Should rights holders be financially compensated under section 28 of the 2014 amendments to the 1988 copyright designs and patents act?

Introduction

As of October 1st 2014, amendments to the 1988 Copyright Designs and Patents Act came into place. The changes were implemented in order to bring the act in-line with technological advancements and therefore, avoid stifling creative innovation in the 21stcentury [Newton, J. and Smith. H 2014]. One of the main changes to the act has allowed for the private and/or temporary copying of copyrighted works without infringement, which is a progression that the UK music industry as a whole has mostly welcomed. However, UK music industry bodies such as The Musicians’ Union (MU), The British Academy of Songwriters, Composers and Authors (BASCA) and UK Music have launched a judicial review challenging this alteration. They believe that this change is in violation of European Law, which states that copyright holders should be financially compensated if private copying is legalised [UK Music, 2015].

This essay will look at whether the amendment further devalues intellectual property in today’s world, or if it is simply updating old laws to keep pace with modern societal norms. Both sides of the argument will be analysed in an attempt to decide whether rights holders have a claim to compensation from legalised private copying, and what the outcome would mean for the wider music industry.

Format Shifting & Cloud Locker Services

Up until the change in copyright law in October 2014, the process of ‘Format Shifting’, taking music from a legally purchased CD and putting it on a computer or portable music player, was illegal. Because of this being general practice and widely used by the public yet against the law, the music industry was in support of rectifying this situation. As a side note, this seems like a far cry from the 1980’s where ‘Format Shifting’ from Vinyl to Cassette was ‘killing the music industry’, and that was without the internet and file sharing sites [Rogers, J. 2013]. However, in order to ‘format shift’ it is necessary to create another copy of the copyrighted material in question, something which only the copyright owner is allowed to do. Therefore a license needs to be granted and where a license has to be granted, financial compensation is due. This can be seen when mechanical royalties are paid in the manufacture of CDs [PRS for Music, 2015]. Allowing ‘Format Shifting’ to take place without any money going to rights holders could potentially have very negative implications on the wider music industry. This is proven when looking at 22 out of 27 EU member states who all do pay a financial levy through to rights holders through various methods from country to country, either on blank media, MP3 players, printers or personal computers [Kretschmer, M. 2011]. Without this levy, the French composers’ society overall revenue would be down 7 per cent, a significant amount at a time where songwriters revenue streams are being spread ever thinner [Orlowski, A. 2012]

Another sizeable problem about a lack of financial levy would be apparent when looking at cloud locker services. These services allow consumers to have access to their own music collection in a private locker stored on the internet, as well as being able to stream thousands of other recordings from that same location [Macmanus, R. 2011]. The changes to the act allow only individuals to make private and/or temporary copies, and says nothing about service providers or institutions. Therefore, an unlicensed service provider creating copies of music files on their servers would be an infringement of the act, even though the change in law is meant to aid the use and development of these services [Ballard, T. 2011]. This is problematic due to rights holders already having licensing deals in place to provide cloud locker services. If it is deemed that service providers are also exempt because of the fair use policy, it would not only jeopardise already existing deals, but could potentially negate the need for any future licensing to take place, thus resulting in a loss in revenue for the rights holders [Ingham, T. 2012]. 

The Ian Hargreaves Report

The report that signalled the first signs of these amendments being made was produced by Ian Hargreaves in May 2011 and recommended that an allowance for private copying be implemented to bring UK law into line with EU law. It stated that most EU member states had a levy scheme in place to compensate for this free use but also went on to say that due to the lack of consistency throughout the countries enforcing a levy payment, there was no economic argument for a similar system. The report enforced this stance by quoting the lack of evidence of harm done to rights holders through private copying as this was the normal use of most personal media devices [Hargreaves. I 2011].

Further on in the report, a point is made about a CD player with a built in storage device that enabled people to carry their entire collection with them. Because of UK law at the time, the advertisement had to carry the notice that by using the product, that user would be infringing copyright. This could be seen as a needless barrier to technological progress, and so the review proposed law that would reflect what consumers were already doing in this respect. However, it could be argued that the same principles could be applied to ‘Peer to Peer’ (P2P) file sharing websites, such as the recently taken down ‘Pirate Bay’ [Gibbs, S.(2014]. By using the aforementioned CD player as the example, P2P websites are only providing a consumer with a service or product, and it is up to the consumer to use that service or product within the confines of the law [Hargreaves. I 2011].

The report went on to further highlight that because the music industry was aware of ‘Format Shifting’, it would have already anticipated it. Therefore, it would be expected that the resulting revenue alteration would be factored into its pricing strategies already, negating the need for a levy system [Hargreaves. I 2011] On the other hand, Ann Harrison argues that technological advancements have forced the music industry into accepting price points dictated to them by large technological companies. This means that artists and labels are being backed into a corner, both by tech companies pricing strategies and government legislation providing no support from a levy legislation [Harrison. A 2014]

The Padawan v SGAE & Copydan Båndkopi (C-463/12) cases and what their outcomes could mean for UK law

One relevant case that dealt with the levy system was between a Spanish distributor of copying devices ‘Padawan’ and the Spanish levy collection society SGAE. Padawan refused to pay the levy charge on what they felt was a discriminatory system because the levy did not differentiate between private and company purchases [Guibault, L. 2013] It was therefore decided that when the charge is applied to anything capable of digital reproduction, even in cases where it is clear the equipment is being used to perform tasks completely unrelated to private copying, the law is unenforceable and payment should not be made. This decision lead to distinctions having to be made between devices sold to individuals and those sold to organisations and that a levy should not be placed upon devices purchased by companies. More importantly, it was also decided that it could be assumed that through an individual purchasing a device, they were going to use that device in order to make personal copies of files, hence the need for a levy at individual consumer level [Bonadio, E. 2010].

This outcome is particularly interesting when looking at the decisions Danish courts made in the Copydan Båndkopi (C-463/12) case that considered the use of the ‘de minimis harm’ (minimal importance) principle [Wolfe, L. 2015]. This case focused on mobile phones and memory cards as storage devices, and whether or not it could be assumed (like in the Padawan ruling) that private copying was taking place on the devices. The court decided that the compensation paid to rights holders must reflect the harm done to them, and that a legally obtained work being privately copied does not necessarily require fair compensation due to the small amount of harm done. This is because EU member states have significant power to apply or exclude compensation in situations of minimal harm to rights holders [Edwards, S. and Swimmer, N. 2014].

This shows that the amendments made to the act are within the confines of European law and so it is highly unlikely that a levy scheme will be put in place in order to compensate rights holders [Kostovo. N 2014]. The UK’s further reasoning for this decision is “on the basis that it is likely to have adverse impacts on growth and inconsistent with its wider policy on tax” [IP Federation 2012].

Conclusion, should fair compensation be given to rights holders?

Due to 22 out of 27 EU member states offering a levy system (albeit arguably flawed) it could be argued that not offering a similar compensation scheme is against the norm. Although due to the findings in both the Padawn and Copydan Båndkopi cases, perhaps it’s only a matter of time until EU countries withdraw the levy system in their territories. However, is there really only minimal harm done to rights holders in ‘Format Shifting’? Research has shown that the ability to copy a CD to a portable music device is worth 44% of the value of a basic MP3 player, that’s almost half the reason they are purchased [Oliver & Ohlbaum Associates, 2012]. If the general public value this process so highly and it is a societal norm, it is hard to see how it is not harming rights holders and that relative compensation should be paid. In a time where sales figures of recorded music are falling, the industry as a whole needs to adapt to the shift in revenue streams. Without the private copying revenue stream that is clearly valued so highly by consumers, creators stand to lose out on funds that could be integral to their continued creative expression. This could potentially be very harmful to the whole UK music industry, and the acts it prides itself in producing [Musicians Union, 2014].

Reference List

Ballard, T. (2011) Cloud Services and the private copying exception Available at:http://www.harbottle.com/cloud-services-private-copying-exception (Accessed: 06/01/15).

Bonadio, E. (2010) Fair Compensation and Private Copying Levy: ECJ stance in Padawan VS SGAE Available at: http://www.medialaws.eu/fair-compensation-and-private-copying-levy-the-ecj-takes-its-stance-in-padawan-v-sgae/ (Accessed: 06/01/15).

Edwards, S. and Swimmer, N. (2014) The New Private Copying Exception: The UK Music Industry Wants to Be Paid for It Available at: http://www.reedsmith.com/The-New-Private-Copying-Exception-The-UK-Music-Industry-Wants-to-be-Paid-for-It-12-15-2014/(Accessed: 06/01/15).

Gibbs, S. (2014) Swedish Police Raid Sinks the Pirate Bay Available at:http://www.theguardian.com/technology/2014/dec/10/swedish-police-raid-pirate-bay (Accessed: 06/01/15).

Guibault, L. (2013) Private Copying Levy: The Aftershocks of Padawan Available at:http://kluwercopyrightblog.com/2013/09/17/private-copying-levy-the-aftershocks-of-padawan/ (Accessed: 06/01/15)

Hargreaves. I (2011) Digital Opportunity A Review of Intellectual Property and Growth. Place of publication: Available at:http://webarchive.nationalarchives.gov.uk/20140603093549/http://www.ipo.gov.uk/ipreview-finalreport.pdf (Accessed: 06/01/15).

Harrison, A., 2014. Music – the business: the essential guide to the law and the deals 6thedition London: Ebury Publishing

Ingham, T. (2012) PRS Licenses Google Play In Europe Available at:http://www.musicweek.com/news/read/prs-licences-google-play-in-europe/052535 (Accessed: 06/01/15).

IP Federation (2012) Court Of Justice Case C-463/12 (Copydan Bandkopi) Available at:www.ipfederation.com/document_download.php?id=1364 (Accessed: 06/01/15)

Kostovo. N (2014) The Private Copying Exemption is here… To Stay? Available at:http://blogs.sps.ed.ac.uk/copyrightandcreators/2014/11/27/the-private-copying-exception-fit-for-purpose/ (Accessed: 06/01/15).

Kretschmer, M. (2011) Private Copying and Fair Compensation: A Comparative Study of Copyright Levys in Europe Available at:http://www.epip.eu/conferences/epip06/papers/Parallel%20Session%20Papers/KRETSCHMER%20Martin.pdf(Accessed: 06/01/15).

Macmanus, R. (2011) Heavenly Music in the Clouds: iTunes Match, Amazon Cloud Drive & Google Music Available at:http://readwrite.com/2011/11/14/heavenly_music_in_the_clouds(Accessed: 06/01/15).

Musicians Union (2014) MU, BASCA and UK Music Launch Judicial Review. Available at:http://www.musiciansunion.org.uk/news/2014/11/26/mu-basca-and-uk-music-launch-judicial-review/ (Accessed: 06/01/2015).

Newton, J. and Smith, H (2014) new and amended exceptions to copyright infringement. Available at: http://www.lexology.com/library/detail.aspx?g=560df4da-86c2-4a16-894f-ff44c89914c1 (Accessed: 06/01/15).

Oliver & Ohlbaum Associates (2012) the UK Music Consumer A Presentation for UK Music. OR Available at:http://www.impalamusic.org/grup/sites/default/files/pictures/attachedfiles/UK%20Music%20-%20OO%20Copyright%20Research%20Presentation%20Copy.pdf (Accessed: 13/01/15).

Orlowski, A. (2012) What’s Copying Your Music Really Worth to You? Available at:http://www.theregister.co.uk/2012/05/21/format_shifting_conjoint_research/ (Accessed: 06/01/15).

PRS for Music (2015) Retail Audio Products: AP1 and AP2 Licenses. Available at:http://www.prsformusic.com/users/recordedmedia/cdsandvinyl/Pages/AP1AP2.aspx(Accessed: 06/01/2015).

Rogers, J. (2013) Total Rewind: 10 Key Moments in the life of the cassette. Available at:http://www.theguardian.com/music/2013/aug/30/cassette-store-day-music-tapes (Accessed: 06/01/15).

UK Music (2015) Government Facing Judicial Review Challenge over Failure to Compensate in Private Copying Exemption. Available at:http://www.ukmusic.org/news/privatecopyingexception(Accessed: 06/01/2015).

Wolfe, L. (2015) Copyright Laws – What Is The Diminis Principle and Copyrights? Available at:http://womeninbusiness.about.com/od/copyrightlaws/f/FAQlaw-deminims.htm (Accessed: 06/01/15).

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