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Reforming of copyright in EU and considered policy options: Option 3 – Legislative intervention (Territoriality and absolute territorial restrictions in licensing)

Territoriality and absolute territorial restrictions in licensing

Sub-option a

This option would entail the creation of a new legal act (internal market legal basis) which sets out absolute territorial restriction in copyright licence contracts (or in contracts on the transfer or the assignment of rights) may be null and void because of its effect on the free movement of services.

As in competition law, and in line with the rationale of the CJEU’s ruling in the Premier League Cases, a distinction between active and passive sales would be made in that instrument, in the sense that only absolute territorial restrictions (prohibiting not only active but also passive sales) would be declared null and void.

Accordingly, distributors could in principle no longer be prevented contractually from responding to unsolicited requests of customers residing in other Member States than those for which they acquired a licence. Territorial restrictions prohibiting distributors from actively targeting customers who reside outside the territory for which they acquired a licence would, however, still be possible.

A safety clause would be introduced according to which absolute territorial restrictions may, in exceptional cases, be justified when the right holder is able to prove that they are the only way to achieve an appropriate remuneration. The remuneration of right holders would normally be considered appropriate when it reflects the economic value of the exploitation of the work or other subject-matter by the distributor, in particular the actual and potential number of customers purchasing or accessing the work or other subject-matter.

Where the total number of customers purchasing or accessing the digital copy of a work or other subject-matter within the EU can be determined with a high degree of precision (i.e. in cases where customers make a payment in exchange for acquiring, or obtaining access to, a digital copy of a work or other protected subject matter), right holders should be, in principle, deemed to be able to achieve appropriate remuneration.

With regard to the contractual relationship between service providers and end-users, a provision would be introduced reinforcing the principle that service providers are not allowed to discriminate against customers on grounds related to nationality or place of residence, unless directly justified by objective criteria. When relying on such objective criteria (which should be further elaborated), service providers would be required proactively to provide their justification in a transparent and easily accessible way on their websites. Audio-visual services would explicitly be made subject to this provision.

Sub-option b

This option would entail the introduction of a clear definition of where the copyright relevant act is localised in cross-border situations (i.e. for which Member States a service provider needs to obtain a licence). Two distinct solutions (mutually exclusive) could be considered: the “country-of-origin” and the “targeting” approach.

1) A “country-of-origin” principle for the right of communication to the public, including the right of making available, would be introduced, in the sense that the copyright relevant act (that needs to be licenced) is deemed to occur in a single Member State (the “country-of-origin”). The “country-of-origin” would be defined as the Member State in which the service provider is established. With regard to individuals, the point of attachment would be their Member State of residence. For transmissions originating in third countries, a catch-all element would need to be introduced.

Accordingly, a service provider would only need to obtain a licence for that Member State, regardless of where the customers accessing the service are established or reside (provided this takes place within the EEA) (e.g. outside the service provider’s country of origin). A necessary measure to establish country of origin is to have a sufficient level of harmonisation to avoid the risk of “establishment shopping”. Clear criteria of establishment should be adopted in order to mitigate the risk. Moreover, the – so far largely national – rules on authorship, ownership and transfer of rights would have to be harmonised at EU level as well as the rules on remuneration of individual creators and performers.

Enforcement related rules would also have to be adapted to ensure that right holders could, for example, still obtain an injunction against intermediaries established outside the country where the provider of an illegal, non-authorised service is established (even if there would only be a copyright infringement in the service provider’s country of origin).

2) Alternatively to the introduction of a “country-of-origin” principle, the “targeting approach” developed by the CJEU for localising a place of infringement could be further developed to take account of licensing. A service provider would need to obtain a licence for all targeted Member States only, regardless of where the customers accessing the service are established or reside.

A “targeting approach” would achieve for exclusive rights under copyright what Alternative 3a would achieve with regard to contracts: passive sales into non-targeted Member States would be possible without acquiring a separate licence for those Member States. Enforcement rules would also have to be addressed for infringements which occur in territories where the work can be accessed but where there is no targeting.

Under both options, the level of the licence fee to be paid to the right holder would still be a function of all customers that access the work or other subject-matter in question, including those established or residing outside the country of origin or, respectively, outside the targeted countries.