Shinday Entertainment

1328th Commissioners' Meeting (2017)

Case:

Shinday Entertainment was complained for violating the Fair Trade Law by refusing to license a few Karaoke music agents

Keyword(s):

Karaoke music, exclusive licensing, discriminatory treatment

Reference:

Fair Trade Commission Decision of April 19, 2017 (the 1328th Commissioners' Meeting)

Industry:

Sound Recording and Music Publishing Activities (5920)

Relevant Law(s):

Articles 20(ii) of the Fair Trade Law

Summary:

1. When investigating another case, the FTC discovered that Shinday Audio-video Entertainment Co., Ltd. (hereinafter referred to as Shinday Entertainment) and other music labels and music copyright companies refused to license G Yuanbao Audio-Video Technology Inc. (hereinafter referred to as Yuanbao Inc.), other karaoke music agents, and computer karaoke machine businesses. Therefore, the FTC initiated an ex officio investigation.
2. Findings of the FTC after investigation:
   Shinday Entertainment was a Taiwanese music label. In recent years, the karaoke music rights, including the original sound tracks and videos, and non-original sound tracks and videos, of all new songs released were exclusively licensed to Yangsheng Multimedia Technology Co., Ltd. (hereinafter referred to as Yangsheng Multimedia). In addition, Shinday Entertainment also licensed musical works with expired exclusive licensing periods to Inyuan International Co., Ltd. and Zhenyang Audi-video Technology Co., Ltd. for them to produce and release karaoke products. Soon after Yuanbao Inc. was founded that in April, 2015, the company contacted Shinday Entertainment about acquiring licenses for Shinday Entertainment's songs to produce and release karaoke products. During the negotiation, Shinday Entertainment offered transaction terms similar to the ones stipulated in the karaoke product licensing contract signed with Yangsheng Multimedia. However, since Yuanbao Inc. was a new company with uncertain financial capacity, it is difficult to make sure whether a partnership could be established on a long-term basis. If the cooperation between Shinday Entertainment and Yuanbao Inc. can only lasted a few months and Shinday Entertainment had to terminate the long partnership with Yangsheng Multimedia, Shinday Entertainment thought it would be very unwise for in terms of business management. As a result, Shinday Entertainment requested Yuanbao Inc. to pay a NT$3 million guarantee in advance in order to get the licenses for its new songs. As long as Yuanbao Inc. could continue to make payments regularly for two years, the guarantee would be returned to Yuanbao Inc. Both sides negotiated for several months but could not reach any consensus on the amount of guarantee and the ways of making payments. Eventually, Shinday Entertainment signed a licensing contract with Yangsheng Multimedia on Oct. 15, 2015.
3. Grounds for non-disposition:
   A. Yangsheng Multimedia was one of the two largest karaoke music agents in the country. Its upstream trading partners included a number of major international music labels and downstream trading partners included large KTVs, RTVs, karaoke establishments, night clubs and hotels. Over the years, the company had been licensed by Shinday Entertainment for the new songs used to produce and release karaoke products. Both sides had a long business relationship. On the contrary, Yuanbao Inc. never represented or released any karaoke products after it was founded in April 2015, and its downstream business channels and trading counterparts were unknown at all. From the standpoint of Shinday Entertainment, the credit risk in dealing with Yuanbao Inc. was way bigger than the risk it assumed while dealing with Yangsheng Multimedia. Compared to the total licensing fees of more than NT$10 million Yangsheng Multimedia paid when signing karaoke music licensing contracts with Shinday Entertainment on Mar. 4, 2014 and Oct. 15, 2015, the NT$3 million guarantee Shinday Entertainment requested Yuanbao Inc. to pay up front at the time of signing the contract in order to prevent serious damages in case Yuanbao Inc. became unable to fulfill the contract and make payments continuously was merely 20.27% and 17.56% of the licensing fees Yangsheng Multimedia put out in advance. In addition, when Shinday Entertainment and Yangsheng Multimedia signed the karaoke music licensing contract on Oct. 15, both sides also signed a supplementary agreement in which it was stipulated Yangsheng Multimedia had the exclusive right to re-license the old songs of Shinday Entertainment, and at the same time Yangsheng Multimedia paid up front a licensing fees of NT$1.5 million which would be deducted from the licensing fees to be collected by Shinday Entertainment during the period of representation. In other words, the practice of Shinday Entertainment mentioned earlier was not inconsistent with common business transaction practices. The request for Yuanbao Inc to pay NT$3 million in advance in order to sign an exclusive licensing contract for acquiring its new songs to produce karaoke products was simply the justifiable result of Shinday Entertainment's credit risk consideration.
   B. As for the licenses for songs with expired exclusive licensing periods, Shinday Entertainment and Yuanbao Inc. only discussed about using the number of MIDI sets sold to calculate the licensing fees for such songs and no conclusion was reached about the actual amount of licensing fees. Later, both sides could not reach any consensus on the amount of the guarantee. Even though Shinday Entertainment did inquire Yuanbao Inc. about its interest in signing a contract, the latter never gave a clear response on the inquiry. Naturally, it was impossible that Yuanbao Inc. would make any further negotiation about song licensings. Moreover, as Shinday Entertainment did exclusively license 82 songs with expired exclusive licensing periods for Inyuan International Co., Ltd. to produce karaoke products, it was difficult to conclude that Shinday Entertainment refused to license to Yuanbao Inc. songs with expired exclusive licensing periods with the purpose of restricting market competition.
   C. With the above evidences, the FTC found it difficult to conclude Shinday Entertainment had violated Subparagraph 2 of Article 20 of the Fair Trade Law when it did not license Yuanbao to use its songs for the purpose of producing and releasing karaoke products.