The DSM Directive introduced a principle for appropriate and proportionate remuneration of authors and performers. Moreover, a bestseller clause was introduced which entitles them to additional adequate remuneration if the originally agreed remuneration proves to be clearly disproportionately low. But what does this mean for rights holder?
The Principle of Appropriate and Proportionate Remuneration3: contracts with authors shall foresee fair remuneration
While the principle of the DSM Directive addresses situations where authors transfer rights4 or grant exclusive licences, the provision adopted to Austrian law also refers to non-exclusive licences. It does not formulate a claim, however, merely a "principle". It is therefore unclear whether this "principle" can be enforced in court.
What is considered appropriate or proportionate?
For this principle, only the circumstances at the time of the conclusion of the contract are decisive, but not those occurring later. Remuneration rules in collective bargaining agreements are named explicitly. In addition, representative associations of authors and users of works can agree on remuneration rules, which are then also considered appropriate. Beyond that the law remains vague.
In accordance with the DSM Directive, the remuneration of authors and performers should be appropriate and proportionate to:
(i) the actual or potential economic value of the licensed or transferred rights;
(ii) the author's actual contribution to the overall work or other subject matter; and
(iii) all other circumstances of the case, such as market practices or the actual exploitation of the work.
Lump sum payments can constitute proportionate remuneration, but they should not be the rule.5
In which situations does the principle apply?
The principle only applies if the contract is concluded with the author as a natural person. This includes the relationship between the employee author and employer. It might also be applicable if the author grants rights through their own company.6 It is not applicable, however, if the author is not involved (e.g. if rights are granted by the author's employer).
Is appropriate remuneration mandatory?
It is being discussed whether appropriate remuneration is mandatory. This will have to be resolved by the courts. However, the principle is not mentioned in the list of indispensable provisions. It is also explicitly stated that authors may grant at least non-exclusive licenses free of charge.
Contract Adjustment Mechanism (Best-Seller Clause)7: additional payment for the author
If the remuneration originally agreed on with the author later turns out to be clearly disproportionately low compared to all the subsequent relevant revenues derived from the exploitation of the work, authors have an indispensable8 claim for additional, appropriate and fair remuneration. It is irrelevant whether the success comes as a surprise for the parties. To determine whether such a clear disproportion exists, a retrospective comparison asking the following questions is needed:
- What remuneration was originally agreed on?
- What were the revenues from the exploitation of the work?
- What remuneration seems appropriate now?
- Is the agreed remuneration clearly disproportionate?
The author should receive the information necessary for this assessment via the transparency obligation (more on this in our next Legal Insight).
If the remuneration turns out to be clearly disproportionate, authors are entitled to claim the difference between the amount of their original remuneration and the appropriate remuneration today. The claim is directed against the authors' contractual partners or their legal successor. Thus, third-party purchasers of rights can be directly liable to the author. It is not yet clear whether the claim can also be directed against a sublicensee of the author's contract partner (because a sublicensee is not a "successor in title"9).
The author has no claim for additional remuneration if:
- the remuneration is based on a collective bargaining agreement or rules agreed upon by representative associations of authors and users of works, and the agreement or rules provide for further appropriate remuneration;
- there is no independent economic exploitation of the work; this could be the case if the work is used for one's own purposes, such as advertising texts or pictures, logos or product packaging (controversially discussed);
- the rights were deliberately and intentionally granted without remuneration (controversially discussed); or
- the work is a computer program.
While the provisions regarding proportionate remuneration seem to be appropriate for classical exploitation situations (e.g. publishing contracts), they do not really fit when "everyday services" that happen to be copyright protected are "purchased" (e.g. marketing material).
While the principal of appropriate and proportionate remuneration can probably be waived in advance, the contract adjustment mechanism cannot. This should be considered when drafting contracts. In any case, it seems advisable to state in the contract why the parties consider certain remuneration (or maybe also a grant of right free of charge) to be appropriate.
1 The provisions apply equally to authors and performers. For better readability, however, the article only refers to authors.
2 Directive (EU) 2019/790 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC.
3 Sec 37b UrhG, which is based on Art 18 DSM Directive.
4 Under Austrian law the author cannot transfer copyrights but may only grant licences.
5 Recital 73 DSM Directive.
6 See recital 72 DSM Directive.
7 Sec 37c UrhG, which is based on Art 20 DSM Directive.
8 It is indispensable in advance but may be waived after the claim has arisen.
9 Which is the term used in Art 20 DSM Directive.