A new age for copyright regulation in the EU digital market - Part 2

The Directive on Copyright in the Digital Single Market (the “Directive”) has now been approved by the European Parliament and once adopted by the Council of the EU it will form part of the EU Member States’ national legislation by the end of the implementation period of 24 months. We examine its provisions in two parts. You can read the first part here, which focused on the two most controversial articles of the Directive, namely Articles 15 and 17. In this part, we consider the numerous other parts of the Directive that are likely to have an impact across the creative industries. The key changes (under the Title heading of a “well-functioning market place”) afford further protections to authors and performers, designed to ensure that they are properly remunerated for use of their works and that they retain some level of control over the exploitation of their works. There is considerable flexibility for Member States in how they implement these rights created by the Directive, but the general rights and certain guidelines are prescribed at the EU level. We also look briefly at the other two main Titles of the Directive, dealing with exceptions and “improving licensing practices”.

“Well-functioning” market place

The Directive introduces four rights or powers for authors and performers, designed to ensure that the market place for licensing original works functions “properly” and to protect them from the consequences of unequal bargaining power.

Article 18 - Appropriate and proportionate remuneration

Article 18 introduces a general requirement for Member States to ensure that, where authors and performers license or transfer their rights, they are entitled to receive “appropriate and proportionate” remuneration. It is left to Member States to devise their own mechanisms to ensure that right holders receive this. Member States will have wide discretion in exactly how they implement this and are therefore free to use different mechanisms and balance rights and interests (but are required to take into account the principle of freedom of contract). Lump sums are not outlawed, but “should not be the rule” while the role of guilds and unions setting industry-wide terms is acknowledged.

Article 19 – Transparency obligation

Article 19 gives authors and performers a right to understand how much revenue is being derived from their works. Assignees/licensees must, at least once a year, provide “up-to-date, comprehensive and relevant information” about how works are being exploited. This must include information on all revenues generated through use of the works and any remuneration due to the authors/performers. The obligation flows down the value chain, as where the rights have been sub-licenced, the sub-licensee must similarly provide these updates (it being left for Member States to decide whether that information should flow direct from, say, distributor to performer, or through contracting counterparties). It is not clear how far down the value chain these obligations may bite. Where the administrative burden of providing this information would be disproportionate, for example because very little revenue is generated, Member States may provide exceptions. There is also a “tenth spear carrier” exception for those not making a significant contribution to the overall work.

Article 20 – Contract adjustment mechanism

Article 20 allows authors and performers to claim “additional, appropriate and fair” remuneration from their contractual counterparty (including successors in title) where the remuneration originally agreed is “disproportionately low” compared to the revenues generated from exploiting the works/performances. Again, Member States are left with significant discretion as to how to implement this entitlement (and the ultimate arbiter will be a court or other body such as a copyright arbitration board). They are however guided to make sure that all relevant remuneration is taken into account and to have regard to sector-specific norms as well as relevant collective bargaining agreements. Member States must offer an ADR route in relation to Article 20 (and Article 19 transparency disputes) though authors and performers are not required to use ADR.

Article 22 - Right of revocation

Article 22 introduces a ‘use it or lose it’ system for exclusive licences/assignments. Where a transferee has been granted exclusive rights (by way of assignment or licence) to exploit a work, the rights may be claimed back by authors and performers where there is a lack of exploitation of the work. Again, most of the details are left for Member States to determine, including defining how long transferees are given before they are expected to have started exploitation and defining opt-outs to deal with multi-contributor works such as, for example, magazines or journals, but the Directive mandates that rights may be revoked “in part” or made non-exclusive and not just revoked in full.

Our observations

This package of measures, while designed to protect contributors with unequal bargaining power, introduces huge uncertainty into long-established industry structures. Furthermore, the massive discretion given to Member States means that, far from increasing harmonisation, the Directive will result in further fragmentation of EU copyright law. In many sectors, we can but hope that a combination of well-represented headline talent, typically receiving a percentage of (or some measure of) revenue/profit and unionised supporting talent will reduce the risk of serious disruption.

Exceptions

The Directive provides several new exceptions to copyright which Member States are mandated to introduce (most of the existing exceptions in the 2001 Copyright Directive are optional). These exceptions are:

Article 3 – text and data mining for scientific research

Research organisations and cultural institutions that carry out text and data mining, for the purposes of scientific research, of material to which they have lawful access are given an exception in respect of the reproduction right (and the extraction right in respect of databases) and therefore not required to obtain a licence from or pay a fee to the original publisher. Such organisations and institutions may also store and retain such material for this narrow purpose (but must keep it suitably secured).

Article 4 – text and data mining

Other organisations or individuals that carry out text and data mining are given a similar exception. However, rights holders are free to reserve their rights and decline this use, as long as they do so expressly and in an appropriate manner (eg in a .txt header file). This is effectively an opt out, so the exception is of limited value.

Articles 5 and 6 – education and cultural heritage

Article 5 introduces an exception which will allow digital works to be used for the purposes of cross-border teaching without having to secure licences (extending existing national exceptions). Article 6 allows works in the permanent collections of cultural heritage institutions to be copied by them for the purpose of preservation. This will, for example, ensure that works are not only preserved on outmoded or deteriorating media.

Improving licensing practices

Title III of the Directive seeks to introduce various processes and guidelines that aim to improve copyright licensing practices generally.

Article 8 – cultural heritage institutions

Article 8 allows cultural heritage institutions to make available, for non-commercial purposes, out-of-commerce works or other subject matter that are permanently in their collections. In order to do so, “extended collective licensing” is introduced to enable collective management organisations (“CMOs”) to cover entire categories or rights, including for non-members, with an exception to apply to types of works where there is no relevant CMO.

Article 12 – collective licensing with extended effect

Article 12 allows Member States to extend collective licensing to cover rights holders within a class who are not members of the relevant CMO. A CMO will be presumed to represent the “outsider” rights holders in this case, but non-members will always have the opportunity to exclude their works from the relevant collective licences. Unlike Article 8, it is optional so Member States are not obliged to introduce this mechanism.

Article 13 – access to and availability of audio-visual works on video-on-demand platforms

Article 13 is intended to make it easier for parties to negotiate rights for on-demand video platforms. This is by allowing an impartial body or mediators to provide assistance with negotiations to such parties having difficulty concluding an agreement for licensing audio-visual rights to be made available on on-demand video platforms. We are not aware of any market failure which justifies this mechanism (indeed the business context for this is the inexorable rise of SVOD services) and as the provision does not include any form of compulsion, it appears to be of little value.

Article 14 – works of visual art in the public domain

Article 14 applies to the reproduction of a piece of visual art that has been protected by copyright but the copyright has expired. In this scenario, the reproducer is not entitled to their own copyright unless they have added something original themselves to the reproduction, making it their own intellectual creation. So a “slavish” photograph of an old oil painting will not benefit from copyright protection (although, under Infopaq, most experts would say that this is little more than a reflection of existing law).

Next steps

We set out the next steps for the Directive (and the implications of Brexit) in Part 1 of this Article here. Given the huge discretion given to Member States, you should be giving careful consideration as to how (either alone or within trade associations) you wish to influence implementation over the next 2 years. Please also contact us if you have any questions about how the Directive may impact on your business or for any advice on compliance with any of the obligations imposed by the Directive.