MULTI-TERRITORY LICENSING OF MUSIC ONLINE DG Competition s Online Commerce Roundtable. BEUC Statement

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1 eue MULTI-TERRITORY LICENSING OF MUSIC ONLINE DG Competition s Online Commerce Roundtable BEUC Statement Contact: Kostas Rossoglou legal-eco@beuc.eu Ref.: X/048/ /07/09

2 Summary BEUC strongly supports the establishment of one-stop-shop for the granting for multi-territory licenses that will cover the global repertoire and the whole European Economic Area. The achievement of this goal requires a number of conditions: liberalisation of collective rights management market in the downstream relationship between right owners and commercial users; regulatory measures with regard to supervision and governance of collective rights management societies to ensure the effectiveness of market liberalization; establishment of effective systems for the identification of right owners; a well regulated licensing system that stimulates the emergence of alternative distribution methods for online content. BEUC calls on the European Commission to adopt an integrated and coordinated approach to tackle the issue of territorial discrimination. The forthcoming implementation of the Services Directive and the ongoing discussions on the draft Consumer Rights Directive can be used to this end. 2

3 Introduction The Internet has been one of the truly revolutionary changes of modern times, providing consumers with greater access to services, information and knowledge. It also allows businesses to expand their activities by providing online offers and having access to a greater number of consumers. The Internet fosters online commerce by reducing transactional costs and the costs for delivery while it allows consumers to compare offers and make informed choices. It also brings the accomplishment of the Single European Market closer by eliminating barriers across the EU. Despite the commitment of the EU to boost online commerce, the online market for licensing of content remains fragmented. This can be partially explained by the lack of consumers confidence to purchase online cross-border, namely due to concerns related to privacy and protection of their personal data. However, in most cases consumers are confronted by barriers set by businesses. Notwithstanding the principally borderless character of the internet, consumers find that some e-commerce businesses have actually re-introduced territorial barriers through technology. Businesses may either refuse access to consumers depending on their country of residence 1 or apply dissimilar conditions depending on the country of residence (i.e price discrimination for the same type of services in varying Member State). Such barriers are often related to reasons inherent to the specific nature of Intellectual Property Rights within the EU. Barriers to online trade Territorial nature of copyright Despite the efforts to harmonise Intellectual Property Rights across the EU, the territorial nature of copyright has been left intact. Each Member State has its own rules regarding the granting of copyright, thus limiting their scope to their national territory. Consumers seeking to buy copyright protected content online are often only allowed access to online stores directed to their country of residence. Such barriers lead to a significant reduction of choice for consumers, particularly for consumers from the new Member States where there is a less abundant service offer 2. The territoriality of copyright may also impose restrictions to citizens access to knowledge and culture. 2 British users of itunes were not allowed to download the cheaper-priced songs from itunes Germany unless they possess a German credit card. Refusals to serve consumers because of their nationality of residence- Distortions in the Internal Market for e-commerce transactions, Natali Helberger. Refusals to serve consumers because of their nationality of residence- Distortions in the Internal Market for e-commerce transactions, Natali Helberger. 3

4 Identification of right owners When seeking to clear rights, commercial users are confronted with the difficulty of identifying right owners. Intellectual Property Rights are spread cross a large number of companies and individuals. Commercial users, who want to offer online music services, will have to seek to secure rights from different right holders and in different countries. In addition, they will be confronted with situations where the granting of a blanket licence is impossible due to the decision of right holders to withdraw some of their rights from bodies of collective management. As a result, commercial users will have to negotiate with different right holders and bear significant costs involved in their identification, which will be borne by the end-user. Furthermore, the lack of common rules on copyright ownership and identification, reduce the range and variety of copyright protected content offered to consumers. Towards elimination of territorial restrictions Under the existing framework for music licensing online, collecting societies in each Member State grant a license that covers the repertoire of collecting societies established on other Member States, on the basis of reciprocal agreements. However, such agreements allow for the licensing of music exclusively for the national territory of the society granting the license. Consequently, a commercial user who wants to provide online music services across the EU, will have to seek a license in each of the 27 Member States. This system is not suited to the Internet that provides for music consumption across borders. BEUC welcomes the recent decision of the European Commission in the CISAC case 3 which ruled that reciprocal agreements between collecting societies constituted a restrictive business practice violating EC rules on competition. The decision focused in particular on the membership and exclusivity clauses that are used in such agreements. Membership clauses prevent music authors of a free choice between different collecting societies. In many countries, authors are obliged to use their own national collecting society. Right owners should be free to choose which collecting society manages their copyright on the basis of quality of service, efficiency of collection and distribution of fees. Exclusivity clauses on the other hand, allow collecting societies to administer their respective repertoires on an exclusive basis in their territories. This practice prevents the granting of licences outside the domestic territory, thus leading to territorialisation of European markets 4. 4 C(2008) 3435 final, Commission of relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement, Case COMP/C2/ CISAC. Creativity comes at a price, the role of collecting societies, published by the European Audiovisual Observatory. 4

5 BEUC strongly believes that each collecting society should serve as one-stop-shop granting to commercial users multi-territory licenses with a wide scope both in terms of content (global repertoire) and territory (covering the whole European Economic Area). Liberalisation is necessary but not sufficient Competition rules can be an efficient tool to improve the current system of collective rights management. Collecting societies have a dominant position in each country for the management of specific rights and in some countries they even enjoy a statutory monopoly 5. The liberalisation of the collective rights management market can only bring results if it takes place in the downstream relationship between collecting societies and commercial users. Such a liberalisation will entail the elimination of territorial restrictions and discriminatory provisions in the reciprocal agreements, thus introducing a single entry point for commercial users who seek to offer online services at pan-european level. Allowing commercial users to choose the collecting society of their choice will provide the incentives to collecting societies to compete in terms of quality of their services and the level of administrative costs. Within such a competitive environment, the costs for the licensing of content will be reduced to the benefit of the end-user. Need for regulation The liberalisation of the market will not achieve the expected results, unless combined with regulatory measures to guarantee a level playing field with regard to collective management systems across the EU. BEUC therefore calls on the European Commission to consider adopting legislative measures to address the lack of transparency in the functioning of collecting societies. Supervision In the absence of harmonised rules at Community level, collecting societies are subject to national rules regulating their supervision. However, the specific rules in each Member State diverge widely, from strict supervision to de minimis supervision 6. Supervision is crucial to mitigate the monopolistic behaviour of collecting societies and a precondition for the establishment of effective pan-european licensing of content online. BEUC calls upon the European Commission to adopt common principles and standards governing the supervision of collecting societies through the establishment of independent, regular and expert control mechanisms. 5 6 This is the case of Italy and Austria. Collecting societies and Competition Law, Josef Drexl. See also the study carried out by the Italian Consumer Organisation Altroconsumo which provides examples of monopoly situations of collective societies in some Member States, available online at: Collective management in the European Union, Lucie Guibault and Stef van Gompel. Examples of strict supervision can be found in German, Austrian and Portuguese legislation, while Ireland, the UK and Poland apply a system of de minimis supervision. 5

6 Governance BEUC stresses the need for transparent rules with regard to the governance of collecting societies. Collecting societies should make publicly available the information related to their tariffs and the level of management costs, as well as the catalogue they represent and the existing reciprocal representation agreements. Common rules should also govern the relationship between collecting societies and right-owners, in terms of conditions for membership and the equal representation of all right holders in the internal decision making instruments. Collecting societies should also guarantee the fair distribution of royalties to all right holders in an equitable manner 7. Clearance of rights BEUC shares the concerns expressed by participants at the online commerce roundtable as regards the complexity of the current system for clearance of rights and its impact on online licensing of content. Pan-European online music market can only be achieved via the adoption of rules that would simplify the current system for the clearance of rights. In order to facilitate the identification of right owners, BEUC calls on the European Commission to consider a number of options to enhance legal security to the benefit of both commercial users and consumers. Creation of Ownership database The creation of a database that would provide all relevant information to ownership of copyrights would facilitate the identification of right owners and thus reduce the transaction costs that are involved in this process. Access to such a database should be open to all relevant stakeholders, providing accurate information as to the copyright status of the registered works. Collecting societies could play an important role, serving as information brokers providing assistance in the search of the database and clearing rights for registered works. However, to ensure the transparency of such a database, clear rules on the management and accessibility are required. Extended collective licencing BEUC advocates for the application of a system of extended collective licensing. This system that has long been applied in Nordic countries is based on a legal assumption that a license granted by any collecting society covers all the right owners and the whole repertoire. 7 The current practices followed by collecting societies in the distribution of revenues lack transparency, while in some Member States involve high administrative costs that are to be born by consumers. For more information on the Italian case, please see the study carried out by the Italian Consumer Organisation Altroconsumo which provides examples of monopoly situations of collective societies in some Member States are mentioned, available online at: 6

7 This system greatly facilitates the clearance of rights, since a commercial user may obtain a licence to use all the works, without the risk of infringing copyrights. % eue In addition, such a system puts the right holders who have been bound by the extended collective licence without being a member to the collective society and without having negotiated the agreement on the same footing as organised right holders in terms of distribution of remuneration collected 8. Multi-territory licensing of music should aim to foster consumer choice New technologies have created increased consumer demand not only for more content, but also for content available through more platforms. BEUC strongly believes that any system for online licensing should be adapted to the challenges of the digital environment and aim to enhance consumers choice, while securing the balance between the interest of right owners and commercial users. For consumers, the critical issue is that whatever method of license is chosen, it ensures full and non-discriminatory access to cultural content at a fair and reasonable price. Multi-territory licensing will increase legal offers BEUC is confident that the establishment of a legal regime that would allow consumers to buy music online on a pan-european basis would contribute to the significant reduction of unauthorised use of copyright-protected works. An efficient and regulated licensing system is essential for the emergence of alternative distribution methods for on line content. BEUC has long been calling for a thorough discussion on the development of innovative business models that would be best adapted to the online world and would respond to a clearly-defined consumer demand. Consumers have been engaging with the new technologies and the opportunities they provide. Right owners should consider the Internet as a new tool for the distribution of their works, rather than as a threat. Need for coordinated approach The focus of competition rules is the relationship between right holders and commercial users. Competition can only indirectly address some of the barriers that consumers face when shopping online and is partly helpful in defending the interests of consumers in case of territorial discrimination. 8 Creativity comes at a price, the role of collecting societies, published by the European Audiovisual Observatory. 7

8 BEUC calls for a coordinated approach between the different services of the European Commission to tackle the issue of territorial discrimination. The recently adopted Services Directive 9 seeks to eliminate barriers to the development of services across the EU, including activity via the Internet. Article 20.2 explicitly bans service providers from discriminating against consumers who want to access their services on the grounds of nationality or place of residence 10. BEUC calls on the European Commission to closely monitor the implementation of the Directive, in particular of Article 20, by Member States 11. In addition, consumers are often confronted with contract terms included in licence agreements that prevent them from using a service originating outside of their country of their residence or which require the use of a credit card issued by a bank of the country where the service provider is established. BEUC therefore invites the EU institutions to look into the issue of territorial discrimination within the framework of the discussions of the draft Consumer Rights Directive. End-User License Agreements (EULAs) often include terms that restrict the provision of goods and services to nationals of a specific Member State. Such terms unfairly restrict consumers access to and use of content and should be banned. BEUC welcomes the recent announcement by Commissioners Kuneva and Reding of the Digital Agenda that has identified priority areas where EU action is necessary to enhance consumer rights online. Among these priorities, figures the establishment of multi-territory licensing regimes for online content. END Directive 2006/123/EC of the European Parliament and the Council of 12 December 2006 on services in the internal market. Article 20 stipulates that Member States shall ensure that the general conditions of access to a service, which are made available to the public at large by the provider, do not contain discriminatory provisions relating to the nationality or place of residence of the recipient. The deadline for Member States to transpose the Directive into national law is 28 December