The decision of the Supreme Court on 17 April 2013 in PRCA v NLA (generally known as Meltwater) marks the outer limits of the new European copyright regime applying to the distribution of content in electronic form.  Mere reception is not an infringement.

In recent years, the new regime has extended copyright protection beyond the initial transmission of the content to interventions by intermediaries (in SGAE v Rafael Hoteles and Airfield) and to the countries in which the target audiences are located (in Football Dataco v Sportradar).  But treating the act of reception as a restricted act is a step too far.  It was rejected in the Court of Justice’s decision in FAPL v QC Leisure as now eloquently confirmed by the Supreme Court in Meltwater.  The Supreme Court has referred its decision to the Court of Justice so that there can be no doubt about the point and so that it can apply uniformly across the EU.

The Bogsch theory and the communication to the public (CTTP) right

The key feature of the new European regime is that it rejects the country of origin principle or “emission” theory of electronic distribution, a vogue for which led in the early 1990s to Directive 93/83 (the Satellite and Cable Directive) and the application to satellite broadcasting of only the law of the country in which the signal originated.  It embraces instead a much broader set of principles and has returned in effect to 1985 and the perceptive views of the late Dr Arpad Bogsch, the then Director General of WIPO, on the copyright implications of direct broadcasting by satellite.  Those views were developed in 1986 by a joint UNESCO/WIPO committee and were confirmed in 1988.  The committee took the position that, under the copyright conventions, a “making available” within the concept of CTTP takes place both where signals are emitted and where they are capable of being received.  This came to be known as the Bogsch theory and was often characterised as applying the law of the country of reception. It was widely derided as impractical.  In fact it had nothing to do with the concept of reception, transmission for public reception not being the same as actual reception.  Now the wheel has turned full circle and a CTTP has been held to take place at least in the country where members of the public are targeted: Football Dataco v Sportradar.

The turning of the wheel leaves some anomalies behind it, including the treatment of satellite broadcasts under Directive 93/83.  This will need to be sorted out but treating interventions by intermediaries as CTTPs already diminishes their effect.

Reception and the reproduction right

In Meltwater, the issue was whether reception itself involved a restricted act under copyright.  That possibility arose because the screen display on a user’s computer might infringe the reproduction right in the transmitted content, as might the holding of fragments of the content in temporary caches or buffers within the computer.  The case concerned written text but the same principles would apply to television and most forms of copyright content distributed on air or over the internet.  The question was whether any such reproduction was covered by the exception for temporary copies as part of the technological process of reception that had been introduced by the Information Society Directive in 2001.  The High Court had held that it was not and its decision had been upheld on appeal.  Then came FAPL v QC Leisure which went the other way, as now explained and applied by the Supreme Court, subject to the reference to the Court of Justice.

The practical upshot is that, subject to sorting out some anomalies and the Court of Justice’s confirmation, the distribution of content is protected by the CTTP right in both the country of emission and the countries where members of the public are targeted, but reception for the purposes of mere browsing or private viewing is beyond the scope of copyright protection.  Television viewers need no copyright licences.  Browsers do not need EULAs (end user licence agreements) so long as they do not save copies, print stuff off or do any other act that is protected by copyright.  It is a coherent scheme.

A remarkable document emerged from the European Parliament at the end of January.  It is styled “DRAFT REPORT on connected TV”.  It is not, however, a report but consists of a motion for a resolution calling for radical regulatory change, along with an explanatory statement.

Regulating connected TV

The changes are aimed primarily at user interfaces on internet-connected devices, that is to say the home pages or screens from which the user navigates to access television content.  The concern is that those who control the interface will be the gatekeepers to viewable content.  The resolution says that they may discriminate against content providers, by which it probably means public service broadcasters (PSBs).  It calls not only for protection against discrimination but also for PSBs and others to have a privileged status as to findability.  Those aspiring to the highest standards of reporting and diversity should, it says, have the most prominent position.  Along the way it also calls for the scope of television regulation under the AVMS Directive to be based more on the potential impact of the services and in particular their impact on opinion-forming and diversity.

The underlying theme appears to be a concern that unregulated development of user interfaces on connected TVs will somehow jeopardise the diversity of opinion which current media provide and which contributes to the functioning of democracy.  The fear is that device manufacturers or others who control the home screen on a device will be able to control what users can access and that they will either leave out PSBs and the like, or will make them harder to find, and that either way there will be a detriment to democracy.

How far this initiative is evidence-based is unclear.  The document recites as a fact that, in the digital environment, linear broadcasts have hitherto met with “incomparably greater interest” from the public than other electronic media services.  Some might find that to be something of an overstatement and might wonder whether it really follows, as the resolution suggests, that linear broadcasts will for that reason continue to have “outstanding importance for individual and public opinion-forming … for the foreseeable future.”

Stripping away the hyperbole (if that is what it is), there remains a serious point.  It could be that the public service channels will not appear in a prominent position or at all on the user’s home screen.  Should there be controls in this respect?

The industry does not seem to think so, judging from a position paper published in March by DigitalEurope, an industry lobbying group.  In a damning critique of the proposal, the paper suggests that it is misconceived and would stifle innovation.

The European framework

The resolution calls for amendment of the relevant European framework and the AVMS Directive in particular so as to enable regulation of the relevant service providers.  Both sides appear to have overlooked the fact that the necessary regulatory powers are already in place, albeit not in the AVMS Directive.

Under the Access Directive, part of the electronic communications framework package of Directives, national regulatory authorities (NRAs) are already able to impose obligations on operators to provide access to application program interfaces (APIs) and electronic programme guides (EPGs) on fair, reasonable and non-discriminatory terms “to the extent that it is necessary to ensure accessibility for end-users to digital radio and television broadcasting services specified by the Member State” (in other words, the must-carries) and the same Directive recognises Member States’ ability to impose obligations in relation to “the presentational aspect of electronic programme guides and similar listing and navigation facilities”.  Indeed, the Recitals to the Directive show that the draftsmen of the legislation were fully on the case.  The Recitals say, for example, that: “Competition rules alone may not be sufficient to ensure cultural diversity and media pluralism in the area of digital television … [and regular reviews are necessary] … to determine whether there is justification for extending obligations to new gateways, such as [EPGs] and [APIs] to the extent that is necessary to ensure accessibility for end-users to specified digital broadcasting services.”  The reviews might be either by a Member State or the Commission.

Against this background, the call for legislative change, at least at the European level, appears unnecessary.  But along the way it does raise some novel issues.

Individual and press freedoms

First, the focus on receiver devices leads the resolution to call for the controls to be applied to manufacturers.  They, of course, are not service providers.  They provide goods, not services, and they are regulated by a Directive that the resolution fails to mention, the Radio and Telecommunications Terminal Equipment Directive.  But where there is no service provider involvement, it is difficult to see a compelling case to interfere with the design of a device and thereby to limit the freedom of the individual purchaser to program the device as he or she wills.

Second, it calls for an extension of the scope of television regulation by developing the concept of media services (sic) in the AVMS Directive according to their impact on opinion-forming and diversity.  Newspapers at least should be alert to this development.  If it were adopted, it would bring their websites within scope of television-style regulation.  In the UK, it would overturn Ofcom’s decision in the Sun Video case, in which it decided that the video portion of the website of The Sun was not subject to regulation by ATVOD as an on-demand programme service.

Third, as an extension of the second, it could undermine the (reasonably) well-understood distinction between newspaper and television reporting.  Under the Editors’ Code, newspapers must take care not to publish inaccurate information but they can be as opinionated as they please.  In contrast, under the Broadcasting Code, broadcasters must observe due impartiality in news and current affairs.  Enlarging the scope of TV regulation on the basis of opinion-forming and diversity criteria would, in the UK at least, be an invitation to regulators to apply the impartiality rules to their enlarged territory.  That may or may not be a good thing but it needs serious debate.  Is there a public benefit in preventing electronic versions of newspapers from exercising the freedom to be opinionated?

The government is proposing that offshore providers of online gambling services should be licensed if they wish to target UK punters.  It is not clear how such a scheme could work.  If the government is thinking of regulating the providers of online TV from outside the EU in the same way in the upcoming Communications Bill, it should think again.

Problems of jurisdiction are not limited to gambling.  A Playboy company has recently been fined a total of £100,000 by Ofcom for failing to comply with ATVOD regulations in relation to two adult on-demand television services.  Having now transferred the services to a non-UK company, it may now escape UK jurisdiction although this remains a contentious issue with ATVOD.  If the transfer is effective, it will be entitled to continue to provide unregulated porn to online punters in the UK since regulation is contingent on the service providers being subject to UK jurisdiction.

The Radio Caroline solution

Unregulated service providers located beyond the jurisdiction of the UK have a colourful history.  In the 1960s, Radio Caroline provided radio services from a boat anchored off the Suffolk coast outside UK territorial waters and beyond the reach of the Wireless Telegraphy Act.  Amendments to the legislation were introduced making it a criminal offence to do a number of acts within the UK which would sustain pirate operations of this kind, whether by buying advertising airtime or even by supplying sandwiches for the crew from Harwich.

In the 1980s, concern about pornographic satellite television services uplinked from Holland led to amendments to the Broadcasting Act modelled on the Radio Caroline precedent, extending the list of sustaining acts to include the sale of decoders.  Now all sorts of services are available from abroad on the internet and, to protect children from online pornography, there are calls for similar legislation prohibiting banks in the UK from meeting payments charged by punters to their credit cards.

A point of consumption solution

In the meantime, facing a similar problem in a different sector, the government has embarked on a different legislative solution.  It proposes to regulate online gambling on a point of consumption basis by making it an offence to provide gambling facilities without a Gambling Commission licence if the facilities are merely “capable of being used” in Great Britain.  Off-shore operators, it is said, will need to block internet access for customers here if they do not want a licence.  It has circulated a draft Bill to this effect for comment.

Nothing appears to have been said about whether this solution might be applied to the audiovisual sector but, perhaps prompted by the banks, it is not difficult to guess that a solution along these lines is also being considered for inclusion in the upcoming Communications Bill.  That would mean regulating television from outside the EEA on a point of consumption basis.  If so, and if the solution finds favour with the Bill team, we may expect that, instead of attacking unlicensed service providers through the banking system on the model of the Radio Caroline legislation, the Bill will impose criminal liability on foreign operators if their services are capable of being used in the UK unless they are licensed by Ofcom or regulated by ATVOD.

This solution could not apply to service providers in EEA states thanks to the jurisdiction rules in the AVMS Directive but it would apply to service providers in the US, Canada, Russia, Japan and elsewhere.  It would also conveniently fill a gap left by the AVMS Directive, which does not say what Member States should do about service providers with no establishment in the EU and which do not use EU satellite links but whose services are capable of being used by EU audiences.

The solution would only work, however, if there were someone in the UK for the authorities to prosecute in the event of non-compliance.  The arm of the criminal law does not readily extend beyond the UK’s territorial limits.  That is no doubt why the Radio Caroline solution was framed as it was, making it an offence to do things within the UK to sustain a service provider who was otherwise out of reach.

Under the Gambling Act as amended, it would be an offence to provide online gambling facilities in any part of the world if they were “capable of being used” here.  That in itself would not unduly alarm a foreign service provider who was out of reach of the UK courts.  Assuming that it was a company, it would also be an offence by an officer if the offence were committed with his or her consent, connivance or negligence.  That would be an inconvenience for directors who would have to avoid travelling to the UK but is unlikely to be a deterrent.  But unusually the Gambling Act goes further, treating a shareholder as an officer if the company’s affairs are “arranged” by its members, whatever that means.  That would be likely to be more than an inconvenience for companies with substantial UK shareholders, especially those UK companies with household names whose offshore subsidiaries provide most online betting services in this country.  The unusual extension of liability to shareholders means, in practice, that the solution may work in the gambling industry in its present form.

TV Online from beyond the EU

The same would not be true, however, of the television industry.  Unlike in gambling, the big UK players have not chosen to go offshore.  The affairs of those foreign providers of online TV content to whom the new regime would be applied are unlikely to be “arranged” in the UK.  They would be controlled and managed elsewhere and the directors would make their holiday and business travel plans so as to avoid being stopped at the airport.  The solution would not work in the television industry.
Ultimately it seems unlikely to work in the gambling industry either, since companies in foreign ownership are unlikely to be deterred and may indeed have a competitive advantage over UK-regulated operators.  The Radio Caroline model appears to remain the only plausible solution.

This blog explores a possible reform of the UK TV licence fee system along the lines now being pioneered elsewhere in Europe.  It would involve assimilating the fee to some extent with the tax system, which has been resisted in the past because of concerns about editorial independence from government but which might better reflect the democratic and universal service aspirations of public service broadcasting (PSB) than the current system as well as responding to the new pressures of digital media. 

The UK 

The TV licence fee in the UK is currently payable by households which watch live television, that is to say households with reception equipment used for receiving television services that are organised in a linear sequence or schedule.  It is not payable for on-demand access, that is to say where content is not consumed passively but is selected and consumed actively through search and demand from a much wider range of sources than the scheduled services.  As government has long recognised, if large numbers of people access content actively from the internet instead of from the scheduled services, changes to the existing funding model may have to be considered. 

There has always been pressure for change.  The licence fee is regressive, it fails to reflect the BBC’s falling audience share, it cross-subsidises radio, new media and the BBC’s non-programming activities, the costs of collection and evasion are high and enforcement is often unpopular and clogs the magistrates’ courts.  But the trend towards on-demand access in patterns of consumption is a new factor. 

One way forward would be to recognise that linear and on-demand services are two sides of the same coin and to extend liability for the licence fee to on-demand access.  There is some merit in this.  A broadcaster is ultimately a provider of programmes, whatever the means of delivery.  The public finds them by looking at an EPG or the Radio Times to see where they are in the linear schedule or by using a more sophisticated search engine such as Google.  In other words, there is ultimately no fundamental difference between linear and on-demand services.  It is all a matter of making content available.  To some extent this is recognised in the AVMS Directive but that is not the case in UK law where the UK implementation of the Directive, in a retrograde step, applies a different, stand-alone regulatory framework to on-demand services. 

Such a change would not address other more long-standing concerns.  A more radical rethink is required.  

The licence fee model has its roots in the 1920s when radio manufacturers promoted broadcasting as a means of selling radios and the government contributed part of the revenues from the grant of receiver licences under the wireless telegraphy legislation to pay for the programmes.  PSB grew from this unpromising beginning into a Europe-wide phenomenon whose funding mechanism is protected by a Protocol to the Treaty.  The BBC now aims, as the first of its public purposes, to sustain citizenship and civil society.  It would be absurd to suggest that this is intended to benefit only licence fee payers, that is to say only those who watch linear television.  The benefits extend to the community as a whole.  In these circumstances, the case for the BBC to be funded from general taxation would be overwhelming if it were not for concerns about its independence from government. 

Does the concern about independence mean that the UK must struggle on with the monthly or annual collection of a regressive impost on the 97% (according to BARB’s figures) of TV-owning households, subjecting any home on the TV Licensing database for which a licence has not been obtained to computerised correspondence and despatching detector vans to analyse the light escaping through their windows?  Is there not a better way to collect unpaid fees than through the magistrates courts, 10% of whose cases (according to Ministry of Justice figures) are prosecutions for evasion? 

France and Finland 

Most countries in Europe require households, one way or another, to pay to support PSB.  In the UK and some other countries the payment is called a licence fee but it is in effect a hypothecated tax on households (and was recognised as such by Auld LJ in his review of the criminal courts in 2001).  In France, any pretence that it is not a tax has been abandoned by assimilating its incidence and collection with the taxe d’habitation.  The taxpayer is deemed to have a TV receiver and is therefore liable for what is now called a contribution à l’audiovisuel unless a declaration to the contrary is included in his or her annual tax return. 

Now Finland has gone one step further.  From 1 January this year (2013), the household licence fee has been replaced by a new PSB tax payable by every taxpayer, irrespective of ownership of a receiver, in a band between €50 and €140, based on 0.68% of taxable income.  Those who earn less than €7,352 a year do not pay and those who earn more than €20,588 pay a flat €140.  The tax will be used to cover an appropriation from the State budget to a TV and Radio Fund, which in turn will fund Finland’s PSB, thereby maintaining a degree of independence by keeping the funding at least one step away from government. 

The way forward 

So could the UK follow the Finnish example?  It would certainly hit a lot of buttons. 

First, it would include mechanisms to maintain broadcasting independence.  The current 10-year cycle of negotiation between government and the BBC is not the only possible mechanism to maintain independence and it is not obvious that it is the best or indeed particularly resilient. 

Second, it would avoid distinguishing between linear and on-demand services. 

Third, it would not need to be linked specifically to television but could extend to radio, online and other activities. 

Fourth, it would make collection efficient, avoiding the indignities of computerised correspondence and detector vans as well as the endless clogging up of magistrates’ courts. 

Fifth, it would reduce the regressive nature of the current fixed fee, by linking the payment to some extent to ability to pay. 

Sixth, it would be consistent with the principles of PSB both in the UK and Europe.  As recited in the protocol to the Treaty, PSB is concerned with the democratic, social and cultural needs of each society and the need to preserve media pluralism.  These are public benefits to be enjoyed by all. 

Last and not least, it might foster the perception that public service broadcasting is less a state-sponsored means of supporting the BBC and more a contribution towards the cost of sustaining citizenship and civil society generally. 

As other countries in Europe explore reforms of their licence fee systems, the UK currently risks falling behind the debate.  Perhaps the Government will address this in their proposals for the upcoming Communications Bill. 

Public service content 

Achieving the aspirations of PSB depends on funding and that in turn depends on the acceptability of the licence fee.  It is often described as the least worst form of funding but that is by way of comparison with advertising, subscription and direct government grant.  Those are not today’s issues.  Within the licence fee concept itself there is room for improvement in terms of scope, efficiency and fairness.  Adapting the concept to today’s conditions could promote acceptability of the funding mechanism and thereby contribute to the vitality of a principle that has served the UK and Europe well.  It needs to be fostered if it is to continue to command a general public consensus as it develops from passive public service broadcasting to the active world of search and demand for public service content. 

“For good faith users, orphan works are a frustration, a liability risk, and a major cause of gridlock in the digital marketplace”  (US Copyright Office 22 October 2012).

The US Copyright Office is currently consulting on possible next steps for orphan works in the US after draft legislation in 2006 failed to get enacted.  In the UK, powers for the government to grant licences for the use of orphan works in the absence of the missing copyright owner were included in the Digital Economy Bill, but they also failed to get enacted, having been lost in the wash-up at the end of the last Parliament.

Legislation

Now the European Union has intervened with Directive 2012/28 (adopted 25 October 2012).  Its origins lie in the Digital Agenda for Europe and the aspiration for a digital single market.  When implemented, it will create a new exception from copyright to allow certain public institutions to copy orphan works and to make them available to the public in pursuit of their public-interest missions.  This is good news so far as it goes, especially for public service broadcasters, but that is not very far.  The limited scope of the Directive, addressing as it does only the public services, leaves unsolved the problems of those who wish to make lawful commercial use of orphan works. 

Not content with this limited initiative, the UK is striking out boldly on its own.  The Enterprise and Regulatory Reform Bill, which is about to enter its Committee stage in the House of Lords having passed through the Commons, contains a clause dealing with orphan works.  It is clause 68.  It will, if enacted, give Ministers power to make regulations for the licensing of orphan works.  The regulations would authorise some specified person or persons to grant licences to do any act in respect to them that would otherwise require the consent of the missing owner – in other words, to grant licences for their commercial use.  It is bold because, by taking powers to legislate by regulation, the government is once more proposing to reform parts of copyright law without Parliamentary scrutiny.  It is also bold because licensing orphan works does not appear to be permitted by the Information Society Directive.  Furthermore, a national measure of this kind, unless followed by other EU countries, is likely to create the kind of differences in protection, restrictions on the free movement of services and re-fragmentation of the internal market that the Information Society Directive was introduced to prevent.  It is hard to believe that this clause is going to reach the statute book or, if it does, that it will not be challenged.

A judicial solution?

The UK government is not, however, the only source of bold initiatives in copyright these days.  Having got the copyright bit firmly between its teeth, the Court of Justice of the EU has taken a novel approach to copyright, one of the consequences of which could be that the use of orphan works in appropriate circumstances does not infringe.  If that is right, clause 68 may not be needed. As explained in an earlier blog, the Court has held that copyright is a restriction on the freedom to provide services which is justifiable only so long as it does not go beyond what it is designed to protect and does not conflict with the fundamental aims of the Treaty.  This is a new application of an old rule dating at least from the Centrafarm v Winthrop decision in the 1970s (in which it was held that property rights protected by the Treaty permit derogation from the fundamental principle of free movement but only to the extent necessary for the protection of the rights constituting the specific object of the exception).  Applying this principle and relying on Recital (10) of the Information Society Directive, the Court has even held that rightholders should receive only “appropriate” remuneration.  Recognising that records, films/multimedia products and on-demand services and the like require considerable investment to produce, Recital (10) also says that legal protection of IP rights needs to be “adequate” to guarantee the rightholders’ remuneration and returns on the investment.  It is not difficult to see what the Court might make of this.

The decision of the Court of Justice in Football Dataco v Sportradar, handed down earlier this month (18 October 2012), was awaited with more than usual interest by copyright lawyers working in the broadcasting and online sectors.  This was because it was the first time that the Court had had to consider the question of location in relation to the making available of material online – where the restricted act takes place.  By basing its decision on the distribution right instead of the communication to the public right, the Court has drawn together a number of developing judicial strands to offer a new synthesis.

The Court had to decide whether an act of re-utilisation, defined in the Database Directive in terms of “any form of making available to the public”, took place in the UK when data were sent to UK users from a server in another Member State.  The issue had obvious analogies with the Information Society Directive, where “making available” is part of the communication to the public right.  Communication to the public includes broadcasting, and it is well settled that satellite broadcasting (at least) takes place in the Member State from which the signal is sent.

Broadcasting and the communication to the public right

It has been widely assumed that, for copyright purposes, a broadcast is a one-off event that takes place only at the point of transmission of the signal.  That assumption underlies, for example, the definitions of broadcast and broadcasting in section 6 of the CDPA.  But (quite apart from Sportradar) this comfortable assumption has turned out to be not well founded.  In a series of cases beginning with SGAE v Rafael Hoteles, including Airfield and FAPL v QC Leisure, the Court of Justice has held that interventions by others in the distribution of the signal may give rise to additional acts of communication to the public.  But it has not, until now, addressed the question where those acts take place.  Apart from Directive 93/83 (the Satellite and Cable Directive), the relevant parts of which are concerned only with satellite transmissions, the Directives do not say.

Much of the pre-judgment debate in Sportradar was about competing theories of emission and reception derived from the law of broadcasting, the usefulness of which was questioned by the Advocate General who thought that the answer should be tailored to the particular characteristics of communication via the internet where, he said, concepts of time and space become highly ambiguous in the world of virtual reality.

Distribution

In the event, the Court in SportRadar decided the question without reference to either broadcasting or the non-local nature of the internet.  Instead, in deciding that the act of making available takes place (at least) in the country where the target market is located, it assimilated the question to similar questions arising from commercial distribution generally.

It began by saying that it had previously held that the concept of re-utilisation (i.e. “making available to the public”) must be understood broadly as extending to “any act … of distribution to the public”, citing its decision in an internet betting case, British Horseracing Board v William Hill, as authority for this proposition but emphasising “distribution”.  It then went on to say that the localisation of the act of re-utilisation must correspond to independent criteria of European law, citing Donner.  Donner, however, was not an internet case, still less a case involving a making available of the kind that is included in the communication to the public right.  It was instead a decision on the distribution right.  It involved the distribution in Germany of furniture by an Italian distributor.

The link with Sportradar is to be found in the fact that, as the Court pointed out in Donner, the distribution right in Article 4 of the InfoSoc Directive must be interpreted in accordance with Article 6(1) of the WIPO Copyright Treaty, which defines the distribution right in terms of “making available to the public … through sale”.   In other words, “making available to the public” is a common feature of both the distribution right in the InfoSoc Directive and the re-utilisation right in the Database Directive.  It is also, of course, a feature of the communication to the public right.

A new synthesis?

It is difficult to resist the inference that the Court chose to base its decision on the Donner case as a deliberate attempt not only to show that the internet is not such a special case after all but also to align the decision with its other decisions in this area, such as Oracle v UsedSoft.  Oracle was a case in which a fundamental re-think took place about the concept of exhaustion of rights, applying it to computer software made available on the internet and overturning another comfortable assumption - that exhaustion does not apply to services in general and the internet in particular.  Oracle lays the ground for communication to the public itself to be treated as a form of distribution to which the principles of exhaustion may apply.

On this basis, the Court may be moving towards treating the communication to the public right and the distribution right (under Articles 3 and 4 respectively of the InfoSoc Directive) as two sides of the same “making available” coin.  Streaming, for example, might be treated as an exercise of the communication to the public right and downloading as an exercise of the distribution right.  If so, it would then be a small step for the IP treatment of all internet content, whether television programmes, films, books, databases or whatever, to be assimilated into a single scheme based on Articles 3 and 4.  Satellite broadcasting would then be an exception to the general rule, and rights clearances for other forms of making available would be necessary in each country in which users are targeted.  And the exhaustion principle would apply to downloads wherever they could be characterised as a sale or other transfer of ownership.

At a time when government is grappling with the difficulties involved in making minor changes to statutory copyright law, it is remarkable that the Court of Justice is able to make sweeping changes in this way.  Perhaps its next target will be the vexed question of exceptions from copyright.  If copyright is a derogation from fundamental single market principles and is to be permitted only to the extent that it is justifiable, it would only be another small step for the Court to say that enforcement is precluded where it is not necessary to protect the essential function of copyright and thereby introduce something akin to the American notion of fair use.

It is a long-standing feature of EU law that, where intellectual property (IP) rights are exploited through the sale of copies of a work, the right to do so is usually exhausted when copies have been placed on the market in a Member State with the consent of the owner of the rights. IP rights cannot then be invoked to preclude the resale of the goods in question within the internal market. It is an almost equally long-standing feature of EU law that the same is not true in relation to the provision of services. The Copyright Directive, for example, quite clearly recites that the question of exhaustion does not arise in the case of services and online services in particular.

FAPL v QC Leisure

Advocate-General Kokott’s Opinion last year in the FAPL v QC Leisure case was therefore met in some quarters with a frisson of surprise. QC Leisure had argued that the exhaustion principle should apply to access to encrypted television programmes. FAPL not unnaturally took the position that, in relation to services, there is no exhaustion comparable to the movement of goods. A-G Kokott approached the issue by looking back to the fundamental principles of the free movement of goods and services from which the exhaustion principle had sprung and the differences between goods and services.

Some services, she said, cannot readily be re-used but others do not differ significantly from goods. Downloads of computer software, music, e-books, films and so forth can easily be passed on in electronic form and it would make no sense for them or indeed encrypted programmes to be treated differently. It was therefore necessary, she said, to examine carefully whether the principle of exhaustion should apply to them, having regard to the fundamental freedoms.

In the event, the European Court of Justice did not decide the case explicitly by reference to the exhaustion principle so the question whether she was right or wrong was left in the air. But it did decide it by reference to the fundamental freedoms. It decided, in paragraph 106 of the judgment, that IP rights, as derogations from the fundamental principle of free movement, can be allowed only to the extent to which they are justified for the purpose of safeguarding the rights which constitute the specific subject-matter of the IP concerned.

UsedSoft v Oracle

Now the Court in another case, UsedSoft v Oracle, has addressed the exhaustion principle as well. The case concerned the marketing by UsedSoft of “used” licences of downloaded Oracle software. In a judgment delivered on 3 July 2012, the Court held in effect that the right of distribution of a copy of a computer program downloaded from the internet is exhausted if the copyright owner has, for a fee, conferred on the user a right to use the copy for an unlimited period. In appropriate circumstances (including the deleting of the program from the seller’s servers after the sale), where software effectively purchased by Oracle’s customers was sold on to third parties, UsedSoft’s activities would not infringe.

The Court was not content simply to decide the immediate issue, which concerned the copyright in a computer program (and therefore the copyright regime under Directive 2009/24 on the legal protection of computer programs), but looked at the wider context. From an economic point of view, it said, the sale of a computer program on CD-ROM and a sale of the program by downloading from the internet are similar – online transmission is the functional equivalent of the supply of a material medium. And to answer the objection that EU law does not provide for exhaustion of the distribution right in relation to services, the Court recalled that the objective of the exhaustion principle is, in order to avoid partitioning of markets, to limit restrictions on the distribution of the protected works to what is necessary to safeguard the specific subject-matter of the IP concerned. As authority for that proposition, it referred to paragraph 106 of the FAPL judgment, thereby in effect adopting the reasoning in FAPL that, whilst IP rights may restrict the principle of free movement, the restriction can be allowed only to the extent that it is justified for the purpose of safeguarding the rights which constitute the specific subject-matter of the IP concerned. The principle of free movement therefore trumps the IP rights if they go too far.

In the UsedSoft case, the rights claimed by the copyright owner went too far because, if the principle of exhaustion did not apply, the copyright owner would have been in a position to demand further remuneration on each new sale, even though the first sale had already enabled the owner to obtain the economic value of the rights. So the principle of exhaustion applied.

Whilst strictly speaking the decision concerned only Directive 2009/24, its adoption of the reasoning in the FAPL case and, implicitly, A-G Kokott’s analysis of the exhaustion principle in her Opinion strongly indicates that the decision is applicable to IP rights in general. If that is right, it follows that where e-books, music, films and other content are distributed online on a download-to-own basis, the copyright owner’s rights in relation to a downloaded copy will be exhausted and could not be used to prevent onward sales of the content by its customers. Content distributed on a DTO basis is therefore to be assimilated, from a rights point of view, with distribution by means of physical carriers such as books, records and DVDs.

A new approach to copyright?

Underlying these decisions is a new approach to IP rights in general and copyright in particular. Freedom to provide services is one of the four fundamental freedoms protected by the Treaty. A restriction on that freedom may be justified only by overriding reasons in the public interest. Protection of copyright and other IPRs is such a reason, but only so long as the restriction does not go beyond what is necessary to attain the public interest objective. The objective of copyright is the protection of its specific subject matter, which consists in obtaining appropriate remuneration for rightsholders. Remuneration is not appropriate if it arises from practices which are incompatible with the single market. Copyright cannot therefore be invoked to prevent resale of products by a purchaser who has already paid a price equal to its full economic value.

The consequences of this new dispensation remain to be explored but may be dramatic.
     

The Advocate General in Football Dataco v Sportradar has proposed (in an Opinion issued 21 June 2012) a solution to one of the unresolved puzzles in copyright law presented by the non-local nature of the internet.  He rejects any analogy with broadcasting and its “emission” and “reception” theories with respect to the place where the restricted act of “making available” takes place.  He proposes instead that, because of the internet’s unique networked, multi-polar nature, the act of making available is a complex act with a number of components.  The restricted act occurs in each country in which any of those components takes place.
 

The story begins with the first instance judgment of Floyd J in 2010 in which he had to decide where the “making available to the public all or a substantial part of the contents of a database by … on-line … transmission” occurred for the purposes of the Database Directive.  Was it where the server was situated?  Or where the public were?  Or in both locations?  He thought it was similar to the debate that had occurred years before in relation to broadcasting, which had been resolved at least so far as EU satellite services were concerned by locating the act of broadcast where the signals are introduced into an uninterrupted chain of communication - the “emission theory”.  In relation to the database right, he came to the conclusion that the act of making available by online transmission took place only where the transmission took place - in effect at the server.   On appeal, the Court of Appeal referred the question to the Court of Justice.
 

The A-G’s Opinion on the reference was published on 21 June 2012.  He traces the origins of the freedoms of opinion and communication, and their territorial nature, to the Gutenberg revolution when it became possible to disseminate them in print.  The model for those freedoms, he says, is readily applicable to broadcasting but not to the internet, which has transformed our notions of time and space in communications.  It has given us cyberspace, which has no frontiers or limits.  Accordingly the usefulness of employing conceptual constructions formulated in the context of broadcasting is highly questionable.  Concepts of “emission” and “reception” are rendered ineffective by the networked configuration of the global internet.
 

What is required is, he says, a specific construction tailored to the particular characteristics of communication via the internet and of course to the EU legislation, such as the idea of the “intended target” of information on the internet as applied in L’Oréal.  That was a trade mark case, and he thought the criterion of the intended target was consistent with the concept of “any form of making available to the public” in the definition of “re-utilisation” in the Database Directive.  And, since in an internet context re-utilisation is not usually a single act but a sequence of acts which occur as a result of the actions of individuals located in different territories, the “place” of the re-utilisation is that of each of the acts needed to produce the result comprising the making available of the protected data.  On that basis, he has proposed that the Court of Justice should decide that the act of re-utilisation occurred in each EU Member State in which any of that sequence of acts took place.
 

Whether the Court of Justice will follow the A-G’s Opinion remains, of course, to be seen but it seems likely in light of its judgment, published on the same day as the Opinion, in the Donner case.  That was a case concerning the distribution to the public right under Article 4 of the Copyright Directive.  It involved an Italian distributor of furniture who had targeted the German market without a licence from the owner of the distribution right in Germany.  The Court said that distribution to the public is characterised by a series of acts, from contracting to delivery, which may take place, and therefore infringe, in a number of Member States.  A trader would be responsible for his own acts of distribution and also for those of a third party in any Member State where he targeted members of the public in that State and was aware of the actions of the third party.  The parallels with the Opinion in Football Dataco seem too close to be accidental.
 

If then this reasoning is applied generally to the communication to the public right, of which “making available” is part, on the internet it could be a turning point in the online protection and administration of copyright works.  On the internet the communication to the public right is likely to be the rights owner’s key financial asset and it is exercised in an environment that is not characterised by traditional boundaries.  Just as classical concepts of locality have given way to non-locality in quantum mechanics, so notions of copyright as a national phenomenon, built on the worlds of print, radio and TV, may be giving way to a new order on the internet.

       

What is it about copyright law that makes Governments of both left and right try to reform it without Parliamentary scrutiny?

A few years ago the Labour Government included a clause in what was to become the Digital Economy Act that would have conferred wide powers on Ministers to amend copyright law.  This was supposed to help deal with the vexed problem of online infringement.  It was a controversial proposal, to say the least, with comparisons being made with the powers wielded by Henry VIII and with the Legislative and Regulatory Reform Bill of 2006, described by one commentator as the Abolition of Parliament Bill.  The Government responded to the criticisms by proposing that a Minister’s amendments should be subject to a super-affirmative Parliamentary procedure as a safeguard but eventually the clause was dropped.

Now the Coalition Government has brought forward the Enterprise and Regulatory Reform Bill, clause 56 of which proposes to confer on Ministers unlimited power to add or remove exceptions to copyright.  On one view, this would give Ministers even wider powers.  On the face of it, however, the only safeguard is the lesser, ordinary affirmative procedure of resolutions by both Houses of Parliament.

Copyright exceptions are, of course, a topic on which the Government has already made its post-Hargreaves policy plain – it thinks that the widest possible exceptions within the existing EU framework are likely to be beneficial to the UK. Rights owners will not unnaturally ask how far the Minister might go.  The answer in practice lies in the EU framework, that is to say the Information Society and Rental and Lending Directives, which circumscribe what the Minister can do.  In particular the Minister cannot lawfully go outside the permitted exceptions that are listed in the Directives.  The Minister must also comply with the Directives’ so-called three-step test, limiting the exceptions to special cases which do not conflict with a normal exploitation of the relevant work and do not unreasonably prejudice the legitimate interests of the rights holder.  Quite what that means in light of recent cases is, to say the least, obscure but it will be some sort of constraint at some level.

So for all that clause 56 looks like another Henry VIII clause with only limited safeguards, the EU framework is something of a protection against Ministerial over-exuberance.  But is this the best way to frame what is likely to be quite complex legislation?

Parliament’s only contribution to the reform of the copyright exceptions will be the ability to block a Ministerial order by declining to pass a resolution affirming it.  It cannot propose or require its own amendments.  The whole process of second reading Ministerial explanation and subsequent scrutiny and amendment at the committee, report and third reading stages in both Houses of Parliament is lost if it is all in the hands of the Minister.  It ceases in effect to be a Parliamentary matter.  The development of the legislation to give effect to the new policy will take place within a government department which, for all the no doubt valiant efforts of civil servants to consult, is vulnerable to lobbying and sectoral capture and to development behind closed doors.

The alternative is to include the proposed exceptions on the face of the Bill.  It is not clear why they should not form part of the Bill instead of being developed out of sight in a departmental back room.  There is room for more than one view as to the wisdom and appropriateness of removing the reform of this key feature of our copyright law from full Parliamentary scrutiny.

The second reading debate on the Bill is due to take place in the House of Commons on 11 June.

New but somewhat equivocal light has been cast on what “communication to the public” (“CTTP”) means in European copyright law by two judgments delivered by the Court of Justice on 15 March 2012 (Societa Consortile Fonografici (SCF) v Marco del Corso and Phonographic Performance (Ireland) Limited (PPIL) v Ireland). 

What CTTP means matters as online digital delivery increasingly replaces physical carriers, such as CDs and DVDs, as the means of distribution of music, films and other copyright content.  Rights owners, broadcasters, platform operators, users, device manufacturers, dentists (as to which see below) and lawyers (especially) need to know when, where and in what circumstances the making available of content requires authorisation by or payment to rights holders.  The Information Society Directive does not say what it means and the spate of recent decisions in the courts have enlarged its apparent scope in some surprising ways.  Gone is the comfortable assumption, for example, that CTTP is limited to transmissions on electronic networks – recent decisions of the Court of Justice have held that it includes showing films to customers in a pub and even (in one of the 15 March judgments) leaving CDs and players in a hotel room for the convenience of guests. 

Various aspects of the CTTP right remain to be clarified in outstanding references to the Court of Justice but as some holes are filled, others appear, as these two most recent cases show. 

They were both brought by collecting societies representing phonogram producers.  They sought to collect equitable remuneration for the playing of records in hotel rooms on the one hand and in a dentist’s surgery on the other on the basis that this amounted to a CTTP.  The decision was that the first was, and the second was not, a CTTP.  But the surprise in this case was that, far from following the SGAE v Rafael Hoteles case (where the distribution by a hotel of television signals to guest rooms was held to be a CTTP under the Information Society Directive and led to a string of cases including Airfield where provision of a satellite platform was held a CTTP), the Court held that CTTP under the Rental and Lending Directive had a different meaning.  It was a surprise because it had hitherto seemed that the Court had been seeking to establish what it called in the SGAE case an autonomous and uniform interpretation of the concept throughout the Community.  

In these two new cases, however, the Court started from the proposition that EU legislation must, so far as possible, be interpreted in a manner that is consistent with international law, in particular where the legislative provisions are intended specifically to give effect to an international agreement concluded by the EU.  In the case of these two Directives, each was intended to give effect to different international agreements and the Court took the view that the CTTP concept in each of them had to be interpreted in a way which was compatible with the particular international agreements to which the Directive was intended to give effect, taking account of their context and purpose.  That led it to adopt a different approach to the assessment of whether a CTTP had taken place under the Rental and Lending Directive from that which applied under the Information Society Directive. 

The details are less important than the fact that the interpretation of CTTP under the one Directive was held to be different from that under the other.  It means that cracks have appeared in what hitherto seemed to be a single, unitary concept of CTTP.  Its interpretation will depend on whichever Directive applies to the facts.  It also means that the answer to the question where a CTTP takes place, which has been referred to the Court of Justice in the Football Dataco v Sportradar and which is keenly awaited, may not necessarily apply to copyright at all since the issue has arisen not under the copyright Directives but under the Database Directive.  That would be a huge step backwards. 

So far as the details are concerned, the Court in the case of the dentist’s surgery approached  the question whether there was a CTTP in the surgery by taking account of a number of what it called complementary criteria, including the role of the user, the nature of the listening public and whether the communication was profit-making.  On the one hand this contrasts with the approach of the Court in the SGAE line of cases under the Information Society Directive, where the question turned on whether there was an intervention by which protected works were made accessible to a new public.  On the other hand, it is similar to the multi-factorial approach that Floyd J used in trying to apply that very question in ITV v TVCatchup to online retransmission of over the air broadcasts and which was the basis of his reference of the matter back to the Court of Justice. 

That reference back may be an opportunity for the Court of Justice, by adopting what was in the dentist’s case a multi-factorial approach similar to that taken by Floyd J, to align its decisions under the various Directives, to prevent the cracks from spreading and to restore something of a unitary interpretation of CTTP, a key concept in the new digital environment.