June Individual Rights Management

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1 COMMENTS ON THE COMMISSION S COMMUNICATION ON THE MANAGEMENT OF COPYRIGHT AND RELATED RIGHTS IN THE INTERNAL MARKET June 2004 The Business Software Alliance represents the world s leading technology companies. BSA s members create some of the most dynamic and exciting content available today and own the rights in that content. They are also users of content in a variety of contexts. In addition, BSA members develop and market many of the most popular digital rights management solutions; they use these technological tools on a daily basis to help manage their own digital assets and protect them against theft. These varied roles provide BSA members with a unique insight into how rights are managed. We appreciate the opportunity to share our experiences with the Commission in response to the Communication on the Management of Copyright and Related Rights in the Internal Market (the Communication ). As the Commission well knows, the Information Society and the technologies that enable it have altered dramatically the way that copyrighted works are created, distributed and used. These developments have great significance for how rights are and should be managed. Traditional methods of rights management and remuneration merit close scrutiny to ensure that they evolve in a manner that does not obstruct emerging technologies and new business models, to the detriment of creators and consumers alike. The Communication is an important first step in this process of review. In assessing the current status of rights management in the EU, the Communication looks at several areas, with special focus on (1) individual rights management; (2) digital rights management; (3) collective rights management; and (4) Community-wide licensing. We address each of these areas in turn below: 1. Individual Rights Management BSA agrees with the Communication s conclusion: individual rights management is functioning well. The success of the software industry provides a powerful example of what can be achieved through individual rights management. Software has traditionally been subject to individual management, consistent with the framework of exclusive rights established over a decade ago in the EU s 1991 Software Directive and supplemented in the more recent EU Copyright Directive. Software right holders negotiate with users the terms and conditions governing the use of their works, set rates and collect payment directly. This is done through a wide variety of licence formats, which vary by product and transaction.

2 An overview of some of the types of licences used by software publishers demonstrates how the software industry manages its rights and satisfies the diverse needs of users: End-user licence agreements (EULAs): By far the most familiar licence type, the EULA specifies how the single end-user may use the software. EULAs may be supplied with fully packaged software, as in the case of off-the-shelf products typically purchased through retail computer stores. They are also included with PCs that come pre-loaded with software. The EULA may be provided as a paper insert, to which the user agrees by opening the box (so-called shrink-wrap licences ). More commonly, software publishers now incorporate a EULA into the software program itself; the EULA pops-up on the screen when the user downloads or installs the software and the user can assent by responding yes to the appropriate dialogue box ( click-wrap licences ). Shrink-wrap licences, which have been in use in the software industry for nearly 20 years, and their modern variant, click-wrap licences, play an important role in enabling mass-market software transactions, where it would be both inefficient and impractical to engage in individual bargaining over the terms and conditions of use in every instance. Volume licensing: In contrast to EULAs, which are single user licences, volume licences allow organizations with larger systems to obtain multiple licences. Volume licences are usually obtained through negotiation and written agreement with the software publisher. Typical volume licence options include per seat licences, which extend to the dedicated machine or user, and per server licences, which allow a maximum number of permitted users to access the server at any one time; site licences, which extend to users at a particular location; enterprise licences, which extend to all sites within a particular enterprise; and concurrent use licences, which permit users to install a maximum number of copies onto a designated number of computers, while limiting the number of users allowed to use that software at any one time. Education and government licences: There are a number of licensing programs available for academic institutions, government bodies and sometimes charitable or non-profit organizations. The rates and terms of such licences often differ quite substantially from licences otherwise available to users. Application Service Providers (ASPs): Increasingly, individuals and organizations are using ASP products. The ASP licensing model grants permission for the use of software applications that reside on remote servers rather than on local PCs or servers within the business. ASPs charge users on a per use basis or through a monthly or annual fee. General Public Licensing: The GNU General Public Licence is a distinctly different licence. The basis of this type of licensing revolves around code that is freely available to programmers and developers for modification. Simplistically, this form of licensing mandates that all users pass on the rights and access to source code resulting from any modifications or subsequent versions. Developer licensing and partnership programs: Software publishers may offer licensing programs for software developers, retailers or solution 2

3 providers. Specific terms and conditions may be attached to the use of software acquired in this way; for example, the software may be licensed for development or test purposes only, and not for general business use. Beta licence: Beta licences allow users to use pre-release versions of software titles. These licences generally permit use and testing of software in a live environment. Software publishers use technology, in the form of digital rights management systems (DRMs), to facilitate these various licensing transactions. DRMs, which are discussed in greater detail below, allow holders of rights in software to communicate and enforce licence terms, to authenticate and distribute product, and to collect payment for authorised uses. These differing licence types and business models demonstrate how software right holders have been able to offer multiple products with different rights and prices, and thus to accommodate the diverse and frequently changing needs of consumers. They are a strong testament to the way in which individual rights management has succeeded in the software context. BSA further agrees with the Communication that Community intervention is not currently warranted in the area of individual rights management. EU Directives confirm that most exclusive rights may be transferred through contractual licences. However, rules on copyright ownership, on the forms of transfer and restrictions on same, on remuneration and on the interpretation, modification and termination of copyright contracts are left largely to national law. The Communication concludes that there is adequate common ground among the Member States regarding these rules and that no further action at Community level is needed at present. BSA supports this conclusion. The system functions well as is and does not, at this time, require adjustments at Community level. Should the Commission choose to intervene, however contractual freedom should be the guiding principle. Technology is evolving quickly, as is the way in which works are licensed. To take advantage of these developments, right holders and consumers must retain the ability to freely negotiate the relevant terms and conditions of their licence agreements. 2. Digital Rights Management BSA members have a depth of experience with DRMs. In addition to developing many of the world s leading DRM systems, BSA members have used these technologies to assist in managing their rights for nearly two decades. Experience demonstrates that DRMs make it easier for content owners to identify authors and articulate terms of usage, to establish prices and collect payment, and to determine, among other things, how content is delivered, accessed and copied. In recent years, industry has made tremendous progress in expanding the variety and improving the quality of DRM technologies. (For more information on DRM solutions, visit As these technologies evolve, content providers are discovering new ways to use them, developing exciting new business models that allow them to better satisfy a broad spectrum of user requirements. The ultimate beneficiaries of these developments are consumers, who now enjoy greater and more user-friendly opportunities to use digitally distributed content. 3

4 BSA strongly supports the Commission s conclusion: DRM systems clearly are an important, if not the most important, tool for rights management in the Internal Market of the new digital services. Collective management is based on the premise that individual management of rights is impossible with regard to certain types of uses i.e. those uses that the author is incapable of monitoring independently or that the user cannot obtain permission for directly. Collective management bridged this gap, creating the necessary link between author and user. With the advent of DRMs, however, technology now exists to serve this function. DRMs support a broad array of content distribution models, all under the control of the content owner/distributor, providing creators with broad new opportunities to exploit their works and expanding greatly the types of activities that can be managed individually. For the good of creators and consumers, the Commission must ensure that DRM technologies are permitted not only to coexist, but to flourish in the EU. This must include strong protections against the unauthorized circumvention of DRM technologies. To this end, we encourage the Commission to ensure that the Member States implement quickly and faithfully the 2001 Copyright Directive s provisions on technical protection measures (Article 6)and rights management information systems (Article 7). These protections must be enforced at national level through deterrent criminal penalties. We also urge the EU to adopt immediately the Framework Decision on Cybercrime, which will establish harmonized rules to protect DRMs from hackers. As the Communication recognizes, DRM development and deployment must be voluntary and market-driven. DRM technologies play a critical role in assisting content owners to manage and protect their digital assets while at the same time satisfying the demands of consumers. That said, it is clear that no single DRM solution regardless how powerful will ever provide the right solution for every need. Industry-led innovations must continue to drive creation of these technologies. Indeed, all evidence suggests that technology develops most effectively in response to marketplace forces. In contrast, government mandates in this area are likely to lock-in consumers to specific products and quickly become outdated, depriving consumers of new features, increased functionality and efficiency, and potential benefits from new, lower-cost products. While BSA agrees that interoperability is important to the success of DRMs, we do not believe that reinforcement of the requirement for interoperability at either Community or national level is warranted. The Communication highlights the importance of interoperability in the context of DRMs. The Communication then concludes that legislative intervention may be required to achieve this interoperability. We respectfully disagree. We call the Commission s attention to the many initiatives now underway in industry standards bodies and other industry consortia, all designed to explore common solutions and develop open standards to promote DRM interoperability. For example, the OpenEBook Forum and the MPEG group are leading the charge for the ebook and multimedia sectors. Other initiatives include 4C, the Copyright Protection Technology Working Group (CPTWG), the DVD Copy Control Association, and Digital Video Broadcasting (DVB). The Internet Engineering Task Force is also working on DRM issues, as is the World Wide Web Consortium. With regard to DRM interoperability, as with all efforts to advance technologies, the market must be allowed to lead; standards must be developed through 4

5 voluntary, industry-led efforts. Any other approach threatens to freeze innovation to the detriment of both users and technology providers. BSA encourages the Commission to look beyond interoperability, to the true obstacles to DRM uptake. The Communication suggests that a lack of interoperability is the primary obstacle to DRM uptake. We believe that there are other, more significant obstacles, however. For example, the unjustified extension of private copy levies to digital media and equipment and the failure of levy regimes to take account of the application of DRMs has hindered the deployment of DRM technologies. As long as levies are broadly and compulsorily imposed, content owners have little incentive to apply DRMs. Moreover, where levies are applied alongside DRMs, consumers end up paying multiple times for the same copies decreasing their enthusiasm for DRMs. The absence of simple to use Community-wide licensing mechanisms is a further obstacle to DRM deployment, impeding the pan-european roll-out of some of the world s most popular DRM-based delivery systems. Finally, BSA members also accept that industry itself needs to work harder at educating the public about the uses and benefits of DRMs to enhance consumer trust in these technologies. BSA believes that the Communication s concern that DRMs may lead to a technological lock up is unfounded. The Communication suggests that DRMs do not effect a policy solution for ensuring the appropriate balance between the interests involved, including those of authors and right holders and of legitimate users. BSA does not share this view. To date, the available evidence suggests that the use of DRM systems by content owners is not adversely affecting the ability of users to engage in activities traditionally permitted under copyright laws. Indeed, in many instances the existing DRM systems are actually expanding consumer access to digital content. By protecting digital works, DRMs give content owners the confidence and incentive to offer their best and most valuable works online. By promoting greater market participation in this way, DRMs foster a more vibrant, competitive online marketplace competition that stimulates content owners to provide access to a wider range of works at lower prices and strengthens their commitment to customer satisfaction and service. 3. Collective Rights Management While BSA members manage rights in their works directly, they nonetheless have substantial and varied experience with collective rights management. Many of BSA s members manufacture personal computers and other Information Society equipment that facilitates the use of entertainment content, such as music and movies. Collecting societies are increasingly calling for private copy levies to be applied to these products. (Indeed, in at least one market, a collecting society has sought to extend levies to software). At the same time, other BSA members are working to provide content delivery systems that require the licensing of music rights from these collecting societies. BSA members have faced challenges in both these contexts. The way in which levies are set is often arbitrary and there is little meaningful opportunity for stakeholders to participate in the levy-setting process or to object to these levies once established. Similarly, when licensing rights, our members have often found the process to be non-transparent, fragmented and complex. 5

6 In light of our experience, BSA agrees that good governance rules for collecting societies are crucial. At present, national collecting societies take a broad variety of approaches to the calculation of tariffs, sharing of information, distribution of royalties, and resolution of disputes. There is little national oversight and no harmony of practice. BSA supports both the Communication s proposal to establish harmonised rules on good governance in this area and the Commission s underlying goal of attaining greater efficiency, transparency and accountability in the functioning of collecting societies. The Communication identifies several important areas where improvements are needed, including: The relation of collecting societies to users: As users of rights, BSA s members agree that greater transparency and accountability is needed. Publication of tariffs is essential. Likewise, users large and small must be able to contest such tariffs in a meaningful manner, through rapid and cost-effective administrative procedures conducted by an independent tribunal, with an appeal to an EU-level body where appropriate. The relation of collecting societies to right holders: While our members rights are not managed by collecting societies, we support our fellow right holders who have called for greater transparency and accountability in this area. We agree that collecting societies should be required to publish detailed information on the amounts demanded and collected and on expenses and fees to be deducted from those amounts; details of distribution should be published and breakdowns should be given per category of rights as well. Further, and most importantly, any collective management of rights should be wholly voluntary; while this option may not be practical for all right holders, they must retain the freedom to choose to manage their rights individually where they so desire. The external control of collecting societies: BSA supports the Commission s suggestion to impose harmonised rules in this area, including through the creation of specific bodies in each Member State with authority to oversee the functioning of collecting societies. These bodies should be supported by a pan-european oversight body, open to participation by all stakeholders. BSA asks the Commission, as part of its review of collective management, to scrutinize the functioning of private copy levy systems. While the Communication seeks to conduct a comprehensive review of collective rights management, it gives short shrift to one of the areas most desperately in need of review private copy levy systems. National levies regimes distort trade among Member States and pose an obstacle to the smooth functioning of the Internal Market. Moreover, the majority of levy schemes fail to comply with EU law. 1 The EU Copyright Directive requires that levies reflect the application of DRMs, to ensure consumers do not pay multiple times for a single copy or pay for copies he or she is unable to make. The EU Copyright Directive further indicates that harm to the right holder is a valuable criterion for assessing appropriate remuneration for private copies; when such harm is minimal, compensation may be zero. Yet to the best of BSA s knowledge, there are few, if any, levies schemes that respect these requirements. One possible way to verify the faithful 1 EICTA has recently published a detailed study exploring the distorting influence of levies on intra-community trade. 6

7 application of the EU Copyright Directive is to obligate collecting societies to notify any new levies under the EU Transparency Directive (98/34/EC) or through a similar mechanism. In addition to failing to respect EU law, levies have many other pernicious effects. Levies, which many users view as an open licence to copy content, serve to undermine respect for copyright. Indeed, users often mistakenly believe that levies which are intended to compensate for lawful private copying only are remuneration for pirate copying. Faced with demands that are largely arbitrary and unpredictable and that differ from one Member State to another, levies also impair industry s ability to develop coherent, EU-wide business strategies. Levies on information technology products which collecting societies in several Member States are now seeking to impose are especially problematic. Such levies hinder the uptake of new technologies and impede the development of the Information Society in the EU. BSA urges the EU to establish basic rules for national levy regimes quickly, to increase transparency and ensure fairness for users, right holders and third parties. While the Communication suggests that the Commission will address certain levies-related issues in the context of the Copyright Directive Contact Committee, more urgent action is needed. The Commission s current efforts with regard to collective rights management provide an ideal opportunity to take this action. As a first step, we urge the Commission to undertake immediately a broad-based review of the functioning of national levies regimes. This should include a survey of the extent to which collecting societies can justify, through meaningful economic analysis, the actual harm caused by private copying and the relation between that harm and the levies imposed. This survey should also consider the extent to which national levies regimes have been adjusted to reflect the application of DRMs, as required by Community law. Additionally, good governance rules adopted to improve the transparency and accountability of collecting societies should extend to levies regimes as well. Such rules should include measures (i) increasing transparency with regard to all aspects of levies, including rules that require that consumers be informed about the amount of levy that they are paying on particular products and rules that require collecting societies to disclose the economic evidence supporting these levies; and (ii) ensuring that consumers, manufacturers and importers subjected to levies can contest those levies in a meaningful manner, including via a right to appeal decisions of national bodies to an objective EU body. Finally, collecting societies seeking to extend the scope of levies or to increase levy amounts should be required to notify and justify such extensions. A notification procedure should be implemented and an EUlevel body should be vested with authority to review and approve or reject proposed levies extensions. In determining whether an extension is justifiable, factors to be considered should include: whether the media or device in issue is specifically and primarily designed for copying of protected content (multifunctional devices should be exempted); whether devices and media used in conjunction are both levied (this should be prohibited, to ensure users do not pay twice for a single copy); whether the collecting society can demonstrate actual harm adequate to support 7

8 the application of a levy; whether compensation has been made by other means (i.e. through a licence or DRM, indicating no additional compensation may be due); and whether the levy sought takes adequate account of the application of DRMs. 4. Community-wide Licensing BSA echoes those who have called for greater Community-wide licensing. The borders for the marketing of goods and services based on copyright are quickly being removed. Unfortunately, collective management has not always kept pace with this trend. As the Communication notes, there is an ongoing demand for more Community-wide licensing that is, the granting of a licence by a single collecting society in a single transaction for exploitation throughout the Community. While the Communication outlines a number of potential solutions, we feel that the existing difficulties and possible solutions for licensors in this area are not examined in adequate detail in the document. While software is managed individually and therefore not subject to collective management, BSA members are deeply involved in efforts to roll-out EU-wide content delivery systems for music. The lack of a Community-wide licence for rights in music has made this exercise a laborious and time-consuming one. In the on-line environment, Community-wide licensing of music rights is available only in a limited form; with regard to many uses, such licensing often is not actually available at all without the necessity of negotiating step-by-step at national level. Clearing on-line rights in music can involve securing the rights of communication to the public, making available and reproduction rights of performers and producers on a territory-by-territory basis. This has served as an obstacle to industry s ability to roll-out EU-wide services in music, despite consumer demand for such services. Ultimately, this shortage of legitimate, convenient alternatives for access to digital content has contributed to high piracy rates in the EU to the detriment of creators, national economies and European culture. BSA supports a one-stop-shop mechanism to facilitate Community-wide licensing of music; any such mechanism must permit user choice, however. Given the difficulties BSA s members have faced in securing Community-wide licences of music, BSA is interested in efforts by the Community legislator to facilitate greater Community-wide licensing of these works. The mandating of collecting societies to offer Community-wide licences by virtue of the operation of reciprocal agreements may be the right way forward if the societies can act in free competition with each other in the granting of such licences. Users should, however, be free to choose the organisation, irrespective of location, whose licence offers the most suitable terms for their needs without losing any element of pan-eu coverage; user choice should not be limited by customer allocation provisions. And music right holders should remain free to choose whether to licence their rights individually or collectively; if they choose to licence rights collectively, they should be free to choose the collecting society or societies through which they do so. A possible precedent for these types of arrangements was established in the offline world, under the IFPI-BIEM framework agreements, where record companies could approach any authors mechanical rights society within the EU and secure a Community-wide licence based on the reciprocal agreements that exist between 8

9 the BIEM member societies. The Simulcasting Agreement, currently in use (and exempted from competition rules by the Commission in 2002), provides a useful model from the online world. Under this Agreement, broadcasters can obtain a worldwide licence from any of the collecting societies located in the EEA in order to simultaneously transmit broadcasts via the Internet. This approach promotes competition and ensures that users can choose the most efficient, effective collecting society for their needs. Whatever action the Commission takes to address the issue of Communitywide licensing, it should not undermine the exclusive right of making available nor should it mandate collective management. The Communication briefly explores several potential solutions to the challenge of Community-wide licensing, including legislation requiring right holders to grant a Communitywide licence or reducing the exclusive right of making available to a remuneration right subject to mandatory collective management. Such approaches are subject to several criticisms. They are inconsistent with international obligations including the Berne Convention and the more recent WIPO Internet Treaties, which make clear that the making available right is an exclusive one. By eroding exclusive rights, these proposals would also undermine long-established objectives of copyright to stimulate creativity and culture and to promote investment, growth and job-creation. BSA appreciates the opportunity to comment on the Communication on rights management. We look forward to an ongoing dialogue on this important issue. For further information, please contact Francisco Mingorance, Director, Public Policy, Europe, tel , franciscom@bsa.org. The Business Software Alliance ( is the foremost organization dedicated to promoting a safe and legal digital world. BSA is the voice of the world's commercial software industry and its hardware partners before governments and in the international marketplace. Its members represent one of the fastest growing industries in the world. BSA programs foster technology innovation through education and policy initiatives that promote copyright protection, cyber security, trade and e-commerce. BSA members include: 4D, Adobe, Agfa- Monotype, Apple, Autodesk, Avid, Bentley Systems, Borland, BVRP Software, Centennial, Cisco Systems, CNC Software/Mastercam, Entrust, Grupo SP, HiT Internet Technologies, HP, IBM, iinventory, Intel, Intergraph, Internet Security Systems, Intuit, LMS International, Macromedia, Mamut, Microsoft, Microstar, Network Associates, O&O Software, OWG, Panda Software, Realviz, RSA Security, SolidWorks, Staff & Line, Sybase, Symantec, TeamSystem, Trend Micro, UGS, VERITAS Software, Visma, WRQ. 9