SWD IA on the EU copyright modernization – impacts of third option for fair remuneration of authors and performers

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

I. Contract adjustment mechanism

This mechanism would improve the effectiveness of the reporting obligation under Option 2 since it would provide creators with legal means to request adjustment of the remuneration on the basis of the information received in reporting statements.

The contract adjustment mechanism could remedy those cases in which a lump-sum/buy-out deal turns out to be unfair, and it also addresses outright unbalanced deals as well as changed circumstances. The mechanism would reinforce creators’ bargaining position.

Contractual counterparty would incur a renegotiation cost when adjusting the contract. Such cost includes the renegotiation cost itself and the cost related to the increase of the remuneration owed to the creator. Costs associated to the renegotiation of contracts are very difficult to estimate as they would depend on various factors as the number of relevant works, the scope of the assigned rights, the extent of changes that parties want to introduce and the current practices of remuneration negotiation.

In light of the bargaining position of the majority of creators, the long-term duration of many contracts and the unpredictability of the commercial success of works in many sectors, the possible cost of compliance with a contract adjustment right seems justified on fairness grounds and proportionate.

In case of unsuccessful negotiations, if the contractual counterparties and creators choose to use the dispute resolution mechanism, they would face alternative dispute resolution costs. Costs related to the increase of the remuneration owed cannot be considered as an additional financial impact since they would constitute an eventual rebalancing of the share of value between creators and their contractual counterparties.

Even though such measures would be very important for the affected individual creator, the direct impact on contractual counterparties would be limited since it would affect a limited number of contracts.

Such cases will arise only when a significant disproportion between the agreed remuneration and the revenues yielded from the exploitation of the work occurs. In addition, in countries where legislation already provides for an adjustment mechanism, it is recognised that this clause is rarely enforced before the courts.

II. Dispute resolution mechanism

The implementation of dispute resolution mechanisms will have impacts both on MS which will have to set up such mechanisms and on creators and their contractual counterparties which will initiate dispute settlement proceedings.

MS would incur some cost for setting up the dispute resolution mechanism. These costs would depend on the system of dispute resolution chosen by a MS. They are expected to remain reasonable for the majority of MS which already have dispute resolution mechanisms for CMOs and commercial users in place and could therefore build on the existing structures.

The dispute mechanism will enable creators to enforce more efficiently transparency obligations and the possibilities offered by the adjustment mechanism. Since dispute settlement proceedings will be less costly and faster that court proceedings, creators will be more incentivised to seek enforcement of their rights.

Thanks to a more effective implementation of transparency obligations and a better enforcement of the contract adjustment mechanism, creators will be able to seek more appropriate remuneration without risking their professional relationships as much as they would by going directly to court.

The operating costs would be borne by the creators and their contractual counterparties. Costs are expected to be relatively similar to the fees set for already existing alternative dispute resolution mechanisms. As this would be a completely voluntary procedure it would have no economic impact on stakeholders that do not participate, and those who agree to it would be doing so for their own benefit.

The contract adjustment mechanism and the dispute resolution mechanism would encourage contractual relationships between creators and contractual counterparties to become fairer and more balanced. This would improve collaboration between creative stakeholders and incentivise a more conductive environment for creation. These mechanisms would also highlight the protection of creators to everyone in the value chain, including consumers.

Option 3 would further strengthen copyright as a property right since it would provide creators with legal remedies to claim for additional remuneration in the case where the information received would reveal that the agreed remuneration is disproportionally low compared to the revenues derived from the exploitation of the work.

The negative impact of the contract adjustment mechanism on the right to conduct a business would be offset by the implementation of the dispute resolution mechanism which would provide a non-binding opportunity for contractual counterparties to find an agreement on the remuneration owed to the creators.

Option 3 is the preferred option. Transparency measures would rebalance contractual relationships between creators and their contractual counterparties by providing the creators with the information necessary to assess whether their remuneration is appropriate in relation to the economic value of their works and if the remuneration is deemed inappropriate, a legal mechanism in order to seek out a renegotiation of their contracts.

In contrast, Option 1 may not be sufficiently effective and Option 2 would only provide transparency measures without instruments to counter the effects of lack of transparency. In comparison to Option 2, Option 3 has a more positive impact on creators who would have tools to take action for requesting a fairer share of value on the basis on the information provided on reporting statements but would have a higher impact on the contractual freedom of the parties.

The additional costs entailed by the dispute resolution mechanism would be justified by the need to provide remedies to the lack of transparency in the contractual relationships between creators and their contractual counterparties. Option 3 would help achieving a level playing field for creators and their contractual counterparties by providing incentives for an increased transparency and enhanced collaboration.