K.J. Koelman

The study begins with a short overview of the provisions usually contained in a multimedia license, and which are of particular importance in dealing with so-called ‘electronic rights’. These are the rights necessary to use a copyrighted work lawfully in an electronic or digital environment, e.g. on a CD-ROM or on a network, such as the Internet.

Then, the restricted acts under the Dutch Copyright Act (DCA) are described. Rights holders enjoy two rights of exploitation. Because these are very broadly stated and interpreted, there is no controversy on the issue of whether the making available of a work on a network, or the digital reproduction are covered by the DCA. Some uncertainty exists, however, on the status of the temporary or ephemeral copy. The Dutch legislator is opposed to a broadening of the scope of the right of reproduction that would cover the sole ‘consuming’ of copyrighted works. Publications of the European Commission, however, point in an opposite direction. It is not unlikely that in the near future the ephemeral copy will have to be covered by the copyright laws of the Member States of the European Community. Due to previously issued EC Directives on the protection of computer programs and databases, temporary copies of those types of works do fall within the scope of copyright law.

The DCA contains several provisions designed to deal with certain specific kinds of works. Chapter VI of the DCA is applicable to computer programs. The temporary copy of a computer program in the random access memory of a computer is explicitly considered a reproduction for the purposes of the Copyright Act. If other types of works, when digitized, were to be regarded as computer programs, then the issue would be settled and ephemeral copying would be a restricted act. However, probably the images, sound and text on a CD-ROM, for instance, are not covered by Chapter VI, and thus, the above mentioned controversy on the status of the ephemeral copy remains unsolved. Chapter V of the DCA mainly regulates the ownership of rights in cinematographic works. In order to enable the producer to exploit the film properly the producer , under certain circumstances, is presumed to have acquired the rights concerning future forms of exploitation of the work. This provision could be of importance to multimedia producers, if a multimedia product were to be considered a "cinematographic work". Under current Dutch law, however, it is undecided whether a multimedia product would qualify as such.

It is not unlikely that the Database Directive, which will probably be implemented in a separate Chapter as well, will be applicable to some multimedia products. Then, the producer of the multimedia product could apply for the sui generis protection that the Directives provides. It is conceivable that products such as encyclopedias will fall within the scope of the Directive. Video games, on the other hand, will probably not, because it is required that the different items which a database contained in a database be separately accessible. Consequently, a multimedia product as a whole will probably not be regarded as a computer program, it may be regarded as a cinematographic work and some are likely to be regarded as databases. Finally, many multimedia products will consist of a compilation of works. Then, the producer, as the compiler, could apply for the copyright protection granted on compilations pursuant to the DCA.

The next part of the study investigates the relation between the end-user and the multimedia producer. If the temporary copying of all types of works fell within the right holder’s exclusive right, the user would need a license to lawfully use, or ‘consume’, a digitized copy of a work; a temporary copy would then be made in the random access memory of the computer. With regard to computer programs, and in conformity with the Directive, the Dutch legislator provided that a clause that prohibits the lawful acquirer of a program to use the program is null and void. The Database Directive contains a similar rule. Consequently, when a program or database is acquired lawfully, the user will not need a license to gain access to it through his computer. The main result of this approach is that, if it was not acquired lawfully, the rights holder can hold not only the person making the work available to the public accountable, but also the person using the work. The latter would not be possible if the sole act of using a program or database, or, for that matter, any other kind of work, were not to be regarded as ‘copying’ under copyright law. Arguably, it would be enough to hold only liable the person who made the work available to the public.

Although the sole use cannot be forbidden to the lawful acquirer, under Dutch law the rights holder is allowed to restrict the use that is made of a computer program with respect to the place of usage, the number of users or the number of terminals to which a program is made available within a network.

Such restrictions often appear in so-called ‘shrink wrap licenses’. The licensors assume that the acquirer is bound by the terms of the license after removal of the wrapping around the package containing copies of the program. The on-line equivalent of such licenses are the so-called ‘click wrap’ or ‘mouse-click’ licenses. Then the acquirer is deemed to be bound after clicking on the button appearing on his screen which says ‘Accept’.

Under Dutch law such contracts may be considered ‘standard contract terms’, which are specifically regulated by the Civil Code. Such terms are valid and binding, even if the buyer did not actually see them at the time of the formation of the contract, but was made aware that such terms were applicable to the agreement and had the possibility to review them. It is assumed that ‘shrink wrap licenses’ are valid, if these conditions are fulfilled. Complicating factors, however, may be: first, that the Civil Code requires that a third-party clause be accepted explicitly. A shrink wrap license may be viewed as such a clause, as being an agreement between the rights holder and the purchaser, where the purchaser enters into a contract with the retailer from whom he buys a copy of the program, the licensor may then be seen as a third party to that agreement. Second, the provisions of the Civil Code on standard contract terms are not applicable to clauses which constitute the essence of a contract. It is not unthinkable that the (extent of the) permission to use the computer program be considered the essence of the contract. Consequently, the contract would have to be formed under the general rules of contract law. Under general contract law, provisions, which come to the knowledge of a party only after the conclusion of the contract, are viewed as an offer to change the contract. If the receiving party does not accept them, he will not be bound by them. A lower Dutch Court indeed decided that a shrink wrap license was not binding, because the buyer of the program only became aware of its existence after the conclusion of the contract.

In the United States several courts have decided along similar lines. Another argument used by US Courts not to find a shrink wrap license to be valid, is that it is not permitted to expand copyright protection through contracts. On several occasions it was decided that the extension of protection by contracts is pre-empted by the US Copyright Act, which expressly prohibits States from implementing laws which offer a protection equivalent to that of the Copyright Act. In the latest decision, however, the Court ruled to the opposite, and regarded a shrink wrap license as valid. Not surprisingly therefore, commentators suggest that the issue is far from settled. Although there is no explicit pre-emption rule in the DCA, some decisions of the Dutch Supreme Court can be interpreted as pointing towards the existence of a similar rule under Dutch copyright law.

After dealing with the multimedia producer-customer relationship, the study focuses on the legal relationship between parties in cases where the producer is the licensee. As is the case in many jurisdictions, under Dutch law it may be unclear who owns the rights to previously unknown forms of exploitation, such as the electronic exploitation, if copyrights were transferred or licensed before. Needless to say that this situation may constitute a major hindrance for multimedia producers. The Copyright Act provides that copyrights can be transferred either ‘in whole or in part’, but that the scope of any transfer is limited to the rights specifically mentioned, or the rights ‘necessarily’ implied by the nature or purport of the agreement. In Dutch legal doctrine controversy persists as to the exact meaning of the provision. Some argue that a complete transfer of rights is barred by this rule, because it is impossible to enumerate all forms of exploitation and no agreement will ‘necessarily’ imply a total transfer of rights. Obviously, in this view, rights to future forms of exploitation cannot be transferred either; it would in practice be impossible to stipulate each future form of exploitation. Others are of the opinion that the first part of the provision, which expressly states that copyrights may be transferred ‘in whole’, must prevail. Moreover, they feel that the purport of a contract can ‘necessarily’ be to transfer copyright ‘as a whole’, or even rights concerning forms of exploitation which are not yet in existence. Another point of discussion is whether the provision, which only refers to ‘transfers’ of rights is applicable by analogy to licenses.

Surprisingly, no clarifying case law exists on any of these issues. Until now, only once was a lower court called upon to decide a case where rights to a formerly future form of exploitation were disputed. The question was whether electronic rights were licensed by an implicit permission in the late eighties. The Court decided that they were not, because at that time the licensors could not have foreseen that their works would be included in a web-site or a CD-ROM. Apparently, the court applied a criterion stemming from general contract law, i.e. that a contract must be interpreted taking into account what, at the time of the conclusion of the agreement, the contracting parties could reasonably expect of each other. The court did not even need to apply the specific provision of the DCA to rule in favor of the licensors. In this case no written contract was examined. Still, therefore, it remains unclear whether an explicit license or assignment of rights to future forms of exploitation, or, for that matter, a specifically stipulated transfer of the copyright ‘as a whole’, is allowed under Dutch law.

To complicate things even further, the Civil Code, enacted in 1992, contains a provision which expressly allows the transfer of ‘future goods’. It is not clear whether this provision will affect the possibility of transferring copyrights to future forms of exploitation. This will probably depend on the interpretation of the provision in the Copyright Act.

Subsequently, the report deals with the problems raised by the vast amount of licenses to the rights, which often need to be acquired by multimedia producers. It is not uncommon that thousands of rights holders need to be found, approached and dealt with. Clearly, this is a costly and difficult, if not impossible, exercise. It has been suggested that a statutory license would be the only way overcome this problem, to facilitate the development of the multimedia industry, which is still in its infancy. The Berne Convention contains several exemptions, which were designed at the time for the purpose of fostering other then ‘young’ information industries. However, the Convention would seem to effectively stand in the way of a statutory license, or any other statutory solution that would limit the extent to which the rights holder can exercise his rights, because it does not support a limitation with regard to the right of reproduction and of making available to the public of all types of works for the benefit of the multimedia industry.

More promising are solutions which are being developed in the market, such as the ‘one stop shop’ or the ‘electronic copyright management system’ (ECMS). The one stop shops mainly consist of several collecting societies co-operating to provide the multimedia producer with one ‘shop’ where rights to all types of works can be acquired. An ECMS will provide an on-line infrastructure which will facilitate contacting rights holders and obtaining licenses from them.

Because of the fact that the multimedia industry is scarcely out of the egg, it is often unclear what exactly a license would be worth. Mostly, the price will be determined by the bargaining power of the parties. In some branches, however, the beginning of a tariff structure is becoming visible. As may be expected, this occurs especially in those sectors where a fixed tariff structure already existed with regard to the analogue media. Some collecting societies are experimenting with pricing schemes applicable to the use of musical works on multimedia CDs. Remarkably, they do not only base the price on the amount of music on the CD, as they did with regard to the traditional music CD, but also try to take into account the importance of the musical works for the product. Collecting societies are also licensing the use of musical works on the Internet. Up to now, the most elaborate pricing scheme has been developed by ASCAP. ASCAP distinguishes four kinds music usage, and calculates through complicated formulas the amount that a web site operator must pay. These pricing schemes all relate to musical works. A characteristic feature of multimedia products, however, is that they contain different types of works. To provide clarity for multimedia producers, in the context of the above mentioned one stop shops, the co-operating collecting societies are attempting to develop a scheme which would be applicable to all types of works. A fixed royalty rate would be set for each type of multimedia product. Subsequently, the royalties would be divided among the different types of works while using an apportionment key. After that the money would be distributed among the rights holders.

Kamiel Koelman, Institute for Information Law, August 1997.

Published 30.09.1997