The Evolution of Collective Licensing

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The Evolution of Collective Licensing

Jessica Pettitt: I’m joined here today by Vice President, Secretary and General Counsel of Copyright Clearance Center, Frederic Haber.

Fred, I’m interested in knowing more about the intersection of collective licensing and copyright law. Can you explain it a little bit for us?

Frederic Haber: Sure. We’ll first need some history about the origin of collective licensing to set the context.

Copyright law was originally designed around the assumption that somebody would create a work, like a novel, that would be of great significance. And the point was that the author wanted to get the novel published, and somebody was going to earn money through sales of the copies of the book (in the first instance usually the publisher, who would share the proceeds with the author under their contract with each other). That was the ideal model for copyright back three and four hundred years ago.

Then came the mass marketing of copyrighted works in the text and image worlds, and eventually of recordings of music as well. Suddenly, there were all these uses of intellectual property that were incidental to the core goal of selling individually treasured copies of the entire piece of intellectual property.

THE CREATION STORY FOR COLLECTIVE LICENSING

The classic, premodern example of how music was made in the music industry here was when a composer would produce a piece of music, would sell the music to an orchestra, and would get paid a lot of money for all the rights. Then, the orchestra could do whatever it wanted with it and make its own money that way. However, once someone recorded that same music on a phonograph record, many, many people were going to play it and possibly in a context where the composer would be entitled to some money.

The story – maybe it’s best to see it as a creation myth – goes back to the middle of the 19th century, on Avenue des Champs-Élysées in Paris.

The story – maybe it’s best to see it as a creation myth – goes back to the middle of the 19th century, on Avenue des Champs-Élysées in Paris. Three composers and librettists of light operatic music that was very popular in its time, were lounging on the Champs-Élysées at a café, having coffee and watching the people go by. After they finish their coffee, they get up to leave, when the waiter comes chasing after them and says, “Messieurs, you didn’t pay your bill. You took something from me, and you have to pay for it.” The composers’ response was, “Well, Monsieur, you took something from each of us and you should pay us for it.” That is, the musicians in the café were playing these composers’ pieces for the entertainment of the people, which was helping the café owner get customers to eat there or drink there. Essentially, the café owner was making money from the music, and the composers thought that they, too, were entitled to some money.

That may or may not be an exactly true story, but it is the mythological source for the first collective licensing organization, which was in fact started by those three composers in France in the mid-19th century. It started with music for exactly the kind of uses that we’ve talked about— the performance of music for the entertainment of people by somebody other than the composer, other than the copyright holder – whether it was a bunch of musicians, or by the end of the 19th century, a phonograph recording, in either case playing the music in public.

The notion underlying collective licensing was that there was no way for every composer, for example, to issue a license to every café in Paris – let alone the rest of France – let alone the rest of the world – for the right to use the music for a couple of minutes here and there at a price that anybody could afford. There were simply going to be too many transaction costs.

So, in the middle of the 19th century in France, a notion quickly gained traction among music copyright holders that they could create what was fundamentally a union, and that the union could efficiently license all of their works together for the convenience of users, in order to earn a meaningful amount of money and then divide up the money among themselves.

COLLECTIVE LICENSING SPREADS ACROSS TIME AND GEOGRAPHY

JP: Did this then spread to other countries?

FH: Yes. What started in France in the middle of the 19th century, was imitated elsewhere – first, all over Europe. The first such collective in the United States – which still exists – is known as ASCAP, the American Society of Composers, Authors, and Publishers, and it was started in 1914, which, luckily for them, was about five minutes before commercial radio was invented. As soon as radios started playing music and selling ads, the rights holders realized that here was this wonderfully convenient way to make money for composers, without having to deal with every broadcaster or listener in America. All they had to do was issue a license on a collective basis to a radio station that would pay appropriately.

The first such collective in the United States – which still exists – is known as ASCAP, the American Society of Composers, Authors, and Publishers, and it was started in 1914, which, luckily for them, was about five minutes before commercial radio was invented.

But it took many years to figure out what an appropriate basis for payment was – almost 30 years in fact! Finally, a model was put into place where ASCAP and a couple of other organizations in the United States collected rights from virtually all the people who owned the rights for the commercial performance of music. On the other side were auditoriums, music halls and theatres, and then radio stations, and eventually television stations, and eventually the Internet, which bought the rights to perform music in huge collections for a license price that could then be divvied up among the various rights holders.

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JP: What about other forms of intellectual property?

FH: Of course, other types of copyrighted works apart from music started to be put to similar mass uses – like text, for example. What reproduced text quickly? Well, we’re past the monks; we’re even past the big printing presses; we’re down to the convenience photocopier, which was suddenly in every corridor in every office in America and soon the world. By the middle of the 1960s, the concern was that convenience photocopying had become very cheap and pervasive, and it was very easy to reproduce a book, reproduce a newspaper, reproduce a scientific article for next to nothing, thereby eliminating the possibility of additional sales and subscriptions for the rightsholder. The end result of this technology problem was, again, a banding together, as was done by the composers in France in the middle of the 19th century. Authors and publishers of text, whose works were going to be frequently reproduced by photocopying, banded together into a collective organization of a similar kind. In our case, in the United States, it’s called CCC, Copyright Clearance Center; and similar organizations exist in 60 or more other countries as well.

COLLECTIVE LICENSING AND COPYRIGHT

JP: So, where is the connection between collective licensing and copyright?

FH: Copyright entitles rights holders to be compensated for all kinds of uses of their works. Some uses are worth a one-on-one negotiation – for example, between the author of a piece of fiction and the publisher of that piece of fiction. But, on the other hand, if I’m publishing a newspaper, with many articles each of great interest to a lot of people, or a scientific journal, again with many articles each of interest to a lot of people, it is still true that no one article is going to be worth enough for me to negotiate the reproduction rights with every business or science-oriented company in America. So, what we’ve done instead is collect the rights on one side and combined them in a single license, and then we present all those rights as a large mass to the user market, who then buy the rights to use the entire mass (even if they definitely won’t use every item in the mass), paying a single fee for the privilege. We collect the money and divide it up among rightsholders based on usage data. This is intended to fulfill the purpose of copyright in connection with low-cost rights in the most efficient way possible.

We…collect the rights on one side and combined them in a single license, and then we present all those rights as a large mass to the user market…

JP: So, this collective action benefits both rights holders and users?

FH: Right. Rights holders collect money that would otherwise be in tiny little bits that they could not afford to collect, and in that way they are able to protect their copyright rights. On the flip side, substantial users of lots of other people’s copyrighted materials are prepared to pay for it, as long as the transaction costs are not extreme. They can purchase rights a-la-carte from us if they want to, but most companies that do business with CCC buy a single annual license. They pay a big piece of money all at once to CCC and then they get the right for a year to do anything that the license allows them to do with all those pieces of copyrighted material, which is more than ten million individual works. As context for that number, please note that a book is an individual work, but so is the entire run of the New York Times from 1896 to 2017 – and so we are probably talking about hundreds of millions of books and articles in the repertory.

Frederic Haber

Author: Frederic Haber

Frederic Haber is Vice President and General Counsel of CCC and has previously held positions as a lawyer in the publishing, technology and retail industries.
Jessica Pettitt

Author: Jessica Pettitt

Jessica Pettitt has been a Strategic Account Manager with CCC since 2014. Previously she held positions with Wolters Kluwer, Summit Business Media and Condé Nast.
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