by : Dec. '11, Music Law

The Politics of European Online Music Rights

The Politics of European Online Music Rights

Boosting the music business in the Internet age has proven to be a tough proposition. Online copyright infringement still has the edge over legitimate music. Moreover, the music industry has faced dramatic losses in the off-line markets that have not been offset by the increase of revenues from the on-line music sector. In Europe the situation is more complex than the U.S. since the European Union (E.U.) does not have a single copyright system and the enforcement and management of exclusive rights in musical compositions, music performances and sound recordings still takes place mostly on a country-by-country basis–despite the international reach of the Internet.

The launch and full development of innovative services and an E.U.-wide online music business that could create a credible alternative to digital piracy is being hindered, at a time when there is a shift of content from end-user devices to the “cloud”. Newly emerged and successful music platforms like iTunes, Pandora’s randomized music streams, and Spotify’s on-demand music deliveries are very good examples of commercial services that can compete effectively and prevail over unauthorized file-sharing.

In the last years the E.U. Commission – the government and policy maker of the E.U. – took the music business into great consideration while continuing to develop the copyright harmonization process undertaken as of 1991 through the adoption of several directives. Recently, the E.U. Commission focused on ensuring a higher legal protection and on granting stronger economic incentives to copyright holders wishing to make their content available online on an E.U.-wide basis. In the absence of a unified copyright system, such as the one created in the U.S. by its federal laws, the ultimate goal of European lawmakers has been that of creating a licensing system for a “Digital Single Market” which would clear all music rights online in all the countries of the E.U.

Online Rights

When speaking about online music, one should always bear in mind that the legitimate supply of online services presupposes the clearance of both the rights in musical compositions, i.e. as they appear on a pentagram and in music sheets made available by a music publisher, and the rights in the sound recordings. The latter have to do with the performances of musical compositions, i.e. the so-called “neighbouring” rights. In the E.U. legal framework, performing artists and recording producers enjoy the same set of rights for their performances and sound recordings that authors, and, indirectly, music publishers, enjoy for their compositions. This means that three layers of full property rights’ protection coexist on the same digital goods exploited by online music services1.

Until recently, the most significant distinction between rights in musical compositions and in sound recordings in the E.U. copyright laws was given by their respective terms of duration. For musical compositions this was 70 years after the author’s death, and for sound recordings it was 50 years from the date of publication or communication of the sound recording to the public. An E.U. directive of September 2011 extended the term of protection of sound recordings and performances incorporated into sound recordings from 50 to 70 years2.  As clearly stated in the Commission’s impact assessment that accompanied the directive proposal of 2008, the extension of the term of protection was aimed at helping financially record producers and music performers at a time when piracy increasingly reduced the economic incentives to invest in artist and repertoire research and, inevitably, lowered the earnings of music performers3.  The original intent of the E.U. Commission was that of extending rights in sound recordings until 95 years from the date of publication, which would have ensured in Europe the same duration of protection granted to sound recordings  – as “works made for hire”  – under U.S. copyright law4.

Licensing

The E.U. Commission has been very active in the last years in order to make the licensing of online music rights smoother and effectively pan-European. As things stand, an online service provider or a digital music retailer wishing to use musical compositions for its online or mobile exploitations needs to clear two categories of rights conferred to authors under copyright laws:  mechanical or reproduction rights and public performance rights. The advent of digital technologies has increasingly blurred the distinction between these two categories, which are otherwise clearly separated in the offline world.

Even if online rights already exist on the market and in the day-to-day practice of European collecting societies, the 2001 “Information Society” directive, the most comprehensive attempt at harmonizing national copyright laws, failed to clarify whether the exclusive right to make content available online in an interactive way encompassed acts of reproduction necessary for digital delivery5.  If online rights constitute a specific combination of mechanical and performance rights for online applications, such as downloading or streaming services, then legitimate music services should simultaneous clear both classes of rights.

New Rules

From 2005 onwards, the E.U. Commission took action to facilitate the acquisition of all online music rights by online music distributors on an E.U.-wide basis6.  This has proven to be a very hard undertaking since national collecting societies of authors and music publishers in E.U. countries have traditionally operated on a strictly national basis and are de facto legal monopolies. They have concluded agreements of mutual representation for the management of their respective music repertoires in their sole country of business. At the same time, collecting societies developed different rules and contractual practices for the transfer and management of the mechanical and public performance rights, and this led to the creation of parallel ownership regimes for each of these rights.

The most important distinction in this regard is probably that which concerns the assignment of mechanical rights in the U.K. and continental European repertoires. There is a philosophical and cultural difference underlying the notion of copyright and author’s rights in both territories. In the U.K., music publishers have historically been the sole proprietors of mechanical rights through their own collective rights management organization, after having acquired them from the authors. Instead, in continental Europe, authors and music publishers usually co-own the same rights under the shield of their respective collecting societies (these societies have sought to protect authors from the bargaining power of the publishers and ultimately become authors’ unions).

The E.U. Commission sought to break up this well-established system in order to enable a smooth management of online music rights on a pan-European basis. The main idea was that of dismantling national barriers that restricted right-holders from issuing E.U.-wide licences for digital uses of their musical compositions and that forced commercial users of such compositions to seek authorizations in every E.U. country through the local collecting societies. At the same time, according to this reform plan, individual right-holders should have been allowed to opt for a collective rights manager of their choice, irrespectively of the country of domicile of the right-holders or of the copyright manager.

To pursue these ends, the Commission opted firstly for a nonbinding recommendation of 2005, which was addressed to E.U. Member States and collecting societies. It urged them to re-consider the existing structure of online rights management7.  At a later stage, the Commission decided to directly tackle the mutual representation agreements that European collecting societies concluded with each other under the aegis of the International Confederation of Societies of Authors and Composers (“CISAC”).

This happened through an antitrust decision (known as “CISAC decision”) of 2008 that found the clauses of territorial exclusivity and the membership requirement of economic residence embodied into these agreements illegal since they were deemed to constitute cartels restricting competition on the E.U. market for services of copyright management8.  As a result, this antitrust decision ordered the twenty-four collecting societies of the European Economic Area to withdraw the above-mentioned clauses from their mutual representation agreements and to bring cartels on territorial segmentation of collective licensing for online, satellite and cable transmissions to an end9.

 One-Stop Licensing Problems

This change of licensing rules for online music rights paved the way not only for effective competition between different collecting societies at the European level, but also, and most importantly, for a completely new form of competition among distinct music repertoires, which are now offered to commercial users by new and separate licensing bodies under their own contractual conditions and at their own prices. These new licensing bodies are either joint ventures that international major music groups established with the biggest collecting societies in Europe (in order to centralize the licensing of their Anglo-American and Latin-American music repertoires)10 or strategic alliances of national societies in southern and northern Europe seeking to consolidate and license jointly their local music repertoires for digital uses11.

Unfortunately, the new licensing scenario for online music is far from settled, at least for the new licensing bodies of the international major music groups which together account for more than two-thirds of the global music market. These economic entities, which own vertically integrated publishing and recording businesses, would certainly take advantage of the opportunity to license all rights in their digital music, including rights in their musical compositions, performances and sound recordings–either by themselves or through a specialized agent but always as a complete package of rights.

However, the sole rights that music publishers have been able to successfully withdraw from the repertoire of works administered by national collecting societies and confer to their own specialized licensing agents are the mechanical rights in the Anglo-American music repertoires. As recalled above, that is due to the fact that U.K. music publishers, as their counterparts in the U.S., have traditionally acquired and owned such rights on an exclusive basis and they have managed them through their own collecting societies. For foreign uses, U.K. music publishers have traditionally appointed sub-publishers which are members of national collecting societies  and conferred them a mandate for the management of mechanical rights on a local basis in every country of exploitation. This means that U.K. music publishers own and administer mechanical rights and can dispose of them without the author’s approval and can easily withdraw the foreign collecting societies’ rights to represent their music repertoire by merely letting the agreements with sub-publishers expire.

On the other hand, music publishers cannot withdraw or easily transfer public performance rights since these rights – even in the U.K. contractual practice – are normally owned or co-owned by authors and they have traditionally been managed by collecting societies, whose approval or consent is therefore indispensable for any kind of withdrawal or transfer. So far national collecting societies (and the music authors they represent) have proven to be reluctant to change the way they manage their public performance rights for online uses. As acknowledged by the same E.U. Commission in a position paper of October 2009, in spite of the bilateral re-negotiation of mutual representation agreements imposed by the 2008 CISAC decision, E.U. collecting societies still license their public performance rights for online music services on a national basis12.

A Suggestion

Politically speaking, E.U. law has a long way to go before it can establish a single copyright system for online copyrighted content. In the absence of a unified legal framework, reform plans like the one undertaken by the E.U. Commission in the online music sector are likely to fail if E.U. lawmakers do not create a common playing field for collecting societies and do not harmonize the rules governing the assignment and transfer of copyright through a proper legislative intervention involving the E.U. Parliament.

The current situation in the online music business clearly shows that some sort of simplification is needed in order to make the E.U.-wide licensing of online rights smooth and economically convenient for right-holders, commercial users and, ultimately, consumers. If the creation of a unified copyright system at the E.U. level is not a concrete option yet, lawmakers might consider amending the existing legal framework through measures aimed at drastically reducing legal uncertainty and transaction costs. For instance, E.U.-wide online exploitations of copyrighted content could be made subject to one single applicable law, according to a principle of private international law known as “country of origin” that E.U. law has already adopted for satellite broadcast transmission signals and online transmissions of audio-visual content (mainly online TV services)13.

In the case of online music rights, this might be the law of the country of upload of the content or the law of the country of establishment of the content service provider. In addition, the creation or codification of a single right of online transmission applying to digital exploitations would greatly simplify the licensing picture by replacing the simultaneous enforcement of such old-fashioned rights as the mechanical and public performance rights.

 

Giuseppe Mazziotti is Assistant Professor of Intellectual Property Law at the University of Copenhagen and Research Fellow at the Berkman Center for Internet and Society, Harvard University; see Mazziotti, G.,  “New Licensing Models for Online Music Services in the European Union: From Collective to Customized Management”, 34 Colum. J. L. & Arts 589 (2011).

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1 The enforcement of rights in sound recordings logically (and legally) depends on the previous enforcement of author rights in musical compositions, in such a way that each act of performance, recording, broadcasting (or webcasting) of a musical work protected by copyright must be authorised by the copyright owner in order to be lawful.

2 See Article 1(2) of Directive 2011/77 of the European Parliament and of the Council of 27 September 2011 amending Directive 2006/116/EC on the term of protection of copyright and certain related rights, 2011 O.J. L 265/1 (EU). This directive ended up establishing a distinction between – on one hand – the term of protection of sound recordings and of fixations of performances incorporated into sound recordings, whose term was extended from 50 to 70 years and – on the other hand – the term of protection of broadcasts and fixations of performances otherwise than in sound recordings, which remains subject to the previous 50-year term (cf. Article 1(2)(a)).

3 See Commission of the European Communities, Impact Assesment on the Legal and Economic Situation of Performers and Record Producers in the European Union, Commission Staff Working Document accompanying the Proposal for a Council Directive amending Directive 2006/116 on the term of protection of copyright and certain related rights, Brussels, 16.07.2008, available at: http://ec.europa.eu/internal_market/copyright/docs/term/ia_term_en.pdf.

4 See Commission of the European Communities, Impact Assessment, supra note 3, p. 61. The Commission’s proposal was eventually amended by the E.U. Parliament in the course of the co-decision procedure, which led to the adoption of the final text of the directive.  Interestingly, in fixing a 70-year term of protection for sound recordings, Directive 2011/77 obliges E.U. Member States to confer certain rights to music performers for the 20-year period of extended protection: a) a right to termination of the contracts through which performers have assigned or transferred the rights in their performances to record producers if the producer does not offer copies of the phonogram for sale in sufficient quantity or does not make it available to the public, by wire or wireless means, within a year from the notification by the performer of his or her intention to terminate the contract (see Article 1(2)(a) of Directive 2006/116, as amended by Directive 2011/77); and b) a right to supplementary remuneration for each full year of extended protection (see the new version of see Article 1(2), par. (b) to (e), of Directive 2006/116). These new provisions state expressly that music performers cannot validly waive the above-mentioned rights.

5 See Article 3(2) of Council Directive 2001/29, 2001 O.J. L 167/10 (EC).

6See Commission Study on a Community Initiative on the Cross-border Collective Mangement of Copyright (July 7, 2005), available at http://ec.europa.eu/internal_market/copyright/docs/management/study-collectivemgmt_en.pdf.

7See Commission Recomendation of 18 October 2005 on Collective Cross-Border Management of Copyright and Related Rights for Legitimate Online Musice Services, 2005 O.J. (L 276) 54.

8 See Commission Decision Relating to a Proceeding Under Article 81 of the EC Treaty and Article 53 of the EEA Agreement, at 1, 5 COM (2008) 3435 final (July 16, 2008), available at http://ec.europa.eu/competition/antitrust/cases/dec_docs/38698/38698_4567_1.pdf.

9 See Id. at 73–75 (including articles 1 and 4 (membership clauses) and 3 (territorial exclusivity)). The addressees of the decision were:  AEPI (Greece), AKKA/LAA (Latvia), AKM (Austria), ARTISJUS (Hungary), BUMA (Netherlands), EAU (Estonia), GEMA (Germany), IMRO (Ireland), KODA (Denmark), LATGA-A (Lithuania), OSA (Czech Republic), PRS (UK), SABAM (Belgium), SACEM (France), SAZAS (Slovenia), SGAE (Spain), SIAE (Italy), SOZA (Slovakia), SPA (Portugal), STEF (Iceland), STIM (Sweden), TEOSTO (Finland), TONO (Norway) and ZAIKS (Poland).

10 Major international music publishers such as EMI Music Publishing and Sony/ATV Music Publishing appointed as agents for their repertoires at the European level new licensing bodies: EMI appointed CELAS Gmbh, co-owned jointly by GEMA (Germany) and PRS for Music (U.K.); Sony appointed PAECOL Gmbh, which is a 100 percent subsidiary of GEMA. Other major publishers such as Universal Music Publishing and Warner Chappell opted for a slightly different version of the same model, which did not imply the creation of new organizations but merely appointed one or more national collecting societies as exclusive or nonexclusive agents of the publishers’ repertoires. For instance, music publishers like Sony and Peer Music and the collecting societies of Central and South America conferred a mandate to SGAE (Spain) for the management of their music repertoires for E.U.-wide online exploitations.

11 See initiatives such as ARMONIA, launched by SIAE (Italy), SACEM (France) and SGAE (Spain), and that of the pre-existing licensing body established by the Baltic and Nordic collecting societies  (Nordisk Copyright Bureau), which has become a licensing hub for mechanical and online rights management and for the collection and distribution of royalties beyond the territories within which the cross-border system previously operated (i.e., Sweden, Norway, Denmark, Finland, Iceland, Lithuania, Latvia and Estonia).

12 See DG INFSO & DG MARKT, Creative Content in a European Digital Single Market:  Challenges for the Future, at 6 (Oct. 22, 2009), available at http://ec.europa.eu/avpolicy/docs/other_actions/col_2009/reflection_paper.pdf.

12 See, respectively, Article 1(2) of Council Directive 93/83, 1993 O.J. (L 248) 15, 19 (EC) and Article 2 of Directive 2010/13, 2010 O.J. (L 95), 1 (EU). In both cases, the logic is that of avoiding the cumulative application of several national laws to a single E.U.-wide act of commercial exploitation of a copyrighted work.

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By Giuseppe Mazziotti

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