Reading the announcement of the Government’s Consultation on Copyright, it sounds as though all the proposals are no-brainers. The press release talks of ‘modernising’ the copyright system and ‘removing unnecessary barriers to growth’. Who could possibly object to removing barriers, especially if they are unnecessary? However, a more detailed scrutiny reveals a very different picture.

The Consultation on Copyright was published on 14 December and follows the normal procedure, a three month period for stakeholders to respond to a series of questions. The proposals are all drawn from the Review of IP and Growth conducted by Professor Ian Hargreaves, published in May 2011. By his own admission, his proposals were not accompanied by evidential support. That came later, in the Government’s initial response (the much criticised Supporting Document EE) in August and, now, in the impact assessments accompanying each proposal in the consultation. All the documentation can be found on the IPO website.

So, what are the Hargreaves proposals which are now the subject of consultation? It is a long list, the main ones being:

• An exception for archiving and preservation.
• Exceptions for disabled people.
• A wider exception for quotations.
• A wider exception for private study.
• An exception for data mining.
• A statutory code of conduct for collective licensing.
• Making exceptions override contractual provisions.
• An exception for religious services and official celebrations.
• A wider exception for demonstration of equipment.
• A wider exception for education.
• Removing the licensing scheme for educational uses.
• Extended collective licensing.
• An exception for private copying.
• Giving the IPO powers to make formal opinions on the scope of exceptions.
• An exception for parody.
• Orphan works.

 There is a common theme to these proposals. They all transfer value from the rightholder to the user. Most are exceptions which allow one group of users to use copyright material without paying those who produced that material. Others remove or weaken licensing systems which are the bedrock of trading in copyright content.

Take the private copying exception. At its core, this is designed to enable consumers to copy CDs to MP3 format, a commonly accepted practice to which no one objects. But private copying is not format-specific. It would also cover cloud services which currently obtain a licence to provide music and film services. These services would no longer need to pay the content providers for this value-add element. The proposal specifically rules out any remuneration to rightholders, even though this is a requirement in the EU Copyright Directive.

An exception for data mining would have a similar effect. Text and data mining is where a software programme trawls through text to extract relevant data for research or consumer use. It is a powerful tool. A computer can ‘read’ millions of books in a nano-second and highlight those extracts that the user wants. At the moment, online publishers offer licences for this use. An exception would remove the need for search companies to pay for this benefit.

One of the less prominent proposals is the expansion of exceptions for education coupled with the removal of the licensing scheme. This perhaps more than any other proposal captures the real intent behind this consultation. The current position is that there is an exception allowing schools to record, copy and keep any TV programme and the rightholders are permitted to get together to create a licence (which they have done through the Educational Recording Agency). This system gives schools unfettered access to TV programmes at a low cost per pupil and rightholders a return through the ERA licence. The proposal in the consultation removes that licensing scheme so the schools would no longer benefit from the clarity of the ERA licence and content providers would no longer receive any remuneration.

Another seemingly anodyne proposal is codes of conduct for collective licensing. The Government consultation starts with a case for voluntary codes, then specifies in great detail what should be in that code and concludes by stating that if any organisation fails to comply, the Government’s terms will be made compulsory. It is in fact a statutory code, with a voluntary front cover – additional red tape by the back door.

Each proposal is accompanied by an impact assessment. Where these contain monetary values, they concede that the impact would be a loss to rightholders and an equivalent gain to tech companies and other users. The main beneficiary would be Google and other similar companies whose business model is based on free content. In other cases, such as parody, the impact assessment is unable to identify any net benefits.

Within the sixteen main proposals, there are two which do show a net benefit and limited downside risk. These are extended collective licensing and orphan works. Extended collective licensing would be a voluntary arrangement where a collective licensing body could apply to be able to license all works for a particular use by default, subject to opt out by the rightholder. The voluntary nature, coupled with the service relationship between collective licensing body and rightholder, would point to this being a commercially positive activity. Extended collective licensing would only happen when it worked for the market.

Orphan works occur when it is not possible, despite a diligent search, to locate the owner of the work, so it would not be possible to obtain a licence under normal circumstances. Under this proposal, either the Copyright Tribunal or a collective licensing body could issue a licence for the work at the same rate as for any other work. The Government plans to appropriate any unpaid royalties under the ‘bona vacantia’ principle. In both cases, the proposal is for a licensing solution where the user pays for the content.

In parallel with the Consultation on Copyright, Richard Hooper has issued a Call for Evidence on the Digital Copyright Exchange (DCE), often considered the flagship recommendation in the Hargreaves Report. Mr Hooper has been appointed to carry out a feasibility study into the proposal for a DCE.

By contrast to the Consultation on Copyright, this concisely worded 4-page DCE document clearly outlines the licensing process, summarises the hypothesis and invites comments. The paper breaks the licensing process down into six elements – identifying the relevant rights, finding the owner, giving the licence, paying for the rights, delivering the content and accounting to the rightholder.

The hypothesis, asserted by Professor Hargreaves in his Report, is that the licensing process is broken. The reasons cited are that licensing is expensive, difficult to use, difficult to access, insufficiently transparent, siloed by media type, victim to a misalignment between rightholders and users and insufficiently international in scope.

The analytical approach in the Call for Evidence invites stakeholders to identify more precisely which parts of the licensing process are working and which are not. This is likely to be a contentious process as many users claim the whole system is broken, hence the need for a single location where you can select and pay for rights. Rightholders point out that the price of rights varies according to the circumstances and that a fixed price tag would buck the market.

The deadline for responses on the Digital Copyright Exchange is 10 February and Richard Hooper expects to present his findings early in the Summer. The Consultation on Copyright runs to 21 March with no timescale outlined for further actions. As this Consultation has already been dubbed the ‘Free-ride Consultation’, we can expect these proposals to be hotly debated for many months to come.

Dominic McGonigal

This article appears in the February issue of Intellectual Property Magazine

 Last week was a big moment for artists and record companies in Europe. After a ten-year campaign, the EU finally agreed to extend the copyright term on sound recordings.

This was a bitterly fought battle, with academics and digital activists lining up against musicians. Opponents of the legislation claimed that copyright locked up cultural assets and acted as a disincentive to creativity.

The Open Rights Group described the Directive as a ‘cultural disaster’ (although provided no evidence as to why) but the move was warmly welcomed by musicians. All performers, from solo artists to session players will benefit from the legislation.

For a musician such as Pat Halling, who played the famous violin figure on the Beatles’ All You Need Is Love, this means another twenty years of royalties from broadcasting, as well as an enhanced deal in the extended copyright period. Without this change, he and thousands of other musicians were facing reducing royalties each year as recordings go out of copyright. For record companies, this potentially increases the value of their back catalogue, allowing more investment in new artists.

The main terms of the Directive are:

• Copyright term – increased copyright term in sound recordings to 70 years from the date of release of the recording.
• Session fund – an additional 20% of sales revenue to be paid to session musicians through collective licensing bodies.
• Use-it-or-lose-it – a provision enabling the artist to release the recording themselves if the record company fails to make it available physically and digitally.
• Clean slate – any un-recouped balances written off so all artists receive royalties in the extended period.

The Directive must now be transposed into the national legislation of each of the 27 Member States in the EU. The final deadline for implementation is October 2013 and this is the date which will determine which recordings benefit from the extended period. Any sound recording in copyright on that date will have the new copyright term of 70 years from the date of release. Therefore, recordings from 1963 onwards will get the longer copyright term. Earlier recordings will be lost to the public domain.

The Directive also clarifies the rules on co-authored musical works. These will now enjoy a copyright term of life plus 70 years from the death of the last surviving co-writer across Europe. The most famous examples are the Gershwin songs. George died in 1937 but his brother Ira lived until 1983. They will now get copyright protection for 70 years from the later date.

This Directive has been a welcome boost for the music industry. A number of politicians in Europe are now recognising the key role played by the creative industries and are looking to provide the legal framework to ensure they continue to flourish.

You can read more about this Directive, including the full text of the legislation, on the PPL website.

Dominic McGonigal

Alongside the response to the Hargreaves Review, there were some rather more dramatic announcements on online piracy. The Government now seems determined to tackle this, the single most serious threat to creative businesses, spurred on by the recent failure of BT’s legal challenges to the Digital Economy Act (one High Court judgement and two appeals lost, so far).

A revised Statutory Instrument on costs was published and, at the request of rightholders, the Government announced a refundable fee of £20 for appeals against copyright infringement notices. There had been concern that without a fee, the system would be overwhelmed with vexatious appeals, adding significantly to the total costs to rightholders, ISPs and ultimately consumers. This move was warmly welcomed, tempered by the dropping of the site-blocking measures in the Act. Ofcom had produced a study on the feasibility of site-blocking and concluded that these provisions (Sections 17-18) of the Digital Economy Act were not workable. As an alternative, the Government has committed to brokering a voluntary agreement between rightholders and ISPs, possibly modelled on the recently announced arrangements in the USA. It remains to be seen whether the ISPs that are party to the Judicial Review will respond to this offer to reach agreement or continue with a litigation strategy.

Dominic McGonigal

Groundhog Day.

Another review of IP.

Another Report concluding IP is essential to the modern economy.

Another set of Recommendations offering ‘radical overhaul’.

This is the UK, where we have had four reviews of intellectual property in six years. Despite very few of the recommendations from these reviews being implemented (fortunately), the creative industries have been outperforming the rest of the economy and investments in intangibles now outstrip those in physical assets.

This time, though, the UK Government has been a little smarter in its response. Instead of agreeing to a long list of changes, each proposal will be subjected to specific scrutiny and consultation.

Take private copying. The headlines proclaimed: iPod Users Are No Longer Criminals. The reality is less grabbing: Government To ‘Bring Forward Proposals For A Limited Private Copying Exception In Autumn 2011’.

No one (I think!) argues that consumers should not be able to copy their CDs onto their MP3 player. The argument is about whether rightholders should be paid. The European Union thinks they should. Professor Hargreaves thought they should not.

The EU specifies in the Copyright Directive that a private copying exception must be accompanied by ‘fair compensation’. The IP Review, written by Professor Ian Hargreaves, claimed that the impact on musicians is minimal and that, therefore, there should be no remuneration.

Groundhog Day.

This very proposal was debated in 2008 during the Government consultation following the Gowers IP Review. The proposal (a private copy exception with no remuneration) was dropped after the consultation.

Similarly, there will be consultations on the other exceptions proposed in the IP Review – parody, archiving, data mining, non-commercial research and non-consumptive use.

Groundhog Day.

A key condition of any exception is that it complies with the three-step test, enshrined in international treaties and European directives. This states that any exception can only ‘be applied in certain special cases which do not conflict with a normal exploitation of the work or other subject-matter and do not unreasonably prejudice the legitimate interests of the rightholder’.

Whilst format-shifting grabbed the headlines, it was the proposal for a Digital Copyright Exchange which has most engaged the creative industries. The Report itself is vague on the details of the proposal. In one paragraph it is a network of databases with ownership information. In the next, it is a licensing platform with legal penalties for not registering.

The UK Government response sensibly takes no view as to its form, instead opting for an industry-led feasibility study. This reflects recent developments within business. PPL has already launched a new repertoire database for sound recordings. PRS is developing a Global Repertoire Database for musical works in conjunction with a number of European partners. Book publishers are working on similar systems to facilitate licensing and the management of rights. The UK Government appears to want to support these initiatives, adding its own Crown copyrights into the mix.

The other licensing-related recommendations have also been accepted, again subject to consultation. A scheme for orphan works is proposed, licensing them at market rates so as not to undermine other creators, much to the relief of rightholders. A set of minimum standards for collective licensing will be drawn up. These codes will be voluntary, but with a legislative backstop for any bodies that fall short. There will also be extended collective licensing on a voluntary basis to facilitate the licensing of, for example, broadcast archives.

This announcement can be read on the IP Office website.

The best outline of what is really going to happen to the Hargreaves Report recommendations is in Annex A on page 15 of the response. We will have to wait another few months to see if history repeats itself or whether a forward-thinking IP policy will emerge. In the meantime, creative businesses are bracing themselves for more consultations and more uncertainty.

Groundhog Day.

Dominic McGonigal

This article appeared in the September issue of Intellectual Property Magazine

It’s been all change in the music industry over the past decade. And the same is beginning to happen to other creative sectors.

In the physical world, the business model was simple. A band released an album and all the focus was on the number of sales. A single distribution contract was the driver of revenue.

Now the business centres around licensing, both directly by the record companies and performers, and through a collective licensing service such as PPL. The business model has moved from reliance on a single distribution deal to hundreds or even thousands of licensing arrangements with service partners.

It is perhaps inevitable that such radical changes have produced tensions between rightholders and users, usually over price. We are dealing with something valuable here so it is hardly surprising that there will be disputes over who pays what. Many have observed that our underlying copyright legislation is sound, but it is the operation of copyright and its interaction with other regulation which deserve the attention of the IP Review.

With this change in the business, licensing models have adapted and will continue to evolve. What should also evolve is the regulation around licensing which was designed for an analogue market. Just as businesses have changed as consumers have moved online, so too should regulation be updated to reflect the dynamics of the digital market. Therein lies the key to further growth and innovation in the creative and technology sectors, building on the strengths the UK already has in these areas. There is more on this in PPL’s submission.

Dominic McGonigal

I have never heard anyone claim that the IP framework is optimal. What is? There are inevitably improvements that can be made, especially in accelerating its application to the online market. But, the biggest barriers to start-ups and SMEs lie outside IP. The oft repeated theme is access to finance.

IP-based businesses have always had a challenge persuading financiers to invest in intangibles. Now, the recession has just made life harder.  Internet companies were the darlings of the investment community before the dotcom bubble burst, but even then in the UK, they never had access to the level of funds available in Silicon Valley.

Replicating Silicon Valley exactly in the UK will be a challenge. But there are things we do better than others – our book publishers (no.1 in the world), the Cambridge Science Park, TV formats, music – and we can build on these. They all rely on IP developed successfully into a product or service. The challenge for the IP Review will be to investigate what is really holding back our innovative businesses and how we can build on our strengths. Many have covered this in their response to the IP Review (ref CBI , UK Music, Creative Coalition, AIM, British Copyright Council, BPI, MU, ICOMP). More in the next post.

Dominic McGonigal

That is the question for the IP Review. How can IP deliver more growth?

IP is at the heart of modern economies and has delivered strong economic performance through innovation. The UK’s creative industries are world class. We have one of the most competitive broadband markets in the world and there are three times as many online music services in the UK as there are in the USA.

That performance has been driven by a combination of start-ups, together with radical changes by incumbents. Universal Music announced recently that a third of their digital revenues came from companies which did not exist five years ago. Those new businesses have been built on the back of a powerful new online network and consistent investment in content which people want. Equally, two thirds of those digital revenues come from older companies which have undergone radical transformation. Record companies for example now work with hundreds of partners through licensing arrangements, rather than a single distribution deal for CDs.

The growth will come from businesses that can adapt to the new environment and exploit it. Creative industries, technology companies and internet services have all proved they have what it takes. What is holding them back? More in the next blog post. See also UK Music’s submission to the IP Review.

Dominic McGonigal

The Review of Intellectual Property and Growth launched with the assertion that Google did not launch in the UK because of our IP laws. The search was on to find which IP laws needed changing to help search engines, even though no evidence has been produced to support the initial statement.

On the contrary, we do have search engines and social networks in the UK. Some have even been the leaders in the field. Mumsnet has a huge number of active participants and has been credited with changing the course of politics (remember the Gordon Brown biscuit question). FriendsReunited was one of the first social networks to gain traction. Blinkx is a cutting edge video search engine protected by 111 patents. And there are at least 25 other search engines and social networks based in the UK.

The reason none of these are the size of Google or Facebook has nothing to do with IP. Silicon Valley has a unique mix of venture capital, skilled labour, university research and, perhaps, most significant, a powerful network of financiers. It is a potent crucible not even available on the East Coast of the USA, let alone elsewhere.

That unique mix acts as a magnet which magnifies its success and draws others in. The (British) founder of Bebo moved over to California to launch his social network. Last.fm, a Hoxton start-up, sold to CBS. The (British) designer of the iPod now lives in San Francisco where he is one of Steve Jobs’ closest colleagues.

So what is the right question? We are still deep in recession. The cuts are beginning to bite. GDP dipped back down again last quarter. We need growth.

The question is: how can IP deliver more growth? More on this question in the next blog post. Meantime, check out the CBI’s submission to the IP Review.

Dominic McGonigal

Orchestras are gathering for their annual conference. To mark the occasion, the ABO has released six short films about what orchestras are up to and how they are coping. View them at www.youtube.com/ABOrchestras.

The phoney war is over, for the quangos at least. After months of speculation as to which bodies would go and which would survive, the results of the great quango bonfire have been announced. Hundreds of bodies are being abolished, transferred elsewhere or substantially reformed. The pruning of the public sector has begun. We have all known that this was coming but somehow it only seems real when you can read it in black and white.

The ones that grab the headlines will be those that can claim some public sympathy, by association at least. But some bodies will slip away unnoticed and not be missed. One such is SABIP, the Strategic Advisory Board on Intellectual Property, which was axed with no tears. It had been set up to advise the Government on IP, recognising that this is now a major driver for the economy. Indeed, one of its key tasks was to assess the economic impact of IP in the UK, as evidenced by the high performance of the creative industries, pharmaceuticals, bio-science and numerous other sectors that produce valuable IP. In their two years of existence, they failed in this task, instead asking themselves esoteric questions more suited to an academic environment. Interesting though they were, they were not going to assist the Government in leveraging our IP to deliver the economic growth we need now more than ever.

The implications of other moves on the creative industries are less immediately clear. Ofcom is to be merged with PostComm. The Competition Commission and the OFT are likely to be merged. The Copyright Tribunal is to be moved from the IP Office to the Ministry of Justice and the Competition Appeal Tribunal may also move to the Ministry of Justice Tribunal Service. How will this affect those of us who are subject to decisions by these bodies?

Ofcom is going to be required to cut back some of its activities, although presumably not the implementation of the Digital Economy Act which it is required to do by law. Already though, Ofcom has delayed the process by a few months. The Code under which ISPs will notify their subscribers when their account has been used for illegal downloading was due to come into operation in January 2011. It is clear now that Ofcom will not meet that date.

We can also expect cost savings from the merger of the Competition Commission with the OFT (Office of Fair Trading). The new body would be responsible for competition regulation including mergers, market investigations and cartels. The decision to merge the two bodies is subject to a consultation in the New Year.

The Copyright Tribunal and the Competition Appeal Tribunal are unusual bodies. Although called tribunals, they are in effect specialist courts, adjudicating in complex commercial disputes between competing business interests. Moving them to the Ministry of Justice, to be administered alongside tribunals with very different roles, will most likely produce some efficiencies. However, there will still be a need for specialism in economic modelling, copyright and its value in those hearing the cases.

The other change of note is the plan to abolish Consumer Focus and transfer its work to Citizens’ Advice. Consumer Focus is itself an amalgamation of a number of consumer lobbying groups and yet there remained confusion as to who was representing consumer interests in public debates. Citizens’ Advice is better known among consumers so this change could pass with limited resistance.

It is perhaps appropriate that such a pruning of public bodies should take place in the Autumn. Like any garden, there will be casualties but perhaps others will flourish in the new environment.