In a resolution published in July 2018, the Secretariat of Commerce \u2014 following the recommendations of the National Competition Defense Commission (CNDC) \u2014 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 \u201cCompetition Defense Law\u201d) by charging excessive and discriminatory fees to certain hotels for the secondary public performance of music.<\/p>\n
1. Background of the decision<\/strong><\/p>\n 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.<\/p>\n 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.<\/p>\n 2. Abuse of dominant position<\/strong><\/p>\n 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.<\/p>\n (a) Discriminatory pricing<\/strong><\/p>\n The CNDC\u2019s 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\u2019s 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.<\/p>\n Additionally, the CNDC understood that SADAIC engaged in first-degree price discrimination by setting its fees based on the licensees\u2019 economic capacity, pegging them to the hotel\u2019s 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.<\/p>\n In this case, the highest revenues came from captive licensees\u2014three, four, and five-star hotels legally required to offer music to guests. Ultimately, the captive nature of these clients, combined with SADAIC\u2019s legal monopoly, clearly created an environment conducive to abuse of dominant position.<\/p>\n (b) Excessive pricing<\/strong><\/p>\n The CNDC also found the fees abusive due to their excessive level (even where preferential agreements existed). For this, the CNDC compared SADAIC\u2019s 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.<\/p>\n Moreover, the CNDC compared SADAIC\u2019s fees with those charged by other intellectual property management entities operating in Argentina (such as ARGENTORES and AADI). Depending on hotel type, SADAIC\u2019s fees were 5 to 25 times higher.<\/p>\n The CNDC considered SADAIC\u2019s 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.<\/p>\n