How US Artists and Record Labels Could Claim Overseas Royalties through Arbitration

This post addresses the overseas allocation of broadcast and performance royalties belonging to American music artists and record labels. It suggests how affected stakeholders can reclaim these royalties from abroad through international arbitration by relying on the network of International Investment Agreements (IIAs).

Withholding American Royalties

For over half a century, the royalties due to American musicians for playing their music on radios and in public premises in many foreign countries have been withheld abroad because of the absence of equivalent analogue AM/FM radio performance and public performance rights in the USA. This practice is based on the material reciprocity principle, which entails that broadcast and performance royalties are only distributed among countries that recognize the same rights. The USA is not a Contracting Party to the 1961 Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, which provides for the right to an equitable remuneration (ER) for performers and/or phonogram producers to be paid by radio broadcasters and other users of their phonograms. Despite the industry’s efforts to pass the American Music Fairness Act (AMFA), the USA still lacks such an ER right. Accordingly, terrestrial radio broadcasters and businesses open to the public do not have to pay any royalty to artists in the USA, whereas in the rest of the world, management entities representing performers and record labels collect such remuneration.

Surprisingly, even when payments for royalties owed to US artists and labels are not remitted to them, overseas neighbouring rights societies still collect those royalties and place them in their own collective income pool. More specifically, certain foreign countries enable their neighbouring rights societies to withhold such royalties, which are then diverted to fund national cultural programs which national artists can tap into.

Due to American prominence in the music culture worldwide, US artists' withheld payments make up around 35% to 40% of the collective royalty pool in many countries. This translates into a substantial loss of $200 to $350 million annually for US artists and labels.

Countries that stand out for this practice include Argentina, Australia, Belgium, Denmark, France, Ireland, Japan, and the UK. Thus, these countries do not accord Americans national treatment (NT) with respect to the distribution of music royalties, i.e., the same treatment given to their own national artists (despite article 3 of the TRIPS Agreement – in conjunction with its article 14 on related rights – imposing a NT obligation).

It is worth noting that in 2024 the UK passed the Copyright and Performances (Application to Other Countries) (Amendment) (No. 2) Order granting NT with respect to royalties to performers from countries within the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in order to accede to the CPTPP. However, the Order kept the policy of material reciprocity, thus excluding US performers from enjoying the broader rights granted under the amendment. Several associations representing US performers challenged the 2024 Order's validity before the High Court of Justice, arguing it conflicts with the UK's international obligations contained in the Rome Convention, the 1996 WIPO Performances and Phonograms Treaty (WPPT), and the CPTPP, which are unincorporated treaties, meaning treaties that have not been incorporated into UK domestic law by Parliament. In 2026, the High Court dismissed the validity challenge because domestic courts are not competent to adjudicate upon or enforce rights contained in unincorporated treaties, as such treaties are not part of domestic law. This case illustrates the constraints domestic courts face when dealing with territorial rights with a cross-border dimension. Interestingly, in 2020, the Court of Justice of the European Union (CJEU) – while interpreting Directive 2006/115/EC on rental and lending rights in light of the 1996 WPPT in Case C-265/19, Recorded Artists Actors Performers Ltd v Phonographic Performance (Ireland) Ltd and The Minister for Jobs, Enterprise and Innovation, Ireland and the Attorney General – held that the EU remains bound by the obligation to provide NT because the EU made no reservation when it ratified the WPPT. Therefore, Directive 2006/115 implementing the WPPT must be applied uniformly throughout the internal market without restrictions to guarantee what is essentially a right to property. Accordingly, Article 8(2) of Directive 2006/115 precludes a Member State from single-handedly limiting the right to an ER in respect of performers and phonogram producers who are nationals of a third State (including the USA, which ratified the WPPT). The CJEU determined that, since Article 8(2) of Directive 2006/115 is a harmonized rule of EU copyright law, it is for the EU legislature to decide whether to introduce limitations concerning the right to ER on the back of reservations made by other Contracting Parties to the WPPT, as long as such limitations comply with Articles 17 and 52(1) of the EU Charter of Fundamental Rights.

Nevertheless, the CJEU’s preliminary ruling has faced the apparent recurrent reluctance from EU Member States to apply EU courts’ judgments on copyright matters (e.g., the Italian Supreme Court still applies the special requirement of "artistic value" to grant copyright protection to applied art and design works, despite the CJEU ruling in Cofemel establishing that the only requirement for a design or object to receive copyright protection is originality; while the Lithuanian Supreme Court insists on relying on its own historic precedents on copyright matters, refusing to refer copyright law questions to the CJEU). On this occasion, such reticence might be due in part to the lobbying by European collective management organisations (CMOs), which would lose a substantial portion of their income to US counterparts if the CJEU’s preliminary ruling were followed across the EU.

Possible solution via Investment Arbitrations

Against this backdrop, where Americans are denied NT with regard to their royalties, US music artists and producers may look into international instruments that grant the right to NT and are directly actionable by affected stakeholders. Such international instruments are the so-called International Investment Agreements (IIAs), which include Bilateral Investment Treaties (BITs), Bilateral Convention of Establishments (BCEs) as well as dedicated chapters of certain Free Trade Agreements (FTAs).

IIAs are meant to protect foreign property rights, including intellectual property. Many IIAs list IP rights among the qualified investments covered by their protection and some even expressly mention sound recordings and royalty payments. This protection of foreign assets is conducive to attracting foreign investments which in turn stimulates internal growth.

Virtually any IIA stipulates the obligation for the Contracting Parties to accord NT to the nationals of the Counterpart. Moreover, the NT accorded under IIAs is often unrestricted and not conditional upon material reciprocity, thus laying out a non-reciprocal commitment to the NT standard by the Contracting States.

Hence, under the applicable IIAs, US stakeholders can request the payment of their withheld royalties on an equal footing with the nationals of the countries where such royalties are collected and distributed. Interestingly, US stakeholders could request not only current royalties, but also past royalties from previous years.

Affected stakeholders can submit such requests directly to the country in breach of the NT standard, as IIAs provide access to international investment arbitration against the government concerned, either directly or by virtue of the most-favoured-nation clause (MFN clause).

By way of example, US neighbouring rights societies may claim back their affiliates’ current and past royalties by lodging an international investment arbitration against France by invoking article X of the 1959 France-USA Bilateral Convention of Establishment (France-USA BCE) in combination with Article 8 of the Argentina-France BIT by virtue of the MFN clause contained in Article X(1) of the France-USA BCE. Curiously, the France-USA BCE is regarded as the first modern bilateral investment agreement ever signed by the USA which – unlike the Friendship, Commerce and Navigation ('FCN') treaties – focuses on investments rather than trade.

In the case of Argentina, US-based CMOs may also file an investment arbitration against the Argentinean Government by relying on the 1991 Argentina-USA BIT to recoup their royalties for violating the NT obligation. As for Australia, US artists and record labels may invoke the investment chapter of the 2004 Australia-United States Free Trade Agreement (AUSFTA), in conjunction with the investment chapter of the 2018 Australia-Peru FTA, by operation of the MFN clause contained in Article 11.4 of the AUSFTA.

Drawing from the CJEU Case C-265/19, the exploitation of a copyright-protected phonogram by a third party in a given territory triggers the protection conferred on the right-holder consisting of the right to receive an ER. By playing the sound recording in a given country on the radio or in public spaces, a performance eligible for protection takes place in that country, irrespective of where the first fixation of the phonogram occurred.

A State's refusal to grant US phonogram producers and performers the right to a single equitable remuneration for performances on its territory, solely because of their foreign nationality, is tantamount to a breach of the NT standard under the applicable IIA. Such refusal makes it difficult to recoup the high and risky investments required for producing these phonograms, which are often addressed to a global audience and, accordingly, aim at generating an international revenue stream. This is particularly true for independent record labels heavily relying on neighbouring rights. At times this may also result in transferring these sunk costs onto other stakeholders, including artists and listeners. Therefore, the breach of the NT obligation calls for adequate compensation for the US phonogram producers and performers who contributed to the played phonograms. Additionally, withholding royalty payments may involve further violations, including breaches of the obligations for fair and equitable treatment, free transfer of funds, and the prohibition of expropriation without compensation.

Although IIAs provide copyright protection for foreign owners, to this day there appears to be only one copyright-related investment arbitration case – Einarsson v. Canada – which is currently pending (and primarily deals with trade secrets infringement). Hence, US producers and performers launching investment arbitrations to claim copyright protection for their sound recordings would be venturing into uncharted territory.

Conclusion

Securing royalty payments to recoup investments made in sound recording production is key to further promoting the creative and artistic work of the music industry. Since national legal frameworks have failed to guarantee the right to an ER that enables this virtuous cycle, US-based neighbouring rights societies may consider pioneering international alternatives by launching these investment arbitrations to ensure the effective legal protection of US music artists and record labels. Unlike the AMFA, these international arbitrations would allow recovery of not only current royalties but also past royalties from previous years and would not require changing US domestic legislation.