Wednesday, April 24, 2019

Fair licensing terms for content to be focal point in transposition and application of EU Copyright Directive: statement by German government

On Monday of last week (April 15), the EU Council--the decision-making body in which the governments of the 28 EU member states cast their votes--adopted the arguably most controversial piece of EU legislation ever, the Directive on Copyright in the Digital Single Market, commonly referred to as the EU Copyright Directive. To do so about six weeks prior to EU Parliament elections was as arrorgant as it was unwise. While skepticism of the EU was traditionally more of a right-wing concern, the mostly left-leaning and mostly young people who opposed Article 13 (which became Article 17 and is generally known as the "upload filter" paragraph) could not have been more disappointed. They still say and write that they believe in "Europe," mostly because they fail to understand economic and other issues (see this Wall Street Journal article entitled "Incredible Shrinking Europe" on the EU's miserable economic failure), but they've lost a lot of their faith in the EU institutions.

If there had been a similar level of public debate and street protests across the EU as in Germany, Article 17 wouldn't have secured a qualified majority in the Council or a simple majority in the European Parliament. But for a mix of reasons I can't claim to have fully understood yet, concerns about overblocking of legitimate user-generated content were more of a luxury problem of the North than an issue that would also have mobilized people in the economically and technologically weaker South. Smartphone usage isn't lower in the South, but there are some discrepanices such as with respect to digital startup activity. Even France is far behind; Macron's "Startup Nation" is a case of all hat and no cattle, like pretty much everything he does and wants. He's a walking, talking failure, and the more he fails, the more he walks and talks. But he did get the Merkel administration to engage in a horse trade that also involved the Nord Stream 2 gas pipeline.

No political party will pay as dearly for this as the Social Democratic Party of Germany (SPD). In EU elections polls, its support among 18- to 24-year-old first-time voters was cut in half just during the month of March (toward the end of which the European Parliament adopted the proposed directive). What affects the SPD's reputation more than anything else is that YouTubers and other Article 17 opponents rightly accuse the party of hypocrisy: on the one hand, the SPD spoke out against upload filters; on the other hand, it's part of the government coalition that ultimately voted for them in the EU Council, where Germany has several times more voting weight than what would have been required, on top of nine other countries that opposed (also including abstentions, which have the same effect there as voting against).

In a futile attempt--so futile it just serves to underscore the growing disconnect between career politicians and voters in the Internet era--to mitigate the impact on this, the SPD-led Federal Ministry of Justice insisted on attaching a long-winded, legally non-binding declaration to the EU Council decision. That declaration didn't change public sentiment in Germany. For an example, a leading YouTuber, Herr Newstime, said it wasn't worth the paper it's written on. However, the purpose of this post is to take a more analytical approach to that declaration since it will have some political weight and even potentially influence legal interpretations of the new directive going forward.

The EU Council's English translation of the German government's statement is the final part of this updated Council document. Such non-binding declarations can serve multiple purposes:

  • to voice dissent;

  • to apologize for doing something unpopular, such as by emphasizing one's good intentions in a bad context;

  • to make political demands and take positions that are indirectly related to the measure in question;

  • to propose certain aspects of national implementations of the directive (EU directives must be transposed into national law by the member states, giving them some--though limited-wiggle room); and

  • to influence the future interpretation of the text by courts of law.

The German government did a mix of all of that with its April 15 statement. What's most relevant here is that the German government makes multiple references to the need for copyright holders (without making a distinction there between collecting societes, which due to their market power often fall under antitrust rules, and individual right holders) to be cooperative and reasonable in their royalty demands. Otherwise, platforms would face a very difficult situation given the directive's utterly unreasonable "best efforts" requirement with respect to licensing--a term that reflects the unbalanced nature of what the EU institutions, under the negative influence of French thought leadership, came up with. The many U.S. lawyers reading this blog (a majority of the readership) would almost certainly advise their clients against ever committing to "best efforts" in any contractual provision...

We're now basically going to have to talk about FRAND (fair, reasonable and non-discriminatory) licensing terms in the copyright context. The "ND" part will be officially part of the equation whenever right holders have a dominant market position; in all other cases, it will effectively be considered as part of what terms are fair and reasonable.

These are the various references the German statement makes to fair and reasonable licensing terms and generally cooperative behavior by copyright holders:

  • In paragraph 9: "For all other uses platforms should acquire licences, if available relatively easily and for a fair tariff." (emphasis added)

  • In paragraph 10: "Workable solutions for obtaining licences must be found. Although requirements which are unreasonable in practice cannot be imposed on platforms, it is necessary to ensure that efforts to obtain licences are combined with fair offers of remuneration." (emphases added)

    The final part ("are combined with...") is an awkward wording for saying that right holders must also do their part and make fair offers, but to the EU Council's translators' credit, this is a context in which it's better to stay close to the original text than to take the libertie necessary to phrase it more elegantly.

  • In paragraph 11: "the obligation to conclude contracts on reasonable terms" (emphasis added)

Those are, effectively, references to a FRAND licensing framework. Note that it's not just about royalty amounts but also about the overall terms and conditions, including accessibility ("available relatively easily").

Instead of stressing this now, the German government should have blocked the directive in the Council until a FRAND licensing requirement would have been incorporated into Article 17 (formerly known as Article 13), but at least they're aware of the problem the EU has potentially created and they're trying to address it--better late than never.

Below I'll finally go over the statement paragraph by paragraph and analyze it from a political as well as a legal angle.

1. The German Federal Government agrees with the proposed Directive on copyright and related rights in the Digital Single Market (hereinafter: ‘the Directive’) in the version set out in the trilogue compromise of 13 February 2019, because the reform as a whole achieves urgently needed adjustments to the outdated European legal framework, such as the provisions on text and data mining, out-of-commerce works and contract law for performers.

COMMENT: This is just apologetic. It's another way of saying "we know Article 17 sucks, but everything else is so great and couldn't possibly have been delayed." The reference to provisions on text and data mining is ridiculous, given that the EU directive leaves a lot to be desired in that area, too (which like Article 17 will further weaken Europe in the digital economy, where the EU already is a big-time failure).

2. At the same time, the German Federal Government regrets that it was not possible to agree on a concept for the copyright responsibility of upload platforms that could be broadly supported by all parties. There is widespread consensus that creatives should participate in the exploitation of their content through upload platforms. However, in particular the obligation provided for in Article 17 of the Directive to ensure the permanent ‘stay down’ of protected content and the algorithm-based solutions (‘upload filters’) likely to be used in this context have met with serious reservations and widespread criticism from the German public. The vote in the European Parliament on 26 March 2019 also revealed the huge gulf between supporters and critics.

COMMENT: Here they acknowledge that it's an unpopular measure and seek to make the rest of Europe aware of the fact that this part is going to be problematic. But judges are unlikely to give consideration to public sentiment: their job is to interpret the text as it stands, not to legislate from the bench.

3. The focus of our efforts is on performers, authors and ultimately all creatives who naturally make use of the new tools that digitisation and connectivity provide for creative work. The German Federal Government is of course not questioning the need to protect creative work on the internet, and to ensure creatives receive appropriate remuneration for such work.

COMMENT: That third paragraph is meant to placate the lobbying entities representing artists and performers (though most of the time they actually represent publishers rather than individual creators).

4. Under Article 17(10), the European Commission is required to conduct a dialogue with all interest groups concerned in order to develop guidelines for the application of Article 17. The provision explicitly calls for a balance to be maintained between fundamental rights and the possibility of using protected content on upload platforms within the framework of legal authorisations. The German Federal Government therefore assumes that this dialogue is based on a spirit of guaranteeing appropriate remuneration for creatives, preventing ‘upload filters’ wherever possible, ensuring freedom of expression and safeguarding user rights. The German Federal Government assumes that uniform implementation throughout the Union will be agreed on in this dialogue, because fragmentary implementation with 27 national variants would not be compatible with the principles of a European Digital Single Market. On the basis of this declaration, the German Federal Government will participate in this dialogue.

COMMENT: The only positive aspect of that fourth paragraph is that the German government promises to go into the further EU process (working with the Commission to develop implementation guidelines) on the basis of its April 15 declaration. And by expressing concern over divergent national implementations they acknowledge that Article 17 is too vague (although it is, if one includes the relevant recitals, almost as long as the original version of the U.S. Constitution...). Other than that, that paragraph adds nothing new, nor does it influence future interpretation.

5. Where technical solutions are used at all in that connection, the data protection requirements of the General Data Protection Regulation must be adhered to and the EU should encourage the development of open-source technologies with open interfaces (APIs). Open-source software guarantees transparency, while open interfaces ensure interoperability andstandardisation. This can prevent market-dominant platforms from further consolidating their market power by means of their established filtering technology. At the same time, the EU must develop concepts that counteract a de facto copyright register in the hands of dominant platforms by means of public, transparent notification procedures.

COMMENT: The fifth paragraph was obviously inspired by a prior statement by Germany's Federal Commissioner for Data Protection and Freedom of Information, Ulrich Kelber. However, it's hard to see how this part of the government's statement would have any real-world impact. They can "encourage" platforms to use open-source software, but they won't be able to impose such a requirement--and Internet companies generally make their own technology choices (which quite often are open-source solutions) regardless of what some European governments "encourage" them to select. It's a pointless paragraph.

6. First of all, the requirements laid down in Article 2(6) of the Directive must be addressed and clarified, since the rules are aimed solely at those market-dominant platforms which make large quantities of copyright-protected uploads accessible and which base their commercial business model on such a practice, i.e. services such as YouTube or Facebook. At the same time, we will make it clear that services such as Wikipedia, university repositories, blogs and forums, software platforms such as Github, special-interest offers without any connection to the creative industry, messenger services such as WhatsApp, sales portals or cloud services are not platforms within the meaning of Article 17. In addition, we will ensure an exemption for start-ups.

COMMENT: That paragraph is the most nonsensical one in the whole statement. I wonder how anyone can write something so obviously stupid with a straight face. Exceptions like Wikipedia and Github are already in the directive, and the "exemption for start-ups" mentioned at the end of that sixth paragraph exists as well, but is far too narrow a carve-out to be useful.

7. Furthermore, it is clear that upload platforms should continue to be available as free, uncensored communication channels for civil society in the future. Article 17 (7) and (8) stipulate in that connection that protective measures for upload platforms must not impede the permitted use of protected content. We are particularly committed to this because upload platforms are also a springboard for creatives, enabling them to reach a worldwide audience without a publisher or a label.

COMMENT: This merely states a motivation for ensuring that overblocking of legitimate user-generated content should be prevented, without proposing any particular solution. Roughly as stupid and pointless as the previous paragraph.

8. The aim must be to make the ‘uploadfilter’ instrument largely superfluous. Each permanent ‘stay down’ mechanism (‘uploadfilter’) must comply with the principle of proportionality. Procedural guarantees, in particular, could be considered, for example when users notify that they are lawfully uploading content from third parties. In these cases the deletion could not be performed automatically, but only after a check by a person. At the same time, the proprietorship of any content that has to be removed should be sufficiently proven, unless the information comes from a ‘trusted flagger’. In all events the platforms must guarantee easy access to a complaint mechanism for solving contentious cases effectively and as rapidly as possible.

COMMENT: The idea of users being allowed to indicate that they are convinced of their content being lawful is not bad. However, the practical issue is going to be that platforms are rarely sued by users who wish to publish content (it does happen, particularly in Germany, but rarely) and face much more of a threat from right holders. The eighth paragraph makes a valid point, but a workable situation is not in sight.

9. In addition, the use of protected content on upload platforms for criticism or reviews, for caricatures, parodies or pastiches, or even in the context of the ‘quotation barrier’, is permitted and free of charge. In such cases the rightholder does not suffer any economic loss anyway. For all other uses platforms should acquire licences, if available relatively easily and for a fair tariff. We will examine how the fair participation of creatives in this licence revenue can be guaranteed through direct payment claims, including in those cases where the label, publisher or producer have the exclusive rights. It is also necessary to guarantee an appropriate remuneration for any new content created on upload platforms and used for commercial purposes. Above all, the proceeds from uses on upload platforms that are desired for political reasons must also reach the creatives themselves.

COMMENT: This is the first one of the three paragraphs that make reference to FRAND licensing terms. Most of the emphasis here is on how to ensure that payments reach individual creators as opposed to just their publishers. However, the EU Copyright Directive generally weakens creators vis-à-vis publishers. Also, it won't be easy to avoid double recovery in this context.

10. Article 17 aims to monetise the use of protected content on upload platforms and to ensure appropriate and fair remuneration for authors and performers. The German Federal Government shares this goal. In the European compromise, licensing is the method chosen to achieve this. Article 17(4) provides that, in order to fulfil their responsibilities, upload platforms must have ‘made best efforts’ to obtain licences. This will be crucial in the implementation of this provision. Workable solutions for obtaining licences must be found. Although requirements which are unreasonable in practice cannot be imposed on platforms, it is necessary to ensure that efforts to obtain licences are combined with fair offers of remuneration.

COMMENT: The tenth paragraph is the very best, most useful and most meaningful paragraph; maybe it would have been better if the German government had just made a short and focused statement consisting mostly of this one instead of hiding such a gem in a longwinded, mostly meaningless statement.

11. In order to resolve this issue – of how licences can, as far as possible, be concluded for all content on upload platforms – copyright law provides for many other mechanisms besides ‘traditional’ individual licensing (e.g. exceptions and limitations, possibly combined with remuneration rights; the option of converting exclusive rights into remuneration rights; the obligation to conclude contracts on reasonable terms; and the involvement of associations of creative artists such as collecting societies).

COMMMENT: The open-ended nature of this 11th paragraph shows that the German government either hasn't fully analyzed the feasibility of different approaches or hasn't been able to reach an internal agreement on which way to go. The reference to "exceptions and limitations" is consistent with a position paper put forward by the digital policy experts of the Christian Democratic Union (Merkel's party). However, the SPD appeared to be unconvinced of its compatibility with EU law, which is understandable since EU law provides for only a limited set of limitations to and exceptions from copyright law.

12. The Federal Government will examine all of these models. Should it appear that the implementation has led to a restriction of freedom of expression or should the guidelines set out above encounter obstacles in EU law, the Federal Government will work to ensure that the shortcomings identified in EU copyright law are corrected.

COMMENT: This vague promise of amending the directive reflects a significant degree of uncertainty as to what the ultimate impact will be. However, the EU is not particularly good at admitting mistakes. Typically, it just blames citizens. Nevertheless, the EU Copyright Directive could be an exception where a legislative initiative to amend the bill may be taken relatively soon. There are politicians who have spoken out in favor, including the Free Democratic Party's top-listed candidate Nicola Beer--and the FDP is reasonably likely to be part of a post-Merkel government. Also, Manfred Weber, a politician from the CDU' sister party (the Christian Social Union) and the European People Party's candidate for the presidency of the EU Commission, also stated in a recent TV interview that he, in his potential capacity as Commission president, would push for a legislative amendment should "censorship" occur as a result of Article 17.

All in all, the German government's statement isn't too bad. There's a lot of nonsense in it that just distracts from the more interesting and relevant parts. But I do like the references to fair and reasonable licensing terms and easy access to such licenses, as well as the commitment to look for ways to obviate upload filters to the greatest extent possible--and while I'm not too hopeful about that, I do appreciate the fact that the statement leaves the door open to a near-term amendment.

I do not plan to comment on the further process (transposition into national laws and subsequent litigation) on this blog. Since February I've blogged about the EU copyright reform process on various occasions because it was the most interesting and important legislative process concerning intellectual property in many years, but the focus of FOSS Patents will remain on patents and antitrust, and copyright only to the extent it is asserted against mobile device makers or app developers. I may, however, set up a separate copyright blog at some point.

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