Punch and File the License Agreement? The New Duty Under German Law to Proactively Inform When Using Copyrights

New statutory duty for copyright users to proactively inform–first reporting required by 7 June 2023!

Background

No matter if you are an online portal or a traditional company: anyone who uses creative content should intensify their contacts with the respective authors soon. Those who thought they could simply punch and file successfully negotiated license agreements are being taught a lesson.

According to Section 32d German Copyright Act (Urheberrechtsgesetz – „UrhG”), at least once a year the contracting partner of an author (i.e., the licensee) is obliged to provide the author with information about the extent of use of the licensed work and the proceeds and benefits derived therefrom. The first reporting must be made by 7 June 2023. This duty for copyright users to proactively inform serves to ensure transparency towards the authors. In addition, authors should be able to assess their chances of success of a possible claim for additional remuneration according to Section 32a UrhG.

Section 32d UrhG has already provided for a corresponding claim by the author since 2016, but the author had to explicitly request this information – at the risk that these requests would be perceived as annoying by the user or even lead to delisting. As part of the implementation of Art. 19 of the Directive (EU) 2019/790 (DSM Directive), Section 32d UrhG was tightened once again and transformed into an annual duty for the copyright user to proactively provide the information.

Who is Affected by the New Duty to Inform?

In principle, the obligation to proactively inform as set forth in Section 32d UrhG applies to every user of copyrighted works who has acquired a paid license directly from the author.

Works protected by copyright are typically among the fields of literature, science, and art. In particular, contracts of use for photographs, designs, logos, texts, construction plans, and music may be covered by the duty to inform.

It should be noted that users who do not contract directly with the author are not subject to the information duty according to Section 32d UrhG.

Anyone who uses the work “further down” the licensing chain, i.e. behind the author’s contractual partner, does not directly meet this duty. He only has to provide the author with information at the author’s request in accordance with the provisions of Section 32e UrhG and only if the author’s contractual partner has not or has not sufficiently complied with his duty to provide information. In order not to fall within the scope of the information duty, some users are starting to license the corresponding rights of use through the involvement of a licensing agent. This is already the case if the user acquires the rights from a company that employs the author.

Section 32d UrhG also provides for a corresponding duty to proactively inform performing artists (e.g. actors or music interpreters) who license their performances directly to the user against payment. Therefore, the following comments apply accordingly.

To What Extent Does the Duty to Proactively Inform Apply in Territorial Terms?

In territorial terms, the duty to proactively inform has a rather wide scope (Section 32b UrhG). It applies mandatorily whenever the license agreement would be governed by German law in the absence of an express choice of law by the parties. This is intended to prevent that the licensee dictates a choice of law in order to circumvent the information duty. Furthermore, the duty to inform applies, if, according to the license agreement, relevant acts of use take place in Germany.

Are There Any Exceptions to the Duty to Proactively Inform?

Yes, exceptions exist especially in the following cases:

1. There is no duty to proactively inform if the author has made only a secondary contribution to a work, product, or service (Section 32d (2) no. 1 UrhG). A contribution is, in particular, secondary where it has little influence on the overall impression created by a work or the nature of a product or service. For example: An extra in a film does not usually make a formative contribution, but the actor in a supporting role does. Importantly, this is not a qualitative assessment, but a determination of whether the contribution is only secondary in relation to the overall value created by the work.
2. There is no duty to proactively inform if the claim is disproportionate for other reasons, particularly if the effort involved in providing the information would be disproportionate to the income from the use of the work (Section 32d (2) no. 2 UrhG). Even if this exception needs further sharpening by case law, it is likely that works that generate no or only very little income will probably be covered by this exception.
3. The duty to inform does not apply to authors of computer programs (Section 69a (5) UrhG).

Does the Duty to Inform Also Apply in the Context of Employment Relationships?

It is still disputed whether or to what extent the duty to inform also exists in the context of employment relationships. In this context, a distinction is often made according to whether the works created by the employee are intended for extensive “external” exploitation by the employer. In departments that are not part of the creative process, such as sales, marketing, and legal services, this is often not the case, so such an intention to exploit would be denied, even though in individual cases these departments may also create protectable works. In the case of such primarily “inward” labor work, it is often argued that this is already covered by the salary.

When Does the Duty to Inform Apply?

The duty to proactively provide information has already existed since 7 June 2022. However, since the information is owed for the first time one year after the entry into force of Section 32d UrhG, the first information must be provided by 7 June 2023.

The duty to provide information also applies to contracts concluded prior to its introduction, generally without any time limit on retroactive effect. The only exception is in the film sector where there is no duty to provide information for contracts concluded before 1 January 2008. However, the information is only required to be provided at the author’s request.

How Often Must the User Provide Information?

The user must provide information about the extent of the use of the work and the proceeds and benefits derived therefrom. The “extent of use of the work” shall include all use transactions and types of use. In particular, information is owed on sub-licensing, the number of copies sold, performances or rebroadcasts, etc. The “proceeds and benefits derived therefrom” include, in particular, license fees, sales revenue, advertising revenue, etc. The information is provided on the basis of that information which is generally available in the ordinary course of business activities.

The user is only required to provide information about the names and addresses of its sub-licensees at the request of the author.

What are the Consequences of Not Complying with the Duty to Inform?

Pursuant to Section 36d UrhG, the authors’ associations may demand injunctive relief from the user if the latter fails to provide information as required by Section 32d UrhG or Section 32e UrhG in several cases which are the same or similar in nature. When analyzing the consequences of a breach of duty, the potential image damage caused by a dispute with copyright associations must be taken into account. Irrespective of this, authors are also free to enforce the user’s duty to provide information individually.

Is it Possible to Contractually Deviate from the Legal Requirements Regarding the Duty to Inform?

In principle, such a contractual deviation is not possible. An exception applies only to agreements based on industry-specific joint remuneration agreements (Section 36 UrhG) or a collective agreement.

What Concrete Steps do Companies Need to Take Now?

In view of the impending “deadline” of 7 June 2023, companies should take the following measures immediately:

1. First, the company should obtain an overview of the extent to which works licensed directly from the author are used.
2. The next step is to examine whether any exceptions to the duty to provide information are relevant.
3. If a duty to provide information exists, the company must determine the manner and scope of the provision of information. In this context, the company should also consider whether the provision of information can be made dependent on the prior conclusion of a non-disclosure agreement (cf. recital 76 sent. 3 of the DSM Directive).
4. Due to the annually recurring reporting obligation, it may also be appropriate to set up an automated reporting system.