Hargreaves Review: Proposals for a Digital Copyright Exchange
All non-specific references are to the main report document, Digital Opportunity. A Review of Intellectual Property and Growth.
References preceded by Econ. Impact are to Supporting Document EE. Economic Impact of Recommendations.
5. Digital Copyright Exchange
This is Hargreaves’ big idea, an elaborate multi-purpose scheme intended to tackle several different problems. Unfortunately, his account of what he has in mind is not well organised, nor is it always very clear. To get the fullest possible picture, it is necessary to pull together statements made in a number of scattered passages.
It appears that the purposes of the proposed Digital Copyright Exchange are to
• facilitate copyright licensing [Executive Summary p. 3 and passim; Econ. Impact pp. 11–13]
• help clarify ownership of copyrights [4.23, 4.34, 4.59]
• educate and inform about copyright. [4.23]
It would provide the machinery for
• automating licensing transactions [Executive Summary p. 4 and 4.20, 4.23; Econ. Impact p. 13]
• tracing and contacting rights-holders and/or their agents [4.23]
• publicising the availability, terms and fees of licences for specific works [4.23]
• determining whether the search for the rights holder of a putative ‘orphan’ work has been ‘sufficiently “diligent” ‘. [4.59]
• licensing works with unlocated copyright holders (‘orphan works’) [4.59]
• resolving disputes [4.23, 4.32, 4.59]
• connecting rights-owners with collecting societies. [4.23]
(i) Machinery for automating licensing transactions, tracing rights-holders, etc: it is plainly being envisaged that rights owners should decide for themselves on what terms their works are made available for licensing, and whether licences may be issued automatically or must be directly negotiated. [See especially 4.23] Note also Hargreaves’ assurance in a comment on the IP Review blog: ‘pricing is a judgement for licensors’. [See Review Blog, 18/5/2011, p. 4]]
(ii) ‘Orphan works’ and ‘diligent search’: this will be discussed later, under ‘Orphan Works’.
(iii) Connecting rights-owners with collecting societies: Hargreaves states that the Exchange would provide creators with ‘a single point of access to UK collecting societies and eventually to competitor societies in other territories’. [4.23] He does not explain how the Exchange would interact with the collecting societies. Clarification on this point was sought through the Review blog but has not been forthcoming. [See Review Blog, 18/5/2011, p. 9]
The objects of setting up a Digital Copyright Exchange would include
• speeding up licensing transactions [Executive Summary p. 3 and 4.20, 4.23; Econ. Impact p. 13]
• reducing transaction costs [Executive Summary p. 4, 4.23; Econ. Impact pp. 11, 13]
• facilitating high-volume rights clearance [4.13, 4.19, 4.48; Econ. Impact p. 12]
• facilitating extended collective licensing and the mass-digitisation of ‘orphan’ and other works [4.48, 4.49]
• providing better protection for copyrights [Executive Summary p. 3, 4.23]
• reducing the costs of copyright disputes by means of ‘a low cost dispute resolution system’ [Executive Summary p. 4, 4.23, 4.32]
• facilitating rights clearance across national boundaries (eventually). [4.12, 4.22, 4.42]
(i) Better protection for copyrights: or so Hargreaves seems to be promising on p. 3. He doesn’t clearly explain how he thinks a Digital Copyright Exchange will achieve this, but apparently it is by providing ‘a means to record unmistakeably the ownership of rights’ and ‘a defence against rogue “orphaning” of works, through digital fingerprinting’. [4.23]
(ii) ‘A low cost dispute resolution system’: Hargreaves does not explain what he has in mind. Presumably some kind of arbitration system, but no details are provided. A dispute system will certainly be needed. It is predictable that there will be some fraudulent registering of rights, and honest mistakes as well. This is acknowledged in Supporting Document R. Copyright Licensing Call for Evidence Response: ‘All the problems attendant on orphan works solutions (false identification of authorship, challenge to rights ownership assertion …) will be present for automatic rights clearance.’ [See Supporting Document R., p. 1] It would be highly important that any arbitration system should be completely independent and safeguarded against capture by particular interests.
Hargreaves gives the following details of how he envisages the Digital Copyright Exchange operating:
a) It is to be ‘a network of interoperable databases [providing] a common platform for licensing transactions’. [4.31]
b) Digital content will come with ‘copyright conditions and rights information’ in an ‘open, standardised’ format directly attached to it ‘in a uniform machine readable fashion’. [4.31]
c) The system might have similarities to the Domain Name System (DNS). [4.33; see also panel on p. 30]
(i) ‘A network of interoperable databases’: Hargreaves does not explain how he envisages the network’s being constituted. Clarification was sought through the Review blog but has not been forthcoming. [See Review Blog, 18/5/2011, p. 9] (‘Interoperable’ indicates that the data held by the databases is to be in a format that they can all share.)
(ii) Digital content with information attached: a big problem with this would be the size of the resulting files. At present web publishers routinely strip metadata from images in order that pages will load faster. Another problem is the fact that rights-owners are likely to want to change the licensing conditions for their works from time to time. These problems might be solved if the data is held online and the file contained a small identifier pointing to its location.
(iii) Similarities to the Domain Name System: that is a good idea. An even better one might be to build the system directly within the structure of the existing Domain Name System and the World Wide Web.
More details of how it is to operate:
a) Participation is to be voluntary, but Hargreaves wants the Government to make legislative changes to induce rights holders to use it. These include measures intended to apply pressure. He suggests that copyright infringement of ‘works available through the licensing exchange’ should
• attract increased damages
• alone be liable to the penalties for infringement in the Digital Economy Act. [Executive Summary p. 8 and 4.34]
b) Running costs are to be funded through ‘through a small user charge’. [4.36]
(i) Increased damages: this is similar to the principle that underpins the US Copyright Office; registration is voluntary, but it makes a lot of difference to the damages available in a case of infringement. It is noticeable that Hargreaves here talks about works that are ‘available’ through the Exchange and not works that are registered with it (for example as a way of protecting them from being exploited as ‘orphans’) but which are not being made available to the public.
In his insistence that failure to make works available through the Exchange should incur certain legal penalties, Hargreaves betrays his doubts that copyright holders will perceive the scheme as serving their economic needs. Sticks are not needed when the carrots are sufficient.
(ii) ‘A small user charge’: rather a lot of questions are left unanswered. Would the users who would be required to pay up be the licensees or the licensors, or both? Would the charge be levied per user, per work, or per transaction? What is meant by ‘small’? Clarification on the first point: who pays? licensees or licensors? was sought through the Review blog but has not been forthcoming. [See Review Blog, 18/5/2011, p. 9]
Who will set it up?
Hargreaves is emphatic that it must not be a creation of the Government; the Government’s role is envisaged as ‘bringing together all relevant interests, and finding ways to overcome divergences of interest to secure the bigger prize in a way that takes account of the interests of all’. [4.30] The ‘relevant interests’ are elsewhere referred to as ‘rights holders and other business interests’ [Executive Summary, p. 4]
Hargreaves suggests, however, that the Government should consider funding the costs of setting up the Exchange, including the IT costs, and proposes that this might come ‘from IPO reserves’. [4.34]
The scheme is to be up and running ‘by the end of 2012’. ‘A highly respected figure’ should be appointed by the Government ‘to oversee its design and implementation’. [Executive Summary p. 8, and 4.35 ]
‘Governance should reflect the interests of participants, working to an agreed code of practice.’ Regulation with a light touch is to be provided by IPO or perhaps Ofcom. [Executive Summary p. 8, 4.37]
(i) ‘Bringing together all relevant interests, and finding ways to overcome divergences of interest to secure the bigger prize in a way that takes account of the interests of all’: there are rather a lot of interests colliding with each other here, in more senses than one.
First, who is going to identify ‘all the relevant interests’, and what criteria are they going to use?
Who is going to represent the various interests in negotiations? In particular, who is going to stand up for the interests of freelance authors and other creators? And when interests diverge, as Hargreave acknowledges they will, how are they to be be ‘overcome’? (An interesting choice of word. He might have said ‘reconcile’ – but he didn’t.)
(ii) ‘Governance should reflect the interests of participants’ – that is very glib. Who is going to run this thing? Who, crucially, is to fix the rates for mass licensing, and in accordance with whose interests? Who will own it? Not, apparently, the Government, though Hargreaves suggests that the Intellectual Property Office (IPO) might dig into its reserves to set it up (and it is hard to see who will fund that, if it is not some branch of government). To whom is it going to be accountable?
In the main report the projected benefits of a Copyright Exchange are said to be
• supplying the public with lower-cost digital content, in order to help combat piracy (this by making licensing transactions more efficient and therefore cheaper) [4.16; 8.40; see also 4.23]
• preventing the ‘orphaning’ of works in the future [4.23, 4.59]
• providing opportunities for creators to license their work, including licensing it directly on terms of their choosing [Executive Summary p. 4 and 4.19, 4.21, 4.23]
• providing prospective licensees with easy access to the applicable licensing terms for specific works [4.23]
• improving creators’ ‘understanding of licensing terms and conditions throughout the market’, so they can make ‘more realistic judgments about their own business models’ [4.23]
• making it easier for licensees to figure out the investment costs of planned projects [4.22, 4.23; see also 4.12, 4.18]
• facilitating audits for users and regulators. [4.23]
This should be compared with what Hargreaves says in Supporting Document EE. Economic Impact of Recommendations. Here he states frankly, as he does not in the main report, that the initial beneficiaries of the proposed Digital Copyright Exchange will be
• content aggregators (‘firms delivering new bundles of content services through existing technology’)
• ‘firms aiming to introduce new services using new devices or software systems which present content to consumers in new ways’ (he cites Apple as an example). [Econ. Impact p. 12]
The benefit to these firms is expected to come as the result of ‘lower costs of entry to media markets’. [Econ. Impact p. 13]
Under the sub-heading ‘Who is likely to lose and what are the risks?’ Hargreaves says: ‘If the licensing process becomes more efficient it is difficult to see how rights owners are likely to lose. One outcome should be that as deadweight administrative costs fall, and content becomes accessible to more distributors, returns to creators could increase.’ [Econ. Impact p. 12]
He is concerned that not enough rights-holders will choose to participate. ‘Careful thought must be given to incentives which give rights holders and others enough reward to bring them in, but not so much as to pre-empt returns to firms which are taking new risks, and developing new businesses.’ [Econ. Impact p. 13]
(i) ‘Deadweight administrative costs’: this is the only point at which Hargreaves acknowledges the huge burden of initial data entry which would fall on rights holders. Then there will also be the burden of keeping entries up to date with data about rights transfers, current availability for licensing and so forth.
(ii) ‘New risks’: rights holders would be taking risks too. They would have to invest administrative time, in some cases a very large amount of it, and may also (it is not clear) be expected to pay a ‘user charge’ or charges, in return for quite uncertain rewards. As Hargreaves says, ‘returns to creators could increase’: but will they?
If the scheme is rigged from the start with the aim of favouring buyers (licensees, especially, it seems, content aggregators) over sellers (licensors, primarily creators), then it will surely fail.