Motion to Consider
Moved by
That the Grand Committee do consider the Copyright (Regulation of Relevant Licensing Bodies) Regulations 2014.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments
My Lords, the relevant licensing bodies—or collecting societies as they are better known—are already self-regulating and using codes of practice based on minimum standards set by the Government. The purpose of this legislation is to support their self-regulation and ensure that this good practice continues. It allows the Secretary of State for Business, Innovation and Skills to remedy any problems or gaps that may emerge in self-regulation. These gaps would emerge if a collecting society started to deviate from the minimum standards; for example, if it had no proper complaints procedure or did not make provision for an independent ombudsman for its members and users.
Collecting societies are the organisations that copyright owners use to license their rights and collect their royalties. They are an economically significant sector. The nine or so collecting societies in scope of these regulations together collect around £1 billion per year and have nearly 400,000 members. Their role is valuable; indeed, they are central to the monetisation of copyright. They bring together rights holders and users efficiently, are instrumental in ensuring that income is received by rights holders and facilitate legal access to copyright works.
These regulations have their genesis in the Hargreaves recommendation that collecting societies,
“should be required by law to adopt codes of practice”.
This recommendation was made against a background of concerns about the operation of some collecting societies. These concerns were often reflected in correspondence to Ministers—indeed, I have seen some myself—as well as in meetings with trade and representative bodies. They ranged from the levels of transparency for members to complaints by licensees about unfair practices and heavy-handed licensing tactics.
Complainants, many of whom were small businesses, were often especially frustrated because they had no choice to shop elsewhere for their copyright material if dissatisfied. This is because most collecting societies tend to be monopolies or quasi-monopolies. The regulations that have been laid before this House complete the system of co-regulation that the Government have been developing with stakeholders over the past couple of years.
Many of your Lordships may recall the extensive debate in this House during the passage of the Enterprise and Regulatory Reform Act. I emphasised our preference for self-regulation then and I do so again now. We want collecting societies to run themselves to the highest possible standards. The sector is doing this and must be congratulated on its progress. Most collecting societies now have self-regulatory codes of conduct. Noble Lords should be assured that statutory intervention is, and must be, a last resort.
The minimum standards on which self-regulation is based were developed with users and collecting societies, and they set the benchmark for collecting society operations. For example, they make provision for, first, access to a complaints procedure for members and licensees; secondly, recourse to an independent ombudsman; and, finally, regular independent review of the collecting societies’ codes of practice.
The regulations before your Lordships are designed to preserve self-regulation as far as possible. That is why they incorporate a three-stage process. First, the Secretary of State may give notice to a collecting society that its code of practice is not complying with the requisite standards. The collecting society then has 49 days to amend its code. This time period balances the need to give the collecting society sufficient time to make its code compliant while ensuring that members and licensees enjoy as soon as possible the protections that compliant codes offer.
Secondly, if the collecting society does not amend its code, the Secretary of State may direct it to adopt a compliant code. Thirdly, if the collecting society ignores the direction to adopt a compliant code, only then will the Secretary of State act to impose a statutory code on it. I hope that the Committee will agree that it would be appropriate to intervene only at this stage. After such a catalogue of non-compliance, it would be right for the Secretary of State to take decisive action.
The regulations enable the Secretary of State to impose financial penalties in certain circumstances. These are capped at £50,000. They can be used, for example, if a collecting society does not comply with certain directions issued by the Secretary of State. These provisions are designed to deter non-compliance. They will give members and licensees the assurance of guaranteed standards. This is important because they usually do not have a choice to shop elsewhere for their licences.
The imposition of the financial penalty, and its amount, can be appealed. Likewise, there is provision for appeal against the Secretary of State’s decision to impose a compliant code of practice on a collecting society. Any appeals will be heard by the General Regulatory Chamber of the First-tier Tribunal, which is part of Her Majesty’s Courts and Tribunals Service.
In the first instance, monitoring will be by the industry-appointed code reviewer. Noble Lords will no doubt be pleased to know that the first of these reviews is already under way. Walter Merricks, the industry’s independent code reviewer, is due to publish his report on compliance and performance by the sector in May this year. His appointment is an example of self-regulation in action.
I am confident that, together, the self-regulatory system and the provisions in these regulations will create a level playing field and embed best practice in the sector. We have already seen a significant drop in the number of complaints that government receive since the sector put in place codes of practice. We know also that the sector has continued to grow. We consider these regulations to be a reasoned and proportionate reform, and I commend them to the Committee.
My Lords, I should like to speak briefly on these provisions, which I welcome. The regulations give the Secretary of State a reserve power, and I think that this must be emphasised to all those who have expressed concerns over the past few months in relation to the Government’s progress following the introduction of the new legislation.
It is very important to emphasise that these are backstop reserve powers which can be used to close any gaps that may emerge in the self-regulatory system. This is nothing new. The advertising industry’s self-regulatory system has backstop powers invested in Ofcom to intervene.
Put simply, those powers work and the industry trusts them. The system remains light touch. I believe that it is in the best interests of the industry to have such a system which can be trusted. It needs to be sufficiently robust and flexible to protect the interests of all those who benefit from collecting societies. The success or effectiveness of a self-regulatory system is dependent on all those who manage that system, so if the system fails it is important to have reserve powers to deal with breaches robustly but, as we have heard from the Minister, in a very light-touch way through three stages. I genuinely believe that that is reasonable.
If there is a breach, it may affect the reputation of the system as well as those who are subject to it. I believe that these provisions will protect the light-touch self-regulatory system.
My Lords, I join the noble Baroness in welcoming these regulations. I wish to raise with the Minister four concerns which have been raised by PRS for Music. I am not sure whether he has had the benefit of its representations on these four points.
First, paragraph (2) of regulation 9 provides for information to be given within two weeks of receipt of the request. I understand that that time limit was not included in the consultation process. Does the Minister envisage that the ombudsman or the co-reviewer can extend that time limit if that is relevant to the particular inquiry for information that is made?
Secondly, paragraph (1) of regulation 9 can impose an obligation for information to be supplied “for any purpose”. That is an extremely wide provision and there is concern that this is hardly light-touch regulation. Does the Minister have any idea what constraints would be imposed on the requirement to supply information for any purpose?
My third issue is a fundamental one. Regulation 10 provides that penalties may be imposed on a licensing body itself. However, some of these licensing bodies will be voluntary, non-profit-making organisations owned by the members themselves. Therefore, the members would ultimately be liable for any penalties that may be imposed. However, the regulations are being introduced for the benefit of the members. What factors does the Secretary of State envisage taking into account in imposing any such penalties?
I think that my fourth concern is easily answered. There is a provision for fees to be charged to whichever relevant collective management organisation they are imposed on. There is a concern that it should be made clear that the fees should be charged only to a collective management organisation which is being targeted, rather than being spread more widely.
My Lords, I thank the Minister for introducing the regulations. I declare an interest as I have received sums of money from ALCS in the past and therefore am part of a collecting society. Like other noble Lords, I support this approach which is a sensible expression of backstop powers and will be a light-touch operation. It will probably not be as rigorously regulated as was suggested by Hargreaves in the original report, but I do not think that that is necessarily a bad thing. The consultation and the accompanying debates reflect the fact that there is a good system out there which works well. Therefore, it is not necessary to introduce draconian powers and the measure being introduced is an appropriate balance between two things.
Having said that, there are two impacts and it would be helpful if the Minister would respond to them as I did not hear him mention them in his opening remarks. The first, as is set out in the papers, is the proposal that deals with an issue raised through Professor Ian Hargreaves’s review on digital opportunity. It anticipates work that is going on in Europe on similar issues, so the collective rights management directive, of which I understand a final text is now available, casts a shadow over this operation. I wonder whether the Minister could sketch out where he thinks there are differences in the current approach.
My Lords, a Division has been called so we will adjourn for 10 minutes.
Sitting suspended for a Division in the House.
My Lords, I was making two points about issues contextual to the order. One was the question of whether the CRM directive would have an impact and, if so, whether the Minister could outline either how well his proposals in the draft SI fit into it or any gaps that he has already perceived in it. A monitoring period before the regulations will take place in 2016, just at the time that the CRM directive will be introduced. We therefore need to be careful that we are not overburdening the industry or those who draft the orders by having to do all that at the same time.
My second point was an issue which we raise from time to time in debates on intellectual property, which is the progress of the Copyright Hub and the impact that this secondary legislation could or would have on the operation of the hub. I suspect and hope that they have been designed to be complementary, but the issues of collecting societies fit closely with those who are operating the hub. The hub, which is trying to widen access, clearly has interesting feedback into the work of the collecting societies.
My other points have largely been touched upon. It would be helpful to have some comments on the question asked by the noble Lord, Lord Razzall, about the timescale. On the question of how penalties will apply, I note that in the impact assessment on the statutory instrument we are told that during the consultation, there was consideration of whether fees should apply to the organisations only—as has been said, some of them are quite small and voluntary—or whether it would also apply to the individual offices of those operations. It is not clear to me from reading the regulations which way that has come out. If it is the latter, issues were raised during the consultation. The report states that the relevant licensing bodies objected to the provisions for sanctions against offices, but the provision has not been amended because of the overwhelming evidence from an earlier consultation and the desire of the Government to have robust protection in place for those who deal with the relevant licensing bodies, especially as they often have the choice to shop elsewhere. Again, I want clarity about who could be subject to the fees and how that could operate in practice.
Finally, I put it on record that although we support this operation, it is intriguing to us that the policy adopted is effectively to legalise a number of monopolies operating in this area. In any situation where monopolies are recognised, there is a sense in which competition must be the right answer. Here, we are choosing a different route because it is understood that the processes going on in the collecting society area are different in both quantum and quality to those which might apply under a more vigorous competition arrangement. That having been said, we should recognise that that is what is happening. These bodies cannot have competition. They will be operating as monopoly suppliers of copyright licences in particular circumstances. Although, on behalf of the Opposition, I am happy to support the proposal, we think that we have to keep that point in mind.
My Lords, I thank all noble Lords who have taken part in this short debate for their valuable and broadly supportive comments.
We intend to use these powers where self-regulation fails, as has been mentioned. This power is light touch, as my noble friend Lady Buscombe mentioned, and is important to guarantee minimum standards. These powers are proportionate and designed to act as a deterrent. I think there is general agreement in the Committee on that.
We recognise that collecting societies play an important role in facilitating legal access to copyright works. They bring together rights holders and users to enable them to do business efficiently. The Government have worked with the collecting societies to develop the co-regulatory framework so that they continue to operate effectively, while ensuring that there are protections in place for their members and licensees.
I should like to emphasise again that the Government’s preferred option is self-regulation. This is why these regulations are designed to allow licensing bodies to remedy matters themselves in the first instance before recourse to statutory intervention. We are confident that collecting societies can self-regulate effectively. However, when needed, these regulations will provide robust, proportionate measures.
The regulations also contain provision for financial penalties, which are designed to deter non-compliance. They can be used only should self-regulation fail. This gives members and licensees the comfort of knowing that the standards that are set out in the collecting societies’ self-regulatory code of practice are guaranteed.
I hope that I have made it clear that the Government are serious about self-regulation and it is important that collecting societies have every opportunity to put their own house in order. Equally important, if they fail to do so there should be no way to avoid the consequences. If the Secretary of State is concerned about a collecting society’s behaviour, there is an opportunity for him to act, using the three-step process in the regulations. The fallback position is to impose a statutory code if collecting societies have not taken up that opportunity. While it appears unlikely at the moment that that point will be reached, it is important that the statutory power is available so that there is a deterrent to ensure that collecting societies face consequences if they do not act in a proper manner.
My noble friend Lord Razzall raised a number of points relating to a letter received by the PRS. I will attempt to answer them. The first issue was on information and timing. The collecting society concerned should have all the relevant information to hand anyway, and therefore be able to meet the 14-day deadline. The timeframe for supplying information to the statutory licensing code ombudsman and code reviewer are included in the regulations to ensure that any investigation can be conducted as swiftly and efficiently as possible. The licensing code ombudsman will require information to effectively investigate disputes between a collecting society and the licensee or member. The code reviewer’s power relates to the information needed in order to undertake an effective review of the codes of practice adopted by collecting societies and their compliance with their provisions. If a collecting society has concerns about meeting the deadline, it is open to it to notify the licensing code ombudsman or code reviewer as soon as possible. Finally, where the collecting society concerned can show that it has made every effort to comply with any request, the Secretary of State can take these arguments into consideration when deciding whether to impose a financial penalty. If such a penalty is imposed, there remains the option to appeal against its imposition and the amount. I rather laboured that answer but I hope it provides a full response to my noble friend.
My noble friend also raised the issue of cost recovery. Where the Secretary of State has incurred costs by having to intervene, it is right that he should be able to cover the costs of that intervention, but they should not be borne by the taxpayer. Where a collecting society has had a statutory code imposed on it and/or has failed to appoint an ombudsman or code reviewer, as required, the associated costs of regulation should be borne by the collecting society concerned. Where the Secretary of State needs to appoint a statutory ombudsman or code reviewer when the self-regulatory appointment has failed, it is right that all the collecting societies which will use the new system should bear the costs of that appointment and any ongoing costs. I should state that this would have gone way down the line before that point was reached, so it would be in extremis that this provision would be realised.
My noble friend Lord Razzall raised the issue of the legal basis. The gist of his question was: what legal power enables the Secretary of State to request information from collecting societies under Regulation 9? The provisions in Schedule A1 to the Copyright, Designs and Patents Act 1988 allow for the Secretary of State to request information, as outlined in Regulation 9.
Paragraph 7(1)(a) includes the power to make incidental, supplementary or consequential provisions and paragraph 5(3)(a) allows for provisions for determining whether there has been a failure to comply with the requirement of a code of practice. The provisions in Regulation 9 will enable the Secretary of State to request the information necessary to enable them to discharge their duties equitably under the regulations.
The noble Lord, Lord Razzall, raised the issue of fees. The imposition of a financial penalty on a collecting society is very much a last resort, as I indicated earlier. There would need to have been a history of non-compliance before any penalties were imposed. It is important to have proportionate, dissuasive and effective sanctions to deter non-compliance within the self-regulatory framework. We believe that there is sufficient scope for collecting societies to meet the cost of penalties from within their administrative budgets. In addition, where a director or similar officer is responsible for a breach, the regulations do allow for the individual rather than the collecting society as a whole to be held accountable. This would be a matter that would or could arise a long way down the line of a particular issue.
The noble Lord, Lord Stevenson, asked about the relationship between these regulations and the CRM Directive. When the intention to bring forward a directive was announced in 2010, domestic policy was well advanced. After lengthy delays, the proposed directive was published, as the noble Lord will be aware, in 2012. With no guarantee that it would be agreed, and with our desire to give licensees and members safeguards at the earliest possible time, we decided to press ahead with these measures. We developed these with an eye on the draft directive so as to minimise burdens on business. This is why, for example, the definition of relevant licensing body in the regulations mirrors that of collective management organisation in the directive. Ultimately, the intention is to implement the directive where possible, avoiding additional burdens on collecting societies.
The noble Lord, Lord Stevenson, also asked about the link between the codes and the regulations and the Copyright Hub. The impact on the Copyright Hub will depend ultimately on how that industry-led initiative develops. A hub that simply signposts people to the correct licensor would not be subject to the self-regulatory system, although some participants are collecting societies and so would be covered. If the hub expands its role over time and becomes a relevant licensing body, it will be governed by this self-regulatory regime. I would argue that it is a work in progress. The noble Lord also mentioned that, and I am pleased to say that we continue to make progress. I recently met with the chief executive officer, Dominic Young, and had an update on the Copyright Hub.
I hope that I have covered all the questions that were raised and if I have not I apologise; I will write to noble Lords. In conclusion, I have every confidence that these regulations, coupled with the self-regulatory framework, will create a level playing field on which licensees and members of licensing bodies can enjoy minimum standards of fairness and transparency. I have given due regard to the Secondary Legislation Scrutiny Committee’s decisions and comments. The Government believe that these regulations are a reasoned and proportionate reform, and I commend them to the Committee.
Motion agreed.