On implementation gaps

2.4.1

‘Internal’ coherence: what are the main gaps and fragmentation in the

application of the existing EU InfoSoc Directive and related broader

framework?

The ‘internal coherence’ criterion refers to the degree of coherence between the various legal instruments that compose the EU legal framework on copyright. This is different from “effectiveness”, since it does not entail any assessment of the extent to which the legal rules achieve their intended objectives.

 absence of clarity as regards the compatibility of the InfoSoc Directive and IPRED with other legislation, most notably on fundamental rights, data protection, e-commerce;

 absence of a clear legal framework for the remuneration and compensation of authors and performers, due to the absence of clear provisions in the InfoSoc Directive;

 uncertainty as regards the responsibility of online intermediaries, which have today became central in the distribution of content online, and who are increasingly able to monitor traffic flowing through their servers;

 absence of clear rules on geo-blocking practices, characterised by a sound distinction between practices that respond to a lawful and legitimate business need, and practices that should be considered as discriminatory and detrimental to end-users (e.g. the deliberate geo-blocking of service portability);

 uncertainty over the applicability of private international law such as on which criteria apply to the determination of the applicable law in the case of copyright infringements occurring online;303

 uncertainty as regards the applicability of the exhaustion principle to making content available on intangible media, in particular for what concerns borderline cases such as ‘download-to-own’ (see the UsedSoft decision and, to some extent, the Premier League decisions of the CJEU);

 lack of flexibility and adaptability to new uses (e.g. mass digitisation, text and data mining, e-lending, e-learning, UGC);

 lack of clarity on the implementation of specific exceptions (e.g. the exception covering parody, caricature, and pastiche, the exceptions for the purpose of libraries and similar institutions);

 lack of clear rules on access to justice and collection of evidence to be used in civil proceedings.

The main sources of fragmentation are summarised below.

 Divergent definitions on key aspects of copyright law, including the definition of originality (elaborated by EU case law and based on the ‘author’s intellectual creation standard’); the definition of derivative works/transformative uses (left to Member States’ discretion and increasingly central in the digital environment); the authorship of copyrighted works (left to Member States’ discretion and with potential impact on both the demand and supply side of the Internal Market).

 Divergent implementation and interpretation of exceptions and limitations across EU Member States, with some countries now even introducing new exceptions not originally envisaged by the InfoSoc Directive. For example, as far as text and data mining is concerned, UK law allows researchers to copy any copyrighted works for the purpose of computational analysis if they have already accessed the copyright work lawfully,

303 _{Interestingly, on the assumption that a copyright enforcement action can be brought in each} Member State where the infringed work can be accessed, the ‘accessibility’ criterion recently selected by the CJEU paves the way for a multiplication of courts and applicable national rules.

without having to obtain additional permission to make the necessary copies from the copyright holder.

 Limited consideration of the cross-border effects of specific exceptions. These include

inter alia the already-mentioned exceptions for private copying, but also the exceptions for teaching and scientific research, and also in relation to certain cases concerning the freedom of panorama exception.

 Divergent enforcement practices in Member States, with some countries relying on administrative procedures to counter infringing behaviour, and others relying on codes of conduct and other voluntary measures, and others relying on neither of the two.

 Different approaches to the remuneration and compensation of authors through private copying levies. As we already observed, the disparate national treatment of exceptions, as a well as the related levy systems, have so far raised significant barriers to and created distortions of cross-border trade within the Internal Market.

2.4.2

What are the economic and other quantified costs incurred by citizens, society

and stakeholders due to these gaps and fragmentation?

There are several sources of costs that can be identified in the case at hand.

 While authors often manage to reduce their transaction costs by relying on collective rights organisations, distributors face in some circumstances direct costs in the form of substantive compliance costs and transaction costs due to the need to negotiate licenses on a country-by-country basis with one or more counterparties. The absence of a one- stop shop for licensing in specific sectors is clearly an additional cost that can, over time, discourage creation and circulation of content.

 Against this background, limited content availability generated by the territoriality of copyright offerings generates costs (better, foregone opportunities) for end-users: the same applies for losses of consumer surplus generated by limitation of the portability of content access across borders. Portability issues may potentially affect about 5 million Europeans per day (Plum Consulting, 2012). In addition, in the audiovisual sector up to 120 million EU citizens are potentially interested in content available in another Member State, and long-term migrants (13 million European) generate a potential demand for subscription-based cross-border services of between €760 million to €1.61 billion per year (Plum Consulting, 2012). The limited cross-border availability of content can adds costs for end-users in the form of higher retail prices. This form of market inefficiency limits price competition and as such leads to suboptimal quantities sold on the market.

 Another source of direct costs is the existing uncertainty about the rights and obligations of different types of industry players, as well as over-enforcement mechanisms.

 Inefficiency is generated by a confusing and contradictory interpretation of certain exceptions and limitations, as well as by the interaction between the use of TPMs and available exceptions and limitations. In particular, to the extent that the current situation leads to the impossibility for libraries to fully engage in e-lending, or for researchers to engage in productive data processing for research and teaching purposes, this will lead to foregone benefits for society as a whole.

 In the era of big data, data-driven innovation and new business models, the absence of legal certainty on text and data mining can also be hugely detrimental to the development of new offers and services, which in turn limits benefits to society through a direct negative impact on so-called dynamic efficiency (e.g. innovation and the development of new welfare-enhancing products and services).

 Furthermore, the lack of a level playing field between ‘traditional’ distributors and online intermediaries (especially in the audiovisual sector) can lead to insufficient incentives for the creation of content from the outset, which in turn would translate into a lack of dynamic efficiency. This problem can also account for a lack of adequate funding and exposure for ‘niche’ content.

 The existence of dominant positions of specific players, if proven, could lead to unequal bargaining strength and consequently undesirable welfare losses in the contracts concluded between authors and intermediaries.

 Finally, the absence of a fully integrated Single Market for creative content dramatically reduces the value end-users derive from Internet access. This is a direct corollary of the so-called ‘Metcalfe’s law’, which postulates that in an end-to-end network, the value of the network increases exponentially as the number of end-users increases linearly. Likewise, the richer the amount of content that can be circulated among all users in the EU, the greater the value of the EU Digital Single Market as a whole.

It is difficult to estimate these costs in terms of GDP. However, available data sets show that a fully integrated Digital Single Market could contribute between €260 billion and €520 billion to European GDP (European Parliamentary Research Service, 2014)). The long term growth impact of the digital reform effort already undertaken has been estimated to be at above 1%, and further efforts in line with the Digital Agenda for Europe targets are expected to generate an additional 2.1% of GDP growth (Lorenzani & Varga, 2014).

2.4.3

What are the existing gaps that could be addressed through better application

and implementation of the existing Directive and wider legislative

framework?

Among the main gaps we identified in Section 2.4.1 above, only a narrow subset could be partly filled if the existing acquis were clarified and made more consistent both in terms of interpretation and implementation. This is perhaps the case for the compatibility of the InfoSoc and IPRED Directives with other legislation, most notably on fundamental rights, data protection and e-commerce, for which non-legislative documents and clarification efforts could probably address some outstanding problems without requiring legislative reform. Similarly, the lack of flexibility and adaptability of exceptions and limitations to new uses (mass digitisation, text and data mining, e-lending, e-learning, UGC) could be partly remedied if, for example, text and data mining were directly included in the scope of the mandatory exception for transient copies. And the lack of clarity on the implementation of specific exceptions (e.g. the exception covering parody, caricature and pastiche) could be remedied, at least partly, through more coordinated and consistent implementation.

That said, there are many gaps that would require legislative intervention. These include the absence of a clear legal framework for the remuneration and compensation of authors and performers, which is due to the absence of clear provisions in the InfoSoc Directive; the

existing uncertainty as regards the responsibility of online intermediaries; the lack of clear rules on geo-blocking practices; the uncertainty as regards private international law aspects such as the criteria to apply for the determination of the applicable law in case of copyright infringements occurring online; the partial uncertainty as regards the applicability of the exhaustion principle to the making available of ‘download-to-own’ content on intangible media; and the lack of clear rules on access to justice and collection of evidence to be used in civil proceedings. As apparent from the ongoing debate on copyright reform at the EU level, all these are issues that only legislative intervention could begin to remedy effectively.