Part II —
European Legislative Remedies For Structural Imbalances

Many European countries have provisions in their copyright legislation intended to protect creators from unfair contractual practices, including rules of restrictive interpretation providing interpretations that favour authors and performers in cases of doubt.⁶² Germany’s recent changes to its copyright law in 2002 are particularly noteworthy among such European laws that could serve as referential starting points for Canada. We discuss some of the more common provisions affecting copyright contracting below.

Ownership Rules Favouring Authors

There are many European copyright laws containing provisions favouring authors, especially in those jurisdictions rooted in droit d’auteur based on a “monistic” theory – meaning that copyright is inalienable from the natural author and can never be entirely transferred by the author to another person. Although copyright may be inherited, it may not be assigned either in whole or in part. German law professor Adolf Dietz explains:

…German law provides rules that prevent authors from fully alienating all economic interests protected by copyright, while it limits even the waiver of moral rights protected by copyright, thus assuring that contractual transfers never fully deprive authors of their core rights.⁶³

Consequently, in German copyright law there is no concept like the Anglo-English “assignment” or the French “cession”. Countries like France, and also like Canada where moral rights have been grafted onto the economic rights, have a “dualist” conception of copyright, in which economic rights and moral rights are separable.

In Germany, the author or co-authors own copyright, even of works made in the course of employment or on commission, “in the absence of anything to the contrary in the object or nature of the employment or commission” – statutory language which has however sometimes allowed courts to find implied clauses favouring employers.⁶⁴ Participants in the creation of an audiovisual work, such as a director, screenwriter, cinematographer or music composer, acquire a copyright in that work as co-authors and consequently, because copyright in Germany is not assignable, have rights to control uses of that work. Although some statutory limitations on transfer of rights by the producer cease to apply once production of the audiovisual work has begun and, in cases of doubt, the law presumes these co-authors to have granted the producer an exclusive right to adapt and utilize the audiovisual work, authors are not precluded from bargaining for more favourable clauses in their contracts and they do not waive their moral rights of integrity that enable them to prohibit gross distortions of their contributions to the audiovisual work, while taking into account the legitimate interests of their co-authors and the producer.⁶⁵

Since only a natural person may be an author, France also rejects the notion that initial authorship could vest in an employer or a person who has commissioned a work, unless there is an express agreement to the contrary, and even if the work was created under the employer’s instruction. Without such an agreement to the contrary, an employee writing for newspapers and other periodicals retains copyright, including the right to re-use his or her own works separately from the employer provided the use does not compete. This specifically includes the right to publish an anthology of his or her own works. The general rule of the author’s ownership of copyright is subject to an exception for collective works, restrictively interpreted to mean a work in which the contributions of a number of employed or commissioned authors cannot be disentangled.⁶⁶

Restrictions on Rights Transfers

The copyright laws of a number of European countries, whether dualist or monistic in tradition, take care to protect creators’ economic interests in their copyrights by requiring specificity in contractual arrangements dealing with rights transfers. For example, the French Intellectual Property Code requires that each right granted by a creator be specifically mentioned in the contract and that the exercise of the rights conveyed be limited as to extent and purpose, as well as to place and duration.⁶⁷ A contract does not have effect to the extent that it does not specify rights and, in this regard, broad standard form contracts may in practice be unenforceable.⁶⁸

Similarly the German Copyright Law of 1965 (German Copyright Act) contains a principle of purpose-restricted transfer. In other words, a contract that does not expressly enumerate authorized uses will be interpreted to mean that the author has not granted rights that extend beyond what would have been required to achieve the purpose the contracting parties contemplated at the time the agreement was made. Additionally, where there is doubt about the scope of a given transfer, Section 37 of the German Copyright Act provides, for example, that the author retains the right to disclose or exploit any derivative work based on that work.⁶⁹ Variations on the foregoing laws concerning rights transfers are also found in Belgium,⁷⁰ Greece,⁷¹ Spain⁷² and the Netherlands.⁷³

German and Italian laws also specifically do not allow a contract to cover rights with respect to means of exploitation that are unknown when the contract is signed.⁷⁴ In the Netherlands, which does not have a provision of this sort, a court nevertheless ruled in favour of freelance journalists in a lawsuit similar to Robertson v. Thomson Corp., rejecting the argument that the freelance journalists had implicitly authorized the newspaper for electronic uses of articles submitted in the 1980s when electronic reuses could not have been foreseen.⁷⁵ Perhaps this was an easier decision for the Dutch court than for Canadian judges for two reasons. First, a restricted transfer rule in Dutch law specifies that only those rights that are specifically mentioned in a contract, or are necessarily implied from the nature or purpose of an underlying transaction at the time of agreement, are conveyed thereby.⁷⁶ Second, Dutch law provides a moral right of first publication (“droit de divulgation”). The Dutch court found breaches of both the journalists’ economic and moral rights – ruling that droit de divulgation covers first publication in every separate new medium.⁷⁷ Based on a requirement that a grant to use a work in a future form of use must be explicit and provide for profit participation in such use, a Belgian court also found that the copyrights of journalists in their articles were infringed where the articles were used without authorization in a database operated by newspaper publishers.⁷⁸

It is also noteworthy that the legislation of some countries places limits on the duration of some copyright contracts. For example, in Italy this is generally 20 years for publishing contracts.⁷⁹ In Spain, this is 15 years after manuscript delivery for most publishing contracts, but five years for other copyright contracts where no duration is specified. With respect to performers, five years is the maximum length of an exclusive transfer of the performance right.⁸⁰ France provides that a copyright contract must specify its duration, although it is more specific in limiting exclusive rights granted by a playwright to five years. Belgium and Spain also have limits of three and five years respectively on some performance contracts. Greek and Spanish laws limit contracts to five years if not otherwise specified.⁸¹ In the 1980s some book publishers in the United Kingdom agreed with the U.K. Society of Authors on a 20-year maximum term for their contracts, subject to renegotiation and renewal if agreed, but without legislation to back this up, it did not evolve into a widely accepted industry practice.

Finally, the copyright laws of some countries including Belgium,⁸² France,⁸³ Germany⁸⁴ and Italy⁸⁵ provide that a copyright contract cannot be assigned without the author’s agreement, with an exception being made for contracts that are transferred as part of the transfer of a publisher’s enterprise. In some instances a similar rule also applies to authors’ performance contracts and also to performers.

Producer Obligations

It is not uncommon to find certain publisher obligations statutorily expressed in the laws of certain European countries. For instance, Articles L. 132-11 through 132-14 of the French Intellectual Property Code prescribe a publisher’s obligations to the author, which must be reflected in contracts conveying the right to reproduce literary, artistic or musical works for distribution to the public. These principally include the obligation to publish, to ensure permanent and continuous exploitation of the published work, to pay royalties for the copyright and to provide an accounting.⁸⁶ In Germany, a 1901 publishing act, as amended up to 2002, provides an important source of copyright law, establishing a comprehensive set of rules governing the rights and duties of authors and publishers of literary and musical works which, except for mandatory bankruptcy provisions, apply to individual agreements between author and publisher in the absence of agreement otherwise.⁸⁷ These rules include an obligation on the publisher to exercise the rights it has been given to publish.

Some European laws also specify the moral rights obligations of the author’s contractual partner; for example, the Italian law provides that the licensed producer of a dramatic work shall not present a work with additions, cuts or modifications not consented to by the author and that the advertising will contain the name of the author, title of the work and, if applicable, the names of the translator and adapter.⁸⁸ Even a work created for an employer, once accepted and approved, cannot normally be modified without the author’s consent.⁸⁹

Proportional or Reasonable Remuneration

Certain countries further protect the economic interests of creators by legally providing for recourse to proportional remuneration. French law, for example, prescribes that the author is entitled to participate proportionally “in the receipts resulting from the sale or exploitation of the work” to which the author has transferred rights.⁹⁰ The purpose of this provision, which cannot be contractually waived, is to permit the author to share in the commercial success of the work, such share generally to be calculated in relation to the retail or sale price to the public.⁹¹ In keeping with this provision, it is permissible for assignees to be granted the right to exploit a work in a media neither foreseeable nor foreseen at the time of the contract if such contract expressly provides for a “correlative participation in profits of exploitation.”⁹² Lump sum agreements are void with certain exceptions including in the field of publishing, where the author may demand revision of the agreement if the lump sum does not amount to a certain percentage of what would have been earned from a proportional royalty.⁹³ A related provision requires the publisher to keep the work for sale, with promotion consistent with industry practice.⁹⁴ Unless the contract provides otherwise, the author also has the right to an accounting at least once a year and the right to inspect the publisher’s accounts.⁹⁵

Article 46(1) of Spain’s Ley de Propiedad Intelectual is similar to France’s law in so far as it provides that an author transferring rights shall receive “a proportionate share in the proceeds of exploitation, the amount of which shall be agreed upon with the transferee.”⁹⁶ The retail price of copies of a work or performance tickets (less value-added tax) usually constitutes the basis upon which a proportionate share is determined.⁹⁷ A so-called “bestseller” clause of this sort exists in at least five countries of the European Union, including France as described above, Belgium and Spain, but generally only allows modification of the contract where the author has been paid a lump sum disproportionate to the revenues received by the producer.⁹⁸ This provides a potential remedy for the author who has signed a “buy out” contract and is therefore unable, on the basis of that contract, to benefit from a big success of his or her work in the marketplace. At least in some countries, including Belgium and Poland, a statutory provision requiring publishers and holders of performance rights to provide accountings assists authors in obtaining benefit from the bestseller clause.⁹⁹ According to Hugenholtz, Germany’s bestseller clause did not apply to creators in all sectors and the courts were reluctant to find a gross disproportion.¹⁰⁰

In Germany, after a fierce, protracted battle between creators and publishers, the German Copyright Act was amended in 2002 for the purpose of “strengthening the contractual positions of authors and performers” (Amendment).¹⁰¹ This Amendment was designed to redress the structural imbalance in contractual relationships between creators and their licensees and reflected the fact that “freedom of contract” is illusory when the parties to an agreement have grossly disproportionate economic strength. Dietz makes the following related observation:

…the Amendment…is the result of an increasing awareness of the fact that simply granting more and more protection rights to authors and performers in the field of traditional or ‘substantive’ copyright law is far from a sufficient answer to the actual and professional protection needs. Under the sole conditions of the free market and freedom of contract, in the large majority of cases, an increasing extent of ‘substantive’ protection leads to the paradox result that what is given to the author or performer by the right hand (or the legislators) is often taken from him at a ridiculous consideration by the left hand (or his contractual partner).¹⁰²

In order to enable authors and performers to participate equitably in the benefits derived from their works, the German legislature amended Section 11 of the German Copyright Act¹⁰³ to provide expressly, in respect of an author or performer, that copyright “serves to secure an equitable remuneration for utilization of his work.”¹⁰⁴

Section 32 of the German Copyright Act stipulates that an author may require that his contracting partner agree to alter their contract in order that the author is assured reasonable remuneration. Section 32 further provides that remuneration is reasonable if it is determined by “a common remuneration standard” referenced in the German Copyright Act or otherwise “if it conforms at the time of contracting to what is regarded as customary and fair in business having regard to the type and scope of the permitted uses, and in particular their length and timing, as well as to all other circumstances.”¹⁰⁵ Unlike the bestseller provision in other countries and previously existing in Germany, this can lead to the modification of an agreement based on royalties, other than royalties agreed in a collective labour agreement.

Section 36 of the German Copyright Act states that remuneration is reasonable if it is set by a common remuneration standard concluded between representative, independent and authorized associations of authors and similarly qualified associations of users of works or individual users.¹⁰⁶ If negotiations fail, application can be made by one or both parties to an arbitration panel which may set remuneration standards. The arbitration panel is to consist of an equal number of panelists chosen by each party and an independent chairperson, who should be agreed by both parties. The arbitration process must take place upon the written request of one party if (a) the other party has not commenced negotiations within three months after the first party’s request; (b) there is no result from negotiations one year after their commencement has been requested in writing; or (c) one party declares that the negotiations have wholly failed.¹⁰⁷

It is still premature to comment fully on the efficacy of the Amendment. Common remuneration standards were established in the publishing industry for the first time in June 2005. The establishment of these standards was, predictably, difficult, drawn out and politically charged. Ultimately the Federal Minister of Justice’s intervention was necessary for the conclusion of the standards.¹⁰⁸ However, one might expect that over time the Amendment will lead to stable, equitable contractual relations similar to those existing in the Nordic countries (as discussed below in the Standard Contract section).

Termination of Contract

Most European Union countries allow for early termination of a fixed term contract in the event of substantial breach of the other party’s obligations, including non-use.¹⁰⁹ Germany, for example, permits termination for non-use or even inadequate use where there is serious injury to the legitimate interests of the author (excepting some contributors to audiovisual works) after two to five years, subject to some further conditions including reasonable notice to the producer and an opportunity to exercise the right.¹¹⁰ A somewhat similar provision in Austria also extends to the reproduction of performances on videocassettes and audiocassettes but not to exclusive exploitation rights in audiovisual works.¹¹¹ Finnish, Swedish and Danish contracts can be terminated for non-use after two years from delivery of the work and four years in the case of musical works.¹¹² In France, non-use for two years triggers an automatic reversion of performance rights in audiovisual works.¹¹³ In Italy, there are specific time limits for publication. For example, if a new edition of a book is not published within two years or if an article is not acknowledged within a month or reproduced within six months of acceptance, the author can terminate the agreement. There is a similar rule regarding contracts for the performance of a work. If an audiovisual work in Italy is not completed within three years or not shown within three years of completion, the licence from a contributing author becomes non-exclusive.¹¹⁴

A few European Union countries expressly allow bankruptcy or similar insolvency as grounds for reversion of rights or other provisions protective of authors. In Italy, for example, a publishing contract generally terminates if activities of the publisher are not resumed or transferred to another publisher within a year of a declaration of bankruptcy.¹¹⁵ On bankruptcy in Austria the author may terminate an exclusive contract where exploitation has not begun, and in Germany and Spain the author may terminate if the user has not yet begun to reproduce the work for publication.¹¹⁶ In Portugal, the bankruptcy of the publisher may be considered to imply termination of the contract and, in Belgium, authors may ask for termination on bankruptcy or liquidation of an audiovisual producer if the producer has not been active for more than twelve months or the work has not been sold. France provides that the author may terminate in cases of judicial liquidation of a publisher or where the producer’s activities ceased more than three months earlier and has a similar rule for audiovisual production and perhaps by analogy to other types of contract.¹¹⁷ In Italy and in Finland and Sweden, as long as copyright remains the property of the author, it cannot be pledged as security or seized, although copies can be.¹¹⁸ This is also the case in Germany with respect to copyright (which cannot be assigned), but not to rights of use.¹¹⁹

Standard Contract

A model contract known as the “Scandinavian Standard Contract” was approved by both authors’ and publishers’ organizations in Denmark, Finland, Norway and Sweden in 1947, with similar provisions in all four countries.¹²⁰ This was of great importance for individual authors in asserting rights against their more powerful contractual partners. In the mid-1960s, the artistic community was successful in achieving substantial government support as well as compensation for photocopying and public lending, but standard contracts with publishers remain important and are the main source of writers’ incomes.¹²¹

Following the shared Nordic model, for example, the Norwegian Authors’ Union had concluded its first collective agreement with the Norwegian Publishers’ Association in 1948. There are now five main writers’ associations, all with collective agreements with clauses “prescribing fair deals and inalienable rights of droit moral”.¹²² The agreements also include a dispute resolution mechanism involving the authors’ and publishers’ organizations and arbitration if a dispute is not resolved by negotiation. The organizations now regard the agreements that have been negotiated as “reasonably successful” and the government recognizes artists’ interests as legitimate in a permanent negotiation structure.¹²³ There are nevertheless still desirable improvements in authors’ protection; for example, the Swedish Union of Journalists deplores “free-use contracts” that allow the media company to use freelancers’ material on the Internet for a long time without extra compensation and believes that the author’s bargaining position should be enhanced along the lines of the new German model.¹²⁴

Droit de suite

Droit de suite provides artists in many countries with an inalienable right to receive a percentage of the revenues when an original work of art is resold. First introduced in France following World War I, it is optional for members of the Berne Convention and subject to “reciprocity”, not “national treatment”, so countries do not have to treat foreign authors in the same way as their own, unless the author’s own country provides a similar right. Despite fierce opposition from art market professionals, it became mandatory as of January 1, 2006 for those countries of the European Union (EU) which already had droit de suite legislation and no later than January 1, 2010 for countries for which it would be a new right.¹²⁵ The preamble of the EU Directive refers to this right as “an integral part of copyright” and “an essential prerogative for authors”.¹²⁶ Droit de suite also exists in Australia, Mexico, the Philippines and the state of California.

To earn their living, young, emerging or needy artists are under pressure to sell their works to art dealers, galleries and collectors at low prices, and many of them watch as others subsequently buy and sell their art for prices far in excess of what they were paid. Fairness invites some mechanism to allow artists to share in the increase in value. However, the droit de suite has been controversial. The EU Directive establishes a high minimum threshold of 3000 euros above which the right applies, a sliding royalty scale beginning at 4% and declining to 0.25% as the price of the work increases, a cap of 12,500 euros on the royalty payment, and applicability to non-EU artists on the basis of reciprocity, not national treatment.

The Directive’s ceiling has been criticized by visual arts collectives as too low and its minimum resale price tag as too high, as almost half of all eligible sales are below 1000 euros. However, the threshold triggering a royalty payment in most EU member states is greatly lower, in Denmark 270 euros, in Finland 250 euros and in Germany 51 euros.¹²⁷ In France the threshold is only 15 euros – which resulted in 17 million francs being distributed to 1700 artists and artists’ estates in 1990.¹²⁸ In 1998, 2.3 million euros were distributed to artists and their estates in France and 2.2 million euros in Germany.¹²⁹ The right, sometimes based on the gross price as in France or on capital gain as in Italy, has been criticized by economists because of its transaction costs, but collection and distribution by collective societies minimize this expense. Although collective management is not mandatory, it has been the de facto basis for droit de suite in the EU, with administrative expense ranging between 10% and 25%.¹³⁰ Droit de suite was also criticized because of the possibility that it could distort the art market, but this was what led to the efforts to harmonize the scheme at least within the European Union, and it seems likely in any case that the costs of shipping and taxation as well as the cap on the amount payable have discouraged the migration of works of art to markets without droit de suite.¹³¹

Droit de suite in the EU is an interesting example of an author’s right that is inalienable and cannot be waived even in advance of the work being created. By this means, creators are ensured some benefit when their artistic works reappear in the market and others profit from their resale.

Equitable Remuneration

Although they may not initially seem to have an obvious place in a study of contracts, mention must be made of levies as a means of remunerating creators and other rightsholders where lawmakers have recognized the difficulty experienced by copyright owners faced with widespread dissemination of their works because of technologies, and where voluntary licensing of rights by individuals and collective societies is clearly unworkable. Levies – or royalties arising from a remuneration right - may be imposed on the manufacture, importation or purchase of copying or recording equipment or on the medium (for example, a blank disk) onto which works are copied.

In some countries including Germany, where levies are the basis of payment to rightsholders for both reprographic copying (mainly photocopying) and private copying (audio recording), this scheme of remuneration is referred to as a “legal licence”, although it can also be viewed as a copyright exception or suppression of the exclusive right justified by compensation to rightsholders. Creators are certain of receiving a share of the revenues – in accordance with the European concept of “equitable remuneration” - as collection is entrusted to collective societies. Levies may be set by law or a government authority or, as in Austria, France, the Netherlands and Switzerland, the levies are negotiated by collective societies representing rightsholders and associations representing users, at least sometimes subject to the approval of a decision-making body to verify fairness.¹³²

The European Rental and Lending Right Directive¹³³ points to a new function for collective societies along similar lines. As described by Silke von Lewinski, a law professor at the Max-Planck Institute in Germany:

The Directive encourages but does not require an administrative model based on this intervention of collective societies. Depending on their national law, the authors, performers and producers may remain free to contract themselves although it may be that “their freedom lies in choosing to subject themselves to certain legislation”¹³⁵ and opting into (possibly mandatory) collective administration.