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DISPUTE SETTLEMENT: DISPUTE DS160

United States — Section 110(5) of US Copyright Act

This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

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See also: One-page summary of key findings of this dispute

Appellate Body and Panel Reports Adopted

Complaint by the European Communities and their member States.

On 26 January 1999, the EC requested consultations with the US in respect of Section 110(5) of the US Copyright Act, as amended by the Fairness in Music Licensing Act, which was enacted on 27 October 1998. The EC contended that Section 110(5) of the US Copyright Act permits, under certain conditions, the playing of radio and television music in public places (bars, shops, restaurants, etc.) without the payment of a royalty fee. The EC considered that this statute is inconsistent with US obligations under Article 9(1) of the TRIPS Agreement, which requires Members to comply with Articles 1-21 of the Berne Convention.

The dispute centered on the compatibility of two exemptions provided for in Section 110(5) of the US Copyright Act with Article 13 of the TRIPS Agreement, which allows certain limitations or exceptions to exclusive rights of copyright holders, subject to the condition that such limitations are confined to certain special cases, do not conflict with a normal exploitation of the work in question and do not unreasonably prejudice the legitimate interests of the right holder:

• The so-called “business” exemption, provided for in sub-paragraph (B) of Section 110(5), essentially allows the amplification of music broadcasts, without an authorization and a payment of a fee, by food service and drinking establishments and by retail establishments, provided that their size does not exceed a certain square footage limit. It also allows such amplification of music broadcasts by establishments above this square footage limit, provided that certain equipment limitations are met.
   
• The so-called “homestyle” exemption, provided for in sub-paragraph (A) of Section 110(5), allows small restaurants and retail outlets to amplify music broadcasts without an authorization of the right holders and without the payment of a fee, provided that they use only homestyle equipment (i.e. equipment of a kind commonly used in private homes).

On 15 April 1999, the EC requested the establishment of a panel. At its meeting on 28 April 1999, the DSB deferred the establishment of a panel. Further to a second request to establish a panel by the EC, the DSB established a panel at its meeting on 26 May 1999. Brazil, Australia, Canada, Japan and Switzerland reserved their third-party rights. On 27 July 1999, the EC made a request to the Director-in-Charge to determine the composition of the Panel. On 6 August 1999, the Panel was composed. The report of the panel was circulated to Members on 15 June 2000. The panel found that:

• the “business” exemption provided for in sub-paragraph (B) of Section 110(5) of the US Copyright Act did not meet the requirements of Article 13 of the TRIPS Agreement and was thus inconsistent with Articles 11bis(1)(iii) and 11(1)(ii) of the Berne Convention (1971) as incorporated into the TRIPS Agreement by Article 9.1 of that Agreement. The panel noted, inter alia, that a substantial majority of eating and drinking establishments and close to half of retail establishments were covered by the business exemption.
   
• the “homestyle” exemption provided for in sub-paragraph (A) of Section 110(5) of the US Copyright Act met the requirements of Article 13 of the TRIPS Agreement and was thus consistent with Articles 11bis(1)(iii) and 11(1)(ii) of the Berne Convention (1971) as incorporated into the TRIPS Agreement by Article 9.1 of that Agreement. Here, the panel noted certain limits imposed on the beneficiaries of the exemption, permissible equipment and categories of works as well as the practice by US courts.

The DSB adopted the Panel Report at its meeting on 27 July 2000.

Implementation Status of Adopted Reports

Pursuant to Article 21.3 of the DSU, the US informed the DSB on 24 August 2000 that it would implement the recommendations of the DSB. The US proposed 15 months as a reasonable period of time within which to implement those recommendations. On 23 October 2000, the EC requested that the reasonable period of time for implementation be determined by means of binding arbitration as provided for in Article 21.3 (c) DSU. The Arbitrator circulated his Award on 15 January 2001. The Arbitrator determined that the reasonable period of time for the US to implement the recommendations and rulings of the DSB in this case is 12 months from the date of the adoption of the panel report. At its meeting of 24 July 2001, the DSB agreed to the US proposal to extend the reasonable period of time until 31 December 2001 or the end of the current session of the US Congress, whichever earlier. This extension had been agreed with the EC.

On 23 July 2001, the US and the EC notified the DSB of their agreement to pursue arbitration pursuant to Article 25.2 of the DSU in order to determine the level of nullification or impairment of benefits to the EC as result of Section 110(5)(B) of the US Copyright Act. On 9 November 2001, the arbitrator determined that the level of EC benefits which were being nullified or impaired as a result of the operation of Section 110(5)(B) amounted to Euro 1,219,900 per year.

At the DSB meeting on 18 December 2001, the US indicated that it was engaged in productive discussions with the EC with a view to resolving the dispute before the end of the expiry of the reasonable period of time. The EC underlined that the resolution of the dispute required an amendment of the WTO-inconsistent legislation. The EC stated that if it was not possible to conclude any arrangements before the end of the reasonable period of time, it would have to seek the DSB’s authorization to suspend concessions or other obligations under Article 22.2 of the DSU. On 7 January 2002, on the grounds that that the US had failed to bring its measures into conformity within the reasonable period of time, the EC requested authorisation to suspend concessions pursuant to Article 22.2 of the DSU. The EC proposed to suspend concessions under the TRIPs Agreement in order to permit the levying of a special fee from US nationals in connection with border measures concerning copyright goods. On 17 January 2002, the US objected to the level of suspension of obligations proposed by the EC and requested the DSB to refer the matter to arbitration, in accordance with Article 22.6 of the DSU. The US claimed that the principles and procedures of Article 22.3 had not been followed. During the DSB meeting on 18 January 2002, the parties indicated, however, that they were engaged in constructive negotiations and were hopeful of finding a mutually satisfactory solution. On 25 February 2002, the US submitted a status report regarding implementation of the DSB recommendations and rulings. On 26 February 2002, the parties requested the arbitrator to suspend the arbitration proceeding, while noting that the proceeding may be reactivated at the request of either party after 1 March 2002.

At the DSB meeting on 17 April 2002, the US presented a status report on its progress in implementing the DSB’s recommendations and rulings. The US indicated that it was engaged in discussions with the EC to find a positive and mutually acceptable solution to the dispute. The EC expressed its concern about the US’ slow progress in implementation and requested the US to provide more information in its next status report. Australia also expressed its concern about the delay and requested that any compensatory arrangement between the parties must be applied on a non-discriminatory basis.

At the DSB meeting on 24 June 2002, the US presented a status report on its progress in implementing the DSB’s recommendations. The US stated that the US Administration was engaged in discussions with Congress and the EC in order to reach a mutually acceptable resolution to the dispute. The EC acknowledged the efforts being undertaken by the US Administration, but underlined the importance of the US to bring its measures into conformity with its obligations under the TRIPS Agreement. Australia reiterated its concern about the delay by the US in implementing the recommendations and rulings of the DSB and requested again that any compensatory arrangement reached between the parties must be applied on a non-discriminatory basis. At the DSB meeting on 29 July 2002, the US reiterated its previous statement. The EC acknowledged the efforts being made by the US Administration, but expressed concern about the significant delay in the implementation of the recommendations and rulings of the DSB. He inquired whether it would be possible for Congress to take action very soon considering the summer recess and legislative elections scheduled to take place in the fall.

At the DSB meeting on 1 October 2002, the US presented its status report regarding the implementation of the DSB’s recommendations and rulings. At that meeting, the US stated that its administration was engaged in discussion with Congress and the EC to find a mutually acceptable solution. The EC inquired about the prospects of a solution in the short run. Australia stated that since its views were well-known it did not wish to repeat those. It also indicated that it had made a proposal in the context of the DSU negotiations to deal with its concerns.

At the DSB meetings on 11 November 2002, 28 November 2002 and 27 January 2003, the US presented status reports where it stated that the US and the EC were committed to finding a positive and mutually acceptable solution to the dispute and that the US Administration would continue to engage the US Congress following the Congressional recess with a view to settling this dispute as soon as practicable. The EC expressed disappointment with the lack of implementation by the US and urged the US to take rapid and concrete action to settle this dispute.

On 23 June 2003, the US and the EC informed the DSB of a mutually satisfactory temporary arrangement.

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