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SWD IA on the EU copyright modernization – fair remuneration in contracts of authors and performers

Authors and performers face a lack of transparency in their contractual relationships as to the exploitation of their works and their performances and as to what remuneration is owed for the exploitation.

Works are not generally exploited by the creators themselves; commercial exploitation is often arranged through the grant of licences or the transfer of rights e.g. to a publisher, producer, or a broadcaster. These contractual relationships constitute the exercise of the economic rights and govern the exploitation of works and the remuneration owed to creators. Creators should be able to license or transfer their rights “in return for payment of appropriate remuneration”, which is a prerequisite for a sustainable and functioning marketplace of content creation, exploitation and consumption.

The determination of what constitutes appropriate remuneration depends on factors such as the nature and scope of the use of the works. However, there is sufficient evidence of creators lacking access to such information, and calling for legislative intervention by the EU. For example, creators point to the poor quality and/or lack of accounts and reporting by publishers and producers with regards to the use of the rights they have transferred. The information received from creators and some recent studies indicate that the lack of transparency in the creators’ contractual relationships concerns:

  • the possible exploitation, i.e. how the work may be used;
  • the actual exploitation, i.e. how the work is used and with what commercial result; and
  • the remuneration that is owed for the exploitation.

There may be uncertainty about possible exploitation because licence and transfer agreements do not always specify the obtained rights while modes of exploitation and supply chains have become very diverse and complex. Concerning actual exploitation, on the basis of the information available there seems to be many instances when creators do not receive satisfactory or any information from their contractual counterparty on the modes and extent of use and on the revenues generated from the exploitation, which may lead to uncertainty about owed remuneration.

This situation can be described as an information asymmetry because the information that would be required to ensure transparency may, in fact, be available to the contractual counterparties but it is not shared with creators. Transparency is also affected by the increasing complexity of new modes of online distribution, the variety of intermediaries and the difficulties for the individual creator to measure the actual online exploitation, notably due to the evolution of consumption patterns in some sectors, for instance from ownership to access/streaming modes of consumption.

Online distribution is expected to become the main form of exploitation in many content sectors. Transparency is, therefore, even more essential in the online environment to enable creators to assess and better exploit these new opportunities. The situation of creators varies to some extent depending on MS or the sector and seems to be better where collective bargaining is allowed and efficient but problems related to lack of transparency and information asymmetry seem to arise in most creative sectors.

There is a natural imbalance in bargaining power in the contractual relationships, favouring the counterparty of the creator, partly due to the existing information asymmetry. The difference in bargaining power can also create a “take it or leave it” situation for creators and therefore full “buy-outs” using catch-all language that covers any mode of exploitation without any obligation to report to the creator.

Another driver of the issue, is that often creators depend on their contractual counterparties and are unwilling to challenge them or to request further information for fear of possible consequences. A regulatory aspect of the problem is that most MS impose either too generic transparency or reporting obligations, or transparency obligations only applicable to certain sectors (without the necessary mechanisms to ensure enforcement).

  Book/press sector Music sector Audiovisual sector
Number of MS with legislative reporting/transparency obligations 14 6 14

As a consequence, creators are confronted with instances where they are unable to effectively monitor the use, measure the commercial success and assess the economic value of their works. Because of this, there is a risk that creators are unable to negotiate an appropriate remuneration in exchange for their rights, to verify that they are receiving the agreed amounts or to enforce their claims for remuneration effectively. Lack of transparency has effects on the internal market as well.

Firstly, creators are, in the absence of transparency, unable to effectively compare deals and offers, including across borders. This undermines their ability to exercise their freedom of movement and to enter into contractual agreements with economic partners from different MS. Secondly, contractual counterparties face a fragmented situation between the different MS as regards transparency which prejudices a level playing field in the Internal Market. Companies established in different MS and in competition for the same online market have to comply with different transparency obligations, resulting in a competitive advantage for those under a lighter transparency regime.

Furthermore, differences between MS may create legal uncertainty for both creators and contractual counterparties, and lead to greater transaction costs and “jurisdiction shopping” by transferees. In fact, as exploitation is getting more complex and more intermediaries join the value chain there is a risk of less transparency. On the other hand, the constantly improving information technology should allow providing for more efficient, more accurate and more economic reporting mechanisms. Without EU intervention, these technologies are not likely to be used to their full potential. Creators will not be able to force transparency on their contractual counterparties since they are in a weaker bargaining position and, in many instances, have few alternatives.

Some stakeholders and studies argue that ex-ante intervention (i.e. at the stage when a contract is being defined) via options such as prohibition of certain contractual clauses, would be more effective. However, EU intervention on copyright contract law concerning fair and unfair clauses raises questions at this stage in terms not only of proportionality and contractual freedom but also of its articulation with the very different approaches in MS and differences between the creative sectors.

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