The European Parliament has just approved the highly-contentious Copyright Directive which seeks to update copyright to address issues that normally arise in digitally-transformed economies.

The Directive is clearly a boon for copyright owners and a bane for those who have managed to get accustomed to aggregating, sharing and mining others’ content freely and without second thoughts.

In July 2018, the Directive in its original format was rejected by Members of the European Parliament (MEPs) following vociferous criticism of Articles 11 and 13, dubbed by opponents as the “link tax” and the “upload filter” respectively. However, this morning an updated version of the directive was overwhelmingly approved in the European Parliament with 438 votes in favour and 226 against (there were also 39 abstentions), together with amended versions of Articles 11 and 13 on the basis of which the original Directive text had been rejected. The full text of the Directive as it stands at present is available here.

Not Yet Fait Accompli

The ramifications of this decision will be wide-ranging, and will take some time to settle fully. The Directive itself still has to go through a final vote in January 2019. Now that MEPs in Strasbourg have voted in favour of the adoption of this Directive, the next stage will be the trilogue, which comprises discussions between the European Parliament, the European Commission, and the European Council. Once the trilogue discussion process is over, the final vote will then take place. If, as is likely to happen, the vote is in favour of the adoption of the finalised Directive text, the timelines for transposition will then take effect, with each individual EU nation needing to decide on how it will implement the Directive into national law. On a different but equally important note, even though many believe that once it has made it through the first reading, the Directive is very unlikely to be rejected in January 2019, there is still the possibility, however small it might be, for the vote to be overturned.

If it is not, it will then need to be implemented by individual EU Member States. Given that this is a Directive rather than a Regulation, there might be significant variations in the way in which Member States decide to interpret and apply the Directive’s text.

The Salient Points Of The Copyright Directive As It Stands Right Now

The salient points of the Directive-to-be may be summed up into 6 main points.

  1. Tech companies have to share revenue with journalists, publishing houses and artists;
  2. Authors and performers may claim additional remuneration from the party exploiting their rights when the remuneration originally agreed is disproportionately low compared to the benefits derived, and such benefits should include “indirect revenues”;
  3. Significant changes will take place in how link-sharing and text snippets can be reproduced;
  4. Exemption from the Directive for small and micro platforms;
  5. uploads do not breach copyright rules must be designed in such a way as to avoid catching “non-infringing works;
  6. Exclusion of Open Source Platforms like Wikipedia and GitHub from the Directive;
  7. Educational instruction is exempted from copyright obligations under specific conditions;
  8. Prohibition of text and data mining where such activities comprise reproductions of copyrighted works and do not fall under any of the exemptions granted.

The Copyright Directive In More Detail

Since its rejection in July 2018, the Copyright Directive has gone through a number of amendments that have been claimed by the Directive’s supporters to be intended to ascertain that artists, notably musicians, performers and script authors, as well as news publishers and journalists, are decently remunerated for their work when this is reused and distributed by User-Generated Content platforms like Facebook or YouTube, as well as news aggregators like Google News.

Following the vote, German MEP and rapporteur Axel Voss claimed that the Directive had gone through despite a very strong lobbying campaign by the internet giants and that this effectively addressed the need to protect the principle of fair pay for European creatives. He went on to say that the concerns raised about innovation were addressed by excluding small and micro platforms or aggregators from the scope of the Directive and that once the Directive is effectively implemented, the internet will be as free as it is today with the exception that content creators and journalists will be earning a fairer share of the revenues generated by their works. MEPs that were against the Directive, like Julia Reda of the Pirate Party, described the outcome as “catastrophic.”

The Directive strengthens the European Commission’s plans to pass on copyright infringement liability onto online platforms and aggregators. Text snippets, where a very small part of a news publisher’s text is displayed also comes in the crosshairs of this Directive. This will effectively require online platforms and aggregators to pay copyright holders for copyrighted material that they make available on their own platforms. Moreover, the Directive mandates that the journalists themselves, rather than just their publishing houses, benefit from recompense emanating from this obligation.

In trying to deflect one of the major points of criticism that defeated the Directive in July 2018, namely the impact that this Directive would have on European high-tech start-ups, the Directive text now exempts small and micro platforms from the Directive’s obligations. While this does not solve the problem, it does shift it from the early stages of a platform-based enterprise onto later stages. Indeed, this effectively means that some platforms will never be able to grow as they beyond their small size, as at that point they will be sandwiched between prohibitive investment costs in filtering technologies (YouTube’s is reported to have cost USD 60 million thus far) and the onerous obligations of the Directive from which they will no longer be exempt upon growing. This, in turn means, that such enterprises need to remain small by design or that they would need to branch out of the European Economic Area if they absolutely need to grow beyond that size when the exemptions no longer apply.

The Directive text as it stands at the moment exempts, through Article 11, the sharing of hyperlinks to articles if the description text is made up of individual words. It also takes sharing for individual private and non-commercial use out of the scope of the Directive.

Article 13 of the approved text directs that “cooperation between online content service providers and right holders shall not lead to preventing the availability of non-infringing works or other protected subject matter, including those covered by an exception or limitation to copyright”. The text further directs Members States to ascertain that online content sharing service providers have effective and expeditious complaints and redress mechanisms in place and that these are accessible by users in the event that the cooperation referred to above is conducive to unjustified content takedowns. Complaints filed under these redress mechanisms need to be processed rapidly and they also need to be subject to human review. The cost of this measure cannot be underestimated as artificially intelligent algorithms are explicitly disallowed, thereby establishing this as a labour-intensive process.

The Directive also specifies that “providers of cloud services for individual use which do not provide direct access to the public, open source software developing platforms, and online market places whose main activity is online retail of physical goods” are not to be considered to comprise online content sharing service providers within the meaning of the Directive. This effectively places uploads to online encyclopaedias such as Wikipedia and open source software repositories such as GitHub out of the scope of the Directive.

The Directive in its present form also redraws the negotiating balance of power between authors and performers on the one hand, and online distribution platforms on the other, by bestowing upon authors and performers the entitlement of additional remuneration from the online distribution platform exploiting their rights when the remuneration originally agreed is “disproportionately” low compared to the benefits derived. This is done through Article 15. These benefits also include “indirect revenues”. However, neither what constitutes “disproportionately low”, nor what constitutes “indirect revenues” is unambiguously defined in the legal text.

In order for this provision to be enforceable, another administratively burdensome provision for transparency has had to be enacted by means of Article 14. Through this article, it is incumbent on Member States to ensure that authors and performers are able to regularly receive timely, accurate, relevant and comprehensive information on the exploitation of their works and performances from the party or parties to which they have transferred or licensed their rights. The Directive further directs that such information needs to be provided no less than once a year, and that it should also include the modes of exploitation, direct and indirect revenues generated, and remuneration due.

Under the new Directive, authors and performers will also be able to terminate exclusivity agreements or revoke exclusivity from agreements that provide for such exclusivity in cases where exploitation is not happening or where the regular reporting referred to above is not taking place. This will need to be done within timeframes to be determined at Member State level.

It is also worth noting that educational instruction is exempted from copyright obligations subject to the sources being acknowledged where practicable. Text and data mining where such activities comprise reproductions of copyrighted works that do not fall under any of the exemptions granted in the process will, on the other hand, be prohibited. The latter might have a number of important implications on scientific meta analyses whenever these have a commercial slant. In several circumstances, they will also limit machine learning potential in artificial intelligence applications where the algorithms involved need to extract, transform and load the data in such a way as to fall foul of this Directive. This places the European Artificial Intelligence scientific programme, already disadvantaged through GDPR, at a further disadvantage relative to their Chinese and American counterparts as it either makes that part of it that requires information reproduction more expensive to run in Europe or outright illegal. On the plus side, following the reshaping of the constellation of power in the author-distributor relationship, the fact that creating content will become potentially more lucrative will now mean that ‘creatives’ can now dedicate more time to their content production endeavours.

The Copyright Directive’s Ramifications

If, as is likely to happen, the Copyright Directive does make it through the final approval by the European Parliament in January 2019, it will have a huge impact on the Internet and the industries that have developed around it over the years. This is apt to happen both in the European Union and around the world and will also depend on how rigorously it is enforced and how it is transposed and implemented in individual Member States.

The Commission’s proposed legislation is a game-changer and will make creative work more lucrative in Europe and tech-work less lucrative, more risky and on some occasions outright impossible. This, together with GDPR and e-Privacy, might well change the industrial landscape in Europe and in the rest of the world as a result.

Article 13 and the concomitant requirement for enterprises that are not small or micro to apply filtering technology on all content being processed by their platforms, for instance means that these enterprises have to become experts on copyright disputes in a labour-intensive manner. They also need to create systems to meet the transparency requirement to be able to manage reporting to right holders and complaints and counter-complaints from users. Big data mining in a number of areas is also likely to be negatively impacted.

Recent legislation clearly increases the risks associated with entrepreneurship as several Internet business models are required to grow rapidly to be able to survive and to be able to avert hostile takeovers or sugar-coated buy-outs from the likes of Facebook and Google. They will face a double stumbling block when they can no longer be considered to be micro or small enterprises as they will have to invest in content filtering technology at exactly the same time when they are no longer exempt from the onerous obligations of the Copyright Directive thereby leading to increases in compensation costs and transparency system costs. The other solutions for a successful business would be either to delocalise or to stay small and make sure it does not exceed the small firm size thresholds. This can hardly make for commendable industrial policy.

At the end of the day, as with GDPR, it might be the consumer who has to bear the bigger price of this legislation. It is not uncommon, nowadays, to go on a website and be greeted with a notice saying something on the lines that you seem to be coming from the EEA and that the content is not available to you as a result of GDPR. The same geo-blocking principles that are being adopted quite pervasively in order to avoid costly compliance with GDPR might make their application even more attractive as the cost involved in doing business in Europe will again increase significantly following the enactment of the Copyright Directive into Member State law.

While the new Copyright Directive might redistribute earnings more equitably between copyright holders and content platforms, the risk for such copyright holders of being shunned by the same content platforms at the cost of losing exposure. If one had to add to this the bigger risks inherent in denial or retraction of services to a wide European consumer base, escalating costs and competitiveness erosion, as well as the hampering in the European Economic Area of the evolution of the technologies of the future like big data mining, artificial intelligence and the advancement of Information Technology developments depending on them at a time when China and the US are racing ahead, make the Copyright Directive, together with e-Privacy and GDPR, very dicey pieces of legislation with huge potential for unintended policy consequences.

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