The draft Directive on Copyright in the Digital Single Market, more widely known as the EU Copyright Directive (the “Directive”), is set to introduce (amongst other things) two new contract adjustment provisions which have the potential to significantly impact contractual arrangements with rightsholders in the Film and TV industries.
What is happening?
Articles 14 and 15 of the Directive impose two new entitlements for “authors and performers” who transfer or license rights in their copyright protected work (“Rightsholders”). These are:
- an entitlement to receive reports at least annually from the recipient of the rights transfer with information about how and to what extent the Rightsholder’s work has been exploited and, crucially, the income generated from such exploitation and the revenue due (known as the “Transparency Obligation”). The Transparency Obligation will also apply to any third party successor of the transferred or licensed rights, meaning that Rightsholders will also be entitled to receive additional reporting information from such third parties; and
- an entitlement to receive additional remuneration from the recipient of the rights transfer if the amount of remuneration originally agreed between the Rightsholder and recipient for the transfer and exploitation of rights is disproportionately low compared to the revenues actually generated.
Whilst the above entitlements clearly support Rightsholders and aim to balance a perceived unfairness in certain industries – such as the struggling musician whose work is acquired by a record company which then fails to report to him on its sales figures and takes all of his rights in return for a minimal royalty (even if his song is a major hit) – there could also be a real practical impact on film and TV producers acquiring rights from, say, a screenplay writer or an author of an underlying work.
Not only will the Transparency Obligation impose a significant additional administrative burden on producers, but the above requirements could also mean that producers, who have spent time and effort negotiating contracts with Rightsholders (which may well contain a fixed fee for the Rightsholder’s services and a small profit share entitlement if the film or TV programme is successful), could find that their contracts are then unravelled if it turns out that the film or TV programme is very successful and the original fees and entitlements agreed with the Rightsholders are deemed to be “disproportionately low”. This would cause great uncertainty for producers and could result in them having to pay substantial uplifts in royalties. Importantly, Article 16 of the Directive states that any attempt by parties to contract out of Articles 14 or 15 is unenforceable.
In reality, Rightsholders may not attempt to enforce their new rights if they feel that their original deal is fair and properly negotiated, but there remains a risk to producers and others acquiring or receiving licenses of rights that a Rightsholder could, at any point, change their mind if the film or TV programme is successful and they realise that they could be entitled to more money.
Another practical consideration is whether the original producer or party acquiring the rights will be able to pass on their Transparency Obligation to studios, broadcasters or other third parties acquiring the relevant film or TV project (and therefore the rights) and relieve themselves of their reporting obligations.
When will this become law?
The Directive is currently the subject of trilogue negotiations between the European Commission, the European Parliament and the European Council, and is scheduled to face a final vote in January 2019.
However, with uncertainty still surrounding Brexit, there remains a question mark over, how or whether, the UK will adopt the Directive once it leaves the EU (though it is likely that the UK would still import the terms of the Directive as law in order to maintain equivalence).
We also note that EU Member States do have some power to derogate from the Transparency Obligation:
- they can legislate that where the administrative burden of the annual reporting requirement is disproportionate in view of the revenues received from the exploitation of the relevant rights, the information which needs to be provided to Rightsholders can be limited to what can reasonably be expected, “provided that the obligation remains effective and ensures an appropriate level of transparency”; and
- they can disapply the Transparency Obligation where it is determined that the contribution of the Rightsholder is not significant having regard to the overall work or performance being used or created.