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A review of the Hargreaves Report

Nick Rose
31/08/2011

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United Kingdom

At the end of last year, United Kingdom Prime Minister David Cameron ordered a review of intellectual property law and its effect on economic growth in the UK

First published in Entertainment Law Review, 1 August 2011.

At the end of last year, United Kingdom Prime Minister David Cameron ordered a review of intellectual property law and its effect on economic growth in the UK. The review was undertaken by Professor Hargreaves, Chair of Digital Economy at the University of Cardiff, and last month culminated in a lengthy report recommending wholesale changes in the strategic direction of intellectual property law policy in the UK.

Although the report touches on all of the main IP rights, it leans heavily towards reform of copyright law in the UK which, by Hargreaves’ own admission, is falling way behind what is needed in order effectively to compete in the digital age (the report has been referred to informally as the ‘Google Review’ after the internet giant claimed that it could not have started in Britain owing to a lack of flexibility in UK copyright law).

Copyright is arguably the IP right which consumers encounter most frequently in today’s digital environment, whether through uploading photographs and videos to the internet, quoting third parties in a blog post, or burning a music CD. Technology surrounds us more than ever before. There has been a significant increase in the prevalence of smart phones, tablets and cloud technology in the last few years. Copyright law must be radically reformed in order to keep up with the blistering pace at which technology seems to evolve.

Protecting the UK’s creative industries is a matter of significant national importance. Digital exports rank third behind only advanced engineering and financial and professional services. In order to grow these creative businesses further globally, they need efficient, open and effective digital markets in which to operate. The Hargreaves report explores in depth how this might best be achieved.

This article looks at what the implications of the report could be for the media and entertainment industry, which depend heavily on being able to protect and exploit copyright effectively.

Some of the key points to emerge from the report are discussed below:

  • Copyright law in the UK, which has changed little since its conception hundreds of years ago, is supposed to act as an economic incentive for creation and growth. The report argues that copyright law is actually doing the opposite: it is now stifling innovation and obstructing growth. For example, 'ripping' music from CDs and transferring the content to MP3 players is technically copyright infringement. Yet it is so common place that it makes the law seem almost redundant. The Hargreaves Report recommends relaxing the rules around “format shifting” through the introduction of a private copying exception, leaving the music and film industry free to focus on the more serious issues such as internet  piracy. It recommends that copying in this way should be lawful where it is for private purposes and does not damage the underlying aims of copyright.
  • The report recommends establishing a new collection style agency – the Digital Copyright Exchange -  which would be a world first and is intended to act as a “one-stop clearance shop” making it easier both for copyright holders to licence their work and for users to obtain clearance for the use of copyright protected works. The hope is that the Digital Copyright Exchange will boost UK firms’ access to transparent, contestable and global digital markets and will also simplify the process of copyright licensing which, under the current regime, can be complex;
  • The report recommends the creation of an efficient digital mass copyright licensing system which specifically deals with the problem of works not being able to be used because the rights owner cannot be found (so called “orphan” works). Media organisations such as the BBC often have extensive archives of copyright protected material which sit idle and are commercially off-limits because the author is unknown and therefore cannot be approached for permission. Hargreaves recommends introducing extended collective copyright licensing to combat this problem. Under this new proposal, work should only be treated as orphan if it cannot be found after conducting searches of the databases used for the Digital Copyright Exchange referred to above;
  • Currently, parodied versions of copyrighted works are not permitted (the well publicised viral video 'Newport State of Mind', a parody of the song ‘Empire State of Mind', was removed from Youtube after complaints by the rights holders of the original song). Parodies of the same song in the United States have not resulted in similar actions owing to the existence of the “fair-use” exception. While the report stops short of recommending adopting a US style "fair use" policy (mainly due to the UK’s obligations under European law), it does acknowledge the particular benefits for economic growth that fair use exceptions have provided in the US and does so “with a view to understanding how those benefits can be most expeditiously obtained in the UK.” The report recommends that the Government should deliver copyright exceptions at a national level in order to realise all of the opportunities within the EU framework (including, in addition to parody, format shifting, non commercial research and library archiving). Hargreaves concludes that the UK can achieve many of the benefits of a fair use exception by adopting copyright exceptions already permitted under European law;

Reaction and implications for the media and entertainment sectors

Reaction to the proposals contained in the Hargreaves Report has been mixed at best. Some commentators have reacted by both cautiously welcoming the proposals and simultaneously criticising the report for being too vague as to how the proposals will actually be implemented in practice.

The report has been criticised as being essentially a wish list; a set of  proposals which represent how intellectual property and technology would interact in an ideal world. The proposals contained within it are all sound from the point of view of maximising the economic value of intellectual property in the United Kingdom, however very little (if any) guidance is given on how actually to transform the proposals from ideas into practice. This criticism may well be justified on the basis that several reports similar to this one have already been commissioned by the UK Government in the past (notably the Gowers Review of Intellectual Property), without the steps required to implement the recommendations ever having been taken. One likely explanation for this is the costs associated with putting the infrastructure in place to ensure that IP rights keep pace with technological advancement. There is curious irony there given that the Government’s rationale in commissioning the Hargreaves Report was to maximise the use of IP as a tool for stimulating economic growth. It will be interesting to see if in these financially straightened times, the coalition Government is prepared to invest in the future of IP and the economy by taking the steps required to implement the report’s recommendations. 

As to the implications for the media and entertainment industries, there is likely to be some serious concern both from a policy point of view and also from a practical point of view (the time and effort which is likely to be required for businesses operating within these sectors to bring the proposals into effect could be significant). Owners of content who favour strict copyright protection (such as record labels and film production studios) are likely to adopt a different stance in view of the proposals from businesses such as internet service providers, search engines and distributors of content, who prefer a more liberal approach.

Format Shifting

The proposals on format shifting as set out above would seem to be a sensible measure from the point of view of bringing the UK more in line with patterns of media consumption elsewhere in the world.  However, they have understandably been criticised by the media and entertainment sector on the basis that they effectively shut down a potential revenue stream.  In purely theoretical terms, a record label (or equivalent rights holder) is entitled to pursue anyone who makes copies of a music CD and stores the content on an MP3 player or a computer hard drive for copyright infringement. Naturally, the logistics (not to mention the costs) involved in doing so would render such an exercise commercially pointless.  Nevertheless, the possibility remains, at least in theory, to pursue the infringer and recover damages. The introduction of the private exception on this might be good news for the consumer (the effect of the private exception being, in any event, to regularise the status quo), however for the record label, it is quite the opposite.

Digital Copyright Exchange

The creation of the Digital Copyright Exchange essentially involves the creation of a very large database. It is Professor Hargreaves’ genuine belief that the creation of this Exchange is the best way to organise the licensing of copyright works. Presumably therefore, media organisations wishing to licence their work in this way have to furnish the Exchange with vital documents which evidence ownership and other pieces of information in order for the system to work effectively. These documents may not be readily available. There could therefore be significant costs associated in implementing the new system. It is also not clear who is going to fund and oversee responsibility for the Exchange (with some businesses speculating that it may even end up being businesses within the media sector itself). It is important to make clear that the proposals for the Digital Copyright Exchange are intended to cover all of the UK’s creative industries and are not restricted to the music industry. All of this is likely to be more unwelcome news for businesses in a sector which, like many others, is still suffering from the effects of the global recession.

Orphan Works

Large media organisations such as the BBC reportedly have extensive archives containing thousands and thousands of so-called “orphan works”. The Hargreaves Report recommends introducing extended collective copyright licensing to combat this problem. Again, the problem arises of this being an administratively burdensome exercise to implement. This proposal essentially calls for a balance to be struck. It will be interesting to see whether the creative industries approach this from the point of view of it being a short term cost and inconvenience, which ultimately enhances their long term ability to licence works and generate revenue.  Like many of the proposals in this report, it is easy to recommend but will be very difficult to do without strong leadership from the top of Government.

Parody/Fair Use

This is perhaps the area which has attracted most attention since the report emerged and which is most significant for businesses within the media sector.

Businesses within the media sector have long campaigned against calls for the Government to introduce US style “fair-use” exceptions to copyright infringement in the UK. There will undoubtedly have been a collective sigh of relief when the Hargreaves report emerged and recommended the continued rejection of the introduction of the doctrine of fair-use in the UK, which in any event would have been inconsistent with the UK’s obligations under EU law.

Media organisations generate huge revenue streams through strategic licensing of their copyright works. In very simple terms, the introduction of a fair use doctrine would mean that the potential for such licensing is reduced. Acts which, prior to the introduction of the exception would have constituted infringement, would no longer do so. It is plain to see how this is unattractive for creative industries, most of whom will be comforted by the position Hargreaves has adopted.

Fair use exceptions typically lead to a proliferation of high-cost litigation and have the effect of increasing legal uncertainty. There is also a side effect where suppliers and consumers of goods which attract copyright protection are confused as to what is permitted under the exception and what is not. These are compelling reasons for the continued rejection of the introduction of fair-use in UK.

Notwithstanding the above, Hargreaves does recommend that the law on parody in the UK, which often deters comedians and other content creators, should be relaxed.  As the recent “Newport State of Mind” case illustrates, rights owners are keen to ensure that they retain sufficient control of their works (through strategic licensing) in order to prevent what they see as unacceptable use of their work.  The introduction of a fair use doctrine would mean a loss of control over how the work is used, something which is normally regulated through licensing. It would not have been possible to arrive at the same outcome in the US on the basis that parody is permitted under the fair-use exception and the creators of the parodied video would have been entitled to seek that protection from liability.

Closing remarks

As mentioned above, reaction to the Hargreaves Report has been mixed. Despite the many criticisms which have been levelled at it by creative industries, particularly on issues of implementation, the report is a step in the right direction and undoubtedly signals progress in terms of reforming copyright and intellectual property law generally. The recommendations in the report are a solid basis on which the coalition Government can begin detailed policy considerations for the future of IP law in the UK. The media industry should continue to lobby Government to protect its interests. The Government will have to consider the report carefully in light of the UK’s obligations under European law.

A response by the Government to the Hargreaves Report is expected later this month.

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