Sixteenth Report of Session 2012-13 - European Scrutiny Committee Contents

4   Regulating collecting societies



COM(12) 372

+ ADDS 1-2

Draft Directive on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online uses in the internal market

Legal baseArticle 50(2)(g), 53 and 62 TFEU; co-decision; QMV
Document originated11 July 2012
Deposited in Parliament17 July 2012
DepartmentBusiness, Innovation and Skills
Basis of considerationEM of 31 July 2012 and SEM of 31 August 2012
Previous Committee ReportNone
Discussion in CouncilDecember
Committee's assessmentLegally important
Committee's decisionNot cleared; further information requested


4.1  Copyright and related rights are the rights granted to authors (copyright) and to performers, producers and broadcasters (related rights) to ensure that those who have created or invested in the creation of content such as music, literature or films, can determine how their creation can be used and receive remuneration for it. These rights therefore aim at providing an incentive to create and invest in creative activities and to disseminate works and other protected subject matter to the public. Creative industries contribute significantly to GDP, employment and growth in the European Union.

4.2  The rights granted by the copyright framework to a copyright owner (the "rightsholder") are exclusive. This means that the rightsholder alone has control over certain uses of their works. Anyone wanting to use the works concerned would need the rightsholder's permission to do so. This can be obtained directly from the rightsholder, but more usually it is in the form of a licence from a collecting society.

4.3  A collecting society manages the rights of its members, the rightsholders. On joining a collecting society, the rightsholder gives the society a mandate to administer its rights. The copyright works concerned are then added to the licensing repertoire of the collecting society, which licenses the rights and collects licence fees from those who wish to use the works. The collecting society charges an administration fee for these services, which is deducted from the total licence fee. The balance is distributed to the collecting society's membership as royalty payments for the use of their works.

4.4  Collecting societies act as a 'clearing house', enabling 'many-to-many' licensing transactions by bringing together copyright owners and those wishing to use their protected works. The function performed by collective societies is referred to as collective licensing or collective rights management ('CRM').

4.5  There are over 250 collecting societies in the EU. They tend to be monopoly suppliers of the licensing products for their sectors: there is typically one collecting society per category of right or sector. Consequently collecting societies do not generally need to compete for members or users. Collecting societies in the UK collectively manage copyrights on behalf of rights holders, providing licences to the value of £1 billion per annum. The UK is one of only two jurisdictions in the EU that does not regulate the functions of its collecting societies.

4.6  Historically, collecting societies were established on a national basis, but the advent of the digital age has led to an ever-increasing demand for multi-territorial licences. The EU market for online licensing of music is territorially fragmented. This means that a service provider wanting to establish a cross-border music service has to obtain licences from multiple collecting societies in the different Member States. This has made licensing of online musical services expensive and time consuming. Consequently, rights holders can find that their works are not properly licensed, meaning that they lose remuneration, while consumers lose out on access. Alongside this, the functioning of some collecting societies has given rise to concerns about accountability, governance and transparency.

4.7  The Commission originally tried to tackle these problems through a "soft law" approach. On 18 October 2005 it published a non-binding Recommendation on the collective cross-border management of copyright and related rights for legitimate online music services.[17] This Recommendation invited Member States to promote a regulatory environment suited to the management of copyright for the provision of legitimate online music services and to improve the governance and transparency standards of collecting societies.[18] Initially the Recommendation appeared to have made an impact on the licensing market place, with support from a number of collective rights managers, music publishers and users.[19] However, following a public hearing in 2010 and further consultation, the Commission has concluded that deficiencies remain and there is need to improve the governance and transparency of collecting societies, and to create a framework for facilitating the online licensing of musical works.



4.8  The Commission undertook a wide-ranging consultation and dialogue with interested parties in advance of the publication of the draft Directive and this is reflected in the text. The proposal takes into consideration the views expressed in a public consultation on "Content Online",[20] which aimed to open a debate about possible European responses to the challenges of the digital "dematerialisation" of content, including the creation of easier and quicker rights clearance structures, while ensuring fair and adequate remuneration for rightsholders. This consultation directly addressed the governance and transparency of collecting societies and the cross-border management of rights for online music services. A number of respondents felt that aggregating different music repertoires would simplify rights clearance and licensing. Associations representing authors, publishers and commercial users favoured further reflection on the governance and transparency arrangements of collecting societies. Consumers' associations were more supportive of regulatory intervention.

4.9  The Commission also consulted collecting societies and online music services providers. Those consultations reinforced the view that there were deficiencies in the collective management of rights. They also identified the need to improve the governance and transparency standards of collecting societies and to create a framework for facilitating the online licensing of musical works.


4.10  The proposed Directive is based on Articles 50(2) (g), 53, and 62 of the Treaty on the Functioning of the European Union (TFEU), which aims to facilitate the free provision of services. The Commission consider that the introduction of key governance and transparency standards in collecting societies would safeguard the interests of members and users and also therefore facilitate the provision of collective management services across borders. By addressing the fragmentation of rules applicable to collective rights management the Commission argues this will facilitate the free movement of all those services which rely on copyright. Action to facilitate the granting of multi-territorial licenses to online service providers is intended to ease substantially the distribution and access to such musical works online.


4.11  The Commission consider that action is necessary at a European Union level under the principle of subsidiary (Article 5(3) TFEU) as it considers the legal framework at both national and EU levels to have proven insufficient to address the problems. The EU has already enacted legislation which harmonises the principal rights of rightsholders that are managed by collecting societies. The management of those rights in the internal market should take place in a comparable, effective and transparent manner across national borders. The Commission believes that its proposed actions cannot be achieved sufficiently by Member States. Thus they would be better done at EU level on account of the transnational nature of the problem.

4.12  The Commission also considers that the proposed Directive respects the principle of proportionality (Article 5(4) TFEU) as the proposed rules on the governance do not go beyond what is necessary. In its explanation of the proposals, the Commission states that Member States may decide not to apply some requirements of Title II to micro enterprises,[21] which means Member States will be able to exclude the smallest such enterprises from regulations which may be disproportionate in relation to supervisory functions and transparency requirements.[22]


4.13  Against this backdrop, the draft Directive identifies two problems to be addressed. The first relates to the functioning of all collecting societies in general (irrespective of the category of rightsholders they represent or the category of rights they manage) and the second to problems that are specific to the supply of multi-territorial licences for the online exploitation of musical works. These issues are considered to be interlinked, insofar as underperformance by a collecting society may mean lost licensing opportunities and excessive cost deductions from rightsholders' royalty income. For users, insufficient transparency and accountability may lead to poorer quality services and, in some cases, to more expensive licensing.[23]

4.14  The proposed Directive builds on the European Commission's 'Digital agenda for Europe'[24] and the 'Europe 2020 Strategy'[25] and is one of the key actions of the Digital Single Market.[26] It fulfils the Commission's commitment to create a legal framework for the collective management of copyright and related rights, announced in the Communication on Intellectual Property Rights, "A Single Market for Intellectual Property Rights" (the "IPR Strategy") published on 24th May 2011.[27]

4.15  The objective of this Directive is to put in place a legal framework for more efficient collective management of copyright by collecting societies. It aims to do so by providing rules for better governance and transparency and by facilitating multi-territorial licensing of rights managed by them. It proposes a core set of rules that apply to all collecting societies and an additional set that applies to collecting societies involved in multi-territorial licensing.

4.16  The Directive is divided into four main sections (Titles). Title I contains general provisions on the subject matter, scope and definitions. Title II establishes the organisational and transparency rules which will apply to all types of collecting societies. These include the rules for governance and financial management of collecting societies. Title III establishes the conditions that a collecting society must comply with when providing multi-territory licensing for online musical works. These include requirements for the efficient and transparent processing of data. In addition, in the interests of cultural diversity and consumers, there are specific safeguards to ensure that the repertoires of all societies can be licensed across borders. Title IV deals with enforcement measures, including the establishment of effective and timely procedures for dealing with complaints and for resolving disputes, to be made available both to members and users of collecting societies. The enforcement measures include provision for the referral of certain types of disputes, including those regarding multi-territorial licensing, to an independent alternative dispute resolution body. Member States are required to designate an appropriate authority to oversee the implementation of the provisions in Title III, to administer the complaints procedures and to issue sanctions where necessary.


4.17  The then Minister for Intellectual Property (Baroness Wilcox) submitted an Explanatory Memorandum and Supplementary Explanatory Memorandum dated, respectively, 31 July and 31 August 2012.


4.18  The Minister explains that the Commission's proposal for minimum standards is broadly in line with one of the recommendations of the Hargreaves Review,[28] namely the regulation of collecting societies through codes of practice containing minimum standards. Through the Enterprise and Regulatory Reform (ERR) Bill, the Government is taking forward its proposals to build on the development of existing codes of practice already adopted by some collecting societies. The draft Schedule A1 requires a collecting society to put in place a code of practice which meets certain criteria (to be specified in regulations) and includes further requirements for a licensing code ombudsman, a code reviewer and sanctions for breaches of the codes. In addition the draft Bill introduces a reserve power to impose codes of practice should a collecting society's own system of self-regulation fail.

4.19  There are similarities between the Commission's and the UK's approach. Both the UK proposals and the Directive are intended to make the framework for the collective management of rights more efficient, through the imposition of key governance and transparency standards in collecting societies. Both aim to address the shortcomings of national and EU level action in tackling problems in the current system.

4.20  The draft Directive extends beyond engagement in the multi-territorial licensing of online music as the proposed set of core standards will apply to all EU collecting societies, irrespective of the sector in which they operate. The Minister believes that the reforms it has proposed for the UK are an opportunity for UK collecting societies to demonstrate their ability to develop best practice.

4.21  In addition, the specific measures proposed for improving the framework around multi-territorial licensing, including improving databases and invoicing procedures should generate efficiencies.

4.22  Initial feedback from stakeholders indicates that the Commission's definition of 'collecting society' (Article 3) may be of concern to them as it is currently crafted around member-owned or member-controlled organisations. Most collecting societies tend to be membership based/member owned so would be caught by this definition. It could mean that those collecting societies that are not membership based/member owned could fall outside the scope of the Directive, which could mean difference in treatment.

4.23  The more detailed requirements of the draft Directive, when enacted, will take priority over any national provisions. For example, Article 12 focuses on supplementary measures to improve the efficiency of distribution, whereas the draft ERR focuses on demonstrating accountability for and transparency of distribution. The detail of how this would work in practice will be subject to further consultation with stakeholders. The Government notes that the draft proposal in the ERR is not to have a default position whereby undistributed funds are retained by collecting societies.

4.24  The Government notes that in formulating its policy proposals, the Commission rejected the option of extended collective licensing ('ECL'), which is used in a number of Member States, to address the complexities of the multi-territorial collective licensing of authors' rights in musical works for online uses. This was due in part to concerns that ECL could lead to further discrepancies in the efficiency of local collecting societies across the EU, making it more difficult to obtain a licence from a local collecting society in some Member States. By contrast, the UK Government's approach is to provide for the authorisation of a voluntary Extended Collective Licensing (ECL) that applies to the UK only. The aim is to help simplify rights clearance by creating a one stop shop where it is used.


4.25  The proposed Directive will impact, inter alia, upon Section 116 of the Copyright Designs and Patents Act 1988 (CDPA 1988). This section contains provisions for licensing schemes and licensing bodies, which define a collecting society within UK.

4.26  The provisions of the Directive may in some respects go further than the UK approach, which is for minimum standards to be contained in a code of practice. The draft Directive requires Member States to impose quite detailed requirements on collecting societies, for example on reporting and governance.

4.27  The proposals that are contained in the draft Directive for collecting societies may have some impact on the draft clauses in the ERR Bill on orphan works (proposed new Section 116A) and ECL (proposed new Section 116B) although the exact nature of the impact will depend upon how those proposals develop.


4.28  A UK Impact Assessment of the measures proposed in the Directive will be completed in advance of UK implementation.


4.29  In broad terms, the Directive does not affect the fundamental rights of EU citizens. However, certain provisions, such as those in Article 7(5), regarding the distribution of amounts to rightsholders, may have an impact. A further analysis is contained in the Supplementary Explanatory Memorandum. It confirms that the proposed Directive, including Article 7(5) regarding the distribution of amounts to rightsholders, is consistent with the Charter of Fundamental Rights of the European Union.

4.30  A collecting society manages the rights of its members, the copyright owners, licensing them out to those who wish to use them, and collecting and distributing royalties to its members. The collecting societies administer intellectual property rights which are protected as property rights under the Charter of Fundamental Rights of the European Union and which are largely harmonised under secondary EU legislation.

4.31   To the extent that the proposed Directive may result in a possible restriction on the freedom to conduct business, such a restriction is necessary to protect the interests of the members of collecting societies, right holders and users in the internal market. Any restrictions that are proposed contribute to the protection of intellectual property.

4.32   The UK Government agrees with the analysis of the relationship between the Proposed Directive and the Charter of Fundamental Rights as it is described in paragraph 3.4 of the Commission's Explanatory Memorandum:

"The proposal provides for effective safeguards regarding the application of fundamental rights as laid down in the Charter of Fundamental Rights of the European Union. The safeguards required from collecting societies as regards their governance and the conditions on the provision of cross-border multi-territorial licences for online rights in musical works would restrict the freedom of collecting societies to conduct a business, as defined in the Charter, compared to the existing situation. However, such restrictions would respect the conditions set out in the Charter, which provides that the exercise of the relevant freedoms may be limited, under certain circumstances. These restrictions are necessary to protect the interests of the members, rightsholders and users and to set minimum quality standards for the exercise by collecting societies of their freedom to provide multi-territorial licensing services for online uses of musical works in the internal market."


4.33  We thank the Government for a well expressed and helpful Explanatory Memorandum.

4.34  We would be grateful for an update on the progress of negotiations towards the end of the Council's deliberations, before first reading negotiations take place with the European Parliament.

Until then, the draft Directive remains under scrutiny.

17   Recommendation2005/737/EConcollectivecross-bordermanagementofcopyrightandrelatedrightsforlegitimateonlinemusicservices. Back

18   TheprinciplessetoutintheRecommendationincludedthefreedomofrightsholderstochoosetheircollectingsociety,theequaltreatmentofcategoriesofrightsholdersandtheequitabledistributionofroyalties. Back

19 Back

20   CreativeContentinaEuropeanDigitalSingleMarket:ChallengesfortheFutureAReflectionDocumentofDGINFSOandDGMARKT,22October2009,availableat: Back

21   Theproposedcriteriaincludebalancesheetandnetturnoverthresholds,whichisadifferentapproachtonationalarrangementsintheUKBack

22   MemberStatesmaydecidethatparas1and2ofArticle8(supervisoryfunction)andpoints1(a)(f)and(g)oftheAnnexsettingouttherequirementsoftheannualtransparencyreport(Article20)shallnotapplytoacollectingsocietywhichonitsbalancesheetdoesnotexceedthelimitsoftwoofthethreefollowingcriteria:(a)balancesheettotal:EUR350,000;(b)netturnover:EUR700,000(c)averagenumberofemployeesduringthefinancialyear:10Back

23   Whilesomeoftheexistingdirectivesinthefieldofcopyrightcontainreferencestothemanagementofrightsbycollectingsocieties,noneofthemaddresstheoperatingmodelassuch. Back

24   COM(10) 245Back

25   COM(10) 2020.ItalsocomplementsDirective2006/123/ECof12December2006onservicesintheinternalmarket,whichaimstocreatealegalframeworktoensurethefreedomofestablishmentandthefreemovementofservicesbetweenMemberStates. Back

26 Back

27   CommunicationfromtheCommissiontotheEuropeanParliament,TheCouncil,TheEuropeanEconomicandSocialCommitteeandtheCommitteeoftheRegions,p.10,availableat: Back

28   Digital Opportunity: A review of Intellectual Property and Growth. An independent report by Professor Hargreaves, May 2011. Back

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© Parliamentary copyright 2012
Prepared 2 November 2012