The European Commission yesterday published its proposal for a Directive on (i) the collective management of copyright and related rights and (ii) multi-territorial licensing of rights in musical works for online uses in the internal market. The draft Directive follows the Commission’s 2011 Blueprint for Intellectual Property Rights in which the Commission expressed an intention to introduce measures to improve multi-territory licensing.

The aims of the Directive

The Commission has two main aims which it hopes to achieve through the Directive. First, it intends to improve the standard of the service provided to members and users by collecting societies, through increased efficiency, accuracy, transparency and accountability. The second aim is to address difficulties faced by those seeking licences to musical repertoire for the territories of more than one Member State. At present, a person seeking a licence to provide, for example, a mobile music service in more than one Member State would have to contact a number of different licensing bodies.

The Commission considers that the existing fragmentation of the EU market for these services has resulted in authors’ musical works not being as widely licensed or properly remunerated as they could be.

The proposals

Multi-territory music licensing

The draft Directive sets out four main principles in respect of multi-territory licensing. These provisions only apply to the licensing of online rights in musical works by collecting societies. The four principles are:

1. Collecting societies will only be permitted to grant multi-territorial licences for online rights in musical works if they meet minimum conditions concerning their capacity to process the data needed for the administration of such licences (draft Article 22). This derives from concerns that certain societies are unable to accept detailed digital sales data from online service providers, making them harder to do business with and compromising accurate accounting to right holders. The conditions include the collecting society being able to identify accurately the repertoire that it is authorised to license, and the rights and right holders in that repertoire in each of the Member States to which the authorisation applies. Collecting societies granting multi-territorial licences must also provide to members and users up-to-date information, by electronic means, on the repertoire they represent and must provide timely payments to members.
2. A collecting society may outsource services relating to the multi-territorial licences it grants, so long as it does not affect the liability of the society to its members, users, and to other collecting societies (draft Article 27).
3. One collecting society may mandate another to grant multi-territorial licences on a non-exclusive basis and the mandated society must manage those rights on non-discriminatory terms. The mandated society must comply with the requirements of the Directive for multi-territory licensing (draft Article 29(1)).
4. Societies may team up to create joint licensing entities to represent their repertoire for multi-territory licensing.

Crucially, if a collecting society (or a joint licensing entity) is already offering to grant multi-territorial licences for the musical works of one or more other collecting societies, it cannot refuse a request from another collecting society to offer such licences on its behalf (draft Article 29(2)). This unusual provision seems designed to ensure that the repertoire of smaller societies (which perhaps will not be able to afford to comply with the mandatory requirements for multi-territory licensing) will not be excluded from the market as a result – they can require societies which are already actively granting such licences to do it for them. The requested collecting society may charge a management fee to the requesting society but it must not exceed the costs reasonably incurred in managing the repertoire and a reasonable profit margin.

Collecting societies are incentivised to participate by the requirement that, if a society does not offer multi-territorial licences in online rights either itself or through another society by one year after transposition of the Directive, Member States have to permit right holders to grant multi-territorial licences themselves or through another collecting society.

The likely effect of these provisions is market consolidation, as the larger collecting societies (some of which are already offer multi-territory licences in respect of some repertoire), take on more rights on behalf of the smaller societies which do not have such capability.

Governance

Unlike the provisions for multi-territorial licences, which apply only to the licensing of rights in musical works for online uses, the governance provisions apply to all collecting societies. This is significant, as it will likely require the vast majority of the more than 250 European collecting societies to change their systems and practices, in particular the smaller societies.

The provisions regarding governance include:

1. Right holders must be permitted to authorise a collecting society (or societies) of their choice, irrespective of the domicile of the collecting society or right holder.
2. A requirement to put in place objective membership criteria.
3. An obligation to make timely distribution payments to members.
4. Obligations regarding transparency and reporting by electronic means.

Enforcement

A potentially significant development in respect of enforcement is the requirement that licensees (or potential licensees) be able to submit disputes with licensing bodies to a court. Such disputes are currently referred to a variety of bodies across different member states, some of which are unlikely to satisfy this requirement. The Directive and its recitals are currently silent as to what will constitute a court for these purposes, but in many member states this is likely to lead to a greater ability on the part of licensees to challenge the terms of licences offered by collecting societies.

Member States will also have to provide an additional alternative dispute resolution procedure for disputes between collecting societies and their users, members and other collecting societies regarding multi-territorial licences of online rights in musical works.

Consequences of the Directive

Some musical rights collecting societies have already taken significant steps towards facilitating pan-European licensing of online rights. If passed, the Directive should reinforce this trend, leading to greater availability of collective licences which meet the needs of pan-European music service providers. The larger societies are likely to take on greater responsibility for cross-border licensing, creating a more streamlined licensing market.

It remains very unlikely, however, that any society will be in a position in the future to offer a pan-European licence for the repertoire of all or even most of the EU collecting societies. The proposal expressly rules out the enforced creation of a one-stop shop of this kind on competition grounds.

A side-effect of the increased regulation of all collecting societies is likely to be an increase in disputes between members and users of smaller collecting societies, many of whose procedures are likely to fall short of those required by the Directive.

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