Has ancillary copyright failed and are publishing houses throwing in the towel? No. Quite the contrary

As a service to English speaking readers here is a translation of my recent blogpost about the state of affairs of the German ancillary copyright.

Axel Springer has now also given Google a free license for its remaining four titles. Does that mean that we are conceding victory to Google and have given up on ancillary copyright? Not at all. The free license is but one step in a long dispute. The case is now before the courts. That is where it belongs and where we will continue to fight. Ten key questions and answers on how things stand.

Many commentators on Twitter and in blogs have assumed that I would say no more on the subject of ancillary copyright and would keep my head down from now on. They claim that the granting of a free license for the last four Springer publications (Welt, Computerbild, Autobild, Sportbild) represents the final capitulation to Google and the failure of ancillary copyright. That Springer has now also finally realized this. Marked by a predominantly gloating tone: “This is what we’ve been telling you all along. But you didn’t want to listen.”

However, gloating and schadenfreude are not the best guides when it comes to legal matters and tactics in civil proceedings. They prevent people from concentrating fully on the subject matter and asking themselves what – apart from a reputed lack of character – could have led Springer to issue free licenses. And what could have persuaded me personally – apart from trying to keep my head down – not to announce every single tactical step in advance via Twitter or comment upon it afterwards.

So what has actually happened and why? Here are ten key questions and ten answers.

First: Why has VG Media issued free licenses?

Because this will allow space and calm to be created for the civil proceedings. In the history of collecting societies in Germany, which stretches back more than one hundred years, there has never been a new right which was accepted without complaint by those who are required to pay. It is quite normal that rights have to be enforced in court. This is part of the daily work undertaken by collecting societies. And it is also quite normal in a democracy based on the separation of powers: The legislature adopts abstract rules in the form of general laws, the judiciary interprets and applies them.

Once publishers had submitted their ancillary copyright to VG Media, VG Media offered negotiations to Google and other search engines. The negotiations failed even before they had started, because the search engines – Google included – rejected appointments. In accordance with the law, each collecting society is obliged to exercise the rights of its clients resolutely. If the opposing party refuses to make the required payments, a collecting society has no alternative other than to take legal action.

Before bringing a case before the normal civil courts, proceedings begin at the Arbitration Board of the Patent and Trade Mark Office in Munich. VG Media has filed a suit there. In the course of these civil proceedings– presumably through several instances – the effectiveness of ancillary copyright will be decided. The question of how long a snippet must be in order to be protected will also be addressed. There will probably not be a quick conclusive answer. Proceedings like these take years. This is also typical when enforcing rights derived from the Copyright Act. But in the end there is clarity.

It is natural for the parties to argue about how ancillary copyright is to be legally assessed. Regardless of which view you hold, the following must be noted: Here we have two parties with conflicting legal opinions, and neither of the parties nor any outsiders, least of all the gloatingly-excited Twitter commentators, will be able to anticipate the final judgment at which the Arbitration Board and judges will arrive in several instances. Only one thing is certain: The subject is a contentious issue.

Anyone observing the case who tries to get a clear view of things can be sure of only one thing: that the issue is controversial. And that the judges are certain to apply more expertise and clarity of thought in making their judgment than media bloggers who, without needing to read the written pleadings, already know the final result. Anyone who claims to know something is a step ahead of me. Because I do not know what the final judgment will be. I do have a well-founded hope, but I am far from certainty as are all of the protagonists. A little more humility would do the swarm intelligence of the hasty media commentators good.

So let us assume for the moment, that we are dealing with the same result uncertainty inherent in all democratic civil proceedings.

What does this mean? For Google, this means that the Group wants to minimize any economic risk of losing the case in advance, that is to say: by avoiding every potential future use, until the law suit on past use (August 2013 to October 2014) has been decided, and thereby a conclusive judicial decision handed down. This is presumably why Google has decided to use the full economic force available to itself as the dominant market player in order to wring a free license out of publishers.

For the publishing houses, this means that for the future – as long as proceedings last – they want to suffer as little economic damage as possible from the headlock in which Google is allowing them to survive, in the powerful embrace of an extremely determined dominant market player.

Were publishers free to choose, of course they would not grant Google a free license. However they are not free to choose. Google is extorting a free license from them by threatening considerable harm. The prospective damage is so great that it cannot be accepted by a responsible managing director. Leaving publishers no other choice than to issue Google a free license through VG Media.

But that does not mean that the publishing houses are throwing in the towel. They have not given up. Rather they are focusing on the civil proceedings. They are conducting the proceedings with determination and with solid arguments. Yet they do not to allow this important case to also cost them millions in damages resulting from Google’s preview shortening activities.

Should Google, through shortening, be allowed to discriminate against publishing houses who exercise their ancillary copyright? Competition law prohibits market-dominating companies from such discrimination, unless it is objectively justifiable. Does an objective justification exist here or not? This is what the competition law dispute is about.

Regardless of what one thinks about the issue, it must be admitted that it is controversial. Commentators are taking the easy way out when they simply write: “Google can decide itself with whom it does business or not.” This is superficial everyday wisdom, which forgets that there is a law which imposes limits on companies that dominate markets. One should take a look at the law, commentaries and case law before using supposed common sense to give the market-dominating Google the same competitive freedom of movement as the greengrocer around the corner.

Second: Why did Springer initially keep four titles back and then issue licenses almost two weeks later?

In order to gather evidence of the damage caused by Google. For the forthcoming lawsuits, there was a risk that Google would declare that they have not threatened publishers with harm. From a legal point of view, a declaration of intent is only viewed as imposed, if the prospect of considerable harm is perceived.

The law firms which represent Google, as well as Google itself, are known for contesting everything possible in judicial proceedings, no matter how absurd. Yet there is method here: From a trial tactics point of view, it can often be wise to also deny the obvious. This gains time and distracts both the judges as well as the opposition. For example, Google steadfastly refuses to recognize its dominant market position, although this is evident.

It was therefore to be feared that Google would argue in court that the shortening of snippets and the complete deletion of photos would not affect traffic and sales at all. This assertion has now become very difficult to make, because the two weeks spent testing the shortening for Welt, Computerbild, Autobild and Sportbild have clearly demonstrated how large the downturns are and how great the damage caused by this action is. The server logs speak for themselves. We will see how Google deals with this during the proceedings. Perhaps they will take their absurdity claims to a higher level and claim that our Google News traffic dropped by more than 80 percent during this period because we happened to publish worse headlines and more boring topics during this time.

Why does this damage play a legal role at all? Because without the threat of considerable harm there is no coercion, and because without coercion there would be no involuntary free license. There would be no free licenses from publishers without involuntariness however, because otherwise publishers would be contradicting themselves. After all, they want to be paid for their services.

Has Springer backed down? Has Springer lost its backbone and pugnacity? No. Springer has collected the evidence necessary to conduct the proceedings on ancillary copyright with full force, and this is the only reason the free license was issued. No further evidence was required. It would not have been sensible to accept further damage as civil proceedings had already started anyway and no additional evidence was required.

By the way, it is strange to observe how some commentators in the past week have painted the caricature of apparently defeated Springer people with relish, instead of once actually asking what a good fight their own publishing houses have put up so far against Google. The “Just-don’t-annoy-Google-and-just-don’t-cause-any-traffic-problems” group has now become the first to accuse Springer, the most resolute of all publishers, of cowardice. This is most odd.

Equally strange is the argument put forward by Roland Pimpl in “Horizont” that Springer had not been transparent in the publication of its figures. Naturally the downturn reported only referred to the Google traffic. What else? Social or typed / bookmarked? How could damage be caused there through the shortening in Google? And of course the decreases in Google traffic are a smaller percentage when calculated as part of overall traffic. This can be determined arithmetically. But what should the logical consequences of this be? That Springer should accept punishment without complaint from Google, just because there are still a large number of readers who go directly to Welt and Computerbild?

A bizarre notion. In order to perceive its ambivalence, imagine that the German Grosso – a monopoly not unlike Google in a given segment of the distribution market – discontinued the distribution of STERN, simply because STERN was the only magazine refusing to accept a higher trading margin. If STERN then accused the monopolist of using its market power to impose good behavior, “Horizont” would hardly write: “Stop, wait a moment, STERN still has plenty of circulation through subscriptions and magazine clubs. It can put up with a few losses in retail sales. What is it making such a fuss about?” I bet that you would never read a comment like that in “Horizont”. Why? Because it is clear to everyone that although Grosso is not responsible for the entire circulation, it exercises a monopoly position in an important sales division.

Third: Have publishers failed in every respect or have they also achieved partial successes?

They have already achieved partial successes. The Patent and Trade Mark Office has accepted VG Media’s tariff – i.e. its price list – and published this in the Federal Gazette. This means that the tariff has gained a kind of legal force.
Moreover, Google has made a compromise on the quiet. Google corporate counsel Kent Walker from Mountainview sent a letter to publishers, with the aim of imposing a requirement to issue a free license. A legal trick was included in the letter, which did not lead to the desired result.

Google did not address the letter to VG Media, but to the managing directors of the publishing houses. Why? Because Google disputes everything as a matter of principle, they also dispute the transfer of ancillary copyright from the publishers to VG Media.

Kent Walker demanded that the managing directors issue a license, which would thus declare that they themselves are authorized to dispose of these rights. However, the managing directors were unable to make such a declaration as they had effectively transferred the rights to VG Media. Therefore, in order to meet Google’s demand, the contracts with VG Media would have to be terminated, or a declaration made stating that the rights had never been transferred for some reason (which is not the case).

This means that Google tried, with this letter to split the collecting society. This attempt failed. All of the publishers represented in VG Media – each on its own – chose to leave the rights in the collecting society. They instructed VG Media to issue a free license on their behalf (or to put it more precisely: a free-of-charge revocable consent). This declaration was delivered to Google by VG Media and Google accepted it. This now demonstrates clearly and indisputably that VG Media represents the publishers. Google can no longer claim in court that VG Media does not exercise the publishers’ ancillary copyright. Within a few weeks, Google’s maneuver has led to the Group having to give up one of its procedural tactics.

Of course the publishers are still far from achieving their goal. VG Media has now been accepted as Google’s negotiating partner, and there is now a state-approved tariff. However this tariff has not been implemented in practice – see the free license.

But does this mean that the last word has been spoken, as the rejoicing in the gloaters’ fraction would have us believe? By no means. For the legal battle is about to commence. The objective of this is to enforce the tariff. As soon as this is enforced, the free license will be revoked. It can be terminated on any day.

What are the publishers’ chances of enforcing the tariff? I do not know, and to be honest nobody can know. One thing, however, is clear: All collecting societies have had to fight for their tariffs. Hardly anyone pays voluntarily.

We will not know the result until the end of the game. Apart from the overhasty Internet community, of course. They know already that the publishers have lost. This is like declaring a game of chess to be decided in the early phase, simply because someone has moved a knight to f4.

Fourth: Is VG Media discriminating against smaller search engines such as 1&1 and Telekom by not issuing them free licenses?

Stefan Niggemeier, well-versed in shooting down birds, has once again shot down the bird of misinterpretation. His bold thesis: VG Media is discriminating against smaller search engines such as 1&1 and Telekom by not granting them free licenses.

Dear Stefan Niggemeier, one short call would have sufficed to get an explanation or alternatively have a look at the law. Incidentally, this is how Anglo-Saxon journalists from the Wall Street Journal via the New York Times to the Financial Times do it. They come and visit us (Springer or VG Media), invest an hour and also listen to our view of things. Not so the Krautreporter, about whom broadly speaking we can say: The German media journalist does not research because he knows everything already.

(follow-up: Stefan Niggemeier sent one factual question by email to our press office, simply asking whether we are issuing free licenses to the small search engines or not. His mail did not contain any real curiosity for further insights. Rather it was noticeably only concerned with confirming a preconceived opinion. Which is the way to do it, if you are sure of your opinion. And then quickly rush off a factual question, so that you cannot subsequently be accused of not having researched. However pseudo research is not genuine research. Additional follow-up: In the time span between the publication of the German version of this blogpost und this translation Stefan Niggemeier has paid me an extended visit to discuss the case. I recognize his effort to research now.)

VG Media is not authorized to issue the smaller search engines with free licenses, because it is legally obliged to enforce the approved tariff. In accordance with the tariff – and nothing else! – all market participants have to be treated equally. There is an obligation to contract.

The free license for Google was however issued against the wishes of VG Media and the publishing houses – as a result of the misuse of pressure on the part of the dominant market player. It is the result of coercion.

Smaller search engines are not dominant market players. Therefore they are not in a position to coerce publishers and VG Media. Without coercion however, VG Media is obliged to treat all players equally based on the state-approved tariff. Consequently, it is not possible for it to grant a free license to the smaller search engines.

Niggemeier’s misunderstanding immediately led to concern among politicians. Is VG Media only asking small European search engines to pay, while the American giant Google gets off scot-free?

True, that would be a blatant case of injustice, if it were so. But it is not so. Niggemeier’s misleading media journalism unnecessarily sows discord.

Because there is no way that VG Media and publishers are going to let Google off the hook. They are conducting the copyright proceedings referred to. It is for this very purpose that the evidence relating to the consequences of shortening has been collected.

There can therefore be no talk about discrimination against European aggregators. All of them are treated in the same way. Excepting the fact that Google – and Google alone – as a result of its market power, has the resources to extort a temporary free license from VG Media. But that is not a fault that can be laid at VG Media’s door, but rather at Google’s.

Nothing therefore remains from Niggemeier’s assertion except negligently created confusion.

Fifth: Why didn’t the Federal Cartel Office intervene and what can VG Media do about it?

The Federal Cartel Office has clearly indicated to Google that a complete delisting of snippets is not permissible. That is why there has not been a delisting. This is a success for the publishers.

With regard to the shortening of the snippets, the Cartel Office wrongly assumed that the headlines did not fall under ancillary copyright. But this view is disputed between the parties. In this respect, the Cartel Office had not quite correctly understood the current position in the copyright debate before it gave advice to Google.

From an anti-trust viewpoint, the office considers that the exercise of ancillary copyright constitutes an objectively justifiable reason for discrimination. Publishers and the collecting society take the opposing view.

The German Federal Cartel Office alone decides whether it takes up a complaint or not. It has a so-called exercise of discretion. This discretion is not subject to judicial review. Incidentally a special feature in German law. You receive statutory notification from the Cartel Office, as to whether or not it will exercise its discretion, and may not have this decision reviewed by any court. VG Media and the publishers believe this decision to be wrong, yet cannot take legal action against it. Alternatively, publishers and VG Media are now examining whether it is possible to take anti-trust action directly against Google, in addition to the copyright proceedings which are already under way.

I have not yet observed any references to the review of the discretionary power of the Federal Cartel Office in any of the articles or tweets on the case. The hasty media commentator hears “The Cartel Office is taking no action” and concludes from this: “VG Media and the publishers are in the wrong”.

The journalistic educational impulse on the other hand would run the following line of thought: “The state authority is taking no action – the complainants are of a different opinion – Where and how can a neutral authority determine who is in the right?” The widely held view “Cartel Office speaks => that is the truth” is pre-progressive and subservient to authority. The Federal Cartel Office is a part of the executive branch. A critical attitude by commentators would raise the question: “How does the judiciary review the action taken by the executive?”

It is of course possible that the publishers will not be successful with their argumentation in front of a judge. But then there would at least have been an independent review of the decision taken by the Cartel Office. Everyone could live with that in the end. As the situation is now, it remains the executive acting alone in the form of the Federal Cartel Office. This unique action is then to be understood as the sole binding truth, lacking the critical stimulus one would hope for from journalists in their treatment of the state.

Sixth: What is actually more important in this case – copyright law or competition law?

This question is quickly answered. The core of the case lies in the copyright proceedings. Here it is a question of the extent to which ancillary copyright applies. The litigation has only just begun. We are still a long way from a final judgment.

The competition lawsuit is important, but has more of a supporting role. In the competition dispute, ancillary copyright as such has hardly any role to play.
Anyone who posts tweets or writes comments along the lines of: “Federal Cartel Office rebuffs ancillary copyright” or “Publishers run aground with ancillary copyright before the cartel office”, is only demonstrating their ignorance of the subject matter. Competition lawyers cannot, do not want to and may not address the core of the claim arising from ancillary copyright. This is simply not their role.

Seventh: It is not a blatant case of injustice, to legally require a company such as Google, which does not want a particular service, to have to accept it?

No, because no one wants to require Google to accept a service which the company does not wish to have. Nobody – despite all the misunderstandings – has ever demanded this of Google.

Of course Google is free to decide whether it shows snippets or photos from publishers in general or not. It is only a question of whether Google, as the dominant market player, is permitted to specifically punish those publishers, through delisting or shortening, who attempt to exercise a right which has been granted to them by the German Bundestag. As already mentioned above: Does the exercise of a right represent an objectively justified reason or not?

It has nothing at all to do with the following, passionately discussed question: “Can companies be forced to accept services they do not want?” The excitement is boiling over, although this question is not even on the agenda.

Instead, the focus is on the following question: “What are the legally acceptable justifiable reasons for discrimination?”

Eighth: Are the Spanish now showing the Germans how to do it properly with their own ancillary copyright?

In copyright law there are two fundamentally different ways in which supply and demand can come together:

Either the license model: Permission must be requested before use, and you may only use something if you have previously reached an agreement with the rights holder.

Or the compulsory model: Permission does not have to be requested beforehand, in return payment must made following use.

Ancillary Copyright for Press Publishers is designed in accordance with the first model. We as publishers advocated this model at the time, because it is actually the more liberal, more market-based model. In this blog, I have also often stressed that this is the mildest measure available. However, it has always been clear that it could reach its limits in asymmetric markets (large number of weak suppliers, one strong customer). Nevertheless we proposed this milder measure, because from our point of view, in a free market economy, it is proper to try the liberal variant first.

The compulsory model can be found in many places in Germany. In the storage device fee, for example. Everyone who buys a computer hard drive pays this fee without realizing it, but at the same time without being able to do anything about it, a fee, which is paid to the rights holders of creative works and services, even if the user never saves a song or movie onto this drive. Compulsory models like this create clarity and speed on the markets. They resolve complex approval and negotiating processes. That is why they are particularly well suited to asymmetric markets and for bulk transactions.

Spain has now decided upon a compulsory model, thus for the tough option. Probably also because the Spanish have seen how tenaciously Google refuses to pay. Thus they consider the milder measure introduced in Germany to have been sufficiently tested and have shifted up a gear.

Personally, I have a lot of sympathy for this approach. I can understand the frustration about Google. Perhaps the Spanish model will also become the template for the European ancillary copyright, which the new Digital Commissioner Oettinger has announced. If there were such a thing, it would make our work in Germany easier.

But that doesn’t mean we throwing in the towel and giving up on our attempt to enforce the milder German license model. For the market economy it would be a good thing if the milder variant prevailed. And Google should actually also be interested. A Europe-wide compulsory fee would actually have to be worse from a Mountainview perspective than a voluntary contract with VG Media. But that is a decision for Google. We are in any case continuing upon our path.

Ninth: Do we regret the day we came up with ancillary copyright?

No. It is true that I have worked on more popular projects. But the digital economy needs rules that are suitable for the digital economy. Because digital goods are traded on the Internet and Internet monopolies are the normal case (see the detailed description in my book), copyright and antitrust law are the most important fields of law relating to digitization. Working upon these is no reason for shame or regret.

German ancillary copyright is perhaps not the ideal solution. It is a first step. Without German ancillary copyright, the law in Spain would certainly not have come about, Israel would not be discussing the subject and the EU Commission would also not have started work on it. We have launched a discussion and still have a real opportunity to earn money through it and to finance journalism. This is worthy of all our efforts and honor.

Tenth: What actually happens next with the case?

Anyone who is interested in the progress of the case, should keep the next appointment for the hearing of the Arbitration Board of the Patent and Trade Mark Office in their sights. This will be followed by the various instances of the civil courts. In addition to this, anti-trust proceedings may also be started to address the issue I have described above relating to the Federal Cartel Office.

When will the final word be spoken? In many years. Will dangerous legal uncertainty exist until then? No more and no less than in any other litigation for the enforcement of a collecting society tariff. Those who do not like the idea of legal uncertainty will simply conclude a license agreement with VG Media. This is fast and provides immediate security.

Addendum 10 November 2014, 12:20: I have added a number of brief, meaningful legal clarifications to this text: It now only states that the judiciary enforces laws. The words “applies these standards in individual cases” was somewhat imprecise. On the subject of coercion, I have clarified that without the “threat of considerable harm” there is no coercion. Regarding Google’s freedom of decision with relation to ‘snippets’, I have added, for the purposes of clarification, that Google can decide for or against snippets in “general”, in order to highlight the difference between this and discriminating against “specific” publishers more clearly.


Comments are closed.