Upcoming Conference #Copyright in the Digital Single Market. Analysis and Implementation of the New Directive.
Introducing the provisions on exploitation contracts in the DSM Directive.
To ensure the proper functioning of the copyright market, a third pillar dealing with fair renumeration in exploitation contracts of authors and performers is foreseen (1). In doing so, the EU legislature recognises the (usually) weaker contractual position of authors and performers when licensing or transferring their exclusive rights (2).
The provisions discussed below are introduced for the benefit of authors and performers who license or transfer their rights for the purposes of exploitation in return for renumeration. The EU legislature does not consider this protection to be necessary where the contractual counterpart is an end user who does not exploit the work or performance itself (3) and also excludes authors of computer programs from the protection offered under chapter 3 (4).
Principle of appropriate and proportionate renumeration
Article 18.1 of the DSM Directive provides that authors and performers who transfer or license their exclusive rights are entitled to an appropriate and proportionate renumeration, i.e. a renumeration which is appropriate and proportionate to the economic value of the licensed or transferred rights (5).
While the principle of proportionate renumeration does not rule out the possibility of a lump sum payment – and Member States are free to define in which specific cases a lump sum payment is applied – this should not be the rule (6).
In addition, Member States are free to choose the mechanisms (whether existing or newly introduced) to ensure appropriate and proportionate renumeration. However, thereby taking into account the principle of contractual freedom, a fair balance of rights and interests and conformity with Union law (7).
In order to assess the economic value of their rights (supra), it is essential that authors and performers receive information on the exploitation of their works and performances. Therefore, article 19 of the DSM Directive introduces a transparency obligation. Contractual counterparts of authors and performers are henceforth obliged to provide up to date, relevant and comprehensive information on the exploitation of their works and performances, in particular with regard to methods of exploitation, revenues arising therefrom and renumeration due as a result (8). This information must be presented on a regular basis (9) and in a manner that is comprehensible to the author or performer (10).
When a counterpart has sub-licensed the acquired rights, the author or performer does not dispose of an automatic right to information but must explicitly request additional information from the sub-licensee (11).
The transparency obligation shall be proportionate and effective. It is limited on the one hand by the fact that, where the administrative burden of the transparency obligation is disproportionate to the revenue generated by the exploitation of the work or performance, Member States may limit the transparency obligation (12) In addition, the obligation of transparency may be completely disregarded if the contribution of the author or performer is not significant having regard to the overall work or performance (13).
Finally, article 19.6 clarifies that the transparency obligation does not apply to collective management organisations that are already subject to transparency obligations under article 18 of the Directive 2014/26/EU (14).
Contract adjustment mechanism
Article 20.1 of the DSM Directive provides authors and performers with a mechanism to adjust their contracts in cases where “the renumeration originally agreed turns out to be disproportionately low compared to all the subsequent relevant revenues derived from the exploitation of the works or performances” (15). The aim is to provide them with additional, appropriate and fair renumeration in such a scenario.
This provision can also not be applied to agreements with collective management organisations that are already subject to the obligations provided in Directive 2014/26/EU (16).
Alternative dispute resolution procedure
Article 21 introduces a voluntary alternative dispute resolution procedure for disputes concerning the above discussed transparency obligation and contractual adjustment mechanism in order to respond to the reluctance of authors and performers to initiate court proceedings when enforcing their rights, while at the same time, not prejudicing this possibility (17).
Right of revocation
To avoid that authors and performers are confronted with a counterpart who fails to exploit their works, article 22 of the DSM Directive provides for a right of revocation of the rights that were licensed or transferred on an exclusive basis (18).
Article 22.2 of the DSM Directive subsequently leaves some discretion to Member States (19) to include ‘specific provisions’ for the further detailing of the right of revocation (20).
Article 22.3 of the DSM Directive sets out the ‘procedure’ to be followed by the author or performer wishing to exercise his or her right of revocation (21).
Finally, it is important to note that the above-mentioned provisions on transparency, the contract adjustment mechanism and alternative dispute resolution are of a mandatory nature and cannot be derogated from contractually (22).
(1) It is unprecedented that a European legislative instrument on copyright and related rights intervenes in such a manner in contractual matters (except for the presumption of transfer in favour of film producers and the unwaivable right to equitable renumeration; see articles 3 and 5 of Directive 2006/115/EC of the European Parliament and of the Council of 12 December 2006 on rental right and lending right and on certain rights related to copyright in the field of intellectual property)
(2) Recital 72 of the DSM Directive.
(3) Recital 72 of the DSM Directive.
(4) Article 23.2 of the DSM Directive.
(5) Recital 73 of the DSM Directive.
(6) Recital 73 of the DSM Directive.
(7) Article 18.2 and recital 73 of the DSM Directive.
(8) Article 19.1 of the DSM Directive
(9) What is meant by ‘regular’ is sector specific, but the obligation exists at least annually (see recital 75 of the DSM Directive).
(10) Recital 75 of the DSM Directive.
(11) Member States have some discretion to prescribe whether authors and performers should address sub-licensees directly or indirectly through their contractual counterpart (article 19.2 and recital 76 of the DSM Directive).
(12) Article 19.3 of the DSM Directive.
(13) Article 19.4 of the DSM Directive. However, the way out for the author or performer is by demonstrating that he or she requires the information for the exercise of his or her rights under the contract adjustment mechanism.
(14) Recital 77 of the DSM Directive.
(15) When assessing this renumeration account should be taken of the specific circumstances of each case such as the contribution of the author or performer, the specificities and renumeration practices in the concerned content sectors and whether the contract is based on a collective bargaining agreement (recital 78 of the DSM Directive).
(16) Article 20.2 of the DSM Directive
(17) Recital 79 of the DSM Directive.
(18) Recital 80 of the DSM Directive explains why this right applies in the case of a licence or transfer of rights on an exclusive basis This right does not apply if the lack of exploitation is predominantly due to circumstances that the author or the performer can reasonably be expected to remedy (article 22.4 of the DSM Directive).
(19) This is a trend that is felt throughout chapter 3 on exploitation contracts. The Commission, rightsholders and other parties therefore need to be vigilant that the intended harmonisation is not compromised by differences in the transposition of the provisions.
(20) See also recital 80 of the DSM Directive.
(21) Firstly, this right can only be exercised after a reasonable period of time following the conclusion of the licence or the transfer of rights. Secondly the contractual counterpart must be notified of the intention to exercise the right of revocation and be given an appropriate deadline by which the exploitation is to take place. After the expiry of that deadline, the author or performer may still choose to terminate the exclusivity of the contract rather than revoke the licence or transfer of his or her rights (article 22.3 of the DSM Directive)
(22) Article 23.1 and recital 81 of the DSM Directive. Member states are free to provide that a contractual clause derogating from the revocation mechanism may only be enforceable when based on a collective bargaining agreement (article 22.5 of the DSM Directive).