Country Updates

AMERICAS: BRAZIL


Country Update for Brazil by Marcelo Goyanes and Luiza Duarte Pereira


MARCELO GOYANES is founding partner of Murta Goyanes Advogados, and author of Topics in Intellectual Property Law: Marks, Copyrights, Designs and Piracy (Renovar, 2007) and (as co-author) of The Law and the Internet (Lumen Juris, 2002). Practice areas: Intellectual Property, Entertainment Law, Civil Law and Litigation.
Marcelo was international legal consultant of the Smithsonian Institution, Washington, DC, USA, in 2003; and is Attorney-General of the Brazilian Association of Industrial Property Agents (ABAPI); Professor of the postgraduate course on Intellectual Property Law at PUC-Rio; and a Member of the Brazilian Bar Association, of the Executive Committee of the International Association of Entertainment Lawyers (IAEL) and of the Brazilian Association of Industrial Property Agents (ABAPI).

LUIZA MARIA VASCONCELOS DUARTE PEREIRA is a partner in Murta Goyanes Advogados. Practice areas: Intellectual Property, Entertainment, Civil Law and Litigation. Luiza was international legal consultant of the Smithsonian Institution, Washington, USA, 2007; had an international clerkship with Hon. Judge Randall R. Rader, US Court of Appeals for the Federal Circuit, Washington, DC, USA, in 2007; and is a Member of the Brazilian Bar Association, the New York State Bar Association, the American Intellectual Property Law Association (AIPLA), the American Bar Association (ABA) and the Forum on the Entertainment and Sports Industries, ABA.

Background and the Development of Piracy Locally
Brazil is the largest country in South America, with a population of more than 190 million people, with well-known social and cultural distortions, which also are reflected in the music business. In this sense, recent polls reveal that 73% of music consumers are located in just 10 cities, while music stores are found only in 34% of the cities.

The continuous decrease in the number of physical music stores and the volume of CD sales is a result of the increasing amount of CD piracy, with much of the product found among the street vendors of Brazil, but also because of digital music downloads, both legal and illegal. Digital music sales represented, in 2008, 12% of the music market, while in 2006 and 2007 it only represented 2% and 8%, respectively. According to the Brazilian Association of Phonogram Producers (ABDP), 78% of digital music revenues were originated by sales through mobile telephones.

The great development of local e-commerce, which is estimated to have been growing by 35% per year since 2003, also reshaped piracy in the Brazilian musical market. Vinyl records were once the main medium for music distribution, and music piracy was limited to cassette tapes of poor quality, which were not attractive to consumers. In the early 1990s, music piracy evolved on to CDs. Since the technology to make those copies was expensive and not accessible to the general public, these products were imported to Brazil, and the high prices of counterfeit CDs and packages kept CD piracy rates at a low level.

A drastic change occurred with CD recorders becoming less expensive and, thus, available to non-professional computer users. At that moment, counterfeit CDs began to be domestically manufactured and counterfeiters were no longer concerned with the appearance of the CD package—consumers were consciously acquiring illegal copies instead of original ones, due to the enormous price difference and sense of general tolerance of such infringement. As a result, CD piracy had resulted in a low-risk and high-profit business by the mid 1990s in Brazil.

The recent spread of personal computers, internet users,2 broadband connections and third-generation mobile telephones indisputably gave a boost to digital music piracy. It is estimated that, nowadays, digital piracy is much stronger than piracy in physical media. According to the National Council to Combat Piracy,3 the revenues of the Brazilian recorded music industry fell dramatically from approximately US $500 million in 1998 to $173 million in 2008, while digital piracy became a major concern for the Brazilian authorities—it is estimated that over 1.8 billion songs are illegally downloaded per year.

As a result of this uncontrollable growth in music piracy, governmental and non-governmental anti-piracy associations have been created, and several actions have been adopted in order to convict counterfeiters of piracy-related crimes, to seize of counterfeit products and to promote educational campaigns.

Legislation
As a matter of law, Brazil is well supported. Brazil is a member of several international treaties that regulate copyrights, like the Berne Convention for the Protection of Literary and Artistic Works, the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations (Rome Convention), and the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS Agreement).

Although not a member of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty, which expressly deal with copyright in the digital environment, the Brazilian Copyright Law and Criminal Code are managing to keep track of the developing technologies and are being applied to online and mobile distribution of downloads and streams of music. As an example, it may be noted that 146 individuals were criminally convicted in Brazil for copyright infringement in the first semester of 2009. It may be concluded that there has been an up-to-now successful attempt to construe, under Brazilian law, that new forms of digital music distribution are encompassed by old, established concepts of copy, distribution, communication to the public and even public performance.

Unauthorised digital music downloads, for example, may be characterised as illegal music distribution by the server application and illegal copying by the end user, since a permanent copy of the audio file is stored in the end user’s computer or device. Music streaming, on its turn, may be understood as the transfer of a digital medium containing a musical work by a server application to the end user’s computer and, by means of making a transitory and incidental copy, allows the end user to listen simultaneously to the streamed music, provided that he/she remains connected to the server. Lastly, simulcasting may be considered the non-interactive digital transfer where the same content is simultaneously transferred to several users connected to the server application.

The Case Law
Despite the undeniable technological advances involved in digital music distribution, the underlying format may be reduced to the general acts of copy, distribution, communication to the public and public performance, which are exclusive rights traditionally held by copyright owners and fully protected under Brazilian law.

This understanding was upheld by the Court of Appeals for the State of Paraná upon deciding that the offer of software that allowed users to share and download music files through P2P networks, without the copyright owners’ authorisation, should be considered copyright infringement, as provided by the Copyright Law and the Criminal Code.4 On its decision concerning the preliminary injunctive relief requested by the plaintiff, the court noted that the judiciary had an obligation to provide the plaintiff with a practical and effective measure to prevent further infringements by the defendant and its users until a final decision on the merits was rendered.

Notwithstanding the importance of such a decision, the current hot topic in digital music distribution is definitely related to the extension/limitation of the power granted by the national Copyright Law to our Central Office of Collection and Distribution (Escritório Central de Arrecadação e Distribuição—ECAD). ECAD is a privately owned, civil not-for-profit society created by Federal Law No. 5988/ 1973, and is responsible for the collective licensing of public performance rights of musical works and phonograms, including by means of radio broadcast and transmission in any forms, and exhibition of audiovisual works. ECAD is composed of 10 music associations, which are formed by the copyright owners (phonograms producers and publishing companies), responsible for setting the prices and rules for the collection and distribution of copyright out of public performance, exclusively. ECAD is entitled neither to license musical compositions for synchronisation purposes, nor to grant rights for the creation of derivative works, among other uses. In Brazil, said forms of use must be authorised by the record labels, publishers and authors, depending on the case. ECAD deals only with public performance rights.

A recent decision issued by the Brazilian Superior Court of Justice5 clarified that, although ECAD was the legitimate party to collect copyright royalties accruing from public performance of musical works, the individual rights holder was entitled to explore his/her work at his/her convenience, without having to obtain ECAD’s consent thereon. Thus, despite ECAD being the exclusive collective licensing society legally created to dispose of musical public performance rights, it would have to demonstrate to a court the consistency of the amounts charged in a collection suit. The traditional criteria for establishing royalties due for webcasting or simulcasting services, for example, which were based on the distributor’s gross revenues, should no longer be used. The calculation of royalties due should now be based on the number of songs publicly performed by the licensee whose copyright owners are associated with ECAD.

Another interesting case involving the interpretation of the powers legally granted to ECAD is exposed in a lawsuit recently filed by ECAD against a local ISP,6 whereby ECAD claims that the on-demand music streaming service offered by the ISP to its clients constituted a public performance of the copyrighted musical work and, consequently, ECAD’s prior authorisation and collection of the respective copyright royalties were required. As would be expected, the ISP presented its defence by arguing that: (i) the offered streaming did not result in a public performance of the musical work, but, instead, was a mere digital music distribution for private performance, since the service was not a simulcasting, as the end user interacted with and individually listened to the content; (ii) since it was not a public performance, ECAD was not legitimate in filing the lawsuit; (iii) the offered streaming services could be considered to be included in an exemption provided by the Copyright Law, which authorised the use of copyrighted works at commercial establishments, exclusively for demonstrations to the clients, as long as said establishments commercialise the supports or equipment for said use (as the ISP also offered for sale the download of the audio file, it argued that its streaming conduct did not infringe the Copyright Law); and (iv) the ISP was licensed to offer such service by the respective copyright owners, although the agreements were solely related to digital music distribution and had no provision for public performance rights.

Although no final decision on the merits was rendered in this case, the lower court and the Court of Appeals for the State of Rio de Janeiro had the opportunity to examine ECAD’s pleas, and rejected its preliminary injunction request. The court decided not to determine the immediate suspension of the services offered by the defendant ISP, based on the understanding of the lack of urgency and substantial likelihood that ECAD would prevail on the merits requirements.

What’s Next?
The Brazilian Copyright Law is under revision. It is expected that an amendment will update and clarify how copyright applies to new technologies and the digital environment. Establishing a modern legal framework that guides the protection and use of copyrighted works while maintaining the balance between protection, access and use by the general public is a clear target for the Government to promote so-called cultural integration. We believe that the law will develop in a way to provide for additional limitations on copyright and to enhance free uses, like private copies and private musical performance, especially in the digital environment.

Today, a matter of great concern by the Brazilian music industry players is the difficulty in obtaining licences for making music available for commercial purposes. This difficulty originated in the fact that copyright owners (both record labels and authors) are represented by different organisations and it can be very burdensome to negotiate and obtain licences with each one of them. The creation of a collective licensing society for uses and purposes other than the collection of public performance rights (a matter under ECAD’s authority) would boost the market and help in the fight against piracy.

From a business perspective, Mr. Marcos Jucá, vice-president of the Brazilian Association of United Publishers,7 believes that the creation of a collective licensing association for both music downloads and streaming services has become a necessity and has been carefully analysed by the market players:

‘The Brazilian Music Publishers are aware of the necessity of forming a central database administered by them with the objective of clearing licenses for streaming and download in our market. The process of clearing these uses seems to be our biggest challenge for the years to come. This month, Brazilian Music Publishers through their two local associations (ABER and ABEM) have been meeting in order to settle goals aiming this matter. These meetings shows our commitment with this subject in a market in which ECAD has only a public performance collection role, with the publishers issuing and clearing directly all the remaining market licenses (mechanicals, syncs, digital etc). The creation of this clearinghouse centralising all copyrights over digital music distribution is one of our main objectives for 2010.’

Although the creation of a collective licensing association would probably bring positive results to the digital music market, it is important to bear in mind that, as recently decided by the Superior Court of Justice in relation to ECAD, the extension of the powers occasionally granted to this new association would be limited. This is so because music distributors would not be prevented from negotiating an alternate licence directly with copyright owners, the submission of copyright owners to this association would not be mandatory and the royalties charged would have to be reasonably set.

In any event, we believe that the future of the musical market stands with these new forms of music distribution, especially through mobile phones and dual delivery with the internet, preferably under subscription fee services, which would allow users to download unlimited music and keep the tracks for private use. Mobile phone manufacturers and carriers also share this opinion and have been successfully launching products embedded with musical and video content. Felippe Llerena,8 executive director for iMusica9 in Brazil, reasons this success as follows:

‘Mobile digital distribution in Brazil has been rapidly adopted by the economically lower classes who cannot afford to buy computers with broadband connection services. These users see the mobile devices as a symbol of status and prestige, what enabled the mobile digital industry to perceive an interesting high consumption of Value Added Services.’

According to Llerena, music piracy has limited action in digital distribution because of the effectiveness of the DRM in this line of business. He also pointed out other possibilities for the future of digital music distribution in Brazil:

‘Although internet sales have not yet picked up at the same pace as mobile sales, there is one line of business in internet digital music that is bringing about interesting revenues: branded content.10 It has been adopted more and more by the corporate world in order to increase its consumer base and loyalty. Brazilians are strong users of social networking websites, such as Facebook and Orkut, and that has been leading advertising agencies and marketing companies to adopt branded content initiatives in their marketing plans.

Last but not the least, we believe that unlimited subscription service is the next leap in the digital music distribution, and iMusica wants to lead this process very closely and aggressively, as we believe that we have to bring back the music buyer to the scene. That music buyer we have seen in the past does not exist anymore. The new consumer is willing to adopt this service, since, if he pays once a month or a week to have unlimited access to music, he can discover new music and recommend them to his friends.’

We agree with Llerena that the biggest challenge is to bring back music buyers to the market. In our opinion, the creation of a collective licensing society would help in achieving this result, as having a broad, legitimate catalogue available is a necessary step in fighting the illegal one.

Footnotes:
1. Partners with the Brazilian law firm Murta Goyanes Advogados (www.murtagoyanes.com.br).
2. According to a recent poll performed by the Brazilian Institute of Geography and Statistic (IBGE), the number of Brazilian residences containing a personal computer increased from 26% of the total in 2007 to 31% in 2008. It is also estimated that, in 2008, 27% of Brazilians had internet access. Today, these numbers may be estimated at, approximately, 40% and 35%, respectively.
3. An organisation formed in 2004 under the Department of Justice by the public and private sectors. It launched the National Plan to Combat Piracy, implemented since then with the Federal Revenue Service, the Federal Police and the Public Prosecutor, focusing on monitoring and controlling the import of pirate products and blank carriers, on actions against the distribution of pirated and smuggled products throughout Brazil and on educational campaigns.
4. Interlocutory Appeal No. 561.551-4, filed on 6 February 2009, before the Sixth Panel of the State Court of Appeals of Paraná. Appellant: Associação dos Direitos Intelectuais Fonográficos; Appellee: Cadari Tecnologia da Informação Ltda.
5. Special Appeal No. 681.847-RJ, filed on 10 October 2004, before the Fourth Panel of the Superior Court of Justice. Appellant: ECAD; Appellee: MTV Brasil Ltda.
6. Lawsuit No. 2009.001.176760-8, filed on 13 July 2009, before the 19th Civil Court of Rio de Janeiro. Plaintiff: ECAD; Defendant: Terra Networks do Brasil SA.
7. Associação Brasileira de Editoras Reunidas (ABER) is a not-for-profit association created in 2001, formed by several national and international music publishers.
8. Graduated from the University of New York in Marketing and International Business and is a member of the board of directors of the Brazilian Independent Music Association (ABMI).
9. iMusica operates digital music distribution in nine countries of Latin America and is in constant expansion in the region.
10. According to Wikipedia, branded content ‘is a relatively new form of advertising medium that blurs conventional distinctions between what constitutes advertising and what constitutes entertainment. Branded content is essentially a fusion of the two into one product intended to be distributed as entertainment content, albeit with a highly branded quality. Advertainment, unlike conventional forms of entertainment content, is generally funded entirely by a brand or corporation rather than, for example, a Movie studio or a group of producers. However, it can be argued that this is just a new name for the same type of marketing that was pioneered by soap manufacturers in the early days of radio and television with the soap opera’ (en.wikipedia.org/wiki/Branded_content).
Country Update for Brazil by Dirceu Santa Rosa, Roberto Glower Carapeto and Leonardo Ugatti

DIRCEU PEREIRA DE SANTA ROSA is a partner (information technology practice) at Veirano Advogados, in the Rio de Janeiro office. His areas of specialisation include technology law in general, software, e-commerce and the internet, as well as copyright, advertising, licensing, technology transfer, unfair competition, entertainment and sports law. Dirceu has a law degree from the Catholic University of Rio de Janeiro Law School and an LLM from the George Washington University Law Center. Before joining Veirano Advogados, he was an associate in other prestigious law firms in Brazil and in Washington, DC, as well as a senior associate in the legal department of Brazil’s largest television network. Dirceu was vice-president of the entertainment law committee and a member of the sports law committee of the Brazilian Bar Association. He is widely known as one of Brazil’s top technology attorneys.
ROBERTO GLOWER CARAPETO of Veirano Advogados, Rio de Janeiro.
LEONARDO UGATTI of Veirano Advogados, Rio de Janeiro.

The music industry in Brazil has always been unique, with particularly strong differences when compared with other markets. The average Brazilian has a strong relationship with and passion for music, and 80% of the top recording artists in our country’s music business are Brazilian. There is a myriad of different rhythms across Brazil, and the country that invented Bossa Nova reinvents itself through music with rhythms such as Bass Funk, from Rio de Janeiro, the north-eastern-born Forró and even Tecnobrega, a mixture of electronic music and local music from the deep north.

Unfortunately, music piracy in Brazil is not exactly news for such a market. Before the internet, people used to copy music albums on K7 tapes, and these tapes were usually sold in street markets all over Brazil. In poor cities or states, where proper record stores were scarce, illegal tapes were the only means of distributing music. Of course, as it is known, the quality of such illegal tapes was not good when compared with an original product.

As internet access and use of computer technology became more popular in Brazil, including in such unprivileged cities or states, the distribution of music through the internet became a ‘natural development’ for music piracy. In spite of the known fact that it is illegal, the main body of internet consumers in Brazil seem not to feel that illegal downloading is a crime. This is translated into more music downloads, streams and simulcasts. These means of contact with music are divided into two kinds: illegal and legal means.

In Brazil, legal music-downloading tools are less common, but in recent times bigger companies have been creating noteworthy services, such as UOL Megastore, iMusica (Yahoo Brazil), Sonora and MusIg, which are being handled by some of the biggest internet portals in Brazil. Most of them offer DRM-free downloads of MP3 or WMA files, and pay all the necessary copyright and other fees, as well as the neighbouring rights. Such websites have been obtaining authorisation for their services by means of deals made directly with the artists.

However, statistics estimate growth in the Brazilian pirated market of 20% between 2008 and 2010, while our law-enforcement authorities react severely to piracy, deleting more than 160,000 websites accused of hosting or providing links to unauthorised content. The Cinema and Music Anti-Piracy Association (APCM) also announced that they had managed to remove 20,000 files based on P2P networks (such as Kazaa or Emule). The same Association said that 48% of the music market in Brazil is based on piracy, and that 59% of the DVDs sold in the country are not legitimate. In such scenario, Brazilian society has been facing a problem that younger people often fail to recognise musical works as commodities and, on some occasions, Brazilians have shown great resistance to solving piracy-related problems, particularly involving the internet.

For example, in 2008 many internet users signed an online petition for maintaining a community named Discografias, on Brazil’s most popular social-networking tool, Orkut. Users of that community could download, unauthorised, several artists’ albums, DVDs and other material for free. It is believed that more than 1 million people visited the web community monthly, downloading different sorts of content, which were made available by the members of that community. Google and APCM reached an out-of-court settlement in 2009, and the community was cancelled in the same year.

Another recent case in relation to copyright that turned into litigation involves Cadari Tecnologia da Informação, a company prohibited by the Court of Justice of Paraná from distributing in Brazil some P2P software named K-Lite. This decision was celebrated as an important case in this area and, although this decision has shown the necessity of using technology along with responsibility, websites for legal music downloading still encounter many difficulties to establish their business model in Brazil, owing to widespread distribution of illegal content.

Of the few companies that work with legal file-downloading systems, the most popular is Sonora, owned by Terra Networks, which has three different formats of account through which: you can have access only to streaming; you are able to download music files; or, by payment of a monthly fee, you are given access to more than 500,000 songs. UOL Megastore consists of a credit system, in which you buy packs ranging in price from 5 reais to 120 reais. The cheapest cost of a single download is 0.30 reais. Another popular tool is MusIg, IG’s Music Store, which gives you access to music and radio on any computer. You may download songs to your MP3 player as well. Before acquiring the song you can listen to it for 30 seconds.

Finally, another business model that has seen significant growth in Brazil is the use and distribution of music on portable gadgets and mobile phones. The use of mobile phones as portable music players is becoming popular because of the falling cost of cell phones. Notwithstanding this fact, the majority of Brazilian consumers use side-loading, especially because of the cost (or lack thereof) in this process, which is achieved through the files transfer to the mobiles usually being obtained illegally. In reaction to this situation, Nokia launched in Brazil a service available only with some state-of-the-art models that not only had modern designs but also contained ‘free’ music, legally. Nokia’s so-called ‘Comes with Music’ mobile has introduced a new horizon for the matter in question, letting people download as much music as they want in a certain period of time. All copyright and neighbouring rights are efficiently distributed, but the only investment that the customer will make is the one made when buying the phone.

Furthermore, however, as regards the market for ringtones and true-tones, in which the legal market has a good share of the customers, there are other issues. Recently in Brazil, ECAD has argued with the authorities about whether it is legitimate to collect public execution or performance rights on ringtones and true-tones. ECAD is our Central Office for Collection and Distribution, which is a privately owned civil society, initially created by Federal Law no. 5988/73 (the former Copyright Law) and now supported by the current Law (no. 9610/98). This association is managed by around 10 music associations, seeking to perform the collection and distribution of copyright derived from public exhibition of national and foreign songs.

The collection agency’s understanding is that, when a phone rings in a public space, it is a sort of public execution of the downloaded song, so it would be legal to collect a fee. Over the past five years the downloading of ringtones and true-tones in Brazil has grown steadily, and ECAD has been struggling to prove its point of view. It realises that the market is very profitable, but that it is based on authors’ creations, and so it should pay what these same authors deserve. The main problem is identifying whether the phone tones are used for personal purposes or public execution. However, most legal scholars and most of the music community accept that collection is not permitted by the law and, because of that, it has not been enforced up to this time. Lawyers and many other jurists believe that collecting public execution copyrights is not legitimate owing to the personal use of mobile phones. These devices are meant to be used by their owners only.

As regards the use of streaming in music distribution in Brazil, it has been successful for some time and is spreading steadily. This is a consequence of streaming activity being declared as different from telecommunications services and, therefore, not dependent on granting of permission by the Brazilian Government. Also, it seems that the nature of streaming activity seems to be less offensive to the Brazilian copyright system than some other technologies.

In this sense, some international websites that use streaming as a main part of their business method have already established their business and presentations in Brazil—for example, MySpace and Last.Fm. Some players in the Brazilian music business have also incorporated streaming services into their activity, the best example being the independent label TramaVirtual, which has become one of the most famous showcases for the work of beginner bands, having more than 10,000 bands registered on their database.

Besides all that, several radio broadcasting companies also began to grow their interest in duplicating the content being served through their regular activities on the internet, in order to reach as many more listeners as possible, through the practice of what is known as simulcasting. Some of those webcasting services receive direct profit from the rendering of streaming services, while most of the players in this area only have indirect profit, coming from advertisements on their websites.

At first, most of the websites working with streaming would not pay any royalties to copyright owners, especially because of the academic discussion in the beginning about how to apply the Copyright Law to this business method. Such activity, of course, drew the attention of the Brazilian collection agency, ECAD, which started to try and collect copyright from owners of websites with the profits, directly or indirectly, from streaming.

On the one hand, Brazilian scholars had reached the opinion that, as regards streaming, interactivity between the end consumer and the streaming service, such as in ‘on-demand’ services in which each customer of the streaming receives the content at a different time, meant that no ‘public execution’ could be found. On the other hand, when the service is based on simulcasting, there is an analogy to telecommunications and, therefore, public execution rights could be collected. Based on that, some internet radios started duly to collect such rights before ECAD.

ECAD has recently filed some lawsuits, in order to collect public execution rights from webcasting and simulcasting companies. In a lawsuit filed against Terra Networks, one of the biggest internet portals in Brazil, and its Sonora webcasting and digital distribution service, no final decision has been issued, but the lower court judge denied the preliminary injunction required by ECAD.

As can be concluded from the present text, ECAD is a society that is very aggressive in performing its activities (even trying to exceed them, as with the distribution of online music), in the sense that it tries to collect copyright derived from activities that might not be strictly within its competence, by means of analogy and extensive interpretation of the Brazilian copyright law, which limits its competence. It is also important to stress that ECAD would try to collect value even in a situation in which an artist had already expressly allowed use or reproduction of work in a specific medium, based on the argument that there is always the possibility of related or neighbouring rights connected to that work. Such activity from ECAD contributes, sometimes, to limiting collective rights licensing in Brazil.

However, in a recent decision issued on 10 October 2009, the Superior Court of Justice decided that each artist has the right to use their work at their own discretion and, in this sense, ECAD does not have the right to collect value when the artist had already agreed copyright in a specific public exhibition. It has also stated that ECAD must justify the fees that they are charging. Notwithstanding those conclusions, the Court stated that ECAD has legal capacity to perform the collection from any artist.

The regulations regarding any distribution of music in Brazil are mostly disclosed in the Copyright Law, complemented by some other legal texts. The Constitution has provisions about copyright protection, freedom of access, intimacy and several other related subjects. The Penal Code mentions a specific crime of copyright infringement. At an international level, Brazil is a signatory party to the Berne Convention for the Protection of Literary and Artistic Works. It is important to stress, however, that those legal instruments have been under constant discussion and revision by Brazilian scholars and by society as a whole. For example, the crime of copyright infringement has been reviewed recently, in 2003, by means of Law no. 10.695/03.

In its former wording, crime under article 184 of the Penal Code would be applicable to any non-authorised use, notwithstanding the existence of economic benefit. The new wording sought to criminalise the conduct solely of people who infringe copyright, including via the internet, with the aim of profiting, directly or indirectly. Further, paragraph 3 is a provision specifically adapted to the new media, terming any offering to the public, by cable, fibre optic, satellite or any similar methods, for direct or indirect profit, without specific permission, as crime. It is important to note that Brazilian courts have been understood that receiving money from any kind of advertising when providing free illegal downloads is an indirect profit from the unauthorised use.

Nevertheless, the new wording also provides a copyright limitation similar to that in the Copyright Law, stating, for example, that a copy, if a sole example and for self use, with no profitable intentions, would not be considered a crime. That wording came to settle any discussions about whether backing up CDs or even transposing your music to your computer could be considered a crime. As regards our Copyright Law, even though the present law was issued in 1998, several open discussions are being held regarding a possible (and maybe necessary) revision aimed at a better adaptation to the new demands of society brought about by the evolution of the internet.

On 9 November 2009, the Ministry of Culture presented the first draft of something that will become a bill of law to reform the Copyright Law. The ideas included in this draft are a result of the National Forum on Copyright, created by the Ministry of Culture in December 2007. The Forum compiled suggestions accumulated in industry seminars, sponsored by the ministry, with artists, groups, associations, academics and market professionals. Among the reform proposals, the text provides for the creation of the Brazilian Copyright Institute, which should ‘supervise, regulate and promote the collective management of copyright’, clarifying musical works licensing and also better arrangements for related rights. Such an entity would also be able to have a role in reviewing legal relationships in order to reach a better balance in the relationship between artists, performers, editors and third parties.

The draft also proposes that private copying of any digital work should be permitted without the express permission of or compensation to the owner, considering that the copy is intended for private use and provided that there is only one copy. That would allow the use of some purchased content in other media than the one that the consumer originally purchased for, which is forbidden at present. Further, there is also provision for permission of use of short extracts from existing works, where the use itself is not the main purpose of the new work and does not prejudice the normal exploitation of the work reproduced, giving legal background to the creation of music match-ups, for example.

The music business has to overcome the difficulties that the internet has imposed, benefiting from the good that it brings to society and creating more effective ways of containing unconstrained illegal music downloading, while finding the fine balance between cultural dissemination and the fair remuneration of the artists’ rights. Just as the Brazilian economy has grown and become respected in the world, so it seems to us that not long from now Brazil will be able to reach this balance.

AMERCIAS: CANADA

Country Update for Canada by Patrick Aldous


PATRICK ALDOUS is a lawyer at the Vancouver-based entertainment law firm of Atkins & Co. The primary focus of Patrick’s practice is the music business. His clients include recording artists, record labels, record producers, management companies, booking agencies and merchandise companies. Patrick is also the vice-president of Music BC, British Columbia’s music industry association. Before receiving his law degree from the University of British Columbia, Patrick earned a music degree from Berklee College of Music and a degree in Comparative Politics and International Relations from McGill University. Prior to embarking on his law career, Patrick spent a number of years as a professional touring and session musician.  While pursuing his career in law, Patrick has continued to be active as a semi-professional musician. He currently plays regularly with his own band, Desert Radio.

Introduction
There is currently no collective licensing regime with respect to the distribution of content (music or otherwise) over the internet in Canada. In order to assess whether such a regime would be viable in Canada, particularly with respect to the distribution of music over the internet, it is necessary to examine the law in Canada regarding both digital downloading/online peer-to-peer (P2P) filesharing and the liability of internet service providers (ISPs) with regard to content distributed over their networks. An examination of the law in these areas reveals that the creation of a government-mandated collective licensing regime for internet content in Canada is not a proposition with any current realistic hope for success.

The Digital Music Business in Canada
The authorised and licensed distribution of digital music in Canada operates in much the same manner as it does in the United States, albeit with fewer retail options. As is the case in the United States, the market for licensed music downloads in Canada is dominated by iTunes. Puretracks, owned by Moontaxi Inc., is primary competitor of iTunes in Canada, predating iTunes but with a much smaller market share. Puretracks operates from its own website but also serves as the ‘back-end’ of other digital retailer sites such as the Dell Music Store and the music store of Telus, one of Canada’s largest telecommunications companies. Napster also hosts a Canadian site. Amazon’s Canadian site has yet to launch a music download service, but there are indications that such a service will be offered soon.

The early part of this decade saw the dramatic growth of filesharing in Canada. According to the most recent Organisation for Economic Co-operation and Development (OECD) report on the digital broadband exploitation of music, the percentage of peer-to-peer filesharers versus total population is higher in Canada than in any other country in the world (OECD, Digital Broadband Content: Music, 13 December 2005). The Canadian Recording Industry Association (CRIA), which is comprised of the ‘major labels’ operating in Canada and their various divisions and affiliates, has estimated that for every one digital music file downloaded via legal paid services in Canada, 14 are downloaded via peer-to-peer filesharing services (see University of Ottawa, Canadian Internet Policy and Public Interest Clinic, File Sharing, 2 June 2007, online at CIPPIC, www.cippic.ca/file-sharing/). The Songwriters Association of Canada, citing CRIA research, estimates that approximately 1.6 billion music files are shared in Canada each year (see Songwriters Association of Canada, New Revised Version of SAC. Proposal, online at SAC, www.songwriters.ca/studio/proposal.php#2). With household broadband internet access in Canada among the highest in the world, peer-to-peer filesharing has certainly taken hold in Canadian popular culture.

The Applicable Law in Canada: The Copyright Act
The first ever consolidated version of Canadian copyright legislation was the Copyright Act of Canada (S.C. 1921, c.24), which was passed by the Parliament of Canada in 1921, such Act having evolved from the common law and British statutes such as the 1709 so-called Statute of Anne and the Imperial Copyright Act 1911. The last major reform of the Canadian Copyright Act was in 1985, which resulted in the current Copyright Act (R.S.C. 1985, c.C-42). In 1988 Parliament added what is now known as section 2.4(1)(b) to the Copyright Act, which provides that persons who only supply ‘the means of telecommunication necessary for another person to so communicate’ are not themselves to be considered parties to an infringing communication. The amendments of 1985 and 1988 obviously predate the phenomena of downloading and filesharing. Therefore, when addressing the issue of filesharing and downloading over the internet, as well as the liability of ISPs with respect to those activities, the courts and regulatory bodies in Canada have had to apply a statute that does not specifically contemplate the medium or the issue.

1. The Legality of Peer-to-Peer Filesharing in Canada. The legality of peer-to-peer filesharing is still an unsettled issue under Canadian law. Under the Copyright Act it is generally illegal to reproduce, authorise the reproduction of, distribute or ‘communicate to the public by telecommunication’ copyrighted material, whether for profit or for personal use, without the permission of the copyright holder (see s.3). Exceptions to the foregoing prohibition exist under the heading of ‘Fair Dealing’ for research or private study, criticism or review and news reporting (see s.29). In addition, section 80 of the Copyright Act contains a special exception for ‘private copying’ of ‘musical works’ onto an ‘audio recording medium’ expressly for the purpose of the private use of the individual making the copy. This exception is supported by a levy against all blank audio recording media sold in Canada. Funds raised from this levy are distributed to owners of the copyrights in and to master recordings. This ‘private copying’ exception and its application has provided an interpretation challenge to Canadian courts in the modern era of downloading and filesharing.

Under section 80 of the Copyright Act, in order for a particular use of a musical work to fall under the ‘private copying’ exception, the copy must be made on an ‘audio recording medium’. The question of what, exactly, constitutes an ‘audio recording medium’ under Canadian law remains undecided in the context of digital downloading. In 2003 the Copyright Board (the regulatory board established under the Copyright Act primarily to fix tariff rates to be charged by the various collective societies to users of their particular type of copyright) introduced levies of up to C $25.00 on non-removable memory in digital music players such as iPods. However, these levies were ultimately struck down by the Federal Court of Appeal, which ruled that this type of permanently embedded memory could not be considered an ‘audio recording medium’ under the Copyright Act (see Canadian Private Copying Collective v. Canadian Storage Media Alliance, (F.C.A.)[2005] 2 F.C. 654) and therefore were not subject to a levy designed to compensate copyright owners for the use of ‘audio recording media’.

The Federal Court of Appeal in the Canadian Private Copying Collective v. Canadian Storage Media Alliance decision also offered the opinion that a digital music player as an entire unit or device (as opposed to the non-removable memory contained therein) could also not be considered an ‘audio recording medium’. In 2008 the Copyright Board disputed the idea that the Federal Court of Appeal’s comments in this regard settled the matter of whether a digital music player as an entire unit or device is an ‘audio recording medium’ for the purposes of the Copyright Act (see Copyright Board of Canada, Copying for Private Use 2008–2009, 5 December 2008).

Whether a non-removable memory storage device (such as a hard drive) can be classified as an ‘audio recording medium’ is therefore an important issue under Canadian copyright law. If a hard drive is a form of ‘audio recording medium’, then the copying of music on to one’s computer hard drive or iPod for ‘personal use’ is not a form of copyright infringement owing to the provisions of section 80 of the Copyright Act. If one were to accept that a hard drive is a form of ‘audio recording medium’, though, it would follow that such hard drives should be subject to the ‘audio recording media’ levy. However, as stated above, the Federal Court of Appeal rejected that concept in 2005.

In 2004, prior to the Federal Court of Appeal’s decision in Canadian Private Copying Collective v. Canadian Storage Media Alliance, the Federal Court of Canada (trial division), while adjudicating on a separate issue, made comments on whether a computer hard drive was a form of ‘audio recording medium’ under section 80 of the Copyright Act. In 2004 the CRIA, taking a page out of the Recording Industry Association of America’s litigation strategy in battling online peer-to-peer filesharing, filed suit in Federal Court against ‘John Doe’ (see BMG Canada Inc. v. John Doe, (F.C.) [2004] F.C. 488). The CRIA is cited in the case as its individual record label members and the ‘John Doe’ was actually 29 separate private individuals accused by the CRIA of unlawfully downloading copyrighted music via peer-to-peer networks. The members of the CRIA did not actually know the identity of the individuals against whom the action was commenced. The CRIA had gathered the information using the individuals’ online ‘user names’, but did not have any way to tie those user names to the individuals’ legal names. Therefore, counsel for the CRIA members brought a preliminary discovery motion in Federal Court in an effort to compel Canada’s major ISPs—Telus Communications, Shaw Communications, Bell Communications, Rogers Communications and Vidéotron—to disclose the identities of these 29 respective customers. The CRIA members asserted that the IP addresses belonging to the unnamed defendants each showed traffic of over 1,000 downloads of copyrighted music files via services such as Kazaa (KaZaA) and iMesh. This was the first time in Canadian history that record labels attempted to use the courts to compel the ISPs to assist the record labels in battling online peer-to-peer filesharing.

The response of the ISPs to the CRIA’s preliminary discovery motion was varied. Shaw vehemently contested attempts to gain access to account information. Shaw cited privacy law concerns and technical challenges involved in associating dynamic IP addresses with a particular subscriber at any given point. Telus also argued against the CRIA’s disclosure request on the basis of privacy laws, primarily. Bell and Rogers focused their objections to the discovery request primarily on the costs associated with compliance. A number of the smaller Canadian ISPs, such as Sasktel and Access Communications, publicly asserted their customers’ rights to privacy under Canadian privacy legislation and indicated that they will not disclose their customer information without a court order. Vidéotron, the ISP owned by Quebecor Media Inc., did not appear at the hearing, and publicly expressed its support for the CRIA’s efforts, stating that it is ready to disclose the requested information to the CRIA as soon as a court order is issued (see University of Ottawa, Canadian Internet Policy and Public Interest Clinic, CRIA File Sharing Law Suits, 9 November 2005, online at CIPPIC, www.cippic.ca/file-sharing-lawsuits/).

The Federal Court in BMG Canada Inc. v. John Doe declined to grant the CRIA’s disclosure motion based on a privacy law test used to determine whether such motions should be granted. In applying that test, the court stated that the CRIA members, on the basis that their affidavit evidence in support of the motion failed to make out a prima facie case of copyright infringement. Justice von Finckenstein of the Federal Court found that the plaintiffs had not presented any evidence that an infringement of copyright had actually taken place. Citing section 80 of the Copyright Act and the private copying exception for musical works contained therein the court ruled that merely downloading and making music files available on one’s personal hard drive (without some more active form of sharing activity) does not amount to infringement under the Copyright Act, even when that hard drive may be accessed by others via a peer-to-peer network. Therefore, the Federal Court effectively ruled that a personal hard drive is an ‘audio recording medium’ for the purposes of section 80 of the Copyright Act. As a result of the BMG Canada Inc. v. John Doe decision, for a brief period in 2004–05, the filesharing of music in Canada was expressly legal.

Not surprisingly, the CRIA appealed Justice von Finckenstein’s ruling to the Federal Court of Appeal (BMG Canada Inc. v. John Doe, (F.C.A.) [2005] F.C.A. 193). The Federal Court of Appeal upheld Justice von Finckenstein’s ruling on the primary issue that was before the court, which was the requirement of the ISPs to disclose their customer information as requested by CRIA. However, the Federal Court of Appeal said that given the preliminary nature of the motion that was before Justice von Finckenstein, it was not appropriate for the lower court to comment on whether filesharing was, in fact, a form of copyright infringement in the context of a discussion of whether the plaintiffs had demonstrated the existence of a prima facie case. The Federal Court of Appeal said that the lower court was premature in making such a decision in the context of a preliminary motion (para. 46-54).

The Federal Court of Appeal in BMG Canada Inc. v. John Doe, while upholding the lower court’s ruling on the privacy issue, revised the privacy test that was to be applied, stating, in part, that plaintiffs need only show the existence of a bona fide claim (as opposed to a prima facie case) as the first ‘prong’ of the test. While revising this test and rejecting the lower court’s comments on whether filesharing was protected under section 80 of the Copyright Act, the Federal Court of Appeal invited the CRIA to resubmit its evidence in the case, or to submit new evidence with the benefit of the court’s decision. Despite the CRIA’s publicly stated intention to do so, no new action has been commenced by CRIA since the rendering of the Federal Court of Appeal’s decision. Since the BMG Canada Inc. v. John Doe Federal Court of Appeal decision, CRIA appears to have focused its attention on lobbying the Federal Government on the issue of copyright reform, seeking reforms to the Copyright Act that would make filesharing expressly illegal in Canada.

2. The Liability of ISPs for Content Communicated over their Systems. There is case law in Canada regarding the raising of a tariff against the ISPs for content exploited over their networks. The leading case in Canada regarding the liability of Canadian ISPs for the content that is communicated over their networks is Society of Composers, Authors and Music Publishers of Canada v. Canadian Association of Internet Providers, [2004] 2 S.C.R. 427, 2004 SCC 45. In 1995 the Society of Composers, Authors and Music Publishers of Canada (SOCAN), the Canadian performing rights society, made an application to the Canadian Copyright Board for a royalty tariff to be applied against the ISPs for the communication of SOCAN members’ material over the internet. SOCAN argued that the ISPs infringe SOCAN’s members’ exclusive statutory right to communicate their work to the public by telecommunication and to authorise such communication. In response, the Canadian Association of Internet Providers, a loose association of the major Canadian ISPs claimed that they operate only as a conduit in the communication of copyrighted material and therefore that they do not ‘communicate’ or ‘authorise’ the communication of musical works. Adding that they do not regulate the content of internet communications, the ISPs argued that they did not infringe the copyrights of SOCAN’s members and should not be made subject to a royalty tariff.

The decision of the Copyright Board in that case was appealed to the Federal Court of Appeal and, ultimately, to the Supreme Court of Canada. The Supreme Court of Canada ruled in favour of the ISPs. The Supreme Court stated that by enacting section 2.4(1)(b) of the Copyright Act the Canadian Parliament made a distinction between those who use the internet to supply or obtain content and those who are part of the internet infrastructure itself. The court held that Parliament believed there was a legitimate public policy interest encouraging telecommunication ‘intermediaries’ to expand and improve their operations without fear of copyright infringement litigation (para. 131). The court held that section 2.4(1)(b) indicates that, in Parliament’s view, ISPs are not ‘users’ of copyrighted material at all, at least for purposes of the Copyright Act (para. 132).

However, in its general comments (not forming part of the core decision), the Supreme Court did leave the door open to the possibility that the failure of an ISP to ‘take down’ infringing content once it has notice of that infringing content may, in some circumstances, lead to a finding that an ISP had ‘authorised’ the infringement. The court recognised that this possibility would place the ISP in the difficult position of trying to assess the validity of a copyright infringement claim and choosing between potential litigation and disrupting its service to its customers. The court offered the opinion that a more effective approach would be the parliamentary enactment of a statutory ‘notice-and-take-down’ procedure, similar to those used in the European Union and the United States (para. 27). The Supreme Court thus pointed to the need for statutory copyright reform with respect to the internet.

3. Statutory Copyright Reform. In June 2005 the Minister of Canadian Heritage and the Minister of Industry in a minority Federal Government formed by the Liberal Party of Canada introduced Bill C-60 in the House of Commons (Fulla, Liza, and Emerson, David. ‘Bill C-60, An Act to Amend the Copyright Act.’ House of Commons of Canada (First Session, Thirty-eighth Parliament, 53-54 Elizabeth II, 2004-2005), 20 June 2005.). Bill C-60 was a proposed amendment to the Copyright Act which, among other things, would have made peer-to-peer filesharing of copyrighted music illegal. However, Bill C-60 died on the Parliament floor while awaiting Second Reading when the Liberal minority Government fell to a no-confidence vote in November 2005.

Bill C-60 would have enshrined in statute a form of ‘safe harbour’ protection for the ISPs. Under the proposed legislation, an ISP would not infringe the copyright of a work or reproduction of that work solely by reason of the ISP providing the means for the telecommunication of that work or reproduction (s.31.1(1)). Bill C-60 prescribed that ISPs would only be required to remove content pursuant to a court order. However, the bill would have required ISPs to operate by a so-called ‘notice-and-notice’ system. Under Bill C-60, if the ISP were to receive an allegation of copyright infringement against one of its customers, the ISP would have to forward the complaint to the customer. Failure to forward the notice could have resulted in a maximum damage award against the ISP of C $5,000. In addition, if the ISP were to receive an infringement notice from a claimant, the ISP would be required to retain the relevant customer’s identity records for six months. If the claimant commenced legal action against the customer, one year of identity data must be retained by the ISP. Failure to do so could have resulted in statutory damages up to $10,000 for the ISP (s.40.2).

It should also be noted that Bill C-60 addressed the issue of the legality of peer-to-peer filesharing in Canada. Under Bill C-60 the Copyright Act would have been reformed such that the copyrights of performers and their performances would be modified so that the performer is given the sole right to, ‘Communicate to the public by telecommunication a sound recording of it in a way that allows a member of the public to access it from a place and at a time individually chosen by that member of the public’ (s.8(1)). The sole right to ‘communicate to the public by telecommunication a sound recording of it in a way that allows a member of the public to access it from a place and at a time individually chosen by that member of the public’ would also apply to the ‘maker’ of sound recordings (s.10).

In June 2008 Jim Prentice, the Minister of Industry in a minority Federal Government formed by the Conservative Party of Canada introduced into Parliament Bill C-61, the successor to Bill C-60 (Prentice, Jim. ‘Bill C-61, An Act to Amend the Copyright Act.’ House of Commons of Canada (Second Session, Thirty-ninth Parliament, 56-57 Elizabeth II, 2007-2008), 12 June 2008.). This copyright reform legislation also died in the Parliament, during First Reading, when the Government was suddenly dissolved at the request of the Prime Minister on 7 September 2008. As a campaign promise in the ensuing election, the Conservative Party promised to reintroduce the legislation containing the content of Bill C-61 if elected. The Conservative Party was elected to another minority Government, but the revised legislation has yet to be reintroduced in Parliament.

Bill C-61 was referred to by some commentators and academics in Canada as the ‘Canadian Digital Millennium Copyright Act’ (see Geist, Michael. The Canadian DMCA: Check the Fine Print. 12 June 2008, online at Michael Geist, www.michaelgeist.ca/content/view/3025/125/). Under Bill C-61, the ISPs would have no legal responsibility when their services are used simply to provide access to copyrighted material (s.31.1).

On the issue of peer-to-peer filesharing Bill C-61, like Bill C-60, would have given performers and ‘makers’ of sound recordings the sole right to ‘Communicate to the public by telecommunication a sound recording of it in a way that allows a member of the public to access it from a place and at a time individually chosen by that member of the public’ (s.7.1 and s.9). Bill C-61 would also create a new maximum statutory damage award of C $500 per illegal music download for ‘private use’. However, exceptions to this apply in the case of uploading or posting music online (regardless of the individual’s awareness that he or she is actually uploading) and the ‘making available’ of copyrighted material (regardless if it was actually uploaded), which could result in statutory damages of $20,000 per infringement (as defined in previous bills). The awareness element is interesting and of concern in that most peer-to-peer programs generally allow downloading and uploading by default.

Ultimately, both Bill C-60 and Bill C-61 did not become law. Therefore, until the present Conservative Government re-tables a version of Bill C-61, or until there is a change in government and new reforms to the Copyright Act are passed, Canada is left with its current statutory regime in dealing with copyright and the role of the ISPs in the distribution of content over the internet.

4. The ISPs and the Canadian Telecommunication Act. The Copyright Act is not the only legislative tool in Canada used by those who would advocate the ISPs paying a form of collective fee for the use of content on their networks. The Canadian Radio-Television and Telecommunications Commission (CRTC) is the federal public body charged with the regulation of broadcasting and telecommunication in Canada. The CRTC has the statutory power under the Telecommunications Act 1993 (R.S.C. 1993, c.C-38) to regulate ISPs in Canada. In March 2009 the CRTC held a hearing on the issue of the application to ISPs of certain broadcast regulations under the Telecommunications Act to which the ISPs were not previously subject. Pursuant to those regulations, radio and television broadcasters in Canada are required to ensure that a certain percentage of the content broadcast on their services is Canadian in origin. In addition, traditional media broadcasters in Canada have to pay a certain percentage of their revenue to a number of different quasi-public bodies (such as the Foundation to Assist Canadian Talent on Recordings—FACTOR and Telefilm Canada) which administer loan and grant funds designed to support the domestic production of Canadian content.

In the March 2009 CRTC hearings, a number of Canadian artist groups and the traditional media broadcasters proposed to the CRTC the concept of a 3% levy on all Canadian ISP revenues, as a means of trying to ensure the continued funding of Canadian content production in the new media era (see CBC News, ‘Internet providers united in opposing CRTC regulation’, on 11 March 2009, online at CBC News, www.cbc.ca/technology/story/2009/03/11/isp-newmedia.html). In other words, the CRTC was asked to decide whether the ISPs should be subject to the same (or similar) broadcast regulations to which the traditional media broadcasters are subject. It was also argued that the ISPs should have an obligation to monitor the content on the internet to determine whether sufficient Canadian content was being transmitted to their customers.

The March 2009 CRTC hearings were informative to the discussion of collective licensing of the ISPs in that they clearly illustrate how the ISPs view themselves and how resistant they are to both the concept of a content-based ISP levy and the imposition of monitoring obligations on the ISPs. The ISPs, in their submissions to the CRTC, argued that the imposition of an ISP levy would be harmful to the growth of the internet and would simply result in increased costs to customers. Rogers Communications’ head of regulatory affairs, Ken Engelhart argued that the ISPs are telecommunication providers, not broadcasters, and therefore should not be subject to broadcasting regulations. Engelhart claimed that the ISPs are ‘pipes’ rather than broadcasters. He drew an analogy between the ISPs and a Telesat satellite that transmits satellite signals, claiming that in the case of satellite broadcasting, a company such as Starchoice is the broadcaster, not Telesat (see CBC News, ‘Rogers, Shaw argue against ISP levy’, on 10 March 2009, online at CBC News, www.cbc.ca/technology/story/2009/03/10/rogers-crtc.html).

In the CRTC hearing, the issue of monitoring content on the internet to ensure a certain presence of Canadian content was uniformly dismissed by the ISPs as unworkable. The ISPs said that any such methods were either beyond their means or entirely unreliable. The president of Shaw Communications, Jim Shaw, claimed that Shaw Communications does not even look at the content travelling on his company’s service. He claimed that internet traffic is doubling every 14 months, but his company has ‘no idea’ what its customers are watching. ‘The Internet is about the World Wide Web, not the Canadian Wide Web’, Mr. Shaw submitted (see the same 10 March 2009 CBC News article cited above).

The CRTC issued its ruling on the matter in June 2009 (Canadian Radio-television and Telecommunications Commission, Broadcasting Regulatory Policy CRTC 2009-329, 4 June 2009). The CRTC ruled that the ISPs would continue to be exempt from broadcast regulations under the Telecommunications Act and therefore would not be subject to a Canadian content monitoring obligation or a Canadian content ISP levy (para. 67). The CRTC chairman, von Finckenstein, in a statement that accompanied the decision, said that online and mobile technologies are acting in a ‘complementary fashion’ with traditional media and that new regulation would only ‘get in the way of innovation’ (see CBC News, ‘CRTC keeps new media exempt from broadcasting regulation’, on 4 June 2009, online at CBC News, www.cbc.ca/technology/story/2009/06/04/crtc-new-media.html).

Conclusion
Until a new version of Bill C-60 or Bill C-61 is introduced in Parliament, Canada’s Copyright Act will remain the same and the legality of peer-to-peer filesharing will remain uncertain. Since the Conservative Party of Canada was re-elected, once again, to a minority Government in the fall of 2008, it seems that the Government is taking a cautious approach to the introduction of new legislation. It was an election promise that Bill C-61 would be reintroduced in the current Parliament, but in the first year of that Parliament, this has not occurred.

In addition, CRIA has not accepted the Federal Court of Appeals’ invitation to recommence its filesharing litigation. As stated above, we suspect that CRIA would prefer to wait for new legislation rather than re-test the existing Copyright Act in litigation.

Following the Supreme Court of Canada decision in Society of Composers, Authors and Music Publishers of Canada v. Canadian Association. of Internet Providers, there is not currently any compelling reason to suspect that any other content rights holders’ organisations will attempt to litigate a non-voluntary content-based levy or tariff against the ISPs. In addition, given the positions taken by the ISPs in the 2009 CRTC hearings on the proposed Canadian content levy, there is every reason to believe that the ISPs would vehemently oppose any form of content-based levy in the future. If new Copyright Act legislation is introduced and passed in Parliament, and if that new legislation resembles Bill C-60 and Bill C-61 with respect to its approach to the ISPs, it would appear that the concept of the ISP being merely the ‘pipe’ will be enshrined in Canadian law and any discussion of a ‘music levy’ would appear to run contrary to that principle.

In short, it appears unlikely that any form of government-imposed collective content licensing regime for ISPs will be instituted in Canada unless there is a dramatic shift in the political landscape. It therefore appears that if the Canadian music business or other Canadian content producers wish to advance the idea of collective licensing of content at the ISP level, in exchange for a percentage of ISP revenue, that agreement would have to be brokered in the private sector between the content producers and the ISPs, rather than imposed on the ISPs by the public sector. The Canadian Government, its regulatory bodies and the Canadian courts do not appear to be prepared to compel the ISPs to make this bargain.

AMERICAS: COLUMBIA

Country Update for Columbia by Alejandro Jimenez

ALEJANDRO JIMÉNEZ AFANADOR was born in Bogotá in 1985 and graduated from Los Andes University Law School in that city. He also studied criminal procedures (El Rosario University), international criminal law (UNAB Bucaramanga), international commercial law (La Sabana University Bogotá), digital content  (Los Andes University) and, from 1996, music studies. Alejandro has worked for Sony Music Entertainment (Business and Legal Affairs Department—Andean Region, of which he is now the head) since 2007. He oversees all Sony Music’s legal matters in Colombia, Venezuela, Ecuador and Peru, such as artist’s agreements, digital products, copyright contracts and any legal need of the company.

COLOMBIA: CAN BLANKET LICENSING1 IMPROVE THE COMMERCIALISATION OF MUSIC DIGITALLY?

Introduction
This article proposes a brief description of the conditions in which the commercialisation of music through digital means has been handled in Colombia, especially referring to internet downloads. For this purpose, it will describe the legal process that has been developed, seeking to consolidate, legally speaking, the necessary foundations to build a ‘sale’2 scheme of downloads through the internet, and hoping to conclude whether or not the concept of blanket licensing is viable, at the moment.

The Legal Background
To understand the analysis, it is important to understand that Colombia is a nation with a cultural tradition deeply rooted in the idiosyncrasy of its citizens when speaking about music, and it is one of the main exporters in the region of great performers and composers, whose talents have been recognised by the music industry worldwide. This condition has not been absent from the different types of businesses that are found around music and copyright law in Colombia. Thus, the regulation of these commercial relations has become a challenge for the law, where the atypical nature that characterises them requires the jurists’ expertise to offer businessmen sufficient legal basis to maintain the profitability of their transactions.

In light of the above, and given the importance of music for Colombia, we find that an important share in the gross domestic product (GDP) comes from copyright industries, including the music industry. While comparison with other countries shows that Colombia is not a favourable place regarding share in GDP of the copyright industries, such industries, according to studies conducted by the National Copyright Department (DNDA) together with the World Intellectual Property Organization (WIPO), show that their contribution to the country’s employment was, in 2008, approximately 5.8% of the total, with exports worth around US $232 million.

Notwithstanding the proportion of GDP that the copyright industry represents, the levels of piracy in physical format continue to represent a challenge to the police authorities in charge of fighting this practice. Despite the negative incidence of the problem in legal physical music sales, it has not made the music business loose its profitability in Colombia. Part of this profitability comes from new technologies, which have shed light on the business thanks to the different ways of exploitation of protected works through web and WAP portals, through which content for mobile phones and computers has begun to be offered to the public.

Regarding the download of phonograms to computers through web portals, Colombia’s first ‘legal’ music download web page on the internet is in operation, administered by Empresa de Telecomunicaciones de Bogotá (ETB). This website allows users to download phonograms and works made available to the public, for approximately US $1 per downloaded track.

The negotiation necessary to give legal support to this form of offering to internet users of a mechanism for the legal download of music has been an extraordinary challenge for performing rights societies, publishers and record producers, given the great number of rights and title holders that play a role in these new means of music commercialisation. Initially, the rights applicable to this type of commercialisation of protected works had to be determined, and other people were involved in implementing the page legally. In this sense, the economic rights implied in the use to be given to the works and phonograms in the framework of internet commercialisation through downloads (full track download) and the title holder of each respective right had to be established. Thus, the type of licence to be given to the end user and the limitations to the use of content also had to be determined.

It was thus considered that a ‘sale’ transaction of a track to the user, through the web page, was framed within an end user licence agreement (EULA) with the page operator, who in turn had to be empowered by the record producer, by the royalty collection agency and by each music publisher to enter into an agreement with the user that would allow the reproduction of the work or phonogram on their computers, and make the work and phonogram available to the public in the web page server. In this sense, two rights are considered: (i) the right of reproduction and (ii) the right of making available to the public, the content of which is not defined in Colombian copyright legislation, but in article 8 of the WIPO Copyright Treaty 1996 where the right of communication is tinged by a new modality called the ‘making available to the public’, which may be briefly defined as fixing the works and/or phonograms in a server (when dealing with the internet) so that one or more persons may have access to them.

Having clarified this legal scenario of the rights involved (reproduction and making available to the public), the matter was filtered through the identification of the title holders of these rights, in order to empower the web page administrator to fix the works and phonograms in the server and to be able to license to its users the reproduction on their computers.

First, we have the record producers or record labels that license both the reproduction and the making available of their phonograms and performances thereby included. With this in mind, guidelines and content protection mechanisms are set in the EULA and in the digital rights management (DRM) included in the downloaded content, in order to prohibit uses that are not contemplated in the licence. Second, music publishers grant the web page administrator the power to reproduce their works on the users’ computers. Up to this point the process is perfectly clear, but the question that remained was who should license the making available to the public? Owing to the vagueness of this concept in the WIPO Copyright Treaty, it is a complex matter to know the scope of this legal concept. However, this right has been understood as a way to communicate to the public musical works, and in this way it was determined that its licensing should be, at least for now, handled by the performers’ association, which to date had been exercising money collection tasks originating in the public communication of musical works.

This is how the puzzle of music commercialisation through a web portal and downloads is definitely built, and this is how the pertinent agreements have been achieved to allow music users in Colombia the possibility of legally downloading music from the internet.

Blanket Licensing
Now, taking into account the number of rights and persons involved in this type of business, is it possible to thing of a blanket licensing system in Colombia? Truthfully, for now, I think not. To date, the matters related to the licensing of content for digital exploitation have not been systematised such that the title holders of the rights necessary for exploitation may consolidate in a single person the granting of licences to end users and for the companies that intend to commercialise music online.

This does not mean that blanket licensing is not an efficient way to allow more effective traffic of music services online. If we look at mobile phone penetration (see fig. 1) and the results of music commercialisation in mobile media, which also involves the rights of reproduction and making available, we find that despite also being a cumbersome matter to negotiate, it has shown reasonable success, and allows us to think that if a blanket licensing scheme may be systematised so as to open the door to digital music exploitation by a single entity, it could make the operations more efficient and intensify penetration. However, contractual relations between publishers and composers and between artists and record labels are far from allowing the opening towards blanket licensing, due to the restrictions that may exist on the works and/or phonograms.

Conclusion
In conclusion, we have been able to discuss the rights and persons that play a transcendental role in the commercialisation of music through digital means, without whose consent any use of music would be illegal in Colombia. Likewise, we found that up to now the commercialisation of music through digital means has been consolidated, even though no system of blanket licensing exists for digital uses. Finally, we were able to propose that blanket or collective licensing may be a future solution to systematising music licensing. However, the legal relationships between publishers and record labels and composers and performers still do not allow concentration in a single entity that would be in charge of managing the licensing and fixing a rate, given that it is still frequent to see territorial restrictions or very precise limits to fixing minimum royalty rates, which if standardised, would lead to breaches by publishers or record labels.

Footnotes:
1. Collective licensing.
2. Although I consider that the word ‘sale’ is not the correct institution to define the legal relationship between the end user and who makes music available to the public on the internet, given that there is no genuine transfer of domain over a thing or the assignment of any right, I use it to refer to the action that allows the user to download content so that it may be reproduced in a computer.

AMERICAS: JAMAICA

Country update for Jamaica by Joan Webley

JOAN WEBLEY has worked in the media industry in various capacities both regionally and internationally. She has acted as legal consultant on several film productions including the soon to be released Hollywood films Disgrace, The Last Dancer and Daybreakers and has considerable business and legal experience with major studios and distribution companies worldwide. Joan has also acted on behalf of The Secret (book and documentary) and represented theatre, television and dance practitioners. Her music business experience is varied and her legal experience in this field includes acting in negotiation of agreements for Australian Idol contestants and representing clients in major and independent label recording contracts and in synchronization matters. Having recently returned to Jamaica, Joan has become an active participant in the local entertainment industry. She has advised the Ministry of Information, Culture, Youth and Sports on copyright matters and is an active board member of the Caribbean Production and Training Centre and of the Jamaica Reggae Industry Association. In addition to her extensive entertainment involvement, Joan is familiar with each stage of the government procurement cycle, has been certified by the Caribbean Procurement Institute and is a member of the Caribbean Association of Procurement Professionals. She holds a Bachelor of Business (Music Industry specialization) and a Bachelor of Laws (with Honours). Joan Webley is with WatsonWebley Advisors & Consultants Ltd of Kingston.

JAMAICA: FIRST WORLD COPYRIGHT LAW IN THE THIRD WORLD—TIME FOR A NEW APPROACH?

Part One
‘Only one thing is impossible for God: To find any sense in any copyright law on the planet.’ (Mark Twain)

The Jamaican copyright regime presents an interesting study on the effect that wholesale application of international legal systems and norms has in a territory facing social and economic realities vastly different from those of its originators.

At the international level Jamaica is committed to the notion of copyright as a form of intellectual property protection. As such, the nation has a firmly entrenched Copyright Act1 and a history of support for international intellectual property protection treaties and protocols.2 To effect compliance of the resultant obligations that such treaties and protocols bring, national bodies (both public and private) are maintained at various levels3 and the police and judiciary are routinely educated on the provisions of the national copyright law and directed to enforce it in earnest. However, the realities of the Jamaican copyright situation bears little resemblance to what one would expect based on our regulatory framework and illustrious legal heritage.

Our national commitment to copyright law owes its existence to our colonial legacy. When the formulation of the Berne Convention took place there was little consultation with, or involvement from, the Jamaican people.4 Prior to 1866 Jamaica was solely considered as British property. At this juncture after numerous slave uprisings and revolts the British relinquished some control and the island became a Crown colony. While this resulted in the growth of an indigenous middle class of public officials and police officers, real opportunities for social and political involvement were still blocked by the colonial authorities.

In 1911 the Crown passed an Imperial Statute, the Copyright Act No.46, which brought copyright law to Jamaica. Two years later Jamaica began to make overtures to adapt the law to its particular circumstances by clarifying the earlier Act and making additional provisions relating to the penalties for copyright infringement. These legal adaptations were made bearing in mind that ‘colonial laws could diverge for colonial circumstance so long as they were not repugnant to the laws of England’.5 No substantive alterations to the operation and intention of the English law could be made.

The beginning of American attempts to influence the political and legal affairs of Caribbean nations came in the form of a 1983 expression of the American ‘Monroe Doctrine’. This US policy, called the Caribbean Basin initiative:6

‘offered the Caribbean states duty free trading privileges in the US market, but conditional upon the adoption of copyright… almost every Caribbean state acquired copyright law, and US lawyers drafted all of this law because Caribbean states did not have any copyright expertise… a wholesale international transplant of copyright institutions’.7

In 1993 Jamaica enacted the Copyright Act No.446, which took its English basis, incorporated its American influences (particularly with respect to fair use and fair dealing provisions), and attempted to live up to the island’s international obligations. The island has had little time to conceptualise and implement its own copyright agenda.

At present the Jamaican Copyright Act is undergoing a series of amendments required for two reasons. First, to bring its provisions more in line with the obligations of the various international conventions and treaties to which it is a signatory. And, secondly, to address issues raised by copyright stakeholders, which largely centre around closing existing lacunae in the legislation and assessing the validity of proposed exemptions. Still, despite the best efforts of various industry stakeholders to create a culture of copyright compliance, the system continues to falter in everyday operation.

Part Two
To assess whether there are indeed flaws in a legal system one must consider if it fulfils the objectives for which it was created. Copyright law intends to protect the intellectual property rights of the individual creator and allow for the structured economic exploitation of their intellectual efforts. Countries agree to adopt and promote international copyright accords as there is seen to be some protectionary or economic benefit to be gained from implementation.

In Jamaica, despite all our legislative and regulatory measures, the country, a prolific producer of premium original copyright content, remains a net importer of copyright product. In reality, the promised economic returns of copyright remain largely unrealised, and piracy and other forms of copyright infringement remain rampant across all levels of Jamaican society.

Through an analysis of Jamaican copyright law as it relates to the music industry we can further evaluate its ability to achieve its stated objectives. Ascertaining the nation’s views towards music as property, goes a fair way towards understanding its views towards copyright. Jamaican music stands as a beacon of our cultural development and national identity. Its unique nature can be viewed as a reflection of the ideals and experiences of its people. Notwithstanding that, its regulation by laws based on the needs of foreign nations has proven problematic.

The present attitude of Jamaicans towards music as a commodity/property, capable of ownership, and the attendant level of respect for the laws that govern intellectual proprietary concerns are heavily influenced by the historical circumstance surrounding our adherence to this law and our socio-economic realities.

As previously outlined, our copyright law system can be seen as a veritable legal transplant: a law handed down, adopted or otherwise imposed with insufficient regard for the societal peculiarities of the receiving country.8 These societal attitudes have a direct impact on the likelihood of success of any measures to enforce existing copyright provisions. As Gregory Letterman asserts:

‘There can be no theft where there is no property and the existence of a proprietary right in ideas is a relatively recent novelty anywhere and is everywhere a very circumscribed right.’9

Differing conceptions of the nature of property, socially entrenched colonial legacies, and an unequal emphasis placed on the importance of cultural products are just some of the factors which exacerbate the situation. Poor levels of public awareness of copyright provisions, and our stark economic realities are other challenges facing the system.

Despite our strongest efforts to adopt and enforce existing copyright law in Jamaica, the process of change is a slow one as illustrated by the following insights:

• There is a lack of awareness and understanding of the operation of copyright law, particularly in terms of how it can be utilised for maximum financial gain. There is also a deficit in the technical and professional services, expertise and investment capital needed to thoroughly exploit our raw music product.

• A healthy distrust for legal systems and lawyers exists, as such our artists often fail to take the basic steps required to register their copyright and otherwise protect their creative work. Problems created by this lingering refusal to ‘buy-in’ to the copyright system has been just one of the reasons that many foreign-earned royalties are never repatriated to its creators, as there can be great difficulty in ascertaining the rightful owner.

• The costs involved in registering copyright with foreign collective rights management organisations is inhibitive and, as if suffering from a post-colonial hangover, there is a reluctance on the part of the industry to register with the local counterparts who are viewed as an inferior alternative.

• Counterfeit copies of copyrighted CDs can be purchased quite easily despite enforcement measures. Vendors of the infringing material sell these products on street corners and inside stores. Attempts at enforcement are sporadic, as the country is plagued by more pressing policing problems, and the judiciary appears not wholly convinced of the wisdom of imposing harsh penalties on individual offenders when ‘more serious’ crimes are being committed.

• The opportunity cost of purchasing a single legitimate CD is extremely burdensome in the Jamaican context, at times equating to an entire day’s wage. This must also be considered in light of climbing unemployment rates and a dilapidated social welfare system. In a nation with a firmly grounded tradition in the creation and appreciation of music, where the people are unable legally to purchase an art form of a quality freely traded among them, they have chosen to acquire it by other means.

• Our prolific artists and musicians have all but abandoned any prospect of realising meaningful sales from their creative product in Jamaica. In fact, music is readily given away due to the competitive nature of the local music industry and necessity, the corresponding need to gain market share in terms of listenership and chart rankings. Many local musicians, though extremely prolific, are merely subsisting and have to rely solely on the income generated through performances. ‘Musicians in Jamaica are at present not being properly rewarded for their creativity.’10

• Jamaicans also continue to undervalue the commercial possibilities attached to their national musical offering as it has always been theirs to create and enjoy regardless of their financial standing. This lack of regard for the proprietary interests attached to their own music has transferred to the island’s dealings with the musical products of foreign nations.

‘what is IP elsewhere is there considered to be only ideas which- like the air- belong to everyone equally and are free for anyone to use.’11

It is instructive to note that, according to Western standards and core copyright doctrines, continued piracy should act as a disincentive to the production of this cultural product. However, Jamaica remains one of the world’s most prolific producers of music. In fact, according to one 1998 report: ‘Jamaica releases more 45 singles recordings on a per capita basis than any other country in the world.’12 What this highlights is that, at least in Jamaica, some of piracy’s purported effects have not materialised. This calls into question the accuracy of other core copyright doctrines.

In fact, it lends some support to the notion that copyright law in its current composition (and interpretation) may not be the best means of stimulating creative production and securing economic returns in developing countries. Is there even much wisdom in investing in strengthening activities of collective rights management societies in Jamaica as a means of promoting the ‘national agenda’ when one considers that:

‘the establishment of professional collecting societies in Jamaica… might provide incentives for local musicians to record their music, (but this) overlooks the critical point that collecting societies and rights organisations even in such more developed countries as South Africa act principally as revenue collectors for foreign rights holders.’13

In industrialised nations, the majority of the populace endorses their intellectual property laws.14 As such, these nations have also taken more initiative in contributing to the creation of international intellectual property law. This fact may also be the reason why this law appears to be ill-equipped to meet the needs of lesser developed countries, which face altogether different values and concerns. One commentator, expressing a sentiment shared by many, wonders:

‘how copyright (a right primarily held today by Western corporations and, much less so, by individuals in developed countries) can serve the varied goals of poor nations and poor communities within them’.15

Part Three
The Jamaican Government has, with funding from various international organisations, commissioned several reports to address these and other issues.16 Among the suggestions put forth by these papers are: launching a renewed educative push, awakening the masses as to the benefits to be gained by adherence to copyright law provisions; closer linkages with the nation’s information technology sectors, to ensure that the more value-added portions of the creative industries remain in Jamaica; and encouraging copyright owners to enforce their rights so that a culture of copyright compliance can be developed.17

These papers generally address ways of making these laws suit third world circumstance, rather than conceiving innovative approaches. Suggesting ‘novel’ solutions to our real copyright problem is often viewed as radical nonsense. This is unsurprising as scholars hold that:

‘When a state or group of states embraces a (legal) institution from another state a certain sort of inertia is set up where it becomes difficult to contemplate more efficient institutional arrangements.’18

None the less, it is posited that possible solutions towards bridging the lacuna between copyright’s promised results and its lacklustre realities can only be found through a proper exploration of the historical development of copyright law and an examination of the subsequent inability to properly enforce and realise the promised socio-economic benefits of existing copyright provisions in our developing nation. The insights into our society and its legal structures gained thereby can then be utilised to develop a new national approach to reconciling copyright law’s objectives with Jamaica’s socio-economic realities. Such a study is of increasing relevance in light of continued globalisation, technological advancements and the virtual erasure of international borders.

It is understood that nations with a longer history of copyright enforcement practices will undoubtedly possess greater expertise in the area, and that some of the effects of copyright law may have been lessened by its Jamaican translation. Still, the continual efforts towards ‘legal assimilation’, on the part of the Jamaican legal sector and related industry bodies, face definite challenges in implementing and enforcing this law.

Perhaps the time has come for developing countries to take a truly fresh look at existing copyright law. Economists, lawyers and governments need to take the time to address what aspects of the law are inapplicable to their unique circumstance. An in-depth analysis of the options Jamaica—and other like developing nations—may explore could be the subject of a whole other research paper.

Some key questions that will need to be addressed in moving forward include: what aspects of the relevant laws in their composition and operation today reflect practices entrenched/developed from colonial times? Does the first world impose unrealistic and inapplicable standards on the third world? Do first world provisions amount to over-protection of intellectual property to the detriment of cultural and other development?, And, is there a valid need to create a new approach to real and intellectual property law for developing nations?

It may just be that what developing countries require is a fresh approach—one closely linked to policy development—in order to adequately assess their situation, select appropriate methods of reform and realise meaningful advances.

Footnotes:
1. Copyright laws in Jamaica: Copyright Act No.46, December 1911 (Imperial Statute in force in Jamaica); Copyright Act No.12, July 1913 (local statute dealing mainly with penalties for copyright offences and the application in Jamaica of the 1911 Act); Copyright Act No.17, July 1977 (local statute enacted but never brought into operation); Copyright Act No.446, September 1993 (taking US ‘Fair Use’ provisions into account); and the Copyright Amendment Act, which is underway [as noted in the legislative profile in Part One].
2. Membership of WIPO treaties: WIPO Convention, since December 1978; Paris Convention (Industrial Property), since December 1999; Berne Convention (Literary and Artistic Works), since January 1994; Nice Agreement (International Classification of Goods and Services), since February 2006; Rome Convention (Performers, Producers of Phonograms and Broadcasting Organizations), since January 1994; Geneva Convention (Unauthorized Duplication of Phonograms), since January 1994; Vienna Agreement (International Classification of the Figurative Elements of Marks), since February 2006; Brussels Convention (Distribution of Programme-Carrying Signals Transmitted by Satellite), since January 2000; Nairobi Treaty (Olympic Symbol), since March 1984; WCT (WIPO Copyright Treaty), since June 2002; WPPT (WIPO Performances and Phonograms Treaty), since June 2002.
Membership of WTO: Member and Signatory to TRIPS Agreement, since March 1995 [as noted above].
3. Public and private entities involved in the administration of copyright law in Jamaica include: Jamaica Intellectual Property Office (JIPO—housing the Copyright Tribunal and the Copyright Directorate); Jamaica Association of Composers, Authors and Publishers (JACAP); Jamaica Copyright Licensing Agency; and Jamaica Music Society (JAMMS).
4. Alan Story, ‘Study on Intellectual Property Rights, the Internet, and Copyright’, Commission on Intellectual Property Rights (2001), 17: ‘Berne is increasingly anachronistic and inflexible, especially for the least developed nations of the world and their own priorities… the overwhelming majority of such countries did not exist as independent countries when it was established.’
5. Mary Sarah Bilder, The Transatlantic Constitution: Colonial Legal Culture and the Empire (2005), 3
6. S.232, Ss 1-3 of the 1983 Monroe Doctrine.
7. Peter Drahos, ‘How Intellectual Property Rights Could Work Better for Developing Countries and Poor People’ (Conference Transcript of the Commission on Intellectual Property Rights), The Royal Society, London, 21–22 February 2002.
8. G. Gregory Letterman, Basics of International Intellectual Property Law (2001), 14–15.
9. Ibid. n.8, 14.
10. S. E. Schlatter, ‘Copyright Collecting Societies in Developing Countries: Possibiliites and Dangers’, in C. Heath, and A. K. Sanders (eds), New Frontiers of Intellectual Property Law, Studies in Industrial Property and Copyright Law (2005) 25, 53: ‘In developing countries the arts play a larger and different role than in industrialised countries’, 30.
11. Letterman (above), n.8, 13.
12. Schlatter (above), n.10, 53: ‘In developing countries the arts play a larger and different role than in industrialised countries.’
13. Story (above), n.4, 12.
14. Letterman (above), n.8, 15.
15. Story (above), n.4, 8.
16. Many of which can be found at: www.creativeindustriesexchange.com/index.php?option=com_docman&task=cat_view&gid=14&Itemid=99999999.
17. These reports include: Zeljka Kozul-Wright and Lloyd Stanbury, Becoming a Globally competitive Player: The Case of the Music Industry in Jamaica, United Nations Conference on Trade and Development, No.138, 1998; Bruce A. Lehman, Modernizing Jamaica’s Intellectual Property System, International Intellectual Property Institute (report funded by World Intellectual Property Organization), 2000; Zeljka Kozul-Wright and Nicole Foga, Electronic Commerce and Music Business Development in Jamaica: A Portal to the New Economy? United Nations Conference on Trade and Development, New York and Geneva, 2002.
18. Drahos (above), n.8.

AMERICAS: MEXICO

Country Update for Mexico by Gaston Esquivel Santos

GASTON ESQUIVEL SANTOS was born in Mexico City and educated at the Universidad Iberoamericana (Mexico City—including postgraduate, Corporate Law, and Intellectual Property and Criminal Law from the Instituto Nacional de Ciencias Penales). He also has a degree from the University of Texas at Austin (Corporate Law and Intellectual Property). Gaston is an active member of the Mexican Bar Association and the Inter-American Institute of Authorship Rights. He is Professor of Intellectual Property at the Universidad Anahuac, and also teaches on the Authorship Rights degree course at both the Universidad of Colima and the University of Baja California. He has spoken in several forums in Mexico and abroad. Gaston is a partner and co-founder of the law firm Cuesta, Llaca and Esquivel.

Before we answer the different questions that have arisen regarding the music business, the applicable law and the present and future of the collective licensing in Mexico, we consider it important to outline the copyright legal framework in our country, since no license—collective, voluntary or mandatory—will apply or be properly understood if we do not have in mind the legal regulations and obstacles that arise in copyright matters, use and transaction.

The Applicable Law
Mexico, as a member of the Berne Convention, contemplates both moral and economic rights. So, every time that we refer to authorship rights in Mexico, we refer to both rights, since moral rights are inalienable, imprescriptible, unrenounceable and unattachable, and although economic rights are transmissible the author will always have the moral rights that will protect his work of art.

The provisions of the Federal Copyright Law (FCL) are a matter of public policy and in the interest of society. They are to be generally observed throughout Mexican territory. This, among other legal consequences, means that the rights and obligations contained in the FCL are binding on all society and all authors, Mexicans or not, copyright owners and users. In the case of any final interpretation of any act regarding copyright matters, the FCL will prevail. Thus, collective licensing will have to encompass the FCL, and any final interpretation of the application, clauses, dispositions, transfer, licensing or any other issue will be by definition solved by the FCL, no matter what the involved parties agree in a contract, since in Mexico we have a civil law tradition instead of common law, although principle, precedents and jurisprudence apply, normally in the pyramid of the Constitution, laws and federal treaties.

As we mentioned, Mexico indeed protects the authorship and integrity of any work related to literary works, musical works with or without words, dramatic words, dances, pictorial work or works of drawing, works of cartoons and short stories, architectural works, cinematographic and other audiovisual works, and radio and television programmes. Also, the licensing and transmission or assignment of economic rights are governed and protected. Collecting societies are formed and regulated under the FCL, so if through them emerges the possibilities of voluntary collective licensing, the study of such legal entities is relevant in this paper.

What are the ways to bring to public notice any work protected by the FCL? The FCL establishes different ways of bringing to public notice any work, which will be the first step to a future licence, collective or not. There are six different possibilities.

Disclosure is considered as the act of making a literary or artistic work (music included) accessible to the public by any means for the first time, as a result of which it ceases to be unpublished.

Publication is the act of reproducing the work in tangible form and making it available to the public in the form of copies, or of storing it permanently or temporarily in an electronic medium, in such a way as the public may read it or perceive it by sight, touch or hearing.

Communication to the public is considered to be the act by which the work becomes generally accessible by any means or process of dissemination that does not consist in the distribution of copies.

Public performance involves the presentation of the work by any means to listeners or viewers without such act being restricted to a private group or family circle; a performance is not considered public when the work is performed within the confines of a school or public or private welfare institution, provided that there is no interest in obtaining a gain.

Distribution to the public implies making the original copies of the works available to the public by sale, rental or any other general form.

Reproduction is considered to be when a person makes one or more copies of a work, phonogram or videogram in any tangible form, including permanent or temporary storage in an electronic medium, and also the making two-dimensional of a three-dimensional work or vice versa.

Bearing this in mind, any communications or any form of giving the opportunity to any third party, users, consumers or potentials, having possibility to use or reproduce a work will have legal consequences. These definitions are the bottom line of the legal rules applied in Mexico for all work protected by the FCL. A lot of problems have arisen in the application of such principles, mainly in the use and unauthorised use of music and fragments of music such as ringtones, which are sold by several companies to mobile phones users, without paying in some cases royalties to the owners of such works, since they say that the music is not being reproduced (i.e. not all the song and/or lyric) or publicly communicated, since the user of the mobile device is not at all times with more than two people or in a public place. Moreover, since there is more than one collecting society, users or ISPs do not know or do not want to know to whom they should pay royalties.

This has become one of the real problems in the music business in Mexico, since the Mexican population is using mobile phones more and more, and they want to have the latest in songs or music as their ringtones. The problem lies in the question about what the authors are doing to collect their royalties. More importantly, is someone helping them to enforce the FCL? Furthermore, we have internet and downloads—same problem, different source.

In Mexico, the author will always have the moral rights and can only transfer the economic rights, so if such rights are transferred the actual owner will be entitled to receive the royalty, but the final user knows or is supposed to know that the ‘seller’ (in the ringtones example) is the one that is infringing the FCL, since he has paid or obtained free the tone. That is one of the problems that authors have with the use of their works. Is collective licensing the solution?

How we see things is that authors normally sign a transfer or assignment of rights agreement with their publisher, who will then have the rights to authorise the use of the work to any third party. The collecting societies are then out of the game, since the FCL opens the possibility to the authors to collect their own royalties, or use a legal representative to do so, maybe a lawyer. However, have they been effective? The answer is no. Should the FCL therefore go back on a mandatory membership for authors and/or performers? The answer again is no. The issue is whether enforcement of the law has been efficient for the collecting of the societies. The main problem is not going for collective licensing or not, the problem is collection and how the collecting societies will distribute the royalties among their associates.

What are moral rights about? Mexico, as mentioned, is a member of the Berne Convention and, as a consequence, protects moral rights. The FCL establishes that the author is a person and never a corporation, not even as a legal fiction. The author then is the sole, original and perpetual owner of the moral rights in the works created by him.

There are five principal moral rights. The author can: decide whether the work is to be disclosed and, if so, in what form, or whether it is to remain unpublished; demand recognition of his authorship in relation to the work created by him; demand respect for the work and object to any distortion, mutilation or other modification thereof, or any act or action in relation to the work that might detract from its merit or prejudice its author’s reputation; amend the work; and withdraw the work from the market.

The right to exercise moral rights belong to the actual creator of the work and to his heirs, and moral rights are regarded as being vested in the author and are inalienable, imprescriptible, unrenounceable and unattachable.

What is understood by economic rights in Mexico? Economic rights are the rights to exploit the work of an author, exclusively or through authorisation of others. This authorisation is without prejudice to the ownership of the moral rights to which we have just referred. The owner of the economic rights is the author, his heirs or the person who has acquired those rights on whatever grounds. Thus, the author is the original owner and his heirs or the third party that acquired them shall be considered secondary owners. The rights remain in force for a period of the complete life of the author and 100 years after his death.

Owners of economic rights may authorise or prohibit: the reproduction, publication, editing or material fixation of a work, in the form of copies or originals, carried out in whatever medium, whether printed, phonographic, graphic, three-dimensional audiovisual, electronic or other; public access by telecommunication of any work; the importation into the national territory of copies of the work made without their authorisation; any public use of the work; the disclosure of derived works, in any of the forms that such works may take, including translations, adaptations, paraphrased versions, arrangements and transformations; and the public transmission or the broadcasting of the works by any process, including the transmission by cable, microwave, satellite or any other comparable means.

One of the most important modifications to the FCL was made in July 2003. Since then, authors, owners of copyright works and their heirs have been entitled to receive a royalty from the public communication or transmission of their work, by any form or media. This right cannot be waived, and the royalty shall by paid by the person that makes the public communication or transmission directly to the author or the collecting society that represents the author, or to the owner or heir of the copyright. The same provisions apply for neighbouring rights.

How does the FCL protect any work of art, including music and neighbouring rights? Answering this question involves consideration of three issues: protection of the work; neighbouring rights; and limitations on copyright and neighbouring rights.

The protection provided by the FCL is accorded to works since they are fixed in a material medium, regardless of their merit, intended purpose or form of expression, and the recognition of copyright and neighbouring rights does not require registration or documentation of any kind, and is not subject to compliance with any formality. Nevertheless, when a person whose name or pseudonym, either known or registered, appears as that of the author of a work, he is considered as such in the absence of proof to the contrary. It is important to outline that, although the FCL establishes that no certificate is needed to be considered as an author, for litigation purposes the only valid way to prove that a person is the author of a work is with the copyright certificate. Foreign authors or owners of rights and their successors in title have the same rights as nationals under the FCL and the international treaties on copyright and neighbouring rights signed and ratified by Mexico, such as the Berne Convention and TRIPS.

Neighbouring rights are held by performers, book publishers, phonogram producers, videogram producers and broadcasting organisations. For the purpose of this essay, we focus only on performers and phonogram producers.

Under the FCL, the following are performers of a work: the actor, narrator, speaker, singer, musician, dancer or any other person that performs a literary or artistic work or an expression of folklore, or who engages in a similar activity, even though he may have no pre-existing text to guide his performance. Extras are not included. Performers have the right to object to the fixation of their interpretation or any modification to their performance, and also any communication of their performance and the reproduction of the fixation of such performance. Performers have the unrenounceable right to obtain a royalty for the use or exploitation of their performance in any form or in any way of transmission, reproduction or public communication. Performance contracts shall specify the times, periods, remuneration and other terms and procedures associated with the fixing, reproduction and public communication.

Moving on to producers of phonograms, first of all a phonogram is any fixation exclusively of the sound of a performance or other sounds, or digital representation. The phonogram producer is the person, be that a natural person or a legal entity, who first fixes the sound of a performance or other sounds, or a digital representation thereof, and is responsible for the manufacture, production and publication of the phonogram. Producers are not authors, but have neighbouring rights that in some form are similar in their protection to authorship rights. Once the phonogram has been lawfully brought into commerce, neither the owner of the economic right, the performer or the producer may object to its direct or public communication. However, the person using such for profit-making purposes has to make the payment. Producers of phonograms are entitled to authorise or prohibit the direct or indirect reproduction of all or part of their phonograms, their adaptation or transformation, or their copy or rental. For example, if a phonogram is to be put into a web page for its future use, the holder of the web page will have to obtain a licence from the author, the owner of the economic right, the performer and the producer, in order to do so. This complicates the collective licence issue. What is done is that the author normally transfers rights to a moral person or corporation that is usually the producer, who will then be entitled to, collectively or not, exclusively or not, license the work. If the author is the performer, such producer will also need the neighbouring rights in order to engage in any licensee agreement.

It is important to mention that the protection of the neighbouring rights leaves untouched and in no way affects the protection of the copyright in literary and artistic work, including, of course, songs and music.

Limitation on copyright and neighbouring rights is a very important issue, since it determines if the use or licensing of any work in Mexico is or is not affected, and if it gives any person, who is willing to use any copyright, the possibility of doing so without infringement.

In Mexico, any work that has already been disclosed may, on the one hand, be used without the consent of the owner of the economic rights and without remuneration—provided that the normal exploitation of the work is not adversely affected thereby, that the source is invariably mentioned (moral rights) and that no alteration is made to the work—in the following seven cases: quotation of texts, provided that the amount quoted may not be considered a substantial, simulated reproduction of the work contents; reproduction of articles, photographs, illustrations and commentary relating to current events that have been published in the press or broadcast by radio or television, or any other medium of communication, if this has not been expressly prohibited by the owner of the rights; reproduction of parts of the work for the purposes of scientific, literary or artistic criticism and research; reproduction of a literary or artistic work once, and in a single copy, for the personal and private use of the individual doing it, and without gainful intent (a legal entity may not avail itself of this provision except where it is an educational or research institution, or is not devoted to trading activities); reproduction of a single copy by archives or a library for reasons of security and preservation if the work is out of print, no longer catalogued and liable to disappear; reproduction for the purposes of evidence in a judicial or administrative proceeding; and reproduction, communication and distribution in drawings, paintings, photograph and audiovisual processes of works that are visible from public places.

On the other hand, without authorization, some things may be done. Literary and artistic works may be used in shops or establishments open to the public that trade in copies of the said works, provided that no charge is made for admission and that the use does not go beyond the place in which the sale is effected and serves the sole purpose of promoting the sale of copies of the works. Also, ephemeral recordings may be made, subject to the following conditions: transmission shall take place within the period agreed for the purpose, no related or simultaneous broadcast or communication shall be made on the pretext of the recording; and the recording shall afford entitlement to one broadcast only. The recording and fixation of the image and sound, carried out as described, does not require any additional payment other than that due for the use of the works.

In case of public performance the following conditions apply: the performance takes the form of the communication of a transmission received direct by means of a radio or television receiving set of a type commonly used in private homes; no charge is made for viewing or listening to the transmission, which also does not form part of a range of services; the transmission received is not retransmitted for profit-making purposes; and the receiving party is a minor operative or micro-industry.

Finally, the use of performances, phonograms, videograms or broadcasts do not constitute a violation of the performers’ rights, producers of phonograms or videograms or broadcasting organisations when: no direct economic benefit is sought, only short fragments are used for information on current events; and the use is made for educational or scientific research purposes.

Although nothing is mentioned in the FCL concerning P2P, downloading, ringtones, or use or transmission of musical work on the internet or through any other electronic device, we consider that the FCL restricts any use of work as long it directly or indirectly has an economic purpose. In this sense, if the author, performer, producer, publisher or any copyright holder is not receiving any amount for such use, there is, legally speaking, no possibility even to download for personal use any work of music, since is well known that the websites that give people the possibility to do this do indeed have economic benefit.

Can economic rights be transferred and how? In order to have the possibility to license or not any work, there are different ways first to obtain or acquire any economic right, since moral rights are not transferable. The principal forms of obtaining such rights are through a work-for-hire contract, licence and acquisition or assignment of rights agreements.

First, work for hire is a contract that, since the 2003 FCL modifications, has had as a specific purpose, which is obtaining economic rights from the natural person that was commissioned to produce a work and received for that action remuneration. The natural person or legal entity that hires the natural person for that purpose enjoys the ownership of the economic rights therein, and the rights related to the disclosure and integrity of the work and the making of collections involving this type of creation. The person who takes part in the creation of a work for remuneration has the right to the express mention of his status as author (moral right) or performer of the part or parts in the creation in which he has been involved. Moreover, if the contract is related to the production of a song (music and lyrics) or music, the natural person that participates in such production will be also entitled to a royalty due the public communication or transmission of such work. Thus, if the legal entity enters into a licensee agreement for the work, it will have to contemplate paying royalties to the author.

With the transfer of rights, the owner of the economic rights may freely transfer his economic rights or grant exclusive or non-exclusive licences for use to any third party. Any transfer of economic rights is temporary and on a payment basis. Acts, agreements and contracts by which economic rights are transferred and licences granted should invariably be concluded in writing, failing which they shall be null and void as of right. Any transfer of economic rights should provide for the grant to the author or to the owner of the economic rights a proportional share in the proceeds from the exploitation concerned, or a predetermined, fixed amount of remuneration. That right is unrenounceable. Another consideration that must be kept in mind before any licence agreement is signed or before a legal entity even considers being the owner of economic rights in Mexico, is whether they want, collectively or not, to license any work.

The acts, agreements and contracts by which economic rights are transferred ought all to be entered in the Public Copyright Register, in order to be binding on third parties. In the absence of any express provision, any transfer of economic rights is deemed to be for a term of five years. A term of more than 15 years may only be agreed in exceptional cases, if dictated by the nature of the work or the scale of the required investment. This provision, from our point of view, looks in the first instance like an obstacle, but it gives authors certainty in their negotiations, that they will have the opportunity to amend, if necessary, any agreement on the benefits.

Any licence affording exclusive rights is expressly granted as such and gives the licensee, where not otherwise agreed, the right to exploit the work to the exclusion of any other person, and also the right to grant non-exclusive authorisations to third parties. The licence affording exclusive rights obliges the licensee to take whatever action is necessary for the licensed exploitation to be effective, depending on the nature of the work and the customs and practices prevailing in the professional, industrial or commercial activity concerned. Licence that grants authorisation to broadcast a protected work by radio, television or any other similar medium does not include the right to rebroadcast or exploit it.

A contract for the publication of musical works, a music publishing contract, is a contract under which the author or owner of the economic rights assigns the right of reproduction to the publisher and entitles him to carry out the fixation and phonographic reproduction of the work, its audiovisual synchronisation, communication to the public, translation, arrangement or adaptation, and any other form of exploitation provided for in the contract. The publisher, for his part, undertakes to disclose the work by all means available to him, receiving in return a share in the economic profits realised through the exploitation of the work, according to the agreed conditions. However, in order to carry out audiovisual synchronisation, adaptation for advertising purposes, translation, arrangement or adaptation, the publisher must in each specific case have the express permission of the author or his successors in title.

The following shall cause the contract to be terminated without exposing the author or owner of the economic rights to any liability: when the publisher has not started to disclose the work within the period specified in the contract; when the publisher fails at any time, without just reason, to disseminate the work; and when the work to which the contract is related has not generated economic benefits for the parties in the space of three years, in which case the publisher shall likewise not be liable.

What is understood in Mexico by a collecting society? A collecting society is a legal entity without gainful intent that is set up under the FCL with a view to protecting both national and foreign authors and owners of neighbouring rights, and also collecting and delivering to those people, the sums payable to them by virtue of their copyrights or neighbouring rights.

Many years ago authors, performers and holders of neighbouring rights were obligated, in order to collect their royalties, to be members of a collecting society. Nowadays, authors, the successors in title of authors and owners of neighbouring rights, whether national or foreign but residing in Mexico, may belong to collecting societies. Instead of an obligation, it is now a right of authors and performers. Now they can be members of a Mexican or foreign collection society with no implication whatsoever.

The right to operate as a collecting society requires prior authorisation from the Mexican authorships office, which is called the National Institute of Authorship Rights (INDA). Collecting societies may not intervene in the collection of royalties when members choose to exercise their rights in person in relation to any use of the work, or where they have agreed on direct methods of recovering payment. However, when the members have mandated the society to collect on their behalf, they may not collect royalties themselves unless they revoke the said mandate.

The Mexican collecting societies related to the music industry are: the Society of Authors and Composers (SACM); the Mexican Association of Producers of Phonograms and Videograms (AMPROFON); and the Performers Society (EJE). As mentioned, if an author, a producer or a performer wishes to collect their royalties using a collective society in Mexico, they will have to be members of one of the above, depending on their status, but they can do it personally or grant a power of attorney for collections to an individual.

Collective licensing in Mexico is more complicated because there is not an agreement between the collecting societies regarding who will, on behalf of all the involved holders of the intellectual property, collect and hand out the incomes to the beneficiaries. Today, everybody wants to collect, because of the percentage they hold, and they are collecting in the same market, from the same users, generating terrible confusion for all.

The path that has to be trod is having just one collecting society for the music sector, and then collective license can apply. As long we have more than one collecting society for similar collection of rights, the possibilities of collective licensing seem to vanish.

Protection of the Music Business: Is Collective Licensing the Solution?
As we have stated in this essay, protection for any work including music is quite well established under the FCL. The problem with music is not the legal frame; the problem is the economy of a country like Mexico. Yes, Mexicans do not have the same levels of income as in many other countries, but people, as in any other country, love to hear music and have found in the internet a serious way of obtaining music, unfortunately not always by a legitimate path. In other words, there are not paying for the music that they are downloading.

A recent study by AMPROFON confirms this. In the main Mexican cities—Monterrey, Guadalajara and Mexico City—10.5 million internet users exist and, of that total, 3.3 million are downloading music illegally. The director of AMPROFON stated that this means that internet users are downloading approximately 389 million songs and 185 million videos.

The cause: the economic situation. This is not an excuse, but is a sad reality. Phonogram producers and music publishers are not willing, at least seemingly, to decrease the cost of a CD. Of course, if there was sole authorised companies not only responsible for the distribution of music but for collecting royalties, things would be easier—but would the unauthorised use cease? Perhaps not, but I am sure it would decrease enormously. That is the purpose of collective licensing: getting the authors, performers and producers paid. The problem: getting everybody to share the same cake.

Collective licensing provides the possibility to authors and/or performers or any holder of economic rights of collecting royalties, in a more effective way. The problem is that the authors and/or performers would have to authorise a collecting society to collect for all their work. As we have mentioned before, in Mexico it is common for authors to transfer some of their rights (distribution, public communications and exploitation) to their publishers and producers. Then they would have to negotiate with the collecting society, and not the author. Moreover, collecting societies may not have certainty, if they sign directly with the authors, that the latter have not already transferred some or all their economic rights to a third party. You will say that this constitutes bad faith attitude on the part of the author, and you may be right, but normally artists do not read their contracts, they just want to be famous. So, before any collecting society entered into an agreement, it should confirm that the person signing has all the economic rights related to all the work from the author and/or performer. Once that is settled, then they can offer the work from an artist.

Collective licensing, from the point of view of ISP companies and any other music user, should be when the collecting society has the complete portfolio—not just the author’s work but any neighbouring right—but that, nowadays in Mexico, is not happening, since as we have mentioned before there are collecting societies for authors, publishers, phonogram producers and performers, and all have intellectual rights and royalties to be collected. So, even if collective licensing could be effective at this moment, implementation in Mexico seems difficult.

Copyright, Crime and Infringements
The problem of unfair use of music in Mexico has grown. This is not just the fault of the FCL or a lack of enforcement of such a law. The problem now is technology, the gadgets in the market that give any person the possibility to use, download and transfer music P2P or even with Bluetooth. You do not need a CD, you just need a mobile phone and you are able to infringe the law. The practical problem is not whether the authors, copyrights holders and neighbouring rights owners opt for a collective licence or whether they collect directly from the users, no, the problem is finding the user—or the person or legal entity—that is facilitating such use for consumers.

The FCL considers the different administrative infringements and the Criminal Code the felonies. Here we outline some of them. The issue is finding the criminal or infringer.

Of the six administrative infringements listed here, the first is publication of a work, having been authorised to do so, without a mention on the copies of the said work of the name of the author, translator, compiler, adapter or arranger; also, publication of a work, having been authorised to do so, in a manner that damages the author’s reputation as such, and where applicable that of the translator, compiler, arranger or adapter. Another infringement under the FCL is communication to the public or public use of a protected work by any means and in any form without the express prior authorisation of the author, his lawful heirs or the owner of the author’s economic rights; also, production, manufacture, stocking, distribution, transportation or marketing of unlawful copies of works protected by the law. The fact of offering for sale, stocking, transporting or distributing of protected works that have been distorted, altered or mutilated without the permission of the owner of the copyright is an infringement, as is the retransmission, fixation, reproduction and dissemination to the public, without due authorisation, of the broadcasts of broadcasting organisations;

Criminal offences include: editing, publishing or recording more copies of a work protected by the FCL than the ones authorised by the author; publishing, reproducing, distributing, transporting, selling or leasing any work, work of art, software, phonogram, videogram or book protected by the FCL with premeditated criminal intent without the authorisation of the author or holder; manipulating computer programs or computer systems or selling any device that can manipulate a computer program or computer system; and decodifying a satellite signal without authorisation or selling any device that can manipulate a satellite signal. Intellectual property crimes are considered as high crimes, so there is no benefit of freedom on bail.

Mexico and International Agreements
Mexico participates in 11 relevant international agreements, notably the World Intellectual Property Organization (WIPO) convention, which it acceded to in June 1975. Eight years previously Mexico joined the Berne Convention for the Protection of Literary and Artistic Works and, a little over three years before that, in May 1964, it acceded to the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations. The 1971 Geneva Phonograms Convention has been in force in the country since December 1973, the 1974 Brussels Satellite Convention since August 1979, the 1981 Nairobi Treaty on the Protection of the Olympic Symbol since May 1985, the WIPO Copyright Treaty (WCT) since March 2002 and the WIPO Performances and Phonograms Treaty (WPPT) since May 2002. Membership of the North American Free Trade Agreement (NAFTA), since January 1994, has had a significant impact on Mexico, while the country has also been a member of the 1952 Universal Copyright Convention (UCC) since February 1957 and of the International Union for the Protection of New Varieties of Plants (UPOV) since August 1997.

Conclusion
Collective licensing in Mexico will be a good possibility when all legal and practical obstacles are overcome, and when legislators can be provoked into making the necessary modifications to the FCL, in order to regulate all, or almost all, technological tools that are used to obtain music and other work protected by the law in our country. Also, we need greater civic consciousness among the population, in order to understand the possible implications of buying music illegally.

AMERICAS: USA

Country Update for The United States of America by Christopher Lieber

Christopher is currently a J.D. Candidate for the Hofstra Law School class of 2010.  Christopher graduated magna cum laude in 2007 from Syracuse University with a Bachelor of Music in Music Industry with Performance Honors and a minor in Music History.
In college, Christopher interned at Island Def Jam Records in the legal department and Jazz at Lincoln Center in the marketing department.  After his first year of law school, Christopher was a law clerk at Bienstock & Michael, P.C., an entertainment law firm in Manhattan.  During his second year of law school Christopher was an intern in the legal department at eMusic.  Christopher spent the summer following his second year of law school as a summer associate at MasurLaw.  He is currently an intern in the litigation department at EMI Music.

ISP LICENSING: A SAVIOR FOR THE ENTERTAINMENT INDUSTRY?

I.    INTRODUCTION
Traditionally, the entertainment business has controlled the creation and the channels of distribution of books, music, film, theater, radio, television and electronic broadcast through intellectual property law and contracts.     The industry once had the ability to create and control the international market for entertainment products by determining which artists and productions received exposure.   From the printers, binders and booksellers of 500 years ago to the DVD manufacturers today, the entertainment business has relied on limited access to technologies and copyright ownership to acquire and maintain their gate keeping status.  Thus, the entertainment industries were able to maintain an almost monopolistic control over the creation of content as well as control over the limited number of devices that created or duplicated the content.   This system existed over most of the last century; however technological revolutions have reshaped the entertainment business model.    Today, the interactive communication of the Internet places no practical limit on the number of people who can become a distributor.
The gate keeping status once held by the entertainment industry is gone. The loss of this function is the result of the digitization of content, which has allowed anyone to distribute entertainment content over the Internet for free.  This paper discusses how Internet Service Provider (“ISP”) licensing is a potential solution to the problems the entertainment industry has suffered as a result of rampant illegal file sharing over the Internet.  Section II discusses how the entertainment industry has evolved leading up to the digital era and how this has accounted for many of the problems facing the entertainment industry today.  Section III will examine ISP obligations in the international community as well as the steps some countries have taken thus far in the battle against illegal file sharing.  Section IV will discuss what ISP licensing is in theory.    Section V will discuss the Isle of Man’s ISP licensing scheme.  Finally, section VI will discuss the administrative and legal problems associated with ISP licensing.

II.    THE DEVELOPMENT OF THE ENTERTAINMENT INDUSTRY LEADING INTO THE DIGITAL ERA

In May 1790, the first American Copyright Law was adopted which secured authors for limited times the exclusive right to their writings and discoveries.   Initially, copyright law protected only books, maps and navigation charts.   Later, the Copyright Revision Act of 1831 gave other works of authorship copyright protection such as musical compositions, drawings, etchings and other forms of graphic art.   Then in the 1909 Copyright Act, corporations, partnerships and other businesses entities were able to become owners of creative works because works made for hire were added to copyright law.   Consequently, many 20th century music publishers and other entertainment companies typically required the conveyance of copyrights as a condition to the publishing and distribution of an artist’s work.   Moreover, in exchange for receiving royalties and exposure, talent frequently had to grant their exclusive services to one business and/or convey their copyright ownership rights.   Thus, “relying in part upon the once relative rarity of the tools used to create and duplicate the entertainment products, and using exclusive contracts and copyright ownership, the entertainment industries historically controlled the creation of entertainment content and its distribution.”
As the entertainment industry evolved, despite the development of technology, which posed a threat, the industry was still able to create new business opportunities and revenue streams.   Fast forward to the digital area.  As digital computing speed and available bandwidth through which digital information could be transmitted increased and compression technology became developed, the move from analog to digital began.   The danger of digitally stored data is that it can be read and reproduced flawlessly without any noise or distortion unlike analog technologies.   The entertainment industry recognized this problem in the early 1990s and lobbied with congress to amend U.S. copyright laws and a result, in 1992 Congress passed the Audio Home Recording Act (AHRA) and in 1998, the Digital Millennium Copyright Act (DMCA).   The AHRA requires manufacturers of DATs, DCCS mini-discs and other audio recorders to make royalty payments to the music industry, which are deposited to the Copyright Office from manufacturers and importers of digital recorders, and blank media of which recordings are made.   This legislation represented a compromise between the entertainment industry and the audio hardware industry whereby consumers were able to access new digital home recording technologies while artists and copyright owners were compensated for lost royalties as the result of technological developments in home recording.   Each year, the Copyright Office administers the royalties to claimants who submit annual requests.   The DMCA on the other hand, provides that “no person shall circumvent a technological measure that effectively controls access to a work protected under this title.”  The purpose of this act was to close the gap that was left by the AHRA in the use of computers as recording, storage and distribution devices of digital content due that fact that it the AHRA expressly exempted computers from its coverage.
Even with the DMCA and AHRA, the entertainment industry has had a difficult time enforcing copyright ownership rights due to the Internet.  It is the public’s ability to find and easily download copyrighted content over the Internet, which has contributed to many of the problems entertainment industry currently faces.  According to the IFPI, in a study taking place in over 16 countries over a four-year period, unauthorized file sharing has reached over 40 billion in 2008.  This means that globally around 95 percent of all music tracks are downloaded without payment.  They also report that overall, 16 percent of Internet users in Europe swap music on P2P networks, which accounts for 80 percent of all Internet traffic.
One of the main reasons for such widespread illegal downloading of music is driven by its free availability.   The problem is that because that audience believes that they can get something for free and are entitled to it, they are most likely never to pay for it again.  There is however, clear evidence, that although consumers are unlikely to pay voluntarily, they nonetheless want artist and copyright holders to be paid and their intellectual property to be respected.   According to research commissioned by the Canadian government, nine in ten consumers back strong copyright laws to protect creators.   Furthermore, evidence exists in France, that 84 percent of people who downloaded music illegally believe artists and authors should be paid for their works.   These figures help illustrate the idea that “while consumers’ instincts are to acquire music legitimately, the widespread availability of unlicensed free music acts as a disincentive.”   In other words, while consumers respect the rights of intellectual property owners, they still download music illegally, because it is free.  Therefore, an ISP licensing system whereby the consumer is charged a nominal monthly fee helps further the beliefs of many consumers that intellectual property owners should be paid for their works, without creating an unreasonable financial burden on the consumer.

III. ISP OBLIGATIONS IN THE INTERNATIONAL COMMUNITY

In 1996, a copyright law for the digital age was born which formally acknowledged the major impact of information and communication technologies on the entertainment industry.   The World Intellectual property Organization (WIPO) Copyright Treaty (WTC)  and the WIPO Performances and Phonograms Treaty (WPPT)  officially brought global copyright law into the information age.   This legal framework was created in order to facilitate adequate solutions to questions raised by new economic, social, cultural and technological developments.
These WIPO treaties are “special agreements”  pursuant to Article 20  of the Berne Convention.   The purpose of these new treaties was to first translate the analogue version of copyright into the digital age.  In terms of new rights to reflect the impact of digital technology on the economics of copyright’s core right of reproduction, “the WCT recognizes an exclusive right of ‘making available to the public’ originals or copies of works through sales or other means.  It also recognizes the exclusive right of authors of…works embodied in phonograms to authorize…copies of their works.”   Moreover, the WCT established a right of communication to the public, embodied in Article 8  which covers both print and digital works and also constrains the means and ends of user access to protected works.    In other words, this provides that copyright owners have the exclusive right to make their works available to the public.   Additionally, the strong presence of ISPs and representatives of the telecommunications industry during the WIPO negotiations helped to ensure that merely providing technologies to access digital content would not run afoul of this new right.
There is no question that the main principle behind the WCT is to give authors the right to control access to and use of their works on digital networks.   However, these rights were prematurely recognized given the lack of agreement among states as to specific form of the right to control digital transmissions and public access to works.   Although the standards agreed to in the WIPO Internet Treaties leaves open a large range of possibility, it has fallen short of addressing the “fundamental question of how digital networks and the value that users bring to the table can be harvested to generate the social economic value that indispensably fuels the digital economy.”
For instance, even within the European Union, there has yet to be a consistent approach to the WCT rights by the failure to acknowledge the role of access rights in construing the precise acts for which a user must commit in order to violate the author’s right.   This is also an issue in the United States, as several federal district courts have held that “making available to the public” is not a right that is recognized under U.S. copyright law.
Nonetheless, the concept that ISPs should play a greater role in protecting content online is moving from concept to reality.   In France, the government has required that ISPs encourage legal music consumption and deter piracy by implementing a three strikes policy.    Entitled the “Création et Internet,” this law established a new government agency in France which receives IP addresses from media corporations from which their works were allegedly offered for unauthorized download.   The agency then instructs the ISP to first send an email and then a registered letter warning the consumer whose IP address was used.  On a third level, the ISP is required to disconnect the customer from the Internet ranging from three months to a year.
In the UK, the government has issued a “Memorandum of Understanding” between the recording and film industries and six of the UK’s largest ISPs in an effort to bind the parties to work together in order to achieve a significant reduction in unauthorized file sharing.   To date, the ISPs have sent out thousands of letters warning users about the illegal file sharing and promoting legitimate consumption.   Recently, the UK proposed a three strikes legislation similar to France’s where repeat copyright infringers would have their Internet privileges suspended.   Additionally, in December of 2008, the Italian Parliament adopted a resolution to follow other campaigns in Europe in cooperation with ISPs in curbing piracy.
Courts have also started to encourage ISPs to block access to copyright-infringing websites.  For example, in 2008 an appeals court in Denmark upheld a decision to require an ISP to block the Pirate Bay Website.   Additionally, courts have ruled that the suspension of Internet accounts being used illegally is acceptable under EU law.   For example, a court in Finland ordered an ISP to suspend the Internet connection of a user who was uploading a considerable number of infringing music files.
Even though there has been action by governments and courts, illegal file sharing is still running rampant.  While these efforts may curtail some of the file sharing activity, they do not help generate an income stream for the entertainment industry.  Therefore, rather than spending all efforts on policing illegal file sharing activity, in order to create a tangible revenue stream from the Internet in the digital age, ISP licensing is a more logical solution to the massive losses the entertainment industry has suffered, all while the ISPs are making money from the Internet.

IV.  WHAT IS ISP LICENSING?

With the disagreement among states as to who is ultimately responsible for the control and use of digital content, ISP licensing is a way in which the entertainment industry can generate social and economic value from the Internet.   One of the schemes considered would help compensate the entertainment industry for their losses, by having the ISPs charge Internet users a small fee on a monthly basis in which each ISP pay the entertainment companies as compensation in return for the user’s ability to trade files without the fear of being sued.   Additionally, the money collected by the ISP from its users will be paid to the artists and copyright owners in a way that ASCAP, BMI, or SESAC currently does.
In order properly implement a successful licensing regime there are certain elements that need to be in place.   There needs to first be a determination of what or who to tax and how much.   You then need to determinate which works are being used, reproduced or distributed and develop a revenue sharing regime that divides the income collected proportionally.   Moreover, there may also be a need for a reform of the copyright law in order to accommodate an ISP licensing scheme.

V.  TEST RUN IN THE ISLE OF MAN

The first country to attempt to implement an ISP licensing is the Isle of Man.  Due to the fact that the Isle Man writes its own copyright law and is a crown protectorate, which keeps it separate from both the UK and the EU laws, it is in an unusual position to experiment with potential solutions to widespread copyright violations.   In other words, the Isle of Man can rewrite their copyright laws easily without the interference of the UK or the EU.    Additionally, The Isle of Man felt that the music industry would view it as a test bed for innovative business approaches which would eventually encourage other countries to do the same.   Ron Berry, Man’s e-Commerce Advisor felt that the common factor for piracy was the Internet connection and that extracting fees through ISPs was a way to mitigate the devastating effects the Internet has had on the entertainment industry.  Essentially what the plan calls for is a flat fee on every ISP user.  This means that everyone who accesses the Internet, even if done through a mobile phone is going to face an additional fee of £1 a month.
In order to compensate artists from the fee pool, the ISPs in the Isle of Man will be required to install hardware that scans network traffic for fingerprints of shared music files.   Based on data collected, the artist is going to be compensated based on the percentage of music that flows on the Manx network.    Additionally, Internet users will also be able to have the option of paying £10 a month for a subscription service, which will show upon their Internet service bill.

VI.  POTENTIAL PROBLEMS WITH ISP LICENSING

While ISP licensing on its face looks like an effective solution to the widespread problems in the entertainment industry, there are a myriad of issues that must be addressed in order to successfully implement the scheme.  One of the first problems with ISP licensing is that copyright law must be amended so that many of the current prohibitions on unauthorized reproductions, distribution, adaptation and performance of audio and video recordings are eliminated.   In other words, if ISP licensing is implemented, copyright law must be changed so that consumers will able to download content without being sued.  As we know in the United States, for example, it is incredibly expensive and time consuming to have laws amended.  Therefore, having copyright law changed is going to be a big hurdle to overcome in implementing a successful ISP licensing regime.
Another problem with ISP licensing is that it may have a large affect on the legitimate market. For example, when a user pays a small fee per month to be able to download tracks on P2P services without the risk of being sued, why would they pay for music on a service such as iTunes?  It seems logical that people will decline to pay for a legitimate music service when music is available on P2P networks for free.  However, the audio quality of files typically found on P2P services is usually of much lower quality than you would find a legitimate service and often contain viruses that may harm your personal computer.   Therefore, a consumer looking for high quality entertainment content that doesn’t want to run the risk of destroying their computer will therefore download digital content legitimately on a paid service and forego using a P2P network.
There are also administrative issues that need to be worked out in order to implement a successful ISP licensing plan.  First off, there needs to be file recognition software so that artists and entertainment companies are paid in proportion to the amount that their content is downloaded.   Moreover, there will also need to be W-9s for all royalty participants, tax reporting, royalty accounting, and letters of direction for producers, remixers, and royalty participants in order to make payments appropriately.
In addition to the administrative issues that ISP licensing poses, there are also potential legal issues for the ISP.  If an ISP can identify the sound recordings on P2P systems, the ISP likely can also identify the tracks enough to block and filter them.  Unless the ISP licensing scheme ends up being a compulsory blanket license imposed on copyright owners, it seems unlikely that the ISPs will be able to enter into individual agreements with all copyright owners.   Therefore it is possible that based on the file recognition software used by the ISP in order to determine royalty payments, they will know (or reasonably should know) that some tracks being shared that are not licensed.   The ISP will then have the ability to block these files and may start to lose its defenses to infringement under the safe harbors of the U.S. Copyright Act  and other national laws such as those in Canada  and the European Union. ,  Additionally, there may also be international law issues raised by the need to register with a company that identifies the files being downloaded due to the international prohibitions on imposing formalities in order to enjoy the exclusive rights of copyright owners.

VII.  CONCLUSION
The revolution in Internet and digital technology has obviously threatened the entertainment business’s status as a gatekeeper in many ways.   Consequently, the loss of control over the access to limited access to technology used to create artistic works has been one of the catalysts, which has led to the present crisis in the control of artistic content, creation, and distribution in the entertainment business.
While ISP licensing may not be the ultimate solution to the problems facing the industry, it is a way to potentially raise considerable income for artists and music companies.  According to a recent study, in the United States, if broadband Internet fees were increased $5 a month, this would yield to $5.4 billion.   Given these figures, it would be smart for the entertainment industry to push forward in the form of legislative action in order to get an ISP licensing system in place.  It might not save the industry, but it will definitely raise a considerable amount of revenue the business is thirsty for.

Mark G. Tratos, Entertainment on the Internet: The Evolution of Entertainment Production, Distribution, Ownership and Control in the Digital Age, in ENTERTAINMENT LAW (2007).
Id. at 139.
Id. at 141.
Id. at 139.
Bob Kohn, Will Copyright End in 2012?  What Went Wrong and a Way Forward (forthcoming Jan. 2010)
The Copyright Act of 1790, 1 U.S. Stat. 124 (1790).
Supra note 1.
Act of 1831, Feb 3, c. 16, 4 Stat. 436 (1831).
Supra note 1, at 146.
Id at 145.
Id at 147.
Id at 149.

For example, the film industry raised concerns regarding broadcast television and later the home video recorder.  In order to stop the spreading use of video recorders, Universal Studios brought a suit against the manufacturer of the Betamax.  See Sony Corp. of Am. V. Universal City Studios, Inc., 464 U.S. 417 (1984).
Id. at 156.
Id.  Analog reproduction constantly produces additional flaws in the form of background static, distortion or noise, whereas digital reproduction eliminates copying errors by adding nothing other than the digital information, which was encoded in the original copy.
Id.  The Digital Millennium Copyright Act became law on October 29, 1998.  Pub. L. No. 105-304, 112 Stat. 2860 (1998).

See The Audio Home Recording Act, 106 Stat. 4237 (1992).
Supra note 1 at 159.
Supra note 1 at 159.  In order to ensure that funds are distributed fairly, Soundscan, register point of sale information on albums from record retailers and then reports this information to the Copyright office.
Id.
Id.
Id at 161.
IFPI Digital Music Report 2009, available at http://www.ifpi.org/content/library/DMR2009.pdf.
Id.
Id.
Id. This all began with Napster in 1999 when a college student released a software program that allowed computers to share files with one another over a network, whereby users were encouraged to download the music “peer-to-peer” without any cost. Napster was eventually shut down but since then there have been many other peer to peer software programs which offer similar services, resulting in an increased decline of revenue in the entertainment industry.
Id.
Supra note 24.
Id.
Id.
Ruth L. Okediji, The Regulation of Creativity Under the WIPO Internet Treaties, 77 Fordham L. Rev. 2379 (2009).
World Intellectual Property Organization Copyright Treaty, Dec. 20, 1996, S. Treaty Doc. No. 105-17, 36 I.L.M. 65 (1997).
World Intellectual Property Organization Performances and Phonograms Treaty, Dec. 20, 1996, S. Treaty Doc. No. 105-17, 36 I.L.M. 76 (1997).
Supra note 31 at 2379.
Id.
Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, as revised at Paris on July 24, 1971, and amended on Sept. 29, 1979, 25 U.S.T. 1341, 828 U.N.T.S. 221.
Article 20 reads, “The Governments of the countries of the Union reserve the right to enter into special agreements among themselves, in so far as such agreements grant to authors more extensive rights than those granted by the Convention, or contain other provisions not contrary to this Convention. The provisions of existing agreements which satisfy these conditions shall remain applicable.”
Supra note 31 at 2387.
Id at 2392.
Id at 2396.
Supra note 32, Article 8 reads, “Without prejudice to the provisions of Articles 11(1)(ii), 11bis(1)(i) and (ii), 11ter(1)(ii), 14(1)(ii) and 14bis(1) of the Berne Convention, authors of literary and artistic works shall enjoy the exclusive right of authorizing any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them.”
Supra note 32 at 2396.
Id.
see Mihaly Fiscor, The WIPO “Internet Treaties”: The United States as the Driver: The United States as the Main Source of Obstruction—as Seen by an Anti-Revolutionary Central European, 6 J. Marshall Rev. Intell. Pop. L. 17 (2006).
Supra note 32.
Id.
Id.
Guido Westkamp, Transient Copying and Public Communications:  The Creeping Evolution of Use and Access Rights in European Copyright Law, 36 Geo. Wash. Int’l L. Rev. 1057
Supra note 32 at 2399.  See, e.g., Atl. Recording Corp v. Howell, 554 F. Supp. 2d 976 (D. Ariz. 2008) (noting that “the majority of district courts have rejected the… ‘making available’ theory because [it] is inconsistent with the Copyright” and holding that merely making a work available on a peer-to-peer network does not constitute copyright infringement.)  See also Elektra Entm’t Group, Inc. v. Barker, 551 F. Supp. 2d 234 (S.D.N.Y. 2008).
Supra note 24.
Id.
Volker Grassmuck, The World is Going Flat (-Rate): A Study Showing Copyright Exception for Legalising File-Sharing Feasible, as a Cease-Fire in the War on Copying” Emerges, Intellectual Property Watch, May 11, 2009.
Id.  Entry onto a national blacklist prevents a customer from getting Internet access from another provider.
Id.
Id.
Andre Paine, U.K. Govt Confirms Digital Legislation, November 18, 2009, http://www.billboard.biz/bbbiz/content_display/industry/e3ie26373dd9e434261f57748eb18ffbb49.
Supra note 56.
Id.
Id.
Christian L. Castle, Amy E. Mitchell, What’s Wrong With ISP Licensing?, 26-FALL Ent. & Sports Law. 4 (2008)..
Id.
Supra at note 5.
Id.
Id.
Id.
John Timmer, Inside the Isle of Man’s £1/month unlimited music plan, http://arstechnica.com/media/news/2009/02/inside-the-isle-of-mans-1month-unlimited-music-plan.ars (last visited November 16, 2009).
Id.
Id.
Id.
Id.
Id.
Supra note 60 at 4.
Id at 6.
Id.
Id.
Id.
17 U.S.C. § 512, et seq.
Currently, Canadian copyright law provides a safe harbor for ISPs, and person who supply “the means of telecommunication necessary for another person to so communicate,” but are not themselves parties to the communication.
The European approach to ISP liability is covered by two European Union directives, the Electronic Commerce Directive, 2000/31/EC, and the Directive on Copyright and Related Rights in the Information Society.  Adopted April 9, 2001.
Supra note 60 at 5.
Id at 7.  See Berne Convention for the Protection of Literary and Artistic Works (1971); Convention for the Protection of Phonograms Against Unauthorized Duplication of Their Phonograms (1971); General Agreement on Tariffs and Trade; Agreement on Trade-Related Aspects of Intellectual Property Rights, North American Free Trade Agreement.
Supra note 1.
Id. at 142.
Supra at note 5.

Country Update for The United States of America by Steven Masur with additional research by Cynthia Katz

STEVE MASUR is Senior Partner at MasurLaw, an entertainment and technology venture law firm founded in 1994 with clients worldwide. Steve helps clients in technology, digital media, music, film, mobile, television, fashion, publishing and social media to create game-changing new businesses.  His practice focuses on content and technology contracts, day-to-day strategic and legal needs, corporate finance and M&A.  He started his practice at Sabin, Bermant & Gould in New York, attended law school at American University in Washington, DC and worked at the SEC.  He is a member of the New York and District of Columbia bars.   He serves on the board of the Mobile Entertainment Forum, chairs the New York Bar’s Venture and Technology Law Committee and is active in such organisations as the Producer’s Guild and the International Association of Entertainment Lawyers.
CYNTHIA KATZ is a Semester Associate at MasurLaw, and pursuing her Juris Doctorate at Brooklyn Law School.  She interned in the business and legal affairs department of EMI Music and worked at Prevention and Women’s Health magazines for Rodale, Inc.  Cynthia graduated from the Wharton School at the University of Pennsylvania and worked at Young & Rubicam/Wunderman, Inc.

Introduction
This essay is about collective rights licensing at the internet or mobile service provider, or ISP level, and the issues that would need to be addressed in order to implement such a system under applicable law in the United States (US).

The law and business of media distribution in the US developed in a world in which media was distributed using technologies controlled by a value chain of rights holders and distributors. Advances in digital distribution technologies and widespread use of the internet have moved the technology for media distribution into the hands of consumers directly, or anyone else with a new idea for how to market and distribute media. This sea change calls for an examination of how US copyright law applies to new business models which take advantage of these technologies. One proposal that has garnered a significant amount of attention in the US is collective rights licensing at the internet service provider (ISP) level. In short, the idea is that a fee for use and sharing of media accessed on the internet should be applied at the point of access, the ISP.

Since the early days of media distribution on the internet, a wide variety of individuals and industry groups have suggested collective compensation schemes to compensate rights holders for content accessed on the internet. The Electronic Frontier Foundation (EFF) has been a proponent of the idea since as early as 2003. Groups such as Choruss are currently attempting to get the idea off the ground by working with US universities to build a small music-royalty fee into tuition payments in order to legalise music swapping through filesharing. The idea is starting to gain traction in the recording industry, with Warner Music Group leading the way and EMI Music and Universal Music Group expressing interest.

While there have been many proposals for collective rights licensing schemes, most proposals fall into two camps: a new legislatively introduced public right; or a privately implemented opt-in arrangement. Under the former, the government-mandated public right is collected as a payment on your ISP or mobile bill and distributed through a third party organisation to rights holders. Under the latter, rights holders would sign a covenant not to sue any user who opts-in to pay licensing fees for content accessed by that user.

Current US Law and Practice
Article I, §8, Clause 8 of the US Constitution, known as the Intellectual Property Clause, is the basis for US copyright law.1 This provision gives Congress the power to grant creators of original works exclusive rights in relation to their works over a limited period of time. In 1788, in The Federalist Papers, James Madison wrote of the Congress’s copyright authority that ‘the utility of this power will scarcely be questioned.’2 US copyright law seeks to incentivise artists, authors, musicians, artisans and other creators through this limited monopoly. The Copyright Act of 1976, Title 17 of the US Code, is the current federal statute governing US copyright law. The Code protects original works of authorship fixed in tangible mediums of expression and affords copyright proprietors a distinctive bundle of rights to control and financially benefit from the exploitation their works. In particular, §106 of the Code imparts on all copyright proprietors the exclusive right to reproduce and adapt their works; in the case of literary, musical, dramatic and choreographic works, pantomimes and motion pictures and other audiovisual works, to perform and display their works; and in the case of sound recordings, to perform their works publicly by means of a digital audio transmission. When internet users stream, download, upload and otherwise share copyrighted content over the internet without permission from the rights holders, they are reproducing, displaying and/or publicly performing others’ works. Under § 501 of the Code, this constitutes copyright infringement.

Even so, millions of users have seized the opportunities that digital technology provides to obtain and share creative works without permission. Sharing uncompensated copyrighted material on the internet has become a mainstream pursuit. ‘The vast majority, 90% or more, of [peer-to-peer] P2P file transfers are in violation of copyright laws and threaten the viability of US businesses that depend on copyright protection.’3 The collateral damage from digital piracy includes: a dramatic reduction in sales for record and motion picture companies that many believe is the direct result of filesharing, the suppression of overall economic growth, the thwarting of innovation and an onslaught of litigation. For example, the movie, Batman: The Dark Knight, was reportedly illegally downloaded more than 7 million times within a couple months of its release, despite Warner Brothers’ aggressive anti-piracy campaign.4 While it is debatable that they are the result of filesharing alone, there is no doubt that recent losses in the entertainment industries have caused significant harm to the overall US economy. US industries that rely heavily on copyright protection to generate revenue are among the most important growth drivers of the US economy, contributing nearly 40% of the growth achieved by all US private industry and nearly 60% of the growth of the total US exportable products.5 Thus, it has been reported that roughly 40% of US GDP is affected by the inadequate protection of intellectual property, and US losses widely attributed to piracy are staggering.6

Documenting the mass and volume of infringement taking place on the internet and seeking legal recourse against culpable individuals has proven overwhelmingly costly and time consuming. For example, the Recording Industry Association of America (RIAA) has sued more than 30,000 individuals in the past five years.7 Most of these cases have resulted in settlements, and this strategy has done nothing to stem the tide of uncompensated use of copyrighted works on the internet. Further, efforts towards pursuing infringers have led to a backlash and consumer criticism, while still not making a significant dent in the amount of piracy. In the digital era, the ubiquity and worldwide scope of electronic distribution networks, the ease and speed of technologically assisted reproduction, and the overall financial stakes involved have increased both the complexity of and the necessity for effective management of copyrights in sound recordings and other forms of intellectual property.

A Government-Mandated Public Right
As a possible solution to the problems associated with digital piracy, government-mandated collective rights licensing is being espoused by a wide range of proponents. They argue that recent experience has shown that the market cannot solve this problem on its own and the government needs to step in. They argue further that Congress should amend the copyright laws to create a right to collect reasonable fees from all internet users at their point of access, in exchange for the ability to consume music and other copyrighted intellectual property on the internet. The most publicised model would require all US ISPs and university networks to add a fee (figures around US $5 are being proposed) to their usual charges and funnel the money collected to one or more existing or newly-formed collective rights organisations (CRO). In order to collect their portion of the fee, artists and other rights holders would be required to join a CRO, and each CRO would be responsible for distributing the proceeds received from the ISPs among its members based upon a formula reflecting the value of the works or the number of times the works are exploited by internet users. The ISP’s role in collecting fees would warrant retention of a small percentage of the fees collected to be used for investment in network capacity and to pay for up-to-date content identification and monitoring technologies. According to some, the fees collected would create a pool as large as $20 billion annually to pay artists and copyright holders.8

Previously Established Collective Rights Licensing Regimes
According to Warner Music Group executive, Jim Griffin, ‘collective licensing is what people do when they lose control, or when control is no longer practical or efficient.’9 Music composition copyright holders and songwriters faced a similar loss of control over exploitation of their works in the early 1900s, so there is US precedent for collective rights licensing. Implementation of a government-mandated public right would be similar to collective licensing of musical compositions and the administrative functions of the performance rights organisations (PROs) that currently handle the collection and distribution of performance royalties for musical compositions. The 1897 revision of the US Copyright Act established, for the first time, a songwriter’s exclusive right of public performance. Songwriters and composers needed a way to enforce their right of public performance of their musical compositions, and most, if not all, did not have the resources to police every theatre, bar, restaurant, hotel and other enterprises to make sure the proprietors of those establishments were paying for a licence to play their music. In addition, it was not practical and likely impossible for the owners of these establishments to obtain a licence from each rights holder of each musical composition being played on a given night. Therefore, PROs were needed for efficiency and practicality reasons. The first PRO in the US, the American Society of Composers, Authors and Publishers (ASCAP), proceeded to grant blanket licences to any establishment or service that was operated for a profit and played music, under authorisation of its member songwriters and publishers.

Then in 1923, a landmark decision for performance rights was handed down when the District Court of New Jersey held that songs played during radio broadcasts were played for profit and required a licence from the rights holder of the song.10 In 1926, the advent of coast-to-coast radio networks created an incredible source of revenue for songwriters and music publishers.11 However, negotiations between radio broadcasters and ASCAP regarding licensing rates became more and more difficult as the years passed. Due to the difficulties in negotiations with ASCAP, in 1940 a group of broadcasters, consisting of major radio networks and almost 500 independent radio stations, formed a second PRO, known as Broadcast Music, Inc. (BMI). Paul Heineke, a European music publisher, established the third PRO in the US, known as the Society of European Stage Authors and Composers (SESAC), in 1931. Today, ASCAP and BMI represent the majority of songwriters and music publishers, with SESAC licensing about 1% of all performance rights in the US.

Music publishers, by agreement, grant to the PRO the right to license all of the songs controlled by the music publisher. A PRO’s repertoire is the PRO’s entire collection of songs from the thousands of songwriters and music publishers who have entered into agreements with the PRO. As a result, in the US, any user of publicly performed music, be it a theatre, hotel, restaurant, club, bar or a radio station must pay to the PROs an annual fee for a blanket licence to publicly perform an unlimited number of times any or all of the songs in each PRO’s repertoire. The PROs then collect the royalties from these licences and, according to complicated calculations, determine the frequency with which each song was played and pay out to publishers and songwriters their shares. The PRO pays the publisher’s share (50%) directly to the publisher and the songwriter’s share (50%) directly to the songwriter.

Proponents of a new digital right argue that just as radio networks created an incredible source of revenue for songwriters and PROs allowed songwriters and music publishers to reap the financial rewards of widespread exploitation of their works, government-mandated collective rights licensing of media files distributed using the internet represents a way for copyright holders to reap the financial rewards of this new means of widespread exploitation. Proponents argue that a compulsory licence fee should be charged because most files are shared on the internet for free, and it would avoid the difficulty of sorting out contractual claims or renegotiating them. They argue that society at large would benefit from lower transaction costs and less litigation, because the sharing of content on the internet would be legitimised and compensated. Finally, they argue that a marketplace of competing filesharing and streaming applications and ancillary services could develop in a legal, instead of illegal setting.

Consumer Behaviour in an Age of Free Access
Many proponents of collective licensing argue that free access to unlimited media on the internet is a public good. Simultaneously and conversely, an increasing number of other countries are introducing three strikes you’re out legislation, in which a user repeatedly found downloading copyrighted material will lose access to the internet at home. Questions remain as to whether these measures will really serve to keep prosecuted filesharers off the internet, or whether that is, in fact, good. But given the possibility that the US could adopt similar legislation, it bears asking; how has free access to a nearly unlimited repertoire of music, film, pictures and text affected US society?

The numbers show that the desire of consumers to experience music, motion pictures and other forms of multimedia products and to express themselves through music and video continues to increase. For example, in 2006, websites featuring user-generated media content attracted 69 million users in the US alone, and they are projected to attract 101 million US users by 2011.12 The number of US households with broadband access that watched full-length movies and TV shows online doubled in the past year, according to research firm, Parks Associates.13 According to BigChampagne, an online media measurement company, the average simultaneous P2P population grew from over 5 million users in December of 2002 to over 7 million by December of 2004, and we are continuing to see an increase in P2P populations year after year.14 The proliferation of music, video and photographic editing software coupled with the distribution power offered by peer-to-peer networks (P2Ps) has fuelled a new generation of creative expression. Rather than being limited to a handful of authorised services like Apple’s iTunes or Rhapsody, access to unlimited media from any source has increased the number of cultural reference points from which artists draw to create new works. As a result, it is easy to argue that free access to media on the internet has contributed to a better educated public, and that both the volume and quality of artistic output have increased as a result of it. It is absolutely clear that sections of the population who could not previously afford access to certain artistic works, cultural reference points or research materials can now get them for free with a US $300 net book computer and an internet connection. This may serve to decrease the ‘digital divide’.

‘Getting information online saves the cost of printing textbooks, and this is a case where what is cheaper is also better… The computer can serve as a library, a laboratory and an art studio, saving the cost of these or making those that exist far more effective.’15

Furthermore, we have already seen with services like Flickr, Twitter and YouTube, that disintermediating news, picture and video collection to millions of consumers has increased the number of data points from which our news is collected, theoretically improving how much we learn about what is happening in the world. Similarly, millions of consumers with unlimited access to the world’s media collection will both preserve and foster its growth. Fans sharing media may be the best distributors, decision makers and preservers of media, previously costly roles for media companies to fulfil. For example, MediaBranz, a user-maintained community music metadatabase, has already compiled information covering 8,694,732 tracks and 749,808 album releases.16 As Gracenote, a wholly owned subsidiary of the Sony Corporation of America that provides technology for digital media, points out, media management is critical to a user’s experience and it begins with the user.17 If these activities were made legal, it could aid in the claiming of ‘orphan works,’ and automated submission process services might evolve for copyright owners to register their works with the appropriate databases, for collection and payment of rights licences.18 For all of these reasons, we should not dismiss out of hand the possibility that free access to media on the internet could be in fact, good, and that what is missing are evolved business models to pay for it.

Issues with Implementation
In order to implement a mandatory collective rights licensing system, the copyright provisions in Section 17 of the US Code would need to be revised. For this to occur, a bill setting forth the revisions would need to be introduced and lobbied through Congress. If our experience with the DMCA is any guide, this would involve months of negotiations in congressional committees, and it might be years before the resulting language is brought to a vote.

Specific revisions that would be required include a licensing scheme authorising ISP customers to copy, display and publicly perform works downloaded from and uploaded to computers on the internet. Such rights were previously reserved exclusively for owners of the copyrighted material in question, so we can presume they will want to have a say in deciding how the licensing scheme would work. The legislation also would need to describe in some detail the entity19 responsible for accounting to the rights holders, and possibly provide guidelines for measuring how much to pay particular rights holders. We must presume that rights holders would retain their rights to sue internet users for direct infringement if they fail to pay the fees or otherwise circumvent the system. Similarly, we would guess that ISPs would remain secondarily liable for copyright infringement if they failed to properly account to the CROs for all of the fees collected from their customers.

Proponents of government-mandated collective rights licensing have yet to address whether or not rights holders would retain the exclusive right to create and authorise derivatives of their works or otherwise retain control over how users manipulate their works. Furthermore, ongoing heated debate continues as to what constitutes fair use. Fair use, codified in 17 U.S.C. §107, permits the reproduction of copyrighted works for purposes such as criticism, comment, news reporting, teaching, scholarship or research without the authorisation of the copyright holder. Copyright holders must recognise and assess the merits of such an affirmative defence before bringing a claim of copyright infringement. Given the various interpretations found by courts in recent cases on the topic, this has become a complex judgment to make. As Cardozo law professor, Justin Hughes, states, ‘[t]he notion of fair use is expanding in the digital age.’20 Perhaps the legislative implementation process would provide an opportunity to clarify more precisely what constitutes fair use, since at least some of the material being downloaded could arguably fall into this definition. However this is finally decided, users who claim their exploitation of copyrighted works on the internet constitutes fair use will likely rebel against any mandatory fees for such usage of copyrighted works. Finally, given the consent decree under which both ASCAP and BMI currently operate, Congress would need to remain alert to any anti-trust concerns presented by one or more new or existing CROs assigned the task of collecting fees.

Opponents of compulsory collective licensing claim that it amounts to a tax for consumption of intellectual property on the Internet where the cost is allocated to all users equally regardless of their individual consumption level. They point to the inequity in forcing some users to subsidise the activities of others. Furthermore, consumers with strong moral and ethical positions would be financially supporting content to which they are morally or ethically opposed. Finally, data collection and use practices would need to conform to the requirements of the Electronic Communications Privacy Act (ECPA), so that users’ private information, including personal media consumption data, would not be sold without users’ consent to marketing firms and other unauthorised parties.

A variety of problems would need to be worked out with respect to data collection, use and measurement. There is a whole market of internet media tracking, security, usage measurement, cyber investigation and royalty collection firms. For example, by matching partial IP addresses to zip codes, a technology-driven, media measurement company, known as BigChampagne, uses its software to create a real-time map of music downloading.21 But who is to say which has the most reliable system and best data? Without empirical proof of whose technology is best for measuring media consumption, many argue that ISPs and CROs would merely be providing ‘good guesses’ on how the collected fees should be distributed.22 Without doubt additional volume would be added to the already brisk business done by music and media royalty accounting firms, not to mention the negotiation and litigation involved in working out royalty payment disputes. Furthermore, ISPs might be subject to additional duties to account, and might thus be more vulnerable to secondary liability for participating as middle-men in fraudulent or otherwise unauthorised transactions, whether voluntarily or involuntarily. ISPs would certainly not want to sacrifice any of their existing immunity under §512 of the Code by participating in data collection or enforcement at the direction of third parties. Explicit statutory immunities would be necessary to reduce transaction costs and ensure participation by ISPs.

In short, questions still abound with respect to the determination of the basis and frequency of collecting fees. Current rates for ‘bits’ uses vary considerably along with the procedures for their determination. Uniformity of units and methods for measuring usage as well as rates applied would be necessary to implement any collective rights licensing scheme, and whatever mechanism is chosen to determine an aggregate online use fee would need to take into account the rights of reproduction, distribution and public performance.

Last, but certainly not least, there are market disruption concerns. Introduction of a new mandatory collective rights licensing system could unnecessarily accelerate the reduction in sales of physical media products, which represent a substantial percentage of the world’s media sales market. Industry experts argue for a more gradual transition away from physical distribution technology, in order to allow media companies to successfully cross the chasm and develop over time a more robust and variegated digital distribution market.23 Furthermore, new media services like Hulu, iTunes and Netflix are starting to post positive results and experience successful growth in new markets for high quality digital content which many believe will grow to represent many billions of dollars.24 A new mandatory collective rights system might cut this growth off at the knees, superseding completely or otherwise disrupting the business of existing or future legal downloading services.

So viewed in its best light, a compulsory collective licensing scheme would be difficult to implement, and would require a departure from market-based economics in a society defined by its strict adherence to capitalism. Even if implemented, it would be difficult for such a system to address the concerns of rights holders and new businesses attempting to create innovative new products to benefit consumers.

Opt-in in Exchange for Covenant not to Sue
The alternative most often proposed to a government-mandated collective licensing scheme is a voluntary collective rights licensing scheme implemented through a private agreement between rights holders and users. Rights holders would sign a covenant not to sue any users who ‘opt-in’ to pay licensing fees for media they consume. Any user opting into the agreement would get an unlimited ability to stream and download copyrighted content with impunity from legal prosecution. As part of the agreement, the user would agree not to share copyrighted content with anyone who had not opted in, or face monetary penalties. Those opting-out of paying the fees would remain liable for copyright infringement. Creators and rights holder would also be able to opt-out of this licensing scheme. ISPs would receive an administrative fee in connection with the opt-in arrangement. Newly-created CROs would be responsible for tracking media consumption by those opting-in and distributing royalties to rights holders.

Proponents of voluntary collective rights licensing contend that any solution to digital piracy should minimise government intervention in favour of market forces; that market-driven solutions are likely to work faster and more efficiently than top-down government regimes; that the market drives innovation better than the government.25 For example, proponents argue that with the cloud of litigation eliminated, filesharing networks would rapidly improve. They argue in addition that an opt-in system would also be much more respectful of subscriber preferences. Payment would come only from those who are interested in downloading or otherwise sharing entertainment on the Internet, and only as long as they are interested in such sharing and downloading activities. As with the government-mandated system, opt-in users would have completely legal access to the virtually unlimited selection of media available on filesharing networks. However, unlike the mandatory public right option, users would not be forced to pay for media content if they do not choose to access it. Giving users the choice to pay the fee voluntarily could also help to repair the general bad perception many consumers now have regarding copyright owners. In addition, it might clarify to the general public the degree to which artists and the creative industries as a whole rely on clearly defined rights and responsibilities for copyright owners, intermediaries and users.

The most striking benefit of a voluntary collective licensing system is that copyright law need not be amended to implement it. Also, instead of relying on a government or collective industry board to set rates as with mechanical licences or ringtone rates, CROs would set their own prices, and the market would dictate the price. As a result, rights holders could potentially make more money through volume with a lower price and a larger base of subscribers, than with the current system of high prices and expensive, and ultimately ineffective, enforcement efforts.26 In addition, commercial services could develop which would boil the user opt-in agreement into the terms and conditions of the service, and then provide free, basic and premium services at different price points, including free advertising supported services. Proponents of opt-in licensing schemes argue that so long as the fee is reasonable, effectively invisible to fans, and does not restrict their freedom, the vast majority of filesharers will opt to pay rather than engage in complex evasion efforts.27 Proponents contend that the vast majority of filesharers would be willing to pay a reasonable fee for the freedom and peace of mind to download whatever they like using whatever software suits them. They further contend that a compulsory licence is not necessary as artists will be incentivised to join a CRO by the prospect of receiving some compensation for their works, and those choosing to remain outside the system will have no practical way of receiving compensation for the filesharing that will inevitably continue. Assuming a critical mass of major copyright owners joins a CRO, the vast majority of smaller copyright owners will have a strong incentive to join in order to collect their portion of the fees, just as virtually all professional songwriters and music publishers opt to join ASCAP, BMI, SESAC or Sound Exchange.28

Further arguments in favour of a voluntary licensing system stress that the distribution bottleneck which has limited the opportunities of independent artists will be eliminated. Artists will be able to choose any road to online popularity—including, but no longer limited to, a major label contract. In other words, legal, compensated digital distribution will be equally available to all artists. When it comes to promotion, artists will be able to use any mechanism they like, rather than having to rely on major labels to push radio play. With more options from which artists may choose, recording contracts will be more balanced than the one-sided deals about which artists have complained in the past. Furthermore, the complexity of individual music industry contracts and the propensity of successful artists to sign a great many different contracts over time make it difficult for record labels and music publishers or even the artists themselves to be sure what rights they control. So the proponents’ argument goes, by joining a CRO, copyright owners would not be asked to itemise rights, but would instead simply covenant not to sue those who pay the blanket licence fee. In this way, music fans and innovators would not be held back by the internal contractual squabbles that plague the music industry, and artists would be paid their fair share.29

However, many of the same concerns that were identified above in reference to a government-mandated collective rights licensing scheme will also plague a voluntary one, including privacy issues, data collection difficulties, derivative rights, trouble maintaining ISP immunity, file quality issues and complexities making sure that artist and other rights holders are actually paid their fair share. Also, like a compulsory licence, the opt-in licence tends to flatten the market for sales of music and other media, which in turn could stifle innovation because there would not be an incentive to produce new media products. In addition, there is the problem of ‘free-riding,’ whereby those who opt-out of paying the fee can still get free content from those who opt-in, either by somehow re-routing their Internet connections or simply by having someone who opts-in burning the content onto CD or DVD and then sharing the content with someone who opts-out. Uncertainty also exists as to how far these covenants not to sue will go. Will copyright holders retain the right to sue an ISP for secondary liability if it allows, even unwittingly, a user to re-route his connection? Consumers may also be at serious risk in a world where authorised and unauthorised works are at their fingertips with no clear ability to distinguish between the two. Would a green ‘OK’ tag pop up on media you could use? Would you only be able to use ‘opt-in approved’ services that bear the equivalent of a Good Housekeeping seal of approval, making the choices of opt-in users no different than the choices they have today with the legal services? Furthermore, what is to force ISPs to cooperate and take on the additional burdens of tracking and recording who is accessing what content for a reasonable fee? What is to keep them from demanding a larger and larger portion of the fees being collected from users? Already in the mobile content arena, retailers and promoters of mobile content must make a business from 50% or less of their product prices, with the mobile service providers collecting 50% for delivering such mobile data services. Given that a substantial segment of the population is currently accessing content free of charge, how can content holders be sure that enough people opt-in that it will make the system worthwhile?

In short, opponents of voluntary opt-in services cite a wide variety of reasons why they believe proponents to be, in the main, myopic about the incentives present in human nature and capitalist societies.30 ‘Proponents of the generic proposal and its offshoots seem to have given insufficient consideration to the many, many details involved in ISP licensing. The devil is, of course, in the details, and even considering a music-only licensing method creates a devilish predicament indeed.’31 So the main problem that an opt-in collective rights licensing system faces is the same problem faced by any new product introduced into a new market: getting users to try something new, regarding which the benefits are unclear and—further—enticing users to allow their names to be put on a list that may someday include people who are prosecuted for witting or unwitting copyright infringement.

Conclusion
The current copyright regime in the US, inherited from Europe and developed over hundreds of years of trial and error, works for our culture. It can adapt to new technologies and changing business models. Past collective licensing systems including schemes with compulsory licensing have been successfully applied to public performances, radio and mechanical licences for affixing copyrighted works to a tangible medium. In these instances, the market was seen as ‘broken’ and in need of a fix. But the internet is not a problem to be fixed, it is a set of opportunities. The internet is a far more exciting technology than recordings or radio because it is worldwide and allows for interaction. This means it allows for commerce. A whole panoply of new businesses can develop, which take advantage of these attributes. In fact, they are developing, and rapidly, whether we choose to accept it or not. So the key is to focus not on developing a panacea to ‘fix’ a single problem in time. Our focus should be to provide the basic ingredients upon which a new market, which fosters innovation, can be built. Then we should get out of the way, so that hundreds of more years of trial and error can take place in which to create innovations that benefit consumers as well as rights holders and business people. In other words, we believe in a system of copyright protections for the benefit of all people, ‘[t]o promote the Progress of Science and useful Arts’, as stated in our most important legal document, the United States Constitution.

Footnotes:
1. Art. I, §8, cl. 8 of the US Constitution empowers Congress ‘[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries’ (emphasis added).
2. James Madison, The Federalist No. 43: The Same Subject Continued (The Powers Conferred by the Constitution Further Considered) For the Independent Journal, 1788.
3. Comments of NBC Universal Inc., In the Matter of Broadband Industry Practices, Before the Federal Communications Commission, WC Docket No. 07-52, June 15, 2007 (gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6519528962).
4. Brian Stetlter and Brad Stone, ‘Digital Pirates Winning Battle with Major Hollywood Studios,’ The New York Times, Vol. CLVIII, No. 54,577, 5 February 2009, p. A1.
5. Institute for Policy Innovation, The True Cost of Motion Picture Piracy to the US Economy, Policy Report No. 186 (Sept. 2006).
6. ‘RIAA Comments on US Trade Rep’s Special 301 Report Highlighting Piracy Issues in Key International Markets’, RIAA News Room, 25 April 2008 (www.riaa.com/newsitem.php?id=A00DE818-FFE8-0579-F4CA-9D5ACBBE143B).
7. David Kravets, ‘RIAA Thomas Appeal Denied; Retrial Likely to Set New Copyright Infringement Course’, in Wired Blog Network, 28 December 2008 (www.blog.wired.com/27bstroke6/2008/12/judge-denies-ri.html).
8. Sam Gustin, ‘Music Outlaws, There’s a New Sheriff in Town’, Wired News, 27 March 2008, quoting Jim Griffin (www.wired.com/entertainment/music/news/2008/03/portfolio_0327).
9. Ibid.
10. M. Witmark & Sons v. L. Bamberger & Co., 291 F. 776, 780 (D.N.J. 1923), discussed in Robert P. Merges, ‘The Continuing Vitality of Music Performance Rights Organizations’ (11 June 2008). UC Berkeley Public Law Research Paper No. 1266870 (SSRN, ssrn.com/abstract=1266870).
11. Ibid.
12. ‘User Generated Content, Social Media, and Advertising—An Overview’, Interactive Advertising Bureau Platform Status Report, April 2008 (www.iab.net/media/file/2008_ugc_platform.pdf).
13. Greg Sandoval, ‘Hulu’s Backers Bicker as Web Video Soars’, CNet News, 16 November 2009 (news.cnet.com/media-maverick/?keyword=Hollywood).
14. BigChampagne LLC, ‘Peer-to-Peer Filesharing Technology: Consumer Protection and Competition Issues’, Public Workshop, Federal Trade Commission, 15 December 2004 (www.ftc.gov/bcp/workshops/filesharing/presentations/toll.pdf).
15. Seymour Papert, quoted in Clint Witchalls, ‘Bridging the Digital Divide’, The Guardian, 17 February 2005 (www.guardian.co.uk/technology/2005/feb/17/olpc.onlinesupplement).
16. MusicBranz, Database Statistics (musicbrainz.org/show/stats/).
17. Gracenote, About Us (www.gracenote.com/company_info/).
18. Joseph Merante, ‘Role in the Remedy: Finding a Place for ISPs in the Digital Music World’, GRAMMY Foundation® 11th Annual Entertainment Law Initiative Writing Competition, 22 September 2009 (elr.lls.edu/issues/v29-issue3/documents/09.Merante.pdf).
19. In the past, for example with the performance right collection societies, and in regard to collection of mechanical rights by Harry Fox, an actual existing organisation was not designated. Rather, the attributes required for such an organisation, or the requirements for proper payment of compulsory licensing fees or collection of blanket licensing fees were described in the statute in question.
20. Sarah McBride and Adam Thompson, ‘Google, Others Contest Copyright Warnings’, The Wall Street Journal, 1 August 2007 (online.wsj.com/article/SB118593806790484425.html).
21. Jeff Howe, ‘BigChampagne is Watching You’, Wired, Issue 11.10, October 2003 (www.wired.com/wired/archive/11.10/fileshare.html).
22. Neil Desai (as above).
23. Peter DiCola, ‘The Economics of Recorded Music: From Free Market to Just Plain Free’, Future of Music Coalition, 16 July 2000 (futureofmusic.org/article/economics-recorded-music).
24. Neil Desai, ‘Copyright and Culture (Voluntary Collective Licensing—Innovation or Extortion?)’, University of Pennsylvania Law, 15 April 2009 (tags.library.upenn.edu/project/40857).
25. Fred von Lohmann, ‘A Better Way Forward: Voluntary Collective Licensing of Music File Sharing’, The Electronic Frontier Foundation Whitepaper (www.eff.org/wp/better-way-forward-voluntary-collective-licensing-music-filesharing).
26. Ibid.
27. Ibid.
28. Brian Richard Day (as above).
29. Fred von Lohmann (as above).
30. Brandon Evenson, ‘IP Osgoode Speaks: Chris Castle on Voluntary Collective Licensing ‘, IP Osgoode, 27 October 2009 (www.iposgoode.ca/2009/10/ip-osgoode-speaks-chris-castle-on-voluntary-collective-licensing).
31. Christian L. Castle and Amy E. Mitchell, 4 WHAT’S WRONG WITH ISP MUSIC LICENSING? at 7, Entertainment and Sports Lawyer, American Bar Association, Fall 2008.

APAC: CHINA

Country Update for the People’s Republic of China by Philip Qu


PHILIP QU is a founding partner of TransAsia Lawyers. He is widely recognised as one of the leading TMT (technology, media and telecom) lawyers in China. He has assisted leading international companies with their market entry, M&A, regulatory compliance, partnership, copyright, production, distribution in film, TV, music, internet, print, wireless and new media sectors, and a wide variety of convergence matters. Philip also serves as an adviser on TMT-related legislative matters to key government agencies. In addition to being a noted author on TMT (e.g. Mergers and Acquisitions in China’s New Economy Sector: Legal, Commercial, and Strategic Perspectives, China’s Media and Entertainment Law and China’s IT and Telecom Policy and Legislation, etc.), Philip is regularly invited to speak at forums and conferences on related areas, including MIDEM and CineAsia. Philip has been consecutively voted by AsiaLaw as one of the ‘Leading Lawyers’ since 2002.

Overview
It is a well-known fact that China has serious piracy issues; online piracy is rampant and continues to increase alongside the growth in China’s overall number of internet users. Piracy offline continues unabated as well, owing to inconsistent and inefficient legal enforcement, in addition to the loopholes that exist in copyright law and the low penalties for copyright infringement.

According to statistics reported by the International Intellectual Property Alliance (IIPA) in its 2009 report, levels of piracy in China throughout 2005–08 ranged between 85% and 90%.1

Physical Piracy
The IIPA’s 2009 report2 also indicated that piracy levels for video, audio and entertainment software in optical disc formats now consists of between 90% and 95% of the market in China. Although the relevant Chinese authorities have directed a series of campaigns against retail of pirated discs throughout the past couple of years, and the reported statistics for seizures are quite high, pirated products remain available after the campaigns in reportedly no fewer quantities. Pirated discs have simply been moved to more hidden establishments.

Online Piracy
According to the 24th Statistical Report on Internet Development in China issued in July 2009 by the China Internet Network Information Center (CNNIC), as of 30 June 2009, China’s total number of internet users had reached 338 million, consisting of 25.5% of China’s total population. In addition, there are 320 million broadband network users, who account for 94.3% of all internet users in China. Online music is generally regarded as the most popular network application, with a utilisation rate of 85.5%.

In parallel, the International Federation of the Phonographic Industry (IFPI)3 reported that 95% or more of music sales in China were unauthorised; most coming from downloads of copyrighted music on the internet.

There are currently four kinds of downloads of online music in China: First,  MP3 search engines linking infringing music files, e.g. Baidu, Sohu/Sogou or Yahoo! China: These search engines offer ‘deep links’ to thousands of infringing music files for ‘netizens’ to download, and the search engines derive significant advertising revenue from doing so. These deep-linking services provide an estimated 50% of pirate music files in China.4

Baidu was sued by a variety of entities for copyright infringement (by facilitating illegal downloading and streaming copyrighted music), including the most renowned seven record labels collectively, i.e. Universal Music Ltd, Sony BMG Entertainment Hong Kong Ltd, Go East Entertainment Company Limited, Gold Label Entertainment Limited, EMI Group Hong Kong Limited, Cinepoly Records Company Ltd and Warner Music Hong Kong Ltd. The Beijing First Intermediate Court applied the safe harbour rule to this case and found Baidu not liable for copyright infringement as long as it deleted relevant links upon receipt of explicit complaints from copyright holders.

Second, MP3 search engines linking copyrighted music files, e.g. Google music search in co-operation with Top100.cn: It is supported through advertising and all search results from the new Google portal will lead to a path to legal but free downloads from Top100.cn. Some of these services are monetised, such as 9sky.com, whereas others are not, such as wap.3g.com and www.Top100.cn.

The third type of download music online is from private websites providing infringing music files to download, as well as P2P file-streaming websites, e.g. Kugou. These websites either host infringing music files directly or facilitate filesharing through P2P technology.

Finally, mobile downloads of copyrighted music files, e.g. iPod+iTunes, through which end-users may purchase and download copyrighted music files.

Piracy on mobile devices has also become a significant issue. According to the CNNIC 2009 report, about 45.9% of the netizens in China, i.e. 155 million people, use mobile phones to connect to the internet. The utilisation rate of downloading or listening to online music via mobile phones is 25.8%, taking an important place in mobile online applications. Further, when the new mobile 3G networks are built up, through which end-users are provided with instant access to the internet as well as pirated materials, piracy will likely increase in severity if no regulations are issued to address this problem. Fortunately, 3G licenses have only been granted to the three largest mobile services in China (China Mobile, China Telecom and China Unicom),5 which might help the authorities deter and minimise piracy on this network.

Piracy has continued to grow at an extremely fast rate; the era of illegal downloads of free music might end sooner or later, but currently for China, the social, cultural, legal and technological environment at play is far from satisfactory for the development of the cultural industry. That being said, the Chinese Government has continued to emphasise and make efforts to promote the protection of intellectual property rights. Netizens’ consumption preferences surely will not change in the short term. As the deeply embedded idea of ‘free’ will likely not change in the short term for the millions of netizens in China, the advertising-supported mode seems more likely to be able to deliver a steady stream of revenue currently and in the near future.

Regulatory Framework
Conventions. In 1980 China became a member of the World Intellectual Property Organization (WIPO). In 1992 China acceded to the Berne Convention for the Protection of Literary and Artistic Works, as well as the Universal Copyright Convention. In 1993 China acceded to the Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonograms. In the 21st century China has become a member of the World Trade Organization (WTO) and acceded to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), both in 2001, while six years later the country acceded to the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT).

On 10 April 2007 the US requested the WTO’s consultation with China concerning certain measures in China that restrict trading rights and market access of foreign suppliers with respect to films, audiovisual products and the publishing business. The WTO’s Dispute Settlement Body (DSB) published its 464-page long decision on 12 August 2009, which found that the majority of the Chinese measures that the US requested consultation on were inconsistent with China’s commitments under the relevant WTO rules. In particular, in relation to electronic distribution of sound (e.g. online music), the DSB found that the Chinese measures concerning the establishment of foreign-investment enterprises to engage in network cultural activities and participation of foreign investment in the provision of online audiovisual programme services accorded less favourable treatment to foreign suppliers and was inconsistent with the national treatment rule under the GATTS. China filed its last-minute notification of an appeal on 22 September 2009, and the Appellate Body Report will be circulated no later than 21 December 2009.

Generally, once China has acceded to an international treaty, Chinese courts can quote the provisions of the treaty directly in deciding an intellectual property infringement case, without reference to any Chinese domestic law by which the treaty provision is incorporated.

Key Local Legislation. The first main piece of domestic legislation to consider is the Copyright Law of the People’s Republic of China (PRC).6 In article 10, copyrights are defined to include the exclusive
‘right of communication through information networks; that is, the right to make works available to the public by wired or by wireless means, in such a way that members of the public may access them from at an individually chosen place and time.’

Article 37 states that a performer has the right to permit others, for a fee or other consideration, to communicate his performance to the public, and article 41 that a producer of recorded content is granted the right to: (a) license it to other parties for reproduction, distribution or rental, (b) authorise communication of the work to the public and (c) receive related consideration. These rights expire on 31 December of the 50th year after the content in question is first recorded. Thus, in order for a licensee to reproduce or distribute an audio or video recording, or lawfully communicate the work to the public, the licensee must obtain the permission of the copyright holder and the performer, both of whom are entitled to demand consideration.

Article 47 provides that anyone who commits an infringing act will be civilly liable and must either: (a) stop the infringement, eliminate its effects and apologise; or (b) pay compensation for damages. The materials used in the infringement may also be confiscated. Applicable criminal liability may also apply if a criminal offence has occurred.

The second important piece of legislation is the Regulations on the Protection of the Right of Communication via Information Networks (Information Network Regulations).7 Article 22 of the measure states that an internet service provider (ISP) providing server space to users will not be jointly liable for copyright infringement where its users have uploaded unlicensed content, if the ISP:

• has clearly indicated on its website (a) that the storage space is provided to users for their own use and (b) the name, contact person and network address of the ISP’s network service provider;

• does not alter the content provided by the users;

• did not know, or could not reasonably have been expected to know, that content provided by its users infringes other people’s rights;

• has not received any direct financial gain from the users’ provision of the content; and

• upon receiving written notice from a rights holder, removes allegedly infringing content in accordance with the Information Network Regulations.

Under article 23 of the regulation, where an ISP provides search or web link services to a user who uses them to enable access to unauthorised content, the ISP will not be liable to copyright holders if it disables the web links upon receiving a written demand. However, if the ISP knew, or had reasonable grounds to know, that the content to which the web links lead infringes upon another’s rights, it will be jointly liable with the user who posted them. In article 26, the term ‘right of communication through information networks’ is defined as the right to make works, performances or audiovisual recordings available to the public by wired or wireless means, such that members of the public may access them from an individually chosen place and time.

Under the civil law, pursuant to article 130 of the General Principles of the Civil Law of the PRC (Civil Law),8 when two or more persons jointly infringe upon another person’s rights and, as a result, cause damages to the rights holder, they shall be jointly liable for the same.

Supreme Court interpretations and opinions are also important. It is worth noting that in China, judicial interpretations and opinions are equally authoritative and are binding on all lower courts, provided that they do not conflict with laws. Article 4 of the Interpretation of the Supreme People’s Court of Several Issues regarding Applicable Laws for the Hearing of Copyright Disputes involving Computer Networks9 stipulates that an ISP will be jointly liable with the other infringing parties if it:

• infringes via the internet upon a copyright held by another party, or causes or assists a third party to do so; or

• is aware of user infringement of a copyright held by another party, or has been properly warned of such infringement by the copyright owner, but fails to remove the relevant content.

The Supreme People’s Court has also officially opined that those who aid and abet others in committing infringing acts are joint tortfeasors, and thus bear joint liability for their actions.10

Article 12 of the Judicial Interpretations for Handling Intellectual Property Infringement Crimes11 stipulates that free downloading without permission of copyrighted works online is considered an act undertaken ‘for the purpose of profit-making’. I

A final category in the legal framework in China is the administrative regulations and opinions. For example, Certain Opinions of the Ministry of Culture on the Development and Administration of Online Music (Online Music Opinions)12 stipulates that all entities wishing to engage in various online music13 businesses must obtain an online culture operating permit. The Online Music Opinions require online music originating domestically to conduct filing procedures, and in light of the fact that no legal entity or individual is permitted to import or distribute foreign online musical works without the Ministry of Culture’s approval for importation, the Online Music Opinions require censorship approval for all foreign music licensed to such providers.

However, due to the vagueness, the failure to implement rules and the large number of titles involved, the Online Music Opinions have been poorly implemented and certain loopholes have been overlooked. For example, with respect to the importation system and the entities that are qualified applicants, it has not touched on the impact of the licensing practice whereby the music is first imported by one local licensee and subsequently licensed or sub-licensed to another local licensee. Nevertheless, given the evolving regulatory environment and the Ministry of Culture’s growing familiarity with the internet and technology sectors, it should continue to improve in censorship and guidance of the online cultural sector.

Case Law
Online piracy is both a commercial and a legal concern. It takes two primary forms: online (e-commerce) sales of pirated audiovisual products; and illegal downloading and sales of audiovisual product content. The sale of downloaded content is generally more profitable than selling hard-copy audiovisual products. Accordingly, online piracy is having a considerable impact not only on audiovisual publishers but also on artists. Many cases have been initiated before the Chinese courts, by artists and publishers alike, against internet websites illegally selling work.

There are three cases—Busheng v. Baidu, Seven Record Labels v. Baidu and Eleven Record Labels v. Yahoo! China—that are representative of the courts’ changing positions during the past couple of years.

In the Busheng Case, Shanghai Busheng Music Culture Media Co Ltd (Busheng) filed suit in Beijing’s Haidian District Court against Baidu.com for copyright infringement. The Haidian court held that Baidu provided unlicensed MP3 downloading services, which are out of the nature of the services provided by a search engine. Baidu was held liable for copyright infringement.

The Seven Record Labels Case saw seven major labels (defined in the Online Piracy section above) collectively file suit against Baidu for alleged copyright violation, claiming that Baidu facilitated illegal downloading and streaming of copyrighted music. The Beijing First Intermediate Court ruled that the seven record labels’ complaint lacked sufficient legal basis and denied their request for suspension of Baidu’s services, damages and a public apology. The reason for these vastly different judgments in these somewhat similar cases might be the timing. The Beijing First Intermediate Court in the Seven Record Labels took a completely different approach from the Haidian court because it applied a law promulgated after the Busheng Case—the Information Network Regulations, which were promulgated by the State Council on 18 May 2006 and effective as of 1 July. This new law provided a safe harbour provision for search engines.

The Eleven Record Labels v. Yahoo! China case raised the issue again, less than six months after Baidu. Eleven record companies took on Yahoo! China in the Beijing Second Intermediate Court on 25 April 2007. Similarly to Baidu, users were downloading music via web links that appeared in search engine results. In this case, however, the court came to an entirely different conclusion, holding that Yahoo! China was liable for copyright infringement. The court held that Yahoo! China, as the search engine, must remove web links that it ‘knew or should have known’ infringed upon the rights of the copyright holders—even if the notification received from the copyright holders failed to indicate the specific URL at which the infringing content could be found. In doing so, the court held Yahoo! China to a higher standard of care than the safe harbour rule. The rationale behind this decision was that unlicensed content or web links would resurface shortly after being removed from the search engine results. In addition to making the infringement notifications meaningless, this resulted in an unnecessary waste of resources by the copyright holders.

The Chinese courts have delineated between websites merely providing internet access to subscribers (which carries no liability for online piracy) and websites monitoring user activities and failing to remove infringing content (which does carry liability). Despite the initial progress made against online copyright infringement, however, difficulties remain in calculating the number of illegal downloads and website ‘hits’, which are used to calculate the amount of illicit income referred to by law as the basis for fines. This has resulted in only nominal compensation being paid to the plaintiffs.

Currently, the Chinese courts use three separate methods to calculate the amount of damages that may be awarded to a plaintiff:

• where the actual losses of the copyright owner are determinable, the amount of such losses plus reasonable expenses incurred by the owner in attempting to cease copyright infringements;

• where the actual losses are difficult to calculate, the illicit income earned by the infringing party plus reasonable expenses incurred by the copyright owner for its attempts to cease the infringement; or

• where neither the copyright owner’s actual losses nor the illicit income earned by the infringing party can be determined, depending on the circumstances the court may award damages not exceeding RMB500,000 (approximately US $62,500).

The National Copyright Administration of China is considering amending the current PRC Copyright Law, for adoption in 2010, to make it fully in compliance with the TRIPS and the other international treaties to which China is a party. While it is difficult to predict the exact nature of the amendments to this law, it is widely expected that the ‘right of broadcasting’ will be extended to encompass live broadcasts of content on the internet, as well as including other revisions concerning copyrights to digital works. Moreover, the law and overall enforcement are also predicted to improve in the future.

Going Forward
Copyright collective management societies. At present, there are four collective management societies in China. The Music Copyright Society of China (MCSC) administers copyright in musical composition and lyrics. Its major job is to collect royalties for the act of mechanical performance of musical works and make available music ringtones. The China Audio-Video Copyright Association (CAVCA) is responsible for collective management of audiovisual programmes. It is now collecting royalties from karaoke bars for playing music videos. In addition, the Literary Works Copyright Society (LWSC) and the Photographic Works Copyright Society (PWCS) have just been established, but they are in fact already operating at full capacity. In addition to the other collective management societies, the Cinematographic Works Copyright Society will be established soon.

Both the MCSC and CAVCA obtain copyright resources from authorisations of their registered members and/or from that of foreign collective management organs by way of signing reciprocal representation agreements with them. However, due to the out-dated and unreasonable operation mechanisms (especially the lack of clarity on the percentage of royalties to be distributed to copyright owners) and the lack of sufficient copyright resources, the MCSC and CAVCA in fact do not perform their collective management functions as perfectly as expected. On the other side, some private copyright collective management organisations (e.g. R2G) seem to be having more success and acting with much more initiative when compared with collective management organisations.

Digital Music Market. The digital music market (including online and wireless music) is continuing to develop in China. While enforcement still needs to be improved, regulations have played and will continue to play a more active role in promoting the healthy development of the industry. Two relevant regulations which have had an overall positive impact are the Regulation on the Protection of the Rights of Communications via Information Networks and the Ministry of Culture’s Notice on Strengthening Content Censorship of Online Music Products.
The regulation regulates the source of online piracy mainly from the website’s end instead of that of users. Safe harbours for websites apply where the websites provide search engine or link services to the targets in question, but cease once the websites are provided with notice of the infringement from the relevant right/title owners. However, the websites shall assume joint and several liabilities for infringement together with infringers provided that they are aware of or should be aware of the fact that the target in question is infringing other parties’ legal privileges. Actually, these safe harbour standards are strictly enforced by the courts in practice: generally websites providing online film streaming services are rarely able to persuade courts that they are not aware of the potential infringement. In the future, we expect stricter rules to apply in the online music sector, which will result in more websites being held liable for infringement.

Recently, the Ministry of Culture (MOC) issued a notice regarding the strengthening of content censorship on both imported and domestic online music products. This notice is seen as being part of recent efforts by the Chinese Government to better regulate and supervise the internet, and provides stringent approval and filing requirements for music posted online. According to a statement by the MOC on its website, the notice is intended to address ‘bad content’ in music, as well as the large quantity of unauthorised foreign music made available online in China, and the general lack of supervision and regulation over online music activities. In addition to websites, it should also cover search engines such as Baidu. According to the notice, the lawful copyright or authorisation of the products is a prerequisite for applying to be able to transmit online in China music from outside China. The deadline for submission of the censorship application in this regard is the end of the year. It will take time, however, to determine how effectively the notice will be enforced.

Wireless music occupies a substantial part of China’s digital music market, and collective licences granted to service providers for wireless services is a key reason for the success of wireless music. (The 2009 report by iResearch, China Digital Music Analysis, states that profits from wireless music accounted for 92.1% of the profits from China’s digital music market.) If all mobile carriers adopted a monitor system and erased all pirated music from their platforms, music collective licensing in their platforms via or to various vendors in the 3G network, would likely become much easier. However, the split of the income (royalty) might still not be reasonable due to the monopoly of the 3G service.

One development in the industry during 2009 was Google’s launch of a legitimate music platform, which allows users to access and download music for free and relies on website advertising to generate revenues. Google’s model is a prime example of the convergence of legitimate music and internet in China. However, an advertising driven model such as this may not be suitable for all online music websites, as their success will depend on their website traffic (most websites do not have nearly the same level of influence as Google) and its access to a suitable legitimate music library. In this regard, most music owners are hesitant to grant a licence to a small website. Most websites in China currently provide illegitimate music, but with the full enforcement of the MOC notice—that all music provided online should be legitimate—it can be expected that music subscription services and advertisement-driven streaming will co-exist in the market.

Physical Formats. In spite of the significant decrease in revenue from CD sales, the major labels are still relying on physical distribution for their China operations. The realisation of revenue from physical distribution depends largely on the adequate enforcement of the PRC Copyright Law (from an administrative, civil and criminal perspective). The traditional collective management societies can be expected to continue to play a dominant role in the licensing of these traditional formats of music. Further, it is expected that the collective management societies and the relevant copyright owners will adopt an aggressive approach in addressing the rampant infringement in the market. That being said, it is clear that the digital distribution of music will become an increasingly important part of the market.

Performance. It is extremely surprising that record labels are generating almost no income from performance rights in China (according to the IFPI’s statistics for 2004–08), particularly given that such music is widely used in hotels, clubs, mini-theatres, karaoke establishments and on television. This situation led the NCAC to publish karaoke licence fee standards, which are aggressively collected by the CAVCA. A similar development is the requirement that television stations pay music royalties for all music broadcast from 1 January 2010, thus ending free broadcasts for television stations. Further, it is expected that royalty fees for music used in hotels, clubs and mini-theatres will start being collected by the MCSC early next year. With the high level of activity in the music industry, and the aggressive actions of collective management societies, a clearer system will likely be needed to divide royalty fees between collective management societies and copyright owners. Live concerts also remain popular in China. While traditional concerts are still a source of income and influence for famous artists and singers in China, ‘live house’ concerts (small and medium-sized concerts) are also increasing in popularity and provide another channel for singers to showcase their talent and communicate with fans.

Footnotes:
1. According to the same report, the estimated trade losses from copyright piracy in China ranged from US $204 million in 2005 to $564 million in 2008 (for availability online, see next note).
2. IIPA report 2009: www.iipa.com/rbc/2009/2009SPEC301PRC.pdf.
3. www.ifpi.org/content/section_news/20080407.html.
4. Another 35% provided by pirate websites, 14% via P2P filesharing (e.g. Xunlei and verycd.com) and 1% from cyber-lockers (IIPA report 2009, as above).
5. IIPA report 2009, as above.
6. Promulgated on 7 September 1990 by the National People’s Congress and revised on 27 October 2001.
7. Promulgated on 18 May 2006 by the State Council as Decree No. 468 and effective as of 1 July.
8. Promulgated by the National People’s Congress on 12 April 1986 and effective as of 1 January 1987.
9. First issued on 22 November 2000 and subsequently amended in 2003 and 2006.
10. Opinions of the Supreme People’s Court on Several Issues Concerning the Implementation of the Civil Law, issued on 26 January 1988.
11. Jointly promulgated by the PRC Supreme Court and the PRC Supreme Procuratorate and effective as of 22 December 2004.
12. Promulgated on 20 November 2006 by the MOC and effective as of the same date.
13. Online music hereby refers to digital music products that are circulated on wired internet or wireless mobile communication networks.

APAC: HONG KONG

Country Update for Hong Kong by John McLellan with additional research by Jessica Chan and Teresa da Silva


JOHN MCLELLAN is the partner in charge of Haldanes’ media and entertainment practice in Asia. He represents television channels and broadcasters, record companies (both major and independent), publishing companies, film studios and production companies, and international and regional movie stars and musical talents. John has acted in commercial transactions in most Asian jurisdictions, including in mergers and acquisitions, joint ventures and licensing arrangements, as well as more industry-specific arrangements. John has been described by The Who’s Who of the Law as, ‘One of Hong Kong’s leading entertainment lawyers.’ Haldanes is a multiple winner of the Asian Legal Business ‘Entertainment Law Firm of the Year’ Award. John is a frequent speaker at international media conferences (including MIDEM, the Cannes International Film Festival and MIP). He is also legal adviser to a number of industry bodies, including the Federation of Hong Kong Film Workers and the Hong Kong Directors Guild, and he is an executive committee member of the International Association of Entertainment Lawyers (IAEL).

JESSICA CHAN works at Haldanes in Hong Kong.
TERESA DA SILVA works at Haldanes in Hong Kong.

The Music Business

Music sales in Hong Kong are predominantly in the form of physical CD sales at retail outlets, comprising 76% of the value of music sales, as compared to 58% for the Asia Pacific region. Digital sales are relatively low at only 13% of total sales (versus 37% for the region).

Notes: Asia here is the People’s Republic of China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, Korea (Republic—South Korea), Taiwan and Thailand. ‘Other’ includes ad-supported revenues and other digital amounts.
Piracy Before and After the Internet
In the early 1970s Hong Kong was the largest music pirate in East Asia. To help address the problem, the International Federation of the Phonographic Industry (IFPI) set up a regional office in Hong Kong in the early 1970s.

In the 1990s Hong Kong became a significant centre for both CD and VCD piracy. In an attempt to address the CD piracy problem, the recording industry teamed up with the local movie industry in 1999, to rally for the support of the Chief Executive of the Hong Kong Special Administrative Region (SAR), C. H. Tung, in taking action to prevent the demise of the Hong Kong contents industries. It was answered with swift government action that drove the pirate outlets down from more than 800 to fewer than 100. The industry celebrated a brief recovery in 2000, with recorded revenue of HK $1 billion for music.

A new millennium saw a new era of music piracy. Being a technologically advance territory, peer-to-peer (P2P) sharing services offered new options for copyright piracy in Hong Kong. During the early stages of P2P internet music, piracy thrived as users were of the view that there were no repercussions from downloading and uploading music contents on the internet, since they were doing it from behind a network of internet connections which was difficult to trace. Improvement in internet connection speeds plus the ease of attaining ‘free’ music content from the comfort of one’s home means that piracy has now reached unprecedented levels. In addition, Hong Kong is still struggling with physical piracy. Even today, seizures of pirate optical media products continue at a high rate.1 High-profile enforcement efforts against optical disc piracy continue. For instance, in ‘Operation Torpedo’ in late September 2008, 120 Hong Kong Customs officers raided 19 retail shops and a warehouse, arrested 16 persons and seized over 63,000 pirated optical discs. The ‘Operation Codebreaker’ raids in June 2008 led to 21 arrests and seizure of HK $1.2 million (US $155,000)-worth of pirated goods and assets.2

Downloading Music and Mobile Devices
While Asia’s youth use multiple devices to listen to music, the personal computer is still the preferred device over mobile phones and MP3 players. Across the region, 27% said they preferred MP3 players to listen to music and only 23% said that they used mobile phones as a music device. As a percentage of total music sales in Hong Kong, online sales account for only 1%, while for the region as a whole it has already reached 9%. Subscription-based sales in Hong Kong are similar to that in the rest of Asia, accounting for 4%–5% of total music sales.

A combination of recent technological advancements, including fast broadband internet access and the rising popularity of portable digital music players, have made the download and streaming of music in the region a viable alternative to physical media. Internet penetration in Hong Kong has already reached 78% of households, far exceeding the average of 21% in Asia and 32% in China. However, given the widespread access to high-speed internet in Hong Kong, digital sales remain proportionally low compared with other countries in Asia.

Despite this, online transactions for downloading music content have increased in recent years, with the introduction of various legitimate digital music providers. Digital media providers in Hong Kong are as listed in Table 2. While legitimate online download and streaming services of music have grown in recent years, illegal music downloads still predominate.

Mobile phones have opened up a whole new market for the music industry, and in some markets in Asia they are the principal legitimate option for consumption of music. All major mobile service providers in Hong Kong offer a music service, with a variety of options through which music can be accessed wirelessly on the mobile phone. However, Hong Kong is still lagging behind the region, as mobile music sales as a percentage of total music sales were only 6% in 2008, compared with other countries in Asia where mobile music sales averaged 23%.
Most people in Hong Kong have access to mobile phones. In fact, mobile phone penetration in Hong Kong is 169%, which includes 5 million pre-paid phone numbers. Even when excluding pre-paid figures, mobile phone penetration is over 85%, far exceeding 37% average across Asia and 53% in China. However, given the widespread access to mobile phones, the proportion of music sales sold via mobile phone are relatively low.

There are five mobile phone network providers in Hong Kong, of which four provide high-speed 3G networks. All four of these networks provide online music download services, as particularised in Table 3. Income from these mobile music service providers in Hong Kong is generated through their digital online music stores and subscription-based streaming services.

With the launch of these music services by mobile phone providers, direct mobile downloads and streams are slowly gaining traction. However, side-loading4 is still considered the dominant method of delivering content to mobile devices, as there are no mobile network restrictions or geographic limitations on delivery via side-loadings. Direct mobile downloads are also considered too slow as compared with fixed broadband. According to Synovate, 46% of young users across Asia download music and transfer tracks to their phone, while only 21% download music directly to their phone. (Side-loading is achieved in three ways: over a standardised USB connection, by Bluetooth or via a memory card. These options allow users to choose their own suitable and convenient form of file transfer, thus making side-loading the preferred method.)

As a technologically advanced city in Asia, there is clearly a viable market for mobile music in Hong Kong. The popularity of sophisticated mobile devices is increasing due to the convenience of incorporating both telecommunication and media needs into one device. Some handset manufacturers, such as Nokia, now offer music services bundled with its mobile phones. The Nokia 5800 XpressMusic was the first device to offer one year of unlimited access to the entire Nokia Music Store5 catalogue. Strangely, however, this service is currently only available to Singapore in Asia, as well as to European and US consumers.

It is clear that Hong Kong does not suffer from lack of technology. It boasts some of the highest mobile and internet penetration rates, and access to the newest devices offered by handset manufacturers. However, use of mobile music is low and will continue to be such until access to music content becomes more widespread and with the same services that are offered abroad by handset manufacturers such as Nokia and Apple also made available in Hong Kong.

The Applicable Law
As early as 1996, the Copyright Ordinance of Hong Kong (cap. 528) was amended to incorporate the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) of the World Trade Organization. From 1 October 2008 onwards, the World Intellectual Property Organization (WIPO) Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT), or so-called Internet Treaties, applied to Hong Kong. The Internet Treaties update and improve the protection of copyright and other related intellectual property rights in light of new digital technological development. The requirements of the Internet Treaties have now been incorporated in the Ordinance.

Section 2 of the Ordinance protects the copyright of literary works, musical works and sound recordings. In relation to downloading and streaming music online/through mobile, section 22 of the Ordinance stipulates that the copyright owner has the exclusive right to issue and rent copies of the work to the public, make available of copies of the work to the public by wire or wireless means, and to perform, show or play the work in public.

Section 118(1)(g) of the Ordinance provides that a person commits an offence if he, without the licence of the copyright owner, distributes an infringing copy of the work, otherwise than for the purpose of or in the course of any trade or business which consists of dealing in infringing copies of copyright works, to such an extent as to affect prejudicially the copyright owner. An offender faces up to a fine of HK $50,000 and four years’ imprisonment.

Section 161 of the Crimes Ordinance (cap. 200) provides that any person who obtains access to a computer (i) with intent to commit an offence, (ii) with a dishonest intent to deceive, (iii) with a view to dishonestly gain for himself or another or (iv) with a dishonest intent to cause loss to another commits an offence and faces up to five years’ imprisonment.

The Case Law
HKSAR v. Chan Nai Ming [HKSC] 1. In late 2005 Chan Nai Ming’s conviction for uploading three Hollywood movies using the BitTorrent software made international headlines. His conviction is believed to be the first of its kind in the world. The defendant was charged with attempting to distribute an infringing copy of a copyright work, other than for the purpose of or in the course of any trade or business, to such an extent as to affect prejudicially the rights of the copyright owner (now section 118(1)(g) of the Ordinance—see above). The defendant also faced alternative charges of obtaining access to a computer with dishonest intent, contrary to section 161(1)(c) of the Crimes Ordinance.

The prosecution alleged that the defendant was responsible for distributing three films on the internet using BitTorrent software (which allows fast and efficient downloading of large digital files such as films). The defendant was alleged to have been the principal ‘seeder’—he loaded the films into his computer and created the .torrent files, he advertised the existence of the .torrent files on the internet and he kept his computer connected and the BitTorrent software active to enable others to download them. The defendant argued that he simply made the films available for others to download. However, the magistrate took the view that the acts of the defendant were positive acts that led to distribution of the data and convicted him of the charges. The defendant was sentenced to three-month term of imprisonment. The magistrate also concluded that the defendant’s act of publishing the .torrent file on the newsgroup computer amounted to obtaining access to a computer with a view to a dishonest gain for another.

His conviction was upheld by the High Court and by the Hong Kong Court of Final Appeal in 2006 and 2007, respectively. More arrests of infringers for uploading movies and TV dramas followed in 2008 and 2009, with the help of the internet service providers (ISPs—see below). Although HKSAR v. Chan Nai Ming relates only to movies, the relevant legal principles would equally apply to internet piracy of music contents.

Cinepoly Records Co Ltd & Ors v. Hong Kong Broadband & Ors [2006] HKLRD 255. Another landmark decision was given by the High Court of Hong Kong in early 2006, and it shook the notion of many copyright infringers that they could remain anonymous. In this case, seven leading music producers took an unprecedented move and issued a discovery proceeding against four ISPs for the names and details of 22 alleged online copyright infringers, under the Norwich Pharmacal principles. In early November 2005 the plaintiffs, together with the IFPI, conducted online investigations and targeted 22 uploaders of various music files. The plaintiffs took the action in the hope of going behind the cloak of anonymity and tracking down the true identity of those uploaders.

The judge was satisfied that copyright infringements of the plaintiffs’ sound recordings had taken place by the acts of the 22 uploaders, that they were subscribers to internet services with the defendants and that the defendants, by providing the internet service, had innocently been caught up in or had become involved in the uploading of the music works in question. In considering whether or not such disclosure would violate the protection of personal data, the judge was satisfied that information sought by the plaintiffs was for the prevention or remedying (including punishment) of unlawful or seriously improper conduct by persons, and thus could invoke the exemptions provided in the Personal Data (Privacy) Protection Ordinance (cap. 486). The High Court thus ordered that the plaintiffs were entitled to the Norwich Pharmacal relief, and remarked that since the disclosure was ordered by the court, there would be no breach of the defendants’ duty of confidentiality warranted in their licences granted by the Telecommunications Authority.

The disclosure of the information allowed the IFPI to issue 55 civil proceedings against online infringers in February and September 2006.

How Will the Law Develop?
In late 2006 the Government conducted a public consultation exercise as to how to strengthen copyright protection in the digital environment. In its preliminary proposals, published in April 2008, the Government proposed to introduce an all-embracing right of communication, which could encompass future developments in electronic transmission. The Government also proposed to introduce criminal sanctions against: (i) making/initiating unauthorised communication made to the public for the purpose or in the course or business; and (ii) unauthorised communication made by streaming the copyright work to the recipients, other than for the purpose or in the course of business, and such communication is made to such an extent as to affect prejudicially the copyright owner.

After consultation, the Government opined that it would refrain from introducing new criminal liability pertaining to unauthorised downloading and P2P filesharing activities. As a matter of fact, the Government has been consulting public opinion on criminalising unauthorised downloading since 2000. Unfortunately, even after almost a decade-long discussion and the increasingly rampant internet piracy, the Government is still unwilling to take this major step, citing that the issues pertaining to criminalising unauthorised downloading are controversial. Of course, the issues are controversial and the community is highly unlikely to reach a consensus on this issue, given the conflicting interests of the end users and copyright owners. Yet, it is undeniably the most effective way to combat internet piracy—to attack the demand for infringing works.

The Government seems equally unwilling to prosecute downloaders and only focuses its resources on prosecuting uploaders. Prosecuting unauthorised downloading is understandably difficult, given the innumerable number of internet users and the possible extra-jurisdictional issues (such as the domicile of downloaders, etc.). However, as discussed above, the High Court in Hong Kong has allowed copyright owners to reply on the Norwich Pharmacal discovery procedure to obtain a court order demanding disclosure from the relevant ISP on the details of any suspected infringers. If the Government is determined to combat internet piracy, it should allocate sufficient resources to investigate cases of unauthorised downloading, with the assistance of ISPs.

Advocates for the imposition of liability on ISPs for online piracy activities argue that the ISPs are well placed to help combat internet piracy and such imposition would provide incentives for the ISPs to co-operate in preventing massive infringement. In fact, the Government proposed putting in place a voluntary code of practice for the ISPs in combating internet piracy; and to provide incentive for the ISPs to comply with the code of practice, the law of Hong Kong will be amended such that compliance with the code of practice would be a factor that the court shall take into account in determining whether or not an ISP has authorised an infringement committed on its networks. The proposed content of the Code of Conduct remains unknown, but the Government has proposed establishing a tripartite forum comprising representatives from the ISPs, copyright owners and internet users to explore the merits of different systems, such as a ‘notice and notice’ system—if a copyright owner finds that a copyright infringement occurs on an ISP’s network, it may issue a notice in a prescribed form to the ISP concerned, which would then relay the notice or issue a warning notice to the alleged infringer.

Although ISPs have extensive technical ability to control the traffic on their networks, it is felt that the Government must not unreasonably burden the ISPs in the war against internet piracy. Given the enormous traffic on the internet every day, it is argued that it would be extremely difficult and costly for the ISPs actively to monitor the web content. Also, it is suggested that society will have to sacrifice the rights of privacy in the name of copyright protection. More importantly, the ISPs will be made the scapegoats for the wrongdoings of uploaders and downloaders of music content online (and the Government is unwilling to prosecute the latter), which is simply unfair.

Under the ‘three strikes’ rule that is being considered in other jurisdictions (such as Japan and South Korea—see separate chapters below), internet subscribers who illegally share copyrighted materials would receive warning notices and their internet access would be suspended after the third warning. The Hong Kong and Singapore Governments have ruled out such a hard-line approach in the coming copyright law amendments. In their view, not only does such legislation violate the right to privacy, but also it is contrary to the presumption of innocence, the core principle in the criminal justice system in Hong Kong. It is suggested that the Hong Kong Government should not sacrifice these values in the name of copyright protection. Indeed, elsewhere in the world, after the National Assembly enacted such legislation, the Constitutional Council of France in June 2009 ruled that the ‘three strikes’ rule was unconstitutional. In November 2009 the legislators of the European Union, in response to the ‘three strikes’ rule proposed by the French Government, provided safeguards for internet users. Such a rule would be imposed only ‘if they are appropriate, proportionate and necessary within a democratic society’ and ‘due respect for the principle of presumption of innocence and the right to privacy’ and as a result of ‘a prior, fair and impartial procedure’ guaranteeing ‘the right to be heard’ and ‘the right to an effective and timely judicial review’. Such safeguards apparently would kill any deterrence effect of the ‘three strikes’ rule.

Footnotes:
1. Nearly 1 million DVDs and VCDs, and half a million DVD-Rs and CD-Rs, had been seized by the end of November 2008.
2. From the IIPA’s 2009 Special 301 Report on Copyright Protection and Enforcement, ‘Recommendations’ for the year (February 2009).
3. www.eolasia.com, www.3music.com.hk/web/musicstation/, moov.hk/, www.musicxs.hk and www.musicholic.com.hk.
4. This is the process of transferring data, such as music, between two local devices; in particular, between a computer and a mobile device by USB, Bluetooth or memory cards.
5. musicstore.nokia.com/.

QUOTES

A new millennium saw a new era of music piracy.

given the widespread access to high-speed internet in Hong Kong, digital sales remain proportionally low compared with other countries in Asia.

given the widespread access to mobile phones, the proportion of music sales sold via mobile phone are relatively low.

It is suggested that the Hong Kong Government should not sacrifice these [core] values in the name of copyright protection.

APAC: INDIA

Country Update for India by Nikhil Krishnamurthy


NIKHIL KRISHNAMURTHY is a senior partner at KLAW/ Krishnamurthy & Co., a law firm headquartered in Bangalore, with offices in Mumbai and Chennai. Nikhil heads the intellectual property division of the firm, specialises in litigation and the licensing and enforcement of IP rights in general and has done focused work in the areas of media, entertainment and IT law. In 2001 Nikhil filed the first compulsory licence under the Copyright Act in India, concerning the setting of reasonable royalty rates for the public performance of sound recordings over FM radio. He has been involved in a variety of music issues, and has advised a wide spectrum of content owners and users. Nikhil has authored several published articles on copyright and music law in India and is a consulting editor to the Manupatra Intellectual Property Reports, a print publication division of India’s largest online legal database. He has also recently been invited on to the advisory board of Westlaw India. Nikhil has spoken at various conferences on IP law, including a conference on Limitations and Exceptions to Copyright Law sponsored by the Indian Ministry of Human Resources Development. He is a graduate of the National Law School of India University at Bangalore, an advocate registered with the Bar Council of India and a member of the Delhi High Court Bar Association. Nikhil is also a member of various international associations, such as the IAEL, the Asian Patent Attorneys Association (APAA) and the Association for the Protection of Industrial Property (AIPPI).

Overview of the Indian Music Industry
While musicals in Hollywood appear to be an exception, in India they are the norm. Bollywood and other regional language films (such as Kollywood, Tollywood and the like) comprise, in large part, elaborately choreographed song and dance sequences shot in exotic locations, usually bearing little relation to the plot.

While the film Indra Sabha, made in 1932, holds the record for the most number of songs in an Indian film at 71, today one can easily expect to find between six and 10 songs in a film. According to a 2009 PricewaterhouseCoopers (PWC) report, over 1,000 Indian films and 10,000 music tracks are released annually. There is also a large demand for Indian film and music in neighbouring countries such as Pakistan and in West Asia, not to mention the UK, the USA and Canada.

As a consequence, the music scene in India revolves around the original motion picture soundtrack (OST) and the incidence of non-film music is comparatively low. Master-use and sync licences for use of an existing song within a film are infrequent and most film music (I am not referring to the background score) is composed specifically for the films in question.

The industry practice is for the producer of the film to engage a music director/composer and a lyrics writer, who will then collaborate to write the various songs for the film. Usually all rights are obtained from the composer and lyrics writer in perpetuity, for a lump sum consideration (a source of much concern among the author/composer fraternity, as this excludes them from all future earnings from their works) and the producer also pays for the recording of the songs to be used in the film. Consequently, the film producer becomes the owner of copyright in both the sound recordings and the works underlying the sound recordings. The interesting thing to note is that it is the film industry that originates the music content, not the music industry.

The songs are recorded well before the completion of the film and this is done for a reason. The film producer will then usually assign all the copyright in the sound recordings and the underlying works to a music company, again, usually, for a large lump sum amount. This amount is then used by the producer for the financing of the film. The term ‘music company’ rather than ‘record label’ is used, since the practice is for the music company to acquire the rights in the sound recordings and the underlying works and, hence, wears the hat of a record label and that of a publisher at the same time.

A few months prior to the release of the film, the OST is released by the music company at a music launch event, with a view to creating a certain hype and interest in the film. Since ringtones became a huge hit in India some years ago, the music companies print shortcodes against the songs on the CD/cassette inlay card so that it is easy for the purchaser of the album to purchase the ringtone from the relevant telecom operator as well. Very recently, T-Series, a large music company has also released the music of the film Blue on pen drives and memory cards.

The song and dance sequences from the films, which are referred to earlier, are so popular that one may even buy discs that are comprised of only the audio-visual depiction of the songs featured in the films. These rights are dealt with separately between film producer and music company.

The music company, in addition to selling physical albums in the form of CDs and audio cassettes, will license the digital rights in the OST (also wallpapers, film dialogues, short video clips, etc.) to a digital content aggregator, for a lump sum or minimum guarantee, and usually for a fixed term. Some music companies deal directly with the telecom companies. While these rights are broadly classified as mobile and internet rights, it is the mobile rights that have brought in considerable revenues to the music companies in India in recent years.

According to a 2009 KPMG report for the Federation of Indian Chambers of Commerce and Industry (FICCI), mobile music dominates the digital sales pie and, within this, ringtone sales command a dominating share. The digital music market in India in 2008 was estimated by the report to be worth Rs 1.8 billion, mainly from ringtones and ring-back tones. The 2009 PWC report referred to above estimated that the share of digital music was expected to grow to 60% by 2013.

According to other sources, there are 400 million mobile subscribers, and about 50% of the phone models support music transfer. The legitimate mobile music market is estimated to be worth around Rs 3 billion (US $65 million). The popularity and potential for growth of legitimate sales of ringtones and ring-back tones in the Indian market, therefore, cannot be overemphasised.

In recent years, physical sales have steadily declined and digital sales, such as through ringtones, are poised to surpass revenues earned from physical sales in the very near future. For some companies, this has already happened, and reports indicate that SaReGaMa, a prominent Indian music company, generates 50% of its music revenue from ringtones. The FICCI-KPMG report stated that the size of the Indian music industry has contracted to Rs 7.3 billion in 2008, compared with Rs 8.3 billion in 2005, the primary reason being attributed to the erosion of sales of physical formats. Physical formats, which accounted for 87% of industry revenue in 2005, accounted for less than 60% in 2008. To counter this trend, music companies have taken the initiative to release music on MP3 CDs at price points similar to the audio cassette. The report also indicated that digital music has the potential to offset the impact of declining physical sales and to push the industry towards a healthier growth rate.

Full track OTA downloads of songs from mobile devices such as cell phones are slow, cumbersome and not favoured. Side-loading is common, with many mobile dealers offering ‘fully loaded’ phones as an incentive for customers to purchase mobile phones from them. This is not unlike the practice of hard disk loading in which computer hardware resellers would sell assembled or branded machines with pirated software preinstalled.

With a wide choice of inexpensive music-friendly phones available in India, one could buy an additional 8-Gb memory card quite cheaply and have it filled up with music for listening to on the mobile phone, free of cost from the dealer. In this context, the Indian music industry reports that over 1,000 cases have been filed in cases of mobile chip piracy.

Recently, seven Indian music industry players that account for a significant share of the copyright titles being pirated have started an initiative called Mobile Music Exchange (MMX) whereby mobile retailers pay between Rs 1,500 and Rs 5,000 (US $30 to $100) per computer per month to side-load music on to mobile phones sold by them. Industry sources say that about 30 to 35 mobile retailers are being signed up for the MMX licence every day. It is unclear what distribution model is employed though.

Many mobile phones are available with an FM radio feature and, as a result of the large number of private FM radio stations in India, it is common to find people listening to the music broadcast over FM radio on their mobile phones. The easy availability of Indian music through various avenues, such as music video channels on television and FM radio, are also reasons, apart from piracy, that are cited by music industry sources for declining sales of physical media.

Having said this, it is not all doom and gloom for the music industry in India. OSTs are still being purchased from film producers by music companies for large sums of money (which may indicate that the music companies are still confident of recovering such amounts through the available modes of exploitation). To give one example of music acquisition costs, the music rights for the film Singh is King were reportedly sold for Rs 135 million (around US $3 million).

A few legitimate music download and streaming sites have been available in India for the past three or four years, and collecting societies offer both interactive and non-interactive licences, but it is difficult to obtain data as to their success in monetising these services. Some Indian music companies are now offering their repertoire of music for sale through iTunes. Nokia has also started an online music store in India, having tied up, reportedly, with Universal, Sony, EMI, Warner and other major Indian music companies. With increased penetration of broadband, the use of download sites and streaming services is expected to grow.

ISPs in India offer home users what are known as unlimited packages (in terms of time and download/upload) for a fixed fee per month. So, for example, one such ISP offers an unlimited package with a speed of 2 Mbps for Rs 3,000 (about US $65) per month. At this speed, a song in MP3 format may be downloaded within a matter of seconds and an album within a matter of minutes via P2P. Some ISPs have now introduced fair usage policies, under which, if a consumer exceeds a certain amount (say 100 Gb) of download in a month, his speed will be reduced by a half for the rest of that month. Despite the description of the policies, it is doubtful that they have anything to do with fair use under copyright, but are more probably designed to prevent clogging of the ISP’s network through high bandwidth usage by its customers.

Internet cafés were first introduced in India in the mid-1990s, and the recordable CD became common soon afterwards. While music piracy did exist during the days of the audio cassette, music industry sources are clear that it has reached unmanageable proportions in the digital age, on account of the speed of recording devices, the MP3 format, P2P and the high capacities of recordable or other storage media. Even music pirates can be heard complaining that their sales of pirated MP3 CDs have dropped because people can now download songs from the internet.

Copyright Protection
India is a member of the Berne Convention, the Universal Copyright Convention (UCC) and the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The legislation governing matters concerning copyright is the Copyright Act 1957, read with the Copyright Rules 1958 and the International Copyright Order 1999. While neither Indian nor foreign works need to be registered in order to be protected, a copyright registration certificate may be useful to have from the point of view of enforcement.

By and large, there are no major issues with the letter of the law, as the Copyright Act has been amended at various times in order to strengthen protection and to keep pace with technological advancements. Moreover, Indian courts follow the principle of updating construction in the interpretation of statutes and can interpret the law in order to take into account technological or other developments. There have also been some reports of a move to carry out further amendments to the Copyright Act, and such amendments are supposed to include provisions pertaining to rights management information and the protection of technological measures.

In the area of music, there are two collecting societies: the Indian Performing Right Society (IPRS), which represents the interests of publishers (i.e. music companies), authors and composers; and Phonographic Performance Limited (PPL), which represents about 150 member companies and administers sound recordings. Public performance licences are administered by these two societies.

Collective licensing in the realm of music distribution and, more particularly, for ringtones is administered by PPL. Some music companies license their digital content for distribution to content aggregators, which then distribute the content to telecom companies. In the context of collective licensing for direct consumer use, some discussion of the law may be relevant.

For starters, there is no judicial precedent on private copying in India, unlike in the US, where the Recording Industry Association of America (RIAA) has proceeded against various users of P2P networking for downloading music. The fair dealing provisions for private use are restricted to literary, dramatic, musical and artistic works and do not include sound recordings and cinematograph films. So, while a downloader may, arguably, get away with downloading some sheet music or some song lyrics by claiming fair dealing for private use, downloading a sound recording or music video is not, apparently, covered. In the context of the broadcast reproduction right and the performer’s right as recognised under Indian law, the making of sound and visual recordings are permitted for private use, although a proviso confuses the position and states that if a copyright subsists in a work that has been broadcast, then no licence to reproduce the broadcast will take effect without the consent of the owner of rights. However, in the context of the broadcast reproduction right, a distinction is struck between the ‘making’ of a sound or visual recording of the broadcast and the ‘reproduction’ of such sound or visual recording, so it may be arguable that the ‘making’ of a sound or visual recording is allowed under Indian law for private use so long as there is no further ‘reproduction’ of such sound or visual recording made for private use. Of course, this would only address the issue of making a personal copy of a work being broadcast, and not the download of a work. Under other provisions, the import of one infringing copy of any work for the private and domestic use of the importer is exempted from the scope of infringement. While there is no precedent on the point, it is conceivable that a person who has downloaded some music using the internet may claim in his defence that he is allowed to ‘import’ an infringing copy of such music by ‘download’. Of course, such a defence may not be available if it can be established that in the process of download, the upload of a substantial portion of the work also took place.

There do not appear to be any lawsuits initiated against ISPs or end-users by collecting societies or music companies in India. Google has been sued by T-Series, a large Indian music company, for its YouTube service, and a similar suit has been filed by the same company against Yahoo! Both lawsuits are pending. Action has been initiated against a large number of side-loaders, as already indicated.

The Information Technology Act 2000 (IT Act) has been amended and the new amendments came into force on 27 October 2009. The relevant aspects of the amendment pertain to intermediary liability, which protects an intermediary from liability in certain cases. The section also requires an intermediary to demonstrate due diligence in the conduct of its business activities and to act expeditiously to remove or disable access to unlawful information and data on receipt of information or take-down requests. The intermediary is required to act without vitiating the evidence, which could have consumer privacy implications.

A certain amount of confusion has also been introduced with the new amendments, as a newly added proviso states that nothing in the IT Act will prevent a person from exercising any right conferred under the Copyright Act 1957 or the Patents Act 1970, so its impact on the provisions pertaining to ISP liability will have to be seen. It is quite certain that intermediaries will play a large part in future copyright litigation in India, on account of some of the uncertainties introduced by the latest amendments.

In the recent past, on account of a serious blunder made by an ISP regarding the identity of a person using a particular IP address at a particular time, in a matter involving defamatory material posted on the internet, the wrong person was arrested and jailed for an extended period; only later was the actual culprit identified. The wrongly arrested person is now reportedly pursuing a damages claim against the ISP in question.

Some Thoughts on Collective Licensing Solutions for the Digital Era
The music industry in India is not as structured as those of more advanced copyright economies, but it is in the process of being streamlined. In the context of direct consumer use, the problems that are obviously faced by collective licensing pertain to the identification of works reproduced or performed, the collection of revenue and the distribution of that revenue to the rights owners.

For example, in the area of public performance of music, only radio stations submit log sheets to the collecting societies, so the uses of copyright works by other end-users (nightclubs, etc.), which may include a lot of niche content, go unlogged. So, while revenue may be collected, the identification of works used and the distribution of revenues to the ‘right’ owners is a real challenge. In the digital space, as regards the sale of digital content, ringtones, etc., by the telecom companies to their mobile users, this does not seem to pose much of a problem in accounting, as these are legitimate sales backed by detailed digital records maintained by the telecom operators. It is really in the area of side-loading and P2P that significant challenges arise for collecting societies in the areas of identification, collection and distribution. As regards side-loading, as indicated above, the MMX initiative has been started by some music companies in India.

One possible solution is that, for content accessed or downloaded via the internet, a levy similar to the blank tape levy could be bundled into the cost of an internet subscription. With this cost, a consumer would be allowed unlimited access to content. This bundled cost could address the collection problem. For the purpose of identification of works and the distribution of revenue, it would not be enough merely to sample tracks played on radio, as this sector plays mainly popular tracks (in the Indian context) and would not account for the long tail of music accessed by the Indian consumer. That would lead to huge inequalities in the distribution of royalties. An ideal option that could address this issue is for the collecting societies to provide an online resource or ‘celestial jukebox’ (a term that has been coined before), which is accessed from a consumer’s ISP. This jukebox could log the number of complete downloads and streams for each work. The revenue collected as a part of each consumer’s ISP subscription fee could be more accurately distributed as identification of the works downloaded or streamed is maintained by the jukebox. The jukebox would have the added effect of being a comprehensive library or archive of music to which new or old tracks could be continuously added to by music publishers, labels and even users.

It appears that one content aggregator in India, Hungama, has very recently tied up with BSNL, a telecom operator, to offer the On Demand Entertainment Storefront service, in which the broadband subscription cost of Rs 149 (US $3) per month gives unlimited access to Hungama content, which includes more than 60,000 songs. This is a step in the right direction.

There are obvious drawbacks to this approach, not least co-operation among rights owners to set up such a jukebox, the bandwidth requirements, possible opposition from consumers to bearing an added copyright cost within their ISP subscription, and opposition from the ISPs themselves to parting with a portion of their subscription amount as a copyright cess.

In addition to the above method suggested for identification, it could be a matter of legislation to require P2P networks to incorporate technical features to identify and display country-wise logs of all completed downloads or streams of music over their networks, on their respective websites, and to provide this data to the collecting societies of the respective countries. There are already websites that list, for example, the ‘Top 10’ downloaded films on P2P networks, so this data is already available. This would lead to a higher accuracy in identification of works and the distribution of income received from ISPs, or other sources (such as the MMX license), to rights owners, including those in the long tail of music who may not otherwise be considered. As P2P shows no sign of going away any time soon, it is desirable to use in some meaningful manner the data generated from such networks to provide more revenues for rights owners.

One interesting comment made by a music industry executive is that, before the digital age, a consumer in a music store could expect to get personal attention from a salesman who would usually have in-depth knowledge about the repertoire available; however, now, the personal touch for the consumer is missing. While this is neither here nor there, it does amplify the changing music distribution models and value additions such as recommendation services, which can help improve music sales. Innovative mobile value added services can also stimulate impulse and sustained music purchases.

The digital age has resulted in the proliferation of uncompensated use of music and other types of content. However, by its very nature, digital technology has the ability to track each such use, and such tracking can lead to better monetisation. Factors such as the ease of availability of legitimate copyright works online, wide choice and reasonable pricing are all-important in converting non-compensating participants in the copyright industry into compensating participants. Co-operation among rights owners, collecting societies, ISPs and users is indispensable, and law and technology must meet in a meaningful manner so that all players benefit.
QUOTES

the music scene in India revolves around the original motion picture soundtrack (OST) and the incidence of non-film music is comparatively low.

Even music pirates can be heard complaining that their sales of pirated MP3 CDs have dropped because people can now download songs from the internet.

An ideal option that could address this issue is for the collecting societies to provide an online resource or ‘celestial jukebox’

APAC: JAPAN

Country Update for Japan by Hidehiro Mitani


HIDEHIRO MITANI has been an associate with TMI Associates since 2001. His practice areas include information technology, intellectual property and media, entertainment and sports. Hidehiro was educated in the law at the University of Tokyo, the Legal Training and Research Institute of the Supreme Court of Japan and the University of Washington School of Law. He is a member of the Daini Tokyo Bar Association and the Information Network LawAssociation

The Music Business
The volume of music CD sales in Japan is shrinking.  While the market was worth more than 569 billion yen (around US $5.6 billion) in 1999, it was worth only 296 billion yen (around $2.9 billion) in 2008. By contrast, during this same period, the amount of online music sales has been rapidly increasing.  There are two types of online music distribution.  One is music distribution for personal computers and another is music distribution for mobile (phone) devices.  However, the amount of online music distribution sales still amounts to only to 90 billion yen (around $900 million, which is too small to compensate for the plunge in the return on music CD sales during the past 10 years).

Several reasons for the decline in music sales have been considered: a decrease in the youth population; the advent of different hobbies; and the spread of cell phones, and so on.  However, when considering this decrease, the impact of the internet cannot be overstated. Before the internet was introduced, the main activity of music piracy was the selling of bootleg recordings (burned CDs or even dubbed tapes).  Most such bootlegs were imported from China or other Asian countries, and the shops dealing in such pirated goods were operated in back alleys.  Purchasing such bootlegs was not so popular in Japan and the amount of damage caused by such sales was limited. However, after the internet emerged, the scale of music piracy dramatically increased, as in other countries.  Internet users can download music files uploaded to the internet server so easily.  Internet users in Japan can share music files by using P2P software such as Winny, Share, etc., and from Japanese video-sharing sites such as Nico Nico Douga (which is the most popular in Japan), YouTube, Veoh, etc.  In addition, while it is common to use actual recordings for the ringtones of mobile devices in Japan, the number of websites distributing unauthorised music data for ringtones is expanding.

Researched estimates had the number of active P2P users in Japan at about 190,000, and the costs of music infringement occurring via P2P at about 5 billion yen (approx. US $50 million) or 440 million yen (approximately $4.4 million) per month in 2006 .  Of course, the scale of online copyright infringement has increased since then.

The Applicable Law
In Japan, copyright protection has been strengthened by amendments to the Copyright Act.  Copyright holders believe that aggressive enforcement through both civil suits and criminal proceedings is the best way to diminish the amount of copyright infringement occurring via the internet.

The Copyright Act of Japan provides authors the right to make public transmissions of their works, including enabling the electronic transmission of the work via interactive transmission.  Therefore, uploading the music files on to the internet server and making the file available for the other internet users via download is copyright infringement, whether the file is actually downloaded or not.  Yet downloading music files via P2P software is characterized as the unauthorised reproduction of the music and constitutes copyright infringement.  However, reproduction of a copyrighted work for private use is generally permissible under the Copyright Act.  Therefore, it has not been illegal to download music files using P2P software as long as the downloaded music is for private use.  The copyright holder cannot claim copyright infringement against a P2P user who only downloads music files.  This feature of the Copyright Act restricted copyright enforcement. Faced with this loophole, the Copyright Act was amended in 2009, the provisions due to come into effect on 1 January 2010.  The amendments provide a restriction upon the personal use exception.    Now, when a digital sound or visual recording is made by a person who knows that such recording is based on an interactive transmission that infringes a copyright (including an interactive transmission made outside Japan and would constitute copyright infringement if done in Japan), the reproduction of such music files will be regarded as the infringement of the reproduction right.  This amendment reflects the Japanese government policy to strengthen copyright protection.

The Copyright Act provides criminal sanctions for copyright infringement, just as other countries’ copyright laws do.  However, the difference of Japan from many other countries is that the Japanese Government places equal emphasis on criminal sanctions as well as civil sanctions, perhaps more than other countries do. The first criminal case for copyright infringement via P2P software occurred 2001.  Police arrested two college students committing copyright infringement using P2P software called WinMX.  This was the first case in the world according to an ACCS press release (ACCS provided assistance to the police investigation).  The arrestees were each fined 400,000 yen (around US $4,000).  The police have actively arrested copyright infringers who are using P2P software since then.

And as a next step, the police arrested and sought criminal charges against the developer of P2P software WINNY in 2004—the first and only criminal case in the world against a P2P software developer.  The charges were based on accomplice liability for copyright infringement.  The developer was prosecuted because he was regarded to have assisted the P2P software users to share the copyrighted works.  This case was controversial and triggered widespread debate.  While the developer was fined by the lower court in 2006, he was found not guilty by an appellate court in 2009.  The case is now before the Supreme Court of Japan, and a final decision is not expected to be handed down until 2010 at the earliest.

Forecast: Acceptance of Collective Licensing in Japan
Introduction of collective licensing at the ISP level may save the music industry, as well as reduce the struggle to prevent illegal online music distribution.  Collective licensing at the ISP level enables the collection of minimal fees from all internet users, whether or not they actually download music online, which is of course very profitable for the music industry.  However, a basic principle for royalty payments is that royalties should be charged based on the actual amount of use.  Collective licensing at the ISP level changes this principle and may be widely accepted in the limited situation in which online music piracy cannot be stopped. Collective licensing is the last option for the music industry.

However, such a situation cannot be said to yet exist Japan. First, as described above, policy toward copyright protection in Japan is straightforward:  strengthen the copyrights themselves.  Through government efforts, the idea that using P2P software may lead to criminal charges has become widespread in Japan.  Primarily, the main users of P2P software in Japan are limited to tech-savvy users and, as result, P2P software does not have as much popularity in Japan as in other countries.  Of course, the scale of the copyright infringement is not small at all.  However, since ordinary internet users fear criminal charges, they generally do not engage in filesharing; and, it is hard to convince such internet users to pay a royalty, even if most of them do not engage in using the P2P software. Second, for music distribution via mobile phones, cell phone carriers already charge the usage fees to users based on the volume of the titles downloaded.  As this system is already established and is working very well, a collective licensing system that charges the same amount to all users would likely not be accepted without a compelling reason. Last, the existence of video hosting websites, such as YouTube, should not be ignored and should be taken account of rather more.  Lacking the widespread use of P2P, the main field of copyright infringement for the music industry is through such websites.  However, in contrast to P2P, the ‘notice and take down’ process, which is similar to that of DMCA, is widely employed.  Music companies appear to spend a vast amount of human resources and budget on eliminating infringing material from those websites.

Of course, it is my hope that the music industry triumphs in the war against online piracy instead of abandoning the fight.  Yet, as described above, the music industry has a long way to go to reduce the amount of damage caused by online piracy.  However, collective licensing at the ISP level will not be introduced in Japan for a while.  Rather, a ‘wait and see’ approach will be taken, to evaluate the effect of measures taken by the music industry to diminish online music piracy.

Footnotes:
1. According to the Nihon Record Kyokai (Recording Association of Japan).
2. According to the Japanese Society for Rights of Authors, Composers and Publishers (JASRAC) and the Association of Copyright for Computer Software (ACCS).

APAC: KOREA

Country Update for Korea by Won H. Cho

WON H. CHO has no bio at present.

Introduction
Although the music market in the Republic of Korea (South Korea) expanded dramatically in 2007 with the growth of BGM (background music), sales of mobile music service providers or content providers that furnish ringtones or ring-back tones decreased a bit or flattened out. The sales of traditional physical media like CDs sharply shrank, by 21%, between 2001 and 2007, accounting for 16% of the music industry in the latter year. Recently, many internet users operating their own blogs, mini-homepages and the like have provided background music for other internet users visiting their blogs. This trend contributed to the expansion of the BGM market. In 2007 the BGM market accounted for about 30% of the total internet music market.

Music piracy has been fuelled by the internet, which makes consumers get more interested in online music. The various digital technologies to make duplication and distribution much easier, such as MP3, download and streaming, caused and accelerated the widespread distribution of pirated music. The fact that people may not distinguish illegally copied music from the original also caused music piracy to increase. Although we have no statistics about piracy levels before and after the internet, it is obvious that music piracy has increased remarkably since the internet in Korea.

The number of subscribers of high-speed internet per 100 people is 31.2 persons (15,059,029 in total), the seventh highest among OECD countries (according to OECD broadband statistics, June 2008). Downloads and streams of online music via high-speed internet network is widespread in Korea. The question whether access to music online should be monetised is controversial. One of the major streaming service providers, Bugs Music, started charging a fee in 2006, and so did Soribada, the biggest Korean P2P service provider in that year. In addition, the Korean Association of Phonogram Producers and the Digital Contents Network Association agreed to monetise the web storage services. As of now, most music service providers provide paid download/streaming music services to personal computers or mobile phones through their internet websites. The mobile telecoms carriers provide download services for digital music through the channels of Melon, Dosirak and Music-on. Streaming and downloading to MP3 players and mobile phones are both popular in Korea. Download services for personal computers are also provided, which allows people to listen to the music in their MP3 players or mobile phones through side-loading. It is expected that the mobile music services will become the stronger distribution channel of music in Korea in the future, with the development of 3G services, such as WCDMA and Wibro.

The Applicable Law
The Copyright Act and the Act for the Development of Online Digital Contents Industry (ADODCI) regulate the online or mobile distribution of downloads or streams of music. Under the Copyright Act, if the copyrighted contents are distributed online or through a mobile without any proper licence, such distribution constitutes infringement on the copyright, and the infringer will be subject to injunction or to damages in a civil case (sections 123 and 125) or will be prosecuted criminally (section 136). Under ADOCDI, having a negative impact on competitors’ operating profit by duplicating or distributing partly or wholly the online contents manufactured by them is prohibited, and will result in damages (sections 18 and 19). We expect more intensified restriction on online or mobile distribution of music in order to protect copyright.

Korea has signed many international treaties, including the Universal Copyrights Convention (effective from 1 October 1987), the Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonogram (10 October 1987), the Berne Convention (21 September 1996), the WIPO Copyright Treaty (24 June 2004) and Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS—1 January 1995), so such international treaties are also applicable in Korea.

The Copyright Act tends to be revised often to protect copyrights. The recent revision imposed on the online service provider (OSP) such as webhard and the P2P service more responsibilities (sections 102 or 105); it strengthened the authority of the supervisory office with an immediate stop order power (section 133) and the ability to prosecute without a complaint (section 140). In addition, it established the strike-out system for frequent infringers (section 133-2). We would like to elaborate on the responsibility of the OSP and on the strike-out system below.
Sections 102 and 103 of the Copyright Act provide an OSP with safe harbour on copyright infringement, while section 104 regulates the obligations of a ‘Special Type OSP’ (S-OSP). We provide below summaries of sections 102–04 for reference.

Section 102 provides that once an OSP becomes aware that copyright and other rights protected under the Act are being infringed due to reproduction or transmission of the works, etc., by other persons, and the OSP prevents or suspends the reproduction or transmission of the works, etc., at issue, the OSP’s liability for the infringement of the copyright or other rights of other persons may be mitigated or exempted.

The section further provides that if the OSP that became aware of infringement of copyright and other rights protected under the Act due to reproduction or transmission of the works, etc., by other persons, tries to prevent or suspend the reproduction and transmission of the works, but such prevention or suspension is technically impossible, then the OSP shall be exempt from liability for the infringement.

Section 103, paragraphs (1) and (2), provides that a person who asserts that his copyright and other rights protected under the Copyright Act are infringed due to the reproduction or transmission of works, etc., through the use of services provided by an OSP, may demand of the OSP, with proof of such facts, the suspension of the reproduction or transmission of the works, etc. And, upon obtaining such demand for the suspension of the reproduction or transmission, an OSP must promptly do so, notifying the person who reproduces or transmits the works at issue, as well as the person claiming the copyright or other right, about the suspension.

Paragraph (3) further provides that if the reproducer or transmitter that received the notification from an OSP provides proof that his reproduction or transmission is based upon lawful rights, and demands recommencement of such reproduction or transmission, the OSP must promptly notify the person asserting the copyright or other rights of the reproducer or transmitter’s demand and the scheduled date of recommencement, and allow the reproduction or transmission to resume on said date.
Paragraph (4) of section 103 provides that an OSP must designate a person who will be responsible for receiving a demand for the suspension (from the person allegedly holding rights) or recommencement (from the person reproducing or transmitting) of the reproduction or transmission and for its resumption under paragraphs (1) and (3). Public notice must be made of such an employee, so that end users or others who use the OSP’s facilities or services can readily identify the designated person.

The next paragraph provides that if an OSP has given public notice of a designated person under paragraph (4), and has suspended or recommenced the reproduction or transmission of relevant works, etc., under paragraphs (2) and (3), then the OSP’s responsibility for the infringement on the other persons’ copyrights and other rights protected under the Copyright Act, and the responsibility of the OSP for the losses incurred by the reproducer or transmitter, may be mitigated or exempted. However, this mitigation or exemption is unavailable to any liability or responsibility of an OSP that arose from the time that the OSP knew of the infringement of a copyright and other rights protected under this Act due to the reproduction or transmission of works, etc., by other persons to the time that a person demanded the suspension of such reproduction or transmission under paragraph (1).

Paragraph (6) of section 103 provides that any person who demands the suspension or recommencement of the reproduction or transmission of relevant works, etc., under paragraphs (1) and (3) without any lawful rights shall compensate the counter-party, the rights assertor or the reproducer/transmitter for any losses incurred due to the unlawful demand.

Section 104 governs the obligation of an S-OSP to take technical measures to prevent the illegal transmission of copyrighted material. Four types of S-OSP were identified by the Minister of Culture, Sports and Tourism (MCST) and subjected to Section 104: an OSP that provides commercial compensation or benefit to anyone who uploads any copyrighted material contained in any person’s or entity’s computer, etc., for use by the public; an OSP that maintains a business in a way to provide a function that allows the downloading of any copyrighted material contained in any person’s or entity’s computer, etc., for certain payment made by the downloading person; an OSP that obtains commercial gain by providing a function based upon P2P technology for the uploading or downloading of any copyrighted material contained in any person’s or entity’s computer, etc.; or an OSP the major service of which is to provide programs that allow the search for and transmission of any copyrighted material contained in any person’s or entity’s computer, etc.

In addition, paragraph (1) of section 133-2 provides that if illegal reproductions are transmitted through the means of information and communications network, the MCST may order the relevant OSP to: (i) give a warning notice to reproducer and/or transmitter of the reproduction and/or (ii) delete or stop the transmission of the reproduction. Further, paragraph (2) provides that if the MCST finds that a reproducer and/or transmitter, who has already been given the warning notice more than three times, continues such transmission, then the MCST may order the OSP to suspend his account, for a period designated as less than six months. Similarly, paragraph (4) provides that if the MCST finds that an online bulletin board, which had already received the warning notice more than three times, continues to disturb public order, such as copyright, the MCST may order the OSP to suspend the account related to illegal reproduction and/or transmission, for a period designated as less than six months.

The case law is also important, and two important cases are cited here. First, on 23 September 2008, in the Seoul High Court (2007na70720), the plaintiff was a composer as well as a lyrics writer of Korean popular songs. He made a copyright trust contract with Korea Music Copyright Association that was terminated on 6 April 2004. The plaintiff contended that the defendants transformed and stored his songs in the format of digital compressed files such as asf, box, and mmf on their servers, and that they offered the songs to the users of their music sites without his permission. The plaintiff demanded damages for their infringement on moral right. The court held that if the operators of the music sites or the providers of the music services carve out, excerpt or transform the original songs for the use of ringtones, ring-back tones or sample music, they infringe on moral right. The court held that it cannot be said that the business needs to change the songs for the services alone makes the exception under the old Copyright Act—in section 13(2)(iii)—applicable, which allows the service providers to transform the original without permission, and that even in the situation where there is an appropriate business need, the copyright holders should agree to the service time of sample music for the prospective consumers, and which part of the songs and how long to provide for ringtones and ring-back tones.

The second case was in the Seoul Central District Court on 5 August 2008 (2008Kahap968). The plaintiffs, the movie makers, filed a suit for preliminary injunction against the defendants, web storage service providers. Internet users uploaded illegal movie files on the web storage operated by the defendants. In this case, the issue regarding the upload/download by internet users was dealt with. The court held that the upload/download of movie files to web storage or personal computers by internet users without permission of copyright owners constituted copyright infringement. While the defendants argued the fair use doctrine, the court held that as long as the movie files were illegally uploaded, the download of such files could not fall in the scope of fair use, and thus constituted copyright infringement.

The distribution of illegally duplicated music is socio-economically problematic, since it will discourage creators. The copyright protection for music is one of the hot issues in international society. Therefore, the Korean Government keeps improving related regulations in alignment with other countries in order to curb the online or mobile distribution of pirated music.

Conclusions
I am of opinion that, while collective licensing is not a right approach, it could be an inevitable alternative for the present. The main reason is because it is actually and technically impossible to prohibit illegal download and filesharing. If illegal download and filesharing was differently placed in the framework of the law and could be regulated pursuant to laws and agreements, the illegal download and filesharing music market would decrease. That would cause the copyright owners to make more profits. I think that regulation against illegal download and filesharing should start from regulation of the OSPs. It is not practically impossible to find out and file suits against internet users doing illegal downloading and filesharing. So, the Government should induce the OSPs to develop and adopt systems that prohibit illegal downloading and filesharing to the extent of technical feasibility. It should take the necessary steps to protect copyright, such as notice to a copyright owner and deletion of files. The recent revision of the Copyright Act also focused on the responsibility of the OSPs.

According to those who argue against collective licensing, filesharing programs such as P2P are themselves illegal. Thus, they think that collective licensing is indulgent of illegality. Further, they think that because subscription fees for collective licensing that are paid by users are small, considering the number of downloaded or shared files and the number of relevant copyrights and neighbouring rights, the profits that can be made by copyright owners will be also small.

In Korea, we expect the continuing development of copyright law to keep up with the advance of technology and to cure its side effects. This development will further the fair use of copyrighted works, as well as their protection, which, we believe, fits the objectives of the copyright laws (Copyright Act, section 2) and works out a win-win solution for the consumers and for the service providers.

APAC: NEW ZEALAND

County Update for New Zealand by Mick Sinclair


MICK SINCLAIR, principal at Sinclair Black, Barristers and Solicitors, has practised as an entertainment lawyer in Auckland for the past 20 years. Sinclair Black represents a number of producers and creatives in film and television, performing arts, publishing and music, as well as organisations involved in sports, events and the gaming industry. Mick is presently on the Board of the Comedy Festival and the Going West Literary Festival; he is a past board member of Black Grace and the Moving Image Centre.

The Music Industry
Although New Zealand’s population is only 4.27 million, it ranks 26th in the world on a market-sized comparison of music industries. In general, the music industry in New Zealand mirrors trends in the music industry worldwide. Retail sales of CDs are and have been in decline for the past five years, whereas digital downloads (both legal and illegal) have increased. However, the decline in revenue from physical sales is not offset by the small rise in sales of digital media. Partly as a result, a number of major labels have transferred most of their operations offshore (particularly to Australia), but touring and publishing have enjoyed a renewed focus.

As with a number of developed countries, pressure from rights holders has resulted in legislative attempts to regulate and protect creative content online. Earlier this year, a government bill that effectively required ISPs to terminate the accounts of users who repeatedly infringed copyright in appropriate circumstances attracted controversy. The bill did not become legislation, and amendments have been made that allow for alleged offenders to be heard. There is little doubt, however, that in the near future there will be an ‘anti-pirate’ clause amending the present New Zealand Copyright Act—mainly because the United States will require this provision in New Zealand’s IP legislation before it will agree to a free trade agreement with the country.

Given New Zealand’s relative isolation and its small but disbursed English-speaking and relatively well-educated population; it is obvious that digital distribution will continue to be a major component of the New Zealand music industry in the future.

The Applicable Law
New Zealand’s copyright law and related IP legislation have traditionally tended to follow that of the United Kingdom. As such, our Copyright Act 1994 is generally similar to the UK Copyright Design and Patents Act 1988. While there have been actions brought on behalf of rights holders against physical counterfeiters of CDs and DVDs, and border interventions against importing infringing items; there has been no collective action on the part of rights holders against parties involved in unlawful P2P filesharing.

In line with a number of other Western jurisdictions, rights holders have pressured the Government in New Zealand to combat unauthorised downloading of music by legislating for ISP responsibility. Earlier in 2009, an amending bill to the Copyright Act potentially required ISPs to adopt and implement a policy that provided for terminating ‘in appropriate circumstances’ the accounts of those users who have repeatedly downloaded infringing material, in exchange for providing ISPs with a level of immunity from liability. The wording of this amendment was controversial—mainly because the drafting required ISPs to terminate accounts of repeat infringers upon a mere allegation and, further, did not provide alleged offenders with the opportunity to refute the charges.

Rather than passing the bill into law, the Government recently considered further submissions by way of a review of the proposed amendments. The Ministry of Economic Development has now created a proposal document, upon which submissions have been invited by interested parties. The present proposal involves a notice system, whereby a first infringement notice is issued to an alleged offender, followed by a ‘cease and desist’ notice for a further infringement and, finally, the right for a copyright owner to apply to the Copyright Tribunal, which would have sufficient authority to make orders terminating the ISP account of a person found to have infringed copyright.

The Future of the Music Business
In a year that many regard as the 40th anniversary since the internet began, there are few obvious alternatives to online dissemination of music. Certainly the digital era has been embraced by both New Zealand music creators and consumers. This is unsurprising given a relatively computer-literate society, a location remote from the major music markets and a population that is increasingly diversified by immigration. Interestingly, some of the new business models and music subscription services that have been launched in Europe and North America have been slow to be released and gain traction in New Zealand, although the telecommunications companies have been quick to establish download platforms. The present trend has gone beyond à la carte download sales—i.e. legitimate online music stores—to increasing initiatives bundling ISP and mobile phone subscriptions with music access.

The New Zealand Government has always provided state support within the creative sector (although, inevitably, such support is less than the expectations) and has recently announced digital strategies that should see enhanced broadband access for urban and particularly rural areas. Local collection societies have recognisable counterparts in most overseas countries. APRA, AMCOS and PPNZ are responsible for administering recordings and publishing royalties, and for granting licences. In the past, blanket licences have been granted for music use in fields such as television broadcast, but in recent years the incidence of blanket licence would appear to be on the wane. In part this may be due to the difficulty of administering and controlling online licensing.

As said, the New Zealand Government will incorporate an ‘anti-pirate’ clause into its copyright regime in the near future. The usual balancing act between competing rights (and online access to the internet must already be regarded as a civil right) will likely result in some form of notice and hearing before repeat infringers are totally denied internet access. In practical terms, adopting aspects of natural justice into this procedure will cause delays and bottlenecks. There is also a distinct possibility that the more sophisticated infringers will utilise technology to evade the notice provisions or to escape identification—resulting in small-time infringers rather than the major players being caught.

Collective Licensing
Collective licensing would appear to offer some attractive alternatives to online music piracy. First, it at least provides for some form of monetisation of music by way of compensation for artists and copyright holders. Further, there is anecdotal evidence suggesting that a high percentage of current filesharing infringers would accept a licence fee by way of legitimising music acquisition, therefore reverting back to their normal status of law-abiding citizens. It seems likely that the near future will see a significant growth in subscription-based services giving consumers unfettered access to huge libraries of recorded tracks.

Although the reality of a small market suggests that New Zealand’s musicians and performers will need to look to Australia, Europe and North America for a lasting commercial future, the local market will continue to embrace the internet not only as a means of music distribution, but also as an immediate source of information, promotion and publicity for the music industry. The relative lack of funding in New Zealand for technology and for research and development may well preclude much initiative here as regards business models for collective licensing; and there is a consequent tendency to monitor overseas initiatives before introducing them to the New Zealand market. However, once introduced, a small but computer-literate society with English as its principal language has tended to adopt and utilise new technology and media quickly. Some allied industries, particularly the film industry, have tended to use New Zealand as a test market accordingly.

APAC: SINGAPORE

Country Update for Singapore by Joyce A. Tan and Cynthia Zhang


JOYCE TAN is the managing partner of Joyce A. Tan & Partners, which was founded in 1998 and is based in Singapore. It is a specialist firm, its areas of practice being intellectual property, information technology, info-communications, media and entertainment, and corporate and commercial. Before forming her own partnership, Joyce was at Khattar Wong & Partners. She is a graduate of the National University of Singapore and is an accredited lawyer (solicitor) in both Singapore and the United Kingdom (England and Wales).
CYNTHIA ZHANG is without a bio.

The Music Business in Singapore
Music retail in Singapore has evolved with the widespread access to and use of the internet. While sales of physical-format music—records, CDs and even cassette tapes—are still ongoing, consumers are turning to different avenues, including the internet, to purchase music. For instance, music streamed from the internet, websites set up by artists and fans of artists alike, and other music streaming services have been made available to internet users on the basis of ‘sampling’ by potential fans and consumers before they commit to buying whole music albums or compilations; the music is, thus, ‘free-to-try’. Such services also include music track downloads, with usually one or two free tracks being made available in order to entice listeners to buy entire albums. In addition, websites now offer music for sale on a track-by-track basis, meaning that a consumer is able to buy as many or as few tracks as they want from one single album, thus creating a more personalised retail experience.

Music piracy in Singapore before the internet largely took the form of physical-format music piracy, where music CDs were ‘burned’ or ‘ripped’ on to CD-Rs or CD-RWs and exchanged between consumers or sold cheaply at brick-and-mortar establishments, or even night markets or makeshift vendor stalls. This included digitised music stored by compressing each music file into low-quality files such that each burned CD could store numerous songs at any one point of time.

Today, the internet in Singapore is not just accessible, but widespread, with household broadband connection and continually widening coverage of public wireless access. In 2008, 80% of Singapore households had access to a computer while 76% had access to the internet at home; 70% of internet users over 15 years of age used the internet as a communication tool, while 39% used it for leisure activities including downloading and listening to online music. Mobile phone penetration exceeded 131% and the home broadband penetration rate exceeded 99.9%, while the number of broadband subscribers stood at 4,715,900.1 The second point about the situation in Singapore today is that the computer and internet-savvy population provides a ready base and audience for music downloads and streams, which has led to issues of music piracy, as well as piracy of other digital media and entertainment. This has impacted on the physical-format music industry, as illustrated by the 9.3% drop in Asia’s physical music distribution market in 2008, the biggest drop in the entertainment and media industry in five years.2 Thirdly, the recent AC Nielson report of 6 January 2009, which did not distinguish between users engaging in legal or illegally obtained media, reported that in Singapore the most common digital content streamed and downloaded was music or other audio tracks/files. The online survey found that 59% of Singapore respondents had streamed, on average, four music or audio files in the past month, while 35% had downloaded more than two music or audio files.3 Finally, that said, a January 2007 survey by the International Chamber of Commerce addressing the best and worst performing countries in addressing IP piracy and counterfeiting, ranked Singapore among the top 10 best performers.4

There are there points to consider about the illegal distribution of digital music files. First, the Recording Industry Association (Singapore), or RIAS, was formed in 1976 as the Singapore Phonogram Association, with the objective of fostering and maintaining trade ethics and fair business practice within members of the music industry and to serve as the music industry’s voice both locally and internationally. RIAS estimates that pirate sales in Singapore amounted to a value of S $7 million in 2002.5 Second, in an unreported decision of February 2006, two Singaporean internet users were convicted for illegally distributing hundreds of MP3 music files to other internet users, under section 136(3)(b) of the Singapore Copyright Act (cap. 63). That same year, RIAS filed 33 criminal complaints against individuals alleged to have been involved in illegal filesharing of music, involving peer-to-peer, or P2P, programmes in international networks. These complaints marked the inaugural expansion of the campaign against illegal file-sharing in South-East Asia.6 Third, in October 2008 it was reported by the Straits Times that the police, acting on complaints by RIAS, had raided the homes of several music downloaders and seized their computers. In that month RIAS reported 25 new cases of illegal music filesharing to the police.

Downloading music and accessing streams of music online using personal computers is common in Singapore. This is especially so because the total household broadband penetration rate in Singapore stands at 94.3%, while 97% of Singaporeans own a personal computer, according to the AC Nielson report of January 2009. Ease of access to the internet, speedy connections and island-wide hotspots of free wireless internet have made accessing music online a widespread practice in Singapore.

The monetisation of music downloads and streams depends largely on the music host website. Singaporeans are able to access almost all websites available on the worldwide web—web content is not usually blocked or filtered for Singapore access to the extent that it is neither offensive nor undesirable. As such, internationally based and hosted web content, weblogs, filesharing sites and even internet music streaming sites are accessible by Singapore internet users. Music download websites that accept international credit cards are also virtually patronised by Singapore internet users.

We shall now consider the offerings of music for sale, then music for free. There have not been many locally based online sources from which Singapore users could purchase music. Soundbuzz was launched in 1999 as one of the first few legitimate online music sources in Singapore. However, it has since shut down, after being bought by Motorola in 2008. The demise of Soundbuzz could have been partly brought about by its struggle to keep up with other telecommunication giants in the industry, which have since started offering music services from online music stores or mobile handsets for sale bundled with the right to download songs for a specified period of time. Customers would then be free to keep all the music downloaded. However, such schemes were only available with purchase of a mobile handset, and not available for use with handsets from other brands, or without handsets at all. Today, the Singapore market has seen little expansion with regard to online music sources, save for a few international giants, which have started to offer online sales of their music that were not available in Singapore just a few short years before.

There is also music available ‘for free’. Singapore users who are able to—and in fact do—access websites of internationally hosted music streams or file downloads without paying any fee, do not typically direct their minds to the legality or illegality of such services. Paid advertisements on websites hosting free music streams and downloads belie the fact that such provision of music is in fact monetised. Online banner or audio advertisements are a viable source of monetisation that allows users to enjoy free music while ensuring that music artists and producers are paid. It is apparent that some online music hosts are beginning to realise that seeking payment from end users for music downloads might well be counterproductive, as end users turn to free, even if illegal, sources of online music. This is certainly so in Singapore, where the prevailing ethos among consumers of online music does not include an expectation to pay for such music, and where a significant proportion of users are not attuned to the potentially illegal nature of unauthorised music downloads, in the face of freely available downloadable music content.

In addition in Singapore, the use of mobile devices to listen to music is widespread; in particular, users enjoy music ‘on the go’ through the use of mobile phones and portable music players. This fact can lead on to the issue of side-loading, which involves the transfer of data between two locally situated devices, typically between a computer and a mobile device such as a mobile phone or portable music player. Side-loading is common practice among music listeners in Singapore. This often entails a listener ‘ripping’ the musical contents of a music CD on to a computer before side-loading the musical contents on to a portable music player. Alternatively, music files may be downloaded (legally or otherwise) on to a computer, and then side-loaded into the portable music player.

However, what about fair dealing? An issue that has arisen in relation to side-loading concerns the following scenario. A music listener purchases a music CD and subsequently rips the songs (frequently, 100% of the content) as digitised MP3 content on to a computer, before transferring the files into a portable music player for personal enjoyment and use. Despite arguments that the reproduction involved in the above scenario is a form of copyright infringement not saved by the ‘fair dealing’ provisions of the Copyright Act in Singapore, local academics have argued otherwise, that this would in fact be legitimate fair dealing on the basis that a person who purchases a legitimate music CD and then copied it into a portable music player would in fact be privately copying work for ‘format shifting’,7 similar in concept with ‘time shifting’, where one records a broadcast to view or listen to at a more convenient time, qualifying it as permitted ‘recording broadcast for private and domestic use’, in accordance with section 114 of the Copyright Act.

Current indications do not appear to point to side-loading practices being significantly overtaken by the use of downloading or streaming services, or vice versa. At it stands, both forms appear to serve their own purposes, the choice of either perhaps being dictated by the available music content for the desired selection of users in the circumstances at hand.

The Applicable Law
Singapore’s copyright law, which applies to music, is embodied in the Copyright Act (see above) and includes provisions reflecting Singapore’s commitment to various copyright-relevant international conventions and bilateral treaties that the country has entered into. As a member of the World Trade Organization (WTO) and of the World Intellectual Property Organization (WIPO), Singapore provides intellectual property protection in accordance with the minimum standards set out in the Agreement on Trade-Related Intellectual Property Rights (TRIPS). In addition, Singapore has acceded to the Berne Convention for the Protection of Literary and Artistic Works (1971 Act). Accordingly, original works of residents or citizens of, or that were first published in, any other WTO country or any of the other signatory countries to the Berne Convention would enjoy copyright protection in Singapore as if they were the original works of Singapore residents or citizens or were first published in Singapore (see below).

The Copyright Act recognises nine categories of works covered by copyright protection, divided into two groups: authors’ works or works comprising literary, dramatic, musical and artistic works; and entrepreneurial works or ‘subject matter other than works’, comprising sound recordings,8 cinematographic films, television broadcast and sound broadcasts, cable programmes and published editions of works. The subject matter of the copyright work must satisfy the protection criteria under the Copyright Act. The work must be ‘connected’ to Singapore (or the other WTO or Berne Convention countries), whereby the author of an unpublished work must be a ‘qualified person’ (i.e. a Singapore citizen or resident)9 and the author of a published work must have had the first publication of the work take place in Singapore (or the author must be a citizen or resident at the time of first publication). Other protection criteria include the work having to exist in some material form, to comply with the ‘fixation’ requirement provided for in section 2(2) of the Berne Convention, and the work having to be ‘original’, as further discussed below.

Under the structure of the Copyright Act a song would contain two distinct subject matters in relation to copyright—the musical work, in the arrangement of musical notes, and the literary work in the lyrics—so that where the copyright in these two subject matters arise from two separate sources, two separate licences would have to be obtained from those two sources for there to be a proper right of use of the song. Further, when a song is contained in a digital format and hosted on the internet for users to download, it would contain three copyright subject matters—the musical work, the literary work and the sound recording—so that only when licences for all three subject matters have been obtained would a digital sound recording made available for download on the internet be properly licensed.

Prior to 2004, the Copyright Act had only criminalised commercial activities of copyright infringement. With the January 2004 amendments to the Copyright Act and the introduction of the new section 136(3A), wilful infringement of the copyright in a work was made an offence in Singapore if only either (or both) of two conditions was (or were) met—the infringement is significant and the infringing act was done to obtain a commercial advantage—whereby a person convicted of such infringement would be liable to a fine of not more than S $20,000 or to imprisonment for a term of not more than six months or to both. In the case of a second or subsequent conviction, a person would be liable to a fine of not more than $50,000 or to imprisonment for a term of not more than three years or to both.

In respect of the above conditions, although the Copyright Act does not expressly define when an infringement is considered ‘significant’, it sets out the factors that the court might consider when deciding whether the extent of infringement is ‘significant’, namely: the volume of articles that are infringing copies; the value of the articles that are infringing copies; whether the infringement has a substantial prejudicial impact on the owner of the copyright; and all other relevant matters. Furthermore, the Copyright Act expressly provides that a person is deemed to obtain ‘commercial advantage’ if ‘the act is done to obtain a direct advantage, benefit or financial gain for a business or trade carried on by him’.

Interestingly, in having occasion to consider the applicability of the above provision of the Copyright Act, the court in Odex Pte Ltd v. Pacific Internet Ltd [2008] SLR 18, quoted the statement of the Singapore Minister of Law in the parliamentary proceedings during which the provision was discussed before enactment, that the provision was

‘not intended to catch a person who commits an infringement by occasionally downloading an article of song from the internet for his own personal enjoyment.’10

on the subject of radio streaming, following amendments to the Copyright Act in December 2008, the Recording Industry Performance Singapore (RIPS), a collective licensing body of 13 record companies that issues licences to broadcast music, requested Singapore radio broadcasters to pay an annual licensing fee if they wanted to continue providing radio streaming services over the internet.11 Previously, radio stations were exempt from paying record companies when providing such services. Notably, internet radio station streaming of the three main radio broadcasters in Singapore, MediaCorp, Safra Radio and SPH UnionWorks, ceased as of March 2009, owing to unresolved negotiations with RIPS for licence payment of royalties to record companies.

Case law has added to interpretation of the copyright provisions in Singapore. The concept of ‘originality’, as mentioned above, is not defined in the Copyright Act. Singapore case law provides guidelines in determining the ‘originality’ of works.

Flamelite (S) Pte Ltd v. Lam Heng Chung [2001] 4 SLR 557 states clearly that an original work does not necessitate originality of ideas or thoughts but rather the form in which the work is expressed, which is consistent with the international standard on the matter as evinced by article 9(2) of TRIPS, providing that copyright ‘protection shall extend to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such’.

Originality also does not mean novelty, uniqueness nor inventiveness, according to Auvi TM [1992] 1 SLR 639. The High Court in this case stressed that for copyright purposes, the originality threshold is a relatively low one.

The expression of an author’s work is original if the author has created it and has not copied it from another, and if he has expended towards its creation a substantial amount of skill and labour, although the exact amount of skill and labour expended cannot be precisely defined, as set out in Auvi TM at 648.

Where an author has made use of an existing subject matter (source material) in the creation of his own work, his own work is original if sufficient skill, labour or judgement was expended, and an element of material alteration existed, which makes the entirety of his own work different from the existing subject-matter (derivative work). This was discussed in Real Electronics Industries Singapore (Pte) Ltd v. Nimrod Engineering Pte Ltd [1996] 1 SLR 336 and Virtual Map (Singapore) Pte Ltd v. Suncool International Pte Ltd [2005] 2 SLR 157.

The fact that a derivative work infringes the copyright in the source material does not impact on the question whether the derivative work is original, as stated in obiter dictum in Virtual Map.

Last, in cases involving fact-based works, any inquiries as to originality are focused on whether sufficient skill, labour and judgement were involved in the selection and arrangement of facts, as provided in Virtual Map.

Case law involving online music distribution starts, as mentioned above, with the unreported decision in 2006 in the prosecution of two copyright infringers who had distributed numerous music files over the internet. The police found a total of about 2,000 music files in their personal computers, which had been stored with the intention of online distribution through an the internet chat programme, Internet Relay Chat (IRC). The perpetrators were jailed for four months and three months, respectively.

The identity of downloaders is another issue important to the development of case law. In the recent case of Odex Pte Ltd v. Pacific Internet Ltd [2008] SLR 18 (see above), the Singapore High Court was faced with an application by a distributor of anime programmes, to compel an ISP in pre-action discovery, to provide the identity of its subscribers, whose Internet Protocol addresses had been tracked through patented technology and found to have engaged in unauthorised uploading and downloading of anime video titles. In disallowing the application, the High Court held that: only copyright owners and exclusive licensees had the locus standi and the right to take action against copyright infringers; and an extremely strong prima facie case of wrongdoing had to be established, before a pre-action discovery application for the disclosure of subscriber identity would be allowed.

How do we believe that the law will develop, given the socio-economic and political climate in Singapore? Singapore recognises that economic growth and development is strongly tied to intellectual property protection, and is very willing and committed to support effective criminal actions against piracy.12 However, it is virtually impossible to wipe out music piracy, particularly since, with the availability of online distribution, it is no longer dependent on the existence of multiple physical media in the form of albums, cassettes or CDs, which are more easily identifiable in bulk, and pirated material can sojourn through multiple jurisdictions without physical media needing to pass through border controls.

Singapore’s internet-savvy music-listeners have apparently become accustomed to the idea of ‘free’ music, so that unless copyright laws in Singapore are rigidly enforced, the average internet user would likely not think twice before downloading ‘free’ music off the internet. The prevailing mentality seems to be that of ‘I won’t get caught’ or ‘It isn’t a big deal’. Internet users and music listeners who are in their late teens to 20s can be said to be especially resilient to purchasing digital-format music. This group of consumers have grown up in an age where online filesharing is the norm and free and instant gratification is made possible in the borderless realm of the internet; it is possible that music piracy, by any other name, does not seem to be a serious crime in their eyes. Indeed, it is perhaps telling that in the parliamentary discussion of the amendment to the Copyright Act to criminalise wilful copyright infringement, the Minister of Law made clear the intention not

‘to catch a person who commits an infringement by occasionally downloading an article of song from the internet for his own personal enjoyment’

The Intellectual Property Rights Branch (IPRB), as part of the Criminal Investigation Department of the police in Singapore, acts on complaints from RIAS and the music industry. Not all these investigations lead to criminal convictions. In fact, the IPRB in July 2009 informed the music industry that it would not commence action against the complainants, recommending instead ‘collaborative enforcement’ as the best form of action to take.13 The IPRB has since confirmed that it would advise the recording industry to commence private prosecution or civil proceedings against infringers.14

Conclusions
Collective licensing in Singapore is managed by a few key collective management organisations formed or appointed by copyright holders in order to manage the rights in their copyright works. These collective management organisations administer the licensing of rights, collection of royalties and enforcement of rights on behalf of the copyright holders they represent. Collective management organisations also act as a main contact point between copyright holders and users, even with copyright holders who are not members of the organisations. They are usually structured as non-profit entities, in which, after deducting an administration fee, the rest of the licence fees collected are distributed back to the copyright owners.

The following represent the three main collective management organisations in Singapore.

RIPS is a collective licensing body in Singapore, empowered to exercise the rights of record companies with respect to: the public performance of karaoke and/or music videos; reproduction of sound recordings on to computerised or other storage systems; and MPEG layer 3 or 4 (or MP3 or MP4) licences—in which the copyright is owned or controlled by the record companies represented by RIPS to grant the requisite licenses.

COMPASS, Composers and Authors of Singapore Ltd, is a non-profit company that deals specifically with music copyright and the usage of musical works, including the making available of a work (on a network or otherwise) and reproduction rights in music. By virtue of reciprocal agreements with many other similar music copyright organisations around the world, COMPASS protects a wide selection of works by numerous songwriters and composers worldwide.

The Music Publishers (Singapore) Ltd (MPS), incorporated in 1989, is an association comprising 12 music publishing companies, controlling a large volume of music copyright in Singapore. Its principal activity is to act as a representative of the music publishers, including in particular: lawfully promoting and protecting the interests of the music publishers and other musical copyright owners of Singapore, and all music publishers in general; diffusing among its members information on all matters that affect the business of music publishers; and exercising and enforcing on behalf of its members and their composers all rights and remedies subsisting under the law of copyright in Singapore.

Collective management organisations in Singapore serve as a reliable non-profit, non-commercial conduit for music publishing companies to enforce their rights, whenever needed, in a more efficient and concise manner. This is especially so in a small country like Singapore, where home-grown talent often find it impossible continually to identify and monitor the use of their music by both individuals and establishments. Taking into account the difficulties created by foreign usage and the need to negotiate tariffs and licence fees, collective management organisations are better placed to carry out the necessary actions that would lead to cost savings and higher returns to the rightful owners of the copyright.

It would appear that, based on the observations above, enforcing copyright against music piracy and ensuring authorised use and proper licensing of music in Singapore, including the cultivation of greater awareness of the rights of music owners and producers, would be largely left to and would need to be practically driven by the efforts of copyright owners themselves. To this extent, we are of the view that collective licensing and the associated programmes and activities of collective management organisations provide a significant opportunity in such efforts by copyright owners, within the framework of internationally compliant copyright law in Singapore.

Footnotes:
1. Infocomm Development Authority of Singapore, Annual Report 2008/09.
2. ‘Battling Music Piracy in Asia’, in the Straits Times, 3 July 2009.
3. AC Nielsen, ‘Singapore Ranks Second in the World as the Country with the Highest Ownership and Usage of Media Technology’ (www.sg.nielson/com/site/20090106.htm).
4. Global Survey on Counterfeiting and Piracy (29 January 2007), issued by Business Action to Stop Counterfeiting and Piracy, an initiative by the International Chamber of Commerce.
5. RIAS website, www.rias.org.sg/piracy.html.
6. International Federation of the Phonographic Industry, breakdown of legal cases against illegal filesharing, www.ifp.org/content/section_news/20060404a.html.
7. Law of Intellectual Property of Singapore, Ng-Loy Wee Loon, 2008, paragraph 11.3.23.
8. Defined as meaning the aggregate of the sounds embodied in a disc, tape, paper or other device in which sounds are embodied; section 7(1) of the Copyright Act, see definitions of ‘sound recording’ and ‘record’.
9. Section 27(1) of the Copyright Act.
10. Odex Pte Ltd v. Pacific Internet Ltd [2008] SLR 18, at paragraph 74.
11. Channelnewsasia.com, 25 March 2009, ‘Singapore’s Internet Radio Streaming Dries Up’.
12. International Intellectual Property Alliance House IP Subcommittee Testimony, October 18, 2007, p. 15.
13. International Intellectual Property Alliance 2008 Special 301, Special Mention, Singapore, p. 431.
14. Telephone call made to IPRB on 19 November 2009.

APAC: TAIWAN

Country Update for Taiwan by Patrick Chu and James Chen

Patrick Chu has no bio at present.
James Chen has no bio at present.

Introduction
Music can be legally purchased in Taiwan by purchasing CDs in music stores, book stores, shopping centres, on-line shops, etc., by downloading digital music (such as MP3, WMA or AAC) from digital music stores such as QBand and HiMusic or, by paying monthly fees, consumers can listen to songs as authorised by the record companies through streaming, using their personal computers or mobile phones. Currently, the most popular streaming software in Taiwan is KKBOX. According to statistics provided by the Recording Industry Foundation (RIF) in Taiwan, revenue from copyrighted CD sales in 2007 is worth around NT $1,962 million. However, no information about legal sales of music downloads and streaming is publicly available.

Whether P2P filesharing is legal in Taiwan remains an unsolved legal dispute and is determined by the courts on a case-by-case basis. For example, one famous P2P website, ezpeer, had its responsible person indicted by the prosecutor in 2002 for violating the Copyright Act, but the Taipei District Court and the Taiwan High Court rendered a non-guilty judgment on the grounds that the owner of ezpeer did not have the intention to violate the Copyright Act and only provided a platform for users to download music. By contrast, another P2P website, Kuro, was indicted in 2003 and found its responsible person was guilty in both the first and second instances.

In the ezpeer case, the court held that ezpeer’s P2P structure—containing a decentralised P2P server—was not designed with the intent of infringing others’ copyrighted music, in view of the available evidence provided by the prosecutor. However, the Kuro platform was operating a centralised P2P server. Most important of all, the prosecutor submitted sufficient evidence to persuade the court that the owner of Kuro knew that the end users might use Kuro to download illegal music and he continued assisting them to infringe copyright through the provision of the Kuro platform.

Music piracy has been an issue that has haunted the Taiwan music industry. The battle over music piracy turned severe after the invention of the internet. Before the era of the internet, people could only find pirated tapes or CDs in the night markets or from street vendors. However, the internet became a handy tool for people to rip the music more easily. In fact, according to statistics provided by the RIF, sales of illegal copies of CD largely increased between 1997 and 2000, but gradually decreased afterwards. Although no information is publicly available with respect to the piracy levels before and after the invention of the internet, we surmise that the trend of decreased CD piracy may result from increased illegal music downloading via the internet.

In Taiwan, young generations prefer downloading music from the internet, rather purchasing tapes or CDs. The number of members prescribing to the streaming services is increasing. KKBOX and ezpeer are the two largest market leaders in the streaming service industry and they had around 4.5 million and 3 million subscribers, respectively, in 2008 according to available information. Both KKBOX and ezpeer charge their registered members NT $149 per month for streaming services, hence monetising download of or access streams of music online. However, some websites provide free downloads, such as FOXY, or access streams of music online, and that is considered a problem for infringing copyrights.

In Taiwan, using mobile services, including listening to music on a mobile phone through side-loading, mobile downloading and streaming, is getting popular in Taiwan. Online music providers require users to pay service fees in exchange for downloading the music or using the streaming services, but the fees may differ on the services that the user requests, be it a download or a streaming service. We share with the views of many research papers (such as ‘An Overview of the Online Music Industry’, published by Chung Huei-Ming in Industry Investigation and Technique Quarterly, No. 155) that digital music sales will prevail over the physical media in the near future.

The Applicable Law
Taiwan is not a member state of the World Intellectual Property Organization (WIPO), and is not obligated to comply with the international intellectual property treaties administered by WIPO. However, Taiwan endeavours to amend the relevant IP laws to meet the requirements of the international intellectual property treaties. In addition, given that Taiwan is a member state of the WTO, TRIPS applies and prevails in case of any discrepancy between the TRIPS Agreement and domestic law.

In Taiwan, the Copyright Act is the major statute exclusively promulgated for the protection of copyright. Other supplementary laws and regulations related to the Copyright Act include the Copyright Intermediary Organisations Act, Guidelines on Mediation on in Copyright Dispute and Regulations Governing Application for Approval of Compulsory Licensing of Musical Works and Royalties for Use Thereof. It is noteworthy that copyright infringement may be deemed a criminal offence in Taiwan. Recently, the Intellectual Property Office of the Ministry of Economic Affairs promulgated Guidelines on the Limitations on Liability for Internet Service Providers, to prevent the ISPs from being liable for the copyright infringements of their subscribers provided that they had met the applicable legal requirements.

An important case for the relevant legal issues was the Kuro case, in which the court held that the Kuro website, which was a centralised P2P server, had assisted the user to download unauthorised music. Thus, the owner and managers of the website violated the Copyright Act based on the theory of conspiracy and were sentenced to imprisonment. In addition, a user of the Kuro website could be subject to criminal liability for downloading unauthorised music through the computers of other users. However, please note that Taiwan is not a common-law state, and the courts render judgments in accordance with the Copyright Act and other relevant statutes, which take precedence over court decisions.

Given the rapid growth of the digital music market, we expect more laws and regulations will be enacted to strengthen the protection of copyright, especially to resolve the new legal disputes brought by advanced internet technology. We suggest that the criminal penalties under the Copyright Act should be applied only to copyright piracy committed wilfully and on a commercial scale, so as to avoid unjust prosecution.

Conclusion
Collective licensing should be centralised, to reduce administrative costs incurred from music licensing and to operate the music licence business more efficiently. Currently, both the record companies and the copyright intermediary organisations are in the music licensing business. Having too many small companies will reduce the size of the music database, which deters the development of the digital music market.

Copyright owners may form a copyright intermediary organisation in order to handle copyright licensing matters, including but not limited to the collection of licence fees (paragraph 1 of article 81 of the Copyright Act). Such provision may facilitate the development of the music industry and increase compensation for the copyright owners.

A group of at least 30 members, of whom at least half must be resident nationals of Taiwan, may apply for approval from the competent authority to establish a copyright intermediary organisation (article 4 of the Copyright Intermediary Organisations Act). At October 2008 there were seven copyright intermediary organisations approved by the Intellectual Property Office, including the Music Copyright Association of Taiwan, the Music Copyright Intermediary Society of Chinese Taipei, the Music Copyright Intermediary Society of Taiwan, the Association of Recording Copyright Owners, the Recording Copyright and Publications Administrative Society of Chinese Taipei, the Audiovisual Music Copyright Owner Association and the Chinese Oral and Literary Copyright Intermediary Association. Each has its own licensing fee template. More copyright intermediary organisations can now offer more choices and cheaper price for the users, provided that there is no dominant copyright intermediary organisation in Taiwan that controls the market.

More copyright intermediary organisations should contribute to market competition, which makes a market operate more efficiently. However, such an approach could limit individual copyright owners from claiming his or her rights independently, and so dominating intermediary organisations could become monopolies in the market.

The Government needs to play a more important role to guide the behaviour of the players in the music industry, including the copyright owners, online/physical retailers and consumers. It is expected that the Government will amend the laws from time to time and set forth reasonable and predictable guidelines in the light of technological advances. For example, on 17 November 2009 the Taiwan Government promulgated Guidelines on the Limitations on Liability for Internet Service Providers in order to limit the liabilities of ISPs if they complied with certain legal requirements aimed at balancing the rights of the author and the interests of the general public.

Taking the Kuro case as an example, imposing criminal liabilities at some stage—if the Government prohibits the P2P business model in the first place—is absolutely not a good idea. In our opinion, P2P techniques are neutral. What matters is how the P2P technique is used in the business model. Criminal liabilities on the infringement of copyright may be necessary to protect the copyright, but should be limited to a minimum scope.

Nowadays, the internet can be easily accessed almost everywhere. Following major trends in the international community, Taiwan has amended its related laws and regulations accordingly. However, there are still some grey areas and some different opinions on music licensing issues that need to be further discussed and legislated.

APAC: INDIA

Country Update for India by Nikhil Krisnamurthy

Nikhil Krisnamurthy has no bio at present.

Overview of the Indian Music Industry
While musicals in Hollywood appear to be an exception, in India they are the norm. Bollywood and other regional language films (such as Kollywood, Tollywood and the like) comprise, in large part, elaborately choreographed song and dance sequences shot in exotic locations, usually bearing little relation to the plot.

While the film Indra Sabha, made in 1932, holds the record for the most number of songs in an Indian film at 71, today one can easily expect to find between six and 10 songs in a film. According to a 2009 PricewaterhouseCoopers (PWC) report, over 1,000 Indian films and 10,000 music tracks are released annually. There is also a large demand for Indian film and music in neighbouring countries such as Pakistan and in West Asia, not to mention the UK, the USA and Canada.

As a consequence, the music scene in India revolves around the Original Motion Picture Soundtrack (OST) and the incidence of non-film music is comparatively low. Master-use and sync licences for use of an existing song within a film are infrequent and most film music (I am not referring to the background score) is composed specifically for the films in question.

The industry practice is for the producer of the film to engage a music director/composer and a lyrics writer, who will then collaborate to write the various songs for the film. Usually all rights are obtained from the composer and lyrics writer in perpetuity, for a lump sum consideration (a source of much concern among the author/composer fraternity, as this excludes them from all future earnings from their works) and the producer also pays for the recording of the songs to be used in the film. Consequently, the film producer becomes the owner of copyright in both the sound recordings and the works underlying the sound recordings. The interesting thing to note is that it is the film industry that originates the music content, not the music industry.

The songs are recorded well before the completion of the film and this is done for a reason. The film producer will then usually assign all the copyright in the sound recordings and the underlying works to a music company, again, usually, for a large lump sum amount. This amount is then used by the producer for the financing of the film. The term ‘music company’ rather than ‘record label’ is used, since the practice is for the music company to acquire the rights in the sound recordings and the underlying works and, hence, wears the hat of a record label and that of a publisher at the same time.

A few months prior to the release of the film, the OST is released by the music company at a music launch event, with a view to creating a certain hype and interest in the film. Since ringtones became a huge hit in India some years ago, the music companies print shortcodes against the songs on the CD/cassette inlay card so that it is easy for the purchaser of the album to purchase the ringtone from the relevant telecom operator as well. Very recently, T-Series, a large music company has also released the music of the film Blue on pen drives and memory cards.

The song and dance sequences from the films, which are referred to earlier, are so popular that one may even buy discs that are comprised of only the audio-visual depiction of the songs featured in the films. These rights are dealt with separately between film producer and music company.

The music company, in addition to selling physical albums in the form of CDs and audio cassettes, will license the digital rights in the OST (also wallpapers, film dialogues, short video clips, etc.) to a digital content aggregator, for a lump sum or minimum guarantee, and usually for a fixed term. Some music companies deal directly with the telecom companies. While these rights are broadly classified as mobile and internet rights, it is the mobile rights that have brought in considerable revenues to the music companies in India in recent years.

According to a 2009 KPMG report for the Federation of Indian Chambers of Commerce and Industry (FICCI), mobile music dominates the digital sales pie and, within this, ringtone sales command a dominating share. The digital music market in India in 2008 was estimated by the report to be worth Rs 1.8 billion, mainly from ringtones and ring-back tones. The 2009 PWC report referred to above estimated that the share of digital music was expected to grow to 60% by 2013.

According to other sources, there are 400 million mobile subscribers, and about 50% of the phone models support music transfer. The legitimate mobile music market is estimated to be worth around Rs 3 billion (US $65 million). The popularity and potential for growth of legitimate sales of ringtones and ring-back tones in the Indian market, therefore, cannot be overemphasised.

In recent years, physical sales have steadily declined and digital sales, such as through ringtones, are poised to surpass revenues earned from physical sales in the very near future. For some companies, this has already happened, and reports indicate that SaReGaMa, a prominent Indian music company, generates 50% of its music revenue from ringtones. The FICCI-KPMG report stated that the size of the Indian music industry has contracted to Rs 7.3 billion in 2008, compared with Rs 8.3 billion in 2005, the primary reason being attributed to the erosion of sales of physical formats. Physical formats, which accounted for 87% of industry revenue in 2005, accounted for less than 60% in 2008. To counter this trend, music companies have taken the initiative to release music on MP3 CDs at price points similar to the audio cassette. The report also indicated that digital music has the potential to offset the impact of declining physical sales and to push the industry towards a healthier growth rate.

Full track OTA downloads of songs from mobile devices such as cell phones are slow, cumbersome and not favoured. Side-loading is common, with many mobile dealers offering ‘fully loaded’ phones as an incentive for customers to purchase mobile phones from them. This is not unlike the practice of hard disk loading in which computer hardware resellers would sell assembled or branded machines with pirated software preinstalled.

With a wide choice of inexpensive music-friendly phones available in India, one could buy an additional 8-Gb memory card quite cheaply and have it filled up with music for listening to on the mobile phone, free of cost from the dealer. In this context, the Indian music industry reports that over 1,000 cases have been filed in cases of mobile chip piracy.

Recently, seven Indian music industry players that account for a significant share of the copyright titles being pirated have started an initiative called Mobile Music Exchange (MMX) whereby mobile retailers pay between Rs 1,500 and Rs 5,000 (US $30 to $100) per computer per month to side-load music on to mobile phones sold by them. Industry sources say that about 30 to 35 mobile retailers are being signed up for the MMX licence every day. It is unclear what distribution model is employed though.

Many mobile phones are available with an FM radio feature and, as a result of the large number of private FM radio stations in India, it is common to find people listening to the music broadcast over FM radio on their mobile phones. The easy availability of Indian music through various avenues, such as music video channels on television and FM radio, are also reasons, apart from piracy, that are cited by music industry sources for declining sales of physical media.

Having said this, it is not all doom and gloom for the music industry in India. OSTs are still being purchased from film producers by music companies for large sums of money (which may indicate that the music companies are still confident of recovering such amounts through the available modes of exploitation). To give one example of music acquisition costs, the music rights for the film Singh is King were reportedly sold for Rs 135 million (around US $3 million).

A few legitimate music download and streaming sites have been available in India for the past three or four years, and collecting societies offer both interactive and non-interactive licences, but it is difficult to obtain data as to their success in monetising these services. Some Indian music companies are now offering their repertoire of music for sale through iTunes. Nokia has also started an online music store in India, having tied up, reportedly, with Universal, Sony, EMI, Warner and other major Indian music companies. With increased penetration of broadband, the use of download sites and streaming services is expected to grow.

ISPs in India offer home users what are known as unlimited packages (in terms of time and download/upload) for a fixed fee per month. So, for example, one such ISP offers an unlimited package with a speed of 2 Mbps for Rs 3,000 (about US $65) per month. At this speed, a song in MP3 format may be downloaded within a matter of seconds and an album within a matter of minutes via P2P. Some ISPs have now introduced fair usage policies, under which, if a consumer exceeds a certain amount (say 100 Gb) of download in a month, his speed will be reduced by a half for the rest of that month. Despite the description of the policies, it is doubtful that they have anything to do with fair use under copyright, but are more probably designed to prevent clogging of the ISP’s network through high bandwidth usage by its customers.

Internet cafés were first introduced in India in the mid-1990s, and the recordable CD became common soon afterwards. While music piracy did exist during the days of the audio cassette, music industry sources are clear that it has reached unmanageable proportions in the digital age, on account of the speed of recording devices, the MP3 format, P2P and the high capacities of recordable or other storage media. Even music pirates can be heard complaining that their sales of pirated MP3 CDs have dropped because people can now download songs from the internet.

Copyright Protection
India is a member of the Berne Convention, the Universal Copyright Convention (UCC) and the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The legislation governing matters concerning copyright is the Copyright Act 1957, read with the Copyright Rules 1958 and the International Copyright Order 1999. While neither Indian nor foreign works need to be registered in order to be protected, a copyright registration certificate may be useful to have from the point of view of enforcement.

By and large, there are no major issues with the letter of the law, as the Copyright Act has been amended at various times in order to strengthen protection and to keep pace with technological advancements. Moreover, Indian courts follow the principle of updating construction in the interpretation of statutes and can interpret the law in order to take into account technological or other developments. There have also been some reports of a move to carry out further amendments to the Copyright Act, and such amendments are supposed to include provisions pertaining to rights management information and the protection of technological measures.

In the area of music, there are two collecting societies: the Indian Performing Right Society (IPRS), which represents the interests of publishers (i.e. music companies), authors and composers; and Phonographic Performance Limited (PPL), which represents about 150 member companies and administers sound recordings. Public performance licences are administered by these two societies.

Collective licensing in the realm of music distribution and, more particularly, for ringtones is administered by PPL. Some music companies license their digital content for distribution to content aggregators, which then distribute the content to telecom companies. In the context of collective licensing for direct consumer use, some discussion of the law may be relevant.

For starters, there is no judicial precedent on private copying in India, unlike in the US, where the Recording Industry Association of America (RIAA) has proceeded against various users of P2P networking for downloading music.

The fair dealing provisions for private use under Section 52(1)(a) of the Copyright Act 1957 are restricted to literary, dramatic, musical and artistic works and do not include sound recordings and cinematograph films. So, while a downloader may, arguably, get away with downloading some sheet music or some song lyrics by claiming fair dealing for private use, downloading a sound recording or music video is not, apparently, covered.

In the context of the broadcast reproduction right and the performer’s right as recognised under Indian law, the making of sound and visual recordings are permitted for private use under Section 39(a) of the Act. The proviso to Section 39-A confuses the position and states that if a copyright subsists in a work that has been broadcast, then no licence to reproduce the broadcast will take effect without the consent of the owner of rights. However, in the context of the broadcast reproduction right, a distinction is struck between the ‘making’ of a sound or visual recording of the broadcast and the ‘reproduction’ of such sound or visual recording, so it may be arguable that the ‘making’ of a sound or visual recording is allowed under Indian law for private use so long as there is no further ‘reproduction’ of such sound or visual recording made for private use. Of course, this would only address the issue of making a personal copy of a work being broadcast, and not the download of a work.

Under the proviso to Section 51(b) of the Act, the import of one infringing copy of any work for the private and domestic use of the importer is exempted from the scope of infringement. While there is no precedent on the point, it is conceivable that a person who has downloaded some music using the internet may claim in his defence that he is allowed to ‘import’ an infringing copy of such music by ‘download’. Of course, such a defence may not be available if it can be established that in the process of download, the upload of a substantial portion of the work also took place.

In 1992, India proposed to introduce legislation on copying equipment, blank tapes and other recording equipment in what was termed the Copyright Cess Bill 1992, but the Bill lapsed for reasons that are not clear. Under this proposed law, a manufacturer would have been required to pay at a rate not exceeding 10% of the ex-factory price of the copying equipment, and an importer would also have been required to pay at the same rate on the imported price of such equipment.

There do not appear to be any lawsuits initiated against ISPs or end-users by collecting societies or music companies in India. Google has been sued by T-Series, a large Indian music company, for its YouTube service, and a similar suit has been filed by the same company against Yahoo! Both lawsuits are pending. Action has been initiated against a large number of side-loaders, as already indicated.

The Information Technology Act 2000 (IT Act) has been amended and the new amendments came into force on 27 October 2009. The relevant aspects of the amendment pertain to intermediary liability under the amended Section 79, which protects an intermediary from liability in certain cases. The section also requires an intermediary to demonstrate due diligence in the conduct of its business activities and to act expeditiously to remove or disable access to unlawful information and data on receipt of information or take-down requests. The intermediary is required to act without vitiating the evidence, which could have consumer privacy implications.

A certain amount of confusion has also been introduced with the new amendments, as a newly added proviso to Section 81 states that nothing in the IT Act will prevent a person from exercising any right conferred under the Copyright Act 1957 or the Patents Act 1970, so its impact on the provisions pertaining to ISP liability will have to be seen. It is quite certain that intermediaries will play a large part in future copyright litigation in India, on account of some of the uncertainties introduced by the latest amendments.

In the recent past, on account of a serious blunder made by an ISP regarding the identity of a person using a particular IP address at a particular time, in a matter involving defamatory material posted on the internet, the wrong person was arrested and jailed for an extended period; only later was the actual culprit identified. The wrongly arrested person is now reportedly pursuing a damages claim against the ISP in question.

Some Thoughts on Collective Licensing Solutions for the Digital Era
The music industry in India is not as structured as those of more advanced copyright economies, but it is in the process of being streamlined.

In the context of direct consumer use, the problems that are obviously faced by collective licensing pertain to the identification of works reproduced or performed, the collection of revenue and the distribution of that revenue to the right owners.

For example, in the area of public performance of music, only radio stations submit log sheets to the collecting societies, so the uses of copyright works by other end-users (nightclubs, etc.), which may include a lot of niche content, go unlogged. So, while revenue may be collected, the identification of works used and the distribution of revenues to the ‘right’ owners is a real challenge.

In the digital space, as regards the sale of digital content, ringtones, etc., by the telecom companies to their mobile users, this does not seem to pose much of a problem in accounting, as these are legitimate sales backed by detailed digital records maintained by the telecom operators.

It is really in the area of side-loading and P2P that significant challenges arise for collecting societies in the areas of identification, collection and distribution. As regards side-loading, as indicated above, the MMX initiative has been started by some music companies in India.

One possible solution is that, for content accessed or downloaded via the internet, a levy similar to the blank tape levy could be bundled into the cost of an internet subscription. With this cost, a consumer would be allowed unlimited access to content. This bundled cost could address the collection problem.

For the purpose of identification of works and the distribution of revenue, it would not be enough merely to sample tracks played on radio, as this sector plays mainly popular tracks (in the Indian context) and would not account for the long tail of music accessed by the Indian consumer. That would lead to huge inequalities in the distribution of royalties. An ideal option that could address this issue is for the collecting societies to provide an online resource or ‘celestial jukebox’ (a term that has been coined before), which is accessed from a consumer’s ISP. This jukebox could log the number of complete downloads and streams for each work. The revenue collected as a part of each consumer’s ISP subscription fee could be more accurately distributed as identification of the works downloaded or streamed is maintained by the jukebox. The jukebox would have the added effect of being a comprehensive library or archive of music to which new or old tracks could be continuously added to by music publishers, labels and even users.

It appears that one content aggregator in India, Hungama, has very recently tied up with BSNL, a telecom operator, to offer the On Demand Entertainment Storefront service, in which the broadband subscription cost of Rs 149 (US $3) per month gives unlimited access to Hungama content, which includes more than 60,000 songs. This is a step in the right direction.

There are obvious drawbacks to this approach, not least co-operation among right owners to set up such a jukebox, the bandwidth requirements, possible opposition from consumers to bearing an added copyright cost within their ISP subscription, and opposition from the ISPs themselves to parting with a portion of their subscription amount as a copyright cess.

In addition to the above method suggested for identification, it could be a matter of legislation to require P2P networks to incorporate technical features to identify and display country-wise logs of all completed downloads or streams of music over their networks, on their respective websites, and to provide this data to the collecting societies of the respective countries. There are already websites that list, for example, the ‘Top 10’ downloaded films on P2P networks, so this data is already available. This would lead to a higher accuracy in identification of works and the distribution of income received from ISPs, or other sources (such as the MMX license), to right owners, including those in the long tail of music who may not otherwise be considered. As P2P shows no sign of going away any time soon, it is desirable to use in some meaningful manner the data generated from such networks to provide more revenues for right owners.

One interesting comment made by a music industry executive is that, before the digital age, a consumer in a music store could expect to get personal attention from a salesman who would usually have in-depth knowledge about the repertoire available; however, now, the personal touch for the consumer is missing. While this is neither here nor there, it does amplify the changing music distribution models and value additions such as recommendation services, which can help improve music sales. Innovative mobile value added services can also stimulate impulse and sustained music purchases.

The digital age has resulted in the proliferation of uncompensated use of music and other types of content. However, by its very nature, digital technology has the ability to track each such use, and such tracking can lead to better monetisation. Factors such as the ease of availability of legitimate copyright works online, wide choice and reasonable pricing are all-important in converting non-compensating participants in the copyright industry into compensating participants. Co-operation among right owners, collecting societies, ISPs and users is indispensable, and law and technology must meet in a meaningful manner so that all players benefit.

EMEA: BELGIUM

Country Update for Belgium by Peter Marx and Oliver Sasserath


Peter is a partner at Marx Van Ranst Vermeersch & Partners (Brussels) and an Executive Committee member of the IAEL. He has an extensive experience in IP, media and entertainment law, including work in the field of TV, motion pictures, the music industry, design, advertising and sports. He graduated from the University of Leuven (Belgium) and the Institut Européen des Hautes Etudes Internationales in Nice (France).
Oliver Sasserath has no bio at present.

In general how is music on physical media, downloads and streams sold (legally) in Belgium

In Belgium music on physical media is sold in specialist retail shops or superstore chains. Specialist self-owned retail shops are however disappearing rapidly, leaving most physical sales to the superstore chains. The latter are either specialised in films, books, games and music (e.g. Fnac, Free Record Shop and Media Markt) or are general supermarket chains (e.g. Carrefour, Delhaize and Colruyt).

Some specialist superstores are also struggling to survive. In November 2009 Sonica, owner of 58 Extrazone retail shops, was declared bankrupt.

Other distribution channels are coming up such as magazine and newspaper publishers, offering CDs as a bonus.

Downloads and streaming services are available from several providers.

SABAM, the Belgian collecting society for authors and music publishers, sets rates for streaming, downloading, ringtones, ringback tones, podcasting and webcasting of music events. Several possibilities are offered, depending on the type of service, whether or not the users pay subscription fees, etc.

The royalty basis is generally defined as the provider’s total revenue generated by the use of the musical repertoire in relation to the exploitation of the platform supplying ring tones/ringback tones/download/streaming of musical works, including but not limited to revenues from sales and/or subscriptions. Where the exploitation is financed separately by other contributions (time/space intended for advertising, bannering, pop-ups, sponsoring, commission or compensation business), such revenues shall be fully part of the royalty basis.

For streaming (on demand, interactive streaming, ‘branded’ streaming) the rate varies from 6% to 8% of the revenues generated by the musical works with certain minimum rates.

The rate for downloads amounts to 8% of the revenues with a minimum of € 0.07 per single download, € 0.60 for an album download and € 0.80 per subscriber per month in case of a music offer via subscriptions.

Neighbouring rights have to be licensed through the various record companies involved. Limited collective licensing is available through the collecting society for producers (SIMIM), for streaming by web radios (basic fee: € 0,001/year per stream; a rebate is granted in function of the total number of streams and for the three first years of activity; web radios can pay a lump sum of € 500/year or € 250/year if they offer maximum two channels and stream less than 500,001 phonograms yearly), and podcasts of radio programmes containing music (basic fee by 60 minutes: degressive scale from € 0.05 for music programmes to € 0.0075 for programmes containing less than 24.99 % of music; if commercials or sponsoring is included in the programme, the rates are higher; a rebate is granted depending on the number of podcasts, etc.).
No collective licensing is available through the collecting society for performing artists (URADEX).

The history of music piracy both before and since the internet

Before the internet, piracy problems were mainly about home-burned copies sold on flea markets or to a clientele of acquaintances, as well as pirate discs imported through international shipments or – to a lesser extent – manufactured in Belgium.

With the emergence of the internet and P2P, digital piracy obviously began to overtake physical piracy, although the latter still remains a problem. Digital piracy started with sharing illegal MP3 files via internet user groups and evolved via Napster, Kazaa and other P2P networks.

Since Belgium has always been a forerunner in broadband connections and with the increasing number of broadband connections (according to the Belgian Internet Services Providers Association ISPA the total number of internet connections in Belgium has reached 2,520,481 in the third quarter of 2009, with 97.41% of all residential connections broadband), the possibilities of easy downloads have also increased, as did the size of the illegal files, resulting in entire albums being shared via P2P. The dominating network at the moment is Bittorrent.

Although P2P remains popular, the Belgian Antipiracy Foundation has noticed that over the last years direct download services such as Rapidshare have been catching up, because of their ease of use, fast download speeds and vast repertoire.

Do people download music or access streams of music online using personal computers in your country?  Is this practice widespread?  Is it monetised or not?  Is it considered a problem?

The most popular way of accessing music files remains actual downloading.

According to the Belgian Entertainment Association, in 2008 Belgian consumers bought 5.7 million singles and 480,000 albums on-line. Record companies are also offering digital music via mobile operators and business models based on income from advertising and split of revenues. In 2008 the Belgian digital market grew by 22.8% to a total turnover of circa € 19 million. The digital market’s share is approximately 10%.

Streaming music sites are popular but mainly as a tool to discover new artists. The use of mobile devices, including mobile phones to listen to music is widespread and will without any doubt increase in the next years. Most of the use is still to be considered as side-loading, but one can expect people to start using mobile downloading or streaming services in the near future.

iTunes remains the most popular platform by far, in addition to the local music companies’ own download services.

On-line piracy nevertheless remains a big concern.

According to a recent study (December 2008) carried out by a researcher amongst more than 1,100 college and university students, more than 70% download music regularly. 64% of those downloads are illegal, 25% are legal (iTunes being the main legal website used). Of the students who download music, 11% claim not to know for sure if they’re downloading from a legal or illegal platform. Their average number of downloads is 1,332 songs per year. The reasons mentioned for illegal downloading are that it’s easy, free and that there’s an enormous catalogue from which to choose.

In the past 8 years the Belgian music industry has lost 50% revenue (2000 compared to 2008), mainly due to piracy.

A 2008 study on the number of illegal P2P of the popular Belgian artist Novastar showed that for each legal download of his album there were 5 illegal ones.

The applicable law and case law

As a member state of the European Union Belgium has signed most of the international treaties on copyright protection (and other intellectual property rights protection).

Therefore, the Belgian legislation offers a wide range of possibilities for right owners to protect their rights.

Online distribution of music, whether by uploading or through streaming services is considered a communication of the copyrighted work to the public; it is indeed to be regarded as a “making available to the public of works in such a way that members of the public may access them from a place and at a time individually chosen by them” in the sense of the European Directive 2001/29 (Information Society Directive) and therefore subject to the authorisation of the right owners.

Uploading files and sharing files through P2P networks therefore constitutes a copyright infringement as confirmed by Belgian courts in many lawsuits against uploaders and file sharers. In one case a downloader was also condemned although the status of the downloading remains uncertain (the question is whether this can be considered as a “private copy”, which is one of the exceptions on copyrights).

It should be noted that copyright infringements are considered criminal infringements and therefore any useful assistance granted knowingly to a person committing a copyright infringement could lead to prosecution.

The Belgian Act on Electronic Commerce contains provisions on the liability of hosters who fail to make illegal content inaccessible after having been notified by right owners (notice and take down procedure). Also, Belgian courts have issued cease and desist orders against website operators hosting links to infringing content.

Right owners can file (criminal) complaints with the office of the public prosecutor in order to identify infringers. The public prosecutor indeed has competence to ask telecom operators or ISPs to disclose the identity of their clients if copyright infringements are committed. However, such claims do not have a high degree of priority and are therefore not very efficient.

Also, the ISPs and telecom operators are sometimes reluctant to give the information to the office of the public prosecutor. Recently, in March 2009, Yahoo was condemned by the Criminal Court of First Instance of Dendermonde for not passing the requested information to the office of the public prosecutor (an appeal has been lodged).

In 2007 the Belgian copyright act was amended to implement the European Directive 2004/48/EC (Enforcement Directive). Right owners can now also ask the courts to force ISPs to provide information on the origin of the infringement (article 86 ter of the Belgian Copyright Act). The European Court of Justice confirmed in its decision of 19 February 2009 (C-557/07) that member states’ legislation may impose such obligations on intermediaries without infringing the European legal provisions on personal data processing (privacy).

Finally the Belgian courts can also issue an injunction against any intermediary whose services are being used by a third party to infringe copyrights. Generally such injunctions are issued under penalty of a fine to be paid to the right owner in case of infringement of the injunction.

In a decision of 26 November 2004, the President of the Court of First Instance of Brussels confirmed that the unauthorised exchange of files through Peer-to-Peer networks constitutes a copyright infringement and that SABAM is entitled to apply for an injunction against intermediaries such as ISP Scarlet even if these intermediaries benefit from the liability exemption regime contained in the European Directive 2000/31/EC (Electronic Commerce Directive).

The internet intermediary status of ISPs means that mere conduits who facilitate the transmission of information to the internet are not liable for the communication carried across their networks provided that they do not initiate the transmission or exercise control over the content of that information.

The possibility of obtaining an injunction against an intermediary was confirmed in both the Information Society Directive and the Enforcement Directive:

Consideration 59 of the Information Society Directive states for example:

“In the digital environment the services of intermediaries may increasingly be used by third parties for infringing activities. In many cases such intermediaries are best placed to bring such infringing activities to an end. Therefore, right holders should have the possibility of applying for an injunction against an intermediary who carries a third party’s infringement of a protected work.”

Article 8.3.  of the Directive states :

“Member States shall ensure that right holders are in a position to apply for an injunction against intermediaries”

In the Enforcement Directive we read a similar consideration in number 23. In article 9 and 11 we find the confirmation that an injunction may also be issued against an intermediary.

As stated above, that possibility has been expressly confirmed in the text of article 86 ter and article 87 of the Belgian Copyright Act in 2007, at the occasion of the modification of that Act and the implementation of the European Directive 2004/48/EC.

Based on the above, the Court decided in the Sabam / Scarlet case that it is not necessary to demonstrate the liability of an intermediary to obtain an injunction and, therefore, the exemption of liability granted to intermediaries does not prevent a court to impose an injunction.

However, in November 2004, the Court was reluctant to pronounce and enforce an injunction against Scarlet without knowing if an effective technical solution existed. Therefore, the Court ordered investigations by a technical expert to assess the possibilities for ISPs to block or filter the exchange of illegal files.

The expert’s report pointed out several technical possibilities and in its later judgment of June 2007 the Court concluded that technological measures exist that would allow Scarlet to block or filter the illegal exchange of music files through Peer-to-Peer networks.

The Court referred to seven possible technological solutions for blocking or filtering the traffic of unlicensed music.

The President explicitly referred to the technical solution “Audible Magic” offered at that time by the company CopySense Network Appliance, which identifies the content of the exchanged files and uses a database that represents more than 70% of the music exchanged on the internet. The President also referred to the fact that MySpace and Microsoft had announced that they would use that solution.

The President considered that the cost for the implementation of such measures does not seem to be excessive: according to the expert on a 3-year basis for 150,000 clients it would not exceed € 0.50 /month per client.

The various arguments developed by Scarlet were rejected.

Scarlet invoked that the encryption of music files would prevent the filtering of the files.

The President rejected that argument considering that a possible future encryption may not prevent the imposition of measures that are currently effective.

Scarlet also argued that imposing such measures would work to the disadvantage of legal exchange of copyrighted material (for example if the author allowed the communication of the work or if such communication could be subject to a copyright exception).

The President stated however that the technical measures may probably have a marginal effect to block some authorised exchanges but that this circumstance does not prevent the imposing of blocking or filtering measures.

Further, Scarlet argued that under the regime of the E-Commerce Directive, no general obligation of surveillance can be imposed upon intermediaries in relation with the information that is transmitted through their networks (article 15 of that Directive).

That argument was rejected as well.

The Court ruled that the Directive aims to prevent an intermediary from being held liable for the presence of illicit information on its network on the mere consideration that he would have failed to comply with a general obligation to establish a surveillance on all the information transmitted through his services.

Such provision is related to the issue of the liability of the intermediary and is therefore not relevant since liability is not a condition for obtaining an injunction. The Court also referred to consideration 40 of the E-Commerce Directive: “the provisions of this Directive relating to liability should not preclude the development and effective operation, by the different interested parties, of technical systems of protection and identification and of technical surveillance instruments made possible by digital technology”.

Finally, Scarlet raised arguments relating to the protection of the privacy of the internet user.

These arguments were also rejected on the consideration that as with anti-virus and anti-spam software, the blocking and filtering software does not process any personal data.

Moreover, such processing would be in accordance with the Belgian act on Privacy Protection in relation to the Processing of Personal Data.

The processing of the personal data would be necessary for the execution of the agreement between the ISP and its customers. The general terms and conditions of Scarlet stipulate that it is forbidden to make a connection that would infringe copyright and that Scarlet is entitled to take sanctions in such case.

In this respect it is important to note that Sabam argues that it is not asking the ISP to monitor the contents of the files (which would be prohibited under article 15 of the E-Commerce directive). Filtering should be possible without reading the contents and without violating user privacy.

The Court decided in June 2007 that Scarlet has the technical means at its disposal to block or filter copyright infringing material on P2P networks.

Scarlet was given 6 months to implement such measures, and after 6 month a penalty or fine would be due of € 2,500 per non-compliance day.

The decision was appealed (still pending before the Court of Appeal in Brussels).

Meanwhile there have been additional proceedings as to the execution of the first judgment.

Scarlet went back to the President of the Court and argued that it was impossible to comply with the judgment and that the penalties could not be due since filtering was impossible.

But in a judgment of October 2008 the Court rejected Scarlet’s claim that filtering was impossible and upheld its earlier ruling.

Although the Audible Magic system was not implemented, there are other filtering and blocking solutions and Scarlet has not sufficiently explored these options, according to the Court.

The Court gave Scarlet additional time to implement the necessary measures.

The Sabam / Scarlet case is considered a landmark decision; the first time a Court orders an ISP to implement blocking and filtering measures.

Applying the same principles, the President of the Court of First Instance of Antwerp ruled in its decision of 17 November 2008 that a flea market organiser must take measures against resellers of blanket CDs and DVDs for which no private copying levies were paid.

Future developments

The possibility to obtain an injunction without need to demonstrate a legal liability on the side of the access providers puts the right owners in a good position to obtain injunctions against access providers and fight piracy in a more efficient way.

The pressure on ISPs to take responsibility in the fight against piracy will increase: ISPs are fully benefiting from the increase of piracy to sell broadband access and sometimes the possibility to illegally download music or films constitute an implicit sales argument.

In a more constructive approach and following the UK example, ISPs could be engaged to tackle piracy by entering into memoranda of understanding with the creative sector, if necessary backed by the government. In this respect, it is expected that some Belgian internet access providers will sign a memorandum of understanding with right owners in order to block access to websites offering illegal content (such as Rapidshare).

If ISPs do not cooperate voluntarily, there will be a demand for new legislation, inspired by the French Creation and Internet Law, introducing a graduated response system to encourage consumers to use legitimate online music services and deterring repeat infringers with the sanction of account suspension.
ISPs should not only play a key role in reducing online piracy, they should also be partners to the music industry in developing new business models.

Currently interesting partnerships are pioneering the market (such as Musique Max from Orange in France, TDC Play in Denmark, the Virgin Media/Universal Music digital music service in the UK, etc.). ISPs could cooperate with collecting societies and record companies and offer advanced digital music services to their customers that would replace current illegal downloading.

There seems to be a growing understanding that ISPs had a free ride on music for too long. ISPs were winning the race and making a lot of money, but now they seem to realise that they do need the content.

In Midem News of 20th January 2009 Nicolas Gallibert of Sony/ATV stressed that “In the music industry, you can’t run your business with a strict notion of what competition is. If you consider that the winner of a race is the one who runs the fastest, you might find yourself dying of thirst at the finishing line if no one offers you anything to drink. That is what could happen to (online music) operators and internet access providers if they neglect content creators”.

Further to a rethinking of the existing business models, ISPs could get income out of subscription models, bundled offers, individual user payments for downloads, advertising, sponsoring, bannering, etc. and could share their income with the right holders.

New News from Belgium by Peter Marx

We hereby report on a very recent Belgian example of linkup between the music- and telecomindustry.
Universal Music and JIM Mobile (a joint venture between telecomoperator KPN Group Belgium and mediagroup VMMa, owner of tv-station for the young Jim TV) announced an interesting partnership giving subscribers the right to free downloads from the catalogue of Universal Music (250.000 tracks) through the JimMobile website on top of a competitive telco offer. A reload for 10 EUR entitles the mobile customer to download 10 songs, 15 EUR = 150 songs and 20 EUR or more = 300 songs. The customer will not become the owner of the music but will continue to have access to the tracks he downloaded as long as he reloads monthly for a minimum of 10 EUR. If the customer stops reloading, he will no longer have access to the music after 30 days.
This loyalty scheme is managed by Windows DRM  attached to the tracks which means that the tracks can only be played on pc’s and mp3-players Windows DRM compatible(not compatible with I-pods and I-phones). This was the obvious choice as Windows Media Player is pre-installed on the large majority of computers sold in Belgium. Every track can be copied to 3 pc’s and 3 mp3-players. It is not possible to burn/copy the track on a disc. The objective is to acquire new JimMobile customers, increase usage and enhance loyalty.

EMEA: EUROPEAN UNION

Country update for European Union by Alexander Ross


Alexander is a partner in the music, technology and publishing teams at specialist UK media firm Wiggin.  His particular expertise is the licensing and distribution of music and other media in the online and mobile environment, and he also advises on specialist copyright issues, technology and e-commerce, investment in media, online publishing, promotions and photography. His clients include record labels, music distribution companies, publishers, technology companies and investors in media. Alexander sits on the Executive Committee of the IAEL and is a member of the British Literary and Artistic Copyright Association.

EUROPEAN UNION: STOP PRESS ON DEVELOPMENTS

In July 2009 Viviane Reding, Commissioner for Information Society and Media, delivered a lecture in which she set out a strategy for Digital Europe over the next five years1. She identified a number of key priorities, the first of which was ‘to make it easier and more attractive to access digital content, wherever produced in Europe.’ She identified ‘serious deficiencies in the present [internet supply and access] system’, and said that it would be her key priority to develop ‘a simple, consumer-friendly legal framework for accessing digital content in Europe’s single market, while ensuring at the same time fair remuneration of creators.’

Commissioner Reding did not give any real detail as to how she intended to achieve her goal, and now we shall not know what her strategy would have been, because in the recent Commissioner portfolio reshuffle she has been moved to become Commissioner for Justice, Fundamental Rights and Citizenship. Stepping up to the media plate is the erstwhile competition Commissioner, Neelie Kroes, whose role will be retitled ‘Digital Agenda Commissioner’.

Reding did give two examples of steps that she would have taken to implement her agenda, and the first of those was ‘to facilitate the licensing of IP rights for online services covering the territory of all 27 Member States.’ This was clearly a reference to the fragmented structure of collective rights licensing in Europe, which (she claimed) currently requires service providers ‘to spend far too much time and money on the administration of rights.’ We must wait to see whether Commissioner Kroes follows her predecessor’s proposed strategy, but it is interesting that the fracturing of the existing collective licensing structure brought about by the 2005 Commission Recommendation and the CISAC Decision was largely driven by competition law concerns. It therefore seems that Kroes will have to reconcile her competition law instincts with a pragmatic approach if pan-European licensing is to become any easier. Those who read the 2005 Recommendation in detail will remember that it requires that rights holders should be entitled to withdraw their online rights from any collecting society and transfer them to another society or rights manager in the Union and, in that event, other societies must ensure that such rights are withdrawn from any existing reciprocal agreement2—in effect, the right to appoint an exclusive rights manager. So long as competition law requires that rights holders must be able to license their rights as they choose, either exclusively or non-exclusively, and through a society or other licensing vehicle of their choice, there would seem to be no chance of ensuring that blanket repertoire licences are available to European digital service providers (DSPs).

At the first meeting of the Online Commerce industry roundtable in September 2008,3 Kroes asked,

‘Why is it possible to buy a CD from an online retailer and have it shipped to anywhere in Europe, but it is not possible to buy the same music, by the same artist, as an electronic download with similar ease? Why do pan-European services find it so difficult to get a pan-European licence? Why do new, innovative services find licensing to be such a hurdle?’

It seems that Kroes had not fully understood the impact of the 2007 CISAC Decision. That decision concerned what the Commission ruled were restrictive practices in the existing reciprocal arrangements between CISAC society members, and the Commission required the societies, among other things, to cease applying territorial restriction clauses that prevented any society representing the catalogue of members outside their jurisdiction, or licensing licensees based outside their jurisdiction.

CISAC’s reaction to the decision was that it will ‘inevitably lead to a catastrophic fragmentation of repertoire, and therefore to legal uncertainty for music users.’4 Anyone working in this field would have difficulty disagreeing with CISAC. Licensees currently face a European licensing regime for musical work copyrights that is fragmented in three ways: on a repertoire basis; on a territory basis; and on a rights basis. Any solution to the problem must start with an understanding that music copyrights more often than not involve multiple ownership, so a pan-European licence for one publisher’s repertoire is of no use whatsoever unless the same licences are available from all other copyright owners.

Are there any other clues as to which way the Commission is going on collective licensing? The answer is that the Commission believes the industry should develop its own solutions to the current problems if at all possible. In October 2009 two directorates-general, DGs INFSO and MARKT, published a ‘Reflection Document’ as part of the Creative Content Online Platform, but this document contains no further or new proposals. Instead, it comments rather weakly:

‘Only time will tell how collective licensing practices with respect to performance rights will change in the wake of the antitrust decision in CISAC; legislative intervention might become necessary.’

Comments on the reflection document were invited by 5 January 2010, so at the time of writing we will have to await the outcome of the process.

A rather more hands-on approach, inevitably, is emerging from the ongoing online music distribution roundtable process. The fourth meeting in October 2009 was chaired by Commissioner Kroes and attended by a wide range of players: BEUC, EMI, iTunes, Nokia, PRS for Music, SACEM, STIM and Universal. The participants issued a joint statement in which:

• they committed to pursuing new EU licensing platforms comprising the repertoires of several collecting societies; these platforms should consolidate the widest possible repertoire in their catalogues and should be based on voluntary co-operation among rights owners;

• they agreed that collective rights managers should adhere to certain objective, transparent and non-discriminatory criteria to allow other entities to deliver multi-territorial licences; and

• they set up a working group to create a common framework for the identification and exchange of rights ownership information, which will make it easier for commercial users to identify the relevant rights owners and secure the necessary rights.

As for the role ISPs can play in the future licensing process, Reding made no specific mention of any ISP role in her July lecture, but since then the obligations of ISPs have been the focus of intensive lobbying and debate as part of the Telecoms Package negotiations. In the last week of November the European Parliament finally approved the bill with the inclusion of a slightly altered amendment 138. Here is the original proposed amendment 138:

‘no restriction may be imposed on the fundamental rights and freedoms of end-users, without a prior ruling by the judicial authorities, notably in accordance with Article 11 of the Charter of Fundamental Rights of the European Union on freedom of expression and information, save when public security is threatened.’

And here is the final agreed form:

‘Measures taken by Member States regarding end-users’ access to or use of services and applications through electronic communications networks shall respect the fundamental rights and freedoms of natural persons, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and general principles of Community law.

Any of these measures regarding end-users’ access to or use of services and applications through electronic communications networks liable to restrict those fundamental rights or freedoms may only be imposed if they are appropriate, proportionate and necessary within a democratic society, and their implementation shall be subject to adequate procedural safeguards in conformity with the European Convention for the Protection of Human Rights and Fundamental Freedoms and general principles of Community law, including effective judicial protection and due process.

Accordingly, these measures may only be taken with due respect for the principle of presumption of innocence and the right to privacy. A prior fair and impartial procedure shall be guaranteed, including the right to be heard of the person or persons concerned, subject to the need for appropriate conditions and procedural arrangements in duly substantiated cases of urgency in conformity with the European Convention for the Protection of Human Rights and Fundamental Freedoms.

The right to an effective and timely judicial review shall be guaranteed.’

Rights bodies have responded positively to the revised wording, since it suggests that in place of a ‘prior ruling by the judicial authorities’, all that is now needed to enable an internet connection to be cut is a ‘prior fair and impartial procedure’ that does not appear to involve a courtroom (except that judicial review would be available in appeal cases). However, Commissioner Reding apparently thinks otherwise, or at least thinks that that procedure must still involve a court hearing: on 23 November in Barcelona, over two weeks after the watered-down wording was agreed in principle, she criticised the Spanish Government’s plans for internet disconnection and said,

‘Spanish measures that would allow for the cutting off of internet access without a prior fair and impartial procedure in front of a judge is certain to run into conflict with European law.’5

It therefore seems that there is some way to go before the extent of ISPs’ obligations as regards infringers is agreed, let alone any movement at EU level to bring ISPs into the licensing structure, unless Commissioner Kroes introduces new proposals of her own in this respect. In the absence of any moves at EU level towards ISP licensing, it seems that we must let the market take its course with collective licensing. In the UK, Virgin Media was the first ISP to state (in 2008) that it would voluntarily tackle illegal downloading by introducing a ‘three strikes’ rule. In June 2009 Virgin Media followed up by announcing that it would launch a subscription-based music service with Universal Music, which would include unlimited streaming and

‘a range of different strategies to educate file sharers about online piracy and to raise awareness of legal alternatives. They include, as a last resort for persistent offenders, a temporary suspension of internet access.’6

This is an interesting move, considering the resistance expressed by almost all other UK ISPs to disconnection obligations, but no doubt other such services will follow, driven either by legislation or market forces.

Footnotes:
1. The Ludwig Erhard Lecture 2009, Lisbon Council, Brussels, 9 July 2009, speech 09/336.
2. Commission Recommendation on collective cross-border management of copyright and related rights for legitimate online music services, 18 October 2005 (2005/737/EC), Article 5(c) and (d).
3. Online Commerce Roundtable on opportunities and barriers to online retailing and the European Single Market, 17 September 2009, Brussels.
4. CISAC press release, 16 July 2008.
5. CMT’s second international meeting ‘Regulation in a Converged Environment’, Barcelona, 23 November 2009, speech 09/551

EMEA: France

Country Update for France by Eric Lauvaux

Eric Lauvaux’s areas of expertise:
• Film & television, Music, broadcasting, Internet, Litigating copyright, Trademark, Unfair competition disputes, Arbitration and ADR (mediation)
Career
• Co-founder and Partner of NomoS, Head of the Media & Entertainment department 1998 –
• Partner and Co-Founder of Thomas & Associés (1979 – 1998)
• Associate, Law Office of Cornelius Pope (1976 – 1978)
Education:
• Postgraduate degree (DEA) in Business and Economic Law from the University of Paris I – Panthéon Sorbonne (1974)
• French MBA (HEC) (1971)
Languages
• English, (professional practice), German (general)
Memberships
• Paris Bar 1976
• Member of the IAEL (International Association of Entertainment Lawyers)- President 2001-2004, Executive Committee Member
• Member of Aceeca (Association des Conseils et Experts Européens du Cinéma et de la Communication Audiovisuelle)
• Member of the IFTA (Independent Film & Television Alliance) arbitration panel

ONLINE DISTRIBUTION OF RECORDINGS AND COLLECTIVE MANAGEMENT
For many years there have been debates opposing those convinced that the development of peer-to-peer (P2P) is inexorable, and must therefore be acknowledged in order to draw revenue from it. Others consider that the development of digital offerings implies a fight against unlawful downloading. Such discussions have deeply shaken the political and cultural worlds during the past five years, paralysing initiative. While supporters of the fight against unlawful downloading seemed, at first, to have won the battle following the validation of disconnecting access to the internet as a means of sanction, the debate on the transfer of values on the internet has been revived with the launch of a think tank that announces new measures.

The Evolution of the French Market
After resisting longer than most of the developed markets, the French recorded music market started to decline in 2002; since then the downward slide has not ceased. From 2002 to 2008 the sales of physical recordings fell from 171 million to 60 million units, with the consequence being the collapse of the turnover relating to these sales: from €1,302 billion to €530 million (i.e. a loss of €772 million, representing over 60% of the total).

This collapse led to serious consequences for the record industry:

• following the drop in quantity, the cut in the average prices of physical records was 16% between 2003 and 2008;

• the work-force in the record companies was halved; and

• the display of music in specialised stores and in supermarkets was considerably diminished, thus reducing the number of albums accessible to the public.

Even though the French market was characterised by a predominance of French products, in 2008 for the first time French producers entered into fewer recording agreements than the agreements that were terminated.

Naturally the collapse does not only affect the producers; according to ADAMI, the collecting body for performing artists, the crash represents a 97 million Euro loss for the artists. The collapse in the physical sales is only partially compensated for by the development of digital commercialisation. Even though online commercialisation enjoys strong growth, it far from makes up for the decline; in 2008 it represented €76 million. Globally, the recorded music market lost 53% of its value (in constant euros).

Among the main markets of the world, France has the lowest rate of substitution from physical to digital—digital sales only compensated for 19% of the physical market’s collapse, whereas in Japan the fall was compensated for by 75% (42% in the United States). Yet, unlike most countries in the world, France has diversified offers: iTunes is the leader, with over a third of the market, while SFR has 30% and Orange 13%, while Virgin and FNAC also have competitive offers for downloading music.

Nevertheless, the rapid growth of broadband internet access, following the development of double or triple play offers in France (from 700,000 users in 2002, to 16 million in 2008), mainly benefited the downloading of unlawful content. In 2008 a quarter of the 32 million internet users—8 million people—unlawfully downloaded 800 million songs (i.e. 15 times the number of songs lawfully downloaded).

In 2008 online sales represented 12.5% of the French recorded music market; mobile phone sales represented 60%, against 40% for the internet. On the whole, downloading by the unit has a paramount position, while subscriptions only represent 18% of the digital turnover and streaming represents merely 5%.

The plunge continued during 2009, as in the first semester the physical market was reduced by 21%, while the digital market only increased by not much more than 3%. However, when analysing the digital market, it appears that there are certain encouraging developments taking place; indeed, while the income related to mobile phones has diminished by 51% over the semester, income from downloading from the internet rose by 39% and income from streaming and subscriptions rose by 300% and now represents 5% of the market.

Despite the collapse of the advertising market, income from streaming sites is expanding; the two French ‘champions’, Dailymotion and Deezer, have regularised agreements with producers and the collecting society SACEM, allowing the development of legal offers on the internet, financed by advertising or subscriptions.

France therefore has rich and diversified online music offers. The Music Observatory (Observatoire de la Musique) has an inventory of over 100 different services. Despite a diversified offer, comprising in particular limitless download offers by telephone operators (for €12 per month), it did not succeed in limiting the competition from unlawful downloading.

The Evolution of the Perimeter of Rights Managed by Collecting Societies
Historically, collective management has been paramount in terms of copyright; SACEM is the model for continental collecting bodies. Since the members of SACEM (authors, composers and publishers) contribute their mechanical rights and public performance rights to the collecting body, SACEM has the means to enter into agreements with the new actors in music distribution, in order to allow access to its catalogue. Obviously, the reappraisal of the reciprocal representation agreements by the EU and the development of P2P did not enable SACEM to turn digital distribution into a significant resource.

The collective management of the producers’ and performing artists’ rights is more recent. The granting of an exclusive right to authorise any use of a record goes back to the Law of 3 July 1985 (n. 85-660).

This Law introduced, by derogation, a compulsory licence for certain uses of phonograms. The compulsory licence provides for an exemption to the prior authorisation where a phonogram published for commercial purposes is broadcast or directly communicated to the public. Such uses entitle the producer and the performer to remuneration. In practice, the compulsory licence covers three types of exploitation: sound and television broadcasting; communication to the public in clubs; and communication to the public in places that have sound systems.

The Law of 3 July 1985 also introduced remuneration for private copying, which is based on a direct and fixed payment by the manufacturers or importers of recording mediums that may be used for reproduction of works for private use (blank tapes or DVDs, memory cards, etc.) to the collecting bodies that represent the copyright or neighbouring rights owners. Collecting societies that group the collecting bodies representing the producers (SCPP and SPPF), the main performing artists (ADAMI) and the musicians (SPEDIDAM) collect the remuneration. Besides these limited uses, the record producers have put in place voluntary collective management schemes, which are not subject to the compulsory licence.

The exploitation forms that are covered by the exclusive rights subject to the voluntary collective management schemes have been successively applied to: music videos (television broadcasting of video clips); the creation and exploitation of databases for sound systems in public places (reproduction rights of phonograms for the provision of mood music programmes for public places); the creation and exploitation of websites that use excerpts taken from phonograms; the creation and exploitation of music used for phone-interim music (standby music using phonograms published for commercial uses); and the use of phonograms published for commercial use to illustrate shows and to communicate phonograms to the public by way of broadcasting, internet (webcasting) and television (use of phonograms in television programmes).

In 2008 the income collected for video-music rights came to almost €25 million. During that accounting year, the collections for all ‘phonographic rights’ subject to voluntary collecting management came to over €17 million.

The development of online distribution, and in particular P2P, constituted an opportunity for the collecting societies representing the artists, the ADAMI and the SPEDIDAM, to call into question the boundaries between individual and collective management. With the support of consumer associations, these collecting bodies defended the idea of a compulsory licence, which progressively took the form of a ‘global licence’. Under this scheme, the internet users who wish to exchange cultural contents for non-commercial use would be able to pay royalties, and the internet users who refuse to pay would undertake to abstain from exchanging files. The royalties paid would be collected and distributed by the collecting societies. At the same time the remuneration for private copying would have been extended in order to take into account the copies made.

Following stormy parliamentary discussions, during which the compulsory licence had initially been voted for, in a night session before Christmas 2005, this solution was definitely rejected by the DADVSI Law of 1 August 2006, which affirmed that filesharing is subject to the agreement of the rights owners. Nevertheless, the Constitutional Council, considering that the reduction of the sanctions undermined the principle of equality, removed the provisions relating to the sanction of unlawful exchanges over the internet, thus depriving the legislation of an efficient means of fighting against unlawful downloading.

However, the Council of State ruled, in a judgment of 11 July 2008:

‘the sole purpose of the remuneration for private copying is to compensate the loss of revenues of the authors, the performing artists and the producers, generated by the lawful use of copies of works fixed on phonograms or videograms made without their authorisation for strictly private use… [and that] unlike what is argued by the minister of culture and communication, the determination of the remuneration for private copying may only take into account the lawful copies…made from a source acquired lawfully.’

The remuneration for private copying may therefore only be collected for copies made lawfully, outside sharing.

Because of the collapse in record sales and blank mediums sales, the collecting societies’ revenue started to decline in 2008. Collecting societies are fighting (on occasion among themselves) to increase amounts payable by broadcasters and public venues. The producers’ collecting societies point out that the rates negotiated through voluntary collective agreements provide revenues up to five times higher than those resulting from compulsory licences.

IMPLEMENTATION OF THE ‘GRADUATED RESPONSE’ (HADOPI 1 AND HADOPI 2)
To materialise a commitment made by the President of the Republic, the Minister of Culture and Communications assigned a mission aimed at finding an agreement between the professionals in music, cinema and audiovisual, and the access providers to Denis Olivennes, president of FNAC. The report presented by Olivennes resulted in the signing of the Elysée Agreements on 23 November 2007. Forty-seven enterprises and representative organisations signed these agreements, the professionals of the cultural sectors and internet access providers showing their wish to have a legal framework established.

The draft bill, ‘Creation and the Internet’, which was inspired by this agreement, was aimed at preventing and fighting piracy, with an educational dimension. The objective was to balance everyone’s rights: the right of property and the moral right of the creators, as well as the protection of privacy and the civil liberties of the internet users.

The draft law did not modify the rules applicable to literary and artistic property infringement; however, the aim was to substitute the criminal sanctions to which the internet users are subject from the first unlawful downloading with warnings that were to precede any sanction.

After long discussions, the amended draft was enacted; any internet subscriber must now make sure, first, that he does not infringe on literary and artistic rights while using his connection to internet. Second, after at least two ‘recommendations’, a procedure to sanction can be engaged, subjecting the internet subscriber, third, to the suspension of his connection. This mechanism is structured by a new administrative agency, the High Authority for the distribution of works and the protection of rights on the internet (HADOPI), which replaces the Authority for the Regulation of Technical Measures created in 2006.

1. The internet subscriber’s obligation to ‘vigilance’. A subscriber to internet access is now obliged by law to make sure that his access is not used to exploit a work, a recording or a programme without the authorisation of the holder of the copyright or neighbouring rights, if applicable. This obligation introduced a form of vicarious liability, since the internet subscriber may be held liable if a third party commits an unlawful act of exploitation of a work, recording or programme using the connection of the subscriber.

The violation of the vigilance obligation is not the same as the liability for copyright infringement: the one does not exclude the other. Moreover, the legislation creates a new provision, under which, in the case of an infringement of a literary and artistic right that ‘caused the content of a [website]’, the High Court of First Instance may be seized to order appropriate measures ‘likely to prevent or to put an end to such an infringement…against any person likely to contribute to remedying the situation’; among the persons concerned, one may not exclude the holder of the internet subscription.

2. Recommendations and the sanction procedure. Within HADOPI, the Commission for the Protection of Rights is the organ responsible for taking the measures called ‘recommendations’ and sanctions. The Commission acts when sworn agents, who are employed by the collecting societies, seize it, or on the basis of information transmitted by the public prosecutor authorities for acts that did not take place over six months ago.

When it is seized for—informed of—facts ‘likely to constitute a violation of the [vigilance] obligation’, the Commission ‘may’ send, via the ISP, a ‘recommendation’ to the subscriber by e-mail, reminding him of his vigilance obligation, and indicating the day and time that the facts were recorded.

The contents of the unlawful exploitation that may have escaped the vigilance of the subscriber are not disclosed to him, but he can present observations and obtain upon request ‘precisions on the content’. However, ‘the merit of the recommendations…may only be challenged in the framework of an appeal against a sanction decision’, that is to say before the judicial courts are seized on the grounds of an annulment or reversal of the sanction decision.

If the Commission is seized again for the same acts within six months of this sending, it ‘may’ send another ‘recommendation’, with the same conditions, and may at the same time send a letter with acknowledgement of receipt (or in any other way that proves the date on which the recommendation is sent).

3. The suspension of internet access. Initially the law provided that, if within one year of the sending of such a letter ‘it is recorded that the internet subscriber has violated the [vigilance] obligation’, the Commission ‘may’ pronounce sanctions after a proceeding in which the subscriber participates. The law also permitted the High Authority to ‘propose a settlement to the subscriber who undertakes not to repeat the recorded infringement…or to prevent it from occurring again’.

The Constitutional Council censured a part of the law concerning the graduated response: only the section on the sanctions. It ruled that the suspension of the connection to the internet could only be ordered by judicial authority; the second section, which results from the Law n° 2009-1311 of 28 October 2009, therefore removed the possibility for a settlement and introduced a system of sanctions pronounced by the criminal court.

This latter law—called HADOPI 2—mainly aims to authorise the agents of the High Authority to record facts likely to constitute violations committed online and that are infringements of copyright and neighbouring rights, and to hear the relevant persons. If the facts are proved, the case is transferred to the judicial authority. The criminal court will pronounce the adapted sanction against the authors of unlawful downloading (a fine, suspension of access to the internet, or imprisonment with or without a stay of sentence).

The law enables the Commission for the Protection of Rights’ to record the facts that are likely to constitute infringements of copyright or neighbouring rights committed on the internet. When the persons concerned ask to be heard, the members of the Commission for the Protection of Rights summon them. Any person heard has the right to be assisted by the counsel of his choice. A copy of the record is given to the person.

If the proceedings are maintained, the court is seized. The public prosecutor will communicate the case and his summons to the president of the court, who will rule without any prior discussion. The criminal order that is rendered will either acquit or condemn to a fine, and, if necessary, one or more additional penalties. A motion to vacate may be lodged against this order, which is rendered without the participation of the internet subscriber. Also, if the judge considers that a discussion with the participation of the internet subscriber is necessary or that imprisonment should be pronounced, he sends the case to the prosecutor.

The law provides that when an offence is committed using an online communication service, the persons found guilty may be condemned to the additional penalty consisting of the suspension of access to an online service of communication for a period that may not exceed one year, and the subscriber is prohibited from subscribing to another agreement of the same nature with another operator.

In order to pronounce the additional suspension penalty and determine its duration, the judge will take into account the circumstances and the seriousness of the offence, the personality of the author, his professional or social activity and his socio-economic situation.

When this service is bought according to commercial mixed offers that include other types of offers, such as telephone and/or television, the suspension rulings do not apply to these services. During the suspension, the subscriber shall continue to pay his subscription; if he decides to terminate it, he shall bear the entire cost. The internet user will not be entitled to take any other subscription during the suspension period ordered by the judge.

The law adds that, in the case of serious negligence, the additional suspension penalty can be pronounced in the same way against the holder of the access to the internet to whom HADOPI has beforehand sent, by letter with acknowledgment of receipt or any other way that proves the date of presentation, a recommendation inviting him to implement a security system regarding access to the internet.

The High Authority was thus enabled to start investigations; the first reminders to comply with the law should take place at the beginning of 2010. After two warning e-mails sent to the internet users who take part in unlawful downloading, HADOPI will be, in the case of a repeated offence, entitled to constitute a case and seize the criminal court in order to ask for the suspension of access to the internet and/or a prison sentence, as well as a fine. Nevertheless, it is likely that some time will pass before the threshold of 10,000 daily warning messages is reached. This would require the mobilisation of the collecting societies, in order to collect the data, and the collaboration of the internet providers to collect the URLs and send the messages.

The Creation and the Internet Mission
As soon as the Creation and the Internet Law was passed, the new Minister of Culture, Frédéric Mitterrand, started a think tank aimed at encouraging the development of lawful offers while guaranteeing the remuneration of creators and investors, and the sharing of the value created by the distribution of works on the internet. Professionals were invited to contribute to the framing of the mission, which was assigned to a commission of three members, chaired by an independent producer, Patrick Zelnik.

For the contributors as a whole, there is no question that the development of P2P entailed the transfer of value from the rights owners, authors, performing artists and producers to internet access providers, since the ability to download freely is one of the decisive factors of the development of broadband internet.

However, the suggestions have been extremely diverse. Beyond the predictable opposition of the collecting societies, in favour of collecting remuneration from the access providers and the producers, in favour of controlling the exploitations, the contributions to the mission reveal that there are many more divisions, in particular between those who defend the creation of additional modes of collection and distribution of resources and those who defend a more profound evolution of the mode of distribution of phonograms.

Among the contributions from the music industry, five are notable. First, UPFI, the independent producers’ union, as expected wanted to increase the revenue of the music sector while encouraging the offers of the independent producers. UPFI therefore made the following propositions:

• the creation of a tax on the turnover of broadband internet operators, based on the same model as applied to the cinema industry, the proceeds of which would support the phonographic industry, through a fund open to all sectors of the industry (development, production and distribution);

• the reduction of VAT to compensate for the creation of this tax; the idea is to increase the share of the subscription that is subjected to a reduced rate (the share dedicated to the broadcasting of television programmes in the triple play offers);

• the creation of a tax on advertising revenues generated on the internet; this proposition results from the admission that only the search engines benefit from the traffic generated by research for unlawful downloading;

• the creation of a tax incentive in favour internet users, in the form of a tax credit for those who subscribe to a lawful downloading offer;

• the improvement of visibility of lawful offers; and

• the reduction of the VAT rate on the downloading of cultural goods, to align it with the rate applied to the sales of books (i.e. a reduction from a rate of 19.6% to 5.5%).

As for the SNEP, the other union of producers, which groups the majors in particular, it is against any system that aims at taking into account unlawful downloading in order to determine remuneration; this position is in line with the case law of the Council of State, which ruled that the remuneration for private copying be limited to the copies made lawfully. In fact, the SNEP wishes to create a funding account and a tax incentive for the access providers, to encourage lawful offers and to fight against infringing content.

ADAMI, the collecting society of the performing artists, suggested a combination of measures, which aim at:

• making lawful offers easier (interoperability and diversity);

• encouraging the diversity of the offer (by supporting the independent distributors and by forcing the transparency of the remuneration);

• extending the collective management, by subjecting webcasting to the equitable remuneration licence and making collective management compulsory for streaming offers; and

• creating a contribution to be paid by the access providers and telecom operators in order to compensate the uncontrollable file exchanges; this compensation would be shared by the collecting societies between the performing artists, the authors and the producers.

SACEM, the collecting society of the authors and music publishers, considers that the enactment terms of the HADOPI Law will not manage to stop unlawful exchanges and that the significance of files already stocked constitutes an obstacle to the development of the lawful offer for the songs in the catalogue. SACEM therefore pleads for:

• implementation of simple licensing schemes for the entire catalogue;

• direct funding of the creators (authors);

• regulation of contractual negotiations (access to distribution and transparency of prices); and

• implementation of a compulsory contribution to be paid by the access providers to the authors, composers and music publishers; this contribution would adapt to the non-authorised exchanges and would not, therefore, be given in exchange for an authorisation.

It is to be noted that there seems to be a contradiction between the fight against unlawful exchanges, which is the mission granted to the collecting societies by law, and the levying of a remuneration of which the basis of calculation is the volume of such exchanges.

Finally, ASIC, which groups the internet operators, is, as expected, against taxation and contribution systems, while making it clear that that would delay the emergence of beneficiary economic models and encourage the relocation of services. ASIC therefore proposes stronger co-operation aimed at enabling the digitisation of content and the generalisation of marking devices, and suggests that this should be financed in particular through a contribution from the collecting societies.

Conclusion
The year 2010 should see the beginning of the implementation of the ‘three strikes’ response set up by the Creation and the Internet Law; this warning and sanctioning mechanism is only a prerequisite for the development of a model that will enable the remuneration of rights holders. The measures recommended by the Zelnik mission will only be determined over the course of the year.

At this stage we can at least anticipate some indication of the recommendations will emerge as a result of the mission:

• the implementation of a system to help fund the development of an ‘independent’ offer on the internet—taking into account the convergence of criticism about the access of independent producers to a competitive offer, it is likely that the mission will recommend the development of mutualised offers ensuring the transparency of the remuneration; this could be a new field of intervention for the producers’ voluntary collective management;

• the development of collecting management—without going as far as extending the equitable remuneration beyond the boundaries set by international agreements, it is possible that uses such as webcasting and to a certain extent streaming will be subject to collective management; in this respect, it should be noted that, after a 15-year battle, the national collective bargaining agreement applicable in the phonographic industry took effect in 2009, providing for musicians to be paid a proportional remuneration calculated on the exploitation receipts collectively generated by the producers; and

• the access providers and, if necessary, the search engines will be asked to contribute—on this point, two competing models are proposed by the participants; under the first model, the sums collected would constitute compensation for unlawful downloading and would be shared out between the rights holders (authors, artists and producers), while under a second scheme the sums collected would finance a funding account for music creation, production and distribution, on the model of the funding account that exists in the cinema industry; these two solutions could be combined and it is likely that a part of the sums would be collected and distributed by the collecting societies.

In addition to the important role that the collecting societies will have in fighting against unlawful exchange, it is clear that these measures will result in the collecting societies having a more active role, with an increase in the sums to be shared out. One should bear in mind that collective management as such is not a goal and should be used in order to facilitate access to licit offers and to maximise the revenue of the rights holders. In order avoid conflicts of interests between the societies and their members, it is more than ever necessary to make sure that the rights holders’ wishes are taken into account, that the management of the societies is efficient and that the sharing of money is equitable.
Country Update for France by Anne-Marie Pecoraro


Anne-Marie Pecoraro acts in the domains of intellectual property, new technologies and entertainment law. She specialises in advertising, literary and artistic property and trademarks law. She has also a sound legal knowledge regarding designs and models and disloyal competition. She has an expertise in contract drafting and negotiation, advises her clients and defends their rights in the case of litigation at national and international level. Some of her clients belong to the industrial and institutional sectors, other come from creative fields such as producers, editors, authors, celebrities, artists’ agencies, museums, etc. After having started her career as a jurist for production agencies and several companies in the movie and music sector, Anne-Marie Pecoraro co-founded a “niche” law firm in the IP field, before joining another law firm and creating at the beginning of 2009 Aklea with 16 other partners. The mission of this new legal practice of 100 persons spread out over 3 French locations and one Chinese office is to advise its clients within the framework of their development.

With the music industry mutation and the rise of innovative online music services, new agreements have to be found and new revenues shared. It would be interesting to analyse, country by country, who should hold the key role: websites, internet platforms or collective management societies. This article will look at the different actors in play and explain their role in the evolving concept of clearing and licensing from a French point of view.

The Status of Internet Platforms, Website Publishers or Hosts
With the development of the online world, and current web 2.0 platforms, the French traditional civil liability system for digital media had to be reinterpreted. The French liability system is based on article 6 of the Digital Economy Act, the LCEN Law of 21 June 2004, which makes a distinction between hosts and website publishers. Pursuant to this law, on the one hand, the website publisher is fully liable for the content on its site and thus has a duty to control the legality of the content. On the other hand, the host is only liable if it has knowledge of the illicit content or if it has not immediately removed the said content after having been made aware of its existence. The liability of the host is not exonerated, but limited. We can thus conclude that civil liability is less consequential for website hosts than for publishers.

With the development of internet platforms, the issue was to know which status should apply to web 2.0 sites, since they can be both hosts and publishers. French case law finally settled on a particular criterion of ‘content control’ to make the distinction, and determines whether or not there is the possibility for the service provider to control online content in regards to its general activity. In some cases in 2009,1 Dailymotion, YouTube, Google Video and eBay platforms were found to be hosts by the French courts, mainly because

‘the service providers that are not personally at the origin of the contents, have not personally posted them online, and can only control them after their posting and broadcast (and not before), and therefore benefit from the liability scheme of hosts, even though such service providers offer a technology allowing internet users to put such content online.’

But it can go both ways. In the LVMH case,2 eBay was judged more than a simple host. It was found liable for brand counterfeiting, which had taken place on its auction site, and was ordered to pay the claimant €80,000. In a similar case involving Radioblog,3 a streaming website was fined more than €1 million—the proceeds going to the French collective management societies SCCP and SPPF—for gains it generated from music posted on the said website, including advertising gains. The court based its decision on article L311-1-3 of the French Intellectual Property Code, which states that

‘to set damages, the jurisdiction takes into account the economic negative consequences of the wronged party, of which the loss of gain, the profits made by the author violating the rights and the moral prejudice caused to the rights owners.’

The webmasters pleaded for host status, but it was denied, since the music files were not stocked on the server. The website only gave access to hypertext links to listen to music.

Also in 2009, the webmaster of a downloading website was accused by the French courts of making movies available to the public without the authorisation of the rights owners. He enabled the downloading of 7,113 movies via his site, Emule Paradise, and made profits of more than €416,000 in two years. A decision in the case is due in March 2010.

Given such judgments, French courts could be regarded as innovators. The severity of their decisions also shows the will to find new solutions in favour of the rights owners.

However, the platforms’ remuneration system (in particular, their remuneration through advertising) should be analysed to renegotiate financial liabilities and to reshape the beneficiaries’ remuneration model. On one hand, platforms offer music to consumers and, on the other hand, they benefit from advertising revenues, subscription fees and other forms of additional value created (despite the fact that music titles are sold or accessible for free). Therefore, we see that the economic model for subscriptions rests upon the abundance of the offer. Internet users evidently prefer an unlimited access offer. Therefore, the goal of the websites is to maintain a substantial catalogue of titles and to integrate as many recordings as possible. The internet traffic generated on the website will then increase, as well as all the revenues generated by the presence of the catalogue, and the internet pages that sell more advertising space than music.

An American proposal, dated 1 October 2008,4 suggested that income take into account the pertinent pages visited by the user (i.e. all pages that would allow him/her to access the musical tracks). The internet site’s home page and all pages that the users must visit to reach the page where the searched musical track is displayed (including this last page) should be taken into consideration. The owned remunerations are calculated in consideration of the incomes generated by the advertisement placed by a third party on the pertinent pages (i.e. the page from which the user can ‘download’ or ‘stream’ the musical track, and all pages leading to any page from which this downloading or streaming is possible). The incomes generated by advertisements would also depend on the particular place that they occupy on the visited pages (Service Revenue 1.iii., Copyright Royalty Board 37 CFR Part 385).

It is true that the LCEN Law does not prohibit hosts from making profits on advertising. What is still unclear is how rights owners should receive a part of such profits.

Collective Management Societies
To limit the problems of liability described above, collective management societies also need to adapt to the challenges of the digital market. Viable solutions include arranging agreements with online operators and telecommunications providers and simplifying the granting of EU-wide licences.

SACEM, the French authors’ society, concluded recent local, European and international agreements with many online and mobile operators. The agreements take into account various bases and use different rates for the sale of works.

At the local level, in December 2008 SACEM signed an agreement with the leading French video-streaming provider, Dailymotion, to promote broadcast of works online. In accordance with this agreement, Dailymotion pays SACEM a percentage of revenues, notably advertising revenues for different works represented on its website, including musical works, musical documentaries and clips, sketches, and poems. In August 2008 SACEM signed the offer ‘Music Max’ with Orange, in which users have access to an unlimited music catalogue and can download 500 songs for €12 per month.

At the European and international levels, at the beginning of 2008 SACEM signed an agreement for online and mobile licensing in Europe with Universal Music Publishing (UMPG). This agreement, known as Digital European Administration and Licensing (DEAL), develops a common framework for the licensing and administration of the organisation’s rights for multi-territorial online and mobile exploitation in Europe. The idea is that SACEM licenses and administers the online rights owned and/or controlled by UMPG together with those works from SACEM’s repertoire published by UMPG. One year after its signature, agreements for the European use of the international repertoire of UMPG and SACEM’s repertoire were signed with mobile and online operators such as Amazon, Spotify and Omnifone, and with Nokia for the offer ‘Comes with Music’.

SACEM also works with Warner Chappell Music regarding Pan-European Digital Licensing (PEDL), which gives it the non-exclusive management of the publisher’s catalogue. Finally, SACEM is furthering its investments by working with its European counterparts, the SGAE (Spain) and SIAE (Italy), to facilitate the grant of licences for their repertoires at an international level. The Armonia project, launched in 2007, created the concept of ‘one-stop shopping’ enabling the grant of multi-territorial authorisations for the online and mobile exploitation of music works from collective management companies’ repertoires. Globally speaking, French companies can obtain European licences on catalogues of three of the four main world publishers.

The goal of these European agreements is to make it easier for users to obtain licences in several countries from a collecting society of their choice. In reality, though, it is more complex than that. In a 2008 case (the CISAC case of 16 July), as reminded by a EU agency press release:5

‘the Commission prohibited 24 European collecting societies from restricting competition by limiting their ability to offer their services to authors and commercial users outside their domestic territory.’

However, the decision allowed

‘collecting societies to maintain their current system of bi-lateral agreements and to keep their right to set levels of royalty payments due within their domestic territory.’

Clauses in the reciprocal representation agreements, concluded by members of CISAC (International Confederation of Societies of Authors and Composers), as well as other connected practices were considered prohibited practices by the Commission.

Today, the redistribution revenue scheme operated by the collective rights management organisations to the rights owners needs to be reinforced. It seems that the authors’ societies could reproach the ISPs for such problems as they are the ones who facilitate the access to free online music. In an attempt to contribute to a solution, France recently adopted the HADOPI Law and is already discussing post-HADOPI solutions.

New Solutions after the HADOPI Law: Hadopi et après?
Current technology does not enable the lasting removal of downloaded recordings from unauthorised sources. Many countries have passed legislation in an attempt to solve the problem of piracy. In France, the Government adopted the ‘Creation and the Internet’ or HADOPI Law.6 This law is twofold: first, to develop legal services of online music and titles, and, second, to fight against illegal downloading.

The ‘graduated response’ provision was aimed at reducing illegal downloading by gradually penalising the offender. The first HADOPI Law, or HADOPI 1, had provided the following penal sanction model: the offender will receive a first warning by e-mail from the ISPs, without any precision of the content in question. Should illegalities persist in the six months following the first warning, the offender will receive a second warning, either by e-mail or other means such as a registered letter. HADOPI 1 also had a repressive measure. If by the third warning the user remained delinquent in his/her online activity, the HADOPI organisation, or High Authority, had the power to suspend the user’s internet connection for between a month and a year. In the meantime, the user would still remain accountable for his/her monthly payments to the ISP. In addition, his/her name would be added to the HADOPI black list in order to prevent him/her from subscribing to a new ISP.

The amended legislation, HADOPI 2, was created to rectify the penal aspect of HADOPI 1, following a decision of the French Constitutional Court. The Court judged the repressive provision of HADOPI 1 to be unconstitutional, holding that the measure violated the fundamental right of access to the internet resulting from the freedom of expression. Thus, the principal measure in HADOPI 2 concerns the shift of power to impose direct repressive measures. In HADOPI 2 the power is no longer given to the High authority, but to a judge.

On 21–22 September 2009 the French Senate and National Assembly adopted HADOPI 2 and, on 29 October, the French Constitutional Court validated it. Then, on 6 November, the European Parliament, which had expressed concerns about the civic rights violation, approved the internet connection suspension and underlined the fact that only judges would have the authority to suspend connections.

Therefore, the French law at a global level is the toughest one in the world. It is also the strictest in that it requires home internet users to install approved security software, placing the onus on users to secure their networks. After the adoption of the law, the French market can only be the most dynamic and successful, or that is what the Government proclaimed.

Elsewhere in Europe, Sweden’s anti-piracy law, based on the EU’s Intellectual Property Rights Enforcement Directive (IPRED) came into force on 1 April 2009. The text provides that the claimant can go to court to obtain the IP address of the user suspected of illegal downloading. Unlike French law, the possible sanctions go from a warning letter directly to a fine; there is no graduated response.

In the UK, the British Government is not against a lighter version of the French HADOPI Law and announced that it would proceed in different phases. The first step will take place in April 2010 and will last a year. The regulator, Ofcom, will be responsible for sending warning letters to users practising illegal downloading. If at the end of this period piracy has not been diminished by 70%, more repressive measures will be studied. The suspension of internet connections might be considered, but only in the last recourse, as an extreme measure against recalcitrant users.

In Germany, the Government has rejected the idea of a graduated response. Some German companies have found a way to benefit from downloading. For example, DigiRights Solutions is a company that specialises in locating users practising illegal downloading and demanding damages of €450 per infraction. It then keeps 80% of the sum for itself and redistributes 20% to the interested party. In certain countries, some companies also use offenders’ lists to build marketing statistics about downloading habits. In Ireland, only one ISP has voluntarily agreed to adopt graduated response principles and Italy simply agreed to follow the French model in the future. In the United States, there have only been discussions about such sanctions. Recently, Recording Industry Association of America (RIAA) got its first victory against usenet.com, an operator that offered paying access to the Usenet web, allowing its users to download massively and without limit movies or music.

The French HADOPI Law, which remains an emblematic move of the Sarkozy Government, has received a great deal of criticism.7 It can also be said that the HADOPI Law did not solve the problem of the remuneration of artists for the market in online music. With that in mind, the Zelnik commission was created to offer measures capable of developing, encouraging and enhancing the most attractive legal cultural offer on the internet. This commission counts three members: Jacques Toubon, former Minister of Culture; Guillaume Cerruti, the CEO of Sotheby’s France; and the chair, Patrick Zelnik, CEO of the French music publishing company Naïve. They will have some exchanges with the European Parliament and Commission and seek professional advice from the French authors’ societies and other organisations. The goal of the report, due on 15 December 2009, is to facilitate the distribution of cultural works while guaranteeing the remuneration of the rights owners. According to Patrick Zelnik,8

‘there will be at some point in time the need to transfer the wealth between the rich and the poor, on one hand, the ISPs and on the other hand, the producers of cultural content.’

In the framework of the Zelnik mission, French media organisations communicated their opinions and advice regarding the future of music licensing.
SACEM and ADAMI, the two French collective management societies, share a similar point of view concerning HADOPI and consider that the law is a first answer to the problem of piracy, but will not be sufficient. They suggest a mechanism of compensation that would be flexible depending on the global volume of non-authorised exchanges and that would equally take into account the economic prejudice suffered and future harms. This contribution to compensate from the loss of gain from illegal downloading would be deducted from the ISPs’ global turnover.

For the Union of French Independent Phonographic Producers (UPFI), the taxation scheme must be reviewed. It suggests a series of new taxes, such as a taxation of high-speed internet operators’ turnover. This tax would enable the creation of funds to finance local productions, like the CNC tax for the film industry. To finance French cinema, a tax was indeed recently created for the television services that ISPs offer via ADSL (0.9% of the amount of subscriptions). Another idea is the creation of a tax on the advertisement revenues generated on the internet or, finally, the implementation of a deduction on income tax to encourage consumers to buy online music (a percentage based on the purchases of online cultural goods).

The Union Chamber of the Musical Edition (CSDEM) has put forward the following ideas: first, the withdrawal of websites that infringe copyright law; and, second, the regulation of internet practices. The first point seems hard to achieve and has already failed in other countries. The second point also refers to compensation by ISPs that have a commercial responsibility for their clients’ illegal actions. This indemnification would be paid by ISPs in consideration of the number of subscribers or in consideration of the flow, i.e. the number of gigabytes used monthly by visitors.

The Society of Dramatic Authors and Composers (SACD) was challenged over one of its suggestions: taxation of online advertisement revenues. Some warned that taxation on all the key internet actors would not only impact video, blog and music platforms, but also the creators and/or consumers.

Continuing with the contributions to the Zelnik report, other suggestions were put by the National Union of the Phonographic Edition (SNEP). Unlike SACEM and ADAMI, SNEP is not in favour of a system of compensation by the ISPs. Instead, it proposed again some of its known ideas: a lower VAT rate (5.5%) for the downloading of cultural content; review of the electronic commerce directive; and the creation of a support fund for music industries financed by a tax incentive measure for ISPs. SNEP also proposed the re-enforcement of existing financing devices in addition to better tax optimisation.

The French minister for the digital economy, Nathalie Kosciusko-Morizet, following the government consultation on the theme of the ‘Internet for Music Creation’, published a synthesis on the subject on 13 November 2009. In this report, she advocated the creation of a support fund for innovative online music services. She also mentioned her wish for a modernisation of the instruments of redistribution by the authors’ societies, as well as the simplification of music websites’ approach to mobile operators and rights owners. Regarding internet users, she mentioned the need for a better adaptation of the offer by the development of subscriptions and the withdrawal of technical measures of anti-copying protection that ‘penalise the purchasers of legal music first’.

Innovation is the key to enhancing the legal downloading of music. Some have understood that and have developed new ways to charge for online music access. For example, Deezer has created a Premium offer for €9.99 per month. The user will have unlimited access to music, without ads, and can store his/her music on his/her computer, mobile phone or MP3 device. However, the user does not own the music and loses all his/her music storage if the subscription is not renewed. What consumers want is portability. Deezer was aware of that, as was Disney Studios, with its new Keychest offer. Consumers want to collect digital entertainment in the same way that they collect CDs, DVDs and books. To make it worthwhile, they need to have access to the same content on the various digital devices that they possess and at a fair price.

We have seen on the liability standpoint that publishers are the first to be found liable, followed by hosts, on a more limited level. If ISPs are currently not legally liable (though they can be as hosts), we have seen that greater transparency is needed in the redistribution system. Some artists have already taken an innovative step by having recourse to auto-production. Others have created websites relying on new creative artistic schemes, for instance where users can make their own CDs online (as at www.joachimgarraud.com/, for example). Artists must defend their rights, and not only against internet users, because the strength of the market is not in financing or logistical means, but in the soul of creation.

Footnotes:
1. Bayard Presse v. YouTube, Paris First Instance Court, 10 July 2009; Jean-Yves Lafesse and others v. Google and others, Paris First Instance Court, 24 June 2009; Dailymotion v. Nord-Ouest Production, Paris Court of Appeal, 6 May 2009; and L’Oréal and others v. eBay France and others, Paris First Instance Court, 13 May 2009.
2. LVMH and others v. eBay, Paris First Instance Court, 18 September 2009.
3. SCPP v. Jean Louis et Benoit T., Correctional Tribunal of Paris, 3 September 2009.
4. Mechanical and Digital Phonorecord Delivery Rate Determination Proceeding.
5. Available at europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1165&guiLanguage=en.
6. See the article ‘Hadopi, le projet de loi controversé avant même d’être discuté au Parlement’, by Anne-Marie Pecoraro—published by the IRPI—for a commentary on HADOPI 1, and its positive and negative aspects (www.irpi.ccip.fr/pages/?ID_ARBO=236&ref_page=424#).
7. See Jacques Attali, pro-global licence, against the HADOPI Law at blogs.lexpress.fr/attali/2009/03/une-loi-scandaleuse-et-ridicul.php.
8. Cited in a recent article in Le Monde (www.lemonde.fr/culture/article/2009/11/13/la-mission-zelnik-rendra-son-rapport-vers-le-15-decembre_1266761_3246.html).

EMEA: Germany

Country Update for Germany by Sebastian Moellmann


Sebastian is an attorney at the Legal & Business Affairs department of the German media production company Brainpool TV, working on various entertainment, intellectual property licensing and corporate matters, with an emphasis on film and music. Prior to joining Brainpool, Moellmann was an associate at the Entertainment Law Firm Scheuermann Westerhoff Strittmatter, counseling clients on all issues related to the firm’s music, TV, trademark and sports practices, including in-court litigation. From 2003 to 2005 he completed his legal traineeship (Rechtsreferendariat) i.a. at the District Court of Cologne’s chamber for copyright matters and MasurLaw, NY, USA. Beyond that, he worked on a book project on media law for the International Law Firm Freshfields Bruckhaus Deringer. Before becoming a lawyer, Sebastian had numerous music releases with the HipHop-group DCS. DCS composed film music, was nominated for the prestigious „Comet“ award and played international live concerts. Sebastian has also been a partner of a music production company and music publishing unit and worked as a freelance writer for several music magazines.www.moellmann-law.com

The Starting Point
As in every industrial nation with an originally well-oiled music industry, piracy was an issue in Germany even before the dawn of the internet era. Bootlegs and counterfeits noticeably derogated the rights holder’s proceeds. However, the scale has dramatically changed since the internet became the relevant mass communication medium. About 75% of all German households are online. According to current studies, about two-thirds of juveniles and children between the ages of six and 19 years have access to a broadband internet connection
The media industry initially simply underrated the possible menace of filesharing platforms and the accompanying increase in uncontrolled media copies. Today, such increase is considered the main reason for the industry‘s heavy loss of revenue. Countermeasures are confined to the establishment of its own online business models and the application of restrictive digital rights management (DRM) systems, accompanied especially by a ‘zero tolerance’ policy towards so-called internet pirates. This reaction has resulted in growing numbers of criminal charges, actions for injunction and claims for damages.

In 2008 the business volume of digital music distribution in Germany increased for the sixth year in a row. In the course of media convergence, mobile devices, particularly mobile phones or MP3 players, have become equivalent recording and playback devices for musical content. Audible deficits as to sound quality are being increasingly accepted—the hi-fi generation is retiring, slowly but surely. Several businesses have been meeting such demands by creating platforms particularly designed for music downloads on mobile devices. Against the background of the media world’s increasing decentralisation, we are definitely observing an evolving market.

According to the German federal association for new media, Bitkom, 37.4 million singles (up by 22 %) and 4.4 million albums (up by 57 %) were legally downloaded in Germany during 2008, amounting to a value of about €80 million—growth of 34 % compared with 2007. The turnover in digitally distributed music, as a proportion of the industry’s overall revenue, amounted to 9 % in 2008.

However, according to the German IFPI branch, Bundesverband Musikindustrie, so-called internet piracy is costing songwriters, artists and record companies hundreds of millions of euros. In 2007, 10 times more songs were illegally downloaded than legally sold via download shops, even though illegal downloads had declined by some 50% since 2003. Interestingly enough, a change took place in 2009: the total numbers of music downloads (legal and illegal) declined, whereas streaming of musical content accelerated. It seems as though the interest in physical music data media has fallen simultaneously with a declining necessity for permanent copies of music on computers and mobile devices.

Compared with the people of other industrial nations, Germans tend to conform more to the law in their online behaviour. According to market researcher Ipsos, only about 11% of all German online users illegally download on a regular basis (far ahead of the pack are the Chinese, with 78%, while US citizens are ‘moderate’, with 18%; worldwide, illegal downloading averages 44 %). Remarkably, Germans are the most law-abiding internet users worldwide. In fact, 50% of all German internet pirates also download legally; again, about 60% of those so-called pirates actually buy CDs from (online) stores at least once per month. In contrast, only 14% of the legitimate users digitally consume music in the first place and just about one-quarter of them buy CDs on a regular basis.

This illustrates the paradox of the piracy problem: on the one hand, so-called internet pirates are being held responsible for the decline in industry proceeds via the classical distribution channels; while on the other hand, this group of people is the basis of the legitimate music business. Music pirates are also music lovers—and purchasers!

The Legal Side of Things
The German Copyright Act 1965 (UrhG) has been amended several times in the course of the harmonisation of European copyright legislation. Its aim is to protect personal and intellectual creations in the field of literature and arts (§ 2 of the UrhG), which typically includes the works of songwriters, composers and authors.

The author of a protected work generally owns two kinds of rights. The first are so-called moral rights (droits morales), protecting the personal relationship of an author with his work. These include the right of acknowledgment of authorship or the right to prohibit the work’s distortion. The second kind of rights—exploitation rights—defines the commercial use of a work. It particularly entails the rights of reproduction, distribution and making available to the public. According to German law, moral rights are not transferable and always remain with the author; however, he or she is entitled to transfer the commercially relevant exploitation rights to third parties. As to compositions and songwriting, those rights are mostly transferred to the German rights society, GEMA, for the purpose of collective licensing.

Via the so-called ancillary rights, the German Copyright Act also protects performances that come close to protected works or are at least closely related to their exploitation. Examples are performances of artists (singers or instrumentalists) or the commercially relevant production ‘performance’ of record companies. Thus, the UrhG supports the recording industry’s traditional business model by taking into account the organisational, technical, commercial and entrepreneurial performance of companies distributing protected works by producing records and taking care of the marketing. The legal status of performing artists and record companies is widely similar to that of ‘real’ copyright holders. In particular, their protected performances may only be exploited in accordance with the respective rights holder.

In the event of digital distribution of protected works or performances, the necessary rights not only need to be collectively licensed via the rights society GEMA, but also individually from the artists and/or labels, since the rights society of the record companies and recording artists, GVL, is not authorised to license collectively such digital distribution rights.

The unauthorised online use of music is an infringement of several exploitation rights: the storage of musical content contained in CDs or other data media onto a computer hard drive is a reproduction pursuant to §§ 15 I Nr. 1, 16 UrhG. The upload of such musical content affects the right of making available to the public, § 19 a UrhG. The download or stream of digitised songs is another reproduction.

The unauthorised upload of a music file is illegal in either case. The legal classification of downloading/streaming was in question for some time though. However, since § 53 UrhG (freedom of private copy) was recently amended, this question has been answered. Single downloads of a protected work for private use are allowed, but only if the respective master copy—the provided music file in this case—has not been illegally made available to the public. Yet this is typically the case on filesharing platforms, since it is safe to say that uploaders of music files have not been authorised to do so.

The rights holders’ remedies range from claims for injunction, disclosure and damages. In addition, the unauthorised online use of music can lead to criminal prosecution. Several district and appellate courts have established case law whereby the owners of WiFi internet connections are made liable for their children’s copyright infringements or—in case of unsecured connections—even for the infringements of complete strangers by way of the so-called Stoererhaftung (secondary disturbance liability). Unlike the record companies, GEMA pursues a different but large-scale litigation strategy, by taking legal actions against the ‘privileged until notice’ host provider businesses (particularly direct download platforms) instead of private users. Various court decisions specified and substantiated the host provider’s duty effectively to prevent further infringements after receipt of a notification claiming infringement from a copyright holder. A judgment of the Federal High Court of Justice (Bundesgerichtshof) in this area has not yet been delivered and is much anticipated.

The Proposal: Culture Flat Rate, a Sovietisation of Copyright Law?
Currently, the pros and cons of a collective rights licensing concept at the ISP level are being discussed amid much controversy between German rights holders, rights societies, political parties and lawyers under the catchphrase ‘culture flat rate’. The basic idea is a cross-industry solution (music, film and literature) to legalise the non-commercial up- and download of protected digital content on the internet. As fair compensation, the rights holders would receive an all-in levy, collected by the quasi-‘gatekeeping’ internet service providers.

As for the pro-rated, equitable payout to the rights holders, the flat-rate campaigners propose to take into consideration how often a certain work has been downloaded or played. For measurement purposes, exemplary utilisation patterns or statistical means such as surveys and valuations could be applied.

There is still some dissent with regard to the actual level of the flat rate. Suggestions range from €5 to €50 per month. As the case may be, the overall license revenue would total between €2.4 billion and €24 billion per year (based on the assumption of 40 million paying onliners in Germany).

At present, it is unclear whether the flat-rate proposal will prevail, since it has met heavy opposition from record companies, rights societies and economically liberal political powers who consider the concept as a ‘capitulation’ to illegal download activities. The flat rate would lead to the establishment of a gigantic bureaucracy and leave no inducement actually to buy digital works. The discussion has become heated and even generates irrational terminology, for instance by castigating the idea as ‘cultural socialism’ or even as the ‘sovietisation of copyright law’.

At the same time, the concept of a flat rate is being backed by a substantiated legal opinion of the Institute for European Media Law (EMR). The EMR concludes that commercial services orientated toward the needs of users would certainly be put under pressure. However, the quality of fileshared works would significantly differ from the industrial competitor. A P2P download would imply that at least one other user could actually provide the designated file. Apart from that, the unlicensed commercial distribution of protected works would stay illegal and accordingly actionable. Despite the implication of a ‘compulsory’ licence, collective ISP licensing would not be about a condemnation of rights holders, but would effectively safeguard their compensation and the media world’s diversity. Copyright law would have to allow such technological innovations and changes dynamically, since its leitmotif is the fair compensation of rights holders in return for the exploitation of their works or performances—never the protection of a particular business model. The traditional music business model is still based on compensation for each individual use of a work and has proven itself to be dated—as a result of changed technological and social circumstances.

The constitutionally guaranteed professional freedom of commercial download businesses would not be influenced by an across-the-board fee for file downloading. Such services would still edge over filesharing platforms in matters of variety, quality, availability and speed. A filesharer would always take the risk of compromising his or her computer system’s data integrity. The legalisation of filesharing activities would thus not necessarily imply the downfall of commercial content platforms.

Opponents of collective ISP licensing consider it unfair that an across-the-board fee would depend on the mere theoretical possibility of downloading. Even people who are not interested in downloading would eventually end up paying a fee. Flat-rate supporters react to this objection with the idea of linking the payable amount to the bandwidth of each internet connection. It can be assumed that broadband connections would not be used exclusively to send e-mails or read articles but to use ‘broadband content’ such as music or movies, so a fee would be justified.

In legal terms, the implementation of a collective ISP licensing model would require some amendments in European and, subsequently, German copyright law. The rights holders would have to cede their exclusive right to decide whether their works can be made available and distributed online. A corresponding ‘barrier regulation’ would need to be established, shortening the copyright holder’s extent of protection as to his rights of making available to the public and his distribution rights. In addition, a compulsory levy would have to be regulated by law.

What To Do Next
It is obvious that the current heated controversies must lead to some result—last, but not least, to overcome the suspicion that ‘old school’ music businesses are only concerned about the perpetuation of a possibly outdated business model, which in any case is no longer unrivalled. Until today it has not been possible for rights holders actually to receive fair compensation for the manifold exploitation of their creative labour. Extensive and expensive anti-piracy law suits are unprofitable, at least for songwriters and artists.

A possible scheme could be a compulsory fee for host providers, such as direct download or VoD (video on demand) services, providing platforms for the upload of musical and audiovisual content. The discussed concept of collective licensing on the ISP level is another practical approach to the problem—even if such a compulsory blanket licence for up- and downloads would require rather radical amendments of national and European copyright law and would definitely interfere with the rights holder’s autonomy of decision. Ultimately, it is about accepting the consequence of the technological revolution called the internet.

It is impossible to license individually the necessary rights for up- and downloading on filesharing platforms. A collective licensing model thus seems most likely. This is indicated by the massive extent of use of P2P platforms and the uncountable number of affected songs. A blanket licence would take this fact into consideration. The record companies and GEMA already have accepted a blanket licence scheme for another field of almost uncontrollable mass use of music: through framework agreements, German TV stations and production companies have access to the entire GEMA and GVL repertoire and are free to use music for the production and broadcast of TV programmes without being obliged individually to obtain sync-licences.

European and German copyright law already knows the concept of a compulsory licence/levy; § 54 UrhG rules on the claim of the rights holder to fair compensation from manufacturers of technical, digital audio recording devices or other data media that is predestined to provide private copies of protected works (comparable to section 1004 of the US Copyright Act). The revenues per medium or device are being collected by GEMA and distributed to the rights holders. Another example is pursuant to § 54 c UrhG, whereby every user of a copy machine pays a fee for each copy he makes. The copy businesses bundle those fees into the price of their services. Subsequently, the monies are collected by the responsible rights agencies, WORT and Bild-Kunst, and then distributed to rights holders. The proceeds are considerable.

This approach could also be applied to a collective licensing model at the ISP level. The existing and insofar approved rights agencies should collect the proceeds and divide the collected monies among rights holders based on the popularity of their music. The degree of popularity could be determined via internet monitoring and statistical methods. The assessment of television viewing rates has already been working this way for years. It cannot be ruled out that such ascertainment of data implies some vagueness. The Federal Constitutional Court (Bundesverfassungsgericht) has repeatedly stated that the idea of collective licensing permissibly includes standardisation, simplification and approximation.

Compared to the current situation, an ISP-based collective licensing model would be a great improvement for rights holders, since—for the time being—they receive no compensation at all for the manifold internet-based reproduction of their songs. There is a statutory claim for compensation for each individual use, which is, though, practically unenforceable. Several German attorney-generals already advise a halt to prosecution of internet piracy below a certain threshold. Statistically, only 0.1% of all requests for prosecution actually lead to a conviction.

Collective rights licensing at the ISP-level would, therefore, lead to a decriminalisation of filesharers and a relief for authorities, law courts and internet providers. If nothing else, the virtually absurd cat-and-mouse game between the music industry and its clientele would finally come to an end.

The implementation of collective ISP blanket licensing would most likely lead to even more loss in revenue for the traditional music businesses. However, these businesses would still be free to add some extra value to their (physical or non-physical) products: product diversification, exclusive (non-music) content and general authentication are desperately needed to re-establish an emotional bond between fans and artists that has been lost. Media commercialisation and the industry’s rigorous legal strategies against private users have eliminated the last sense of wrongdoing in the ‘pirates’. They feel that they are antagonising companies but not artists—there is an obvious lack in empathy.

It should be kept in mind that the online behaviour of the young is based on traditional behaviour patterns and, at the same time, almost constantly leads to so-called piracy. The infinite internet world has become the place where children and juveniles live out their universal basic needs: it connects the real with the virtual world. Identity shaping, self-dramatisation and peer grouping are very much in the foreground of internet use. The additional willingness to take on risks and a desire for adventure turns youngsters into potential delinquents. This does not make sense.

The music industry’s ‘zero tolerance’ policy simply ignores the basic needs of its own clientele and leads to its criminalisation. Coincidentally, this clientele is our young people. Hence, it is quite obvious that we are not talking about a seminal business model. The German Federal Constitutional Court has repeatedly stated that economic competition can cause businesses or business models to be squeezed out of the market. This is what is happening to the music industry and its conventialism: technological progress cannot be stopped. Other economic sectors have experienced similar transitions (who remembers the typewriter?). It is about time that we answer the question of how to master massive technological change in order to assure the fair compensation of rights holder—even in times of barely controllable mass utilisation of music. The concept of collective licensing at the ISP level is a feasible approach. After all, anything is better than nothing.

EMEA: Italy

Country Update for Italy by Gianluca Pojaghi

Gianluca Pojaghi  was born in Milan on November 15, 1964. After his law Degree at the University of Milan (J.D., Jurisprudence), he began practicing law in 1992 and is registered to the Milan Bar. Gianluca is a Partner at the Studio Legale Pojaghi, a boutique law firm with significant experience in the subject matter of copyright, music publishing, discography, entertainment law, software and new technologies, information society and media, privacy, trademarks, domain names and distinguishing signs, competition and antitrust regulation. Gianluca is member of the International Association of Entertainment Lawyers (IAEL) and of the Governing Board of the International Association of Lawyers (UIA). He is member of the editorial committee of the Canadian magazine Les Cahiers de propriété intellectuelle. Gianluca is author of various legal articles focusing on his field of practice. He speaks and works in Italian, English and French. www.pojaghi.com

Introduction
As in other countries of the droit d’auteur (as opposed to copyright) tradition, Italy always favoured the protection of exclusive rights and implemented a system of large-scale collective management of rights through the Società Italiana degli Autori ed Editori (SIAE), on a voluntary basis and not based on legal licensing schemes, such as in the US. Steadily, the development of new technologies brought the exponential increase in forms of global exploitation online, often outside the law, and together with it analysis of what might be the best way to ensure the respect of copyright, the payment of exploitation fees and the fight against piracy. As the collective management system is not generalised, the discussion is open, in Italy as well, on what could be future pathways of development, specifically with regards to music exploitation over the internet
The Applicable Law
Italy applies the principle of territoriality of copyright, meaning that Italian law applies to the protection in this country (as foreign law applies to the protection abroad), as a consequence of the general principle according to which the protection of immaterial goods is ruled by the law of the place where the goods are located (locus rei sitae), or the place where the protection is sought. According to article 185 of the Italian Copyright Law1, Italian rules of law apply to Italian works and to foreign works, however disseminated in Italy, the authors of which are domiciled in Italy. Article 189 of the same law extends the provision to motion pictures, phonographic recordings, performing artists, photographs and construction projects realised in Italy (or that can be classified as national).

The principle of territoriality has expressly been confirmed with the reform of the Italian system of international private law2, article 54 of which establishes the application of the law of the country of utilisation to the content of protection (and therefore both exploitation rights and moral rights) as well as to the limitations thereto and the title thereof, all with the limit of the public law exception should foreign rules contrast with the fundamental principles of the Italian (copyright) system. Article 57 of the same law indicates that the law applicable to the transfer of patrimonial rights is the one chosen by the parties or, in the absence of choice, the one determined by the connection criteria dictated by the Rome Convention, to which article 57 refers, such as the law of the country of residence of the author or rights owner. Finally, the law of the country where the damage has occurred—or, upon request of the damaged party, the law of the (potentially different) country where the damaging event has occurred—shall apply to tort responsibility according to article 62 of the law.

A further rule is given by article 16-bis of the Copyright Law with regards to the communication to the public via satellite, whereby the principle of territoriality has been adapted by considering the functional connection between the transmission and the reception of the satellite signal. Hence, the law provides that television broadcasts receivable in several EU member states are subject to the (sole) national law of the originating state. Should, instead, the broadcast originate from a broadcasting station located in Italy or in the charge of an Italian broadcasting organisation, but up-linked from a non-EU state, the legislation of which fails to ensure a level of protection equivalent to that of Italian law, Italian law shall apply.

However, the applicability of Italian law, in Italy, to foreign works does not entirely exclude the application of foreign legislations, such as the one(s) of the country to which the author belongs or, more frequently, of the country where the work was made public (published or performed) for the first time. International copyright rules are based on two basic pillars that are rarely derogated: the reciprocity of protection3 and (as in the Berne Convention) the exclusion of protection in a given country of a work that has fallen into public domain in its (different) country of origin for expiry of the protection term foreseen therein. In both respects, in order to assess whether a work is protected in Italy, its juridical status in the country of origin must be preliminarily verified.

Specifically with reference to databases, article 102-bis of the Italian Copyright Law expressly grants protection in Italy to all citizens or residents of the European Union, or business established therein, while article 146 of the same law, in the subject matter of resale right, explicitly includes authors and rights owners not belonging to the EU, when the legislation of their countries grants the same (resale) right to Italian citizens and rights owners.

We can therefore conclude that exploitations in Italy are subject to the generality of Italian rules of law that apply to both Italian and foreign rights owners, except satellite broadcasting which is normally subject to the law of the (potentially different) country of up-link.

The Case Law
Italian courts have addressed issues relating to online exploitations under (at least) two aspects: the protection of privacy and the responsibility of internet service providers.

With regards to privacy, the first and certainly most publicised (and criticised) decision came from the first instance Court (Tribunale) of Rome on 14 July 2007 (Techland, Peppermint v. Telecom Italia, Wind). The case involved data collection in unauthorised online sharing (through the internet access made available, respectively, by Telecom Italia and Wind) of an electronic game and musical recordings, still made through peer-to-peer (P2P) programs. During the litigation, the Privacy Protection Authority intervened in the processes, objecting to the claim by arguing that the data object of the petitions, according to article 156-bis of the Copyright Law (which grants the party that suffered the copyright violation the right to obtain from the judge the order that the opposite party supply elements to identify the individuals implicated in the infringement), could not be treated as having been gathered in violation of the provisions of law concerning privacy protection.

The court substantially endorsed the exception raised by the Authority, noting that that article 156-bis met the limit dictated by the regulation ruling the protection and confidentiality of personal data as a result of the internal, primary and constitutional legal framework4, as well as from EU law, according to directives on the protection of privacy in electronic communications and for the enforcement of intellectual property rights, the latter holding safe the former. From that is derived the prohibition to use and process data for purpose of justice, if not for crimes of particular gravity.

From a different viewpoint, the court held that that article 156-bis was contrary to the regulation for the protection and confidentiality of personal data under articles 121 and following of the Privacy Code5, in the sense that in the sector of electronic communications, such as the one under discussion (according to the court), the listening to, storing of and other forms of surveillance of the communications and the relevant traffic data for the purpose of private interest must be held illegal in the absence of the consent of the user.

The decision was followed by a pronunciation of the Italian Personal Data Protection Authority on 28 February 2008. Having investigated the Peppermint case, it reaffirmed its earlier opinion, confirming the prohibition on the ISPs making ‘[further] use of personal data illegally gathered’ given the factual circumstances of the proceedings examined by the Court of Rome, and interpreting the Court of Justice decision in the sense that

‘community legislation allows member states to limit to criminal, public security and state security investigations—therefore excluding civil litigations—the  obligation  to  store and disclose data on electronic network connections and the traffic generated during communications made in the course of a service rendered in the information society’.

Along the same lines, a further decision of the same Court of Rome, on 17 March 2008, rejecting a further request for an order to the service provider to disclose data relating to network communications based on the argument that the balance between intellectual property rights and confidentiality had been implemented by the Italian legislature by

‘holding that the prevalence of the former over the latter be justified solely if combined with the infringement of collectivity interests protected by criminal law’.

The issue was also addressed by a decision of the European Court of Justice on 29 January 2008, on a case between Promusicae, an association of producers and publishers of audio and audiovisual recordings, and the Spanish ISP Telefonica, with reference to the Commercial Court of Madrid at which Promusicae had asked the judge to order the ISP to reveal the identity of users of P2P software for the exchange of musical recordings. The case had been referred to the European Court over the issue of whether EU (European Community) rules allowed member states to limit to criminal, public security and state security investigations, therefore excluding civil litigations, the obligation to disclose data on electronic network communications. In other words, did Community legislation require member states to institute an obligation to communicate personal data in the context of civil proceedings?

With ample and detailed motivation, the incidental judge declared that some recent EU directives on the subject of intellectual property (2000/31/EC, 2001/29/EC and 2004/48/EC) and directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector, did not require the member states to provide for such an obligation. However, the European Court of Justice also found that member states must guarantee a fair balance between the various fundamental rights protected by Community legislation.

Without doubt, the decision of the European Court marked an important step in the evolution of the issue. It is also important to stress that the Court expressed itself both in the sense (already mentioned) that the latest directives in the field of intellectual property did not require member states to institute any obligation to communicate personal data in the context of a civil proceeding, and in the sense that member states must guarantee a fair balance between the various fundamental rights protected by Community law. For instance, the Court observed that ‘directive 2002/58 does not preclude the possibility for the member states of laying down an obligation to disclose personal data in the context of civil proceedings’ (paragraph 54); that both rights, intellectually property and privacy, are included in the list of fundamental rights of the Union (paragraphs 61 and 62); and that members states are called to interpret the directives in a manner consistent with the fundamental rights of the Union and the general principles of Community law such as the principle of proportionality (paragraph 68).

With regards to the responsibility of ISPs, great echoes resounded in the Italian war against thepiratebay.org. First there was the decision of the Criminal Court (Tribunale) of Bergamo of 1 August 2008. The Court of Bergamo ordered the seizure of the website (the most important aspect, as the piracy site is based outside Italian jurisdiction) and that Italian ISPs to inhibit for their users access to the site, its aliases and domain names, present and future, also redirecting any static IP address relating thereto. The measure was also made under the dispositions of the Italian regulations on the implementation of directive 2000/31/EC on the electronic commerce (mere conduit).

Second, a decision of the same Court of Bergamo of 25 September 2008 revoked its earlier measure, based on the argument that seizure was not applicable in this case owing to the impossibility of ‘apprehending’ the goods that should be the object thereof (i.e. the site is not in Italy). By contrast, the court confirmed the substance of both the fumus delicti (presumption of illegitimacy) and the periculum in mora (danger in the delay), as thepiratebay.org had registered an ‘exorbitant’ number of hits in Italy for the ‘acquisition on the internet of materials protected by copyright’.

The case is currently pending before the Italian Supreme Court (Corte di Cassazione) and a further decision should be therefore delivered on the dispute, hopefully soon.

The Collective Management
The need to ensure capillary collection and distribution of copyright fees prompted the institution, in Italy as well, of collective management organisations.

The Società Italiana degli Autori ed Editori (SIAE) is the main entity of intermediation, collection and distribution of copyright fees. SIAE was declared the ‘public entity with associative basis’6, based on the argument that equitable collection and distribution of copyright revenues, together with the performance of other functions, respond to public interest.

Article 180 of the Italian copyright law states that the intermediary activity, however performed, under direct or indirect form of intervention, mediation, mandate, representation and assignment of exercise of the rights of public performance, radio diffusion (including the communication to the public by satellite), mechanical and cinematographic reproduction of protected works, is reserved to SIAE. The intermediation of SIAE is, therefore, necessary, but it is not exclusive, as nothing prohibits authors and publishers from exercising their rights directly (even if direct exercise is, in practical terms, extremely difficult at times).

SIAE operates on the basis of a mandate (the registration and deposit of the work) with the sole exception of cable retransmission, for which the implementation of directive 93/83/EEC introduced a new article 180-bis into the law, conferring on SIAE the compulsory collective management (and, therefore, not only the necessary intermediation) of both author’s rights and neighbouring rights. The mandate may not contain, according to article 11 of the SIAE Regulations, the exercise of the right of reproduction and communication to the public on information networks, mobile telephony and analogous systems of exploitation of the works, both interactive and not, that the rights owner can retain and directly exercise.

The Istituto Mutualistico Artisti Interpreti Esecutori (IMAIE) was established as a legal entity in 19927 for the collective exercise, under the supervision of the Government, of the collection and distribution of (neighbouring) rights of performing artists. As a result of the ratification of the Rome Convention in 1974, article 73 of the Italian Copyright Law was amended in order: (i) to grant the producer of phonograms the right to collect a remuneration for the utilisation for purposes of gain of the phonograms through cinematography, radio and television diffusion, including the communication to the public via satellite, in public dancing parties, in public premises and on the occasion of any further public utilisation of the said phonograms; and (ii) oblige it to share the revenue with the artists who interpreted or performed the interpretation or the performance recorded or reproduced on the phonograms.

IMAIE further collects (from SIAE) the artists’ shares of private copying revenues8 and the equitable remuneration pertaining to lead role artists (actors) from broadcasting and communication to the public, including via cable and satellite, of motion picture works.

Upon the initiative of the Minister for Cultural Goods and Activities, and based on the information subsequently gathered by the Prefect of Rome, among which was a claim by a number of IMAIE’s employees of irregularities in the running of the institute’s activities and a lack of distribution to the artists of revenues collected between 1976 and 1999, and from 1998 onwards for audiovisual works, IMAIE was declared dissolved on 28 May 2009, and is now in liquidation.

The Consorzio Fonografici (SCF) is the main intermediary entity operating in the private sector9, and it exercises neighbouring rights in the interest of the large majority of Italian phonographic producers, as derived from the previously mentioned article 73 of the Copyright Law10. SCF collects private copying revenues11, while new technologies rights are mainly managed by the represented labels.

Some Market Data
Piracy in the field of new technologies is quite significant. According to a recent survey12, a consistent proportion (31%) of Italians do not buy music (the EU average is 25%, and it is 18% in Germany); 34% buy CDs in shops or department stores (the EU average is 45%), while only 2.3% buy music online (11% in the EU, and 16% in the UK). The figures for e-commerce in general are small, as 44% of Italians do not make purchases online (the EU average is 9%), while only 2.2% buy books from Amazon and similar sites.

On the contrary, P2P accounts for 23% (compared with an EU average of 14%), even if that figure is still inferior to the share of streaming of musical videos from YouTube (34% in Italy, compared with an EU average of 30.7%). Italians lead in terms of attendance at social networks dedicated to artists, especially on Facebook (27.7%, compared with an EU average of 14.5%), while audio streaming (essentially because of limited availability) is quite contained (6.8%, compared with the EU average of 12.8%).

Physical sales for 2008 in Italy (of which the Italian repertoire amounted to 56%) dropped by 21%, while online sales grew by 4%. In comparison, online sales in the same period worldwide grew by 25%.

Overall, the digital music market in Italy should start growing again by 2011, and is expected to start compensating (but only to a maximum of two-thirds) for the losses of physical sales in 2014. In such a context, the forecast of development in Italy, inferior to the rest of the world, appears problematic for the music business.

The Italian Way
The internet has created for users an expectation of free exploitation which will be difficult to dismantle. It is said that in order to educationally address the tendencies of youngsters to download music illegally, the age span of nine to 13 years-old should be addressed, assuming that anybody older than that is already compromised. The phenomenon is strong and persistent and an inversion of the tendency will not be easy to achieve. Furthermore, the sociological context and the unusual alliance between consumers and telecommunication companies against intellectual property, supported by political and academic instances, have created a hostile context that will be difficult to counter.

The protection of intellectual property within (or maybe, from) new technologies strongly relies on technological measures of protection, as long as they last, while other measures of compensatory imposition, such as the levy on devices intended for private copying, have not been generally implemented around Europe and do not seem to be particularly successful.

The only feasible alternative, therefore, seems to be collective management, and the Italian experience seems relevant in this respect, as it moved from the full control of the rights owners of their rights and prerogatives with regards to both authors’ rights (SIAE) and neighbouring rights (SCF). For the time being, such an approach seems to be the only one capable of combining the need to preserve such full control with the interests of the users to access music under fair (for both parties) economical conditions.

Footnotes:
1. Law n. 633 of 22 April 1941.
2. Law n. 218 of 31 May 1995.
3. Intended as ‘generic’ (as opposite to ‘specific’) reciprocity, whereby protection in Italy is granted to a foreign rights owner, even in the absence of specific international conventions, if Italians enjoy in the relevant foreign country the same protection granted by that country to its own citizens, regardless of the material extent of the protection in each of the two jurisdictions.
4. Italian Constitutional Court Decision n. 372/2006.
5. Legislative Decree n. 196/2003.
6. Under Law n. 2 of 9 January 2008.
7. Under article 4 of Law n. 93 of 5 February 1992 (Private Copying Law).
8. Article 84 of the Copyright Law.
9. Further to AIDRO, for reprography rights, and UNIVIDEO, for audiovisual recordings.
10. Utilisation for purposes of gain of the phonograms through cinematography, radio and television diffusion, including the communication to the public via satellite, in public dancing parties, in public premises and on the occasion of any further public utilisation of the said phonograms.
11. Article 71-septies of the law.
12. Forrester, 2009.

Country Update for Italy by Massimo Travostino


Massimo Travostino was born June 24, 1968. He was admitted to the Turin Bar Association in 1996. He is specialised in commercial and contract law, with a focus on intellectual property. He carries out the main part of his activity in the IT/IP and telecommunication sectors, negotiating and drafting IP/IT agreements and advising public and private entities in special projects as well as in judicial proceedings. He carries out regular teaching activity at Masters and specialization courses and writes for national and international journals. He is member of Turin Bar Association Commissione Informatica, International Association for Entertainment Lawyers Executive Commettee, “Centro Studi di Informatica Giuridica” Scientific Committee and fellow of Nexa Center.

The Music Business

In 2008 the music market in Italy was worth around €180 million, which was down 20% on 2007. Sales of CDs netted €156 million, while digital sales (whether via mobile devices or the internet) were worth €15.7 million, which was nearly 10% of the total value of the music market (up 4% on 2007), according to a Deloitte survey. In particular, internet downloads increased by 37% from 2007, while mobile downloads declined by 35%. According to the Federation of the Italian Music Industry (FIMI), the Italian repertoire retains 56% of the market, while international production is worth 39% and classical music is left with 5% of the total turnover. In general, the growth of digital sales does not compensate for the loss in physical music sales. However, most recent figures demonstrate that illegal downloading is decreasing, while online legitimate sales and streaming are growing, thanks to new distribution models.

In Italy an estimated 25% of CDs are pirated (40% in the south of Italy). Today, according to the Federation against Musical Piracy (FPM), 23% of internet users download music illegally with peer-to-peer software. This P2P software has been widely diffused in Italy among internet users, for accessing music, for a number of years; more recently, social networks such as YouTube, Facebook and Twitter are becoming important new channels to spread digital content. We must also mention the use of free licences to distribute music (e.g. Creative Commons), especially for young musicians who are not members of a collecting society or other intermediaries: websites as Jamendo are becoming increasingly popular among music consumers.

In Italy 42% of families have a personal computer at home (the EU average is 60%). In general, the evidence suggests that Italian consumers have a low inclination to buy online: only 25% of internet users buy online. The diffusion of broadband connections in Italy reaches only 31% of the population and, owing to economic recession, in November 2009 the Italian Government cut €800 million of funding originally allocated for broadband investment.

The Applicable Law
Italian Copyright Law (n. 633/1941), as amended in recent years, contains the provisions that apply to online or mobile distribution of downloads or streams of music. Such law and amendments are modelled according to various EU directives, namely 2001/29/EC on the protection of copyright in the information society and 2004/48/EC on enforcement of intellectual property rights (the so-called IPRED 1 directive). The draft of EU directive 2004/48 also provided for criminal sanctions, which were removed in the final version; the IPRED 2 directive, concerning criminal measures against copyright infringement, remains an ongoing process.

Online and offline music piracy being a big issue in Italy, legislation provides tough sanctions against violation of copyright law. Rights holders are entitled to claim compensation for damages caused by illegal online music distribution, which is also punishable by harsh administrative and criminal sanctions. P2P users are also punishable under criminal provisions, and they have to refund damages caused to copyright holders. In particular, making available copyrighted work to the public by electronic networks is punishable by criminal fines ranging from €51 to €2,065 (article 171(a)-bis of the Copyright Law). In case the making available to the public by electronic networks of a copyrighted work is done for commercial purposes, paragraph 2, lett. a-bis of article 171-ter of the Copyright Law provides for imprisonment of between one and four years and a fine of between €2,582 and €15,493 euros. The same punishment is provided for piracy of physical CDs when illegal copies number more than 50. Sanctions against illegal downloading of music consist of administrative fines of €154 (article 174-ter Law n. 633/1941); a fine of at least €103 for each song illegally downloaded is also provided (article 174-bis).

Application of these laws is very often impaired by difficulties in finding evidence of violations, problems of applicable law and jurisdiction (owing to the foreign location of servers and websites that offer illegal downloads or ‘tracking’ files), the rule of the absence of a general duty of surveillance for ISPs and personal data protection legislation. Recent case law offers a wide variety of decisions often contrasting with each other. In 2008 the Court of Bergamo seized the website of the Pirate Bay (one of the most famous BitTorrent tracker websites for downloading copyrighted music and contents); the seizure was annulled by the court of second instance. The Italian Supreme Court (Corte di Cassazione) overruled the verdict again, sending the matter to another court to be decided.

The so-called Peppermint case underwent the same contrasting fate, the case at issue here being the personal data protection law (EU directive 1995/46 and Italian Legislative Decree n. 196/2003) and its application to IP addresses of internet users accused of copyright infringement. A first decision stated that, in a judicial proceeding of copyright infringement, the secrecy of the IP address of internet users who illegally download music is not covered by data protection law. Thus, telecom companies have the duty to reveal to the copyright holders the name of internet users who illicitly download songs. Following this decision, the Italian Data Protection Authority entered into the proceeding alongside the telecom companies, and the European Court of Justice on 28 January 2008 declared that copyright directives 2001/29 and 2004/48 did not impose on member states the duty to communicate personal data in order to protect copyright in a civil proceeding: member states are required to strike the right balance between the fundamental rights protected by EU legislation, applying the principle of proportionality. Consequently, the Authority declared illicit the use of personal data made by Peppermint in order to sue internet users for copyright infringement; and the Court of Rome stated that privacy right, as a fundamental human right, prevails over copyright in a civil proceeding for damages caused by copyright infringement. Only in cases of serious criminal offences, threatening the collective interest, may such data protection rights be restrained and postponed.

Rights holders such as publishing companies and producers, and collecting societies, try to lay upon content providers such as YouTube a co-responsibility in copyright infringement by users who upload illegitimately copyrighted materials; by contrast, content providers base their defence on the exoneration from any duty to monitor the content uploaded by internet users provided by Legislative Decree n. 70/2003, which implemented EU directive 2000/31 on certain legal aspects of information society services, in particular electronic commerce. This directive stipulates that EU countries cannot impose on providers a general obligation to monitor the information that they transmit or store, or a general obligation actively to seek facts or circumstances indicating illegal activity. Such provision corresponds to the ‘safe harbour’ rule provided by the Digital Millennium Copyright Act for internet service providers. As evidenced above, the European directive has been transposed into Italian legislation, and the interpretation of such provisions has been a hotly debated issue in Italy. Currently pending before the Court of Rome is a proceeding in which Reti Televisive Italiane (RTI—the TV company owned by Italian Prime Minister Silvio Berlusconi) has sued YouTube and Google in order to require €500 million of damages (plus the loss of profits for advertising) for copyrighted content uploaded on the website.

As we have demonstrated, in Italy laws against piracy are strict and provide harsh sanctions; however, their implementation has always been a problematic issue. There are various proposals and law bills concerning access to copyrighted materials through electronic networks as well as piracy repression. In both cases, the role of internet providers and telecom companies will be crucial in order to delineate new models of rights exploitation (such as collective licensing), as well as to prevent and investigate infringements.

Conclusion
A flat-rate system based on a mandatory or extended collective licence, which requires of all internet users the payment of a periodic copyright fee to telecom companies, for distribution to rights holders through collecting societies and intermediaries, seems to be the simplest and quickest solution to handle copyrighted works—including music—in the digital era. Negotiation problems, difficulties in finding all the rights holders, and anti-competitive positions and activities could be outrun by a mandatory licence or a collective licence extended also to non-members of collecting societies, publishers and producers’ associations. However, there are a few major issues that may suggest different and more varied approaches and solutions. First of all, the compatibility of a mandatory licence or of extended collective licensing with international, European and Italian legislation has to be carefully evaluated. The exclusive right of reproduction may be subject to exceptions according to international and European legislation (such as TRIPS, the Berne Convention and the WIPO Copyright Treaty, as well as EU directive 2001/29): we refer, in particular, to the exception of private copying, which may be provided by member states for reproductions made by a natural person for private use and for ends that are neither directly nor indirectly commercial, against fair compensation for the copyright holder (article 5, n. 2, lett. b) of 2001/29. However, no exception is provided by Italian and European legislation for the exclusive right of making available to the public. This represents an obstacle to a mandatory licensing system, while an extended collective licence based on the ‘Scandinavian model’ could probably be envisaged. The ‘offline exploitation approach’, based on the right to exclude, is very likely going to be replaced by the ‘online exploitation approach’, based on a right to compensation. In June 2009 the NEXA Center for Internet and Society published a position paper in the English language on filesharing and extended collective licensing (available at nexa.polito.it/nexafiles/NEXACenter-ExtendedCollectiveLicenses-EnglishVersion-June2009.pdf). The study envisages different proposals for remunerating authors based on state taxation (general taxation or special purpose tax), mandatory licensing and extended collective licensing.

EMEA: Netherlands

Michiel Odink is a senior associate in the Media & IP department of Allen & Overy Amsterdam. He focuses on media, technology and IP (trademark and copyright) litigation and transactions. His clients are mainly media companies, (music) publishers, broadcasters, apparel and distribution companies, and producers and retailers of fashion items, furniture and fast moving consumer goods.. He also has extensive experience in advising on the intellectual property aspects of mergers, acquisitions and financings. In 2006, Michiel worked at the IP/Technology firm Fenwick & West in Silicon Valley (California). He lectured on various EU IP topics in Silicon Valley and at UC Berkeley. Michiel is a member of the International Association of Entertainment Lawyers, the Benelux Association of Trademarks and Design Law and the Association Internationale pour la Protection de la Propriété Intel (AIPPI). Michiel is also an editor of the IP sectionr for the Dutch legal journal Bedrijfsjuridische Berichten. Among Michiel’s clients are EMI Music Publishing, Warner Bros Entertainment, Talpa, SBS Broadcasting, HEMA, TomTom and VNU Media.

Roeland Donker is an associate in the Media & IP department of Allen & Overy Amsterdam. He litigates and advises in the areas of media law, ICT law, intellectual property law, privacy law and commercial contracting. Roeland also has a lot of experience in advising on the IP & Media aspects of mergers and acquisitions, outsourcing and financing transactions. His clients are active in the fields of printed and unprinted media, music, fashion, technology and fast-moving consumer goods.
Clients recently advised by Roeland include Sony, Warner Bros, Amazon, War Child, the Home Copy Negotiations Foundation (Stichting Onderhandelingen Thuiskopie), UPC, Talpa, ING, Citigroup, Fortis, Schuitema, ABN AMRO and De Persgroep.

Country Update for The Netherlands by Michiel Odink and Roeland Donker1
Introduction
In line with developments in the rest of the world, the music distribution market in the Netherlands is changing from physical to digital. According to NVPI, the Dutch Association for Producers and Importers of Image and Sound Carriers, sales of physical albums fell by 8% in the first half of 2009.2 Unfortunately for the music industry, the growth of paid music downloads does not make up for the decline in physical album sales.

The Dutch are extremely well connected to the internet. Currently, 86% of Dutch households have internet access and 75% of Dutch households have a broadband connection.3 As a result of this high concentration of broadband connections, the Dutch have become heavy downloaders. The number of total music downloads in the Netherlands is currently estimated at between 1.5 billion and 2 billion per year.

Although there are currently more than 30 legal online music providers in the Netherlands and online music stores sold 17.5% more downloads in 2008 than in 2007,4 most digital music is still downloaded from other sources, such as filesharing websites. The Dutch online music market5 lags behind, with a market share of a mere 6% of the entire music market, which is low compared to the 36% share in the United States.6

Music Piracy
Although music piracy was also an issue in the Netherlands before the internet era, it really took off in 1999, when Napster entered the market with its filesharing software. The BREIN foundation,7 a joint anti-piracy initiative of authors, artists and producers of music, film and interactive software, estimates that the total damage caused by the various forms of piracy in the Netherlands amounted to €315 million in 2008,8 of which €180 million is caused by unauthorised downloading of content through filesharing. The Dutch music industry has made attempts to combat filesharing through digital rights management and law suits against filesharing websites, but to date has booked little success in finding an answer to this new digital reality.

At the beginning of 2009 a research group led by TNO9 published a report commissioned by the Dutch Government, Ups and Downs: Economic and Cultural Consequences of File Sharing. The research group investigated both the economic and the cultural consequences of filesharing. The conclusion of this report was surprising: the economic implications of filesharing are, on balance, strongly positive for Dutch prosperity. Although the research showed that the decline in physical sales has not yet been fully compensated for by digital sales, filesharing has—so the report says—positively impacted on Dutch prosperity, as it gives people access to a very broad range of cultural products and allows people to listen to any music that they want.

The report also rejects the claim that each unpaid download directly leads to a loss of sales, a calculation method that is frequently used by the content industry to work out overall piracy losses. According to the report, a lot of people download music through filesharing websites that they would normally never have bought in the shops. The researchers also found that many people download music to explore new music and artists and that they very often go out and buy a legal copy if they like the music.

The Legal Landscape
The Netherlands is a party to the main international agreements relating to copyright and neighbouring rights, including the Berne Convention,10 the Rome Convention11 and the Geneva Convention.12 As a member state of the European Union, the Netherlands is also bound by the various European directives relating to copyright and neighbouring rights.

The relevant national legislation applicable to musical works (including performances) is laid down in the Dutch Copyright Act and the Dutch Neighbouring Rights Act. These Acts grant authors and performers, phonogram producers, movie producers and broadcasting organisations the exclusive right to reproduce and make their works available to the public.

In the Netherlands it is permitted to download copyright-protected works13 for personal use. Contrary to many other EU countries, this principle also applies to download music from an illegal source, as long as the downloading occurs for the personal use of the downloader.14

The Dutch Copyright Act permits the making of copies of a protected work for personal use or study, but rights holders should be fairly compensated for this private copying (the home copy exception). A fee is payable for the use of carriers—for example CDs or DVDs—that are intended to be used for storage of images, movies and sound recordings (the home copy levy).15

Although it is legal in the Netherlands to download music for personal use, it is not allowed to upload music without the permission of the copyright owner. Uploading content involves ‘making the content available to the public’, which is a right that exclusively vests in the copyright owners under the Dutch Copyright Act and the Neighbouring Rights Act. Needless to say, peer-to-peer (P2P) networks would not be able to exist without people uploading content, so filesharing still leads to copyright infringement under Dutch law.

Although, downloading from an illegal source for personal use is in principle permitted, the position of the Dutch legislative and judicial authorities seems to be changing. In 2008 the District Court of The Hague16 contested the point of view taken by the Dutch Government, that downloading for personal use from an illegal source would not be illegal. The Court emphasised that this view (i.e. that it is also permitted to download from an illegal source) is in breach of the three step rule of the EU copyright directive (2001/29/EC). The three step rule basically states that the exceptions and limitations to the exclusive rights of the copyright owner (e.g. the personal use exception) should only be applied in certain special cases that do not conflict with the normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the rights holder.

A recent report by the Dutch Parliamentary Working Party on Copyright17 showed that the point of view of the legislature is also changing. The working party not only concluded that the music industry should work out an efficient licensing system to deal with the use of music on the internet, but also advised that downloading from an illegal source should be prohibited in the future. In its reaction to the report, the Dutch Cabinet announced on 30 October 2009 that it agreed with most recommendations in the report. The Cabinet shared the view that the music industry will need to be given the opportunity to come up with new business models in the digital environment for audiovisual works and music within the next three years. The Cabinet announced that it will also use this three-year period to prepare a statutory amendment that prohibits downloading from illegal sources.

It is unclear how this statutory regulation will be implemented and—more importantly—what the implications will be for filesharing consumers. It may even introduce a ‘three strikes and you’re out’ rule, which involves disconnecting internet users who have been warned about their illegal filesharing activities more than twice, now that consensus has been reached on this rule at the European level.18 However, given Dutch public opinion on this subject, it is not very likely that a ‘three strikes’ rule will be implemented. An alternative solution that has also been supported by BREIN in the press would be to limit the bandwidth of the infringing filesharers.19

Recent Filesharing Case Law
Although BREIN was not successful in its proceedings against P2P website Kazaa in 2002, two recent cases against torrent sites, the Pirate Bay and Mininova, show that the tide is turning in favour of BREIN, with BREIN winning both cases in the first instance.20 An important question raised in these proceedings is whether it is unlawful to facilitate infringements of protected works.

In the recent case before the District Court of Utrecht,21 BREIN summoned Mininova, one of the largest BitTorrent index sites in the world,22 to introduce a filter system on its internet platform to prevent copyright infringements such as the uploading of protected works without the consent of the rights holder. The Court held that Mininova does not directly infringe the copyright23 of the rights holders, as Mininova only offers the facilities for storing torrent files. However, the Court also ruled that Mininova’s actions are unlawful towards the rights holders, as it structurally facilitates copyright infringement and stimulates its users to infringe copyright while also benefiting from this.

The Court disagreed with Mininova’s defence that it would be impossible to identify torrents that link to protected works. The Court held that Mininova is aware of the fact that an important part of the torrents on its website refer to files that contain copyright-protected works. The Court also ruled that Mininova’s notice and take-down procedure is not sufficient, as infringing torrents are not being ‘taken down’ permanently.

In another recent case BREIN obtained an injunction against the three Swedish administrators of the world’s largest BitTorrent site, the Pirate Bay,24 in preliminary relief proceedings. In a ruling that is similar to that in the Mininova case, the District Court of Amsterdam held that the Pirate Bay acted unlawfully towards rights holders by structurally facilitating and stimulating infringements by its users.

Collective Licensing
The Netherlands has an extensive collective licensing system and numerous collecting societies. The Dutch Minister of Justice has appointed several collecting societies to ensure the exploitation of the copyright of their members.

Buma/Stemra, the largest Dutch collecting society, represents the interests of copyright holders (composers, authors and music publishers). Pursuant to the Dutch Copyright Act, Buma/Stemra is authorised to exercise the exploitation, collection and repartition of the rights of its members.25 To exploit the rights of its members, Buma/Stemra—on behalf of its members—issues licences to third parties that use music for the benefit of their company or undertaking.

The ability to clear music rights for online distribution is becoming increasingly important. In the music industry, most copyright licences are granted at the national level and on a country-by-country basis. As in the Netherlands, in other EU countries copyright is also licensed and administered by the national collecting societies. Most collecting societies are members of CISAC, the International Confederation of Societies of Authors and Composers, and they have entered into contracts of reciprocal representation (CRRs) with other CISAC members. In a CRR, parties grant each other the right—on a non-exclusive basis—to exploit each other’s repertoire. These CRRs contain the following restrictions:

• the membership clause, which prevents authors from moving to another collecting society; and

• territorial restrictions, which prevent a collecting society from offering licences to commercial users outside their domestic territory. These territorial restrictions include an exclusivity clause, by which a collecting society may authorise other collecting societies to exploit its repertoire in a given territory on an exclusive basis and a concerted practice among all collecting societies resulting in a strict segmentation of the market on a national basis.

It is because of these restrictions that European collecting societies are unable to grant cross-border licences. It is therefore also impossible for online music stores to obtain a pan-European licence for distributing music from a one-stop shop. Instead, they need to obtain licences from each individual collecting society.

An important recent development for the collective licensing industry has been the so-called CISAC Decision of the European Commission. On 16 July 2008 the Commission adopted an anti-trust decision (the CISAC Decision) prohibiting the European collecting societies from restricting competition by limiting their ability to offer their services to authors and commercial users outside their domestic territory.

According to the Commission, the above-mentioned restrictions in the CRR, concluded by members of CISAC, restrict competition in the EU market and infringe European anti-trust law. The CISAC Decision requires the collecting societies to end these infringements by modifying their agreements and by no longer applying the membership and territorial restrictions clauses. According to the CISAC Decision, authors should be able to decide for themselves which collecting society manages their copyright (e.g. on the basis of quality of service, efficiency of collection or level of management fees charged). Moreover, users should be able to choose a single collecting society to obtain a licence for broadcasting music on the internet in several countries. The Commission wants the various collecting societies to compete with each other on the quality of their services and on the level of their administrative costs. This should make the collective licensing system more effective in the future.

In the Netherlands, Buma/Stemra found encouragement in the CISAC Decision for its pan-European licensing ambitions and announced that it had granted a pan-European licence to US online music store beatport.com, claiming that it was for worldwide repertoire. Beatport includes repertoire controlled by the UK collecting society, the Performing Right Society (PRS). PRS immediately argued that Buma/Stemra—on the basis of the restrictions in the CRR—was not authorised to include PRS repertoire in a licence anywhere outside the Netherlands. Buma/Stemra, in turn, claimed that it was no longer bound by any territorial restriction in the CRR as these restrictions had been declared void by the European Commission in the CISAC Decision. The judge at the District Court of Haarlem26 did not concur with Buma/Stemra’s point of view and ordered Buma/Stemra to refrain from offering licences to PRS repertoire outside the Netherlands. The judge held that the European Commission had not ruled that the individual agreements of the CISAC-members were void. Only the concertation between the CISAC members that has lead to a system of identical reciprocal agreements was considered to be in violation of EU competition law. The Court also confirmed that collecting societies are not allowed to grant licences to third parties without the explicit consent of rights holders. The CISAC Decision has not changed this basic principle of copyright law.

The Dutch Parliamentary Working Party on Copyright27 drew some interesting conclusions on the Dutch collective licensing system. The working party concluded that the large number of collecting societies in the Netherlands has a negative effect on the overall effectiveness and transparency of collective licensing and advised that one single collective society be incorporated instead. The working party further advised the abolition of the home copy fee, which is collected by the Home Copy Association,28, one of the collecting societies in the Netherlands. According to the working party, a home copy fee on carriers will become superfluous in the future. Owing to new digital means of music distribution—such as streaming—the need to store or copy music to a carrier will become less relevant.

Conclusion
These recent cases against Mininova and the Pirate Bay show that the Dutch courts no longer tolerate large-scale copyright infringements facilitated by filesharing websites. As downloading content from an illegal source is in principle still permitted under Dutch law, it is also good news for the music industry that the Dutch Cabinet announced that downloading from an illegal source will become prohibited in the future. These recent developments will make life for illegal filesharers more difficult in the Netherlands. Of course, it remains to be seen whether these legal changes will actually boost the Dutch online music industry in practice.

In our view, it will be more important for the music industry to focus on new business models—such as music streaming and subscription services—to generate income. Unfortunately, many streaming and subscription services (such as Rhapsody and Spotify) are still not available in the Netherlands, owing to collective licensing issues. The same applies to legal downloads of films and television series. One of the challenges for these new business models is the labyrinth of collecting societies that still makes it very difficult to enter the European market. At the moment, rights need to be cleared on a country-by-country basis. It will be interesting to see whether the CISAC Decision will make a difference by increasing the competition between the national collecting societies to make collective licensing more effective and transparent for the users.

In our view, the future of the Dutch music market will largely depend on a combination of new business models and more effective and transparent collective licensing.

Footnotes:
1. Michiel Odink and Roeland Donker are attorneys at Allen & Overy LLP Amsterdam.
2. See the website of the Dutch Association for Producers and Importers of Image and Sound Carriers—NVPI (www.nvpi.nl).
3. After Denmark, the Netherlands has the highest density of broadband connections in the world.
4. According to reports of the NVPI (www.nvpi.nl).
5. i.e. the market for paid downloads.
6. According to a report of the NVPI of 24 September 2009, The Digital Offer of Image and Music.
7. See BREIN’s website (www.anti-piracy.nl) for more information.
8. See www.anti-piracy.nl/piraterij/omvang_schade.asp.
9. TNO is a Dutch independent research organisation; see www.tno.nl and, in particular, the report, Ups and Downs: Economic and Cultural Consequences of File Sharing for Music, Movies and Games, dated 12 January 2009. The research was conducted by TNO, SEO Economisch Onderzoek and IVIR.
10. The Berne Convention for the Protection of Literary and Artistic Works, 9 September 1886.
11. The Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations, 26 October 1961.
12. The Geneva Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonograms, 29 October, 1971.
13. Excluding software.
14. This viewpoint was endorsed by the Government in a letter to the Lower House of the Dutch Parliament dated 20 December 2007 (Lower House, session year 2007–08, Parliamentary Paper 29838, No. 6, p. 9).
15. Article 16c of the Dutch Copyright Act.
16. The District Court of The Hague, 25 June 2008, consideration 4.4.3., HA ZA 05-2233, AMI 2008-5, p. 149.
17. Parliamentary Working Party on Copyright, Copyrights: A Report, dated 17 June 2009 (Tweede Kamer, vergaderjaar 2008-2009, 29 838 en 31 766, nr. 19).
18. The European Parliament and the Council of Ministers reached an agreement on EU telecoms reform on 5 November 2009. The new telecom rules now explicitly state that any measures taken by member states regarding access to or use of services and applications through telecom networks must respect the fundamental rights and freedoms of citizens. In particular, they must respect the presumption of innocence and the right to privacy. With regard to any measures of member states taken on their internet access (e.g. to fight child pornography or other illegal activities), citizens in the EU are entitled to a prior fair and impartial procedure, including the right to be heard, and they have a right to an effective and timely judicial review. See www.europa.eu, reference MEMO/09/491 of 5 November 2009.
19. NRC Handelsblad, 2 November 2009, p. 11.
20. Please note that both judgments are still subject to appeal.
21. The District Court of Utrecht, 26 August 2009 (BREIN v. Mininova), IER 2009-5, 60.
22. Mininova exploits a BitTorrent platform on which internet users can freely store torrents.
23. As well as neighbouring rights.
24. The District Court of Amsterdam, 22 October 2009 (BREIN v. The Pirate Bay), IEPT 20091022 (www.iept.nl).
25. Article 30a of the Copyright Act.
26. The District Court of Haarlem, 19 August 2008, AMI 2008-6, p. 184 (English translation of the judgment on www.boek9.nl/index.php?//Prs+vs.+Buma////20609/).
27. Parliamentary Working Party on Copyright, Copyrights: A Report, dated 17 June 2009 (Lower House session year 2008-2009, Parliamentary Papers 29 838 and 31 766, No. 19).
28. Stichting de Thuiskopie (www.thuiskopie.nl).

EMEA: Slovenia

Urša Chitrakar is an attorney specializing in copyright and related entertainment business issues. Among her clients are musicians, writers, photographers and professional artists’ organizations, music and book publishers, record labels, film producers and advertising agencies. Before she became an attorney she spent a year as a Fulbright Scholar and visiting researcher at Fordham University, School of Law in New York and worked as independent legal adviser. Urša Chitrakar graduated from the Faculty of Law, University of Ljubljana (Slovenia) in 1998 and continued her studies at Queen Mary and Westfield College, University of London, where she completed her Master of Laws Degree in 2003. Recently she has been involved in several research projects with the Slovenian Ministry of Culture and is currently working as a national consultant on a WIPO supported study on the Economic Contribution of Copyright-Based Industries in Slovenia.

Country Update for Slovenia by Urša Chitrakar
The Music Business in Slovenia
With 2 million inhabitants and its ‘exotic’ language, Slovenia has a very small music market. Therefore, sales of CDs recorded by Slovenian artists are rarely exceptional, while sales of downloads and ringtones are almost insignificant when compared with international industry standards.1

Even in the pre-internet era it was legal for consumers in Slovenia to record complete music albums to blank tapes and other blank media under the private use exception introduced by the Slovene Copyright Act 1995. This rule, which enables individuals to reproduce up to three copies of a protected work, providing such copies are not made available to the public and that no economic advantage is gained, is basically still the same today. Artists and other rights holders are supposed to be compensated for such use of their work through blank media levies, collected and distributed by collective management organisations. However, the public use of music that is performed live, broadcasted via the radio or TV stations, or otherwise communicated to the public (i.e. in clubs, bars, public transport, hotels, via internet pages or in mobile phone services) has to be properly licensed and paid for.

Since the development of the internet, the unpaid private use of music has been much more extensive than ever before. Most music fans in Slovenia use worldwide popular file sharing or BitTorrent tracking services such as the Pirate Bay, LimeWire, eMule and others. Those consumers who are willing to purchase music in digital form mostly use iTunes or similar services because no comparable means of downloading or streaming music files exists in Slovenia or in the wider regional market. The supply of licensed digital music files in Slovenia is scarce. Only one of the prominent record labels and publishers in Slovenia provides albums and singles as downloads and ringtones via its own website. The rest market their music either through one of the two dominant mobile providers in the form of downloads, ringtones and real tones or as a mobile radio or TV service.2 However, the sales of music in digital form are believed to be insignificant. Therefore, it could be concluded that so far publishers and major record labels in Slovenia have reacted inadequately to the needs and interests of the present-day consumer. It should be noted though, that a very small number of Slovenian artists sell music abroad, while a great deal of foreign music is being performed, played or otherwise communicated to the public (legally or illegally) through other worldwide services normally used by Slovenian consumers. That may be the reason why domestic publishers and record labels have had no incentive to develop new business models for selling music in digital form.

Collective Licensing in Slovenia
The current Slovenian Copyright Act was adopted in 1995 and has been amended five times since. It complies with all the major international treaties and has been harmonised with relevant EC directives. Therefore, the basic principles of copyright legislation in Slovenia do not differ very much from those of the majority of EU member states. The Slovenian Copyright Act is probably most similar to the German and Austrian copyright laws because, historically, Slovenian legislation has often been modelled on Austrian and German law.

Collective rights management is compulsory by law for the communication of musical works to the public (small rights), cable retransmission of works and private reproduction. However, collective licensing in Slovenia has been known to be rather ineffective, non-transparent and inflexible. These reproaches are repeatedly being made by different users of music, such as concert organisers, radio stations and bar owners, as well as by the artists—members of collective rights management organisations—themselves. Not many Slovenian artists receive a large part of their income from the royalties collected by rights management organisations for the public use of their music; the vast majority of them make their living from live acts or other appearances (for example, in commercial or other public events) or commissioned work (i.e. writing or performing music for orchestras, theatres, film producers or advertisers), or maintain regular side jobs (not necessarily within the music business).

There are two collective rights management organisations operating in the music field in Slovenia: Združenje SAZAS3 represents composers, authors and publishers, while Zavod IPF4 manages the rights of the performers and producers of phonograms (record labels). Both management organisations have been rather slow in responding to the new phenomena of the music business and in detecting and developing new models for collecting revenue.

Slovenian artists often resent compulsory collective licensing, owing to a bad reputation for mismanagement and arbitrary distribution of collected revenue, and choose to manage their rights individually instead. The law permits the author to opt out of compulsory collective management in cases in which the main performer is at the same time the author or rights holder of the copyright in a performed work. Artists performing their own songs therefore often choose that option, because that is how they get at least some money immediately (from the concert organiser or the venue) instead of waiting for an entire year or more only to get an insignificant amount of money or no revenue at all (because the amount calculated by the rights management organisation is too small to be worth the transaction). The problem of collective rights management organisations has been addressed by the regulator several times in the past. However, so far all four amendments to the Slovenian Copyright Act that were intended to improve collective licensing have not had the desired result.

The EU Perspective
Owing to the ‘four freedoms’ rule (free movement of goods, capital, services and persons) in force within the EU, artists can decide to mandate rights management organisations from other EU member states. In the past, Slovenian artists most often looked to the German collective society, GEMA, as an alternative. Until 2008 such a change was not always easy to make, because the general practice was that neither collecting society could, without the consent of the other, accept as a member an author who is either already a member of another collecting society, or who is a national of the territory in which the other collecting society operates. Nevertheless, replacing a collecting society with another should now become easier and less complicated because of the European Commission ruling in the CISAC case (COPM/C-2/38.698—CISAC): the Commission found that such practices were restricting competition between collecting societies in the market.

Regulating new modes of use of protected content is typically slow in Slovenia and rarely follows global trends. Moreover, the EU-driven harmonisation of copyright law in member states has resulted in a prolonged response. An excellent example of how the decision-makers in the EU missed the ‘last train’ is the European Digital Library Project, created in order to follow (or even compete with) the Google Books project of the digitisation of library archives. Since 2004, when Google started digitising books, until late 2009, when Google was already settling its dispute with American authors and publishers, the EU has discussed the alleged infringements of European copyright works committed by Google and the possible alternatives. Many (non-binding) consultations, communications, recommendations and similar documents were produced, but so far no consensus has been reached as to whether European libraries should be allowed to digitise in-copyright books stored in their archives or not.

That is why Europe should perhaps reconsider whether the harmonisation of the 27 member states’ copyright legislation makes any sense in the global, borderless digital market for copyright works at all. The time may have come for a unified EU-wide copyright code, which should simplify the rules (for example, by consolidating several rights pertaining to the online use of works into a unitary license and by structuring a comprehensive system of exceptions). Such a legislative reform would enable consumers to have access to more works with less transaction and licensing costs and European authors and rights holders to invent new ways of capitalising on their creativity, enhancing legal security.

The question of a single EU market for copyright content is already being tested by the concept of a ‘Pan-European Licence’, offered by the British PRS.5 Such EU-wide licensing could enable a single online market and thus provide easy access and cross-border availability of protected content. It would be interesting to see the pan-European licence outgrow into a worldwide license at some time in the future.

Predicted Developments
By now, collective rights management organisations in Slovenia should have realised that obtaining clearances from many parallel rights holders (i.e. composers, publishers, performers and record labels) that have interests in a piece of music can be frustrating, even for those users who diligently respect copyright. Therefore, a complex and permanently updated online database of rights holders and their rights should be developed jointly for all rights holders in musical works. Such a database would enable users of online content and providers of online services (like streaming or subscription services) to identify and contact the rights holders and obtain their licences faster, possibly for wider areas than the one state territory. It is crucial to make information on ownership and licence conditions easily accessible and simple enough for all users to understand. In addition, some guarantees should be provided that the money charged for the use of music will actually find its way to the artists. The development of new techniques or improvements of existing ones (i.e. watermarking or fingerprinting) might enable a fast and efficient identification and monetisation of content, thus overcoming the allegedly poorly managed distribution of revenue.

It seems that it has finally become clear that free file sharing (like photocopying, at one time) will not be stopped, because it satisfies consumers’ demands, which would otherwise be unmet. By now, users have become used to it so much that it is unlikely that they will ever give it up and start buying physical records or separate digital files from record labels or retail shops like before. Therefore, instead of spending money on litigation, it would be better to invest in the research and development of a system for monetising mass file swapping. Perhaps some sort of levies for internet service providers, telecom companies, broadband technology companies, websites and social network platforms could be introduced. Or, better still, services supported by advertising that offer an unlimited choice of free music should be encouraged. Collective rights management organisations should start negotiating with providers of internet services and develop a proper scheme for a fair collection and distribution of money from the widespread digital use of protected works. If necessary, Government should step in with minor adjustments to existing legislation (by redefining and simplifying certain provisions).

In addition, rights holders in particular major record labels and publishers will have to reach out to their consumers and provide them with a better choice of more diverse music that is individually adapted to their taste. When users realise that paying a small fee enables them to make a more personal choice of music, available quickly and supported by other services (such as reviews, charts, stories, information on live gigs, suggestions of other music that they might like, etc.), it is likely that they will be willing to pay for the music (or endure the advertisement harassment) and have it tailored for use on their computer, hi-fi component, mobile phone or other portable device.

In order to become a relevant partner in the negotiations with P2P software developers, ISPs and social networks, collective rights management organisations in Slovenia in particular will have to take some action to improve their image as ‘unjust collectors of needless taxes’. Rights management organisations will have to open up to their consumers and the authors (or other rights holders) that they represent in order to prove that the money that they collect duly reaches those who are entitled to it. They will have to enable access to accurate and updated information on their repertoire and its use and to show more flexibility in adapting the existing licences to technological developments (including enabling authors to opt out of collective licensing if they expressly want to in specific cases). Only by becoming a trustworthy and highly responsive source of information relevant to consumers will collective rights management organisations be in a position to negotiate and propose reasonable models enabling all of us to enjoy music legally in Slovenia.

Footnotes:
1. No industry data on sold records (or other physical media), digital downloads, ringtones or other digital music files are publicly available, so all observations on sales of music in Slovenia made in this article are subjective, based on my personal experience.
2. Si.mobil, the Slovenian mobile phone provider that is a partner of Vodafone, has just launched the first music subscription service in Slovenia, which for a monthly fee of €15 provides subscribers with unlimited access to over 1 million songs licensed by all the majors and customised for use on mobile phones as well as on computers.
3. www.sazas.org
4. www.zavod-ipf.si
5. www.prsformusic.com

EMEA: South Africa

Country Update for South Africa by Basil Mashabane


Basil Mashabane is an  admitted Attorney of the High Court, South Africa with an LLB from the  University of Pretoria, an LLM in Corporate and Competition Law as well as a Certificate in Advanced Broadcasting Law. He has extensive experience in both Litigation and Corporate law. Basil is currently employed as Legal Counsel for the South African Broadcasting Corporation enabling him to pursue his lifelong interest in Media and Entertainment Law.

Music piracy has become quite a serious concern in South Africa over a long period of time, and that concern has gained further and intense currency over the past five years, which has compelled the South African collecting agencies, which represent recording companies, producers and composers, to take a more active role in dealing with the problems.

It is estimated that music piracy is costing the music industry annual losses of about US $50 million, as consumers are no longer purchasing CDs or DVDs and have resorted to purchasing fake or bootleg material, while others are downloading material from the internet on to CD-ROMs and MP3s for selling on to consumers or for personal use on their computers or their mobile devices with internet capabilities.

The introduction of mobile devices such as mobile or cellular phones over the past 10 years has added to the concerns of the music industry, as these phones are now being used to download music for on-selling. Mobile phone owners subscribe to the services by paying monthly fees and having access to unlimited downloads of copyrighted ringtones as well as full-length tracks. It is estimated that mobile phone downloading accounts for over 50% of music purchased in South Africa, particularly by the young.

South Africa has a population of approximately 48 million people and only about 15% of the population has internet access. That does not necessarily mean that the majority of those with access are able to easily download or stream music over the internet, as a result of high data and broadband costs caused by the monopoly situation prevailing in the country, led by Telkom, a state-owned telecommunications company.

It must be stated, though, that efforts are currently underway to reduce and, ultimately, to break the monopoly; an undersea cable to be operated by Telkom’s new competitor will be up and running soon and, just in late October 2009, the Competition Commission of South Africa concluded investigations that found that Telkom was in fact abusing its dominant position in the data and broadband services industry. It recommended that the company be fined 10% of its revenue, which amounted to approximately $300 million.

The remaining people with the access as well as the means to afford to use the internet appear to be the ones that are being targeted by the relevant agencies in an effort to ensure that the rights of their respective members are adequately protected.

The South African Copyright Act 1978 is the main piece of legislation created to protect that category of works in which copyright may subsist, including musical works, literary works and sound recordings. The Act defines musical works as works consisting of music with the exclusion of lyrics, and refers mainly to the composition of the melody and harmony, whereas literary works protect the lyrics or the words used in the music; lastly, sound recordings refer to the recording itself, the copyright of which can subsist separately from the music and lyrics.

The South African copyright laws provide protection to record companies, composers and producers whose music is downloaded online and/or listened to through the use of mobile devices such as mobile phones and iPods.

The use of the internet to download music in South Africa is still in its infancy, due to the reasons stated above, and, as a result, there are fewer than 10 legal online companies specialising in selling music to consumers online. It is important to note that all these companies have entered into agreements with all the respective agencies representing the various copyright holders deserving of protection. The biggest challenge for the South African agencies is in dealing with online companies based outside South Africa and offering music downloads at a much cheaper price than that of those operating within. The second biggest challenge is in dealing with mobile phone accessory companies selling copyrighted music to their subscription customers for use as ringtones or for full-length tracks on their mobile phones. Lastly, illegal and unlawful online downloading is a continuing challenge in the country.

In a very recently reported matter, one of the South African collective rights agencies, the Recording Industry of South Africa (RISA), which supports the interests of record companies based in South Africa, utilised the provisions of the Electronic Communications Act 2006, a piece of legislation designed to regulate the internet ISPs, to compel an organisation representing the ISPs to block access to two international internet sites providing music downloads in South Africa at prices much lower than those charged by online providers in accordance with negotiations with the rights agencies. The argument from RISA was that these lower prices are to detriment of its members and, in effect, violating their copyright. The ISPs organisation rejected the call on the basis that its members do not have jurisdiction to block access to websites that are hosted on an international network and that RISA should approach the South African courts for a court order should it seek to proceed against these international sites. The ISPs organisation’s effective argument was its members are unable to act against international sites despite the fact that their main responsibility is to ensure that material appearing on websites operating within South Africa comply with the laws of the country.

This view has created an enormous amount of concern among the various agencies within the country, in that they are unable to argue that these international sites are illegal because the sites do provide for payment of royalties to copyright holders affiliated to particular international and sometimes foreign collective management organisations to which the majority of the South African collective agencies are not affiliated. That situation appears to expose a clear gap in South African law in the failure clearly to identify and define lawful and illegal online sites for the purposes of ensuring that the interests of South Africa-based agencies are also taken into account when international online downloading sites are allowed to operate in South Africa.

The second challenge to the South African agencies has been the strong emergence of the use of mobile phones across South Africa. It is estimated that about 65% of South Africans own at least one mobile phone, which has led to a swelling in the number of businesses offering an array of multimedia products for use on mobile phones, such as pictures, art works, games and music ringtones, as well as full-length tracks. The various South African agencies representing the record companies, producers and composers have been involved in protracted discussions with these companies, as well as their representative organisations, in order to ensure that the service companies not only recognise the copyrights inherent in these ringtones and full-length tracks downloaded by consumers for use on their phones but that they enter into licence agreements and pay royalties for the use of the material.

One of the agencies, the South African Recording Rights Association (SARRAL), representing the interests of composers of musical works, recently concluded settlement negotiations with one of the represented mobile phone accessory companies under the terms of which this particular company agreed to recognise the copyright of material used in its products and to make payment of royalties to the agency for distribution to their respective members each time the material is sold as ringtones or full-length tracks. However, several agencies, particularly those representing the record companies, have expressed unhappiness with the agreed royalty fees offered by the accessory companies and accepted by SARRAL. As a result, there are currently threats of litigation by the respective agencies against such companies.

The last challenge currently being faced by the South African agencies is that of the illegal and pirate sites which appear to have grown in the country. As previously indicated, South African law appears to offer sufficient protection to copyright holders to enable the agencies to issue so-called ‘take-down’ notices to South Africa-based ISPs. The notices, under the Electronic Communications Act, require such providers to close down their illegal services. It would appear that the proactive role that the agencies have taken in dealing with this problem appears to be effective, based on the regular reports appearing in the press and on the agencies’ websites about the closure of those sites.

South Africa is regarded as a developing economy, with a majority of its population—approximately 65%—being young people under 35 years of age. The end of apartheid has provided the majority of these young people with better educational opportunities, which is enabling them to be more technologically inclined, with increased access to the internet, as well as to mobile devices such as mobile phones. Such factors could ultimately result in the increased use of music downloads on both the internet and mobile phones. It is therefore of crucial importance that the current laws protecting the rights of copyright holders are properly developed to bring much needed certainty to the recording and music industry which, as clearly appears above, is operating under a cloud of doubt.

The Copyright Act must be developed so that collective agencies are given specific recognition of their protection of the interests of their respective members in online and mobile use of copyrighted music that is being purchased and sold within the country regardless of the source of origin. This would ensure that the country is able to retain control over international sites selling music in South Africa.

It is my view that these online sites must be required to register with and obtain licences from the local collective agencies, as this would compel them to negotiate fair and reasonable royalty fees with the agencies before they are allowed to operate within the country. Legislation must also create certainty by ensuring that sufficient powers are provided so that any person may approach the courts for relief in instances where internationally-based online sites operate in the country without the necessary prerequisites.

In conclusion, it could be argued that the South African collective agencies have taken a more active and effective role in dealing with online piracy issues, by constantly monitoring transgressions and taking action against transgressors within the current and available laws, but it must be said, however, that the laws appear a bit out of touch with the current technological and socio-economic developments in the country, which could result in the undoing of the great work currently being performed by the agencies.

EMEA: Spain

Country Update for Spain by Enric Enrich

Enric Enrich has been a practising lawyer in Barcelona since 1980, currently in his own firm ENRICH ADVOCATS ( www.copyrait.com ), focused on general business practice and entertainment law. Enric is specialized in private international law, copyright and image rights, on which matters he lectures and writes. Currently responsible of the Audiovisual program at the postgraduate studies in EDASE Business School (www.esade.edu ). He represents clients in different sectors of the entertainment and cultural industries: film and television, music, publishing, sports and media. He is the chairman of the Copyright and Image Rights Committee of the Barcelona Bar Association and was the former Chairman of the Committee of Copyright and Entertainment Law of the International Bar Association (IBA). He’s an arbitrator of the World Intellectual Property Organization (WIPO) and the Independent Film & Television Alliance (IFTA ex AFMA) and a member of the International Association of Entertainment Lawyers (IAEL) and Association Litteraire et Artistique Internationale (ALAI).

The Music Business
The Spanish music industry is the world’s ninth largest market, but for music piracy (traditionally, in the sense of sales of pirated CDs), Spain is on top, with a rate of approximately 25%. With the spread of greater broadband width, illegal internet downloads have increased by 60%, reaching an approximate figure of 2,000 million songs per year. Physical sales of music decreased by 30% in 2009, although digital sales increased by 5% (20 million songs were purchased online).

Downloading of music using personal computers is very widespread in Spain, only 5% of the traffic being monetised. Such figures are obviously considered to be a problem for all rights holders. Furthermore, use of cellular phones and other mobile devices for listening to music has begun to spread. Most of the use of music in mobile phones is side-loading (i.e. people download on to their computers and synchronise with their phones or personal digital assistants—PDAs), being although there is a market for the purchase of songs. Polytones, or polyphonic ringtones, are big business in this area, as in other countries.

However, telecom companies are increasingly offering devices and lines associated with music, access and portability being the magic words. The music business is likely to develop more in the line of legal streaming of music in the future, in a logical evolution of models such as Spotify, in which you can access all the music you want from any device. A current restraint is that the Spanish telecom companies offer poor bandwith in terms of speed and price, however.

The Applicable Law
The applicable legislation in Spain is the Copyright Act (Ley de Propiedad Intelectual), which sets out the rights of authors, artists and phonogram producers to authorise the availability to the public of their works, performances or recordings. The general principles of the Copyright Act follow the lines of the World Intellectual Property Organization (WIPO) treaties of 1996, and they are applicable to internet downloads and streaming of music.

In terms of case law, a large number of cases consist of claims brought by the collecting societies of composers, artists and phonogram producers against people operating websites from which links to music download services are offered (i.e. not cases against those directly downloading music). The majority of court decisions consider that such activity is legal, because it is not the actual downloading of music. Furthermore, downloading is not considered to be a crime if it is not done for commercial gain.

A major case was brought by record companies seeking €13 million against Pablo Soto, a technician who developed peer-to-peer (P2P) programs such as ManolitoP2P, Piolet and Blubster, which met with considerable success, and now Omeno. Another controversial case arose from the digital private copy levy, a royalty applied on any digital device that might, potentially, contain music.

No specific legal evolution can be foreseen, although the interested parties (rights holders through their collecting societies, telecommunications companies, administration, etc.) are in permanent talks about fighting piracy. Many associations are defending the right to use the internet and fighting against possible laws that could block access to the internet. After developments in the European Parliament, no further steps can be taken in Spain without amending several laws, especially regarding privacy.

Spain and Collective Licensing
In my opinion, collective licensing is the ‘second best’ option in a complex situation in which rights holders cannot individually exercise their rights. However, collecting societies should reduce their rates, in order to be more competitive in a market in which music can be obtained for free. Users are willing to pay for music, but for a reasonable price and with easy access. This viewpoint is from the centre ground—I consider my opinion to be very balanced. A more formal opinion would be that of the collecting societies and the industry representatives (e.g. Promusicae), while a more radical one would be that of heavy users of the internet and downloaders, who favour all content being shared and free. (Websites of those on all sides of the issue are listed below.)

Given how the law might develop in Spain, and the behaviour of consumers and businesses, it will not take long before an agreement about collective licensing is reached among the interested parties, with the telecommunications companies probably having to pay a share of the costs. However, technology caused the ‘problem’ and technology will have to solve it. The difference now is that P2P filesharing is very extensive and it will be difficult to change or educate consumers who have become used to that practice.

Websites of Collecting Societies and Industry Representatives:
www.sgae.es
www.agedi-aie.es
promusicae.es/english.html
www.copia-privada-si.com/opiniones/opiniones/entrevista-a-antonio-guisasola-presidente-de-promusicae

Pro-P2P Filesharing Sites:
www.filmica.com/david_bravo/archivos/001023.html
www.internautas.es/html/5467.html
www.elmundo.es/elmundo/2009/05/22/navegante/1243018511.html
exgae.net
www.pablosoto.com

EMEA: Sweden

Country Update for Sweden by Carl Lindencrona


LL.M. Carl Lindencrona is a legal advisor in copyright law and music administration. Carl accepts assignments regarding copyright law, administration etc within the entertainment business as a hole. He has considerable experience from the music industry after fifteen years as Managing Director of Swedish Music Publishers Association. Carl has also worked in the insurance business with development of new insurance products and accident prevention. During this period Carl participated in the company’s management education program. While employed in the music and insurance businesses Carl has basically been generalist and manager. Being a legal advisor has on the other hand been a natural part in the everyday work. Promotion, information, lobbying, education, public relations, and networking has always been in focus among the work tasks. Lindencrona@dof.se

How will digital technology and the licensing of music to consumers operate in ten years time?

Well, regardless of what we speculate now we are going to be wrong. Technological development on all fronts is so fast that it is not possible to foresee how things will evolve so far in the future.

The following exercise makes it apparent: Ten years ago how did we foresee the effect of digital technology on the licensing of music to consumer as it is today?

What ever we foresaw we were wrong.

A look in the rear-view mirror:

Years ago, when I was younger, in the mid 1950s, Sweden had one radio channel, and record-players for old 78 inch records made of Bakelite. Film was only available in cinemas. Your phone could be used to make phone calls only, and there were no mobile phones.

Later in the 1950s our second radio station was established and this broadcast popular music. My neighbour built a TV set. Yes, it was very unusual even at that time to build your own TV set. The only program to watch on TV at that time was test broadcastings from KTH Royal Institute of Technology in Stockholm. The same program was transmitted over and over again.

At that time there where about 350 shops selling sheet music in Sweden, many of which were specialists carrying a wide range of repertoire. Photocopying machines had not yet come onto the market other than in very primitive form in some offices. To copy an original document you needed special “paper” and liquid. At best the original came out of the operation unharmed and you got a decent copy.

Consumers required a radio licence in order to own a radio, and the radio broadcasting company requires a license from the local collecting society, STIM 2), in order to be entitled to broadcast music.

In the mid 1960s tape recorders became a consumer product. For the first time consumers could make copies of radio programmes and records. Young people made their own tape recordings. But when you made a copy in analogue technology, the copy was always is of inferior quality to the original, and the more generations that were made, the poorer the sound quality. At that point vinyl records had also come into the market, LP and EP.

Tape recorder technology then developed and a new format in the form of cassettes were introduced and then later on Walkmans. In Sweden there was a tax on blank tapes. The tax collected went directly into the public Treasury. There was no relation between the tax paid and music subsidies from the Government.

In the later part of the 1980s, I got my first mobile phone. It was half the size of a brick. The company I worked for introduced an in house e-mail system called Memo. When I started to work at the Swedish Music Publishers Association in 1991, I had to go to great lengths to encourage all members to obtain fax machines. And in 1996 I bought my first modem so I could connect to the Internet and build my first Internet site, and send e-mails. There was only one member of the Association who had an e-mail address at the time. The web browsers Explorer and Netscape took over from Mosaic and became more and more consumer friendly. This was a very important step in opening up the Internet to everybody. Until then the Internet had only been used by scientists all over the world.

In the beginning of the 1990s, the market for commercial radio and TV broadcasters opened up in Sweden; the state´s monopoly came to an end. This was relatively late compared to other countries in Europe. The commercial channels were financed by advertising, and the broadcasters bought the rights to use music from the performing right society, STIM, from record companies, IFPI 4), and from the Swedish Artists and Musicians neighbouring rights society, SAMI 5). The broadcasters also had to pay franchise charges to the Government. The breakthrough in commercial radio and TV led to an explosion in the number of songs broadcast. At the same time computers began to be used for reporting music use and the technology was developed quickly. This was a prerequisite for the collecting societies being able to deal with the amount of data flow at a reasonably low cost.

Photocopying machines were by now available in all offices and also as a consumer product in many homes, often integrated with printers to the home computer. There are no remaining specialist shops for selling sheet music left. There are now only music instrument shops offering a small range of sheet music or bookshops which also carry some sheet music. It is to be anticipated that physical sound carriers, CD, MD, audio cassettes, etc, will suffer the same fate as the physical handling of sheet music, or have already done so.

Today:

Today you can observe a clear trend that the number of physical Record shops is declining rapidly.  At the same time, file sharing over the Internet has increased massively. Slowly legal options to purchase music files via the Internet have evolved, but these legal sites for downloading are experiencing, of course, major difficulties in competing with “free” or illegal file sharing.

The attitude that everything on the Internet should be free to use and download is widely spread among the younger generation of Internet users. Those who claim that ownership is an important cornerstone of modern society and that copyright is there to ensure continued creation and publication of new works are faced with the problem of safeguarding their rights, at least in the short term. Technical progress will definitely offer both sides new opportunities in the future.

An interesting distributor of music at the moment is Spotify which offers music through streaming. The business model is based on subscription for as long as you pay your monthly fee. Alternatively Spotify offers access to at hat is financed by means of advertising, you have access to a very comprehensive repertoire financed by advertising.

This business model is not substantially different from the license model that applied for a long time to public service radio and television. The owner of a TV set has to pay a license, and thus has the right to see or listen to all programs offered by public service channels. You pay no matter how much you choose to watch or listen to. The crucial difference is that in radio and television, it is the broadcasters that determines what is to be broadcast, while with  Spotify it is the listener who determines what to listen to and when. Broadcasters as well as Sportify offer a range of extra services that in the end reduces the difference between the broadcasting and subscription models, insofar as listening to music concerned.

The broadcasters’ report to the collecting societies, STIM, IFPI, SAMI, every second of music broadcast. The collecting society collects remuneration from the broadcasters. After deduction of administrative expenses, the remuneration is distributed to the rights holders. Arrangements between broadcasters and collecting societies can take various forms, but international and competition rules require equal treatment.

Collecting societies acquire their rights directly from rights holders, individually. The authors licensing their rights song by song and provides the society with the job of collecting remuneration for public performances.

A levy was introduced in 2005 on technologies offering consumers the ability to store copyright protected material digitally. Producers of the equipment or importers have to pay this levy on computers, USB sticks, recordable CDs etc. These fees are allocated to all rights holders concerned. Also the lending of Phonograms by public libraries provides remuneration to rights holders.

Another model used in the Nordic countries is the so called extended collective licence.

This model is designed as follows: The Copyright Act specifies that all rights holders, within a certain defined area, make their rights in available in accordance with an agreement negotiated by the interested parties. The parties would include the record companies association, Swedish IFPI group, and Swedish Artists and Musicians Interest Organization, SAMI, on the one hand, and the broadcasting radio and TV companies on the other hand with respect to Phonogram rights and the performing artists rights. All artists and record companies, regardless of whether they are members of IFPI, SAMI or not, are covered by the agreement, but with one important exception. The artist or record company who do not want to be covered by this blanket type agreement has the right to say no, and thereby be excluded from the agreement. But to be excluded requires an active step by the individual. With out such an active rejection of the agreement the right holder automatically falls within the scope of the agreement. When a song is used under this agreement the rights holder is entitled to remuneration. It is important to emphasise that pricing and the contractual conditions is subject to negotiation between all parties involved. The Swedish Copyright Act provides for such negative agreement to be binding.1)

Under the Swedish Copyright Act there are specified areas that can be covered by an extended collective licence, for example broadcasts on radio and TV, cable retransmission in the cable network.

Most likely, this development will continue to move towards collective collection and individual distribution based on reports of actual use of protected works of art.

EU directives have progressively been incorporated into Swedish legislation. There is also a strong Nordic tradition which means that Copyright Acts in the Nordic countries are similar in major respects. The above mentioned extended collective licence is an example of this. However there are also occasional variations between the Nordic countries´ copyright laws.

A copyright case that has received a lot of attention during the past half year in Sweden and elsewhere is the Pirate Bay case. Pirate Bay is a web site on the Internet. It offers technology for file sharing. At first instance the people who are behind Pirate Bay have been convicted of assisting copyright infringement, because they have offered file-sharing technology through their site on the Internet. That decision is now a consideration by the court of appeal at the beginning of 2010. This case should be the subject of an important ruling when the case has finally been heard by the Supreme Court.

Facts:

Population

The number of residents in Sweden 2008 was 9 115 000.

Internet connections

78% of the inhabitants have access to broadband at home (2009), according to the World Internet Institute measurements.

In addition, there will be 5% who have access to the Internet using dial-up phone line.

Additionally 3% have access to a computer but no connection to the Internet.

14% do not have access to the Internet at home, but Public libraries all over Sweden offer visitors the opportunity to borrow a computer connected to the Internet.

86% of the population over 16 years of age has access to a computer at home.

News paper subscription / Broadband

2008 was the first year that the proportion of people with access to broadband at home was greater than those who have a subscription to a daily newspaper. 67% of the population in Sweden between the ages of 9-79, subscribe to a daily newspaper. That proportion has in recent years decreased from about 75%, while the numbers with broadband at home has increased.

E-mail usage / Social media

The use of the Internet varies according to different age groups. In accordance with Internetbarometern 2008 from Nordicom, six out of ten Internet users aged 65-79 years use e-mail on average each day. Among the youngest, 9-14 years, the corresponding proportion is only 10%. Among all Internet users 51% use e-mail on average every day.

Young people are, however, more frequent users of “social media” such as social network, community, discussion forums, chat groups or blogs. Among young people aged 15-24, 66% take part in social media on average every day. Even among the youngest users 9-14 years is the use high, 62%. Among all Internet users is the 28% using social media an average day.
Social media & e-mail

Age group  Use of social media Use e-mail

9 – 14 62%  10%
15 – 24 66%  44%
25 – 44 22%  62%
45 -64  9%  53%
65 – 79  9%  59%

(Source: Internetbarometern 2008, Nordicom)
The number of frequent Internet users in EU on a daily basis

2004   23%
2005   29%
2006   31%
2007   38%
2008   43%

(Source: Computers and the Internet in households and enterprises, Eurostat)
The number of frequent Internet users in EU on a daily basis 2008

Denmark  71%
Sweden  69%
The Netherlands  67%
Finland  66%
Luxemburg  65%
United Kingdom 53%
Germany  51%
Belgium  51%
Austria  48%
France  47%
Estonia  45%
Slovakia  44%
Hungry  43%
Lithuania  42%
Slovenia  40%
Ireland  39%
Lithuania  38%
Malta  36%
Italy  35%
Spain  34%
Polen  32%
The Czech Republic 30%
Portugal  29%
Cyprus  24%
Bulgaria  23%
Greek  23%
Rumania  15%

(Source: Computers and the Internet in households and enterprises, Eurostat)
Internet shopping

15% of Swedes use Internet to shop regularly 2008.
Mobile phone usage
Despite the fact that virtually all Swedes (97%) say that they have access to a mobile phone, not everyone uses the mobile phone on average, every day. Internetbarometer 2008 from Nordicom shows that three quarters (74%) of all those aged 9-79 years use a mobile phone on average, every day. But there are differences between different age groups.
Mobile phone use is at its highest in the age group 15-24 year where 92% use a mobile phone on average each day. Among the youngest, the corresponding share is 64%. In the oldest age group; 65-79 years, only 44% use a mobile phone on average each day.
Distribution of remuneration

Distribution of mechanic remuneration in Sweden: (Milj Euro)

2004 35
2005 32
2006 29
2007 27
2008 25

Source: STIM
In 2008, record sales including digital sales in Sweden declined by a total of 7% to  78 milj Euro. Single sales fell by 40% while album sales were down 6%. In all, 14.7 million albums were sold. Digital sales continued to rise. Sales online and to
mobiles were up 4.2% to nearly 7milj Euro. Legal downloads therefore represent 9% of the record industry.

Source: Ifpi
Distributed Performing right remuneration 2008 was 77,5 milj Euro.  (75 milj Euro 2007).

Records sold

Sales statistics 1998 – 2008

1998
Units   Sales   % of LY
Single    4 402 291       82 168 903
Album   22 140 331  1 455 726 162
Digital  –
Total  26 542 622  1 537 895 065

1999
Units   Sales  % of LY
Single     5 393 751       97 088 429    18,2%
Album   22 039 222  1 505 105 052      3,4%
Digital
Total  27 433 533  1 602 193 481
2000
Units   Sales  % of LY
Single     5 109 638       88 730 813     -8,6%
Album   23 838 427  1 558 241 726      3,5%
Digital  –
Total   28 948 065  1 646 972 539
2001
Units  Sales  % of LY
Single     3 956 325       65 156 411    -26,6%
Album   24 258 584  1 569 817 663       0,7%
Digital  –
Total   28 214 909  1 634 974 074

2002
Units   Sales  % of LY
Single    3 376 289        54 576 797     -16,2%
Album   23 838 427  1 469 660 705       -6,4%
Digital  –
Total   27 214 716  1 524 237 502

2003
Units   Sales  % of LY
Single    2 045 690        29 957 159     -45,1%
Album   21 670 694  1 221 709 310      -16,9%
Digital  –
Total   23 716 384  1 251 666 469

2004
Units   Sales  % of LY
Single     1 275 619       18 795 409     -37,3%
Album   17 961 980  1 013 152 933     -17,1%
Digital  –
Total   19 237 599   1 031 948 342

2005
Units   Sales  % of LY
Single     1 092 007    17 103 513     -9,0%
Album   16 923 999  914 938 258     -9,7%
Digital  –
Total   18 016 006  932 041 771

2006
Units   Sales  % of LY
Single       930 429    12 539 756     -26,7%
Album   16 476 032  825 486 518       -9,8%
Digital  –    61 898 477
Total  17 406 461  899 924 751

2007
Units   Sales  % of LY
Single       854 081    11 281 076     -10,0%
Album   15 034 806  724 437 377     -12,2%
Digital  –    67 883 314        9,7%
Total   15 888 887  793 501 767

2008
Units   Sales  % of LY
Single       793 051      6 776 243     -39,9%
Album   14 725 637  678 435 128       -6,1%
Digital  –    70 758 812        4,2%
Total  15 518 688   755 970 183
Source: Ifpi

The future:

I believe authors will continue to license their rights via collecting societies. Authors, and composers, will require greater efficiency and a reduction in administrative costs. Rights are likely to become more diversified, i.e. authors will change collecting societies from time to time, or perhaps divide their rights between a variety of collecting societies so the commercial return outcome will be most favourable to them. The competition between societies will increase as a result of which offer the most favourable conditions.

Collecting societies will continue to have reciprocity agreements so that each of the societies continues to represents the entire world repertoire.

Collecting societies will negotiate with music users and offer the world repertoire in, but require detailed accounts of what has been broadcasted or distributed over the Internet. Technological development will facilitate the implementation of automatation in the process of reporting even more than is the today.

Operators in the market will be paid by end users, consumers, by subscription models, by advertisements and other defined fees. It is primarily on this point that we will see new business ¬models, which in turn will require changes in agreements back in the rights chain. To charge individual consumers to pay for music on a track by track basis is likely to be out of date soon. Consumers will instead be covered by collective solutions and therefore pay for their music rights in other ways, for example through their mobile operator, in its broadband connection, by being the receiver of advertising in different ways, by actively subscribing to increasingly intelligent music distribution channels such as Sportify, iTunes, etc which will provide additional services that can be of interest to the consumer. The quality of distributed music, the sound quality, may continue to be a competitive tool that technological development is certain to be able to offer. Additional information regarding the artist, the lyrics, videos etc may be means of competition.

Collective licensing and individual distribution of remuneration is the solution. This requires a very high level of detail in reporting music usages.

Extended collective licence, tested successfully in the Nordic countries for decades, offers practical solutions to many problems for the licensing of large amounts of rights. Extended collective licence models should prove useful to a greater extent than today, both for neighbouring rights and copyright.

1. Read more about extended collective licence at the Swedish RRO,  3) Presskopias web site: http://www.bonuspresskopia.se/texter/read.php?mid=566

2. STIM  Swedish performing right society
3. BONUS Presskopia Swedish Reprographic Right Society
4. IFPI    Swedish IFPI Group
5. SAMI  Swedish Artists and Musicians Interest Organization

Country Update for Sweden by Linn Wredström and Claes Langenius


Linn Wredström is a Senior Associate with Advokatfirman Hammarskiöld & Co in Stockholm, Sweden, and is engaged in the practice of entertainment-, media- and marketing law within Hammarskiöld & Co’s Intellectual Property Specialist Group. Linn litigates and advises on copyright, online uses, collective management of rights, all types of music related agreements, trademarks, broadcasting legislation and regulation, production, distribution, marketing and other media, entertainment and IP/IT matters as well as general corporate matters. Her education includes: LL.M. at Lund University, Sweden (2004) and LL.B. at Kingston University, England (2003). Her professional experience includes: Senior Overseas Legal Advisor, Corrs Chambers Westgarth, Sydney (2008-2009); Secondment at First Data Corp., Sydney (2009); Secondment at one of Sweden’s leading commercial television broadcaster, Kanal 5 AB (2003); and service with the Swedish courts – assistant judge at Solna District Court (2002).
Claes Langenius has no bio at present.

COLLECTIVE RIGHTS MANAGEMENT OF ONLINE MUSIC RIGHTS, AN UPDATE

Introduction
‘Thank you for the music – for giving it to me’. Are these words from the famous ABBA track ‘Thank You For The Music’2 or are they the joyous words of the happy music pirate as he downloads music and gives thanks for the music that he feels has been given to him—for free? Perhaps. And this is probably more likely to be true in Sweden than in any other country in the world.

Swedish citizens top the list of inhabitants using and owning computers, internet and cell phones in the world. According to a recent market survey,3 62% of the Swedish population use the internet every day. In the 16-to-35 age group, over 80% of the population are daily users. Almost every household has high-speed broadband and Sweden is a world leader in the illegal downloading of music. This and the fact that Sweden is also home to the Pirate Bay, one of the most successful filesharing sites in the world, have set the grounds for making Sweden a pirate paradise. This has led to a heated debate on how to find a solution to the problem with authors’ rights to compensation for their musical works without intruding overly on internet users’ privacy. The Swedish music industry is criticised for being reactionary and Swedish politicians are afraid of criminalising a whole generation of youth. There is no doubt that a new approach, with a modern view, in favour of the technical possibilities rather than against all development, is necessary.

The music industry has struggled for more than a decade to find effective ways to monetise use of its content on the internet. The ‘dematerialisation’ of content presents great opportunities, but also a number of challenges for all stakeholders, including rights holders, content providers, telecommunications companies, internet service providers (ISPs) and consumers. First, a number of practical, legal and financial obstacles still stand in the way of digital distribution of music. Secondly, illegal downloading on a large scale jeopardises the development of an economically viable single market for digital content. Thirdly, there needs to be much more encouragement for legal cross-border offers.

The Pirate Bay Trial and Implementation of IPRED
Music piracy has gradually increased in Sweden during the past five years. However, a recent market survey conveyed that there had been an evident reversal of the trend during the past year.4 There are several elements that could have effected this change.
To start with, Sweden has implemented the Intellectual Property Rights Enforcement Directive (IPRED),5 introducing important changes to Swedish copyright legislation.6 The changes consist of, among other things: the introduction of provisions on information injunctions, giving a rights holder the possibility, after a court decision, to retrieve information from an ISP regarding the person behind an IP address that has been used for illegal filesharing; and the introduction of provisions giving a rights holder a right to collect and process personal data about trespassers (i.e. IP addresses), but only to the extent that such processing is necessary for the confirmation, validation or defence of a legal claim.

Furthermore, the conviction in the prominent Pirate Bay trial, which is arguably the most important and sensational of all ISP copyright infringement proceedings in Europe to date, could also have affected behaviour.

In the Pirate Bay trial, the founders and owners of the Pirate Bay were charged for promoting the copyright infringement of others with their website, the Pirate Bay. The Swedish website indexes and tracks BitTorrent files. It bills itself as ‘the world’s largest BitTorrent tracker’ and is ranked as the 107th most popular website by Alexa Internet.7 The website is primarily funded with advertisements shown next to torrent listings.

The criminal charges against the founders and owners of the Pirate Bay were supported by a consortium of intellectual rights holders led by the International Federation of the Phonographic Industry (IFPI),8 which filed individual compensation claims against the four defendants.

All of the defendants were found guilty on 17 April 2009 by the Stockholm district court and sentenced to serve one year in prison and to pay SEK 30 million in fines and damages (approximately €2.7 million or US $3.5 million).9 The court found that the defendants were all guilty of being accessories to crime against copyright law, strengthened by the commercial and organised nature of the activity. All of the defendants have appealed the verdict and the appeal court trial is expected to begin in mid-2010.

The sentence, which is the longest ever awarded under Swedish copyright law, with the prison time and damage compensation high by Swedish standards, seems to indicate that the Swedish Copyright Act actually gives efficient protection to copyright holders. However, even though the legal changes introducing information injunctions and the Pirate Bay verdict have most likely had an inhibitory effect on the illegal filesharing activity, market surveys show that the reversed trend of illegal filesharing could be noticed even before these events.10 Moreover, ISPs have refused to block the Pirate Bay, despite demands from IFPI to do so following the judgment.11

It thus seems that it is not the threat of lawsuits or tougher legislation that have had the largest impact on the decrease in illegal filesharing during the past year in Sweden, but rather the accessibility to legal alternatives. Hence, the main solution to illegal filesharing appears to be making available legal alternatives that are as quick, accessible and user-friendly as the illegal methods.

An example of such a legal alternative is the highly acclaimed Swedish-owned Spotify, which launched its legal streaming service in October 2008. Spotify is a digital music service that endeavours to give artists fair compensation for their work. To enable this goal, users of the service have to either listen to advertising between songs or pay a monthly fee. Alongside Spotify, several other actors operate in the market, either by providing downloads or streaming.12

The emerging new legal digital music services, while they have appeared to have resulted in decreased filesharing, do however present new challenges for the collecting rights management organisations (CMOs) in respect of licensing of the right to the musical works exploited.

New online services require a more dynamic and flexible framework in which they can legally offer diverse, attractive and affordable content to consumers. Careful consideration has to be made in respect of all the main groups in the value chain—consumers, rights holders and commercial users—in order to allow the development of the future online content market. From the outset, consumers want access to a wide choice of content at any time and in any place, and rights holders want to ensure that they are remunerated fairly and adequately when their works are used on digital platforms. However, in order to achieve this, commercial users need easier and quicker rights clearance structures so that they can obtain rights for content from all around the world and offer content throughout Europe on digital networks.

Emerging New Licensing Models
The Swedish collecting society, STIM,13 has agreements with all major music providers that are active in Sweden. In several cases, STIM has licensed members’ rights for music in the Nordic region, in Europe or, in certain cases, globally.

During the past year, STIM’s work has been dominated by events following a 2005 recommendation of the European Commission and its subsequent decision of July 2008 in the CISAC case.14 Competition rules applied by the Commission in its CISAC decision are prompting players involved in music licensing to reorganise their practices. In particular, the decision aims to promote competition and pan-European licensing, by ending the practice whereby each national CMO has the exclusive right to license the world repertoire to commercial users located in their territory.

Under the Commission’s July 2008 decision, the CMOs are required to renegotiate the territorial restrictions in their reciprocal agreements in the areas of online, cable TV and satellite transmissions. STIM has appealed the decision at the Court of the First Instance. In STIM’s view, the fragmentation of rights and competition over licensees, using the price of author’s rights as the means of competition, are not desirable since they fear that this will lead to falling levels of remuneration for the rights holders.

Nevertheless, in order to comply with the Commission’s order to renegotiate the territorial restrictions, STIM has contacted all the CMOs affected by the decision to review and renegotiate the reciprocal agreements. For example, in January 2008 STIM and the UK and German CMOs entered into a cross-border licensing collaboration with Warner Music on its Anglo-American rights—entitled PEDL (Pan-European Digital Licensing)—which was later joined by the French and Dutch CMOs. However, this process is still ongoing and it remains to be seen whether the CMOs will be able to demonstrate to the Commission that they have complied with the decision and what the potential consequences of non-compliance will be if they cannot.

Following the recent anti-trust developments at the EU level, several of the major rights holders have withdrawn their rights from national CMOs and established their own pan-European licensing companies.15 This development has also affected STIM, which lost the right to licence the EMI Music Anglo-American online repertoire on 1 January 2007.16

No doubt all of these collaborations and the withdrawal of rights from the traditional national CMOs have led to increased complications for online music-providing services, since they now, in order to receive a licence covering the world repertoire, are faced with a situation in which rights are spread over different CMOs and collaborative projects, exclusively or non-exclusively for one or several territories.

Furthermore, the recent efforts to create multi-territorial licensing for musical works are limited to the digital reproduction rights involved in online dissemination. As far as the public performance rights are concerned, collective rights management remains local. This split between the international licensing of digital reproductions and the national licensing of public performance (making available) has, it is argued, led to a further complication in online licensing practices.17

It is not only the recent emerging competition of rights holders and withdrawal of rights that have presented challenges to STIM’s and other CMOs’ licensing models during recent years but, as discussed above, also the illegal filesharing, which has hit the rights holders hard.

Many new licensing models have been discussed in order to end the trench warfare between filesharing enthusiasts and protectors of copyright, but none has been implemented so far.

In 2007 a general broadband fee was discussed and rejected in a government report.18 Still, a general broadband fee, functioning as a compulsory licence to all internet users, would not have been a new phenomenon for Sweden. ‘Public service’ radio and TV is financed by a television licence, which all Swedish listeners and viewers have been obliged to pay since the 1950s.

The central idea of public service media is that all citizens in a democratic country should have access to impartial and comprehensive information free and independent from state interference. However, music sharing was not assessed to have the same political and democratic motives as free and independent world news. Hence, a general broadband fee was contemplated as being unjust if the extra cost was to be levied on all internet users, regardless of whether they used music online or not. Furthermore, another criticism was that the rights holders, with such a mandatory collective licensing scheme, would be forced to waive their exclusive right to their musical works without the possibility to license their songs directly. It was also feared that such a compulsory licence would demolish the opportunity for the market of legal music services to develop.

In January 2009 STIM announced its proposal of a free and legal downloading licensing model at the annual MIDEM conference in Cannes (the so-called STIM model). The concept is, as opposed to the rejected mandatory broadband fee, a voluntary collective licence through which filesharing should be paid for in the same way as for any other use of music. The customers of the network operators should be able to sign up to a filesharing subscription and pay a monthly fee to the rights holders. The subscription would cover the cost of licensing music use from the rights holders in the same way as STIM licenses other users of music in society. Thus, a person who wants to download music legally would be able to choose an internet subscription that would permit legal downloads for a higher charge than a regular internet subscription. The collected money would be distributed to the authors and their music publishers based on the popularity of their musical works.

To render this suggestion possible though, it is of course necessary that the ISPs enter into licence agreements with STIM, which, according to STIM, could be done in the same way as the licences that exist today with, for example, radio and TV broadcasters.

The obvious advantage of the STIM model is that the rights holders receive payment for their works. Also, since such collective licensing would be voluntary for the rights holders, they would remain free to license their songs directly. It would also be voluntary for the users, thus avoiding an unfair burden on those who do not use music on the internet. In order to avoid having the illegal alternatives as the most appealing, and in order to make the filesharers pay, the fees would have to be set at a reasonable level and the mechanisms for payment would need to be as easy as possible.

There are, however, many unanswered questions and obstacles to overcome in respect of STIM’s proposal. First, to make STIM’s vision a reality, the ISPs have to come on board. Yet this is likely to be an uphill struggle, since the ISPs might perceive the proposal as a law-enforcement role thrust upon them, a role that they clearly have objected to in the past. Secondly, an implementation of the STIM model would require significant investment of time and money, and the execution of a significant number of contracts between rights holders (including record companies and independent songwriters), CMOs and ISPs. Thirdly, there is the burden of collecting and processing millions of audio and audiovisual works into a large database, along with metadata and accounting information in order to track music consumption and allocate revenue to the respective copyright owners in some fair, agreed manner.

It is also likely that the STIM model would be opposed by existing legal music service providers, which might be affected negatively by such a voluntary collective licensing model. If the STIM model becomes successful, this might result in an exodus of users from existing legal internet distribution streams. Furthermore, it is not clear from the proposal how compensation to the rights holders who are not members of STIM would be achieved. Another issue with the proposed STIM model is that there is no guarantee for the ISPs or the end users that those rights holders whose rights have not been cleared through the voluntary licensing scheme would not pursue legal action against them for copyright infringement.

Obviously, there are many technical, economic and legal hurdles to overcome before STIM’s proposal could become a reality, but such a solution could potentially constitute the necessary modern approach towards copyright that would function in the new technological environment without requiring surveillance that could be criticised for being overly intrusive of internet users.

Final Remarks
Online dissemination of music, with its multiple layers of ownership, causes big challenges with respect to online licensing. Under the old regime—pre-CISAC—Europe was divided by the CMOs into territories, while under the new regime Europe will be divided by repertoire. A market partitioned by repertoire rather than territory is potentially far more problematic, and has the potential actually to inhibit the diversity of works available online.

The traditional licensing structure employed by CMOs is still in the process of adapting to the ubiquity of the internet. The advent of the internet has prompted new channels of digital distribution, but the contractual divide between digital reproduction rights and public performance rights remains. As a result, the two sets of rights have to be cleared, as opposed to clearing a single ‘making available’ right. Only time will tell how collective licensing practices with respect to performance rights will change in the wake of the anti-trust decision in the CISAC case—legislative intervention may become necessary. STIM, together with the other Nordic societies, seems well placed to take advantage of a fully competitive market for cross-border collective rights management, however, especially given its history of innovation and co-operation.

In the debate about the future of collective rights management, it is however important not to overlook the original purpose of collective rights management. The first collecting society, the Agence Centrale,19 was established because it would have been impossible for individual rights holders to manage and control the use of their works. The CMOs would do well not to forget their origins. The purpose of a society is not to gain the strongest market position, the highest revenue or even the greatest number of members; rather, it should exist for the protection and benefit of its members.

This benefit has, however, become more difficult to protect in the light of the vast growth of unlawful filesharing, which quite simply threatens to put the whole music sector out of business. Sweden is currently at a critical moment in finding a suitable approach to conquer music piracy. Sales of CDs are continuing to fall, and the revenue collected for online music is far from compensating for the loss of revenue from physical sales.

The debate regarding dissemination of copyrighted material via the internet has been going on for a long time now but, despite the steady flow of suggestions for how the industry could move towards positive solutions, little headway has been made. The proposed STIM model has its possibilities, but it is too early to determine if it would work well or if it would be applicable to other copyright situations or areas of practice.

Legislation must continue to stipulate clearly what is or is not permitted in order to facilitate the process of licensing filesharing; Sweden needs to offer the same effective means of tackling systematic breaches of the copyright law as the rest of the EU.20 However, it is not sufficient to rely only on sanctions against those who share files illegally. Consumers must also be able to access music easily while doing ‘what is right’, and commercial users need to have a simple one-stop multi-territorial licence available for digital rights exploitation.

Clearly, co-operation is needed between legislators, ISPs, rights holders and commercial users to create a viable solution. Their actions can be a deciding factor in whether the internet of the future becomes a carrier of or a threat to music. In order to protect the future of music, it is time, as the Beatles put it, to: ‘Come together – right now—over me’.21

Footnotes:
1. Advokatfirman Hammarskiöld & Co.
2. Andersson-Ulvaes, 1977.
3. ‘The Swedish and the Internet 2009’, a market survey from the Sweden-based World Internet Institute.
4. Ibid.
5. Directive 2004/48/EC, on the enforcement of intellectual property rights.
6. The Swedish Government voted for a bill (Civilrättsliga sanktioner på immaterialrättens område) to implement IPRED on 25 February 2009.
7. See www.alexa.com/siteinfo/thepiratebay.org.
8. IFPI represented SONY BMG Music Entertainment AB, Universal Music AB, Playground Music Scandinavia AB, Bonnier Amigo Music Group AB, EMI Music Sweden AB and Warner Bros Music Sweden AB.
8. Case No. B 13301-06.
9. See, for example, ‘The Swedish and the Internet 2009’, World Internet Institute.
10. After a decision from the Stockholm district court on 21 August 2009, the main ISP for the Pirate Bay, Black Internet AB, was ordered by the court to stop providing bandwidth and unlimited hosting services to the Pirate Bay; Black Internet has however blocked access to the Pirate Bay. Black Internet has appealed the decision, which is currently pending.
12. See, further, IFPI’s Digital Music Report 2009: New Business Models for a Changing Environment.
13. The Swedish Performing Right Society.
14. International of Societies of Authors and Composers (CISAC), Commission Decision COMP/C2/38.698-CISAC of 16 July 2008.
15. Including, among others, CELAS, DEAL, ARMONIA, PAECOL and Alliance Digital.
16. EMI Music has in association with the British and German collective management organisations established CELAS, the Centralised European Licensing and Administrative Service.
17. Authors and composers own the rights in their composition or the song; sound recording producers and performers own the ‘neighbouring rights’ attached to a sound recording.
18. The Renfors Report 2007 (DS 2007:29).
19. The Agence Centrale was established in 1850 by the composer Ernest Bourget. In 1851 this became the Société des Auteurs, Compositeurs et Éditors de Musique (SACEM), which is still the collecting society for musical works in France today.
20. In France, for example, the Government has introduced legislation to require concrete steps by ISPs to encourage legal music consumption and deter piracy. It should also be noted that in July 2008 the UK Government brokered a joint memorandum of understanding between the recording and film industries and the UK’s six largest ISPs, binding the parties to work to achieve a significant reduction in unauthorised filesharing.
21. Lennon/McCartney, 1969.

EMEA: United Kingdom

Country Update by Peter Dyson

Peter Dyson works in private practice in the entertainment sector in the UK.  Based in London, he has been serving a diverse range of clients including artists, actors, producers, managers, promoters, labels, publishers, production companies, film and TV companies, entertainment based internet companies and multi media companies. Pete is also a senior lecturer at London Metropolitan University and co-founded The Future Music Business Research Unit.  He has recently returned from a research trip to China where he and 25 of his students were researching the Chinese music and media industries.

UNITED KINGDOM: IS THE GOVERNMENT A FRIEND OF THE MUSIC INDUSTRY?

Over the last year in the UK there has been little change in the overall filesharing landscape: over 7 million regular filesharers, whose unlicensed downloads of over 1 billion tracks a year is estimated to cost the UK recorded music industry £200 million annually (BPI/Jupiter figures). Even if we wish to take issue with the methodology employed in arriving at these figures, few would disagree that unlicensed filesharing continues to play a very significant role in the ongoing decline of the UK recoded music industry. That is not to say that interesting new business models are not coming on-stream in the UK; they are, but each and everyone of them is in some way disrupted and limited by the mass phenomenon of unlicensed filesharing. At the point where an innovative licensed model seems able to compete with ‘free’, and attract widespread consumer satisfaction, it appears no longer to work commercially for the service provider. Offering a user experience that can compete with ‘free’ and at the same time pay the content owners (especially with regard to uncapped streaming fees) places the provider under immense commercial pressure. Spotify, the financial health of which is the subject of continued rumours, is a good example of this paradox. From this perspective, unlicensed filesharing remains the elephant in the room that must be either tackled or made subject to collective licensing and monetisation. New business models alone will never gain sufficient commercial traction while filesharing remains unlicensed.

The filesharing phenomenon also appears to have started to take a heavy toll on other content industries. The UK Film Council’s published figures on the size of the British online film market show the scale of the problem. Despite there being over 16 million UK households (61% of the total) with a broadband connection, the online film revenues for 2008 remained very low, at only £6.2 million, with estimated unlicensed download losses of over £50 million. The next generation of super-fast broadband networks, which will allow people to download movies in minutes and music in seconds, will be within reach of 90% of UK households by 2017, further exacerbating the unlicensed filesharing problem.

This difficult digital market environment is no different to that prevailing in the rest of Europe or in the North American markets, but a very significant development has become apparent over the last 18 months in France, Sweden and the UK. The content industries in these countries appear to be experiencing signs of an unprecedented level of government support and intervention in the debate about tackling unlicensed filesharing.

The music industry has had internet service providers (ISPs) in its sights for some time. The 2008 IFPI report cited research indicating that up to 80% of all internet traffic consisted of unlicensed P2P uploads and downloads, leading the IFPI to criticise ISPs strongly for failing to take any proactive responsibility for the problem. A keynote address by Paul McGuiness (U2 manager) at MIDEM in January 2008 served as a rallying call for the industry to step up its pressure on ISPs. The French Government had already identified ISPs as central to any effective targeting of unlicensed filesharing. Further encouragement in Europe came from the early results of a legal action brought by the Belgium collection society SABAM against Scarlet (Tiscali), seeking a ruling that ISPs must proactively take increased responsibility for infringing content rights, where viable and practical technological means exist. The work of British Music Rights (now UK Music) has also been central in identifying ISP and government action as central to containing and addressing filesharing, and their work in tirelessly organising a relatively united music industry lobbying voice to push for government action has been of great importance. Taken together, it can be said that a realignment in music industry strategy has been evolving in the 2007 to 2009 period, away from a focus on filesharing networks and their uploading users, and towards the gatekeepers of the internet, the ISPs.

The position of the UK Government has up until recently been somewhat agnostic, favouring only a voluntary approach between the content industries and the ISPs. The government-sponsored 2006 Gowers report into UK intellectual property policy acknowledged the potential role that the ISPs could play in addressing the problem of filesharing, but recommended a voluntary approach with government intervention only as a last resort. The different interest groups were encouraged to arrive at an industry-agreed approach to the problem, working within the difficult mix of existing privacy, e-commerce and copyright laws. In the summer of 2008 this approach generated a large-scale government consultation process and, more tangibly, the memorandum of understanding, brokered by the Government, whereby six ISPs (Virgin Media, Sky, Carphone Warehouse, BT, Orange and Tiscali) agreed with content owners from the music and film industries that they would issue notifications in reasonable numbers to internet users identified by the content owners as being serious online copyright infringers. However, this was a trial initiative and, crucially, no penalties were in place, and the ISPs made it quite clear that they had no intention of disconnecting their paying customers on their own initiative; the Government would need to order them.

Interestingly, though, the Government’s targets arising from the memorandum of understanding were surprisingly ambitious, and included a target for reductions in the unlicensed filesharing of music and films by up to 80% over the next three years. This apparent optimism may have been based on a UK study showing that a mere warning would be sufficient to address the problem. The study released in March 2008 found that 70% of all internet users said that they would stop unlicensed filesharing after a single warning letter even without sanctions. However, a new study from The Leading Question and Music Ally suggests that the previous study was deeply flawed and that the situation is not so rosy. When internet users in the UK, US and France were surveyed, 64% said that they would stop unlicensed filesharing with only a warning, a finding roughly in line with the previous study. The majority of internet users, however, are not engaged in filesharing; even the IFPI’s own numbers show that only 18% of Europeans engage in any filesharing. So, the correct question is not how all internet users will react, but how actual filesharers will react? When the new survey asked this more relevant question, only 41% of filesharers said that a warning would persuade them to stop. In fact, only when disconnection was mentioned did the number jump back up to 63%. It is also notable that 37% of admitted filesharers would still not stop even when threatened with imminent disconnection. Music Ally CEO, Paul Brindley, commented, ‘While warning letters from ISPs may be enough to send out an important message to all music fans, they may not be enough to dissuade the real target group of file sharers from downloading music without paying.’

Therefore, if the real threat of disconnection or suspension is the crucial variable in how successful such ISP-based schemes are likely to be, legislation will be necessary, given the ISPs’ hostility to such sanction. The Government, via the Department for Business Enterprise and Regulatory Reform (BERR—the Department for Business, Innovation and Skills, BIS, since June 2009), consulted interested parties in the second half of 2008, seeking to elicit an agreed response as to how the memorandum of understanding could be built upon and extended into a voluntary co-regulatory approach to dealing with persistent filesharers who failed to respond to warning notifications. No consensus emerged between the interest groups, the ISPs continuing to resist any regulatory approach whatsoever, favouring instead improved business models, educational initiatives or court action by rights holders only. The rights holders were strongly against falling back on the status quo of their sole responsibility for enforcement and continued to request escalating ISP proactive technical measures, including eventual disconnection of persistent filesharers. Rights holders sought to hold the Government to its pledge to step in if ISPs and rights holders could not agree on voluntarily brokered co-regulatory measures against filesharers. The voluntary approach had indeed run out of steam.

In the absence of further voluntary agreement, the content industries appeared to gain the upper hand in the lobbying process. Support came in from many sectors of society including the trade union movement. In the summer of 2009 the Trades Union Congress (TUC) added its voice, on the basis of protecting jobs, to the demand for ISPs to take proactive action against filesharing: ‘There is no doubt among members of our unions, as well as the coalition of rights-holders who voice the consensus of the creative industries, that filesharing poses a serious but utterly avoidable threat to jobs’, said Brendan Barber, the TUC general secretary. ‘This is through films never made, tracks never recorded and content never invested in. ISPs hold the key to creating the step change necessary to tackle illegal filesharing…For the vast majority, simply drawing attention to the illegality of their actions would be sufficient, but this needs to be backed by further graduated technical measures for those who do not change their behaviour’ (co-signatory of a letter to the Daily Telegraph published on 10 June 2009).

The next significant form of government input came later in June 2009, with the publication of Lord Carter’s Digital Britain final report. The Carter report outlined proposals to introduce legislation to standardise a process in which ISPs would send warning letters to unlicensed filesharers and collect information on ‘serious repeat offenders’ (based on rights holders’ notifications). However, the preferred outcome with regard to persistent filesharers remained that the rights holders could then individually pursue offenders for copyright infringement through the court system. Carter kept the door open to Ofcom (the official body empowered by Parliament to regulate communications services) being granted powers by the Government to draw up technical measures for implementation by ISPs by 2012 at the earliest if the warning system was not working adequately in reducing filesharing, but these measures would involve bandwidth restrictions only and would fall short of disconnection. Since the publication of the report, however, certain key members of the Government appeared to be moving decisively toward the content industries’ position. ‘We’ve been listening carefully to responses to the consultation this far, and it’s become clear there are widespread concerns that the plans as they stand could delay action, impacting unfairly upon rights holders’, said Treasury minister Stephen Timms, who is responsible for implementation of Digital Britain. In October, Lord Mandelson, the Secretary of State for BIS, responding to the consultations that had taken place, and it should be noted after he held meetings with David Geffen and Lucien Grange, set out the Government’s plans for a scheme that would see persistent online sharers of unlicensed copyrighted material sent a series of warning letters before having their broadband connections slowed down or even suspended. The staged roll-out of the strategy would see Ofcom assess the effectiveness of the warning notification system on cutting unlicensed filesharing, backed by the threat of legal action by rights holders and content companies. If by April 2011 a 70% reduction is not achieved, the use of technical measures to cut off persistent offenders’ web access will be introduced by about July 2011. The Secretary of State would be granted powers to decide which technical measures to bring into law by statutory instrument and the precise timing of such measures. Repeat offenders will be warned they are infringing and then, in a second letter, told that technical measures could be implemented. Further infringement will lead to the offenders’ names being put on a ‘serious infringers list’, with ISPs then ‘obliged to exercise technical measures’. If infringers are informed that they face having their internet access suspended, they will have 20 working days to appeal to an independent body, to be established by Ofcom. The suspension will not come into force until the appeal has been heard. If the first appeal is unsuccessful the infringer can lodge a second appeal within 20 working days.

Mandelson said that he did not want to see ISPs ‘unfairly burdened’ by the new system. ‘ISPs and rights-holders will share the costs, on the basis of a flat fee that will allow both sides to budget and plan’, he said.

The Digital Economy Bill containing these measures was subsequently introduced into Parliament by the Government on 20 November 2009 and is expected to reach the statute books next year, subject to parliamentary approval before an imminent general election.

Assuming the measures become enshrined into law what outcomes can be expected and what are the likely areas of controversy and disagreement?

Costs
The costs of passing on all the infringement letters and maintaining an accurate database of past infringements has been raised by various broadband providers since the original Digital Britain report. The Bill would appear to offer a cost-sharing solution, but it seems it is down to the Secretary of State to control whether this sharing takes place. Ofcom will also be able to have its costs from involvement paid for by copyright holders and providers. Lord Mandelson said, ‘ISPs and rights-holders will share the costs, on the basis of a flat fee that will allow both sides to budget and plan.’ BT and Carphone Warehouse estimate that running the enforcement system would cost about £2 per broadband line per month—a total of £24 per broadband line per year. With 17.6 million broadband connections in the UK, as of September 2009, that means it would cost £420 million annually. The music industry, on these figures, would be paying £210 million annually to run a system attempting to defeat a problem that it complains costs it £200 million per year! In addition, both sides can expect a backlash from non-filesharing broadband users if the ISPs seek to pass their costs on to their customers.

Obviously, these ISP estimated costings are very controversial and more work needs to be undertaken on ascertaining the real cost of the scheme and on a proper cost benefit analysis.

Will it Work?
The precise technical measures need not be decided upon until nearer 2011, after the Ofcom review of the effectiveness of warning notifications, so there is some concern from content owners that the Government may be talking tough but has ample room subsequently to adopt very much milder technical measures than suspension.

Other serious problems include the likelihood of facing a technological response, such as the use of proxy IP addresses and the development of next-generation P2P designs incorporating really heavy encryption and anonymous uploading capability. It is very possible that the measures proposed could require an ongoing technological arms race at great cost in time and money.

At best the proposed measures, even if they work, will only serve to contain the most extreme filesharers. The proposed administrative systems will simply not have the capacity to address the predominant lower levels of filesharing. Research needs to be undertaken to examine whether the extreme filesharers are the main target in stemming industry losses, or whether it is the widespread but lower level of filesharing that constitutes the central problem.

Will it Face Legal Challenges?
The government Bill provides for an appeal system but no judicial court-based protections for the accused. Disconnection without proper judicial process is likely to prove very controversial. This approach caused many difficulties in the initial French proposals and led to the French ‘three strikes’ legislation being amended to include the role of a judge in the process. However, the French legislation in this area is based on a criminal rather than civil law process and so was always more vulnerable to demands for a judicial element. It is also worth noting that the European Parliament has dropped its amendment to the EU telecoms package that would have protected the rights of internet users to a court hearing before being disconnected from internet access. In addition, the likelihood of a disconnected user successfully bringing an action based on the argument that disconnection from the internet breaches some fundamental human right in the digital society seems unlikely, since the European Court of Justice ruled in a Spanish filesharing case last year that a user’s fundamental rights are not absolute but have to be weighed against the rights of others, including copyright owners.

Legal challenges may also come from ISPs. TalkTalk one of the larger British ISPs has pledged to continue to resist any attempts to make it impose technical measures on its customers unless directed to do so by a court only and has threatened to challenge in the courts any imposition of extrajudicial technical measures. This may of course only be market posturing for the benefit of potential broadband customers, but it is likely that the measures will be tested at some point in court. This is particularly likely to be the case where the infringements have taken place on shared networks or where children are involved.

Will the Measures Advance or Delay Collective Licensing?
Will the measures bring forward or delay the collective licensing models that could monetise all online consumption of music, including P2P? For some time now there has been building in the music industry a strong advocacy of an all-encompassing collective licensing model, whereby ISPs would be licensed to permit their broadband customers freedom to consume online music from whatsoever source including P2P. To some extent such a model recognises the anarchy of online music distribution, accepts that the traditional distributors have lost control and seeks a bottom line monetisation of the overall broadband system of music distribution. It has to be said that the recent government-brokered responses to filesharing in the UK are only likely to delay such a model being built. To the extent that the measures outlined above provide hope to the music industry that filesharing can be controlled, they delay the huge amount of collaborative work necessary to develop a collective licensing model for all online consumption of music. There will no doubt be continued development of ISP– and content owner-licensed models such as those being developed by Universal with Virgin, but these fall short of licensing (or, more accurately, ‘legitimatising’) all online music consumption; in fact, part of the licensing terms of such models are that the ISPs will turn up the heat on filesharing. Against this background, there is historical reason to suspect that such limited licensing models are likely to join the failed status of so many past subscription models.

In conclusion, the UK music industry has scored a lobbying success. All eyes now will be on whether government support brings forth improved control over the digital market or whether such control proves an illusory distraction to the real task of building new models of collective licensing that monetise all forms of online music access and consumption, including the ever popular filesharing networks.

Country Update for the United Kingdom by Tony Morris with Additional Research by Karla Jerzy


Tony Morris heads the Media Team at London solicitors, Marriott Harrison.   His clients include record and video companies, music publishers, composers, performing artists, bands, film and television producers, computer games companies and other businesses operating across the digital landscape. In addition to dozens of press articles, Tony’s published works include ‘An Introduction To Recording and Music Publishing Contracts’,  the chapter on Computer Games Contracts and a novel.   He has made numerous appearances on both radio and television as an expert commentator. He is an accredited mediator, a Member of the Chartered Institute of Arbitrators,  a Member of the Panel of Arbitrators of the Independent Film and Television Alliance,  a Fellow of the Royal Society for the Arts and a Member of the General Assembly of the University of Manchester.   He is a regular panellist at industry events and lecturer on EU Media Programme courses in Spain, France, Denmark, Germany, Ireland and the UK.Kala Jerzy completed her undergraduate degree at University College London.  Following a spell as a researcher at the Jerusalem Centre for Public Affairs she is currently in the process of qualifying as a solicitor in London.In the decade since the record industry first went to war with Napster, overall strategies for the commercial exploitation of sound recordings have radically changed to the point that each and every week announcements are made of deals that are intended to monetise the numerous opportunities on offer in the digital universe The era when content was king is being subsumed by an age in which the ever diversifying array of media via which content is distributed have become the key drivers in our industry. A brief review of any of the current issues of entertainment industry trade media equivocally demonstrates that, as articulated back in the 1950s by Marshall McLuhan, ‘the medium is the message’.

Just as the market for content and the media via which it is distributed have, to use popular parlance ‘converged’, the attention of UK legislators, encouraged by a whole host of lobbyists and interest groups, has been brought to focus on the digital arena. Notwithstanding the distractions of a rapidly disintegrating economy and a looming general election, June 2009 heralded the publication of the UK Government’s final Digital Britain report. Digital Britain endeavours to survey the entirety of the digital landscape and considers and makes recommendations intended to benefit the economy and to engender broader social development for the overall benefit of the country’s welfare. In this broad-ranging context, the areas of specific application of Digital Britain to the music industry were relatively contained.

While the headlines were grabbed by those sections of the Digital Britain report devoted to the improvement of broadband infrastructure, the future of radio and the needs of the education sector to address the digital future, the principal areas of interest to the music industry are, first, the introduction of collective licensing and related provisions to address orphan works and, secondly, the proposal to introduce legislation to reduce unlawful peer-to-peer (P2P) filesharing. Collective licensing of sound recordings has been just one of the industry’s responses to the debilitating consequence of mass exploitation of its intellectual property over the internet that started with peer-to-peer filesharing, progressing to a general free-for-all approach and to streaming via the likes of YouTube and mySpace.

There have been countless surveys and reports undertaken about the effect of illegal filesharing. In the context of those surveys, increasingly, the intelligence being gathered has been directed to assessing the record industry’s need to monetise the use of its copyrights on the internet. The most recent of such reports, published in 2009 by the International Federation of the Phonographic Industry (IFPI), asserted that, globally, 95% of music downloaded online is illegal. This was a 25% rise on 2008, with downloads now accounting for a fifth of all recorded music sales. In the UK, consumers legally downloaded 110 million single tracks in 2008 and bought 10.3 million digital albums—accounting for 7.7% of the overall UK market for sound recordings.

Interestingly, in a survey of over 1,000 Britons aged between 16 and 50 years published at the beginning of November 2009 by Demos, a British think tank, it was revealed that those illegally downloading music tracks actually spent an average of £77 a year on legal music content, £33 more than those who were legally downloading tracks. The survey additionally found that 42% of those admitting to have downloaded music illegally did so for the purpose of listening to the content before they actually bought it. The report suggests that if legal downloads were reduced in price to, perhaps, 45 pence (€0.50), legal sales could increase dramatically and even double.

The official comment by IFPI on the Demos report contradicted its conclusions, asserting that

‘these findings do not prove that illegal file-sharing boosts music sales. They only reflect that there is an overlap between those people who download music illegally and those who purchase music. This is not an original finding and it is consistent with the typical profile of many music fans who today acquire music from different sources, some legitimate and some not.’

According to IFPI, most studies conclude that the impact of filesharing on music sales has been significant, claiming:

‘This is why spending on recorded music has fallen every year since illegal file-sharing began to become widespread.’

The Digital Britain report announced that the Government’s objective is to see the creation of an effective online download and streaming market of scale and the provision of content that is highly affordable and both easily and conveniently accessible to consumers. It mentioned that

‘commercial entities from Hulu to Spotify to Six-To-One to FremantleMedia are trying out different business models to provide such content to consumers.’

Given that the UK Government considers online piracy to be a serious offence, Digital Britain proposes

‘an equitable framework to bring content creators, rights-holders, aggregators, distributors and consumers together to create workable and effective online download markets of scale.’

Prior to Digital Britain’s official recognition that legislation was required to protect the integrity of the digital economy and the intellectual property on which it depends, inroads were already being made by the industry on the pirates’ charter made available by the internet. What was an initially tempestuous courtship between the record industry and the internet has been increasingly consummated by the continual announcement of collective licensing deals. Over the past three years key internet sites such as mySpace have contracted licensing deals with major companies, starting with Sony in October 2007 and, most recently, in November 2009, with Merlin, the leading representative for the independent record companies. Collective licensing has not been confined to sound recordings alone, as the industry recognises the value in promoting its audiovisual content over the worldwide web. In the spring of 2009 Universal launched Vevo, its ‘Hulu for Music Videos’ site, to which Sony was announced as making a cash investment for equity and licensing of its library of music videos.

Following an announcement in the government legislative programme at the opening of Parliament in the autumn of 2009, the Digital Economy Bill (DE Bill) was published in November by the Department for Business, Innovation and Skills, the Department for Culture, Media and Sport and the Intellectual Property Office. Provisions included those that will enable the suspension of the internet connections of individuals persisting in illegal filesharing, as well as proposals to extend collective licensing. The DE Bill also aims to provide government ministers with the power to amend copyright legislation, so that online copyright infringement may be prevented in whatever form it may take—even in relation to technologies yet to be invented or developed.

In the DE Bill, the onus for primary enforcement against filesharers and the like has been put on the ISPs. As it reads at the moment, the DE Bill sets out a number of convoluted procedures that will lead to the much vaunted penalty of bandwidth reduction. Popularly referred to as ‘three strikes and you’re out’, the proposals are unlikely to pass through into law without considerable controversy. The ISPs have already begun to fight back, and BT in the UK has recently stated that the ‘three strikes’ law would cost ISPs £1 million per day in lost customers and infrastructure costs. If that is right, and the figure may well have been plucked out of the air, as no solid data has been produced to substantiate it, the putative £365 million per year that the ISPs contend it will cost them is greater than the £200 million that music piracy is said to cost the UK economy. However, even the latter figure is arguably not much more than guesswork. Indeed, there are those in the record industry who would say that the latter figure is probably much greater. Conspicuous by its absence to date has been any real in-depth research on the views of consumers about these proposed penalties.

In terms of collective licensing, the DE Bill takes the radical step of permitting a collecting society to assume a mandate to collect fees on behalf of rights holders who have not specifically signed up to that society. To be exact, clause 116B of the DE Bill continues by preventing such a licence being granted in respect of an unpublished work or where a copyright owner has specifically excluded the possibility of such a licence being granted by notice. These new provisions include: a direction that licences granted under section 116B may not be exclusive; and the possibility for subordinate legislation to be subsequently introduced that may provide how royalties or other sums paid in respect of such a licence may be dealt with, including:

• the deduction of administrative costs;

• the period for which sums must be held for the copyright owner; and

• how sums not paid to and/or claimed by a copyright owner will be treated after the statutory period.

Curiously, the proposals also provide that guidance on how this new system is to work may be published from time to time by ‘any person’—presumably intended to mean any one who is involved in the administration of collective licensing schemes established pursuant to the new legislation.

While the overall framework of the new collective licensing regulations is comparatively comprehensible, it is also apparent that there is much in the way of detail to be worked out. The DE Bill sets out the intent of the current Government, an intent that is apparently shared by the principal opposition parties; however, whether or not there will be time before the general election for the bill to become law is questionable. The election must take place no later than 3 June 2010 and, in the remaining months of the current Parliament, there are another dozen or so bills that the legislature will be asked to address. Whether or not the Digital Economy Bill will take priority over the likes of the Flooded Water Management Bill and the Energy Bill will depend on a combination of the lobbying power of industry and other interest groups and other, purely political considerations.

Irrespective of what happens to the DE Bill between now and June 2010, the fact is that the need for Digital Britain to be provided with its own legislative framework has now been recognised at government level. Since the mass digitisation of content began with the introduction of the compact disc in the mid-1980s, the ability—and often, too, the willingness and desire—of legislators to keep abreast of the rapid rate of technological developments has been deficient. The introduction of the all-embracing Copyright, Designs and Patents Act 1988 was, at the time, both long overdue and also premature: overdue as it was the first significant addition to the UK’s laws on intellectual property since 1956, implementing as it did the EU Directive on Copyright Harmonisation; and premature in that those responsible for it could have predicted neither the rapid increase in the value accorded to intellectual property nor the proliferation of the new digital media that led to consequent erosion of that value by unlawful means.

In taking an all-embracing view of the new digital landscape and the intellectual property that is its foundation stone, UK legislators have at least proven that they are ready to grapple with the difficult issues that convergence raises. However, the next test will be the rapidity with which the zeal of their conversion to the cause enables meaningful legislation to be introduced into law. What will follow thereafter will be the extent of the ongoing commitment of those charged with the responsibility of enforcing the law to keep it up to date with the inevitability of further technological developments. Only then may those whose livelihoods depend on the benefits of collective licensing and other new streams of income rely on maintaining the integrity and value of their copyrights.

Country Update for the United Kingdom by Rory Campbell and Mathew Forde

Rory Campbell is a commercial lawyer specialising in ICT and media law. He joined Forde Campbell LLP in 2007, and became a partner in 2009. Rory advises clients around the world on R&D, collaboration and licensing agreements and corporate and commercial structures in the software, digital media, bio-tech and general technology sectors. Rory previously worked with Trowers & Hamlins, an international law practice based in the City of London. From 2002 Rory was the firm’s lead ICT lawyer, advising private and public sector clients on transactions ranging from spin-offs and start–ups to £multi-million ICT PPP and PFI deals. Rory holds a MA from Cambridge University, and qualified as a lawyer in England in 1996 and in Northern Ireland in 2007. Rory is a member of the Society for Computers & Law, and author of the Intellectual Property Rights chapter of Local Government Contracts and Procurement (Tottel 2007).

Mathew Forde is a commercial lawyer specialising in IP and media law. He founded Forde Campbell LLP in 2006 as a vehicle for his IP licensing and protection expertise. Previously Mathew spent four years as head in-house lawyer of Irish pharmaceutical company Norbrook Pharmaceuticals. Prior to Norbrook, Mathew was a commercial litigator with City of London law firm Lawrence Graham from 1994. Mathew has acted for clients in hearings before the UK High Court, Court of Appeal and House of Lords / Privy Council. He also has extensive experience in litigating IP cases overseas (in particular, in the US (New York), Canada and New Zealand). Mathew’s practise includes acting for a range of media clients ranging from individual talent and filmmakers to international production companies. Mathew holds a MA from Edinburgh University, and qualified as a lawyer in England in 1996 and in Northern Ireland in 2002.

NORTHERN IRELAND: A PROPOSAL TO DEAL WITH ILLEGAL FILESHARING OF MUSIC IN THE UNITED KINGDOM

Introduction
On 28 April 2009 the Consumers International inaugural IP Watch List 20091 placed the UK at the bottom of the international watch list of countries. The report gave as one of its reasons the UK’s intransigent approach to intellectual property law, including an almost total lack of flexibility in its regulation of copyright. The report stated:

‘UK copyright law is substantially different from that of other countries. It is generally very restrictive.’

On 29 January 2009 the UK Government published the interim Digital Britain2 report, forecasting the country’s role in the digital economy. The report focused in particular on the Government’s proposals for dealing with illegal downloading, saying:

‘there is a clear and unambiguous distinction between the legal and illegal sharing of content which we must urgently address, but we need to do so in a way that recognises that when there is very widespread behaviour and social acceptability of such behaviour that is at odds with the rules, then the rules, the business models that the rules have underpinned and the behaviour itself may all need to change.’

While the final Digital Britain report, as will be seen, condemned filesharing and proposed measures to counter its effect, there is clearly a tension between the perception of the UK as a restrictive copyright zone and the UK Government’s statement of its intent to move with the times.

This chapter examines the reality of the way people currently pay (and do not pay) for music in the UK, looks at how the law regulates the sale of music and highlights the current confusion in state and public attitudes towards illegal filesharing. The chapter concludes with an examination of the UK Government’s preferred route against other possible ways to overcome current digital licensing issues, and proposes an alternative solution that could be tested in parallel with the Government’s preferred route in the authors’ home region within the UK, Northern Ireland.

Music Market Trends in the United Kingdom
The way in which people purchase music in the UK has changed radically since 2003. This is clear from the following table showing figures for market sales of singles between 2002 and 20093.

Year Physical sales
(millions) Digital sales
(millions) Total sales
(millions)
2002 43.9 0 43.9
2003 30.8 0 30.8
2004 26.5 5.7 32.2
2005 21.4 26.4 47.8
2006 13.9 66.9 80.8
2007 8.6 77.9 86.5
2008 4.9 110.2 115.1
2009 1.6 116.0 117.6

It is worth noting that the 2009 figures are up to the beginning of November, with 10 trading weeks (including the busy Christmas period) yet to come. The figures speak for themselves: no digital sales of singles were recorded in 2002 and 2003, but by 2009 116 million digital singles were being sold, comprising 98.6% of total singles sales.

An important reason for the explosion of legal downloads of singles is the growing number of music download services, offering an increasingly competitive range of prices. The cost of singles currently ranges from 29 pence to £1.29, and the cost of albums ranges from £2.99 to £7.994.

In September 2004 an official UK download chart was launched, and by April 2005 downloaded tracks had been incorporated into the official UK singles charts. The success of digital as an access format was clear by 2008, with each of Coldplay, Kings of Leon and Duffy having an album selling more than 100,000 digital copies: by July 2009 the appetite for downloads was such that the UK singles top 40 chart had 12 posthumous entries for Michael Jackson5.

Streaming comprises a second source of online music, offering users different models of how music can be accessed. Napster.co.uk allows users unlimited streaming from 8 million songs for £5 per month, and a user can also download five MP3s each month to ‘keep’ and play on any portable device. Last FM and Spotify allow streaming for free, with the ability to purchase downloads. The popularity of streaming as a business model is demonstrated by a recent survey of 1,000 music fans, 65% of whom confirmed that they streamed music on a regular basis, with 31% of 13 to 18 year-olds confirming that they streamed daily.

The dark side of downloading music is the exponential growth of illegal filesharing. Record industry and collective rights bodies decry the effect of illegal filesharing, insisting that the net effect of illegal filesharing in the UK has been to reduce legitimate sales. Online music piracy, according to the International Federation of the Phonographic Industry (IFPI), will cost the UK music industry £1.6 billion between 2001 and 20126. According to Jupiter Research, by the end of 2006 online music piracy resulted in a total of £375 million of forgone spend. A further £1.2 billion will be foregone by 2012. The British Phonographic Industry (BPI) claims that illegal filesharing currently loses the UK music industry £180 million per year.

The paradox here is that while industry is claiming the destructive effect of illegal downloading, legal downloads are soaring. Undeterred, industry magnates continue to highlight the perils of illegal downloading, with Geoff Taylor, chief executive of the BPI, stating7:

‘that singles have hit these heights while there are still more than a billion illegal downloads every year in the UK is testimony to the quality of releases this year and the vibrancy of the UK download market. Consumers are responding to the value and innovation offered by the legal services and these new figures show how the market could explode if Government acts to tackle illegal peer-to-peer file-sharing.‘

Digital downloading of music, whether legal or illegal, has soared over the past six years, since its inception. However, what is UK law relating to illegal downloading, and what is the trend of government progress in interpreting and implementing the law?

Law and Government
The UK’s Copyright, Designs and Patents Act 19888 gives legal rights to creators of literary, dramatic, musical and artistic works to allow them to control ways in which their created material can be used. These legal rights include the right for a creator to prevent unauthorised copying of their material.

A considerable number of changes have been made to the 1988 Act to implement a number of key EC directives, most significantly the EC’s Information Society Directive.9 In particular, the Copyright and Related Rights Regulations 200310 make it clear that the remit of the 1988 Act extends to the internet. In relation to digital media, downloading a file therefore involves copying material: this means that downloading without the creator’s permission is a breach of copyright under UK law. Government has grown increasingly concerned at the levels of unauthorised downloading, the consequent impact on media creators’ ability to determine and extract value from online activities, and the resulting impact on investment in digital media generation and future innovation. In 2008 the UK Intellectual Property Office published ‘Copyright: The Future’ as a consultation process to invite debate on the future of copyright, recognising the need to ensure that the legal enforcement framework is fit for the digital age.

On 29 January 2009 the Government published the interim Digital Britain report, focusing on ways to address the divergence between IT development and the need to prevent copyright infringement. On 13 March 2009 the Government issued the ‘Straw Man’ initiative, to invite debate on the formation of a digital rights agency to combat unlawful online filesharing and piracy. It became increasingly clear that the Government was planning action against illegal filesharing, and had been taking steps to this end for some time: the Government sponsored the agreement in July 2008 of a voluntary memorandum of understanding between British record labels and the UK’s six largest ISPs as a first step towards legally requiring ISPs to deal effectively with illegal filesharing in the UK.

The Government’s position was fully revealed in the final Digital Britain report,11 published in June 2009. The view was unequivocal: illegal filesharing

‘is unacceptable. The Government considers online piracy to be a serious offence. Unlawful downloading or uploading, whether via peer-to-peer sites or other means, is effectively a civil form of theft. This is not something that we can condone, or to which we can fail to respond.’12

The Government proposed the creation of legislation to impose an obligation on the UK communications watchdog, Ofcom, to require it to place two obligations on ISPs. The ISPs would be required to inform alleged illegal filesharers that their conduct was unlawful; secondly, the ISPs would be required to provide details of infringing account holders to rights holders, if rights holders had obtained a court order for the provision of this information.

The Government took pains to diminish the controversy in these requirements. Action would focus on a ‘minority of serious repeat infringers’ and ‘the most damaging breaches of copyright’;13 action will only be taken in accordance with a code of practice (to be developed), which is to be drafted by an industry rights agency (to be created).

The Government believes that most people will cease illegal filesharing upon receipt of a warning from an ISP. In case this does not have the desired effect within a stated period, the Government proposes that Ofcom has ‘backstop powers’ to require ISPs to use technical steps to prevent illegal downloading, including site, IP address and/or URL blocking, protocol blocking, port blocking and/or bandwidth capping or shaping.14

The backstop process would not come into play immediately. The Digital Britain report proposed that if, six months after implementation of the new regime, the Government believed that the obligations imposed on Ofcom and passed on to the ISPs lacked significant effect, Ofcom should consult on the viability of the backstop process with ISPs and rights holders. If after 12 months there has not been a significant reduction in illegal filesharing, Ofcom would trigger the backstop process (which will require legislation). A ‘significant reduction’ occurs where evidence shows that 70% of offenders who have received an ISP warning cease illegal activities. This figure ties in with Digital Britain’s target to reduce illegal file sharing in the United Kingdom by 70% to 80%.15

The Digital Britain approach was introduced to Parliament as the Digital Economy Bill on 20 November 2009.

Confusion
The Government’s Digital Britain approach is bold and detailed. However, if brought into law, its future success is uncertain in a dimension where the only certainty is that nothing is certain. The Government’s attempt to strike out in a particular direction needs to be seen in the context of an overwhelming confusion of attitudes and suggested approaches to illegal filesharing, both at an individual and national level. An understanding of this confusion is important in considering the merits of the Digital Britain approach, and in determining whether alternative strategies might exist to offer greater scope for addressing and solving the illegal filesharing problem. Confusion exists in relation to the following questions.

What’s the law? Public understanding of what is and what is not legal is confused. While only a minority might validly claim that they were not aware that filesharing is illegal, very few people would appreciate that ripping music from a CD to an iPod is a breach of section 17(2) of the 1988 Act, prohibiting the reproduction of copyrighted works in any material form, including ripping audio files from CDs and copying them onto a hard drive. That this action is illegal would come as a shock to a consumer population that is equipped as never before to copy and share content, and that is confident of its right to use and reuse content in different formats and on different hardware.

What’s the effect? Perceptions about the effect of illegal downloading are unclear. Filesharers prefer to focus on the individual, rather than the cumulative, effect of their actions: to the extent that filesharers admit that their actions are illegal, the actions are frequently legitimised on the basis that the record industry’s practice of pricing a download at a major proportion of the price of its physical media counterpart is equally unjustifiable.

The industry is diametrically opposed to this viewpoint: the BPI’s chief executive, Geoff Taylor, suggested that

‘unless [UK Government] ministers strengthen proposals for ISPs to deal with illegal behaviour online a “creative crunch” will follow—investment in new British talent will ultimately dry up. The internet cannot be a place where respect for the law is abandoned… free-loading reduces investment in new music and in turn threatens the jobs of thousands of young people working in A&R, recording, marketing and promotion.’16

What’s the reason? Opinions about why people fileshare illegally divide across a wide spectrum. As individuals, most filesharers state that they do so because it is free. Digital Britain acknowledges a ‘minority of the anarchic’ who believe in ‘freedom to’ without its counterbalancing ‘freedom from’, but draws inspiration from international studies that find that the biggest users of illegally downloaded material are also the biggest consumers of music. This leads Digital Britain to conclude that ‘where there are easy, affordable and lawful routes consumers will take them.’17

The logic of this conclusion is not immediately apparent. More attractive is the rationale behind the structuring of Spotify as a legal streaming service; its spokesman Jim Butcher commented:

‘One of the fundamental aims of Spotify was to develop a service that was better than piracy. We’ve always maintained that music fans don’t want to fileshare illegally, but they want to have everything at their fingertips instantly.’18

What’s the fuss about? The intensity of the debate over filesharing has been heightened by the public nature of the debate. Given the UK’s standing as a world leader in music generally, and the UK press’s perpetual fascination with the fame and fortunes of musicians, it is perhaps unsurprising that the temperature of the debate has been raised by reports of bitter divisions within the music community. The Featured Artists Coalition (FAC—Radiohead, Nick Mason from Pink Floyd, Robbie Williams, Tom Jones, Dobs Vye, among many others) reject Digital Britain’s proposal, issuing a formal Position on File Sharing19 in September 2009:

‘putting this power in place would reduce the civil liberties of every one of us in the country in order to afford a disincentive threat to a small minority of “egregious offenders”… we remain steadfast in our belief that making threats against individual music fans is not an effective way to resolve any problems associated with file sharing.’

Other artists disagree strongly with the FAC: Lily Allen was reported in September as saying:

‘these guys from huge bands said file sharing music is fine. It is probably fine for them. They do sell-out arena tours and have the biggest Ferrari collections in the world. For new talent though file sharing is a disaster as it’s making it harder and harder for new acts to emerge.’20

In fact, the FAC stresses that whenever its members’ music is used, royalties should be paid, but the press is unable to prevent itself from suggesting that

‘deep trenches are being dug within the music industry as artists battle each other over how they might best deal with the advances in file sharing technology.’21

Press depictions of turmoil over the filesharing issue do little to clarify the true situation in such a way as to allow reasoned debate.

What’s the reality? Finally, a confusion of expectation exists. The British public can see, on the European stage, liberal trends at government level: the lasting presence of Pirate Bay and its provision of free downloading was endorsed at a political level by the Pirate Bay party gaining 7.1% of the national vote in Sweden’s June 2009 elections, standing on a ticket of copyright and patent reform. Contrast this with France’s Creation and Internet Law, which came into force in April 2009 and adopts a ‘three strikes’ approach to illegal filesharing before termination of the user’s account by the ISP. Concerns about consumers’ rights and freedoms culminated on 6 May 2009 with the European Parliament voting overwhelmingly against a European Commission proposal for disconnection of illegal file users’ internet accounts, unless the disconnection was ordered by a court.

In the UK, the reality is that no significant amendment to domestic copyright law can be made without taking the overarching European legal dimension into account: as Digital Britain admits in relation to modernising ‘fair use’ provisions, ‘scope for such modernisation is heavily constrained within the EU copyright framework.’22 The reality of this statement is often lost amid the hubbub of sharply contrasting expectations. The effect of these different types of confusion on Digital Britain’s recommended approach to illegal filesharing should not be ignored. Any proposed approach has a right to offer itself as the way through confusion, but the Digital Britain approach will need to succeed to establish its validity, and confusion creates a number of testing obstacles. First, the fact that confusion and debate is continuing and intensifying means that Digital Britain’s identification of a defined approach at an early stage of the debate risks an accusation that the approach does not extend to cover all of the issues being debated, is premature and therefore lacks validity.

This links to a second consequence of the confusion for Digital Britain: by adopting an apparently hard-line approach, the Government risks riding publicly across the opinions of many interested parties, thereby giving the opportunity to label the approach as an attack on liberties, a disproportionate response and an unenforceable process. The FAC has already labelled the Digital Britain approach

‘a wide-scale invasion of personal privacy which we believe would result in a dangerous reduction in the rights to protection of the individual.’23

The enforceability of the approach is also at this stage open to question: significant stages of the process depend upon obtaining a court order, which is rarely an automatic process; and the effect of notification and even of the ‘backstop powers’ as a deterrent is frequently challenged, particularly on the basis that even if it deters a few users it will not impact significantly on the networks providing the file-sharing services. The unpopularity of the approach is heightened by the idea that it is disproportionate, fuelled in turn by media reports of the implementation of similar policies in other jurisdictions: for example, in the USA, RIAA’s prosecution of a single mother and a student for US $1.92 million and $675,000, respectively.24

The confusion over enforceability and civil liberties has already resulted in the Government issuing statements on the implementation of the Digital Britain approach, with Ben Bradshaw, Secretary of State for Culture, Media and Sport, explaining to Parliament that any filesharer targeted by ISPs would have a right of appeal. He also indicated that targeting filesharers would be more likely to be used as a threat rather than a process of prosecution:

‘suspensions…would be a very last resort for serious…infringement. It just wouldn’t happen…on the basis of an accusation.’25

By seeking to soothe civil liberties concerns, the Government may be weakening its argument that the Digital Britain approach will have any serious effect.

Thirdly, the scope and intensity of competing voices means that a range of possible solutions needs to be studied and consulted upon before a comprehensive approach can be identified. For example, the FAC agrees with most other artists that royalties should be paid for creations, but differs significantly with many other artists over whether Digital Britain’s approach is the appropriate route; the FAC believes that consultation is a crucial part of identifying a solution:

‘The FAC was formed earlier this year because we are concerned that decisions are being made within our industry without input from, or in consultation with, the artists who are on the front line of this debate—decisions that will seriously impact on the ability of all musicians to make a living in the years to come.’26

The need for consultation will impact on the successful outcome of the Digital Britain approach by extending the time taken to implement the approach, thereby allowing an already unpopular approach to be subjected to continued criticism. Good policies are often initially less than popular, but the Government risks the Digital Britain approach remaining irredeemably unpopular if it prolongs the time taken to implement the approach and to reach demonstrable results, as a result of over-consultation.

Finally, out of the confusion comes one concept acknowledged by almost everybody: a change of approach is required. Whether aired as the increasingly trite platitude that the law lags behind the pace of technological change (it is difficult to see how the law could do otherwise, other than by anticipating the developments of the past decade) or stated as a frank acknowledgment by Government of what may occur (see the Digital Britain statement at the beginning of this chapter), the need for a new solution is almost universally acknowledged. Is the Digital Britain approach really a change, or is it rather taking new steps to use technology to implement old law? This is the crux of this chapter. We suggest that however well intentioned the Digital Britain approach may be, and however constrained the Government may be in changing copyright law as a result of the predominance of European law, the Digital Britain approach risks getting bogged down as a result of the intense and widespread debate over the illegal filesharing issue. We also suggest that the Digital Britain approach should continue to be explored, but be accompanied with a truly new approach that operates within the boundaries of European law while operating on the basis of consent rather than coercion—the carrot to accompany the stick.

The Proposal
Our proposal is that the UK Government considers testing, as a parallel structure to the Digital Britain approach, a licensing regime to allow users to download music for personal use in return for a periodic payment made by the user to the user’s ISP. The ISPs would then pass on the collected premiums to an agency representing the digital media rights holders, and the agency would distribute receipts among the rights holders.

Aspects of this structure already exist. The July 2008 memorandum of understanding (MOU) between ISPs and record labels sets a precedent for co-operation between two traditionally diverse industry sectors: the central concept of the current ‘Straw Man’ initiative is a digital rights agency, even if currently conceived as for taking action against consumers.

The Performing Right Society (PRS) for Music exists as the UK’s foremost combined rights collection agency, and is working on allowing digital media content providers to sell music downloads to consumers in exchange for licence and royalty payments that are shared by the PRS with the relevant digital media creator. Precedent exists for governments to impose exceptions to copyright law through compulsory licences, so that a government can force the holder of a copyright to grant use to others in return for equitable remuneration.

The framework would depend upon a network of contracts between the different parties to ensure the flow-through of payments from consumer to digital media rights creator, and the pass-back of a contractual commitment from the digital media creator to the consumer of a licence to use the content. A precedent for this contractual network already exists: the PRS expects to have contracts in place by July 2009 whereby musicians allow consumers to download music in return for item-by-item payment by the consumers to content providers, who pass the payment back through the PRS to the musicians. Although the PRS’s proposed structure leads back to the current problem of consumers not wanting to pay for restricted and item-by-item downloads, the legal possibility already exists of a central rights agency passing payment for content downloads to digital media creators in return for the creators’ agreement not to enforce their rights.

Finally, a contractual structure would provide a flexible framework, capable of adjustment to adapt to any issues raised during the development and take up of voluntary licensing. For example, it would be much easier to introduce a ‘fair usage’ type cap on downloads into the contractual structure at a later date, in the event that the availability of free downloads threatened broadband traffic management. The ability of the selected structure to adapt is crucial, given the protean nature and uses of digital media.

The structure is not a new proposal, but has not to our knowledge yet been implemented, although proposals to test the scheme are currently being considered in the Isle of Man. When previously discussed, the structure has usually been proposed as a mandatory structure: an inevitable result is that the structure is derided as an internet tax imposed by centralist government.

We think that the structure should be voluntary rather than mandatory. This would counter any accusation that the structure is an imposed tax, making it more genuine a carrot to contrast with the Digital Britain approach. This contrast would allow the two parallel approaches to bracket the range of heated debate and opinion about illegal filesharing: concerns about proportionality of response and effectiveness of the Digital Britain approach would be assuaged by the alternative opportunity to download music at a comparatively cheap price.

Finally, by making the licensing process mandatory rather than voluntary, the cost of the service to the user could actually be increased to increase buy-in from ISPs, industry and artists. Valuing costs of such a service is beyond our expertise, but taking the costs of streaming services (Spotify, £9.99 per month for streaming uninterrupted by advertisements, no downloading; napster.co.uk, £5 per month for streaming with five downloads), a monthly cost of £5 to allow downloading and format shifting does not appear excessive.

The second proposal is that the ISP licensing structure should be tested within Northern Ireland. We believe that limiting the structure to this particular region would allow the Government a number of advantages, including the following:

• numerous precedents exist for Northern Ireland being a test bed for commercial products (apparently ranging from Marks & Spencer shirts to Nortel telecommunication equipment) prior to their being rolled out across the rest of the UK;

• the smaller number of ISPs in Northern Ireland means that less ISP buy-in is required;

• the arrival in June 2009 of high-quality broadband via Project Kelvin’s transatlantic cable between Northern Ireland and the USA provides a timely and powerful tie-in with a Northern Irish testing of broadband licensing; and

• testing the structure in a small, discrete country would allow the Government validly to portray the structure as a genuine experiment, rather than a failed policy in the event that it was tested throughout the UK without ultimate success.

The Digital Britain report lists a number of criteria to explain why the UK is well placed to capitalise upon its digital future. The criteria all apply with particular resonance to Northern Ireland:

• convenience: Northern Ireland is easily accessible on Europe’s west coast, with a working day overlapping with the major economies to the west and east of Europe;

• law: whether restrictive or not, the UK’s IP law provides a developed and tested legal structure;

• language: Northern Ireland’s first language, English, is the predominant online language;

• finance: Northern Ireland has access to experienced capital markets, well versed in funding IP-based businesses;

• human capital: Northern Ireland has a highly skilled work-force, developed from an education system with a good technical and science pedigree; the work-force offers services drawing on a significant tradition of innovation and invention at costs competitively priced even within the UK; and

• infrastructure: Northern Ireland has ready access to competitive markets providing high-quality fixed and mobile communications services, and this advantage has been heightened with the arrival of the Project Kelvin broadband.

Two final and exclusively Northern Irish criteria, particularly relevant to any debate involving the downloading of music: first, the country’s rightful claim to be a home of music, both traditional and contemporary. With alumni of international music stars (Snow Patrol, Therapy?, The Divine Comedy, Van Morrison, Ash and The Undertones, to name but a few) and with a history of providing a backdrop for modern rock music, from John Lennon through Simple Minds to U2, Northern Ireland has always punched above its weight in its influence on the music world.

Secondly, the current process of establishing a peaceful transition from the Troubles of the past 30 years has created a zeitgeist of looking to the future: a cultural attitude that chimes perfectly with any realistic attempt by Government to identify innovative methods to deal with the illegal filesharing dilemma.

Conclusion
The reason for the success of sites offering illegal filesharing services is that they satisfy a demand that lacks any alternative recourse. The legal restraints structured by the UK’s copyright legislation inevitably channel government action into suppression through enforcement. However, this approach by itself will have little real success given the extent and intensity of opposing views about illegal filesharing.

Footnotes:
1. Available at www.consumersinternational.org.
2. Available at www.culture.gov.uk.
3. From routenote.com/blog/uk-digital-market-trends.
4. The Guardian, 31 October 2009.
5. The Guardian, 12 July 2009.
6. IFPI press notice, 4 November 2009.
7. BPI press release, 23 October 2009.
8. 1988 CA 48.
9. Directive 2001/29/EC, Directive on the Harmonisation of Certain Aspects of Copyright and Related Rights in the Information Society.
10. SI 2003/2498.
11. Available at www.culture.gov.uk.
12. Final Digital Britain report (June 2009), paragraph 4.18.
13. Ibid., chapter 4.
14. Ibid., paragraph 4.28.
15. Ibid., paragraph 4.30.
16. See digital-lifestyles.info/2009/05/18.
17. Final Digital Britain report, paragraph 4.19.
18. The Guardian, 12 July 2009.
19. Available at www.featuredartistscoalition.com.
20. The Independent, 16 September 2009.
21. Ibid.
22. Final Digital Britain report, paragraph 4.32.
23. Position on File Sharing, available at www.featuredartistscoalition.com.
24. The Economist, 12 November 2009.
25. The Guardian, 20 October 2009.
26. Position on File Sharing, available at www.featuredartistscoalition.com.

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