No. 7 — February 23, 1996


Weekly Review

--- by Jon Choy

Tokyo's policy of honoring copyright protections for music recorded only since 1971 has led Washington to file a complaint with the World Trade Organization seeking to alter that policy. The Clinton administration alleges that Tokyo's failure to grant copyright protection to the recorded works produced from 1946 through 1970 by singers, musicians and recording companies violates the 1971 Berne Copyright Convention to which Japan has acceded. Although the Berne treaty has no enforcement mechanism, relevant sections of a 1995 auxiliary agreement to the 1993 Uruguay Round accord went into force January 1 and remedied that situation. The sections provide new international rules for intellectual property protections.

Washington lost little time in using the WTO dispute-settlement mechanism to address this long-standing disagreement with Tokyo. For their part Japanese officials believe that Tokyo's interpretations of the relevant Uruguay Round articles and the Berne convention legally are sound and are capable of prevailing in the WTO adjudication. These officials fear, however, that such a victory for Japan could have serious consequences for the effort by industrial countries to expand intellectual property rights globally. With the clock ticking on the WTO dispute-settlement process and a face-to-face meeting between President Clinton and Prime Minister Ryutaro Hashimoto rapidly approaching, Tokyo is feeling the pressure to resolve this issue once and for all.

U.S. Trade Representative Mickey Kantor announced February 9 that Washington had filed a formal WTO challenge to Tokyo's intellectual property protection policy on sound recordings. The complaint alleges that the limited coverage costs American singers, musicians and recording companies as much as $500 million annually in royalties and licensing fees. Western music from the 1950s through the 1970s is highly popular in Japan but not covered by Japanese copyright law, Mr. Kantor pointed out. Tokyo allows domestic firms to create collections of such unprotected works and does not require them to pay royalties or licensing fees to the artists or recording firms. Such back-catalog collections are popular in Japan not only because of their content and quality but also because of their lower price. Tokyo does give 50 years of protection to lyricists and composers but not to singers, musicians and recording companies — so-called neighboring rights. According to Japanese music industry spokespersons, copyright fees to lyricists and composers might equal about 6 percent of a compact disc's retail price, while neighboring rights could amount to 8 percent to 30 percent, depending on the recording's popularity. By saving that 8 to 30 percent and avoiding major retail distribution channels, CDs of unprotected back-catalog works can cost as little as ¥980 ($9.80 at ¥100=$1.00) compared with ¥2,000 to ¥3,000 ($20 to $30) for an authorized original recording sold in stores. The amount of lost royalties and licensing fees becomes clear if Japanese media reports about one small, independent music company's sales are typical of the industry. One street vendor selling unauthorized back-catalog CDs near Tokyo station claimed a daily volume of ¥150,000 ($1,500) and as much as ¥1 million ($10,000) in one day at other locations. Nevertheless, it is not clear how Mr. Kantor arrived at his $500 million figure for lost American revenues.

The United States bases its WTO complaint on a provision of the Trade-Related Aspects of Intellectual Property agreement that was made part of the Uruguay Round umbrella accord and that came into effect January 1. TRIPs Article 14:5, according to the U.S. view, requires WTO members to protect sound recordings for 50 years prior to the implementation of the agreement — in other words, from January 1, 1946 onward. Echoing this logic, the European Commission announced February 9 that it, too, formally asked Tokyo to amend its copyright protection to extend neighboring rights for sound recordings back to 1946. European artists reflect their U.S. counterparts' concern about royalties since the work of many popular European groups, such as the Beatles and the Rolling Stones, are mainly unprotected in Japan. If Tokyo is not forthcoming with a solution, the EU has made it clear that it either will file a separate complaint with the WTO or join with the United States in its WTO case against Japan.

Tokyo has countered that TRIPs Article 70:2, which directs governments to fulfill the obligations listed in Article 18 of the Berne Copyright Convention, also gives governments some discretion in the degree of retroactive protection they can grant under the Berne convention. Japanese officials also claim that they presented their policy to American and European counterparts during the long TRIPs negotiation process and received no negative feedback. To comply with its TRIPs obligations Tokyo drafted legislation extending neighboring rights protections to sound recordings made since 1971 rather than the 1978 date set in Japan's 1971 Copyright Law. This would bring Japanese protection of foreign sound recordings up to the same level as that granted domestic recordings. Implicit in the Japanese argument was that the government should not be forced to grant a greater degree of protection to foreign recordings than it grants to domestic ones. According to Japanese officials, the draft legislation was presented to the World Intellectual Property Organization for comment last year and received no criticism.

WIPO officials have not yet verified or denied this assertion, although an initial search did not turn up any documentation to support Tokyo's version of events. WIPO also issued an opinion in 1995 that the discretion granted in Article 18 of the Berne convention — the heart of Tokyo's position — was meant to apply only to transitional measures of up to two years, not as a permanent position. "Article 18 of the Convention contains minimum obligations in respect of which no reservation may be made," the opinion asserted. Moreover, the WIPO opinion added that a country acceding to the convention "is not allowed to refuse protection to a work the country of origin of which is a country party to the Convention merely because it does not restore protection to domestic-origin works." In other words, from WIPO's view, Tokyo's decision not to protect domestic recordings made before 1971 is irrelevant to the Berne convention obligation to grant 50 years of protection to foreign-copyrighted works. The WIPO opinion also asserted that Article 18 requires signatories to restore copyright protection to a work if that protection has not expired in the country of origin as long as that country also adheres to the convention. It is not clear how Japanese officials would rebut this WIPO opinion, which seems to undercut all the foundations of their position.

Legal wrestling aside, some Japanese policymakers are concerned that Tokyo's defense of limiting copyright protection for sound recordings to a level well below that of its advanced, industrialized peers puts Japan in a bad position vis-a-vis the global debate over intellectual property rights rules. If Japan does not alter its position and the WTO rules on this issue in its favor, Japan will appear to the international community to be defending weak IP protection. Such a perception may hurt not only Japanese artists but Japanese high technology firms, which benefit from strong IP protection, as well. As such, Tokyo may be undercutting its own efforts to encourage developing countries to implement strong intellectual property laws.

There is almost universal support for amending the Copyright Law among Japan's major music companies. These firms long have paid licensing fees and royalties, even on pre-1971 foreign recordings, as the price of having access to the past, present and future work of foreign artists. The small Japanese companies that compile back-catalog CDs and the small vendors that sell them would be hurt most by any reform of copyright laws. Tokyo officials, who have denied that they are drawing up any such copyright revisions, say only that they are studying the issue and developing a consensus.

Tokyo has 30 days to respond to Washington's request for WTO consultations. Those discussions could last 60 days. If no resolution is achieved by that time, the Clinton administration can ask for the formation of a dispute-settlement panel to hear its arguments.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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