On July 22, 2018, the much suffered and long anticipated law, which regulates procedure for collective management of copyright and related rights.

The law is long anticipated, primarily, because its adoption is one of conditions for exclusion of Ukraine from the so-called “list 301”: the list of countries where high level of piracy that creates significant trade barriers for US companies. The times when pirates were surrounded by a veil of romanticism fell into oblivion, and the presence of Ukraine in the list of pirated (in the modern sense of the word) jurisdictions, is of course, humiliating for a country that adheres to the rule of law and democratic values.

The law is much suffered because, on the one hand, of the pressure of the international community (first of all, the USA), which demanded its adoption as soon as possible, and, on the other hand, due to the abundance of conflicting interests of various categories of market players, which resulted in creation of five (!) different draft laws, each protecting interests of a certain group of market participants. Finally, the draft No. 7466, introduced by the Ministry of Economic Development and Trade of Ukraine, served as the basis for the adopted law.

Outlined below are the main innovations, which are hidden in the law with a promising although lengthy title “On the efficient management of copyright and related rights” (the Law).

Starting with the title of the Law: the concept of “efficient” management is quite intriguing. The legislator’s desire to make collective copyright management “efficient” versus providing just “some” regulation should be greeted with applause.

We would love to be correct in our assumptions that the legislator will be ready to promptly adjust those statutory provisions that proved to be not so efficient effective as optimistically suggested by the collective rights management concept proposed by the Law.

The law defines collective management of rights as activities related to the collection, distribution and payment of royalties derived from rights owned by right holders, which are carried out for the benefit of more than one right holder.

Activities of existing collective management organizations interfering with the implementation of extended and compulsory collective management (and that is the lion’s share of the fees!) will be suspended as of the date of announcement of completion of accreditation in the relevant field.

Requirements for special entities that manage rights on collective basis – collective management organization (CMO) – have become more strict, namely, these should:

  • be established exclusively by the right holders;
  • be non-profit public associations having corporate status, registered according to the procedure provided for by the legislation;
  • aim their activities exclusively collective management of copyright and related rights;
  • ensure that their Charter and internal documents should comply with the special legislation;
  • ensure that their personnel include at least 1 employee with 2 years of experience in the field of copyright or related rights;
  • have written statements from the right holders who are ready to transfer their rights for management of such CMO;
  • have a bank account;
  • have a website with all the information required by the Law.

The Law divides collective management of rights into three categories: voluntary, extended and obligatory. Voluntary management of rights is carried out by collective management organizations (CMOs), registered according to the procedure specified by law exclusively with respect to the rights included into their catalog.

Extended management provides for the right of an accredited CMO to manage certain categories of rights established by law, regardless of whether these rights are included in the CMO catalogue, provided that these rights have not been directly withdrawn (revoked) from the management of such CMO by their holder.

In case of obligatory managment of rights, a CMO, accredited for such activities, manages only specific categories of rights established by law. At that, withdrawal (revocation) of such rights by their holder is not provided.

Extended and obligatory management of rights is assigned by the law to the competence of specially accredited CMOs. At that, it has been established that only one CMO may be accredited for each type of activity classified under extended management.

Exception to this rule are cases where there is a conflict of interest between the main category of right holders represented by a given CMO, and other categories of right holders, for the benefit of which deductions are made under a particular type of activity in the field of extended management of rights. If such a conflict exists, additional CMO may be accredited, which will represent interests of other groups of right holders in this field of management of rights. Of course, such an exception can be potentially widely used to circumvent the principle established in the Law: one CMO for each category of rights.

The collection of funds is carried out by CMO by way of entering into relevant license agreements with users of copyright and related rights or by way of collection of payments for the benefit of right holders through legal proceedings.

In order to conduct accounting and distribution of collected funds among the right holders CMOs should keep (1) the register of right holders, and (2) the register copyright and related rights managed by them.

Funds collected by CMOs are distributed among right holders in proportion to actual volumes of use of related objects and are paid to the right holders at least once a year. At that, the administrative expenses of a CMO related to the collection of royalties may not exceed 20% of the collected amount.

If a CMO is unable to establish the right holder of a particular object, for which money was distributed, such funds may not be used by CMO for its own purposes and should be allocated for the development of the Ukrainian culture.

Assessments made by market participants regarding the concept of collective management of rights, proposed by the Law, vary.

For example, some market participants believe that the new requirements for CMO do not allow for objective establishment of the fact whether the organization meets the accreditation criteria or not.

There is also the opinion that the mechanism of voluntary procedure for setting tariffs through negotiations between CMO and related organizations of right users will not function. Such concerns are based on the fact that users will be interested in making payments not on the basis of the market value of certain items use, but on the basis of lower tariffs set by the Cabinet of Ministers of Ukraine.

Some experts are concerned about inaccuracy of legal constructions contained in the Law. For example, when passing the accreditation procedure according to the Law, CMO should have agreements on management of rights with a significant number of right holders. At that, there are no criteria for assessing such “significant number” set in the Law, which, in their opinion, may lead to abuses of CMO accreditation procedure in particular fields of activity.

Others are concerned about the requirement to allocate the funds, that could not be distributed due to the failure to identify the right holder to the “development of Ukrainian culture”. In their opinion, such deductions mean money deliberately sent “nowhere”. It is obvious that such fears are based on the established and two decade long general distrust of right holders in existing CMOs.

Representatives of CMO are also concerned with the implementation of some transitional provisions of the Law that regulate mechanism of CMO re-registration and its accreditation for the purposes of extended and obligatory management of rights. In their opinion, incorrect references to provisions of the Law in some clauses of transitional provisions may call into question legitimacy of the process of new CMO re-registration and accreditation.

Without a doubt, further application of the Law will reveal other gaps to be filled at the legislative level. The key to resolving those is the will of the market and the legislator. If there is such a will, then, through several iterations of the legislative procedure (preferably not more than 1-2), Ukraine has all chances to get hold of an effective and innovative model of collective rights management, and our market of royalties for copyright and related rights, rusty three-wheeled child bicycle may well transform into a shiny glass-and-metal modern machine for stimulating creativity and creating contemporary content by our authors that is competitive in the international market. And there are lots of proofs that we, Ukrainians, are creative and talented people.

Alexander Molotai, Partner, Head of Intellectual Property practice, exclusively for  Jurliga portal.