COMMUNIA FINAL REPORT | Recommendation # 7

Subtitle: 
Alternative reward systems and cultural flat rate models

In order to support the emerging culture of sharing copyright protected works alternative reward systems and cultural flat rate models should be explored.

(Corresponding to COMMUNIA Policy Recommendation 14 - Download Postcard)

The current debate about copyright is dominated by a narrow focus on the business models of the entertainment industry. As part of this discussion rights holders advocate more extensive copyright protection and more stringent enforcement in order to ensure the survival of business models based on selling access to copies of protected works. While there is no evidence that extended copyright protection and/or stronger enforcement will allow these business models to continue to exist, there is clear evidence that any extension of copyright protection will harm our ability to access our shared knowledge and culture. Instead of focusing on an extension of copyright protection and enforcement alternative rewards systems and cultural flat rate models should be explored. These systems are in line with the emerging of a culture of sharing that attempts to maximize access to and interaction with cultural works.

Background and Proposals

Sharing is essential to the emerging digital culture. Young generations digitize, share, rip, mix, burn, and share again as a natural tool of human interactions. COMMUNIA maintains that full recognition of a non-commercial right to share creative works between individuals should be the goal of any modern policy aiming to enhance creativity in the digital environment. At the same time, criminalization of Internet users by cultural conglomerates is a source of social tension that needs to be promptly redressed.

Joseph Schumpeter noted that the “fundamental impulse that sets and keeps the capitalist engine in motion” is the process of creative destruction which “incessantly revolutionises the economic structure by incessantly destroying the old one, incessantly creating a new one.”[71] COMMUNIA calls for the blow of the Schumpeterian wind of creative destruction to support the emerging culture of online, digital sharing of copyright protected works. The investigation and promotion of alternative business models for financing the production of creative works is the key to unlocking the potentials of technological advancement. In Schumpeter’s words, revolutionizing the economic structure by introducing alternative business models is the key to keep our economy in motion. Hence, to propel innovation and growth in the European Internal Market for knowledge, a great deal of COMMUNIA activities has been dedicated to the investigation of alternative business models for creativity, in particular the 7th COMMUNIA Workshop, Digital Policies: the Public Domain and Alternative Compensation Systems, that took place in Luxembourg in February 2010.

Alternative remuneration systems have been widely discussed and investigated lately. New business models have been emerging that switch the focus from the content to the container. Artists have come to realize that it may be more valuable to sell the corpus meccanicus, such as live performances, special editions, bonus material, merchandize, and share the corpus immaterialis. The examples are on the rise: Radiohead, Nine Inch Nails, The Arctic Monkeys, who got to number one in 2005 after giving away their single for free on their website, and plenty of other bands and artists. Sharing content is a powerful drive for increasing the revenue stream more directly linked to the reputational value that can be extracted from a broader distribution of the content. Giving away music records may increase concerts’ attendance and help to build or enlarge the artist’s fan base. As also the Economist has noted, “a lot of things are making money” in the music business notwithstanding the decline in sales of recorded music.[72] 

A recent Harvard report showed that the classical revenues sources shift from recordings to concerts, coupled by an increase in diversity with a greater number of artists on tour, almost 95% more in 10 years.[73] The conclusion of the study is that broader illegitimate distribution of digital goods may have off-setting demand implications for legitimate sales of complementary non-digital products. Similar findings have been put forward by other studies. In particular, Oberholzer-Gee and Strumpf have noted that file sharing has not undermined the incentives of authors to produce new works, instead has increased the demand for complements to protected works, raising, for instance, the demand for concerts and concert prices.[74]

In search of alternative remuneration systems, throughout the last decade, researchers, activists, consumer organizations, artist groups, and policy makers have proposed to finance creative works and artists on a flat-rate base. Flat rate proposals are set to favour an ecology of sharing, mindful that any business model preventing or limiting sharing is an outmoded solution which is unsuited for the digital environment. As Volker Grassmuck, speaker at the 7th COMMUNIA Workshop, has noted, “the world is going flat(-rate).”[75] A recent study of the Institute of European Media Law has argued that this may be “nothing less than the logical consequence of the technical revolution introduced by the internet”.[76]

As a matter of fact, quasi flat rate models have been already widely implemented throughout Europe, although in the analog environment.[77] Many national legislations have implemented different arrangements of private copying levies that may be envisioned as a form of cultural tax. Private copying levies are special taxes or levies which are charged on purchases of recordable media and copying devices and then redistributed to the right holders by means of collecting societies. The point of what we can learn from private copy has been largely discuss during COMMUNIA proceedings, especially by Mark Cole at the 7th COMMUNIA Workshop.[78] Applying the flat-rate model to the online exchange of digital files would only port a traditional tool from the analog to the digital environment. The rational for implementing a flat rate model online would be very similar to the reasoning that led many European countries to set up private copies levies. As levies on recording devices and media have been set up upon the acknowledgment that private copying cannot be prevented, the same should apply to the introduction of the legal permission to copy and make available published copyrighted works by individuals for non-commercial purposes in the Internet. Sharing deeply characterizes a preponderant part of online interactions. Lawmakers should acknowledge that an entire culture of sharing cannot be criminalized or prevented. Therefore, online sharing should be legalized, while ensuring fair remuneration to creators. This can be done by the implementation of alternative remuneration systems, especially flat rate models.

Several flat-rate models have been proposed. For some, the flat-rate payment by Internet broadband subscribers is to be construed as a compensation to authors, artists and producers for an alleged harm caused by sharing. Other see the flat-rate as putting in place a new reward system, which is outside the scope of copyright, and could enable a wider engagement in creative activity. Some see the scheme as similar to private copying levies managed by collecting societies, while others want to put in place an entirely new management model, giving the key role to Internet users themselves. Some of the flat-rate models proposed will be review below. As per the proposals reported, please note that the description provided is not intended to be exhaustive and full reference should be made to the original studies as cited in the footnotes.

Firstly, a non-commercial use levy permitting non-commercial file sharing of any digitised work was proposed by Professor Neil Netanel.[79] Such levy would be imposed on the sale of any consumer electronic devices used to copy, store, send or perform shared and downloaded files but also on the sale of internet access and p2p software and services. An ad hoc body would be in charge of determining the amount of the levy. The proceeds would be distributed to copyright holders by taking into consideration the popularity of the works to be measured by tracking and monitoring technologies. Users could freely copy, circulate and make non-commercial use of any works that the right holder has made available on the Internet.

A more refined and comprehensive proposal has been put forward by Professor William Fisher.[80] Creators’ remuneration would still be collected through levies on media devices and internet connection. In Fisher’s system, however, a governmentally administered registrar for digital content, or alternatively a private organization, would be in charge of the management of creative works in the digital environment. Digitised works would be registered with the Registrar and embedded with digital watermarks. Tracking technologies would measure the popularity of the works circulating online. The Registrar would then redistribute the proceedings to the registered right holders according to popularity of the works.

Further proposals would subject the right to “make available to the public” to mandatory collective management. In particular, this proposal has been put forward by Silke von Lewinski from the Max Planck Institute for Intellectual Property, discussing a proposed amendment in the Hungarian Copyright Act.[81] The same proposal has also been endorsed by the French Alliance Public-Artistes, campaigning for the implementation of a Licence Globale.[82] Both studies confirm that the application of the mandatory collective management model to the making available right would be compliant with European and international copyright law. This solution would not qualify as an exception or limitation, hence would not trigger the three-step-test of Berne Convention or the finite list of exceptions of the European law, nor would violate the principle of national treatment or automatic protection. Under this framework the exercise of the exclusive right of the author would be only limited by the obligation of resorting to collective management to enjoy the economic rights attached to the right of making available to the public. As a consequence, the internet service providers would have to pay a lump-sum or levy to the collective societies in exchange of the authorization to download and  make available to the users the entire repertoire of the works managed by the collective society. The money collected will be then redistributed to the right holders.

COMMUNIA member Philippe Aigrain discusses a proposal termed creative contribution in his book Internet & Création.[83] Aigrain’s proposal would encompass a global licence to share published digital works in the form of extended collective licensing, or, absent an agreement, of legal licensing.[84] Remuneration would be provided by a flat-rate contribution that will be paid by all internet broadband subscribers. The amount proposed for all media (in France) is 5 to 7 € per subscriber per month with an yearly contribution between 1200 million € and 1700 million €. Half of the money collected would be used for the remuneration of works that have been shared over the Internet according to their popularity. Measurement of popularity would be based on a large panel of voluntary Internet users transmitting anonymous data on their usage and statistical techniques aiming at minimizing privacy intrusion. The other half of the money collected would be devoted to funding the production of new works and the promotion of added-value intermediaries in the creative environment. Distribution of the system’s proceedings would differ according to their intended use. As per the proceedings to be distributed for compensating the creators, an independent observatory would be created to process the data on popularity and forward the final results to collective management societies. As per the proceedings devoted to foster new creations, a mix of peer-based allocation of funds and assignment to intermediaries by internet subscribers (under the competitive intermediaries model) would be used.

Extended collective licencing is also endorsed by the proposal of the NEXA Center for Internet and Society at the Politecnico of Turin.[85] In view of the NEXA Center, an extended collective licensing scheme is the most appropriate tool to be used by a European Member State to legitimize the file-sharing of copyrighted content since: (i) it is already successfully in use in the Nordic countries; (ii) it does not affect the (exclusive) nature of the right since it consists of a voluntary management modality, thus not degrading the exclusive right into a right of mere remuneration; (iii) it represents a fair balance between the fundamental right of authors to the protection of their moral and economic interests and that of access to knowledge, which belongs to the general public; (iv) it is identified as a possible solution to the problem of orphan works in the “Final Report on Digital Preservation, Orphan Works, and Out-of-Print Works” adopted by the High Level Expert Group – Copyright Subgroup, and above all (v) it is explicitly contemplated by recital 18 of the Directive 2001/29/CE. Collective management bodies will negotiate the license with users’ associations or ISPs. In exchange of the right of reproducing and making available content online, right holders will be remunerated by the proceedings collected through the extended collective license.

COMMUNIA looks with particular favour on a recent proposal from the German and European Green Parties. The German and European Green Parties have included in their policy agenda the promotion of a cultural flat rate to decriminalise P2P users, remunerate creativity and relieve the judicial system and the ISPs from mass-scale prosecution. The Green Party’s proposal has been backed up by a study commissioned to the Institute of European Media Law (EML) that found that a levy on Internet usage legalising non-commercial online exchanges of creative works conforms with German and European copyright law, even though it requires changes in both. The EML study has described the minimum requirements for a culture flat-rate as follows: (i) a legal licence permitting private individuals to exchange copyright works for non-commercial purposes; (ii) a levy, possibly collected by the ISPs, flat, possibly differentiated by access speed; and (iii) a collective management, i.e. a mechanism for collecting the money and distributing it fairly.

It also is worth mentioning that, together with proposals for an explicit exception in copyright law and a redistribution to creators via collective management, voluntary market solutions based on contracts among companies and between companies and consumers have also emerged, as detailed in Volker Grassmuck, The World is Going Flat(-Rate).[86]

On a related note, as shown by the proposals mentioned and as argued at the 7th COMMUNIA Workshop,[87] the importance and the role of collective societies for any future systems must be acknowledged and carefully reviewed. COMMUNIA maintains that the European collective society system has to be modernised and harmonised to take up the challenge of fostering a culture of sharing in the digital environment, while providing fair remuneration to the creators. Harmonization at the European level and governmental supervision should contribute to define the role of collective society in the management of alternative remunerations systems. To that end, an “alternative” or simply overhauled system based on collective societies must be transparent and credible. In this regard, it is of essence to develop fixed rules for collective societies for the documentation and allocation of the use of content as well as for the re-distribution of the earned money to the right-holders.

Alternative Forms of Licencing for Creative Material

Additionally, COMMUNIA believes that public policies could favour the use of already existing open licensing schemes, including Creative Commons licences.

(1) Public bodies may increase the likelihood of open licenses being chosen by private parties just by using such licenses themselves, unless national laws already provide for a public domain status for the relevant kind of public sector information. Public bodies should use the most open licensing schemes, such as a Creative Commons Attribution License, for their publications and for all the content they make available, unless they can provide compelling reasons to do otherwise (e.g. they do not own sufficient rights to do so). In other words, a legal status similar to Copyright 2.0 should be by default the goal of licensing choices of public entities.

 (2) Internet service providers hosting blogs, forums, newsgroups and/or social networks and other Web 2.0 platforms should be explicitly encouraged to make it very easy for their users to choose open licences under the following terms: (i) users should be enabled to set an open license as their own “default choice” for copyright licensing of newly created content; (ii) platforms should be encouraged to recommend the most open licensing choices and/or should enable them by technological default. In other words, Copyright 2.0 should be implemented as the default choice of authors publishing through online platforms.

Relevant Actions to Be Taken by:

  1. European Commission (EC)
  1. Explore the opportunities offered by alternative rewards systems and cultural flat rate models.
  2. Encourage the use of open licencing schemes by private parties and public bodies.
  3. Include a file-sharing exception in the Directive 2001/29/EC.
  1. European Parliament (EP)
  1. Amend the Directive 2001/29/EC to include a file-sharing exception.
  1. Member States (MS)
  1. Encourage the use of open licencing schemes by private parties and public bodies.
  1. Provide for a file-sharing exception to copyright protection.

[71] Joseph Schumpeter, Capitalism, Socialism and Democracy 83 (Harper Perennial Ed., 1976) (1942).

[72] Having a Ball: In the Supposedly Benighted Music Business, a Lot of Things are Making Money, The Economist, October 7, 2010, available at http://www.economist.com/node/17199460?story_id=17199460.

[73] Julie Holland Mortimer, Chris Nosko, and Alan Sorensen, Supply Responses to Digital Distribution: Recorded Music and Live Performances (October 2010), available at http://mortimer.fas.harvard.edu/concerts_01oct2010.pdf 

[74] Felix Oberholzer-Gee and Koleman Strumpf, File-Sharing and Copyright, 10 Innovation Policy and the Economy 19 (2010), available at http://www.hbs.edu/research/pdf/09-132.pdf.

[75] Volker Grassmuck, The World is Going Flat(-Rate): A Study Showing Copyright Exception for Legalizing File-Shearing Feasible as a Cease-Fire in the “War on Copyright” Emerges, Intellectual Property Watch, May 11, 2009, http://www.ip -watch.org/weblog/2009/05/11/the-world-is-going-flat-rate [hereinafter Grassmuck, The World is Going Flat(-Rate)]. 

[76] Institut für Europäisches Medienrecht [Institute of European Media Law] (EML), Die Zulässigkeit einer Kulturflatrate nach Nationalem und Europäischem Recht [The Admissibility of a Cultural Flat Rate under National and European Law] 63 (March 13, 2009) (study prepared for the German and European Green Party), available at http://www.gruene-bundestag.de/cms/netz politik/dokbin/278/278059.kurzgutachten_zur_kulturflatrate.pdf [hereinafter EML Study)

[77] See Hugenholtz, Bernt, Lucie Guibault And Sjoerd Van Geffen, The Future Of Levies In A Digital Environment (Institute for Information Law 2003), available at http://www.ivir.nl/publications/other/DRM&levies-report.pdf,

[78] Mark Cole, What Can we Learn from the Private Copy? Licence Global or Flatrate in Light of Previous Experiences, presentation delivered at the 7th COMMUNIA Workshop, Luxembourg (February 2, 2010).

[79] Neil W. Netanel, Impose A Noncommercial Use Levy To Allow Free Peer-To-Peer File Sharing, 17 Harv. J. L. & Tech. 1 (2003).

[80] Fisher William W., Promises To Keep: Technology, Law and the Future of Entertainment (Stanford Law and Politics 2004).

[81] See Silke von Lewinski, Mandatory Collective Administration of Exclusive Rights – A Case Study on its Compatibility with International and EC Copyright Law (UNESCO e-Copyright Bulletin, January – March 2004), available at http://portal. unesco.org/culture/en/files/19552/11515904771svl_e.pdf/svl_e.pdf.

[82] See Carine Bernault and Audrey Lebois under the supervision of Professor André Lucas, Peer-to-peer et propriété littéraire et artistique Etude de faisabilité sur un système de compensation pour l’échange des œuvres sur internet [Peer-to-peer File Sharing and Literary and Artistic Property. A Feasibility Study Regarding a System of Compensation for the Exchange of Works via the Internet] (June 2005) (study prepared for ADAMI and SPEDIDAM), available at http://allia nce.bugiweb.com/usr/Documents/RapportUniversiteNantes-juin2005.pdf and http://privatkopie.net/files/Feasibility-Study-p2p-acs_Nantes.pdf (English translation).

[83] Philippe Aigrain, Internet & Création: Comment Reconnaître les Échanges sur Internet en Finançant la Création [Internet & Creation: How to Recognize Non-market Exchanges over the Internet while Funding Creation] (Editions InLibroVeritas 2008).

[84] For a detailed discussion of the notion of extended collective licences, see COMMUNIA Policy Recommendation # 9, supra.

[85] Marco Ciurcina, Juan Carlos De martin, Thomas Margoni, Federico Morando, and Marco Ricolfi, Creatività Remunerata, Conoscenza Liberata: File Sharing e Licenze Collettive Estese [Remunerating Creativity, Freeing Knowledge: File-Sharing and Extended Collective Licences] (March 15, 2009) (position paper prepared for the NEXA Center for Internet and Society), available at http://nexa.polito.it/licenzecollettive.

[86] See Grassmuck, The World is Going Flat(-Rate), supra note 505, at 12-17.

[87] See Florian Philapitsch, I Dream of Dodos - Why Collecting Societies Should Play a Major Role in "Alternative Compensation Systems" and Why They Should be Saved from Extinction, presentation delivered at the 7th COMMUNIA Workshop, Luxembourg (February 2, 2010).