Collecting society PRS has welcomed a ruling by the UK Competition Appeal Tribunal rejecting a class action lawsuit filed by Blur drummer Dave Rowntree which claimed that the way the society distributes black box income constitutes unfair trading.
Judges concluded that the claims contained in Rowntree’s litigation were not eligible for so called ‘collective proceedings’ under UK competition law, while also granting PRS’s claim to strike out the legal action. They also suggested that this dispute would have been better pursued through PRS’s own internal systems and committees, rather than going directly to a court of law.
In a statement, PRS welcomes the tribunal’s “comprehensive decision to reject this claim”, adding “it has always been our position that these allegations were based on a fundamental misrepresentation of our policies and operations, which has been fully vindicated in this judgment”.
The legal action was initially instigated by the law firm Maitland Walker, which first contacted PRS about the dispute in February 2022. According to the tribunal’s judgement, it prepared the claim and secured litigation funding prior to the identification of Rowntree as a proposed class representative.
However, earlier this year, Rowntree told the court that he had appointed new lawyers to replace Maitland Walker, from the law firm Willkie Farr & Gallagher. This, said the tribunal judges in their judgement – in the typically understated language of the courts – “was unexpected in the circumstances”.
Rowntree explained during oral evidence that the change in lawyers was necessary after he “lost confidence” in Maitland Walker and was his “duty to the class” he was representing.
That ‘class’ that Rowntree sought to represent would include every songwriter member of PRS. He argued that those writer members would collectively benefit if the litigation forced PRS to change its distribution policies.
However, because the collecting society is a not-for-profit member owned organisation, concerns were expressed that the writers could also lose out even if they won, because damages and millions in legal fees would ultimately come out of PRS revenues, some of which would otherwise flow to writers.
A significant amount of time was spent during a court hearing on this case earlier this year scrutinising the terms of the ‘litigation funding agreement’ that Rowntree and his solicitors had put in place. Particular focus was placed on the fact that the agreement with third parties who would fund the upfront costs of the legal action had been negotiated – though not activated – before Rowntree got involved.
Additional scrutiny was applied to the litigation funding agreement itself, and in particular the 30% compound interest in favour of the litigation funders, described by the tribunal chair as “mind boggling”, and which would potentially results in tens of millions of pounds of any settlement going to the litigation funders, far beyond the actual costs of the action, which were estimated at £17 million.
Honing in on all those concerns, PRS’s statement continues, “the tribunal clearly identified that the class was effectively suing itself. It also noted that it was not clear how PRS would be able to pay any costs and damages other than by diverting royalties away from its members, including funds that would end up going to pay legal fees and the litigation funder”.
Black box income usually refers to money that flows through the music industry’s collecting societies where it’s not clear which specific member should be paid, either because it’s not known what specific piece of music a licensee has used, or because it’s not clear who owns the rights in that music.
Societies have distribution rules in place that sets out what happens to that money. A common system is that the society takes data associated with payments where works and rights owners were identified, and then applies that data to the black box – so if you got 5% of matched income, you get 5% of the black box.
PRS represents the rights in songs, and distributes money to the individual creators who wrote each song, and the music publishers that published them. Where data is available and everything is matched, money due to any one song will usually be split 50/50 between the writer and the publisher.
If there isn’t a publisher, 100% of the money would go to the writer. With some streaming and international income, a publisher might get its share directly from a streaming service or a foreign collecting society, meaning PRS only needs to pay the writer’s share.
Rowntree’s lawsuit basically claimed that, when it comes to black box income, the rules are set up in a way that unfairly benefits publishers to the detriment of writers. Because, for various reasons, songwriter income is more likely to end up in the black box, which means writers should get a bigger portion of it. But, under the current system, they do not.
The tribunal’s judgement summarises that claim as follows, “Complaint is made that for each royalty stream black box royalties are distributed to songwriters and publishers in the same proportions as matched royalties, but that this leads to unfairness”.
“The unfairness is said to arise”, it adds, “because the proportion of writer royalties which are black box is greater than the proportion of publisher royalties which are black box”.
The judges note in their judgement that PRS had not, as yet, disputed that – in at least some cases – black box income is “distributed pro rata between publishers and writers”, nor that members whose money ends up in the black box “are more likely to be songwriters than publishers”.
And the judges themselves say they accept that “it is arguable that the proportion of writers’ royalties that are black box is greater than the corresponding proportion for publishers”.
And also that “it is arguable that when black box royalties are distributed pro rata, writer members will receive a lesser sum than they would were they to be distributed in accordance with a formula reflecting the proportion of writers’ works which give rise to black box royalties”.
However, PRS raised various issues with Rowntree’s litigation, which was being pursued via a process known as ‘collective competition proceedings’, something introduced into UK law back in 2015 allowing class action litigation in relation to competition law and unfair trading claims.
Among other things, PRS said there were conflicts within the proposed class; that Rowntree’s team hadn’t proposed a sufficiently detailed alternative for the distribution of black box income; and that costs associated with the legal battle were disproportionate to any damages that would be due. Especially when members of the class could end up basically paying some of those legal costs and damages themselves.
Rowntree’s team pushed back on those claims by PRS, but ultimately the judges concluded that there were sufficient issues with the legal action to justify dismissing the case.
They also note in their judgement that there are systems within PRS that members, like Rowntree, could utilise in order to address grievances around things like distribution rules, without going the litigation route. And, they reckon, that is the approach that should probably have been initially taken in this dispute.
They explain that when the lawyers from Maitland Walker initially wrote to PRS about the planned legal action they stated that “we do not consider that any formal mediation or alternative dispute resolution is appropriate”. But that rush to litigation “was unfortunate and not in the interest of the class”.
The judges add, “it is in reasonable contemplation that there was scope for formulating alternative ways of distributing black box royalties which might benefit the class more than spending these eye-watering sums on lawyers and funders. If this claim were to have proceeded, we would have encouraged the parties to look at alternative ways of resolving this dispute”.
That last point is also referenced by PRS in its statement. It says that it welcomes the judges’ “specific reference to existing mechanisms to resolve any members’ concerns, including via the Members’ Council”. Whether the black box concerns will now be taken to that Members’ Council remains to be seen.
