Since January 2023, new statutory rules for the remuneration of creative professions have been in force in the Czech Republic. By creative professions we mean in this context not only the shining stars of television series, but also crowds of graphic designers, copywriters, animators, photographers, creators of advertising music, i.e. all those whose work outputs are protected by copyright. How these legislative changes came about and what the current situation is, we shall examine in more detail in this article.
European Idea
Presumably with the image of starving painters wandering around the tourist-besieged Montmartre, the European legislator decided to intervene in their favour. Into the already somewhat notorious Directive on Copyright, which in the Czech Republic, for example, among other things, is gradually paralysing the functioning of shared video file storage, Article 18 was also included. This states that “Member States shall ensure that authors and performers who licence or transfer their exclusive rights to use their works or other subject matter of protection are entitled to appropriate and proportionate remuneration”. It is impossible not to agree with such a general and meaningless conclusion. However, as is often the case in legal norms, the devil is in the detail. Specifically, the English text of the Directive states that remuneration shall be “appropriate and proportionate”, whilst “proportionate remuneration” can certainly be translated, inter alia, as proportional or share-based remuneration. According to Article 23(2) of the Directive, this principle does not apply to authors of computer programs (programmers).
In this context, we recall that in the field of copyright there are two basic models for remunerating authors, either in the form of share-based remuneration from revenues generated from the licence granted (so-called revenue-based remuneration), or in another form (most often a lump sum). The number of cases where an author is remunerated by a lump sum far outweighs in practice, as for every television superstar there is an army of other creative workers.
Recital 73 of the Copyright Directive (a recital is not a legally binding text) states that “appropriate remuneration may also take the form of a lump sum payment, but this should not be the rule. Member States should be able to define cases in which, having regard to the specificities of each sector, lump sums are used”. From this it can be deduced that the new rule should be precisely share-based remuneration (remuneration from licence revenues), whilst lump sum licence remuneration should be agreed rather exceptionally. Such a construction naturally makes a certain sense for writers, but far less so for advertising agency workers. Nevertheless, the Czech legislator decided to be guided directly by the text of the Directive’s recital and incorporated the “principle” of lump sum licence remuneration as an exception into the amendment.
Czech Implementation
The Czech Republic dealt with this task within the framework of the regulation of the licence agreement by adopting a new wording of Section 2374(1) of the Civil Code. Since January 2023, this establishes that “when agreeing remuneration for the granting of a licence, particular regard shall be had to the purpose of the licence, the manner and circumstances of use of the work, the size of the author’s creative contribution and the territorial, temporal and quantitative scope of the licence. Remuneration may be agreed as a fixed amount only in justified cases and having regard to the specificities of individual sectors”. From this it follows that if a fixed licence remuneration is to be agreed and not revenue-based remuneration, this may occur “only in justified cases and having regard to the specificities of individual sectors”. The explanatory memorandum then adds to this issue that: “examples of cases where it is justified to agree remuneration as a lump sum include, for example, cases where the basis for calculating share-based remuneration cannot practically be determined or where the administrative costs of determining share-based remuneration would be disproportionately high (especially where the author’s contribution to the work as a whole is not significant). Agreeing remuneration as a lump sum is usual, for example, in the field of audiovisual works or in the music sector or in the field of licensing the use of computer programs”. Unfortunately, this “commentary” must be taken with a certain reservation, as, as mentioned above, the new regulation does not apply to the field of computer program development at all.
If the agreed remuneration were too low, the author may acquire the right to supplementary remuneration pursuant to Section 2374(2) of the Civil Code. “If the originally agreed remuneration is so low that it is manifestly disproportionate to the revenues resulting from the exploitation of the licence and to the significance of the subject matter of the licence for achieving such revenues, the author may demand appropriate and fair supplementary remuneration. Agreements excluding or limiting the author’s right to supplementary remuneration shall be disregarded; this also applies where the author waives this right”. This means that the right to supplementary remuneration cannot be contractually excluded. This is analogous to Section 58(6) of the Copyright Act (autorský zákon), which regulates similar relationships in the creation of so-called employee works. This provision establishes that “Unless otherwise agreed, the author of an employee work has, in relation to the employer, the right to appropriate supplementary remuneration if the wage or other remuneration paid to the author by the employer becomes manifestly disproportionate to the profit from the exploitation of rights to the employee work and the significance of such work for achieving such profit.”
Unanswered Questions
Unfortunately, the adopted wording of the law generates a considerable number of questions. Particularly at the outset (we assume for the first few dozen years) there may be considerable uncertainty as to what the specificities of individual sectors are. And also whether Section 2374(1) of the Civil Code is to apply even to those cases where the licensee has no or negligible revenues from sub-licences to the work, i.e. where the work is used only for its own purposes and not for providing sub-licences to it to third parties. This is precisely the situation mentioned in Recital 72 of the Copyright Directive (in relation to the need for appropriate and proportionate remuneration for authors): “This need for protection does not arise where the contractual counterparty acts as an end user and does not itself use the work or performance, for example in the case of certain employment contracts”.
Unfortunately, this sentence from the Directive’s recital must also be taken with a certain contempt, as it does not make complete sense from a legal point of view. The author’s employer and the person who uses the work for their own purposes also use the work in the copyright sense (even though they no longer have any revenues from providing sub-licences to such a work). However, we believe that it is not very logical for the right to appropriate and fair supplementary remuneration for granting a licence to apply even to those situations where the acquirer uses the work only for their own purposes. However, opposite cases may certainly also arise in practice, where conversely it will seem that the exclusion of share-based remuneration is unfair from the creators’ point of view (creation of a successful viral advertisement as a result of which the turnover and profit of its client substantially increase, etc.).
It is also unfortunately not clear from the current wording of the Civil Code whether the right to appropriate and fair supplementary remuneration for granting a licence should belong only to the author themselves or to any licensor of a copyright work. The aforementioned Section 2374(1) of the Civil Code regulating licence remuneration applies generally to all relationships when granting licences to subject matter protected by copyright (to all licence agreements), i.e. including those situations where the licensor is not an author or performer at all. The Civil Code uses the designation “author” in this context for all licensors of subject matter protected by the Copyright Act, i.e. for example, even if it concerns an employer of the author to whom the right to exercise economic copyright rights belongs. However, by so-called Euro-conforming interpretation, it will probably be possible to conclude that this regulation is intended to apply only to those cases where the contracting party is an “actual” author or performer.
Administrative Burden
The change in concept in the field of remuneration of creative professions also brings with it a new administrative burden. Specifically, mention may be made of the first two sentences of Section 2374a(1) of the Civil Code, which introduce an information obligation of the licensee, which is referred to as the transparency obligation: “The acquirer to whom a licence has been granted for remuneration shall submit to the author regularly, at least once a year, whilst maintaining a high level of transparency in individual sectors and having regard to the specificities of individual sectors, current, relevant and complete information on the use of the copyright work. Information shall be provided to an extent proportionate to the circumstances, in particular having regard to the costs in relation to the revenues arising from the use of the copyright work”. However, the relationship of this provision to the above-mentioned Section 2374(1) of the Civil Code is not entirely clarified. The last sentence of Section 2374a(1) of the Civil Code only clarifies the situation that “if such provision of information is disproportionate, the acquirer shall submit information on the use of the copyright work at least of such type and level of detail as can reasonably be expected in such a case”.
A question may thus arise as to whether the transparency obligation applies to all cases where the acquirer obtains any licence to a copyright work or not, i.e. regardless of whether the licensor may have any right to appropriate and fair supplementary remuneration at all. From the wording of the law itself, it appears that the transparency obligation is not limited by anything. The broader interpretation is also supported by the fact that the “reporting” of the licensee in the case of revenue-based remuneration is already regulated by the Civil Code elsewhere. It would thus make no sense to regulate it twice. An exception to the transparency obligation is contained in Section 2374a(2) of the Civil Code, from which it follows that the right to the said information does not arise for the author where the author’s contribution to the work as a whole is not significant.
For the sake of completeness, we also mention in this context Recital 75 of the Copyright Directive, which states that “for the transparency and balance of the system of remuneration of authors … it is therefore important that their contractual counterparties or their legal successors provide them with appropriate and accurate information. This information should be up to date in order to enable access to the latest data, relevant to the use of the work or performance and comprehensive in order to cover all sources of income related to the case in question, possibly including revenues from derivative products. As long as use is ongoing, contractual counterparties of authors … should provide information at their disposal on all modes of use and on all relevant revenues worldwide with a periodicity that is appropriate in the sector concerned, but at least once a year…However, the transparency obligation should only apply in cases concerning rights relevant from a copyright perspective”. Also in connection with the transparency obligation, it may be mentioned that Section 2374a of the Civil Code is included in the “general” regulation of the licence agreement, which also applies to those cases where the licensor is a person other than the author.
As outlined above, in our opinion the transparency obligation may make a certain sense in relation to writers, musicians or actors. On the other hand, this regulation is at least impractical, for example, within the normal operation of advertising agencies (including relationships with their clients). The timing of the entire new regulation may also appear somewhat unfortunate (which was certainly not the intention), as it is precisely a number of these creative professions that may be threatened by the use of artificial intelligence systems.
Conclusion
As is often the case, practice will certainly bring a number of unconventional ideas on how to circumvent the new regulation. Of the obvious ones, mention may be made of the variant that remuneration will be paid to the author only for the production of the work and no longer for granting a licence to the result of their activity (the licence itself will thus be granted gratuitously). Cases where for some reason the licence remuneration is forgotten in a contract for work can often be encountered even now (but this is not usually intentional). The law permits the granting of a licence gratuitously, whilst the parties’ agreement in this sense should be expressed explicitly. However, any gratuitous performance in commercial dealings may have negative tax consequences (possibly including in the field of value added tax), so use of this “model” certainly presupposes prior consultation with a tax specialist. Moreover, such a construction may be assessed as circumvention of the law.
In final conclusion, it may be summarised that the new legal regulation brings a new wave of legal uncertainty into the field of remuneration of creative professions. The precise scope of licensees’ obligations is, in fact, rather difficult to infer from it. This regulation does not apply to relationships with programmers. When concluding contracts with lump sum licence remuneration, licensees may be advised always to add provisions justifying why, having regard to the specifics of the particular case or sector, such type of remuneration was agreed. It is also newly the case that the client should annually provide the author with information regarding the use of the work or artistic performance. In a number of contexts, such a “reporting” obligation may appear almost absurd. Nevertheless, we believe that from the statutory text itself no substantial exceptions follow from it except for cases where the author’s contribution to the work as a whole is not significant.
The original version of the article was published on the Marketing Journal portal. Subsequently, amendments to the text were made.
This text was translated from Czech to English using an AI translator.