Creators' Rights Alliance - Between a rock and a hard place - G: Proposals for reform
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Reform of law of authors' contracts

(a) Exploitation of copyright to be by licence only

The CRA’s first proposal in relation to copyright contracts is that copyright should not be transferable. As in Austria, Germany and Spain, rights to use works may be granted (licensed), but copyright cannot be transferred inter vivos.[1] Although such a proposal will no doubt be met with cries of horror from British exploiters, such provisions have not in practice caused any practical problems or presented any serious impediments to effective commercial exploitation of works in those countries where they operate. In contrast, the benefit from such an approach lies in the fact that the creator always retains some essential connection with the work. We believe that the adoption of such a provision would create and sustain a positive environment for creators and in turn encourage creative activity.[2]

(b) Exploitation contracts must be in writing to be enforceable

UK copyright law requires that outright transfers of copyright (“assignments”), as well as exclusive licences, be made in writing,[3] as do the laws of many other European countries (e.g. Belgium, France, Greece, Ireland and Spain).[4] In the Netherlands, an outright transfer of copyright can only be effected by means of a deed and in Portugal must be witnessed by a public notary.[5] Many such countries also require that lesser forms of transfer – licences - cannot be enforced (against the creator) unless the licence was made in writing.[6]

While the CDPA demands that assignments be in writing if they are to be valid, UK courts have sometimes tried to circumvent this rule by treating the exploiter as an “equitable assignee” (and thus not caught by the rule as to writing). (Rather ludicrously, the courts have done this by first inferring from the circumstances “agreements” to assign copyright, and then adopting a “legal fiction” – in the form of the aphorism “equity looks on as done, that which ought to be done” - that the agreement has been carried out.) The CRA believes the statutory rule requiring that assignments be made in writing has an important function in protecting authors by formalizing arrangements. We therefore call for the rule to be reinforced, with a clause to the effect that an exploitation agreement between a creator and exploiter, which is not in writing, either (i) CAN ONLY be enforced at the behest of the creator; or (ii) CAN ONLY take effect as a non-exclusive licence.

(c) Contracts must be specific to be enforceable

One of the biggest problems with copyright contracts is that they are esoteric, and often drafted in opaque language. An author’s bargaining position requires there be greater transparency. This transparency could be enhanced by requiring the designations of the kinds of use, payment etc., in the body of a written contract. Such requirements already exist in France, Belgium, Portugal and Spain.[7] The requirement could be implemented in one of two ways. First, as under Belgian and French law, a contract that is not defined in this way could be treated as unenforceable by the transferee (although without prejudice to the rights of the author).

Alternatively, as under some provisions of Greek law, presumptions could exist to operate where contracts do not define specifically the mode, duration, extent and remuneration. Following the latter model there could be a presumption of a transfer for five years, confined to the national territory of the transferee, limited to the purpose of the transferee’s business and subject to a right to proportional remuneration.[8]

(d) Presumptions as to construction

Current UK law recognizes no special principles of interpretation of copyright contracts. In the light of practice elsewhere in Europe, and with a view to promoting author autonomy and financial security, the CRA proposes two principles of construction. First, that the contract should always be interpreted in the creator’s favour: what is not mentioned is not transferred or licensed. This places an incentive on the exploiter to specify what precisely the contract is intended to cover and thus reinforces the general rule as to specificity proposed above. Such a requirement already exists under French and Belgian law.[9]

Second, we propose that contracts which do not specifically enumerate uses are interpreted to give effect to the “purpose-of-grant”. Such an approach is already taken (at least) in Germany (Zweckübertragungsgrundsatz), Greece and Spain.[10] This means that a general clause granting “reproduction rights” will be construed narrowly as confined to those kinds of reproduction which at the time of the contract were being used by the transferee’s business.

(e) Duties to exploit or use rights transferred

The CRA proposes a mandatory duty to exploit the work in accordance with honest commercial practice within the sphere concerned. Such a provision exists, for example, in relation to publishing agreements under French law, and more generally under the laws of Belgium, Greece and Spain.[11] We believe this is appropriate because an exploitation arrangement is essentially in the nature of a co-venture between the creator and the disseminator. The creator is dependent for remuneration upon the good faith of the exploiter and, therefore, it is essential that the exploiter be placed under a fiduciary duty that requires them to consider not merely their own interests but also the interests of the creator. The standard of honest commercial practice provides an objective benchmark by which to judge the good faith of the exploiter. The sanction for breach of the duty should be that the exploitation rights, if given by licence, are revocable (or if there has been a transfer of the copyright the creator is entitled to have the property re-transferred).[12][13] This would be similar to the position under German law, and under the general contract law of Greece.

(f) New technologies

The CRA proposes the adoption of a general mandatory rule to the effect that a grant of a licence for means of utilization not yet existing (or foreseeable) is invalid. Such provisions exist under German, Belgian, Greek and Spanish law.[14] We believe it is right that an author is able, if he or she so wishes, to prevent the placing of works on the Internet (where they might be subject to subsequent alteration or amendment as well as widespread unauthorized copying).

(g) Termination right

Over and above the right to insist that the work is exploited according to honest commercial practice, the CRA believes that creators should also be granted a presumptive right to terminate an exploitation contract (including an assignment) after a specified period.[15] The right to terminate should not be subject to any condition (such as change of conviction). We believe this right is appropriate to protect both an author’s financial and moral interests from the practices of exploiters in imposing “all rights” contracts where they have no business need to do so, but are merely acting out of insecurity or in the hope of gaining a windfall. In the majority of cases, we feel that exploiters will not object to such a provision, given that the business calculations they make are on the basis of a limited commercial life span of most works. If new lucrative exploitation opportunities arise thereafter, such exploiters should be prepared to negotiate with creators and share the benefits of those opportunities.

We recognize, however, that such a provision would not be appropriate or acceptable in all sectors, and that the specific period will vary with the circumstances. For example, we acknowledge that commercial decisions in some industries (such as film) may be based on exploitation for a much longer period that with others (such as journalism). We therefore recommend that the exact time limits should be defined on a sector by sector basis. However, recognizing that there may be exceptions to this we propose that the termination right be capable of being waived, in writing and duly signed, where an author has been provided with independent legal advice.

(h) No contract relating to future rights may last longer than five years

The CRA recommends that contracts relating to future rights (rights in future works) be limited in duration. Contracts of this sort have long been a problem in the music industry, where the courts applying rules relating to restraint of trade have usually seen five years as the maximum appropriate length for publishing and recording contracts.[16] Similarly, Austrian and German laws permit an author to terminate a contract relating to future works after five years.[17] Indeed, at present there is a legislative proposal in the US for a federal law which would outlaw personal service contracts of more than seven years in duration (and would include music publishing and recording agreements).[18]

The CRA considers that contractual provisions which bind creators to particular organizations for very long period are undesirable for a variety of reasons. First, we consider such contracts to be anti-competitive since an artist is not able to obtain the market price for his services. While such a restriction may be justified for a short-period (so that the exploiter can recoup investment made in bringing about successful exploitation of the creator’s works), the arguments made by exploiters for longer periods are unconvincing. Second, we believe that if a creator is to be able to gain fair remuneration once successful, he or she should be able to calculate that reward by reference to the value of their services in the market. In practice, we do not necessarily anticipate that these rules will lead creators to sever ties with their established exploiters, but rather that they will be able to renegotiate contracts with those exploiters so as to receive a fair remuneration. Thirdly, and importantly, we think that the moral interests of creators means that they should not be tied to corporations for long periods. However, recognizing that there may be exceptions to this, we propose that the termination right be capable of being waived in writing and duly signed where an author has been provided with independent legal advice.

(i) Remuneration rights

The CRA proposes that authors presumptively be given a right to participate proportionately in all revenue streams generated by the work. Such provisions exist in France, Greece, Spain and, to some extent, in Italy.[19] On 25 January 2002, the German Bundestag passed a Bill to extend a legal right of adequate remuneration to authors.[20] As we explain below we would anticipate that remuneration be determined initially by the parties and failing that by a user-friendly tribunal or arbitration service. We would also advocate collective solutions, and recommend a provision to the effect that where creators’ organizations and users’ organizations have agreed a particular mechanism for calculating “equitable remuneration” that this be presumed to be “equitable.”

The CRA recognizes that there will be a range of cases in which proportionate remuneration is not possible and some where it is not desirable. We therefore suggest a list of possible exceptions such as exist under French law and elsewhere.[21] The exact formulation of this list would clearly be a matter for negotiation and might also be a matter for statutory instrument.

In addition to the above remuneration provision, we propose a mandatory bestseller clause. Such clauses exist in Belgium, Germany, Portugal and Spain.[22] If a creator has granted a licensee rights under conditions such that the contract results in a grossly disproportionate division of profits,[23] the creator should be able to demand revision of the agreement. We think this kind of provision would be useful for directors whose films turn out to be especially successful.

In both cases the exploiter should be under an ancillary duty to provide accounts and information: a creator cannot know whether their remuneration is equitable unless they have information as to how much the exploiter has received.[24] Experience in other areas indicates that exploiters have often attempted to resist such disclosure. For example, long-term recording and publishing contracts typically discourage creators from conducting audits by expressly providing that accountants may not simultaneously conduct audits for more than one creator. Plainly, the inability to share audit costs among creators is a serious obstacle to verification of exploiters’ accounting procedures. We would recommend that such clauses be outlawed.

(j) Transfer of the benefits of contracts

The CRA proposes that all further transfers of the rights obtained by an exploiter be made in writing and be subject to the author’s consent, although this is not to be unreasonably withheld. Such terms are common in European laws and, for example, are to be found in Germany and France.[25] Such a requirement would ensure that a creator who agreed to work for a particular exploiter (a decision which might be based on the characteristics, political attitudes or aesthetic approaches of the exploiter) could not find himself suddenly working for a different exploiter.

The ”transferability” of the benefit of copyright exploitation agreements has proved particularly problematic for creators in circumstances where an exploiter has become insolvent. The insolvency of an exploiter will typically cause the liquidator to sell the benefit – but not the burden - of the contract to a third party.

Under current UK law, however, if the copyright was assigned rather than licensed to the exploiter, the sale of the benefit of the contract will result in the transferee being able to exploit the work, while the creator is neither able to claim remuneration from the transferee or the insolvent business with which the initial agreement was made.[26][27] An attempt was made in section 60 of the Bankruptcy Act 1914 to mitigate this self-evident injustice to creators, but the provision was limited unnecessarily to individuals made bankrupt, and ultimately repealed by the Insolvency Acts 1985 and 1986.

We can see four possible solutions to this problem.

  • First, we believe that the right to claim equitable remuneration (discussed above) could be applied to any person who exploits a work by reason of an exploitation right granted initially by the creator or with his or her consent. This would mean at least that the transferee from an insolvent would not be unjustly enriched at the expense of the creator.
  • Secondly, we believe that the rule in Barker v Stickney could be reversed so that exploiters should not be able to transfer the benefits of copyrights (on insolvency, or not) without also transferring the obligations. This would then constitute an exception to the general principle of UK law that the assignment of obligations under contracts is not possible.[28] This is the solution to this problem which was recently enacted into German law and now provides that “the transferee of an exploitation right shall be jointly, and severally, liable for discharging the transferor’s obligations pursuant to his agreement with the creator.”[29]
  • Thirdly, the law might be amended to state that copyrights can be reclaimed by their creators on the insolvency of any exploiter.[30] While the CRA approves of this in principle, it is recognized that because of the variety of copyright works that may be involved, such a rule might frequently prove problematic. We would, however, support a rule which makes clear that, in cases of insolvency, if the receiver, administrator or liquidator fails to dispose of any copyrights, then on dissolution of the business those copyrights are deemed automatically to have reverted to their creators.[31]

(k) Special regimes

The CRA also propose the development of model contracts for special regimes. These could include specialist publishing, advertising, broadcasting and Internet transmission contracts. They would build on the general principles outlined above. Where such agreements have been negotiated between a collective organization representing creators and an organization representing exploiters, and have then been certified by the relevant Secretary of State, we propose that they displace the above provisions (including, perhaps, some of the mandatory ones). In this way, our proposals are fundamentally designed to encourage collective negotiation and nuanced solutions corresponding to the peculiarities of each sector, rather than litigation by numerous individual creators.

[1] Austria, Art. 23(3); Germany, Art. 29 (as amended in 2002); Spain, Intellectual Property Code as approved by Decree 1/1996 of 12 April 1996 and amended (hereafter ‘Spain’) Art. 43(1). Although the Spanish provision states that “the exploitation rights … may be transferred”, “transfer” is understood as meaning licensed.

[2] Connected with this proposal, we would like to see a distinction drawn in all copyright legislation between “creators” and other right-holders.

[3] CDPA s. 90(3).

[4] Irish Act, s.120(3); Italy, Art.110.

[5] Copyright Act of 1912 (as amended) (hereafter ‘Netherlands’) Art. 2(2).

[6] Law on Copyright and Neighbouring Rights of 30 June 1994 (as amended) (hereafter Belgium) Art. 3(1)(2) (written instrument necessary to prove contract terms against an author); Law No 92-597 of 1 July 1992 on the Intellectual Property Code (as amended) (hereafter ‘France’)  Art. L 131-2; Greece, Art. 14; Italy Art. 110; Code of Copyright and Related Rights No 45/85 of 17 September 1985 (as amended) (hereafter ‘Portugal’) Art. 41(2), Art. 87; Spain Art. 43(1).

[7] Belgium Art. 3(1)(4); France Art. L 131-3(1); Portugal, Art. 41(3); Spain Art. 43(1).

[8] Note that in Portugal an author is entitled to a royalty of 25% of the proceeds of each copy, unless otherwise agreed: Portugal Art. 91.

[9] Belgium, Art. 3(1)(3); France Art. 122-7(2)&(3). See also Italy Art. 119 (transfer of exploitation rights does not imply transfer of other rights); Netherlands Art. 2(2). Moreover, a precedent for protection of the economically weaker side to a contract exists in UK law in the context of protection of individual consumers who enter contracts with businesses: Article 7.2 of the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/283) provides that “if there is doubt about the meaning of a written term the interpretation which is most favourable to the consumer shall prevail.”

[10] Germany Art. 31(5) (as amended in 2002); Greece Art. 15(4); Spain Art. 43(2). On Austria see Gräser in AUS 5-146.

[11] Belgium Art. 3(1)(5); France Art. L 132-17; Greece Art. 13(1)(2); Spain Art. 68(1)(b). See also Denmark Art. 54 (right to terminate if no use within reasonable time); Italy Arts. 39, 50, 124, 127, 128, 140; Sweden Art. 34 (right to terminate publishing contract for non-use of transferred right).

[12] In situations where the creator can demonstrate that the transferee never had any intention to exploit the rights, we propose that the contract be capable of being treated as void (so that the creator can reclaim monies paid out to the transferee by collecting societies, such as PRS). We believe that this may help remedy some of the practices we describe in section A where commissioned composers for television have been forced to transfer publishing rights to associates of the broadcasters, even though those associate companies do not operate as bona fide publishers.

[13] Germany Art. 41(1); Greece Civil Code Arts. 382-7.

[14] Belgium Art. 3(1)(6); Germany Art. 31(4) (unaltered by 2002 legislation); Greece Art. 13(5); Spain Art. 43(5). We think this is preferable to the French position contained in Art. L 131-6 in that such a transfer must be explicit and the contract must specifically provide for proportional remuneration for the use (and the current UK position, where the issue simply depends on the construction of the contract), because new technologies and modes of distribution can present a whole host of unexpected consequences.

[15] There are no European precedents for this, and a German proposal for termination after 30 years was recently defeated.

[16] Schroeder Music Publishing v Macaulay [1974] 3 All ER 616; ZTT v Holly Johnson [1993] EMLR 61.

[17] Austria Art. 31(2), Germany Art. 40(1).

[18] C. Philips (with J. Leeds), ‘5 Shows to Build Coffers against record labels’ Los Angeles Times, 19 December 2001; J. Leeds, ‘Bill May Limit Musician Contracts’, Los Angeles Times, 8 January 2002.Rep John Conyers Jr (D-Michigan). Currently the Californian state Labour Code excludes recording contracts from the seven year rule.

[19] France Art. L 131-4, L. 132-5, L 132-25; Greece Art. 32(1); Spain Art. 46(1); Italy Art. 130 (in publishing contracts author’s remuneration to be a percentage of proceeds). See also Belgium Art. 26(2) (1) (publisher should pay author remuneration corresponding to the gross takings).

[20] Amending Article 32(1) of the German Copyright so as to provide that the author has a right to remuneration under the contract and in the absence of a provision for remuneration there is a presumption that the parties have agreed that there should be adequate (“angemessen”) remuneration. More importantly, if the contractual remuneration is inadequate the author can seek that the provision be amended so that the contract gives the author adequate remuneration. Arts. 33 and 63a state that the claim may not be waived in advance and may only be assigned to a collecting society.

[21] France Art. L 131-4, L. 132-6. See also Greece Art. 33(2), Italy Art. 130, Spain Art. 46(2), 52.

[22] Belgium Art. 26(2)(2), Germany Art. 32a (as amended in 2002), Portugal Art. 49, Spain Art. 47.

[23] In German “auffälligen Missverhältnis”.

[24] Belgium Art. 19 (obligation to provide annual statements); Greece Art. 34(3); Italy Art. 130.

[25] Austria Art. 27(2); Belgium Art. 26(3); France Art. L 132-16; Germany Art. 34(4) (as amended); Greece Art. 13(6); Italy Art. 132; Portugal Art. 40; Spain Art. 48.

[26] Barker v Stickney [1919] 1 KB 121. See Adams, ‘Barker v Stickney revisited’ (1998) Intellectual Property Quarterly 113 (“The manifest injustice of this is becoming quite widespread, because more and more publishers insist on outright assignments …”).

[27] In re Health Promotion Ltd [1932] 1 Ch 65.

[28] One exception to the general position is the doctrine of “privity of estate” according to which the assignee of a lease of land takes not merely the benefit of the lease but also its burdens. Given the close analogy between a copyright exploitation agreement and a lease, a further exception to the general rule that burdens do not bind successors in title may well be considered justified.

[29] German Copyright Law (as amended in 2002) Art. 34(4).

[30] Belgium Art. 30 (publishing contracts).

[31] And also a rule that copyrights which are yet to be exploited can be reclaimed by the author: cp. Austria, Art. 32(2); Portugal Art. 68(1)(f).

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