HomeInsightsThe new regulatory regime for collective rights management – the Government consults on how to implement

This article was written by Alexander Ross, Partner, Wiggin LLP and first published in Entertainment Law Review, April 2015.

The Government has launched a Consultation on collective rights management in the digital single market. The consultation concerns the implementation of the Collective Rights Management Directive (2014/26), which covers the collective management of copyright and the multi-territorial licensing of online music rights in the internal market. The CRM Directive was published on 26 February 2014 and entered into force on 10 April 2014. It must be transposed into national law by 10 April 2016. The consultation closed on 30 March 2015.

Background

The CRM Directive

The policy underpinning the CRM Directive is part of the European Commission’s Digital Agenda for Europe and the Europe 2020 Strategy for smart, sustainable and inclusive growth. It is one of a set of measures aimed at improving the licensing of rights and the access to digital content. These measures are intended to facilitate the development of legal offers of online products and services across EU borders, thereby strengthening the Digital Single Market. A key aim is also to make it easier for online providers to get licences to stream music to more than one EU country. The idea is to stimulate the development of EU-wide online music services for consumers, and to ensure that artists’ rights are better protected and that they receive royalties promptly.

The overarching policy aims of the Directive are to:

i.         modernise and improve the standards of governance, financial management and transparency of all EU collective management organisations (CMOs), thereby ensuring, amongst other things, that rights holders have more say in the decision-making process and receive accurate and timely royalty payments;

ii.            promote a level playing field for the multi-territorial licensing of online music; and

iii.            create innovative and dynamic cross-border licensing structures to encourage further provision and take up of legitimate online music services.

The Directive sets out the standards that CMOs must meet to ensure that they act in the best interests of the rights holders they represent. It establishes some fundamental protections for rights holders, including those who are not members of CMOs. These include detailed requirements regarding the collection, management and payment of rights revenue, and the basis on which deductions are made from that revenue.

The Directive provides a framework for best practice in licensing, including obligations on licensees as regards data provision. It also creates scope for the voluntary aggregation of music repertoire and rights with the aim of reducing the number of licences needed to operate a multi-territorial, multi-repertoire service.

All these measures are underpinned by detailed requirements to ensure effective monitoring and compliance, overseen by a national competent authority. Those requirements include ensuring that proper arrangements are in place for handling complaints and resolving disputes.

Domestic legislation

The Government says that the Directive’s provisions for improved transparency and governance broadly complement existing domestic legislation for the regulation of CMOs. The Copyright (Regulation of Relevant Licensing Bodies) Regulations 2014, which came into force on 6 April 2014, require UK CMOs to adhere to codes of practice that comply with minimum standards of governance and transparency under those Regulations. There is also provision for regular, independent reviews of compliance, and access to an Ombudsman who acts as the final arbiter in disputes with a CMO. UK CMOs must self-regulate in the first instance, but the Government has a reserve power to remedy any problems in self-regulation and to impose sanctions where appropriate.

Differences between the 2014 Regulations and the Directive

The 2014 Regulations were developed and implemented against the backdrop of the Directive, but were not intended to and indeed could not implement the Directive’s provisions in full, being earlier in time than the final adopted Directive. So for example, unlike the Directive the Regulations do not currently extend to those organisations that also collectively manage rights but which have a different legal form to CMOs. The Directive calls these organisations “independent management entities” (IMEs). In contrast to CMOs, IMEs*Ent. L.R. 131  are for-profit commercial entities that are not owned or controlled by right holders. Under the Directive they will be obliged to provide information to the rights holders they represent, and to CMOs, users and the public.

In addition, there is no specific provision in the 2014 Regulations for the regulation of the multi-territorial licensing of online musical works. The Directive introduces new provisions to ensure that cross-border services meet certain standards, including transparency of repertoire and accuracy of financial flows related to the use of the rights.

Consultation

Implementation

The consultation asks whether (i) the existing regulatory framework, including the 2014 Regulations, should just be adapted to comply with the Directive’s requirements, or (ii) the framework should be entirely replaced with the precise wording of the Directive, although the consultation seeks views on those provisions of the Directive that are not mandatory.

Under the first option, CMOs would have to amend their existing codes of practice to align with the Directive’s more detailed governance and transparency requirements and IMEs would have to adopt and publish codes of practice incorporating the relevant provisions. In both cases, the Regulations would need to be amended to cover the additional requirements of the Directive.

Under the second option, the 2014 Regulations would have to be repealed and the provisions of the Directive copied out into a new set of Regulations. The Government notes, however, that the 2014 Regulations include certain protections for licensees that are stronger, more detailed or even absent from the Directive, such as requirements for licensees to respect creators’ rights and for CMOs to ensure adequate training of its employees. The Government believes these are important protections and that “due consideration should be given to retaining them in the new secondary legislation”.

At the moment, the Government favours the second option due to the differences between the Directive and the 2014 Regulations.

The consultation asks respondents which option they would prefer and why, as well as how important they consider it is to retain those aspects of the 2014 Regulations that go beyond the scope of the Directive. The Government also wants to hear views on what respondents think the overall cost of implementation of, and ongoing compliance with, the Directive will be.

Extended collective licensing

The Copyright and Rights in Performances (Extended Collective Licensing) Regulations 2014 came into force on 1 October 2014, following a Government consultation. The Directive also addresses ECL, and in some areas the Directive has stronger, more detailed or additional protections than the ECL Regulations, and in others the opposite is true.

Where the Directive has stronger or additional provisions, these will, the Government says, take precedence over the ECL Regulations. Where the Directive is silent on something that is included in the ECL Regulations, or where the Regulations go further than the Directive, the ECL Regulations will remain as they are, “subject to good reasons for retaining them”. This is because the Government legislated to include those protections based on “in-depth consultation and evidence”. Where the provisions are similar, the Government says that it intends to look on them on a case-by-case basis.

General provisions: scope and definitions

The Government wants to understand whether organisations consider themselves to be CMOs or IMEs according to the Directive. The consultation also asks for people’s understanding of “rightholders” under the Directive. “Rightholders” are defined as “any person or entity, other than a collective management organisation, that holds a copyright or related right or, under an agreement for the exploitation rights by law, is entitled to a share of rights revenue”, which appears to include both members of a CMO and right holders who are not members.

Representation of right holders

The Directive establishes some fundamental right holder protections, such as being able to the place with the collective management organisation if their choice the rights, categories of rights or types of works and other subject-matter of their choice, for the territories of their choice, irrespective of the Member State of nationality, residence or establishment of either the collective management organisation or the right holder. It also requires CMOs to permit right holders to grant licences for non-commercial use directly themselves, give consent for specific rights and give the right to choose to withdraw certain rights.

Accordingly, the consultation asks what respondents consider falls within the scope of “non-commercial” use, what the impact of allowing right holders to remove rights or works from the repertoire would be, and under what circumstances it would be appropriate for a CMO to refuse membership to a right holder.

Management of rights revenue

Here, the Government is particularly concerned with undistributed monies, i.e. monies owing to absent right holders who cannot be located despite due diligence being conducted to try to locate them.*Ent. L.R. 132

Article 13(6) of the Directive gives Member States a discretion to “limit or determine the permitted uses of non-distributable amounts”. The Government says it is minded to exercise this discretion, but only in respect of right holders who are not members of a CMO. Accordingly, the consultation asks what the levels of undistributed and non-distributable monies currently are and to what extent respondent CMOs collect for non-member right holders. It also asks for estimates of the current size and scale of non-distributable amounts that are used to fund social, cultural and educational activities in the United Kingdom and elsewhere in the European Union. Finally, the consultation poses the catch-all question of whether there are any pros and cons to be particularly aware of in case the Government exercises the discretion.

Management of rights on behalf of other CMOs

The Directive establishes the principle of parity between right holders whose rights are managed under a representation agreement on the one hand, and those managed directly on the other. The principle applies to tariffs, management fees, and the collection of revenues and distribution of amounts due to right holders.

The consultation asks whether there is currently a problem with discrimination in relation to rights managed under representation agreements and, if so, what measures should be in place to guard against it.

Relations with users/licensees

The Directive sets out a framework designed to ensure that negotiations with licensees are conducted in good faith, and on the basis of objective and non-discriminatory criteria. It also requires CMOs to be more agile and flexible when licensing new online services. Article 16 obliges CMOs and users to “provide each other with all necessary information”.

Licensees are obliged, under art.17, to provide CMOs with “such relevant information at their disposal” on the use of the rights “as is necessary” for the CMO to collect rights revenue and distribute payments to right holders. Reflecting art.17, Recital 33 limits the information CMOs can request to what is “reasonable, necessary and at the users’ disposal”.

The consultation asks what “necessary information” should be provided in licensing negotiations. It also asks what format the licensee obligation should take and how it might be enforced, as well as what constitutes “relevant information” in art.17.

Transparency and reporting

Under the Directive, CMOs are required to provide certain information to right holders, to other CMOs with whom they might have a reciprocal arrangement, and to the public. All CMOs will be required to publish what the Government calls an “extremely detailed” annual transparency report and, in some cases, a special report on the uses of amounts deducted for social, cultural and educational services. Accordingly, the Government wants to know which of these obligations differ from current practice and what will be the cost of complying with them.

Multi-territorial licensing of online rights in musical works

One of the key objectives of the Directive is to create conditions that are conducive to the effective provision of multi-territorial collective licensing of authors’ rights in musical works for online use, including lyrics. The idea is that the new provisions will ensure cross-border services provided by CMOs adhere to minimum quality standards.

The Directive sets out a comprehensive list of the criteria that a CMO must fulfil in order to demonstrate that it has the capacity to process multi-territorial licences. Accordingly, the Government is asking for information as to the factors that help determine whether a CMO is able to identify musical works, rights and right holders accurately.

In addition, CMOs must respond to a “duly justified request for information” about their online repertoire, except where there may be a need to protect the data, in which case CMOs may take “reasonable measures” to protect such data. The Government wishes to know what respondents consider to be a “duly justified request”, and what is not. It also asks what “reasonable measures” means and what would be an unreasonable ground to withhold repertoire information.

Under the Directive, CMOs are required to provide licensees with at least one method of electronic reporting and they must also give right holders a detailed breakdown of the amounts paid for the use of their rights by category and type. The Government notes that some CMOs have expressed concern that this will increase their costs and that their ability to comply depends on licensees adhering to a suitable reporting format.

As for distributing revenues, art.28 states that payments in respect of multi-territorial licences must be made “without undue delay after the actual use of the work is reported”. The aim is to speed up online payments, ideally so that they operate in real time. The consultation asks what respondents understand “without undue delay” to mean.

 Enforcement measures

The Directive requires Member States to ensure that CMOs have effective complaints procedures.

In the case of multi-territorial disputes, the Directive provides that ADR is mandatory. However, for other disputes between CMOs, members, right holders or users, Member States have discretion to provide for rapid, independent and impartial ADR procedures.*Ent. L.R. 133

The Government wishes to hear what respondents consider to be the most appropriate complaints procedures for handling disputes and complaints, including for multi-territorial disputes, and why.

Monitoring and compliance

The Directive obliges Member States to ensure that CMOs comply with provisions by establishing a national competent authority (NCA) to monitor compliance and impose sanctions where necessary.

The Government says that it has been exploring different options for the creation of an NCA, such as creating a new regulatory body, persuading an existing regulatory body to take on the role, or having a dedicated team within the Intellectual Property Office that is responsible for compliance.

Early signals from existing regulatory bodies suggest, the Government says, “little appetite for taking on the work” and, in the Government’s view, the relatively narrow scope of the Directive would make it difficult to justify the high cost of creating a new body. Therefore, at the moment, the Government’s favoured option is for a dedicated team at the IPO to take on the role. Although the IPO is not, strictly speaking, a regulatory body, its responsibilities in respect of the 2014 Regulations mean that it acts in a quasi-regulatory capacity. The Government says that to create a separate body or to expand the scope of an alternative economic regulator is likely to be a more expensive, more difficult way of proceeding and would likely take longer to set up. In the Government’s view this is an important consideration for CMOs as either the Government would need to absorb these costs or pass them on to CMOs as compliance costs.

The consultation therefore asks which option respondents would prefer for the NCA and why. It also asks how the costs of the NCA should be met.

Comment

The CRM Directive was welcomed by UK collecting societies when it was finally approved and adopted, despite some initial criticism. UK collecting society PRS for Music is now encouraging its members to have their say on the implementation of the Directive in UK law. BASCA and MPA are also expected to make similar statements. There are a few areas in which the Government has discretion as to how it implements the legislation, and the idea is that the consultation will help it to decide and fine-tune its implementing legislation so that the Directive can work effectively without putting UK collecting societies under undue pressure.

 

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