This guest analysis comes from the Reed Smith Entertainment and Media Industry Group.

“Given all the fuss about Brexit, there is a risk that the implementation by the European Commission of its ‘Digital Single Market’ (DSM) strategy may start to fly below our collective radar. Meantime, the Commission continues to press ahead in delivering concrete proposals.

The latest – and arguably most significant yet – proposal seeks to reform the European copyright landscape through a new Copyright Directive, which was formally announced on 14th September 2016.

This is separate from the Commission’s earlier proposal to introduce a Regulation on the cross-border portability of online content services. If accepted in its current form, the proposed Directive would represent one of the most radical changes to copyright law in recent times.

The proposal follows several public consultations regarding, amongst other things, online intermediaries and the role of publishers in the copyright value chain. Not for the first time, the suspense of the proposals was lessened, somewhat, by a leaked draft of the Proposal that appeared online a few weeks earlier.

Some quarters of the music industry have expressed delight at the Commission’s proposals, whilst others have been far less appreciative. Set out below is an explanation of the key proposals concerning music.

The “value gap” – Article 13

What is it? Article 13 of the proposal seeks to address what the industry has termed the ‘value gap’ between the amount of copyright content made available by online service providers (or, to put it less mildly, the industry’s favourite villain, YouTube) and the royalties paid to rights holders.

Under the proposal, platforms that store and provide access to large amounts of works uploaded by users will be required to agree licensing deals with rights holders or implement “effective content recognition technologies” (i.e. content filters) to prevent the availability of those works.

For rights holders who feel they are not receiving fair remuneration for their work, this could be seen to be a positive development.

What about the hosting exemption? One of the questions that inevitably arises is how Article 13 aligns with the hosting liability exemption for intermediaries enshrined by earlier European laws, which enable platforms to host content uploaded by users.

There is an obvious necessity for such an exemption, which the ‘value gap’ argument often fails to recognise. Recital 38 of the Commission’s new proposal seeks to address this by stating that the requirement to take a licence or implement filters remains subject to the hosting exemption.

More troubling, though, is the Commission’s suggestion that platforms will be judged by whether they play an “active role, including by optimising the presentation of the uploaded works…”. Platforms like YouTube are attractive to creators because of the manner in which they are designed and make works available.

The institutional ‘value gap’ argument conveniently ignores that user-upload platforms have generated huge new value for unsigned and independent creators by affording them tools to reach a worldwide audience.

A new obligation to monitor? There is also a suggestion that the proposal imposes on platforms a duty to monitor content uploaded by users. To date, internet service providers do not have a general duty to monitor content on their services under existing laws.

However, the reforms might force them to acquire expensive filtering technology, raising the spectre of increased barriers to entry for new providers.

It seems that European countries will be left with the unenviable task of reconciling the old and new laws when deciding how to implement the Commission’s proposals. In particular, they will need to decide how to “adjust the obligation [to monitor] in circumstances where the resulting administrative burden would be disproportionate to the revenues generated by the exploitation of the work”.

“Fair remuneration” – Articles 14 and 15

What is it? Article 14 seeks to ensure that rights holders receive regular and detailed information about how their works are being exploited. The need for greater reporting transparency has long been acknowledged within creative industries by all sides. It remains to be seen, though, how “regularly” such information will have to be provided if this concept is implemented into national law.

Producers and distributors may also be concerned by Article 15 of the proposal. It provides that, notwithstanding any agreed licence arrangements, rightsholders will be entitled to additional remuneration from a licensee if the royalty agreed was “disproportionately low compared to the subsequent revenues and benefits derived from the exploitation of the works or performances”.

While this is unheard of in some member states, such a right has existed in Germany for about a decade already and has led to significant litigation over the level of appropriate remuneration in difference licensing scenarios.

Commercially, there is arguably an inherent absurdity to the idea that any reward deriving from the risk and venture undertaken by a purchaser or distributor could be retrospectively limited by a legal requirement to rebalance the interests of creator and commissioner.

What does it mean? Article 15 threatens to undermine fundamental principles of contractual certainty and make future business planning even more difficult. Indeed, it may create significant uncertainty for online services, agency businesses, rights distribution companies, event operators and rights holders alike.

Worse, the recitals to the Proposal suggest there may be significant scope for interpretation by European countries, not least in relation to how such a claim would be heard.

Other developments

Cross-border access to ancillary digital broadcasting services. On the same day as the proposal was published, the Commission published a separate proposed Regulation to facilitate cross-border access to digital broadcasting services.

What happens next (and Brexit)?

It has been suggested that, not for the first time, the Commission has tried so hard to please everybody with the proposal that it has inevitably ended up displeasing many stakeholders. There is always a delicate balance to be struck in copyright reform and, notwithstanding some of the issues highlighted above, it is too early to conclude whether this proposal will be a success.

The proposal must now go through the European legislative process before it is adopted. The Commission has submitted the proposal to the Council of the EU and the European Parliament for review and each Member State will undertake its own review and comment. If approved, each Member State must implement the proposal within the specified timeframe (the proposed timeframe is 12 months from the directive coming into force).

No commentary on EU legislation would be complete these days without considering the “B” word: Brexit. We do not yet know whether the UK will have formally exited the EU by time the proposal comes into force.

Either way, we should continue to assume that the UK will wish for its copyright regime to be consistent with the EU position and, as such, the proposal needs to be taken seriously.

If passed through into law without significant amendment, the proposed changes to copyright law have the potential to significantly impact the business of many companies in the creative industries, whether or not they do business in the EU.

There will be opportunities for stakeholders to have their opinions heard and we encourage all businesses on every side of the fence to join the debate.”

Reed Smith Entertainment and Media Industry Group

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