·  by By: Stan Adams

EU Copyright Proposals: Do Two Wrongs Make an Ancillary Right?

Originally Posted On: CDT

Statewatch recently leaked a draft (PDF) of the European Commission’s Impact Assessment (IA) regarding its proposals to ‘modernise’ copyright in the EU. This leak was followed a few days later by a second: a draft directive mirroring the proposals recommended by the IA. Copyright reform is one part of the Commission’s efforts to develop a Digital Single Market (DSM) for Europe, a vision of a robust digital economy with fewer borders and in which European creators and businesses can thrive. The Impact Assessment analyzes the predicted outcomes of the various reform proposals in light of the goals of the DSM Strategy. The Directive would require member states to achieve the results it describes, without dictating exactly how to do so. Unfortunately, both the proposals and the analysis raise some troubling issues.

The most troubling proposal would create a new kind of right for news publishers. This right would force news aggregators and search engines to obtain licenses from publishers before including snippets from publishers’ websites in their results. This so-called “neighboring” or “ancillary” right is like copyright in that it allows publishers to control the use of works they include in their publications. However, unlike copyright, the publishers themselves did not actually create the underlying works. Those advocating this right claim it will provide publishers with a means of capturing advertising revenue that has migrated away from print media in favor of online venues.

Unfortunately, both the proposals and the analysis raise some troubling issues.

In practice, however, it has not worked out like that. Both Germany and Spain have granted similar legal protections for publishers and in neither case did they produce the intended effects. In fact, when Spain tried to make news aggregators pay to include snippets in search results, aggregators just stopped including snippets. Without the information provided by the snippets, would-be readers stopped clicking through to the publishers’ sites. This effect significantly reduces the readership and ad revenue that publishers might otherwise gain from search-driven traffic. In response to the Spanish law, which did not even give publishers the option of not charging for the use of snippets, Google shut down its News service in Spain altogether. Spanish publishers later issued a report (PDF, English executive summary starts on page ix) estimating that the law will actually cost publishers €10 million each year and predict that smaller publishers will be disproportionately impacted.

Despite the flawed theoretical basis for the right, its abysmal track record, and pleas from publishers asking the Commission not to pursue ancillary rights, it did just that. Despite the questionable legal basis for this proposal, and despite the fact that publishers could easily configure their sites to limit or block automated access to the content therein, the Commission believes that creating this new right will benefit both publishers and consumers, who will enjoy the “enhanced availability of quality content in the long-term.” The proposal does leave flexibility as to how, and for what price, uses of news publications may be licensed. However, the IA does not contemplate that online service providers might not be willing to pay for snippets, as was the case in Germany. Nor does it consider how smaller publishers might be affected if the right actually reduces their readership, as it did in Spain. Rather, the IA seems to assume that all publishers’ bargaining positions will improve and that this will result in increased revenues and enhance media pluralism. The IA also claims that “because of its scale” an EU-wide ancillary right will succeed where Member State efforts have failed. Yet the draft contains neither evidence nor analysis supporting this fundamental premise.

This looks very much like a general obligation to monitor, which Article 15 of the E-Commerce Directive explicitly bars.

Equally troubling is the Commission’s proposal to create new obligations for online service providers that host or store user generated content, as well as the IA’s economic analysis of this proposal. The corresponding article in the Directive specifies that such providers “shall, in cooperation with right holders, take appropriate and proportionate measures to ensure the functioning of agreements concluded with right holders and to prevent the availability on their services of works or other subject matter not covered by such agreements, including through the use of effective content identification technologies.” Even when dressed in the language of contractual agreements, this looks very much like a general obligation to monitor, which Article 15 of the E-Commerce Directive explicitly bars.

In addition to the legal conflict, this proposal seems to go against some of the goals of the Digital Single Market Strategy, like making the EU an environment in which digital startups can thrive. Although right holders may benefit from online providers’ enhanced use of content identification filtering technology, requiring all providers to follow a standard set by the largest competitor would seem to further entrench the dominant players and create additional barriers for new entrants. The IA recognizes that transaction costs associated with content licensing negotiations will be higher for smaller providers than for larger ones, but says they should still be “reasonable.” It goes on to imply that startups, who would have “only small amounts” of content, would not be obligated to negotiate. So upon graduation from startup to mid-size, providers can expect, in addition to licensing costs, higher transaction costs than those of the largest companies. These kinds of obstacles make it more difficult to become the next YouTube, and help protect the dominant providers from potential competitors.

The EC’s analysis is similar for the costs associated with implementing content identification technologies; providers can either develop their own technology (at significant cost) or pay to use the technology developed by someone else. The largest companies have already sunk and absorbed those costs, cementing their first-mover advantage over smaller companies for whom content identification represents a new cost. While these costs may, as the IA states, have a positive effect on the “level playing field” for other kinds of content service providers, they would seem to disadvantage smaller competitors in the user generated arena.

The Digital Single Market strategy rests on three “pillars”: improving access to digital goods and services, creating an environment where digital networks and services can prosper, and harnessing “digital” as a driver for growth. Saddling intermediaries with obligations to monitor creates an imbalance in an environment in which digital services might otherwise prosper and reduces the power of digitization as a driver for growth. Forcing aggregators to license snippets may be an attempt to harness the potential of the digital economy, but it likely will degrade access to online services like news sites and hamper the growth of European tech businesses offering news aggregation or search services. In other words, this right makes two wrongs.