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The bill is going along with a number of internationally noticed and discussed decisions of the German Bundesgerichtshof (BGH), the highest national court in civil matters, and lower regional courts regarding the determination of a fair share for authors and performers such as screenwriters, directors of photography, graphic designers or even dubbing actors. At the same time the European Commission is working on a directive revising the European copyright law featuring a right to equitable remuneration for authors and performers as well.
What are the consequences for the production and distribution of works protected by copyright such as music, books or motion pictures in Germany and across Europe?
1. Economic and social situation – fair share of what?
Copyright law is the legal basis of the cultural and creative economy, an economy that contributes substantially to the value creation in Germany as well as in Europe and all other industrial counties. The cultural and creative economy is in this context understood as all companies which deal with the creation, production and distribution of cultural goods and services.
According to data of the German Federal Ministry of Energy and Economic Affairs (BMWi) the cultural and creative economy has contributed in 2012 EUR 63.6 billion to the German gross value creation – more than the chemical and the energy industry (the former with EUR 40.3 billion, the latter with EUR 54.9 billion) and insignificantly less than the financial services sector (with EUR 67.8 billion). Despite of this impressing gross value the economic and social situation in particular of the self-employed creative artists and authors is sometimes unfortunate.
There are of course a number of successful authors and performers out there, but the large number earns only a low income. The data from the German artists’ social security fund in 2014 show that the annual average income of authors in the “word” sector was about EUR 18,500 on average, whereas authors in the “music” sector made about EUR 12,600. For comparison: According to the German Federal Statistical Office the annual gross average income of German households in 2012 was about EUR 28,800.
The German legislator blames this situation on the fact that in Germany as well as in most other European countries – unlike in the United States – authors and performers are badly organised and therefore have only weak collective negotiating power. Aside of that the high number of available freelance authors and performers as well as their high motivation and urge to find social recognition leads according to the German and also the European legislator to a “disturbed contractual parity” and makes them accept the particular low remuneration.
Further the legislator insists that whoever tries to assert the legal entitlement to an appropriate remuneration as an individual author or performer risks being blacklisted(see the reasoning of the German bill to improve the implementation of the entitlement of authors and performing artists to equitable remuneration,BT-DS 18/8625).
2. Buyout contracts – the bone of contention
The legislator in particular criticises so called total buyout contracts in which authors or performers agree to an unlimited transfer of all rights of use for all known and unknown forms of use against a low one-time payment. Although such buyouts are in many creative sectors common practice and acceptable if the one-time remuneration is fair, the basic principles of copyright – a limited transfer of rights only to the extent necessary and an economic share in the proceeds from every use – do not come fully into effect.
From a producers or distributors point of view buyouts are often necessary to make a reliable project calculation and to reduce the expenses of contractual implementation and accounting. Aside of that in the cultural and creative sector, in particular in the movie, games and publishing industry, the business risk with respect to the individual media product is generally quite high.
Success or failure of media products do neither depend on the invested expenditure for the creative works or the artistic interpretation nor on the cultural or aesthetic quality.With few exceptions it is empirically impossible to calculate the success of a media product.
Therefore cross-subsidisation and mixed calculations among a preferably high number of media products are indispensable and this is much easier to do with lump-sum remunerations rather than with an ongoing share of proceed for each and every author and performer involved. But why should authors and performers lower the business risk of the exploiter by accepting low lump-sum remunerations in particular in the rare case of a successful exploitation of their copyright?
3. The right to equitable remuneration in Germany – a role model?
3.1. Established in 2002
In 2002 the German government established the entitlement to an equitable remuneration for authors and performers in law for the first time. Back than the legislator also introduced the legal instrument of joint remuneration agreements according to which associations of authors or performers are to agree with associations of exploiters or individual companies on appropriate remuneration.
According to Art 32 of the German Copyright Act authors and performers are entitled to an equitable remuneration irrespective of the actual subsequent success or failure of the exploitation of the respective work. The claim can be enforced against the contractual partner of the author/performer. If the claim is successful the court adapts the respective remuneration clause in the contract. This is obviously an intense intervention in the fundamental legal principle of contractual freedom.
Further how can be determined what is equitable? Art. 32 states that any remuneration agreed in collective bargaining agreements or in joint remuneration agreements is always equitable. Aside of that the law provides a very vague definition of what is considered to be equitable: If the remuneration corresponds to what is “customary and fair”at the time the agreement is concluded, given the nature and extent of the possibility of exploitation granted, in particular the duration and time of exploitation, and considering all circumstances.
According to Art 32a of the German Copyright Act authors and performers are furthermore entitled to an additional fair compensation, if the agreed remuneration later turns out to be “conspicuously disproportionate to the proceeds and benefits derived from the exploitation of the work”.
This so called “best seller” or “fairness”Article can be enforced against the contractual partner of the author/performer as well as against a third party if the contractual partner has transferred the exploitation right or granted licenses to such third party and if the conspicuous disproportion results from proceeds or benefits enjoyed by such third party. In this case the third party is directly liable to the author/performer taking into account,however, “the contractual relationships within the licensing chain” (Art. 32a Section 2 German Copyright Act).
So ultimately according to German Copyright law authors and performers have a right to equitable remuneration against any authorised exploiter within a license chain. Art 32 and 32a of the German copyright Act are overriding mandatory provisions. They cannot be waived or circumvented to the detriment of the author/performer by contractual agreements or by the contractual choice of a foreign law.
A number of decisions of the German Federal Court of Justice (BGH) and of lower regional courts shaped the legal prerequisites. The courts had to determine the amount of equitable remuneration as well as detailed criteria for the assessment thereof for authors and performers such as translators, journalists, screenwriters, directors of photography and dubbing actors.
In the follow-up to two of the judgements of the Federal Court of Justice (BGH), the defendant publisher even appealed to the Federal Constitutional Court (BVerfG) to have Art 32, 32a of the German Copyright Act reviewed on constitutional grounds. The constitutional complaints were rejected and Art 32 and 32a of the German Copyright Act were approved as constitutional (BVerfG, Decision of 23 October 2013 – 1 BvR 1842/11 and 1 BvR 1843/11).
Further – after a slow start and more court proceedings – during the last 15 years associations of exploiters and even single companies have agreed with associations of authors and performers on more than 15 different joint remuneration agreements, for example for journalists of dailies, for film and television directors and screenwriter as well as for book authors and translators.
3.2. The 2017 reform of the German Copyright Act
The right to equitable remuneration set out in 2002 was ever since highly controversial. Associations of authors, associations of exploiters and even the courts were complaining about the vague legal definitions and the difficulties to determine generally valid equitable remuneration standards for authors and performers in the different sectors.
Almost 15 years after the enactment of the legal provisions the legislator was still dissatisfied with the execution and outcome of the law and could not see a significant improvement of the situation of authors and performers. The legislator still assumed a lack of contractual parity, inappropriate contractual conditions and blacklisting of inconvenient authors and performers.
As a result, the legislator induced another reform of the German Copyright Act including a number of provisions regarding the equitable remuneration of authors and performers. Most of the provisions entered into force on March 1, 2017.
The legal definition of equitable remuneration in Art 32 of the German Copyright Act has been amended by the parameters “frequency and scope” of use of a work so thata frequent and intense use of a work has a direct impact on the remuneration to be paid. One-time payments will still be permitted if considered customary and fair given the nature and extend of the possibility of exploitation rights granted– however it will become even more difficult to lawfully conduct them as the exploiter will have to prove the adequacy of a total buy-out.
The legislator established a right of authors and performers to extensive information vis-a-vis their contractual partner and each “commercially significant” distributor in the license chain regarding the scope of the use of their works and the income generated (Art 32d and 32e German Copyright Act).
The provisions serve to put authors and performers in a position to assess whether they have received a fair remuneration. The reasoning behind these provisions is also grounded in the author's moral right to be informed about the distribution of the work. The new information right can be invoked yearly, at the author’s or performer's discretion.
Pursuant to a newly introduced provision, performing artists are entitled to a separate appropriate remuneration if the contracting partner starts to use the work in an exploitation method that was unknown at the time the conclusion of the contract but has been granted as such unknown exploitation method.
Art 36b introduces a provision which enables class action type lawsuits against a party whose contractual practices deviate from the relevant joint remuneration agreements to the detriment of an author/performer. The class action remedy provides for injunctive relief to prevent such unlawful contractual practices. That contracting party (e.g. producer or publisher) would then be required to comply with the joint remuneration agreement specific to that sector.
Art 40a provides that authors who grant exclusive exploitation rights against a one-time payment can exploit their work elsewhere on a non-exclusive basis after ten years. The rights granted to the contractual partner will then remain in place only as a non-exclusive licence. Although Art 40a is not applicable to contributions of performers and not to works as part of audio-visual productions, it will have, however, major impact in the publishing and the design sector.
Further the period during which authors can exercise a revocation right in case of non-use of a work was shortened from 5 to now 2 years (Art 41 German Copyright Act). This shortening again is not applicable for authors contributing to audio-visual works.
Finally the legislator limited the exclusivity of filming rights(Art 88 of the German Copyright Act).In the past remake rights were freely negotiated and only if there was nothing agreed on the author was allowed to grant licences to a third party after 10 years.
The 10 years term now has been made mandatory, i.e. every author (e.g. scriptwriter) may grant remake rights to a third party after 10 years. This mandatory limitation in time again will simply render already granted remake rights as non-exclusive.
All of the new provisions mentioned above may be derogated from to the detriment of the author/performer only via joint remuneration and collective bargaining agreements.
Overall the legislator pursued his goal through intense restrictions of the contractual freedom in copyright contract law and through an increase of legal uncertainty. The increased legal uncertainty is intended to stir exploiters towards negotiating joint remuneration agreements and collective bargaining agreements faster and more frequently than in the past.
The increasing legal uncertainty affects not only exploiters of copyrights but also authors and performers who therefore complain that the reform does not go far enough. Case law will once more have to define and interpret the new provisions in greater detail. It is seriously questionable that the legislators’ goal to promote the conclusion of joint remuneration and collective bargaining agreements will be successful. Actually one of the few existing joint remuneration agreements between publishers and journalists has recently been terminated by the publishers association expressly due to the uncertainty spread by reform of the Copyright Contract Law.
Considering the high level of legal uncertainty, the extremely time-consuming and cost-intensive court proceedings going along with the enforcement of the right to equitable remuneration and the less than convincing benefits for the majority of authors and performers, the German legislation unfortunately does not qualify as a recommendable role model.
Nevertheless the Netherlands enacted comparable legislation in 2015 to strengthen the contractual negotiating position of authors and performers. The French government introduced regulations for appropriate remuneration of eBooks in 2014 by amending the provisions of the French Copyright Act andthe European Union is also discussing about how to implement a right to equitable remuneration of authors and performers.
4. The Approach of he EU
According to consistent case-law of the European Court of Justice, the right of authors and performers to an equitable remuneration is part of the European copyright law. But unlike the exploitation rights, the copyright contract law has until lately not been an urgent task of the European legislator. An overview of the status quo in different national legislations of EU Member States is provided in a 2014 study of the European Parliament (“Contractual Arrangements applicable to Creators: Law and Practice of Selected Member States).
Since the European Commission published its Digital Single Market Strategy for Europe it is also officially announced that measures are to be taken to secure equitable remuneration for authors and performers. In September 2016 the European Commission released a “Proposal for a Directive on Copyright in the Digital Single Market” including provisions regarding the fair remuneration in contracts of authors and performers.
The European Commission argues that certain groups of authors and performers, such as those new to the industry, are in a weaker bargaining position than others.They get locked into long contracts with relatively unfavourable terms.
Authors and performers need more information to assess the continued economic value of their rights, but instead often face a lack of transparency. Further there should be a remuneration adjustment mechanism for cases where the remuneration originally agreed is disproportionately low compared to the relevant revenues and benefits derived from the exploitation of the work or the fixation oft he performance.
Where the parties do not agree on the adjustment of the remuneration, the author or performer should be entitled to bring a claim before a court or other competent authority. Member States should provide for an alternative dispute resolution procedure that addresses claims related to obligations of transparency and the contract adjustment mechanism (see reasons number (40) to (43) of the Proposal for a Directive on Copyright in the Digital Single Market).
Therefore Article 14 of the proposed directive provides a transparency obligation comparable to Article 32d and 32e of the German Copyright Act. Authors and performers shall receive sufficient information on the exploitation of their works and performances on a regular basis as regards modes of exploitation, revenues generated and remuneration due.
However, the administrative burden resulting from the obligation must be proportionate in view of the revenues generated by the exploitation of the work or performance and the obligation can be excluded if the contribution of the author or performer is not significant with regard to the overall work or performance.
Article 15 of the proposed directive instructs Member States to ensure that authors and performers are entitled to request additional,appropriate remuneration from their contractual partner if the remuneration originally agreed is disproportionately low compared to the subsequent relevant revenues derived from the exploitation.
After all according to the proposal of the European Commission authors and performers can enforce their right to equitable remuneration only against their contractual partner and only in case of an (unexpected?) successful exploitation of the work while in Germany the fairness of the contractually agreed remuneration can be subject to judicial review irrespective of the actual exploitation (Art 32 German Copyright Act).
Further in Germany the right to additional remuneration in case of a successful exploitation of the work can be enforced against any exploiter in the licensing chain receiving the revenues (Art 32a German
Germany has one of the most detailed and at the same time most arguable legislations regarding the right of authors and performers to equitable remuneration. While the intention of the legislator is undoubtedly honourable and reasonable, the construction and implementation of the right to equitable remuneration leads to a high level of legal uncertainty and an serious restriction of the right to contractual freedom. The 2017 reform of the German Copyright Act will most probably not improve the situation – neither for authors and performers nor for producers end exploiters.
The EU seems to walk straight into the same trap although it remains to be seen how exactly the EU will shape the right to equitable remuneration in the heavily discussed Directive on Copyright in the Digital
Dr Richard Hahn is a partner in the Munich office of Lausen Rechtsanwälte. He specialises in all aspects of copyright and media law. Mr. Hahn represents and advises various media companies like publishers, broadcasters, production companies and record labels in trials, mediations and out of court settlements regarding the equitable remuneration of authors and performers such as writers, screenwriters, translators, actors, audiobook narrators, and graphic designers. Dr. Hahn lectures at the Akademie der DeutschenMedien, the Technical Universityof Munich and the Fresenius University of Applied Sciences.
Equitable remuneration for authors and performers in Germany and Europe
End of December 2016 the German Government has passed a bill "to improve the implementation of the entitlement of authors and performers to equitable remuneration”, which amends the existing German Copyright Law. The new law aims to strengthen the position of authors and performers. The revisions concern provisions on the appropriate remuneration of authors and performers, provisions on the restriction of the exclusivity of licensed rights and the author's rights to revoke licensed rights under certain circumstances.