Reed Smith Client Alerts

Authors: Alexander R. Klett Gregor Pryor James D. Tobias Stephen Edwards

More than a year after the Commission announced its Digital Single Market (DSM) Strategy, the Commission continues to press ahead in delivering concrete proposals. The latest – and arguably most significant yet – are its plans to reform the European copyright landscape through a new Copyright Directive, which was formally announced by the Commission on the 14th September (“the Proposal”). This is separate from its earlier proposal to introduce a Regulation on the cross-border portability of online content services. It follows several public consultations launched by the Commission regarding, amongst other things, EU copyright laws, 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 prior. Nonetheless, now that the proposal has been formally published, we can consider some of its most significant and controversial aspects.

The “value gap” – Article 13

What is it? Article 13 of the Proposal seeks to address the so-called “value gap” between the amount of copyright content exploited by ISPs (such as YouTube) and the royalties that such platforms pay to rightsholders. Under the Proposal, ISPs that store and provide to the public 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 Proposal could be a positive development. Intermediaries, on the other hand, are less likely to see the bright side.

What about the hosting exemption? One of the questions that inevitably arises is how this fits with the hosting exemption for intermediaries enshrined by Article 14 of the E-Commerce Directive 2000/31/EC. Recital 38 of the Proposal seeks to address this by stating that the requirement remains subject to the hosting exemption. The recital pays homage to the famous L’Oreal v eBay case (C-324/09) by referencing the test of whether an ISP plays an “active role, including by optimising the presentation of the uploaded works…”. Moreover, the recital appears to reach the conclusion that ISPs that store and provide access to the public to copyright-protected works uploaded by their users will be performing an act of communication to the public in respect of those works. Having previously heard the Commission’s statements that it would retain the existing intermediary liability regime, ISPs will have renewed concern that their safe harbours will not be so safe in the future.

A new obligation to monitor? There is also a risk that the Proposal imposes on ISPs a duty to monitor all content uploaded by users. Previously, ISPs have been able to rely on Article 15 of the E-Commerce Directive and associated case law, such as Scarlet v SABAM (C-70/10), which provided that ISPs do not have a general duty to monitor content on their sites. However, the reforms might force them to invest in expensive filtering technology, raising the spectre of significantly increased barriers to entry for new providers. It seems that Member States will be left with the unenviable task of reconciling these competing provisions. ISPs and rights-holders alike will be dependent on how Member States interpret “large amounts of subject matter”, and how they exercise their discretion to “adjust the obligation 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 of the Proposal seeks to ensure that rightsholders 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 and so one might expect this provision to generally be welcomed, although certainly not by producers who have bought out rights and so have had no reporting obligations to the rightsholders concerned. It remains to be seen, also, how “regularly” such information will have to be provided once this has been implemented into national law. Some Member States have already taken steps to require frequent provision of information, which require significant administrative resources by media companies to comply. Producers and distributors will also be very concerned 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.

What does it mean? As drafted, 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. Moreover, the recitals to the Proposal suggest there may be significant scope for interpretation by Member States, not least in relation to how such a claim would be heard.

New publishers right – Article 11

What is it? A new ancillary right for publishers of press publications (a broader term than the “news publishers” that we saw in the draft that was leaked) to license the reproduction and making available of their news publications online for 20 years. The definition of “press publication” in Article 2(4) of the Proposal is drafted fairly widely and includes any collection of literary works of a journalistic nature under a single title, such as newspapers, magazines and news websites.

Why does it matter? Press publishers may be entitled to charge anyone who reproduces or makes available to the public any part of their press publication. This will be subject to the usual copyright exceptions and defences, including quotation for purposes such as criticism and review. In theory, this could help slow the notable decline of the traditional newspaper industry and support written journalism, by providing an additional means of monetising news content. However, the current drafting of this new ancillary right means that it will not just affect ‘pure’ news aggregators, such as Google News, but potentially also social media websites where even small news snippets are posted, and even the use by private individuals (which is not expressly excluded from the Proposal despite public statements by the Commission to this effect). Similar domestic rights introduced in Spain and Germany in the last three years, which are targeted just at search engines and news aggregators, have failed to benefit the newspaper industry and just led to reduced information available to users on the internet.

New mandatory exceptions – Articles 3, 4 and 5

What are they? Articles 3, 4 and 5 of the Proposal require all Member States to implement three copyright exceptions: (i) one for “text and data mining”, which permits research organisations to make copies of works they have lawful access to for the purposes of scientific research; (ii) another for on-site or online education purposes (provided the source is acknowledged and it is for non-commercial purposes); and (iii) finally, one for the preservation of cultural heritage. Interestingly, the campaign for a mandatory exception for “freedom of panorama” appears to have fallen on deaf ears.

Why does it matter? These exceptions should benefit the research and education sectors by clarifying their rights and making educational works more accessible. However, the teaching exception will not apply if a sufficient licence is readily available on the market (as is very much the case in the UK as a result of cooperation between the education sector and collecting societies over recent years). As for the text and data mining exception, this will not be capable of being overridden by contract.

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. We will address this proposal in more detail in a separate client alert – keep your eyes peeled.

The Marrakech Treaty. In addition, the Commission published a draft Directive and Regulation which, together, seek to bring EU law into line with its commitments under the Marrakech Treaty, which the EU signed in 2014. The proposals seek to introduce a new mandatory exception allowing people who are blind, have other visual impairments or are otherwise print-disabled to access books and other content in formats that are accessible to them, including across borders.

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, this Proposal needs to be taken very seriously. The Proposals have the potential to significantly impact the business of many companies in the creative and audiovisual 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 to join the debate.

 

Client Alert 2016-251