EU Copyright Directive – Quo Vadis: First Steps Towards its German Implementation

SUMMARY

• On June 7, 2019, the highly controversial EU Copyright Directive (“Directive”) came into force, requiring EU Member States to transpose its provisions into national law by June 7, 2021.
• To recap, the most relevant provisions of the Directive require the implementation of the following rules into national law:
  
  • Online content-sharing service providers’ liability for copyright-infringing content, Article 17
    Online content-sharing services are subject to direct liability for copyright-infringing content uploaded by their users if they fail to prove that they made “best efforts” to obtain the rights-holder’s authorization or fail to evidence that they made “best efforts” to ensure the unavailability of such content. They are also liable if they fail to act expeditiously to take down uploads of work for which they have received a takedown notice.
  • Exceptions and limitations to copyright protection
    The Directive introduces exceptions and limitations (e.g., for text and data mining (incl. in favor of commercial enterprises)); provisions regarding collective licensing; and recall, transparency, and fair remuneration rights for authors.
  • Ancillary copyright for press publishers, Article 15
    Press publishers are granted an ancillary copyright for press publications, covering the reproduction and making available of such content by information society service providers (excluding only hyperlinks accompanied by “individual words or very short extracts”).
• The German Federal Ministry of Justice and Consumer Protection’s latest draft act (Referentenentwurf) for the national implementation of the Directive was leaked in September 2020 (“German Draft Act”).  In summary, the current German Draft Act proposes to implement Article 17 as follows, deviating in part from the EU Copyright Directive:
  
  • De minimis use: In contrast to the EU Copyright Directive as well in contract to the German Copyright Act, the German Draft Act additionally provides for a de minimis copyright exemption for non-commercial minor uses such as 20 seconds (against a statutory license fee to be paid to collecting societies). This is the most criticized provision of the German Draft Act and makes it very likely that this draft will be revised again by the German legislature shortly.
  • Flagging: Furthermore, without any legal basis in the Directive, as to avoid the risk of over-blocking, based on the German Draft Act, users shall be technically enabled to flag their content as (i) contractually authorized or as (ii) authorized based on copyright exemptions, if such content is identified to them as blocked content. If content is flagged, the provider is not obligated to block or remove content unless the flagging is obviously incorrect.
  • Online content-sharing service providers’ liability for copyright-infringing content: The German Draft Act follows the provisions of the Directive on the scope of liability for online content-sharing service providers.
  • Licensing: Going beyond the Directive, the Draft Act imposes a unilateral obligation on online service providers to contract with representative rights-holders. Effectively, online service providers will have to accept licenses available through a collecting society or a major rights-holder under certain conditions such as the appropriateness of the requested remuneration.
  • Blocking and Removing: If a rights-holder has provided corresponding information to an online service provider, online service providers are obligated to block non-authorized uses of rights-holder’s work (“stay down”). Similarly, following a rights-holder’s request after a work has already been uploaded without authorization, online service providers are obligated to remove such work (“take down”) and to block the work in the future (“stay down”). Factually, the German Draft Act thereby embraces the use of upload filters.
  • Copyright Exemptions: The Draft Act expressly determines copyright exemptions under the German Copyright Act (e.g., caricature, parody, pastiche) as being applicable.

Introduction

Rarely, if ever, has copyright law attracted so much public interest as in the course of the EU Directive on Copyright in the Digital Single Market (2019/790, “Directive”). The Directive eventually came into force on June 7, 2019 (see our Client Alert The EU Copyright Directive Passes – But Member States Remain Split on Upload Filters, May 13, 2019), requiring the Member States to transpose the regulations into national law by June 7, 2021. The Directive is the result of a particularly difficult legislative process on the EU level, with EU Member States being split on many aspects, especially with regard to “upload filter” provision Article 17. Article 17 provides for the liability of online service providers that pursue it as their sole or one main purpose to store and make publicly available large amounts of copyrighted content uploaded by third parties, organize such content, and advertise the content for profit-making purposes. In addition to such platform liability for user-generated content, the Directive contains several further provisions including a text and data mining exception, an ancillary copyright for press publishers, and remuneration rights for authors.

Considering these controversial provisions, it does not come as a surprise that the Directive’s implementation process has become as much a challenge as the EU’s legislative process has been; while some states such as the Netherlands have already introduced a draft act to parliament, Germany is still in stakeholder dialogues regarding its Draft Act. In fact, first discussion drafts presented by the Federal Ministry of Justice and Consumer Protection (“Ministry”) had generated exceptionally strong feedback from stakeholders, causing the Ministry to make noticeable changes to these initial drafts.

Since the German implementation of EU law often guides other Member States, it is worthwhile shining the spotlight in more detail on Germany’s legislative process. On September 2, 2020, the Ministry’s latest Draft Act was leaked, containing a few surprising deviations from the Directives’ wording. Below we have summarized the main aspects of the proposed implementation of Article 17 into German law.

Which online service providers does the platform liability apply to?

The Draft Act mirrors the Directive’s definition but adds the criterion that only such Providers are obligated as “compete with other online services for the same audiences”. The Directive mentions the criterion of competition only in its non-binding recitals. According to the Draft Act’s reasoning, this addition reflects the underlying legislative objective to prevent distortion of competition. The Draft Act does not provide any further clarification on the Directive’s rather vague definition of Providers. The Directive only specifies that the assessment of storing and making available large amounts shall be made on a case-by-case basis and should take account of a combination of elements, such as the audience and the number of files of copyright-protected content uploaded by the users (recital 63 Directive). Organizing may include categorizing the content and using targeted promotion within it (recital 62 Directive).

Exceptions: Corresponding to Article 17 Directive, the German Draft Act expressively excludes certain service providers from the scope of application: not-for-profit online encyclopedias, not-for-profit educational and scientific repositories, and platforms for open source software, electronic communication services, online marketplaces, B2B cloud services, and B2C cloud services allowing users to upload content for their own use.

How can online service providers avoid liability?

Providers may no longer invoke the safe harbor immunity originally guaranteed for host providers by the EU e-Commerce-Directive (2000/31/EC). After June 7, 2021, the liability for user-generated, copyright-infringing content only ceases if the Provider complies with a triad of obligations:

• Licensing: Making best efforts to acquire the rights for the use of the works. The Draft Act expressively imposes a unilateral obligation to contract on the Provider. The Provider must accept licenses available through a collecting management organization or a dependent collecting body established in Germany, as well as individually offered licenses by rights-holders. This obligation is subject to the condition that the offered license:
  
  • Applies to content that the Provider typically makes available (e.g., photography, audio-visual content, music),
  • Comprises a significant repertoire with regards to works and rights-holder,
  • Covers the German territorial scope, and
  • Enables the use on appropriate conditions (including an appropriate remuneration).

• Blocking non-authorized uses of a rights-holder’s work (“stay down”), given that the rights-holder provides the information required for this purpose. Unlike the Directive, the Draft Act does not limit this obligation to mere “best efforts.”

• Removing non-authorized uses (“take down”) and blocking the work in the future (“stay down”) following a request by a rights-holder.

Copyright exemptions

The Draft Act provides a list of uses expressively permitted by law.

• All existing statutory copyright exemptions apply (“Mechanically non-verifiable uses authorized by law”):

Concerns had been raised that automatic filter systems are not capable of adequately evaluating whether the use of a work falls under a statutory copyright exemption. This is rooted in the fact that copyright exceptions often necessitate an assessment of the individual case which cannot be defined by machine-readable parameters, e.g., whether the use of a work is permitted by a parodic or satirical interaction. The Draft Act acknowledges these technical limits and permits “mechanically non-verifiable uses authorized by law.” Following the Copyright Directive, the Draft Act expressively upholds quotations, caricatures, parodies, and pastiches. In addition, any other uses already permitted under the German Copyright Act (such as reporting on current events and incidental use of works) are also expressively permitted under the Draft Act.

Please note: The copyright exception for parody, caricature, and pastiche is currently still implicitly covered by Sect. 24 para. 1 German Copyright Act but will be expressly introduced as new Sect. 51a German Copyright Act by the Draft Act. This is due to a recent ruling of the European Court of Justice that concluded that Sect. 24 para. 1 German Copyright Act was not in line with EU law, but that parody, caricature, and pastiche were permissible copyright exemptions (Judgment of July 29, 2019 – C-476/17 “Pelham and Others” a.k.a. “Metall auf Metall”).

• New de minimis statutory copyright exemption applies (“Mechanically verifiable uses authorized by law”):

The Draft Act acknowledges that automatic filter mechanisms may be able to verify whether the quantity of a work’s use is permitted. Accordingly, the Draft Act declares minor uses as authorized by the Draft Act, given the purpose of the use is non-commercial and not to generate significant revenues.

“Minor use” is defined as:

• 20 seconds of film / audio,
• 1,000 characters of text, or
• one image with a data volume of up to 250 kilobytes in an uploaded work.

Notably, neither the Directive nor German Copyright law provides for such a de minimis exception. Not surprisingly, content-producing and -distributing stakeholders such as the Motion Picture Association (MPA) strongly oppose the limitation of Provider obligations by such a brand-new exception.

User flagging regime

Unlike any other national proposal presented so far, the Draft Act introduces a user flagging regime that frees Providers from their blocking and removal obligations under certain circumstances.

The user flagging regime applies if a rights-holder has already requested the Provider to block his/her work. If a user is subsequently about to upload content including such a work, the Provider shall immediately inform the user about the blocking request and enable the user to flag the use as contractually or statutorily permissible.

If content is flagged accordingly, it is excluded from the Provider’s obligations to remove and block it, unless the flagging is “obviously incorrect.” The Draft Act presumes that content is flagged “obviously incorrectly” if a minimum of 90% corresponds with the protected work as notified to Provider by the rights-holder. The Provider shall inform the rights-holder about such flagging, and inform the user about blocking and its inducement.

While expressively aiming at safeguarding users’ freedom of speech and artistic freedom, this regime leaves no doubt that Providers will be required to filter any uploaded content. Only by monitoring, scanning, and comparing uploaded content with information provided by rights-holders will the Provider be able to detect potential infringements and initiate the flagging notification process. Even though the precise scope of duties of any Provider shall be determined individually, including criteria such as the scope of the specific service and the availability of appropriate and effective means, any other means than automatic filter system are hardly conceivable.

Excluding false complainers

The Provider is entitled to exclude self-proclaimed, (intentionally or negligently) falsely reporting rights-holders from the reporting procedures for a reasonable period. In addition, such self-proclaimed rights-holders are liable for damages to the Provider and the user. The Provider may apply the same approach to users that repeatedly flag incorrectly.

Regulation of startups and small services:

In accordance with the Copyright Directive’s specifications, the Draft Act applies a softer liability regime to startup services (annual turnover within the EU of up to EUR 10 million and services available to the public in the EU for less than three years). While startups are equally required to make best efforts to acquire licenses, they are excluded from blocking obligations (provided that their average monthly number of unique visitors does not exceed 5 million). In view of the principle of proportionality, the Draft Act further includes a rebuttable presumption that small service providers (annual turnover within the EU of max. EUR 1 million) are not obligated to block.

Mandatory remuneration of the author for de minimis and pastiche exemption:

The Draft Act requires the Provider to directly remunerate the author for the use of his work, even if the author has granted the relevant right of communication to the public to a third party. Claims to this direct remuneration may only be asserted through a collecting society.

Remuneration arises for uses permitted under the de minimis and the pastiche exception (see above). According to the Draft Act’s reasoning, uses such as remixes, memes, GIFs, mashups, fan art, fan fiction, covers, or sampling may be considered “pastiche” and will thus be permitted but subject to remuneration. It remains to be seen, however, whether the European Court of Justice will uphold this “statutory exception under compulsory license” construct for pastiches.

Compulsory complaint procedures & information obligations:

The Provider must provide users and rights-holders with an effective, free-of-charge, and humanly supervised complaint procedure regarding the blocking, removal, and making available of content. Providers are obliged to make a decision on a complaint within one week and may use a recognized external complaint body to fulfil its obligations. The rights-holders may request information from the Provider about the use of licensed repertoire and the functionality of the blocking and removing mechanism. Providers addressed by the Draft Act are required to name a person authorized to receive service in Germany.

What’s next?

Based on stakeholders’ comments, the Ministry has already made noticeable adjustments to the initial discussion Draft Act. It remains to be seen whether the Ministry will be open to another review round in case the stakeholders now express concerns and criticism in view of the revised Draft Act.

As the new Provider liability is to enter into force on June 7, 2021, stakeholders may not only use this last opportunity to plead their case before the legislator. Stakeholders may also want to review their business model for compliance with the upcoming changes and to monitor forthcoming opportunities for licensing and content-protection closely.