[Guest post] French ruling on transposition of the principle of appropriate and proportionate remuneration

The IPKat is pleased to host this guest contribution by Katfriend Ludovico Bossi (Tavella Studio di Avvocati) on yesterday’s decision of the French Council of State, which found the French transposition of Article 18 of the DSM Directive [IPKat posts here] … inappropriate.

Here’s what Ludovico writes:

French ruling on transposition of the principle of appropriate and proportionate remuneration

by Ludovico Bossi

Yesterday, by Decision n° 454477, the French Conseil d’État stated that Directive (EU) 2019/790 (DSM Directive) has been insufficiently transposed in France, in particular concerning Article 18.

Background

Articles 18-22 of the DSM Directive establish a series of protective measures in favour of authors and performers who license or transfer the exclusive economic rights over their works or performances to third parties for the purpose of exploitation.

Appropriate and proportionate
remuneration in practice

On the one hand, Article 18 of the Directive provides a principle according to which authors and performers are entitled to receive appropriate and proportionate remuneration.

On the other hand, Articles 19-22 of the Directive provide for ex-post equalisation measures, i.e., operating after the contract has been concluded (transparency obligation; contract adjustment mechanism; alternative dispute resolution procedure; right of revocation). In particular, according to Article 20, authors and performers 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 revenues derived from the exploitation.

France has been one of the first Member States to transpose this part of the Directive into national law. Indeed, on 12th May 2021, the French Government adopted the ordonnance n° 2021-580, which amended certain provision of the Code de la propriété intellectuelle (CPI).

In order to transpose the contract adjustment mechanism provided by Article 20 Directive, Article L131-5 CPI has been supplemented by the ordonnance.

The previous version only provided that, in case of lump-sum remuneration, i.e., determined in a fixed amount, where the author suffered a loss of more than seven twelfths due to injury or insufficient forecast of the proceeds of the work, they may request the revision of the price conditions of the contract (paragraph 1).

The new version provides that the author is also entitled to additional remuneration when the proportional remuneration originally agreed turns out to be disproportionately low compared to all the subsequent revenues (paragraph 2).

This said, Article L131-4 CPI has not been modified by the ordonnance. It provides, as a general rule, that the transfer by the author of his rights on their works “must entail a proportional share of the proceed deriving from the sale or exploitation for the benefit of the author”. As an exception, lump-sum remuneration can be agreed in specific cases.

The decision

On 12th July 2021, the Comité Pluridisciplinaire des Artistes-Auteurs et des Artistes-Autrices (CAAP) and the Ligue des auteurs professionels, two French trade unions whose objective is to defend the moral and economic interests of authors and performers, requested the Conseil d’ État, among other things, to annul part of ordonnance n° 2021-580 on grounds that it would be an ultra vires act.

On 15th November 2022, the Conseil d’État upheld some of the applicants’ claims and annulled the ordonnance insofar as it does not provide that authors assigning their exclusive rights for the exploitation of their works have the right to receive appropriate remuneration.

More precisely, the Court held that:

[…] if the contested text created, in Article L. 131-5 of the code de la propriété intellectuelle, on the one hand, an action for revision of the terms of the contract on the grounds of injury or insufficient forecast of the proceeds of the work when the work has been transferred in return for a lump-sum remuneration and, on the other hand, in order to transpose Article 20 of the Directive, a right to supplementary remuneration when the proportional remuneration initially agreed turns out to be disproportionately low, it did not provide, contrary to the requirement of the Directive, for the remuneration to be «appropriate » from the beginning (paragraph 14) (translation by the Author).

In other words, irrespective of the contractual adjustment mechanisms operating after the conclusion of the contract, the Court seemed to affirm the remuneration should be “adequate” and not merely “proportionate”, from the very first moment.

Comment

The decision of the Conseil d’État offers some interesting insights into the interpretation of Article 18 of the Directive.

First, the terms “appropriate” and “proportionate” are not synonyms and should be interpreted differently. In some cases, in accordance with the Court’s reasoning, even a remuneration determined by means of a percentage of revenue may not be appropriate.

Secondly, it seems worth reflecting on the nature of this provision and its relationship with the other articles. To this Katfriend, it seems that, on the one hand, the general principle provided by Article 18 justifies the ex-post measures provided by Articles 19-22. On the other hand, it seems standing also independently from the latter and guiding the negotiation and content of contracts in an ex-ante perspective. Indeed, it is the original contract that, in the first place, should provide for adequate and proportionate remuneration, especially since there is a tendency of authors and performers to be reluctant to challenge their contracts, also due to the fear of blacklisting, i.e., greater difficulty, if not impossibility, of finding an counterparty willing to enter in a new agreement. Consequently, the more Article 18 will be developed from an ex-ante perspective, the less there will be a need to rely on ex-post mechanisms.