1. Hirokazu Honda, Attorney-at-Law Abe, Ikubo & Katayama Pre-Meeting AIPLA MWI Chandler, Arizona Jan. 28, 2014

2.  The leading role is “JASRAC”: What is JASRAC?  Japanese Society for Rights of Authors, Composers and Publishers  A copyright management business operator, established in 1939 Jan. 28, 2014Abe, Ikubo & Katayama 2 Copy- righters JASRAC Broadcasters (TV, Radio)

3. Until 2001  Permission by Commissioner for Cultural Affairs was necessary for CRM business ⇒ Only JASRAC had operated business under the permission. In and after 2001  Switch to registration system under the Copyright Management Business Act --- deregulation  Several companies have registered as CRM business operators  But most of music works are managed by JASRAC and newcomers cannot easily enter the market in the field of broadcasting due to JASRAC’s system on collection of royalties. Jan. 28, 2014Abe, Ikubo & Katayama 3

4.  Comprehensive Collection ◦ Grant licenses of managed music works as a whole to the broadcasters and calculate and collect the royalties for broadcasting in a comprehensive manner  Calculation ◦ Total income from broadcasting business x 1.5% ◦ Percentage of use for broadcasting is not reflected in the royalties  This makes the total amount of royalties for broadcasting paid by such broadcasters increase by the amount paid to other management business operators if such broadcasters also pay them the royalties for broadcasting. Jan. 28, 2014 Abe, Ikubo & Katayama4

5.  This led the management business operators other than JASRAC to face difficulties in engaging in the management business because: ◦ their managed music works are hardly used in the broadcast programs ◦ they can hardly secure the musical works expected to be used for broadcasting as managed music works  According to the comprehensive collection by JASRAC, by excluding the business activities of other management business operators, JASRAC is substantially restraining competition in the field of licensing of the managed music works for the broadcasters in Japan, which is contrary to public interest. Jan. 28, 2014 Abe, Ikubo & Katayama5

6. Article 2(5)  The term "private monopolization" as used in this Act means such business activities, by which any entrepreneur, individually or by combination or conspiracy with other entrepreneurs, or by any other manner, excludes or controls the business activities of other entrepreneurs, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.  Article 7(1)  In the case that there exists any act in violation of the provisions of Article 3 or the preceding article, the FTC may … order the relevant entrepreneur to cease and desist from the said acts, transfer a part of his/her business, or take any other measures necessary to eliminate such acts in violation of the said provisions. Jan. 28, 2014 Abe, Ikubo & Katayama6

7.  Investigation by FTC ◦ Cease and Desist Order / Not Guilty  Hearing Proceedings by FTC (conducted by one or more examiners) ◦ Decision to Dismiss the Request / Rescind or Amend the Order by FTC  Appeal: Suit to Rescind a Decision of FTC with the Tokyo High Court Jan. 28, 2014 Abe, Ikubo & Katayama7

8.  Amendment Antimonopoly Act was enacted last December  Investigation by FTC ◦ Cease and Desist Order / Not Guilty  Suit to Rescind an Order of FTC with the Tokyo District Court  Appeal with the Tokyo High Court Jan. 28, 2014 Abe, Ikubo & Katayama8

9.  The comprehensive collection of royalties for musical works in the field of broadcasting is extremely rational as a method to efficiently balance appropriate copyright protection and the smooth use of a large number of copyrighted works.  As it is apparent from the fact that the same collection method is widely adopted in various foreign countries, it does not have an unnatural characteristic deviating from the scope of normal competition methods viewed as problematic activities which exclude or control the business activities of other entrepreneurs in private monopolization (violation of Antimonopoly Act, Article 3).”  “JASRAC will promote the utilization of full-volume electronic usage reports” Jan. 28, 2014 Abe, Ikubo & Katayama9

10.  Under JASRAC’s system, broadcasters need to consider add-on royalties if they would like to use musical works managed by the other operators. In that meaning, the system has effect to restrain the utilization of such works. It can be said that the system is one of negative factors of new entry by competitors.  On the other hand, the factors for selection of musical works depend on broadcasters and contents of programs.  No evidence sufficient to find JASRAC’s collection of royalties has any effect of excluding the business activities of other management business operators. Jan. 28, 2014 Abe, Ikubo & Katayama10

11.  JASRAC participated as a third party whose rights would be prejudiced as a result of the outcome of an action (Administrative Case Litigation Act Article 22 (1)), and argued the following points: ◦ E-License, which is not an addressee of the Order or the Decision, does not have the standing to sue. ◦ The finding of facts of the Decision was based on detailed examination of evidence and rational, and there were no mistakes in law interpretation, and therefore there is no basis for the Decision to be rescinded.  The Judges ◦ All IP High Court judges and the presiding judge was Judge Iimura, the Chief Judge of the IP High Court Jan. 28, 2014 Abe, Ikubo & Katayama11

12.  Article 80 ◦ (1) Findings of fact made by the FTC shall, if established by substantial evidence, be binding upon the court in regard to the suit. ◦ (2) Whether such substantial evidence exists or not shall be determined by the court.  Article 82(1)(i) ◦ The court may rescind FTC’s decision if the facts on which the decision is based are not established by substantial evidence.  The Tokyo High Court rendered a judgment to rescind the FTC’s decision, saying the decision’s findings of fact were not based on substantive evidence, and that the FTC’s conclusions were flawed. Jan. 28, 2014 Abe, Ikubo & Katayama12

13.  Started management business in October 2006, but several broadcasters distributed internal notice to alert add-on royalty payment incurred by each division using the musical works managed by e-License; some of notices say to avoid the use of such works  FTC Decision ◦ Even such notices did not have effect to withhold from using e-License works ◦ Most broadcasters were cautious but not avoided Jan. 28, 2014Abe, Ikubo & Katayama 13

14.  High Court ◦ Several broadcasters influenced (production stuff) not to use e-License works by such notices; some did not use such works ◦ Factors for selection of works depend on broadcasters and contents of programs? ⇒There are several choices conforming to programs and viewers/listeners tastes in usual cases: it is highly likely to select considering the cost of royalties Jan. 28, 2014 Abe, Ikubo & Katayama14

15.  The major music publisher (Company A) ◦ Entrusted the administration of copyrights to e- License ◦ Heard many broadcasters would not use e-License works; decided royalty-free license for several months ◦ E-License could not negotiate with broadcasters on utilizing their works successfully ◦ Terminated the management trust agreement with e-License Jan. 28, 2014 Abe, Ikubo & Katayama15

16.  FTC Decision ◦ Company A did not know objective usage statistics of e- License works. It cannot be said that broadcasters generally avoided using works administered by e-License, and because it can only be concluded that broadcasters merely acted cautiously with regard to the use of such works, it cannot be said that Company A terminated the contract based on accurate information. ◦ It cannot be said that the main reason for the broadcasters acting cautiously with regard to the use of works administered by e-License was the accrual of additional copyright fee payments based on JASRAC system, but can be concluded to be the ill-prepared entry of e-License into the management business and the bewilderment and confusion on the part of the broadcasters that this caused. Jan. 28, 2014 Abe, Ikubo & Katayama16

17. High Court  Based on the factors found (as follows), JASRAC system made e-License business and new entry very difficult, and has effect to exclude other operators’ business. ◦ There is a high probability that JASRAC system makes broadcasters avoid the use of other management operators’ works in order not to incur add-on cost of royalties. ◦ Choice of musical works in usual cases can depend on the additional cost of royalties. ◦ Not a few broadcasters actually avoided or tried to avoid using e-License works. ◦ Termination by Company A: due to many broadcasters’ avoidance as above. Jan. 28, 2014 Abe, Ikubo & Katayama17

18. Hirokazu Honda, Attorney-at-Law Abe, Ikubo & Katayama E-mail: hirokazu.honda@aiklaw.co.jp URL: http://www.aiklaw.co.jphttp://www.aiklaw.co.jp Phone: +81-3-3273-2600 Fax: +81-3-3273-2033