Introduction
The aim of the "Study on a community initiative on the cross border collective management of copyright" (Commission staff 2005, "the Study") is first to identify the problems related to the current structures for cross border management of copyright for online content services, and secondly, to propose possible solutions to improve the current situation. At the time of writing, 80 organizations and other stakeholders had already submitted their reactions on the Study to the European Commission (Contributions 2005). In the first half of 2006, the European Commission will conduct an impact assessment on recasting copyright. The results of this assessment are expected in the second half of 2006 and there could be a first policy debate on the cross border management of copyright in the fall of 2006. This article will only address the Study, not the reactions to the Study. The 60-page Study consists of 7 chapters:

1. Problem definition;
2. Objectives;
3. Policy options;
4. Analysis of impacts;
5. Monitoring and evaluation;
6. Results of stakeholder consultation and
7. Commission proposal and justification.

Explaining the problem
Before addressing the content of the Study, a brief introduction to the problem will be given. Collecting societies in the EU Member States are based on a state endorsed monopoly. A collecting society in a certain Member State enforces exploitation rights of rightholders (copyright owners) based in that same Member State by granting licenses to commercial users. The collecting societies can endorse these rights without the explicit permission of rightholders. In addition, they audit and monitor rights by ensuring payment and terms of licensing. After the collection of the royalties, the collecting societies distribute the royalties to rightholders. The distribution of royalties is especially complicated when it concerns cross border management. When someone, for instance an online music store, wants to offer music, he would have to conclude agreements with the individual collecting societies in all the countries where it intends to offer music.

The above mentioned practice of concluding a license in each and every EU Member State with the local collecting society for 1 song, leads according to the Study to difficulties for online music services to start their business. The Study defines online music services as any music service provided on the Internet or provided to mobile phones. Examples are services such as simulcasting, webcasting, streaming, downloading, and online "on-demand service". The Study uses the estimate by the European Digital Media Association – an organisation representing online music providers – in determining the direct costs of licensing a song. The negotiation of one single license (mechanical and public performance rights) would cost 19,000 Euro. When clearance for a song is required in all 25 EU Member States, this would amount to 475,000 Euro. On the basis of a profit of 0.10 Euro per download, 4.75 million downloads are required to cover the costs of the license.

Also, in comparison to the situation in the United States, the licensing of online music in the EU is far behind, at least according to the Study. Where in the United States 207 Million Euros were spent on music downloads, only 27.2 Million Euros had been spent in Europe.

The problem can be illustrated by using iTunes as an example. Imagine a song being offered by iTunes-UK. A consumer, living in the Netherlands, wants to purchase the same song from iTunes- the Netherlands. The song is not available and he wants to purchase it from iTunes- UK. This is not possible though! In this case, there obviously is no license to sell the song in the Netherlands. For each country where Apple aims to sell the song, a separate license is required.

Some findings of the European Commission
The Study identifies in Chapter 1 three categories of restrictions which hinder the licensing of online music. First, restrictions exist with regard to cross border licensing. At the moment, there is no universally acceptable multi-territorial agreement for the online rights of all categories of rightholders. Secondly, restrictions exist with regard to the cross border distribution of royalties. For example, collecting societies do not provide for non-discriminatory distribution for rightholders from all EU Member States. Thirdly, a restriction is formed by the Santiago and the BIEM/Barcelona Agreements (Santiago Agreement 2001 and BIEM / Barcelona Agreements 2002) which oblige content providers to go to the collecting society in their own Member State (this is called the economic residency clause). Because the Santiago Agreement forms an important part of the Study, we will have a closer look at this Agreement.

Santiago Agreement
The Santiago Agreement authorises collecting societies to grant non-exclusive licenses for the online public performance of musical works (songs) on a worldwide (multi-territorial) basis to content providers. On 29 April 2004 the European Commission notified the sixteen European collecting societies that entered this agreement, that the Most Favoured Nation clause and the "economic residency clause" in the Santiago Agreement may violate European Union Competition law (European Commission 2004). The "economic residency clause" enforces section II of the Santiago Agreement in which is determined that the collecting society with authority to grant multi-territorial licenses, is the society of the country where the content provider – for example an online music store – has its actual and economic location. As a result, each national collecting society is given absolute exclusivity for its territory with regard to the possibility of granting multi-territorial licenses for online music rights. Although the Santiago Agreement aims to promote the use of "one-stop shop" copyright licenses, the result is thus a lock up of national territories which might constitute a breach of Article 81 EC Treaty. Article 81 EC Treaty prohibits all agreements between undertakings, decisions by associations of concerned undertakings and concerted practices which may affect trade between Member States and which have as their object or the effect the prevention, restriction or distortion of competition within the common market. In this Study, the European Commission tries to propose a solution, which would not violate Article 81 EC Treaty, for the granting of a world-wide license for a song to online music stores by one central collecting society.

Digital Rights Management
Separately, attention is paid by the Study to Digital Rights Management (DRM) (see for example chapter 1.2.2). Digital technologies in rights management have empowered rightholders to control the licensing by the facilitating of and tracking the use of works. Examples of facilities enabled by the use of a DRM system are individual electronic payment and remote monitoring. Because DRM enables rightholders to license their rights themselves they do not necessarily need collecting societies to take care of this issue. Therefore, collecting societies should assess the services they currently offer rightholders and decide which services are of surplus value to rightholders. Using digital technologies might also lead to a reduction in management costs for collecting societies and will enable them to be more accurate in royalty distribution. In the INDICARE-interview with A. Beemsterboer of CEDAR, Beemsterboer elaborated on the possibility of collecting societies using DRM. As an example of a new service to rightholders, Beemsterboer envisaged the collecting society as a broker in licenses (Helberger 2004). By using DRMs, the collecting societies could be adapted to the digital environment. Lastly, digital technologies could allow collecting societies to outsource some of their management services when this is more efficient than providing these services themselves.

General policy objectives
The "opening up of Europe’s large and mainly underexploited potential of growth in legitimate online services" forms the general policy objective identified in Chapter 2. More specifically, the accessibility of creative output especially to online content providers should be improved and there should be a full participation of rightholders in the revenue stream generated by more efficient cross border exploitation of copyright. In order to achieve these objectives, the Study proposes the following operational objectives:

  • A licensing policy that is in line with the demand of online content providers;
  • Transparency of collecting societies;
  • Improved copyright clearance of copyrighted works across the EU;
  • A significant increase in the availability of multi-territorial licenses for online content providers;
  • Freedom for right holders to choose their collecting societies and to have the ability to switch between collecting societies;
  • Enhancement of transparency and accountability of collecting societies and equitable distribution and enforcement of rights;
  • Distribution of royalties collected on behalf of the rightholders in territories other than their home territory to rightholders directly and without discrimination on the grounds of residence, nationality or category of membership.

In addition to these operational objectives, the Study proposes in Chapter 5 indicators to monitor and evaluate the developments.

Policy options, analysis of impacts, the Commission's proposal and its justification
The European Commission considers three options to improve the current situation in Chapter 3:

  • Option 1: Do nothing;
  • Option 2: Suggest ways in which cross-border co-operation between national collecting societies in the 25 Member States can be improved;
  • Option 3: Give rightholders the choice to authorise one single collecting society to license and monitor all the different uses made of their works across the entire EU.

The European Commission analyses the three policy options for different aspects (for instance legal certainty, transparency, innovation and growth, competition and the impact on specific groups) in Chapter 4. Although option 2 would improve the way reciprocal agreements function, it will not remove limitations contained in these agreements and there will be no scope for collecting societies to improve their services or differentiate their repertoire. Following option 1 and 2 would – according to the Study – have the consequence that rightholders still need to go to the collecting society of their own EU Member State and do not have any choice at all. Option 3 though, would give rightholders the opportunity to authorise a collecting society of their choice to manage their works across the entire EU. The Study expects that competition between collecting societies will create a competitive environment for cross border management of copyright in which collecting societies will provide better services to rightholders, for instance the improvement of cross border royalty payments and the specialisation in genre-specific repertoires.

Consultation of stakeholders
In drafting this Study, the European Commission made use of a stakeholder consultation (see Chapter 6). It appears that rightholders and their representatives focus on improving the cross border distribution of royalties. Commercial users focus more on the community wide licensing process. With regard to the last issue, opinions from stakeholders differ. The Groupement Europeen des societies d’auteurs et compositeurs favours a community wide license given by the collecting society in the territory where the online operator has its economic residence. The Association of European Radios, MTV Networks, European Information & Communications Technology Industry Association and some online content providers favour the freedom for users to choose between collecting societies. The Music Publishers Association is against competition and free choice with respect to a single licensor, as this would permit users to engage in "perpetual negotiations" with several competing collecting societies.

Implementation of the policy
In order to realise the identified general policy objectives, the European Commission suggests (in Chapter 7) a series of core principles that EU Member States should adhere to, e.g.:

  • Rightholders’ choice as to the online management society is based on the freedom to provide rights management services directly across borders. The freedom to provide cross-border management services by means of direct membership contracts will eliminate administrative costs inherent in channelling non-domestic rightholders royalties through reciprocal agreements between different societies;

  • The principle that a rightholder's choice of a single EU rights manager should be exercised irrespective of residence or nationality of either the rights-manager or the rightholder;

  • The principle that a collective rights society’s repertoire and territorial licensing power would not derive from reciprocal agreements but from rightholders concluding contractual agreements directly with a society of their choice. Rightholders should be able to withdraw certain categories of rights (in particular categories of rights linked to online exploitation) from their national collecting societies and transfer their administration to a single rights manager of their choice. For that to work, these online rights must be withdrawn from the scope of reciprocal agreements as well;

  • The principle that the individual membership contract will allow the rightholder to precisely define the categories of rights administered and the territorial scope of the society’s authority. As the licensing authority would derive from the individual membership contract, the collective rights manager of choice would not be limited to managing these rights in his home territory only, but throughout the EU;

  • Individual membership contracts create a fiduciary duty between the collecting society and its members, obliging the former to distribute royalties in an equitable manner. The principle of equitable distribution obliges collecting societies to treat domestic and non-domestic members alike with respect to all elements of the management service provided. The fiduciary duty enshrined in membership contracts is thus is a tool to maximise the royalties that accrue to rightholders;

  • Membership cannot be refused to individual categories of rightholders who represent mainly non-domestic interests (e.g., music publishers). In addition, these rightholders should have a voice in how royalties are distributed that is that is commensurate to the economic value of the rights they represent;

  • Non-discrimination as to the service provided and the fiduciary duty of the collective rights manager vis-à-vis its members introduces a culture of transparency and good governance as to how rights are collectively managed across EU borders.

A bit of discussion
Although the European Commission analyses different aspects of the three policy options, it seems that the European Commission considers the following as most important aspect: the opportunity offered by option 3 for rightholders to authorise a collecting society of their choice to manage their works across the entire EU. When taking into account the objectives identified before, the choice made by the European Commission for option 3 is logical. The results of the stakeholder consultation concerning the cross border distribution of royalties do not necessarily point to the adoption of policy option 3 though. Improvements in this field might also be enabled by implementing option 2. With regard to community wide licensing, some stakeholders quoted in the Study seem to favour the freedom to choose between collecting societies. Whether this is indeed true can only be established by assessing the stakeholders’ reactions to the Study.

Recently, the collecting societies BUMA (the Netherlands) and SABAM (Belgium) announced that they will not be party "to any agreement on licensing of public performance rights for online use with other copyright management societies containing an economic residency clause, similar to that contained in the Santiago Agreement and identified as restrictive in the Statement of Objectives" (BUMA/SABAM 2005 and European Commission 2005b). This might be an indicator that some collecting societies do indeed favour the policy option chosen by the European Commission.

Conclusion
Overall, the Study is well structured and when analysing the policy options it takes into account many different aspects, ranging from legal certainty to the impact on specific groups. The problem definition makes it clear that something needs to be done soon to make the community wide licensing of musical works easier. When analysing the policy options, the European Commission considers DRM to play the largest role in fulfilling policy option 3. More specifically, DRM could improve the services offered by collecting societies. Because DRM enables rightholders to license works directly to commercial users, collecting societies should consider the surplus value of their services to keep rightholders interested in their services. Maybe they should consider offering new services, see for example the "broker in licenses" service suggested by Beemsterboer. Furthermore, the use of DRM by collecting societies could enhance the cost-efficiency within collecting societies.

Bottom line
The proposed policy options and the analysis of impacts in the Study have certainly triggered stakeholders to react and to continue the debate in this field. I am looking forward to the assessment of the reactions!

Sources

About the author: Margreet Groenenboom is project researcher at the Institute for Information Law, University of Amsterdam. She specialises in copyright law, patent law, trademark law and law & information technology. Contact: groenenboom@ivir.nl

Status: first posted 27/09/05; licensed under Creative Commons
URL: http://www.indicare.org/tiki-read_article.php?articleId=139