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Digital Business Lawyer
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The Portability Regulation as a first step towards the realisation of the EU Digital Single Market

The EU’s Regulation (EU) 2017/1128 on cross-border portability of online content services in the internal market (‘Portability Regulation’) is set to become applicable on 20 March 2018. Here, Dr Nils Rauer of Hogan Lovells LLP considers the Portability Regulation as a first step towards realising the European Digital Single Market, and looks at how the Portability Regulation has attempted to balance the needs of consumers, service providers and rightsholders.

The European Commission’s endeavour to bring about a true single market within the European Union has its first substantial cornerstone. On 30 June 2017, the Portability Regulation was published in the Official Journal of the European Union. The provisions will become applicable on 20 March 2018. The intense debate as to how portability of online services and content can be achieved in a way that meets consumers’ needs and at the same respects rightsholders’ as well as the service providers’ legitimate interests has thus come to an end. The Regulation is final.

The Regulation

The Portability Regulation as such is a fairly condensed piece of legislation. In total, 11 articles govern the subject; 36 recitals serve as background and underlying explanation.

The core provision is Article 3:

‘The provider of an online content service provided against payment of money shall enable a subscriber who is temporarily present in a Member State to access and use the online content service in the same manner as in the Member State of residence, including by providing access to the same content, on the same range and number of devices, for the same number of users and with the same range of functionalities.’

The above obligation is restricted to providers of paid-for services. Providers whose services are not paid for may opt in at any time. If they do, they must first inform their subscribers and all the holders of rights in the content accessible via their service. In other respects, once opted in, the Portability Regulation applies to these service providers with equal effect.

A core element of the Regulation is the determination of the ‘Member State of residence.’ In the course of the just finalised lawmaking process, there was a controversial discussion on how to safeguard the scope of the Regulation being limited to just temporary stays abroad. For privacy reasons, using the movement profiles of users was ruled out as a means of control at an early stage. Instead, the country-of-residence criteria came into focus. According to the now enacted Law, the service providers need to verify this country for each existing subscriber. This has to be accomplished by 21 May 2018 at the latest. Article 5 holds in total 11 means of verification. Out of those, the service provider must pick and apply at least two.

The Member State of residence must be verified at the point of contracting (for new subscribers) and upon renewal (for all subscribers). What should be noted is that from 21 May 2018 onwards, the correctness of the information may also be re-verified at any other time if the service provider has reasonable doubts about a subscriber’s Member State of residence.

It is important to mention that the definition as to what may be understood as ‘temporary’ remains intentionally vague. Article 2(4) simply refers to ‘for a limited period of time.’ Also, the recitals give no clear guidance as to which period of time might or might not be deemed ‘temporary’ any more. However, considering the discussions over the last one and a half years since the Commission published its first draft on 9 December 2015, it may be assumed that a rather permissive interpretation is aimed for.

The quality of delivery has been another nucleus of debate. Service providers were anxious about being held liable for the same quality standards offered in the Member State of residence as in the country the subscriber happens to be in. Article 3(1) pays tribute to these concerns. Unless otherwise expressly agreed between the subscriber and the provider, the latter is not under the obligation to offer the service in the same quality abroad. However, the provider may not take any action to reduce the quality of delivery abroad. Thus, the travelling subscriber is not required to pay an extra fee for the geographically extended service, but must accept the quality of delivery at the place of consumption.

The legal mechanism the Portability Regulation is relying on is set out in Article 4. It is a statutory fiction. The access to and the use of the service by the subscriber is deemed to occur solely in the subscriber’s Member State of residence. Thereby, conflicts with rightsholders owning the copyright to the content in the country of travel are avoided.

Rightsholders as well as service providers must further note that the Portability Regulation will apply, from day one, to already existing contracts too. Article 9(1) is quite clear in this respect. Any agreement being of relevance for the provision of, access to and use of an online content service within the meaning of the Regulation shall be affected. In addition, contractual provisions of any kind, which are contrary to the Portability Regulation, shall be unenforceable (Article 7). This includes not only contracts between service providers and copyright owners, but also arrangements entered into between providers and their subscribers. Thus, the impact on existing contractual agreements will be substantial. Neither side can rely on and insist on formally reached agreements if those interfere with the subject matter of the Regulation.

What it means

One would think that allowing consumers to travel throughout the European Union with their booked and paid-for online subscriptions and content would not be a big deal. It was for this reason that the Commission published this legislative initiative among the first pieces that shall eventually lead to a real digital market throughout the Union. Subscribers will experience the benefits of the Regulation immediately. Clearly, Brussels aimed for positive feedback and public appreciation. And, it can be assumed that the public will indeed applaud the initiative next year.

However, both service providers and rightsholders are less enthusiastic. Service providers, particularly, are faced with quite a task here. They need to find new partners or expand their cooperation with existing partners in order to comply with their new obligations. This will inevitably involve the deployment of additional resources and costs. On the other hand, they cannot charge their subscribers an extra fee for the new pan-European service (see Article 3(2)). The fact that they are not required by law to meet the quality standards of the Member State of residence is certainly of value in this context, but this cannot distract from the fact that a good share of the burden is on the service providers.

The same is true for rightsholders. Due to the statutory fiction that the access to and the use of the content is deemed to have occurred in the subscriber’s Member State of residence (Article 4), the factual exploitation of the right is expanded without the rightsholder gaining additional amortisation. It would be an illusion to believe that the copyright owners could negotiate better conditions due to the expanded use of their works. Considering that the service provider itself cannot charge the subscriber an additional fee, the service provider will not be prepared to pay more when licensing the content.

Still, it would offer far more than the temporary portability of paid-for online content if the Regulation presented a true pan-European licence. Copyright remains a domestic concept also in view of the new Regulation. The Commission’s Digital Single Market Strategy does not go as far as to change this. The fact that the legislator is relying on a statutory fiction (Article 4) underlines the conservation of the traditional concept of a harmonised but yet national copyright. However, depending on how liberal authorities and courts interpret the term ‘temporary,’ subscribers who are abroad the majority of their time will practically enjoy a fairly unlimited licence. Perhaps members of the European Parliament in Strasbourg could be a suitable group with which to test the borderlines of what is still temporary.

Recommendation

Given that the new Portability Regulation will break and overrule existing contractual provisions, service providers would do well to review and adapt their supplier contracts as well as their subscription terms as appropriate. Rather than simply relying on the argument that certain contractual provisions may not be enforced after 20 March 2018, providers and rightsholders should carve out contractual clauses that reflect the new Law. Equally, subscription terms should adequately define the broadened service with all rights and obligations being included within such broadening.

After all, the Portability Regulation will not remain the only legislative initiative forcing the stakeholders of the Digital Single Market to test and reconsider the parameters of their business models. Amongst others, the draft Copyright Directive (COM(2016) 593 final) as well as the draft Audiovisual Media Services (AVMS) Directive (COM(2016) 287 final) both include stipulations with high economic brisance that have already caused substantial controversy. To give just one example, the privileges service providers enjoy under the e-commerce regime are in jeopardy. The Commission is considering imposing new monitoring obligations on user-generated content which is uploaded to online platforms - so there is plenty to discuss under the umbrella of the Digital Single Market.

Dr Nils Rauer Partner

nils.rauer@hoganlovells.com

Hogan Lovells LLP, Frankfurt

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