A battle without winners, as Spain examines early results of its "Google Tax"

From Míchel Olmedo Cuevas and José Luis Caballero (both of ECIJA) comes the following guest post, on a subject that Míchel has already written about (see "Copyright in Spain: a month without Google News", here, "Exodus 2.0: pirate sites and the seven seas", here, and the finally "Spain: Did the “Google Tax” really change the market?" on the IPKat here) -- royalty rates paid in Spain by news aggregators for indexing news published in Spanish newspapers:

Spain: A battle without winners

Aside from being chosen as a location for filming part of the 5th season of the HBO series “Game of Thrones”, Spain has also hit the headlines because of other IP-related issues, like the recent modification of its Spanish Intellectual Property Act (an analysis of its implications can be found here), that includes the approval of royalty charge, to be paid by news aggregators indexing news published by Spanish newspapers (comments on the implications of this measure can be found here and here), that caused Google to cease offering their news aggregation services in Spain.

Reactions to the so-called “Google Tax” (that has nothing to do with the British legislative project to tackle tax avoidance by multinational companies) have been mostly negative, with even editors for online Spanish newspapers siding with Google on the issue, stating that they wonder “how long it takes some traditional publishers — victims of their own initiative — to ask Google to reopen Google News”. The position held by the ones criticizing the reform is not baseless, considering the recent example of Germany, where all newspapers ended up asking Google to take them back into the system.

November 2014 (thousands)

In Spain, we have had to wait some time for AIMC (Asociación para la Investigación de Medios de Comunicación or Association for the Research of the Media) to release the data reports for the traffic fluctuations in the past three months, so we could observe what the real impact of the “Google Tax” has been in the online news sector.

March 2015 (thousands)

First, we must look at what the data was before and after the reform of the Intellectual Property Act came into force, on 1 January 2015, looking at the unique online visitors the top three Spanish online newspapers had on November 2014 and on March 2015.

Leaving aside the eruption of Twitter (that was not included on previous reports), there is an undeniable decrease in the number of visitors of up to a 12.4% in the worst case (the almost 360K visitors lost by sports newspaper As.com), meaning that there has been an impact on viewership of online newspapers, but not so big, especially when we take into consideration the growth curve of the penetration index for the last years.

Since 1999, there has not been a year with a growth level lower than +2.5%, remaining over the +3% from 2006 onwards, but suddenly, from April 2014 until today, there has been a clear deceleration in the growth rate, as it has only been able to jump +1,7%, way below the expectations of the market.

Notwithstanding this, the slowdown in growth has not affected dramatically the outcomes of the major Spanish media companies. As recently featured in the Spanish media, the PRISA Group, which includes newspapers such as Elpais and AS, made an overall profit of 8,68 million Euros in the first quarter of 2015, while it closed the previous year with a high consolidated loss. Additionally, Unidad Editorial Group (Elmundo, Marca) has reduced its losses to 2.5 million, whereas in the same quarter of 2014 they exceeded 20 million Euros.

Nevertheless, the previously mentioned improvement of the results is due to multiple elements and the revenues from digital media are only a small part of them, so a possible decrease would not have had a great significance on the overall picture yet. Actually, as data for number of subscriptions or revenue by advertising will not be shared by the owners of the newspapers until the summer, we can only speculate with the shortage of profits that this situation has caused, but it is undeniable that there has been a negative impact on the market, even though not as negative as in Germany. 

In this sense, we should take into account that revenues from online advertising are getting more relevance by the day, so any decrease in the number of visitors as well as subscriptions could have a negative effect in the future. Accordingly, this reduction of visitors will probably be significant for the coming media industry results.

As we await for CEDRO and the Ministry of Culture to determine the “fees” associated with this “tax” and the process collect to them, the first obvious consequence is that all visits that came from users who accessed the websites of Spanish newspapers after searching with Google News will not generate any payable sum, inasmuch as the Google News aggregation service has been replaced with a mere search engine, that does not fall within the services subject to the “Google Tax” regime. 

Reasonable royalty or bubbles through a straw?

Ignacio Marques of the excellent Class 46 (which I understand meets this week in Berlin) reports that the Court of Appeals in Madrid has explored the concept of a “reasonable royalty” and how it can be calculated. According to his note:

"The case involved two Spanish companies acting in the field of alcoholic beverages, more specifically in the trade of “cava” (sparkling wine, but not to be confused with champagne!). The respondent was found liable of infringement as it misused the claimant’s 3D marks over a certain shape of a bottle. The Court ruled that, failing the claimant of a licensing policy (in fact, it has proven it never granted a license), it was admissible to construe a “reasonable royalty rate” consisting in the sum of three different parameters:

a) an “entrance fee” (calculated by the Court in Euro.- 40.000, whilst the expertise brought by claimant appraised it in Euro.- 150.000). It is interesting to note that respondent (infringer) unsuccessfully alleged that these types of fees are applicable to franchise agreements, but not to trademark licenses.

b) an annual fixed fee (calculated in Euro.- 12.000), plus

c) a variable annual fee over sales. "

There are not many cases that deal with the assessment of reasonable royalties in trade mark cases. Very often the assessment itself is too costly an exercise to undertake in relation to the value of the return. Brand owners also tend to accept the injunction and move on or otherwise trade "damages" during settlement negotiations for more favourable co-existence arrangements. In some jurisdictions, there is also the option of an account of profits. Consequently, this Spanish case is welcomed.

Right: Light headed - assessing royalties or bubbles through a straw?

Turning to the three "different parameters" and conceding that I may lose something in translation, that this may be an interim decision and also that the different parameters could be specific to this industry (and hence not capable of general application), the "entrance fee" is more familiar to me as a "signature fee" which is often described as payment for the privilege of the licence (by more arrogant licensors) but is often motivated as a payment for the benefit of joining as a licensee (eg marketing support, licensee networks etc).

Fixed annual fees sound more like a guaranteed minimum royalty and in some countries, like South Africa, are likely to be a stumbling block for getting exchange control approval for the remission of royalties and may render the agreement enforceable (see note here). The annual fee could also be linked to minimum sales targets.

The variable annual fee over sales is likely to be similar to a typical royalty rate over sales or FOB purchases. Whilst the principle of this "parameter" is easy to understand there is often much debate and significant importance over how the "sales" element is calculated. For example, does it include promotional give-aways, is it net of taxes, how does it deal with intra licensee supply sales etc. The actual rate may also create something of difficulty especially in this instance where the case deals with a 3d shape mark which may have little empirical support from benchmarking forums. It is also not clear whether the rate is exclusive and non exclusive but perhaps that is for a later inquiry affecting the parties.

Spanish court explains calculations in adidas award

In what is apparently the first occasion on which a Spanish court has given an explanation of the basis for its calculations, the Madrid Provincial Court this September awarded €1,829,969 to adidas for infringement of its well-known ‘three-stripe’ trade mark by D Matteo Jin and three corporate defendants.

In its claim adidas sought recovery of (i) its expenses incurred in investigating the infringement; (ii) loss of profit (this being said to be the price that the infringers would have paid in order to obtain a licence) and (iii) damages for injury to the reputation of its mark as a result of the infringement. As to loss of profits, adidas's expert witness calculated the hypothetical royalty that the defendants would have had to pay to adidas based on

• a variable royalty (an average based on the total sales of infringing products) and
  
• a minimum guaranteed royalty (to be paid regardless of the total sales of infringing products).
  

The court accepted adidas’s argument that a minimum guaranteed royalty should be granted to the trademark holder regardless of the total sales of infringing goods. Considering the factors identified by the expert witness to calculate the minimum guaranteed royalty were reasonable and technically well-founded, the court granted an annual minimum guaranteed royalty of €855,568 (ie, €1,711,136 for two years of infringement), though the issue of the variable royalty was not dealt with since the amount of sales by the defendants was unknown.

The court added that this compensation was separate, cumulative and compatible with other types of compensation set forth by the law. On this basis, with regard to the damage to the reputation of the mark a further sum of €112,398 was awarded.

Source: Leticia Lloret, Grau & Angulo, Madrid, writing for the World Trademark Review.

Trade mark auction resolves judicial dispute

Writing on the Class 46 European trade mark weblog, Ignacio Marqués describes a recent Spanish trade mark auction that was conducted by a court as a means of resolving a lengthy dispute between two joint owners of a trade mark that was a key asset of a jointly owned business. The mark, represented here, which is well known in Spain for dried fruits, fetched 7.12 million euro following bidding between the two brothers who owned the business. You can read about this auction here.

Film finance: four case studies from Spain

Variety has published an article by Emiliano de Pablos, "Spanish film finance case studies: funding changes impact diverse projects", which briefly highlights the funding bases of the following projects:

* Stephen Soderburgh's two-film "Che Guevara" biopic;
* "Asterix at the Olympic Games", from Ciudad de los Rebates;
* Mediapro's "Suso's Tower";
* Lisandro Alonso's "Liverpool".

The article makes some mention of exploitation rights, together with some of the sums involved.