Centralised or extended collective licensing

13.41 The ALRC does not recommend that centralised licensing or ECL be pursued in Australia as a solution for orphan works, for the reasons outlined below.

Up-front payment is problematic

13.42 A key feature of the centralised licensing and ECL models referred to above is to require up-front payment before an orphan work be used. The ALRC considers that it would be inefficient to require up-front payment when there is no guarantee or little likelihood that a copyright holder will appear to claim the money.^[59] For example, the CSIRO argued in relation to ECL:

The suggestion that a licence fee would be paid to a collecting society seems strange where the issue is the identity of the recipient. Disbursement of money after a period to members of the collecting society seems unfair to the user of material who may claim to be entitled to a refund or to be obliged simply to agree to pay a reasonable royalty should the correct rights holder be identified.^[60]

13.43 Even where the money is held in an escrow account and redistributed to other copyright holders in an ECL scheme, the recipients may have no connection with the orphan work. This is not consistent with copyright’s purpose of providing an incentive to create by remunerating the author of a work.^[61]

13.44 Secondly, up-front payment may lead to inefficient underpricing or overpricing of licences compared with a reasonable payment that is calculated after the rights holder appears. For example, photographers were opposed to the UK’s centralised licensing scheme because the ‘de facto standard rate’ set by the scheme would make it more difficult for individuals to negotiate higher rates where the quality and nature of their work justifies it.^[62] On the other hand, law and economics scholars have also suggested that setting a fee for orphan works based on market licensing rates for non-orphan works, would most likely lead to overpricing:

Basing royalty on the price that is being paid to non-orphans, or that would have been paid in a hypothetical negotiation between the entrant and the copyright holder, would almost certainly result in a royalty that is too high, as measured by what we want socially. We should expect royalty rates for orphan use to be modest.^[63]

13.45 Similarly, the ACCC expressed concerns about collective licensing because collecting societies represent licensors who might otherwise be in competition with one another. This may give rise to ‘market power and the likelihood that a collecting society would have both the ability and incentive to exercise that market power (leading to higher licence fees) in its dealings with both its members and potential licensees’.^[64]

Market distortion

13.46 Some stakeholders submitted that, without up-front payment, the market for other non-orphan works would be harmed.^[65] That is, without up-front payment, users would choose orphan works over other copyright works where the user has to pay.^[66] Copyright Agency/Viscopy preferred a model under which a licence to use an orphan work could be granted by a collecting society, but only if an ‘equally suitable’ licensed work was not available.^[67]

13.47 Such market distortion arguments are unconvincing. It would be very difficult to determine in practice whether one work is ‘equally suitable’ for another. Most stakeholders took a different view and considered that such a scheme would be inefficient, and would unnecessarily restrict competition.^[68] Rather, greater access to orphan works

should be seen as ‘increasing competition’ and … the same logic would support measures to limit the public domain or inhibit the voluntary use of free licenses like creative commons or open source software licenses, which would be highly undesirable.^[69]

13.48 Some orphan works were never intended to be commercially exploited, such as those donated to the cultural institutions. Professor Jennifer Urban argues that, if a reasonably diligent search has been conducted and the copyright owner cannot be found, there is a high probability that the work has been ‘economically abandoned’.^[70] In a case where the work can truly be said to be an orphan, there is little difference between it and one in which the copyright holder would allow free use, such as through a creative commons licence. Demand for unconnected works should not be a factor in formulating an orphan works scheme.

13.49 The use of orphan works would not detrimentally affect the incentive to create new works. As Professor Randal Picker argues, it seems unlikely that a prospective author would reason that

I won’t write this book now because when my successor copyright holders discover that a book once lost to them is at that point being used by others my successors won’t have a remedy against those users.^[71]

13.50 As noted above, the inability to use orphan works means that their beneficial uses are lost to both users and copyright holders. Rather than harming markets, use of an orphan work may, in some instances, reunite copyright owners with their works and thereby revive the market and provide new streams of income.^[72] For example, the Small Press Network submitted that republishing orphan works would ‘stimulate innovation and new publishing opportunities’.^[73]

Inefficient and more expensive?

13.51 Licences granted through a central body or ECL scheme are often granted for limited duration and, therefore, may not provide sufficient security for cultural institutions that may be seeking long-term security for their collections or are seeking to engage in mass digitisation projects.^[74] A study commissioned by the UK Intellectual Property Office to support the implementation of the Hargreaves Review undertook a ‘rights clearance simulation’ across six different jurisdictions with centralised or ECL schemes and concluded that there was ‘no systematic recognition of the need for permanent licences’.^[75] The report also noted that licensing tariffs may prevent mass digitisation projects, since ‘per item fees initially appearing very low and thus sustainable turn out to render mass digitisation unviable for public and non-profit institutions when scaled up under reasonable assumptions’.^[76]

13.52 Stakeholders also suggested that centralised or collective licensing models may suffer from bureaucracy and be more expensive and time-consuming to administer.^[77] The University of Sydney submitted that under an ECL scheme:

the administrative burden of negotiating and implementing an ECL will in most circumstances outweigh modest royalties that may be paid for most non-commercial uses that public collections, the academic community and the general public are likely to make of digitised works.^[78]

13.53 Similarly, others suggested that the cost of setting up and maintaining a centralised body would outweigh any benefits in terms of minimal payments to rights holders. For example, the UK Intellectual Property Office estimates that substantial costs will be required in setting up its centralised system.^[79] Commentators have also criticised the Canadian system as being an expensive and lengthy process, for which only a small number of licences have been granted over a long period of time.^[80] Some stakeholders noted that they had strong networks with copyright owners and that it would be more efficient to maintain such relationships and settle any fees when an owner appears.^[81]

13.54 Academics have also argued that ECL schemes are inefficient because they do not reduce the transaction cost of conducting a diligent search, but merely transfer the obligation to a collecting society which has to conduct the search at a later time when it is seeking to distribute funds.^[82] Concerns have also been raised about how ECL schemes might operate in practice. For example, the AGD Orphan Works Review cautioned that conferring the rights of orphan works owners on collection societies and other representative bodies may ‘prioritise corporate advantages ahead of author and user interests’.^[83]