European Commission Issues Paper on Copyright in the Digital Economy

 The European Commission College of Commissioners Issues Paper on copyright in the digital economy:

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This paper was issued by the President of the European Commission prior to the Commission's debate on copyright:

"Orientation debate on content in the Digital Economy"  

The digital economy has been a major driver of growth in the past two decades. The size of the European internet economy was 4.1% of EU GDP in 2010 and it is projected to grow seven times faster than overall EU GDP. The emergence of new business models capitalising on the potential of the internet to deliver content represents a challenge and an opportunity for the creative industries, authors and artists as well as the other actors in the digital economy.

Copyright is the universal means to reward creation. There is, however, an active debate about whether the copyright framework remains fit for purpose in the digital context. The creative industry in general underlines the importance of copyright for ensuring remuneration of their work and providing the incentives to produce content. Others argue that, in its present form, it may be an obstacle to innovation and growth. Citizens increasingly voice concerns that copyright laws hinder what they view as their freedom to access and use content. Experience shows that many of them would rather pay for legal offers than use illegal content, but they often do not know whether what they download, stream or share is illegal. Businesses increasingly argue that the current copyright model is a barrier to developing the business models they consider necessary for the digital economy. These consumers and businesses agree, for different reasons, that copyright rules have to be made more flexible and their views were a major factor in the rejection of ACTA. The growth of Pirate Parties in some Member States is another indicator of this trend.

It is therefore timely for the College to agree on orientations on copyright in the digital economy for the second half of its mandate, taking into account the opportunities and challenges for the full value chain of the internet economy. The European Council has also recognised the need to modernise the copyright system in the Compact for Growth and Jobs.

Part I The balance of rights and obligations

(i) The internet value chain for content

To understand the role and impact of copyright in the internet economy, it is necessary to understand the nature and the role of the different players in the internet value chain for the production, distribution and consumption of creative content. The value chain can be considered – in rather simplified terms – to consist of four main blocks.

1. Content includes, for example, music, films, television programmes, games, news, books and magazines. Internet content is increasingly 'user generated' - blogs, tweet messages, videos, and photographs - and is not necessarily commercial in nature.

2. Content is generally provided by content hosts such as You Tube, iTunes,, which users may access directly or via search engines such as Google and Yahoo. Aggregators such as Google news and social networks such as Facebook both host content and can direct users to other websites too.

3. Internet service providers underpin these first two blocks. These may be telecommunications networks operators, both fixed and wireless (Deutsche Telekom, Orange, Telefonica); or separate entities which buy wholesale access to networks; or multimedia operators, typically cable television companies, who have their own networks.

4. The end-user: there were more than 350 million internet users in 2011 in the EU. The main uses are reading or downloading online newspapers and news, playing or downloading games, images, films or music, software, uploading self-created content, and using peer-to-peer files sharing for exchanging movies and music. Peer to peer usually implies allowing other users to access content held on one or several home computers.

The digital economy is a significant opportunity for players across this value chain. The internet is driving growth in the knowledge and cultural sectors, the consumer electronics and information technology sectors (see annex). Copyright and related rights play an essential role in this value chain. They provide the basis for the remuneration of creators (writers, journalists, musicians, actors, etc) and producers (book and newspaper publishers, film and record producers, etc). The internet value chain is characterized by its fast-changing nature and the constant evolution of the various business models which are used. Changes in the rights of content producers, authors and performers can lead to a shift in value or revenues from one part of the chain to the other. They can also stimulate new business models. While licensing is an important source of revenue for content, there are other models which create revenues in other ways, such as promotions for concerts, advertising, new on-line applications allowing fewer intermediaries, and access to larger public.

One example of changes in the value chain is the possibility the internet provides for direct licensing. The internet has made it easier for content providers to market their products without going through the traditional intermediaries. For instance, some music artists have chosen to put their music online for free (e.g. hosted by You Tube) and to sell their albums and other products directly from their own website. At the same time new digital content intermediaries have emerged which play an increasing role in helping content providers to monetise their work.

In the EU, some Member States are carrying out or have carried out reviews of their copyright regime (the UK, Ireland, the Netherlands and Spain). Internationally, there is as yet no significant move to revise copyright frameworks to face the challenges of internet, but changes are underway. In the United States, discussion is on-going, including with respect to the application of the "fair use" approach. While this concept offers more flexibility to users, interpretation by the courts of how it is applied in practice is complex. Canada this year adopted a Copyright Modernisation Act including a specific amendment to address the issue of User-Generated Content.

The development of the digital economy is also creating new challenges in the area of enforcement. Practitioners are confronting the question of how to deal with file-sharing platforms and other forms of unauthorized copying, given that the demand for such services and copies is high.

(ii) The EU copyright framework

Copyright is regulated in the EU by the 2001 Information Society Directive (also known as the Copyright Directive). The principal goal of the directive was to adapt and supplement the acquis to respond to the challenges of the digital environment. To do so, it harmonizes certain aspects of copyright and related rights, and transposes international obligations based on the treaties of the World Intellectual Property Rights Organisation. To preserve a fair balance of rights and interests between right-holders and consumers, the directive also includes a number of possible exceptions and limitations. While it specifies that the list is exhaustive, the directive leaves significant flexibility to Member States for the transposition of these specific elements. This situation leads to fragmentation of the Single Market and legal uncertainty.

 Following the adoption of the IPR Strategy in May 2011,  the Commission has taken various steps to respond to the challenges of copyright in the digital economy. The recently-adopted directive on Orphan works sets out common rules on digitisation and online display of orphan works and creates a new exception to copyright - one of the few to be fully harmonized at EU level. The Memorandum of Understanding on Out-of-Commerce Books sets a broad framework for the mass digitisation of books and scientific journals. Finally, the proposed directive on collective rights management aims to facilitate multi-territorial licensing for music by allowing collecting societies to aggregate repertoires.

But these initiatives do not address all the challenges identified above. Therefore, there is a need to review and modernise the copyright framework set out in the 2001 directive. A revision of the framework must be based on a comprehensive economic and legal analysis, taking into account impacts on the value chain. In particular, the following elements should be addressed:

1. territoriality in the Internal Market i.e. by looking at all options, including introducing a "country of origin" approach or an approach based on the "targeting" of certain publics. This needs to take into account the fact that some restrictions on the provision of services are commercially based and not related to copyright.

2.     The extent to which the current level of harmonisation as well as the scope of the limitations and exceptions to copyright are appropriate for the digital age, given that they implemented to varying degrees in the Member States.

3.     How best to reduce the fragmentation of the EU copyright market. Currently distinct copyrights exist for the 27 national territories and must in principle be subject to appropriate licensing for distribution in each Member State. Options floated in the 2011 IPR Strategy include the creation of a European Copyright Code, the setting up of an optional unitary copyright title which would exist in parallel with the national regimes, and the obligation of multi-territorial licensing.

4.     How to improve enforcement. Any change in the copyright directive will have to be mirrored in parallel revisions of the Enforcement Directive (the IPRED directive). The impact of a possible copyright reform on fundamental rights, as well as the consequences on the EU's international obligations in the field and on the EU's position towards third countries would also have to be assessed.

Work to prepare a full revision of the legal framework should be completed by early 2014 so that the College is in a position to decide whether to table legislative proposals during this mandate.

Part II Specific issues

In parallel, there are certain concrete problems for which more rapid progress is desirable and for which specific solutions could be sought through a structured partnership with stakeholders. This does not exclude that for some of them a legislative solution may ultimately be necessary. Six such issues can be identified.

First, cross-border portability: consumers who have lawfully acquired content - online music, audiovisual content, eBooks - in the Member State where they live often face difficulties when they want to access this content when they are in another Member State. A key issue here is the territoriality of copyright. Economic operators wishing to provide services to consumers across the EU need to ensure that they have a licence covering each Member State in which they want to provide services.

Second, User-Generated Content (UGC) refers to situations where consumers or small scale users such as start-ups or SMEs use existing content to create new content e.g. incorporating a musical work into a home-made video and uploading it onto a video-sharing site. The major challenge for content creators is to know whether the use of the original content needs to be remunerated, and how to do so. 

Third, text and data mining, which is an automated search technique to extract meaningful information or inferences out of unrelated texts or unstructured data for research purposes. In addition to a licence for access to the content, it requires the permission from each right-holder to copy and reformat each of the huge number of works concerned for the purpose of such analysis.

Fourth, the issue of private copying levies should also be addressed. Twenty Member States have national legislation on private copying levies for goods which can be used to produce copies (such as MP3 players and computers, blank DVDs). As a result of these levies, the prices of these goods vary widely across borders. In recent years manufacturers have increasingly complained about this approach while rights holders continue to strongly support it. Antonio Vitorino will produce a report on this issue at the end of this year.

Fifth, the audiovisual sector lags behind the music and print sector in terms of the availability of works online. Online licensing of films should be further facilitated. This was not addressed in the proposal for collective rights management which deals only with the music sector.

Finally, many activities of cultural heritage institutions are subject to exclusive rights, even when they are for non-commercial purposes. The copyright framework provides exceptions for activities of cultural heritage institutions, but Member States implement them differently, and some are falling behind the modern needs of those institutions. Several Member States, do not allow 'format shifting' (for example the reproduction of material for preservation purposes) even if it is foreseen by the current copyright exemptions. As a result, many works remain hidden in cultural institutions: only 15 % of Europe's film heritage is therefore available to the European citizen.

Questions to the College:

1) Do you share this analysis of the developments of the internet economy and its implications for the copyright directive?

2) In particular, do you agree with the terms of the revision of the copyright directive outlined in the present note?

3) Do you agree that in parallel rapid progress should be made on the six issues identified here?  Are there other areas which should be prioritised in the short term?