On 14 September 2016, the European Commission launched a wide-ranging package of proposed reforms to the EU copyright regime.

Among the proposed reforms are provisions, set out in Article 13 of a proposed new Directive, relating to use of protected content by information society service providers storing and giving access to large amounts of works and other subject matter uploaded by their users. In short, the new Article introduces a requirement for such information society services to take appropriate and proportionate measures to ensure the functioning of agreements concluded with rights holders.

Background

Online services now represent a major source of revenue for works and other protected content and are expected to continue to grow in importance. However, there is and has been a growing concern about the equitable sharing of the value generated by some of the new forms of online content distribution.

Rights holders such as authors and performers have reportedly faced difficulty when seeking to authorise and be fairly remunerated for use of their content online, given the difference in bargaining power between them and online service providers. Further, the position of intermediaries (such as social networks and UGC platforms) which host content for third parties which infringe copyright has come under serious scrutiny. In particular, it has been questioned whether they have an unfair competitive advantage over fully licensed streaming services and whether they pay a “fair” amount for the use of content on their platforms.

The Commission has therefore sought to address these issues in its proposals, with the aim of achieving a fair balance between the rights and interests of rights holders and internet users.

Proposals

The Commission had earlier ruled out amending the exception in Article 14 of the E-Commerce Directive on which online hosts rely to operate without concluding licence agreements for their entire platforms. The notice and take down regime applying to those benefitting from the hosting exception will, therefore, remain.

In the absence of amending the hosting exception, the Commission's proposals in Article 13 of the proposed Directive require those who benefit from it to take “appropriate and proportionate” measures to (i) “ensure the functioning of agreements concluded with rightholders for the use of their works” or (ii) “to prevent the availability” of infringing works identified by rightholders through cooperation with the service providers. Such measures may include the “use of effective content recognition technologies”. In turn, rights holders should provide the necessary data to allow the services to identify their content.

This clearly represents an effort by the Commission to balance what are often diametrically opposed interests, but the result is that the proposals leave some degree of ambiguity.

For one thing, it is not clear from the wording of Article 13 of the proposed Directive whether, by “use of their works”, the Commission intends to suggest that services providers that store and provide to the public access to works (i) infringe copyright by doing so and (ii) do not benefit from the hosting exception so need a licence or, instead, that even if they benefit from the safe harbour they must still take measures to conclude a licence. If the former, that would be a significant development in the law because there have not been any CJEU decisions which have come to that conclusion. If the latter, it is unclear what the licence would be for, given it would not be a licence to make otherwise infringing uses.

The Recitals to the proposed Directive also add to the confusion. For example, Recital 38 refers to providers that store and provide access to the public to copyright works, "thereby…performing an act of communication to the public". This would seem to be a new definition of "communication to the public" which is at odds with the test set out in GS Media and other CJEU case law.

Recital 39 refers to a requirement to "ensure the functioning of any licensing agreement" - suggesting that a licence will not always be in place. However, it then states that the obligation to take appropriate and proportionate measures to ensure protection of works will apply even when the service provider is eligible for the hosting exemption. It is not clear how the obligation would apply in circumstances where there is no licence (because the hosting exception applies) – presumably, service providers cannot "ensure the functioning" of agreements that do not exist.

Critically, it is not clear how these new proposals are intended to function alongside the knowledge requirement of the hosting exception. Article 14 of the E-Commerce Directive provides that the hosting exception will apply where the service provider does not have "actual knowledge of illegal activity or information"; where the service provider obtains such knowledge, it is required to remove the relevant content. Presumably, however, once service providers are obliged to co-operate with rights holders to report on the use of the rights holders' works, the service providers will be fixed with the requisite knowledge and the hosting exception will no longer apply. The obligations on service providers under the proposed Directive may also be inconsistent with Recital 47 of the E-Commerce Directive i.e. that service providers should not be subject to any general monitoring obligations.

It is, therefore, not clear what the potential impact of these proposals is on the E-Commerce Directive, particularly since the E-Commerce Directive is not one of those that the proposed new Directive purports to leave intact and unaffected.

These proposals are a step towards balancing the competing interests of internet users, service providers and rights holders. They will reinforce the position of rights holders to negotiate and be remunerated for online exploitation of their content by online services storing and giving access to content uploaded by their users.

That said, the proposals create significant uncertainty, particularly with respect to how much service providers will have to do to comply with them i.e. what measures will be considered "appropriate" and "proportionate". For example, whether measures are considered to be appropriate and proportionate will likely depend on the size of the service provider in question – arguably, lesser, smaller providers will not be held to the same standard as larger or more sophisticated service providers. However, the flexibility of this sliding scale may come at the expense of clarity and predictability.

Some platforms may believe that they already do what is required by the proposals, but rights holders will likely push for platforms to take more pro-active steps to detect, end and prevent further infringements and to secure licences. Where the impact of this proposal may be felt most keenly is at the smaller end of the platform market. Establishing what is proportionate for early-stage platforms could become a key driver of how they set themselves up and will need reconsidering as they grow and as technology develops.