New rules for copyright in the EU need to be enacted in national law of Member States by April 2021. Global Insight explains why these reforms are highly controversial and what their impact is likely to be.

The European Union has made a bold attempt to overhaul Europe’s laws on copyright and bring them into the digital age with a controversial new copyright directive, which entered into force in June 2019.

The Directive on Copyright in the Digital Single Market (the ‘Directive’) received its final clearance in April 2019. EU Member States need to enact it into their national law by 2021 – some 20 years after the EU last overhauled copyright rules.

The process to reform copyright rules has been far from easy, however. Laurie Heizler, Of Counsel at Barlow Robbins, says that while the Directive aims to create a truly digital single market, ‘striking a balance between the protection of rights and free expression, and the making of reasonably free use of copyright-protected works was always going to be difficult’.

The best of intentions

The Directive is intended to address three main areas. The first is to adapt copyright exceptions and limitations for the digital age. The Directive introduces mandatory exceptions for the purposes of text and data mining, online teaching activities, and the preservation and online dissemination of cultural heritage.

The second area concerns improving licensing practices to ensure wider access to creative content, such as providing harmonised rules to facilitate the exploitation of works that have stopped being commercialised (known as ‘out-of-commerce’ works), issuing collective licences with extended effect and rights clearance by video-on-demand platforms for films.

The third is to achieve a well-functioning marketplace for copyright to ensure proper remuneration for content creators. For example, the Directive enshrines the authors’ and performers’ rights to ‘appropriate’ and ‘proportionate’ remuneration upon the licensing or transfer of their rights. Further, it introduces a transparency obligation concerning the exploitation of licensed works, as well as a remuneration adjustment mechanism. This is accompanied by a dedicated alternative dispute resolution mechanism for rightholders to use if they believe their copyright is being abused (software developers are excluded from these rules).

The Directive introduces a new right for the online use of press publications, meaning journalists must receive a share of any copyright-related revenue obtained by their news publisher.

The Directive also clarifies the legal framework within which online content sharing platforms, such as YouTube, operate by making them liable for copyright infringements. Currently – unlike traditional print publishers – these platforms are not responsible for copyright violations: instead, they must remove that content when directed to do so by rightholders.

Ultimately, many lawyers paint the Directive as principally achieving two goals.

Under Article 15 (formerly Article 11), the Directive affords better protection – and a better chance of payment – for content creators.

At the same time, under Article 17 (formerly Article 13), the Directive holds online platforms more directly accountable for ensuring royalties are paid to those whose work is routinely used on their sites without permission or payment. Users can still generate and upload content freely ‘for purposes of quotation, criticism, review, caricature, parody and pastiche’ – so memes and GIFs should still circulate freely. There is likely to be a cost attached to running most other content, however.

Shaking up the internet

David Ingham, Digital Partner, Media & Entertainment at IT services company Cognizant, says that the Directive will ‘require a drastic shake-up in operations for technology and media platforms’.

‘Under Article 15, news aggregators such as Google, LinkedIn and Facebook will need to pay publishers a fee for distributing news links,’ says Ingham. Article 17 meanwhile will shift liability for online platforms. ‘Previously, if a copyright owner found unapproved content online, the platform had to take it down with no damage liability. Article 17 means they are now liable.’

Online platforms will, in principle, have to obtain a licence for copyright-protected works uploaded by users, or use some kind of ‘filter’ system to detect and remove material that has been uploaded by people who do not own the copyright or have a licence to use it. YouTube already uses an automated copyright system to try to satisfy such demands, which costs the company $60m. Other platforms now fear they face similar compliance-related costs.

The EU hopes that these provisions will provide a mechanism for rightholders to have greater control over the use of their material online and the payment they receive.

Naturally, content creators herald the incoming rules. Helen Smith, Executive Chair of the Independent Music Companies Association, described the Directive as ‘putting citizens and creators at the heart of the reform and introducing clear rules for online platforms’.

Internet giants are less than enthused. Google warned that the Directive’s ‘unintended consequences’ could include the blocking of some YouTube clips to EU-based members. Wikipedia, meanwhile, argued that information and research flows could be curtailed if content had a price tag attached.

The tech industry and supporters have raised concerns about the impact that charging for content might have on free speech. Internet service providers and online platforms may decide to stop hosting news articles and videos to save money.

Winners and losers

Cristina Arenas-Solís, a member of DA Lawyers’ Intellectual Property Practice Group, believes that the Directive ‘still has a long way to go in determining how the measures it lays down will be implemented in practice’.

Nevertheless, she believes that rightholders emerge as the winners from the new rules. She suggests though that users – typically the general public – are ‘the biggest winners’ because the legislation spells out the ways they can continue to upload and share without the permission of rightholders.

Alfred Meijboom, Secretary of the IBA Intellectual Property and Entertainment Law Committee and a partner at Kennedy Van der Laan, says the ‘absolute pro’ of the Directive is how it governs online news aggregation and digital content sharing. This involves the creation of the new ‘pseudo-copyright’ for press publications, and remuneration for authors and rightholders for the money digital platforms make from their content.

The ‘con’, he says, is whether the Directive will work properly in practice because of the level of detail, the exceptions and (with respect to content sharing platforms) the possibility for newcomers to compete with existing players in the future.

Arenas-Solís expects the main financial implications for online platforms to result from the development and implementation of controls they’ll need to put in place.

Meijboom thinks the most serious financial and legal implications will be the need for content platforms to acquire effective filtering technology, negotiate licence deals, pay rightholders’ disbursement, and set up an effective complaint and redress system with human intervention.

Existing platforms are already regulated for content use and are therefore required to make financial contributions to rightholders. They also already employ sophisticated filtering technology; changes to the way they currently operate may be limited. The real losers from the Directive could be new challenger platform providers who may face prohibitive compliance costs and technological requirements to enter the market.

Kleinknecht notes that Google, for example, has indicated it won’t pay EU news publishers for the right to show content on its news service. ‘Article 17 of the Directive gives publishers and rightholders the power to control how much of their content can be shown for free. Google will simply show that free content but not take out licensing deals to show extra content,’ explains Kleinknecht.

‘Publishers now face the challenge of deciding whether they are at risk of losing access to the public and potential readers if they are overly restrictive with granting access to free content,’ adds Kleinknecht. He points to the precedent created in Spain, where Google withdrew its news service after the Spanish government legislated to require aggregators like Google to pay to link to news articles.

Practice makes perfect

Lawyers largely agree that EU copyright law was desperately in need of serious revision to match the growth of the digital economy. Eileen O’Gorman, Chair of the IBA Copyright and Entertainment Law Subcommittee and a partner at Gleeson McGrath Baldwin, believes it’s clear ‘that the underlying basis of copyright law needed to be revisited’.

O’Gorman adds though that ‘as EU Member States are now tasked with drafting the legislation to transpose the Directive into national law, the practical machinations of its provisions will come into sharper focus, so to some extent the work is only now beginning’.

Indeed, the practical implications – of transposing the Directive into national law, of organisations trying to comply and of regulators trying to monitor compliance effectively – may not be an easy process.

‘The controversial Article 17 is a lengthier article than originally drafted and uses language such as “best efforts” and “co-operation between on-line content sharing service providers and rightsholders”,’ says O’Gorman. ‘It states that the application of the article should not lead to general monitoring obligations. However, the debate now focuses on the Directive’s implementation and how the obligation to adopt copyright filters may in reality be avoided.’

Intermediaries are concerned, says O’Gorman, that they will be obliged to either filter content or enter into onerous and impractical licensing arrangements with a plethora of rightholders to avoid potential liability for infringement. One solution may lie in Article 12 of the Directive, which says that Member States ‘may provide’ that licensing agreements entered by collective management organisations (CMOs) can be extended.

‘CMOs are well placed to put their case forward as a flexible and workable solution to ensure that the income stream anticipated by Article 17 is collected and paid to the rightholders, and intermediaries have a workable alternative to direct consent,’ says O’Gorman. She adds that while this form of collection of royalties is a developed part of the music industry, it may not be as readily accessible for other forms of copyright-protected works, but that the structure is there.

Article 20 may also prove useful in this respect, says O’Gorman. In the absence of collective bargaining agreements, it creates a contract adjustment mechanism, which allows authors and performers to address disproportionately low levels of remuneration in existing contracts. It also contains a right of revocation for lack of exploitation, which applies to exclusive licences or assignments, adds O’Gorman.

Some experts believe that other jurisdictions currently exploring ways of modernising copyright law will follow the EU’s example. ‘Europe has often led the way when it comes to the legislation of technology companies. In the United States, for example, calls are getting louder for Congress to pass a consumer data privacy law similar to the EU’s General Data Protection Regulation,’ says Ingham.

While it remains to be seen how each EU Member State will implement the specifics of the Directive, Ingham has no doubt that the new rules will have a domino effect across the world, changing the course of business for copyright owners and technology platforms. ‘Businesses impacted by the copyright legislation need to be developing a considered structure to address the new rules now – both for copyright owners to take advantage of the law when it goes live and for technology platforms to cover their backs,’ he says.

Neil Hodge is a freelance journalist and can be contacted at neil@neilhodge.co.uk