Extending the TRIPS
Presentation by Stefan Krawczyk (IFPI) to Financial Times conference on TRIPS and the new WTO round, 30 September 1999
Giving the TRIPS life: WTO's role in negotiations on electronic commerce and the recording industry perspective
Nietzsche said long before the most imaginative science fiction writers even dreamed of a world-wide communication network allowing for the consumption of downloadable recorded music from cyber-jukeboxes: "Without music life would be a mistake"
Today, I have the pleasure to briefly explore with you the opportunities for the recording industry created by electronic trade of music as well as the threats of the on-line environment for our industry. I will discuss the crucial role of WTO, in co-operation with other international bodies (such as WIPO), in providing a transparent, consistent, predictable, and technology-neutral international legal framework that promotes economic development in the on-line environment and avoids unnecessary or restrictive barriers to electronic trade of music so that life in the future will not become the mistake Nietzsche referred to.
I will first introduce IFPI and give you an indication of the economic value of the recording industry in Europe. Then, I will briefly discuss the value of the TRIPS agreement for the recording industry before turning to the industry's expectations in as far as electronic commerce and the role of WTO in that field are concerned.
IFPI, the international federation of the phonographic industry, represents producers and distributors of sound recordings around the world. It has over 1,400 members in more than 70 countries. IFPI's membership continues to grow, particularly in developing countries. IFPI does not only represent the five major international record companies - BMG, EMI, Sony Music, Universal and Warner - but also hundreds of small and medium sized local independent record companies.
Our main task is to promote copyright protection throughout the world for our member companies. This includes, of course, the global fight against music piracy. Another main task of IFPI is to open new markets for recorded music and to promote its export.
Economic data recording industry in Europe
The recording industry in Europe alone is worth 11 billion euro, employs directly and indirectly around 600,000 people and generates over 1.5 billion euro in tax revenue across Europe. Its artists are a leading export of European culture, accounting for some 35% of world repertoire sales and two thirds of all recorded music sales within Europe. Local artists account for a substantial share of the investment by the record industry in Europe. Local repertoire represents between 30 and 50% of all sales in most of the European music markets.
The recording industry and TRIPS
Taking on board some of the key elements of the 1961 Rome and 1971 Geneva conventions, the TRIPS agreement lays down the essential rights which allow the recording industry to do business and to protect and encourage further investments in new markets and, most importantly, in new talents and creations.
The TRIPS agreement obliges WTO members to grant phonogram producers exclusive reproduction and rental rights. TRIPS provides for a 50 year term of protection, which is retroactively applicable to old recordings, allowing record companies to continue exploiting their valuable back-catalogues. The TRIPS agreement is essential in the fight against piracy not only because of the substantive rights it provides, but also because of the obligations it contains in the field of enforcement. This includes the obligation to implement deterrent criminal penalties and border measures, which should provide effective (as opposed to symbolic) protection against copyright piracy.
One of the questions today is whether the current TRIPS provisions are sufficient to address the challenges of electronic commerce in the on-line environment.
Electronic commerce and the recording industry
The internet changes everything, and the business world is eager to react to and exploit those changes to its advantage. Not just the music business. The internet has changed the way banks interact with their customers, introducing e-commerce that covers everything from toys to wine and business services that have put databases and storage facilities out into cyberspace and out of the file boxes.
Still - the one thing that distinguishes music from most other products is that you can not only market and sell it on-line: you can actually deliver it, instantly, through the very same channel in its digitised form. Some have argued that record companies have been slow to adapt their business to the web. In part this is true but it has also been entirely appropriate. The reality is that millions of dollars are at risk with each business decision. It would have been irresponsible to take such business risks without any guarantee of proper legal and technical protection of digitised musical recordings traded over the web.
In the last year, we have seen dramatic changes at large and small companies. The competition for winning ideas and exciting sites has been intense. Certain companies have partnered on retail and promotion sites and are developing downloading sites as well. Virtually every record label is using the web to build a direct relationship with an artist's audience.
Protecting the rights of smaller artists and businesses around the world ensures a cultural diversity of available music that will be lost if only the biggest distributors are able to survive the losses sustained by piracy. And piracy in the on-line environment is a serious threat indeed. Our search engines are discovering thousands of illegal websites every day. These sites make music files (so-called mp3 files) available for downloading without the authorisation of artists, composers and record companies. Needless to say that this form of piracy can potentially kill the entire music business with the proliferation of home PCs and recording devices.
Laws and treaties
In the new global marketplace, international marketers will be able to reach niche markets with unprecedented efficacy - a very interesting prospect for the cultural industries in developed and developing countries alike. More than ever before, the music industry will become "a global enterprise based on local creativity". This makes international copyright protection and enforcement even more critical.
Global sales of recorded music last year exceeded $40 billion. Creating opportunities for expansion is now a primary imperative to sustain the growth of one of the world's most vital, diverse and competitive industries.
The ability to sustain this growth is wholly dependent upon achieving adequate and effective copyright protection for our recordings in global markets. This task will become more complex with developments in technology that permit the instantaneous and global distribution of materials with the touch of a button.
In a global information network, protection of the creative material that is transported over the web is only as strong as the weakest link in the information communication chain. There is a great deal of progress to report in the global movement toward the protection of artists and companies against the illegal transmission and distribution of music files, and much of this is due to the work done by the world intellectual property organisation.
The WIPO treaties adopted in 1996 set the stage for fair international digital distribution of music. Though incomplete, these treaties do represent significant and necessary improvement in the international legal structure, and contain necessary provisions relating to the ability to effectively enforce rights in the digital age. This improvement is critical to the ability of record companies and other copyright owners to do business in a global information society.
Substantively, the WIPO treaties accomplish a number of extremely important economic objectives.
The treaties make it absolutely clear that copyright holders should be able to control the electronic delivery of their works to individual members of the public. This both anticipates and responds to the realities of the electronic marketplace, where copyright owners are likely to rely increasingly on the communication of signals rather that the delivery of physical products to meet consumer demand. This level of copyright protection, in conjunction with technical protections (also covered by these treaties), is indispensable to the willingness of copyright owners to make their works available through new media.
The treaties also confirm that existing national copyright laws, and the international copyright system, apply in a generalized manner to all technologies and media, and not in a technology specific manner. This has particular relevance with respect to the right of reproduction and its limitations in digital media.
Where do WTO and the TRIPS agreement fit in?
The current TRIPS agreement already deals to a certain extent with at least two aspects of importance for the on-line environment. The exclusive reproduction right under TRIPS is one of them.
The exclusive right to authorise or prohibit the direct or indirect reproduction of their recordings, is the cornerstone of the rights granted to phonogram producers. The right to control direct reproduction addresses one of the key activities of the music business in the physical environment. The right to control indirect reproduction will prove very useful in the on-line environment. Amongst other things, it gives phonogram producers the right to control the reproduction from (on-line) transmissions. As a result, any transmission service that in effect 'delivers' recorded music to the consumer must, in accordance with TRIPS, obtain the permission of the phonogram producer. The other aspect is enforcement, especially the obligations in the field of court proceedings and deterrent penalties. These apply as well to copyright infringement in the on-line environment.
Electronic commerce: the role of the WTO
As I described before, electronic commerce presents great opportunities for the recording industry. The prime role of WTO is the promotion and development of global trade through the creation and maintenance of a level playing field. Therefore, we look at the WTO with its effective dispute settlement system to extend, as and when appropriate, the intellectual property protection from the physical trade into the on-line environment.
Since electronic commerce involves activities that may be subject to obligations under gatt, gats and TRIPS, WTO should also identify and reduce or eliminate, barriers to international electronic commerce to the maximum extent possible. What does that include?
It still is early days and a lot of work is going on within the framework of the WTO work programme on electronic commerce. I come back to the specific issue of today: intellectual property -"giving the TRIPS life". First of all, let me say that I have the strong impression TRIPS is alive and kicking. Maybe we are expected to indicate how TRIPS could be given a new life?
At this point in time, our main concern is to ensure that the current TRIPS obligations are properly implemented by all WTO members, as well as, ideally, by those countries that aspire membership, such as china, Russia and Ukraine. Proper implementation (and enforcement) would at least give us the much needed indirect reproduction right, which is essential as regards on-line delivery of music.
The second priority is to ensure that the moratorium on dispute settlement procedures based upon the principle of non-violation, nullification and impairment is not further extended. This could be quite relevant in view of expected interpretation problems related to the scope of both substantive rights and enforcement obligations.
As to the possible extension of TRIPS ('a new life'), I think the ultimate objective should indeed be to introduce the so-called digital rights that would ensure a safe electronic commerce environment from the point of view of intellectual property protection. The WIPO treaties would constitute an obvious reference, but we should be careful not to put the ongoing ratification process in jeopardy by immediately including these treaties or their substantive rights on the negotiating agenda for the new WTO rounds.
A full scale TRIPS review will start in 2000. This review will certainly reveal the shortcomings of TRIPS in view of technological developments. In the meantime, an increasing number of countries will ratify the WIPO treaties and continue work on the expansion of their scope. As frequently suggested within the TRIPS council, the WTO secretariat should closely monitor these technological and legislative developments. At any point in the future, the WTO members can decide to start negotiations on the modification of TRIPS (article 71 foresees this). This could take place outside the scope of the forthcoming rounds, but it could also be included in the comprehensive negotiations at a later stage.
The current TRIPS agreement has been construed in view of the state of technology in the late eighties. Today, we face the challenge of new technologies and a whole new set of problems and threats, such as internet piracy. The 1996 WIPO treaties lay down the basic set of rights needed by copyright holders to be able to control the exploitation of their works in the digital on-line environment. The importance of electronic commerce, digital transmissions of copyrighted works, will grow fast alongside the physical trade in sound recordings. It is vital for the copyright industries that the WIPO treaties are ratified by all WTO member countries as soon as possible.
The WTO should primarily ensure the proper implementation of all existing TRIPS obligations. In the meantime it should closely monitor the ongoing legislative work in international bodies such as WIPO in the field of electronic commerce. WTO members should also do whatever necessary to promote electronic commerce. They should refrain from creating barriers to electronic trade and they should abolish existing barriers. At a later stage, the WTO should work towards a modification of TRIPS so as to include the required intellectual property rights and related enforcement provisions, thus creating a safe on-line business environment for all those involved in electronic commerce.