Disruptive Competition Project

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Value Growth and the Music Industry: The Untold Story of Digital Success

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Today, consumers have access to a greater selection of music than ever before. They can listen to music anywhere, anytime, on a broad range of devices. Sharing and creativity have flourished, enabling new business models for creators and the emergence of new artists, as well as ensuring that the supply side of music is more diverse and competitive than ever.

However, part of the debate over European copyright reform focuses on the idea of a “value gap”, arguing that the music industry does not benefit as it should from music streaming services. Consequently, provisions that would upend the entire European digital sector and that are not compatible with EU fundamental rights (as clearly explained by over fifty human rights and media freedoms NGOs, including Reporters without Borders) were introduced in the EU copyright proposal.

In a research paper published by the Computer and Communications Industry Association (CCIA)[1], we expand on a previous DisCo blog post and argue that the gains in music choice, creativity, diversity and competitiveness – thanks mainly to digital services – have not been achieved at the expense of legacy music players, such as major labels and collecting societies.

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EU Council rebukes EU Commission for its copyright proposal, asks for more explanations on the e-Commerce Directive

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Another day, and another sudden development in the European Copyright reform. As DisCo readers may remember, we explained in a September blog post that many European Member States (including Germany) were questioning the compatibility of the EU copyright proposal from the EU Commission with the e-Commerce Directive, a legal cornerstone of the European digital sector.

Today, Politico Europe leaked the (lengthy, technical) Opinion from the Legal Service of the European Council, vindicating the concerns expressed by these Member States. Member States were particularly concerned that the Copyright proposal (Article 13 and recital 38) was an unspoken attempt to rewrite the rules of the e-Commerce Directive and to redefine the notion of “communication to the public” (fundamental to the relationship between hyperlinking and copyright) through the backdoor. On those counts, the opinion is a victory for Member States – the Legal Service has harsh words for the Commission’s approach.

The Legal Service was expected, at the request of many Member States, to provide clarity on a proposal that many experts still struggle with. The lengthy, technical document comes with the requisite non-committal disclaimers and caveats. And ultimately, the opinion concludes that the Member States need to decide what the proposal actually should mean before any conclusive opinion can be delivered.

However, in the diplomatic language of the Council lawyers, the opinion also takes a direct swipe at the Commission and points Member States back to the Commission for answers.

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EU Parliament-Commissioned Study Pans Proposed Publishers’ Right

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As faithful DisCo readers might remember, the “publishers’ right” or “ancillary copyright for press publishers” is an exclusive right granted to publishers for the online uses of their press publications, introduced by the European Commission in its copyright directive proposal in September 2016 – despite the failure of similar measures introduced in Germany and Spain.

We have often argued ([1], [2], [3]) that such a right would undermine media pluralism, access to information and digital innovation and called on the European Parliament and European Council to reject the introduction of this right.

Today, the Legal Affairs (JURI) Committee of the European Parliament, which leads the work on this copyright proposal, published a study commissioned on the press publishers’ right (Article 11 of the Copyright proposal).

This study, titled “Strengthening the Position of Press Publishers and Authors and Performers in the Copyright Directive” and authored by L. Bently, M. Kretschmer, T. Dudenbostel, M. del Carmen Calatrava Moreno and A. Radauer, supports many of the arguments previously made on DisCo on the press publishers’ right.

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Antitrust in 60 Seconds: Does Size Matter in Competition Policy?

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The 60-Second Read

Recent commentary on competition law and policy might lead one to believe that size is all that matters in the competition policy sphere: big is bad; small is beautiful. However, an assessment of the evolution of modern competition law enforcement shows that size is just one element of a broader and more sophisticated analysis.

In the early days, antitrust enforcement penalized successful companies based solely on market share. The ¨retro antitrust¨ approach created disincentives for companies to invest, innovate, and grow. Subsequent refinement in the application of economic analysis led the U.S. Supreme Court to adopt the consumer welfare standard and recognized that: “Congress designed the Sherman Act as a consumer welfare prescription.” This approach established the right balance for companies to compete and agencies to effectively maintain competition in the markets.

Hence, the adoption of a consumer welfare standard has provided for a “wise technocratic equilibrium”, spurring economic growth in the form of new and better products and services at lower prices to the benefit of consumers. Therefore, testimonials worrying about bigness are old-fashioned and mistaken. Well-informed analysis must understand that size is not a proxy for monopoly power.

Does size matter?

Antitrust’s “size” debate has been reignited, but historical experimentation with antitrust enforcement informs us that “bigness” in and of itself is not an antitrust concern.

The so-called “modern competition” or “hipster” antitrust proposals suggest, among other things, taking antitrust actions against big tech companies for no other reason than because these companies are big ones. This is anything but a modern proposal. In fact, it is a rather vintage suggestion that resembles the old days (notably from the 20s through the 60s) when antitrust enforcement cared simply about the size of corporations and ignored the benefits that these companies brought to consumers.MORE »

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House Hearing on Section 230: What’s the Problem with a Knowledge Standard?

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Yesterday brought another Congressional hearing on Section 230 of the Communications Decency Act.  Following the Senate Commerce hearing several weeks ago on SESTA, yesterday’s hearing in the House Judiciary Subcommittee on Crime, Terrorism, Homeland Security, and Investigations focused on online sex trafficking more generally, rather than any specific legislation.  Several witnesses, including former Rep. Chris Cox, a co-author of Section 230, provided expert views on the issue.  

While the hearing was more broad, amendments to Section 230 were discussed, including adding a knowledge standard.  I.e., why shouldn’t online platforms incur sex trafficking liability as soon as they have knowledge of misuse of their services?

This is a logical question, since the much-reviled Backpage.com allegedly knew that criminal activities occurred on its site, while removing objectionable words from ads which had the effect of obscuring illegality.  Thus, to impose liability upon knowledge would appear to respond to this problem.

However, this overlooks that online platforms already monitor and moderate content for a host of problems extending far beyond sex trafficking, whether to prevent hate speech, child endangerment, or illegal transactions (like narcotics and firearms), among numerous other subjects.  In policing against abuse, reviewers constantly make judgment calls about short, ambiguous pieces of content which may be divorced from any context.  MORE »

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Keeping the DMCA’s Grand Bargain in NAFTA

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Last week, the content industry launched a new coalition—ACTION for Trade—dedicated to keeping Internet intermediary safe harbors out of the renegotiated North American Free Trade Agreement (“NAFTA”). Matt Schruers noted in a recent DisCo post that such an effort would break with existing law and Congressional direction in trade promotion legislation. It also would break a nearly 20-year-old bargain brokered by Senator Orrin Hatch, now the chairman of the Senate Finance Committee. This bargain, first embodied in the Digital Millennium Copyright Act (“DMCA”), has been replicated in U.S. free trade agreements with sixteen countries.

Congress enacted the safe harbor system in 1998 as one title of the much broader DMCA. This broader statute, in a separate title, established prohibitions on the circumvention of technological protection measures. These two titles were adopted together to create a balanced approach to copyright enforcement in the Internet environment. They represented a carefully negotiated compromise between diverse stakeholders.

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Music Consent Decree Battle Takes a Turn as DOJ Brief Charts New Path Forward

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On August 31, the Department of Justice made an interesting strategic move that turned a fight over consent decree language into an epic standoff. In its reply brief, the DOJ called BMI’s bluff and almost completely turned BMI’s legal strategy on its head. Reading the brief, one could almost imagine the DOJ reciting Dirty Harry’s famous line “You have to ask yourself, do I feel lucky?”

(If you’re new to the intersection of antitrust law and copyright in the music industry, see our three-part explainer here, here, and here.)

The fight is over fractional licensing, or the licensing of only a portion of a song’s copyright. Fractional licensing does not give a licensee the rights to play a song, because the licensee must first contract with all other fractional owners to assemble 100% of the rights. Fractional licensing can be a drag on the use of music, so Congress set the default rule as full-work licensing – meaning each copyright owner can license the full work but owes each co-owner their share of profits. While parties are free to change the default rule by contract, the DOJ argues that the antitrust consent decrees that govern ASCAP and BMI contain restrictions on the use of fractional licensing. BMI disagrees.

If that explanation seems vague, it’s because it is now clear that what we all thought the DOJ was arguing is dramatically different from their actual position. It all started with BMI’s attempt at a strawman argument. BMI thought the DOJ was taking the position that fractional licensing is completely barred by the consent decrees. BMI argued that under current law on consent decree construction, the DOJ can’t get all the way there, due to the way the consent decree is drafted. BMI argued that if you only take DOJ’s plausible arguments, you get the result that fractional licensing is not regulated under the consent decree at all. Perhaps believing that this could not possibly be what the DOJ wants, BMI then advanced its interpretation where it gets to engage in fractional licensing but under the antitrust restrictions of the consent decree.

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The European Audiovisual Reform – So Little Time, So Many Issues

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Last July, the European Commission, Parliament and Council officially started the final round of negotiations on the EU’s audiovisual reform, before leaving Brussels soon after for their respective holidays destinations. They reconvened as usual in September, with the next round taking place on September 28th.  

The start of these negotiations follows the adoption of the European Parliament’s report and of the European Council’s general approach last May. Unfortunately, several crucial issues we identified last February were not addressed by these institutions, and new ones appeared. Will they – including those listed below – be addressed before it’s too late and the Digital Single Market (DSM) is strongly distorted?

1) The Country of Origin Principle Must Be Preserved

One crucial issue of the European Commission’s proposal was the undermining of the Country of Origin (COO) principle with the introduction of national levies, thereby unravelling the DSM (see here for more details on the COO).

Unfortunately, neither the Parliament nor the Council chose to fix this provision – despite it contradicting the entire European Union’s strategy on digital growth. In fact, the European Parliament preserved the COO principle for linear video services (i.e., for television channels) but eliminated it for emerging on-demand services with respect to national levies. Such discrimination among audiovisual media service (“AVMS”) providers tilts the playing field in favor of established providers and ensures the European Union will trail the global marketplace in innovation. To remedy this, the final text should preserve a level playing field for AVMS providers, ideally maintaining the decades-old COO framework.

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Calls to Backtrack on Copyright Balance Put Tech Backing for NAFTA in Doubt

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As negotiators converge on Ottawa to resume talks over updating the 1994 North American Free Trade Agreement (NAFTA), content interests have barraged U.S. trade officials with letters demanding that the U.S. Government abandon critical balancing mechanisms in the agreement’s copyright chapter, regarding fair use and safe harbors for Internet services.  

How these issues are resolved is critical, since it will affect Internet and technology industries’ support for the IP chapter of the agreement, and potentially NAFTA itself.

There are two major moving parts here: (1) whether USTR undermines well-established safe harbors for online intermediaries, and (2) whether USTR abandons the policy of promoting balanced copyright in free trade agreements.  

As previously noted here, acceding to Hollywood and recording industry demands would break with existing U.S. law, and Congressional direction in trade promotion legislation.  This would also walk back priorities that were laid out by USTR itself earlier this year.  Nevertheless, some in the entertainment industry are urging U.S. negotiators to do exactly that, at the risk of crossing red lines for Congress, negotiating partners, and various U.S. stakeholders.

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