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EU copyright reform: Option 3

Summary of impacts of Option 3a

Territoriality and absolute territorial restrictions in licencing agreements

A legally binding instrument that prevents the use of absolute territorial restrictions in copyright licence contracts could be an important step, achievable in the medium-term, towards the completion of the Digital Single Market, in particular in sectors where territorial exclusivity agreements are common (i.e. in the audiovisual sector). While such an instrument would constitute a limitation to the freedom to conduct a business and the property rights of the licence provider, this would be justified provided the provision is carefully calibrated to ensure its adequacy and proportionality, in view of the Treaty fundamental freedom to provide and receive services across borders. This option would allow cross-border competition between distributors, who would be able to enter new markets through passive sales. Allowing for increased cross-border access could favour larger companies with a cross-border network, over national network operators. Increased competition could lead distributors to review their offer and prices and, in the long term, may have a significant impact on the structure of the market.

The inability of right holders to guarantee absolute territorial exclusivity to distributors may reduce licence fees. This could be (partially) compensated by the fact that some distributors will increase their customer base and therefore pay higher licence fees. Because of the possibility of passive sales, right holders will no longer be able to price-discriminate effectively between national markets. This option may also have a significant effect on the financing and production of audiovisual content. It may also have an effect on cultural diversity. Consumers in higher-value territories- should prices be subject to equalisation – may benefit from the more aligned prices coming from cross-border competition, whereas customers in lower-value territories may have to pay higher prices than under the status quo.

These effects could be less pronounced in the case of services/content catering for local audiences and/or operating in languages not often used outside a specific Member State, as demand for actual cross-border access will likely be more limited. The effects will be greater in the case of service operating in widely spoken languages or providing less “language sensitive” content (e.g. music).

Rights in online transmissions

The application of the principle of exhaustion to all download-to-own services in the online environment could have the following impacts. The revenues of right holders could decrease significantly due to the emergence of a second-market of perfect digital copies. In the absence of well-working technical protection measures, re-sellers could abuse the principle of exhaustion via illegally keeping a copy of the re-sold work. This would have an unpredictable effect among the right holders affecting the cycle to investment. In theory right holders could increase the price for the first sale to a certain extent. This may not, however, be easily accepted by consumers. Distributors may have fewer incentives to innovate as regards certain aspects of their services; however, the opening of online second-hand stores would become possible. Consumers would most likely benefit from lower prices. First, because they could legally acquire second-hand copies and second, because the existence of a second-market would create pressure to reduce prices for the first sale as well. They would also be able to legally dispose of the digital content they have acquired online (e.g. to give it to heirs or as a gift).

If either browsing or linking is deemed to require the right holders’ authorisation, the introduction of a mandatory exception for these activities would ensure that neither links to protected content not the browsing of the internet would infringe copyright.

The bundling of rights could result in a shift of value among rights holders. Authors of musical works that form part of the Anglo-American repertoire, for example, usually transfer their right of reproduction to music publishers, and grant a mandate to a collective management organisation for the exploitation of the communication to the public and making available right. Such a splitting of rights would no longer be possible. Either the publisher or the collecting society would have to be granted both rights by the authors. At this stage, it is unclear whether a bundling of rights would rather favour, for example, collecting societies or publishers, therefore it is difficult to assess its effects on the distribution of wealth in the value chain.