„You cannot fall in love with a single market” - is reported to have said a former president of the European Commission – Jacques Delors indicating that the European Union is not only about market issues. However Commission's new project (launched in March 2010) – Digital Agenda concentrates mainly on the previous mentioned topic, pointing out as a first planned action the creation of digital single market. As we can read in the introduction to the agenda: “The overall aim of the Digital Agenda is to deliver sustainable economic and social benefits from a digital single market based on fast and ultra fast Internet and interoperable applications. The objective of this Agenda is to chart a course to maximise the social and economic potential of ICT, most notably the internet, a vital medium of economic and societal activity: for doing business, working, playing, communicating and expressing ourselves freely”. According to Commission the problem lays in the fragmentation of digital markets, as we can read in the document: “Europe is still a patchwork of national on-line markets, and Europeans are prevented by solvable problems from enjoying the benefits of a digital single market. Commercial and cultural content and services need to flow across borders; this should be achieved by eliminating regulatory barriers and facilitating electronic payments and invoicing, dispute resolution and customer trust”. However surprising this may be, digital single market does exist and it is so full of creative contents, that it may be assumed that consumers have fallen in love with it, but actually the problem is that this market being perfectly single, international and digital doesn’t abide by the law - I am referring to the music piracy and other forms of infringements of copyrights. When it comes to music contents on-line, EU consumers face difficulties with obtaining them legally, for example services of Apple Itunes are not equally available on the territories of all 27 EU members. However it should not be forgotten that there is also a great inconvenience for music suppliers. A potential owner of on-line radio station or on-line music shop has to negotiate music licenses with 27 copyright collecting societies (CCSs). The lack of a unified market and piracy are two related sides of the story which should be definitely dealt with. EU actions provided to overcome this problem inter alia consist in simplifying pan-European licensing for on-line works, simplifying the distribution of creative content, protecting intellectual property rights on-line. It should be noted that it is not the first time when the Commission is trying to deal with copyright management in the on-line environment – in 2005 a Study was published on the community initiative on the cross-border collective management of copyright in which was expressed the idea of introducing competition between CCSs and creating one-stop-shop in which potential contracting party could obtain one license for the music content from the EU countries.
In this paper I shall analyse the possibilities of creating digital single market for a specific creative content such as music, taking as a starting point the Commission's propositions. I will argue that current EU tendency to transform each policy to competitive market oriented one does not work in every case. I argue that when it comes to the art, which definitely is music, the automatic application of the competition law based on the traditional Chicago school of economics supported by transaction cost analysis is at least inadequate. I will argue that in such case the static competition should be replaced with Schumpeter's dynamic one or “creative competition” (Drexl, 2007). Another point is that prevailing methods of law and economics are not sufficient to analyse processes which occur in the cyberspace (Elkin - Koren, Salzberger, 2004). I will examine the music (as an information good) and CCSs using tools of economic analysis and will support the idea that the monopolistic form of collective management of copyright is a prerequisite to achieve goals of copyright law should therefore be maintained even in the digital environment for that same reason. I will propose an outline of the solution aiming at achieving some of Digital Agenda's goals presented above. I will pay attention also to the other side of the story, which is piracy. Using traditional economic tools but also referring to the behavioural economics I will observe the behaviour of “digital freeriders” and I will try to answer the question whether it is possible to inverse the proportion of legal and illegal consumption of the music in the cyberspace, changing it from the dominance of piracy.
II. Brussels calling3 – “the wind of change”4 or “another brick in the wall” ?5
It has been almost ten years since the first EU regulation dealing with copyright and there are still discrepancies between Commission's promoted approach and the behaviour of the music market player's – CCSs. The Digital Agenda is the latest document in which EU institution is trying to create a coherent model. It should be mentioned that the legal environment had never been so favourable to do it before. The article 118 of the Treaty on the Functioning of European Union (TFEU) has opened the gate for EU legislation and harmonisation in the area of the intellectual property. In this section I will present key points of the EU activities in the framework of music copyright and draw some general conclusions.
In the year 2001 EU institutions adopted the Directive on the harmonisation of certain aspects of copyright and related rights in the information society. This act was motived by the necessity of establishing internal market and the institution of a system ensuring that competition in the internal market is not distorted, but these were not the only reasons. Presented directive was also the response for World Intellectual Property Organisation (WIPO) Treaties – WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty which (as pointed out in the directive): updated the international protection for copyright and related rights significantly, not least with regard to the so-called "digital agenda", and improve the means to fight piracy world-wide. The signing of treaties by the EU Community and the majority of its members demands the actualization of the legislation. “The Directive harmonises the rights of reproduction, distribution, communication to the public, the legal protection of anti-copying devices and rights management systems. Particular novel features of the Directive include a mandatory exception for technical copies on the net for network operators in certain circumstances, an exhaustive, optional list of exceptions to copyright which includes private copying, the introduction of the concept of fair compensation for right-holders and finally a mechanism to secure the benefit for users for certain exceptions where anti-copying devices are in place”6. When it comes to the main topic of this paper, this act is important as an anti circumvention legislation which in my interpretation opened door to digital rights management (DRM). However, from my point of view, the most controversial documents, which on the one hand determine the line of EU copyright policy but on the other arise series of problems, were the non-biding recommendation and study of the Commission on cross-border collective management of copyright. In October 2005 the Commission adopted Recommendation on collective cross-border management of copyright and related rights for legitimate on-line music services. Its main assumptions based on the freedom of the right-holder to determine rights to be entrusted on-line for collective management and also the right to choose any collective manager irrespective of the Member State of residence or the nationality of either the collective rights manager or the right-holder. The recommendation was preceded by Study on the community initiative on the cross-border collective management of copyright. Few months later Impact assessment reforming cross-border collective management of copyright and related rights for legitimate online music services was published. These documents considered three options of resolving the problem of on-line copyright management: (1) Do nothing; (2) improve cooperation among collecting societies allowing each society in the EU to grant a EU-wide license covering the other societies’ repertoires; or (3) give right-holders the choice to appoint a collective rights manager for the on-line use of their musical works across the entire EU (“EU-wide direct licensing”). After economic and legal analysis, the third option was chosen. Freedom to determining certain rights for collective management is in line with the Commission's decision in Daft Punk case7. “The case concerned the application by two members of the band, Daft Punk, to become members of SACEM (French CCS) in respect of their rights in France except for some categories, including on-line exploitation. SACEM refused membership stating that it protected artists from unreasonable demands of the record industry and prevented a cherry-picking of the most valuable rights. The Commission considered this refusal as a disproportionate ban on individual management of the rights in question contrary to Article 82 of the Treaty [art. 102 TFEU] argued inter alia that technical progress enables authors to manage certain types of rights individually, economically and technically as new technologies have reduced transaction costs”8. The second presupposition from the recommendation, stays against the membership and territory clauses which were subjects of the Commission's investigation in the case of Santiago agreement and the latest and the most important CISAC case. Briefly explaining, the Santiago case concerned bilateral agreements between collecting societies regarding the granting of one-stop-shop central licences for public performance rights, but the right-holders were obliged to entrust rights to their national CCS. The press release from 3rd of May 2004 stated that the Commission opened proceedings into collective licensing of music copyrights for on-line use. The European Commission had warned sixteen organisations that the fact of collecting royalties on behalf of music authors, that their so-called Santiago agreement was potentially in breach of the European Union competition rules9. This line of thinking was continuing in the crucial CISAC case. The European Commission has adopted an antitrust decision prohibiting 24 European collecting societies from restricting competition by limiting their ability to offer their services to authors and commercial users outside their domestic territory. In particular the decision requires that the 24 EEA-based collecting societies, which were members of CISAC, do no longer apply:
the membership clause, that prevents an author from choosing or moving to another collecting society,
territorial restrictions that prevent a collecting society from offering licences to commercial users outside their domestic territory.
On the 7th of February 2008 the Commission published its monitoring report – Monitoring on 2005 Music online recommendation in which it was assumed inter alia that when it came to EU-wide licensing, some initiatives have been taken and resulted in creating several EU-wide licensing platforms. Digital Agenda is another step in the consequent Commission's policy of creating competitive on-line music market through minimizing the monopoly role of the CCSs and creating pan-Europe license platforms reflecting the idea of the one-stop-shop. However, despite certain plans and schedules, anticipated actions have not taken place yet. The Commission was supposed to publish by the end of the year 2010 an impact assessment and a draft proposal on simplifying the licensing of content (music and sound recording, audiovisual works, print materials) on a multi-territorial basis. Such a document is not available yet. When it comes to regulation of the CCSs, according to what Michel Barnier, Commissioner of the Internal Market and Services said during Copyright in digital era meeting in Cannes on the 22th of January 2011, a legislation proposal may be expected in this year10.
To sum up, it should be noted that for almost 10 years the Commission has been leading quite coherently, when it comes to the essence of matter, policy of harmonizing copyright law and copyrights management, trying to put up together different national elements. The idea of a wider market orientation and competition is consequently repeated in the documents and decisions of the Commission. However, it conducts national CCSs to confusion, because on the one hand they are expected to popularize their repertoires on the pan-European scale, and on the other their position is weakened by the contracting restriction eliminating some clauses from the reciprocal agreements. In my opinion the Commission's idea of the digital market for creative contents is mistaken. I will mark out here some basic objections which I will develop in the following sections of this paper. The idea of competition and competitive market as a universal remedy for any market failure, as a miraculous instrument beneficing consumers and increasing social welfare does not work in the area of copyright, because of the specification of this sector. What is more, actually arguing for several pan-European platforms would not lead to competitive market, but rather to inefficient oligopoly in which the biggest and the strongest CCSs will dominate the market. Neither would it be beneficial for right-holders and consumers, nor for users which in every case will apply for license from every platform to ensure the greatest repertoire possible, so compared to the current situation it will only minimize the number of market agents to contact with from 27 to a few. Nevertheless, what is worth appreciation is the perception of the problem and of the necessity of harmonising and regulating it. In the following parts I will provide economic analysis of problems mentioned above and draw conclusions in order to present my solution for creating on-line music market.
III. Music as an information good in the cyberspace – “we will rock you”11!
The economic analysis of the copyright law and the role of CCSs cannot be done without getting to know what it is all about, I mean without investigating its essential content – art and culture. The contemporary economics of art started in 1966 with the publication of Baumol and Bowen dedicated specifically to this area12. In this part I will provide the identification of the music as an information good and prove that its economical characteristics, along with non-economical reasons, demands the monopolistic form of management when bringing these goods to the market.
The so-called new economy is the economy of information goods whose value is derived from the information they contain. They have some typical features for public goods – non-rivalry and non-excludability which means that the consumption of the good does not influence the availability of the good for consumption for other people and that nobody can be effectively excluded from the consumption of the good. Although it is arguable whether such good may exist in the real world, but it definitely exists in the virtual one – MP3 files exchanged freely (and often illegally) are a good example. However, Koren and Salzberger argue whether the paradigm of public good nature of information good can be still applied in the cyberspace, because of the technology being the tool that may help to save creative content from infringement. Nevertheless, in my opinion the existence of the enormous problem of on-line piracy shows something totally different. What is more the same tool may be used as a circumvention to protective measures, so I would be rather sceptical about the resignation from government intervention in the cyberspace and about questioning the necessity of IP regime. It should be assumed that music, which can be easily coded digitally and transferred fast, is the information good. It implies that fixed costs of the process of creation are very high, but marginal costs are relatively low. Such a situation provokes great economies of scale and this phenomenon is typical for monopolies. Here comes the first argument why markets of information goods may be called natural monopolies. Music can be also characterized as experience good which means that it should be consumed in order to get to know its value. This statement is especially relevant when it comes to piracy and copying – some argue that illegal peer-to-peer file sharing may have a sampling effect which will result in the increase of legal sales of music. The sampling story basically argues that file sharing allows consumers to experience music in a more complete manor prior to purchase than they would have been able to do, were they to use the more traditional methods of learning about music: hearing it on the radio or at a friend’s house (Liebowitz, 2006). Personally I do not support this effect at all, if the consumer has the possibility to obtain a good at no cost, he will rarely decide to buy it – I will develop this topic in the section about piracy. Music is also characterized by the excess of information – a great volume of available commodities significantly increases costs of processing information in order to find the searched one. This feature in my opinion is crucial when it comes to cyberspace, because it generates information costs and it is also consequently omitted by the followers of introducing competition into cross-border copyright management. The Commission argues that in the on-line markets transaction costs are lower, so that the main reason for existing the CCS's monopoly is undermined. However it is an example of the automatic application of pre-cyberspace law&economics without consideration of the different environment. As Koren and Salzberger argued, cyberspace demands revising different approaches of law and economics and draws the necessity of noticing the new effects which it produces. When it comes to transaction costs cyberspace may significantly reduce or even eliminate some of them, but on the other may increase or create new ones – it is the case of the information costs. On the one hand cyberspace facilitates the searching procedure of any good, but on the other the overflow of information may outweigh the first effect.
Summing up, nowadays when music e-commerce can fully substitute traditional market (Koren, Salzberger 2004) the right economic analysis is especially important, but also very difficult, because of the fact that cyberspace has provoked the necessity of revising traditional micro-economic theory and Coasian model of transaction cost. What should be taken into consideration as the fundamental condition is the technology which is constantly changing. In my opinion, contrary to Koren and Salzberger, music in cyberspace maintains its public good's nature which fact provokes a great market failure – piracy. Another existing market failure consists in the overflow of information which influences transaction cost. Accounting for high fixed production costs and economies of scale collective rights management seems to be a good solution from the economic point of view. However it is not only about economics, copyright regime, which aims partly at providing incentives for creating, it is also about moral rights of authors. The CCS doesn’t only defend the economic interests of artists but in many cases functions as authors’ trade unions, as
instruments of cultural policy and as a form of social insurance (Towse, Handke, 2007a). Introducing competition between them will not result in more efficient operation of CCSs and emergence of new markets, inter alia because technology is part of cyberspace competition. The dominant position should not only be associated to the power of setting prices, but also to the power of setting technology standards (Koren,Salzberger, 2004). The Commission seems to omit such a conclusion. In my opinion, realizing its idea will lead to technology race and oligopoly of the winners of this race rather than social welfare benefits. It seems that introducing competition is an end in itself instead of being a tool for achieving goals. It should not be forgotten that “Copyright protection — the right of the copyright’s owner to prevent others from making copies — trades off the costs of limiting access to a work against the beneﬁts of providing incentives to create the work in the ﬁrst place. Striking the correct balance between access and incentives is the central problem in copyright law”. (Landes, Posner 1989). Making in this section some remarks about role of CCS, in the next part I will develop a comprehensive outlook on CCS, pointing out advantages of the current system.
IV. CCSs – “highway to hell”13 or “stairway to heaven”14?
Copyright collecting societies (CCSs) play a key role in the field of copyright management. They are non-governmental non-profit organizations, which administer the rights of copyright holders. They negotiate licences with users and receive payments they distribute among their members (Rochelandet, 2002). They are legitimate objects of protecting rights of their individual members against major exploiters and distributors of copyright works and providing on efficient means of ensuring that rights in their members work are respected. (D.C. Turner, 2010). In the area of EU competition law they are regarded as an undertakings15. Collecting societies in EU Member States usually hold monopolies in their respective national markets. Some states even provide for a legal monopoly – Austria. In contrast, other countries do not legally guarantee a monopoly still, their legislatures may react to the development of natural monopolies with specific regulation. (Drexl, 2007). Such a situation does not seem to be a coincidence, there must be something behind it which in almost all cases leads to monopoly. Nevertheless the Commission's idea is to totally reorganize this model, introducing competition among CCSs which is supposed to benefits right-holders, users and consumers. In this section I will argue that such a goal can be hardly be achieved.
2. Economic functions of CCSs
The main and the most basic function of collecting societies is that collective rights managements (CRM) reduce transaction costs. The potential commercial user can obtain the wide repertoire from the one market agent instead of searching for every right-holder. What is more, individual managing may result quite expensive, not only because of high fixed costs, but also because of the fact that single copyrighted work may have a small value for the user who will be eager to pay lower price which may not cover fixed cost. Collective rights management does not face this problem, because it benefits from the economies of scale. In the case of copyright, transaction costs may include (a) identifying and locating the owner, (b) negotiating a price (this includes information and time costs), (c) monitoring and enforcement costs. The economic literature on collecting societies tends to accept a transaction cost rationale for their existence (Kretschmer 2005). According to the elements I have mentioned above, are the CCS's monopoly efficient and do they promote social welfare in terms of traditional economy? The answer seems to be quite simple: if the total savings in transaction costs offsets the higher price a monopoly would charge due to its position then there is an overall welfare gain. (Towse, Handke, 2007b) However, some consideration should be made in order to monopoly prices. Opponents of the existing system always argue that monopoly implies imposing exorbitant prices. Nevertheless something totally different may be assumed. Parisi and Depoorter's (Parisi, Depoorter, 2003) model reveals that price coordination and monopolistic pricing do not in all circumstances produce inefficient equilibria. Because complementary inputs push oligopoly to higher prices and greater quantity restrictions, monopoly may paradoxically represent a second-best alternative. Here comes a question, whether repertoires of different CCSs may be regarded as complementary goods? I support the thesis that they can be named quasi-complementary goods. They do not have all essential features of mentioned commodities – as for example it would almost be impossible to prove that the increase in price of one of them would provoke the same effect for the other one, but we can admit that it’s an advantage to consume them jointly. Taking as an example the commercial user, a potential owner of radio station – to provide a great volume of music, he will be interested in collecting all possible repertoires. In the USA the majority of commercial users have licenses from all existing CCSs16. Taking into account the above mentioned I agree with the Katz (Katz, 2004) when he assumes that songs become complementary inputs in the production of this program when user is required to play very specific songs in some fixed proportion, but I totally do not understand his doubts when he says that the previous assumptions is hardly realistic. Playing specific songs in fixed proportions is the idea of different kinds of music radio auditions. Agreeing that different repertoires may be perceived as quasi-complementary goods and considering the theory of monopoly as the most efficient system, we shall move to the problem of the anticommons tragedy which is related to the above mentioned. Anticommons are a property regime in which multiple owners hold effective rights of exclusion in a scarce resource (Heller M.A., 1998). In the model of Parisi and Depoorter this problem is resolved through the collective right management in favour of monopoly under condition that we deal with complementary goods. Another argument acknowledging the assumption of quasi-complementary goods and simultaneously the tendency for obtaining licences for all existing repertoires is a superstar phenomenon. Superstar phenomenon bases on the fact that a relatively small number of people earn enormous amounts of money and dominate the activities in which they are committed (Rosen S.,1981). It should also noted that small differences in talent at the top of the distribution will translate into large differences in revenue. When it comes to music market, the trick lays in the fact that at the beginning nobody knows who will become a superstar. So that, just ensure that in music the commercial user has, the superstar is included, he will go for all the repertoires. Another argument supporting the existence of CCS is related with the imbalance of power and information asymmetry17. Individual management will require from the right-holders individual negotiations of license. In such business the commercial user tends to be more experienced and to be the predominated party who may benefits from the information asymmetry between him and righ-holder. CCSs may counterbalance such asymmetries, but certain government regulation should also exist to prevent aberration on the other side. CCS is also more efficient and effective when it comes to monitoring and enforcement.
Making some final remarks, I will enumerate economic concepts which appeal to collective rights managements. CCSs reduce transaction cost, benefits economy of scale, prevent tragedy of anticommons, counterbalance information asymmetry, reduce costs of enforcement and monitoring. The theory of “complementary monopoly” states that this form of managements implies lower prices and also solves the problem of superstar phenomenon.
3. Competition ! But which one ?
As it was mentioned before CCSs are the subject of EU and national competition law. Their monopoly position creates a great risk of infringing antitrust regulations. Decisions of the Commission and national competition authorities show that CCSs may contravenes art. 101 TFEU as well as 102 TFEU. Possible infractions consist in conducts toward members, users and reciprocal agreements between CCSs18. Just to prevent such situations the Commission supposes that introducing competition between CCSs will cure mentioned pathologies, but it rather seems that it will not. In the Impact assessment reforming cross-border collective management of copyright and related rights for legitimate online music services Commission points out that: “The freedom to choose the CRM which provides the best service would lead to a society being chosen on the basis of the right-holders’ best cost-benefit analysis with respect to quality of service provided and provisions charged by the CRM. Right-holders choice will enhance transparency, accountability, royalty distribution and the quality of enforcement”. Such a statement is no less a own goal of the Commission, because it leads to monopoly or at least oligopoly. If the CCSs are obliged to admit every member on the non-discriminatory basis, so right-holders will make their way towards the CCS which will provide the greatest benefits, because of economies of scale it would be probably the biggest one. In such case network externalities will come into play, because the greater amount of right-holders equals the greater economies of scale which means the greater benefits and the greater protection. If we assume that CCSs are not obliged to admit members on the non-discriminatory basis, it affects the creativity and the development of the music. In such a commercial situation, normally English language, pop music will be favoured as the one bringing the biggest benefits and some minor, alternative music communities will not have their representatives (Ricolfi, 2007). Concluding the above mentioned, competition proclaimed by the Commission would not be beneficial for the sector because or it might either lead to monopoly or to a decrease of the amount of music available. More, such a static and classical model is no more worth in the conditions of cyberspace, where what decides about the market power is the ability to set technology standards (Koren, Salzberger, 2004). In a line with the Commission's approach, competition will lead to the existence of lots of CCSs which will compete with each other in order to attract as many right-holders as possible. However, the fact that there are many agents in the market does not obviously result in competing (Drexl, 2007). Here comes a question – should we wholly resign from the competition? The answer is no, what should be done is rather a change of the model of the competition from the static one to the dynamic one. The idea of dynamic competition was for the first time developed by Schumpeter who created the now oft-cited concept of creative destruction. According to this concept, monopolies are not so bad after all, since they will always be overturned after a while by competitors offering more innovative products. Maybe the innovation, when it comes copyright, is not the most appropriate paradigm as it has bigger utility when it comes to other areas of intellectual property. Nevertheless it should not be forgotten what are the objectives of copyright law. The aim is to protect authors and to give them incentives to creation, it is all about creativity and cultural development of the country or more widely - EU. Market oriented policy will promote mass taste and popular culture killing the alternative and innovative one. That is why I really support the idea developed by Drexl of a creative competition system that promotes cultural diversity and creativity, and would guarantee a non-discriminatory market access to all categories of rights and then leave it to consumers to decide which music they like most. It has to be admitted that this concept of ‘creative competition’ has to face considerable lack of competition between collecting societies and has to rely on cooperation between collecting societies on the basis of reciprocal representation agreements.
To conclude the above mentioned, the sum of economic concepts prove that the existence of monopoly form of CCS is not only justified, but also necessary to retain the objectives of copyright. The idea of creative competition expresses directly what copyright is about. I personally doubt in the necessity of competition between CCSs, their role is to intermediate between artists and users, their role is to bring music to the market on the non-discriminatory basis, provide fair royalties and monitor uses of licensed rights. It should be the final consumers who on the free, competitive market decide which music they like the most, but they should have the opportunity to choose between all available kinds of music, including innovative ones. That is why I am not really convinced in applying competition law to copyright, at least in its static form aiming at allocative efficiency. The fact that in Canada competition law has almost nothing to do with copyright law and CCS system is worth notification.(Katz, 2004) One more question should be answered – whether all the elements that have been mentioned above make sense in the cyberspace? Yes, definitely. It is argued that the on-line markets reduce transaction cost, but such a consideration does not count with the fact that is also generates new ones. What is more, cyberspace provokes an overflow of information and individual management may not be efficient, especially when taking into account the tragedy of anticommons. Also, digital rights management which is supposed to eliminate the monitoring role of CCSs will be more effective when used collectively. Referring to the economic arguments, one more time supporting Drexl – individual rights management may not be available for niche, “innovative” music. Individual on-line exploitation is not equally accessible for all right-holders. Commercial users of on-line rights do not want to use single rights, but music titles. Such titles, however, involve a number of different rights, namely the copyright of the composer and the song writer, the neighbouring rights of the performing artists and the phonogram producers. Therefore, individual exploitation over the internet can only work if the relevant rights are licensed in a bundle. This is why original right-holders, authors and performing artists will only be able to license directly to users in exceptional circumstances (Drexl, 2007). After proving that CCS still have the right to exist in the following section I will suggest some solutions as a model for digital single market for creative contents.
V. My ideas - “ You may say I am a dreamer ... “19
As I have shown throughout my paper I almost totally disagree with the Commission's propositions, but also although I really support the idea of creative competition developed by Drexl, I am not convinced that maintaining status quo of reciprocal agreements or following solution presented in the case IFPI/Simulcasting would be the good solution. I would rather opt for harmonising the functioning of EU CSSs and trying to create one unique platform, similar to the rights-clearing-house in Canada or even for creating one super single CCS dealing with on-line market. Below I will develop my ideas.
Art. 118 TFEU : In the context of the establishment and functioning of the internal market, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish measures for the creation of European intellectual property rights to provide uniform protection of intellectual property rights throughout the Union and for the setting up of centralised Union-wide authorisation, coordination and supervision arrangements has opened the gate regulation of CCS on the European level. I agree with the reflections of German CCS – GEMA20 which suggest that a horizontal framework directive should be enacted, enabling to cover all of the activities of collecting societies. One of the most important objectives is to regulate the questions which raise the different types of problems in the area of competition law such as: kinds of rights entrusted to CCS, conditions of licences, tariffs, control of tariffs imposed in contracts. Also in my opinion the problem of on-line licensing should be resolved and I do not think that in this case only directive would be sufficient. I argue that creating, one pan-European platform or one-stop-shop (one super single European CCS) or at least clearing house (as Rights Clearing House in Canada or Copyright Data Clearinghouse in Japan) would be a good solution. The idea lies in the creation of a data base of all repertoires from all CCS which will enable to get the licence for the chosen music more easily. We may wonder whether such a platform should only broke licenses which would be issued by a certain national CCS or should a new pan-European CCS be created? In my opinion everything depends on the level of regulation. Keeping in mind the conclusion that: the most restrictive the system is, the less harm it does to competition - the more restrictive a legal control gives rise to the lower monopolist rents (Rochelandet,2003) EU legislation should provide very strict and detailed regulation. It should have as objectives to create the system which will bring to the market, on a non-discriminatory basis, all music created by any author within the territory of the EU. It should simultaneously create the system which will enable to get licenses for the broad repertoire in the fastest and most efficient way. I support the idea of creating one European super single platform granting EU on-line licenses. The membership would by obligatory for any national CCS with all its repertoire unless the will to exploit one’s rights on-line individually is clearly expressed. The potential user would be obliged to determine the type of music and provide his data, the system would then generate the license fee which however would not be the license of the certain national CCS, but a universal fee prepared on the basis of the EU legislation. When it comes to fees, guidelines of the Spanish competition authority are worth consideration21. Just to prevent unfair fees, the ex-ante and ex-post control should exist. What is more, the price should be fair and equitable which means that there should be a reasonable relation between the economic value of the repertoire's use, its relation with the actual use and its appropriateness to the repertoire. Such a platform will play also a monitory function and using new technology prevents infringements.
The above mentioned is a very general outline of my solution for on-line market for creative contents. Obviously, it demands amplification and getting more into details, but summing up I will conclude by underlining basic ideas and objectives. This system would be a pan-European data base (fulfils the demands of transparency of repertoires) but would have more than just an informative function. This platform, composed by national CCS would grant the EU licences for the music the potential user applied for. Individual users would not have access to the system. Its function would be also to prevent piracy, through monitoring and using methods of digital rights managements. In my opinion such a solution fulfils assumptions of creative competition – gives access to the music of all authors on the non-discriminatory basis. What is more it is quite an efficient method – one-stop-shop minimizes transaction cost and benefits economies of scale. Nevertheless, such a system could be very problematic from the legal point of view – we may ask ourselves whether it should be the EU agency or rather the joint venture of the national CCSs? The second form undoubtedly will raise problem within the EU competition law. However in my opinion benefits from such a solution should be sufficient to grant exemption on the basis of 101.3 TFEU.
6. “I am a passenger and I [free] ride and I [free] ride”22 - piracy as a digital freeriding
The creation of digital on-line market cannot be considered without keeping in mind the obstacle which in my opinion is even more dangerous than the vagueness of the CCS's regulations. I am referring to piracy which is an enormous problem especially within cyberspace. Although it is not the main topic of the paper I would like to introduce some basic data and make some comments to point out the importance of the problem.
According to Executive Summary from March 201023 commissioned by International Chambers of Commerce's BASCAP initiative, piracy driven losses in Europe to creative industries (2008) were calculated for 9,9 billion euros in all countries from EU and are estimated to grow at an annual rates in excess of (there are two scenarios) 18% or 24% reaching in 2015 respectively the amount of 32 or 56 billion euros. Even being sceptical toward statistics, we can only be appalled by such pieces of information. What are the reasons of piracy? In my opinion it is a mixture of legal and market failures assisted by a specific psychological approach. The public good nature of music and low marginal costs make music vulnerable to copying. In the cyberspace it occurs at almost no cost. The scale of the practice and the doctrine of fair use and special characteristics of personal use (ex. legal copying for individual use) make it nearly impossible to execute legally. What is more, in many countries getting legally on-line creative content is impossible. Using methods of classic law&economics applying to crimes, the rational person commits crime when expected utility is greater than the cost of punishment, keeping in mind also the possibility of being caught. However, this raises two specific problems: piracy is not perceived as a crime and people are not rational. According to a survey made by Maffioletti and Ramello (Maffioletti, Ramello, 2004) among students (who are the most frequent digital freeriders), depending on the experiment, the perception of copying as an illegal act oscillated about 65%, as a criminal act – 5% , as an unethical act – 35%. About 95% respondents admitted that the price of a legal CD is too high. Applying behavioural law and economics to digital freeriders, we may observe that consumers are under optimism bias, which means in this case that they underestimate the likelihood of negative event and actually they are quite right because the chances of detecting piracy is very low.
In order to avoid such a phenomenon, what should be done? How to persuade consumers to act legally in spite of the fact that they have possibilities of gaining good at no cost with very low possibility of being detected? Paradoxically, in my opinion introducing digital market will have a positive influence, on the one hand will enable gaining legally all kind of music to all habitants of the EU territory and on the other hand digital format will decrease the price in comparison to CDs. I think that cooperation between CCSs and Internet suppliers should contribute to increase search costs of illegal music. If the consumer has the possibility to buy legal music fast and cheaply, he will not lose time in freeriding. When it comes to users' policy towards consumers, bundling and tying practices should be used – creation of music portals with personalized subscriptions which will provide not only music but also music news, special offers, discounts for concerts of favourite music groups will be an attractive way to tie clients. DRM and effective and fast legislation will also play a key role. Recently in Spain there has been a great discussion about the controversial modification of the bill, called Ley Sinde24. Ley Sinde would enable to shut websites, which contain illegal subjects infringing intellectual property, just after administrative procedure instead of trial before the court. Such an act undoubtedly fasten the procedures, but on the other hand the problem of potential errors made by the administration remains.
The problem is very difficult and I think impossible to solve completely, however it should not be underestimated and stay under shadow of the CCS's regulations discussions.
8. “Oh no I've said too much[?], I set it up”25 - conclusions
Summing up what has been previously mentioned, the creation of digital single market for creative contents plays a very important role in the EU market integration, however the Commission's proposes do not seem to be the right solution. They lack consideration of copyrights law objectives, automatically promoting competition as a salvation for every sector. My idea is to create one single platform for all territories of the EU members or composed by all national CCS (rights clearing house) or as the totally independent EU agency, regulated in every case by a strict EU law. Another problem which is related to the above mentioned is piracy, which execution should be considered as important as the agreement about CCS. Personally, I do not think that the Commission would change its plans and probably within a few years we may expect the binding EU directives as reflecting the idea of competition. I do not predict a great success for such an initiative, but surely it may be found out in the future.
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*Student at the Law Faculty of Warsaw University, currently carrying out scholarship Erasmus at the Law Faculty of University Complutense in Madrid.
1John Lennon, „Imagine”.
2The Clash, „Lost in the supermarket”.
3Inspired by The Clash, „London calling”.
4The Scorpions, „The wind of change”.
5Pink Floyd, „Another brick in the wall”.
6Europe Commission Press Notice on the adoption Directive on copyright in the information society by the Council IP/01/528.
7 Decision by the Commission of 12.08.2002 in case COMP/C2/37.219 Banghalter / Homem Christo (Daft Punk) v SACEM.
8 Intellectual Property and Competition Law Collective Rights Managament in the online world. A review of recent Commission initiatives, Torben Toft, -8.07.2006.
9 European Commission press notice of European Commission proceedings against the 16 nationalCCSs in the ‘Santiago Agreement’.IP/04/586.
10 SPEECH 11/40/ Michel Barnier, Commissioner Internal Market and Services, Copyright in the digital era.
11Queen, „We will rock you”.
12 see also: Handbook of Economics of Art and Culture, Ginsburgh, North Holland 2006.
13AC/DC „ Highway to hell”.
14Led Zeppelin „Stairway to heaven”.
15 see also Commission' s Decision 71/224/EEC of 2 June 1971 relating to a proceeding under Article 86 of the EEC Treaty (IV/26.760 ° GEMA; OJ 1971 L 134).
16 see: Michael Einhorn, Intellectual Property and Antitrust: Music Performing Rights in Broadcasting, 24 Columbia-VLA Journal of Law and the Arts 349, at 362 (2001).
17 see critically on that issue: Hansen G and Schmidt-Bischoffshausen A., 2007, Economic functions of collecting societies – Collective rights management in the light of transaction cost- and information economic, a conference paper for Society for Economic Research on Copyright Issues Annual Congress 2007, Draft Version, 18.10.2007.
18 see more: Turner D.C., 2010, Intellectual Property and EU competition law, London: Oxford University Press.
19John Lennon „Imagine”.
20 Public Hearing on The Governance of Collective Rights Management in the EU Friday, April 23, 2010 / Albert Borschette Conference Centre, Brussels .
21Informe sobre la gestión colectiva de derechos de propiedad intelectual, Comisión Nacional de la Competencia, 12.2009.
22Iggy Pop, „The Passenger”.
23Building a Digital Economy : The Importance of Saving Jobs in the EU’s Creative Industries / Executive Summary, March 2010, International Chamber of Commerce (ICC) and its initiative BASCAP – Business Action to Stop Counterfeiting and Piracy.
24Disposición final segunda de la Ley de Economía Sostenible.