every single eventuality. So the law only provides for an obligation, which the collecting societies are particularly interested in being met. But with this provision as well, the lawmakers probably intend to exclude any possibility of abuse that may arise from the monopoly status of the collecting societies.

Even before it was obliged to do so by law, GEMA had on a large scale concluded general agreements with associations generally fixing the terms on which the authorisation to perform music was granted to the individual organisers belonging to the associations. This makes it much easier to enter into individual agreements with the organisers, as the content of these agreements is largely laid down by the general agreement and only a few specific points still need to be covered by the individual agreement.

GEMA has currently entered into about 400 general agreements with a wide range of associations and organisations, which all have one thing in common though, namely that they represent users of music.

These associations are, for example, the Federal Association of Organisers of Musical Performances, the German Theatrical Association, associations of exhibitors, the General German Association of Dancing Instructors, the German Singers' Union, the Association of German Concert Agents, the German Carnival Association, the Central Association of the German Retail Trade, etc.

In return for the simplification of their administrative work resulting from the conclusion of general agreements, the collecting societies grant individual users reductions of up to about 20 % on the respective rates.

The remunerations agreed in general agreements between the collecting society and an association of users are understood to be "tariffs" as referred to in Article 13 (1) of the Copyright Administration Act. Even if the general-agreement royalty rates are to be treated like tariffs, they apply "only to the members of the association which has concluded that general agreement. Outsiders are subject to the standard rate applicable outside the general agreement" (Schricker/Reinbothe, Art. 13 Margin No. 3).

3.4. Tariff review

The tariffs are not legally binding on the users of works. Users considering the tariff to be too high are given the possibility of using the work after depositing the remuneration in an escrow account or after paying it subject to reservation (Art. 11 (2) UrhWG). The necessary exploitation rights are thus deemed to have been granted.

The tariffs of collecting societies can be fully reviewed by the courts. The regular courts (civil courts) are competent to review whether tariff rates are applicable and/or equitable. A court action must, however, generally be preceded by proceedings before the "arbitration board of the German Patents and Trademarks Office", whenever the equitableness and/or applicability of a rate is disputed in a preliminary proceeding.

3.4.1. Proceedings before the arbitration board of the German Patents and Trademarks Office

The arbitration board is an administrative body set up at the German Patents and Trademarks Office, the supervisory authority for collecting societies (Art. 14 UrhWG – for details of the establishment of the arbitration board cf. Jörg Reinbothe, Schlichtung im Urheberrecht [Mediation in copyright], 1978; Margret Möller, Die Urheberrechtsnovelle '85 [The Copyright amendment of 1985], 1986, p. 59 ff.; cf. also Katrin Meyer, loc.cit., p. 140 ff.)). It consists of a chairman and two associates who must all be qualified to hold the office of judge. Although the arbitration board is part of the public administrative system, its members are neutral and independent like judges, i.e. they are not bound by any instructions from superior offices.

Once endeavours to obtain an amicable settlement to a dispute have failed (Art. 14 (5) UrhWG), the arbitration board's duties are limited to submitting a non-binding settlement proposal that can but does not have to be accepted by the parties. If in the course of an already pending legal dispute it appears that a tariff is at dispute, the proceedings will be suspended until a decision has been reached by the board of arbitration.

The board of arbitration is competent to deal with all copyright disputes involving a collecting society, if such disputes relate to the (individual) use of works or performances protected under the Copyright Act (Art. 14 (1) No. 1 UrhWG) or the conclusion or amendment of a general agreement (Art. 14 (1) No. 2 in conjunction with Art. 12 UrhWG). The competence of the arbitration board covers all types of disputes: for instance disputes about the granting of exploitation rights in general, e.g. for the use of music in a live performance, in discothèques, shops, etc., or for the production of an audio carrier, conclusion or amendment of a general agreement for example with user associations, including the audio-carrier producers united in the German National Group of IFPI, over whether a tariff is equitable or applicable. Moreover, the arbitration board can be referred to in the case of dispute over the grounds of a claim, the violation of copyrights, the obligation to pay royalties or the legitimation of a collecting society to act (Reinbothe, loc.cit., Art. 14 Margin No. 1; Beschluss der Schiedsstelle [Award by the arbitration board] in: ZUM 1987, p. 188).

The arbitration board should "seek to obtain an amicable settlement to the dispute". Attempts to come to an arrangement must therefore always be preceded by the decision of the arbitration board on the submission of a settlement proposal. If the dispute cannot be settled amicably, the arbitration board must present the respective parties with a settlement proposal substantiated in writing (Art. 14 a (2) UrhWG).

The settlement proposed by the arbitration board must be fair and reasonable. It will apply objective criteria to determine whether a tariff is equitable and be guided by the results of its own inquiries (cf. Reinbothe, loc.cit, Art. 14 a Margin No. 8).

If the arbitration board does not receive a written opposition from at least one of the parties within one month of serving the settlement proposal, the said proposal shall be deemed to have been accepted. An agreement between the parties containing the arbitration board's proposal is thus simulated by law (Art. 14 a (3) UrhWG).

In the case of disputes over general agreements (Art. 14 c UrhWG) a special procedure applies in that the settlement proposal of the arbitration board must contain the complete terms of the general agreement.

3.4.2. Tariff review by the courts

The influence of judicial authorities on the royalty rates of collecting societies is omnipresent, as the rates of GEMA for example are fully subject to review by the courts. This is particularly important to the question of whether tariffs are equitable, as it prevents collecting societies from abusing their de facto monopoly position and imposing unfair terms and conditions on users. In seeking fair settlement of a dispute, particularly a dispute over royalty rates, the courts have to reach a fair decision aimed at accommodating the interests of both authors and users. The Copyright Administration Act provides the "rules of the game" describing how disputes over the equitableness of tariffs must be settled by proceedings in the true sense of rule of law.

The Copyright Administration Act stipulates that certain disputes involving a collecting society, which are defined in Article 14 of this Act (see above), cannot be taken to court until after the case has been brought before the arbitration board. This is a mandatory requirement of the proceedings, the purpose of which is to use the expertise of the arbitration board in court cases as well and to relieve the courts as far as possible.

This applies to disputes between collecting societies and individual users, where there is some doubt as to whether a tariff is applicable and equitable. If in the course of an already pending legal dispute either of the parties claims that a rate is not applicable or equitable, the legal dispute must be suspended, so that the respective party can be given the opportunity to go to the arbitration board within two months. If it does not avail itself of this possibility, the tariff fixed by the collecting society is deemed to have been accepted.

In the case of disputes over the conclusion or amendment of general agreements, an action cannot be instituted until after the case has been brought before the arbitration board and settled by a settlement proposal. In this respect, it is irrelevant why the general-agreement dispute has arisen, i.e. whether the applicability or equitableness of tariffs or other terms of use are at dispute.

Apart from Article 17, the Copyright Administration Act does not contain any special procedure for the legal course of action in the case of disputes with individual users. It does, however, stipulate (Art. 16 (4)) that Munich Higher Regional Court is always the sole court competent to handle disputes concerning general agreements in the first instance. The Higher Regional Court determines the content of general agreements, in particular the nature and amount of remuneration, at its discretion. The findings of the Court replace the corresponding agreement between the parties, i.e. between the collecting society and the relevant association of users.

In view of the multitude of decisions pronounced to date, a general overview of the award practices of the arbitration board and courts would exceed the scope of this work. An analysis elucidating the ruling practice does not appear to be available.

As collecting societies are required to grant exploitation rights or authorisations to any person so requesting "on equitable terms" in respect of the rights they administer (Art. 11 (1) UrhWG), and the collecting societies have to draw up tariffs in respect of the remuneration they demand for the rights they administer (Art. 13 (1) sentence 1 UrhWG), the question is always whether the terms offered by a collecting society are "equitable", especially as regards the amount of the remuneration. This can be fully verified by the arbitration board and the courts.

"Equitableness" is a legal term and thus subject to interpretation. The legal concept of the equitableness of a remuneration or a tariff is derived from the legal assessment of a number of factual conditions. If it is a matter of equitable tariffs, the collecting society has the burden of proof for the facts it submits to substantiate the equitableness of its tariffs. Whether these facts are relevant to the review, whether and what other circumstances must be considered and which tariff proves to be equitable on the basis of all the relevant factors, is subject to the legal assessment by the arbitration board and the courts.

Practice has shown that wherever there is any controversy about the equitableness or applicability of a tariff among collecting societies and users, whose aim is always to procure the lowest possible remuneration, either the tariff to be applied will emerge from the interaction of arbitration board and court or, in the face of an impending confrontation that can in difficult cases take several years to settle, the parties will seek a mutually acceptable compromise.

Through the provisions of the Copyright Administration Act, the German lawmakers have given both collecting societies and users an instrument capable of striking a fair balance between the interests of creative individuals and the users of their works.

4.1. ZPÜ (Central Organisation for Private Copying Rights)

The oldest and economically speaking the most important form of cooperation among the German collecting societies (cf. the description of collecting societies under 1.3 above) is the Central Organisation for Private Copying Rights or ZPÜ, whose collection revenue totalled DM 118,427,321.18 (equivalent to EUR 60,550,927.83) in 2001. As it is an excellent example of cooperation among the collecting societies, it will be described in the greatest detail here:

The foundation of ZPÜ dates from the year 1963. Before the introduction of the statutory levy on blank tapes alongside the hardware levy in 1985 (Art. 54 UrhG), there was already a statutory entitlement to remuneration from manufacturers and importers of tape and video recorders. It was included in the first major copyright amendment in what was then Art. 53 of the Copyright Act in 1965.

This marked the birth of ZPÜ, which was founded by the only "traditional" collecting societies existing at that time, namely GEMA, VG WORT and GVL, under the articles of partnership of 3rd April 1963; then the only rights involved were in fact musical copyrights and neighbouring rights and to a limited extent literary rights (without music). The private recording of television broadcasts or even audiovisual discs/cassettes was just beginning to appear on the horizon of future technological developments. To begin with, ZPÜ was itself founded as a collecting society and had the respective authorisation of the German Patents and Trademarks Office. But through an amendment of the statutes ZPÜ has ceased to have the character of a collecting society and constituted itself as an association of collecting societies for the purposes of joint collection. ZPÜ's only task is to assert the entitlement to royalties (up until 1985 exclusively) from hardware manufacturers and importers and (from 1985 onwards also) from manufacturers and importers of blank tapes and to distribute the royalty revenue among its partners.

After the invention and spread of video recorders, works of film authors and producers were also privately recorded and their rights used, which meant that collection had to be extended to include the possibilities of making such recordings. So, on 1st January 1988, the collecting societies acting on behalf of film authors and holders of neighbouring film rights also joined ZPÜ as new partners. The current version of the ZPÜ Deed of Partnership was concluded on 21st December 1992 with effect from 1st January 1992. The current collection agreement was concluded effective from 10th May 1989.

GEMA provides ZPÜ with the facilities it needs to manage its affairs. After deducting the management costs incurred, the royalty revenue is distributed among the partners according to a key agreed by them depending on the scope of rights assigned by the individual partners (for details of the whole system and of how the royalty revenue is distributed among the partners of ZPÜ cf. Reinhold Kreile, Einnahme und Verteilung der gesetzlichen Geräte- und Leerkassettenvergütung für private Vervielfältigung in Deutschland - Ein System hat sich bewährt [Collection and distribution of the statutory levy on hardware and blank tapes for private copying in Germany – A system proves its worth], GRUR Int., 1992, p. 24 ff., p. 34, updated version of this paper in: GEMA Yearbook 2001/2002, p. 94 ff.; ZPÜ Deed of Partnership printed by Hans-Peter Hillig, loc.cit.).

To appreciate the process of collecting and distributing the revenue from royalties, it is important to outline which rights owners are concerned by private copying.

Four main groups of rights are concerned when a work is copied from an audio or video carrier or recorded from a radio or television broadcast:

• copyrights in the existing work (music with or without lyrics; literary and journalisitic texts; copy material for novels, screenplays, screenplay translations, pictorial copy)
• copyrights in films (in particular cinematographic works created by the director and possibly the rights of cameramen and cutters, etc.)
• Neighbouring rights of performing artists (actors, dancers, musicians)
• Neighbouring rights of record producers under Art. 85 UrhG and film producers under Art. 94 UrhG.

4.1.1. Partners of ZPÜ and their catalogue of rights

The collecting societies listed below administer private copying rights for the following rights owners:

GEMA:

Composers, lyricists, music arrangers, music publishers.

 

VG Wort: 6 professional groups:

authors and translators of belletristic and dramatic literature

journalists, authors and translators of non-fiction

authors and translators of scientific and technical literature

publishers of belletristic works and non-fiction

publishers of works for the theatre

publishers of scientific works and non-fiction.

 

VG Bild-Kunst: 3 professional groups:

visual artists

photojournalists, graphic artists, designers, cartoonists, press artists and picture libraries

authors and producers in the fields of film, television and audiovision (directors, cameramen, cutters, film architects, costume designers).GVL:

Performing artists, record producers, audio and video-carrier producers (producers of videoclips) and event organisers as per Art. 81 UrhG as well as film writers, in the case of videos accompanying audio carriers (videoclips).

 

VFF: Two groups of rights owners:

Independent film producers, e.g. producers holding (original) rights in and to commissioned and own productions for public and private television companies under Art. 94 UrhG.

broadcasting stations and their commercial broadcasting companies – insofar as they produce films and animated pictures and are owners of synchronisation rights.

GWFF:

Film producers, television producers, video programme synchronisers, authors (original and derivative rights).

VGF:

Film producers and synchronisers, authors, television producers, video programme synchronisers (original and derivative rights).

GÜFA:

Copyright owners and holders of neighbouring rights including producers' rights to erotic and pornographic films.

4.1.2. Principles of distribution within the catalogues of rights of the ZPÜ societies

The distribution of royalty revenue to the individual groups of rights owners represented by the collecting societies listed above is subject to the provisions of the German Copyright Act (UrhG) and Copyright Administration Act (UrhWG).

However, in their amendment to the Copyright Act of 1985 regulating the royalties for private copying, the German lawmakers deliberately did not include any provisions for the distribution of royalty revenue, but only stipulated in Art. 54 h) (2) UrhG (previously Art. 54 (6) Sentence 2 UrhG) that the rights owners are entitled to an equitable share in the remuneration. There are good reasons for such reticence on the part of the lawmakers. It was practically impossible to fix distribution shares in an abstract and binding fashion in advance, because the equitableness of the royalty claim depends on the actual proportional share of value created. The issues arising in this connection, especially in the film sector, are exceptionally complicated and were (and still are) de facto and de jure the subject of disputes among the film rights societies and then among them and their fellow partners in ZPÜ. The German Federal Ministry of Justice as well as the German Patents and Trademarks Office take the stand that it is primarily the task of the collecting societies involved to seek criteria for equitable distribution of the royalties and to reach sustainable compromises in finding such criteria. If necessary, any controversial legal positions would have to be clarified through the courts. Up to now, however, the parties concerned have given preference to sustainable compromises reached by way of informed debate about the various interests rather than resorting to the courts (for details of the current distribution practice cf. Reinhold Kreile, loc.cit., p. 34).

4.2. ZBT (Central Organisation for Library Royalties)

The purpose of this society organised under civil law is to administer royalty claims arising from the lending of works, in particular books, magazines, audio and video carriers, on behalf of the rights owners represented by its partners, insofar as such claims are asserted against public libraries, church libraries and company libraries (Art. 27 (2) UrhG). According to the groups of rights concerned by lending, the following are partners of the ZBT: VG Wort, VG Bild-Kunst and GEMA. VG Wort is in charge of management. In the process of European harmonisation, the Third Law Amending the Copyright Act the range of rights owners was extended to include performing artists (Art. 75 (3) UrhG), record producers (Art. 85 (3) UrhG) and film producers (Art. 94 (4) UrhG). The group of partners in ZBT was therefore also extended to include their collecting societies.

4.3. ZVV (Central Organisation for Video Rental)

ZVV was formed in 1989 as a society organised under civil law. The purpose of ZVV is to administer royalty claims arising from the rental of video carriers on behalf of the rights owners represented by its partners (Art. 27 (1) UrhG). Partners are GEMA, VG Wort, VG Bild-Kunst, GÜFA, GWFF, VGF and GVL. GEMA is in charge of management and royalties are collected through the GEMA regional offices (deed of partnership printed by Hans-Peter Hillig, loc.cit.).

4.4. ZFS (Central Organisation for Photocopying in Schools)

ZFS was formed as a society under civil law in 1986 for the purpose of administering royalty claims for photocopying in schools on behalf of the rights owners represented by its partners (Art. 54 a (2) UrhG). Its partners are VG Wort, VG Bild-Kunst and VG Musikedition. VG Wort is in charge of management.

4.5. ZWF (Central Organisation for the Communication of Television Works)

ZWF was formed as a society organised under civil law in 1992. The object of the society is to administer claims on behalf of the rights owners represented by its partners in respect of cable retransmission (Art. 20 b) UrhG) and communication to the public of television broadcasts (Art. 22 UrhG). Partners are VG Bild-Kunst, GÜFA, VGF and GWFF with management in the charge of VG Bild-Kunst.

4.6. DRAMA Working Group

The DRAMA Working Group was formed in 1981 as a society organised under civil law with the object of safeguarding the rights of authors and publishers of dramatic works in respect of simultaneous, complete, unaltered and unabridged radio and television programmes that are transmitted by cable systems in Germany and abroad (Art. 20 UrhG). Partners are GEMA and VG Wort, both societies being in charge of management.

4.7. Cable Retransmission Collection Agency

Legal status: global agreement concluded in 1987. Its object is to collect royalties for cable retransmission (Art. 20 b) UrhG) from Deutsche Telekom AG. Partners are GEMA, VG Wort, GVL, VG Bild-Kunst, AGICOA, VGF, GWFF, VFF as well as the public and private broadcasting companies. The royalties are collected through GEMA.

4.8. CMMV (Multimedia Clearing House of Collecting Societies for Authors' and Neighbouring Rights)

In 1996, the German collecting societies, which except for VG Satellit are all partners of this organisation, responded to the specific needs of the multimedia market by forming the CMMV. In accordance with Art. 1 of the deed of partnership of CMMV, its object is to facilitate negotiations between manufacturers and users of multimedia products or services and the rights owners, for example through:

• the procurement and dissemination of information about copyrights and neighbouring rights in certain works and performances and their owners;
• the arranging of rights for the production and/or exploitation of multimedia products or services between producers and/or users and the rights owners or their collecting societies;
• the establishment of contacts, cooperation and representation of interests with foreign collecting societies or organisations having a similar objective.

The CMMV operates purely as an information provider. Whether it will ever be used to arrange licences on behalf of third parties, i.e. rights owners or their collecting societies, if such a request were to be made by the rights owners, is a matter for the partners to decide in the future.

The existing alliances and forms of cooperation among the collecting societies are widely understood not to constitute collecting societies per se as defined by the German Copyright Administration Act. With the exception of the DRAMA Working Group and CMMV, these organisations are "collection agencies of existing collecting societies without any trustee function of their own" (according to Schricker/Reinbothe, 2nd edition, before Art. 1 ff. UrhWG, Margin No. 14, with further references). In the light of the economic significance that royalties have today, in respect of private copying, for example, Martin Vogel does, however, consider it necessary "to extend the scope of state supervision to also directly cover such organisations as the collecting societies have formed with a view to facilitating the tasks incumbent on them". Vogel sees the fact that the collection agencies grant indemnification to the parties liable to pay royalties and stipulate the quotas accruing to the members by way of resolutions, in other words as it were draw up distribution plans, as an indication of an activity such as that referred to in Art. 1 (1) UrhWG (Wahrnehmungsrecht und Verwertungsgesellschaften in der Bundesrepublik Deutschland [Right of administration and collecting societies in the Federal Republic of Germany], GRUR 1993, p. 517).

The question of direct applicability of the German Copyright Administration Act does certainly play a role. If affirmed, not only collecting societies but also natural persons, i.e. authors and holders of neighbouring rights, would then have to be admitted as members of these organisations, which would hardly be recommendable for practical reasons. The collecting societies are indisputably subject to the full scope of the said Act along with all the controls stipulated under copyright administration law covering all the actions of the collecting societies, i.e. also their activities leading to the formation of alliances and cooperations. To then subject the alliances and forms of cooperation among the collecting societies to further supervision under the regime of the Copyright Administration Act does not appear expedient on either legal or practical grounds.

And so – for example – under the aspect of supervision of collecting societies by the German Patents and Trademarks Office, the question of whether and to what extent cooperations and alliances are subject to the supervision stipulated by the Copyright Administration Act plays hardly any role. In fact, both collecting societies and Patents and Trademarks Office have agreed to actually treat the forms of cooperation (this also applying without restriction to CMMV, which in its current form bears hardly any similarity with a collecting society), as if they were subject to supervision as provided in the said Act. As a consequence, a representative of the Patents and Trademarks Office regularly attends all general meetings (of the partners) of ZPÜ, ZVV and now also CMMV and, where appropriate, also those of the Cable Retransmission Collection Agency. The Office receives all documents like financial statements, balance sheets, reports, minutes, etc. of these societies.

The lawmakers consider the concentration of all rights in the hands of collecting societies to be necessary, because they understand that this is in the interests of both authors and users of copyrighted works. From the very outset, the Copyright Administration Act is therefore a law protecting copyright owners and consumers alike. And the German and other European copyright legislators, as well as the European Commission preparing copyright directives and ensuring their enforcement, but also the collecting societies themselves are all aware that it is in the common interest of both authors and users that collecting societies be, and indeed are, equipped as de facto monopolies, their de facto monopoly position being absolutely "desired" by the legal system (Schack, loc.cit., p. 478, Margin No. 1170). They are, however, also aware of the fact that they are then subject to control as market-dominating enterprises. The German collecting societies submit to these controls by displaying particular transparency, (cf. in particular the GEMA Yearbooks that have been published annually [by NOMOS-Verlag] since 1991 and contain not only the balance sheet and the income statement of the year in question, but also any and all legislation relevant to the collection and distribution of royalties [legal copyright texts; GEMA's Statutes, deed of assignment and distribution plans complete with all annexes; in addition, the most important international agreements]). The collecting societies thus submit to public controls – both on the part of the state and the media – and, especially as regards the efficiency of their day- to-day work, also [to controls by] to the rights owners and the users, the intent of the Copyright Administration Act also being to justify compliance with its provisions. In doing so, the collecting societies consistently take up any critical observations not only from members of the public, but also and in particular from the supervisory authorities (the German Patents and Trademarks Office as well as the German Federal Cartel Office).

A number of foreign collecting societies are increasingly realising how necessary internal borders. Not only the German Copyright Administration Act per se, but also supervision as practised under this Act by the German Patents and Trademarks Office could serve as a model for European legislation. It is understood that European rules of harmonisation can never be a mirror-image of the German law, but rather a synthesis of the principles governing supervision in all the member states and must be open to common concepts on EU level (according to Jürgen Schwarze on the relationship of German Basic Law to a European constitution [Ist das GG ein Hindernis auf dem Weg nach Europa? [Does German Basic Law constitute an obstacle on the road to Europe]], in: JZ, 1999, p. 644).