“Unfair” Royalties: AG Szpunar’s Take on OSA’s License Practices

Advocate General Szpunar’s Opinion in case C-161/24 addresses a crucial issue at the intersection of copyright and competition law. The case concerns OSA’s practice of charging royalties to accommodation providers regardless of actual room occupancy, raising the question of whether this amounts to excessive pricing or unfair trading conditions within the meaning of Article 102 TFEU. The AG concludes that occupancy rates are irrelevant when assessing whether a dominant collective management organisation’s pricing is excessive, while emphasising that such an analysis must be context-dependent and conducted through a case-by-case evaluation.

Unpacking Case C-161/24

In case C-161/24, the Court of Justice of the European Union (CJEU) has been asked to clarify the permissible scope of conduct for dominant copyright collecting societies. Referred by the Krajský soud v Brně (Czech Regional Court in Brno), the case involves OSA1, a Czech collective management organisation holding a de facto monopoly in the national copyright licensing market.

At issue are OSA’s licensing practices between 2008 and 2014, specifically its imposition of royalty fees on hotel accommodation providers for copyrighted content accessible through in-room televisions and radios. Crucially, these fees were levied irrespective of whether the hotel rooms were occupied or whether the copyrighted works were actually accessed. Under this scheme, OSA effectively treated the mere potential for use of protected works as sufficient grounds for charging royalties. The Czech competition authority subsequently ruled that such conduct constituted unfair trading conditions, thereby violating Article 102 of the Treaty on the Functioning of the European Union (TFEU) and the corresponding provision in Czech competition law. Consequently, the authority imposed a fine of CZK 10.67 million (approximately €429,000) on OSA and ordered it to cease the contested licensing practice.

OSA challenged this decision, conceding its de facto monopoly position in the Czech Republic within the realm of collective copyright management but disputing the authority’s legal interpretation of case law regarding the concept of “abuse of a dominant position”. Specifically, OSA argued that the competition authority should have assessed whether its pricing practices constituted excessive pricing, applying the criteria established in United Brands and United Brands Continental v Commission. Furthermore, OSA maintained that such an analysis should take into account the particular context of collective management organisations, as delineated in the CJEU’s rulings in Autortiesību un komunicēšanās konsultāciju aģentūra/Latvijas Autoru apvienība and SABAM. Against this background, the CJEU invited AG Szpunar to deliver an opinion addressing the following set of interrelated questions:

·         First, does a collective management organisation with a de facto monopoly abuse its dominant position by charging accommodation providers royalties without accounting for actual room occupancy?

·         Second, assuming such conduct may constitute abuse, should it be assessed under the prohibition of unfair trading conditions or excessive pricing?

·         Third, what is the appropriate legal test? If unfair trading conditions apply, how should unfairness be assessed? If excessive pricing is the correct framework, should the classic United Brands two-limb test apply, or is a context-sensitive modification required, given the specific nature of collective management organisations?

AG Szpunar’s Dual Reasoning

AG Szpunar addresses the issue in a two-step analysis. The first step concerns a foundational question raised by the Czech competition authority: whether there is a “communication to the public” within the meaning of copyright law when hotel rooms remain unoccupied. The authority argued that OSA charged royalty fees for a service that was not actually provided, reasoning that, in the absence of occupancy, no copyrighted works were effectively communicated to the public. This, in turn, negates the existence of a service and calls into question the legitimacy of the corresponding fees. In such cases, requiring accommodation providers to pay royalties constitutes an abuse in itself. AG Szpunar underscores that resolving the underlying copyright question is a necessary precursor to the competition law analysis. If a communication to the public is established, then the factual basis for the claim that OSA charged for a non-existent service effectively falls away. However, this does not preclude a finding of abuse. As AG Szpunar observes, even where communication to the public is established, the particular pricing methodology employed by OSA may still raise issues under Article 102 TFEU. This forms the core of the second stage of his analysis, which examines whether OSA’s approach to setting royalties constitutes unfair trading conditions or amounts to excessive pricing.

Communication to the Public: Do Empty Rooms Count?

In the first step of his analysis, AG Szpunar rejects the Czech competition authority’s assumption that unoccupied rooms mean no service is provided. Central to his reasoning is the interpretation of the concept of “communication to the public” under Article 3 of Directive 2001/29. This notion requires the presence of a “public”, which excludes groups too small or insignificant. The AG emphasises, that in the hotel context, the “public” should be understood broadly. Not individual guests in isolated rooms, but mostly the hotel’s clientele collectively, should be considered. Even if the analysis were conducted on a room-by-room basis, the rapid turnover of guests means that a fairly large number of persons are exposed, thus satisfying the threshold for a public. Furthermore, the CJEU has consistently held2 that the installation of television or radio receivers and the transmission of broadcasts to guest rooms constitutes a “communication to the public,” regardless of whether guests actually activate the devices. Accordingly, Szpunar concludes that occupancy rates are irrelevant to the existence of a communication to the public and that, as a result, charging royalties without adjusting for actual room occupancy does not amount to levying fees for a non-existent service. The mere failure to consider occupancy rates, in and of itself, therefore, cannot constitute an abuse of a dominant position under Article 102 TFEU.

Excessive Royalties: Do Empty Rooms Matter?

Having established that actual occupancy is irrelevant to the concept of "communication to the public", the AG turns to whether OSA’s failure to consider occupancy in setting royalties might still amount to abusive conduct. He swiftly clarifies that the practice concerns pricing rather than unfair trading conditions, thus requiring analysis under the United Brands framework. AG Szpunar also stresses that OSA’s unilateral revision in 2008 to its royalty-setting method does not alter the essential character of these fees as prices for licensing services.

The key question, thus, is whether OSA’s practice of disregarding occupancy rates constitutes excessive pricing. In light of United Brands, the excessive nature of a price is assessed through a two-step test: first, whether the difference between the costs incurred and the price charged is excessive, and second, whether the price imposed is unfair either intrinsically or in comparison to competing products. For collective management organisations, this means royalties must reflect the economic value of making their repertoire available. Importantly, there is no single, uniform method to determine whether such royalties are excessive. Instead, the appropriate assessment depends on the specific context of each case.3 Potential benchmarks include prices previously charged by the organisation, charges for other services it offers, or royalties set by comparable collective management organisations in other Member States. When selecting a suitable method, it is crucial to account for the particular nature of copyright law and to strike a balance between the interests of authors, who deserve remuneration for the use of their works, and those of users in being able to use those works under reasonable conditions.4

In this context, AG Szpunar emphasises that the assessment of whether royalties are excessive must extend beyond the intrinsic value of the service itself to encompass the nature and scope of use, specifically, the quantity of copyrighted works actually made available and the economic value generated by such use.5 He clarifies that “actual use” refers to works communicated or made available, rather than works that are necessarily consumed by end users. In particular, AG Szpunar holds that the provision of TV/radio capabilities is an ancillary service that influences a hotel's market position and pricing power. Consequently, the mere availability of copyrighted content carries distinct economic value irrespective of whether guests actively engage with the content. By contrast, factors such as the number of rooms equipped with TV or radio receivers, or the number of channels and frequencies provided, more accurately reflect the volume of copyrighted works communicated and thus serve as better indicators for adjusting royalty fees. Accordingly, Szpunar concludes that the failure to account for actual occupancy rates when setting royalties cannot amount to excessive pricing under Article 102 TFEU. Nonetheless, he notes that it remains for the referring court to determine whether OSA's pricing methodology sufficiently incorporates relevant factors to calibrate royalties in line with actual usage appropriately.

Looking Ahead: “Unfair” Royalties?

In sum, AG Szpunar’s opinion nicely highlights the intricate relationship between competition law and copyright – two distinct yet inherently connected legal frameworks. At the heart of his analysis, however, lies the elusive concept of “fairness” in abuse of dominance cases. While the United Brands test for excessive pricing remains foundational, AG Szpunar’s analysis highlights the broad interpretive leeway courts have, especially in intellectual property contexts where straightforward price-cost comparisons often fall short His analysis cautions against overly simplistic or mechanistic approaches to fairness that rely on possibly irrelevant proxies, such as occupancy rates in the present case, without sufficiently considering the broader economic realities. Instead, the AG advocates for a more context-sensitive evaluation that accounts for the actual value generated by the licensed rights and the particularities of collective management organisations. Ultimately, the opinion reinforces the idea that fairness (or “unfairness”) cannot be defined in absolute or formulaic terms but that it is inherently contingent on the specific facts and economic context of each case.

• 1OSA z.s., formerly OSA (Ochranný svaz autorský pro práva k dílům hudebním, z.s. (Society for the protection of copyright in musical works, Czech Republic))
• 2  See, for example, Judgment of 7 December 2006, SGAE (C‑306/05, EU:C:2006:764, point 1 of the operative part).
• 3Judgment of 25 November 2020, SABAM (C‑372/19, EU:C:2020:959, para. 29).
• 4Referring to Judgment of 11 December 2008, Kanal 5 and TV 4 (C‑52/07, EU:C:2008:703, paras. 30 and 31), and SABAM (para. 30).
• 5SABAM (para. 41).