In the latest in our series on the EU's new copyright Directive, Niels Lutzhöft explains one of the most controversial provisions: Article 17 on the liability of online content sharing platforms.

As reported here, the European Parliament approved the latest version of the EU Directive on copyright in the Digital Single Market (“DSM Directive”). Following the final approval by the Council and publication in the Official Journal on 17 May, this new EU piece of legislation is due to enter into force on 7 June, giving the EU Member States 24 months for transposition.

Purpose of the provision

Do platforms perform? This is the issue addressed by Article 17 – a provision aimed at closing the oft-cited “value-gap”. This results from the availability of music and other works on the Internet either free of charge or subject to a comparatively low remuneration – accessible in particular over user-upload content platforms. As stated in Recital 61, this situation emerged from “legal uncertainty” that “exists as to whether the providers of such services engage in copyright-relevant acts.”

Indeed, platform operators claimed immunity from copyright on the assumption that they acted as neutral intermediaries under the CJEU’s famous L’Oréal precedent. Drawing on the same authority, rights holders argued that platforms were not neutral, but rather took an active role by indexing content and promoting it with a profit-making purpose. To complicate things, an evolving body of case law on communication to the public distinguished as to whether a user played a “central role” or not.

Resolving these conflicts, the new Directive authoritatively states that “an online content-sharing service provider” – the new designation for platforms such as YouTube – “performs an act of communication to the public.” These services hence need a licence from rights holders to escape liability for copyright infringement. The Directive thus provides for a licensing – and not a filtering – obligation. Content recognition technologies, often referred to as “upload filters”, may serve as a back-up defence where best efforts to obtain authorisation have failed.

Main obligations

Content-sharing platforms shall obtain an authorisation from rights holders – this is the key obligation enshrined in the new Directive. This obligation only applies to services storing and giving the public access to a “large amount” of protected works – a determination to be made on a case-by-case basis, taking into account the audience and the number of uploaded files. Authorisations will not only cover platform operation as such, but also legalise the upload of works by end users not acting on a commercial basis. This applies as long as these do not generate significant revenues.

Upload-filters are only a back-up solution, conveying immunity from copyright infringement, whenever best efforts to obtain an authorisation have failed. The requirements in place for those filters are subject to proportionality, and depend on technical availability, related cost, and on the type and size of services and related audiences. An additional notice-and-stay-down obligation supplements the protection of rights holders alongside filtering. Newly-emerging services not exceeding ten-million-euros in terms of annual revenues may benefit from a more lenient defence, limited solely to compliance with best-efforts obligations and the notice-and-stay-down regime.

Potential implications for the media and tech industries

Services may only rely on the “filtering defence” where “best efforts” to obtain a license from rights holders have failed. The legally-required scope of those efforts will guide upcoming negotiations between platforms and rights holders. While approaching collecting societies may be the quintessential path to compliance, further obligations may arise, prompting operators to carry out in-depth due diligence to discern potential individual rights holders. Proportionality is the controlling standard for any such related obligations – a standard yet to be defined with sufficient clarity. In particular, where a compromise over royalties is hard to reach, a deposit may prove useful to avert a failure of negotiations. Such rules are enshrined in the collective copyright management systems in some Member States, but not part of the new Directive.

Again, proportionality is the applicable standard for setting up effective filters. In the absence of CJEU case law, domestic case law on filters available may serve as guidance.

Rights holders will also need to develop policies via-à-vis users of licensed platforms. Their uploads will be covered by related licences, but only to the extent those services are non-commercial in nature and do not generate “significant revenues”. Legal uncertainties aside, rights holders will already encounter practical difficulty in determining the amount of revenues, in particular with regard to novel offerings, to be able to enforce their rights.

Unanswered questions

Numerous unanswered questions remain.

First, the definition of online content-sharing service providers relies on a number of open-ended elements that call for clarification through case law. To qualify as such, platforms need to “organise” and “promote” content. A previous proposal merely required those services to “optimise content” which may be perceived as less than “organise” and “promote”. Furthermore, the organised content shall consist of “a large amount of copyright-protected works”. These concepts leave room for argument.

Second, uploaders of non-licensed platforms and commercial uploaders using licensed platforms will be prompted to rely on a number of exemptions. Those are in place for quotation, criticism and review, as well as for the purpose of caricature, parody or pastiche. The Directive clarifies that only “existing” exceptions apply – and thus reflects the drafting of the Information Society Directive (“InfoSoc Directive”) under which these exceptions are merely optional. Accordingly, the “existing” exceptions may differ from Member State to Member State. However, services may seek to argue that the term “existing” relates to the InfoSoc Directive and not to the Member State legal orders; construed along these lines, these “existing” – yet optional – exceptions under the InfoSoc Directive would become mandatory under the new Directive. While courts are rather likely to reject this reading, services in individual Member States may still rely on exceptions carved out under a fundamental rights paradigm, in particular under free speech rights, which give further room for negotiation, argument and, potentially, excuses.

After the copyright storm – what’s next? The most likely answer is: negotiations and litigation.

You can see our full series on the DSM Directive here.