DIGITALEUROPE aisbl Rue Joseph II, 20 >> B-1000 Brussels [Belgium] T. +32 2 609 53 10 >> F. +32 2 609 53 39 www.digitaleurope.org

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DIGITAL EUROPE INPUT TO FRAMEWORK DIRECTIVE ON

COLLECTIVE RIGHTS MANAGEMENT

“Today our fragmented copyright system is ill-adapted to the real essence of art,

which has no frontiers. Instead, that system has ended up giving a more prominent

role to intermediaries than to artists. It irritates the public who often cannot access

what artists want to offer and leaves a vacuum which is served by illegal content,

depriving the artists of their well deserved remuneration.”

Neelie Kroes, Vice-President of the European Commission, Commissioner for Digital Agenda,

Avignon, 5 November 2010

“In order to create a single European digital market, the potential of online

distribution must be used effectively by enhancing the availability of creative

content while at the same time ensuring that rightholders obtain adequate

remuneration and protection for their works. The European Commission is aware

that different national systems for private copying levies are affecting cross-border

sales services and the production of support media.”

Towards a Single Market Act, Michel Barnier Commissioner for Internal Market and Services,

27 October 2010

“We must find a way to develop pan-European licensing while preserving and

promoting the diversity of our culture. In this exercise, we must not confuse

threats to the creators of content and threats to the current intermediaries. The first

is of the essence: the second, I am afraid, much less so”

Joaquín Almunia, Vice-President of the European Commission, Commissioner for Competition,

London, July 7 2010

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DIGITALEUROPE RECOMMENDATIONS

DIGITALEUROPE believes that it is essential that the upcoming Collective Rights Management

Directive (CRM Directive) achieves the following results:

Establish mechanisms that will allow a more efficient, transparent and easily

manageable licensing system in Europe through these criteria:

o Establishment of a manageable number of licensing entities

o Transparency for rights clearance

o Ability to negotiate tariffs

o Competitive environment for all stakeholders, including Collecting Societies

for the management of rights

o Support the rise of new, innovative systems

o Full scope licensing, including private copying

Include copyright levies within the scope of the proposed CRM Directive through

the following steps:

o Incorporate in the CRM Directive proposal all of the provisions set out in the

European Commission’s draft recommendation: “Fair compensation for

private copying in a converging environment” from December 2006

o Revitalize the art.12 review process as provided in the Copyright Directive to

ensure that the necessary reforms take place

Set out a comprehensive governance and transparency rules for the collective

management of rights including:

o National Parliaments oversee Collecting Societies:

o Harmonization of financial information and timelines for payment

o Rightholders’ flexibility as to the rights they want to transfer to the Collecting

Societies

o Undistributed funds should not be retained by Collecting Societies but

refunded to the paying entities

o Works belonging to the public domain should be excluded when quantifying

compensatory rights managed by Collecting Societies

o Full transparency on criteria for determination of the fees

o Full transparency on repertory represented by each Collecting Society

o The function of cultural subsidy should be handled by a different, separate

entity to avoid a conflict of interests

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The aforementioned steps will bring immediate benefits to:

European consumers as they will be benefiting from new content offers regardless of

their location.

Creative community who will able to reach much broader audiences and will have greater

transparency over the funds managed on its behalf.

Industry who will be benefiting from the great opportunities a truly single market is

offering.

Introduction

The European Commission’s flagship initiative “A Digital Agenda for Europe”1 last year put forward an

analysis of the virtuous cycle of the digital economy. In a scenario by which it is expected that by 2020

digital content and applications will be almost entirely delivered online, the European Commission is

putting a great effort in identifying how to best merge the digital worlds- our future- and the single

market- the depository of a great potential.

“This great potential of ICT can be mobilized through a well-functioning virtuous cycle of

activity. Attractive content and services need to be made available in an interoperable

and borderless internet environment. This stimulates demand for higher speeds and

capacity, which in turn creates the business case for investments in faster networks. The

deployment and take-up of faster networks in turn opens the way for innovative services

exploiting higher speeds2”.

In its analysis of the current situation, the European Commission is rightly pointing to the fact that

there is a fragmented market for digital content in Europe. Static licensing systems not only have

consequences in terms of development and take-up of the legal offers in Europe3 - but also make

illegal file-sharing the only available alternative for most European citizens. The illegal offer is the only

existing offer that is currently non-discriminatory towards European citizens on the basis of geographic

location within the EU territory.

1 Commission Communication of 19 May 2010 (COM (2010) 245).

2 Commission Communication of 19 May 2010 (COM (2010) 245), p. 4.

3 The US digital music market is currently three times higher than the one in the EU.

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The following tables illustrate some significant differences between the digital music market in Europe

and in other regions.

COMPARISON BETWEEN THE EUROPEAN DIGITAL MUSIC MARKET AND THE USA

EU US EU as percent of US

Population 501 million 310 million 162%

GDP EUR 12,8 trillion EUR 11,1 trillion 115%

Digital Music Market EUR 900 million EUR 2,7 billion 33%

Digital Share of the Recorded Music Market

13% 43% 30%

COMPARISON OF PER CAPITA SPEND ON DIGITAL MUSIC IN KEY TERRITORIES 2009

UK FRANCE GERMANY EU USA JAPAN AUSTRALIA

€5,15

€2,30

€2,05

€1,80

€8,60

€8,05

€3,60

The tables above clearly indicate that the European digital market is still significantly underdeveloped.

The disparities in per capita spend on digital music also highlight that developed markets without

market-distorting private copy levy claims have higher digital music spends (USA, Japan, UK,

Australia), as well as robust creative industries driving growth and jobs (e.g. the UK Government

estimates that 2 million persons are employed by the UK creative industry4)

.5

The European Commission announced in the Digital Agenda Communication that a Framework

Directive on Collective Rights Management (CRM Directive) will be proposed by 2010 to encourage

new content distribution business models, to improve consumer access to content regardless of their

country of residence and to fight piracy while stimulating the virtuous cycle of the digital economy. This

intention was reiterated in Commissioner Barnier’s Communication ‘Towards a Single Market Act’6 and

work is currently ongoing in DG Internal Market and Services to on a draft proposal.

DIGITALEUROPE, representing the product hardware and platform elements of the virtuous cycle

delivering music, videos, books and games to European consumers, considers this initiative of utmost

importance for the European economy and general welfare.In the absence of a formal consultation

process aimed at gathering stakeholders’ view, DIGITALEUROPE, by means of this position paper,

4 The UK Government’s Department for Culture, Media and Sport also states “Employment in the sector [of the creative

industries] has grown at double the rate of the economy as a whole” (http://www.culture.gov.uk/what_we_do/creative_industries/default.aspx). 5 Nokia analysis based on raw data from IFPI report ‘Recorded Music Industry in Numbers 2010’.

6 Commission Communication of 27 October 2010 COM(2010) 608 .

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wishes to express the importance of the upcoming CRM Directive to effectively address the following

points:

I. Establish mechanisms that will allow a more efficient, transparent and easily

manageable licensing system in Europe ("Licensing")

II. Include copyright levies, a major source of the fragmentation of copyright rules,

expressly within the CRM Directive’s scope (“Scope”)

III. Set out a comprehensive set of governance and transparency rules for the collective

management of rights ("Governance")

In the following sections, we discuss at length each of these points.

I. Establishment of mechanisms that will allow a more efficient, transparent and easily

manageable licensing system in Europe ("Licensing")

The anticipated CRM Directive should aim to ensure easier, more uniform and technologically neutral

solutions for cross-border and pan-European licensing.

DIGITALEUROPE agrees that access to legal digital content must be made easier and more attractive

to foster a Digital Single Market in Europe bringing immediate benefits to European consumers, and

new opportunities for all stakeholders, be they creative, cultural or business interest, to ultimately drive

growth and jobs in Europe. Content and specifically digital music licensing should be market-oriented

and efficient allowing pan-European or multi-territory licensing, with the market characterized by willing

rightholders, and willing commercial licensees. Overall DIGITALEUROPE wishes to see the

development of a pan European licensing system complying with the following criteria:

1. Establishment of a manageable number of licensing entities each representing a broad

suite of rights and repertoire and ensuring healthy competition with each other.

2. Transparency for rights clearance. This is a prerequisite for a practical functioning market.

Licensees need visibility as to the sources of different catalogues and content. National management

of copyright licensing without effective pan-European solutions is inconsistent with a Digital Single

Market. Benefits could be achieved by rightholders’ use of a Global Repertoire Database, where

there is currently substantial ongoing work driven by the Working Group set up especially by the

European Commission. As mentioned in the “Recommendations for: The Way Forward For the

Development of a Global Repertoire Database” issued by the Global Repertoire Database Working

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Group7: “There is currently no database or data-resource that provides access to authoritative

comprehensive multi-territory information about the ownership or control of the global repertoire of

musical works and that is openly available to songwriters, publishers, musical work Collective Rights

Management organisations and users. There are of course numerous databases of varying quality

held by musical works CRMs around the world and whilst these provide some ownership or control

information for some of the global repertoire, the data, even on a national level, is not always

maintained at an optimum level nor always openly accessible to the stakeholders.”

3. Ability to negotiate tariffs. Licensees should have the choice to negotiate on a pan-

European basis, and directly with publishers, national Collecting Societies, or Collecting Societies

representing a particular repertoire. It is essential to establish a system whereby tariffs cannot simply

be imposed by a licensing body without any recourse to some form of dispute resolution or negotiation

with the entity controlling the tariff (e.g. the national Collecting Society).

4. Competitive environment for all stakeholders, including Collecting Societies for the

management of rights. We are skeptical about the notion of a “one stop shop”. Strictly interpreted, a

“one stop shop” would not be sufficiently agile, flexible or competitive. We would like to see enough

participants to prevent monopoly leveraging – either at a national, or even EU level.

5. Support the rise of new, innovative systems. One of the highest policy priorities in the

digital copyright eco-system should be the promotion of a vibrant and thriving pan-European market

for the distribution of legal digital content, giving the consumer easy, flexible access to a rich source of

digital content while fostering a climate conducive to new players, new business models, innovation,

experimentation and evolution in the digital marketplace. The solution should be platform neutral

(online, on-demand, broadcast), ensuring willing licensees have equal access to content.

6. Full scope licensing, meaning that private copies can be covered within the scope of

the license. Rightholders should be remunerated through licensing, not private copy levies. Levies

should not be seen as a primary revenue stream for digital content. Direct licensing is more

appropriate and fairer for all. Returns to rightholders are correlated to the value of consumed content

and users pay for what they consume, thus encouraging flexible licensing models: a virtuous circle.

7 http://globalrepertoiredatabase.com/GRD-077-GRDRecommendations(Finalv1.0).pdf

The Global Repertoire Database Working Group (GRD WG) was set up by the European Competition Commissioner, Neelie Kroes following the Online Commerce Roundtable to encourage a selection of music rights holders and rights managers, music service providers and consumer representatives met to discuss issues relating to the provision of online music services. More information can be found here: http://globalrepertoiredatabase.com/faq.html

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The review of licensing, addressing these above mentioned criteria, should be part of a holistic

initiative which includes copyright levies.

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II. Inclusion of copyright levies, a major source of the fragmentation of online copyright rules,

within the CRM Directive’s scope (“Scope”)

The Digital Agenda Communication places great emphasis on the current fragmentation of the EU

market. Although not expressly acknowledged in the Communication, there is a topic closely related to

content licensing, namely private copy levies, where analogous problems manifest themselves:

fragmentation of the single market, with associated burdensome and costly administrative processes,

resulting in unfairness for consumers, equipment manufacturers and rights owners alike.

The Single Market Act, unveiled by Commissioner Barnier on 27 October 2010 highlighted private

copies as an unresolved issue:

“The absence of a European framework for the efficient management of copyright across

the EU is significantly complicating the process of making knowledge and cultural goods

available online. In order to create a single European digital market, the potential of

online distribution must be used effectively by enhancing the availability of creative

content while at the same time ensuring that rightholders obtain adequate remuneration

and protection for their works. The European Commission is aware that different national

systems for private copying levies are affecting cross-border sales services and the

production of support media. The European Commission will take account of the dialogue

between the various interested parties in order to find paths to a sound solution”.

Moreover, this close correlation between licensing and copyright levies is recognized by

Professor Mario Monti in his report “A New Strategy for the Single Market” in which Professor

Monti recommends that “the regulatory regime should also ensure the conditions for developing

the digital content and broadcasting markets by addressing licensing and copyright levies.”

DIGITALEUROPE believes that a successful reform of the Copyright regime in Europe can be

ensured only if it tackles all aspects that lead to the fragmentation of online copyright rules,

including copyright levies.

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A. Why are private copy levies a source of internal market fragmentation?

The main reason for this fragmentation can be found in the fact that the rules and practice governing

private copying vary dramatically from one Member State to another. There is no consistency in terms

of products subject to a levy, in the method to calculate the tariffs and consequently in the level of the

tariffs itself.

Currently it is very confusing for consumers to know what they can and cannot legally copy on their

digital devices (e.g. MP3 players, PCs, etc.) in various European Member States.

The basis for the “private copy exception” is contained in the European Copyright Directive

2001/29/EC, Article 5.2(b) but the exception is optional, meaning that Member States are free to adopt

it or not (e.g. UK and Luxembourg have not adopted it, but other countries like France and Germany

have). If a Member State adopts the exception, then it is still totally free as to the form of

compensation it wishes to apply (levy on the hardware, state fund, tax, etc...). Additionally, the scope

of what is permitted under the exception is left open so that Member States have a lot of latitude for

national implementation, and this reinforces the subsequent confusion for consumers.

As a result of the lack of clear definition of its scope, Member States have maintained their national

approaches to this issue and what we find today is continued divergence across the EU.

Tariffs and products subject to private copy levies diverge widely per country. The graphic below

indicates the example of a multifunctional printer with a retail value of approximately 100 euros8.

8 www.eurimag.eu

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The following table shows some of the criteria applicable for reclassifying levies when a product is sold

across an EU border. 9

9 www.eurimag.eu

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This cross-border incoherence in tariffs and categorisation is also inherent to the tariffs on audiovisual

products such as mobile phones with music player functionality and memory cards. Therefore, as the

table hereafter illustrates:

Levies Tariffs on A/V Products: mobile phone with integrated music player (all amounts in €)

Austria Belgium France Germany Hungary Italy Romania Spain

<32 MB

3

1

0,09

2,56

0,34

0,9 0,5% of

sales value

1,1

<64 MB 0,68

<128 MB 1,35

<256 MB 0,35

2,2

<512MB 6 4

< 1 GB 7,5 0,7 5,4

< 2 GB

12

1,4 6,4

< 4GB

2,5

3,5 10,66

< 5GB

16 <6 GB

5,6 < 8 GB

18

< 10 GB 7

<12 GB

8

24

<16 GB

< 20 GB

3

<30 GB

10 <32 GB

24 < 40 GB

<60 GB 15 26,64

< 80 GB 30

<100 GB 20

?

< 120GB

?

< 160GB 25

< 250GB 35

< 400GB 45

< 560GB 50

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Levies Tariffs on A/V Products: memory cards (all amounts in €)

Belgium Denmark France Hungary Italy Romania Spain

<32 MB

0,15

0,65

0,144/GB

0,14 0

3 % of sales value

0,3

<64 MB

0,05/GB

<128 MB 0,27

<256 MB 0,34

<512MB 0,4

< 1 GB 0,09/GB

0,5

< 2 GB 1

< 4GB

0,5

0,072/GB

1,7

< 5GB

2,7 <6 GB

0,03/GB

< 8 GB 0,062/GB

< 10 GB 4

<12 GB 0,059/GB

<16 GB 5,4

< 20 GB

1,35 ?

11 <30 GB

<32 GB

< 40 GB

?

<60 GB

< 80 GB

<100 GB

< 120GB

< 160GB

< 250GB

< 400GB

< 560GB

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B. Consequences of this fragmentation:

A Detriment to European Consumers. European consumers are severely affected by this

fragmentation as they do not have access to the same legal offers nor similar/comparable price

depending on their location. Access and price distortions are at the source of an ever-increasing

consumer frustration and encourage the rise of illegal content distribution.

A Detriment to Rightholders who by definition wish to reach the largest audience possible. The

value of content decreases sharply if it is not easily accessible to consumers. Equally, the value of

ICT products and networks is reduced in the absence of attractive and easily accessible content.

Lost Economies of Scale. The fragmentation across twenty-seven national markets removes the

enormous potential of economies of scale in Europe and the opportunities that a truly unified

market could offer. This has a negative impact on the introduction of new business models in

the EU with consequences for competitiveness and growth. The digital music market in the EU is

only 33% of the US market, despite Europe’s significantly bigger population (160% of the US

population). The reasons for Europe’s relatively poor performance in this space include:

High Cost of Compliance - too much time and money is wasted dealing with the

bureaucracy of twenty-seven different national systems. These overhead costs create no

added value for any of the stakeholders and traditional copyright management systems

make the introduction of technical alternatives impossible.

New single market efficiencies (such as regional sales organizations, central

administration, central or regional storage, free transport of goods by general transport

services) cannot be realized to their full extent for products that are subject to a levy.

Significant financial risk of mistakes, not least because new tariffs may apply

retroactively. This leads to abundant litigation.

Financial Uncertainty for Distribution Platforms. New distribution platforms for content

like Mobile phone and Internet TV are subject to significant financial uncertainty regarding

actual and potential levy claims that may severely compromise the entire business

proposition.

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Selective and discriminatory billing towards well-established, registered companies, as a

result, up to 50% of the levies due are not collected.10

Discouragement of investments in content related technology. For example, a

company like Philips, a key inventor of optical disc technology - still dominantly used for

distribution of music, video and gaming content- stopped all of its optical disk technology

innovation, and is now forced to give up its own blank media optical disk sales activities

because of the problems identified here.

Severe Consequences for Intra-Community Trade: A report by the European Policy Centre in

April 2010 concluded that a Digital Single Market would bring 4% GDP growth over a 10 year

period; this is equivalent to €500bn. A share of this growth would be attributable to the creative

industries.11

Every time a digital technology product is sold across an intra-community border from Country

A to country B the manufacturer has to:

Classify the product based on the levies tarification of Country A;

Make a declaration to the Collecting Society of country A;

Execute payment to the Collecting Society in country A;

When the product is exported to country B, the manufacturer has to classify the product

based on the tarification schemes of country B;

Make a declaration to the Collecting Society of country B;

Execute payment to the Collecting Society in country B;

Go back to the Collecting society of country A with proof of export and payment in country

B when refund mechanisms are available;

Request for a refund of the levy paid in country A.

Divergent National Interpretations of the Copyright Directive: The growing number of lawsuits

before national courts concerning private copy levies brings with it a greater risk of divergent

national decisions on the interpretation of the Copyright Directive which will further exacerbate the

problem of fragmentation.

10

“In practice levies collection are not fully enforced on all devices or media sold in a particular market (due to grey imports, small producers and importers, etc). As a result, the actual collection of levies is significantly smaller than the total collectible levies identified in the study or those reported in some collecting societies’ income statements.” See page 6 of BSA LEVIES COLLECTION STUDY: (http://www.eurimag.eu/index.php?id=11&cid=33&fid=15&task=download&option=com_flexicontent&Itemid=14) 11

European Policy Centre 2010, see www.epc.eu/dsm.

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Governments are increasingly obliged to subsidize content sectors that fall behind in natural

growth because of outdated national regulatory provisions.

In the Impact Assessment12

made by the European Commission at the time of the draft 2006

Recommendation the European Commission quantifies the size of the impact of levies on intra-

community trade:

“In principle, a total of over 6% of all intra-EU imports and exports, amounting in total to over € 100

billion, are goods which actually or potentially attract a levy.”

C. The Urgent Need for a European Regulatory Approach

DIGITALEUROPE urges the European Commission to propose a legislative solution to modernize the

copyright levy systems so that it is fit for the digital age, reflects market realities, and better meets the

interests of all stakeholders, including rightholders and consumers.

Diligent attempts to improve the levies situation through the Copyright Levies Stakeholders Platform

clearly demonstrated that the issue is very complex and the views of the parties too polarized to be

resolved by means of a voluntary agreement among the parties. DIGITALEUROPE believes that EU

legislative intervention is vital to move forward on this issue and we therefore call upon the European

Commission to ensure that the CRM Directive explicitly addresses private copy levies.

The new system should be designed to meet the following objectives:

Benefit principal rightholders (i.e. the creative community) and not their

representatives and intermediaries as stated publicly by Commissioners

Almunia and Kroes (see quotes at the head of this paper);

Optimize opportunities for rightholders to publish their works on thriving modern

platforms reflecting contemporary consumer demands;

Provide all European consumers with the same legal offers without

discrimination based on country of residence;

Encourage digital device manufacturers and digital service providers to invest in

new and innovative business models thanks to increased clarity and reduced

risk of the framework in which they can operate.

Significant levies-related litigation in national courts and the increasing number of references to the

CJEU reflects the legal uncertainty prevailing across Member States and signals the need for clear

authoritative central guidance from the EU legislator. Although litigation statistics in the EU are difficult

12

Commission Staff Working Document SEC (2006) draft December 2006 “Fair Compensation for Private Copying in a Converging Environment”.

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to come by it would appear that in 2007 in Germany alone there were as many as 44 pending cases

related to copyright levies.

In October 2010, in Padawan v. SGAE (Case C-467/08), the CJEU handed down the first-ever

decision relating to private copy levies and the interpretation of Article 5(2)(b) of the Copyright

Directive, as discussed in more detail below. Further prejudicial questions concerning the

interpretation of the Copyright Directive are pending before the CJEU in two other cases, namely: (1)

Stichting de Thuiskopie v Mijndert van der Lee and Others (Case C-462/09)13 on a reference from the

Hoge Raad der Nederlanden (Netherlands) lodged on 25 November 2009; and (2) Entidad de Gestión

de Derechos de los Productores Audiovisuales (EGEDA) v Magnatrading S.L. (Case C-387/09) 14

referred from the Juzgado Mercantil (Spain) lodged on 1 October 2009. It is understood that further

references to the CJEU are likely to result from other pending national cases.

DIGITALEUROPE PROPOSAL ON COPYRIGHT LEVIES:

1. Address Private Copy Levies in the CRM Directive .

2. Include in the CRM Directive all provisions set out in the European Commission’s

December 2006 Draft Recommendation: “Fair compensation for private copying in a

converging environment”.

3. Revitalise the Art.12 Review Process as specified under the Copyright Directive to

ensure that the necessary reforms take place.

National copyright laws foresee that copyright levies are rights that are managed collectively by the

Collecting Societies on behalf of authors. DIGITALEUROPE urges the European Commission to

adopt a more complete, holistic approach, and include within the CRM Directive a new solution to

13

http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&newform=newform&Submit=Submit&alljur=alljur&jurcdj=jurcdj&jurtpi=jurtpi&jurtfp=jurtfp&alldocrec=alldocrec&docj=docj&docor=docor&docop=docop&docav=docav&docsom=docsom&docinf=docinf&alldocnorec=alldocnorec&docnoj=docnoj&docnoor=docnoor&radtypeord=on&typeord=ALL&docnodecision=docnodecision&allcommjo=allcommjo&affint=affint&affclose=affclose&numaff=C-462%2F09&ddatefs=&mdatefs=&ydatefs=&ddatefe=&mdatefe=&ydatefe=&nomusuel=&domaine=&mots=&resmax=100 14

http://curia.europa.eu/jurisp/cgi-

bin/form.pl?lang=en&newform=newform&alljur=alljur&jurcdj=jurcdj&jurtpi=jurtpi&jurtfp=jurtfp&alldocrec=alldocrec&docj=docj&do

cor=docor&docop=docop&docav=docav&docsom=docsom&docinf=docinf&alldocnorec=alldocnorec&docnoj=docnoj&docnoor=d

ocnoor&radtypeord=on&typeord=ALL&docnodecision=docnodecision&allcommjo=allcommjo&affint=affint&affclose=affclose&nu

maff=C-

387%2F09&ddatefs=&mdatefs=&ydatefs=&ddatefe=&mdatefe=&ydatefe=&nomusuel=&domaine=&mots=&resmax=100&Submi

t=Submit

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the current fragmented private copy levy regime which is one of the most serious deficiencies in

the digital single market today.

The incorporation of the Recommendation provisions into the CRM Directive would help make the

system more transparent, predictable, built on objective criteria and avoid unnecessary distortions of

trade flow across the EU, while respecting the entitlement of rightholders to fair compensation for

private copying.

As mentioned above, the 2006 draft Recommendation on copyright levies was based on a thorough

and robust Impact assessment conducted by the European Commission and the findings remain

extremely relevant today. Unfortunately, the draft Recommendation, while striving to find a balanced

way to solve this important issue hit a political stumbling block at Member State level and was never

published or adopted.

The CRM Directive provides the ideal opportunity and vehicle for adopting the same provisions

originally proposed in the December 2006 draft Recommendation.

Furthermore, the previously mentioned Padawan case is in line with all the key provisions of

the 2006 Recommendation, reaffirming its relevance today. The CJEU confirmed that “Fair

compensation” is an autonomous concept of EU law that must be interpreted uniformly in all

Member States that have introduced a private copying exception.

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Key principles confirmed by the CJEU in Padawan in line with the 2006 Recommendation, include:

A fair balance has to be maintained between rightholders and users.

“Fair compensation” must be calculated based on the criterion of non-minimal harm suffered

by the author as a result of private copies made by consumers.

Equipment acquired by enterprises for purposes clearly unrelated to private copying (e.g.

“professional use”) should not be subject to levies.

Private copies authorized by the right-holder (“licensed copies”) are not eligible for calculation

of the “fair compensation”15

.

.

No obligation for payment arises if harm is minimal (‘de minimis’ rule)16

.

“Fair compensation” is an autonomous concept of EU law which must be interpreted uniformly

in all Member States that introduced the private copying exception.

The person making private copies is the one that should finance the burden of the fair

compensation17

but payment may be made by those who make relevant equipment, devices

and media available to private users or who provide copying services for them “inasmuch as

they are able to pass on to private users the actual burden of financing it.”18

DIGITALEUROPE believes that if the EU Regulator were to enshrine the CJEU Padawan criteria in

the proposed CRM Directive so that they had to be uniformly applied across Europe, this would

prevent years of stagnation and legal uncertainty as national and CJEU jurisprudence develop only

slowly.

15

See paragraphs 39 (“without their authorisation”), 40 (“without his authorisation”) and 45 (“without seeking prior authorisation from the rightholder”) 16

See paragraphs 39 (“... although prejudice which is “minimal” does not give rise to a payment obligation”) and 46 (“... bearing in mind the fact that the harm which may arise from each private use, considered separately, may be minimal, and therefore does not give rise to an obligation for payment, as stated in the last sentence of recital 35 ...”) 17

See paragraph 45. 18

See para.50

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Moreover, DIGITALEUROPE is encouraged that the Internal Market Committee of the

European Parliament is calling upon the European Commission to consider for copyright

levies the same options that could solve the territoriality issues related to content licensing.

“[The EP] Points out the significance of simplifying cross-border rules and lowering compliance costs

for retailers and entrepreneurs by providing practical solutions on issues such as VAT reporting and

invoicing, e-waste and recycling fees, copyright levies, consumer protection, labeling and sector-

specific rules; calls, to this end, for the establishment of ‘one-stop’ schemes and the

promotion of cross-border e-government solutions such as e-invoicing and e-procurement.”19

********************************************************************************************************************

III. Definition of a comprehensive set of governance and transparency rules for the collective

management of rights ("Governance")

Since 2004 the European Commission itself has been calling for an increased transparency and better

governance of Collecting Societies.

The Communication on “The Management of Copyright and Related Rights

in the Internal Market” of April 2004, states:

“3.5.4. The External Control of Collecting Societies: In some Member States, Collecting

Societies are subject to control by public authorities or specific bodies, but with very

differing scope and efficiency. The external control encompasses the behaviour of

the societies, their functioning, the control of tariffs and licensing conditions and

also the dispute settlement. From an Internal Market viewpoint, the existing

differences regarding the control of Collecting Societies are significant and cannot

be ignored. Divergent rules on control from one Member State to another

constitute obstacles to the interests of rightholders and users alike, given the

exclusive position of most Collecting Societies and their network of reciprocal

agreements. As a consequence, in all Member States, adequate external control

mechanisms should be available. From an Internal Market viewpoint, it would appear

useful to establish common ground on certain parameters of external control and make

specific bodies (e.g. specialised tribunals, administrative authorities or arbitration boards)

available in all Member States and to establish common ground on their competencies,

their composition and the binding or non-binding nature of their decisions”.

19

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>> 20 of 23

The need to reform the way Collecting Societies operate has more recently been clearly articulated by

Commissioner Almunia (Competition) in his speech in Barcelona, on 22 November 2010:20

““IP Collecting Societies play a major role, there is no doubt about that. However, the manner most of

them manage licenses is too close to the traditional way of old national monopolies and

therefore cannot be maintained in its current form.

It is also necessary to improve the quality and efficiency of collective management of

intellectual property rights to have authors receiving debt compensations and user paying

reasonable licenses. Several cases of abuses and restrictions by collective right management

societies have been investigated by the competition authorities, both at European and national level,

and the European Commission will continue monitoring similar practices and behaviors”.

Commissioner Kroes also expressed her concerns on how current territorial copyright management

implies a waste of resources that does not benefit rightholders. In her speech in Avignon on November

5, 2010 Commissioner Kroes said:

“Today our fragmented copyright system is ill-adapted to the real essence of art, which

has no frontiers. Instead, that system has ended up giving a more prominent role to

intermediaries than to artists. It irritates the public who often cannot access what artists

want to offer and leaves a vacuum which is served by illegal content, depriving the artists

of their well deserved remuneration.”21

Member States are also increasingly realizing that there is a genuine case for greater transparency in

the way Collecting Societies operate22

.

The need to reform the way in which Collecting Societies operate is also illustrated in the report

published by the Spanish Competition Authority in January 201023

. The report concludes “Spanish

Collecting Societies enjoy a monopolistic position. This may reduce their incentives to operate

efficiently and may lead to problems regarding the level of fees, as shown by several cases of

unfair and/or discriminatory fees examined by the Spanish Competition Commission.”24

Finally we note that collection of levies is carried out by private organizations without true

accountability and is not based on laws or practices that would apply to collection of tax, where there

is an inherent guarantee of fair and transparent collection, under supervision of national parliaments.

20

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http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/10/619 22http://www.rijksoverheid.nl/documenten-en-publicaties/wetsvoorstellen/2010/07/05/wetsvoorstel-versterking-en-verbreding-van-het-toezicht-op-collectieve-beheersorganisaties-auteursrecht-jus 23

http://www.cncompetencia.es/Default.aspx?TabId=228 24

The Spanish Agency for the Evaluation of Public Policies and Quality of Services (Agencia Estatal de Evaluación de las Políticas Públicas y la Calidad de los Servicios) drafted an equally interesting report on the transparency of Spanish Collecting Societies that can be found following the link http://www.aeval.es/comun/pdf/evaluaciones/E12B.pdf

>> 21 of 23

DIGITALEUROPE RECOMMENDATIONS ON GOVERNANCE OF COLLECTING

SOCIETIES IN EUROPE

In light of the reports by various Member States’ Competition Authorities and National Parliaments

revealing areas where the management of collecting societies could be improved and made more

efficient in the rightholders’ interest, DIGITALEUROPE would like to make the following

recommendations:

1. National Parliaments oversee Collecting Societies:

National Parliaments should be responsible for the oversight of Collecting Societies which should be

required to produce public yearly reports on the :

amounts collected

management fees

methodology to redistribute collected money

amounts redistributed

amounts non-distributed

2. Creation of an Arbitration Board for dispute resolution at European level

Lack of agreement on copyright tariffs often leads to significant litigation that delays payment and

content dissemination. The establishment of an Arbitration Board at European level would help solve

these issues.

3. Harmonization of financial information and timelines for payment.

Harmonization of Collecting Societies financial information would be an important step towards

increased transparency as it would allow a meaningful comparison between societies management

fees, collection and distribution methods. In its report25

the Spanish Agency for the Evaluation of

Public Policies and Quality of Services insists on the fact that the different ways of reporting data

prevent a sensible comparison even among societies of the same country.

Moreover, under the current copyright system in Europe, societies have the exclusivity of rights

management within the territory of a given Member State and they are bound to pay out to sister

societies located in another Member States the fees collected on their behalf. This is why

DIGITALEUROPE believes that a harmonization of timelines for payment would be highly beneficial

for principal rightholders with a deadline of say 12 months, for example.

25

http://www.cncompetencia.es/Default.aspx?TabId=228

>> 22 of 23

4. Rightholders’ flexibility as to the rights they want to transfer to the Collecting

Societies.

No “all or nothing” assignment. Today creators are obliged to transfer all their rights to a given

collecting society. This has numerous negative consequences. For example it prevents

rightholders from performing for charity purposes without an amount being collected by the

societies (this was the case for concerts performed to raise funds after the Haïti earthquake). A

more flexible approach should be encouraged to allow authors to transfer to the societies only the

rights they would like to be administered collectively and keep control on the remaining type of use

of their own works. Rightholders should be able to dispose of their works as they want, including

the possibility of waiving compensatory rights if they wish to do so.

Authors should not be forced into compulsory collective management if they would prefer to

administer their rights autonomously.

5. Undistributed funds should not be retained by collecting societies but refunded to

the entities that paid those amounts.

In cases where the rightholder cannot be identified or the money collected by societies on behalf of

authors cannot be distributed for any other reason, collecting societies should be bound to pay those

amounts back.

6. Works belonging to the public domain should be excluded when quantifying

compensatory rights managed by collecting societies.

Works in public domain are not protected by copyright. Consumers should therefore not be obliged to

pay any type of copyright to access or copy them.

7. Full transparency on criteria for determination of the fees.

Currently there is neither transparency nor objectivity on how copyright levies are being calculated.

More objectivity and predictability would significantly decrease uncertainty and provide the necessary

justification for the application of private copy levies.

8. Full transparency on repertory represented by each collecting society.

At present, there is no clarity of which society is holding which rights. This results in a situation where

an entity wishing to become a licensee has significant difficulty to obtain a license of a work as

different rights are being hold by different entities. Full transparency on the repertory of each

collecting societies would be extremely valuable.

9. Function of cultural subsidy should be handled by a different, separate entity to

avoid a conflict of interests.

>> 23 of 23

ABOUT DIGITALEUROPE

DIGITALEUROPE is the pre-eminent advocacy group of the European digital economy

acting on behalf of the information technology, consumer electronics and

telecommunications sectors. We are dedicated to improving the business environment, and

to promoting industry’s contribution to economic growth and social progress in the European

Union.

DIGITALEUROPE ensures industry participation in the development and implementation of

EU policies. DIGITALEUROPE’s members include 61 leading corporations and 40 national

trade associations from all the Member States of EU; altogether 10,000 companies with 2

million employees and €1,000 billion in revenues. You can learn more about our activities via

http://www.digitaleurope.org

THE MEMBERSHIP OF DIGITALEUROPE

COMPANY MEMBERS:

Acer, Adobe, Agilent, Alcatel-Lucent, AMD, APC by Schneider Electric, Apple, Bang &

Olufsen, Bose, Brother, Buffalo, Canon, Cassidian, Cisco, Corning, Dassault Systems, Dell,

Epson, Ericsson, Fujitsu, Hitachi, HP, IBM, Ingram Micro, Intel, JVC, Kenwood, Kodak,

Konica Minolta, Lexmark, LG, Loewe, Microsoft, Mitsubishi, Motorola, NEC, Nokia, Nokia

Siemens Networks, Nortel, NXP, Océ, Oki, Oracle, Panasonic, Philips, Pioneer, Qualcomm,

Research In Motion, Ricoh International, Samsung, Sanyo, SAP, Sharp, Siemens, Sony,

Sony Ericsson, STMicroelectronics, Technicolor, Texas Instruments, Thales, Toshiba, Xerox.

NATIONAL TRADE ASSOCIATIONS:

Austria: FEEI; Belgium: AGORIA; Bulgaria: BAIT; Cyprus: CITEA; Czech Republic: ASE,

SPIS; Denmark: DI ITEK, IT-BRANCHEN; Estonia: ITL; Finland: FFTI; France: ALLIANCE

TICS, SIMAVELEC; Germany: BITKOM, ZVEI; Greece: SEPE; Hungary: IVSZ; Ireland:

ICT IRELAND; Italy: ANITEC; Lithuania: INFOBALT; Netherlands: ICT OFFICE, FIAR;

Poland: KIGEIT, PIIT; Portugal: AGEFE, APDC; Romania: APDETIC; Slovakia: ITAS;

Slovenia: GZS; Spain: AETIC, ASIMELEC; Sweden: IT&TELEKOMFÖRETAGEN; United

Kingdom: INTELLECT; Belarus: INFOPARK; Norway: ABELIA, IKT NORGE; Switzerland:

SWICO; Turkey: ECID, TESID, TÜBISAD; Ukraine: IT UKRAINE