September 2010

A Copyright strategy
Social and for social
commercial
andinnovation
commercial innovation
through copyright

Copyright law exists to encourage creativity and innovation. Together with copyright licensing it forms the
regulatory framework that underpins the creation, mass production, distribution and consumption of creative
content. As such copyright law and licensing should foster entrepreneurism, economic growth and social and
commercial innovation. Consumers have a strong interest in competitive markets and a well-functioning
copyright system that encourages the creation and distribution of creative content, and does not impose
unnecessary cost on businesses and consumers. Copyright confers monopoly privileges on copyright owners
which can be used to impose inflated retail prices on consumers, deny artists an equitable remuneration and
restrict competition in other industries.1 It is therefore important that the copyright system strikes the
appropriate balance.
Summary of recommendations
The UK copyright system does not currently achieve this balance nor support a dynamic market in digital
content that meets consumer demands and rewards innovation. Consumer Focus would like to see the IPO
developing a copyright innovation strategy that goes hand in glove with the BIS strategy for economic growth.
As part of that the IPO should establish close working relationship with the OFT and the Competition
Commission to ensure a competitive and innovative market for the benefit of consumers.
Currently the fragmented copyright licensing system does not allow online and mobile content providers to
respond effectively to consumer demand. To remedy this we recommend that the IPO establishes whether the
time and resources currently spent by online and mobile content providers to obtain copyright licenses hinders
innovation. We also support ongoing IPO efforts to make the Copyright Tribunal an effective avenue of redress
for copyright licensing disputes. To resolve the unnecessary fragmentation of rights clearance we recommend
a consolidation of the copyright licensing system and in particular, the merging of the two music collecting
societies. The Government should also work with the European institutions to ensure that the proposed
directive on collective rights management contains a robust regulatory framework to facilitate the development
of a competitive market. Working licensing solutions exist in other countries to unlock copyrighted works for
which the copyright owner cannot be located, and we ask the Government to work with European institutions
and at UK level to improve access to orphan works through extended collective licensing.
The limited exceptions that exist in UK copyright law for the benefit of consumers are largely outdated and no
longer in line with everyday use of digital technologies. Recent attempts to update UK copyright law have
stalled due to lack of economic evidence base. We therefore ask the IPO to establish the economic evidence
base for copyright exceptions such as time-shifting and format-shifting, particularly in relation to the economic
impact on copyright owners and other industries. We also ask the IPO to consider the case for simplifying and
consolidating the various existing copyright exceptions in the Copyright, Designs and Patents Act 1988.
The overly enforcement-focused approach adopted by some copyright owners has led to moves towards a
criminalisation of non-commercial copyright infringement by consumers. Consumer Focus does not support this
approach and would like to see copyright owners focus on re-engaging consumers into the growing legal market
in copyrighted content. We therefore ask the IPO to limit the remit of the IP Crime Group to criminal offences,
ensure that it operates in a transparent manner, and invite consumer groups to join the group if the IP Crime
Group decides to work on infringing activities by consumers. We also urge the UK Government to ask for non-
commercial infringement by consumers to be removed from the scope of the Anti-Counterfeit Trade Agreement.

1
See The supply of recorded music: A report on the supply in the UK of prerecorded compact discs, vinyl discs
and tapes containing music, Monopolies and Mergers Commission's Investigation, 1994
1
The role of the IPO in encouraging an innovative market
The UK has a significant consumer market for digital content, including music, games and more recently e -
books. Consumer demand has been a key driver for the development of online and mobile content delivery
and in turn new business models. The creative industry increasingly depends on innovation in the information
and communications technology (ICT) industry, and both industries are largely made up of small and medium-
sized enterprises (SMEs). As such they will benefit from the Government‟s recently announced strategy to
encourage new start-ups and support SMEs. Ideally the copyright system supports a dynamic demand and
supply cycle, driving and financially rewarding innovation. We therefore recommend that the Intellectual
Property Office (IPO) works closely with the Department for Business, Innovation and Skills (BIS) to establish
a copyright innovation strategy aligned with BIS initiatives to build an entrepreneurial culture and promote
competition, thus growing UK industries‟ comparative advantage internationally. We recommend that the IPO
also implements Gowers‟ recommendation for increased co-operation between the IPO, the Office of Fair
Trading (OFT) and the Competition Commission to ensure that competition and copyright policy together
foster competitive and innovative markets for the benefit of consumers.2

Consumer Focus recommendations:

The IPO should:
 establish a copyright innovation strategy that is aligned with the BIS strategy for economic growth
 establish close working relationship with the OFT and the Competition Commission to ensure a
competitive and innovative market for the benefit of consumers

Balancing copyright law: User rights and exceptions

Exceptions to, and limitations on, copyright owners‟ exclusive rights are an important mechanism for achieving
balance in copyright law; they are the expression of the consumer „fair use‟ rights. Existing exceptions to
copyright in UK law, also known as fair dealing provisions, have a key role in providing consumers with
meaningful access to copyrighted content. As such they protect the public interest, allow for social and
commercial innovation.
The „fair dealing‟ provision on criticism, review and news reporting is central to the functioning of the UK news
media, and the exceptions for the benefit of visually impaired people allow for the creation of accessible
formats which would otherwise not be provided by the market. Technology neutral exceptions, such as that on
time-shifting, allow copyright law to remain relevant as technology develops and in turn drive new
technological innovation. The time-shifting exception was initially introduced in 1988 in response to consumers
using video and cassette recorders to tape broadcasts to watch/listen to at a more convenient time.
Consumers now time-shift using digital recording devices (DRDs), which entered the UK market in 2000, and
are frequently provided as part of „plus box‟ subscription package such as BSkyB‟s Sky+ and Virgin Media‟s
V+. More than a quarter of UK households now own a DRD and the time-shifting exception has benefited
consumers as well as allowing media and ICT companies to establish a lucrative new market that meets
consumer demand.
Our research shows that the majority of consumers do not know what user rights they have under existing
copyright law and are confused about what is and what is not legal for them to do.3 Since its enactment, the
Copyright, Designs and Patents Act 1988 (CDPA) has been criticised for undue complexity. As various EU and
international provisions have been amended into the CDPA over time it has become incomprehensible to non-
lawyers. Consumers, ICT start-ups, SMEs in the creative industries and creators are subject to the regulatory
regime established by the CDPA and all stakeholders would benefit from the simplification and rationalisation
of the CDPA.4 We therefore ask the Government to consider the introduction of a fair dealing provision on
non-commercial use for consumers. Such a fair dealing provision would allow consumers to copy and use
copyrighted content they have purchased for non-commercial purposes, such as format-shifting and back-up,
but would not allow consumers to distribute any copies to the public. It would help to update and future proof

2
Gowers Review of Intellectual Property, HM Treasury, 2006, p.95
3
Time to change the tune – Consumer research briefing on copyright, Consumer Focus, February 2010
4
See Exploring the Case for Simplification of the Copyright Framework, Strategic Advisory Board for Intellectual
Property Policy, 26 February 2010
2
UK copyright law and it would allow various existing copyright exceptions in the CDPA to be consolidated.
Providing a clear copyright framework for consumers, telling them what they can and cannot legally do with
copyrighted content, will aid respect for copyright law. It would also make the UK a more attractive business
location for ICT companies and the creative industries.
Technology companies are bound by copyright law and will develop consumer products around copyright
exceptions. The iPod, for example, is designed around consumers format-shifting their existing music
collection from CDs and MP3s into Advanced Audio Coding (AAC), which is the standard audio file format for
iPods and iPhones. Format-shifting is legal in the US and continental European countries, but it remains illegal
in the UK, and therefore it is unlikely that the iPod could have been developed by a UK based company. The
UK‟s outdated copyright law creates legal uncertainty for any business that wishes to develop or market
innovative ways of delivering copyrighted content to UK consumers. This stunts innovation among UK-based
technology SMEs, who may not be able to afford extensive legal advice and are likely to decide against
developing or marketing a product rather than risk being sued. The UK has thus far failed to update copyright
law to the full extent possible under EU law, and specifically the InfoSoc Directive. This creates absurd
situations for consumers, who are able to purchase hardware and software designed for activities that are
illegal in this country, and puts UK based companies at a disadvantage.
Attempts by the previous Government to update UK copyright law in line with EU law have failed, principally
because of a complete lack of economic evidence base, resulting in prolonged disputes between stakeholders.
Under the InfoSoc Directive, „private use‟ exceptions have to comply with the „fair compensation principle‟ so
that copyright owners are compensated fairly for the economic damage or loss resulting from private copying.
Following Gowers‟ recommendation, the previous Government‟s attempts to introduce a format-shifting
exception – a private use exception under EU law – stalled due to the music industry‟s demand for a levy to
compensate for alleged economic damage resulting from format-shifting by consumers. We therefore
encourage the IPO to quantify the economic damage and benefit to copyright owners from private use such as
format-shifting and time-shifting, and to quantify the economic impact on other industries arising from such
provisions. Such an evidence base would allow the Government to move forward on the question of format-
shifting and other „private uses‟ of copyrighted content. Any changes to copyright law will impact on a wide
range of stakeholders and the economy at large, therefore we ask the IPO to establish a sound and
independent economic evidence base for any changes to copyright law going forward.
We also ask the IPO to establish the evidence base for the plans announced by the previous Government to
extend the existing fair dealing provision on non-commercial research and private study to cover „sound
recording, film or broadcast‟, but only to „a member of an educational establishment for the purposes of
research for a non-commercial purpose authorised by that establishment‟. The proposal is unworkable in
practice and amounts to unnecessary further complication of UK copyright law. The decision by the previous
Government to limit the extension to certain members of educational establishments only is based on
assertions by copyright owners that consumers would abuse such a provision. No evidence base has been
established for this claim and Consumer Focus is concerned that the proposal, if implemented, would result in
no tangible benefits to either consumers, educational establishments, libraries or copyright owners.5

Consumer Focus recommendations:

The IPO should:
 establish the economic evidence base for copyright exceptions such as time-shifting and format-
shifting, particularly in relation to the economic impact on copyright owners and other industries
 consider the case for simplifying and consolidating the various existing copyright exceptions in
the Copyright, Designs and Patents Act 1988

5
See Consumer Focus response to Gowers 2nd stage copyright consultation, Consumer Focus, March 2010
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A dynamic market: Copyright licensing
Advances in digital technologies allow consumers to enjoy copyrighted content on a variety of platforms, which
in turn stimulate increasing consumer demand for content. Copyright industries clearly benefit from meeting
consumer demands for digital content and the music industry is now starting to reap the rewards of licensing
more of their content to legal content delivery services. According to recently published figures the music
industry had licensed one million digital tracks globally in 2003, generating digital revenues of US$20 million.
By 2009 the industry had licensed more than 11 million digital tracks and generated revenues of US$4.2
billion, constituting 27 per cent of the industry‟s total revenues.6 We believe the IPO has a role to play in
encouraging copyright owners and collecting societies to be responsive to consumer demand and license
digital formats in a timely fashion. If demand is not met with supply, consumers will turn elsewhere and the IPO
should encourage the UK-based film and book publishing industry to learn from the mistakes made by the
music industry.
The UK has not yet managed to establish a copyright licensing system that supports a dynamic market in
copyrighted content, and that is responsive to evolving consumer demands and emerging technologies. A
better understanding of „how healthy competition can flourish in the information market and how [intellectual
property] can both stimulate and occasionally stunt dynamic competition‟7 is clearly needed with respect to the
online market in digital content. It would therefore be useful if the IPO mapped current developments in the
online and mobile delivery of copyrighted content, particularly in relation to recorded music, films in digital
formats and e-books. The IPO could assess whether the time and resources online and mobile content
providers – many of which are SMEs – currently spend on obtaining licenses from copyright owners and
collecting societies, imposes an unnecessary cost. Such services should be able to obtain licenses within
months, not years, otherwise they will not be able to effectively take advantage of technological developments
and consumer demand. However, the unnecessary fragmentation of the music copyright licensing system
means that online and mobile content providers have to obtain licenses from two music collecting societies,
PRS and PPL, in addition to obtaining licenses from the various copyright owners, i.e. record labels. We
therefore ask the IPO to consider a consolidation of the copyright licensing system and in particular, the
merging of the two music collecting societies. ICT start-ups and SMEs can only launch innovative and
commercially viable business models to deliver content to consumers if licensing rates are reasonable and
commercially viable. We therefore encourage the IPO to continue its efforts in strengthening the Copyright
Tribunal, so that businesses who have unreasonably been refused a licence, or who are subject to
unreasonable license terms have an effective avenue of redress.8
E-commerce and cross-border trading allows creative industries to export their works digitally, and creative
content „made in the UK‟ has a significant potential market in EU member states and internationally. 2009 saw
a significant increase in revenues, up 19 per cent to £166.9 million, on the back of increased licensing of UK
music abroad.9 While this is encouraging, the fragmented territorial licensing of copyrighted works by national
collecting societies continues to hinder cross-border trading in copyrighted works. It denies UK-based
consumers access to copyrighted content made abroad, and it holds back the UK‟s digital economy by
preventing UK-based companies from taking full advantage of a significant potential export market. Consumer
Focus supports the introduction of extended collective licensing on a European level as we believe that it could
resolve some of the existing complexities of rights clearance. However, such a move also raises significant
competition concerns so it is essential that the forthcoming framework directive on collective rights
management contains a robust regulatory framework for collecting societies to guard against anti-competitive
behaviour.
Current copyright law prevents access to and use of „orphan works‟, works which are in copyright, but the
owner can no longer be located. This creates another barrier to the development of a dynamic market, social
innovation and preserving our cultural heritage. Orphan works are typically old and of historical value rather
than commercial value. They are maintained by museums, libraries and archives, with the British Library and
the BBC housing thousands of orphaned books and films, which can‟t be accessed or used by academia,

6
IFPI Digital Music Report 2010, Music how, when, where you want it, IFPI, 2010, p.6
7
Gowers Review of Intellectual Property, HM Treasury, 2006, p.95
8
See Consumer Focus response to Intellectual Property Office Copyright Tribunal consultation, Consumer Focus,
July 2009
9
PRS for Music Financial Results 2009, PRS, March 2010
4
documentary makers or the public at large. The UK government should therefore work with the European
institutions to ensure that the proposed directive on orphan works significantly reduces search costs and
covers the widest possible range of works, including audio-visual and commercial as well as non-commercial
organisations. The orphan works provisions that are to be established at EU level are likely to be a welcome
first step. Therefore Consumer Focus also asks the UK Government to revisit the case for establishing an
extended collective licensing system at UK level. Such systems have operated since the 1960s in Sweden,
Norway, Finland and Denmark, providing flexible solutions for different types of content and uses that protect
the interests of creators and allow the public access to socially and historically significant works.

Consumer Focus recommendations:

The IPO should:
 establish whether the time and resources currently spent by online and mobile content
providers to obtain copyright licenses hinders innovation
 consider a consolidation of the music copyright licensing system and in particular, the merging
of the two music collecting societies
 continue efforts to make the Copyright Tribunal an effective avenue of redress for copyright
licensing disputes
The Government should:
 work with the European institutions to ensure that the proposed directive on collective rights
management contains a robust regulatory framework to ensure the development of a
competitive market
 work with the European institutions to ensure that the proposed directive on orphan works
brings about meaningful improvements in access to orphan works. In addition the IPO should
develop proposals to improve access to orphan works at UK level through extended collective
licensing

Proportionate copyright enforcement

In the absence of legal services that meet consumers‟ expressed demand for digital content some consumers
have turned to unlicensed services. Consumer Focus would like to see these consumers re-engaged in the
growing legal digital content market and we are encouraging copyright owners to license their content to
innovative services that meet the demands of diverse user groups. If enforcement action is taken it needs to
be proportionate and focus on the most serious infringers. As such enforcement actions need to differentiate
between infringement of copyright undertaken in the course of a business and non-commercial infringement by
consumers. We do not support apparent efforts of industry lobbyists to blur the current legal position, which
would criminalise a generation.
In this regard, we were concerned by the assertion in the recently published IP Crime Report 2009/10 that
copyright infringement by consumers, for example through peer-to-peer filesharing, is a criminal offence where
„carried out on a commercial scale‟.10 “Commercial scale” cannot be found in the CDPA and to our knowledge
established case law states that copyright infringement by consumers through peer-to-peer filesharing
networks is to be treated as a civil matter. In Polydor Limited & Others v Brown & Others the High Court found
a consumer who had uploaded 400 files to a peer-to-peer filesharing network guilty under Section 20 of the
CDPA, i.e. communication a sound recording to the public, which is a primary infringement, and hence civil.11
The uploading of files to a peer-to-peer network could be criminal under Section 107 of the CDPA, however a
test case initiated in 2007 by the British Phonographic Industry (BPI) under this section against a 17 year old
for filesharing three albums and one single has recently been dropped by the Crown Prosecution Service
because it was not in the public interest to continue.12

10
IP Crime Report 2009/10, IP Crime Group, 2010, p.7
11
Polydor Limited and Others -v- Brown and Others [2005] EWHC 3191
12
Nicolas Kobie, Middlesbrough crown Court has dropped a case against a teenager for file-sharing, ITPro, March
2010
5
Consumer Focus does not believe that it is appropriate for the IP Crime Group, or its members, to interpret the
law, which is a matter for the courts. Copyright infringement by consumers is to be addressed through Digital
Economy Act 2010, which is currently implemented by Ofcom and BIS. The notification process will be based
on the standard of evidence required for civil copyright proceedings13 and is designed so that copyright owners
take legal actions against consumers for copyright infringement,14 which are intended to be civil.15 It appears to
us that there is unnecessary duplication, and inconsistency, arising from the IP Crime Group approaching
copyright infringement through peer-to-peer fielsharing networks by consumers as a criminal matter.
The IP Crime Group was set up to identify strategic priorities for collaborative action by law enforcement
agencies to stem the import and sale of counterfeit goods, such as personal care products, tobacco and
electrical goods. The work of the group is clearly important to consumers but it does not appear that the IP
Crime Group‟s discussions are sufficiently focused and the group currently operates in an unduly opaque way.
If consumers are to have confidence in the group‟s work, the membership and minutes of the IP Crime Group
should be published, in line with the Coalition Government‟s commitment to transparency, and its work should
be tightly focused on tackling criminal activity. If the IP Crime Group‟ agenda includes enforcement actions
against consumers the IP Crime Group should invite consumer rights groups to join the group.
In relation to copyright enforcement at an international level, we are concerned about the implications of the
proposed Anti-Counterfeit Trade Agreement (ACTA). Despite what the title of the treaty suggests, this is not
just a trade agreement or just about counterfeit goods. Official statements on the negotiations state that ACTA
will not create new laws in member countries. However, the last published draft treaty clearly conflates
commercial trade in counterfeited goods by criminal organisations with copyright infringement by consumers
using digital technologies or the internet. If this version of the draft treaty were to be signed it would require
signatory countries to impose criminal sanctions not only for copyright infringement for financial gain, but also
to infringement of copyright not motivated by financial gain if it takes place on a „commercial scale‟, which is
simply defined as „significant scale‟. The UK would have to amend the CDPA to make copyright infringement
through peer-to-peer filesharing by consumers a criminal offence. Given that format-shifting is illegal under UK
law, any such infringement on a „significant scale‟ would also be a criminal offence. It is inappropriate for non-
commercial infringement by consumers to be dealt with in an agreement on the international criminal trade in
counterfeit goods. Therefore the UK Government should ask for non-commercial copyright infringement by
consumers to be removed from the scope of the treaty.

Consumer Focus recommendations:

The IPO should:
 limit the remit of the IP Crime Group to criminal offences, ensure that it operates in a transparent
manner and invite consumer rights groups to join if the IP Crime Group if it deals with
enforcement actions against consumers
The Government should:
 ask for non-commercial infringement by consumers to be removed from the scope of the Anti-
Counterfeit Trade Agreement

13
Online Infringement of Copyright and the Digital Economy Act 2010 - Draft Initial Obligations Code, Ofcom, 28
May 2010, pg.18
14
Digital Economy Act 2010, Section 8 / 124 F (5)(f)
15
See for example, Online infringement of copyright: detail regarding clauses 4-16, BIS, IPO & dcms, pg.3 &
Digital Britain Report, BIS & dcms, June 2009, pg.17 and 233
6