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Complaint by the European Communities and their member States.
On 26 January 1999, the European Communities requested consultations with the United States 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 European Communities 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 European Communities 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 centred 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 European Communities requested the establishment of a panel. At its meeting on 28 April 1999, the DSB deferred the establishment of a panel.
Panel and Appellate Body proceedings
Further to a second request to establish a panel by the European Communities, 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 European Communities requested the Director-in-Charge to determine the composition of the panel. On 6 August 1999, the panel was composed. The panel report 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.
Reasonable period of time
On 24 August 2000, the United States informed the DSB that it would implement the recommendations of the DSB and proposed 15 months as a reasonable period of time within which to implement those recommendations.
On 23 October 2000, the European Communities 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 United States 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 i.e. it expired on 27 July 2001.
At the DSB meeting on 18 December 2001, the United States indicated that it was engaged in productive discussions with the European Communities with a view to resolving the dispute before the end of the expiry of the reasonable period of time. The European Communities underlined that the resolution of the dispute required an amendment of the WTO-inconsistent legislation. The European Communities 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.
At its meeting of 24 July 2001, the DSB agreed to the United States' proposal to extend the reasonable period of time until 31 December 2001 or the end of the current session of the US Congress, whichever was earlier. This extension had been agreed with the European Communities.
Arbitration under Article 25
On 23 July 2001, the United States and the European Communities informed the DSB of their agreement to resort to arbitration pursuant to Article 25 of the DSU in order to determine the level of nullification or impairment of benefits to the European Communities as result of Section 110(5)(B) of the US Copyright Act and notified they had agreed on the procedure and timetable for the proceedings. The parties requested that the original panelists in the dispute be contacted to determine their availability to serve as arbitrators in the proceedings and also requested the Director-General's assistance in selecting alternative panelists in case of unavailability of the original panelists. The parties agreed that the award of the arbitrator shall be final and that they shall accept it as the level of nullification or impairment for purposes of any future proceedings under Article 22 of the DSU. The parties agreed that the members of the original panel should serve as arbitrators. However, as the Chairperson and one member of the original panel were no longer available, the Director-General, in accordance with the agreed procedures for the arbitration proceedings, appointed two arbitrators to replace them. 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 €1,219,900 per year.
Proceedings under Article 22 of the DSU (remedies)
On 7 January 2002, on the grounds that that the United States had failed to bring its measures into conformity within the reasonable period of time, the European Communities requested authorization to suspend concessions pursuant to Article 22.2 of the DSU. Noting that the level of EC benefits which had been nullified or impaired had been determined through arbitration under Article 25 of the DSU, the European Communities proposed to suspend concessions under the TRIPs Agreement and stated it would fix the amount of a special fee from US nationals in connection with border measures concerning copyright goods so as to ensure that the level of affected US benefits will not exceed the level of EC benefits nullified or impaired as a result of the WTO-inconsistent provisions of the US Copyright Act.
On 17 January 2002, the United States objected to the level of suspension of obligations proposed by the European Communities and requested the DSB to refer the matter to arbitration, in accordance with Article 22.6 of the DSU. The United States also 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 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.
Implementation of adopted reports
On 23 June 2003, the United States and the European Communities informed the DSB of a mutually satisfactory temporary arrangement. Such temporary arrangement covered the period through to 20 December 2004. The United States has thereafter presented status reports to the DSB informing that the US Administration will work closely with the US Congress and will continue to confer with the European Union in order to reach a mutually satisfactory resolution of this matter.
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