Source: https://www.reedsmith.com/en/perspectives/2017/06/european-copyright-reform-safe-harbour-and-the-value-gap
Timestamp: 2019-04-20 08:33:55+00:00

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Copyright law in Europe is changing. In a client alert last year we highlighted the European Commission’s plans to tackle what some content owners have termed the ‘value gap’, as well as complaints of unfair practices in the remuneration of rightsholders, with its proposal for a new directive on copyright in the Digital Single Market (the Proposed DSM Directive). As the Commission’s plans crystallise, it seems increasingly likely that such a directive will bring with it a fundamental shift in the way that copyright law in Europe treats Information Society Service Providers (ISSP) which seek to benefit in any way from the current ‘safe harbour’ protection afforded by the E-Commerce Directive and, to a lesser extent, the InfoSoc Directive.
The E-Commerce Directive sought to address the issue of ISSPs being subject to intermediary content liability in circumstances where active and exhaustive monitoring by such providers of their services for copyright-infringing material was a practical impossibility. To illustrate the issue, Ronan Harris (Google UK’s Managing Director) recently confirmed that 400 hours of video are uploaded to YouTube every minute. It would be extremely labour-intensive to analyse each hour of video for the presence of copyright-protected works at this upload rate. Foreseeing the potential scale of this problem, the EU Parliament and Council adopted the E-Commerce Directive in June 2000, creating a set of ‘safe harbours’, whereby ISSPs were not liable if they unknowingly hosted, cached, or acted as mere conduits for copyright-infringing material, subject to certain requirements. Generally, liability would only arise where ISSPs were put on notice of the infringing material and failed to act expeditiously to remove or disable it. The InfoSoc Directive, adopted the following year, also provides an exemption of intermediary liability where the infringing reproduction of protected works is transient or incidental, and an integral and essential part of a technological process, subject to certain requirements.
Before analysing the Proposal, it is worth briefly reviewing the current legal position on the protections afforded by the concept of safe harbour. In Google France, the claimants claimed that the Article 14 ‘hosting’ defence was not available to Google as a search engine service providing hyperlinks should not be classified an ISSP, and the advertising activity in question should not constitute ‘hosting’. In determining whether the defence was available to Google, the CJEU examined whether the role played was neutral, i.e., merely technical, automatic and passive. The question to be answered was whether the ISSP had “played an active role of such a kind as to give it knowledge of, or control over, the data stored”. The facts that: (i) Google received remuneration for advertisers’ use of its system; and (ii) the system automatically matched the two sets of data in response to each search query, were found by the CJEU to be insufficient to deprive Google of its Article 14 defence. However, the CJEU did not specify exactly what kind of conduct would be considered more than merely technical, automatic and passive.
The next year, the same safe-harbour hosting defence was challenged in L’Oréal v eBay. The CJEU found that eBay hosted material each time a seller uploaded data to eBay’s servers. If eBay provided assistance in the form of “optimising the presentation of the offers for sale in question or promoting those offers”, it would not be considered to have taken a neutral position – it would have “played an active role of such a kind as to give it knowledge of, or control over, the data relating to those offers for sale” and the Article 14 defence would not be available. The CJEU highlighted that the fact that an operator of an online marketplace “stores, offers for sale on its server, sets the terms of its service, is remunerated for that service and provides general information to its customers” could not deprive it of the protection of the safe harbour defence. Finally, the CJEU found that if an ISSP did not have actual knowledge that the offers for sale in question were unlawful, but was aware of facts or circumstances from which a diligent economic operator should have realised the unlawful nature of such offers for sale and failed to act expeditiously, the Article 14 defence would not be available.
These cases can be seen as positive results for platforms and other ISSPs, confirming that they need not incur the significant expenditure required to actively monitor their services to catch each and every instance of IP-infringing material hosted, cached or passing through their servers. The decisions have been heavily criticised by rightsholders’ representatives, who consider that user-generated content platforms are given preferential treatment, reinforcing the ‘value gap’.
The ‘value gap’ is a term used to describe the difference between the returns obtained by ISSPs (such as YouTube) and the royalties that such platforms pay to rightsholders when their works are available on such sites. Article 13 of the Proposed DSM Directive seeks to address this so-called value gap. The proposed wording of the Directive provides that all ISSPs that store and provide access to the public to large amounts of works uploaded by their users must take measures to ensure rightsholders are properly remunerated. Such measures include the use of effective content-recognition technologies. It also provides that ISSPs must provide rightsholders with adequate information on the deployment of such measures and adequate reporting on the recognition, where applicable.
As expected, the Proposed DSM Directive has been subject to extensive lobbying – it has received input from 104 entities, including video and audio platforms (e.g., SoundCloud, YouTube and Netflix) and societies representing authors, composers, performers and record companies (e.g., GESAC and IFPI). Unsurprisingly, the latter societies welcomed the provisions relating to the value gap. The president of GESAC described the Proposal as “encouraging” and said that “creators’ freedom of expression can only exist if there is a freedom to create and to be remunerated fairly”. In contrast, EDIMA, the European association representing global online platforms and tech companies, notes that the licensing and filtering requirements under Article 13 “would cripple innovation and undermine free expression for millions of EU citizens and businesses”.
The Committee on Legal Affairs (JURI) issued a draft report on the Proposed DSM Directive on 10 March 2017 (the Report), synthesising the views of various parliamentary committees that have been considering the Proposed DSM Directive. The Report goes some way in addressing the concerns of the intermediaries represented by EDIMA. For example JURI recommends narrowing the providers subject to Article 13 from all ISSPs to ISSPs that are “actively and directly involved in the making available to the public of user uploaded content and where this activity is not of a mere technical, automatic and passive nature”. This would likely remove liability for cloud infrastructure services and internet service providers.
The Report also proposes to remove the reference to “effective content recognition technologies” and only requires providers to take “appropriate and proportionate measures to ensure the functioning of agreements concluded with rightsholders for the use of their works”. This revision has been particularly welcomed, notably by start-ups, which would struggle to afford the costs of content recognition software. The Report also removes the previous requirement for ISSPs to provide rightsholders with information on the functioning and deployment of such measures, removing a potentially burdensome task for ISSPs. It is worth noting that almost all of the significant business-to-consumer ISSPs that enable the upload of content (such as YouTube, SoundCloud and others) already implement content recognition technologies.
The Proposal and Report will be analysed further by both JURI and the Internal Market and Consumer Protection Committee, which will debate and report on amendments to the Proposed DSM Directive over the next few months. It is anticipated that the EU Parliament will vote on the final report at the end of this year.
EU-level action to reform the law concerning sites that permit users to upload user-generated content has been welcomed by rightsholders’ trade bodies such as the BPI. According to an Ipsos Connect report commissioned by IFPI, 82 per cent of YouTube visitors use the service to listen to music, and although the use of paid music services and the number of people prepared to pay for licensed music are both increasing, over a third of internet users access unlicensed music content. The JURI Report does, however, highlight some potential issues with the Proposal. It calls for greater clarity and certainty in relation to which online service providers are caught by its terms. For example, platforms will find it difficult to know if they are affected by obligations contained in Article 13 as it is not clear what constitutes a “large amount of works”. A small start-up storing and providing to the public a large amount of works may be caught by this provision and suffer significant content-recognition technology investment and reporting obligations. It would be fair to conclude that the Proposal is in need of further refinement.
We shall continue to monitor the development of this element of the draft Directive and will report again when the likely final shape of Article 13 becomes clearer.

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