34 File No. CT-2015-COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34 (the “Act”); AND IN THE MATTER OF an application by Stargrove Entertainment Inc. for an order pursuant to section 103.1 of the Act granting leave to bring an application under sections 75, 76, and 77 of the Act;
AND IN THE MATTER OF an application by Stargrove Entertainment Inc. for an order pursuant to sections 75, 76, and 77 of the Act;
AND IN THE MATTER OF an application by Stargrove Entertainment Inc. for an order pursuant to section 104 of the Act;
BETWEEN: STARGROVE ENTERTAINMENT INC. Applicant - and -UNIVERSAL MUSIC PUBLISHING GROUP CANADA, UNIVERSAL MUSIC CANADA INC., SONY/ATV MUSIC PUBLISHING CANADA CO., SONY MUSIC ENTERTAINMENT CANADA INC., ABKCO MUSIC & RECORDS, INC., CASABLANCA MEDIA PUBLISHING, and CANADIAN MUSICAL REPRODUCTION RIGHTS AGENCY LTD.
Respondents ____________________________________________________________________________ NOTICE OF APPLICATION FOR INTERIM ORDER (Pursuant to s. 104 of the Competition Act)
____________________________________________________________________________
- 2 - 35 TAKE NOTICE THAT: 1. The Applicant will make an application to the Competition Tribunal (“Tribunal”) pursuant to section 104 of the Competition Act (“Act”) on a date and time to be set by the Tribunal at Ottawa or Toronto, Ontario for: (a) An interim and interlocutory order: (i) requiring the Respondents to grant mechanical licences to the Applicant on the usual terms associated with the granting of said licences through the Canadian Musical Reproduction Rights Agency Ltd. (“CMRRA”), lasting until a final decision is made on the merits of the Applicant’s application for leave pursuant to s. 103.1 of the Act or, if the application for leave is granted, until a final decision is made on the merits of the Applicant’s proposed application pursuant to ss. 75, 76, and 77 of the Act; (b) Costs of this Application, if opposed; and (c) Such further and other final or interim orders as the Tribunal deems just. AND TAKE NOTICE THAT: 2. The persons against whom the orders are sought are the Respondents: Universal Music Publishing Group Canada; Universal Music Canada Inc.; Sony/ATV Music Publishing Canada Co.; Sony Music Entertainment Canada Inc.; ABKCO Music & Records, Inc.; Casablanca Media Publishing; and Canadian Musical Reproduction Rights Agency Ltd. The Respondents’ addresses are set out below. 3. The Applicant will rely on the Statement of Grounds and Material Facts attached as Schedule “A” hereto; the Affidavit of Terry Perusini, sworn August 26, 2015; the Affidavit
- 3 - 36 of Mario Bouchard, sworn August 27, 2015; the Applicant's Notice of Application for leave pursuant to section 103.1 of the Act; the Applicant's Proposed Notice of Application under sections 75, 76, and 77 of the Act; and such further and other grounds and material facts as counsel may advise and the Tribunal may permit. 4. The Applicant requests that the within Application be heard in the English language. 5. The Applicant requests that the documents for this Application be filed in electronic form. -
Sangeetha Punniyamoorthy Thomas Kurys Nikiforos latrou Scott McGrath Tel: 416-971 -7202 Bronwyn Roe Fax: 416-971-6638 Tel : 416-365-1110 spunniyamoorthy@dimock.com Fax: 416-365-1876 tkurys@dimock.com niatrou@weirfoulds.com smcgrath@weirfoulds.com broe@weirfoulds.com
Lawyers for the Applicant
TO: The Registrar Competition Tribunal 90 Sparks Street, Suite 600 Ottawa, ON K1 P 584 Tel : 613-957-7851 Fax: 613-952-1123
- 4 - 37 AND TO: John Pecman Commissioner of Competition Competition Bureau 50 Victoria Street Gatineau, QC K1A 0C9 Tel: 819-997-4282 Fax: 819-997-0324
AND TO: Canadian Musical Reproduction Rights Agency Ltd. 320-56 Wellesley Street West Toronto, ON M5S 2S3 Tel: 416-926-1966 Fax: 416-926-7521
AND TO: ABKCO Music & Records, Inc. 85 5th Ave #11 New York, NY 10003 United States Tel: 212-399-0300
AND TO: Casablanca Media Publishing 249 Lawrence Avenue East Toronto, ON M4N 1T5 Tel: 416-921-9214
AND TO: Sony/ATV Music Publishing Canada Co. 1670 Bayview Avenue, Suite 408 Toronto, ON M4G 3C2 Tel: 416-489-5354
AND TO: Sony Music Entertainment Canada Inc. 150 Ferrand Drive Toronto, ON M3C 3E5 Tel: 416-589-3000
AND TO: Universal Music Publishing Group Canada (A Division of Universal Music Canada Inc.) 2450 Victoria Park Avenue, Suite 1 Toronto, ON M2J 5H3 Tel: 416-718-4000 Fax: 416-718-4224
AND TO: Universal Music Canada Inc. (A Division of Universal Music Group) 2450 Victoria Park Avenue, Suite 1 Toronto, ON M2J 5H3 Tel: 416-718-4000 Fax: 416-718-4224
SCHEDULE “A” – STATEMENT OF GROUNDS AND MATERIAL FACTS 38 PART 1 - THIS APPLICATION IN A NUTSHELL 1. In conjunction with its application for leave (“Leave Application”) to bring an application under sections 75, 76, and 77 of the Act against the Respondents (“Proposed Application”), Stargrove seeks an interim and interlocutory order requiring the Respondents to grant mechanical licences to Stargrove on the usual terms associated with the granting of said licences through the Canadian Musical Reproduction Rights Agency Ltd. (“CMRRA”), lasting until a final decision is made on Stargrove’s Leave Application or, if the Leave Application is granted, until a final decision is made on the Proposed Application. 2. Stargrove’s Leave Application and Proposed Application raise serious issues. Stargrove alleges that the Respondents have violated sections 75, 76, and 77 of the Act by banding together to shut Stargrove out of the market by having CMRRA refuse to deal with Stargrove on standard terms; denying Stargrove the mechanical licences that are necessary inputs for its CDs; pressuring Stargrove’s distributor; and concocting false negative reviews of Stargrove’s CDs. 3. Stargrove will be irreparably harmed absent an interim order. Without being able to obtain mechanical licences through CMRRA on usual trade terms, Stargrove will go out of business. 4. The balance of convenience favours granting the interim order. In addition to the harm Stargrove will suffer, consumers will also be harmed if Stargrove is prevented from entering into or expanding in the market, because they will be denied the low-cost CDs that Stargrove offers. The price of CDs will be maintained artificially high.
- 2 - 39 PART 2 - FACTS 1 A. The Parties 5. The Applicant, Stargrove Entertainment Inc. (“Stargrove”), is a company incorporated in July 2014 under the laws of Ontario. Stargrove is a record label in the business of manufacturing and selling competitively-priced musical compact discs (“CDs”). 6. The Respondents Sony/ATV Music Publishing Canada Co. and Sony Music Entertainment Canada Inc. (collectively, “Sony”) and Universal Music Publishing Group Canada and Universal Music Canada Inc. (collectively, “Universal”) are music publishing companies and record labels located in Toronto, Ontario. The Respondent Casablanca Media Publishing (“Casablanca”) is a music publishing company located in Toronto. ABKCO Music and Records Inc. (“ABKCO”) is a record label, music publisher, and film and video production company headquartered in New York, New York. 7. The Respondent Canadian Musical Reproduction Rights Agency Ltd. (“CMRRA”) is a music licensing collective representing music publishers. On behalf of music publishers, CMRRA issues licences for the reproduction of musical works on various media, including mechanical licensing for the reproduction of songs on CDs. 8. Sony, Universal and Casablanca are represented by CMRRA and have representatives on the Board of Directors of CMRRA. ABKCO is represented by CMRRA but, to Stargrove's knowledge, does not have representatives on its Board of Directors. 9. Anderson Merchandisers Canada Inc. (“Anderson”) (which is not a party to the case) distributes CDs to major Canadian retailers, including Walmart and BestBuy. Anderson
1 This “Facts” section is identical to the “Facts” as set out in the Statement of Grounds and Material Facts at Schedule “A” to Stargrove’s Proposed Notice of Application (paras 5-29).
- 3 - 40 is the exclusive distributor for CDs in Walmart in Canada and is the distributor for Stargrove’s CDs. B. Licensing Musical Works in Canada 10. For the purposes of this Application, there are two copyrights that matter: (1) The copyright in the musical work. In order to reproduce a musical work, a party must obtain a “mechanical licence” from the holder of the copyright in the musical work, if the work is protected by copyright. If the work has fallen into the “public domain”, no licence is required to use the work.
(2) The copyright in the master sound recording. In order to reproduce the sound recording on which a musical work is fixed, a party must also obtain a “master recording licence” from the holder of the copyright in the sound recording. If the sound recording has fallen into the public domain, no licence is required to use the sound recording.
11. Stargrove’s business is to manufacture and sell CDs. Its current business activity is to manufacture and sell CDs of musical works whose sound recordings are in the public domain. In order to do so, Stargrove needs to obtain mechanical licences for the works, but does not need to obtain master recording licences. Stargrove then manufactures and sells these CDs at very competitive prices. 12. Although a record label in Stargrove’s position can seek to obtain a mechanical licence directly from the copyright holders, the common practice in Canada is for a record label to apply for mechanical licences from CMRRA, which is the authorized representative for most musical work copyright holders in Canada. For a record label of Stargrove’s size, the typical way to obtain such mechanical licences is by entering into a mechanical
- 4 - 41 licence agreement (“MLA”) with CMRRA. A record label that has signed an MLA obtains mechanical licences on standard terms and at standard rates. 13. The standard mechanical royalty rate in Canada is currently $0.083 per song, per copy (for recordings with a running time of five minutes or less). Applications to CMRRA are granted as a matter of course at this standard rate. CMRRA’s contracts with the publishers it represents (called “Affiliation Agreements”) contemplate that CMRRA “shall” issue the mechanical licences on standard terms, unless the publisher decides that it wants to deal directly with the record label to issue the licence. 14. In practice, the market for the issuance of mechanical licences operates as though it were a compulsory system. The process is so automatic that record labels almost always produce CDs even before they have obtained mechanical licences. Royalties owed on these CDs are held pending the identification of the copyright owner. C. Stargrove's Business Takes Off 15. In January 2015, Stargrove made an application to CMRRA for mechanical licences for five titles (collectively, the “Titles”): The Beatles Love Me Do, The Beatles Can't Buy Me Love, The Rolling Stones Little Red Rooster, Bob Dylan It Ain't Me Babe and The Beach Boys Fun, Fun, Fun (each of these titles is a compilation of 10 or 11 songs). 16. For each of these titles, copyright in the musical work still exists (hence the need for a mechanical licence), but copyright in the sound recording has expired. As such, the sound recording is in the public domain, meaning that the public has the right to use and copy that recording without permission. 17. With its mechanical licence application to CMRRA, Stargrove submitted the required royalty payment of $13,799.10.
- 5 - 42 18. CMRRA cashed Stargrove’s cheque and Stargrove began producing its CDs for sale. The CDs went on sale in Walmart on February 3, 2015 for a retail price of $5.00. In the first week of sales, The Beatles’ Love Me Do was Walmart’s top-selling CD, with 1,488 copies sold in one week alone. D. The Respondents Order CMRRA to Stop Issuing Stargrove Mechanical Licences 19. The publishers associated with each of the Titles include ABKCO, Casablanca and Sony (collectively, the “Title Holders”). One by one, and in quick succession, each of the Title Holders gave instructions to CMRRA in January or February 2015 to stop issuing mechanical licences to Stargrove. 20. A CMRRA representative professed her surprise to Stargrove at this instruction from the Title Holders, but CMRRA followed their instruction. In fact, CMRRA went even further and refused to grant Stargrove any mechanical licences, whether from one of the Title Holders or not. Stargrove’s attempts to enter into an MLA were stymied by CMRRA, who erected barrier after barrier to Stargrove’s application. 21. CMRRA refunded Stargrove’s royalty payment for the Titles at the end of February 2015. 22. On multiple occasions, Stargrove requested explanations for the refusals to grant mechanical licences, both from CMRRA and from the Title Holders directly, and asked them to reverse course. Stargrove has been refused an explanation, other than in a letter from CMRRA, which stated that the Title Holders’ “refusal to deal is at least partially related to the fact that there are public domain master recordings on the products in question.” 23. The Title Holders are withholding mechanical licences in order to artificially extend copyright over recordings that should be in the public domain. They are doing so in
- 6 - 43 direct response to the legitimate competition that Stargrove was bringing to the market. As set out above, some Title Holders have record label divisions, while others are affiliated with record labels. They do not like Stargrove’s pricing model and the fact that Stargrove was able to gain market share so quickly. E. Universal Tried to Prevent or Harm Stargrove's Business 24. Randy Lennox, the CEO of Universal Music Canada Inc., sent an e-mail to the principals of Anderson, the distributors of Stargrove’s CDs, asking Anderson to partner with Universal to find solutions and resolve what he called a “public domain issue”. 25. Brian Greaves, an account manager at Universal Music Canada Inc., concocted negative reviews on Walmart's website, complaining that Stargrove’s products were of poor quality. He encouraged other Universal employees to do the same and to help him with Universal’s “campaign” to discourage Anderson from distributing Stargrove’s CDs, stating that poor reviews would deter Anderson from distributing Stargrove’s products in the future. Walmart subsequently removed all the fake reviews from its site. Stargrove’s CDs had a low return rate: of the over 2000 Stargrove CDs sold, only one CD was returned. 26. Mr. Greaves noted that Stargrove’s CDs were taking away from Universal’s sales and market share, and claimed that Universal had already successfully removed a Rolling Stones title from the CDs offered for sale by Stargrove, despite the fact that the copyright in question was held by ABKCO, not Universal. F. The Respondents’ Campaign to Shut Stargrove Out 27. The Respondents mean to punish Stargrove for its low pricing and ability to compete with established record labels. Ultimately, this keeps the prices of CDs high. The
- 7 - 44 decision to instruct CMRRA to refuse to issue mechanical licences to Stargrove surprised even the employees of CMRRA. 28. Since Stargrove has been shut out of the market, it has missed out on several lucrative opportunities to market its CDs, resulting already in an estimated loss of $150,000 in wholesale sales. Anderson wanted approximately 20,000 copies of Beatles CDs that Stargrove would have otherwise produced. Anderson continues to identify marketing opportunities for Stargrove through Walmart that Stargrove is unable to pursue because of CMRRA’s and the Respondents’ refusal to issue it mechanical licences. As recently as three weeks ago, Anderson identified a lack of stock of Beatles and Rolling Stones CDs; it wanted Stargrove to help it fill its orders. Stargrove cannot do so, as long as it is being unfairly and unlawfully blocked from the market. 29. Stargrove’s CDs have been pulled from Walmart’s shelves, and its sales – given that it can obtain no mechanical licences from CMRRA – are now zero. PART 3 - GROUNDS FOR INTERIM RELIEF A. Stargrove has Applied for Relief Pursuant to Section 103.1 30. Concurrent with the filing of this Notice of Application, Stargrove Entertainment Inc. (“Stargrove”) is filing the Leave Application pursuant to s. 103.1 of the Act for leave to make an application under ss. 75, 76, and 77 of the Act.
31. Included with its Leave Application, Stargrove has filed the Proposed Application pursuant to ss. 75, 76, and 77 of the Act, seeking relief against the Respondents on the grounds set out in the Statement of Grounds and Material Facts at Schedule “A” to the Proposed Application.
- 8 - 45 B. The Leave Application and the Proposed Application Raise Serious Issues 32. The Leave Application raises two serious issues: (1) has Stargrove been directly affected by the Respondents’ conduct?; and (2) could the Respondents’ conduct be the subject of an order under ss. 75, 76 or 77?
33. The Proposed Application raises several serious issues, as further described in the Statement of Grounds and Material Facts at Schedule “A” to the Proposed Application:
(a) Has Stargrove been substantially affected in its business or precluded from carrying on its business due to its inability to obtain rights to reproduce musical works (through mechanical licences and MLAs) to which the Title Holders hold copyright from CMRRA on usual trade terms?
(b) Is Stargrove unable to obtain the right to reproduce musical works (through mechanical licences and MLAs) from other suppliers?
(c) Is Stargrove willing and able to meet the usual trade terms of CMRRA and the Title Holders for issuing mechanical licences?
(d) Are rights to reproduce musical works in ample supply? (e) Is the Respondents’ refusal to deal likely to have an adverse effect on competition in a market?
(f) Have the Respondents refused to supply a product or otherwise discriminated against Stargrove because of Stargrove’s low pricing policy?
(g) Has the Respondents’ conduct had an adverse effect on competition in the market for CDs in Canada, specifically in respect of public domain sound recordings of popular music?
C. Stargrove Will be Irreparably Harmed Absent an Interim Order 34. Without an interim order requiring the Respondents to issue mechanical licences to Stargrove, the Respondents will continue to withhold mechanical licences from Stargrove, leaving Stargrove unable to sell the CDs it has manufactured and unable to produce the additional CDs it planned to produce.
35. Because of the Respondents’ conduct, Stargrove’s CDs have been pulled from the shelves of Walmart. Stargrove’s sales have been reduced to zero. It cannot obtain any new mechanical licences from CMRRA because of CMRRA’s refusal to do business with
- 9 - 46 Stargrove on usual or any trade terms. The Respondents’ conduct has caused Stargrove to miss out on key business opportunities.
36. Even if Stargrove were to change its business model, CMRRA’s decision not to issue Stargrove any mechanical licences to songs to which the Title Holders own copyright effectively precludes Stargrove from participating in the CD market at all.
37. Without being able to obtain mechanical licences through CMRRA for the Titles and other songs on the usual trade terms, Stargrove will go out of business. This damage cannot be compensated in monetary damages, as such damages are not available under the Act.
D. The Balance of Convenience Favours Granting an Interim Order 38. The balance of convenience favours granting the interim order. The irreparable harm that Stargrove is poised to suffer if an interim order is denied is far greater than any arguable harm to the Respondents.
39. Stargrove simply seeks an interim order granting it the right to be issued rights to reproduce songs (through mechanical licences or MLAs) through CMRRA on the same trade terms to which all other applicants are entitled when applying for mechanical licences. Granting the interim relief sought will maintain the industry’s typical mechanical licensing process pending the hearing of the Leave Application and the Proposed Application.
40. In addition to the harm Stargrove will suffer, consumers will also be harmed if the interim order is not granted. Stargrove produces competitively-priced CDs that are in consumer demand. If Stargrove is prevented from entering into or expanding in the market and from competing with record labels, the price of CDs will be maintained artificially high.
41. The Respondents will suffer no corresponding anticompetitive harm. They will merely be required to do business with Stargrove on the same terms that they ordinarily do business with each other and other companies in the market.
42. Stargrove’s products are of good quality and will do no harm to the reputation of the Respondents or the songs to which they hold copyright.
- 10 - 47 43. In support of this Application, and the Grounds and Material Facts set out above, Stargrove relies on:
(a) the affidavit of Terry Perusini, sworn August 26, 2015; (b) the affidavit of Mario Bouchard, sworn August 27, 2015; (c) the Leave Application; (d) the Proposed Application; (e) the Competition Act, RSC 1985, c C-34, as amended, including ss. 75, 76, 77, 103.1 and 104;
(f) the Competition Tribunal Rules, SOR/2008-141; and (g) such further and other grounds and material facts as counsel may advise and the Tribunal may permit.
IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34 (the “Act”);
AND IN THE MATTER OF an application by Stargrove Entertainment Inc. for an order pursuant to section 103.1 of the Act granting leave to bring an application under sections 75, 76, and 77 of the Act;
AND IN THE MATTER OF an application by Stargrove Entertainment Inc. for an order pursuant to sections 75, 76, and 77 of the Act;
AND IN THE MATTER OF an application by Stargrove Entertainment Inc. for an order pursuant to section 104 of the Act;
BETWEEN: STARGROVE ENTERTAINMENT INC. Applicant - and -
UNIVERSAL MUSIC PUBLISHING GROUP CANADA, SONY/ATV MUSIC PUBLISHING CANADA CO., SONY MUSIC ENTERTAINMENT CANADA INC., CANADIAN MUSICAL REPRODUCTION RIGHTS AGENCY LTD.
Respondents NOTICE OF APPLICATION FOR INTERIM ORDER (Pursuant to s. 104 of the Competition Act)
WEIRFOULDS LLP Barristers & Solicitors 4100 - 66 Wellington Street West P.O. Box 35, Toronto-Dominion Centre Toronto, ON M5K 1B7 Nikiforos Iatrou Scott McGrath Bronwyn Roe Tel: 416-365-1110 Fax: 416-365-1876 niatrou@weirfoulds.com smcgrath@weirfoulds.com broe@weirfoulds.com
8067685.4
48 File No. CT-2015-COMPETITION TRIBUNAL
UNIVERSAL MUSIC CANADA INC., ABKCO MUSIC & RECORDS, INC., CASABLANCA MEDIA PUBLISHING, and
DIMOCK STRATTON LLP 20 Queen Street West, 32nd Floor Toronto, ON M5H 3R3 Sangeetha Punniyamoorthy Thomas Kurys Tel: 416-971-7202 Fax: 416-971-6638 spunniyamoorthy@dimock.com tkurys@dimock.com
Lawyers for the Applicant