Article 17 of the Directive on Copyright in the Digital Single Market (DSM Directive) has proven to be one of the most controversial pieces of legislation. With academicians, industry experts etc., arguing its pro and cons left, right and centre. Before implementing this Directive, Big Tech Platforms and internet freedom activists created a lot of opposition. However, despite the opposition, the Directive was adopted by the European Parliament on 26 March 2019 and entered into force on 7 June 2019. The article opens firstly by introducing Article 17 of the DSM Directive. It moves on to analyse the ‘value gap narrative’ in the second part. The third part details the restrictive provisions of Article 17 DSM Directive. The final part analyses the plethora of negative consequences of implementing Article 17 DSM Directive.

Article 17 DSM Directive

Article 17 of the DSM Directive provides that online platforms will be liable for copyright infringement if they do not take proactive steps to check copyright infringement. These steps could include forming licensing agreements with copyright holders or removing all types of copyright-infringing material from their platform. This Article was incorporated to target giants like Google-YouTube and Facebook, but invariably since it will apply across the board, it will impact smaller online content-sharing service providers (CSSPs). Articles 17(4) and 17(9) DSM Directive will negatively affect the CSSPs. Article 17(4) calls for implementing automated filtering technology to tackle copyright infringement. This is quite expensive and is difficult for the small CSSPs to secure. Article 17(9) requires all CSSPs to incorporate a redress mechanism for users when their access to content is disabled. This might prove to be difficult as it involves significant human resources investment.[i]

The Value Gap Narrative

The rationale behind incorporating Article 17 DSM Directive is closing the ‘value gap’. The value gap narrative is something which the music industry has cultivated to lobby the legislatures. They argue that the safe harbours provided to online platforms are wrong as they lead to the inequitable exploitation of the works of the rights holders. According to the International Federation of the Phonographic Industry (IFPI), these safe harbours cause the creation of the value gap. The value gap is between the revenue given by platforms like YouTube pay-per-stream and the revenue shared by streaming services like Spotify. For example, where Spotify pays $18, YouTube only pays $ 1 to record companies. However, comparing these two platforms is unfair as they have very different business models. YouTube’s services differ from that of Spotify because they are more open and thus more likely to face legal action. Therefore, YouTube would require a safe harbour, but Spotify would not. In 1998 United States implemented the Digital Millennium Copyright Act, which was adopted to implement the WIPO Copyright Treaty and WIPO Performers and Phonograms Treaty. As a result, Internet service providers were exempted from liability in copyright infringement cases. This led to the creation of the ‘safe harbours’, which the music industry is against. The safe harbour at contention here is provided under Articles 14 and 15 of the E-Commerce Directive.

The music industry wanted access to the automated filtering technology used by YouTube called Content ID. The music industry had repeatedly attempted to do so, believing this would be instrumental in closing the value gap. Since YouTube had exclusivity over Content ID, it added to its bargaining power in negotiating licensing agreements. Currently, apart from YouTube, there is only Audible Magic which boasts of having automated filtering technology which is also called Content ID. Audible Magic is more than willing to license its technology to other CSSPs. If the bargaining power created by Content ID for YouTube gets lost, then the music industry would be able to charge higher licensing rates and, in a way, close the value gap. Thus, through Article 17 DSM Directive music industry got what it wanted. The European Commission agreed with the arguments of the music industry. Thus started the exercise of putting negotiating power back into the hands of the rightsholders by compelling CSSPs to enter into licensing agreements with the rightsholders.[ii]

The restrictive provisions of Article 17 DSM Directive

Article 17 DSM Directive lays down specific requirements that the CSSPs must follow. The filtering requirement under Article 17(1) DSM Directive requires the CSSPs to get licences from rightsholders. If they cannot obtain a permit, they can be held liable for unauthorised communication with the public. Article 17(4) DSM Directive lays down conditions when this liability can be avoided. Where the CSSPs made sufficient efforts to get the licence or where they made efforts to stall the use of work of infringing nature about which information was provided by rightsholders or prevent the future uploads of the infringing result. These conditions will only be adequate if the CSSPs utilise automated filtering technology. Article 17(5) DSM Directive mentions exceptions from the requirement of filtering, but the threshold of any company being able to use this requirement is insignificant. Any company coming into that threshold will not be a competitor of the Big Tech companies. Article 17(7) DSM Directive provides a mechanism to counter over-blocking by suggesting that CSSPs consider exceptions like quotation, criticism, review, caricature, parody, or pastiche while blocking any content. Further, Article 17(9) DSM Directive calls for establishing a redressal mechanism for the users to counter unfair blocking.[iii]

The Negative Impact of Article 17 DSM Directive

Article 17 DSM Directive, despite its saving features, has the potential to cause a lot of damage. There is a likelihood of significant harm to the rights of the users. The users’ fundamental freedom of speech and expression can be harmed using automated filtering technology. Even the Court of Justice of the European Union accepted in the cases of Scarlet Extended SA v. SABAM[iv] and SABAM v. Netlog[v] that such technology has the potential to hamper users from utilising their right to freedom and expression. Its blocking algorithms will be unable to identify and differentiate between lawful and unlawful content. Automated Filtering Technology matches contents with other works. Since all copying is not actionable, this technology will be blocking content which would have otherwise come under the exceptions of copyright law.

Another problem is that content inspired or based on public domain works will also be under threat of being blocked. There are examples to prove that this can happen, like YouTube’s Content ID incorrectly identifying NASA mission footage or Beethoven’s Fifth Harmony as belonging to a rightsholder. Apart from harm to individual users, Article 17 DSM Directive requirements can potentially hamper online business. All the filtering obligations and mandatory licensing requirements are like an impediment to online companies. In addition, it is an immense financial burden to get and apply filtering technologies.

Moreover, the protection provided in Article 17 DSM Directive to CSSPs for avoiding the filtering requirement is too low a threshold to be significant. Thus, this burden of incorporating a filtering technology to prevent copyright infringement liability will prove to be ‘complicated’ and ‘costly’. The Commission was wrong to believe that this requirement would only apply to businesses that store a large amount of content, and such companies could also afford the costs. However, looking only at platforms like YouTube, it forgot to look at other smaller platforms providing User Generated Content Services. The small platforms have also come under the scope of Article 17 DSM Directive and will find it financially hard to fulfil its requirement, unlike YouTube. This concern stems from another harm that the Article 17 DSM Directive purports to have, hampering innovation and competition. The costs of meeting all requirements of Article 17 DSM Directive are too high. These costs involve both technological and human costs. Technical prices include the required software and technology to fulfil the filtering requirements. Human costs in arranging facilities to meet customer support requirements in handling the grievances mechanism. This will lead to the creation of barriers and stop small businesses from entering the market competition.

Moreover, if any small business is already in the market, the high costs of implementing all the Article 17 DSM Directive requirements will drive it out of the market. A platform like YouTube, to which this Article was primarily directed, will be able to bear any cost. It has already absorbed the cost of developing Content ID. Other significant players in the market will use the automated filtering technology provided by companies like Audible Magic. The smaller businesses will bear the brunt of these requirements. Another competition concern which has taken shape due to Article 17 DSM Directive is the danger of monopoly in the market of automated filtering technology. Right now, this technology is available either on YouTube or Audible Magic. Google does not licence its Content ID to third parties; this rules out Google-YouTube from the market. We are only left with Audible Magic, which permits its technology to third parties. The emphasis put by the DSM Directive on the adaption of automated filtering technology will lead to an exponential rise in the customers of Audible Magic. This will put it in a monopoly position. The immense reservoir of content in its algorithms will give it an upper hand in the market. New entrants to the market will either take years to become good competition to Audible Magic or will perish in the race.[vi] The long-term effect of this will be seen in the lowering of investments in the European Union. No possible investor would want to invest in CSSPs and conduct business in the European Union as the cost would be too high. Investments would only increase in companies providing automated filtering technology like the US-based Audible Magic. This will lead to an uncomfortable scenario of US companies like Audible Magic collecting data on users located in the European Union.[vii]

Conclusion: The intention of the European Commission behind Article 17 DSM of providing rightsholders more power over the distribution of their work might have been good. However, the negative impact on individual users, online business, competition, and innovation makes a good intention sour. Article 17 DSM Directive was directed at big platforms like YouTube, but smaller CSSPs and the individual user will pay the price. The cost of implementing Article 17 DSM Directive seems quite a lot for rectifying a gap which has no empirical evidence and might not even exist. Intermediary liability has become a burning issue in today’s times. However, the various factors discussed in this article should act as a caution for other countries when it comes to incorporating Article 17 DSM Directive type provision in their national laws.[viii]

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