The proposed Universal-EMI merger could lead to another remix of antitrust and copyright law as regulators grapple with consolidation in the recorded-music business.

Notably, the proposed acquisition could affect digital sampling, the technique musicians use to digitally copy and remix sounds from existing albums into a new sound recording.

As described in a previous Antitrust Today post, the FTC and the European Commission are reviewing the proposed merger and the antitrust subcommittee of the U.S. Senate Judiciary Committee will hold a hearing on the controversial acquisition.  The idiosyncrasies of the music industry, however, as well as the challenge of defining the relevant market, make the analysis of the proposed merger’s likely effects on competition difficult. 

This analysis is complicated by the fact that current copyright law, at least under the Sixth Circuit’s reasoning in Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792 (6th Cir. 2005), eliminates certain defenses when a plaintiff claims the defendant’s digital sample infringed a copyright in the sound recording.  In support of this conclusion, the Sixth Circuit stated, “[t]he sound recording copyright holder cannot exact a license fee greater than what it would cost the person seeking the license to just duplicate the sample in the course of making the new recording.”  

A recent article by a Constantine Cannon attorney explores the antitrust overtones of the Sixth Circuit’s statement and examines how the proposed consolidation of record labels might affect the practice of digital sampling and the potential market of licensing sound recordings for sampling.

The European General Court in Luxembourg, the European Union’s second-highest court, has upheld a decision by the European Commission that MasterCard’s multilateral interchange fees on cross-border transactions unfairly restrict competition and harm retailers and consumers.

In MasterCard and Others v. Commission, the General Court ruled that MasterCard has violated EU competition laws with its interchange fees for processing payment transactions across borders, such as when a German resident uses a credit or debit card in Italy.

Under MasterCard’s multilateral interchange fee structure, for each purchase made, the cardholder’s issuing bank charges the merchant’s acquiring bank to process the transaction.  MasterCard sets the rates for these interchange fees, which are passed through by the acquirers to the merchants.  In December 2007, the European Commission decided that these fees “inflated the cost of card acceptance by retailers without leading to … objective efficiencies that could balance the negative effects on price competition between [MasterCard’s] member banks,” and left consumers paying higher retail prices.

Although the fees are set by MasterCard, the cardholders’ banks retain the profit.  The European Commission determined that this gives banks an incentive to offer cards with high interchange fees, which limits price competition among banks.

Six different banks, including HSBC and the Royal Bank of Scotland, joined MasterCard in the appeal of the 2007 decision.  MasterCard and the group of banks argued that because the interchange fees are necessary to operate the cashless payment system, any lowering of rates would cause consumers to pay more to make up the difference.

In the dismissal of the appeal, the General Court expressed skepticism of the financial institutions’ arguments.  The Court held that successful examples of lowering interchange fees do exist, and would not necessarily have a negative effect on consumers.

The Court’s decision could affect other credit and debit card payment networks, including Visa Europe, whose fee system is currently being investigated.  And its reach may have an effect on pending litigation against Visa, MasterCard and certain of their member banks in other countries, such as the In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation in the United States.