1. 19TH ANNUAL INTELLECTUAL PROPERTY LAW & POLICY CONFERENCE Fordham University, New York April 28 and 29, 2011 THE ROLE OF COLLECTING SOCIETIES: PROMISES AND PROBLEMS - COLLECTIVE MANAGEMENT AT IMPORTANT CROSSROADS IN THE EU Dr. Mihály Ficsor, President, Hungarian Copyright Council, former Assitant Director General of the World Intellectual Property Organization (WIPO)

2. 2 I. INTRODUCTION Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

3. Promise and raison dêtre Collective negotiation with users (one for all, all for one vis-à-vis users ) Beaumarchais; 1777, SACD Professional forum; representation of authors interests (ALI, ALAI, Berne Convention) Balzac, Dumas, Victor Hugo, 1837, SGDL Fully-fledged collective management of rights Henrion, Parizot, Bourget at Les Ambassadeurs, 1847-1850, SACEM 3 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

4. Basic functions of collective management – additional objectives in certain countries Negotiations with users on remuneration and other licensing conditions Setting and publishing tariffs Licensing uses Monitoring uses Enforcement of rights Collection of remuneration Distribution of remuneration ______________________________ + Promotion of (national) creativity + Role in national cultural (and financial) policy + Social assistance for members 4 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

5. Some problems – freedom of association and government regulation Freedom of association – Government regulation Freedom of regulation - Government regulation Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 5

6. Some problems – collection and distribution of remuneration Collection Distribution Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 6

7. Some problems – cost effectiveness and ineffectiveness Costs deducted Remuneration distributed Cost deducted Remuneration distributed Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 7

8. Some problems – (democratic) governance and transparency Democratic governance Transparency Democratic governance Tranparency Democratic governance Transparency Governance Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 8

9. Some problems – questions of proportional distribution and national treatement Distribution in proportion with actual use for both national and foreign rightholders. Distribution for both national and foreign rightholders. Distribution for national rightholders. Distribution for national organizations which may perform further distribution for national rightholders. Distribution for national organizations which use the money for the promotion of national creativity and culture and/or for social purposes. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 9

10. 10 II. MANDATORY COLLECTIVE MANAGEMENT Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

11. Mandatory collective management – rights to remuneration and exclusive rights In the case of mere rights to remuneration, mandatory collective management may be a normal way of exercising rights (there is no need for authorization, just the remuneration is to be collected and distributed). In the case of an exclusive right – where the owners of rights have the right to authorize or prohibit the acts covered by such rights and to determine the conditions of authorization – mandatory collective management is a limitation of such a right. 11 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

12. Mandatory collective management – international treaties (i) Is it determining/imposing a condition if somebody is in the position of doing something but it is provided in the law that he can only do so in a certain way? (ii) Is it determining/imposing a condition if somebody owns something but it is provided in the law that he can only use it in a certain manner? (iii) Is it determining/imposing a condition if somebody is granted a right but it is provided in the law that he can only exercise it through a certain system? The answers are obviously affirmative to these questions. 12 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

13. Mandatory collective management – international treaties Article 11bis(2) of the Berne Convention: It shall be a matter for legislation in the countries of the Union to determine the conditions under which the rights mentioned in the preceding paragraph may be exercised, but these conditions shall apply only in the countries where they have been prescribed. They shall not in any circumstances be prejudicial to the moral rights of the author, nor to his right to obtain equitable remuneration which, in the absence of agreement, shall be fixed by competent authority. (Emphasis added.) Under the preceding paragraph – paragraph (1) of the same Article – [a]thors of literary and artistic works shall enjoy the exclusive right of authorizing: (i) the broadcasting of their works or the communication thereof to the public by any other means of wireless diffusion of signs, sounds or images; (ii) any communication to the public by wire or by rebroadcasting of the broadcast of the work, when this com­munication is made by an organization other than the original one; (iii) the public communication by loudspeaker or any other analogous instrument transmitting, by signs, sounds or images, the broadcast of the work. 13 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

14. Mandatory collective management – international treaties Article 13(1) of the Berne Convention: Each country of the Union may impose for itself reservations and conditions on the exclusive right granted to the author of a musical work and to the author of any words, the recording of which together with the musical work has already been authorized by the latter, to authorize the sound recording of that musical work, together with such words, if any; but all such reservations and conditions shall apply only in the countries which have imposed them and shall not, in any circumstances, be prejudicial to the rights of these authors to obtain equitable remuneration which, in the absence of agreement, shall be fixed by competent authority. (Emphasis added.) 14 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

15. Mandatory collective management – international treaties The a contrario principle of interpretation of treaties: If a treaty has the same provisions on a, b, c, d, e, f, g and h, and only provides for an exception concerning a and b, the exception obviously is not applicable concerning c, d, e, f, g and h. Consequently, where an international treaty (Berne and Rome Conventions, TRIPS Agreement, WIPO Internet Treaties (WCT, WPPT)) provides for exclusive rights and allows determining/imposing conditions (compulsory licenses, mandatory collective management) for the exercise of such rights only in two cases, in the other cases it is not allowed to determine/impose conditions. 15 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

16. Mandatory collective management – EU Directives (1) Mandatory collective management under the acquis communautaire: The Rental, Lending and Related Rights Directive on the unwaivable right to remuneration for rental in favor of authors and performers when they transfer their exclusive right of rental to producers: Article 4(3): The administration of this right to obtain an equitable remuneration may be entrusted to collecting societies representing authors or performers. Article 4(4): Member States may regulate whether and to what extent administration by collecting societies of the right to obtain an equitable remuneration may be imposed… (emphasis added) May regulate: a permission (a contrario !) It does not concern the exercise of exclusive rights themselves directly. 16 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

17. Mandatory collective management – EU Directives (2) Mandatory collective management under the acquis communautaire: Satellite and Cable Directive: Article 9(1): Member States shall ensure that the right of copyright owners and holders of related rights to grant or refuse authorization to a cable operator for a cable retransmission may be exercised only through a collecting society. (Emphasis added.) This is in accordance with the international norms, due to Article 11bis(2) of the Berne Convention. 17 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

18. Mandatory collective management – EU Directive (3) Mandatory collective management under the acquis communautaire: Resale Right Directive: Article 6(2): Member States may provide for compulsory or optional collective management of the royalty provided for under Article 1. May provide…: a permission (a contrario!) This is in accordance with the international norms, since both the Directive and the underlining provision of the Berne Convention (Article 14ter) only provides for a right to remuneration. 18 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

19. 19 III. EXTENDED COLLECTIVE MANAGEMENT Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

20. Extended collective management – concept and conditions Extended collective management is based the existence on voluntary collective management. The effect of licenses granted by the collective management organization on behalf of the owners of rights represented by it is extended by law also to those who are not represented. In the case of exclusive rights, extended collective management may be in accordance with the international norms if collective management is the normal way of exercising the right concerned; if the repertoire of the organization is sufficiently representative; only marginal problems of coverage are to be settled; if the owners of right can opt out (leave the collective system) under reasonable conditions. 20 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

21. Extended collective management – EU rules An example for extended collective management under the acquis communautaire: Satellite and Cable Directive: Article 3(2): A Member State may provide that a collective agreement between a collecting society and a broadcasting organization concerning a given category of works may be extended to rightholders of the same category who are not represented by the collecting society, provided that: – the communication to the public by satellite simulcasts a terrestrial broadcast by the same broadcaster, and – the unrepresented rightholder shall, at any time, have the possibility of excluding the extension of the collective agreement to his works and of exercising his rights either individually or collectively. (Emphasis added.) Article 3(3): Paragraph 2 shall not apply to cinematographic works, including works created by a process analogous to cinematography. (In this case, collective management is a normal way of exercising rights.) 21 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

22. 22 IV.OTHER PROVISIONS OF EU DIRECTIVES CONCERNING COLLECTIVE MANAGEMENT

23. Right of representation concerning enforcement of rights Enforcement Directive of 2004 Recital (18): The persons entitled to request application of those measures [enforcement measures provided in the Directive], procedures and remedies should be not only the rightholders but also persons who have a direct interest and legal standing in so far as permitted by and in accordance with the applicable law, which may include professional organisations in charge of the management of those rights or for the defence of the collective and individual interests for which they are responsible. Article 4.1(c): Member States shall recognise as persons entitled to seek application of the measures, procedures and remedies referred to in this Chapter: (c) intellectual property collective rights management bodies which are regularly recognised as having a right to represent holders of intellectual property rights, in so far as permitted by and in accordance with the provisions of the applicable law,… Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 23

24. Negotiations and settlement of disputes with users (1) Satellite and Cable Directive of 1993: Recital (30): Whereas contractual arrangements regarding the authorization of cable retransmission should be promoted by additional measures; whereas a party seeking the conclusion of a general contract should, for its part, be obliged to submit collective proposals for an agreement; whereas, furthermore, any party shall be entitled, at any moment, to call upon the assistance of impartial mediators whose task is to assist negotiations and who may submit proposals; whereas any such proposals and any opposition thereto should be served on the parties concerned in accordance with the applicable rules concerning the service of legal documents, in particular as set out in existing international conventions; whereas, finally, it is necessary to ensure that the negotiations are not blocked without valid justification or that individual holders are not prevented without valid justification from taking part in the negotiations; whereas none of these measures for the promotion of the acquisition of rights calls into question the contractual nature of the acquisition of cable retransmission rights; Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 24

25. Negotiations and settlement of disputes with users (2) Satellite and Cable Directive Article 11.1: Where no agreement is concluded regarding authorization of the cable retransmission of a broadcast, Member States shall ensure that either party may call upon the assistance of one or more mediators. Article 11.2 to 4.: detailed rules concerning mediation procedures. Article 12.1: Member States shall ensure by means of civil or administrative law, as appropriate, that the parties enter and conduct negotiations regarding authorization for cable retransmission in good faith and do not prevent or hinder negotiation without valid justification. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 25

26. Governmental regulation and freedom of negotiations; competion Satellite and Cable Directive Article 13: This Directive shall be without prejudice to the regulation of the activities of collecting societies by the Member States. Recital (34): Whereas this Directive should not prejudice further harmonization in the field of copyright and rights related to copyright and the collective administration of such rights; whereas the possibility for Member States to regulate the activities of collecting societies should not prejudice the freedom of contractual negotiation of the rights provided for in this Directive, on the understanding that such negotiation takes place within the framework of general or specific national rules with regard to competition law or the prevention of abuse of monopolies; Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 26

27. Requirements of transparency, efficiency and equal treatment Resale Right Directive of 2001 Recital (28): The Member States are responsible for regulating the exercise of the resale right, particularly with regard to the way this is managed. In this respect management by a collecting society is one possibility. Member States should ensure that collecting societies operate in a transparent and efficient manner. Member States must also ensure that amounts intended for authors who are nationals of other Member States are in fact collected and distributed. This Directive is without prejudice to arrangements in Member States for collection and distribution. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 27

28. 28 V. INTERNAL MARKET AND COMPETITION RULES Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

29. Article 81 and 82 of the EC Treaty The EC Treaty contains two antitrust prohibition rules. First, agreements between two or more firms which restrict competition are prohibited by Article 81 of the Treaty, subject to some limited exceptions. The most typical example of illegal conduct infringing Article 81 is a cartel between competitors (which may involve price-fixing or market sharing). Second, under Article 82 of the Treaty, firms, organizations in a dominant position may not abuse that position. This is for example the case for predatory pricing aiming at eliminating competitors from the market. The Commission is empowered by the Treaty to apply these prohibition rules and enjoys a number of investigative powers to that end. It may also impose fines on undertakings who violate EU antitrust rules. 29 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

30. Articles 28 to 30 of the EC Treaty The free movement of goods is a key element in creating and developing the internal market. This principle is laid down, in particular, by Articles 28 to 30 of the EC Treaty which prevent Member States from adopting and maintaining unjustified restrictions on intra-community trade. Quantitative restrictions and measures which have an effect equivalent to quantitative restrictions in intra-community trade are prohibited. However, these EC Treaty provisions do not preclude prohibitions justified on grounds of public morality, public policy or public security, the protection of health and life of humans, or the protection of industrial and commercial property (an imprecise expression, covering intellectual property, in general, including copyright). Nevertheless, such prohibitions must remain proportionate and must not amount to arbitrary discrimination or a disguised restriction on trade between Member States. 30 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

31. Deutsche Grammophon v. Metro (1) Decision of the European Court of Justice (ECJ) of June 8, 1971 in the Deutsche Grammophon v. Metro case (No 78-70) The exercise of an industrial property right falls under the prohibition set out in Article 85 – now Article 81 – of the EC Treaty each time it manifests itself as the subject, the means or the result of an agreement which, by preventing imports from other member states of products lawfully distributed there, has as its effect the partitioning of the market. The provisions of Article 36 – now Article 30 – of the Treaty may be relevant to a right related to copyright, in the same way as to an industrial or commercial property right. It is clear from Article 36 – now Article 30 – that, although the Treaty does not affect the existence of rights recognized by the legislation of a Member State with regard to industrial and commercial property, the exercise of such rights may nevertheless fall within the prohibitions laid down by the Treaty. 31 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

32. Deutsche Grammophon v. Metro (2) It is in conflict with the rules providing for the free movement of products within the common market for the owner of a legally recognized exclusive right of distribution to prohibit the sale on the national territory of products placed by him or with his consent on the market of another Member State on the ground that such distribution did not occur within the national territory. The owner of a legally recognized exclusive right of distribution does not occupy a dominant position within the meaning of Article 86 – now Article 82 – of the Treaty merely by exercising that right. It is necessary that the owner, alone or jointly with other undertakings in the same group, should have the power to impede the maintenance of effective competition over a considerable part of the relevant market, having regard in particular to the existence of any producers marketing similar products and to their position on the market. The difference between the controlled price and the price of the product re- imported from another member state does not necessarily suffice to disclose an abuse of a dominant position; it may, however, if unjustified by any objective criteria and if it is particularly marked, be a determining factor in such abuse. 32 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

33. GEMA decision of the EC, 1971 Decision 71/224/EWG of the European Commission of July 2, 1971, on the application of Article 86 – now Article 82 – of the European Treaty The obligation prescribed by a CMO requiring its members to assign unduly broad categories of rights could constitute an abuse of dominant position (confirmed by the ECJ in 1974 in the BRT v. SABAM case). CMOs must not discriminate among their members as regards the distribution of remuneration (GEMA had been paying supplementary fees only to those members who had been ordinary members for three years). In the EU, CMOs are not allowed to refuse nationals of other Member States as members, nor are they allowed to impose discriminatory terms concerning the rights as members. (The ECJ confirmed in the Phil Collins v. Imtrat case in 1993 that national provisions containing reciprocity clauses cannot be applied in order to deny nationals of other Member States those rights which are granted to national owners of rights. ) 33 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

34. Ministère public v. Tournier Decision of the ECJ of July 13, 1989 in Ministère public v. Tournier (case 395/87) In the EU, a national CMO may refuse to grant direct access to its own national repertoire to users established in another Member State only for efficiency reasons (e.g. for the reason that it would be too difficult to organize the management of rights in another Member State). The refusal by a CMO to grant domestic users -- instead of blanket licenses – licenses limited solely to a certain foreign repertoire (managed on the basis of a bilateral contract with the corresponding CMO) is not prohibited under Article 81 of the EC Treaty, unless the interests of owners of rights could be safeguarded, also in case of such licenses, without increasing the costs of management. A CMO may be regarded to impose unfair trading conditions (Article 82 of the Treaty) if its tariffs are appreciably higher than those charged in other Member States – unless the differences are justified by relevant objective reasons. 34 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

35. 35 VI. FROM THE SANTIAGO AGREEMENTS TO THE CISAC DECISION

36. Elimination of the Santiago (and Barcelona) Agreements (1) On April 17, 2001, European CMOs BUMA, GEMA and SACEM notified the EC a number of so-called Santiago Agreements. Later, all other EU and EEA (European Economic Area) joined the notification with the exception of the Portuguese SPA. The Santiago Agreements (bearing that name since they were worked out at the CISAC Congress in Santiago de Chile ) had been used since 2000. They made it possible (through certain amendments to the CISAC model bilateral agreement on performing rights) to grant non- exclusive licenses for worldwide on-line use of musical works – to put it in simple way – by the CMO of the country to which the content provider had the closest relationship. 36 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

37. Elimination of the Santiago (and Barcelona) Agreements (2) On the basis of the comments received from third parties, on April 29, 2004 the EC issued Statement of Objections (SO) addressed to the 16 notifying CMOs on an (unjustified) antitrust basis, referring to the problem of what was regarded to be a so-called customers allocation clause. When the original term of the agreements expired on December 31, 2004, the interested EU (and EEA) CMOs, in we of the SO, did not renew them. The intervention of the EC, in parallel also eliminated the applicability of the Barcelona Agreements (similar BIEM agreements on mechanical rights). Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 37

38. The Online Recommendation and its implementation (1) After a not sufficiently well balanced, not sufficiently transparent and not sufficiently professional preparation, on October 18, 2005, the Commission issued the controversial and – from the viewpoint of copyright expertise and legal drafting – of quite a low quality Recommendation No. 2005/737/ECon collective cross-border management of copyright and related rights for legitimate online music services. The provisions of the Recommendation, in respect of on-line licensing of music, were intended to eliminate the existing system of national CMOs granting licenses for domestic users for the use of – practically – the world repertoire and to replace them with a few strong societies only representing their members to grant multi-territorial, cross-border (all- European) licenses. 38 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

39. The Online Recommendation and its implementation (2) Certain all-European licensing platforms have been established: such as the CELAS (MCPS/PRS, GEMA, EMI), DEAL (SACEM- Universal), PEDL (Warner-Chappel Music – MCPS/PRS, SACEM, STIM, SABAM, BUMA-STEMRA ) Harmonia (SGAE-SIAE-SACEM) alliances. But national CMOs continue existing. Different models. Uncertainty. Too many sources. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 39

40. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 40 Licensors (not quite a one-stop shop)

41. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 41 Licensing guide

42. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 42 Licensee

43. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 43 Licensing system, voilá: fully online

44. Warning by the European Parliament (1) On March 13, 2007, the European Parliament adopted a Resolution on the EC Recommendation Statements in the Resolution (emphasis added): the Commission failed to undertake a broad and thorough consultation process with interested parties and with Parliament before adopting the Recommendation; … all categories of right-holders must be consulted on any future regulatory activities in this area so as to ensure a fair and balanced representation of interests, it is unacceptable that a soft law approach was chosen without prior consultation and without the formal involvement of Parliament and the Council, thereby circumventing the democratic process, especially as the initiative taken has already influenced decisions in the market to the potential detriment of competition and cultural diversity, (continues) 44 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

45. Warning by the European Parliament (2) Statements in the Resolution (continued; emphasis added): the Recommendation seeks merely to regulate the online sale of music recordings, but could – owing to its imprecise wording – also be applied to other online services (e.g. broadcasting services) containing music recordings; whereas the resulting lack of clarity as to the applicability of differing licensing systems leads to legal uncertainty, music is not a commodity and collective rights managers are mainly non-profit-making organisations, and… introducing a system based on controlled competition serves the interests of all right-holders and of promoting cultural diversity and creativity, (continues) 45 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

46. Warning by the European Parliament (3) Statements in the Resolution (continued; emphasis added): national CRMs should continue to play an important role in providing support for the promotion of new and minority right-holders, cultural diversity, creativity and local repertoires, which presupposes that national CRMs should retain the right to charge cultural deductions, there is concern about the potentially negative effects of some provisions of the Recommendation on local repertoires and on cultural diversity given the potential risk of favouring a concentration of rights in the bigger CRMs, and whereas the impact of any initiative for the introduction of competition between rights managers in attracting the most profitable right-holders must be examined and weighed against the adverse effects of such an approach on smaller right-holders, small and medium-sized CRMs and cultural diversity. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 46

47. The CISAC decision The Commission continued interfering into the existing system of national CMOs. Complaint by the RTL Group against GEMA because it had refused multi- territorial broadcasting license, and by Music Choice Europe against CISAC alleging that it prevented its member societies to grant such licenses for the use of music (i) on the Internet, (ii) for satellite broadcasting; and (iii) by cable retransmission. The Commission adopted a decision on July 16, 2008, founding in favor of the complaining users alleging that the practices of the CMOs infringed Article 81 of the European Treaty. CISAC and 22 of the attacked societies appealed to the ECJ on October 3, 2008. The decision is still pending. 47 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

48. The way out: a directive The Commission has announced the intention of the preparation of a framework directive on collective management (as proposed by the European Parliament). One of the objective of the framework directive is, of course, to settle in more appropriate way the issues of online music licensing in the European Union. In close connection with this, it is also an intention to adopt harmonized rules to guarantee efficiency and transparency of collective management systems. Advanced preparatory work is in progress. A first draft to come out in June, in July? 48 Mihály Ficsor, Fordham IP Conference, April 28-29, 2011

49. 49 VII. FRAMEWORK DIRECTIVE: SETTLING THE PROBLEMS OF ONLINE MUSIC LICENCING

50. Online music licencing; options Option 1: do nothing usually not an option to choose by the Commission (after all, one should not exaggerate the application of the principle of subsidiarity ); in the situation having emerged as a result of the Online Recommendation, not a desirable and realistic option. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 50

51. Online music licensing; options Option 2: voluntary application of G&T criteria with parallel direct licensing (G&T = governance and transparency, see below) CMOs to establish their own G&T charter taking into out certain general criteria (see below); independent accreditation or certification, possible actionable rights by rightholders and users; members free choice between exclusive mandate and non-exclusive mandate with carve out blanket licenses (the latter possibly only where G&T requirements are not fulfilled); slower for internal market; competition but danger of re-fragmentation, possibly more pan-EU licenses but danger of two-tier system with smaller repertoires and smaller societies disadvantaged and the application of divide and rule tactics; more uncertainty; possible trend towards lower remuneration; additional administrative and financial burdens. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 51

52. Online music licensing; options Option 3: European Licensing Passport CMOs to receive such passports should fulfill certain G&T requirements exhaustively harmonized; supervision by home states of the CMOs; possible must carry-type must manage obligation; it would correspond to the intention of the Commission to copy the US model (centralizing licensing in a small number of CMOs); it uses the same arguments as underlining the Online Recommendation; it would lead to a two tier system with disadvantages and marginalization of small repertoires and small societies (which might possibly cushioned somewhat in case of must manage obligations); more flexibility for licensing methods, competition (but with possible downward trend of tariffs); growing administrative burdens in particular for rightowners and users in smaller countries from where repertoires and management would emigrate. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 52

53. Online music licensing; options Option 4: Country of origin licensing multi-territory – pan-European – licenses to be granted by CMOs to services originating in their territory in the form of extended collective management with the possibility of opting out (and then choosing direct licensing); obligation to fulfill G&T requirements; due impetus for the internal market; possibility of granting blanket licenses (which would not cover the carved out repertoire of those who opt out), greater security for users, lower administration costs; presumed disadvantages for inventive licensing models due to the traditionalism of CMOs following such a model and a trend towards limited risk-taking (?); it would maintain the principle of solidarity and would give more adequate level playing fields for smaller repertoires and smaller CMOs. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 53

54. Online music licensing; options Option 5 A: Centralized licensing (one-stop shop) there would be a single central licensing organization established on a voluntary and non-exclusive basis covering its aggregate repertoire to grant all-EU licenses, with full harmonization of G&T requirements and EU-level supervision (OHIM?) – but with separate direct licensing by the major publishers. Option 5 B: Centralized licensing (one-stop shop) with all rights included packages a variant according to which CMOs would be obligated to grant overall making available to the public rights (both mechanical and communication rights) to phonogram producers, and the producers would then grant online content providers all rights included packages. These options seem unrealistic. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 54

55. Online music licensing; options Rumor: the Commission seems to prefer Option 3: the European Licensing Passport. However, if a directive is to be adopted, the institutional setup will be different from the one in the framework of which the Online Recommendation was adopted. The question is what will be the position of the European Parliament; whether or not it will abandon its preference for solutions fulfilling not only direct cost- benefit-based objectives, but also those which relate to such interests as offering level playing field also for small repertoires of smaller countries managed by smaller societies and protecting cultural diversity in the EU. And, of course, it is a question of how the Council will react (where, similarly to the Parliament, the special interests of the 27 Member States may have more direct impact on decision making). Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 55

56. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 56 VIII. FRAMEWORK DIRECTIVE: G&T REQUIREMENTS AND OTHER ISSUES

57. General G&T requirements In the course of the preparatory works of a possible Framework Directive, it was discussed that there would be a need for the prescription of both general G&T requirements and separate ones applicable for all-EU online licensing. General G&T criteria foreseen: mandates and licences corresponding to actual economic uses (dowloading, on-demand streaming, etc.); independent dispute resolution system for both users and members; transparent, accessible and non-discriminatory distribution rules; accurate reporting on revenues collected; non-discriminatory attribution of administrative costs. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 57

58. Specific G&T requirements Special G&T criteria foreseen for all-EU online music licensing, in addition to the general ones: identification of the repertoire with continually updated ownership databases; ability to perform fully electronic data exchange concerning uses of works and objects of related rights; accurate and timely (within a narrow time frame, such as within three months) invoicing of online music content providers; guaranteeing payments to rightholders not more than three months after receipt of payments from online music providers. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 58

59. Ideas for possible provisions to be included in the directive (2) Making it even clearer that voluntary collective management is the basic rule and that mandatory and extended collective management of exclusive rights may be prescribed only in exceptional cases in accordance with the international norms. Regulating the criteria of extended collective magament to ensure that it is not misused as de facto mandatory collective management. Provisions to guarantee equal treatment – also requiring the fulfillment of the obligations to grant national treatment in all aspects of collective management. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 59

60. Ideas for other possible provisions to be included in the directive (2) Applying the no collection without distribution principle. Regulating the questions of social and cultural deductions by supporting them to a reasonable extent but also insisting on the application of the need for the agreement by the rightowners or their representive bodies on the basis of the nemo plus iuris tranfere potest quam ipse haberet principle. Providing rules to guarantee that the remuneration collected is distributed – after the deduction of the actual costs of management – as much in proportion of the value and use of the works and objects of related rights as possible. In particular in the case of mandatory and extended collective management, prescribing the obligation of diligent search in respect of the non-distributable sums (such as in the case of orphan works) of the collected remuneration. Mihály Ficsor, Fordham IP Conference, April 28-29, 2011 60

61. 61 THANK YOU FOR YOUR ATTENTION ceeca@t-online.hu Mihály Ficsor, Fordham IP Conference, April 28-29, 2011