1709 Blog: for all the copyright community

Tuesday, 22 December 2015

Can we always trust copyright licensing?

The 1709's knowledgeable readership will be well aware that royalties are the lifeblood of the copyright 'promise'. In exchange for cultural enrichment, society grants authors, artists and musicians a legally enforceable set of rights which constrain how the works they create may be exploited. Very few of these creators receive just a single lump sum in exchange for releasing these rights, and indeed the whole idea of the lifetime plus 70 years duration of these rights in predicated upon a steady stream of royalties making up the lion's share of a successful author or artist's income. Behind this relatively simple concept lies a truly labyrinthine web of organisations which are responsible for assessing, collecting, apportioning and generally administering these various fees, royalties and other disbursements. Of course many copyright holders are large or SME companies, who generally have gained their rights through section 11(2) CDPA which covers works made by individuals in the course of their employment. For various reasons, including the fact that these companies are, or should be, resourced to administer their rights in a businesslike manner, this article does not consider this group of rightholders further.

Be it tiny fractions of a penny for each Spotify download, or seemingly generous advance fees running to many thousands of pounds paid to best-selling authors, the money comes almost by magic, from a veritable alphabet soup of abbreviations, acronyms and occasionally organisations with real names. Among these are the CMOs or Collective Management Organisations, often referred to as Copyright Collecting Societies. Each creative discipline has its own CMO, or for instance like the music industry, several. These are generally not-for-profit limited companies. Added to these are many other intermediary bodies, such as publishers (literary and music), agents, management, record companies, and even government sponsored bodies such as the Public Lending Right Office (PLR is not technically a copyright issue, but it works in a very similar manner to a CMO) and of course the IPO itself falls under this heading because it collects fees in respect of orphan works. And if the UK ever embraces a private copying levy, that strand will also need to be added to the existing skein - although skein perhaps implies an order which is wholly absent from the vast range of intermediaries who service the copyright 'industry'. Organisations and companies in this second, non-CMO, group which are manifestly run for profit are termed independent management entities (IMEs) in the jargon, and this distinction becomes significant when we look later at some of the legislative initiatives in this area.

The whole system runs on trust. There are few true audits, and most importantly, the author or artist who lies at the far end of this chain of beneficence has virtually no means of verifying that the amounts he or she receives are the correct ones. Even in the world of highly detailed contracts such as in the music business, what the artist receives in royalties is virtually impossible to confirm independently, given the complexity of the supply chains, including the reciprocal links between various CMOs worldwide. This is one of the reasons for bodies which represent the interests of their particular creative groupings, such the Musicians Union, the Society of Authors, the Featured Artists Coalition, the Association of Photographers and many others. Like the more traditional labour unions, these bodies advocate on behalf of their members and attempt to get improvements in their income. But even they have to assume a certain amount of trust that the system is working both efficiently and honestly. And at a time when so many other institutions have proved unworthy of the trust placed in them, be it banks or sport governing bodies, pharmaceutical giants, motor manufacturers or high street supermarkets, it would be wise to be a little sceptical about all this when it comes to copyright revenues. Whether it's cockup or conspiracy, the opportunities for the money which rightly belongs to the creators to go astray are enormous. As are the sums involved. The International Confederation of Societies of Authors and Composers (CISAC) reported that for 2014, the total revenue collected by its members worldwide was €7.9 billion (£5.8 Billion), while the figure for the UK alone was €635M (£470M).

These figures underline the need for financial probity, especially where the recipients of these sums (after administrative expenses have been deducted) are by definition self-employed individuals (albeit possibly registered companies for tax efficiency purposes) who have neither the time nor the expertise to hold their paymasters to account. This is the fundamental reason for the EU Directive 2014/26 EU on collective rights management, which required member states, inter alia, to supervise the running of CMOs and introduce a code of practice to apply best practice and provide greater transparency for rightholders. The UK Statutory Instrument (SI 2014/898) which transposes the Directive into UK law is not yet fully in force. However the SI lays out the criteria for the CMOs to incorporate into their codes of practice, which if they are judged to be inadequate, can result in a more suitable code being imposed on the society concerned. And there are financial penalties for CMOs which fail to abide by their own or an imposed code.

So with all that in mind, what are we to make of a serious breakdown in the system which goes to the very heart of the trust which it relies on? This autumn a body which represents some photographers, EPUK, discovered that someone at the previously well-respected picture agency, Rex Features, had been forging the signatures of photographers on mandate forms in order to claim a share in the payouts from the Payback scheme run by the CMO Design and Artists Copyright Society (DACS). EPUK estimate that the Payback scheme would have paid around £400,000 to Rex during 2014, although how much of this was based on the fraudulent mandates is not known at this stage. Readers are invited to read both the EPUK press release, and the DACS release, in order to get more details on the matter. What is clear is that if the system can break down in this way once, what are the chances that something similar is going on elsewhere, as yet undetected? As far as is known, the fake mandates related to real people, who in fact got payments they weren't expecting (albeit after Rex appears to have taken out an unjustified administration fee), however exactly the same process could have been used to divert funds to bogus individuals. So how will the EU Directive and the UK implementation of it, prevent this kind of behaviour in the future? It remains to be seen, but what is significant about this allegation is that Rex is not a CMO, but an IME as explained in paragraph 2 above. Thus vast chunks of the EU Directive do not apply to them as an IME and under the SI as it stands, while IMEs appear to be included under the heading of 'relevant licensing body', the criteria for the codes of practice fail to include anything on the integrity of the staff, or on safeguards against outright fraud (I don't think "act in the best interests of its members" really covers it with sufficient vigour). This incident therefore should act as a wake up call that more is still required to bolster trust.

The good intentions of the EU Directive and the IPO's secondary legislation are laudable but until we can have genuine trust in the vast machinery which monetises copyright, all talk about reforming other parts of copyright is rather like building a house on sand.


John Enser said...

This is not the first time the probity of collecting societies has been an issue. Several former SGAE executives are facing criminal charges for allegedly syphoning off money. See http://www.musicbusinessworldwide.com/spanish-collection-society-sgae-caught-up-in-ugly-corruption-case/

Andrew Hughes said...

The Rex case looks more like cock up than conspiracy. One (mega) Spanish fraud doesn't really prove anything;- LIBOR puts it in context. I haven't seen probity as the major issue in RRO land;- but some of the organisations struggle to make its arcane systems work, as many thousands of content uses need matching to many thousands of owners. The solution to the transparency deficit lies in the dull but important business of improving the technology, and especially the meta-data associated with copied objects, the licences used, and the copiers identity. There is no reason - other than data protection - why all this cant be automated. Much of it has been and more is coming. Take a look at the Copyright Hub work, and RDI

Andrew Hughes

Paul Edward Geller said...

Roughly, one might distinguish here between legal and factual problems worldwide. Consider, on the one hand, those of chain of title and, on the other, those of plumbing. By the latter, I mean problems of getting the money to the correct claimants, per chain of title worldwide. Quaere whether, given vexed choice-of-law issues, the problem of such chain of title is itself globally solvable in all cases. See my lead chapter, at §§ 5[5][a][i] and 6[2] to 6[3] passim, posted here: http://internationalcopyrightguide.com/Geller-International_Copyright-Intro.pdf .

There are further problems that straddle legal and factual issues. For example, on at best colorable grounds, publishers often pocket royalties that might be more justifiably given authors. In Germany, the copyright scholar Martin Vogel has sued WORT, the text-authors' collecting society, for routing money due him to publishers. See http://www.telemedicus.info/article/2925-Zwischenstand-in-Sachen-Martin-Vogel-..-VG-Wort.html . Final decision in his favor would put much collecting-society plumbing into question.

European collecting societies have sometimes elegantly spoken in terms of depositing undistributed royalties into the "fund for the unknown author" .... Who is to pocket such deposited money once the statute of limitations has run? Who gets interest accrued, in any event? Moral risks of sitting on such funds?