The so-called remuneration chapter – that is, Chapter 3 of the DSM Copyright Directive on “Fair remuneration in exploitation contracts of authors and performers”, including Articles 18 to 23 – sets out several provisions aimed at ensuring an adequate level of protection to authors and performers. These subjects, the EU legislator reckoned, tend to be in a weaker contractual position when they license or transfer their rights for the purposes of the exploitation of their works or performances. Hence, the need for a package of provisions meant to provide a toolbox for authors and performers to fully benefit from their rights. In addition to remuneration, the provisions also tackle other related aspects, such as transparency, contract adjustment, revocation, and dispute resolution, in a system of checks and balances between authors/performers and licensees/transferees.
In Italy, the transposition of the provisions in question took place on a twofold basis: through the introduction of some entirely new provisions in the Copyright Law, and through the amendment of others previously in force. In fact, the Italian legal system was already familiar – albeit to a partial or different extent – with some of the principles and obligations now introduced by the DSM Copyright Directive. This is particularly true regarding cinematographic and assimilated works, relevant here as the “remuneration chapter” impacts – amongst other – the audio-visual industry.
Appropriate and proportionate remuneration
Article 18 of the DSM Copyright Directive sets out a general principle, by virtue of which authors and performers who license or transfer their exclusive rights shall be entitled to receive an appropriate and proportionate remuneration. The provision was implemented by the addition of a new paragraph 2 to Article 107 of the Copyright Law, a general provision governing the transfer of economic rights in intellectual works with a few peculiarities compared to the EU provision.
The first one concerns the subjective application scope, as the text specifically provides that authors shall include dialogue adapters and dubbing directors, and performers include dubbers. Secondly, the right to this remuneration can be exercised directly by authors and performers or through the collective management organizations and independent management entities to which they have given the appropriate mandate.
As to the quantification, the remuneration shall be adequate and “proportionate to” the value of the rights licensed or transferred, as well as “commensurate with” the revenues deriving from their exploitation. Insofar as relevant, the particular nature of a sector and the existence of collective bargaining agreements shall also be taken into account. The choice of words and the introduction of specific terms of reference have left some arguing that this formulation may not reflect the spirit of Article 18, which requires that this remuneration be “proportionate” (meaning in fair or proper proportion to another term to which it relates) rather than “proportional” (meaning in arithmetic proportion to another quantity). Of note, a remuneration tied to the revenue performance is covered by another specific provision of the DSM Copyright Directive, that is Article 20 – more on that below.
Still about quantification, lump sums are exceptionally allowed. Authors and performers can be remunerated on a flat-rate basis if two cumulative conditions are met, that is (a) their contribution to the work or performance is purely ancillary, and (b) the costs of the calculation operations are disproportionate to the purpose.
For the sake of clarity, the Italian legislator has taken care to regulate the coordination of Article 107 para. 2 with other preexisting provisions of the Copyright Law, establishing that the appropriate and proportionate remuneration is without prejudice to the right to compensation provided by other legal provisions. This specifically includes Articles 46-bis and 84, pursuant to which authors and performers of film works and other assimilated works were already entitled to an “equitable remuneration”.
Lastly, the provision cannot be overridden, as any pact or agreement to the contrary is null and void.
As to the preexisting provisions governing what was known as “equitable remuneration” mentioned above, the amendments have essentially affected two aspects: the wording used, and the arbitration procedure governing the contract integration mechanism in the event of disagreement over the quantification of the remuneration due. By means of example, Article 46-bis para. 1, 3 and 4 have been amended to establish that instead of “equitable”, the remuneration due to authors of film and assimilated works who have transferred their broadcasting and distribution rights to the producer for each use of their works shall be “appropriate and proportionate”. Also, authors of the Italian translation and dialogue adaptations are now specifically entitled to that remuneration. As to the arbitration procedure – up to now devolved to a board of private arbitrators and regulated by Legislative lieutenant decree of 20 July 1945 no. 440 – dispute resolution and regulatory powers have now been granted to the Italian Communications Authority (AGCOM) in case the parties fail to reach an agreement on the amount due.
Amongst the provisions of the remuneration chapter, Article 19 may be the one that has been subject to the most significant deviations from the DSM Copyright Directive. The provision sets out disclosure obligations by which authors and performers shall be entitled to receive, from their contractual counterparts or their successors in title, up to date, relevant and comprehensive information on the exploitation of works and artistic performances.
The frequency of the reporting is set to a minimum of every six months, thus higher compared to the “at least annually” provided in Article 19 (though it must be noted that this has been decreased from previous drafts of the decree, which provided for quarterly reporting).
Another important peculiarity is that reporting can occur “also through” CMOs or IMEs, consistently with the broad role that has been attributed to these entities in the context of the Italian transposition of the DSM Copyright Directive.
Most crucially, the sample list of information to be reported is quite broad, and includes the identity of all parties involved in the transfers or license, including secondary users who entered agreements with direct counterparties of authors and performers, the ways in which works and performances are exploited, and the revenues generated by such exploitations, including advertising and merchandising revenues, and the remuneration contractually due, as set out in the licensing or rights transfer agreements.
In addition to that information, required to the generality of transferees and licensees, specific obligations have been set out in Italy towards providers of non-linear audiovisual media services (such as video on-demand services), who shall also report “the numbers of purchases, viewings, subscribers”.
As on offset, the Italian legislator introduced an obligation, absent in Article 19 yet consistent with Recital 76, by which the subjects who receive the reported information shall be bound to respect the confidentiality, in particular for business data and sensitive commercial information, also by entering confidentiality agreements.
However, other optional provisions of Article 19 that could have tempered the transparency obligation have not been transposed in Italy, such as the carve out for authors and performers whose contributions were not significant to the overall work or performance.
Against this backdrop, AGCOM has been granted supervising and sanctioning powers in case of non-compliance with the reporting obligation. Defaulting subjects may face a pecuniary fine up to 1% of the revenues generated in the previous financial year, and are prevented from paying a reduced sum even if paying promptly. Furthermore, failure to disclose the information that shall be reported triggers a legal presumption of inadequacy of the remuneration in favor of the rightsholders.
Article 20 of the DSM Copyright Directive introduces a contract adjustment mechanism by establishing that, in the absence of collective bargaining agreements, authors and performers (or their representatives) are entitled to claim additional, appropriate, and fair remuneration when the remuneration originally agreed turns out to be disproportionately low compared to all the subsequent relevant revenues derived from the exploitation of the works or performances. Such claim is vis à vis the party with whom authors and performers entered into a contract for the exploitation of their rights, or from the successors in title of such party.
As indicated in Recital 79, the aim of the provision is to address a situation where long-term contracts for the exploitation of rights cannot often be renegotiated by authors and performers if the economic value of the rights turns out to be significantly higher than initially estimated.
Article 20 has been transposed in a new provision (Article 110-quinquies). As noted with other provisions, a particularity of the Italian implementation is the reference to CMOs and IMEs as entities through which authors and performers may activate the contract adjustment mechanism. As to the element triggering the possibility to activate such mechanism, it has been identified in the revenues originated overtime by works or performances, specifying that all possible types of proceeds deriving from exploitation, for whatever reason and in whatever form, shall be considered – including those from the making available of phonograms online.
In Italy, the Copyright Law already included a so-called “best-seller clause” provision, though only applying for authors of film works. The provision, laid down in Article 46 para. 4, has not been repealed but amended as a sector-specific provision, now entitling dubbing directors, dialogue adapters, artistic directors and translators, as well as primary and supporting artists and performers, including dubbers, to additional remuneration as a percentage of theatrical revenues (deriving from public screenings of a film work). The provision has also been amended to exclude the possibility of a waiver of this right, previously allowed by contract.
In Article 21, the DSM Copyright Directive sets out an alternative dispute resolution mechanism in case of claims pursuant to the transparency and contract adjustment provisions. Again, the choice of the Italian legislator has landed on AGCOM, which was granted ADR and regulatory powers. Each of the parties – and representative bodies of author and performers, upon their specific request – may bring a claim before the Authority, which shall resolve it within 90 days of the request. In deciding the dispute, AGCOM shall comply with its own, soon-to-be adopted regulation. The right to refer a dispute to AGCOM is without prejudice to the right of the parties to file proceedings in court.
The revocation right set out in Article 22 of the DSM Copyright Directive finds its rationale well explained in Recital 80, which clarifies that when authors and performers license or transfer their rights, they expect their work or performance to be exploited. This is indeed not only valuable for the purposes of their remuneration, but for the well-functioning of the digital single market. Here, the revocation right mechanism aims at tackling the case where works or performances that have been licensed or transferred on an exclusive basis are not exploited at all, in which case authors and performers should be able – after a reasonable period of time has lapsed – to turn to another partner to exploit their works or performance.
The provision has been implemented in Article 110-septies, and its main peculiarity lies in the fact that it ties the exercise of the revocation right to the terminating, in full or in part, of the license or assignment agreement, in accordance with the provisions of the Italian civil code governing contract termination. Additionally, the Italian legislator has transposed a few safeguards (optional provisions set out in Article 22), such as the possibility for authors and performers to revoke exclusivity, rather than terminating the license, and the “subjective threshold” for the exercise of revocation in connection with collective works, such as films for example. In these cases, the request of termination must come from all of the most significant contributors to that work.
Finally, as to the “reasonable time” that must elapse before revocation can be requested – the identification of which is left to Member States – Italy opted for the following solution. To avoid revocation, licensees or transferees shall exploit the work or artistic performance within the term established by contract, and in any case within five years from entering the agreement, or within two years from the time when the work was made available the publisher or producer.
Article 110-septies is without prejudice to legal or contractual provisions starting otherwise, unless the waiver is based on the provisions of collective bargaining agreements.
Lastly, common provisions set out in Article 23 of the DSM Copyright Directive have been transposed in Article 114-bis providing that acts or agreements derogating from the transparency, contract adjustment and ADR provisions are non-enforceable against authors and performers. Also, the provision establishes the mandatory application nature of the transparency and contract adjustment provisions: pursuant to Article 3(4) of Regulation (EC) 593/2008 (Rome I Regulation), if all relevant elements at the moment of the choice of applicable law relate to the Italian territory, the choice of the parties of a different applicable law to the relationship does not prejudice the application of these provisions.