DSM Spotlight: The Value Gap

We’re a way into the Brussels legislative autumn, which has brought plenty of action. Let us fill you in on the “value gap.”

What is it?

Good question.

The value gap refers to the discrepancy between the presence of copyright content on internet platforms and the fact that: (1) the relevant rightholders have not authorised the presence of that content on the platforms; and (2) the revenue created from the presence of that content on the platforms is not returned to a satisfactory extent to the rightholders.

In order to address this state of affairs, Article 13 of the proposed Directive on Copyright in the Digital Single Market imposes certain duties on certain internet platforms.

Tell me more about this Article 13.

The Commission published its proposal for a Directive in the autumn of 2016. (You’ll find a short summary here.) This proposal recognised the value gap as follows:

“Online services providing access to copyright protected content uploaded by their users without the involvement of right holders have flourished and have become main sources of access to content online. This affects rightholders’ possibilities to determine whether, and under which conditions, their work and other subject-matter are used as well as their possibilities to get an appropriate remuneration for it.” (Recital 37)

Article 13 thus requires certain platforms either to take measures to ensure the functioning of licensing agreements or to prevent the availability on their services of unauthorised copyright content identified by rightholders. The Commission’s text refers to the use of content recognition technologies as a means of satisfying this duty.

Article 13 further:

  • Foresees structures for cooperation between rightholders and platforms.
  • Requires platforms to put in place a complaints and redress mechanism for their users in case of disputes over the application of the measures.

In addition to general EU law principles on proportionality, Article 13 itself requires the measures to be taken to be appropriate and proportionate.

A number of recitals accompany Article 13, including Recital 38, which provides as follows:

“Where information society service providers store and provide access to the public to copyright protected works or other subject-matter uploaded by their users, thereby going beyond the mere provision of physical facilities and performing an act of communication to the public, they are obliged to conclude licensing agreements with rightholders, unless they are eligible for the liability exemption provided in Article 14 of Directive 2000/31/EC of the European Parliament and of the Council.

In respect of Article 14, it is necessary to verify whether the service provider plays an active role, including by optimising the presentation of the uploaded works or subject-matter or promoting them, irrespective of the nature of the means used therefor.

In order to ensure the functioning of any licensing agreement, information society service providers storing and providing access to the public to large amounts of copyright protected works or other subject-matter uploaded by their users should take appropriate and proportionate measures to ensure protection of works or other subject-matter, such as implementing effective technologies. This obligation should also apply when the information society service providers are eligible for the liability exemption provided in Article 14 of Directive 2000/31/EC.”

Recital 38 thus touches on two touchy subjects:

  • Communication to the public.
  • The safe harbour (or liability privilege) for hosting activities.

What do the European Parliament and Member States say?

After the Commission has published its proposal, it is time for the EU co-legislators to weigh in and they are currently in the process of doing that – more on that below. Then, once the European Parliament and Member States have each settled on their position, they, together with the Commission, will enter the so-called trilogue, where the three institutions negotiate with each other to come up with a final text.

The European Parliament’s position will be determined by its lead committee, which, in this instance, is the Legal Affairs Committee. The Legal Affairs Committee vote on the matter has been postponed twice and is now expected to be scheduled for January 2018. Article 13 is certainly one of the sticking points, but the Directive is not devoid of other controversial provisions. In addition, the Committee rapporteur on this proposal changed recently. Against that background, the members of the Committee need more time to find a compromise.

In terms of Article 13 specifically, Members of the European Parliament are worlds apart. Some are supportive of Article 13, others not so much. Others still want to amend the provision considerably, for example, to require platforms and rightholders to enter into “fair and balanced” licensing agreements (a very strange and somewhat Orwellian idea).

The Member States have not made meaningful progress in respect of Article 13. However, seven Member States requested the Council Legal Service to consider a number of matters relating to Article 13. In particular, clarification was sought in respect of the following three issues:

  • The compatibility of Article 13 with the Charter of Fundamental Rights.
  • The interplay between Article 13 and Article 14 of the E-Commerce Directive (2000/31/), which provides for a liability limitation for hosting activities.
  • The interplay between Article 13 and Article 15 of the E-Commerce Directive, which prohibits general monitoring.

What does the Council Legal Service think?

In a document dated 11 October 2017, the Council Legal Service provided a note of legal advice to the Council Working Party on Intellectual Property. The advice was not made public, but a leaked version of the document was published by Politico.

In short, the advice to the Working Group is as follows:

  • Fundamental rights: Article 13 is drafted so as to ensure a fair balance between the competing fundamental rights and freedoms engaged, including protection of personal data, freedom of information, freedom to conduct a business and the right of intellectual property, and the limitations on the fundamental rights which Article 13 might entail are not disproportionate.
  • Articles 14 and 15 of the E-Commerce Directive: The legislators may pursue any policy option that is compatible with the EU Treaties and thus a proposed provision does not need to be compatible with a provision in an older Directive. Where two provisions conflict, it is the more recent act and that governing a specific subject matter which will override a rule in an existing act. However, to guarantee legal certainty, rules set out should be clear, precise and predictable. Recital 38, the Council Legal Service says, is not sufficiently clear on the points of (i) when and whether platforms communicate to the public and (ii) its relationship with the Article 14 safe harbour. If these matters need to be addressed explicitly, the Council Legal service says, then the recital should be redrafted.

On the latter point, we are of the view that the Recital is fairly clear on the point of communication to the public and it is not unclear on the question of the safe harbour – indeed, the very sensible point about this proposal is that even where platforms fall within the safe harbour in terms of liability for infringement of copyright, they still need to take measures to ensure that copyright content is not made available on their services. It is a very neat compromise – preserving the liability exemption while requiring platforms to take measures to plug the value gap.

When can we expect this to become law?

Don’t hold your breath. There is a long and winding road ahead of this proposal becoming law and Article 13 will not be enacted in the exact form proposed by the Commission.

The Parliament’s Legal Affairs Committee vote is scheduled for January 2018. At this moment, a compromise is looking some way off.

The Member States are next meeting to discuss this on 6 November 2017, ahead of which the Estonian presidency of the Council is expected to circulate a compromise proposal. We expect the Member States to need to meet several more times, going into 2018, before a compromise can be reached.

After that, they have to negotiate with each other and the Commission to arrive at a final text.

Once the EU institutions have agreed on a final text of the Directive, the Member States need to transpose it into national law. A transposition period of 12 months can be expected.

On that basis, an optimistic estimate would see the Directive finalised toward the end of 2018 (which is the Commission’s goal), with the transposition period going into 2019.

Why are you writing about this?

We think it is important that those who create, produce and invest in content are able to license and protect their content in the online environment.