In a resolution published in July 2018, the Secretariat of Commerce — following the recommendations of the National Competition Defense Commission (CNDC) — imposed a fine of AR$42.7 million (approximately US$1.5 million) on the Argentine Society of Music Authors and Composers (SADAIC) for abusing its dominant position in violation of Competition Defense Law No. 27,442 (the “Competition Defense Law”) by charging excessive and discriminatory fees to certain hotels for the secondary public performance of music.
1. Background of the decision
SADAIC is a collective management entity composed of Argentine music authors and composers, holding a legal monopoly over the collective management and distribution of revenues derived from the use of musical works. Although the legislation that created SADAIC sets caps on the fees it may charge certain users, it does not regulate the fees that can be charged to hotels, thus granting SADAIC broad discretion in this regard.
Following a complaint filed by the Argentine Hotel and Gastronomy Business Federation (FEGHRA), an entity representing hotel and gastronomy entrepreneurs in Argentina, the CNDC found that during the investigated period (from April 2009 to October 2014) SADAIC abused its dominant position by setting excessively high fees for all types of hotels, discriminating among different hotels, and charging fees that were unreasonable relative to the music performed in hotels.
2. Abuse of dominant position
The CNDC concluded that the fees charged by SADAIC to approximately 4,500 hotels in Argentina constituted an abuse of its dominant position because they were: (a) discriminatory, as different fees were charged for exactly the same service without any plausible justification; and (b) excessive, when compared both with fees charged to hotels in other countries and with those charged to hotels by other Argentine collective management entities.
(a) Discriminatory pricing
The CNDC’s investigation concluded that SADAIC set its licensing fees for hotels in a discriminatory manner. SADAIC entered into preferential agreements with certain hotels or hotel associations in specific regions of Argentina, where occupancy and seasonality factors were considered to set the fees, charging these hotels up to 75% less than those not included in such agreements. Therefore, SADAIC’s fee policy was deemed a third-degree price discrimination, since hotels covered by agreements paid preferential fees while hotels outside any agreement paid a general fee that did not consider occupancy or seasonality.
Additionally, the CNDC understood that SADAIC engaged in first-degree price discrimination by setting its fees based on the licensees’ economic capacity, pegging them to the hotel’s final product price (i.e., room price). In other words, the fees were based on assumed hotel revenues, not on actual revenues. Thus, the fees did not reflect the economic value of the music use managed by SADAIC, and the intent was to extract as much surplus as possible from hotels regardless of the service value provided.
In this case, the highest revenues came from captive licensees—three, four, and five-star hotels legally required to offer music to guests. Ultimately, the captive nature of these clients, combined with SADAIC’s legal monopoly, clearly created an environment conducive to abuse of dominant position.
(b) Excessive pricing
The CNDC also found the fees abusive due to their excessive level (even where preferential agreements existed). For this, the CNDC compared SADAIC’s fees charged to Argentine hotels with fees charged to hotels by music management entities in countries such as Chile, Mexico, Paraguay, Colombia, Venezuela, and Spain. The CNDC concluded that SADAIC charged fees 7 to 10 times higher than its counterparts in other countries.
Moreover, the CNDC compared SADAIC’s fees with those charged by other intellectual property management entities operating in Argentina (such as ARGENTORES and AADI). Depending on hotel type, SADAIC’s fees were 5 to 25 times higher.
The CNDC considered SADAIC’s fees unreasonable as they were based on presumed, not actual, hotel revenues. Consequently, the fees resembled a tax. Therefore, the CNDC established that fees must reflect the economic value of the use hotels make of the repertoire managed by SADAIC.
3. Recommendation to the Executive Branch
The CNDC, which lacks the authority to regulate or set SADAIC’s fees, recommended that the Executive Branch issue a new regulation setting hotel fees based on the following criteria: (i) non-discrimination, meaning similar fees must be charged for equivalent services, so if preferential or special terms are offered to a group of users, the same conditions should be available to all similarly situated users; (ii) reasonableness, meaning fees must reflect the economic use of the repertoire provided by SADAIC; (iii) transparency, meaning the methodology to determine applicable fees must be simple, clear, and accessible to users, and any specific preferential agreements should be publicly available; and (iv) limited scope, meaning fees should be collected only in relation to intellectual property rights managed by the collective management society.
4. Damages actions
The fine imposed on SADAIC, like any violation of the Competition Defense Law, will be collected by the Ministry of Production. However, any victim of the violation (in particular, hotels affected by the abusive fees) may bring claims for compensation for damages caused by SADAIC’s conduct under Chapter IX of the Competition Defense Law.
The Competition Defense Law establishes that resolutions issued by the National Competition Defense Authority will have binding effects or res judicata for judges hearing claims for damages recovery. The statute of limitations to initiate recovery actions is two years from the finality of the National Competition Defense Authority’s infringement resolution.
5. Final observations
This decision highlights the CNDC’s renewed interest in investigating and sanctioning cases of dominant position abuse in Argentina (even where parties like SADAIC hold a legal monopoly) and reminds dominant companies of their special responsibility not to restrict competition.
Additionally, the SADAIC decision can be seen as part of the process of strengthening antitrust policy in Argentina in recent years, resulting, among other things, in greater attention by the Competition Defense Authority to unilateral conduct by dominant firms.
The decision is available at: https://www.argentina.gob.ar/sites/default/files/resolucion_371-2018_0.pdf
