Hargreaves Review of Intellectual Property

Written evidence submitted by the Motion Picture Association

The MPA welcomes the opportunity to make a submission to the BIS Select Committee inquiry into the Hargreaves Review of Intellectual Property and the Government’s response to that Review.

The recommendations that the Government is seeking to implement relating to the UK’s Intellectual Property (IP) regime have significant implications for the UK’s creative industries, economic growth and jobs. It is therefore important that they are given proper scrutiny by Parliamentarians to understand the potential implications for a vital part of the UK economy.

Introduction

By way of background, the Motion Picture Association is the international trade association that serves the interests of the six major international producers and distributors of films, home entertainment and television programmes (Paramount Pictures Corporation, Sony Pictures Entertainment Inc, Twentieth Century Fox Film Corporation, Universal City Studios LLC, Walt Disney Studios Motion Pictures and Warner Bros. Entertainment Inc.)

Our members are active across the European Union as well as in the US and globally – and they contribute towards the nearly two million jobs across the UK creative industries, which together account for 7% of GDP.

A 2010 Oxford Economics Report assessing the economic impact of the UK film industry identified inward investment amounting to £928.9 million in 2010 (an increase of 15% over 2009), much of this from major studios. Beyond its direct and indirect contributions to GDP, the film industry plays a key role in exporting British talent and crews worldwide and secures the country’s position as a global creative hub. This is in addition to generating remittances and taxes which accrue to the overall benefit of the UK economy.

IP - copyright in particular - is the foundation of our members’ businesses. It enables them to secure a return on their investment, to justify reinvesting profit in subsequent years and to continue a virtuous cycle of growth and reinvestment that has proved itself of substantial benefit to the public, the economy, the exchequer and the workforce for decades.

The Hargreaves Review and the Government Response

The UK has one of the strongest content sectors in the EU and we would urge the Government to ensure that any changes made to the current IP framework further enhance that position rather than place it in jeopardy. The MPA welcomes the Government’s acknowledgment that the IP framework is a vital part of the business environment. The endorsement the Report gives to the value of IP is greatly appreciated by operators that rely on the certainty of copyright to finance, produce and distribute audio-visual works such as films and TV shows.

We have emphasised from the outset that the manner of implementation of the recommendations will go a long way to determining the success of the measures.

Indeed, the MPA has long supported some of the recommendations which the Government intends to implement - such as exceptions for non-commercial research and library archiving - but there are a number of measures which could impact negatively on growth and investment in our sector and which would benefit from thorough scrutiny from the BIS Select Committee.

The film industry, like many other sectors, is being transformed by the widespread availability of digital technology and the internet and it makes sense, therefore, to review the framework within which our IP is both protected and exploited.

We feel that there are several proposals for change in the Hargreaves Report that , if implemented appropriately, represent a sensible modernisation of the current system:

■ Widening the exceptions for archiving and non-commercial research to film content – The MPA agrees that the preservation of a nation’s film heritage is vitally important and supports the extension of the archiving exception to film. For some time, the MPA has also supported a limited extension of the research and private study exception to further the public interest in promoting academic studies, and in particular film studies. We also support bilateral dialogue between producers and archives to facilitate film preservation and education.

■ IP enforcement – The MPA welcomes the fact that Hargreaves and the Government recognise the importance of IP enforcement. In that context, we note that successive Governments and, more recently, the courts have all considered the Digital Economy Act to be an appropriate and proportionate response to the problem of online copyright infringement - so we particularly welcome the Government’s commitment to implementing the DEA.

There are some measures proposed by Hargreaves that the MPA believes need very careful consideration before a decision is made to proceed:

■ The introduction of a Digital Copyright Exchange (DCE) – the MPA believes that as long as this is a purely voluntary initiative, grounded in commercial realities and limited to certain types of content then it could add value, although we have some concerns about certain details of this proposal which are outlined below.

The Hargreaves Report also includes a number of proposals which raise major concerns for our industry which we oppose in their current form:

■ The introduction of a private copy exception so as to allow for the format-shifting of digital content acquired in one format but which the consumer wishes to consume in another - Whilst there may be instances where the introduction of a ‘limited private copying exception’ makes sense, e.g. for personal music collections, introducing a private copy exception for film or TV content which goes beyond the current scope would bring little benefit to UK consumers and undermine innovation of existing and new business models. EU legal requirements relating to the protection of technological measures (such as copy protection on DVDs) and on-demand transactions must also be carefully considered and suggest far greater legal difficulty in effecting this change than the Hargreaves Report implied. Moreover, where copying is not licensed but does fall within the scope of the private copy exception, EU rules (which have been confirmed by recent Court of Justice jurisprudence) require that fair compensation be paid to rights holders. For all of these reasons, the MPA rejects the suggestion that a ‘format shifting exception’ should be legislated for and that it should apply to audio - visual works.

■ UK support for the creation of a new exception for ‘non consumptive use’ at EU level - The MPA also opposes very broad measures that could very likely have the unintended consequence of legitimising rogue websites, or at the very least offering them a new defence to allegations of infringement in cases where they are not directly selling access to the works in question.

Please find below a more detailed outline of our position in response to the Government’s thinking and the actions it plans to take in response to the Review.

Specific MPA response to the Government’s recommendations

Widening the exceptions for archiving and non-commercial research to film – The MPA supports both measures to help preserve the UK’s film heritage and encourage academic study, particularly film studies.

■ Both film-makers and the general public benefit from the important work undertaken by film archives. We support this initiative subject to certain conditions, feeling that in particular any new exception should be narrowly drawn and limited to copying for preservation.

■ The MPA also supports a limited extension of the research and private study exception to further the public interest in promoting academic studies, in particular film studies. Such an exception should apply only where no licensing systems are available. We are also open to continuing dialogue with film archives to facilitate such exceptions through agreements on issues such as print deposit.

The MPA welcomes the Government’s commitment to implementing effective IP enforcement

■ Content theft and infringement of our members’ IP is the single biggest barrier to effective competition and investment in our sector. An IPSOS survey for 2010 indicates an annual revenue loss for the UK film and TV industry of £533 million due to copyright theft, up from £459 million five years ago. The total loss to the film industry alone was £463 million in 2010.

■ The MPA believes that full implementation of the DEA in a cost-effective manner is a vital step in reducing piracy and key to building a thriving legal market online. The UK is a leader in this area and there are already a growing number of legal offerings online, such as iTunes, Lovefilm and Blinkbox.

■ At the same time, our members accept the need to help educate consumers and to continue to make content available through new and innovative legitimate platforms. These are important parts of the transition to a digital world and our members are participating in them enthusiastically.

■ The MPA is committed to working with the Government to deliver DEA implementation. We support speedy and effective implementation of the Initial Obligations stage and the exploration of other measures to tackle online infringement, taking on board in particular the recent High Court decision requiring BT to block access to the pirate website Newzbin2 (subject to a Court Order that is due to be made next month). Likewise, we support Government’s efforts to address other components of the DEA legislation including addressing the activities of rogue websites and reducing the potential for consumers to be led to illegal sources of content by search engines.

The Digital Copyright Exchange (DCE) – MPA supports a purely voluntary and evolutionary DCE recognising the differences across content sectors

■    The Government has stated that it plans to take forward the DCE recommendation by appointing someone to lead this work. The MPA believes that the person appointed needs to be someone that has the confidence of the content sector. The Government appears to recognise that the efforts to establish the DCE must be led by the private sector so that it can be tailored to commercial and operational realities, taking into account the varying natures of different copyright sectors as well as a number of important legal issues (including competition law) since, as the Government’s response clearly states: ‘Government is not best placed to do this’.

■ In the audio-visual sector, a common licensing platform faces specific challenges, the most important of which is that it could undermine existing licensing arrangements and it would reduce the volume of economic activity arising from copyright works, thus harming innovation and growth. The value of the film industry is entirely based on the reliable exploitability of copyright works. This is particularly the case today, as industry players in their different ways innovate commercially with new digital distribution systems. It is important to appreciate that licensing arrangements are working well in the audio-visual digital market, due to the centralised and transparent consolidation of rights in film producers. UK law should support the continued recognition of the producer as central right holder, so as to facilitate licensing and incentivise new online business models. At this time, it is particularly important not to introduce uncertainty into this area.

■ Both Hargreaves and the Government have pointed to various perceived shortcomings in current licensing procedures. However, the Hargreaves Report appears to have ignored the contents of its own research on the VoD sector [1] , which dispels the notion that there is any serious problem with licensing in the audio-visual sector and indicates that the UK copyright regime is supportive of investment. While it remains to be seen whether the DCE is an appropriate response, we believe that the DCE could act as a directory of copyright interests and licensors’ contact details and it could also serve as a signpost system which could direct users to information regarding the content owner and its licensing procedures.

■    Hargreaves also suggests limiting participation in the Digital Economy Act only to those works which are listed via the DCE. This contravenes important aspects of international law: Article 5(2) of the Berne Convention expressly forbids the imposition of ‘formalities’ as a condition to the ‘enjoyment and the exercise’ of copyright. The Government’s response appears to recognise this point while noting that ‘a voluntary system can be incentivised’ without violating international law. We believe that for it to work, the content sector needs to view it as an essential business tool rather than an interference with important commercial freedoms.

Format shifting – MPA opposes introduction of a format shifting exception applicable to audio-visual works

■     Government has made clear that it plans to implement a ‘limited private copying exception’. Such an exception may make sense for some forms of content, but not for all.  In the audio - visual sector, our members are developing new business models for the delivery of content online. Such models will harness the computing power of ‘the cloud’ and allow consumers to watch their digital entertainment across multiple platforms (connected TVs, PCs, game consoles, smartphones and tablet PCs etc) in an easy, consistent way whilst remaining in a secure environment. This type of innovation would be put at risk by a blanket exception. Indeed, the Hargreaves Report itself notes the vibrant UK Video-on-Demand market, which would itself also be undermined by such an exception.

■ The Government also indicates that ‘ contractual terms ’ may undermine the benefit o f exceptions and so endorses the Report’s view that the new exception should override the contract between a copyright owner and its customers. This approach ignores an important principle of EU copyright law , Article 6(4)(4) of the Copyright Directive , which was designed to encourage the launching of new business models. Where content is made available to consumers on-demand, rights holders are not required to accommodate copyright exceptions. So, for example, films released online very soon after theatrical release can be made available for viewing only (and not downloading and/or copying) . If such forms of exploitation were subject to mandatory application of the private copy exception this would constitute a significant and perhap s fatal disincentive for the rights holder to make the content available in such way . As a result, w e reject this approach to contractual terms in principle and in practice - MPA member studios are investing in new business models, including providing format-shiftable digital copies in a secure manner that offer consumers different means to enjoy our films at different price points and on different devices . A new exception that overrides contractual agreements would undermine such business investments and indeed would thereby restrict consumer choice . Moreover, and as noted above, the Government must also consider the legal requirements related to technological measures (for example copy protection on DVDs, which is mostly absent on CDs by way of comparison) and the Copyright Directive ’s explicit prohibition on circumvent ing such measures.

Secure (at EU level) a broad copyright exception for new uses including so-called ’non-consumptive’ uses – MPA opposes this initiative

■    The Government has indicated that it agrees that there is a need for a wider set of exceptions at EU level to enhance economic growth and encourage new uses that ‘do not directly trade on the underlying creative and expressive purpose’ of works. This proposal effectively asks for the introduction of a broad category of ‘fair’ uses that far exceed the ‘Fair Use’ doctrine in the US. The risk of such a broadly-defined exception is that when rights holders are not allowed to exploit (or to prohibit) newly-enabled uses for their works, they will be disincentivised not only from cooperating with technology and service providers to find such new uses, but also from creating new works.

■ Rogue platforms (including websites) would also be likely to invoke such an exception as a defence in certain copyright infringement cases, thereby further complicating online enforcement efforts.

■ The Government acknowledges that EU level legislation takes a long time to adopt and as a result it will explore what can be done at UK level. The debate over such a broadly-defined exception at the EU level is likely to be very controversial with the UK’s European partners. Such an approach runs counter not only to the civil law tradition of specific well-defined exceptions which provide legal certainty, and is inconsistent with existing EU and international norms.

Other important issues that the MPA wishes to comment on:

Legislation to enable licensing of orphan works – MPA supports a sector specific approach

■ The Government endorses Hargreaves’s view on orphan works but makes no mention of the European Commission’s proposal for an Orphan Works Directive. While we agree that it is appropriate to address the issue of Orphan Works with regard to certain types of content where problems have arisen, we urge the Government to engage at the EU level in order to safeguard UK interests, so as to avoid practices that would diminish rather than increase the amount of economic activity that arises from in-copyright works.

■     The MPA would also urge the Government to ensure the exclusion of audio-visual works from the scope of the EU Proposal as the licensing of such works is facilitated by the fact that rights are generally concentrated in the producer. Any orphan works proposal must also ensure a robust requirement for a good faith, diligent search in this regard. On this matter, we would direct the Committee’s attention to the sector-specific guidelines on due diligence that were formulated as part of the Memorandum of Understanding process of the Digital Libraries Initiative. [2]

■ Given the Government’s commitment to ‘satisfactory safeguards’ including in particular diligent search, the role of extended collective licensing with respect to orphan works is not clear. As a general matter, the Government must carefully consider the impact of Extended Collective Licensing on the marketplace. It has been used mostly in ‘ancillary’ areas or to facilitate the operation of exceptions (where a remuneration is also due).

Evidence – MPA supports the need for objective evidence

■ The MPA shares the Government’s view that policy should indeed be driven by objective evidence. Throughout the Report, Hargreaves called for an evidence based approach. It is therefore surprising that the Report appears to ignore the contents of its own research on the VoD sector [3] , which challenges the notion that there is any serious problem with licensing in the audio-visual sector and indicates that the UK copyright regime is supportive of investment. Instead the report makes a number of recommendations that could damage this stability based on little evidence. Indeed, a Google-commissioned study noted that only seven percent UK technology start-ups identified copyright as a barrier to their business. It would therefore seem that a significant change to the UK copyright regime is contrary to existing evidence. We also strongly support the Government’s plan to ‘give limited weight in IP policy-making to evidence that is not sufficiently open and transparent in its approach and methodology’. We look forward to the upcoming guidance in this regard.

Conclusion

The UK has one of the strongest content sectors in Europe. Our members, along with many other content creators, are adapting their businesses to meet the changing needs and demands of consumers. Their ability to do that rests on the security and value of their IP and requires a stable legal framework.

The UK’s IP framework has worked well over the years and whilst improvements can always be made, large-scale changes must be carefully considered for the reasons we have outlined in this submission. We therefore welcome the BIS Select Committee inquiry, which gives Parliament the opportunity to assess the implications of each aspect of the Hargreaves Report and the Government’s response.

The MPA very much welcomes the Government commitment to consult on key parts of Hargreaves implementation. It will be vital to work with industry to ensure that changes to the IP framework promote growth and ensure that the UK is the best place in Europe to invest in content creation.

As we have set out above, we welcome a number of the changes contained in the Hargreaves Report. However there are key areas - for example, in relation to the introduction of a private copying exception, the Digital Copyright Exchange and a new exception for ‘non-consumptive’ use – where the Report’s proposals have the potential to destabilise the current framework and undermine investment.

We have outlined our main concerns above and would be more than happy to give more detail to the Committee on request and/or to provide opportunities for the Committee to see examples of new technological developments and innovations that our members are undertaking. With the MPA and the companies it represents, we have available a comprehensive range of technical, legal and business experts who are at the disposal of the Committee to provide oral evidence on any of the topics raised in this paper. The MPA is also a member of the Creative Coalition Campaign (CCC),  a partnership comprising trade unions representing workers in the creative industries and organisations in the music, video, film, TV, publishing and sports sectors. The CCC has also submitted evidence to this inquiry.  Should the inquiry choose to call witnesses from the CCC we are confident that the views of the MPA and our member companies would be represented effectively.

5 September 2011