Radio industry welcomes decision by High Court to uphold cap on royalties

18 April 2012

Commercial broadcasters all around Australia breathed a collective sigh of relief last month when the High Court handed the industry a crucial victory. Since early 2011, a fierce battle has been waged over the constitutional validity of capping licence fees for the radio broadcast of sound recordings.

On one side was Phonographic Performance Company of Australia Limited (PPCA) which collects licence fees on behalf of the owners of sound recordings. PPCA has long argued that the current cap on licence fees is unconstitutional. On the other side, defending the status quo of capping licence fees, was Commercial Radio Australia and the ABC.

On 28 March 2012, the High Court determined the current cap on broadcasters’ licence fees for sound recordings was indeed constitutional, thereby ending months of contentious courtroom drama and providing welcome certainty for broadcasters.

Economic necessity of the compulsory licence fee

In the ordinary course, to avoid a daily slew of copyright infringement claims, a radio broadcaster would need to obtain the consent (which would likely attract a fee) of the copyright owner of each sound recording that it wishes to broadcast. Given the extensive and evolving playlists of a commercial radio station, this is impractical and uneconomic for a station.

So, as a ‘quid prop quo’ for Australian content quotas imposed on commercial radio stations (ranging from 5-25% of total musical content), the compulsory licence fee system was introduced to the Copyright Act in 1969. Rather than obtain the consent of each copyright owner and pay a royalty or licence fee for each individual broadcast of a sound recording, a radio broadcaster pays a blanket licence fee to the PPCA.

The amount of the licence fee is determined by the Copyright Tribunal, but capped at an amount not exceeding:

  • for commercial broadcasters, 1% of the broadcaster’s gross earnings (known as the “1% cap”); and
  • for ABC Radio, the amount that is 0.5% multiplied by the number of people estimated to comprise the population of Australia.

PPCA’s constitutional challenge to the 1% cap

Since its introduction, the compulsory licence fee has been heavily contested but has prevailed, despite various Australian government reviews recommending it be removed. (It was widely anticipated that it would be removed as part of the Digital Agenda Amendments to the Copyright Act in 2006).

The PPCA has long-argued the 1% cap was unconstitutional and in February 2011 it commenced proceedings in the High Court against the Commonwealth, Commercial Radio Australia and the ABC, claiming: :

  1. pre-1969 sound recordings in respect of which the 1% cap was applied were in fact broadcast before the introduction of the compulsory licence fee and cap arrangements;
  2. at the time of the broadcasts, copyright in the sound recordings was governed by the Copyright Act 1911 (Imp), which provided no equivalent compulsory licensing scheme or royalty caps on licence fees;
  3. copyright in the sound recordings was a property right that subsisted under the 1911 Act; and
  4. the imposition of the compulsory licensing scheme and cap on licence fees under the Copyright Act amounted to an acquisition of property rights on unjust terms contrary to section 51(xxxi) of the Constitution (which requires that laws made for the acquisition of property must be on just terms), because the fixed cap on compulsory licence fees did not constitute equitable remuneration.

The Defendants argued that the 1% cap is constitutional. They argued that, even if there was an acquisition of property, (which the Defendants did not believe there was given that there was no broadcast right under the 1911 Act), it was consistent with the exercise of powers granted by s 51(xxxi) of the Constitution.

The decision: A victory for broadcasters

In its decision, the High Court acknowledged that the rights in the sound recordings constituted property for the purposes of section 51(xxxi) of the Constitution.

However, in construing the Copyright Act as a whole, the Court determined that the source of the rights that subsisted in the sound recordings was not the 1911 Act, but the Copyright Act. This is because the Copyright Act did not modify old rights that continued under the 1911 Act, rather, it terminated copyright subsisting in Australia under the 1911 Act, so that copyright subsisted only under the Copyright Act.

Accordingly, the validity of the compulsory licence scheme and the cap on royalties payable to PPCA’s members as a copyright holders of sound recordings, was upheld.

For many years, Corrs has argued on behalf of Commercial Radio Australia and radio clients that the 1% cap was constitutional. The decision by the High Court is a victory for the commercial radio industry, providing welcome certainty for broadcasters.

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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Philip Catania

Partner. Melbourne
+61 3 9672 3333