SWD IA on the EU copyright modernization – options for fair remuneration in authors’ and performers’ contracts

Baseline

No policy intervention. This option would rely on MS or self-regulation by industries at national level to impose transparency obligations on the contractual counterparties, or on industry specific agreements (resulting from collective bargaining for example) and other market developments to improve transparency.

Creators would consider that this option cannot solve the identified problems as they believe that, for a large number of them, due to the natural imbalance between the parties, problems with lack of transparency in the internal market can only be remedied by imposing transparency obligations through EU legislative intervention.

Contractual counterparties are of the opinion that creators are appropriately remunerated thanks to existing law and practice in different sectors of the creative industries. They would support the baseline option and consider that the existing competition and market developments/industry practices are the best way to address transparency problems if they exist. They would also argue that an intervention in this area would affect their contractual freedom.

Option 1

Recommendation to MS and stakeholders’ dialogue on improving transparency in the contractual relationships of creators

Under this option, the Commission would issue a recommendation to MS to adapt their national laws to ensure greater transparency in contracts between authors and performers on the one hand and those to which they transfer or assign rights on the other.

In addition, the Commission would recommend to MS to put in place stakeholder dialogues between representatives of authors and performers on the one hand, and producers, publishers, distributors on the other, to explore ways of improving transparency and develop collective or model agreements and best practices for reporting. These dialogues would have to be sector specific due to the different dynamics of different content sectors.

Stakeholders’ views are different among creators as to whether a recommendation can address the identified problems but most creators are likely to consider that this option is still insufficient to solve them because the recommendation would be followed by MS to a different extent and may be disregarded. Equally, creators will consider that stakeholders’ dialogues are not likely to produce concrete results (notably if not linked to legislation). Contractual counterparties would favour this option over a legislative intervention but would still oppose it, notably if it is seen as likely to lead to legislative intervention at national level. Consumers who underlined the need for EU intervention would consider this option to be insufficient.

Option 2

Imposing transparency obligations on the contractual counterparties of creators

This option would oblige MS to lay down some basic obligations to improve transparency. Thus, MS should establish a minimum reporting obligation on the contractual counterparty of a creator, with the following elements:

• The obligation would lie with the first licensee/transferee. In case the contractual counterparty is replaced entirely (by way of legal succession or right transfer, for example), the obligation shall lie with the new right holder.
• The reporting would be done on a regular basis without having to be requested by the creator. (Creators point out that an “on demand” obligation would not be effective as they would seldom request reporting due to their weaker bargaining position.) The reporting should occur with reasonable periodicity. (Frequency of reporting would depend on the sector, and if it is not agreed otherwise in stakeholder dialogue it should occur at least once a year as this is the general minimum standard across sectors.)
• The minimum content of reporting – including information about the modes of exploitation and corresponding revenues – would be set out by EU legislation in a general manner while sector specific details should be defined for different sectors at MS level in consultation with the relevant stakeholders. This is necessary in order to reflect the large variety of contracts and remuneration arrangements across sectors as well as the differences between the relevant information required for transparency.
• In order to make the obligation proportionate, in cases where the contribution of the creator is not significant to the overall work, reporting obligation would not be mandatory. Subject to the proportionality test (i.e. provided that the contribution of the creator is significant), lump-sum remuneration arrangements would also be covered by the reporting obligation. In the cases where the administrative burden of reporting would be disproportionate to the generated revenues, the obligations on contractual counterparties could be limited. Agreements concluded with collective management organisations would be exempted as these are covered by the CRM Directive’s reporting obligations.
  • Reporting in these cases is practically non-existent. Nevertheless, lump-sum payments are based on the anticipated commercial success of a work and information on use and generated revenues is required to assess the commercial value, therefore, excluding lump-sum payments would be an unjustified discrimination among creators. Moreover, it would incentivise contractual counterparties to offer more lump-sum deals which are already considered by creators unfair and too commonly used in some sectors.
• The reporting obligation would only have an ex-post effect on contracts which means that parties would still be free to negotiate the commercial terms. Transparency would not mean redistribution of revenues or change in remuneration on its own: it would be a tool to increase bargaining and enforcement power of creators and to reveal whether their remuneration is appropriate or not.

Creators would strongly support such transparency obligations leading to appropriate solutions per sector. Some would however claim that transparency obligations on their own are not sufficient and would call for further intervention on unfair contracts or the introduction of an unwaivable remuneration right. Contractual counterparties would object to this option. They would argue that compliance would be too burdensome and the intervention would limit their contractual freedom.

Consumers would be supportive of this option. In the Public Consultation, they expressed their concerns about the remuneration of creators and claimed that they would be more willing to pay for protected content if the appropriate remuneration was ensured.

Option 3

Imposing transparency obligations on the contractual counterparty of creators supported by a contract adjustment right and a dispute resolution mechanism

This option would oblige MS to introduce the reporting obligation as described under Option 2, with the following additional elements:

• A contract adjustment mechanism

The mechanism would ensure a right to request the adjustment of the contract, ultimately by a court or other competent authority, in case the remuneration originally agreed is disproportionate to the relevant revenues and benefits derived from the exploitation of the work.

The contract adjustment mechanism for unforeseen revenues is usually called a “best-seller clause”. This expression may be somewhat misleading because it suggests that it only applies to actual best-sellers, which constitute the top 5-10 % of sales lists, while in theory the clause should trigger when there is a significant disproportion between the agreed remuneration and the actual revenues (i.e. the commercial value) which can happen to any kind of work, even of low/medium success provided that such success (revenue) had been unforeseen and is not in proportion to the agreed remuneration.

Therefore, “better-seller clause” would be a more appropriate name for a contract adjustment mechanism that applies when a work sells better that expected. Such clause exists, among others, in the legislation of DE, FR, HU, PL, ES and SL. This option would help restoring the relation between the remuneration and the success of the work and would ensure appropriate remuneration when the agreement of the parties is unbalanced.

• A dispute resolution mechanism

The dispute resolution mechanism would help ensuring effective enforcement of the reporting obligation and the contract adjustment mechanism. This will be a voluntary dispute resolution mechanism competent for (i) adjusting disproportionate remuneration arrangements deriving from unfair agreements or changed circumstances (e.g. unexpected success, new modes of exploitation), and (ii) settling contractual disputes about transparency. This option would of course not deprive creators of the possible use of other existing means notably a court or other competent authority to seek to adjust the remuneration.

Under current national legislations, when proceedings are initiated on the basis of a better-seller clause, courts conduct, in most of the cases, a judicial revision of the contract. For lump-sums, it often results in damages granted to the creator corresponding to the difference between the agreed remuneration and the remuneration that s/he should have received (such remuneration is for instance often calculated in FR taking into account the professional usages). In the less common case where a better-seller clause would be enforced for proportional remuneration (as opposed to lump-sum based), courts would be able to revise the royalty percentage taking into account the exploitation of the work.

Creators would clearly support a contract adjustment mechanism. They would also welcome an alternative dispute resolution mechanism because they are usually reluctant to bring their contractual counterparty to court. As with Option 2, some of these stakeholders would consider that these mechanisms would only partially addresses their concerns about remuneration. Contractual counterparties would oppose these additional mechanisms on the basis of contractual freedom and the re-negotiation cost of contract adjustment. Consumers would welcome transparency obligations supported by these mechanisms.