FANTI against MyTunes Case - Essay Example

 Legal Advise to FANTI regarding MyTunes Ma’am/ Sir: I am now acquainted with the facts of the case at hand and have undertaken a thorough examination of Ms. Seerdorf’s allegations against MyTunes. While this does not appear to be a clear cut case and it may be difficult to achieve all the terms that Ms. Seerdorf and FANTI seek, nevertheless, possibilities exist for prosecution under section 2(1)(d) of the 1998 U.K. Competition law in conjunction with Article 82 of the EC Treaty, which I am laying out below. It may be possible to file a suit under Article 82 of the EC Treaty, on the principle of abuse of a dominant position utilizing the principles of the EC Law of competition. One of the goals of the EC Treaty as spelt out in Article 2 is free and fair trading in the common market and the control of restrictive and unfair trade practices. European Courts have defined4 dominance as follows: “..a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors..”. On the strength of the above, a legal suit filed against MyTunes would classify the Corporation as existing in a state of dominance. Chapters I and II of the Competition Act of 1998 are also in line with Articles 81 and 82 of the EC Treaty and prohibits abuse of a dominant position in the market if it affects trade within the U.K. The Competition Act contains the provision that third parties such as FANTI are permitted to bring suit against those undertakings such as MyTunes whom they believe to be abusing a dominant position and Chapter II Prohibition is applied on “decisions by associations of undertakings”1 that “apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage.”5 Therefore, if this provision is applied to the instant case, it is possible that suit may be brought against MyTunes under this subsection 2(1)(d) of Chapter II of the 1998 Competition Law, since MyTunes is applying different pricing standards to FANTI as opposed to other recording labels which are bigger corporations. While charging customers the same amount of 90 pence per track downloaded, My Tunes is providing 40 pence to the major recording Companies, but is willing to provide only 20 pence to FANTI and other smaller recording Companies. By Law, FANTI has the right to demand equal treatment with other major recording companies as far as the services of MyTunes are concerned. Under Article 82, the abuse of a dominant position is prevented3 and one of the conditions determining abuse is that of “ directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions…” There can be no doubt that MyTunes is in a dominant position in the UK Market, by virtue of its unique combination of services offered through the MYTunes website as well as the sales of the MyMusic player. Thus, if a suit were to be filed against MYTunes on the grounds of abuse of a dominant position under Section 2(1)(d) of the Competition Act of 1998 which draws its strength from Article 82 of the EC Treaty, there is a possibility that a court of law would grant a plea that MyTunes enter into a contract with FANTI for the sale of recorded music via Internet downloads. While it cannot be denied that MyTunes is at liberty to enter into agreements with whomsoever they choose, in the case of Fanti there have already been prior attempts to being about negotiations on this matter and MyTunes has not responded negatively to FANTI’s offer to negotiate. MyTunes is at liberty to refuse to do any business with FANTI if it so chooses, however, this does not appear to be the case, since MyTunes has responded to FANTI’s offer to negotiate by coming back with an offer of 20 cents on every item of music that is downloaded11. Therefore, MyTunes cannot at this stage, claim that it has the right to refuse to do business with FANTI and it is possible that the Company can approach the Courts to solicit compulsory licensing, using the legal precedents set out in the case of Magill6. This was one of the first cases where compulsory licensing was ordered by the Court for the unobstructed practice of competition, which is one of the goals of the EU Treaty. The grounds of “imposing unfair purchase or selling prices” would be strengthened if FANTI is able to prove that the activities of MyTunes is affecting trade within the U.K. The EC Treaty is also based upon this principle of affecting trade within the member states. As may be noted from the different pricing schemes available in the U.K. vis a vis the rest of Europe, it is possible to draw up a strong case against MyTunes for unfair pricing. The same tune which can be downloaded in the U.K. for 90 pence is available in Germany or France for only 60 to 70 pence.9 Such grounds form a strong basis to establish that MyTunes engages in generally unfair trading practices and these do indeed affect the trading between member states by placing UK customers at a disadvantage from a pricing point of view as opposed to other European states. In the case of Syfait vs. Glaxo, Advocate General Jacobs issues an opinion which stated that: “there is also a narrow range of circumstances in which a dominant undertaking will be obliged to open up its facilities or license its intellectual property rights to a third party for the first time.”8 In the instant case of FANTI, the copyright issues are not likely to form any important basis for the grounds that must be spelt out in the case. It has been acknowledged that Intellectual property rights of the creators of music are being infringed through the free MP3 downloads offered by Napster and Bit Torrent technology which facilitates free and fast downloads and the dispute in question is more on trading terms and abuse of a dominant position rather than one of copyright infringement. However, the copyright issues are relevant in so far as MyTunes offers legal downloads and therefore, forms one of the few available options where customers may conveniently and legally download music and by virtue of this position, is strongly placed in a unique and dominant position in the marketplace. FANTI’s effort to negotiate with MyTunes would be classed as a third party’s effort to enter a certain market for the first time. Therefore, FANTI’s case against MyTunes could be structured in such a way as to invoke the “narrow range of circumstances” wherein a dominant undertaking is obliged to “open up its facilities….to a third party for the first time.” Under such provision, FANTI can file its suit under subsection 2(1)(d) of the Competition Act to implead the Courts to require MyTunes to open up its facilities and license its network for the use of FANTI’s recordings, and thereby indirectly make it mandatory for MyTunes to enter into a contract with FANTI. The main issue at stake is the inequity in the terms that are being offered by MyTunes to the major recording labels vis a vis FANTI and other smaller companies. This is where Section 2(1)(d) of the 1998 Competition Act would come into force, since it expressly prohibits the application of “dissimilar conditions to equivalent transactions”. The ongoing case of Genzyme is a case in point, on the abuse under the Chapter II Prohibition of the Competition Act, in a category which is classed as the “margin squeeze” abuse7. What is at issue in this case is Genzyme’s inequitable pricing policy which may effectively succeed in squeezing out a third party competitor from the market, thereby eliminating one section of the competition for the marketing of the pharmaceutical products. The actions of MyTunes in offering a different set of concessions to bigger record companies as compared to the smaller record labels could be construed as a measure to limit or restrict competition from third parties and such measures to restrict trade in a parallel market would constitute an infringement of Article 82 of the EC Treaty. By offering third party smaller recording labels a lower share of the profits, MyTunes in effect, would be gradually restricting their activities by limiting their markets and lowering their profits from those markets. Since MyTunes has access to a much larger market than what would otherwise be accessible to smaller recording Companies and by virtue of being one of the major players holds a dominant position in the market, its actions could impact substantially – and unfairly – upon the activities of smaller recording Companies such as FANTI and could constitute abuse of a dominant position under EC Competition law. It must be noted that independent recording labels already account for 25% of the U.K. market with “sales of sum half a billion pounds in 2003.”10 The generally arbitrary business practices being followed by MyTunes could classify as strong grounds in the attempt to edge out third parties from the market, therefore FANTI would have the best legal grounds in this case if it were to approach the suit from the “market squeeze” or the “unfair trading practices” stand point, since this could be shown to be affecting trade practices within the UK and also affecting the member states and could therefore have a good chance of succeeding. While the grounds from FANTI’s standpoint may not be strong enough to file for an injunction to compel MyTunes to enter into a contract, the case can certainly be filed to require MyTunes to provide to FANTI the same terms it is offering to the bigger music recording Companies, in the event that MyTunes enters into a contract with FANTI for the use of its recording artists and music. FANTI can certainly push hard the grounds for MyTunes to open up its facilities and thereby indirectly achieve its aim of forcing MyTunes into a contract through the legal precedents offered by the MacGill and Genzyme cases. Compensation: In my opinion, it is unlikely that the Courts will grant any compensation to be paid to FANTI for the missed opportunities to offer their music for download on MyTunes websites. According to the 1998 U.K. Law of Competition, a corporation found guilty of abusing its position of dominance may be liable for financial penalties of up to 10% of their worldwide turnover.12 However, in order to effectively make this one of the grounds of a case that is to be filed in a Court of Law in the U.K., FANTI would first be obliged to find other independent labels who have also had dealings with MyTunes and have found the same kind of inequitable treatment being offered to them. It is only when a collective group of independent record companies file a suit together that there will be merit in the contention that MyTunes is effectively abusing its position of dominance to an extent that deserves to have penalties affixed to it. In this connection, there is one case which may impact heavily – and negatively - upon any case FANTI chooses to file. In the case of Bronner vs. MediaPrint, 13 an independent newspaper delivery Company headed by Oscar Bronner sought to get itself included in Mediaprint’s delivery route, on the grounds that Mediaprint was in a position of dominance and therefore obliged to share its facilities under the “essential facilities doctrine,” which mandates the extension of a service to third parties by an undertaking which is in a dominant position in provision of the service, if that service may be classified as an essential service. However, this case was not resolved successfully in favor of the Plaintiff and it is also likely that FANTI could suffer the same fate if it attempts to couch MyTunes’ services as essential services. However, FANTI will be in a better position if it files this case under the U.K. Competition Law as opposed to a complaint filed with the European Commission. It will be easier for FANTI to demonstrate unfair abuse of the dominant position by MyTunes through the inequitable pricing offered to customers in the U.K. as opposed to other European countries. The inequity in offer to FANTI vis a vis other recording companies could also form a strong basis for the Company to present a good case. Conclusion: My conclusion is that FANTI’s case against MyTunes has merit and it is possible to seek some redressal under Section 2(1) (d) of the U.K. Competition Law that is drawn from Article 82 of the EC Treaty. However, I do not feel that it will be possible to win this case if forcing MyTunes to enter into a contract is made one of the relief’s sought in the complaint. Rather, the allegation of wrongful conduct and unfair trading practices must form the basis of FANTI’s complaint against MyTunes and the discretion of the courts should be sought on forcing MyTunes to enter into a contract. Undoubtedly, the fact that MyTunes must offer the same terms to FANTI as it offers to other recording labels will be a strong basis for equitable conduct enforceable by the Courts, if the legal body deems it fit in the circumstances of the case to force MyTunes to enter into a contract with FANTI. The issue of compensation must also be left to the discretion of the Courts, since I do not feel that this will be legally enforceable and cannot form the basis for the initial complaint. Legal Counsel. References Cited: 1 Section 2(1) of the Act, available at: http://www.opsi.gov.uk/acts/acts1998/80041-- a.htm#2 3 Consolidated version of EC Treaty, accessible at URL: Read More