Month: July 2022

As first Australia, and now Canada (and the UK) implement legislation to stanch the bleeding of revenues from the traditional media sector to the major online platforms, a development that has resulted in the hollowing out of journalism as the platforms use the aggregation of media content produced by others to help attract and retain viewers, the US continues to evaluate its own approach to this issue. Recently the US Copyright Office concluded a study on whether any changes are needed to US copyright law to protect publishers’ rights, as had recently been done in Europe. The conclusion that no changes are warranted will be disappointing to some content creators, although this now clearly shifts the focus to the area of competition law as a needed remedy to the market imbalance that exists.

Australia’s News Media Bargaining Code has been hailed as the instrument that brought the big internet platforms (read Google and Facebook/Meta) to heel when it comes to “sharing the wealth” with the news outlets they in part draw upon to gain and hold audiences by aggregating their content. Australia has been successful to the extent that the threat of intervention and arbitration by the government has “encouraged” the platforms and media enterprises to reach deals, reportedly on the scale of about AUD200 million annually, allowing print and broadcast outlets, large and small, to hire and retain more journalists to produce the news. At least that is the supposition. No-one knows for sure because the details are clouded in secrecy, with no-one other than the platforms and the news entities themselves knowing exactly how much each received. Nor is there any detail on how this extra funding will be used. It is a fair assumption that it will be invested in journalism but, in fact, there is nothing to stop it from being used to pad the bottom line or increase payouts for executives. It is also not clear why some outlets (such as Australian public service ethnic broadcaster SBS) were excluded from the deals. The Code was never actually invoked; merely the threat of it seems to have been sufficient to ensure bargaining between the platforms and most Australian media. As a result, to date, neither Google nor Meta have been named as targeted entities under the Code. That is the way they like it.

Canada is currently in the process of enacting its own version of the Australian law, although with modifications to make it more transparent. The Canadian draft law has run into the same criticisms that came up during the debate in Australia. For example, will this favour big media over the little guys? Who qualifies as media, i.e. should some small online publication just recently launched qualify? (The answer is yes, if they employ at least two journalists and qualify for the journalism tax credit). Will government decide who qualifies? (see above). If so, is this a suitable role for government given the role of the media as a watchdog on government activities? Will siphoning from the purse of the platforms potentially compromise journalistic coverage of these gigantic businesses? And so on.

Perhaps not surprisingly, the organization that represents many media outlets in Canada, News Media Canada, is fully behind the legislation. The statistics are compelling in terms of the migration of ad revenues to the online platforms and the consequent negative impact on journalism generally, from employment to news coverage to revenues available to be invested in upgraded technology. Whether the output of traditional journalism is in the form of daily or weekly newspapers, online digital editions of the same, news broadcasts on cable, over the air or online, it still requires an investment to produce. And the platforms produce nothing when it comes to content. All they do is ride on the back of content produced by others, searching it, indexing it, highlighting it, and distributing it, in short, aggregating it, attracting the lion’s share of eyeballs, and thus ad revenues. As a result, content producers argue the big platforms should contribute to the production of the material from which they benefit, whether they are compliant with copyright law or not.

And the platforms do contribute in some countries—but on their terms. As the pressure has mounted, both Facebook and Google have been quick to rollout their own programs to subsidize journalism. Critics would call it too little, too late, a band-aid solution when the patient is bleeding to death. But that has not stopped some media enterprises from being very grateful for the limited largesse they receive from the platforms. The organizations pushing for legislation point to the potential hammer of government intervention as one reason for the sudden interest of the platforms in maintaining a viable journalism sector; they also criticize the terms of the “handouts”. It is argued that recipients are more beholden to the platforms as a result of the voluntary agreements than they would be if the agreements were reached as a result of a legislated requirement (or a threatened requirement). In the latter case, more leverage rests with the media outlet, it is argued, as there is potential recourse given the government’s role as the final arbiter.

Both Canada and Australia have approached this question as a competition rather than a copyright issue. France has also used its Competition Authority to require the platforms to reach compensation deals with publishers, although the EU itself has taken a copyright-based approach to dealing with the issue. Do news publishers require additional rights to enable them to bargain with the platforms for compensation for aggregation of their works? The EU identified such a need and brought in a requirement for member states to create an ancillary press publishers’ right, a “neighbouring right” that gives publishers a right of reproduction and a right of making available covering online uses of their press publications by internet platforms for two years from the date of publication of news stories. The question of whether copyright law is deficient and needs updating has also been examined in the US.

The US Copyright Office (USCO) has just concluded its own study, which I referred to in a couple of blog posts last year, (“Paying for Use of News Content? The US Launches Study on Free-Riding by News Aggregators”) and (“How Can News Publishers Best Protect Their Content? The US Copyright Office Explores Options”). While it does not deny the dimensions of the financial problem from the perspective of news outlets, the USCO has now determined that no copyright fix is required. According to the concluding report from its study, there is no imperfection in US copyright law of which the platforms are taking advantage, and which needs to be addressed. As outlined by Copyright Alliance blogger Rachel Kim in a recent post that very effectively summarizes the USCO study;

“The Office first notes that press publishers own the copyright in their textual news content (1) as a collective work or (2) through the work-made-for-hire doctrine, assignments of rights, or exclusive licenses. The report later relies on the existence of these rights to conclude that no U.S. ancillary right is needed since the justification for passage of the EU ancillary right was to grant press publishers similar ownership rights that they didn’t previously enjoy.”

So if the USCO has concluded that addressing the issue through copyright law is not the answer, then what is? It is actually not a great surprise that the Copyright Office did not recommend any changes to US copyright law as even the main protagonists of the need to bring about some form of revenue sharing with the platforms, the US News Media Alliance, did not strongly endorse this remedy in its submission to the USCO. While it would not object to having the EU ancillary rights extended to US news providers in Europe (this will only happen if the US enacts a reciprocal law or if a national treatment commitment is negotiated under a trade agreement between the EU and US), it prefers to have the issue dealt with through competition law, and by passage of legislation that would allow US news media to bargain collectively without violating anti-trust laws.

While rejecting the need for any changes to US copyright law to deal with the effects of online news aggregation on traditional journalism, the USCO notes the competition approach taken by Australia and others but declines to endorse it, simply punting the issue to other agencies to deal with. Given the mandates of respective agencies, and noting how jealously they guard their turf, this is not a surprise. Still, if advocates of pushing the platforms and publishers together to negotiate terms were hoping the USCO study would provide a way forward, they must be disappointed. One area where it clearly does have a role, that of interpreting fair use (although the exact dimensions of fair use are decided by the courts), the Office takes a “two-handed approach”, ie. “on the one hand, and on the other”. In other words, it waffles, reflecting the range of conflicting inputs it received plus the uncertainty over whether a given use is fair or not, a determination that can only be decided on a case-by-case basis by a court.

Kim points out that there is one area where the USCO could have been more helpful to content creators, by addressing the lack of a registration option for dynamic web content. In the US, while registration is not required to assert copyright, it is required if an infringement action is to be brought in court and to recover statutory damages. However, nowadays much content is produced only digitally, and frequently updated, never appearing in a physical version, yet the USCO is stuck back in the last century requiring the deposit of a static copy of an edition as proof of copyright. (The Office currently only accepts deposit copies that show the static form of a website and does not allow copyright owners to deposit copies of the updated versions of that same website for the same registration, which is a problem because almost no website— particularly a press publisher’s website— looks the same as it did five minutes earlier). Rather than offer solutions, the study simply says that the Office hopes to address the issue through its modernization efforts.

Overall, the outcome of the study clearly indicates that the Copyright Office will not be taking the lead in addressing the platform aggregation issue, as much as it is willing to acknowledge the problem. Instead, the onus will be on Congress, where the Journalism Competition and Preservation Act (JCPA), legislation that would allow the news media to combine to negotiate collectively with the platforms, has languished. In terms of the balance of political power in the US, it would seem the platforms (despite increasing scrutiny of their activities by Congress) have more clout than the media. So far they have been able to forestall any meaningful action in the US to deal with the issue of revenue-sharing with content providers. The platforms have been less successful elsewhere, and assuming the Canadian legislation is passed, there will be yet another example of how the internet intermediaries can be induced to come to the table. Will the US eventually follow the example being set in other countries.? It is evident the US Copyright Office is not going to lead the way, but I suspect that in the end, the US will get there.

© Hugh Stephens 2022. All Rights Reserved.

Now that US Trade Representative (USTR) Katherine Tai in her recent meeting with Canada’s International Trade Minister Mary Ng has officially taken notice of the Online Streaming Act (Bill C-11), (“Ambassador Tai expressed concern about…pending legislation in the Canadian Parliament that could impact digital streaming services“) this raises the question as to whether aspects of the Bill might violate commitments Canada has made under international trade agreements, such as the updated NAFTA, known as CUSMA. We don’t know what concern was expressed by the US—it may simply have been a shot across the bow to let Canada know that USTR is carefully watching to ensure that any impact on US interests is taken into account as the legislation wends its tortuous way through the Canadian parliamentary process —but there is no question that whatever actions are taken by Canada regarding digital streaming services, they will not constitute a violation of the CUSMA/USMCA. They could, however, have violated Canada’s commitments under the Trans-Pacific Partnership (TPP) but Donald Trump inadvertently came to Canada’s rescue. More on this below.

Any measures taken by Canada to regulate US streaming services under CUSMA, even if discriminatory, would not violate the terms of the Agreement because of CUSMA’s cultural exemption clause. Under this clause, Article 32.6(2), aka Paragraph 2, the Agreement does not apply to any actions taken by Canada that relate to cultural industries (with two minor exceptions). The definition of cultural industries includes;

“the production, distribution, sale, or exhibition of film or video recordings; the production, distribution, sale, or exhibition of audio or video music recordings”; and “all radio, television and cable broadcasting undertakings and all satellite programming and broadcast network services”

There is, however, a sting in the tail of this exemption in the form of Paragraph 4 (Article 32.6 (4)

“Notwithstanding any other provision of this Agreement, a Party may take a measure of equivalent commercial effect in response to an action by another Party that would have been inconsistent with this Agreement but for paragraph 2 or 3…” (Paragraph 3 allows the US or Mexico to take similar non-compliant actions to those taken by Canada if Canada initiates measures that violate the terms of the Agreement).

This retaliatory clause allows the US or Mexico to take equivalent economic measures against Canada in any area if Canada takes an action with regard to a cultural industry that would have been inconsistent with the Agreement but for the exemption clause. In other words, if Canada takes discriminatory measures against a US or Mexican entity in the name of protecting Canadian culture, negating a “national treatment” commitment it has made under CUSMA, it would not be obliged to reverse this measure, but it could suffer economic retaliation for having done so.

The “sting in the tail” comes from the original Canada-US Free Trade Agreement (FTA) of 1987, and was the compromise achieved at the time to allow the Canadian government to say that cultural industries were not covered by the FTA while providing a strong disincentive to override commitments in the Agreement in the name of protecting culture because of the punitive retaliation that could be exacted. (It is also worth noting that if Canada did take measures that negated provisions of the CUSMA, calculating the “equivalent commercial effect” would be a difficult and controversial process. Depending on the measure taken, it could be very difficult to measure what commercial impact it might have).

Therefore, while the CUSMA allows Canada to override commitments it made in the Agreement with respect to digital streaming services, the question is, would it do so given the potential cost?

And what are those commitments? They are spelled out clearly in CUSMA, Article 19.4;

“No Party shall accord less favorable treatment to a digital product created, produced, published, contracted for, commissioned, or first made available on commercial terms in the territory of another Party, or to a digital product of which the author, performer, producer, developer, or owner is a person of another Party, than it accords to other like digital products.”

This is a so-called “national treatment” commitment. You must treat a foreign product or entity no less favourably than the domestic equivalent.

While under CUSMA Canada retains the flexibility to undertake discriminatory measures against US streaming services (although subject to the constraint of retaliation), other trade commitments it made in the past would have clearly made it a treaty violation to do so, not only against US services, but also against streaming services from a number of other countries. This was the commitment Canada made in the 2015 Trans-Pacific Partnership (TPP) agreement whereby it would not adopt or maintain measures that imposed discriminatory requirements on service suppliers or investors to make financial contributions for Canadian content development.

In the TPP, which Canada joined late in the process thus reducing its negotiating leverage, it was unable to secure the kind of blanket exemption for cultural industries that it had negotiated in the original Canada-US FTA and NAFTA (and replicated in the CUSMA). Therefore, it took “reservations” on a chapter-by-chapter basis, specifying which areas would be exempt from commitments made in that chapter. In the chapter of the TPP dealing with Cross Border Trade in Services, Canada made the following reservation or exception;

“Canada reserves the right to adopt or maintain a measure that affects cultural industries and that has the objective of supporting, directly or indirectly, the creation, development or accessibility of Canadian artistic expression or content…,”

However, the US insisted on an “exception to this exception”. It read;

“…except:

(a) discriminatory requirements on service suppliers or investors to make financial contributions for Canadian content development; and

(b) measures restricting the access to on-line foreign audio-visual content.”

Canada had come late to the TPP negotiations which were well underway by the time it expressed interest in becoming a Party to the Agreement. US trade officials were not keen on adding Canada to the TPP mix but Prime Minister Harper reached out at the political level to President Obama and in 2012 Canada was finally admitted to the process. One of the conditions that Canada accepted was to agree to limitations on its ability to require foreign content providers to contribute to Canadian content development, while also renouncing the ultimate policy instrument of restricting access to foreign online audio-visual content providers. This latter concession was something not likely to be contemplated but was still a last resort measure that the Canadian government had now agreed to take off the table.

But then Donald Trump came to Canada’s rescue. In one of his braggadocio moments shortly after taking office, he withdrew the US from the TPP, effectively ending all prospects of the Agreement coming into force. The policy constraints that Canada had agreed to in the TPP regarding funding of Canadian content were now gone. After the US withdrawal, the other ten TPP members, led by Japan, decided to retain the main elements of the Agreement and to finalize a new text modelled largely on the original TPP, a process which eventually morphed into the renamed Comprehensive and Progressive Trans-Pacific Partnership, the CPTPP. Canada stayed “in the tent” and signed, then ratified the modified agreement. As part of the process of CPTPP finalization, however, Canada sought out and signed side letters with all the ten remaining members, nullifying the exception to the cultural exception. The other countries didn’t particularly care; the restriction had been imposed by the US and the US was no longer party to the Agreement.

The operative wording, taken from the side letter between Canada and Australia but identical to the side letters with all the CPTPP partners reads;

“Canada and Australia agree that, in continuing to give effect to the Agreement, notwithstanding the following language in Annex II – Canada – 16 and 17 – under the Cultural Industries Sector, first paragraph under the subheading “Description,” that states “except: (a) discriminatory requirements on service suppliers or investors to make financial contributions for Canadian content development; and (b) measures restricting the access to on-line foreign audio-visual content”, Canada may adopt or maintain discriminatory requirements on service suppliers or investors to make financial contributions for Canadian content development and may adopt or maintain measures that restrict access to on-line foreign audio-visual content.”

As a result, while Canada still has to bear in mind the restrictions placed on its policy options by the CUSMA with regard to requiring foreign (US) entities to financially contribute to the creation of Canadian culture in a way that could be discriminatory (unless it wants to accept the risk of economic retaliation), its firm commitment not to discriminate against foreign online service suppliers has disappeared. Canada has Donald Trump to thank for giving it extra policy flexibility as it grapples with the issue of regulating and requiring financial commitments from online streaming services and platforms. The removal of this commitment has thus provided the Canadian government with a bit more scope to deal with policy issues in the Online Streaming Act.

This still begs the question, however, as to whether Canada needs to discriminate against foreign streaming services in order to achieve the objectives of C-11. And what are those objectives exactly, you may well ask. Opinions are widely divided on the need for the bill, its impact and the means the government will use to achieve the stated goals of the legislation. There are a range of stakeholders, including of course the Canadian public, but also the Canadian broadcasting industry, Canadian content producers, foreign streaming services, various foreign internet platforms such as Youtube, Tik Tok, etc., and the government and its regulatory agencies. The legislation is complicated and tries to do a number of things. (Here is a concise summary from a leading law firm).

One of the outcomes of the bill, if it passes in its current form, will be a review of how Canadian content (Cancon) is defined, an issue that I discussed in a recent blog (Unravelling the Complexities of the Canadian Content Conundrum). Other elements include a requirement for “discoverability” of Cancon on streaming platforms, measures to require streaming services, both Canadian and foreign, to contribute a percentage of revenues to the creation of Cancon and greater authority for the broadcast regulator, the CRTC, to audit the books of broadcast undertakings. Behind all these measures is the fundamental objective of bringing online broadcasters such as streaming services (think Netflix, Disney Plus, Crave, CBC Gem etc) and social media platforms that distribute content under the purview of the Broadcasting Act, and thus making them subject to regulation by the CRTC.

We have noted that if Canada invokes CUSMA Article 32.6 to justify regulation of US streaming services, the US (and Mexico) could retaliate. However, for the retaliation to take place legally, the Canadian measure must be inconsistent with the Agreement but for the cultural exemption. This means that if Canada takes measures affecting cultural industries that apply to all players equally, both Canadian and non-Canadian, it is very likely that they would withstand a challenge under CUSMA/USMCA. Therefore, now that Canada is moving to classify online distribution of content as broadcasting, it needs to be careful to do so in a fully non-discriminatory manner, ensuring that regulatory measures apply equally to Canadian, US/Mexican, and other foreign entities.

It remains to be seen whether the Online Streaming Act (and the CRTC’s application of its expanded mandate flowing from the Act) will meet the non-discrimination standard. At the present time, for example, it is impossible for a foreign producer to produce anything that qualifies as Cancon because of the convoluted Cancon rules related to financing and intellectual property, yet US streaming services may be required to meet Cancon quotas just like their Canadian streaming counterparts. They may also be required to contribute to the production of content to which they themselves could never own the rights. Could this be considered discriminatory? The commitments it has made under USMCA/CUSMA Article 19.4 are clearly a factor the Canadian government needs to bear in mind when fashioning and implementing C-11.

What the final outcome will be remains to be seen. Most of the controversy over the bill to date revolves around whether user-generated content (UGC) is regulated. Critics charge that subjecting UGC to CRTC regulation will amount to censorship. The government maintains that the CRTC will not interfere with users or those posting content to platforms. Rather, the obligation will be on platforms to comply with discoverability and other requirements. With the bill now in the Senate for further review, it will take some time for this to play out.

In the meantime, the Canadian government will need to be careful to ensure that any obligations imposed on US online entities are non-discriminatory and consistent with national treatment or else it may open itself to a CUSMA challenge that could result in economic retaliation. (Quite apart from avoiding retaliation, I would argue that it is also good public policy to tackle the difficult issue of redefining broadcasting for the digital age through a fair and non-discriminatory approach.) CUSMA and possible economic retaliation aside, what Canada won’t have to worry about, thanks to Donald Trump, is being accused of directly violating a trade treaty commitment if it does impose a funding requirement on foreign streamers that turns out to be discriminatory. It’s like a “Get Out of Jail Free” card. Another ongoing Trump legacy.

© Hugh Stephens, 2022. All Rights Reserved.

Back in the first half of the 19^th century, despite reasonably robust national copyright laws (for the era), protecting author’s rights was still a major problem. Works protected in one country were not protected elsewhere, leading to “legalized piracy”. The best-known example of this is the legal reprinting, without permission, of British authors (such as the works of Charles Dickens) in the United States. This was legal because US copyright law protected only US authors prior to 1891. But this “legalized piracy” didn’t occur just in the United States. The practice was common and widespread. Belgian printers reproduced French works without authorization; French publishers reproduced British works, and on occasion British publishers reproduced works by American authors, such as Edgar Allen Poe, and so on.

At first countries tried to deal with the problem through bilateral treaties whereby each state would respect the copyrights of the other, but this hodge-podge of bilateral agreements failed to solve the problem. A large international conference was held in Brussels in 1858 with representatives from governments, libraries, literary and scientific associations, individual authors, artists and legal practitioners, booksellers, publishers, and printers. Nothing was resolved but the groundwork was laid for what eventually became the granddaddy of all international copyright treaties, the Berne Convention of 1886. The French novelist Victor Hugo played a leading role in pushing for an international agreement and finally, on September 9, 1886, ten countries signed the first international convention on copyright (Belgium, France, Germany, Great Britain, Haiti, Italy, Liberia, Spain, Switzerland, Tunisia).

That is an interesting group of countries for a 19th century treaty, and one wonders what drove the interest of Haiti, Liberia and Tunisia, not known to have major publishing businesses. In any event, neither Haiti nor Liberia ratified the treaty, leaving just eight initial founding members. There must have been a serious case of buyer’s remorse since neither Haiti nor Liberia joined the Convention until more than a century later, in 1989 in the case of Liberia and 1996 in the case of Haiti. These two countries weren’t the only latecomers to the treaty, which has been modified and updated several times over the years, most recently in 1971. The United States, for one, did not join until 1989. Why was the US a holdout?

The biggest obstacle facing United States accession to Berne was the incompatibility of US law with one of the basic tenets of the Berne Convention; that copyright exists from the moment a work is created (provided it meets other basic criteria) without any need for registration or notice. US law required formal registration as well as application of the © notice. Also, US law at the time did not cover all creative works as required by Berne, did not protect moral rights, and limited the term of protection to less than the Berne standard. An excellent discussion of the reasons why the US stayed out of Berne is presented by Jonathan Bailey in his blog Plagiarism Today. (“Why Did the United States Wait 103 Years to Join the Berne Convention”?). Bailey concludes that;

“The United States didn’t join the Berne Convention because its copyright was inherently incompatible with the convention, and it didn’t have enough motivation to overhaul its laws to bring it into compliance…However, technology changes made that approach untenable…The United States didn’t change its mind and join the Berne Convention, it was forced to by a practical reality and its method of compliance is proof of that.”

The takeaway is that while accession may require some changes to domestic law, absence from agreements that offer creators international copyright protection can be costly for national interests, especially as copyright and technology evolve. Nations need to ensure that their international instruments and level of protection are current and fit for purpose in the modern age.

During the many years that the US was unwilling to join Berne, it looked for work-arounds to achieve similar objectives. One means was to develop and accede to other conventions that would help protect American copyrights abroad without the need to change US law. As a result, the US signed the Buenos Aires Convention of 1910 which brought the United States and many Latin American states into a mutual recognition copyright regime that was consistent with US law. In 1952 the US became a founding member of the Universal Copyright Convention (UCC), an international agreement that mirrored Berne in many ways but allowed the US to keep its legal requirements. But the world was moving on.

By the time the US eventually joined Berne in 1989, the Convention had 120 member states. Today, the total is 180 out of the 195 (more or less) sovereign states that exist today. Furthermore, when the World Trade Organization came into existence in 1995, the TRIPS Agreement (part of the WTO package) incorporated the principal elements of Berne. Therefore, any country joining the WTO agrees to implement the terms of Berne. Of the few states that do not belong to Berne, almost all (such as Taiwan, which cannot sign Berne for political reasons, and a few others) are members of TRIPS. After the US and Russia joined Berne (Russia in 1994), the UCC became increasingly irrelevant and with the accession of Cambodia (the last country to be a UCC member but not a member of the Berne Convention) to Berne in December 2021, the UCC in has in effect become obsolete.

While membership in international conventions comes with obligations, it also brings rewards. For example, since the US joined Berne, US publishers no longer needed to resort to what was called the “back door to Berne”, whereby many US publishers first published in Canada (a Berne Convention country) in order to obtain the benefits of Berne-standard copyright protection in Convention countries.

Interestingly, the back door to Berne may not be entirely closed, even today. That is because when the US joined Berne, it did not adopt, holus-bolus, the Berne requirement that copyright is established automatically, without registration (assuming other conditions are met). The US accepted automatic copyright but retained the registration requirement for cases where rights-holders wish to pursue an infringement action (Section 411 of the US Copyright Act).  However, Section 411 registration applies only to “US works”, so that a rights-holder of a non-US work (even though a US resident or citizen) can bring an infringement action in the US without have to go through the registration process. This potentially provides some advantages since there is no risk of registration being denied, which can happen if not done properly, and there is no need to wait for completion of registration, which can take over a year in certain circumstances, before launching infringement action. As a result of this situation, in which non-US works get “better than national treatment”, it has been suggested that it may be in the interests of a US rights-holder to first publish a work outside the United States, thus avoiding the need for US registration yet still being able to enforce copyright. The work would have to either be published first outside the US but in another Berne Convention country, or, if published simultaneously in the US and another Berne Convention country, that state would have to offer a term of copyright protection shorter than that offered in the US.

One has to ask oneself why a rights-holder, if concerned about possible infringement, would go to all that trouble to ensure registration as a non-US work when they could simply register the work with the US Copyright Office early in the process? Still, the differential (i.e. more advantageous) treatment of non-US works is one of the quirks of the US accession to Berne and illustrates the complexity when international agreements collide with domestic law.

In Jonathan Bailey’s view, the US should eliminate these quirks and harmonize its copyright requirements with those of other Berne Convention members. (This would presumably also include expanding moral rights in the US). Bailey says;

“The United States is still very much a nation that wants to enjoy the benefits of the Berne Convention but is wanting to keep its quirks and oddities, no matter how much they harm local creators…Even today, the United States is dragging its feet on these issues, refusing to ditch antiquated and harmful approaches to copyright, even as the rest of the world moves forward.”

But maybe the important thing is that the US eventually got to “yes”, regardless of the tweaks and compromises that were necessary to get the legislation through Congress. US accession to Berne opened the floodgates, and many other states joined subsequently.

US law had evolved over the years making it easier for the United States to accept Berne’s conditions. Moreover, the US saw advantages for its own creative industries if it acceded and so the necessary compromises were made, allowing the US to become a Berne Convention member. Just as with any international agreement, some concessions were granted, some changes were made to domestic law and some limitations on sovereignty were accepted, all in order to obtain stronger protection for national copyright interests abroad. Any minor “pain” was worth the substantial “gain”.

At the end of the day, that is the bottom line. And that is the reason why copyright’s international conventions are so important to creators around the world, regardless of nationality. 

© Hugh Stephens 2022. All Rights Reserved.

At the recent 12^th WTO Ministerial meeting, the first in more than four years (because of COVID), Trade Ministers reached agreement on several key decisions. Two of them of are of direct interest to copyright industries, one for what was not done (relating to an intellectual property patent waiver for COVID-19 vaccines) and one related to a further extension of the 1998 moratorium on the application of customs duties to digital products. I am going to focus primarily on the latter because of its importance to content industries, to consumers everywhere and to the global economy.

It is no secret that the WTO is facing its challenges. Created as an organization in 1995 from the framework of the General Agreement on Trade and Tariffs (the GATT), a trade treaty established in 1948, the WTO today has 164 members, representing almost total global coverage. It sets trade rules which members agree to abide by, and (until recently) settled trade disputes between members. In recent years, there has been a split between developed and developing country members over how strict the rules should be, and to what extent the organization’s dispute settlement decisions should apply to members. Ongoing negotiations to resolve these issues have hit gridlock. Nevertheless, the organization is the only global regime that governs trade; it is indispensable to maintaining trade disciplines and fighting growing protectionism.

At its most recent meeting, WTO ministers did not resolve the ongoing impasse over the dispute settlement body nor other deep-seated conflicts between developing and developed countries, but they were able to agree on a package of measures, including the two related to copyright. The copyright related measures included a decision to permit compulsory licensing of patents necessary to produce vaccines to treat COVID-19 infections, and an agreement to “to maintain the current practice of not imposing customs duties on electronic transmissions until MC13 (the 13^th Ministerial Conference), which should ordinarily be held by 31 December 2023. Should MC13 be delayed beyond 31 March 2024, the moratorium will expire on that date unless Ministers or the General Council take a decision to extend.” In other words, the “customs moratorium” on digital products, first instituted in 1998 for two years and extended until the next ministerial meeting at every meeting since, has been extended for another two years.

The COVID-related patent waivers will address concerns raised by developing countries, permitting the compulsory licensing of patents for production and export of generic vaccines. This more targeted compromise approach replaces the unnecessary and overly broad original proposal floated by South Africa and India that would have also included a waiver on industrial designs, trade secrets and copyright for any technologies potentially related to fighting COVID.

As for the extension of the customs moratorium, if it has been extended at every ministerial meeting since 1998, you might ask, what is the big deal about one more extension? And what is the moratorium all about and why is it important? A significant element of the moratorium is that it is just that, a “moratorium”, in other words a “temporary prohibition”. If it has been in existence for over twenty years yet has not been made permanent, there must be a reason for this. To understand why, we need to look at the origins of the WTO moratorium. At the organizations 2^nd Ministerial meeting in 1998, the WTO adopted a work program to examine all trade issues related to e-commerce, which was in its infancy at the time. Unlike physical goods, digital products delivered seamlessly electronically via the internet were not stopped at the border and subjected to customs duties. At the time, it was decided not to prejudice the outcome of the work program. Therefore it was agreed that a customs “moratorium” on goods delivered through electronic transmissions, (i.e. suspending the application of import duties on digital products) would be put in place while more work was undertaken to better understand the impact of digital goods and services on global trade. The term “moratorium” implies that but for the suspension, customs duties would normally apply. The amount of the duties (tariffs), like duties on physical goods, would depend on various factors, such as whether a country wished to impose them either to generate revenues or to protect domestic industries. Tariffs can be set high or low, be completely abolished or kept in place but suspended. Calculation can be based either on value or some other measurement, e.g. per kilo. Having established a tariff on a given product, countries can then choose whether to implement the tariff or whether to agree to lower or abolish it in return for equivalent concessions from trading partners.

Calculating a value, and thus a duty rate, on electronic transmissions is not easy. Digital products (goods or services) can range from music and audio-visual content such as movies or other broadcasts, to e-books, software, video games and various forms of data such as designs, legal documentation and health information delivered through media files as well as 3-D printing. E-commerce (digital trade) is defined as the production, distribution, marketing, sale or delivery of goods and services by electronic means. The fact that products delivered electronically have been exempted from customs duties and other border clearance requirements is both a reflection of the difficulty in applying border measures to digital goods and services as well as a generally accepted realization of the benefits of encouraging e-commerce and digital trade.

The internet has enabled access to global markets for those providing digital content, ranging from Hollywood studios and record labels to individual artists, web designers and software developers. It also provides a means to access offshore services such as legal document preparation and review, accounting and auditing, and tele-health. It is a key element in allowing micro and small businesses to access customers globally, in transmitting knowledge and education, keeping costs down and making supply chains more resilient. The global importance of the digital economy was underscored by a statement from the International Chamber of Commerce, representing 91 trade associations from all continents, urging that the moratorium be extended. But if digital trade is so generally beneficial, why has the customs moratorium not been made permanent?

Developing countries (and developed countries in years past) have traditionally used tariffs to create protective walls behind which to nurture their own “infant industries”, as well as to generate government revenue, given often ineffective tax collection systems. There is however a price to be paid for these tariffs in terms of economic inefficiency, with the costs largely borne by consumers and secondary producers in protected economies. As more products are traded digitally, some developing countries have begun objecting to the digital exemption, arguing it bypasses their tariff walls without compensation. In 2020, India and South Africa (not coincidentally the same two states that championed the broad IP waiver related to COVID), filed an objection to the continuation of the moratorium, arguing that it unduly benefited developed countries, primarily the US and EU, and China, technically not a developed country. The paper claimed that the moratorium was costing $10 billion in customs duties annually, with 95 percent of the “losses” being absorbed by developing countries. It also challenged the assumption that digital services are covered by the moratorium.

Many economists would say that these purported losses were actually “savings” enjoyed by consumers in developing countries where tariffs on imports of digital products have been foregone. But India and South Africa are also interested in advancing their agenda in the WTO and in obtaining additional trade concessions from the developed countries. Thus, to put a price tag of $10 billion in revenues “lost” to developed countries (notwithstanding it is consumers in the developing countries who actually pay these so-called “lost revenues”) sets up the negotiating agenda to demand equivalent concessions from the developed world in terms of improved market access through ongoing WTO negotiations. This is further borne out by the statement in the India/South Africa paper that if the moratorium was lifted, developing countries would not necessarily implement tariffs on digital products, just that they could do so. In effect, the paper decries the supposed benefits that the moratorium confers on developed countries and China, and demands its elimination to create a perceived negotiating advantage. This is notwithstanding the fact that a content-rich country like India exports digital products and maintains large offshore service operations facilitated by duty free access of digital content and has benefited enormously from the suspension of customs duties on electronic transmissions, as have many other developing countries.

In response, a number of developed and developing WTO members (Australia, Canada, Chile, Colombia; Hong Kong, Iceland, Republic of Korea, New Zealand, Norway; Singapore, Switzerland, Thailand and Uruguay) filed a counter paper arguing that overall benefits of the free flow of digital products far outweigh any potential foregone government revenues, pointing out that the significant issue of consumer welfare is missing from the India/South Africa paper. The paper draws on a detailed OECD economic study published in 2019. The basic argument is that the cost of the tariffs imposed on imports of digital products via electronic transmissions will be borne primarily by consumers, not exporters. Foregone customs revenues can be recouped by imposing taxes (such as consumption taxes) on the incremental overall economic growth generated by the efficiencies to economies brought about by cheaper digital inputs. Here is one excerpt;

“The welfare analysis (of the OECD paper) outlines that the reduction in production and transportation costs associated with digital deliveries, as well as the removal of the tariff, can lead to a reduction in price. In consequence, the increase in demand leads to a rise in imports and an increase in consumer surplus, part of which is associated with redistribution from the domestic producer and part of which is from government revenue to the consumer. The study is unambiguous: the overall impact to the economy is ‘positive and large’….The study finds that the imposition of equivalent duties on electronic transmissions could negate those positive effects by increasing the price of the digital delivery…”

And so, the debate continues. Because some countries are unwilling to give up the perceived leverage of being able to impose tariffs on digital products, yet implicitly recognize the benefits that tariff free treatment of digital products confers on both local economies and the global economy, the moratorium gets rolled over and kicked down the road. That has happened once again, and the moratorium will stay in place at least until 2024. Hopefully at the next Ministerial meeting, it will either be made permanent or at least further extended.

A failure to renew the moratorium would be a significant setback for the global trading system and for the trade liberalization agenda. It would impose a potential barrier for consumers of digital products and services and slow adoption of the digital economy. For creators and copyright industries, who have invested heavily in the development of digital products and digital delivery, it would be a retrograde step that would, in the end, increase costs for consumers and reduce their options. Given the current power dynamics within the WTO, it is likely too much to expect that the moratorium will be made permanent. That is the best possible outcome that would ensure long-term predictability and stability. In the meantime, it is good news that the moratorium has been extended to 2024, and hopefully beyond.

© Hugh Stephens 2022. All Rights Reserved.