International treaties require that countries provide authors, performers, and producers certain rights. Direct licensing is always the preferred method for rights holders to exercise their rights. Voluntary collective management works for rights holders when individual exercise of the rights is impracticable.
For audiovisual works, collective licensing of rights is the exception and not the rule. The circumstances that make collective management appropriate with other types of works simply do not apply to audiovisual works. Audiovisual rights holders employ collective management for simultaneous transmissions of broadcast signals, but the motion picture and television industry otherwise oppose mandatory collective rights management.
For musical works and recordings, certain public performance and broadcasting rights may be licensed collectively, because often a large number of users (potential licensees) are involved, for example, from cafés and restaurants to hundreds of radio stations. In this limited circumstance, in which direct licensing may be highly impractical, collective management may be used.
Royalties for the retransmission of audiovisual works and public performances of musical works and sound recordings are not only a significant revenue source for music creators, but a critical contributor to job creation and national economic growth and development. Likewise, royalties provide an important source of financing for the production and dissemination of new creative content. This importance has heightened the need for efficiency, transparency, and accountability where collective management services are used. It is therefore essential, in particular for the music community, for rights holders to establish the terms for and govern their own collective management organizations (CMOs) on a voluntary basis.
CMOs may be organized in a variety of ways. For example, CMOs may be organized for a certain category of rights, such as musical works, or they may be organized for a given category of rights holders or related rights holders, such as authors, performers, or phonogram producers (i.e., recording labels). Sometimes a CMO is joint for related rights, such as performers and phonogram producers.
A CMO may acquire a mandate from individual authors and other rights holders or it may receive its mandate from rights holders’ associations or a combination of the two. If the mandate comes from a rights holder association, then the association must first have proper permission to represent rights holders. The scope of the mandate may also vary. The CMO’s authority may be exclusive, which is typical, or non-exclusive. In other words, a rights holder may grant only one CMO permission to represent that rights holder or a rights holder may grant more than one CMO such permission.
CMOs will:
- Negotiate rates with users and then track when, where, and what creative content is used.
- Collect the royalty from the user for the use of such content and distribute the money to the appropriate rights holders.
- Sometimes CMOs ensure compliance with copyright laws by users as well, including by initiating legal actions in their own name or assisting rights holders to pursue legal actions against unauthorized uses. The scope of the authority will typically provide whether a CMO can initiate legal action on its own behalf or must get permission from the rights holder.
Compulsory Licensing
In some countries, governments impose compulsory licensing for certain uses of works and require collective management of the rights subject to these compulsory licenses. For example, Nigeria is currently considering a provision that would create a compulsory license scheme under which the Nigeria Copyright Commission (NCC) could bypass the copyright owner and authorize the use of a copyrighted work “by any person for the purpose of rectifying the abuse of a dominant market position or to promote public interest.”
The provision would undermine rights holders’ ability to assert their rights in or license their works because any user could request that the NCC bypass the copyright owner and authorize or prohibit certain uses of a work based on the mere allegation that the user “made a reasonable effort to obtain permission from the owner of copyright on reasonable commercial terms and conditions and that the effort was not successful.” The provision is arguably incompatible with Nigeria’s international copyright treaty obligations.
Extended Collective Licensing (ECL)
Likewise, some countries have chosen to allow extended collective licensing (ECL) of rights for certain types of exploitations. Under an ECL framework, the law grants a CMO the ability to collectively manage rights on behalf of a group or category of rights holders and to extend that CMO representation to other non-member rights holders as well, subject to opt out by any rights holder who does not wish its works to be included in the license. (See e.g., UK Intellectual Property Office, Extended Collective Licensing (ECL): Guidance for relevant licensing bodies applying to run ECL schemes.) In other words, while collective management under an ECL system sometimes begins as voluntary for a group of rights holders, it also captures rights of other rights holders of the same category of works. ECLs often fundamentally deprive creators of the core aspect of copyright protection, including the ability to choose who may use their content and on what terms.
Once the CMO and the user, such as a TV or radio broadcaster, have negotiated an ECL agreement with a license fee, and it enters into force, that agreement applies to a given category of works for uses specified in the ECL license, regardless of whether every rights holder of a work in that category has voluntarily permitted the CMO to manage their rights. While rights holders often retain the ability to opt out of ECLs, opt out in many cases has proven difficult to effectuate in practice. Critically, ECLs undermine the value of rights of rights holders who wish to individually license, because licensing fees set under ECLs are often low, which creates an artificially low bar in the market that individual rights holders must overcome.
For example, Switzerland has an ECL provision that was purportedly motivated by the desire to make difficult-to-license content, such as large archive stock, more accessible. However, the provision’s scope is much broader, creating a risk that extended collective licenses could be applied in areas otherwise subject to exclusive and individual licensing with the concomitant risks described above. The provision has an opt-out, but, if the ECL were understood to apply in the online space, it would devalue the market value of such licensing of works, setting a tariff “norm” that could undermine exclusivity and licensing terms for rights holders who choose to opt out and exercise their rights individually.
Three-Step Test
Both compulsory licensing and ECL are limitations on the rights holder’s rights. Every major international agreement on copyright requires that exceptions and limitations on rights are consistent with what is known as the three-step test. The longstanding three-step test originated in Article 9(2) of the Berne Convention for the Protection of Literary and Artistic Works and has been affirmed in Article 13 of the WTO TRIPS Agreement and the corresponding provisions of the WIPO Internet Treaties (i.e. WIPO Copyright Treaty (WCT), Article 10; WIPO Performances and Phonograms Treaty (WPPT), Article 16).
Under the three-step test, any exception or limitation to rights must be confined to “certain special cases” that do not “conflict with the normal exploitation of the work” and do not “unreasonably prejudice the legitimate interests” of the rights holder. It is therefore critical that governments ensure that compulsory licensing provisions and ECL schemes do not exceed the scope of the three-step test. The above examples in Nigeria and Switzerland likely run afoul of the three-step test.
Role of Government
Governments have a role to play in collective management, but it should be limited to establishing regulatory frameworks that enable efficient, fair, and non-discriminatory operations of CMOs backed by rights holders. Moreover, where appropriate, governments sometimes authorize CMOs to operate on behalf of members and provide oversight that CMOs are fulfilling their fiduciary duty. The government may also provide dispute resolution on certain aspects of collective management, including by ensuring that users cooperate in good faith in the licensing process and that rights are properly based on reliable economic evidence (using the willing buyer/willing seller standard).
Efficiency
A CMO’s primary responsibility is to the rights holders it represents. CMOs will license certain rights to users on behalf of rights holders, monitor use of those rights, and collect remuneration from users for the rights it represents. CMOs should collect and process data on the use of the rights it administers, provide that information to rights holders along with the efficient and accurate distribution of remuneration owed, minus reasonable administrative costs. It is important that CMOs make speedy, accurate, and regular disbursements to members.
Transparency
Transparency is essential in both collective management systems and within CMOs. As to transparency on the part of the government, governments developing collective management frameworks should seek rights holder input and should publish the proposed regulatory framework. Likewise, to the extent governments are involved in the implementation, oversight, and enforcement of such frameworks, such government engagement should be transparent and provide for meaningful stakeholder engagement.
As to transparency on the part of CMOs, it is important for rights holders to trust a CMO is acting in their best interests as a fiduciary, but it is also important for licensees to know that the license fees they are paying are going to the proper rights holders. CMOs should put their non-confidential documents and information online so rights holders, licensees, and users may access them. CMOs should share its repertoire, governance documents, and contact information on the staff and board. The CMO should also provide the written distribution policy, including its distribution formula, any deductions for reasonable administrative expenses, its policy on the use of rights revenue that is impossible to distribute, and its dispute resolution policy. Additionally, a CMO should also provide to the public the total amount it receives annually and the total amount it distributes.
Any confidential information that belongs to rights holders is obviously not part of what should be shared publicly but should be shared with each member privately. Distributions should be presented clearly and accurately, so that stakeholders know exactly what they are receiving and why—for example, what was performed where and when and how much was collected for that performance.
Likewise, it is critical that CMOs are financially accountable and should be reviewed to ensure that end. CMOs should have an annual audit by an independent and qualified auditing firm. Members should also be able to audit or inspect the records of a CMO to ensure that they received proper payment.
Non-Discrimination
A CMO should also ensure that its membership is fair and non-discriminatory. It should have clear membership requirements and should accept a member if it meets those requirements. A CMO should not discriminate between rights holders it represents based on nationality, place of residence, or for any other reason. Moreover, CMOs should not discriminate between users. Each user in a category of use should pay the same unit price.
Conclusion
Because direct licensing is always the preferred method for rights holders to exercise their rights, it is essential that in the limited circumstances in which collective management is appropriate, it is employed responsibly. Efficiency, transparency, and non-discrimination are all essential features of a healthy collective management ecosystem.