Department of Law Spring Term 2020
Master Programme in Intellectual Property Law Master’s Thesis 30 ECTS
Territorial Copyright Licenses for Audio- visual Content:
Steps Towards Overruling the Principle of Copyright Territoriality?
Author: Barbora Havlíková
Supervisor: Kacper Szkalej
CONTENT
LIST OF ABBREVIATIONS 4
CHAPTER 1: Introduction 5
CHAPTER 2: Digital single market and territorial licensing 9
2.1. The principle of copyright territoriality in the EU 9
2.2. Territorial licensing practices in audio-visual and music industry 12 2.3. Territorial licensing and already available legislation 14 2.4. Territorial licensing practices and its impact on the digital single market by the perspective of
statistics 16
2.5. Tension between different interests regarding territorial licensing 19 CHAPTER 3: The status of territorial licensing according to competition law 21
3.1. Territorial licensing from Coditel to FAPL 22
3.2. The further extension of the applicability of current case law: SKY TV case line 26 3.3. How do EU competition rules affects the principle of copyright territoriality and current
licensing practices? 28
CHAPTER 4: The digital single market as a challenge to territorial licensing 30
4.1. Facilitating licensing of audio-visual content 31
4.2. Extension of the principle of country of origin to digital content 34 4.3. Geo-blocking Regulation: Does the Geo-blocking Regulation protect the territoriality of
copyright? 37
4.3.1. The exclusion of audio-visual content from the scope of the Geo-blocking Regulation 39 4.3.2. Geo-blocking Regulation from a competition law perspective 42 4.3.2. Could the Geo-blocking Regulation overcome the principle of copyright territoriality? 43
4.4. Portability Regulation 45
4.4.1. The scope of the Portability Regulation: Does the Portability Regulation provide access or
portability? 46
4.4.2. The scope of the Portability Regulation: To whom the providers are obliged to enable
cross-border portability of content? 48
4.4.3. Does the Portability Regulation affects the copyright territoriality ? 50
4.5. Concluding remarks: How does the EU legislation challenge the principle of copyright
territoriality ? 52
CHAPTER 5: Conclusion and further remarks 54
BIBLIOGRAPHY 59
LIST OF ABBREVIATIONS
AVMS Directive Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services
CJEU Court of Justice of European Union
CMO Collective Management Organisation
CRM Directive Directive 2014/26/EU on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market
DSM Directive Directive (EU) 2019/790 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC
EU European Union
European Comission Commision
Geo-blocking Regulation Regulation (EU) 2018/302 on addressing unjustified geo-blocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market and amending Regulations (EC) No 2006/2004 and (EU) 2017/2394 and Directive 2009/22/EC
InfoSoc Directive Directive 2001/29/EC on the harmonisation of certain aspects of copyright and related rights in the information society
Online Broadcasting and Retransmission Directive
Directive (EU) 2019/789 laying down rules on the exercise of copyright and related rights applicable to certain online transmissions of broadcasting organisations and retransmissions of television and radio programmes, and amending Council Directive 93/83/EEC
Portability Regulation Regulation (EU) 2017/1128 on cross-border portability of online content services in the internal market
SatCab Directive Council Directive 93/83/EEC on the coordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission
Service Directive Directive 2006/123/EC on services in the internal market TFEU Treaty on the Functioning of the European Union
CHAPTER 1: Introduction
In 2015 Commission introduced a new Digital Single Market strategy which aims to removes 1 barriers for free movement of digital content and services throughout the EU. Improving cross- border accessibility of cultural content has been considered by the Commission as a long term issue. Therefore, The Digital Single Market strategy complements previous multi-territorial 2 licensing efforts addressed in the CRM Directive. Enabling access to goods and services irrespective of the place of residence and nationality is an idea of the EU single market. Whereas the idea of a single market works in the physical world very well, the digital single market is still an ongoing process. The aim to achieve portability of content, cross border access to legally accessed content and removing barriers to e-commerce have been among the top ten priorities of the Commission since 2014. 3
The copyright territoriality, which separates national markets, is usually considered as the main cause of fragmentation of the European digital market. The territorial fragmentation of copyright is then reflected in the territorial fragmentation of the licensing practices. The rights to use an audio- visual work are usually granted based on exclusive mono-territorial licenses. These practices are often complemented by geo-blocking as the technical tool which ensures that licensed work is available only within the licensed territory. Consequently, the exclusive territorial licensing practices creates an obstacle to access such content from another territory than the licensed one and, at the same time, creates a barrier for other service providers to provide identical content in this territory. It conflicts with the interest of consumer to access cultural content. The consumers are
European Commission, 'A Digital Single Market Strategy for Europe' (Communication) COM (2015) 192 Final.
1
See European Commission Recommendation of 18 May 2005 on collective cross-border management of copyright
2
and related rights for legitimate online music services [2005] OJ L 276/54; Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi- territorial licensing of rights in musical works for online use in the internal market (CRM Directive) [2014] OJ L 84/72;
Council Directive 93/83/EEC of 27 September 1993 on the coordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission (SatCab Directive) [1993] OJ L 248/15.
European Commission, 'Report on the responses to the Public Consultation on the Review of the EU Copyright Rules‘
3
(Report) COM (2014) <https://ec.europa.eu/digital-single-market/en/news/modernisation-eu-copyright-rules-useful- documents> accessed 18 May 2020
prevented to access cultural content other than the one accessible in their country of residence and, at the same time, they are prevented to access legally subscribed content when they are relying on their right to free move throughout the EU. It might also get into conflict with the right holders interests to exploit their work to broader audience in order to receive a higher renumeration.
Research Questions and Objectives
The interest of the EU to secure free market and non-restricted competition is reflected in the competition case law and new legislation adopted under the Digital Single Market Strategy framework. The interest of consumers to access cultural content, the interest of right holders to exploit their work in exchange for renumeration and interest of distributors to secure a broader audience and high income are interests which have to be taken into account. The thesis will discuss how the EU legislation reflects these interests and if such a reflection impacts the copyright territoriality and licensing practices. The aim to avoid obstacles for the free movement of digital content and secure the broader access to cultural content formulates the main research question of the thesis: Does the EU take the steps towards overruling the principle of copyright territoriality?
In order to answer the main research questions this thesis discusses the following sub questions:
a) Is the principle of copyright territoriality main obstacle to digital single market?
b) How do EU competition rules affects the principle of copyright territoriality and current licensing practices?
c) How do new legislations adopted within the Digital Single Market strategy framework affect the principle of copyright territoriality and cross-border availability of audio-visual content?
d) Is the protection of the principle of copyright territoriality reason for exclusion of audio- visual services from Geo-blocking Regulation?
e) Does the Portability Regulation affect the principle of copyright territoriality?
Methods and material
Concerning the methodology, different methods are applied in this thesis. The descriptive method is used in order to find and describe factual background which is necessary for further analysis. The legal dogmatic method constitutes a major approach in this thesis. This work identifies relevant EU copyright and competition law and relevant case law issued by the CJEU and
provides an analysis of its key provisions and aspects regarding the principle of copyright territoriality. The legal dogmatic approach is complemented with economic market consideration which is used to explain the role of copyright territoriality and rationale behind the licensing practices in the audio-visual industry. In order to provide the adequate answers to the questions set out in this thesis, the materials utilised consists of EU copyright and competition legislation, the case law and non-legislative documents related to the legislative process. The primary sources are complemented with the opinions of legal scholarship in the form of books and articles.
Delimitation
This thesis aims to discuss the effect of EU competition law, EU copyright law and EU legislation regulating internal market on the principle of copyright territoriality and licensing practices. Attention is paid only to EU legislation, the international law and the impact of its rule on the principle of territoriality is not within the scope of this piece of work. The principle of copyright territoriality is examined only regarding the audio-visual industry. There is a limited focus on the music industry exclusively to demonstrate the differences. Audio-visual work might be defined as series of recorded interrelated images, giving the impression of movement, accompanied or not by sounds or by representation thereof which are perceptible by sight and if accompanied by sound also by hearing. This thesis will primarily focus on the movie and series industry even though the 4 definition of audio-visual work is broader.
Structure
This thesis is divided into five chapters including the introduction and conclusion. Chapter 2 provides a brief explanation of the principle of copyright territoriality and its impact on the digital single market. The chapter explains the current licensing practices in the audio-visual industry, which are compared to the licensing practices in the music industry, and its effect on the EU market.
Chapter 3 discusses the evolution of case law which elaborates on Article 101 TFEU in order to evaluate the interaction of competition law with the principle of copyright territoriality and territorial licensing practices. In Chapter 4 this thesis discusses the attempt of EU legislation to create a digital single market. The extension of the principle of country of origin, an effort to
See Beijing Treaty on Audiovisual Performances (WIPO TRT/BEIJING/001, adopted on 24 June 2012, entry into
4
force 28 April 2020), art 2 (b); Czech Statute n. 121/2009 CoL., Act on Copyright, on Rights Related to Copyright and on Amendments to Certain Acts, art 62.
promote multi-territorial licensing, restriction of geo-blocking practices and measures on portability of content are the most significant changes that are undoubtedly deserving of broader attention.
Chapter 5 includes a conclusion and provides further remarks on future potential legislative measures.
CHAPTER 2: Digital single market and territorial licensing
2.
Enabling access to goods and services irrespective of the place of residence and nationality is a key idea of the EU single market. The Digital Single Market strategy shall promote this idea also in the digital world. The internet and technological development that enables us to access internet content regardless of our location has a significant impact on the copyright market. The internet has a potential to eliminate all national barriers and provide broader access to cultural content.
Nevertheless, copyright is inherently territorial and one of the fundamental rights of each right holder is to grant a license with limited scope. Among basic limitations belong the territorial scope.
The following chapter aims to briefly explain problematic issue regarding the principle of territoriality and thus, it provides a background for the following chapters. Part 2.1. briefly explains what the principle of copyright territoriality means and what are its consequences. Since the territorial fragmentation of copyright is significantly reflected in the licensing practices, part 2.2.
discusses the current licensing practices in the audio-visual industry emphasising the differences between the audio-visual and music industry. Part 2.3. follows on with a brief description of the current legislative framework, emphasising that the multi-territorial licensing regulation does not apply on audio-visual work and thus, it does not provide any regulatory framework to current licensing practices in audio-visual industry. The outcome of the missing multi-territorial approach in the audio-visual industry is demonstrated in part 2.4. which elaborates on statistical data in order to explain the rationale behind the new legislative changes which will be discussed in following chapters. Part 2.5. summarises the differences in the interests of stakeholders which are reflected in competition case law and EU legislation.
2.1. The principle of copyright territoriality in the EU
Copyright rights are exclusively granted based on national law and are enforceable only within the territorial boundaries. The principle of territoriality is established in many international treaties. 5
Tatiana Eleni Synodinou, 'Geoblocking in EU Copyright Law: Challenges and Perspectives’ 69(2) GRUR
5
International (2020) 1 <https://doi.org/10.1093/grurint/ikaa001> accessed 1 May 2020, 2.
For example, Article 5(2) of the Berne Convention which introduces the principle of national treatment that ensure the same level of copyright protection for foreign authors within the member state’s territory. The protection is granted exclusively by the domestic law of the state where the protection is claimed. Also the World Intellectual Property Organisation's treaties (Copyright Treaty (WCT) and Performances and Phonograms Treaty (WPPT)) that have aimed to bring copyright into the internet age, and TRIPS agreement are built upon the principle of copyright territoriality. 6
Within the EU framework the principle of territoriality was confirmed by the CJEU in case Lagarde`re Active Broadcast , in which the CJEU upheld that the rights are of territorial nature and 7 national law can only penalize acts occurred within national territory. Even thought, the principle 8 of copyright territoriality is not explicitly confirmed by the EU legislation, the indirect confirmation might be found in many legislative acts. The example might be the InfoSoc Directive which introduces the discretionary power of Member States to adopt exceptions and limitation from the list as they like. Consequently, each Member State determines whether and to what extents 9 copyright rights exist. Due to territoriality the access to copyright content and the condition of such access might differ. Ensuring the free movement of services is a main objective of the Services Directive. Nevertheless, the freedom to provide services established in Article 16 of Service Directive does not apply to copyright and neighbouring rights. In addition, the Member States are 10 free to adopt restrictions based on public policy grounds. According to recital 40 of the Service 11 Directive the intellectual property protection belongs among fundamental public policy grounds.
Thus, the Service Directive allows Member States to maintain a territorial approach.
As the result in the EU there are 28 copyright laws which differ in many aspects. Disparities 12 among Member States might lead to a situation where audio-visual work enjoys protection in one
See WIPO Copyright Treaty (TRT/WCT/001, adopted 20 December 1996, entered into force 6 March 2002) (WCT);
6
WIPO Performances and Phonograms Treaty (TRT/WPPT/001, adopted 20 December 1996, entered into force 20 May 2002) (WPPT). Moreover, the WCT explicitly refers to the application of Berne Convention and, thus, to the principles incorporated into the Berne Convention (See WCT, art 1(4)). Also TRIPS agreement contains the principle of national treatment in Article 3 and 4. Francisco Javier Cabrera Blazquez et al., Territoriality and its implications on the financing of audiovisual works (IRIS Plus, European Audiovisual Observatory 2015) 29-30.
Case C-192/04 Lagarde`re Active Broadcast v SPRE and GVL [2005] ECR I-07199.
7
Case C-192/04 Lagarde`re Active Broadcast, para 46.
8
Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain
9
aspects of copyright and related rights in the information society (InfoSoc Directive) [2001] OJ L 167/10.
Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the
10
internal market [2006] OJ L 376/36 (Services Directive), art 17.
Services Directive, art 16(3).
11
P. Bernt Hugenholtz, ‘Audio-visual Archives across the Borders - dealing with territoriality restricted copyright’ in
12
European Audiovisual Observatory, Digitalisation and Online Exploitation of Broadcasters' Archives (IRIS Special, European Audiovisual Observatory 2011), 51.
Member State whereas in another there is no such right. In addition, the definition of authorship might differ. The copyright is split up into multiple national rights which may be owned or exercised by different entities in each Member State. The copyright is still enforced at national 13 level. In other words, the copyright market is fragmented and the principle of territoriality makes 14 an obstacle for the free movement of copyright content.
In order to avoid these negative consequences, the EU law contains two significant limitations.
Firstly, the InfoSoc Directive contains the principle of exhaustion which applies exclusively to the distribution of work incorporated into tangible objects. Once the product has been put on the 15 market with the author’s consent, the right holder cannot invoke his distribution right in other Member States. As s result, the above mentioned problem regarding the accessibility of copyright content in a tangible form was partially solved. Secondly, regarding the broadcast services the SatCab Directive contains the principle of country of origin. The principle of country of origin 16 allows a broadcasting service who acquired all copyright licenses in a Member State of its establishment to exploit the work throughout the EU without clearing the rights in all those Member States. The principle of country of origin was strengthen in 2019 to online transmission and 17 retransmission of broadcasting organisations. The extension of the country of origin principle is 18 considered as one possible solution of how to achieve a digital single market, as will be elaborate 19 on later.
ibid 50-51.
13
Miriam Ettel and Paul W. J. de Bijl, 'A next step for territorial copyright licenses for on-demand audio-visual services
14
in the light of the EU Digital Single Market’ 22 Inf Com& Soc (2019) <https://doi.org/10.1080/1369118X.
2019.1705375> accessed 24 April 2020.
InfoSoc Directive, art 3(3) 4(2) recitals 28 - 29; Case C-128/11 UsedSoft GmbH v. Oracle International Corp. [2012]
15
OJ C 287/10; Case C-355/12 Nintendo and Others v PC Box [2014] OJ C 93/8; Case C 263/18 Nederlands Uitgeversverbond a Groep Algemene Uitgevers v. Tom Kabinet Internet BV [2019] OJ C 61/5.
SatCab Directive, art 3(1).
16
Victoria Gaskell and John Enser, 'It comes with the territory: an update on recent developments in territoriality in
17
European broadcasting' (CMS Law, 3 January 2019) <https://cms.law/en/gbr/news-information/it-comes-with-the- territory-an-update-on-recent-developments-on-territoriality-in-european-broadcasting> accessed 1 May 2020
See Directive (EU) 2019/789 of the European Parliament and of the Council of 17 April 2019 laying down rules on
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the exercise of copyright and related rights applicable to certain online transmissions of broadcasting organisations and retransmissions of television and radio programmes, and amending Council Directive 93/83/EEC (Online Broadcasting and Retransmission Directive) [2019] OJ L 130/82.
Hugenholtz, 'Audio-visual Archives across the Borders’ (n 12) 52-53.
19
2.2. Territorial licensing practices in audio-visual and music industry
The commercial practices of licensing audio-visual works is considered to be another main obstacle to the digital single market. The most important aspect of copyright territoriality is that the right holders have the right to grant licenses for each territory separately and based on different conditions. The multi-territorial licensing of audio-visual work is just slightly regulated in the EU in comparison to the music industry as will be highlighted in part 2.3. The individual negotiation predominant in the audio-visual field. The distribution of audio-visual work is usually based on exclusive mono-territorial licenses. The exception is the licensing for cultural and linguistic linked regions such as the Czech and Slovakia, Germany and Austria, UK and Ireland, Scandinavia and Nordic countries etc., where distributors usually buy license for both markets or region. Formally, 20 nothing precludes the audio-visual right holder to provide a multi-territorial license. However, it is not a common practice. The reason why it is not common practice lays in the specifics of the audio- visual industry.
Firstly, the audio-visual industry is not collectively organised. In contrast to the audio-visual field, the rights to musical works are managed by CMO. Collective management simplified a licensing process. CMO in the music industry serves as a one-stop shop and might grant multi- territorial licenses. The collective management of audio-visual content is more fragmented. Only 21 22 obligatory and organised collective management were introduced by SatCab Directive for TV broadcasters. 23
Secondly, the circulation of audio-visual content suffers from a cultural fragmentation of the market. The licensing practice is also the result of different cultures, languages, and the 24 preferences of the public. Thus, audio-visual content has to be adapted to different national tastes which require different marketing strategies, advertising, subtitles and dubbing. The marketing cost
Christian Grece, The circulation of EU non-national films – A sample study: Cinema, television and transactional
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video on-demand (European Audiovisual Observatory 2017) <https://rm.coe.int/the-circulation-of-eu-non-national- films-cinema-tv-and-tvod/16808b35a2> accessed 23 May 2020, 32-33.
CRM Directive, art 23.
21
Francisco Javier Cabrera Blazquez et al., Territoriality and financing of audiovisual works: latest developments (IRIS
22
Plus, European Audiovisual Observatory 2019) <https://search.coe.int/observatory/Pages/result_details.aspx?
ObjectId=09000016809a417c> accessed 23 May 2020, 34.
SatCab Directive, art 9.
23
P. Bernt Hugenholtz and Joost Poort, 'Film Financing in the Digital Single Market: Challenges to Territoriality’ 51 IIC
24
L (2020) 167 <https://link.springer.com/article/10.1007/s40319-019-00900-2?shared-article-renderer#Fn3> accessed 1 May 2020.
might be more than half of the production cost. The exclusivity secures the possibility of 25 recouping on each investment. Thus, the cultural barriers also create an obstacle for the circulation of audio-visual work. Such cultural and linguistic barriers are usually not so dominant in music industry.
Thirdly, producing audio-visual content is more expensive and take more time than producing music does. Audio-visual work requires a high number of individual licenses, for example from music writers, screenwriter, neighbouring rights etc. This is the reason why the audio-visual industry (especially movies and series) involve risky investments at an early stage of the project. 26 Moreover, most of the costs are fixed costs, for instance the payment for cast or members of creator teams, rental of scenery etc. In addition, the future recoupment depends on the future success of the work. The potential success increased with the well-known name of directors and cast, but the last one significantly increases the cost of production. The territorial exclusivity is therefore the way to obtain the necessary financing. The pre-sale mechanism is common part of financing model. A pre- sale agreement is a contract between producers and distributors whereby the distributor agrees to pay in advance in return for revenue. The amount of pre-sale investment in the case of European films is approximately 40 % of the total investment. Therefore, a pre-sale of rights based on 27 exclusive territorial licensing is a common approach how to cover the high production cost from the beginning. The financing mechanism is an important aspect in licensing practice.
A fourth concept specific to the film industry can be added, a movie becomes available to the public through opening a distributors chain from cinema to television. The common practice is therefore to grant an exclusive license to a cinema, broadcaster, video-on demand services etc. for a certain period in order to secure recoupment of investments for those distributors as well as for producers. It prevents competitors to free-ride on their investments and efforts put into the 28 promotion campaign. Another reason, might be the possibility to differentiate prices on the basis of
Larry Gerbrandt, ‘How much does movie marketing matter?’ (Reuters 11 June 2010) <https://www.reuters.com/
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article/us-industry/how-much-does-movie-marketing-matter-idUSTRE65A13Q20100611> 1 May 2020.
Hugenholtz and Poort,(n 24); Francisco Javier Cabrera Blázquez et al., Territoriality and its implications on the
26
financing of audiovisual works (IRIS Plus, European Audiovisual Observatory 2015) <https://rm.coe.int/
CoERMPublicCommonSearchServices/DisplayDCTMContent?documentId=090000168078347f> accessed 23 May 2020, 18-20.
Cabrera Blázquez, Territoriality and its implications on the financing of audiovisual works (n 26) 21-22. Francisco
27
Javier Cabrera Blázquez et al., YearBook 2019/2020 Key Trends (European Audiovisual Observatory 2020) <https://
rm.coe.int/yearbook-keytrends-2019-2020-en/16809ce58d> accessed 13 May 2020, 8.
Hugenholtz and Poort (n 24)
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high-income and low-income countries. In contrast, musical works are usually licensed based on a 29 non-exclusive license that enables wider exploitation of musical work among a broader audience and, thus, it enables to get higher recoupment.
It can be concluded that the audio-visual industry requires a different approach to the music industry where the territoriality does not play a significant role in the business model. Those who provide audio-visual services are obliged to secure licenses for each territory where content is received. This imposes a burden on service providers. The process of licensing takes time and money and the whole process does not have to be successful because of territorially exclusive licensing practices. Consequently, mono-territorial licensing creates an obstacle to the cross-border availability of audio-visual content.
2.3. Territorial licensing and already available legislation
Improving access to copyright content through the regulation of licensing is a long standing goal of the Commission and it is considered to be a necessary step regarding the digital environment. 30 In 2005 the Commission pointed that 'online content providers require a license for more than one territory’. The legislative effort to address multi-territorial licensing have culminated in the 31 adoption of the CRM Directive in 2014. The CRM Directive aims to ensure the proper functioning of the collective management and to facilitate multi-territorial licensing of musical works. 32
Regarding the music industry the CRM Directive aims to provide a better environment for the collective management of musical works which is fragmented as the result of the fragmentation of the digital market. A growing demand for cross-border access to musical works stands behind the regulation. CMO that meet the requirement set in Article 24 of the CRM Directive might grant 33 multi-territorial licenses. Having regards requirements to have the technological capacity to proceed with the data needed for multi-territorial licenses, the CMO might decide not to provide multi-
ibid.
29
Sebastian Felix Schwemer, Licensing and Access to Content in the European Union (Cambridge University Press
30
2019) <https://doi-org.ezproxy.its.uu.se/10.1017/9781108653213> accessed 24 April 2020, 124.
European Commission, ‘Impact Assessment reforming cross-border collective management of copyright and related
31
rights for legitimate online music services’ (European Commission stuff working document) COM (2005) 1254, 5.
CRM Directive, art 1.
32
CRM Directive, recital 38 - 40.
33
territorial licenses. In such cases, the CMO might ask another CMO to represent their rights. The 34 asked CMO have to accept the request if already giving multi-territorial licenses for the same category of rights. 35
As a result, the service provider should be able to use a broader amount of musical works through a large number of territories based only on one license. It simplified the licensing process and ensures cost effectiveness. The service provider should be able to reach new services and territories and thus reach more users. The users should have a wider choice and should benefit from increasing competition among service providers. Right holders should get higher renumeration since their work would be listened to in a broader area. It seems that everyone will benefits from 36 the multi-territorial licensing approach. However, this statement is valid for music industry. The one criticism of the CRM Directive is that it is exclusively focused on the music industry, whereas the licensing system for audio-visual work shall not differ. Nevertheless, the specific features of 37 audio-visual industry creates rationale for different licensing scheme (see part 2.2).
The CRM Directive also sets a general framework for licensing as such. Article 16 (1) of the CRM Directive oblige to Member States to secure that the negotiation of licensing terms is conducted in good faith and based on all necessary information. License terms have to be objective and non-discriminatory and licensing terms previously agreed with user cannot be used as precedence for license for new types of online services. This is anticipated to ensure the 38 development of innovative online services and the digital environment. This article is considered to be one of the most ambiguous provisions. The licensing process is also regulated by Article 16 (3) 39 which aims to ensure transparency and accelerating the licensing process. The CMO is obliged without undue delay to offer licensing terms or provide a reasoned statement why the license is refused to be granted.
Schwemer (n 30) 152 - 154. European Commission, 'Directive on collective management of copyright and related
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rights and multi-territorial licensing–frequently asked questions’ (European Commission, 4 February 2014) <https://
ec.europa.eu/commission/presscorner/detail/de/MEMO_14_79> accessed 1 May 2020.
CRM Directive, art 30.
35
European Commission, 'Directive on collective management of copyright and related rights and multi-territorial
36
licensing–frequently asked questions’ (European Commission 4 February 2014) <https://ec.europa.eu/commission/
presscorner/detail/de/MEMO_14_79> accessed 1 May 2020.
Josef Drexl, 'Competition in the field of collective management: preferring 'creative competition' to allocative
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efficiency in European copyright law' in Paul Torremans (ed.) Copyright law. A Handbook of Contemporary Research (Edward Elgar Publishing 2007) < https://doi.org/10.4337/9781848440210.00015> accessed 1 May 2020, 258.
CRM Directive, art 16 (2) recital 31-32.
38
Schwemer (n 30) 146.
39
It is also worth to mention, that the CRM Directive prohibits all discrimination based on the nationality, place of residence or establishment. According to Article 5 (2) of the CRM Directive 40 right holders might freely choose CMO for management of their rights (if the CMO already manage those rights) and for the territory of their choice. However, it might increase the costs of collective 41 management. The aim is to facilitate more competitiveness among CMOs and thus, to increase a 42 fairness of licensing terms and freedom to administer a right for right holders. However, it is 43 debatable whether this produces desired result. 44
2.4. Territorial licensing practices and its impact on the digital single market by the perspective of statistics
In the audio-visual industry the mono-territorial licensing approach predominant. This business model is not only necessary for financing production but it is also more profitable. Those who provide audio-visual services are obliged to secure licenses for each territory where content is received by users. As was previously mentioned the gaining of a license does not have to be easy nor successful. Thus, mono-territorial exclusive licensing might be a reason for the non-availability of audio-visual content in the concerned territory or in the concerned service provider’s catalogue.
Indeed, the reason for the non-availability of content is usually the absence of the license for concerned territory. The main reasons of non-availability of work are according to the Commission's research the cost of obtaining a license for another territory (67 %), inability to obtain a license for content for other territory (53 %) and different business models at the other
CRM Directive, recital 18.
40
CRM Directive, recital 19.
41
The CMO will have to figure out not only whether it represents a particular right holder, work and scope of right but
42
also whether it might represents the right holder in relation to the territory. See Tomáš Matěječný, Kolektivní správa autorských práv (Aleš Čeněk 2014), 61.
Morten Hviid, Simone Schroff and John Street, ’Regulating CMOs by competition: an incomplete answer to the
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licensing problem?’ 2016/03 Create Working Paper (2016) <https://webcache.googleusercontent.com/search?
q = c a c h e : I 0 _ X Q s i t m y M J : h t t p s : / / z e n o d o . o r g / r e c o r d / 4 7 7 0 3 / f i l e s / C R E AT e - W o r k i n g - Paper-2016-03.pdf+&cd=1&hl=cs&ct=clnk&gl=cz&client=safari> accessed 1 May 2020, 7-9.
The criticism points to the fact that the rights are still assigned on an exclusive basis and cannot be assigned to several
44
CMO at the same time (Hviid (n 43), 23). Also it is important to note that CMOs are non-profit organisations. The CJEU also expressed its doubts regarding the existence of CMOs as competitors who at the same time have to share their catalogue and cooperate based on a reciprocal agreement (See Case T-442/08 - CISAC v Commission [2013] OJ C 156/37, para 149 - 159). In addition, the amount of renumeration is usually determined by CMO who manage the rights in Member States where the work is used. The option to choose CMO from different states might be interesting mostly for right holders whose works cross borders. It might be quite illogical and costly non-effective to seek as right holder for a CMO from different Member States (not only because of potential language barriers).
market (47 %). In addition, according to respondents acquiring a license in some cases is 45 conditional upon the fact that the service provider undertakes to apply geo-blocking technology. 46
Geo-blocking enables prevention or restriction of customers from accessing or purchasing content outside of a geographic area where the content was originally licensed. Whereas, a copyright is inherently limited by borders, the internet is intended to be a borderless, decentralised medium available and accessible by all, everywhere and every time. Thus, the territorial 47 distribution of copyright content requires a creation of a restriction in the world where none exists. 48 That is why the geo-blocking practices are essential for right holders. Approximately 68 % of service providers stated (in 2015) that they are using geo-blocking technology. In 2016 it was 49 according to the Commission investigation 72 % respondents who applied at least one of the portability restrictions. The most common restriction were on the user’s ability to play previously downloaded content in other territory (15 %), on user’s access to catalogue of content and services available in different territories (35 %) and on the ability of an existing user to access the service in different territories (27 %). 50
Nevertheless, the extending access to internet is transforming the way, in which works are produced, distributed and exploited. The users use the internet on a daily basis and expect to have access to their favourite audio-visual content both life and on-demand services regardless of their actual place of presence as well as through the traditional sources such as satellite and cable. TV broadcasters seem to reflect the digitalisation by an offering services such as simulcasting (simultaneous online broadcasting) and catch-up TV (watch after the program has aired). The number of people who watch the TV on internet is growing with the younger generation. 51 Nevertheless, the video-on-demand services do not substitute full TV because they do not offer full
European Commission, 'Geo-blocking practices in e-commerce. Issues paper presenting initial findings of the e-
45
commerce sector inquiry conducted by the Directorate-General for Competition.' (Commission staff working document) COM (2016) 70 final, 62.
ibid 62-63.
46
Jacklyn Hoffman, 'Crossing Borders in the Digital Market: a Proposal to End Copyright Territoriality and Geo-
47
Blocking in the European Union’ 49(1) The Geo. Wash. Int’l L. Rev. (2016) 143 <https://heinonline.org/HOL/P?
h=hein.journals/gwilr49&i=157> accessed 24 April 2020,145.
ibid 145.
48
European Commission, 'Antitrust: Commission publishes initial findings on geo-blocking from e-commerce sector
49
inquiry - Factsheet’ (Brussel 18 March 2016) <https://ec.europa.eu/commission/presscorner/detail/en/MEMO_16_882>
accessed 18 May 2020.
European Commission, 'Geo-blocking practices in e-commerce.’ (n 45) 66.
50
According to the statistics 72 % of 15 - 24 years old people watch traditional TV at least once per week and 40 % of
51
the same group watch TV on the internet. By contrast 93 % of people over 55 years old watch traditional TV at least once per week, whereas only 8 % of those people watch TV on the internet. (See Cabrera Blazquez, Territoriality and its implications on the financing of audiovisual works (n 26), 16.)
scope of TV programs. The cable network remains the main source of pay-TV service with 42 % of subscribes at the market (in 2016). Although this number decreases due to the digitalisation. In 2011 it was 50 % of the subscribers. By contrast online pay-TV services are growing each year. In 2015 the number of online pay-Tv subscribers increased by 3,2 % and in 2016 by 2,2 %. 52
Due to consumer demands the TV broadcasters are put into a quite difficult position. The principle of country of origin established in the SatCab Directive applies only to satellite broadcast and cable retransmission of broadcasts and not to the internet. As the result the TV broadcasters as well as other service providers who are offering online services need to clear the rights for all concerned territories (the rule of country of origin has been recently only partially extended, as will be discussed later).
As a result of digitalisation, the online services are on the rise and traditional audio-visual market such as DVD distribution, television broadcasting and cinema exhibition have entered phase of stagnation. Video on demand have been only one expanding within the audio-visual market since 53 2019. It is growing much faster than traditional pay-TV (108.8% per year since 2009 vs 2.9 %).
Home video is decreasing annually -9 % (on average) since 2009 and cinema -0,3 %. As the result 54 traditional distribution channels undermine the changes. Moreover, due to the digitalisation the number of people who are willing to access content across the border is growing. In 2014 it was reported that 8 % of users have tried to access cross border content (the number was growing among a younger population up to 16 %). Another interesting figure is that almost 21 % of TV 55 channels and 47 % of pay video-on-demand services based in one Member States targeted in 2019 also other of Member States. The reason might be that consumers increasingly believe that they 56 have right to access content regardless of borders. It might also be caused due to the free movement principle within the EU.
Francisco Javier Cabrera Blázquez et al., YearBook 2017/2018 Key Trends (European Audiovisual Observatory 2018)
52
<https://rm.coe.int/yearbook-keytrends-2017-2018-en/16807b567e> accessed 13 May 2020, 50.
Cabrera Blazquez, Territoriality and its implications on the financing of audiovisual works (n 26) 10.
53
Cabrera Blazques, YearBook 2019/2020 Key Trends (n 27), 34.
54
Commission, 'Geo-blocking practices in e-commerce.’ (n 45), 8.
55
European Audiovisual Observatory, 'European Audiovisual Observatory Publishes New Report ON Audiovisual
56
Services in Europe. Over 11,000 TV channels were available in Europe in 2019’ (Strasbourg 2020) <https://
www.obs.coe.int/en/web/observatoire/home/-/asset_publisher/9iKCxBYgiO6S/content/over-11-000-tv-channels-were-
a v a i l a b l e - i n - e u r o p e - i n - 2 0 1 9 ?
inheritRedirect=false&redirect=https%3A%2F%2Fwww.obs.coe.int%2Fen%2Fweb%2Fobservatoire%2Fhome%3Fp_p _id%3D101_INSTANCE_9iKCxBYgiO6S%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview
%26p_p_col_id%3Dcolumn-1%26p_p_col_count%3D3> accessed 18 May 2020.
The Commission highlights that the online digital market is the biggest e-commerce sector in the EU. In 2014 38 % of the respondents stated that they are using the internet on daily basis in order to access media online and 48 % accessed audio-visual content online. However, only 16 % of them were successful in finding content which they wanted. Non-availability of such access then 57 promoted illegal piracy by those customers. The availability of European audio-visual content seems to be, according to the data of the European Audiovisual Industry, limited. Approximately 67 % of films are broadcast only in the country of origin. European films were in 2018 broadcast 58 only in 1.4 countries, on average, whereas US films were broadcast in 3.1 countries, on average. 59 In general, the European audio-visual observatory points to low circulation of national EU films and to the division of specialisation of video-on-demand services. For example, Netflix in 2018 offered in its catalog only 12 % of EU national movies. The total amount of national EU movies was 15 % on average in all video-on-demand services’ catalogues. Consequently, this low circulation of 60 audio-visual content might constitute another reason for the non-availability of cross-border content. Nevertheless, it is important to mention that such low circulation might be also caused by different language and cultural preferences.
It can be summarised that the digitalisation is major challenge for the licensing of audio-visual content. The cross-border non-availability of work is an increasingly important problem from the perspective of consumers. This motivates distributors to obtain licenses for more than one territory but due to the obstruction caused by licensing practices and cultural differences it is not an easy task. Moreover, the licensing process and license as such is not cheap.
2.5. Tension between different interests regarding territorial licensing
The exclusive territorial licenses provide certainty to distributors that no one else will distribute the audio-visual work within their territory, e.g. no one will compete with them and benefit from their efforts. Territorial licenses block the access of other services to provide such content in the licensed territory. That is why the territorial exclusive licensing practice is increasingly challenged by EU legislation. The Commission is concerned about violation of single market and competition law. The case law of CJEU in the field of competition law constitute significant challenges to
Commission, 'Geo-blocking practices in e-commerce.’ (n 45), 8.
57
Cabrera Blázquez, Yearbook 2017/2018 Key trends (n 52), 18.
58
ibid 18.
59
ibid 22.
60
licensing practice. The consumers organisation are concerned about terms and price discrimination and about obstacles to access to cultural content. Indeed, territorial licensing is the reason for 61 cross-border unavailability and until recent legislation changes the cross-border non-portability of audio-visual services in the EU. Territorial licensing might also be discriminatory with regard to cultural and language minorities since the borders do not copy the cultural borders. In addition, 62 depriving access to audio-visual content to those who are willing to pay, it deprives audience and potential income from the right holders. Consequently, denying access might promote digital piracy. 63
Nevertheless, it is also the latest development in audio-visual sector who challenge the territorial licensing. The traditional audio-visual players such as TV broadcasters, video distributors and cinemas are defeated in terms of digitalisation and technological progress by video-on-demand audio-visual services. The video-on-demand services are playing a dominant role in the market.
Competition among video-on-demand services is also driven by their aim to secure the most consumer attractive content and to establish itself in the new markets. Because of the charm of the 64 internet, those services operate globally. Consequently, those services need to secure licenses for several markets which make multi-territorial licensing extremely attractive. For example Nettflix has acquired the exclusive multi-territorial license for Gotham in 2016 which was quite unusual given the country-by-country licensing practice. 65
As a result, territorial licensing is challenged by EU legislation that tries to avoid obstacles to the free movement principle and anticompetitive behaviour in order to create a digital single market.
The consumer’s interest consisting of broader accessibility to cultural content seems to play another a significant role. The following chapters aim to briefly analyse the outcome of the EU regulation and its effect on the principle of the territoriality and on territorial licensing.
See Oxera and O&O, The impact of cross- border access to audiovisual content on EU consumers (Oxera 2016)
61
<https://www.oxera.com/wp-content/uploads/media/oxera_library/downloads/2016-05-13-Cross-border-report- (final).pdf> accessed 1 May 2020.
Hugenholtz and Poort (n 24); Julia Reda, 'End Geo-blocking’ (website of MEP Julia Reda) <https://
62
endgeoblocking.eu> accessed 1 May 2020.
J. Scott Marcus and Georgios Petropoulos, Extending the scope of the Geo-blocking Prohibition: An Economic
63
Assessment In depth Analysis (European Union 2017) <https://www.europarl.europa.eu/RegData/etudes/IDAN/
2017/595364/IPOL_IDA(2017)595364_EN.pdf > accessed 1 May 2020, 11.
Cabrera Blazquez, Territoriality and its implications on the financing of audiovisual works (n 26), 12; Cabrera
64
Blazquez, Territoriality and financing of audiovisual works: latest developments (n 22), 32 57.
Andrew Wallenstein, 'Netflix Lands Fox’s ‘Gotham’ After First Season Worldwide’ (Variety 2 September 2014)
65
<https://variety.com/2014/digital/news/foxs-gotham-goes-to-netflix-after-first-season-1201296494/> accessed 1 May 2020.
CHAPTER 3: The status of territorial licensing according to competition law
Territorially exclusive licenses secures a monopolistic position of the distributer within the licensed territory. It might eliminate competition. Moreover, the licensing agreement granted for the territory usually contains the clause that explicitly restricts the distributors’ possibility to answer an unsolicited request coming outside of the licensed territory. It might distort not only the competition but also the free movement of goods and services. Therefore, it is not surprising that the competition law has to traditionally deal with territoriality and exclusivity of agreements. The following chapter seeks to evaluate the influence of competition law (mostly case law) on the principle of copyright territoriality and territorial licensing practices.
The chapter firstly provides a brief explanation of the background of Article 101 TFEU, then part 3.1. discusses the case law developments over the question of the compatibility of exclusive territorial licenses with Article 101 TFEU. It evaluates the development form Coditel till the 66 Premiere League and Murphy (FAPL) case line. Part 3.2. provides a brief overview of the 67 Commission’s latest approach regarding the territorial copyright licensing agreements in the field of the audio-visual industry. The evaluation of case law outcome and the Commission's approach will be found in part 3.3. which also aim to answer the question of how the competition law affects the principle of copyright territoriality and licensing practices.
As was mentioned, some fundamental background shall be firstly highlighted. Article 101 TFEU prohibits any agreement, decisions or practices which aiming or having effect of prevention, distortion or restriction of competition within the internal market. Article 101(3) TFEU provides an exception to distortions of competition in the case of innovation, technological and economic progress. Article 101(3) TFEU contains exceptions to distortions of competition if an agreements between undertakings. However, such agreements cannot impose restrictions which are not necessary and cannot eliminate competition in a substantial part of market. Arguably, this article
Case C 62/79 Coditel v Ciné Vog Films (Coditel I) [1980] ECR-1980 00881.
66
Joined cases C-403/08 and C-429/08 Football Association Premier League Ltd and Others v QC Leisure and Others
67
and Karen Murphy v Media Protection Services Ltd (FAPL) [2011] ECR I - 2011 I-09083.
might potentially provide an exception for copyright licensing. It is also discussed in the chapter.
Article 102 TFEU than prohibits abuse of dominant position.
The territorial restriction belongs among hardcore restrictions. The Commission in general 68 distinguishes between an active and passive sale. Whereas, the territorial restriction of active sale might be based on certain conditions compatible with Article 101 TFEU, the territorial restrictions of passive sale are (almost) always considered to be anticompetitive. Passive sales means 69
“responding to unsolicited requests from individual customers including delivery of goods or services to such customers”. In general, online sale at internet (website) is considered to be a 70 passive sale. Even though, the copyright might falls under the exemption because of additional 71 cultural elements, the Commission seems to restrict the possibility to conclude such clauses in 72 licensing agreements because of the restrictions of passive sale constitute a hard core restriction.
3.1. Territorial licensing from Coditel to FAPL
The Commission’s concern about territorial restriction is apparent form many recent cases. The first line of the case law confirmed that the territorial restrictions are inherent part of the copyright and therefore, the territorial copyright licensing does not contravene the competition. The groundbreaking decision was brought by the FAPL case which clearly indicate that the contractual restriction in copyright licenses might contravene the competition. In this part this development is briefly discussed.
The compatibility of exclusive territorial licenses with free movement of services was firstly challenged by the CJEU in case Coditel I. The CJEU held that a right of copyright holder to require a fee for any showing of a movie is an essential function of copyright. Consequently, free 73 movement of services cannot constitute an obstacle to geographical limits agreed in the license. 74
Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the
68
Functioning of the European Union to categories of vertical agreements and concerted practices [2010] OJ L 102/1, art 4 (b); Commission Regulation (EU) No 316/2014 of 21 March 2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements [2014] OJ L 93/17, art 4(2) (b); Guidelines on Vertical Restraints [2010] OJ C 130/1, para 47 -57.
Guidelines on Vertical Restraints [2010] OJ C 130/1, para 50-54.
69
ibid para 51.
70
ibid para 52.
71
Paul Torremans, 'Questioning the principles of territoriality: the determination of territorial mechanisms of
72
commercialisation’ in Paul Torremans (ed.) Copyright law. A Handbook of Contemporary Research (Edward Elgar Publishing 2007) < https://doi.org/10.4337/9781848440210.00015> accessed 1 May 2020, 469.
Case C 62/79 Coditel I, para 14.
73
Case C 62/79 Coditel I, para 16 - 17.
74
Those principles were confirmed in case Coditel II which primarily touch upon the issue of 75 competition. Coditel II concerned a license between a film producer and a distributor which 76 allowed the distributor to prohibit any use as well as a retransmission of a broadcast which originated in other Member States. The Commission argued that the concerned agreement and its very object restrict the competition and that any potential exception has to meet the requirement of Article 101(3) TFEU. Nevertheless, the CJEU held that absolute territorial protection is the nature 77 of copyright licensing and, thus, it cannot be contrary to Article 101(1) TFEU. 78
A breakthrough decision was made by the CJEU in the case FAPL. The CJEU held that the licensing system that grants broadcasters absolute territorial exclusivity in Member State is anticompetitive and contrary to free movement of services. FAPL provides an exclusive license based on the territory of individual Member States to broadcast football matches. The licensee of FAPL was obliged to prevent the public to receive broadcast outside of the licensed territory by properly encryption of the signal. Karen Murphy, owner of the restaurant, purchased devices from another Member State because of price differences and made possible to watch the matches on TV screen in the restaurant. The FAPL argued that these acts undermine the exclusivity of the license and, thus, the value of rights (e.g. different pricing policy). 79
The CJEU held in conformity with previous case law that the exclusive licensing as such is not incompatible with Article 101 TFEU. Thus, the CJEU confirmed that Coditel II is still applicable 80 law. At the same time, the CJEU held that the licensing which aims to restore the division between national markets must be regarded as an agreement that aims to prevent competition. In other 81 words, the FAPL is allowed to grant exclusive territorial licenses but the terms of such license cannot restrict competition, e.g. cannot include a clause that aims to prevent the supplying of goods and services out of the licensed territory. The FAPL case could be understood as prohibition of restriction on passive sale clauses in copyright licenses.
Case C 262/82 Coditel SA, Compagnie générale pour la diffusion de la télévision, and others v Ciné-Vog Films SA
75
and others (Coditel II) [1982] ECR I - 1982 03381.
ibid, para 12- 14.
76
ibid, 3389 - 3390.
77
ibid, para 15 - 19.
78
Joined cases C-403/08 and C-429/08 FAPL, para 30-35, 42 - 43.
79
ibid, para 137; Case C 262/82 Coditel II, para 15.
80
Joined cases C-403/08 and C-429/08 FAPL, para 139 - 140.
81
Regarding the further discussion about the Portability Regulation in chapter 4 it has to be highlighted that the CJEU held that the mere reception of a broadcast in a private circle does not constitute a restricted act by the EU legislation. The court explicitly said that such reception of broadcast even in a foreign country by foreign decoder is legal. The reproduction occurred in the memory of decoder fulfils the condition under the Article 5(1) of the InfoSoc Directive. 82 Nevertheless, according to the CJEU the restaurant who broadcast work via a TV screen to customers communicates the work to the public because the costumers constitute a new public which was not taken into account by the right holders when they authorised the broadcast. Thus, 83 whereas the mere reception in private circle is lawful, the communication to the public (reception in public circle) is an unlawful act unless it is covered by the license.
Moreover, the FAPL could not rely on the exception under Article 101(3) TFEU because they partitioned the internal market without justification. The CJEU held that Member States are 84 prevented to adopt legislation that prohibits import and use of foreign devices unless justification of a restriction by an objective of protecting intellectual property rights is available and it does not go beyond what is necessary. According to the CJEU the aim of the intellectual property protection is 85 to secure the possibility to grant license in return for renumeration, but it does not guarantee the right to the highest possible renumeration. The remuneration has to be reasonable in relation to the economic value and number of persons who enjoy a service. The renumeration in return for 86 territorial exclusivity which resulted in price differences and partitioning the internal market is not reasonable and do not justify restriction of free movement. To explain the different conclusion 87 from Coditel I the differences in factual background of the cases must be highlighted. The broadcasting organisation in the Coditel I communicated the work to public without a having licence and without paying a renumeration to right holder. Whereas, in FAPL the renumeration was paid, but in exchange for exclusivity.
Nevertheless, the FAPL creates more questions than it provides answers. Firstly, it invokes a doubt whether the conclusion is valid for copyright protected work. As was mentioned above the Coditel II is still valid law. The fundamental difference between Coditel II and FAPL is that the
Joined cases C-403/08 and C-429/08 FAPL, paras 171 - 182.
82
ibid, paras 196 - 207.
83
ibid, para 145.
84
ibid, paras 93 - 94.
85
ibid, paras 107 - 109; Case C 62/79 Coditel I, para 13.
86
Joined cases C-403/08 and C-429/08 FAPL, paras 110 - 117.
87
