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Brussels, November 2012 IFRRO Position Paper on the Proposal for a Directive on collective management

Brussels, November 2012

IFRRO Position Paper on the Proposal for a Directive on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online uses in the internal market

Executive summary

Transparency, accountability and good governance are fundamental principles for IFRRO, its members and the Collective Management Organisations (CMO) it represents. Core values include that CMOs shall deploy the highest ethical standards when dealing with the rights which they administer, the collection and distribution of remunerations and the funds they hold in trust, and that rightholders shall have the right to determine how and by whom their rights shall be managed. This is also reiterated in the IFRRO Code of Conduct and the document on Relationship between Reproduction Rights Organisations (RROs). IFRRO therefore supports the broad objectives set out in the proposal.

For the Directive to impact positively on the governance of CMOs in the field of literary rights and text-based works it must recognise the sector specific particularities, account for the differences to other sectors and take account of national and community legislation.

Firstly, in order to better ensure that the principles of subsidiarity and proportionality will be respected and that unnecessary burdens on users and CMOs are not created, the the directive should less detailed. This will also contribute to maintaining administrative costs of CMOs at an acceptable level, with the consequence that money distributed to rightholders is maximised. A less detailed directive makes it less likely that, at national level, there will be contradictions between provisions in the directive and national company law.

Secondly, the directive must sustain well functioning models of operation and be compatible with current Member States’ legislation to support them. CMOs obtain mandates from rightholders and manage the various rights under different models.

IFRRO supports the principle of the rightholder’s right to choose (exclusively or non-exclusively) how and by whom his rights shall be managed, as set out in article 5.2 of the proposed directive. However, within the limits permitted by substantive copyright law and international obligations the implementation of that principle must leave room for rights administration supported by legislation, such as extended collective licences, legal licences or mandatory collective management, which applies in Member States, for instance, in respect of large scale copying of extracts from multiple works of multiple rightholders in education, the making available of certain out-of-commerce works by libraries, public lending rights systems or levy schemes to compensate for permitted reprographic reproduction, or private copying allowable under exceptions or other systems supported by legislation. Moreover, consent in such cases may not always be granted directly to the CMO but often via an authors’ or publishers’ association or other representative body. The RRO administering

the rights will represent a substantial number of national authors and publishers concerned and have appropriate rightholder representation in its decision making bodies.

Also, in the text and image based sector, the majority of RROs apply different models for the distribution of revenues, often based on statistical surveys, sampling or similar methods; some

RROs have also put in use collective distribution of revenues to ensure cost efficient management.

RROs have also put in use collective distribution of revenues to ensure cost efficient management. Provisions in article 12 of the proposal for a directive as well as those related to information to the rightholders in article 16, must make it clear that those systems that have been established with the consent of the rightholders to bring about the most suitable solutions and to maximise distribution of remuneration to them must be allowed to be carried forward.

Thirdly, we question the draft’s proposal to introduce dispute resolution mechanisms for users only. Currently, where such mechanisms exist, not only users but also CMOs can benefit from them. If the Directive is at all to include stipulations on dispute resolution mechanisms in relation to negotiations of contracts with users, a fair balance between stakeholders concerned needs to be maintained. Consequently both CMOs, as rightholder representatives, and users should have the possibility to refer disputes to them.

Finally, for the sake of clarity we would propose modifications of the wording of some definitions and provisions on the governance of CMOs.

Introduction

IFRRO is an international non-governmental not-for profit organisation in the field of copyright. It is the main international network of collective management organisations and national and international authors’ and publishers’ associations in the print and publishing sector, representing 137 organisations in nearly 80 countries worldwide, including representatives in nearly all EU Members States, EEA countries and Switzerland.

Rights administration by RROs; certain uses often supported by legislation

In print and publishing, collective rights management by CMOs in the sector, referred to as Reproduction Rights Organisations (RROs), is primarily concerned with certain secondary uses when rightholders want their rights to be managed collectively or when individual direct rights management is impracticable or impossible (market failure). This is typically the case for large scale copying of portions, for instance chapters, of already published works and digitisation and making available of out-of-commerce works by libraries and other cultural institutions. RROs administer right of reproduction, making available and distribution (ordinary photocopying, making works available on intranets, internet downloads, digital copying and certain other digital uses), on behalf of creators and publishers jointly, in a situation where the user has already purchased legal access to the content in question. The licence typically grants the users preauthorisation to make multiple copies of portions of publications, in a limited number of copies for the internal use of institutional bodies such as schools, universities, private corporations or government departments.

The way in which the RRO operates, and the structure it adopts, will be directly affected by the rightholders’ choices and the legal system in which it is functioning. Various models of RRO operation have evolved to suit national traditions, needs and legislative approaches. We normally distinguish between three main models:

Voluntary collective licensing: the RRO issues licences to make multiple copies of protected material on behalf of those rightholders who have mandated it, normally on a non- exclusive basis, to act on their behalf. Such licensing often comes with a clause by which the RRO agrees to indemnify the user if the user should happen to make copies of works of non- mandating rightholders

• Voluntary collective licensing with legislative support : there are three techniques : o Extended

Voluntary collective licensing with legislative support: there are three techniques :

o

Extended collective licence, which applies in the Nordic countries, that extends the effects of a voluntary licence negotiated on the basis of mandates from a substantial amount of authors and publishers to also cover non-represented rightholders. Mandates are normally granted on a non-exclusive basis. The RRO issuing the licence must distribute the remuneration to represented and non-represented rightholders alike.

o

Obligatory collective management, which applies, for instance, in France (as well as in the audiovisual sector following the EU cable and satellite directive). Management of the right but only a RRO can negotiate and sign the licences; the rightholder cannot sign licences himself.

o

Legal presumption: The law presumes that the RRO represents all rightholders unless they have expressly notified otherwise. Licences are negotiated on a voluntary basis.

Legal licence: the right to copy is granted by law and thus no consent from the rightholder is required, they only have a right of remuneration. Levy systems fall under this category.

As a rule, the RRO must represent a substantial number of national authors and publishers concerned and they must be appropriately represented in the RRO’s decision making bodies.

Distribution of collected revenues by RROs: generally on the basis of sampling and surveying

Distribution of revenues collected for large scale reproduction of already published works is generally on the basis of statistical surveying and sampling and vary according to the use and the licence. The methods fall into two broad categories:

- The title specific distribution aims at rewarding authors and publishers according to the use of their works. Reporting may in some instances be detailed and based on users reporting on every single copy they make but as this, in most cases, is highly impractical when it comes to large scale copying the distribution is most often based on extrapolation from statistical data from sampling, surveying and the like.

- Non-title specific distribution does not require detailed monitoring of the actual works used but of the types of material and works that are copied (fiction books, non-fiction books, school books, academic treaties, fiction text, photographs, journalistic articles, musical notes, etc.)

1. General

IFRRO supports the broad objectives of transparency, accountability and good governance of the Proposal for a Directive on Collective Rights Management. It is, at the same time, required that the rules set out are practical and possible to implement, observe current practices and existing national legislation, including on collective management and the activities of CMOs, and do not interfere with well-functioning CMO business approaches. To achieve those objectives the directive would benefit from allowing flexibility for the Member States to adopt rules on the basis of their legal traditions and practices.

When addressing the functioning of CMOs, distinctions need to be made between, on the one

When addressing the functioning of CMOs, distinctions need to be made between, on the one hand, governance models and, on the other, models of operation; changes may be required and made in governance models and structures without interfering with functioning models of operation supported by rightholders and often underpinned by national legislation. Typically, in the text and image sector, CMOs manage certain subsidiary uses of works. Users seek an inclusive permission from one single counterpart to copy portions of the large repertoire of text and image based works they have access to. To ensure legal certainty and a “one-stop shop” as well as addressing legitimate user and rightholder needs, most EU Member States have introduced some legal back-up. The directive must take these aspects into account and state more clearly that required changes are intended to address the governance of the CMO, rather than functioning RRO models of operation and their supporting Member States’ legislation. This may, in its turn, require clarification in the use of terminology and definitions.

Recital 3 asserts that collective management organistions are subject to the Service Directive. In line with previous IFRRO submissions we disagree with this and ask that Recital 3 be deleted. The regulation of the activities of CMOs varies between Member States. In some they may only operate with the permission of the State and under strict State supervision, at least for some of their activities. There are good reasons for this where rights are administered on the basis of legislation.

Whereas we reiterate our support for the proposal’s objectives, we propose some changes that aim at ensuring that the directive becomes a practical instrument that can impact positively on the functioning of collective rights management in the EU Member States and reach its goals. IFRRO is committed to working with the European Union institutions to enable a positive outcome.

2. Compatibility with current models of operation

a. Mandating an RRO

Article 5.2, 5.3 and 5.6 offer the author and the publisher the right to choose the “collecting society” of their choice, including establishing new ones, when appropriate, irrespective of the Member State of residence, or nationality, of either the CMO or the rightholderRROs generally comply with that principle.

The directive should also expressly acknowledge rights management on the basis of law to avoid that current Member State legislation and RRO practices could be seen as being in conflict with the wording of Article 5.2. This could be remedied by making the principles in articles 5.2, 5.3 and 5.6 subject to the rights management not having been granted by law.

b. Distribution of revenues

As part of its mission, IFRRO has helped RROs define principles and best practices for distribution schemes so that users and rightholders can be confident that the money is being fairly distributed. These principles are set out in the IFRRO Code of conduct and the document Relationship between RROs, which RROs subscribe to. It reflects the need for transparency, accountability, efficiency, diligence and approximation of actual use as far as possible. As explained in the introduction, different methods of distribution exist depending on the use and the type of licence and also on the decisions of the members of the RROs.

RROs generally distribute collected fees on the basis of extrapolation from statistical surveying or sampling.

RROs generally distribute collected fees on the basis of extrapolation from statistical surveying or sampling. In some countries rightholders in membership of the RRO or through their authors’ and publishers’ associations have also opted for collective distribution of some or most of the collected fees (non-title specific distribution). Article 12 of the draft CRM directive specifies that distribution and payment shall be carried out “accurately” and, Article 12.2, that all measures must be taken to “identify and locate rightholders”, “verifying membership records” and make available to the members and the public “a list of works and other subject matter for which one or more rightholders have not been identified.” We ask that the proposal clarifies, either in an article or in a recital, that revenue collection and distribution can, for certain uses, be made on the basis of extrapolation of statistical data rather than obliging users to provide full and detailed reporting about their use of copyright works. Full reporting is, for instance, impossible in the cases of certain subsidiary uses administered by RROs and for private copying, and would in some other cases put an unreasonable burden on the users and be contrary to the principle of efficiency, in particular cost efficiency.

We also ask that the directive clearly states that revenue distribution can take place through the rightholders’ organisations or CMOs and as collective distribution of the proceeds where this is decided by the rightholders. To this end it is preferable “a list of works” in Article 12.3 that be replaced by “relevant information on works or the category of works”. Also, in the second sentence of Recital 19, we ask that “individual” be deleted.

c. Information to rightholders

We fully support the objective of transparent information to rightholders and others as set out in Articles 16-19. Again it is important that the directive expresses unambiguously that the adopted rules are compatible with current well-functioning models of operation. As previously stated, there are RROs which, on the basis of rightholders’ decision, do not collect rightholder and/or title specific information for all uses, typically in respect of large scale copying of portions of already published works for internal educational, information, administrative or similar purposes. To address those concerns, it is preferable that the last part of the introduction of Article 16 reads “to the rightholders it represents”, either directly or through the representative bodies representing them, rather than to “each rightholder”.

3. User relationship

Licensing and tariff settings

Article 15 of the proposal stipulates that tariffs shall “reflect the economic value of the rights in trade and of the service provided by the collecting society”. IFRRO questions whether tariff setting should at all be included in the scope of the Directive. Work access and usages administered by RROs often represent a unique offer authorising uses that are not otherwise exploited; there is thus often no other direct commercial comparator that can be used or the possibility of making any form of comparison. Through the collection of usage data, RROs seek, in negotiations with users, to allow agreements that reflect the reality with respect to factors such as types of works used, usages and user behaviour, and establish fair tariffs. This requires accurate and honest user reporting on usage of copyright material. Imposing obligations on rightholders, while users have no obligation to contribute data on their uses, will not permit accurate market analysis that could form the basis for the establishment of tariffs and other conditions which reflect the economic value of the rights administered.

Dispute resolution mechanism Article 35 stipulates that Member States should introduce a dispute resolution mechanism

Dispute resolution mechanism

Article 35 stipulates that Member States should introduce a dispute resolution mechanism for licences conditions, tariffs, and refusal to grant a licence. This proposal does not expressly foresee the situation where the RRO is compelled to make use of dispute resolution mechanisms, for example because an entity refuses to pay the remuneration due or to take up a licence even if it is apparent that some copying is taking place, for instance because other similar entities already copy under licensing schemes with a RRO, and the ban of the copying for some reason cannot be enforced.

Article 35 should therefore be deleted, or, alternatively, both CMOs and users should be able to refer disputes to the established dispute resolution mechanisms. This can be achieved by modifying the heading of Article 35 to read, for instance, “Dispute resolution for the parties”

4. Clarification of terminology and definitions

Definitions in Articles 3(a), (c), (e), (i) and (j) would benefit from some clarifications:

a. Definitions (Article 3)

Article 3(a) defines a “collecting society” in a way that it may be understood to encompass entities that should not be considered as such and to exclude bodies that should be covered by it. For instance, certain agencies and publishers, alternatively their subsidiaries, acting on behalf of rightholders may fall under the definition of “collecting societies “ (CMOs), whilst certain CMOs that are owned by private organisations would not. We understand that there are no discrepancies in views between the EC and IFRRO on this. To avoid misunderstanding we suggest to make necessary changes in Article 3(a) or clarifications in a recital.

Also the use of the expression “collecting society” does not reflect the role of such organisations that is not limited to the collection of revenues but manages the rights of their members beyond simply collecting and distributing. We believe that in the whole proposal, the expression “collecting society” should be replaced by “collective management organisation”.

We are satisfied that the definition of “member” in Article 3(c) covers both individual rightholders and their representative bodies, including collective management organisations, as it reflects the current situation. We also welcome recital 10 which specifies that membership of CMOs should be based on objective and non-discriminatory criteria. RROs are normally set up set up jointly by creators and publishers. IFRRO believes that the directive could be more explicit in establishing that national legislation should not prevent that from happening. We therefore suggest adding at the end of Recital 10 that “national legislation shall not prevent different categories of rightholders to jointly form a collective management organisation”.

When Article 3(b) defines the rightholder and article 3(c) defines the members of the “collecting society” it is necessary to see the two in parallel. Otherwise the consequences could be that new rights are introduced for non-members with consequent implications and cost, whilst preventing other CMOs to benefit from certain precautions such as dispute resolution mechanisms or direct access to regulation in Member States where this applies. To this end we ask that the use of terminology be clarified in Article 11. Article 11.1 refers to agreements with both members and rightholders. We are not sure of the distinctions the directive intends to make here. Likewise, for

instance in Article 11.2(b), it seems to us that the reference to termination of authorisation

instance in Article 11.2(b), it seems to us that the reference to termination of authorisation should be to members rather than to rightholders.

Article 3(e) covers the notion of “director”. In our view it is indispensible that a distinction be clearly made between, on the one hand, directors as employed personnel and part of the executive management team in charge of daily management, such as the Managing/ Executive Director, and, on the other hand, directors as members of the governing structure such as the Managing Board/Board of Directors or a supervisory body. IFRRO believes that separate definitions should be introduced to ensure clarity and a clear distinction be made between an executive director that will execute the daily management of the organisation as the head of the administration, and a member of governing structures such as the board of directors. We are ready to offer a proposal for such definitions. It should also be made clear either in the article or in a recital, whether “administrative” board, “supervisory” board and “management” board, as listed in Article 3(e), refer to one and the same body with different names, or whether they indicate different bodies.

Article 3(i) makes a difference between a user and a consumer. For the sake of clarity we believe that consumer could also be defined.

Article 3(j), to make sure that it takes into account the current practice of repertoire assignment and rights management by RROs, where repertoire may be defined both by works and “categories of works” (for instance fiction books, scientific journals, fiction text, photographs, sheet music, etc.) should read “’repertoire’ means the works, categories of works or other subject matter in which a collective management organisation manages rights”.

b. Powers of various governing bodies

Articles 7, 8 and 9 describe various governance bodies of collective management organisations and some of their powers. Due to the introduction of new terminology and technical language currently not in use, for the purposes of certainty it would be helpful to include sufficient definitions to ensure that provisions can be reconciled with Member States’ company laws. For example, whilst in all EU Member States a distinction can be made between the General Assembly, the Board of Directors/Management Board and the Executives (administration) typically headed by an Executive/Managing Director, a fourth body supervising the activities of the Management Board exists in some but not all Member States.

In general, all powers are, at the outset, vested in the General Assembly, which in its turn will have the power to delegate the overall management to a Board of Directors/Management Board, which in its turn again would normally delegate the responsibility for the daily management to the Executive/Managing Director. National laws will limit the powers that can be made subject to delegation, in order to ensure that the most important decisions are taken by the most representative bodies but those laws do normally not assign specific competences directly to the various bodies. We ask that the proposal reflects better this practice.

c. Supervisory function

Article 8 introduces the concept of a “supervisory function”. It would be helpful that a recital or an article clarifies that the supervisory function can be carried out by what is normally referred to as a Board of Directors or Management Board made up of elected members. We would also appreciate if the directive could clearly specify that the supervision is of the administration/Executive management, rather than of political decisions and thus decisions and work of the Board of Directors/Management Board. Finally, for clarification purposes it is preferable that the directive

specifies how this body relates to established government control mechanisms, which already exist in many

specifies how this body relates to established government control mechanisms, which already exist in many Member States.

d. Deductions

Article 11.1 mentions that agreements governing the relationship of the “collecting society” with its members shall specify deductions applicable to rights revenue. IFRRO and its members notice that the proposal acknowledges deductions for cultural, social and educational purposes and agree that full transparency on deductions must be offered to rightholders. Provided that the “agreement’ referred to in Article 11 of the proposal is the one signed upon the establishment of the mandate or membership and that the CMO is at liberty to find practical ways of updating the information, without obligations to change individual contracts, we have no issue with Article 11.

e. Annual transparency report

Article 20 of the proposal for a directive introduces the obligation of an annual transparency report and a separate special report. This is complemented by an Annex 1, further specifying information to be made available. We understand this to be criteria for what the CMO’s Annual report should contain. This assumption is supported by the content of the reports, as set out in Article 20 and Annex 1, being what is normally contained in the Annual Report, which the CMO would submit to its governing bodies and members and publicise anyway.

We emphasise that we understand the reporting of the audited amount as mentioned in 2(c) of Annex 1 to refer to the total amounts attributed, paid, due, etc. to all rightholders, not to each rightholder individually, which would be impractical, and would appreciate this being clarified in the final text.

With this understanding, RROs would not have difficulties complying with the content requested to be included in the reports. It would be helpful that the directive is explicit, either in an article or a recital, that Article 20 and Annex 1 represent requirements to and sets out information that needs to be contained in the CMO’s ordinary Annual Report, and that additional reports are not required. As long as the information required is presented, it should be left to the CMO to decide whether to do it in one or more reports.

Also, when it reads that the reports must be signed by “all directors” it would be helpful to have clarification that this refers to the elected members of the Board of Directors/Management Board and the Head of the Administration.

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