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26 July, 2012  ▪  Bohdan Butkevych

Controlled Chaos

Chaos with music copyright protection is killing Ukrainian music

After the shutdown of the ex.ua file sharing service, it became clear that the attack on Ukraine by international institutions over copyright protection chaos was just beginning.

In late June 2012, the US Department of Commerce announced that the Obama Administration had initiated an investigation to remove Ukraine from the list of countries which enjoy trade preferences from the US. The move was prompted by alleged violations of intellectual property rights. If the results are negative, Ukraine will lose the right to duty-free export of a number of goods to the US. Moreover, the US government again lowered Ukraine’s rating on the Special 301 Report made by the International Intellectual Property Alliance (IIPA).

Another attack on our country came after the scandalous May 2012 decision by the State Intellectual Property Service which stripped the Ukrainian Music Rights League (UMRL) of its licence. The UMRL is one of the biggest collectors of royalties for music used in public places (bars, restaurants, trade and entertainment centres, stores, stadiums, etc.) and is recognized by most international copyright holders. Until recently, the UMRL represented the interests of the International Federation of the Phonographic Industry and such worldwide brands as Universal, Sony, Warner and EMI. In June 2012, US Ambassador to Ukraine John Tefft and Head of the EU Delegation to Ukraine Jose Manuel Pinto Teixeira sent official letters to the Cabinet of Ministers expressing concern over this “sudden and unjustified decision”.

Concurrently, structures linked to the government revved up their attempts to take over Ukrainian music royalty collection. Reportedly, the chief lobbyist for the controversial decision on UMRL is an organization which aspires to take its place and is patronized personally by Education Minister Dmytro Tabachnyk. The legal uncertainties surrounding intellectual property rights are welcomed by officials who feel they can take advantage of the situation. In the past two years, the government took steps that revealed its desire to keep the industry in as much chaos as possible and to continue to steer it "hands on". Average citizens do not even think about prices and music rights as they download song after song online for free. And they react very painfully to any attempt to put the industry on a normal track.

All these problems hurt Ukrainian copyright holders more than foreigners. If the state ignores the highly important legal aspects of the issue, Ukrainian musicians will find composing new music to be unprofitable and producers will be reluctant to promote new artists because they will have zero chance of obtaining a return on their investment.

ROYALTY GOING NOWHERE

Oleh Dorofieiev, an attorney with the Legiteam law agency said: “Ironically, Ukrainian legislation in this area, even compared to other countries, is quite good, particularly the law ‘On Copyright and Related Rights’. However, the big problem is the completely unregulated nature of the internet in terms of copyright on music. Moreover, laws are not actually being enforced in Ukraine. Most importantly, there is no clear-cut government policy or will to protect intellectual property rights.”

“Every country has network organizations protecting the rights of copyright holders in a certain area: painters, performers, musicians and poets,” UMRL Head Oleksa Humenchuk explains. “These organizations have to be nonprofit without exception. Meanwhile, there are as many as 15 organizations in Ukraine that collect royalties from cafés, bars and restaurants for playing music. The system has been artificially set up by the state. Our law says that if several people who can prove their intellectual property rights to a couple of songs, music recordings or poems write an appeal, produce all the necessary documents and apply to the Intellectual Property Service, they will almost certainly be issued a licence to collect royalties. There are no other criteria that could be used for rejection. In these conditions, any quick-witted con man or person with links to officials can set up an organization and operate smoothly.”

“Even if money is collected, which happens rarely anyway, it goes nowhere and normally does not reach the musicians,” Oleksandr Stasov, promoter and artistic director in the Bochka pub in Kyiv, says. “I know of countless examples of a company collecting UAH20mn from bars and restaurants and then the money vanishes into thin air. For example, a place where I worked as an artistic director had an agreement to show TV programmes and use a jukebox, and paid around UAH2,500 a month for the privilege, depending on the catalogue.” A modest estimate puts the number of various cafés and bars in Ukraine at half a million. If at least half of them pay royalties (UAH2,000-2,500 a month), this totals around UAH600mn a month nationwide, a significant sum.

ROYALTY COLLECTION IN UKRAINE

The State Intellectual Property Service issues licences to organizations granting them the right to collect royalties on behalf of copyright holders and receives biannual reports on receipts and their distribution. All collective copyright management organizations are divided into ordinary and authorized. The former must be authorized by copyright holders and can only protect their rights. For example, Sting may commission a company to collect royalties for him, and that organization can only deal with him and his works. Meanwhile, organizations of the latter type can collect overall rent for music being used for commercial purposes (regardless of whether they have the rights to the works of a particular performer) and then must share the proceeds among copyright holders.

This complex system operates only in Ukraine. Elsewhere, for example in neighbouring Poland, there is no division into ordinary and authorized royalty-collecting organizations, because there is only one government-recognized organization operating in each area. Others can exist, but they must receive royalties through this monopolistic entity. However, the government-licensed organization is immune to anti-monopoly legislation. “Intellectual property rights protection is not a market as such,” Humenchuk says. “Collective rights organizations are non-commercial. Theoretically, they have nothing to compete for. In other words, if one of them comes and says, ‘Pay me UAH10’, while another one agrees for UAH5, then the latter will simply be unable to meet its obligations before copyright holders who have commissioned it to protect their copyright. (The intellectual property sphere is not subject to dumping.) But in Ukraine, such competition exists de facto thanks to officials.”

Since 2003, when the law “On Copyright and Related Rights” was passed, several companies were collecting royalties, but new ones kept trying to break into the business. This led to a situation in which copyright holders and companies protecting them failed to win even one lawsuit to enforce royalty payments. The presence of competitors gave every entity that used music for business purposes the opportunity to say that it had yet to choose the company it wanted to pay. Courts happily accepted this kind of explanation.

The landscape changed in 2007 when the principle of representation was introduced. Under Order No.11/75 of the Ministry of Education and Science, royalty distribution and the status of authorized organization were determined based on playlists from popular Ukrainian radio stations. The organization which has more rights to the songs on these playlists would become the authorized organization. “When there are reports from radio stations, it is very easy for both the state and copyright holders to check everything,” Humenchuk says. “A copyright holder comes and says, ‘The UAH10 you’ve paid me is not enough. You have to pay UAH100.’ In response, we give him reports in the original listing of 40,000 songs that have been in rotation. He can check on his own how much his works have been used. In nine years, we have not had one complaint, which is not surprising because this practice is used worldwide.”

This system, which made royalty collection even too transparent, was the cause of a later conflict. The Ukrainian government insists that every entrepreneur must submit monthly reports on music used in his business to the authorized organization. This throws us back into the situation we had before the representation principle was introduced.

“Our experience shows that the system of reports from cafés has proven its idiocy,” Humenchuk explains. “I have piles of such reports from cafés and restaurants dating back to 2003. Most of them were phrased like this: ‘We played the disc The Best of Alla Pugachova in such and such a month.’ And who is the copyright holder, if there is one, for this disc? The new system lobbied by officials makes it very easy to manipulate these reports by simply agreeing with restauranteurs about what they have to sign. Restaurants are reluctant to hire an additional staff to track down music and make these kinds of reports. In reality, no-one can check all these reports. There is just one inspector per oblast, and he is more interested in confiscating things or getting a bribe than in copyright protection. The victims are, as always, copyright holders, especially Ukrainian musicians, who are underrepresented on Ukrainian radio stations anyway, especially after the quota on national products was lifted. They have much less leverage and income sources than their Western counterparts.”

IN SEARCH OF A SOLUTION

Because intellectual property rights are very hard to protect in Ukraine, the Ukrainian music industry has been in deep stagnation for several years now. The only solution to this crisis is for everyone to work within the law. Then musicians can release albums, like they do in the West; film directors can make their films in Kyiv rather than Moscow; and Ukraine will have the chance to become a real part of the European cultural space in deed, and not just in word.

Moreover, if radio stations pay, they will invest in discovering and promoting fresh talent, as is the case in Britain, to later reap rewards for their efforts. After all, they could work out their own playlists instead of functioning as huge dumps that differ only in wavelength and name. In order to find an artist, one needs to go to clubs, search and inquire and beat the competition. Meanwhile, most Ukrainian radio stations simply take the top 40 European and Russian songs, copy them and, bingo, a music programme is ready. The absence of copyright essentially hampers the development of the music industry on all fronts.

“The first and foremost thing we need is the political will to change the situation. But our powers-that-be simply don't care, because they don't understand what it is all about if it's not about mines or factories,” music expert Oleksandr Poludnitsyn says. Incidentally, experts deny the allegedly existential unwillingness of Ukrainians to pay for copyright. “They say that Ukrainians are not used to paying,” social psychologist Serhiy Tarshynsky explains. “In reality, this is not so. Our thinking in terms of money is absolutely the same as in all other countries. That is, if there is an opportunity not to pay and get freebies, then, sure, we won't pay. But if things are put within a normal legal framework, most will follow the law, just like in other areas. But everyone can see that no-one really cares about this issue. Add to this the following attitude to music: ‘Factories are standing idle in the country; we only have guitarists’, and you will get the negative socio-psychological background to intellectual property as such, especially in music.”


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