The U.S. Entertainment Industry Should Know About the Astounding Contractual Protections the EU Just Guaranteed for Authors and Performers, Jeremy Goldman

I can’t be the only U.S. lawyer who tends to tune out when hearing about legal developments in Europe. But I recently zoomed in on a set of provisions in the new EU Copyright Directive that will significantly impact the global entertainment business. With foreign markets playing an increasingly important role in TV, film and streaming, folks looking to work with European talent or content can’t afford to ignore these new laws.

EU Copyright Directive

The EU Copyright Directive aims to modernize and correct a perceived imbalance in the copyright-driven economy, including by imposing a so-called "link tax" (Article 15) and an "upload filter" requirement (Article 17) on online platforms. This article has nothing to do with those controversial and widely covered aspects of the Directive.

The Directive entered into force on June 6, 2019. Member states now have two years to pass national laws to meet the Directive’s requirements.

Author and Performer Contracts

Chapter 3 of the Directive (Articles 18-23) guarantees authors and performers considerable contractual rights, including "appropriate and proportionate remuneration" (Art. 18); accounting transparency (Art. 19); a "best-seller" right (Art. 20); a right to alternative dispute resolution (Art. 21); and a "use it or lose it" right (Art. 21). Here’s a breakdown with some of my initial thoughts and questions:

Article 18 sets forth the chapter’s general fairness principle: "where authors and performers license or transfer their exclusive rights for the exploitation of their works or other subject matter, they are entitled to receive appropriate and proportionate remuneration."

The Directive does not define what this means, but the provisions that follow provide some clarity.
The recitals suggest that merchandising revenue should be included. This deviates from the norm in many studio and network contracts.
Entertainment contracts typically grant writers, directors and above-the-line talent a piece of the "backend" (i.e., net profits), which would seem to adhere to the proportionality principle.
That said, might Article 18 provide a new basis to challenge "Hollywood accounting"?

Article 19 imposes on licensees a "transparency obligation" that entitles actors and performers to receive, at least annually, an accounting with "up to date, relevant and comprehensive information on the exploitation of their works and performances," including "all revenues generated and remuneration due."

Most entertainment contracts already include accounting (and often audit) rights. So on the surface, this one doesn’t seem too onerous.
More exceptional, however, is Article 19’s provisions empowering talent to obtain data directly from sub-licensees if the original contracting counterpart doesn’t have it. How far down the line does that right extend?
It is also worth noting that the accounting requirement extends not just to passive royalty beneficiaries, but also to authors and performers entitled only to fixed compensation.
Netflix is notoriously secretive about its data. Will the transparency obligation challenge that business practice by forcing the streaming platform to release viewership data? More generally, will these new protections impact Netflix’s international expansion strategy?

Article 20 guarantees authors and performers a so-called "best-seller" right. If "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," authors and performers are entitled to renegotiate their contracts for "additional, appropriate and fair remuneration."

The best-seller right is probably the most astounding right in the package.
How will the best-seller right impact business models that traditionally rely on big profits generated by a few hits to offset the losers?
How will studios, networks, and labels account for the risk that an author or performer will later claim additional compensation? What if the money has already been earmarked or spent?
Some EU countries already provide a best-seller right to authors and performers. This Dutch case awarding a writer and director additional compensation provides an interesting example of how such a law may be applied and highlights the risk of arbitrary determinations.

Article 21 entitles authors and performers to submit disputes concerning the transparency obligation (Art. 19) or "best-seller" right (Art. 20) to "a voluntary, alternative dispute resolution procedure."

Entertainment is a unique and complex business. Issues involving multiparty contracts, distribution, ancillary rights, accounting, net profits, etc. are particularly complicated. In the U.S. (or really, in Los Angeles and New York), there are ADR services like JAMS and IFTA that offer attorneys, business affairs executives, and former judges with significant experience sorting through these issues.
It will be interesting to see who in Europe will step to handle these types of disputes.

Article 22 is the "use it or lose it" provision, providing that authors and performers may revoke an exclusive license "where there is a lack of exploitation" of the work.

Writer deals typically include a reversionary or "turn-around" rights but the details are frequently the subject of fierce negotiation and lengthy contractual provisions.
While Article 22 includes several caveats recognizing the need for flexibility here, it will be interesting to see whether guaranteeing the revocation right will impact leverage or lead to a modification of standard terms.

Article 23 makes clear that parties cannot contract around Articles 19, 20, or 21.

Despite this language, I have no doubt lawyers will try.
It’s unclear why the driving principle of Article 18 was excluded or what impact, if any, the exclusion will have.
Apparently, the “use it or lose it” right is not mandatory and may be contracted around, though certain countries will likely include Article 22 as a guaranteed right.

Closing Thoughts and Questions

To be clear, these Articles are not yet enforceable. Rather, each member state now has two years to enact its own national version of the law that follows the Directive. This may lead to major discrepancies between jurisdictions. We’ll have to see.
How far will these protections will extend? The recitals suggest that parties cannot use choice of law provisions to contract around the protections. Based on my quick read of EU’s conflicts of law statute, it would seem that the protections will apply to authors and performers residing in the EU, regardless of where the production takes place or the content is distributed.
I think the big question is whether these articles will achieve their ultimate goal of improving the livelihoods of authors and performers OR will they backfire by making it less desirable for producers, studios, networks, labels and other licensees to work with European writers and actors.