Some immediate observations about the digital environment around us are its distinctive net-shaped nature and its ever-increasing potential in terms of efficiency. Both these features, albeit true, might lead to hasty statements concerning the effects of the digital world on legal regulations. The impact of the Internet is taken into consideration in almost every field of research and production, but a full analysis of its consequences is, in fact, hardly ever provided.
This article aims to highlight how some recent technological advancement might suggest changes in the legal framework of our society, thus binding the institutions to take such digital progress into account in order to develop adequate responses.
The field of analysis chosen is the current scenario of copyright legal protection in Europe. In accordance with the fundamental principles of territoriality and non-discrimination, European copyright regulation counts 28 different national frameworks. The EU has been showing the firm intent to harmonize the legal framework and reach a level playing field through a sectorial approach. The harmonizing attempt goes together with the modernization of copyright promoted by the 1994 TRIPS Agreements and 1996 WIPO Treaties.
The InfoSoc Directive 2011/29/EC has broadened the notion of communication to the public by embracing online exploitations, too. This has had massive consequences within the paradigm of copyright management. Generally speaking, copyright exploitation deals with the value of the created work, which sets itself onto the market. Hence, copyright as legal entitlement has acquired an ever more economic justification and relevance in terms of growth of both national and European GDPs. In this expanding scenario, technological progress has also enlarged the extent of copyright protection and its exploitation. Through the establishment of neighbouring rights, in fact, the copyright holders are no longer only the authors, but also the performers, producers and broadcasters.
The justification of such move is purely economic. Additionally, the number of users potentially willing to access the created content for either private or commercial, primary or secondary purposes has become almost infinite, thus leading to the notion of “mass users” (e.g. internet providers). In such situation, neither the copyright owners nor the users could possibly manage to carry out in first person all the operations involved with the exploitation of the copyrighted content. The right holders find extremely difficult to know who is interested in exploiting their works and how; whilst the exploiters have the arduous task to trace all the copyright owners and obtain the authorization for the desired use.
For this reason, this article focuses on the role played by collecting societies (hereinafter CS). Between copyright owners and copyright addressees, CSs interpose themselves for the purpose of running the information, administration and enforcement of the rights involved. Since the second half of the nineteenth century, these ad hoc entities have been platforms where the right owners’ needs can meet the users’ interests. Throughout the EU legal framework, CSs are deemed as natural market players and their establishment is taken as granted. In addition, the definitions provided are few and extremely broad.
The collective rights management (CRM) model has been evolving in numerous different national ways; nonetheless, common aspects can be detected. In every EU Member State there is at least one CS managing either specific rights (e.g. German GEMA and GVL, Slovakian SOZA) or all rights of only certain right holders (e.g. French SACEM, Italian SIAE, Belgian SABAM).
In most of the cases, CRM presents a voluntary basis. According to Art.11bis(2) and Art.13(1) of the Berne Convention, CRM can be introduced as mandatory model in national legislations as far as non-exclusive remuneration rights are concerned. At EU level, mandatory CRM is provided for cable retransmissions (Art.9 Satellite Directive) and possible for the right to equitable remuneration in rental and resale (Art.4 Rental Directive and Art.6(2) Resale Directive). Many countries, such as Germany, have relied very much on such provisions and have built up their national copyright systems based on extended mandatory CRM. In those countries, the axes between CSs and big copyright-based industries are particularly strong and limit the flexibility of copyright management regulations.
In order to have a closer look to the functioning of CSs, the record music sector will be taken as pilot model. Compared to other branches of the creative industry, it presents the unique feature of a strong demand of the whole global repertoire. Plus, the early consolidation of its operating bodies and practises has made it the most mature field of experimentation of copyright management systems. During the last two decades, the music sector has clearly experienced major changes in the communication, processing and distribution of content. The legislative response has not been consistent enough to avoid fragmentation and therefore the EU has recently gone beyond its standard issue-specific approach and adopted the Directive EU/26/2014, which will be implemented by April 10, 2016 in all Member States.
1. How do collecting societies work?
Copyright owners waive some of their rights to the respective CS through mandate agreements, which set the licensing and trading conditions under which the works will be exploited in a worldwide scale. The extent of such transfer must be limited to the rights and the time period being specifically mentioned in the agreement. High-profile case law (among which, the European Commission decision in Banghalter and Homem Christo v. SACEM, 2002) highlights in fact the unlawfulness of any transfer of all rights together or for an unlimited period of time. The only strict limitation to right owners is the prohibition of double membership, leading to the fact that the same rights on same territories cannot be waived to different CSs.
Since moral rights normally cannot be alienated, CSs mostly deal with the exploitation of economic rights. These can be exclusive or non-exclusive. Even though exclusivity has always been the milestone of intellectual property rights, exclusive rights have turned to be practically almost unenforceable in the mass digital environment. On the contrary, non-exclusive rights have found widespread application within national laws on fair remuneration and compensation.
Once the rights are transferred, the CS can act on the right owner´s behalf, accomplishing several tasks, which can be grouped into two areas of activity: the licensing of rights and the rights enforcement. Compared to direct legal relationship and negotiations between the parties at play, the collective dimension of this model of copyright management requires the additional step of distributing the collected rights revenue among the CS members and, in case, invest or use part of it to promote the cultural industry. The active participation by the members in these decisions as well as the external control over the adopted policies are the cornerstones of a lawful modus operandi by a CS; nonetheless, these aspects were not harmonized at EU level until the most recent Directive EU/26/2014 and national regulations have presented so far extremely problematic loopholes.
Both the abovementioned spheres of activity started being faced with the transnational nature of the digital environment. In particular, CSs issue standardized licenses that have domestic validity. Yet, the right owners stipulate mandates with CS which cover worldwide exploitation of the work. This is possible thanks to international reciprocal agreements between CSs. Through them, a CS can manage in its national territory the rights of foreign CSs´ repertoires. Every CS has therefore two repertoires: the one of its own members, which they manage worldwide, and the international ones of the represented members, administered only in national territory. As stressed by the ECJ in case Minister Public v Jean-Louis Tournier, 1989, the twofold scope of reciprocal representation contracts is to guarantee common conditions for use of protected music works in all MSs and to let CSs rely on sister CSs. Such international agreements undoubtedly facilitate the transnational functioning of the CRM model, but raise major legal issues.
Firstly, until now and with the sole exceptions of the Santiago and the IFPI Simulcasting Agreements, European CSs could provide multi-territorial licenses only for their own repertoire, but not for the one represented foreign ones. Secondly, the model seems to lead CSs towards a monopolistic position on the national territory in providing international repertoires. In other words, it causes an unjustified partitioning of the market, which is in strong opposition with the EU single market. The new Directive aims to solve both these problematic aspects by promoting the principles of transparency and good governance and by introducing a multi-territorial multi-repertoire licensing system for rights of music repertoires for online uses.
2. Pros and cons of collective rights management
In the interest of reaching a broader audience and higher legal protection, the right holders have been largely opting for CRM. For more than one century CSs have been operating as the only solution to the problem of unfeasible collection of authorizations and royalties in person. By means of it, they safeguard the protection of copyright owners, increase their bargaining power, ensure the availability of their works onto the market and, hence, might increment the profit gained from their exploitations. In addition, they strongly reduce the transaction costs of licensing and present a very inclusive connotation, as they cannot exclude members from other MSs nor refuse to license a user without legitimate reason.
The question arising at this stage of analysis is therefore which are the problems related to CRM. The main legal issues concerning CSs stem from their static economic position. The efficiency of CRM as a model finds in them a powerful market agent which may be the solution of a market failure. By acting as “one-stop-shops”, though, they tend to leave the parties involved with no other choice than to accept the conditions and costs of their licenses and policies. The regulation of CRM, although predominant as a model throughout the EU, has hardly ever been subject to structural changes and its functioning is jeopardizing the EU single market. The static nature of CSs finds its roots in standard model contracts which do not necessarily always meet the needs and preferences of the parties; fixed costs and distribution policies, whose fairness is faced with the problem of highly burdensome processes of use monitoring and data collection; and finally, the dominant position acquired and strong tendencies towards path dependence in the practices. Evidence of such effects can be found in the fierce opposition of some CSs against normative and institutional changes, especially about the increase of competition within their operating field. This scenario collides with the interconnectivity of the Internet, which, on the contrary, leads to information exchange and transparency, also in the monitoring of CS activities, and therefore to broader competition and alternatives.
3. Digital rights management: an alternative?
If not collective, the management of copyright can be individual, being based on the freedom of contracting of the parties at stake. Through individual rights management (IRM) practices, the right owner has full control on the price of his/her works and on the access to it by third parties. The feasibility of such model has been brought up by the digital technologies which have developed ways of managing the needs through measures of protection and access control, called technological protection measures (TPM). If the right owner wants to exploit the work online under specific conditions, he can administer it through TPMs, which monitor access and uses mainly of the copying process through ad hoc hardware or software devices.
The rights management model behind it has been named digital rights management (DRM) and is applicable by individuals as well as by CSs. The main -and still lively debated- advantages of it reside in the possibility of so-called “cherry picking”, generating diversification of the digital content and price discrimination through an incredibly large range of different TPMs.
DRM represents a highly suitable example for the point I am stressing. Which is that technological progress does not only highlight where the regulatory gaps are; it might fill them, suggesting new models, showing trends of interests, sometimes even replacing existing legal structures. DRM should be therefore hold as a response to an actual need, rather than an alternative model system.
Yet, the model is not self-sufficient, mainly due to its highly technical connotation, leading first of all to the impossibility of recognize whether the uses of the works are legitimate or not and secondly to some harsh restrictions on users rights.
The practice has seen only strong market players in the music sector detaining premium repertoires being willing to opt for individual management in the form of DRM.
A further observation to make is that the digital technologies have intensified the extent of the market failure in the promotion and diffusion of copyrighted content as “quasi-public” goods. In other words, the copyright management operated by CSs might be seen as a solution to the copyright “paradox” pointed out by Prof. Gervais between the structure of copyright and its purpose, in the sense that they provide a reconciling response to the conflicting interests at stake with an efficient organizational model, significantly reducing the role played by exclusive rights.
Yet, Internet is showing us the contrary: a dominant imposition of CS model in the music sector and a subsequent lack of competition in the market, which play the roles of real obstacles in the system, not allowing to reach the level of protection for the right owners and the one of access for the users which they both should be granted with.
For the purpose of understanding the future legislative developments, some points have to be clearly stated. The first one is that CSs have proved to be an effective response to the need of protection of right owners and of public access. Their role is essential to the creative industry markets and they hold a strong cultural and social role, being crucial crossroads between market agents. National and European institutions accept their dominant market position, while rejecting only the abuses of it.
Nonetheless, the CRM model has begun to show some weaknesses, raising concerns about its own self-sufficiency. The Lisbon EU Council wanted to achieve the most competitive and dynamic knowledge-based economy of the world by 2010; now the objective is the Digital Single Market, a smart, sustainable, inclusive growth by 2020. For this reason, the idea of using the digital environment to create not a substitute, but a complementary tool for the implied parties to match their legitimate claims brings to the second part of the answer: we still need CSs but we might need not only them.
Recalling the fact that right holders are free to waive only part of their rights to a CS in specific territories as well as to withdraw their rights and administer them individually, copyright protection can be diversified and managed in multiple ways. The EU goal of reaching a level playing field through the brand new mechanism of pan-European multi-repertoire licensing together with the implementation of good governance, higher transparency, flexibility about duration and scope of the mandates and the safeguard of the possibility for copyright owners to manage individually their rights seems to inspire an harmonized horizon of, on the one side, competition and, on the other, cultural diversity.
CRM arose as a respond to the difficulties of IRM to secure income to the authors and public interest in the access. Today the scenario has deeply changed and the evolution of CSs into “businesses of yes” -as Prof. Gervais named it- is very anachronistic. As far as they their compliance with competition rules is under control and abuses of dominant position are avoided, CSs represent the most efficient institutional response to the clash of interests on copyrighted works, but not without room for improvement. The effort should be towards the understanding of changes within the paradigm, keeping into account that music demand is a constantly significant presence in the creative industry. In order to avoid regulatory inefficiencies, which currently represent the only reason of economic loss, flexibility towards a self-sufficient new solution should be embraced, broadening the licensing offer and therefore the authorized access to works in the EU digital single market.
Remarkable inputs towards change are given by projects such as the Copyright Hub in the UK and the Cultural Commons Collecting Society (C3S) in Germany. Additionally, some CSs have started to adapt their operating schemes towards a more flexible structure, providing for instance dual licensing and allowing to the right owner to individually license and manage rights for non-commercial uses. Therefore it is not inconceivable that a new conception of CS might raise and find an institutional setting. Rediscovering their social and cultural role (other and more substantial than the limited amount of investments they go with for promotion of cultural funds), CSs should focus on the core of their management activities, that is granting the authors not only protection and representation, but also information, training and counselling on all copyright management models available. This would solve one of the current main inefficiencies, namely the lack of information notwithstanding the complexity of such management.
In other words, CSs should lean more towards the assistance of right owners in identifying risks, costs and suitability of the copyright management models available. This might be an effective, self-sufficient solution to the paradoxical aspects of copyright management, as argued by Prof. Hilty and Prof. Nerisson. In addition to that, the recent EU legislative action intervening in the copyright management for digital uses may be seen in light of a less sectorial approach. If in the future a pan-European copyright entitlement will be reached, CSs could still be the advocates of the essential bond of copyright to the parties involved within a facilitated transnational, digital system. Here again, a closer combination of CRM and IRM would be of great benefit in such a scenario.
By Giulia Priora
This article was originally published in the tenth issue of the magazine, which can be accessed here, for which the author was invited as a Guest author. At that time, she was pursuing a double degree in Italian and German Law, at University of Turin (Italy) and University of Münster (Germany), as well as a Research Assistant at the Institute for Information, Telecommunication and Media Law (ITM), University of Münster. We invited her to adapt and publish her article in our issue after presenting it at the Undergraduate Summer Conference - Voices of a New Generation, an event organized by the CEU Legal Department between August 27 and 28, 2015. We hope you have enjoyed the read!