MAJOR EUROPEAN STUDY REJECTS CALL FOR AN EXTENSION OF THE 50-YEAR PERIOD OF SOUND COPYRIGHT

In 2005 the European Union commissioned the University of Amsterdam to undertake a thorough investigation of the vexed question of copyright. This study has proceeded at the same time as, and quite independently of, the British review by the Gowers committee whose recommendations were given in our last issue. Although both investigations covered many aspects of copyright, the area which has been of specific interest and concern to us has been the period of copyright on sound recordings. Readers will recall that the music industry in Britain was clamouring for an extension of the copyright period way beyond the present 50 years. This would have had the effect of halting the release of hundreds of CDs by independent companies of recordings over 50 years old, thereby depriving the general public of a source of music that has been virtually ignored by the major record companies.

The Gowers Review came down firmly against any extension, and we are pleased to report that the exhaustive study by the University of Amsterdam has reached the same conclusion. Both reports have been made available in full on the internet; in our last issue we published extracts from the Gowers Review: below you will find short extracts from the Amsterdam report.

"The Recasting of Copyright & Related Rights for the Knowledge Economy

final report

Institute for Information Law

University of Amsterdam

November 2006

Executive Summary

This study on the ‘Recasting of copyright and related rights for the knowledge economy’ was carried out by the Institute for Information Law* on commission by the European Commission. As does the call for tender that inspired it, the study covers extensive ground. Chapters 1 and 2 describe and examine the existing ‘acquis communautaire’ in the field of copyright and related (neighbouring) rights, with special focus on inconsistencies and unclarities, while Chapters 3-6 deal with distinct issues that were identified a priori by the European Commission as meriting special attention: possible extension of the term of protection of phonograms (Editor – this means gramophone recordings) (Chapter 3), possible alignment of the term of protection of co-written musical works (Chapter 4), the problems connected to multiple copyright ownership, including the issue of ‘orphan works’ (Chapter 5), and copyright awareness among consumers (Chapter 6). Finally, Chapter 7 provides an overall assessment of the benefits and drawbacks of the fifteen years of harmonisation of copyright and related rights in the EU and dwells on regulatory alternatives.

Chapter 1: Introduction Chapter 1 commences with an overall description of the process of harmonisation that has brought, in the course of 15 years, seven directives in the field of copyright and related rights. It goes on to discuss various institutional and exogenous issues relevant to the process of harmonisation Europe. The main focus here is on the question of competence of the EC legislature in the field of copyright and related rights.

Chapter 2: Consistency & clarity: consolidating the acquis? Chapter 2 examines the ‘acquis communautaire’ in the field of copyright and related rights, and identifies the main inconsistencies and unclarities. This chapter follows traditional categories: subject matter of protection; economic rights; exceptions and limitations; and collective rights management.

Chapter 3: Extending the term of protection for related (neighbouring) rights

Holders of neighbouring rights in performances and phonograms have expressed concern that the existing term of protection of 50 years puts them and the European creative industries, in particular the music industry, at a disadvantage, as compared to the longer protection provided for in the United States. Chapter 3 examines these concerns, first by describing and comparing the terms in the EU in the light of the existing international framework and existing terms in countries outside the EU, secondly by examining the rationales underlying related (neighbouring) rights protection and finally by applying economic analysis.

The authors of this study are not convinced by the arguments made in favour of a term extension. The term of protection currently laid down in the Term Directive (50 years from fixation or other triggering event) is already well above the minimum standard of the Rome Convention (20 years), and substantially longer than the terms that previously existed in many Member States. Stakeholders have based their claim mainly on a comparison with the law of the United States, where sound recordings are protected under copyright law for exceptionally long terms (life plus 70 years or, in case of works for hire, 95 years from publication or 120 years from creation). Perceived from an international perspective the American terms are anomalous and cannot serve as a legal justification for extending the terms of related rights in the EU.

An examination of the underpinnings of existing neighbouring rights regimes does not lend support to claims for term extension. Whereas copyright (author’s right) protects creative authorship, the rights of phonogram (record) producers are meant to protect economic investment in producing sound recordings. The related rights of phonogram producers have thus more in common with rights of industrial property, such as design rights, semiconductor topography rights, plant variety rights and the sui generis database right. Whereas all these rights share the same ‘investment’ rationale, their terms are considerably shorter, while setting higher threshold requirements. For example, whereas the database right requires ‘substantial investment’ in a database, the phonographic right requires no more than the making of a sound recording, be it a complex studio production or simply a matter of ‘pushing a button’ on a recording device.

Indeed, a good argument could be made for shortening the term of protection for phonogram producers. Given that the legal protection of phonogram producers is based on an investment rationale, it is important to note that the costs of owning and operating professional recording equipment has substantially decreased in recent years due to digitalisation. On the other hand, the costs of marketing recordings has apparently gone up. These costs now make up the largest part of the total investment in producing a phonogram. However, it is doubtful whether these costs may be taken into account as investment justifying legal protection of phonogram producers.

Insofar as marketing costs accrue in the goodwill of trademarks or trade names, phonogram producers or performing artists may already derive perpetual protection therefore under the law of trademarks. For the large majority of sound recordings the producers are likely to either recoup their investment within the first years, if not months, following their release, or never. If a recording has not recouped its investment after 50 years, it is very questionable that it ever will. On the basis of this finding it can be assumed that a term of protection of 50 years offers phonogram producers more than enough time to recoup their investment.

As the rights expire, recordings falling into the public domain will become subject to competition and falling prices, which will lead to a loss of income for the former right holders. Stakeholders argue that this will negatively affect future investment in A&R. However, it appears that only limited shares of phonogram producers’ overall revenues are currently invested in A&R, so the predicted negative effect on investment in new talent is likely to be limited.

Another argument that stakeholders have advanced in favour of term extension refers to the so-called ‘long tail’ (i.e. the reduced costs of digital distribution has created new markets for low selling content). A term extension might indeed inspire phonogram producers to revitalise their back catalogues recordings, and make them available to a variety of digital distribution channels. On the other hand, the immense market potential of digital business models should already today have provided ample incentive to phonogram producers to exploit their back catalogues in new media. The recent history of the internet, however, indicates that these opportunities have not always been seized by those stakeholders now asking for a term extension.

Stakeholders have also posited that not granting a term extension would distort competition between right holders based in the EU and their competitors in non-EU countries, where right holders may enjoy longer terms. It has been argued that foreign countries would apply a ‘comparison of terms’ to the detriment of EU right holders. This argument is wholly unconvincing, for various reasons. In the first place, the Rome Convention probably requires full national treatment, which rules out a comparison of terms by those countries that are bound by the convention. Moreover, many countries not party to the Rome Convention, such as the United States, do not apply a comparison of terms at all.

Another argument advanced by stakeholders is that a failure to bring the term of protection in the EU in line with the US will negatively affect the competitiveness of the European music industry. However, the competitiveness of phonogram producers is based on a wide variety of factors, intellectual property protection in general and the term of protection in particular being just one of them. Moreover, the worldwide music market is dominated by only four multinational companies (the so-called ‘majors’), that can not be characterised as either ‘European’ or ‘American’. Juxtaposing the interests of the European and the American music industries, therefore, would be wholly artificial. Even so, the market dominance of the ‘majors’ is an economic factor to be taken into consideration. A term extension would in all likelihood strengthen and prolong this market dominance to the detriment of free competition.

A final argument sometimes advanced in favour of term extension comes from the world of accountancy. It assumes that a longer term of protection would increase the value of ‘intangible assets’ in the balance sheets of European record companies. Granting a shorter term of protection to record companies in the EU than their competitors in the US already receive, would arguably result in a comparatively lower valuation of assets of European companies. This argument, however, is largely without merit.

The value of a record company’s own recordings is not regularly recognised as intangible assets by the record labels, and not capitalised in the balance sheets. Acquired catalogues of recordings are usually capitalised, but routinely written off well before the existing terms of related rights protection expire. A term extension will perhaps play a minor role only in the valuation of the goodwill of a record company in the context of a merger or acquisition. Even then, its effect will be minimal.

The fact that some recordings still have economic value as rights therein expire, cannot in itself provide a justification for extending the term of protection. Related rights were designed as incentives to invest, without unduly restricting competition, not as full-fledged property rights aimed at preserving ‘value’ in perpetuity. The term of related rights must reflect a balance between incentive and market freedom. This balance will be upset when terms are extended for the mere reason that content subject to expiration still has market value. The public domain is not merely a graveyard of recordings that have lost all value in the market place. It is also an essential source of inspiration to subsequent creators, innovators and distributors. Without content that still triggers the public imagination a robust public domain cannot exist. Admittedly, an argument could be made in favour of extending the term of protection of performing artists, since the reasons for protecting artists are comparable to those underlying author’s rights. However, in the light of existing contractual practices, it is unlikely that performers would actually fully benefit from a term extension, since record companies routinely require a broad assignment of the rights of the performing artists.

Therefore, extending the term of protection of performing artists should be considered only in connection with the harmonisation of statutory measures that protect the artists against overbroad transfers of rights. Obviously, a term extension would benefit only those artists that are still popular after 50 years and continue to receive payments from collecting societies and phonogram producers. This however concerns only a small number of performing artists."

Anyone wishing to read the complete report on the internet should input the following: http://eu.europa.eu?internal_market/copyright/docs/studies/etd2005imd195recast_report_2006.pdf The report runs to 305 pages on the website. To save you spending too much time finding what you want, it is suggested that you look from page 83 onwards of the document (which begins on page 103 of the computer file).

Now that two major reviews have rejected the call to increase the term for sound copyright, it is surely inconceivable that politicians will dare to ignore the findings. On a positive note it is important to remember the great benefits of the 50-year sound copyright rule:

1 recordings can be made available by independent companies if the original company that recorded them is no longer willing to keep them in its catalogue

2 when reissued, the career of the artist may well receive a welcome boost (there are several examples of this in recent years)

3 composers start receiving royalties once again

4 and most importantly: music lovers have the chance to hear and own music that might otherwise have been completely forgotten and lost to future generations.