At the Intersection of Technology, Law, and Business
July 11, 2018 - Intellectual Property, European Union

European Parliament Voted 318 to 278 Against the Amendment Proposal for a Copyright Directive for the Digital Single Market

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On July 5, 2018, the European Parliament rejected the proposed amendments to the new Copyright Directive: Article 11, which attempts to protect press publications from impermissible digital use, and Article 13, which attempts to protect online content from impermissible use by online content-sharing service providers. While these proposals are mostly well intentioned to secure creators of content a fair remuneration for the content’s online use, they are less likely to incentivize Internet giants like Google to pay for content and more likely to put smaller Internet companies and startups out of business.

Background – Modernizing Copyrights for the EU’s Digital Single Market

In May 2015, the EU Commission (the “Commission”) launched a strategy for the creation of a Digital Single Market (DSM) in the EU. On September 14, 2016, as part of this strategy, the Commission published a proposal for a new Copyright Directive aimed at modernizing the existing copyright rules in the EU to meet the challenges of digitalization. On June 20, 2018, the Legal Affairs Committee of the European Parliament (EP) adopted a proposal introducing material amendments to the Commission’s proposed directive (the so called Axel Voss proposal). Last week the EP rejected this amendment proposal and sent it back to the committee for re-discussion and revision (see Julia Reda’s Tweet) sharing the concerns expressed by many stakeholders with regard to the proposed Articles 11 and 13 in particular.

The EP is expected to vote on a revised version of the amendment proposal in September 2018 at the earliest. If it approves the revised version, the policymakers – the EP, the Council of the European Union, and the Commission – will enter into inter-institutional negotiations to reach a compromise on their different positions. The adaptation of such a final compromise for a new Copyright Directive is expected at the end of 2018 or beginning of 2019 at the earliest. The EU Member States will then have a transposition period of at least 12 months (as proposed by the Commission) or 24 months (as proposed by the Council) to implement the new Copyright Directive into national law.

Confronting the Controversies

The most controversial provisions discussed among the three EU institutions and the different stakeholders in the industries are (i) the introduction of an exclusive neighboring right for e-publishers requiring online service providers (such as online news aggregators and search engines) to obtain (and pay for) the e-publisher consents to copy and display snippets or small extracts of their news content that may otherwise not be subject to copyright protection (Art. #11) and (ii) the introduction of obligations for online platform providers that host, optimize, and give access to the public to user-uploaded content, (called online content sharing service providers) to license, from the respective right owners, copyright-protected works contained in the user-uploaded content and to take measures preventing copyright-infringing content from being available on their platforms (Art. #13).

Both Article 11 and Article 13, target prominent online service providers (such as Google News, Google Search, and YouTube) that (i) generate advertising revenues on their websites and apps by either displaying to their users snippets of news content linking to the respective e-publications or (ii) host and display to the public content uploaded by their users including music, films, and photos. The problem with such user-generated content is that some users upload copyright protected works without the owners’ consents and thereby infringe their copyrights. News publishers and entertainment companies (such as music labels, music publishers and film companies) have been arguing that these online service providers make profits by exploiting their content without their permission and without paying the creators of such content a fair remuneration. Both provisions aim to oblige these providers to obtain licenses from the copyright owners for these forms of use of their content and to pay them a fair and appropriate license fee.

Article 11

Germany and Spain introduced similar protection rights for press publishers some years ago without achieving the intended results. In Spain, Google ceased its Google News service altogether to avoid paying the compulsory license fee. In Germany, Google managed to cause all news publishers to grant Google News a zero price license while the responsible collecting society, VG Media, only collected EUR 715,000 from 2014 to 2017 from other online service providers for the more than 100 news publishers it represents while creating legal costs of EUR 7.6 million for litigation in this matter during the same time period. A study ordered by the Commission but never published also indicates that the proposed neighbouring right is not an appropriate instrument to increase the revenues of the news publishers. This study also suggests that most European news publishers running on advertising revenue rather than as paid news services actually benefit from the user traffic they receive through online aggregator websites (which is the reason why most news publishers in Europe do not wall their news content against search engines and news aggregators though this is technically possible). Given this history, it seems very questionable that Article 11 will cause Internet giants such as Google to pay news publishers for news snippets. Instruments incentivising online service providers to collaborate with news publishers in marketing their news content may be more beneficial for them.

Article 13

According to the rejected proposal, online-content sharing service providers perform copyright-relevant acts of use of copyright-protected works contained in user-uploaded content (i.e., performs an act of communication to the public) requiring these providers to obtain the copyright owners’ authorization under EU copyright law (see Art. #3 of 2001/29/EC Copyright Directive). Therefore, these providers are obliged to “conclude fair and appropriate licensing agreements with the right holders of the protected works. The rejected proposal takes the position that these online content-sharing platforms are not subject to the “safe harbor” otherwise applies to host provider platforms under Article 14 of the e-Commerce Directive as long as they are not aware of the infringing content. Providers that do not have a license agreement with the copyright owners would be obliged to prevent their users from uploading any content that contains unlicensed copyrighted third party works by taking “appropriate and proportionate measures.” Though this does not explicitly include an obligation to install and operate automated upload filters, employing such upload filters would be the only feasible solution to comply with this obligation given the vast number of content files uploaded on these platforms daily. Internet giants such as Google (the owner of YouTube) have already invested millions of Euros in deploying such filtering systems. For them it will be rather easy to optimize what they already have in place to fulfil such obligation. It is therefore very questionable whether Article 13 would urge these providers to enter into any license agreements with music and film companies for user uploaded content and to pay them a license fee going beyond the ad revenue share monetization model some of them currently offer the right owners for displayed user generated content that they claim is their property. But will the European online service providers hosting user-generated content be able to make such investments for upload filter systems? And what about start-ups with business models in this area? There may be many good intentions behind this proposal, but it may backfire to the European creative and technology sectors, weaken competitiveness, and leave artists and other creators of content as well as consumers in Europe with less choice and diversity.