European Collective Management in Turbulence

(IPRinfo 1/2008)

Martti Kivistö
Director, Legal affairs
TEOSTO, Finnish Composers´ Copyright Society

In the European Commission’s pursuit for a copyright-without-borders Europe, the torch now appears to have been grabbed by Commissioner Viviane Reding of DG Information Society and Media. But DG Internal Market and DG Competition are also in the game as major players.

Both these Directorates are presently involved in procedures where smooth functioning of the Internal market and Europe’s competitiveness on the global content and media market, particularly that of music, have allegedly been made dependent on the availability of EU-wide or regional collective online licences.

On 3 January 2008, the European Commission launched a new vision for a single market in online music, films and games in Europe. This involves close cooperation between the content industry, telecom companies and Internet service providers. The Commission’s Communication (COM (2007) 836 final) is to be followed later this year by a Recommendation on Creative Content Online. One of the Commission’s goals is to facilitate copyright licences for online content covering several Member States or the entire Union.

Traditionally, collective management of rights has been a national business for designated or specialised societies, usually also active in the cultural and legislative arenas of their countries. The oldest societies, such as GEMA of Germany or SACEM of France, date back to the 19th century.

Pressure on the Contract network between CRMs
In the pre-Internet era, the markets for music works, for instance broadcasting, record delivery, concerts, or background music in restaurants and bars, were mainly national. In the analogue world, the monitoring of user markets required physical presence on site or at least information on the location and activities of the music users (i.e. distributors or broadcasters).
A network of contracts between national CRMs was built over decades, consisting of reciprocal representation agreements (RRA) that enable and facilitate monitoring of the use of works outside national markets. CISAC, the worldwide cooperation organisation of copyright societies, has played an important role in this development.

By creating an environment without physical borders, Internet changed this all. Licences purported for national markets could no longer serve the interests of music users engaged in regional or pan-European businesses. Licences covering the entire area may have been available but on a country-by-country basis only. In the shift of the millennium, CRMs responded to the growing market needs by introducing new types of RRAs designed for the music online world, so-called Santiago and Barcelona Agreements, for performance and mechanical rights, respectively.

First arrangement attempts not approved of by the Commission
Utilising the Santiago and Barcelona Agreements a user (e.g. broadcaster or music dealer) could obtain a multi-territorial licence for online use – but only from the CRM operating in the territory where this user is established.

The European Commission, however, having been notified of the Santiago Agreement in April 2001, deemed the model RRA infringing the competition rules of the EU (Art. 81(1) of the EC Treaty): it would prevent the societies from licensing users outside their own territories. A MFN clause would further reinforce these restrictive effects.

This so-called Santiago Case, initiated in April 2004, was still pending when the Commission opened a new case in January 2006. The CISAC Case built on two earlier complaints by European broadcasters RTL Group and Music Choice Europe (filed in 2000 and 2003 respectively), which were aimed at the territorial restrictions included in the model contract drafted by CISAC.
The Commission’s Statement of Objections (January 2006), to which both CISAC and its European member societies were addressees, challenged not only the relations between societies and music users but also those between societies and right holders. DG Competition stated that any provisions in the model contract – and for that matter, actual contracts concluded between European societies – that restrict an author from joining a society of his own choice need to be deleted.

Furthermore, any contractual provisions preventing a society from operating in the territory of another society have to be abolished. The existing contractual arrangements have created a network in which each of the individual collecting societies has obtained absolute territorial protection from the other collecting societies, the Commission concluded.

DG carried out a study on online music markets
Meanwhile, DG Internal Market was busy preparing follow-up measures to the Commission’s Communication on the Management of Copyright and Related Rights in the Internal Market (COM (2004) 261 final), published in April 2004. The Communication had pointed out that in order to achieve a genuine Internal Market for both the off-line and on-line exploitation of intellectual property, more common ground on several features of collective management is required.
In July 2005, the Commission published a study that examined the present licensing structures of music works for use on the Internet.

Three policy options for future online licensing were outlined: do nothing, i.e. to retain the existing RRA system (Option 1), eliminating territorial restrictions and discriminatory provisions in the RRAs (Option 2), or giving right holders the choice to authorise a collecting society of their choice to manage their works across the entire EU (Option 3).

Commission preferred CRMs to compete for rightholders
The Commission’s conclusion was that Option 3, by introducing competition for right holders (instead of music users) between CRMs, would offer the most effective model for cross-border management. Increased competition would force CRMs to negotiate advantageous royalties on behalf of their members. If their services were either inefficient or too expensive, rightholders would move to another rights manager, the Commission argued.

In time, this approach would lead into an oligopoly where only three or four most powerful CRMs would be left in the European online licensing arena.

This vision met with fierce resistance particularly from the small and medium-sized CRMs, concerned about the viability of European cultural diversity and sustainability of local services in such a centralized model.

Eventually, the Commission’s final word in October 2005 proved to be a ”laissez-faire” Recommendation, which did not opt for any particular policy. It only laid down certain basic rules between a CRM and a music user on one hand and between a CRM and a member on the other.

These rules include elimination of territorial restrictions and an option to withdraw online rights from a CRM, which would ensure that both a user and a right holder are given a choice as to their preferred model of online licensing. In other words, the Commission laid a bet on market-driven development.

Commission’s approach annoys the Parliament
For music authors and their societies, music users, and many stakeholders the Commission’s simultaneous and seemingly uncoordinated activity on the same subject by two Directorates has been more than embarrassing.

Things did not become any easier when the European Parliament, annoyed by the Commission’s ”soft law approach” manifested in the Online Recommendation, took the lead some months later. As a result, online licensing gained more weight as a political and cultural issue. Also, the call for a more democratic procedure voiced out by many MEPs was reflected in the final report of the Committee on Legal affairs, published in March 2007.

In its resolution of 13 March 2007 the European Parliament invites the Commission to make it clear that the 2005 Recommendation applies exclusively to online sales of music recordings, and to present as soon as possible – after consulting closely with interested parties – a proposal for a flexible framework directive to be adopted by Parliament and the Council in codecision…

DG Information Society takes a broader approach
A follow-up survey on the implementation of the Online Recommendation was completed in July 2007. The Commission received 89 replies from various stakeholders. A summary report, published in February 2008, concludes that the Recommendation seems to have produced an impact on the licensing marketplace and is endorsed by a number of collective rights managers, music publishers and users. The Commission will follow further developments and repeat the monitoring, should a clear need to do so arise.

Similar assessment was represented already in November 2007 in a debate in the European Parliament where the Commission’s representative said that submissions analysed so far show that most stakeholders do not see the need for a framework directive, and prefer market-based solutions to regulatory intervention. Hence, the Commission concluded, legislating in favour of a particular licensing model would appear premature. Obviously, there now appears to be a clear-cut gap between the objectives of the European Parliament, calling for a directive, and of the Commission, not planning to launch one.

Things are not running very smoothly in DG Competition, either. A commitment proposal to end the Statement of Objections procedure in an amicable way, offered to the Commission by the CISAC societies in March 2007, was firmly rejected by major European users in a market test in June 2007. This has lead to further negotiations inside the CISAC community and vis-à-vis the European Commission to reach a contractual solution. Next steps will presumably be taken during the spring 2008.

While DG Internal Market’s online initiative is limited to collective management on music markets and DG Competition is tied up in a procedural tangle, the time indeed seems apt for DG Information Society to introduce a somewhat updated and broadened version of an old theme. In the new Communication, multi-territory licensing for creative content, in particular audiovisual works, is one of the main topics together with availability of creative content, interoperability and transparency of DRMs, and legal offers and piracy.

Whether this proposal will be in or out of tune with the wide-ranging stakeholder and market expectations will be seen at the latest when the new Creative Content Online Recommendation is published.

In collective management, authors or other rightholders, for instance music publishers, transfer their individual rights to the collective rights manager (CRM) for practical exercise, i.e. licensing and collection of fees, and in return receive remuneration from the use of their respective works.

CRM Collective rights manager
RRA Reciprocal representation agreements
MFN Most favoured nation; (MFN) clause > Most favoured customer
DG Directorate General of the European Commission
MEP Member of the European Parliament

European Commission
Commission´s Communication on the Management of Copyright and Related Rights in the Internal Market (COM (2004) 261 final), April 2004.

Communication from the Commission to the the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Creative Content Online in The Single Market. COM (2007) 836. 3 January 2008 (11 Pages).
Document Accompanying the Communication from the Commission [–] on Creative Content Online in the Single Market COM(2007) 836 final. Commission Staff Working Document SEC(2007) 1710 (41 pages)

DG Competition
Santiago Agreement: Case COMP/38.126
May 2004: Commission opens proceedings into collective licensing of music copyrights for online use [against Koda, AEPI, AKM, BUMA, GEMA, IMRO, PRS, SABAM, SACEM, SGAE, SIAE, Stim, Teosto]August 2005: Market Test Notice (Art. 27(4)) (Publ. OJ C 200, 2005)

CISAC Agreement: Case COMP/38.698
February 2006: Commission sent a Statement of Objections to the International Confederation of Societies of Authors and Composers (CISAC) and its EEA members
June 2007: Commission market tests commitments from CISAC and 18 EEA collecting societies concerning reciprocal representation contracts

DG Internal Market
July 2005: Study on a Community Initiative on the Cross-border Collective Management of Copyright. Commission Staff Working Document. 7 July 2005

”Online Recommendation”: Commission Recommendation of 18 October 2005 on collective crossborder management of copyright and related rights for legitimate online music services (2005/737/EC)
Published in Official Journal of the European Union L 276/54 (2005)

Monitoring of the 2005 music online recommendation. 7 February 2008. (Document summarising the results of the monitoring of the Commission Recommendation 2005/737/EC; 2007 consultation). 8 pages, pdf.

DG Information Society
Communication from the Commission [–] on Creative Content Online in The Single Market. COM (2007) 836, 03.01.2008 (11 Pages).

Recommendation on Creative Content Online by the Council and the European Parliament. (Annex) Public Consultation by 29/02/2008.

European Parliament
Committee on Legal Affairs: [own-initiated] Report on the Commission Recommendation of 18 October 2005 on collective cross border management of copyright and related rights for legitimate online music services (2005/737/EC). Rapporteur: Katalin Lévai. (2006/2008(INI)) FINAL A6-0053/2007. 5.3.2007.
European Parliament resolution [–] on the Commission Recommendation of 18 October 2005 on collective cross-border management of copyright and related rights for legitimate online music services (2005/737/EC) (2006/2008(INI)). 13.3.2007. P6_TA(2007)0064

The Collective Management of Rights in Europe – The Quest for Efficiency. Report commissioned by the European Parliament. July 2006. 147 pages.