5.2.2.3.1 Indirect Duty to Exploit Specific to the Recorded Music Sector

The first revocation mechanism harmonised at the EU level only applies to performers whose performance has been fixed in a phonogram and who have transferred (not licensed) their exclusive rights to a corporate partner. This mechanism grants such performing musicians the unwaivable right to reclaim their exclusive rights if the record company does not ‘sufficiently’ exploit the phonogram(s) at issue during the extended term of protection of the phonogram – that is, from the fifty-first to the seventieth year of protection.Footnote ⁴⁰ This regime was implemented in all chosen jurisdictions.Footnote ⁴¹ It gives rise to an indirect duty to exploit on the part of the corporate partner. There is no specific corresponding indirect obligation for the first fifty years of the contract. Cynics might therefore argue that this implies that the ‘fair’ term to start exploiting a phonogram was/is half a century.Footnote ⁴²

Under the harmonised regime, the record company must offer sufficient ‘copies’Footnote ⁴³ for sale or make the phonogram available to the public by wire or wireless means. If they do not fulfil this obligation, the musician can notify the record company of their intention to terminate the contract. Following such notice, the record company has one year to exploit the phonogram by offering sufficient copies for sale and making it available to the public.Footnote ⁴⁴ This implies an obligation to exploit on both the analogue and digital markets – an obligation that may run counter to current (and especially future) music industry practices.Footnote ⁴⁵ Without such ‘sufficient’ exploitation, the musician may reclaim their rights and seek DIY exploitation of the phonogram, or call upon the services of another corporate partner. Arguably, the termination automatically arises following the expiry of the grace period.Footnote ⁴⁶

The final aspect of the analysis is how the use-it-or-lose-it clause is applied in practice in the case of collaborations between multiple performing musicians. The harmonised regime does not impose any rules in this regard. In principle, each musician may assert their rights in accordance with national law, leading to a corresponding loss of rights on the part of the record company.Footnote ⁴⁷ This may allow one musician to block the further exploitation of a phonogram. French law seeks to pre-empt this issue by establishing that the exercise of the right of revocation for a phonogram that contains contributions by multiple performers must take place by common consent, in the absence of which a judge is to rule on the matter.Footnote ⁴⁸ In Germany, the revocation mechanism is to be set in motion by an elected representative or by the leader of a group of musicians.Footnote ⁴⁹ In effect, this implies the requirement of a majority decision on the matter of rights revocation.Footnote ⁵⁰ This may provide a more efficient solution.

5.2.2.3.2 Indirect Duty to Exploit in the Music Publishing and Recorded Music Sectors

The DSM Directive offers a second chance for a high-performing harmonised use-it-or-lose-it clause. Article 22 DSM Directive sets certain minimum requirements for regimes that apply to copyright exploitation contracts with authors and/or performers where there is no exploitation. The harmonised regime does not apply to non-exclusive licences. Moreover, as is the case for the other relevant provisions of the DSM Directive, the substantive scope of Article 22 DSM Directive is limited to exploitation rights that have been harmonised under EU law – that is, the rights of reproduction sensu stricto, communication to the public and distribution, to the exclusion of the right of adaptation.Footnote ⁵¹ Regardless, in order to maintain the internal coherence of the national legal frameworks, Member States may also be expected to implement the harmonised regime for non-harmonised rights.Footnote ⁵²

Subsequent to Article 22 DSM Directive, musicians (either composers or performers) who have transferred their rights or granted an exclusive licence thereto must be able to reclaim these rights, either in whole or in part, if the corporate partner does not perform any exploitation activities.Footnote ⁵³ The regime harmonised by Article 22 DSM Directive does not apply to non-exclusive licences. However, given the minimum harmonising nature of this provision, Member States may establish a use-it-or-lose-it provision for non-exclusive licences as well.

Article 22 DSM Directive leaves significant leeway for Member States as to its implementation into national law, allowing several differences between the applicable national legal regimes.Footnote ⁵⁴ First, Member States are free to further specify the revocation mechanism under national law, taking account of the specific nature of certain CCIs and types of artistic content.Footnote ⁵⁵ In addition, the EU legislator allows for specifications of national law for co-creations or co-performances based on the relative importance of artists’ contributions and the legitimate interests of the artists involved.Footnote ⁵⁶ The broad language of Article 22 DSM Directive further indicates that Member States’ discretion extends beyond the possibility of sector-specific rules and provisions particular to collaborative content.Footnote ⁵⁷

The use-it-or-lose-it provision included in the German Copyright Act applies to both composing and performing musicians and is limited to exclusive rights (exclusive licences of rights of composers and either transfers or exclusive licences of rights of performers).Footnote ⁵⁸ In addition, for publishing contracts, the German Publishing Act grants the author a waivable right to revocation in case the publisher does not exercise their right to publish a new edition of a work.Footnote ⁵⁹

The Dutch regime applies to both authors and performers and, contrary to what is the case under German law, does not limit its applicability to exclusive contracts.Footnote ⁶⁰ It applies to transfer contracts and both exclusive and non-exclusive licences.

Third, pre-DSM, both Belgian and French law only contained a reversion regime specific to publishing contracts – that is, applicable to music publishing, but not to recorded music – as a sanction in case of breach of the direct duty to exploit discussed above.Footnote ⁶¹ In addition to the rule specific to publishing contracts, the French legal framework now provides a revocation mechanism to the benefit of both authors and performers, albeit limited to transfers and exclusive licences.Footnote ⁶² Conversely, the Belgian legislator has amended the pre-existing mechanism specific to publishing contracts, to the benefit of a new mechanism that applies to both authors and performers.Footnote ⁶³ The scope of the Belgian revocation mechanism excludes both non-exclusive licences and music made either in an employment context or on commission.Footnote ⁶⁴ The same is true for insignificant contributions, to the extent that the exercise of the revocation right by one artist would unduly prejudice the interests of the other artists involved.Footnote ⁶⁵

The conditions for application of the relevant national regimes differ. The first main substantive difference is whether the reversion regimes require ‘sufficient’ use on the part of the corporate partnerFootnote ⁶⁶ or whether any use suffices to exclude its application. Further, some regimes include an express proportionality test that limits the substantive scope of application of the reversion regime, while others do not.

The scope of the revocation mechanism included in Article 22 DSM Directive is limited to situations of non-exploitation.Footnote ⁶⁷ It could therefore be argued that one stream of a phonogram on a single DSP constitutes an exploitation activity that is sufficient to render the harmonised revocation mechanism wholly inoperative.Footnote ⁶⁸ At present, such an interpretation is not expressly excluded, given the lack of legal qualification of music streaming beyond the fact that it is covered by both the reproduction right and the making-available right.

However, some jurisdictions are more artist-friendly and require more than any form of exploitation to evade application of the revocation mechanism. General revocation mechanisms relating to insufficient exploitation are, as yet, not harmonised at the EU level.Footnote ⁶⁹

The Dutch regime requires ‘sufficient’ exploitation for the corporate partner to be able to avoid termination of the contract by the artist.Footnote ⁷⁰ The same is true under German law.Footnote ⁷¹ The corporate partner must be granted two years to start exploiting the content at issue.Footnote ⁷² While the Belgian provisions do not expressly require ‘sufficient’ exploitation by the corporate partner, this may be deduced from the general duty to exploit in accordance with sector practices.Footnote ⁷³

Under French law, both the post-DSM generalised revocation mechanism and the pre-existing regime for publishing contracts only come into play if no exploitation activities take place.Footnote ⁷⁴

Article 22 DSM Directive does not expressly require a proportionality test. However, the harmonised reversion right does not apply if the lack of exploitation is predominantly due to circumstances that the musician ‘can reasonably be expected to remedy’ – in other words, where the non-exploitation is attributable to the artist.Footnote ⁷⁵ This proviso expressly applies under Belgian, German and Dutch law. At the time of writing, no equivalent requirement exists under French law. The national regimes under review also include other considerations of proportionality. For example, the Belgian regime expressly establishes its disapplication if the corporate partner had a legitimate reason not to exploit the content at issue, interpreted as a reason that is foreign to them, such as a fire in the warehouses leading to a destruction of stock.Footnote ⁷⁶ Another example is that German law expressly requires artists to indemnify the corporate partner if this is deemed fair and equitable.Footnote ⁷⁷ A strict interpretation of the proportionality requirement is desirable. The same is true for the abovementioned provisions of national law that implement proportionality considerations. Otherwise, there is a risk of undue circumvention of the protection that the revocation mechanism offers to musicians.Footnote ⁷⁸ This rings especially true for music streaming, where it may be argued that legitimate reasons not to exploit content would routinely arise, thus easily allowing the harmonised revocation mechanism to be bypassed.Footnote ⁷⁹

Further, the application of the harmonised use-it-or-lose-it clause in time merits closer attention. The appropriate temporal application of a certain protective measure depends on a balance between procedural considerations of legal certainty and substantive considerations of enhanced protection.Footnote ⁸⁰ In view of the limited scope of the harmonising mechanism (which only applies in case of non-use) and the procedural safeguards included to the benefit of corporate partners (such as the requirement of a notice of default), its consequences in practice – and thus its impact on the freedom of contract – are limited. The immediate application of this mechanism to acts of exploitation stemming from ongoing contracts from 7 June 2021 is therefore merited.Footnote ⁸¹

Legal mechanisms securing an indirect duty to exploit should simultaneously be of a mandatory nature and a measure of last resort.Footnote ⁸²

As to the former, the harmonised revocation mechanism is not expressly qualified as mandatory law in Article 23 DSM Directive and may therefore in principle be subject to contractual derogations.Footnote ⁸³ Legislative approaches differ. While the Dutch regime has been labelled as unwaivable,Footnote ⁸⁴ the French legislator has not done this – although this may yet occur following a collective negotiation process.Footnote ⁸⁵ In Germany and Belgium, an alternative route was chosen: derogations to the detriment of artists are only possible if they stem from collective negotiations.Footnote ⁸⁶ This route is expressly mentioned in Article 22 DSM Directive.Footnote ⁸⁷ In practice, such provisions lead to a qualification of the revocation mechanism as mandatory law, albeit only indirectly.Footnote ⁸⁸

The latter aspect is linked with the objective of maintaining the position of corporate partners. Musicians should not be able to reclaim their rights on a whim. Substantive conditions, such as a requirement of proportionality, as well as procedural steps, such as a notice of default and an additional grace period, play an important role.Footnote ⁸⁹ The application of the revocation mechanism is indeed subject to procedural conditions. Care must be taken to ensure that these steps are not too arduous for artists, in order to avoid an enforcement gap in practice.Footnote ⁹⁰

First, a logical substantive prerequisite is that corporate partners must have a reasonable amount of time to start exploiting the music following the grant of rights, such as the period of two years that applies under German law.Footnote ⁹¹ Under the generalised French revocation mechanism, this period is to be set through collective bargaining.Footnote ⁹²

The musician(s) must notify the corporate partner and set a reasonable deadline for the desired exploitation activities.Footnote ⁹³ Only after the expiry of that deadline do the applicable sanctions apply.Footnote ⁹⁴ For publishing contracts in particular, French law provides for automatic expiry of the contract if two requests for delivery of copies remain unanswered within three months.Footnote ⁹⁵ Under German law, no grace period must be granted to the corporate partner if it is impossible for them to conduct exploitation activities, if they refuse to take action, or if such a grace period would unduly prejudice the artist’s interests.Footnote ⁹⁶

In order for musicians to be able to assess whether fair exploitation is actually taking place, an argument may be made in favour of transparency obligations comparable to those in place for fair remuneration.Footnote ⁹⁷

As to the scope of the rights reclaim, it is an interesting option to seek to merely revoke exclusivity instead of opting for a full rights revocation,Footnote ⁹⁸ or to seek revocation only for certain specific methods of exploitation. As to the latter, inspiration may be drawn from the French model for literary publishing, which allows authors to invoke the applicable use-it-or-lose-it mechanism separately for analogue and digital exploitation.Footnote ⁹⁹

A final aspect of the analysis is how the revocation mechanism is applied where multiple musicians are involved. A blanket exclusion of the music sector from the harmonised revocation mechanism, as appears to be allowed under Article 22 DSM Directive, would be excessive.Footnote ¹⁰⁰ This option was not chosen by any of the selected jurisdictions. Neither German nor Belgian law provide any express rule for collaborative music. Conversely, the French regime mandates a joint exercise of the right of revocation in such a case; in the absence of consensus, the matter is to be brought before a judge.Footnote ¹⁰¹ Similarly, under Dutch law, rights pertaining to collaborative content that cannot be separated can only be revoked if all artists involved provide their consent.Footnote ¹⁰² If the undue refusal of one of the artists disproportionately prejudices the interests of the others (that is, constitutes an actionable form of abuse of law), the contract may only be rescinded through court proceedings.Footnote ¹⁰³ Coupling the principled requirement for joint consent with a prohibition of the abusive refusal thereof indeed appears to be the most balanced solution. However, given the difficulties associated with legal proceedings in music industry,Footnote ¹⁰⁴ the mandated intervention of a judge risks being slightly unproductive.

5.3.2.2.1 Legal Requirements of Fair Remuneration

Article 18 DSM Directive requires all Member States to ensure that artists who enter into copyright exploitation contracts ‘are entitled to receive appropriate and proportionate remuneration’.Footnote ²⁰² This minimum ex ante benchmark, which is referred to in this book as the principle of ‘fair’ remuneration, seeks to contribute to a sustainable marketplace for content creation, exploitation and consumption.Footnote ²⁰³ The principle of fair remuneration was not included in the initial Commission Proposal.Footnote ²⁰⁴ It was added by the European ParliamentFootnote ²⁰⁵ under the influence of the ‘Fair Internet for Performers’ campaign.Footnote ²⁰⁶ The recognition of this principle of fair remuneration in EU legislation was primarily welcomed by stakeholders on the artistic side of the copyright aisle.Footnote ²⁰⁷ A countervailing force is provided by the second paragraph of Article 18, which requires Member States to take due account of the freedom of contract in its implementation into national law, and thus achieve a fair balance between the rights and interests of all involved.Footnote ²⁰⁸

Article 18 DSM Directive complements two prior, narrower harmonising measures taken in the context of the Term Extension Directive, namely the right to supplementary compensation and the ‘clean slate’ provision. These fairly detailed measures are meant to ensure that the term extension for neighbouring rights associated with phonograms actually benefits performing musicians that have transferred their exclusive neighbouring rights.Footnote ²⁰⁹ The first measure relates to exploitation contracts where a transfer of rights – not a licence – is effected in return for a lump sum. Thus, it primarily applies to session musicians. It purports to grant such musicians an unwaivable right to annual supplementary remuneration during the extended term of protection of the phonogram.Footnote ²¹⁰ This remuneration is payable by the record company and distributed through collective management.Footnote ²¹¹ In order to secure payment, the record label must set aside and reserve one-fifth of revenues derived from the exploitation of exclusive rights associated with the phonogram(s) at issue during that time, before deducting costs.Footnote ²¹² An extension of the annual supplementary remuneration for performing musicians on the basis of the Term Extension Directive to musicians having granted an exclusive licence to their rights should be considered, given that the economic effects of an exclusive licence are so similar to those of a full rights transfer that maintaining this difference could amount to a form of discrimination.

The second course of action, the ‘clean slate’ provision, is aimed at royalty-based contracts that include a transfer of rights – again not a licence.Footnote ²¹³ It sets forth that record labels may not deduct unrecouped advances or contractually defined deductions from royalties associated with exploitation activities during the extended term of protection.Footnote ²¹⁴ Both of these measures may assist in shaping the requirement of fair remuneration.

The principle of ‘appropriate and proportionate’ remuneration is in tune with this book’s objective of securing a fair return in terms of economic capital for all contracting parties and therefore constitutes a significant step forward in terms of relational Rawlsian substantive fairness as to music contracts in the streaming age.Footnote ²¹⁵ Indeed, a fair return infuses the idea of true reciprocity in the contracts under review. This principle may be seen as safeguarding parties’ basic liberties as well as ensuring fair equality of opportunity and furthering the difference principle. First, fair remuneration contributes to the voluntary nature of the transactions under review.Footnote ²¹⁶ The parties are free to determine the essence of the contractual bargain, thus safeguarding their individual autonomy. Second, it also allows musicians to work towards improving their position in the marketplace in terms of both economic and social capital.Footnote ²¹⁷ Finally, the implicit objective of the principle of fair remuneration to secure a minimum level of remuneration can be linked with a Rawlsian baseline of resources that are to be allocated to members of society.Footnote ²¹⁸

The principle of fair remuneration as included in Article 18 DSM Directive is remarkably vague and allows a continuation of divergences between national laws.Footnote ²¹⁹ The scope of appreciation for Member State legislators is significant, as is shown by the use of broad concepts such as ‘appropriate’, ‘disproportionate’ and ‘real’ or ‘potential’ economic value, as well as the lack of concrete benchmarks for appreciation, especially in a digital context. This is bound to affect legal certainty in a negative way.Footnote ²²⁰ The inevitable further contractual definition of these concepts is associated with increased transaction costs and may perpetuate and reinforce imbalances in bargaining power. Below, the relevant legal framework at all three regulatory levels is reviewed, in a bid to further concretise the principle of fair remuneration in the streaming age.

First, a brief overview of the essence of the legal requirements as to remuneration in the chosen jurisdictions is provided, since ‘fair remuneration’ is intrinsically connected with the legal provisions that seek to attain this. Even before the implementation of the DSM Directive, both the German and Dutch legal frameworks already provided a general principle of fair remuneration to the benefit of both composers and performers, upon which Article 18 DSM Directive was modelled. Under German law, in the absence of contractual determination of the amount of remuneration, the contract is presumed to establish fair remuneration.Footnote ²²¹ If the contractually agreed amount is unfair, the musician may require the corporate partner to consent to a modification of the agreement that remedies this and balances out the interests of both parties.Footnote ²²² Conversely, a corporate partner may not invoke a clause that deviates from the legal regime to the detriment of the musician(s).Footnote ²²³ In practice, therefore, the right to fair remuneration under German law is unwaivable. Under Dutch law, both composers and performers have an unwaivable right to fair remuneration in return for the grant of exploitation rights to a third party, unless in an employment context or for commissioned content.Footnote ²²⁴

France has traditionally taken a different approach. Instead of expressly requiring remuneration arrangements in the context of copyright exploitation contracts pertaining to copyright sensu stricto to be ‘fair’, French law requires such contracts to set proportionate remuneration, a rule that is qualified as pertaining to public order and is, therefore, unwaivable.Footnote ²²⁵ Prior to the implementation of the DSM Directive, this rule applied to authors only.Footnote ²²⁶ Subsequent to the implementation of the DSM Directive, performers have a right to appropriate and proportionate remuneration.Footnote ²²⁷ This principle of appropriate and proportionate remuneration is deemed to be of a public order nature.Footnote ²²⁸ The French legislator’s choice not to add the requirement that the remuneration arrangement be ‘appropriate’ for authors was held to be incompatible with Article 18 DSM Directive.Footnote ²²⁹ While it has been argued that the principle of proportionality in itself implies a requirement of (fair) remuneration in copyright exploitation contracts, French law also expressly establishes the possibility for such contracts to be entered into without any remuneration.Footnote ²³⁰ For performing musicians whose performance has been fixed in a phonogram, French law has provided for a few years that the contract should set a minimum guaranteed remuneration per method of exploitation (with a separate provision for analogue and digital use).Footnote ²³¹ In addition, since 2016, the French IP Code mandates that performing musicians should receive a minimum remuneration for streaming, proportionate to the economic value of their rights.Footnote ²³²

In Belgium, the principle of appropriate and proportionate remuneration to the benefit of both authors and performers was established in Articles XI.167/1 and XI.205/1 Belgian CEL, which is qualified as mandatory law.Footnote ²³³

As to performers having entered into transfer contracts in particular, all five chosen jurisdictions have implemented the unwaivable, collectively managed right to annual supplementary remuneration and the ‘clean slate’ provision as harmonised under the Term Extension Directive.Footnote ²³⁴ The success of these measures has rightfully been called into question on various occasions.Footnote ²³⁵ While a royalty of 20 per cent of gross revenue is at the high end of what most performing musicians achieve through contract negotiations and while discounts and advances have a very real impact on musician revenue,Footnote ²³⁶ the concrete impact of these well-intended steps has remained limited. This may be linked to the fact that the temporal application of the measures is limited to twenty years. Moreover, empirical research has discerned a trend on the part of record labels to remaster and/or remix existing recordings and focus on the exploitation of newly released phonograms instead of the sustained exploitation of older phonograms that benefit from the term extension.Footnote ²³⁷ In the absence of further active marketing of the original phonograms, ensuing musician revenue appears to have stagnated. As to the right to annual supplementary remuneration, an EU study on the application of the Term Extension Directive has indicated that the revenues collected and distributed have been rather limited, as a result of difficulties in identifying performers that are entitled to such supplementary remuneration on the basis of record companies’ databases.Footnote ²³⁸ Thus, despite the efforts of the EU legislator on this front, the intended effects seem to not have materialised in practice.

Other legal regimes may also have an impact on a musician’s right to fair remuneration. Under general contract law, in addition to the overarching principle of good-faith contract performance that curtails excessively unfair behaviour,Footnote ²³⁹ particular reference may be made to Article 138(2) German Civil Code, which qualifies the acquisition of disproportionate pecuniary advantages through the exploitation of another party’s weaker position as contrary to public policy, resulting in the nullity of the legal transaction at issue.Footnote ²⁴⁰ Reference may also be made to the regimes applicable to unfair B2B contract terms, namely the ‘manifest imbalance’ test under Belgian and French law, and the ‘reasonableness’ test under Dutch law.Footnote ²⁴¹

5.3.2.2.2 Operationalisation of Legal Requirements

The inherent unpredictability of commercial success in the streaming age, combined with the wide spectrum of contractual relationships and technological advancements that open up new avenues for digital exploitation, render it particularly difficult to pinpoint ex ante what exactly constitutes ‘fair’ remuneration.

The international and EU regulatory levels offer some tentative tools for concretisation. On the international level, the Rome Convention and the WPPT refer to the need for rightsholders to receive ‘equitable remuneration’ in the context of the compulsory licence for secondary use, but without adding any further clarification of what should be considered ‘equitable’.Footnote ²⁴² The EU level holds significantly more potential for the concretisation of equitability in terms of remuneration. Indeed, ‘appropriate’ or ‘equitable’ remuneration is a recurring concept within the EU copyright acquis.Footnote ²⁴³ The objective of securing an appropriate economic reward for artists is a common theme throughout the recitals of various EU directives that pertain to copyright.Footnote ²⁴⁴ The concepts of ‘equitable remuneration’Footnote ²⁴⁵ and ‘fair compensation’Footnote ²⁴⁶ also return in the context of remuneration rights subject to collective management. On various occasions, the ECJ has had the opportunity to interpret the scope of these concepts and dubbed them autonomous concepts of EU law.Footnote ²⁴⁷ From this case law, a number of takeaways may be deduced. First, the broad margin for Member States to shape the form, detailed arrangements and level of compensation in the context of mechanisms for exceptions and limitations to copyright may be highlighted.Footnote ²⁴⁸ As indicated above, such leeway also exists for the benchmark of fair remuneration set by Article 18 DSM Directive. However, this freedom is not unlimited: in view of internal market considerations, Member States should avoid unnecessary inconsistencies between national regimes.Footnote ²⁴⁹ A harmonised interpretation would therefore be beneficial. Second – and unsurprisingly – the ECJ refers to the need to take account of, and find a balance between, the interests of all stakeholders.Footnote ²⁵⁰ On a more concrete level, fair compensation for rightsholders in the context of exceptions and limitations serves as a recompense for the harm suffered by the rightsholders, and a link is required between these negative effects and the remuneration granted.Footnote ²⁵¹ The economic value of the content at issue serves as a particularly relevant criterion.Footnote ²⁵² Moreover, the determination of what is fair should be based on objective criteria – be it variable or fixed.Footnote ²⁵³ Finally, the possible added value of collective bargaining is acknowledged.Footnote ²⁵⁴

Similarly, there is a reference to ‘appropriate remuneration’ in Article 16 CRM Directive, which sets out the criteria for licensing terms set by CMOs.Footnote ²⁵⁵ Rightsholders are said to have a right to be remunerated appropriately, taking account of (again) the economic value of the rights at issue and the nature as well as scope of the use.Footnote ²⁵⁶

Additional inspiration may be sourced from the competition law concept of excessive pricing under Article 102 TFEU, which labels a price as abusive – and thus unfair – if a contractual party has acquired an undue commercial advantage.Footnote ²⁵⁷ This is said to be the case in the absence of a reasonable proportion of the price at issue to the relevant economic value; if there is no objective economic justification for it.Footnote ²⁵⁸

Applying the above by analogy to the concept of ‘fair remuneration’, it may be argued that the remuneration granted to parties to the music contracts under review can only be deemed ‘fair’ if there is an objective, sufficiently strong connection between the economic value of music (in a way the ‘positive effects’ thereof) and the division of revenues between those playing a primary role in securing this value.

Recital 73 DSM Directive seeks to clarify the principle of fair remuneration by specifying that artists’ remuneration should be ‘appropriate and proportionate to the actual or potential economic value of the licensed or transferred rights’.Footnote ²⁵⁹ The inherent demand uncertainty in CCIs such as the music industry and the qualification of music as a so-called experience good render the task of quantifying the economic value of music particularly hard.Footnote ²⁶⁰ In the CCIs, ‘[r]ather than asymmetrical information, there is symmetrical ignorance’.Footnote ²⁶¹ Since neither party can calculate the exact economic value of music in advance, ex ante assessing the fairness of remuneration arrangements may be problematic.Footnote ²⁶² Instead of relying on the ‘actual or potential’ economic value of music, it may be more fruitful to look at the value that may be ex ante ‘reasonably expected’ on the basis of a number of guiding criteria. As was done for the scope of fair exploitation in Section 5.2.2.4 above, the following analysis again leans on relevant tools provided by legislation, case law and legal doctrine in the chosen jurisdictions.

First, the conceptual question arises whether the terminology of ‘appropriate and proportionate’ remuneration has certain implications for the nature of such remuneration as either a royalty or a lump sum payment. In other words, can a lump sum be ‘proportionate’, or does this provision require a royalty payment for all copyright exploitation contracts – either in combination with a flat fee or not? Recital 73 DSM Directive confirms that a lump sum may be proportionate and thus satisfy the ‘fairness’ threshold set by Article 18 DSM Directive, while it should not be the rule.Footnote ²⁶³ At the European level, therefore, no absolute requirement of proportionate remuneration appears to exist. This may be contrasted with the sustained, fierce criticism on the part of artist organisations of ‘buy-out contracts’, whereby a full transfer of rights is agreed for a flat fee.Footnote ²⁶⁴

In the chosen EU jurisdictions, a requirement of proportionality only applies under certain circumstances. As the law stands, France is the only country of these jurisdictions where the legal framework sets out a general rule of proportionate compensation for contracts with both authors and performers.Footnote ²⁶⁵ This general rule of proportionate remuneration is subject to a range of exceptions.Footnote ²⁶⁶ Relevant exceptions include situations where there is no practical calculation basis and/or no adequate means of supervision, where a proportionate payment would lead to disproportionate costs or where this would be impossible in view of the artist’s insignificant contribution to the work, or when the artist requests the royalty to be converted to a lump sum payment.Footnote ²⁶⁷ In the specific context of publishing contracts, a lump sum is also allowed if one of the parties is established abroad.Footnote ²⁶⁸ Conversely, the German legislator has shied away from setting a generally applicable requirement of proportionality. Regardless, relevant case law has repeatedly held that a lump sum payment is often not appropriate and therefore unfair, especially when exploitation rights are granted without limitation in time or scope and a reasonable interest in the overall exploitation revenues is not secured.Footnote ²⁶⁹ Moreover, German law now provides that a lump sum is only allowed if it guarantees an appropriate share for the artist in the expected total income from exploitation and is justified by the specifics of the industry.Footnote ²⁷⁰ Finally, Belgian law does not establish a general obligation of proportionality for copyright exploitation contracts. The requirement of proportionate remuneration for publishing contracts is waivable.Footnote ²⁷¹

A final aspect is the calculation basis of a proportionate remuneration arrangement. In France, the basis deemed appropriate is the retail price, which is the actual price paid by users and therefore includes the margin for the distributor.Footnote ²⁷² Since the retail price is often not known to the primary corporate partner, the lack of a clear reference point renders the operationalisation of proportionate remuneration difficult.Footnote ²⁷³ An alternative position may be found under Belgian law for publishing contracts, whereby the gross revenue accumulated by the publisher is used as the basis for calculation, unless there is a contractual provision to the contrary.Footnote ²⁷⁴

Instinct and logic draw us firmly towards a proportionate allocation of revenues amassed by the exploitation of artistic content over time.Footnote ²⁷⁵ In practice, the choice between a lump sum and proportionate remuneration ultimately depends on administrative considerations, risk-sharing arrangements and incentives for the parties.Footnote ²⁷⁶ In the absence of risk – and/or if large groups of musicians with minor individual contributions are involved – a lump sum is the logical choice.Footnote ²⁷⁷ However, success is highly unpredictable, resulting in the need for risk allocation. In case the contract sets a non-recoupable lump sum advance, the risk falls upon the corporate partner – a risk that is mitigated if the advance is recoupable. Under a royalty arrangement without any advances, the parties share the risk.Footnote ²⁷⁸ All of these risk allocation choices may be considered fair under certain circumstances.Footnote ²⁷⁹ By way of example, artists may deem a lump sum ‘appropriate’ if they are risk averse and prefer short-term financial certainty to uncertain incremental payments over an extended period of time, regardless of the net present value of such a royalty.Footnote ²⁸⁰ Especially in the streaming age, which is characterised by a shift in focus from a phonogram’s release to the objective of achieving sustained listening over time, a choice for instant gratification is defensible. However, it would be unfair for such an immediate payment to be wildly non-commensurate with the long-term value of the musical content. While royalty arrangements are usually considered to be more musician-friendly, corporate partners may wish to provide proportionate remuneration to ensure the cooperation of musicians in promoting the music at issue.Footnote ²⁸¹ Indeed, musicians who receive royalties have a commercial incentive in this sense.Footnote ²⁸² However, the lower proportion of revenues accorded to corporate partners under a royalty arrangement may decrease their incentive to exploit and thus indirectly result in lower musician revenue in absolute terms.Footnote ²⁸³

Depending on the circumstances, therefore, both lump sum and royalty arrangements may be deemed ‘appropriate and proportionate’. In view of this, it appears unwise to simplistically remove parties’ freedom in this regard.Footnote ²⁸⁴ Instead, we must look beyond the distinction between lump sums and royalties and shape the requirement of fair remuneration in an alternative way.

Below, a set of guiding criteria is developed, based on an analysis of relevant legislation, case law and legal doctrine. A clear parallel may be discerned with the criteria applied to the concept of fair exploitation. Again, focus first lies with substantive aspects and the impact of digitisation, before bringing personal, geographical and temporal dimensions into the equation. Sector practices and collectively bargained solutions serve as an additional guideline. The application of these criteria may lead to a broad spectrum of results in practice – indeed, it could be argued that, under some circumstances, a fair remuneration may equal zero.

Substantively speaking, the significance of individual musicians’ contributionsFootnote ²⁸⁵ and their perceived intrinsic value is pertinent, as is the concrete frequency and extent of exploitation of the protected content as a unit.Footnote ²⁸⁶ The former two aspects relate to the use of the contribution in the music and are difficult to quantify and assess in advance. Above, an attempt was made to render these concepts more concrete.Footnote ²⁸⁷ However, the fact-specific nature of such concretisation makes it difficult to accord a high degree of relevance to this first criterion in the conceptualisation of ‘fair remuneration’. Regardless, as an overarching observation, it is submitted that a higher degree of use of a musician’s contribution should correspond to a higher remuneration for such musician.

Since remuneration is garnered through exploitation activities, the following relevant criterion is the concrete scope of such activities, with the concept of fair exploitation both on- and offlineFootnote ²⁸⁸ as a pertinent benchmark.Footnote ²⁸⁹ However, while fair exploitation should focus on methods of exploitation deemed significant, the calculation base for fair remuneration should include all methods of exploitation.

An interlinked question is whether the remuneration should be contractually specified for each separate method of exploitation and in how much detail the calculation method should be described in the contract.Footnote ²⁹⁰ Reference may be made to the duty to specify that applies under both Belgian and French law.Footnote ²⁹¹ While such a specification is in principle beneficial for both transparency and legal certainty through the reduction of information asymmetries, the substantive added value is questionable.Footnote ²⁹² It is likely to merely lead to the inclusion of long, complex lists in the contract, thus resulting in a negative follow-on effect in terms of transparency.Footnote ²⁹³

The legal framework regarding fair remuneration must respond to the challenges set by digitisation.Footnote ²⁹⁴ Traditional, analogue revenue sources grafted onto the sale of ‘copies’ have been joined – and, to a significant extent, even replaced – by new, digital models where income is derived from consumer subscriptions and/or advertising. Futureproof fairness in terms of remuneration may only be achieved if all parties receive a fair share of all relevant revenues connected with the exploitation of music, whatever the source.Footnote ²⁹⁵ Digital methods of exploitation should be accompanied by appropriately tailored remuneration arrangements.Footnote ²⁹⁶ Restrictions regarding the scope of rights granted may provide a (partial) solution.Footnote ²⁹⁷ Another positive mitigating strategy, which has been followed in both Germany and the Netherlands, is to link emerging methods of exploitation with an unwaivable right to additional remuneration on the part of both composing and performing musicians.Footnote ²⁹⁸ This combines efficiency considerations as to exploitation with the objective of securing fair remuneration. The criteria that may shape fair remuneration should apply in order to ensure that this additional remuneration for new methods of exploitation does not remain purely symbolic. In case no guarantee may be provided, the grant of rights for new methods of exploitation should be reversible.Footnote ²⁹⁹

Many of the discounts applied in the analogue age are unfit for a digitised context.Footnote ³⁰⁰ Yet while many music industry deals have become more artist-friendly, discounts still apply to a certain extent and the lion’s share of digital revenue still accrues to the major rights owners.Footnote ³⁰¹ Fairness in royalty arrangements requires discounts, deductions and other costs indicated as ‘overheads’ to be limited to what is reasonable. These should correspond to justifiable costs incurred by corporate partners throughout the exploitation process. Structural discounts and deductions that cannot be justified by specific actions by the corporate partner should be avoided.Footnote ³⁰² Full transparency on applied discounts and deductions is required.Footnote ³⁰³

As to the calculation of royalties, the royalty percentage applied to digital downloads and streaming revenue should be significantly higher than what is the case for physical sales.Footnote ³⁰⁴ Indeed, the overhead costs associated with shipping, packing, manufacturing and distributing physical products have all but disappeared, as has the risk of damaged goods.Footnote ³⁰⁵ However, in order to maintain the flexibility needed to ensure a futureproof legal framework, this book does not argue in favour of a regulatory minimum royalty percentage. Regardless, a royalty rate of 30 per cent for streaming should be a standard, rather than an outlier. In many cases, a convincing argument may even be made in favour of a 50/50 division of streaming revenue, such as for artists who signed only recently, after having nurtured their own fan base until a corporate partner took note of them.Footnote ³⁰⁶ Moreover, the use of a sliding royalty scale is to be supported, as is the use of profit-sharing deals over recoupment deals – including the potential cancellation of unrecouped advances after a given period.Footnote ³⁰⁷ Conversely, excessive kickback arrangements that force a musician to forgo a part of CMO revenue obtained through remuneration rights to their corporate partners should be (more than) frowned upon, as should instances of excess cross-collateralisation and controlled composition clauses.Footnote ³⁰⁸

The primary takeaways as to the distribution of streaming revenue are that musician revenue (1) should be calculated on the basis of all quantifiable revenues stemming from exploitation, (2) using a fair royalty rate and (3) without excessive analogue discounts and/or deductions. In general, a move away from recoupment deals and toward profit-sharing deals is to be stimulated.

Things are moving in the right direction. A first example relates to the long-standing practice of recoupment deals. The specific nature of such deals implies that corporate partners are often already making a profit on the music while incoming revenues are still subject to recoupment.Footnote ³⁰⁹ The majors’ initiatives not to apply existing unrecouped balances to certain revenues obtained on the basis of legacy contracts hold promise.Footnote ³¹⁰ Other notable examples include the policy of the Beggars group to write off a quarter of the unrecouped balance after fifteen years.Footnote ³¹¹

Article 18 DSM Directive does not expressly refer to forms of revenue flowing to corporate partners that are not directly linked with particular exploitation activities, such as breakage, equity and profits from sale, non-allocable income assigned to corporate partners and, finally, the economic value of the ability to leverage back catalogue to secure coveted positions on streaming playlists.Footnote ³¹² Many of these revenues cannot be attributed to a given piece of music, let alone to a specific musician. In view of the significant commercial value of indirect remuneration arrangements, the requirement of fair remuneration should also cover indirect revenue flows – provided that these are quantifiable.Footnote ³¹³ Reference may be made to revenues flowing from breakage, equity and non-allocable income. An analogue rule has already been included in French law for literary publishing.Footnote ³¹⁴ As is the case in Germany, the corporate partner’s profits may serve as an additional criterion, if applicable profit margins are excessive.

The identity of the parties may also play a role in determining what remuneration arrangements qualify as fair. A uniform approach to composing and performing musicians is merited. For the musician, an increase in fame should go hand in hand with an increase in remuneration, at least to a certain extent. The application of sliding-scale remuneration arrangements, whereby the royalty rate increases in a way commensurate to the music’s commercial success, may be helpful. If a group of musicians is involved, reference may be made to conventional relations of hierarchy, such as those between different roles in an orchestra and/or in a band, while shying away from undue generalisation.Footnote ³¹⁵ On the corporate partner’s side, account should be taken of the market conditions at the time of investment, as well as the costs incurred and the amount of risk.Footnote ³¹⁶ In addition, the structure, size and profit margin of corporate partners may be considered relevant – suggesting a somewhat more lenient application of the law vis-à-vis SMEs.

The next question is whether remuneration is provided for the entire time of exploitation, as well as when it is paid out.Footnote ³¹⁷ Payment should take place within a reasonable period following the exploitation to which the remuneration relates. A certain diligence on the part of corporate partners may be expected, by way of a specification of the general duty of good-faith contract performance, which implies the need for a mechanism that efficiently collects revenues from external corporate partners and pays musicians what they are due without unnecessary delay.Footnote ³¹⁸ Inspiration may be drawn from the regime applicable to literary publishing under French law, according to which the publisher must pay authors what is due to them within six months after closing the accounts for a given period, unless a collective agreement specifies otherwise.Footnote ³¹⁹

In terms of geographical scope, fair remuneration requires sharing revenues with musicians for exploitation in all relevant territories where exploitation takes place. A clear preference goes out to an ‘at source’ calculation of royalties that does not deduct potentially excessive commissions charged by additional intermediaries, such as sub-publishers.Footnote ³²⁰

The shaping of the concept of fair remuneration should also take due account of sector practices, referring to the compensation that is common in the sector for the exploitation activity at issue.Footnote ³²¹ The parameters used by CMOs in the context of revenue distribution may provide a source of inspiration.Footnote ³²²

Further, when nearly all market participants receive a similar amount for a similar grant of rights, this consideration may contribute to a finding of fairness concerning a given remuneration arrangement.Footnote ³²³ However, existing practices should not be followed blindly. Indeed, the mere fact that a certain type of remuneration arrangement is customary does not in itself imply that it is fair.Footnote ³²⁴

Together with relevant rules stemming from provisions on unfair B2B contract terms and provisions of general contract law, this may lead to many of the unfair remuneration practices in the music industry becoming a thing of the past. The express prohibition of contractual deviations from this right in the chosen jurisdictions is a promising step.Footnote ³²⁵ As to the temporal application of Article 18 DSM Directive, a balance must be found between legal certainty and enhanced fairness. In view of the internal balancing measures, such as the principled allowance of a lump sum, the temporal application to ongoing contracts from 7 June 2021 onwards is defensible, provided that any retroactive application to past exploitation activities is excluded.Footnote ³²⁶

5.3.2.2.3 Collective Bargaining

Collectiveness may enhance fairness within the music value chain. Collective entities such as trade unions may support and even represent musicians in the context of specific negotiations with certain corporate partners, as well as contribute to industry-wide good practices. Several forms of self-regulation may be envisaged, such as guidelines, best practices, codes of conduct, memoranda of understanding and/or model agreements.Footnote ³²⁷ By way of example, such arrangements may determine non-mandatory remuneration rates for digital exploitation.Footnote ³²⁸ The active promotion of such best practices by public authorities is likely to be beneficial.Footnote ³²⁹ In this context, too, much is to be said for an industry-wide dialogue that brings together all significant stakeholder representatives, as was included in the initial Commission Proposal for the DSM Directive regarding the operationalisation of the chapter on copyright exploitation contracts.Footnote ³³⁰ Some of the existing good practices relevant to the music industry were already discussed.Footnote ³³¹ On the international level, illustrative reference may, among other things, be made to the 2014 ‘Fair Digital Deals Declaration’ championed by WIN, which commits independent record companies (not the majors) to transparency in DSP contracts and revenue sharing with artists.Footnote ³³²

Taking the idea of self-regulation one step further is the potential recourse to collective bargaining. Positive aspects thereof include an undeniable reduction in transaction costs, as well as the advantage of transcending the problems of enforcement associated with the application of the protective legal framework to individual contractual relationships.Footnote ³³³ In the music industry, initiatives like Merlin are gaining significant traction in the – traditionally very fragmented – independent music community.Footnote ³³⁴ The leverage of digital aggregators in negotiations with DSPs may fulfil a similar role for independent musicians. The opportunities offered by collective bargaining with primary corporate partners bear particular relevance to session musicians (including orchestra musicians), whose relative bargaining power in individual negotiations is especially limited.Footnote ³³⁵ It is therefore unsurprising that the legal framework repeatedly refers to the role of collective bargaining in further shaping the applicable legal framework – especially for the performance phase of the contract.Footnote ³³⁶

Collective bargaining appears to be on the rise in all jurisdictions under review here – at least in theory. Germany, for one, has been a strong proponent of self-regulation in the CCIs for some years, and this has shone through in the legal framework.Footnote ³³⁷ Most notably, joint remuneration arrangements that set general guidelines for appropriate feesFootnote ³³⁸ – to be distinguished from traditional collective bargaining between trade unions – are irrefutably presumed to be fair in the sense of German copyright contract law.Footnote ³³⁹ This process is meant to enable representatives of both artists and corporate partners to enter into negotiations on joint remuneration agreements.Footnote ³⁴⁰ Joint remuneration agreements may be established either through informal negotiations, or with the intervention of an arbitration board.Footnote ³⁴¹ The representative associations must be independent and have the requisite competence to enter into such agreements.Footnote ³⁴² If they represent a significant proportion of artists in a certain CCI, their competence is presumed until proof to the contrary.Footnote ³⁴³ Where a joint remuneration agreement applies (including when the corporate partner is not a party to it but is a member of an association that entered into the joint remuneration agreement), no deviations are allowed to the detriment of the artist.Footnote ³⁴⁴ Courts may extend the application of a joint remuneration agreement to the entire sector, and may moreover use an existing agreement in a similar sector to guide them in the determination of what is fair in situations that, strictly speaking, fall outside its scope.Footnote ³⁴⁵ Despite these extensive rules, it appears that the system of joint remuneration agreements has had little success so far, due to an unwillingness on the part of corporate partners to participate.Footnote ³⁴⁶

The French legislator has also expressly enabled collective bargaining for remuneration arrangements under national law.Footnote ³⁴⁷ Moreover, collective agreements relating to remuneration between representative organisations may be certified by the minister for culture and thus made mandatory for a particular sector.Footnote ³⁴⁸ Reference may be made to the collective labour agreement on phonographic publishing, dating back to 2008.Footnote ³⁴⁹ The effect of this agreement was legally extended to the entire music sector in 2009 and, since then, negotiations as to its amendment have been taking place on an annual basis.Footnote ³⁵⁰ This collective agreement has not been without criticism, as it is said to lead to standardised contracts whereby the transfer of exclusive rights is the norm and where the room left for negotiation on the part of individual musicians is too limited.Footnote ³⁵¹ Under the impetus of French performers’ CMO Spedidam, lengthy judicial proceedings were conducted against its application.Footnote ³⁵² Outside the sphere of employment, in 2015 French stakeholders signed a Memorandum of Understanding in which they expressed their committal to securing fair remuneration of musicians in the digital sphere.Footnote ³⁵³ They affirmed many of the points made in this chapter, such as the need to include indirect revenues in the calculation base for musician remunerationFootnote ³⁵⁴ and to limit contractual deductions to what is reasonable,Footnote ³⁵⁵ as well as to ensure a minimum remuneration for performers as to online exploitation.Footnote ³⁵⁶ Furthermore, the abovementioned minimum remuneration for streaming for performing musicians under French lawFootnote ³⁵⁷ led to a stakeholder agreement, the application of which was extended by Ministerial Decree on 1 July 2022.Footnote ³⁵⁸

In 2015, the Dutch legislator established a regime of government approval of remuneration schemes that result from collective bargaining. Upon the joint request of relevant independent associations representing both artists and their corporate partners, the competent minister may certify the amount of such fair remuneration in a sector-specific way.Footnote ³⁵⁹ An attempt to have recourse to this system by representatives of composers and music publishers was rejected in 2019.Footnote ³⁶⁰ The successful completion of this procedure has yet to occur at the time of writing. The same is true for the possibility to set up a so-called standaardregelingFootnote ³⁶¹ under Dutch civil law, which allows a commission that consists of the majority of representatives of collective organisations to establish a regime that is subsequently meant to apply in a general way.Footnote ³⁶² Alternatively, cooperation in the context of collective negotiations may be sought from the Autoriteit Consument & Markt (ACM, the Dutch competition authority).Footnote ³⁶³ As to performers, there are multiple recommended models for copyright exploitation contracts dating from 2018 and 2019, provided jointly by Dutch representative organisations for record companies and musicians.Footnote ³⁶⁴ In addition, on 15 June 2020, representative organisations from the music publishing sector entered into a sector agreement that, among other things, guarantees musicians two-thirds of revenue from collectively managed remuneration rights.Footnote ³⁶⁵ More generally, for all CCIs, the launch of a ‘Fair Practice Code’ is noted, which expressly refers to the need to fairly remunerate artists.Footnote ³⁶⁶ Finally, the Dutch government recently proposed to (1) establish a legal presumption that a collectively negotiated remuneration is fair, mirroring the abovementioned German rule and (2) allow for specification of the Dutch provisions of copyright contract law through collective bargaining.Footnote ³⁶⁷

Subsequent to the implementation of the DSM Directive, Belgian law establishes a collective mechanism meant to intervene in the determination of fair remuneration.Footnote ³⁶⁸ Some industry-led collective initiatives may already be highlighted, such as the Juist is Juist soft law principles for collaborations in the CCIs, that focus on transparency and shared responsibility.Footnote ³⁶⁹

The most notable example in the UK music industry, finally, are the agreed rates, terms and conditions between the Musicians’ Union and the BPI (British Recorded Music Industry) for session musicians for commercial audio release.Footnote ³⁷⁰

Despite legislative efforts to bolster collective bargaining, available data suggests a limited impact on the level of remuneration in the music sector – albeit with some exceptions.Footnote ³⁷¹ This has been attributed to the procedural steps involved, as well as the limited number of representative artist associations, combined with an apparent unwillingness of corporate partners to participate, leading to delay strategies in the negotiation process.Footnote ³⁷² While laudable initiatives are ongoing, the opportunities of enhanced collectiveness are yet to be fully mined.

There are limits as to what collective action through interest groups can achieve. Certain legal constraints apply. In particular, guild-style collective bargaining in the contract negotiation process leading to standard agreements may run counter to the applicable principles of competition law, in particular Article 101 TFEUFootnote ³⁷³ and its equivalent under UK law, Section 2 Competition Act 1998,Footnote ³⁷⁴ which prohibit anticompetitive agreements, decisions and concerted practices.Footnote ³⁷⁵

Collective labour agreements contravene competition law when they are concluded between undertakings. By contrast, employees – including employed musicians – do not constitute separate undertakings. Given that they perform work for and under the direction of undertakings, they form a single economic unit with that undertaking.Footnote ³⁷⁶ As a result, they can freely enter into agreements among themselves without falling foul of the cartel provision.Footnote ³⁷⁷

The possibility of artists to enter into collective bargaining agreements thus turns on their status as undertaking or employee. Freelance musicians are generally considered as undertakings, while orchestra musicians may be employed by ‘their’ orchestra. Undertakings may try to prevent musicians from bargaining collectively by explicitly qualifying them as non-workers. In the FNV Kiem judgment, however, the ECJ held that such strategies were ineffective.Footnote ³⁷⁸

This case concerned a number of substitute orchestra musicians who had entered into a collective labour agreement setting minimum fees. These freelance musicians carried out the same work as the musicians employed by the orchestra, but did so on a self-employed basis. A Dutch court wondered whether such collective agreements fell under the cartel prohibition. However, the ECJ clarified that this situation falls outside of the provision’s scope if the service providers ‘are in fact “false self-employed”, that is to say, service providers in a situation comparable to that of employees’.Footnote ³⁷⁹ The most pertinent criterion is whether the musicians independently determine their conduct on the market. This is affected by their ability to choose the time, place and content of their activities and whether they bear any commercial risk.Footnote ³⁸⁰ If the musicians can determine their own market conduct, they are marked as ‘undertakings’ from a competition law standpoint and, as a result, subject to the cartel prohibition. FNV Kiem prevents misclassified workers from being subject to competition law.Footnote ³⁸¹ This judgment does not allow actual freelance musicians to bargain collectively in the EU. However, a significant margin is offered by the 2022 EC ‘Guidelines on the application of EU competition law to collective agreements regarding the working conditions of solo self-employed persons’.Footnote ³⁸² These Guidelines apply to persons who are not employed and who rely primarily on their personal labour for the provision of certain services.Footnote ³⁸³ Solo self-employed persons who are in a comparable situation in terms of subordination and similarity of tasks as employees of the same counterparty should be able to bargain collectively without falling foul of competition law.Footnote ³⁸⁴ This proviso is likely to apply to freelance orchestra musicians whose colleagues operate under an employment contract.Footnote ³⁸⁵ Such situations fall outside the scope of the cartel prohibition. In addition, the Guidelines specify that the EC will not intervene against certain categories of collective agreements entered into by solo self-employed persons who are not in a similar situation to employees.Footnote ³⁸⁶ Prior to the Guidelines, the Dutch legislator had already expressly labelled its scheme providing for government approval of collectively bargained remuneration arrangementsFootnote ³⁸⁷ as being compliant with competition law standards.Footnote ³⁸⁸ Reference may also be made to the German Collective Bargaining Act, which expressly allows collective labour agreements for specific categories of authors and performers – albeit mainly in the press and audio-visual sectors.Footnote ³⁸⁹ Finally, neither the EC nor any of the national competition authorities have taken any action against collective bargaining in the CCIs in the past.

This indicates that collective bargaining in the music industry has little to fear in terms of competition law enforcement.Footnote ³⁹⁰ Indeed, it seems logical that the original gig economy workers – musicians, and possibly also artists in other CCIs, who often depend on corporate partners in a way analogous to employees despite their potential formal status as self-employed freelancers – would be able to benefit from a potential derogation or exemption.Footnote ³⁹¹

A hard law amendment that simplifies existing procedures concerning government approval of collectively bargained remuneration schemes could further bolster collective bargaining. By way of example, the removal of the need under Dutch law for a joint request to the competent minister if a good-faith attempt at negotiation was unsuccessfulFootnote ³⁹² may help in bringing corporate partners to the collective negotiation table. A final question is whether it should be possible to extend the mandatory nature of collectively bargained solutions to sector stakeholders that did not take part in the collective negotiation process. This possibility has been established under Belgian, French, German and Dutch law subsequent to the implementation of the DSM Directive.Footnote ³⁹³ This could lead to a disproportionate encroachment upon either the freedom of contract or the freedom to provide services, or both.Footnote ³⁹⁴ However, such a hard law regulatory choice goes a long way in promoting not only collectively negotiated remuneration arrangements, but also the resulting substantive fairness in practice.Footnote ³⁹⁵ Moreover, for want of extension of the binding effect thereof, the application of such collectively bargained arrangements in practice may prove to be problematic.

The law is not the only obstacle to collective bargaining. In addition, a number of practical obstacles have led to a slow uptake of collective bargaining processes. In the multi-layered music industry, practical issues arise in bringing all stakeholders to the negotiation table. Corporate partners may need a greater incentive to participate, such as the potential qualification of cooperation to collective bargaining processes as a prerequisite to government subsidisation for certain specific projects.Footnote ³⁹⁶ The stakeholders ultimately occupying a place at the negotiation table must be representative and accountable, while the bargaining process itself must be transparent.Footnote ³⁹⁷ Building a tradition of collective bargaining that satisfies these conditions is difficult and takes time.Footnote ³⁹⁸ Another limitation of collective bargaining in practice is that it risks having little to no impact on fairness in situations where usually a full transfer of exclusive rights takes place at the outset of the contract, such as is the case for session musicians.Footnote ³⁹⁹ In such a case, the leverage of artists’ representatives is limited, even when acting collectively.

5.3.2.2.4 Sanctions

The final aspect of the analysis is how unfair behaviour should be sanctioned. Securing fair remuneration largely qualifies as an obligation of means, whereby a party’s (in)action is tested against the benchmark of what is reasonable. If this minimum threshold is not reached, sanctions applicable under general national contract law apply.Footnote ⁴⁰⁰ Serious breach of contract may be sanctioned with contract rescission and ensuing rights reversion, possibly accompanied with a right to claim damages. However, the primary sanction of specific performance should lead to the potential adjustment of the remuneration set in the contract to what is deemed fair and, thus, a renegotiation of the contractual conditions.Footnote ⁴⁰¹ Such ex post mechanisms to modify remuneration arrangements in the contracts under review are analysed in the next subsection.

5.3.2.3.1 Copyright Contract Law: Contract Adjustment Mechanisms

Above, the focus was on the principle of fair remuneration. This ex ante form of contract regulation risks leading to a static analysis that does not take appropriate account of the dynamic, evolving nature of a contractual relationship. Therefore, an ex post approach in the form of a contract adjustment mechanism that remedies disproportionate remuneration arrangements is merited, again from the perspective of reciprocity that is associated with the application of Rawlsian principles of distributive justice to a contractual setting.Footnote ⁴⁰² While the costs and inevitable legal uncertainty associated with contract renegotiations are acknowledged, it is believed that the enhanced substantive fairness that a balanced contract adjustment mechanism entails counterbalances such legitimate considerations of procedural fairness.Footnote ⁴⁰³ A well-functioning contract adjustment mechanism may nudge corporate partners towards the ex ante inclusion of fair remuneration arrangements in primary music industry contracts.Footnote ⁴⁰⁴ In addition, a certain ex post effect may be envisaged. However, given the significant interference of the application of a contract adjustment mechanism with freedom of contract, shaping such a mechanism requires due attention to the interests of both musicians and their corporate partners.Footnote ⁴⁰⁵

The contract adjustment mechanism included in Article 20 DSM Directive effectuates a partial harmonisation of the contract adjustment mechanisms in the chosen EU jurisdictions. It applies to all musicians, regulates both transfers and licences, and the rights it grants are mandatory.Footnote ⁴⁰⁶ Analogue provisions were proposed in the United Kingdom in 2021, albeit limited to transfers and exclusive licences.Footnote ⁴⁰⁷

In terms of material scope, no alternative regime is (or should be) expressly established for SMEs. While the position of SMEs in the CCIs may be tenuous at times, other measures aimed at furthering the position of SMEs on the market, such as incubators and government support, are a better fit to take account of the specific needs of SMEs.Footnote ⁴⁰⁸ Moreover, the conceptualisation of fair remuneration leaves room for personal considerations, such as the size and structure of the corporate partner. Regardless, musicians should not be penalised for choosing to cooperate with a corporate partner having SME status.

Further, while the EU mechanism is primarily intended for contracts of long duration, its scope is not limited to contracts of a certain length, or to artists’ contributions that meet a certain quantitative or qualitative threshold.Footnote ⁴⁰⁹ No limitation based on the amount of remuneration agreed in the contract is anticipated either. As a result, in theory, its scope extends to contracts where the initially set remuneration equals zero – unless it is accepted that the harmonising provisions of the DSM Directive only apply to contracts where a form of remuneration is set. In any case, the inclusion of such contracts would be undesirable in some cases, such as where the musician has granted an open licence (for example, a CC licence) to their work – a concept that is anathema to a request for additional remuneration.Footnote ⁴¹⁰ Extending the scope of application of contract adjustment mechanisms to open licences risks leading to a chilling effect for users, who may not be willing to risk having to pay a licence fee at a later stage. While Recital 82 DSM Directive expressly refers to the possibility for rightsholders to grant open licences, an express exclusion of open licences from the scope of the harmonised contract adjustment mechanism would have been beneficial. The corresponding provision of German law could have served as a source of inspiration, as it expressly acknowledges artists’ right to grant an ‘unremunerated non-exclusive exploitation right for every person’.Footnote ⁴¹¹

Article 20 DSM Directive only applies to exploitation rights that have been harmonised under EU law.Footnote ⁴¹² In principle, therefore, it has no bearing on the right of adaptation.Footnote ⁴¹³ Given the minimum harmonising nature of Article 20 DSM Directive, an extension of the contract adjustment mechanism to non-harmonised rights under national law is in any case allowed – and merited.

All four chosen EU jurisdictions already provided for some form of contract adjustment mechanism prior to the implementation of the DSM Directive, either for all copyright exploitation contracts (GermanyFootnote ⁴¹⁴ and the NetherlandsFootnote ⁴¹⁵) or in the context of publishing relationships only (BelgiumFootnote ⁴¹⁶ and FranceFootnote ⁴¹⁷).Footnote ⁴¹⁸ While the implementation of the DSM Directive leads to only minor changes in both the German and Dutch systems, it has a more significant impact on the Belgian and French regimes.Footnote ⁴¹⁹

The waivability of the contract adjustment mechanism is severely restricted. Under German law, no advance waiver is possible.Footnote ⁴²⁰ Also in Belgium, the rights granted to artists are expressly qualified as mandatory law.Footnote ⁴²¹ Third, the rights under the Dutch regime are categorised as unwaivable.Footnote ⁴²² The draft regime under UK law also expressly qualified contrary contractual arrangements as ineffective.Footnote ⁴²³ Finally, the most restrictive rule applies under the new French regime, which qualifies the relevant provisions as pertaining to public order.Footnote ⁴²⁴

The harmonised contract adjustment mechanism is affected by the collective dimension to copyright management in several ways. First, it does not apply to CMOs.Footnote ⁴²⁵ Second, Member States may substitute this mechanism by a comparable regime based on collective bargaining.Footnote ⁴²⁶ A cautious approach is merited: the collective nature of a remuneration arrangement does not entirely exclude the possibility for a disproportion to arise in terms of remuneration.Footnote ⁴²⁷ This possibility was prompted by German law. The relevant provision of the German Copyright Act excludes its application where the remuneration arrangement at issue has been collectively determined, but expressly safeguards artists’ right to claim additional remuneration under the substantive conditions set by the contract adjustment mechanism.Footnote ⁴²⁸ Subsequent to the implementation of the DSM Directive, the Belgian and French contract adjustment mechanisms contain a similar reference to collective bargaining: where a sector agreement provides a comparable regime, the contract adjustment mechanism is substituted by the collectively bargained alternative.Footnote ⁴²⁹ Dutch law does not expressly mention the influence of a collectively bargained solution on the application of the contract adjustment mechanism. Regardless, even if the collectively bargained nature of a remuneration arrangement does not exclude it from the scope of the contract adjustment mechanism, it may be relevant for the interpretation of the criterion of disproportionality analysed below.Footnote ⁴³⁰

The additional compensation that is available to musicians under the harmonised contract adjustment mechanism may be claimed not only by the musicians themselves, but also by their duly mandated representatives – a concept that deserves a broad interpretation, to include CMOs, artist guilds, trade unions and other representative organisations.Footnote ⁴³¹

Article 20 DSM Directive grants Member States significant leeway as to its implementation. Consequently, its impact in practice risks remaining limited.Footnote ⁴³² The Member States have a margin of appreciation as to the substantive conditions, the procedure to be followed, and the consequences of the application of the contract adjustment mechanism in practice.

The contract adjustment mechanism under Article 20 DSM Directive applies if the remuneration that was initially set ‘turns out to be disproportionately low compared to all the subsequent relevant revenues derived from the exploitation of the works or performances’.Footnote ⁴³³ This benchmark of disproportionality is, in itself, rather vague and engenders questions concerning both the amount and requisite timing and nature of the success.

The first aspect is the reference point to determine whether or not a given remuneration is disproportionately low. The appropriate calculation base consists of all relevant revenues derived from the exploitation of the content at issue.Footnote ⁴³⁴ Since there is no express categorisation, revenues from both existing and emerging methods of exploitation qualify as ‘revenues’. As was argued regarding the principle of fair remuneration,Footnote ⁴³⁵ ‘revenues’ should be held to include both direct and indirect revenues.Footnote ⁴³⁶ This is supported by Recital 78 DSM Directive, which notes that the relevant base includes merchandising revenue – a source of revenue that is not directly linked to the exploitation of a certain piece of music. Finally, in order to avoid excessive cost deduction, a calculation taking account of gross revenues appears appropriate.Footnote ⁴³⁷

Due consideration of the interests of corporate partners requires the calculation to take account of the entire contractual relationship.Footnote ⁴³⁸ In other words: the calculation for a musician who has released a chart-topping fourth album while the first three albums flopped should bring all four albums into the equation – at least to a certain extent.Footnote ⁴³⁹ The nature of the initial deal between musician and corporate partner, namely a recoupment versus a profit-sharing arrangement, bears relevance.Footnote ⁴⁴⁰ As a recoupment deal is significantly more beneficial to the corporate partner, the application of the contract adjustment mechanism in such a case may demand a correspondingly greater focus on the legitimate interests of musicians. In addition, the practice of cross-financing is noted, whereby (part of) the revenues garnered through the exploitation of commercially successful content are used as a way to compensate for content exploited at a loss. Corporate partners that are not able to cross-finance within their portfolio may be inclined to offer fewer opportunities to emerging artists, or musicians active in niche genres.

An associated question is whether focus should only lie with the amount of revenue collected, or whether the size of a corporate partner’s profits may be relevant too. Neither French nor Dutch law expressly refer to the relevance of a corporate partner’s profits. The German regime mentions the corporate partner’s revenues as well as their profits.Footnote ⁴⁴¹ Finally, while the pre-DSM Belgian regime relating to publishing contracts posited the publisher’s profits as the relevant calculation base, the new mechanism refers to the revenues garnered through exploitation.Footnote ⁴⁴²

The condition of disproportionality also offers grounds for debate.Footnote ⁴⁴³ While Recital 78 requires the disproportion to be ‘clear’, corresponding provisions of national law refer to this as needing to be ‘manifest’ (BelgiumFootnote ⁴⁴⁴), ‘exaggerated’ or ‘excessive’ (France for royalty arrangements applicable to authorsFootnote ⁴⁴⁵ and for performersFootnote ⁴⁴⁶). The relevant provision of Dutch law used to require the disproportionality to be ‘serious’,Footnote ⁴⁴⁷ while the German equivalent referred to the need for the disproportion to be ‘conspicuous’.Footnote ⁴⁴⁸ The latter two qualifications were removed on the implementation of the DSM Directive.Footnote ⁴⁴⁹

Recital 78 offers a number of relevant circumstances, including the artist’s contribution, sector practices and whether the contract is based on a collective agreement – criteria that were also discussed above as contributing to the conceptualisation of fair remuneration.Footnote ⁴⁵⁰ The assessment should include revenues accrued through both existing and emerging methods of exploitation as well as both direct and indirect revenues, and that it should take account of the entire contractual relationship. Both lump sums and royalty arrangements may lead to disproportionality under certain circumstances. This still gives us no real wieldable tool to determine what should be considered disproportionate ‘enough’ to warrant modification of contractual remuneration arrangements. German case law predating the abolition of the requirement of ‘conspicuous’ disproportionality has deemed such a disproportionality to be definitely present if the fee paid is less than half – and a fortiori one-third – of what would have been reasonable.Footnote ⁴⁵¹

Further, the disproportion must arise after the formation of the contract – that is, in the course of contract performance. Indeed, the objective of the harmonised contract adjustment mechanism is to remedy unfairness in terms of remuneration that arises over time, not remuneration arrangements that may be qualified as unfair at the outset of the contract.Footnote ⁴⁵² The latter are meant to be covered by the principle of fair remuneration.Footnote ⁴⁵³

Questions also arise on the nature of the disproportion – namely whether the reasons and/or the source(s) thereof are relevant, as well as whether the disproportion must be unforeseen. Unnecessary sub-conditions should be avoided. As to the former, therefore, the reason of the disproportion is – or should be – irrelevant.Footnote ⁴⁵⁴ The same is true for the source: it should not matter whether the disproportion stems from existing or new methods of exploitation. The relevant legal provisions do not provide any indication to the contrary. As to the latter, Article 20 DSM Directive does not really provide a plain answer. The relevant provision of German law expressly qualifies the foreseen or foreseeable nature of the disproportionality as irrelevant.Footnote ⁴⁵⁵ This qualification appears to be largely unnecessary when it comes to disproportionality resulting from commercial success, given its inherently unpredictable nature in CCIs such as the music industry. In view of this, the nature of disproportion does not – and should not – substantively affect the application of the contract adjustment mechanism.Footnote ⁴⁵⁶

The next step is to analyse the procedural aspects. Also on this point, Article 20 DSM Directive remains characteristically vague. Member States are free to determine the appropriate procedural steps, as long as they ensure that artists are ‘entitled to claim’ what is due to them.Footnote ⁴⁵⁷ This implies that the modification of the contract must be expressly requested, either by the artist (Belgium,Footnote ⁴⁵⁸ Germany,Footnote ⁴⁵⁹ France,Footnote ⁴⁶⁰ the NetherlandsFootnote ⁴⁶¹ and the draft UK mechanismFootnote ⁴⁶²) or their representative (expressly in this sense, FranceFootnote ⁴⁶³ and the draft UK mechanismFootnote ⁴⁶⁴). The regulatory framework should accord more express attention to the invocation of the contract adjustment mechanism in case of large productions with many collaborators. The potential for collective invocation of rights should not be negated, including for the follow-on effect that this would engender.Footnote ⁴⁶⁵ Considerations of good faith may set a certain benchmark of reasonable behaviour.Footnote ⁴⁶⁶ This not only points towards the need for an accommodating stance on the part of the corporate partner, but also restricts the musician’s behaviour, who should, for example, take action within a reasonable period after having discovered the disproportionality at issue. If no outcome is reached that is satisfactory to both parties, judicial or extra-judicial proceedings may be commenced.Footnote ⁴⁶⁷ In such a case, a reversion of rights may provide an alternative solution.Footnote ⁴⁶⁸

The final stage of the analysis is to establish the consequences of successful recourse to the contract adjustment mechanism – namely the review of the contractual remuneration arrangements and the ensuing payment of ‘additional, appropriate and fair remuneration’.Footnote ⁴⁶⁹ The adjustment is meant to remove the perceived disproportionality and bring the remuneration in line with the economic value of the music at issue.Footnote ⁴⁷⁰ The link with the requirement of fair remuneration is clear: the remuneration arrangements must be amended to reflect what is deemed fair based on the criteria analysed above.Footnote ⁴⁷¹ While relevant case law is limited, it may be tentatively found that external (either judicial or extra-judicial) review of remuneration arrangements on the basis of contract adjustment mechanisms may lead to an increase in remuneration by about half of the remuneration (flat fee or royalty) that was initially set.Footnote ⁴⁷² However, if the result of the application of a contract adjustment mechanism is the award of a remuneration that significantly surpasses the market price for a given piece of artistic content, corporate partners are likely to shy away from further investments.Footnote ⁴⁷³ Consequently, an initial bias in favour of the interests of musicians, resulting in an overly broad application of contract adjustment mechanisms, risks negatively affecting the music industry ecosystem, especially given the exceptionally limited commercial success rate of music.Footnote ⁴⁷⁴ In such a situation, both corporate partners and musicians risk losing out.Footnote ⁴⁷⁵ Therefore, contract adjustment mechanisms should be limited to exceptional circumstances, through an effective application of the requirement of disproportionality.Footnote ⁴⁷⁶

Further, the application of the contract adjustment mechanism should have retroactive effect, in the sense that the resulting adjustment of the remuneration arrangement should retroactively ensure fairness over the entire course of the contract term – not only starting from the moment of successful renegotiation. A hard law confirmation of this position would remove any existing uncertainties. Moreover, this would contribute to remuneration arrangements that are in tune with both the actual and potential value of the music to which the contract relates, as required by the principle of appropriate and proportionate remuneration and the underlying objective of ensuring Rawlsian reciprocity, translated into a fair return for all contracting parties.

More generally, from the point of view of musicians, a big question arises as to the application of contract adjustment mechanisms in practice, given the very limited nature of available case law.Footnote ⁴⁷⁷ This may point towards a lack of recourse to the contract adjustment mechanism and/or to the potential use of this mechanism as leverage in the context of contract negotiations.Footnote ⁴⁷⁸ Recent research on the Dutch music industry indicates that contract adjustment mechanisms are seldom invoked, in view of the (laudable and abovementioned) practice of sliding scale royalties.Footnote ⁴⁷⁹ Moreover, in case of overwhelming success, despite the principled binding force of contracts, contract renegotiations appear to take place frequently.Footnote ⁴⁸⁰ In such a context, successful musicians may leverage their enhanced bargaining power to claim higher royalties.Footnote ⁴⁸¹ This allows corporate partners to extend the contractual relationship.Footnote ⁴⁸² To the extent fairness in scope, exploitation and remuneration is maintained, such industry evolutions should not be hindered. In case contractual renegotiation fails, however, an argument may be made in favour of termination of the contractual relationship under certain circumstances.Footnote ⁴⁸³

Finally, to the extent that a balance between the interests of all parties is attained, there is no convincing argument against the immediate application of the harmonised contract adjustment mechanism to ongoing contracts, provided that exploitation activities predating 7 June 2021 remain unaffected.Footnote ⁴⁸⁴ At the most, consideration may be given to the proviso that the grace period set for reporting obligations until 7 June 2022Footnote ⁴⁸⁵ may be (partially) extended to the contract adjustment mechanism, given that the objective of the reporting obligations established by the DSM Directive is to secure the operationalisation of the contract adjustment mechanism.Footnote ⁴⁸⁶

5.3.2.3.2 General Contract Law: Changed Circumstances

In addition to the above, the question arises whether it is possible and desirable to revise contract terms if the circumstances of the contract (including the economic conditions thereof) change significantly.Footnote ⁴⁸⁷ Such a measure would have as its objective to ensure the continued fairness of the remuneration arrangements in a given contract and, in some cases, operate as an alternative to rights reversion through contract rescission or application of the use-it-or-lose-it clause.Footnote ⁴⁸⁸ It could also have a beneficial effect in the context of negotiations pertaining to emerging methods of exploitation, in countries where no express right to additional remuneration for such emerging use applies.Footnote ⁴⁸⁹ Some provisions of (copyright) contract law already entertain the possibility of periodically reviewing the conditions of (copyright exploitation) contracts.

At the EU level, reference may be made to the express – albeit rather vague – reference in the Term Extension Directive to the possibility for Member States to provide that certain terms in royalty-based copyright exploitation contracts may be renegotiated in favour of performers.Footnote ⁴⁹⁰ This broadly worded provision applies to both transfers and licences, but its personal scope is limited to performers and thus excludes composers. If Member States decide to allow such a possibility of renegotiation, the relevant recital of the Term Extension Directive adds that they should also have ‘procedures in place to cover the eventuality that the renegotiation fails’.Footnote ⁴⁹¹ This appears to do nothing else than confirm parties’ freedom to amend contracts with mutual consent as well as the need for a functioning dispute resolution system. It does not delineate any conditions, such as a substantive benchmark that establishes when renegotiations should take place, the procedure that should be followed in such a context, or the desired result. The language is wholly non-committal and offers no protection in the context of contractual negotiations. Its added value is therefore limited. Regardless, the Belgian and French legislator acted upon this possibility and provided, without any further specification, that royalty contracts entered into before 1 November 2013 may be amended during the extended term of protection.Footnote ⁴⁹² As for the required ‘procedures’, the general rules on judicial and extra-judicial dispute resolution were ostensibly deemed to be sufficient.Footnote ⁴⁹³

Other national legal arrangements applicable to changed contract circumstances also already exist as a lex generalis.Footnote ⁴⁹⁴ By way of example, that publishing contracts that relate to e-books must, under French law, include a clause establishing a periodic review of remuneration arrangements over time.Footnote ⁴⁹⁵ While this provision does not apply to the music industry, it may serve as an indication that recurring contract revision in the context of exploitation contracts is not taboo at present, especially in a digital context.

Under general contract law, there may also be a possibility to revise the terms to a contract if unforeseen changes occur that significantly affect the contractual balance between the parties. UK law does not contain separate rules allowing for contract revision and instead relies on associated doctrines such the doctrine of frustration, which only applies in exceptional cases.Footnote ⁴⁹⁶ Among the other researched jurisdictions, conditions for recourse to such potential contract revision vary. First, the new Article 5.74 Belgian Civil Code allows contract revision under the strict conditions that the changes are both significant and unforeseeable, that they are not imputable to or flowing from a risk assumed by the party invoking the circumstances and that the other party does not have legitimate expectations as to the further performance of the unrevised contract.Footnote ⁴⁹⁷ Second, Article 1195 French Civil Code provides that a party that did not assume the risk regarding a set of unforeseeable changed circumstances can request the contract to be revised if those circumstances render the contract excessively onerous for that party.Footnote ⁴⁹⁸ The German Civil Code also attaches the possibility of contract revision to several conditions. The changes at issue must be both significant and unforeseen.Footnote ⁴⁹⁹ Moreover, it is required that prior knowledge of these changes would have induced the parties not to enter into the contract, or under different conditions. Finally, the changes must lead to one of the parties not being able to reasonably expect the contract to be upheld without alteration. Under Dutch law, parties to a contract can ask a judge to modify the contract in view of unforeseen circumstances that lead to the other party not being able to legitimately expect the contract to remain as it is.Footnote ⁵⁰⁰ Given the inherently unpredictable nature of success in CCIs such as the music industry, the condition of lack of foreseeability may be fulfilled in the case of remuneration arrangements in music contracts that become unfair over time. However, the restrictive application of the other conditions limits the potential use of the doctrine of changed circumstances to extreme situations, to safeguard legal certainty.Footnote ⁵⁰¹

Finally, it may be argued that the continued insistence on the enforcement of remuneration arrangements that lead to unfair situations in practice, without offering the possibility of renegotiation, may be qualified as an abuse of law.Footnote ⁵⁰² In turn, this may lead to judicial moderation of the remuneration arrangement(s) at issue – albeit again only in exceptional circumstances.

5.3.3.2.1 Scope of Active Reporting Obligations

Article 19(1) DSM Directive sets forth the first general, unwaivableFootnote ⁵²⁵ minimum benchmark for transparency as imposed by Member State laws on corporate partners who enter into a copyright exploitation contract with one or multiple musicians. It imposes on corporate partners an active duty to inform during the course of contract performance. The mechanism proposed in the United Kingdom in 2021 also expressly excluded contractual deviations, but was limited to transfers and exclusive licences and excluded employed artists from its scope.Footnote ⁵²⁶

In Belgium and France, unwaivable active reporting obligations for contracts with both authors and performers were established in 2022.Footnote ⁵²⁷ The French legislator has opted to leave some aspects of the implementation of Article 19 DSM Directive open to sector-specific collective bargaining.Footnote ⁵²⁸ In the absence of a collective agreement, the modalities of the reporting obligations are to be set by the copyright exploitation contract. If the collective negotiation process is successful, the government may declare its results binding to all stakeholders – if not, the French Conseil d’État is set to intervene.Footnote ⁵²⁹ The pre-existing obligation under French law for record companies to actively report to performing musicians if the contract sets a royalty that is payable directly to the musician by the record company continues to apply.Footnote ⁵³⁰ This is also true for the waivable regime for publishing contracts under which the publisher has to provide the author with a detailed set of data upon request.Footnote ⁵³¹

The German Copyright Act did not provide for general active reporting prior to the implementation of the DSM Directive – only a right to request information, which applied to both transfers (for performers) and licences (for composers and performers).Footnote ⁵³² In 2022, the German legislator transformed this obligation into a generalised active reporting obligation.Footnote ⁵³³ The German Publishing Act also still establishes a (waivable) reporting obligation for publishing contracts.Footnote ⁵³⁴

Dutch law, finally, used to only provide a right to audit aimed at operationalising artists’ right to termination of the contract in case of non-exploitation.Footnote ⁵³⁵ Article 25ca Dutch Copyright Act establishes an unwaivableFootnote ⁵³⁶ general reporting obligation under Dutch law.Footnote ⁵³⁷

Specific reporting obligations may apply to other types of copyright exploitation contracts, such as performance contractsFootnote ⁵³⁸ and audio-visual production contracts.Footnote ⁵³⁹ Moreover, EU copyright law sets other analogous reporting obligations, such as the transparency obligations imposed on CMOs through the CRM Directive,Footnote ⁵⁴⁰ the right to information established in the context of the value gap provisionFootnote ⁵⁴¹ and the resale right.Footnote ⁵⁴²

The first step of the analysis of Article 19 DSM Directive is to determine its scope. Article 19 covers contracts resulting in either a transfer or a licence to exclusive exploitation rights and covers both composing and performing musicians.Footnote ⁵⁴³ As is the case for Articles 20 and 22 DSM Directive, Article 19 DSM Directive covers the exploitation rights that have been harmonised under EU law – so not the right to adaptation.Footnote ⁵⁴⁴ Recital 75 DSM Directive refers somewhat vaguely to rights that are ‘relevant’ to the exploitation, including merchandising revenues.Footnote ⁵⁴⁵ The type and amount of remuneration set in the contract are irrelevant. Thus the reporting obligation affects contracts with either royalty arrangements or lump sum fees – in order for the artist to be able to secure relevant information for the application of contract adjustment mechanisms under national law.Footnote ⁵⁴⁶ Finally, as opposed to the relevant provision under German law,Footnote ⁵⁴⁷ Article 19 does not expressly exclude contracts where the agreed remuneration equals zero, such as open licences. While Recital 74 indicates that the need for reporting obligations does not arise in such a case, an express exclusion of open licences would have been beneficial.Footnote ⁵⁴⁸

The harmonised active reporting obligation does not apply to contributions deemed ‘not significant’ and cases where this would be ‘disproportionate’.Footnote ⁵⁴⁹ The open language of these exemptions engenders legal uncertaintyFootnote ⁵⁵⁰ and leaves significant margin for abuse. A broad interpretation of those ‘escape routes’ would result in reporting obligations that ultimately only benefit a small minority.Footnote ⁵⁵¹ An additional reason for a restrictive interpretation of these exemptions is that the harmonised contract adjustment mechanism is not subject to a limitation based on the insignificance of artists’ contributions, or a proportionality clause. As reporting obligations seek to operationalise contract adjustment mechanisms, coherency considerations advocate in favour of a broad scope of the reporting obligation.

First, Member States may render the reporting obligations inapplicable if the artist’s contribution is ‘not significant having regard to the overall work or performance’, unless the artist needs to obtain access to the information in order to be able to have recourse to the contract adjustment mechanism.Footnote ⁵⁵² Germany, the Netherlands and Belgium have opted to include such an exemption in their national legal framework.Footnote ⁵⁵³ German law refers to ‘secondary’ contributions. A contribution is deemed secondary and thus insignificant if it has little influence on the overall impression created by the content at issue, for example because it is not the typical content.Footnote ⁵⁵⁴ France leaves the issue open for determination through sector-specific collective bargaining.Footnote ⁵⁵⁵

This reference to the ‘significance’ of a certain contribution may be linked to the substantive criterion of the use of a certain contribution in a given piece of music as a way to determine what is ‘fair’.Footnote ⁵⁵⁶ Actually determining the ‘significance’ of a given (musical) contribution in the context of a larger whole amounts to guesswork in many cases, and moreover runs counter to the collaborative process of music-making.Footnote ⁵⁵⁷ While the use of a flexible sliding scale may be helpful in establishing what is ‘fair’ exploitation and/or remuneration, drawing a line in the sand between an ‘insignificant’ and a ‘significant’ contribution is an altogether different story. Contractual modulation and a broad interpretation of this concept are to be expected – presumably to the disadvantage of musicians.Footnote ⁵⁵⁸ The initial removal of this cut-off criterion by the European Parliament is therefore understandable.Footnote ⁵⁵⁹ This limitation was reinserted at a later stage of the legislative process at the EU level, but with a proviso meant to safeguard the interests of artists, namely that the application of the contract adjustment mechanism should be assured. The scope of this specification is unclear. Indeed, all musicians’ requests for information may be associated with the application of the contract adjustment mechanism. Why would musicians want transparency in terms of remuneration if not to determine whether they are paid what is due to them and whether they have a right to claim additional remuneration? This would render the exemption of insignificant contributions very difficult to operationalise. This, in turn, begs the question what the remaining scope of this exemption is.Footnote ⁵⁶⁰ The application of the general prohibition on abuse of law may have been a (significantly) more elegant solution. The next best alternative may be to interpret the exclusion of insignificant contributions restrictively.Footnote ⁵⁶¹ Inspiration may be sought from the draft UK mechanism, which excluded ‘incidental’ embodiments of a work from its scope.Footnote ⁵⁶²

In addition, Member States may limit the reporting obligation to what may reasonably be expected in view of the (modest) amount of revenues garnered by the content.Footnote ⁵⁶³ This is done under Belgian, German and Dutch law.Footnote ⁵⁶⁴ Conversely, the French regime does not include an express limitation based on proportionality considerations. However, such a limitation may yet arise from sector-specific collective bargaining. This limitation is meant to avoid disproportionate administrative burdens for corporate partners (such as SMEs) and leads to less stringent information obligations in terms of the types and level of information to be provided.Footnote ⁵⁶⁵

For corporate partners, the compliance cost associated with the increased reporting obligations is undeniable.Footnote ⁵⁶⁶ The amount depends, first, on the size and roster of artists of the corporate partner: major corporate partners may divide these costs over a large number of artists, while smaller players do not have that luxury. As a result, reporting obligations affect SMEs in a particularly unfavourable way.Footnote ⁵⁶⁷ However, the objective of securing transparency is too essential to truly allow for a reporting obligation ‘light’ for SMEs.Footnote ⁵⁶⁸ Musicians should not be the ‘victim’ of the size of their corporate partner.Footnote ⁵⁶⁹

Other criteria that affect the amount of compliance costs include the relevant methods of exploitation, the frequency of required reporting, the quality of data received from secondary exploiters such as DSPs, and already existing reporting practices.Footnote ⁵⁷⁰ In the music industry, the practice of active reporting is well-established.Footnote ⁵⁷¹ While administrative costs may be quite high at present, technological progress leads to a significant and increasing degree of automation. Reference may be made to the automatic content recognition technology and rights management systems offered by companies like Audible Magic.Footnote ⁵⁷² In the near future, this may lead to a further steep decrease in costs associated with the collection, processing and management of relevant data.Footnote ⁵⁷³ Moreover, if blockchain technology ever fulfils its promise of an accurate, decentralised global copyright database, administrative costs may decrease even further.Footnote ⁵⁷⁴

However, this optimistic view is unlikely to fully materialise in practice if no satisfactory solution is found to the metadata issue in the music industry.Footnote ⁵⁷⁵ Regardless, the vagueness of the disproportionality exemption may render it excessive. Moreover, its added value vis-à-vis the general contract law framework may be questioned. Indeed, if the application of a reporting obligation were actually disproportionate, such a claim could be deflected by the general prohibition on abuse of law. Therefore, a restrictive interpretation is merited.Footnote ⁵⁷⁶

The scope of the harmonised reporting obligation is further affected by the collective dimension of copyright. First, Article 19 DSM Directive does not apply to contracts concluded between rightsholders and CMOs.Footnote ⁵⁷⁷ Further, as is the case for exploitation and remuneration,Footnote ⁵⁷⁸ collective bargaining may play a beneficial role in terms of enhancing transparency.Footnote ⁵⁷⁹ The EU legislator has sought to bolster this opportunity in the DSM Directive, by allowing Member States to favour collective bargaining agreements between stakeholders on transparency. In order to benefit from this, the transparency resulting from such collective agreements must be of the same or a higher level than the minimum requirements established by Article 19 DSM Directive.Footnote ⁵⁸⁰

The French legislator has taken the opportunity to call upon the collective negotiation process in order to shape the new reporting obligations in the different CCIs.Footnote ⁵⁸¹ The abovementioned 2017 code of practice of French music publishers contains express commitments in this sense.Footnote ⁵⁸² Another example of more stringent transparency requirements based on collective action is provided by the Memorandum of Understanding signed by French music industry stakeholders in 2015.Footnote ⁵⁸³ The corresponding provision of German law also allows derogations from the right to information resulting from collective bargaining, assuming that such collective solutions guarantee a level of transparency comparable to the statutory benchmark.Footnote ⁵⁸⁴ A similar solution has been implemented under Belgian law.Footnote ⁵⁸⁵ The corresponding provision of Dutch law does not expressly refer to the added value of collective bargaining in further shaping active reporting obligations.Footnote ⁵⁸⁶

Finally, a note on the temporal scope of reporting obligations is merited. The argument against their application to ongoing contracts is not convincing, given the seminal importance of transparency throughout the music value chain. As the DSM Directive already dates from 2019, corporate partners had sufficient time by June 2022 to enhance their reporting practices in a way that adheres to the minimum benchmarks.Footnote ⁵⁸⁷ Conversely, any retroactive application of reporting obligations to past exploitation activities is to be excluded.

5.3.3.2.2 Content of Active Reporting Obligations

The next step is to review the content of the active reporting obligations and interpret the resulting commitments for corporate partners. The objective is to ensure a high level of transparency.Footnote ⁵⁸⁸

The first issue to be tackled is which information is covered by the reporting obligations.Footnote ⁵⁸⁹ Article 19 DSM Directive requires information to be transmitted as regards both exploitation and remuneration. Recital 75 DSM Directive adds that the information must be up-to-date, relevant and comprehensive. The first requirement refers to the need for artists to have access to recent data. The second requirement indicates that the information must relate to exploitationFootnote ⁵⁹⁰ of the music for which the musician(s) is(are) supposed to obtain remuneration. If there is no exploitation, logic dictates that the reporting obligation should cease to apply.Footnote ⁵⁹¹ However, a musician also has the right to know that no exploitation takes place, to allow effective recourse to the use-it-or-lose-it clause.Footnote ⁵⁹² In any case, if the music is (again) subject to exploitation, information relating to it must be adequate and accurate for the requirement of relevance to be fulfilled. Third, the information must cover all relevant sources of revenue.Footnote ⁵⁹³

In addition to the three general requirements set forth above, sector-specific regulation established through scoping stakeholder consultations may further concretise the information that is to be provided.Footnote ⁵⁹⁴ Important work has already been done. In particular, reference may be made to the Transparency Guide compiled by Chris Cooke with the aid of the Music Manager’s Forum (MMF, based in the United Kingdom),Footnote ⁵⁹⁵ the 2015 memorandum of understanding signed by French music industry stakeholdersFootnote ⁵⁹⁶ and the 2023 UK Industry Agreement on Music Streaming Metadata.Footnote ⁵⁹⁷

Information should first and foremost be available on the content itself, such as the ISRC and ISWC codes and information on all contributors and/or rightsholders.Footnote ⁵⁹⁸ Further information to be provided consists of three pillars, namely the relevant exploitation activities, the revenues garnered by the corporate partner(s) and the remuneration provided to the artist on this basis.Footnote ⁵⁹⁹

The first aspect of the relevant information pertains to the way in which the content is exploited. We can rely on the conceptualisation of ‘methods of exploitation’.Footnote ⁶⁰⁰ The main distinction is that between physical sales, digital sales and streaming.

For physical and digital sales, the relevant information may be usefully linked with the concept of ‘copies’. For physical sales, the information includes the number of copies manufactured in the course of the year, the number in stock, the number sold, the number used for marketing purposes or otherwise provided for free, as well as the number of copies that have been returned or destroyed, or otherwise deemed unusable.Footnote ⁶⁰¹ The information regarding digital sales may also refer to copies, but without specifications particular to analogue copies, such as the number manufactured, in stock, returned or destroyed. Thus, relevant information regarding digital copies includes the number of sales, the number provided for free and the number deemed unusable for technical reasons.

When it comes to streaming, the concept of ‘copies’ is moot.Footnote ⁶⁰² In the streaming age, the relevant unit is a stream. This is why the total number of streams or ‘track plays’ should be reported, as well as the source of such plays – a direct user request, the user’s feed or personal library, or a playlist.Footnote ⁶⁰³ Additional relevant information includes whether the user skipped (part of) a track and whether it was added to a playlist and/or personal library.Footnote ⁶⁰⁴ Finally, it is important for musicians to know their total listener count and/or follower numbers, including their demographics (such as gender or age) and location, the latter in order to inform the organisation of concert tours.Footnote ⁶⁰⁵

For physical sales, digital downloads and streaming, the information should be provided separately per method of exploitation.Footnote ⁶⁰⁶ As to digital downloads and streaming, the report should provide separate information per DSP as to number of units. Finally, the report should clearly state what territories are covered.Footnote ⁶⁰⁷

On the revenue side, for both physical and digital sales, the relevant information includes the unit price (the income received by the corporate partner from the sales per unitFootnote ⁶⁰⁸), information regarding value-added tax (VAT), as applicable, and an overview of the total revenues.Footnote ⁶⁰⁹ For streaming, information should be provided as to the ex post calculated per-stream rate, applicable VAT and the total revenues – with distinct information per DSP.Footnote ⁶¹⁰ For all methods of exploitation, the revenues should be distinguished per relevant territory, given that separate remuneration arrangements may apply.

Transparency is also required as to quantifiable indirect revenue sources, in particular breakage, equity and non-allocable income assigned to corporate partners.Footnote ⁶¹¹ Article 19 does not expressly include such indirect revenue flows. The requirement of relevance seems to indicate the need for a causal link between the revenues to which the reporting obligation applies and the exploitation of the content. The same conclusion follows from an analysis of the relevant provisions of national law.Footnote ⁶¹² The requisite strength of such causal link, however, is up for debate. Full transparency is merited for all quantifiable revenue flows, including indirect sources of revenues. Article 19 DSM Directive does not stand in the way of such an interpretation.Footnote ⁶¹³ This position is supported by the express inclusion of merchandising revenue in the scope of the harmonised reporting obligation, as confirmed by Recital 75 DSM Directive. Moreover, even if Article 19 DSM Directive were not to include indirect revenues, Member States may include them in the national regimes, in view of the minimum harmonising nature of Article 19 DSM Directive. Artists should be able to gain access to the total revenues generated, as well as the total remuneration due.

The question further arises whether the artist should also obtain access to information regarding their corporate partners’ profits. This is linked with the appropriate scope of the contract adjustment mechanism. If the application of the contract adjustment mechanism depends on the corporate partner’s revenues, the provision of information on revenues may be sufficient. If the contract adjustment mechanism is linked with profits, the operationalisation of the contract adjustment mechanism requires the artist to also have access to this information. The relevant provisions in Belgium, France and the Netherlands do not expressly mandate transparency as to the corporate partner’s profits. Nor does the draft UK mechanism. Conversely, the German reporting obligation refers to both revenues and profits.Footnote ⁶¹⁴ Independent of that, it may be argued that the good-faith performance of contracts requires corporate partners to inform artists of their profits, while the overarching principle of freedom of contract cautions against overreach in this regard.

The final pillar of the reporting obligation consists of comprehensive information concerning the remuneration due. Reports should not only provide the total amount due and the payment date(s), but also give a clear overview of the applicable royalty rates for each separate category of units (if a sliding scale of remuneration is used), indicating clearly which deductions and/or discounts are applied (including those by intermediary parties) – as well as the contractual basis.Footnote ⁶¹⁵ In addition, clear information should be provided as to the calculation method of an artist’s share relating to a given exploitation activity in case of collaborations.Footnote ⁶¹⁶ In order to allow artists to fully grasp and assess their overall remuneration, the average royalty rate per unit should be provided as well. The total amounts due and paid should also be included.Footnote ⁶¹⁷ If the remuneration arrangement makes use of an advance, the total amount should be clearly indicated, as should the unrecouped part of this advance, if it is recoupable.Footnote ⁶¹⁸

The provision of all of the data listed above is necessary to give musicians insight into the fairness of their remuneration. However, it also risks leading to an information overload, with stakeholders drowning in data.Footnote ⁶¹⁹ Digitisation has caused a dramatic increase in potentially available information on music exploitation and remuneration as well as general information pertaining to listeners in terms of listening and spending behaviour – ‘audience data’.Footnote ⁶²⁰ An effective implementation of reporting obligations gives rise to an enormous and ever-expanding flow of data.Footnote ⁶²¹ Much of the effectiveness of these reporting obligations will depend on how the relevant information is provided to corporate partners and, ultimately, musicians.Footnote ⁶²²

The next step is to determine how corporate partners should provide information to musicians. Subsequent to Article 19 DSM Directive, corporate partners have an active duty to provide this information on a recurring basis throughout the course of contract performance.Footnote ⁶²³ At a minimum, artists should receive a report once every year.Footnote ⁶²⁴ The draft UK mechanism even speaks of quarterly reports, while the 2024 UK Voluntary Code of Good Practice on Transparency in Music Streaming refers to a report ‘no less than twice a year’.Footnote ⁶²⁵ Further, under the EU mechanism, information relevant to a certain exploitation activity should be transmitted within a reasonable period following the exploitation.Footnote ⁶²⁶ The obligation to provide this report may be qualified as an obligation of result, while its quality (as well as that of the information included in it) rather implies an obligation of means. The report should be comprehensible and user-friendly, and should moreover allow artists to effectively assess the economic value of the rights – and thus whether the remuneration they have received is appropriate and proportionate.Footnote ⁶²⁷ The link with the requirement of fair remunerationFootnote ⁶²⁸ is thus rendered explicit. Further, for efficiency reasons and to promote full transparency, the provision of information should be standardised.Footnote ⁶²⁹ More specific good practices refer to the use of an electronic format and the appointment of a representative acting as a one-stop-shop for reporting obligations within large(r) corporate partners.Footnote ⁶³⁰

At the time of writing, it is too soon to gauge the substantive effects of Article 19 DSM Directive and assess whether additional regulatory intervention is desirable. This being said, the minimum benchmarks set by the DSM Directive are less stringent than the detailed accounting and reporting requirements that apply to CMOs, vis-à-vis both their members and users of protected content.Footnote ⁶³¹ This is remarkable, especially since the interests of CMOs may be more aligned with those of artists than is the case for corporate partners.Footnote ⁶³² The express link between the active reporting obligation and the transparency requirements for CMOs under UK law in the draft UK mechanism may therefore be welcomed.Footnote ⁶³³ Further concretisation and ensuing upward harmonisation of active reporting obligations of corporate partners may be merited, perhaps by way of a soft law instrument. The detailed operationalisation of reporting obligations in the music industry set out above may serve as a source of inspiration. Moreover, the establishment of a detailed industry standard as to the form and content of reports by corporate partners would be beneficial. An argument may also be made in favour of obliging transparency regarding the legal and governance structure of the corporate partner, relevant sister and parent companies, the revenues collected from DSPs that have not (yet) been allocated to a specific (group of) musician(s), and so forth.Footnote ⁶³⁴ As to the latter, requiring corporate partners to share certain information on the remuneration arrangements set up in secondary contracts with DSPs may be possible.Footnote ⁶³⁵ However, care must be taken to tailor the applicable rules in a sector-specific way.

The final issue is what happens if corporate partners fail to fulfil their obligations. In order for transparency requirements to be effective, a clear sanction mechanism must be available. This issue is not addressed at the EU level. National legislators are free to determine the applicable sanction(s).Footnote ⁶³⁶ Given the importance of transparency to the functioning of the music ecosystem, the corporate partner’s sustained inaction should be sanctionable with termination of the contract and rights reversion – independent of the amount of information that is to be provided.Footnote ⁶³⁷ The proposed amendments of the European Parliament to the Commission Proposal for the DSM Directive covered the extension of the scope of the harmonised right of revocation – including the right to revoke exclusivity – to function as a sanction for sustained non-compliance with the active reporting obligation.Footnote ⁶³⁸ The proposed revocation mechanism was to apply to transfers and exclusive licences by authors or performers in case of a ‘continuous lack of regular reporting’ in accordance with the active reporting obligation.Footnote ⁶³⁹ Moreover, it allowed Member States to establish sector-specific national rules and set certain procedural requirements, including the need to grant corporate partners a reasonable time to comply following a written notification of their shortcomings.Footnote ⁶⁴⁰ This proposal eventually did not make the cut. While a similar outcome could be reached through the application of general contract rules regulating breach of contract, an express provision in this sense, allowing for contract termination in case of serious breach of applicable reporting obligations, would have been beneficial.Footnote ⁶⁴¹ Moreover, this would increase coherency with the revocation mechanism harmonised through Article 22 DSM Directive.Footnote ⁶⁴² It would also increase incentives for corporate partners to comply with active reporting obligations. The French regime as to literary publishing may serve as an additional source of inspiration.Footnote ⁶⁴³ In the context of music publishing, the French 2017 code of conduct establishes a sanction of termination both if the music publisher does not provide a report within three months after having been put on notice, as well as if the deadline for active reporting is missed too often over the course of three years.Footnote ⁶⁴⁴

If the corporate partner produces a report, but no corroborating evidence, the sanction under French law is to force the corporate partner to provide the evidence that is needed to establish the accuracy of information provided.Footnote ⁶⁴⁵ Reference may also be made to the new injunction right under German law, which comes into play if an exploiter systematically violates active reporting obligations.Footnote ⁶⁴⁶ These sanctions are quite far-reaching, but appear justified given the large potential contribution of transparency to the music ecosystem. If the information is deficient, musicians should be able to obtain supplementary information that fulfils the substantive requirements set out above. If the corporate partner refuses to provide such information, the route of rights reversion should be available.Footnote ⁶⁴⁷