Korea Music Copyright Association (Attorney Yu Won-won, Counsel for defendant-appellant)

KS Telecom Co., Ltd. (Law Firm Sejong, Attorneys Han Man-man et al., Counsel for the plaintiff-appellant)

November 3, 2010

1. The defendant shall pay to the plaintiff 57,032,50 won with 6% interest per annum from May 25, 2010 to February 18, 201, and 20% interest per annum from the next day to the day of full payment.

2. The plaintiff's remaining claims are dismissed.

3. 1/10 of the costs of lawsuit shall be borne by the Plaintiff, and the remainder by the Defendant, respectively.

4. Paragraph 1 can be provisionally executed.

The defendant shall pay to the plaintiff 574,623,00 won with interest of 20% per annum from the day following the day of service of a copy of the complaint of this case to the day of complete payment.

1. Basic facts

The following facts are not disputed between the parties, or they can be acknowledged in full view of the purport of the whole pleadings in each entry of Gap evidence 1 through Gap evidence 12, Eul evidence 1 through Eul evidence 20, and there is no other counter-proof.

A. Status of the parties

The Plaintiff is an incorporated association licensed for copyright trust management business by the Minister of Culture, Sports and Tourism pursuant to Article 105(1) of the Copyright Act, and the Defendant is a company established for information and communications business

(b) the implementation of monetary connectivity services;

Around March 2002, the Defendant initially developed and commercialized the call connection music service, and the call connection music service refers to the service that the caller calls to the caller, if the caller calls the phone, then asks the caller selected by the said policyholder during the waiting time until the call is received (hereinafter “instant service”).

C. The subscriber’s method of using the instant service

When the Defendant’s mobile phone subscriber has subscribed to the instant service, the call connections unrelated to the copyright, such as a classical music, are transmitted, and thereafter the subscriber may select the sound sources that he wants through the Internet, automatic response system (ARS), radio applied protocol (WAP), etc. At the same time, the subscriber shall pay the Defendant the additional service fee of KRW 900 per month, and the Defendant shall pay the information service fee of KRW 700 through KRW 1,400, if the policyholder wants to do so, again pay the Defendant the information service fee of KRW 700.

(d) Provisions on the collection of royalties for copyright;

Article 105(5) of the Copyright Act was enacted on February 23, 198 pursuant to Article 105(5). From June 1, 2002 to October 13, 2009, the provisions related to this case, which were amended eight times as follows, are as follows. The main contents related to this case are as follows, and the provisions that were amended on October 13, 2009 (the main contents related to this case are the same until now since the amendment was made on February 28, 2008; hereinafter referred to as the “instant provisions”). Meanwhile, the musical management ratio under Article 25 of the instant provisions is 95%.

(1) On June 1, 2006, the date of the amendment of the table of musical works included in the main sentence: (i) The total amount of sales of musical works, including telephone calls, and other music-based music services, on or before February 28, 2008 x (referring to the total amount of sales of music works, including telephone calls, general telephone calls, etc.) x (referring to the rate of sales of music works, including mobile phones) x (referring to the rate of sales of music works, which is changed under Articles 24 and 25) x (referring to the following rates of sales of music works, including mobile phones) x (referring to the rate of sales of music works, including mobile phones, general telephone calls, etc. x (referring to the rate of sales of mobile phones) x (referring to the rate of sales of music works, including mobile phones) x (1) x 9 percent of the total amount of sales of music works, generated by the user in consultation with the Plaintiff on October 24, 2007 x (2) x 9%).

E. The parties to the instant service

1) The Content Service Providers ("CP") shall edit and process sound sources so as to be suitable for transmitting sound sources through the instant service, and provide them to the Defendant, and the sound sources offered as above are reproduced and stored in the Defendant’s server (CRBIP).

2) Contracts entered into between the Plaintiff and the CP for the use of sound sources for telephone connection sound services. The CP granted the Plaintiff the right to use the copyrighted work managed by the Plaintiff, so that the Defendant may use sound sources for telephone connection.

3) By December 2008, the Plaintiff calculated the royalty for the use of copyrighted works under each of the above contracts based on the sales amount under the Copyright Fee Collection Regulations, which was enforced at the time, and the sales amount included only information usage fee, and did not include additional service usage fee. The Defendant paid to the CP for the use of copyrighted works managed by the Plaintiff, and the CP paid it to the Plaintiff.

4) At the time of the subscriber’s selection of music sources, the information fee that the subscriber paid once was settled and distributed to the Plaintiff at the rate of 9%, 4.5% to the performer, 25.5% to the phonogram producer (total of 39% to the copyright holder and neighboring rights holder), 17.5% to the CP, and 10% to the ASP, and the additional service fee that each month is paid to the Defendant without such distribution.

F. Details of the instant dispute

1) On July 16, 2008, the Plaintiff issued a warning to the effect that the Defendant’s use of the sound source managed by the Plaintiff constitutes copyright infringement without allocating the additional service fee to the Defendant. On September 4, 2008, the Plaintiff notified the CP that the contract for the use of the copyrighted work is terminated on December 31, 2008, and on October 15, 2008, the contract for the use of copyrighted work was notified to the Defendant that it would be expected to commence legal measures without paying the reasonable copyright fee to the Defendant for the additional services. Thereafter, on December 24, 2008, the Plaintiff filed an application for mediation with the Copyright Dispute Mediation Committee against the Defendant for mediation.

2) Around April 2009, Loen Entertainment Co., Ltd., the Plaintiff, the Defendant, and the Defendant’s CP, agreed to make a contract for the use of copyrighted works managed by the Plaintiff in the following manner, and withdrawn the above application for mediation. In other words, from January 2009, the fee shall be paid in accordance with the method of calculating the copyright fee under Article 25 of the instant provision, and the above contract for use shall be concluded between the Plaintiff and the Defendant, and the Defendant may re-assign the Plaintiff’s management work to the operator of radio music service, the CP, etc. contracted with the Defendant, and the Defendant agreed to make a decision through the court’s decision on whether the additional service fee is included in the scope of sales amount under Article 25 of the instant provision.

3) On the other hand, around November 2009, the Plaintiff requested authoritative interpretation as to whether the sales amount under Article 25 of the instant provision includes additional service charges, and the Minister of Culture, Sports and Tourism responded to the purport that it is reasonable for a mobile carrier to view all revenues generated when the mobile carrier provides a telephone communications service as falling under the sales amount regardless of its classification.

G. Defendant’s additional service charges

The Defendant’s extra service charges of KRW 6,515,00,000 are paid by the participants of the instant service between March 2009.

2. The assertion and judgment

A. The parties' assertion

1) The plaintiff's assertion

Article 23(1) non-2 of the instant provision defines the amount of sales (hereinafter “the instant sales definition”). This also applies to Article 25 as well as Article 25. Since the said sales amount refers to all the money that the Defendant received from the policyholder for the use of the Plaintiff’s copyrighted work, not only the information usage fee that the Plaintiff paid once, but also the additional service usage fee that the Plaintiff pays shall be included in the scope of the said sales amount. However, as in the previous case, the Defendant only pays to the Plaintiff a settlement amount according to the distribution ratio (9%) only for the information usage fee (9%). Accordingly, as part of the Plaintiff, the Defendant is obligated to pay the Plaintiff the additional service usage fee of KRW 6,515,00,000 (=6,623,000) calculated pursuant to Article 25 of the instant provision (i.e., the additional service usage fee of KRW 6,515,00,000) and damages for delay.

2) The defendant's assertion

A) The sales amount under Article 25 of the instant provision refers only to the revenue from the use of the copyrighted work, and all the service charges received from the subscriber cannot be included in the sales amount. In light of the following circumstances, the information usage fee is the payment for the choice of individual copyrighted works protected by the subscriber through infrastructure and the CP platform. On the other hand, the additional service fee is the cost for the user’s use of the mobile communications network system, and is not related to the copyright managed by the Plaintiff, such as the use of individual sound costs, and thus, is not included in the said sales amount.

① A policyholder, regardless of whether an individual sound source is set or not, shall pay additional service charges only by purchasing additional services, and selecting individual sound source by a policyholder is only one method using additional services. As of July 9, 2010, approximately KRW 23% of the Defendant’s instant service subscribers are not using music subject to copyright protection of the Plaintiff.

② In order to provide the instant service, the Defendant separately installed a telephone call connecting sound transmission device at the existing exchange season, used human and physical facilities, such as maintenance, repair, and management thereof, and made continuous investment in the management and marketing of services, the establishment and management of sales networks to secure the attraction of value-added services, and the development of goods to increase new use. Additional service usage fees are payment for the aforementioned costs.

(3) The defendant's additional service fees are determined in consideration of direct investment expenses, indirect expenses, expected number of subscribers, anticipated revenues, etc. and authorized by the Minister of Information and Communication.

④ In order to use the instant service, the cost to be borne by the account holder is set at a higher price in light of the case where an individual entirely owns a sound source, etc. This is intended to fully distribute the cost to the service-related parties on the premise that the information usage fee is the price for transmission of copyrighted works.

⑤ The instant collection provision requires that the sales amount accrue from the pertinent service, so the sales amount should accrue through the relevant website, but the value-added service fee is not generated through the relevant website.

B) In other countries, there is a monthly fixed amount received by mobile carriers independently without distributing to content-related persons, and the fee for content is separately collected and distributed among content-related persons, including copyright holders. Meanwhile, there are copyright holders, music record producers, performers, and CPs. On the other hand, when the right holder related to the use of a single music source distributes additional service fees to those persons, the Defendant should make it difficult for them to maintain the instant service and ultimately raise additional service fees.

B. Determination

1) The key issue of the instant case is whether not only information usage charges but also additional service usage charges are included in the sales amount under Article 25 of the instant provision.

2) The definition of sales related to the instant service under the Copyright Fee Collection Clause

Before July 14, 2006, prior to the amendment, the sales amount was stipulated as “total amount collected on a monthly basis from among the music information fees claimed by the information user every month by the mobile communications company,” but the amendment changed the sales amount to mean “total amount of advertisements and other revenues related to the use of music”.

After February 28, 2008, Article 23(1)1-2 (Definition of this case’s Sales) of the amended Copyright Fee Collection Regulation (amended on February 28, 2008) provides that sales are “the sum of advertising and other revenues (excluding value-added tax) from the service site to the revenue, such as user fees, etc. (excluding value-added tax) incurred

Meanwhile, in full view of the purport of each statement in Eul 8 and 9 evidence, the Minister of Culture, Sports and Tourism, upon the amendment of the provision on collection of copyright usage fees, as to the plaintiff's amendment proposal on February 28, 2008, refers to the sum of the amount of "sales revenue" under Article 24 (Orders 4) of the revised proposal, "sales revenue" means the sum of the amount of advertising fees, etc. generated from the download service at the relevant site and other revenues: Provided, That advertisements and other revenues shall be calculated by reflecting the percentage of music service items occupied by the relevant site: Provided, That the sum of the amount of sales revenue and other revenues generated from the music service at the relevant site and other revenues generated from the music service at the relevant site shall be calculated by reflecting the ratio of the amount of sales revenue generated from the relevant site to the music service at the relevant site at the time of the amendment of the provision on collection of copyright usage fees, and the sum of revenue and other revenues generated from the relevant site at the relevant site at the time of the correction of the content of the advertisement and other contents.

In light of the developments leading up to the above amendment, the definition of the sales amount of this case also applies to the sales amount under Article 25 of the Regulation of this case.

3) Whether additional service charges are included in sales

In full view of the following circumstances, it is reasonable to view that the definition of the sales of this case includes the additional service fee paid to the defendant by the service holder of this case.

① Prior to the amendment on July 14, 2006, the provision on the collection of royalties for copyright prior to the amendment sets the definition of sales as “total amount collected each month from among the music information fees claimed to users of monthly information,” and only targets information usage fees. On the other hand, upon the amendment, the above provision changes into “income from music usage fees, etc.” and makes it relevant to the use of music included in the scope of sales. In light of the developments leading up to the amendment of the provision on the collection of royalties for copyright after the amendment and the language of the definition of sales of this case, the definition of sales of this case is interpreted as above.

② The reasons why the instant service subscribers subscribe to the service are most cases for the use of individual sound sources related to the copyright, etc. managed by the Plaintiff. However, in the event that information usage fees accrue to the Defendant, additional service usage charges may be inevitably incurred to the Defendant. In this respect, it is difficult to view the additional service usage fees as expenses unrelated to the copyright managed by the Plaintiff, and rather, it is reasonable to view that they are costs related to the

③ The definition of the sales amount of this case does not distinguish between the profits in relation to the use of musical works and the use of the profits in relation to the sales amount. The sales amount includes not only the profits generated in relation to the use of musical works, but also the profits that are not directly related to the use of musical works.

④ In light of the definition of sales in this case, it is desirable to determine all the information usage charges and additional service usage charges generated in the course of using the copyrighted work through the instant service as the basis for the calculation of the cost of using the copyrighted work, and to calculate the total usage fee of the copyrighted work in consideration of other factors.

⑤ Although additional service charges partly function as consideration for the user’s use of the mobile communications network system, there are many cases where it is objectively difficult to determine the scope of sales, which serves as the basis for calculating copyright usage fees, if the scope of sales revenue is the consideration for what is the basis for calculating copyright usage fees, and the benefits should be excluded depending on what is the purpose of use of such revenue. The Defendant also asserts that it is difficult to compute specific inputs and details of revenues for each individual project and service, as the relationship between the business the Defendant’s own business and the service are linked to the voice call service, and that it is possible to change the sales revenue that serves as the basis for calculating copyright usage fees by changing the cost structure for collecting additional service usage fees and information service fees

6. All of the additional service charges have been paid by the Defendant as profits, and the right holders related to the use of individual sound sources have been subject to the distribution of information usage charges. However, as long as the Plaintiff concluded a contract for the use of copyright with the Defendant, other than the Defendant, with the CP, etc. before January 2009, it was difficult for the Plaintiff to include the additional service usage charges in the scope of sales.

7) Although additional service charges partly function as consideration for the Plaintiff’s use of the mobile communications network system, as alleged by the Defendant, it is difficult to objectively distinguish the above function, and as long as the individual sound source managed by the Plaintiff is used by means of transmission, etc., it is difficult to view the additional service charges as unrelated to the copyright managed by the Plaintiff.

8. Where a supplementary service fee is not included in sales abroad, it cannot be applied as it is in this case, and the Defendant cannot be determined that the supplementary service fee is irrelevant to the instant service on the ground of obtaining authorization from the Minister of Information and Communication.

9) Even if part of the Defendant’s service subscribers did not use the Plaintiff’s music management, the method of calculating copyright royalties under Article 25 of the instant provision is an overall usage method, and considering the fact that the method of calculating copyright royalties under Article 25 of the instant provision is an overall usage method, it appears that the Defendant introduced the management ratio of musical works (the percentage of the Plaintiff’s copyrighted works among the total copyrighted works used by the Defendant). Accordingly, it is difficult to view the supplementary service royalty as excluded

4) Sub-committee

Therefore, the Defendant, as requested by the Plaintiff, is obligated to pay 57,000 won (i.e., additional service user fee of KRW 6,515,00,000 x 9% x 95% x 95%) calculated pursuant to Article 25 of the instant provision as the Defendant’s additional service user fee of KRW 6,515,00,000 until February 18, 2011, which is the date following the delivery date of the copy of the instant complaint, and to pay damages for delay at each rate of 20% per annum as stipulated in the Commercial Act from May 25, 2010 to February 18, 2011, which is deemed reasonable for the Defendant to dispute the existence or scope of the obligation to perform.

3. Conclusion

Therefore, the plaintiff's claim of this case is justified within the scope of the above recognition, and the remaining claim is dismissed as it is without merit. It is so decided as per Disposition.

Judges Park Jong-hee (Presiding Judge)