4 Regulating collecting societies
| (34097)
12669/12
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
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| Legal base | Article 50(2)(g), 53 and 62 TFEU; co-decision; QMV
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| Document originated | 11 July 2012
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| Deposited in Parliament | 17 July 2012
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| Department | Business, Innovation and Skills
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| Basis of consideration | EM of 31 July 2012 and SEM of 31 August 2012
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| Previous Committee Report | None
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| Discussion in Council | December
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| Committee's assessment | Legally important
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| Committee's decision | Not cleared; further information requested
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BACKGROUND
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.
THE PROPOSAL
CONSULTATION
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.
LEGAL BASE
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.
SUBSIDIARITY
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]
DRAFT DIRECTIVE
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.
THE GOVERNMENT'S
VIEW
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.
POLICY IMPLICATIONS
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.
IMPACT ON UK LAW
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.
IMPACT ASSESSMENT
4.28 A UK Impact Assessment of the measures proposed in the
Directive will be completed in advance of UK implementation.
FUNDAMENTAL RIGHTS ANALYSIS
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."
CONCLUSION
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
http://ec.europa.eu/internal_market/copyright/docs/management/monitoring-report_en.pdf Back
20
CreativeContentinaEuropeanDigitalSingleMarket:ChallengesfortheFutureAReflectionDocumentofDGINFSOandDGMARKT,22October2009,availableat:http://ec.europa.eu/avpolicy/docs/other_actions/col_2009/reflection_paper.pdf Back
21
Theproposedcriteriaincludebalancesheetandnetturnoverthresholds,whichisadifferentapproachtonationalarrangementsintheUK. Back
22
MemberStatesmaydecidethatparas1and2ofArticle8(supervisoryfunction)andpoints1(a)(f)and(g)oftheAnnexsettingouttherequirementsoftheannualtransparencyreport(Article20)shallnotapplytoacollectingsocietywhichonitsbalancesheetdoesnotexceedthelimitsoftwoofthethreefollowingcriteria:(a)balancesheettotal:EUR350,000;(b)netturnover:EUR700,000(c)averagenumberofemployeesduringthefinancialyear:10. Back
23
Whilesomeoftheexistingdirectivesinthefieldofcopyrightcontainreferencestothemanagementofrightsbycollectingsocieties,noneofthemaddresstheoperatingmodelassuch. Back
24
COM(10) 245. Back
25
COM(10) 2020.ItalsocomplementsDirective2006/123/ECof12December2006onservicesintheinternalmarket,whichaimstocreatealegalframeworktoensurethefreedomofestablishmentandthefreemovementofservicesbetweenMemberStates. Back
26
http://ec.europa.eu/information_society/newsroom/cf/pillar.cfm Back
27
CommunicationfromtheCommissiontotheEuropeanParliament,TheCouncil,TheEuropeanEconomicandSocialCommitteeandtheCommitteeoftheRegions,p.10,availableat:http://ec.europa.eu/internal_market/copyright/docs/ipr_strategy/COM_2011_287_en.pdf Back
28
Digital Opportunity: A review of Intellectual Property and
Growth. An independent report by Professor Hargreaves, May 2011. Back
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