Copyright and the danger of circumventing cempetition

One of the most highly debated topics in legal practice and theory is to what extent the exercise of copyright and related rights may be employed to limit free competition. In fact, at the core of the debate is the need to identify the higher value, choosing between free economic initiative and the right of the author to create and manage their work as they find appropriate.

Whereas this is a large topic relatively new to legal theory, the current article attempts to resolve the latter issue.

Copyright and Related Rights

Copyright originates from the natural need emerging in society to protect the rights of artists – in the widest sense – to legally constitute this type of public relations dating far back at the dawn of human history.

However, apart from protection, those who drafted the first laws in the area of copyright were pursuing a higher goal – to strengthen the development of art, science and creativity of the human spirit in all of its aspects. The ambition is confirmed by the title of the first law in this area, namely, the British Bill for Encouragement of Learning from 1710. The main idea which guides the legislators who drafted such laws during the period of the Enlightenment, suggests that a key element in the development of a creative personality or of any human personality, for that matter, is the need to ensure security and stability. In other words, it is presumed that if an author is granted an absolute right of ownership over their creation, including the right to exploit their work and receive payment by beneficiaries, then the author will have the motivation to create new works of art and thus contribute to the positive development of society.

The advancement of civilization creates the need to settle another type of rights – these are copyright related rights. The differentiation between the two types – copyright and copyright related rights – is required in order to distinguish the rights of the author of the work from those of the actor, or performer of the work. Initially, it was considered that the actor did not create a new intellectual product, but was simply reproducing the author’s work. The evolution of ideas, however, has changed this notion and in time the actor’s rights have been legally legitimated, even if to a lesser degree compared to those held by the author. The development of the industry soon added to these the rights of the producer as well as of the television company which airs the artistic production.

At the international level, copyright and related rights are provided for in numerous pieces of legislation. A major legal document protecting copyright is the 1886 Berne Convention. The convention is the first international document protecting the right of the author, later followed by a large number of other similar instruments dealing with the topic such as the 1952 Universal Copyright Convention, the 1961 Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations, the 1971 Geneva Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms, etc.

It is well known that Bulgaria, in particular, has been forced into ratifying the Berne Convention pursuant to the provisions of art.166 of the Treaty of Neuilly-sur-Seine. The first Bulgarian Copyright Act was adopted by the National Assembly on 20 July, 1921 – immediately before the ratification by the country of the Berne Convention on 5 December, 1921. The current Copyright and Related Rights Act (CRRA) was adopted in 1993, thus replacing the preceding 1951 act.

The philosophy behind them is that copyright and related rights are absolute subjective rights, that is, similarly to the right to property, they enjoy a high degree of legal protection. According to the existing legislation and its interpreters, the nature of copyright is such that the holder of copyright unilaterally and exclusively owns the right, which means they may impose any decision regarding that right on another interested party (thus different from nonexclusive rights, for example the right of one party derived from entering into contract for the provision of services with a second party, whereas that right pertains solely to the relationship between those parties and from which any third party is excluded and is not subject to).

The absolute character of copyright grants its holder (the author and their heirs) an exclusive position with respect to possible beneficiaries of the work, thus creating wide opportunities for the author in exploiting their work as stipulated under the current CRRA. According to that law, the author is entitled to decide whether the work created by them may be made available to the public and to determine the time, place and manner in which this may be done; make alterations in the work; halt the use of the work due to changes in their beliefs (Section I, Non-Economic Copyright, art.15 of CRRA); to use and permit (or not permit) its use by other persons (an economic right, which includes all actions considered as uses – distribution, reproduction, public presentation or performance, wireless transmission and transmission by cable or other technical means, etc. – art.18 of CRRA). To further clarify the nature of copyright held by the author with respect to their work as described above, we shall take the example of the exploitation of a scientific study. The author is entitled to decide whether to make that study public or not, to halt its usage by other parties, to allow or disallow its usage by a particular party. Whether this work be of great importance to society in general is not relevant. The law considers irrelevant yet another circumstance: that the author’s decision to permit the use of their work by one party and deny such use by a third party by all means leaves the latter in a disadvantaged position.

The Right to Economic Initiative

Historically speaking, an individual’s right to freedom of economic initiative is driven by the desire to personal improvement and perfection and, hence, works a key driving force behind the progress of civilization. Over time, the importance of this principle to the unimpeded development of both individuals and the society they form is recognised, and the principle honoured as a cornerstone to any democratic society. Again, during the Enlightenment period people realise the need to create state guarantees for the preservation of that principle.

The speedy economic development which takes places in the countries of Western Europe in the course of the 17th century and onwards, the development and further complication of economic relations, inevitably require strict sanction over the preservation of this basic principle as well as a clear definition of its scope and implementation. It has been agreed that natural competition among individuals is a supreme value which ensures progress. Yet, in order to preserve the balance among these individuals, competition has to be set within a particular framework. The boundaries of exercising the right to free economic initiative are located right next to the boundaries of any natural right, that is, so that the exercise of their rights by one party does not conflict that by another. This guiding principle is affirmed by the texts of a large majority of modern European constitutions, thus setting the groundwork upon which rules of free competition are erected.

The principle of free economic initiative finds no application in the socialist state, or the so-called “people’s republic” as a form of government introduced in a significant number of countries during the 20th century, including Bulgaria after 1947. The socialist model of government sanctions the freedom of economic initiative, vesting all economic initiative with the state rather than the individual.

Consequently, in Bulgaria the principle of free economic initiative first receives legitimacy as late as in the 1991 text of the Bulgarian Constitution, in particular, in article 19. The formation of a private sector in the economy since 1989 requires the drafting of special legislation in order to guarantee freedom of economic initiative and stipulate rules of competition. In 1991, the first Protection of Competition Act (PCA) was adopted, later replaced by a new act enforced in 1998 and operating to this day.

The main task of the PCA and of competition legislation in general is to institute balance in the economic relations occurring among citizens and their legal persons regarding the production and exchange of goods and services as a key element of economic initiative. Hence, the main objective of competition legislation is to protect economically disadvantaged persons from the negative impact of their competitors as well as of other external factors. If economically weaker persons become eliminated as players on the market, gradually a situation will arise where a single player will come to define all rules in that particular section of the market. Naturally, this is not a desirable effect as far as the strong player is vested with the sole power to define the prices of the goods, services or works they provide, as well as their possible beneficiaries. This would be an alternative case of a single player acquiring the whole initiative, though here this is not the state, as in planned economies, but a single private person.

In reality, competition law carries stability to the economic sector of public relations as a whole in a manner similar to the way copyright legislation creates stability within a specific section of these more general relations as far as the works of authorship also join the market as objects of exchange.

On the Relevance of Competition Legislation to Copyright and Related Rights: Copyright and the Danger of Circumventing Competition

During the time of the Renaissance and the Enlightenment in Europe, creative work is primarily produced for the needs of a limited circle of wealthy and “enlightened” people who at that point constitute only a small part of society. In this sense, an author’s right regarding their creation once mainly came down to whether the author would receive a single payment for their production and further dissemination.

The advancement of industrialisation has inevitably led to another new type of relations not only in social economy in general, but also regarding the use of copyright. The invention of cinema, television and the radio, together with positive economic developments, facilitated access to education, as well as numerous other factors, have caused a constantly growing number of people to formulated new and greater intellectual needs by.

In reality, the early years of the 20th century witness the beginning of a process of the commercialisation of art, in particular in the field of music and the more recent art of cinema, where this tendency has become most prominent. The artist now creates not only to satisfy their own intellectual needs or those of the contemporaries, but also to make real profit on this account. The tendency is clearly visible at the beginning of the 21st century when a successful film or music production earns its producers millions of dollars, and a popular novel brings its author not just international recognition and fame, but also a percentage of each copy of the book sold anywhere around the world. A scientific theory or a technical solution carries numerous dividends to the experts who formulate them, a notable example of which Bill Gates, creator of the Windows computer programme, thus becoming one of the richest people on the planet. Hence, along with giving birth to a piece of art, the author also releases a market product which enjoys the respective, high or otherwise, consumer demand. Nowadays, works of authorship often originate in the intention of raising financial profit from a particular target group of consumers. This is an undertaking which enjoys huge investments and considerable profit.

Having in mind these observations, the rental or lending of works of authorship, i.e. the dissemination of such works, is indisputably an economic activity. In Bulgaria, economic activities are regulated by the general Commercial Act and a number of special laws relevant to the activity in question. Important, in this sense, is the role of the Protection of Competition Act (PCA) which ensures balanced economic relations regardless of the specificities of the business. The procedure for distributing works of authorship is defined by a special Copyright and Related Rights Act (CRRA) already referred to in the article. At this point the question arises as to what extent the Protection of Competition Act is applicable with respect to copyright and its related rights.

As a starting point, we may take note of the fact that legislators have already answered the question. Namely, article 2 “Area of Application” of the PCA identifies the fields and subjects which fall within the competences of this normative act. In particular, paragraph 2, item 1 of the said article specifically mentions that ‘this law shall not apply to the relations governed by the legislation relating to the protection of industrial property, copyright and related rights, to the extent where they are not used to restrict or distort competition.’ This provision, though in line with the specifics of copyright, actually contradicts the CRRA.

In view of the main focus of this article, primary importance is held by the rights of the author to make their works available for use and to receive adequate payment in return. In other words, certain economic relations have been established between the two parties – author and beneficiary. The majority of cases see the works reaching the consumer through players at that particular market: cable television distributors, music shops, television companies, publishing houses, etc. Thus, it is these traders who make profit from particular works and, naturally, such works are highly valuable to them. The sole source capable of supplying them is the actual author or owner of copyright related rights.

Due to the importance of such works for the trader, and in view of free competition, it seems inadmissible that the owner should have the right to make their works available for use to one trader and disallow their use by another. If that be the case, the trader who is denied access to the works becomes unfavourably positioned with respect to their competitor to whom access is being granted.

Competition law, and the PCA in particular, defines the exclusive rights over such (from an economic point of view) irreplaceable resources as a “dominant position” and states that the person controlling them is granted powers the exercise of which might hinder competition at that particular market (ref. PCA, art.17).

In reality, the right of the author to choose the beneficiaries of their work appears to operate as a major tool in limiting competition. A similar tool would be the unchecked introduction of prices on consumers by a monopolist company – a form of market behaviour sanctioned for circumventing competition by the PCA as well as by the acquis communautaire in general.

At the same time, to what extent can we consider rightholders as falling within the category of “undertaking” introduced by the PCA? The legal definition of “undertaking” provided by this law considers as such ‘any natural or legal person, or association under civil law thereof which carry on economic activities in the relevant market, regardless of its legal and organizational form’. In view of their characteristics, the activities undertaken by authors in making their work available for use by another party are economic activities because their purpose is to make profit. Consequently, in cases where restriction of competition is concerned, there is no reason why we should not consider copyright holders as undertakings as far as this is exactly the position they hold with respect to traders distributing copyright protected work on the market.

Many researchers in this topic oppose the argument, stating that authors do not fall within the definition of “undertaking” as the works they offer at the market are neither goods nor services: they only temporarily make available for use their work over which they hold absolute right of property. We may view this situation in the context of a particular economic example. The owner of a trade centre lets premises in that building but refuses to let to one particular trader for no special reason; or, the owner introduces a rent fee without priorly negotiating it with the tenants. In these cases, the owner will certainly be considered as violating the law on competition. The example is fully relevant with respect to the author and their work, especially if we keep in mind the fact that every author is a “unique” lessor of their creation. Actually, when an author unilaterally introduces new prices or takes advantage of their position and declines a request concerning their work by a particular person, we have an even stronger case of restriction compared to the example with the trade centre lessor. The reason is that whereas the trader fails to acquire access at one trade centre, they will still be able to do that at a different centre. However, if they are refused access to a particular work of art, there is no way they acquire it from a party other the author. The result is a situation of inequality among the different parties, something foreign to the principles of a democratic society.

Misconduct due to the dominant position occupied by the author is just one case of circumventing competition. Practice shows that there exist many other ways of breaking the balance between economic relations, which occur as a result of the absolute rights of the author. One example is the so-called organisations for collective management of copyright, where prices are unilaterally decided and imposed on the beneficiaries. The dominant position mentioned earlier, however, remains the clearest indication of the authors’ powers in forming the price and choosing the supplier of their works on the market.

Without doubt, currently existing discrepancies between copyright and the protection of free competition need to be overcome in favour of the latter whose preservation is essential to a democratic society. This, of course, does not mean that copyright should not enjoy legal protection. This type of protection should guarantee the rightholder adequate payment each time their work is being used, yet in such a manner which would allow their work to become accessible to as many people as possible. If this is not the case, the very idea of creativity as a driving force behind the intellectual advancement of society will be sacrificed for the purposes of monopolising the market and achieving higher profit.