Synopsis of "Publishers’ share of fair remuneration", an article by Dr. Nikolaus Kraft

The following is a brief summary of the expert opinion of Dr. Nikolaus Kraft, commissioned by the Federation of Austrian Publishers. The article (in German: „Die Beteiligung der Verleger an gesetzlichen Vergütungsansprüchen“) has been published in Medien und Recht, 4/2015, and can be ordered under http://shop.medien-recht.ws/shopdetails.php?id=3024.

1. Authors are free to decide on the exploitation of their rights by a publisher of their choice. Publishing a book involves huge investments. Therefore, the author and the publisher have to agree, on a contractual basis, the terms of copyright protection. In that agreement, a publisher´s share of income from fair remuneration or exploitation rights has to be agreed as well. Particularly in the field of non-fiction publications with small print-runs, income from ancillary rights is of great importance. That income forms part of the contractual obligations between the author and the publisher and has become common practice in almost all European Member States and also in Austria, at least since 1936. In Austria, there is no publisher's ancillary right.   
2. Authors and publishers are equal partners in the Collective Management Organisation (CMO). Their distribution rules are settled autonomously. Both groups are represented in groups of equal strength. The balance of interests is warranted by voting in different collective groups. Both parties are interested in the distribution rules being a mirror of the reality. In terms of exceptions and limitations to the exclusive right, both partners suffer equally from an economic disadvantage: when the exclusive right is limited by law, both are deprived of the chance of exploitation. Given that publishers have no ancillary right, they are even more affected by the legal limitation than other groups of rightholders.
3. With regard to remuneration for reprographic rights and the distribution rules in several European countries, it should be stressed that distributing a share to publishers is common practice, and not only in Austria. Many other Member States (Belgium, Bulgaria, Spain, Estonia, Greece, Hungary, Lithuania, Poland, Portugal, Czech Republic, Romania, Slovenia) have even provided for a publishers’ share by law. In Austria, for centuries, the distribution rules of the national CMO have been laid down on the basis of a consensus among the national stakeholders of the Austrian book industry. Many of those provisions were in existence a long time before the Information Society Directive (2001/29, in short: Info-SocDir) entered into force. 
4. The national stakeholders, representing authors' and publishers' interests, jointly agreed on an equal partnership of authors and publishers, also with regard to exceptions and limitations in legislation. That is especially true for reprographic remuneration, which is an equitable compensation for copies which would not be possible without an original underlying work, qualified for copying, and professionally produced by the publisher. The compensation, provided for by Art 42 (b) of the Austrian Copyright Act, for example, is highly relevant especially for publishers specialised in works with a limited readership, for instance publishers of scientific and non-fiction works.
5. Art. 2 of InfoSocDir harmonises the reproduction right for authors, artists, producers and broadcasting companies. The reason is mentioned in Recital 19: the legal protection of the creative authors´ process and of the financial investments. Recital 30 stresses that the right can be assigned, notwithstanding national rules. Both aspects are treated by Recital 12 as “culturally valuable” as defined in Art. 167 TFEU (ex Art. 151 TEU). The InfoSocDir provides for an exhaustive list of limitations and exceptions to the reproduction right (Art 2. of InfoSocDir). This concept is to be interpreted autonomously. Nevertheless, Member States have a wide margin of discretion. Reinbothe highlights that Recital 35 "respires flexibility". Member States are free to maintain or establish supplementary remuneration systems. When they provide for a levy system, it is allowed to consider practical difficulties and to abolish imbalances. There are systematic reasons as to why publishers have not been mentioned in Art. 5 (2) InfoSocDir, even though publishers are significantly affected in economic terms. Excluding publishers from the compensation scheme would lack objective reasons and would be in conflict with Art. 20 of the EU Charter of Fundamental Rights.
6. Member States are allowed to go beyond the minimum harmonisation of the InfoSocDir, at least if that does not impede the functioning of the European Single Market. If a Member State does not make use of this legal discretion, the exclusive right is not limited. Otherwise, the rightholder would be deprived of any control and should therefore be remunerated through fair and equitable compensation.
7. According to Recital 35, rightholders have a right to fair compensation. The term “fair compensation” is an autonomous concept of European law. Reinbothe underlines that this term had not been known at all before 2001. It means a right to basic remuneration. “Fair” means that rights, which are limited by Art. 2 of InfoSocDir, deserve compensation. Provisions on fair remuneration must be interpreted with the view that usage is not identifiable and that there is no possibility to calculate compensation with mathematical correctness.
8. The European Court of Justice (CJEU) ruled with regard to Art. 5 InfoSocDir that the term “compensation” must be seen as a compensation for the harm for the copy being made without the approval of the rightholder. Lucas-Schloetter stresses that European law provides for a “deliberately neutral, generic term” to illustrate the latitude of discretion. Reinbothe highlights that the former Chair of the Single Market Committee, Barzanti, created the term “equo compenso” (in Italian) with regard to the complex situation in the Member States. That term is translated by “gerechter Ausgleich” in German, by “fair compensation” in English and by “une compensation équitable” in French. “Compenso” has been seen as providing generic compensation and was strictly differentiated from “compensazione” (compensation for damages), and is therefore different from “angemessene Vergütung”, as laid down in the Austrian Copyright Act, for example.
9. The term “harm”, which is used in connection with the “fair compensation” as applied by the CJEU, must be interpreted in an extensive way.  “Harm” must not be seen within continental-European tort law, but only with regard to the purpose of Recital 35, where “harm” is mentioned as one of the useful criteria to calculate the disadvantage. Both Lucas-Schloetter and Reinbothe stress that “harm” is only one criterion for the calculation of the rightholders' compensation. Consequently, the CJEU ruled in Padawan that the private user profits from the copying. Recently, the CJEU highlighted in Copydan that there should only be a reference to the possible harm. This aspect is also emphasised by Advocate General Cruz-Villalón in HP and Epson v. Reprobel.
10. “Rightholder” in accordance with Art. 5 (2) InfoSocDir and international law: Art. 5 (2) InfoSocDir provides for an exhaustive list with regard to Art. 2 of InfoSocDir and the reproduction right. It is remarkable that Art. 5 (2) InfoSocDir only refers to the rights listed in Art. 2 InfoSocDir, but not to the beneficiaries. In Art. 5 (2) lit. (a), (b) and (e) InfoSocDir, and in contrast to Art. 2, the legislator uses the term “rightholder” for all possible beneficiaries. Advocate General Cruz-Villalón in HP /Epson v. Reprobel denies (briefly) that the circle of beneficiaries might be wider. However, a broader perspective, including other beneficiaries, can be derived from Recitals 37 and 38: The legislator recognised the national rules of reprographic remuneration and distribution as already in existence in 2001. The European legislator did not object to rules remunerating publishers as well.
11. A broader interpretation of the term “rightholder” is in harmony with other directives, even though the Collective Rights Management Directive 2014/26 (in short: CRM Directive) is of no direct effect to the InfoSocDir. A broad interpretation of the term “rightholder” is, for instance, highlighted in Recitals 2 and 5 of the CRM Directive. The CRM Directive also stresses, in Recital 6, that “equitable distribution of royalties” should be a precondition for licensing activities. In Art. 3 (c) of the CRM Directive, the European legislator clearly included publishers as “rightholders”. There is also no contradiction with Art. 3 of the Rental and Lending Right Directive 2006/115 and the exhaustive list of rightholders mentioned there. That Directive intended to address only parties which are directly concerned. Von Lewinsky highlights that publishers benefitting from the existing Public Lending Right were accepted by the European legislator. 
12. From the perspective of its purpose, Art. 5 (2) InfoSocDir should be applicable directly to publishers: as they are exploiting rights, they are – in fact – even more concerned by the exceptions and limitations in Art. 5 (2) InfoSocDir than authors. Excluding publishers from the fair compensation scheme would be discriminatory. In accordance with Art. 5 (2) InfoSocDir, anybody dealing with the licensing of rights of immaterial works, such as books, films or music, should be protected by the term “rightholder”. 
13. It is also in harmony with the Berne Convention and TRIPS, to which Recital 44 of the InfoSocDir explicitly refers to, to treat publishers as “rightholders”. The Berne Convention (Art. 2 (4) Berne Convention) and TRIPS (Art. 9 TRIPS) protect authors, legal successors and also “other rightholders of exclusive rights”. The three-step test (Art. 5 (5) InfoSocDir, where “rightholders” are mentioned) is therefore also applicable to publishers. In Luksan, the CJEU ruled that European law must not conflict with the Berne Convention. It would be against Art. 20 of the EU Charter of Fundamental Rights if remuneration rights could not be transferred: Publishers as rightholders of exclusive rights would otherwise be excluded from the system, although publishers´ business models are built on the basis of exclusive rights. Any exception or limitation is economically harmful to them as well.
14. The purpose of the provision and the terminology of the acquis in Directives 2006/115, 2001/29 and 2001/84 indicate towards a qualification of publishers as rightholders, entitled to a share of remuneration. Any other view would conflict with the binding rules of international law. Publishers are therefore originally entitled to a share of fair remuneration.
15. There is a difference between “inalienability” and “non-transferability / non-assignability / non-waivability”. Different purposes are followed by those terms: “Inalienability” saves the author´s control and profit, whereas non-transferability prevents the author from transferring / assigning / waiving the rights under a contract. The Resale Right Directive 2001/84 (in short: ResRightDir), which was enacted only a few weeks after InfoSocDir, is remarkably different: whilst the resale right is an inalienable and non-waivable right (Art. 1 ResRightDir), the reproduction right is not limited by InfoSocDir in a comparable way. 
16. The Luksan-ruling also does not go against that view. The CJEU makes a distinction between both terms, too: although a “cessio legis” on behalf of the producer is in opposition to the InfoSocDir, a legal assumption would not be so. Authors shall be protected from waiving claims without monetary consideration.
17. The Advocate General, in Reprobel v. HP, highlights the characteristics of that case and the specifics of the legal basis in Belgium several times. He qualifies the rules as being in harmony with European law if fair remuneration is guaranteed on behalf of the author. He does not preclude legal successors from the claim to receive fair remuneration. Publishers profiting from reprographic remuneration are obliged to care also for the authors´ benefit, at least indirectly. This is why it makes sense to repay publishers’ efforts through the contract on the basis of the reprographic remuneration scheme. By creating the preconditions for reproduction and reprographic remuneration, publishers can allow authors to profit, at least indirectly. 
18. When creating the InfoSocDir, the European legislator recognised the different legal situations, practices and traditions in the European Member States. Even if it is argued that publishers are not "rightholders" on the basis of Art. 5 (2)(a) InfoSocDir, Member States are not obliged to provide for a prohibition of assignment under the law of obligations. Nevertheless, it is at the rightholder's discretion to assign claims for fair remuneration partly or entirely. That is why publishers are entitled to a share of the equitable remuneration based on the distribution rules of the local CMO. Member States are even allowed to go beyond the provisions foreseen in Art. 5 (2) InfoSocDir and to legally establish remuneration rights for publishers.