My Lords, the relevant licensing bodies—or collecting societies as they are better known—are already self-regulating and using codes of practice based on minimum standards set by the Government. The purpose of this legislation is to support their self-regulation and ensure that this good practice continues. It allows the Secretary of State for Business, Innovation and Skills to remedy any problems or gaps that may emerge in self-regulation. These gaps would emerge if a collecting society started to deviate from the minimum standards; for example, if it had no proper complaints procedure or did not make provision for an independent ombudsman for its members and users.
Collecting societies are the organisations that copyright owners use to license their rights and collect their royalties. They are an economically significant sector. The nine or so collecting societies in scope of these regulations together collect around £1 billion per year and have nearly 400,000 members. Their role is valuable; indeed, they are central to the monetisation of copyright. They bring together rights holders and users efficiently, are instrumental in ensuring that income is received by rights holders and facilitate legal access to copyright works.
These regulations have their genesis in the Hargreaves recommendation that collecting societies,
“should be required by law to adopt codes of practice”.
This recommendation was made against a background of concerns about the operation of some collecting societies. These concerns were often reflected in correspondence to Ministers—indeed, I have seen some myself—as well as in meetings with trade and representative bodies. They ranged from the levels of transparency for members to complaints by licensees about unfair practices and heavy-handed licensing tactics.
Complainants, many of whom were small businesses, were often especially frustrated because they had no choice to shop elsewhere for their copyright material if dissatisfied. This is because most collecting societies tend to be monopolies or quasi-monopolies. The regulations that have been laid before this House complete the system of co-regulation that the Government have been developing with stakeholders over the past couple of years.
Many of your Lordships may recall the extensive debate in this House during the passage of the Enterprise and Regulatory Reform Act. I emphasised our preference for self-regulation then and I do so again now. We want collecting societies to run themselves to the highest possible standards. The sector is doing this and must be congratulated on its progress. Most collecting societies now have self-regulatory codes of conduct. Noble Lords should be assured that statutory intervention is, and must be, a last resort.
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The minimum standards on which self-regulation is based were developed with users and collecting societies, and they set the benchmark for collecting society operations. For example, they make provision for, first, access to a complaints procedure for members and licensees; secondly, recourse to an independent ombudsman; and, finally, regular independent review of the collecting societies’ codes of practice.
The regulations before your Lordships are designed to preserve self-regulation as far as possible. That is why they incorporate a three-stage process. First, the Secretary of State may give notice to a collecting society that its code of practice is not complying with the requisite standards. The collecting society then has 49 days to amend its code. This time period balances the need to give the collecting society sufficient time to make its code compliant while ensuring that members and licensees enjoy as soon as possible the protections that compliant codes offer.
Secondly, if the collecting society does not amend its code, the Secretary of State may direct it to adopt a compliant code. Thirdly, if the collecting society ignores the direction to adopt a compliant code, only then will the Secretary of State act to impose a statutory code on it. I hope that the Committee will agree that it would be appropriate to intervene only at this stage. After such a catalogue of non-compliance, it would be right for this Secretary of State to take decisive action.
The regulations enable the Secretary of State to impose financial penalties in certain circumstances. These are capped at £50,000. They can be used, for example, if a collecting society does not comply with certain directions issued by the Secretary of State. These provisions are designed to deter non-compliance.
They will give members and licensees the assurance of guaranteed standards. This is important because they usually do not have a choice to shop elsewhere for their licences.
The imposition of the financial penalty, and its amount, can be appealed. Likewise, there is provision for appeal against the Secretary of State’s decision to impose a compliant code of practice on a collecting society. Any appeals will be heard by the General Regulatory Chamber of the First-tier Tribunal, which is part of Her Majesty’s Courts and Tribunals Service.
In the first instance, monitoring will be by the industry-appointed code reviewer. Noble Lords will no doubt be pleased to know that the first of these reviews is already under way. Walter Merricks, the industry’s independent code reviewer, is due to publish his report on compliance and performance by the sector in May this year. His appointment is an example of self-regulation in action.
I am confident that, together, the self-regulatory system and the provisions in these regulations will create a level playing field and embed best practice in the sector. We have already seen a significant drop in the number of complaints that government receive since the sector put in place codes of practice. We know also that the sector has continued to grow. We consider these regulations to be a reasoned and proportionate reform, and I commend them to the Committee.