Legal & Government Affairs Update Issue 5 - 2018
New EU copyright directive passes vote by MEPs
On Wednesday 12 September, the European Parliament voted to pass the European Union Directive on Copyright in the Digital Single Market, more commonly referred to as the shorthand EU Copyright Directive. Campaigners for and against the controversial reforms have been lobbying MEPs over the past few months, which saw the Directive defeated in its first plenary session on 5 July 2018 by a narrow margin of 30.
The Directive was sent back to the drawing board and amendments were proposed to the contentious Articles 11 (Press Publishers) and 13 (Content Filtering) by Rapporteur Axel Voss MEP. Following a second round of voting in a plenary session on 12 September, the Directive has now received the approval of MEPs who appear to have been satisfied by the amendments.
Article 11 – Link Tax
While opinion had been swayed in the European Parliament, the amendments themselves do not appear to substantially change the effect of Article 11. When implemented it will require websites to pay news organisations for linking to their stories, save for "mere hyperlinks which are accompanied by individual words". The practice of posting snippets of articles alongside links is common on many internet platforms and would likely fall foul of article 11, meaning that these websites would have to rethink how they link to articles if they want to avoid being charged.
Article 13 – Meme Ban
Article 13 will make "online content sharing services" ("Digital Platforms" such as YouTube, twitter, Pinterest, Facebook etc…. ) liable for all user generated content that they host. These Digital Platforms will be held liable for copyright infringing material uploaded to their site by users and would be expected to proactively identify and remove content. Such a model would place a large burden on sites which host user generated content. While it has been argued that reforms are necessary to protect copyright holders, others have stated that this requirement is oppressive and could lead to legitimate content being removed.
The Copyright Directive makes it the responsibility of the Digital platforms Facebook to police user generated content. The onus has shifted from the copyright holders to the Digital Platforms. So any Digital Platform hosting large amounts of user-generated content will be liable to remove it if it infringes copyright. But how are they supposed to do this?
In the original version of the Directive, as drafted by the Commission, the Digital Platforms would have been required to use “proportionate content recognition technologies” to prevent copyright material being uploaded. This has been replaced by an obligation on Member States to "organise dialogues between stakeholders to harmonise and to define best practices and issue guidance to ensure the functioning of licensing agreements and on cooperation between online content sharing service providers and right holders".
So exactly how the Digital Platforms will be obliged to remove copyright infringing content is very much open to question, although the principle that they will be obliged to remove it now appears to be established.
Article 13 has been named the “meme ban” as no one is sure if memes, usually derived from copyright material, will also need to be removed. Equally all derivative works which contain within them copyright material could also be caught. Supporters of the Directive suggest that such content in so far as they are parodies will be protected, on the basis that parody is an exemption. But will a content filter know the difference between a parody, a derivative work and copyright infringing material?
Article 3 – Text and Data Mining
Article 3 designates text and data mining as an exception to copyright infringement but limits the scope for organisations to conduct data mining. The exemption allows " for reproductions and extractions of works or other subject-matter to which research organisations have lawful access and made in order to carry out text and data mining for the purposes of scientific research by such organisations". Without an exemption for commercial use, analysis of large data sets or artificial intelligence training reliant on the practice may no longer be possible.
Many large internet companies have been opposed to these changes, arguing that they would damage the functioning of the internet and harm innovation in Europe. But the Directive has gained the support of some large media organisations, such as Universal Music Group, and is generally favoured by those wishing to give more power over copyright ownership to news organisations and artists.
The Directive is not yet law. Having passed the European Parliament stage, the Commission, Council and Parliament will all now negotiate and agree the final wording before submitting the Directive to the EU Legal Affairs Committee for approval. The final vote in the European Parliament is planned for January 2019 and, if passed, Member States will be required to transpose it into national law. It is likely that the Directive will not be transposed into British law before Brexit takes place.
Legislation & Case Law Updates
Sprint Electric Ltd v Buyer's Dream Ltd and another  EWHC 1924 (Ch)
On 30 July 2018, judgment was handed down in a dispute between Sprint Electric Limited and Buyers Dream Limited, a service company engaged by Sprint Electric to write code and develop computer programmes, concerning the ownership of the copyright in the documents and source code produced by Buyer's Dream. The Court found in Sprint Electric's favour, confirming that it owned the copyright in the documents and code and was entitled to delivery up of the disputed materials.
In 1996 an individual named Aristides Potamianos was approached by Sprint Electric to work as a programmer writing code for motor control algorithms. Due to tax avoidance reasons Dr Potamianos was required to incorporate Buyer's Dream, a service company to contract with Sprint Electric through which he would carry out the work to develop the disputed code. Buyer's dream physically retained the majority of the source code and only supplied object code to Sprint Electric.
Dr Potamianos ended up becoming heavily involved in the business, taking a significant share of Sprint Electric's parent company. However the relationship between Dr Potamianos and the parent company's majority shareholder broke down and he was removed from the company in 2017. Dr Potamianos took the disputed documents and code with him, prompting Sprint Electric to claim ownership of the copyright in code and demand delivery up of the materials Dr Potamianos took with him.
Despite the use of the service company when contracting with Sprint Electric, the Court found that the relationship between the parties was actually one of employment. In actuality, Dr Potamianos was obliged to personally perform all of the services Buyer's Dream was contracted to perform. The contractual relationship was artificial was he therefore an employee of Sprint Electric when he created the disputed code, making it Sprint Electric's property. It was also found that the delivery up of the source code was an implied term of the Dr Potamianos' relationship with Sprint Electric and he was ordered to provide it to Sprint Electric.
The Court's willingness to construct an employer/employee relationship out of what appears to be a contract between two companies should serve as a reminder to carefully consider the nature of the relationship when contracting for coding and other such services, particularly where smaller service companies are concerned. In particular, this is illustrative of the Court's willingness to look through bogus companies to create different legal relationships.
Work kicks-off to examine digital competition in UK
The inaugural meeting of a new independent expert panel, chaired by Professor Jason Furman, one time senior adviser to President Barack Obama, focussing on competition in the digital economy was held in Downing Street on 19 September 2018.
Philip Hammond hosted the meeting after formally appointing Professors Diane Coyle, Amelia Fletcher, Derek McAuley and Philip Marsden to the team. The Panel has a brief to maintain Britain's leading position in the digital revolution.
You can find the Terms of reference for the independent expert panel looking at competition in the digital economy here: https://www.gov.uk/government/publications/digital-competition-expert-panel-terms-of-reference. They will be addressing some fundamental questions including:
- What are the emerging benefits and harms from digital markets such as social media, e-commerce, search, and online advertising tending towards only one or a small number of big firms?
- What are the emerging benefits and harms of the same small number of digital firms becoming present across a broad range of digital markets?
- What effect can the accumulation and concentration of data within a small number of big firms be expected to have on competition?
- How can risks and detriment to consumers in products and services that are “free” to consumers (or paid for through their data) be assessed? And how could competition effects in other markets such as advertising be addressed?
- How do technologies such as artificial intelligence and machine learning affect competition and what are their implications for competition policy? Does algorithmic pricing raise novel concerns about competition?
- What is the appropriate approach to mergers and takeovers in digital markets – what are the key challenges and how should they be addressed?
- What tools does competition policy need to deal with issues in the digital economy in a sufficiently timely, effective and far-sighted manner? To what extent are these in place in the UK?
- What approaches are being considered and developed by governments and competition authorities in other major economies? What needs to be done internationally and what can be done at the UK level?
We will be engaging with the panel in due course but please let me know if you have any strong views on the questions above.