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On 3 January 2008 the European Commission adopted a Communication on Creative Content Online in the Single Market (Communication). 1
The Commission is clear on the significance of its subject matter: the transfer of creative content services to the online environment represents a “major systemic change”.2 Dealing with this change, brought about by the large-scale take-up of broadband and the increasing availability of creative content and services in the online world, presents “challenging new opportunities”3 for content and network operators, rights holders, consumers, governments and independent regulators.
This article summarises the main provisions of the Communication, and asks whether the creative content industries, particularly the music industry, will welcome what the Commission has to say on the subject. Particular attention is given to the Commission’s recommendations in respect of the responsibility of internet service providers (ISPs) in the fight against internet piracy, something which, according to Geoff Taylor, chief executive of the British Phonographic Industry, is “the No. 1 issue for the creative industries in the digital age”.4
Background
The Communication builds on the results of a consultation on creative content online launched in July 2006.5 For the most part, responses to that consultation invited the Commission to show restraint and resist the temptation to intervene prematurely with further legislation in a nascent and fast evolving market. However, the Commission acknowledges that there were specific calls for changes in the legal framework on issues such as IP rights licensing, private copying levies and interoperability. The Commission was urged to encourage co-operation, including through charters or codes of conduct, between industry, right holders and consumers. There were also calls for financial support and requests for promoting standards concerning the interoperability of digital rights management systems (DRM). The upshot is that the Commission now intends to launch further actions “to support the development of innovative business models and the deployment of cross-border delivery of diverse online creative content services”.6
The Communication
Based on the results of the public consultation, the Communication identifies a number of challenges associated with creative content online 7 and concludes by stating how it wishes to address these challenges.
The Commission deems that there are four main, horizontal challenges which merit action at EU-level. Its conclusions provide a useful indication of the direction the Commission intends to take in many areas in which the music industry is taking its first, tentative steps. The four areas of focus are:
- availability of content online, the difficulties of which were highlighted in the recent Qtrax debacle, where a fully licensed peer to peer (P2P) network was announced with great fanfare, only for it to transpire the following day that the service was not licensed by any of the four major record companies;
- multi-territory licensing and the obstacles facing it, where the Commission is more critical of the major players in the industry, but recognises the difficulties involved in, for example, the recent efforts to open up European collection societies to direct competition;
- interoperability and transparency of DRM systems, an area of interest both to rights holders and the technology industry which supplies the equipment on which their rights are exploited; and
- legal offers and piracy, in which the Commission arguably makes its most welcome remarks from the point of view of the music industry in relation to the issue of the responsibilities of ISPs in the fight against piracy.
Availability of creative content
The Communication refers to the lack of availability of creative content for online distribution and a lack of active licensing of rights on new platforms. It considers these major obstacles to the development of online content services and recognises the underlying difficulties, for example, in settling terms of trade for online exploitation of creative content. The Communication observes that some rights holders prefer to protect existing revenue streams rather than actively license their rights on new platforms. Further hindrances are presented by potential conflicts with rights already granted for main forms of exploitation.
Another issue highlighted by the Commission is that of high transaction costs for rights clearance. It refers to the “particularly acute problem” of orphan works – copyright works for which the right holders are difficult or impossible to identify or locate. As the Gowers Review in the UK itself highlighted, efforts for identification and location are costly and time consuming and in many cases orphan works cannot be exploited and yield no financial benefit to anyone. It is a concern that the Commission has already addressed in its 2006 Recommendation on the digitalization and online accessibility of cultural material and digital preservation 8 which urged Member States to find ways to facilitate the use of orphan works.
Multi-territory licensing for creative content
Under this heading, the Commission makes the simple point that, as a result of copyright territoriality, a content service provider is required to obtain the right to make content available in each Member State. It then bemoans the lack of multi-territory copyright licences which makes it difficult for online content services to be deployed across Europe and to benefit from economies of scale. Whilst the Commission lays the primary responsibility at the door of rights holders whom it clearly suspects of failing “to appreciate the potential benefits of multi-territory licensing”, 9 more generally it highlights the need to improve the existing licensing mechanisms to allow for the development of multi-territory licensing.
This is an area which has been addressed to some extent by the Commission in its 2005 Recommendation on online management of music rights. 10 That Recommendation set out to facilitate the grant of multi-territory licences for online use of musical works by affirming the right of rights holders to entrust the management of any of the online rights necessary to operate legitimate online music services on a territorial scope of their choice, to a collecting society of their choice, irrespective of the Member State of residence or the nationality of either the collecting society or the rights holder. The Commission is currently reviewing the impact of the Recommendation. 11
While the Commission talks of developing multi-territory licensing mechanisms, however, its own Recommendation in this area for the music industry, referred to above, has come in for serious criticism for potentially promoting the opposite. In March 2007, the European Parliament adopted a Resolution in response to the Commission’s Recommendation. 12 The Resolution clearly expressed the Parliament’s opposition towards the grant of an exclusive mandate on the part of major right holders to a single collecting society of their choice empowered for the entire European territory. Parliament argued strongly that collecting societies should not lose their role in protecting smaller right holders that clearly do not handle the same bulky repertoire as held by the majors. The Parliament’s concern was that the Commission’s approach would give larger collecting societies and large right holders licence to consolidate to the exclusion of smaller right holders and societies, thus reducing cultural diversity and choice.
The Communication also raises the issue of multi-territory licensing in other creative content sectors such as the audio-visual sector. It notes that many rights holders still choose to grant licences for only a few national territories, thus slowing the availability of audio-visual works in video-on-demand catalogues abroad. The Commission therefore raises the prospect of developing a system where rights holders would be encouraged to grant, next to the main licence, a second multi-territory licence, although the Communication does not provide any further detail on how “a second multi-territory licence” might work. The Commission envisages financing an independent study investigating the economic consequences of such a system.
Interoperability and transparency of DRM systems
With a degree of understatement, the Commission acknowledges that DRMs and associated technological protection measures have “sometimes been perceived in a negative way, as technology merely used to restrict copying and competition, failing to meet initial users’ and businesses’ expectations”. 13 Hence the emergence of DRM-free content particularly in the pay-per-download music market, such as the digital music store launched recently by the online retailer Amazon offering DRM-free downloads from each of the four majors, viewed by many as the majors’ attempt to challenge the dominance of Apple’s iTunes store in the market for legitimate music downloads.
The Commission regards the move to a DRM protected environment as a major paradigm shift, particularly for consumers. It refers to usage governed by licensing agreements enforced by technical measures now complementing usage of copyright protected work governed by law. The result has been that consumers frequently face complex contractual terms when purchasing online content without necessarily understanding the usage restrictions applied or how their own personal data may be used. The Commission considers that these problems are compounded by the lack of interoperability, standardisation and “cross platform friendliness” in DRMs.
The Communication spells out the consumer and competition concerns. Better interoperability, it says, means that consumers can chose different devices and still use them with different “download-to-own” services. For content producers or aggregators meanwhile, interoperability means not being locked into one distribution channel that forms a gate-keeper to the market place. For technology developers, on the other hand, interoperability means that their products can be used with different content services. The Commission concludes by highlighting the need to set a framework for transparency of DRMs, by ensuring proper consumer information with regard to usage restrictions and interoperability. In this respect, it recommends providing consumers with an accurate and easily understood labelling system.
Legal offers and piracy
Under this heading the Commission acknowledges that the music and film industries have consistently and forcefully expressed the view that the Commission should be prepared to take legislative steps to ensure that the public interest in ensuring an adequate level of data protection is properly reconciled with other important public policy objectives, such as the need to protect the rights and freedoms of third parties, in particular in relation to illegal activities such as piracy and unauthorised up- and down-loading of copyright material.
In this connection, the Commission talks of the appropriateness of “instigating co-operation procedures” 14 in the form of codes of conduct between ISPs, right holders and consumers in order to ensure a wide online offer of attractive content, consumer friendly online services, adequate protection of copyright works, awareness raising/education on the importance of copyright for the availability of content and close co-operation in the fight against piracy and unauthorised file-sharing.
Whether the Commission’s determination to “instigate co-operation procedures” will be viewed by the music industry as going far enough is doubtful. The International Federation of the Phonographic Industry’s Music Report 2008, 15 while stating that “2007 has finally seen the wind of change blowing through old assumptions about the role ISPs should play in protecting copyrighted content”, at the same time makes absolutely clear that a turning tide of opinion is one thing, a concrete programme of action another – “the moment for EU legislation to be drawn up has arrived”.16
While the Commission’s attitude towards ISPs and their responsibilities demonstrates that the Commission is at least moving in the right direction from the viewpoint of the record industry, it nonetheless stops well short of regulatory intervention, and a long way short of the recent recommendation from the House of Lords Science and Technology Committee that it is time to take a “nibble out of the blanket of immunity covering ISPs”, 17 referring specifically to the mere conduit safe harbour in the E-Commerce Directive (00/31/EC).
Moreover, the sense that the tide is turning in certain individual Member States quicker than at the Commission is evidenced by a number of recent developments. First, the IFPI Report refers to the Sabam-Tiscali judgment in Belgium in June 2007 18 where the court not only confirmed that the ISP must take responsibility for curbing infringement on its networks, but actually referred to six possible technologies for blocking the traffic of unlicensed music. Secondly, and as noted with some approval in the Communication, a Memorandum of Understanding was signed in France in November 2007 which set up a three way partnership between the creative sector, ISPs and government. The agreement requires ISPs to disconnect copyright infringers on a large-scale, using an automated system, and to test filtering technologies. Thirdly, early reports relating to the draft UK Government Green Paper on creative industries, to be published at the end of February 2008, suggest the UK Government “will move to legislate to require internet service providers to take action on illegal file sharing”. 19 Under a ‘three strikes’ rule, infringing users would receive an email warning, suspension and then termination of their contract with their ISP.
If the reports are accurate, the Green Paper is evidence of the UK Government’s frustration that a voluntary agreement has not been reached between ISPs and rights holders; it may even be intended to focus the minds of those conducting the still ongoing negotiations. Britain’s four biggest ISPs – BT, Tiscali, Orange and Virgin Media – have been in talks with Hollywood’s biggest studio and distribution companies for six months over a voluntary scheme. Parallel negotiation between Britain’s music industry and individual ISPs have been dragging on for two years.
As the Commission itself recognises, however, the question of ISP responsibility is fraught with difficulties. Obstacles to be overcome include who will arbitrate disputed allegations of infringement (for example in cases of so-called “wi-fi piggybacking” where users link up to a wireless network which is not their own), how many enforcements the ISPs will be expected to initiate and how quickly warning emails should be sent. Another big issue is that the technology which allows the sharing of unlicensed files can be used for legitimate purposes. It is unlikely that there is a 100% effective way to block illegal file-sharing that will not impact on legal file-sharers. Moreover, file-sharers are a determined bunch who have a long history of coming up with new ways to share copyright material as soon as a particular method is restricted.
Addressing the challenges
The Communication concludes by setting out the means by which the Commission wishes to address the challenges outlined above.
Firstly, a “Content Online Platform” will be set up. The Platform will be devoted to content specific or cross-industry negotiations at a European level around the issues related to the online distribution of creative content.
Secondly, the Commission intends to issue a Recommendation of the Parliament and the Council on creative content online in mid 2008. The Recommendation will cover the following three issues:
- transparency (labelling) and interoperability of DRMs;
- encouragement of innovative licensing regimes in the area of audio and audiovisual works; and
- legal offers and piracy.
On the main elements of the future proposal, the Commission states its wish to consult interested stakeholders further. Stakeholders are invited to take positions on various elements of the three issues which are set out in the annex to the Communication. The deadline for further submissions is 28 February 2008.
Comment
The Communication betrays a degree of frustration on the Commission’s part over the circumspection among rights holders in relation to developing online markets, particularly in the music sector. It refers to the paradigm shift that is DRM, and the attendant problems. Unfortunately, the implication is that there has been no such shift in the general approach of rights holders to cross-border music distribution and rights exploitation. Whether the issues around Qtrax’s recent false-start show that the record industry is addressing these concerns, or unprepared to overcome them, remains to be seen. What is clear is that a properly licensed P2P application, which Qtrax may or may not eventually become, is still to arrive at market.20
The Commission’s avowed intention to instigate co-operation procedures in the form of codes of conduct between ISPs, rights holders and consumers suggests that the Commission’s approach, while less “hands-off” than the communications industry might prefer, remains a good deal more “hands-off” than the music and film industries want. Their demands for legislation remain, for the moment at least, unheeded at a European level.
One wonders whether there is an element of “quid pro quo” at work in the Commission’s thinking – if it is to assist rights holders by legislating in relation to ISP responsibility, does it expect to see some of the more entrenched attitudes of the music and film industries, for example in relation to DRM and cross-border licensing, change for the better?
This may all prove irrelevant. Given the UK Green Paper, the decision of the Belgian court in Sabam-Tiscali and the Memorandum of Understanding reached in France, it seems that certain member states are moving far more quickly than the Commission is either able or willing. Similarly, whether any of the stakeholders will choose actively to use the “Creative Content Platform” set up by the Communication remains to be seen.
In light of these developments on a national level, it seems the Commission is at a cross-roads: it can resign itself to making the right noises politically, leaving the online music sector to grow organically and unevenly on a national level, or it can take encouragement from the examples of Belgium, UK and France, and resolve to be more prescriptive in the area, rather than merely proactive.
Tim O'Shea
Article first published in the Entertainment Law Review Volume 19 - issue 4 - 2008 - issn 0959-3799. Reproduced here with permission of Sweet & Maxwell.
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1 Brussels, 03.01.2008 COM(2007) 836 final.
2 Communication, section 2, p.3.
3 Communication, section 1.1, p.1.
4 The Times, Tuesday 12 February 2008.
5 The Communication also refers to a number of other initiatives relevant to this area. These include the Internal Market review and the review of the consumer “acquis”, the review of the Satellite and Cable Directive (93/83/EEC), the report on the application of the 2001 Copyright Directive (2001/29/EC), the Green Paper currently being prepared by the Commission on Copyright in the Knowledge Economy, the implementation report on the Recommendation on online management of music rights (2005/737/EC) and the forthcoming Second evaluation report on the Conditional Access Directive (98/84/EC), all of which provide further opportunities to deal with the issues related to creative content online.
6 Communication, section 1.3, p.3.
7 The Communication defines “creative content online” in the following, non exhaustive terms: content and services such as audiovisual media online (film, television, music and radio), games online, online publishing, educational content and user generated content.
8 OJ 2006 L 236/28.
9 Communication, section 2.2, p.5.
10 2005/737/EC.
11 See Maria Mercedes Frabboni, “Online Music Licensing: The Calm After the Storm” [2006] Ent. L.R. 65.
12 European Parliament Resolution adopted on 13 March 2007 in response to the Commission’s Recommendation on collective cross-border management of copyright and related rights for legitimate online music services (005/737/EC).
13 Communication, section 2.3, p.6.
14 Communication, section 2.4, p.8.
15 Published by IFPI, January 2008.
16 IFPI Digital Music Report 2008, “Revolution, Innovation, Responsibility”, p.3.
17 Select Committee on Science and Technology, Fifth Report, Chapter 3 “The Network”, paragraph 3.62.
18 Sabam V. S.A. Tiscali (Scarlet), District Court Of Brussels, No. 04/8975/A, Decision of 29 June 2007.
19 The Times, Tuesday 12 February 2008.
20 See CMU Daily – On The Inside, Tuesday 29 February.
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