Executive Summary In 2014, the new Directive concerning the collective management of copyright was introduced. The Directive sought to overhaul the law regulating collecting societies and other rights management organisations in Europe. Since that time, UK legislators have introduced new regulations to implement the Directive, including the Collective Management of Copyright (EU Directive) Regulations 2016. Last week, the UK Intellectual Property Office (IPO) issued detailed guidance for collective management organisations which throws helpful light on how compliance with the Regulations should be approached. This Reed Smith Alert sets out an overview of the IPO’s guidance and what it means for music users.

In early 2014, Reed Smith reported on the proposed overhaul of the law regulating collecting societies and other rights management organisations in Europe. At that time, the European Parliament had just approved the wording of the somewhat unimaginatively named Directive on Collective Rights Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Use in the Internal Market (the Directive).

Although the Directive held the promise of root and branch reform, our view was that it would likely be diluted heavily. Since that time, the UK legislators introduced new regulations to implement the Directive. Although for the most part our predictions about dilution were correct, there are still some important changes to the law in this area which have a commercial impact on companies that license music on a commercial scale. Last week, the UK Intellectual Property Office issued detailed guidance for collecting management organisations (CMOs) which throws helpful light on how compliance with the Collective Management of Copyright (EU Directive) Regulations 2016 (the Regulations), should be approached.

The 2016 Regulations Member States were given until April 2016 to incorporate the Directive into domestic law. The result in the UK is the Regulations, which will come into force in the UK on 10 April this year.

One of the fundamental objectives of the Directive is to ensure that CMOs act in the best interests of the rights holders they represent. The Directive aims to do this by placing minimum standards of governance, financial management and transparency on all European CMOs. The guidance issued by the IPO provides more detail on these requirements.

The 2014 Regulations But wait – don’t we already have legislation to underpin the regulation of collecting societies in the UK? Well, yes, in the form of the Copyright (Regulation of Relevant Licensing Bodies) Regulations 2014 (the 2014 Regulations). By the time the Directive had been approved in 2014, the Government had already begun development of a domestic policy to ensure that licensees and rights holders were treated fairly by implementing minimum standards and codes of practice. The 2014 Regulations formed part of that domestic policy. Although the 2014 Regulations addressed some of the issues that are covered by the Directive, they were not comprehensive and do not cover all the issues that the Directive is intended to address.

The 2014 Regulations will now be repealed and the Regulations will incorporate all of the provisions of the Directive.

What’s new? Most notably, the provisions in the Directive dealing with multi-territorial licensing were not present in the 2014 Regulations. Under the new Regulations, CMOs that grant multi-territorial licences will be required to have “sufficient capacity” to process efficiently and in a transparent manner the data needed to administer multi-territorial licences. “Sufficient capacity” includes at least capacity to invoice users, collect rights revenue and distribute amounts to rights holders. In our view, timely and accurate invoicing has never been a strong feature of collective licensing in Europe, so this creates a challenge for CMOs.

The multi-territorial provisions go further, though, than dealing simply with licence administration – among other things, CMOs must, in response to a “duly justified” request from service providers, rights holders or other CMOs, provide up-to-date information regarding their online repertoire. Again, this will be quite a challenge for many CMOs.

Despite the advent of the Directive and Regulations, questions remain as to whether the minimum standards set out are sufficient to solve the problems inherent in the industry.

For online music services that wish to allow users to access easily a vast library of online content, the ability to obtain multi-territorial licences is the critical factor in enabling service of a pan-European user-base. At a time when services are not only being squeezed by labels, but pressured by artists and publishers to increase royalties, it is not yet clear whether the Regulations will go far enough to protect service providers’ interests.

The inclusion in the Regulations of provisions previously contained in the 2014 Regulations but not within the scope of the Directive is, however, to be welcomed. These provisions aim to ensure:

• CMO staff are given appropriate training.
• Licensees are dealt with in good faith after licences are issued (not just during negotiations).
• Effective and timely complaints procedures are made available to licensees and members.
• Disputes can be submitted to an independent and impartial dispute resolution procedure.

Implications The Regulations go some way to addressing issues in connection with what can, at times, be a convoluted and confusing European multi-territorial licensing regime. Time will tell whether the new legislation will indeed further the interests of content creators, prompt reasonableness and transparency from CMOs in licensing negotiations and make the online music market more accessible to service providers.

Client Alert 2016-072