The Recasting of Copyright & Related Rights for the Knowledge Economy

Report commissioned by the European Commission, authored by Hugenholtz et al / Institute for Information Law Amsterdam

Chapter 1: Introduction

Overall description of the process of harmonisation

7 Directives in the field of copyright and related rights ((C)RR) in 15 years
Discussion of institutional and exogenuous issues
Questions the competence of the EC legislature in the field of (C)RR
Brief description of process of convergence (which drives many of the problems identified in Chap 2)

Chapter 2: Consistency and clarity: consolidating the aquis?

Territoriality

Harmonisation has ignored a main obstacle to the creation of an internal market in products of creativity: the territorial nature of economic rights i.e. still need to clear rights separately for 25 MS, which is a competitive disadvantage as compared to, say, US operators. Case law has addresses to some extent (cf Community exhaustion), as do the recent Online Music Recommendations (in terms of territoriality in collecting societies).

"As long as this territorial nature is left intact, harmonisation can achieve relatively little."

Subject Matter

Harmonisation only in terms of new or controversial subject matter (e.g. computer software, databases and photographs) => fundamental differences between continental and common law systems remain. Recommends further acquis to encourage Internal Market, despite oppositionary force of the 'homing tendency'.

Notion of 'broadcast' problematic, due to convergence of dissemination technologies, and also technology-specific definitions applied by Rome Convention and draft WIPO-Broadcast treaty. That said, solution is not in technology-neutral definition that broaden scope.
- Further economic study necessary before further attempts at harmonisation

Economic Rights

Only minor inconsistencies remain. Necessary to clarify certain definitions, although by an 'interpretative communication' rather than by legislation.

Biggest problem here is "the overlap in the digital environment of the reproduction right, which includes acts of temporary copying, and the right of communication to the public, which includes a right of making available online, both of which are defined in a very broad manner by the" ISD.
- Narrow the right of reproduction to avoid conflict

Limitations

Greater detail in forthcoming study of ISD, but some preliminary findings

issue of 'transient and incidental acts of reproduction' needs readdressing
limitations on RR should accord with those on (c)
legislature should move towards a 'more flexible and forward looking regime' of limitations e.g. a non-exhaustive list

Collective Rights Management

No true acquis because no general directive.

Chapter 3: Extending the term of protection for related (neighbouring) rights

"Holders of neighbouring rights in performances and phonograms have expressed concern that the existing term of protection of 50 years puts them and the European creative industries, in particular the music industry, at a disadvantage, as compared to the longer protection provided for in the US."
Addressed by a 3-step methodology

Desciption and comparison of the terms in MS in light of existing int'l framework and existing terms outsie EU
Examination of the rationale underlying related (neighbouring) rights protection
Economic analyis

"The authors of this study are not convinced by the arguments made in favour of a term extension. The term of protection currently laid down in the Term Directive (50 years from fixation or other triggering event) is already well above the minimum standard of the Rome Convention (20 years), and substantially longer than the terms that previously existed in many Member States. Stakeholders have based their claim mainly on a comparison with the law of the US, where sound recordings are protected under copyright law for exceptionally long terms (life plus 70 years or, in case of works for hire, 95 years from publication or 120 years from creation). Perceived from an international perspective the American terms are anomalous and cannot serve as a legal justification for extending the terms of related rights in the EU.

An examination of the underpinnings of existing neighbouring rights regimes does not lend support to claims for term extension. Whereas copyright (author’s right) protects creative authorship, the rights of phonogram producers are meant to protect economic investment in producing sound recordings. The related rights of phonogram producers have thus more in common with rights of industrial property, such as design rights, semiconductor topography rights, plant variety rights and the sui generis database right. Whereas all these rights share the same ‘investment’ rationale, their terms are considerably shorter, while setting higher threshold requirements (e.g. the database right requires ‘substantial investment’ in a database). The phonographic right requires no more than the making of a sound recording, be it a complex studio production or simply a matter of ‘pushing a button’ on a recording device. Indeed, a good argument could be made for shortening the term of protection for phonogram producers.

Given that the legal protection of phonogram producers is based on an investment rationale, it is important to note that the costs of owning and operating professional recording equipment has substantially decreased in recent years due to digitalisation. On the other hand, the costs of marketing recordings has apparently gone up. These costs now make up the largest part of the total investment in producing a phonogram. However, it is doubtful whether these costs may be taken into account as investment justifying legal protection of phonogram producers. Insofar as marketing costs accrue in the goodwill of trademarks or trade names, phonogram producers or performing artists may already derive perpetual protection therefore under the law of trademarks.

For the large majority of sound recordings the producers are likely to either recoup their investment within the first years, if not months, following their release, or never. If a recording has not recouped its investment after 50 years, it is very questionable that it ever will. On the basis of this finding it can be assumed that a term of protection of 50 years offers phonogram producers more than enough time to recoup their investment.

As the rights expire, recordings falling into the public domain will become subject to competition and falling prices, which will lead to a loss of income for the former right holders. Stakeholders argue that this will negatively affect future investment in A&R. However, it appears that only limited shares of phonogram producers’ overall revenues are currently invested in A&R, so the predicted negative effect on investment in new talent is likely to be limited.

Another argument that stakeholders have advanced in favour of term extension refers to the so-called ‘long tail’ (i.e. the reduced costs of digital distribution has created new markets for low-selling content). A term extension might indeed inspire phonogram producers to revitalise their back catalogues recordings, and make them available to a variety of digital distribution channels. On the other hand, the immense market potential of digital business models should already today have provided ample incentive to phonogram producers to exploit their back catalogues in new media. The recent history of the internet, however, indicates that these opportunities have not always been seized by those stakeholders now asking for a term extension.

Stakeholders have also posited that not granting a term extension would distort competition between right holders based in the EU and their competitors in non-EU countries, where right holders may enjoy longer terms. It has been argued that foreign countries would apply a ‘comparison of terms’ to the detriment of EU right holders. This argument is wholly unconvincing, for various reasons. In the first place, the Rome Convention probably requires full national treatment, which rules out a comparison of terms by those countries that are bound by the convention. Moreover, many countries not party to the Rome Convention, such as the United States, do not apply a comparison of terms at all.

Another argument advanced by stakeholders is that a failure to bring the term of protection in the EU in line with the US will negatively affect the competitiveness of the European music industry. However, the competitiveness of phonogram producers is based on a wide variety of factors, intellectual property protection in general and the term of protection in particular being just one of them. Moreover, the worldwide music market is dominated by only four multinational companies (the so-called ‘majors’), that can not be characterised as either ‘European’ or ‘American’. Juxtaposing the interests of the European and the American music industries, therefore, would be wholly artificial. Even so, the market dominance of the ‘majors’ is an economic factor to be taken into consideration. A term extension would in all likelihood strengthen and prolong this market dominance to the detriment of free competition.

A final argument sometimes advanced in favour of term extension comes from the world of accountancy. It assumes that a longer term of protection would increase the value of ‘intangible assets’ in the balance sheets of European record companies. Granting a shorter term of protection to record companies in the EU than their competitors in the US already receive, would arguably result in a comparatively lower valuation of assets of European companies. This argument, however, is largely without merit. The value of a record company’s own recordings is not regularly recognised as intangible assets by the record labels, and not capitalised in the balance sheets. Acquired catalogues of recordings are usually capitalised, but routinely written off well before the existing terms of related rights protection expire. A term extension will perhaps play a minor role only in the valuation of the goodwill of a record company in the context of a merger or acquisition. Even then, its effect will be minimal.

The fact that some recordings still have economic value as rights therein expire, cannot in itself provide a justification for extending the term of protection. Related rights were designed as incentives to invest, without unduly restricting competition, not as full-fledged property rights aimed at preserving ‘value’ in perpetuity. The term of related rights must reflect a balance between incentive and market freedom. This balance will be upset when terms are extended for the mere reason that content subject to expiration still has market value. The public domain is not merely a graveyard of recordings that have lost all value in the market place. It is also an essential source of inspiration to subsequent creators, innovators and distributors. Without content that still triggers the public imagination a robust public domain cannot exist.

Admittedly, an argument could be made in favour of extending the term of protection of performing artists, since the reasons for protecting artists are comparable to those underlying author’s rights. However, in the light of existing contractual practices, it is unlikely that performers would actually fully benefit from a term extension, since record companies routinely require a broad assignment of the rights of the performing artists. Therefore, extending the term of protection of performing artists should be considered only in connection with the harmonisation of statutory measures that protect the artists against overbroad transfers of rights. Obviously, a term extension would benefit only those artists that are still popular after 50 years and continue to receive payments from collecting societies and phonogram producers. This however concerns only a small number of performing artists.

Chapter 4: Calculation of the term of protection of co-written musical works

Limited problem, largely felt in opera.

Chapter 5: Rights clearance issues relevant to the reutilisation of existing works: multiple ownership and orphan works

No community action is recommended in terms of general rights clearance difficulties, as no market failure
As for Orphan Works, where a clear market failure, some legislative intervention may be justified. Need to ensure balance between safeguarding interests of rights holders and providing certainty to bona fide prospective users.
- "a system that allows for a competent public authority to issue a licence to use an orphan work, under strict conditions. Such a licence would not be all-inclusive, but granted to a designated user for a specific use only. If the right owner would re-appears, he might collect the royalties fixed in the licence, and deposited in an escrow account or with a collecting society."
Not a job for EC, as no detriment to the Internal Market
"Finally, it is advised to encourage right owners to make rights management information widely available to the public, in order to minimise the orphan works problem in the future. As a possible legal flanking measure, which would require intervention by the Community legislature, one could consider amending article 7 of the Information Society Directive in such a way that the legal protection of rights management information is only granted to right owners in case this information has been deposited in a publicly accessible database."

Chapter 6: Consumer awareness and acceptance of copyright

Critically examines the prevailing belief that (C) is losing its moral imperative within the general public. Distinction is made between consumer awareness (i.e. knowledge) and consumer acceptance (i.e. acknowledgement of values and principles) of copyright.

General knowledge is growing, but tricky to assess acceptance. Unauthorised use (based on use of p2p and unlicensed software) is the norm for 50% of society. Yet a much larger proportion recognise the equitable basis of and need for (C) protection. That said, prevailing culture amongst students and netizens is one of sharing. More generally, consumer behaviour is the product of an evaluation of the pros and cons, in terms of availability, price, use-conditions.

Chapter 7: Conclusions and recommendations

A very expensive and unproven experiment. In future, better to use soft-law, unless serious about addressing issue of territoriality (in which case a Regulation might do the trick, and also redress balance by harmonising down)