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European Commission to launch study into impact of EU court ruling on “reciprocity” approach to international royalties

By | Published on Tuesday 20 July 2021

European Union

The European Union’s Commissioner For The Internal Market, Thierry Breton, has announced that the European Commission is launching a study into the impact of a copyright ruling in the EU courts which related to a music royalties dispute in Ireland caused by a quirk of American copyright law. How very international!

This all begins with the fact that, under US copyright law, there is no general performing right as part of the sound recording copyright. This means that no licences are required or royalties paid when recorded music is broadcast on AM/FM radio stations, or played in public spaces like pubs, clubs, bars and cafes.

Why was this relevant in a copyright dispute in Ireland? Well, the record industry’s performing rights income – or neighbouring rights income if you prefer – is administered by the collective licensing system around the world.

In each country the local collecting society collects all the royalties that are due and passes them onto the artists and labels that appear on, or released, the tracks that are being broadcast and played in public. Where an artist or label is based in another country, the local society would usually pass the money on to the relevant society in that other country, meaning rights and royalties constantly move around a global network of collecting societies.

But what happens when you have a country where no royalties are collected because of a limitation in copyright law, like the US? Do other societies elsewhere in the world still pass monies back to artists and labels in that country when their music is played, even though no money is following back in the other direction, because of the copyright law limitation?

The answer to that question is, “it depends”. But in some countries a “reciprocity” approach is used in this domain, meaning royalties only flow to countries where performing rights exist. That restriction on the international flow on royalties may apply to both artists and labels, or just one or the other.

Ireland is one of the countries that employs a reciprocity approach, specifically for artists. But that system was put into the spotlight last year as part of a dispute between the label and performer collecting societies in Ireland, PPI and RAAP respectively.

The question was raised as to whether that reciprocity approach was actually allowed under European law and/or according to the EU’s interpretation of the global copyright treaty that covers these things. The Irish courts bounced that question up to the EU courts which answered “no”.

The EU court basically said that because the specific European directive relevant to the Irish case didn’t mention the reciprocity approach, EU member states couldn’t apply it. The previous assumption – actually backed by the European Council – was that because the relevant directive was silent on reciprocity, EU member states could apply it.

The ruling was welcomed by US collecting society SoundExchange, which has been busy calling for an end to the reciprocity approach around the world, arguing that countries that operate such a system have incorrectly interpreted the aforementioned global copyright treaty. SoundExchange also wants the UK – which likewise operates a reciprocity approach for artist royalties – to also alter its system, a call backed by some British musician groups.

However, there have been plenty of critics of the EU court’s ruling within the European music community, who argue that it will result in monies unfairly flowing out of the European record industry over to the US, while there remains no return royalty flow because of the ongoing limitations in American copyright law.

IMPALA, the pan-European trade group for the independent music community, raised this issue last month ahead of a summit between EU leaders and US President Joe Biden, stating that last year’s ruling “will have a devastating effect on many European performers and labels. IMPALA looks to the EU to fix this situation urgently so that EU member states can continue to decide individually for themselves whether they want to apply this principle, as they have been able to for decades”.

This brings us to the new study announced by Breton into the impact of the reciprocity ruling. The Commissioner confirmed the study in response to questions posed by members of the European Parliament, in particular Spanish MEP Ibán García Del Blanco.

Critics of last year’s judgement have pointed out that that ruling was based on the relevant European directive being silent on this issue. So one quick solution would be end the silence, ie amend the directive so to clarify that member states can employ a reciprocity approach if they so wish.

Welcoming the announcement of the study, Del Blanco says: “International copyright rules and the principle of reciprocal treatment have been applied by many European members states for decades, protecting the rights of artists, creators and labels. The EC’s decision to launch a study is a welcome first step. It should be part of an accelerated procedure to fix what the court has flagged as a mistake in the drafting of the original directive”.

IMPALA has always welcomed the news. Its Executive Chair, Helen Smith, adds: “This is a vital step in the right direction. The good news is that huge losses can be avoided if reciprocal treatment is reinstated urgently. Now more than ever, European creators are counting on EU legislation to protect their rights. It’s very encouraging to see the EC recognise that this is a problem. Moving fast is critical – now is not the time to further impoverish European performers and producers”.