1. Dr. Gábor Faludi, associated professor, of counsel 17. March, 2016, Warsaw gabor.faludi@szecskay.com www.szecskay.com Szecskay Attorneys at Law Practical issues of extended collective management in Hungary with due regard to the transposition of the CRM Directive

2. Folie 2 Abbreviations: C2P: communication to the public Collective management: CM Collective management organization: CMO Copyright Act of Hungary: HCA Directive on collective management: CRM Directive Extended collective management: ECM Mandatory collective management: MCM Multiterritorial license: MTL RA: representation agreement RRA: reciprocal representation agreement

3. Folie 3 Outline One stop shop and ECM Summary of the answers to the questionnaire by CISAC LC members The CRM Directive on the ECM and the parallel licensing The present solution of the HCA Practical issues of the opt –out Starting point: the importance of one-stop shops including ECM must grow because of the licensing of multimedia works, MTL, orphan work, out of commerce work licensing and mass digitization

4. Folie 4 One stop shop and CM Collective management The owners of rights authorize an entity to exercise their rights on their behalf; to grant licenses, to monitor uses, to collect the corresponding remuneration, and to distribute and transfer that remuneration to those to whom it is due. Owners’ control via appropriate bodies and administrative units established by them. - usually blanket licenses are granted - uniform tariffs and distribution rules are established, - deductions are made from the remuneration collected not only for administration costs but also for cultural and social purposes.

5. Folie 5 One stop shop and CM Daniel Gervais (ed) : Collective management of copyright and related rights (2010, Kluwer Int.): "joint exercise" or "joint management " = generic term covering both collective management and rights clearance, + new systems, such as the alliances or "coalitions" of different kinds of organizations, "one-stop shops", or the combination of state collecting bodies with private organizations. Traditional one-stop shops: p 11. mechanical and C2P societies may form one-stop shops to license various forms of C2P that also needs mechanical license. Such one-stop shops operate as services to collect permission requests and forward them to the responsible CMO-s.

6. Folie 6 One stop shop and CM MTL one-stop shops MTL requests: If one CMO grants MTL, it creates a one-stop shop regarding all repertoires it represents The users have to still determine which CMO to turn to for which repertoire). CMO-s + content providers (opted out right holders) licensing hubs EMI + PRS /MCPS and GEMA is mentioned (now it exists as a joint venture company and also SITM joined)

7. Folie 7 One stop shop CM and ECM The broadest term is one stop shop. A narrower term is CM, which is a subcategory of one stop shops. A more narrow term is ECM, where the statute broadens the scope of representation of the CMO to rightholders who are not affiliated to the CMO on any transactional basis, but the scope of representation might be narrowed by opt-out. The narrowest term is mandatory CM, where no –opt out is allowed.

8. Folie 8 CISAC LC survey statutory and voluntary one stop shops of CMO-s We have not collected enough data to draw serious consequences. International instruments and regional law provide for some statutory one-stop shops. The statutory one-stop shops operate smoothly if all substantial elements of the exercise of rights (including distribution) is provided for in the law. Some remuneration right simply can not be exercised without a statutory one-stop shop. The formation of the voluntary one-stop shops is partly led by the market, and by some political pressure. In the latter case the formation of the one-stop shop may become compulsory. The issue is open whether the right to property and to contractual freedom allows for such a limitation of the rights of the CMO, indirectly of the rights of the affected rightholders? If a right holder that opted out from collective management, mandates a CMO as per its choice, such a scenario is not and may not be called a one-stop shop. One-stop shops are not acknowledged as an advantage from the aspect of competition law. They may be regarded as sources for behaviors restricting competition, for eventual abuse or for a case of fusion control.

9. Folie 9 CRM Directive / one stop shop / ECM The Directive on Collective Management does not acknowledge one-stop shops still it creates such shops by the passport + tag-on MTL system. Re-aggregation of repertoires… The passport societies do have a must carry (representation) obligation towards non- passport societies that wish to tag on. Art 30 (1) MS shall ensure that where a CMO which does not grant MTL for the online rights in musical works in its own repertoire requests another CMO to enter into a RA. The requested CMO is required to agree to such a request if it is already granting or offering to grant MTL for the same category of online rights in musical works (…). (…) The requested CMO shall manage the represented repertoire of the requesting CMO on the same conditions as those which it applies to the management of its own repertoire. The requested CMO shall include the represented repertoire of the requesting CMO in all offers it addresses to online service providers.

10. Folie 10 ECM in the CRM Directive Commission – nothing! Council and EUP → Preamble (12) the CRM does not interfere with arrangements concerning the management of rights in the Member States such as individual management, the extended effect of an agreement between a representative collective management organisation and a user, i.e. extended collective licensing, mandatory collective management, legal presumptions of representation…

11. Folie 11 Rightholder –member in the CRM Directive Under Art 3 c) rightholder’ means any person or entity, other than a collective management organisation, that holds a copyright or related right or, under an agreement for the exploitation of rights or by law, is entitled to a share of the rights revenue; 'member' means a rightholder (…), fulfilling the membership requirements of the CMO and admitted by it; Mandatory rights of non-member rightholders: ▪ communication by electronic means, ▪ information on the repertoire, territories, rights represented, ▪ information on the tag-on RA, ▪ complaints procedure: authorisation to manage rights and termination or withdrawal of rights, membership terms, collection of amounts, deductions and distributions. MS may broaden the rights of non-member right holders. The rules apply to right holders represented under the law (extended and mandatory collective management!)

12. Folie 12 Rightholders’ rights under the CRM Directive Basis: voluntary collective management Rights of rightholders to be set out in the statute or membership terms of the CMO. Choice of CMO, choice of rights, categories of rights, types of work, territory of management irrespective of the MS of nationality, residence or establishment of either the CMO or the rightholder. (…) Right of withdrawal upon serving reasonable notice not exceeding six months. The withdrawal may take effect at the end of the financial year. MCM: opt-out into another CMO only.

13. Folie 13 Consequences for the national transposition In the event of MCM: If there is only one CMO (natural monopoly): opt – out only with entrusting the rights to a foreign EU? CMO. In the event of ECM the right of withdrawal shall be provided for in the CA, and the CMOs’ statutes shall not depart from the CA in this respect.

14. Folie 14 Parallel licensing for non commercial uses /no opt out Rightholders shall have the right to grant licences for non-commercial uses of the rights, categories of rights or types of works and other subject matter of their choice. The CMO shall inform rightholders of the conditions of the direct/parallel licensing before the affiliation. Preamble (broader!): This Directive should not prejudice the possibility for rightholders to manage their rights individually, including for non-commercial uses. MS shall provide that CMO-s ensure the direct licensing. CMO: passes decision on the conditions of direct licensing. The decisons’s scope covers also non-member rightholders!!!

15. Folie 15 Parallel licensing for non commercial uses /no opt out Problems: what is a non-commercial use? HCA: The possession of an infringing copy of a work for commercial purposes shall also be regarded as an infringement of the right of distribution (…) The teaching exception can only be exercised for non commercial purposes. Non-commercial use for disabled persons, Claim to provide data against contributors (providers of services) acting on a commercial scale. ∑ The decision of the CMO shall cover all type of non- commercial usages. Idea: use is non-commercial if the use occurs by the rightholder himself without any benefit /compensation, and if the use occurs by a third person, neither the third person, nor any other person or entity nor the rightholder may receive any form of compensation (benefit) for or in connection with the use. + appropriate notice in advance. This a per work, per user licensing that does not concern the affiliation of the rightholder to the CMO.

16. Folie 16 ECM in the HCA Notion - registration CRM: ●exercise of copyright and rights related to copyright which are individually non-exercisable due to the character or circumstances of use ● exercised by organisations established by rightholders for this purpose ● No matter whether collective management is statutory (mandatory or statutory with opt-out) or voluntary Registration The collective management of rights shall be subject to registration.

17. Folie 17 ECM in the HCA Legal consequence of registration The payment of remunerations to and the conclusion of licensing agreements with parties other than the CMO registered shall have no legal effect on the CMO and the represented rightholders. It does not exempt anybody from the legal consequences of copyright infringement. (What is missing: „save for rightholders that opted out lawfully”)

18. Folie 18 ECM in the HCA – with natural monopoly If only one CMO is registered to manage the same category of rights for one rightholders’ group: If this CMO grants a license, the user shall also be entitled to use works and subject matter of related rights of the same category of all rightholders for the same license fee (remuneration), including: domestic, and foreign rightholders, members or mandators and rightholders not affiliated to the CMO by any type of entrustment. (represented via the extension), no matter, whether the collective management is statutory or voluntary.

19. Folie 19 ECM in the HCA –with more CMO-s registered - exclusive rights If several CMO-s have been registered to manage the same category of economic rights of the same rightholders’ group, the ECM shall be applied to rightholders not represented by that CMO that is authorized to carry out ECM. The authorization: by agreement on the extension (which of them represents the non-members). By appointment of HIPO in lack of agreement

20. Folie 20 ECM in the HCA –with more CMO-s registered- remuneration rights In the event of remuneration right agreement among the CMO-s In lack of agreement HIPO appoints the CMO that is entitled to issue tariffs and collect the remuneration (only one CMO may collect remuneration).

21. Folie 21 Opt-out in the HCA ECM shall not apply if a rightholder – in a prior written statement addressed to the CMO – objects to the licensing of his works or subject matter of related rights by a CMO. The opt out statement shall be made more than three months before the end of the calendar year. The effective day of the opt-out is the first day of the following calendar year. No opt out with regards to MCM.

22. Folie 22 Opt-out for the entire repertoire The HCA uses plural: works and subject-matter of related rights → the rules on legislation require the use of singular, unless the provision shall apply to more subject-matters →the opt-out right can be exercised with regards to the entire repertoire only Opt-out v direct licensing for non commercial purposes

23. Folie 23 Opt –out v termination of entrustment The opt-out is based on the HCA. The lawful opt-out statement shall have a legal effect of the contractual representation of the CMO→ The lawful op-out statement shall be regarded as an automatic amendment /termination of the entrustment (both the membership agreement and the mandate) → The statute of the CMO shall include provisions accordingly.

24. Folie 24 Opt –out in writing No special requirement of written form in the HCA. → To statements issued in Hungary the Civil Code and the Civil procedure Code shall apply. (pure written form: signature, no witnesses are required). To statements issued abroad the requirements of international (multilateral or bilateral) mutual legal assistance treaties or the secondary EU legislation shall apply. →Outside the EU: authentication or authentication by legalization

25. Folie 25 Opt-out by proxy The opt-out statement is not bound to the person of the rightholder, since no moral rights are concerned.→ it may be made by proxy The same formal requirements apply as to the statement. (Example of falsified statements)

26. Folie 26 Opt-out by the rightholder The rightholder shall have the opt-out right. The right holder may be under HCA the author, his/her legal successor, employer or assignee in exceptional cases of the assignment (no assignment with regards to musical or literary works). The right holder under a foreign law (e.g. USA) can be any legal subject that qualifies as original holder of copyright (work made for hire) or as an assignee. In the event of opt out by a foreign rightholder (if not the original rightholder) the entire chain of title has to be documented if the assignee is not indicated in the relevant IPI database.

27. Folie 27 Opt out by the righolder The term of rightholder in the CRM Directive: … A person that under an agreement for the exploitation of rights or by law, is entitled to a share of the rights revenue E.g. music publisher as an exclusive licensee with a transferable license↔as an assignee or original rightholder.

28. Folie 28 Opt out by the righolder Does a licensee with a right to a mere share of remunerations have an independent opt-out right? Without the original rightholder the opt-out right should not be exercised. + administrative burden + the user shall obtain a license also from the CMO, +circumvention of the upper limit of the share.

29. Folie 29 Legal consequence of a note on direct licensing of US rightholders in Europe At a CMO operating on a voluntary collective management system At a CMO operating on an ECM system An opt-out in conformity with the applicable statute (HCA) is required. Reason: the US right holder that used his parallel licensing right in the US shall be deemed as if it were a NS foreign right holder that is represented under the ECM system. If the opt-out does not meet the statutory requirements it may not have a legal effect. + See the caveat indicated in the column to the left. No additional opt-out is required Reason: the US right holder that exercised the parallel licensing right is represented „only” indirectly via the reciprocal representation agreement. Caveat: all cases need a thorough evaluation of the applicable law, contracts and internal rules of the affected CMS.

30. Folie 30 Conflicting representation A foreign rightholder makes an opt-out statement in conformity with the HCA. The control of the relevant database (IPI) shows that the rightholder is a member of the foreign CMO. The HU CMO shall represent the members of and distribute right revenues to the foreign CMO pursuant to the RRA. Conflict of representations?

31. Folie 31 Conflicting representation The conflict should be resolved for the benefit of collective management. The membership/mandat of the righ holder who opts out is exclusive towards his/her home CMO. If the opt out statmenet is made in breach of this entrustment the consequence should be borne by the right holder.

32. Folie 32 Opt –out for future works Foreign rightholders (assignees) that conclude a buy out agreement, wish to make general opt-outs covering all future works of their assigners (the composers and lyricists). Under the HCA- unlawful. The opt-outs can apply to an existing repertoire. The opted out repertoire shall be documented and separated from the repertoire represented under the extension. The extension will be frustrated without this accurate documentation.

33. Folie 33 Opt-out and joint ownership and inheritance Co-authors (joint authors) can in priciple opt-out separately but the user shall be bound to obtain a license from the CMO as well. Co-inheritors of a repertoire including inheritors of the estate and that of the usufruct right can only make a joint opt-out right (no opt –out can be made with regards to an undivided share of an economic right).

34. Folie 34 Parallel licensing by a foreign CMO RRA-s may not be exclusive Preamble (11) CRM Directive: CMO-s may conclude (general)RRA-s in compliance with the competition rules laid down by Articles 101 and 102 TFEU Preamble (44), Art 29 (1) MTL RA-s for MTL should be concluded on a non-exclusive basis. Parallel licensing carried out by other EU CMO-s does not fall within the scope of the opt-out problem. This is a issue of non-discriminatory registration/supervision.

35. Folie 35 End of presentation Thank you!

36. Dr. Faludi Gábor gabor.faludi@szecskay.com www.szecskay.com