January 8, 2021
This article was first published in European Intellectual Property Review, Issue 12, 2020
EU Member States have until 7 June 2021 to implement the Directive on Copyright in the Digital Single Market into their national legislation. This article focuses on the issue of “fair remuneration in exploitation contracts of authors and performers” and its impact on the audiovisual industry in the EU. The issue of how (not whether) to remunerate authors and performers often pits them against producers usually to the detriment of all concerned. Based on national experience, this type of legislation tends to engender legal uncertainty and disputes which beget litigation.
The process of national implementation of the Directive on Copyright in the Digital Single Market (the DSM Copyright Directive or the Directive)1 is now well underway. EU Member States have until 7 June 2021 to implement this controversial copyright instrument into their national legislation. It promises to be a wild ride—now with delays even more likely.2
While other provisions of the Directive were certainly more contentious, including in particular the debate over the so-called “value gap”, this article focuses on the important and sometimes divisive issue of “fair remuneration in exploitation contracts of authors and performers”,3 and in particular its impact on the audiovisual industry in the EU.4 It is divisive because the issue of how (not whether) to remunerate authors and performers often pits right holders against each other, usually to their mutual detriment. While the Directive may have caused an increase in the market value of author and performer stock, it is still too soon to determine whether it will bring actual net gains for authors and performers (i.e. increased remuneration and a better standard of living)—which in turn allows for and incentivises creativity and cultural diversity. On the other hand, the portfolios of film/TV studios, music labels, broadcasters and publishers took a hit. This in turn undermines their ability to invest in new content and therefore impedes creativity and cultural diversity. Based on national experience, this type of legislation tends to engender legal uncertainty and disputes which beget litigation—the lawyers will be busy.
In the EU, the vast majority of audiovisual producers are small to medium-sized companies (indeed this is often the case for most companies in the content sector). For them the Directive was not good news5 and they may find themselves squeezed between author and performer representatives on one side and powerful international players who are much better placed to deal with these new EU-level legislative burdens on the other. The situation is obviously exacerbated across the board by the current Covid-19 crisis.
In particular, Ch.3 of the DSM Copyright Directive establishes:
- a so-called remuneration principle (art.18);
- a transparency obligation (similar to audit rights) (art.19);
- a contract adjustment mechanism (also referred to as a “best-seller” clause) (art.20);
- a dispute resolution mechanism (art.21);
- a revocation right (art.22); and
- a specific ban on contractual overrides such that certain of these provisions (arts 19, 20 and 21) are considered to be of a mandatory nature (art.23).
The remuneration principle, revocation right, and ban on contract overrides are new features which were not part of the Commission’s original proposal.6 The first two are courtesy of the European Parliament (EP), while the latter comes from the Council. The Commission’s more limited approach to remuneration was intended to address what it termed an “information asymmetry” between authors/performers and those exploiting their rights, including as regards possible and actual exploitation and remuneration.7
As a general matter, these new “contract rights” are a further blow to contractual freedom in the content sector. Yet, these new provisions all have national antecedents across the European continent. These rights already exist in one form or another: remuneration principle in 14 Member States; transparency obligation in 19 Member States; contract adjustment mechanism in 15 Member States; and, revocation in 23 Member States. Such provisions are grounded in a paternalistic approach to copyright law that seeks to protect the weaker bargaining party by taking away her ability to contract freely,8 the theory being that if the rights are freely alienable, then the weaker party will be forced to give them up.
Of course, trade unions can play a role in countering such weakness but, in contrast to other industrial sectors, the “guilds” in EU Member States tend to be weaker than their counterparts in the US. Moreover, in many Member States, the indigenous audiovisual industry may itself not be well enough developed institutionally to be a viable long-term counter-party. Moreover, legislative lacunae or the operation of other norms (e.g. the potential application of EU competition law rules) may impede collective bargaining. For these reasons, authors and performers often prefer a remuneration right exercised by their collective management organisations (CMOs) against users (e.g. platforms) rather than vis-à-vis their initial contractual counterparties.
While the approach of legislative intervention in the contractual relations between producers (and other “exploiters”) and authors/performers is a hallmark of authors’ and related right holders’ systems in most of continental Europe, it presents a serious conflict with common law copyright systems such as in the UK and Ireland. Such approaches arguably further undermine the ability of the EU film and TV industry to compete internationally. With Brexit, it seems that the UK will not implement the Directive, assuming the current transition period holds.9 Of course, the UK may still engage in copyright reform, but the inclusion of provisions like those in Ch.3 of the Directive seems unlikely, unless they are significantly modified to avoid damaging the highly successful UK content sector.
At the same time, Ch.3 embraces the need to take into account the specificities of each content sector, and in particular recognises the important role that collective bargaining agreements (CBAs) can play in securing sectoral solutions, addressing unequal bargaining positions, and ensuring a wide range of protections for authors and performers. This helpful acknowledgement of CBAs may incentivise greater adoption and use of such agreements in the EU film/TV sector, particularly in Member States where they have not been prevalent previously. Indeed, the Directive’s embrace of CBAs already appears to be a discernible trend, at least on the basis of draft legislative and consultation documents, across a number of Member States. The situation will of course continue to evolve and other factors may need to be taken into account including for example the legal basis for collective bargaining in some Member States. The Directive provides a unique opportunity for unions representing audiovisual authors/performers.
A number of other useful mitigating provisions were added during the course of the legislative process, although many of them are optional. As a result, serious divergences in national laws will persist, despite the creation of new EU level principles in this field of copyright.
Indeed, these new “rights” are drafted in terms that leave considerable discretion to the Member States. However, in a number of countries, these provisions (or at least some of them) are quite alien to their current copyright laws. National implementation of this part of the DSM Copyright Directive is likely to vary between Member States, and will pose a particular challenge to the audiovisual industry as it seeks to comply with these differing approaches. For production and distribution companies which operate across multiple jurisdictions in the EU, there is an urgent need to put in place structures and procedures to ensure compliance—but of course much depends on how these norms are implemented into national laws.
Principle of appropriate and proportionate10 remuneration (art.18)11
As noted above, the Commission’s original proposal for the Directive did not include a general provision on remuneration, although there are pre-existing national examples.12 While the Impact Assessment13 accompanying the original proposal acknowledged the call by CMOs for an “unwaivable remuneration right”, it did not consider its effect beyond noting that contractual counterparties would object to such an approach on the basis that it would be too burdensome and would limit contractual freedom. Instead, the Commission focused on the so-called information asymmetry which it considered could be addressed by transparency and best-seller mechanisms.
As a result, groups representing authors and performers, including in particular audiovisual author/performer CMOs, were highly dissatisfied with the Commission’s approach. For them, the Holy Grail is an EU-level unwaivable remuneration right, i.e. a statutory right which is subject to mandatory collective rights management (CRM). Such remuneration rights stay with the author and performer when they transfer their exploitation rights to the producer, but must be administered by a CMO.14 The CMOs in turn “enforce” these rights against “users” (such as SVOD platforms) that are licensed by the producer (or its successor in interest). This mandatory CRM generally occurs regardless of what the underlying contracts between the producer and the author/performer stipulate and is usually unaffected by CBAs which provide for the payment of residuals (of course national legislation can vary and could take into account contractual approaches and/or CBAs). In the end, the author/performer CMOs were not successful in their bid to secure an EU-level statutory remuneration right. Instead what they have achieved is a legal basis for such rights at national level (though that basis is somewhat diminished by the last-minute removal of any reference to statutory mechanisms in either art.18 or its related Recitals) along with a potential to undermine or limit the use of lump sum payments in the form of a so-called principle of appropriate and proportionate remuneration. The removal of the reference to statutory remuneration is consistent with the overall approach of the Chapter, which is really about regulating the contractual relationship between producers and authors/performers rather than creating new remuneration rights that operate independently (or in spite) of that relationship. This approach also creates an opening for unions to instead achieve remuneration via CBAs rather than disruptive mandatory collective management.
Article 18 requires Member States to ensure that when authors and performers license or transfer their exclusive exploitation rights to a producer (or broadcaster, publisher, label etc) they are entitled “to receive appropriate and proportionate remuneration”. Member States have considerable discretion in respect of implementation of this principle into their national law. They should “use different mechanisms and take into account the principle of contractual freedom and a fair balance of rights and interests”. However, the inclusion of the term “proportionate” (particularly where the term “appropriate” is also already used) was a particular concern to producers as they will face arguments that authors or performers should be paid a share or percentage of the proceeds arising from the exploitation of the work.15 This could operate to the detriment of other arrangements such as lump-sum agreements, which may be the best approach—for all involved—in the case of some projects.
The question of what constitutes appropriate and proportionate remuneration and how can it be ensured is largely left to Member States. Recital 73 provides some guidance by explaining that appropriate and proportionate remuneration:
- relates to the actual or potential economic value of the licensed or transferred rights;
- takes into account:
- the author’s or performer’s contribution to the overall work;
- all other circumstances of the case, such as:
- market practices, or the actual exploitation of the work; and
- “can” take the form of a lump payment “but it should not be the rule”.
Insofar as lump sums are concerned, Member States may, taking into account the specificities of each sector, define specific cases for their application of lump sums. In other words, Member States have significant leeway to maintain or limit the use of lump sums. Moreover, their approach may vary depending on the content sector at issue.
DSM Copyright Directive, Recital 73 notes that the principle of appropriate and proportionate remuneration can be implemented
“through different existing or newly introduced mechanisms, which could include collective bargaining and other mechanisms, provided that such mechanisms are in conformity with applicable Union law”.
The specific reference to CBAs is constructive; however, Member States have considerable discretion and there is scope for other approaches, including ones that may conflict with or undermine CBAs. For example, it remains possible for Member States to introduce statutory remuneration rights regimes, provided that they are in conformity with EU law. As noted above, the remuneration principle in one form or another exists in many Member States, but statutory remuneration mechanisms (beyond those established specifically pursuant to EU and international norms) are far more limited.
Importantly, as will be discussed in more detail below, the remuneration principle is not immune from contractual override. In this regard, for audiovisual producers, the assessment of financial risk of a given project requires precise information on defined costs. Any measures that cause uncertainty decrease the ability of a producer to forecast and attract investment. Market practices in the international audiovisual sector are characterised by a combination of individual contracts and CBAs. Individual contracts may include upfront payments and/or shares of net or gross proceeds—or bonus payments based on box office performance or the number of viewers as well as other particularities specific to a given project including the nature and extent of the contribution, its value and the experience of the contributor. Each film or TV show is in effect a proto-type. In some cases, talent may prefer to be paid via lump sums/buy-outs because they would rather benefit from up-front or defined payments in order to avoid risk and financial uncertainty in light of the uncertain outcome of the film (and of course this generally does not affect statutory remuneration payments where they exist, e.g. for retransmission or private copying). The freedom to negotiate the most suitable remuneration model is crucial for the entire sector. At the same time, CBAs may include up-front payments and ongoing residual payments as well as a number of other payment options—not to mention other forms of protection including health and pension related measures. The CBA model can therefore actually operate as a means of securing appropriate and proportionate remuneration on a national, regional or even global basis. Legislation itself normally does not have extra-territorial effect.
Transparency obligation (art.19)
Article 19 establishes a transparency obligation for producers (and others such as publishers and labels). This obligation basically translates into an audit right for authors and performers. According to Recital 74, information is required so that authors and performers are in position
“to assess the economic value of rights of theirs that are harmonised under Union law. This is especially the case where natural persons grant a licence or a
transfer of rights for the purposes of exploitation in return for remuneration”.
However, this need does not arise in the case of end-users which do not exploit the works (this may be the case for “some employment contracts” but is likely to be limited); where exploitation has ceased; or in the case of free (i.e. presumably under certain creative commons type situations). Again, the rationale for this provision relates to the “weaker contractual position”.
Article 19 requires Member States—only in cases where “copyright relevant rights” are concerned16—to ensure that authors and performers receive:
• on a regular basis as long as exploitation is ongoing, at least once a year;
• taking into account the specificities of each sector;
• up-to-date, relevant and comprehensive information on the exploitation of their works and performances (including, where applicable, merchandising revenues)17;
• from those to whom they have licensed or transferred their rights or their successors in title in a comprehensible manner;
• notably as regards all modes of exploitation; and
• all revenues generated and remuneration due.
The text of the Directive goes beyond the Commission’s original proposal by extending the obligation to “sub-licencees” where “their first contractual counterpart does not hold all the [necessary] information”. The first contractual counterpart, in the audiovisual sector most likely the producer, is required to provide information as to the “identity of those sub-licensees”. Member States have the discretion to require that an information request aimed sub-licensees be “made directly or indirectly through the contractual counterpart of the author or the performer”. According to Recital 76, it is possible to reach an agreement that the shared information must remain confidential, “but authors and performers should always be able to use the shared information for the purpose of
exercising their rights under this Directive”.
Content producers, including in particular in the audiovisual sector (especially among SMEs), concerns relate to inter alia burdensome administrative requirements, the frequency and the scope of the required information—because all modes of exploitation are engaged and the number of right holders is potentially very large. In the case of audiovisual works, which are extremely risky business ventures, there are potentially numerous authors and performers involved. Article 19(2)–(3) anticipates some mitigation—but does not require it. While the transparency obligation must be “proportionate and effective in ensuring a high level of transparency in every sector”, Member States have the discretion to
“provide that in duly justified cases where the administrative burden … would become disproportionate in the light of the revenues generated by the exploitation of the work or performance, the obligation is limited to the types and level of information that can reasonably be expected in such cases”.
Moreover, Member States may abrogate the obligation where
“the contribution of the author or performer is not significant having regard to the overall work or performance, unless the author or performer demonstrates that he or she requires the information for the exercise of his or her rights under Article 20(1) [best-seller] and requests the information for that purpose”.
Finally, Member States also have room to manoeuvre where CBAs are involved in the event that
“the transparency rules of the relevant collective bargaining agreement are applicable, on condition that those rules meet the [requisite] criteria”.18
Recital 77 adds that CBAs “should ensure authors and performers the same or higher level of transparency as the minimum requirements provided for in this Directive”.
As a result, there is a scope to significantly mitigate the impact of this obligation and encourage the use of CBAs to establish the conditions for national audiovisual sectors. The problem is that such mitigation turns on national implementation, and the audiovisual industry faces a challenge in every Member State. The transposition of the Directive into the national laws of each the Member States will likely result in divergent approaches across jurisdictions, which presents additional challenges for audiovisual producers, particularly for those active in multiple Member States.
Recital 76 also provides discretion for Member States “to provide for further measures to ensure transparency for authors and performers”—i.e. do more—subject presumably to the limited parameters set above. In terms of the applicable law for compliance, producers will be likely focus on ensuring that they comply with the rules in the Member States where the film or TV is produced. The obligation does not extend to CMOs which are already subject to transparency and reporting requirements under Directive 2014/26/EU on collective rights management.19 As such, it is possible that some of the burden will be shouldered by CMOs where there is overlap. Compliance with art.19 must operate in strict compliance with applicable data protection norms, including the GDPR.
Finally, Recital 77 refers to the need for a transition period to ensure “adaptation of existing reporting practices to the transparency obligations”. Under the transitional provision set out in art.27, the transparency obligation will apply to agreements for the licence or transfer of rights of authors and performers as from one year after the transposition date of 7 June 2021.
Contract adjustment mechanism (art.20)
Contract adjustment mechanisms already exist in many EU Member States. The most notable example is in s.32a of the German Copyright Act, which has provoked quite of lot of litigation in Germany. It is tempered by reference to joint remuneration and collective bargaining agreements. As a result, there is limited exposure for major international studios except vis-à-vis dubbing artists (recent examples involving the German voices of Jack Sparrow/Pirates of the Caribbean and Michonne Katana/Walking Dead are cases in point) and of course for their German productions.
The art.20 contract adjustment mechanism or best seller clause (the Impact Assessment refers to it as a “better-seller” clause) requires Member States:
• in the absence of an applicable CBA providing for a comparable mechanism;
• to ensure that authors and performers or their representatives are entitled to claim additional, appropriate and fair remuneration;
• from the party with whom they entered into a contract for the exploitation of the rights or their successors in title; and
• when the remuneration originally agreed turns out to be disproportionately low compared with all the subsequent relevant revenues and derived from the exploitation of the works or performances.
The final text of the Directive is an improvement on the Commission’s original proposal, in particular with regard to CBAs. However, it also extends exposure to successors in title.
According to Recital 78, the rationale behind this rather brute force attack on pre-existing agreements reached at arm’s-length relates to the fact that some contracts
“are of long duration, offering few opportunities for authors and performers to renegotiate them with their contractual counterparts or their successors in title in the event that the economic value of the rights turns out to be significantly higher than initially estimated”.
The remedy is to create “a remuneration adjustment mechanism” which can intervene to rewrite contracts. The revenues to take into account in order to determine what is “disproportionate” are all relevant revenues, including revenues from merchandising. As with the other provisions in Ch.3, the relevant assessment “should take account of the specific circumstances of each case, including the contribution of the author or performer, as well as of the specificities and remuneration practices in the different content sectors, and whether the contract is based on a collective bargaining agreement.” In cases where authors and performers are already receiving royalties on an ongoing basis, it would seem difficult to sustain an action based on the mechanism, but again much will turn on national implementation in each Member State.
As there are concerns about the ability of individual authors and performers to exercise this right, Recital 78 also notes that their representatives
“should be able to provide assistance to one or more authors or performers in relation to requests for the adjustment of the contracts, also taking into account the interests of other authors or performers where relevant”.
Such representatives should protect the identities of their “clients” as long as this is possible. Ultimately, the mechanism should provide authors and performers with an enforceable claim before a national court or other competent authority. As with the transparency obligation, the mechanism does not apply vis-à-vis CMOs or independent management entities.
Dispute resolution procedure (art.21)
According to Recital 79, “authors and performers are often reluctant to enforce their rights against their contractual partners before a court or tribunal.” As a result, Member States are required to provide that disputes concerning the transparency obligation and the contract adjustment mechanism may first be submitted to voluntary, alternative dispute resolution. Authors and performers may rely on their representative organisations to initiate such procedures upon specific request. Member States have significant discretion to regulate the functioning of the ADR mechanism but it “should be without prejudice to the right of parties to assert and defend their rights by bringing an action before a court”.
Right of revocation (art.22)
Revocation rights already exist in one form or another in 23 Member States. However, art.22(1) would create an EU-level obligation for Member States to introduce a revocation right. It would apply when an author or a performer grants her rights on exclusive basis to a producer—for whole or partial revocation—on the basis of a lack of exploitation. Article 22(2) sets the ground rules for establishing specific provisions under law—these parameters of national discretion are elaborated in relatively flexible and broad terms.
Member States may take in account (a) “the specificities of the different sectors and the different types of works and performances”; and (b) in the case of collective works (audiovisual works), the “relative importance of the individual contributions, and the legitimate interests of all authors and performers affected
by the application of the revocation mechanism by an individual author or performer”. Based on these elements, Member States may exclude audiovisual works, underlying works licensed for use in audiovisual works and/or arguably craft other specific safeguards that fall short of full-fledged exclusion. Member States can establish time frames that are specific to different sectors. The option of terminating exclusivity as an alternative to revoking rights is also permitted.
However, per art.22(3), Member States must establish that exercise of the right is allowed only “after a reasonable time following the conclusion of the licence
or the transfer of the rights”. Notification and the setting of an appropriate deadline by which the exploitation is to take place are required. The possibility of terminating exclusivity is repeated in art.22(3), which may be a mistake. If this language is meant to be in art.22(3) rather than in art.22(2), where it is expressed as something that Member States may establish in their national laws, then arguably Member States are required to provide in their national laws that authors and performers have such a choice.
A further mandatory safeguard in art.22(4) says that the revocation right does not apply where non-exercise is “predominantly due to circumstances that the author or the performer can reasonably be expected to remedy”. In other words, if there is something they can do ensure exploitation of the work but they have not done it for example perhaps where their failure to act delays completion—then the right does not operate. While there is no mention of a specific provision requiring reimbursement by an author or performer (which is in the case in at least one national law), it is arguable that such a provision could be maintained in national law given the broad discretion left to Member States.
Finally, art.22(5) is susceptible to conflicting interpretations. On the one hand, it appears that the legislator (at least the EP from whence it came) assumes that the revocation right is a mandatory rule (i.e. not subject to contract override) since it seems to provide for an exception in the case of CBAs. On the other hand, it is couched in permissive terms, and per art.23 it seems that the revocation mechanism may not be mandatory. Article 22(5) provides that
“Member States may provide that any contractual provision derogating from the revocation mechanism provided for in paragraph 1 is enforceable only if it is based on a collective bargaining agreement”.
Article 23(1), which was apparently accepted early in the trilogue, provides that
“Member States shall ensure that any contractual provision that prevents compliance with Articles 19, 20 and 21 shall be unenforceable in relation to authors and performers”,
but does not refer to the right of revocation (or the principle of remuneration).
Recital 80, which provides a guideline for interpretation of art.22, sets out the justification for the revocation—where contributions are “not exploited at all”—and the need to allow authors/performers to “turn to another partner to exploit their works”. Thus, where there is partial exploitation, art.22 is not relevant. The ability to invoke the right should arise “after a reasonable period of time has elapsed”. As there was no scope for detailed consideration of the impact on different content sectors (let alone time to address them) and national rules vary considerably, the Recital notes that
“specific provisions could be laid down at national level in order to take into account the specificities of the sectors, such as the audiovisual sector, or of the works or performances, in particular providing for time frames for the right of revocation”.
The Recital also provides justifications (“legitimate interests of licensees and transferees of rights and to prevent abuses, and taking into account that a certain amount of time is needed before a work or performance is actually exploited”) for a series of safeguards for producers and other licensees. The fact that a particular safeguard is not specifically mentioned does not rule it out, given the broad language used here. Moreover, even broader discretion is granted to Member States for “works or performances involving more than one author or performer, taking into account the relative importance of the individual contributions” (i.e. collective works such as audiovisual works). The national implementation of this provision is therefore likely to vary considerably.
Article 22 is a classic example of compromise provision in an EU directive. It is crafted in relatively high level (and unclear) terms and (like the other provisions in Ch.3) leaves Member States substantial discretion to implement it as they see fit. The elaboration of this compromise was hampered and at the same time heavily influenced by a number of factors:
• the right was not part of the initial Commission proposal and there was no Impact Assessment;
• while a revocation right is established in many Member States, national approaches vary significantly;
• the Commission, driven by its desire to adopt the Directive at any cost, played the co-legislators (Council and EP) off against each other;
• the difficulty of addressing the varying needs of different sectors (and of course interest groups); and
• severe time constraints and massive political pressure to achieve a result—any result. This of course made meaningful, informed debate/consideration basically impossible.
The varying (extant) approaches in Member States are a particularly important factor. In such a case, the EU legislator tends to content itself with minimum harmonisation—secure the adoption of a revocation right across the EU but avoid forcing Member States with existing frameworks to change them materially. It is likely that those Member States which already have revocation rights will resist altering them on the basis of an assertion that their current laws are compliant with the Directive. Even if certain national provisions may have particularities or exclusions that are not mentioned specifically in art.22, a broad interpretation of this new provision will be advanced and it certainly leaves ample discretion. Ultimately, the European Court of Justice will be the final arbiter of what art.22 really means.
The establishment of the revocation right at the EU level is a particular problem for the audiovisual industry albeit such rights already featured in 23 national laws prior to the DSM Copyright Directive, but often with specific safeguards or exclusions for that sector. There are serious concerns including with respect to the licensing of underlying works (e.g. books or plays) or films for remakes. The specific reference to the audiovisual sector in Recital 80 confirms that the EU legislator recognised that a multitude of creative contributors may be involved in the production of a film or TV series. Such works tend to have long (sometimes very long) development periods before they are actually produced and distributed. Before the development phase (and indeed as well during this period), an audiovisual producer will secure rights in elements such as a script for the creation of an audiovisual work and acquire “option” rights in underlying works (e.g. a book, a play, a song or even excerpts of such works) which are intended for use or adaptation into a film or TV series. The risk of revocation of any of those underlying rights during the development phase of a work could condemn the production of that work entirely and disincentivise investment. At that stage, or at later stages, revocation risks harming authors, performers and producers alike (for example where one author revokes and the project lapses, the other authors and performers—as well as the producer—all suffer). Member States will therefore need to implement serious safeguards and consider (as is the case in some Member States) the exclusion of rights in audiovisual works including the rights in underlying works from the scope of national revocation rights. Such a carve-out is permitted by art.22. In any event, individual business decisions and licensing terms will need to be adapted. Lower upfront payments may become more the norm.
Common provisions (art.23)
On the basis of a proposal from the Council, which was accepted by the EP in the trilogue, the text also inserts a specific ban on contractual overrides in the following terms:
“Member States shall ensure that any contractual provision that prevents compliance with Articles 19, 20 and 21 shall be unenforceable in relation to
authors and performers.”
This provision does not apply in respect of the remuneration principle or the revocation right, and therefore contractual derogations would be possible.
Recital 81 stipulates that the obligations in arts 19, 20 and 21
“should be of a mandatory nature, and parties should not be able to derogate from those provisions, whether in contracts between authors, performers and their contractual counterparts, or in agreements between those counterparts and third parties, such as non-disclosure agreements. As a consequence, Article 3(4) of Regulation (EC) No 593/2008 of the European Parliament and of the Council (17) should apply to the effect that, where all other elements relevant to the situation at the time of the choice of applicable law are located in one or more Member States, the parties’ choice of applicable law other than that of a Member State does not prejudice the application of the provisions regarding transparency, contract adjustment mechanisms and alternative dispute resolution procedures laid down in this Directive, as implemented in the Member State of the forum” (emphasis added).
Specific exclusion of the remuneration principle and revocation mechanism from the art.23 ban on contract overrides is helpful to producers. However, Member States have the discretion to make all the provisions mandatory and national courts may consider them as such as well.
The issue of the extent to which a non-EU national (for example US writers, directors or performers) would have standing to claim the protection established by these provisions in respect of an audiovisual work exploited in an EU Member State raises a number of complex issues relating to national treatment and applicable law—or indeed in certain cases initial questions of jurisdiction (for example in some situations EU national courts may not have jurisdiction). These matters are dealt with only partially and briefly here.
It is arguable that non-EU audiovisual authors and performers do not have standing to assert the new protections under arts 18–22 of the Directive on the basis that national treatment rules under international copyright and related rights treaties simply do not go that far.20 That position is somewhat stronger as regards performers (i.e. in respect of related rights) on the basis that national treatment under related rights treaties is generally narrower. Of course, there may be other means for protection to attach—such as simultaneous publication. With that in mind, it could be contended that the “contractual rights” protections under arts 18–22 of the Directive are sufficiently removed from the rights protected under international treaties so as to escape the
application of the national treatment obligation.
Assuming that there is a basis for non-EU audiovisual authors and performers to assert these protections (including UK nationals after the Brexit transition period), the question then becomes whether a national court of an EU Member State will enforce a clause in, for example, a US contract that operates to deprive someone of these protections—a question that is generally a matter of domestic private international law (conflicts of law rules). Article 23 provides that these provisions (though not the remuneration principle and revocation right) should be considered “mandatory”. If Member State courts do set aside contradictory terms in a contract governed by US law, the author or performer that claimed these protections in the EU may find herself liable for breach of contract back in the US (law of the jurisdiction of the contract). Obviously, multiple permutations in the hypothetical scenario of a US author or performer in US production are possible—mixed scenarios are of course more complicated (e.g. EU performers in US productions).
Regarding applicable law for copyright, the basic rule is found art.5(2) of the Berne Convention: the applicable law is the law of the country where protection is sought.21 However, as a general principle, there is a distinction to be made in the application of national law concerning fundamental issues (e.g. creation, authorship and first ownership, content and term of protection) and the applicable law, which may regulate more mundane issues relating to the exercise of the rights under the contract. Where the line should be drawn between these fundamental issues and mere contractual matters related to exercise of rights is often not particularly obvious.
Based on the argument that requirements related to transparency, contract adjustment (by its very wording a contractual matter), revocability, and the general principle of remuneration are related to the exercise of copyright, we move away from applicable law rules established by international copyright treaties and need to consider general principles of private international law.
At EU level, the rules concerning private international law are contained in the Rome Convention of 198022 (which applies to contracts concluded after 1 April 1991) and its successor instrument, the Rome I Regulation (which applies to contracts concluded after 17 December 2009). Rome I has universal application (art.2).
According to art.3 of both of these instruments, the parties to a contract are generally free to choose the law governing their agreement. This choice may either be explicit or implied in light of the terms of the contract or the circumstances of the specific case. For example, where the parties to a production contract have chosen the application of US (or state) law, it will govern the contract, even if the contract has no connection with the US (see also art.4, where the contract is silent on the issue of applicable law).
Assuming that US law would apply to a contract either by virtue of specific choice of law in the contract or by reference to a close connection, the question becomes whether the provisions in the contract (e.g. waiver), which operate to deprive the author or performer of otherwise benefiting from arts 19–21, and that are presumably acceptable from the US perspective, will be recognised in the EU Member States. Article 23 suggests that the answer is no—at least with regard to the transparency obligation, best-seller and dispute resolution provisions. As noted above, that article states that these provisions are not subject to contractual override, and Recital 81 says that they are of a mandatory nature. However, there may be a question as to whether they qualify as “overriding mandatory provisions” under the Rome I Regulation.
In the EU, there are exceptions to the parties’ freedom to choose the law governing their contracts and which, therefore, may present an obstacle to waivers or other clauses operating to deprive authors and/or performers of their “rights” under the Directive. The first involves the so-called mandatory rules of substantive law23 that must be respected, and the second is public policy.
Article 9 of the Rome I Regulation provides that “overriding mandatory provisions” must be respected. These may be mandatory provisions of the forum or of a
third country.24 Such mandatory provisions are applied irrespective of the conflicts of law rules and therefore trump the law of the contract. Article 9(1) Rome I
Regulation describes overriding mandatory provisions as
“provisions the respect of which is regarded as crucial by a country for safeguarding its public interest, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation”.
Article 23 and Recital 81 have established that the transparency obligation, contract adjustment mechanism and dispute resolution provisions are mandatory rules including vis-à-vis non-EU contracts—but do they meet the requirements of art.9(1)?
Moreover, does the language in Recital 81 leave any room for interpretation? It makes specific reference to art.3(4) of the Rome I Regulation, whose purpose is to ensure that parties do not stipulate a non-EU law in an effort to avoid application of EU law. Recital 81 might be read to suggest that it is still possible for the parties’ choice of applicable law (other than that of a Member State) to prejudice application of arts 19–21 unless
“all other elements relevant to the situation at the time of the choice of applicable law are located in one or more Member States all other elements relevant to the situation at the time of the choice are located in one or more Member States”.
In the case of US contracts between producers and authors/performers, the intention is not to circumvent EU law. At the time of the choice, US law is chosen because it is the law most closely connected to what is going on between parties—it is quite possible that none of the elements relevant to the situation at the time of the choice are located in one or more Member States.
Finally, it seems unlikely that arts 18–23 would be considered as ordre public (art.21 of Rome I) as they do not have emergency character to apply in exceptional circumstances.
Application and transitional provisions
The DSM Copyright Directive will apply to all works and other subject-matter which are protected by national law in the field of copyright on or after 7 June 2021. In this regard, the Directive appears to be retrospective—applying to all content that is in copyright on the national implementation deadline without regard to when that content was created. Thus, while the Directive will only apply to dealings occurring on or after 7 June 2021, it would appear to regulate pre-existing works and other subject-matter. However, as a matter of principle, EU law generally prohibits retroactive effect unless it is expressed in clear and uncertain terms. The requisite clarity and certainty are definitely lacking here. In any event, art.26(2) provides that the application of the Directive is “without prejudice to any acts concluded and rights acquired before 7 June 2021”. This provision may temper the retroactive effect of the DSM Copyright Directive. It appears to presume that contractual arrangements for copyright acquisition and exploitation are static—i.e. that they occur at a single point in time, and thus it is easy to determine whether this is on or after the date of transposition. It is certainly an arguable position that in any contract which transfers rights, all such rights are acquired at the time of signature, although some may be conditional on events subsequently taking place, such as investment recoupment, or revenue thresholds being met.
In practice, however, the situation is likely to be less clear-cut and, unhelpfully, there are no Recitals in the DSM Copyright Directive to elucidate on its application in time, in particular vis-à-vis the provisions in Ch.3 in respect of fair remuneration in exploitation contracts of authors and performers. While the view of the legislator appears to be that the terms of pre-existing contracts are irrelevant, because at least certain of these new provisions override them, such an approach ignores the fact that there may be other triggers in such contracts that still come into play (such as clauses that give rise to re-negotiation rights or termination rights in the event of material changes in circumstances). It is possible therefore that some pre-existing and conflicting contractual terms may in some cases remain valid.
In this context, the art.23 ban on contractual overrides described above is of course intended to ensure that the parties cannot derogate from at least certain the author and performer remuneration provisions of Ch.3. This includes the contract adjustment mechanism under art.20, which (as noted above) entitles authors and performers or their representatives to claim additional, appropriate and fair remuneration from the party with whom they entered into a contract for the exploitation of the rights (or its successors in title), when the remuneration originally agreed turns out to be disproportionately low compared with all the subsequent relevant revenues derived from the exploitation of the works or performances. It would have been clearer and preferable if the timing of the applicability of art.20 had been addressed explicitly in the Directive. The “without prejudice” language in art.26 would nevertheless appear to preclude authors and performers or their representatives from claiming additional remuneration for any act of exploitation taking place prior to 7 June 2021.
In this regard, it would seem contrary to general principles of EU law, legitimate expectations and the Charter of Fundamental Rights (now enshrined in the Treaty on the Functioning of the European Union) to apply art.20 more broadly (and similar reasoning would apply to the other provisions in Ch.3). In addition, the reference to “all the subsequent relevant revenues” in art.20 should apply only to such revenues after the transposition date (subject of course to pre-existing national laws). The lack of clarity in respect of the application in time of the DSM Copyright Directive’s provisions on author and performer remuneration, particularly concerning the ability to claim additional remuneration, is likely to lead to disputes and could result in litigation before the EU courts. In any event, that lack of clarity supports application of the general rule against retroactivity.
Recital 77 refers to the need for a transition period to “enable the adaptation of existing reporting practices to the transparency obligation”. The transitional provision in art.27 therefore creates an additional one year grace period (until 7 June 2022) in respect of agreements for the licence or transfer of rights of authors and performers insofar as the transparency obligation set out in art.19 is concerned. It is again unclear, however, whether authors and performers can require audit reports after the transitional period in respect of existing contracts, or only with respect to contracts concluded after that date. The general rule against retroactivity, the lack of clarity, and art.26(2), all suggest that art.19 is intended to be and/or should be interpreted as prospective and only applies to contracts concluded after the transitional period has ended. Here again, the issue is likely to come before the courts.
In this context, the Commission reportedly disagrees that the operation of arts 26(2) and 27 means that the Directive will not apply to contracts in force before 7 June 2021. The Commission contends that the term “acts concluded” refers to the acts of exploitation and not agreements concluded. In this regard, the Commission has apparently referred to the legislative history of the 2001 Copyright Directive (which contained an identical clause) and the Opinion of Advocate General Sharpston in the VG Wort case,25 which took the view that “acts concluded” referred to acts of reproduction. However, this interpretation, which was heavily influenced by the specific legislative history of the 2001 Copyright Directive, should be seen in the context of the particular facts of the case—i.e. that it pertained to a private copy levy system, and hence the “acts concluded” could not have referred to a contract and, thus, should not be determinative of the issue.
1 Directive 2019/790 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC  OJ L130/92. The European Parliament (EP) adopted the Directive on 26 March 2019, and the Council approved it on 15 April 2019 (Italy, Finland, Luxembourg, the Netherlands, Poland and Sweden voted against adoption, whereas Belgium, Estonia and Slovenia abstained). It was subsequently published in the Official Journal of the European Union (OJ) on 17 May 2019 and took effect on 7 June 2019. See, generally, T. Shapiro and S. Hansson, “The DSM Copyright Directive: EU Copyright Will Indeed Never Be the Same” (2019) 41 E.I.P.R. 404.
2 On national implementation of Directive 2001/29 on the harmonisation of certain aspects of copyright and related rights in the information society (also referred to as the Information Society Directive)  OJ L167/10–19, which was completed in 2006, see, generally, B. Lindner and T. Shapiro, Copyright in the Information Society: A Guide to National Implementation of the European Directive, 2nd edn (Cheltenham: Edward Elgar, 2019).
3 See Chapter 3 of the Directive. In the Commission’s original proposal (Proposal for a Directive of the European Parliament and of the Council on Copyright in the Digital Single Market COM(2016) 0593 final, 2016/0280 (COD)), it was entitled “Fair remuneration in contracts of authors and performers”. The purpose of the modification was to clarify that the provisions apply to “exploitation contracts” as opposed to more generally.
4 On film copyright, see, generally, P. Kamina, Film Copyright in the European Union (Cambridge: Cambridge University Press, 2016).
5 The quest to bridge the value gap (art.17) was predominantly driven by the music sector: see Shapiro and Hansson, “The DSM Copyright Directive” (2019) 41 E.I.P.R.404, 409–413.
6 This is only the tip of the iceberg compared with the extent of national-level copyright contract legislation in the EU, including specific regimes for audiovisual copyright which revel in tying industry’s hands behind its back. Issues include limitations on, requirements for and/or provisions on:
• transmissibility/divisibility of copyright/in writing/registration/priority of transfers;
• statutory presumptions of transfer/grant;
• timelimits/construction of grants/unfair clauses—restrictive interpretation—list of modes of exploitation;
• bans on licensing future works/unknown use;
• collective bargaining and professional agreements; and
• transfer to third parties.
7 Commission Staff Working Document, Impact Assessment on the Modernisation of EU copyright rules, SWD(2016) 0301 final, 2016/0284 (COD), 1/3, at 174. See also L. Bently, M. Kretschmer, T. Dudenbostel, M. del Carmen Calatrava Moreno and A. Radauer, “Strengthening the Position of Press Publishers and Authors and Performers in the Copyright Directive”, Study commissioned by the European Parliament, PE 596.810 43 (2017).
8 According to DSM Copyright Directive, Recital 72: “Authors and performers tend to be in the weaker contractual position when they grant a licence or transfer their rights, including through their own companies, for the purposes of exploitation in return for remuneration, and those natural persons need the protection provided for by this Directive to be able to fully benefit from the rights harmonised under Union law. That need for protection does not arise where the contractual counterpart acts as an end user and does not exploit the work or performance itself, which could, for instance, be the case in some employment contracts.” On the issue of distributive justice in copyright law, see G. Priora, “Catching Sight of a Glimmer of Light: Fair Remuneration and the Emerging Distributive Rationale in the Reform of EU Copyright Law” (2020) 10 J.I.P.I.T.E.C. 330, n.9 provides a useful list of relevant articles.
9 See “Copyright: EU Action: Written question—4371” at https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons /2020-01-16/4371/ [Accessed 6 October 2020].
10 Not proportional—the term used in the French Intellectual Property Code (IPC)—which would now appear at odds with the Directive (see below).
11 For a view on the utility of this provision subject to national implementations, see G. Priora, “The Principle of Appropriate and Proportionate Remuneration in the CDSM Directive: A Reason for Hope?” (2020) 42 E.I.P.R. 1.
12 See, e.g. s.32 of the German Copyright Act for example requires “equitable remuneration” for “the granting of rights of use and permission to use the work”. A joint remuneration agreement (s.32(2)-(2a)) or a CBA (s.32(4)) are potential means of satisfying this requirement.
13 See Commission Impact Assessment, SWD(2016) 0301 final, 2016/0284 (COD), p.179 (and n.557).
14 In most jurisdictions around the world (including in the EU), exploitation rights are consolidated in the producer by operation of law and/or contract in order to facilitate the effective financing, production and distribution of audiovisual works. Thus, the producer generally controls all necessary rights to license the work. The issue of music rights in audiovisual works is yet another can of worms.
15 cf. French IPC art.L131-4: Assignment by the author of the rights in his work may be total or partial. Assignment shall comprise a proportional participation by the author in the revenue from sale or exploitation of the work. However, the author’s remuneration may be calculated as a lump sum in the following cases:
(1) the basis for calculating the proportional participation cannot be practically determined;
(2) the means of supervising the participation are lacking;
(3) the cost of the calculation and supervising operations would be out of proportion with the expected results;
(4) the nature or conditions of exploitation make application of the rule of proportional remuneration impossible, either because the author’s contribution does not constitute one of the essential elements of the intellectual creation of the work or because the use of the work is only of an accessory nature in relation to the subject matter exploited;
(5) assignment of rights in software; and
(6) in the other cases laid down in this Code.
Conversion, at the author’s request, between the parties of the rights under existing contracts to lump-sum annuities for periods to be determined between the parties shall also be lawful.
16 DSM Copyright Directive, Recital 75.
17 DSM Copyright Directive, Recital 75.
18 DSM Copyright Directive art.19(5).
19 Directive 2014/26 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market Text with EEA relevance  OJ L82/72.
20 See S. Ricketson and J.C. Ginsburg, International Copyright and Related Rights, 2nd edn (Oxford: Oxford University Press, 2006), para.6.99 (on national treatment more generally see paras 6.93 and 6.95); M. Ficsor, Guide to the Copyright and Related Rights Treaties Administered by WIPO and Glossary of Copyright and Related Rights Terms (WIPO, 2004), para.BC5.11; and H. Desbois, A. Françon and A. Kerever, Les Conventions Internationales du Droit d’Auteur et des Droits Voisins (Paris: Dalloz, 1976), para.136.
21 Note also that art.14bis(2)(a) of the Berne Convention provides that the ownership of rights in a cinematographic work must be determined in accordance with the law of the country where protection is claimed. In the EU, the principal director, and potentially others which may be designated under national law, must be considered the author(s) of the work (art.2(1) of Directive 2006/116 on the term of protection) and, since Luksan v Petrus van der Let (C-277/10) EU:C:2012:65;  E.C.D.R. 5, the principal director is the first owner of the copyright in the AV work as well.
22 Convention on the Law Applicable to Contractual Obligations (80/934/EEC) of 19 June 1980.
23 In this regard, it should be noted that s.32b of the German Copyright Act provides in essence that the application of the rights to equitable remuneration (s.32) and to further participation (s.32a i.e. the best seller clause) are “compulsory”. They are thus mandatory rules which may not be avoided in Germany.
24 For the sake of brevity, the issue of mandatory rules of third countries is not considered here.
25 See Opinion of Advocate General Sharpston in VG Wort (C-457/11 to C-460/11) EU:C:2013:426;  E.C.D.R. 4, in particular –.