New mandatory copyright legislation: are your employees and consultants being fairly compensated?

Four years after the DSM Directive was approved by the EU Parliament and Council, new legislation based on the EU directive has been implemented into the Swedish Copyright Act (1960:729), effective as of 1 January this year. One of the key new elements implemented is the author’s right to fair remuneration for the use of their work.

As with any copyright legislation, the new provisions are aimed at artists, in the traditional sense, such as painters, musicians and actors, with the purpose of ensuring that they are able to make a living from their work. However, numerous copyrighted materials are used and commercialised in all types of businesses. Life sciences companies will therefore need to know the rules, consider in which cases they may be affected, and ensure that they have the right processes in place to ensure compliance.

What are the new rights?
The new rights (and connected obligations) are as follows:

1. The author is entitled to fair remuneration, when the author agrees to transfer their copyright to an acquirer who intends to exploit the right for commercial purposes.
2. The author is entitled to additional fair remuneration if the agreed remuneration later transpires to be disproportionately low in relation to the acquirer’s income from use of the work.
3. The author has the right to information about the use of the work, in order for the author to be able to assess the economic value of the transferred right.

It should be especially noted that these rules are mandatory.

When do the rights apply?
The author’s right to fair remuneration applies in all cases where there is an agreement between the author and another party to transfer the copyright of a work for the purpose of exploitation. Written, oral and implicit agreements are included. The provisions cover both complete transfers and licences. The purpose must be commercial exploitation. However, there is no requirement for the activity to be motivated by profit.

It should be noted that the use of the knowledge incorporated in the work does not trigger the right to fair remuneration. If a company uses a work generated by an author internally within its business and generates income as a result of the work, these rules do not apply. But if the company commercialises the work by selling or licensing it as a business activity, these rights apply.

Who can claim the rights?
Copyright is only granted to authors of artistic or literary works. However, the Copyright Act also grants certain copyright-related rights to performers, producers, radio and TV companies, publishers, producers of catalogues, and photographers. These new rules apply to almost all authors, but only some of those who can claim related rights.

In principle, all authors and all performers have these new rights. However, there is one express exception: the rights do not apply to authors of computer programs, i.e. developers. In the Swedish implementation of the DSM Directive, these rights are also granted to photographers.

The rules are also applicable in employment relationships, whereby an employee transfers their copyright to the employer. Such transfers may be made explicit in the employment contract or if the individual employment agreement derives its content from a collective agreement. In addition, the rules also apply when a transfer of copyright has taken place implicitly through the nature of the employment relationship.

What is fair remuneration?
Fair means that the remuneration must be appropriate and proportionate in relation to the actual or potential financial value of the transferred right, taking into account the author’s contribution to the work as a whole and all other circumstances of the individual case, such as market practice or the actual exploitation of the work.

The fact that agreed remuneration is consistent with the practice in a certain industry typically means that it is fair. This applies, in particular, if the remuneration is in line with collective agreements.

It is the circumstances at the conclusion of the agreement that form the basis for the assessment of the fairness of the remuneration, not what happens afterwards. That may instead be relevant for determining whether additional remuneration is due.

When can the author claim additional remuneration?
The right to additional remuneration applies if it transpires that the originally agreed remuneration is disproportionally low. This provisions of the legislation constitutes a contractual adjustment mechanism and is intended to lead to a change in the agreed remuneration in favour of the author.

Not all remuneration that is deemed unfair (according to the right to fair remuneration) is deemed disproportionate (according to the right to additional remuneration). The agreed remuneration must be obviously disproportionate in relation to the income. There must be a clear mismatch between the agreed remuneration and the financial value of the copyright for the remuneration to be considered disproportionate.

It is the acquirer’s income that provides the basis for the comparison. The link to income means that the author cannot base their claim on the fact that the exploitation has become more frequent or extensive than could be foreseen, without affecting the income.

And, as with the right to fair remuneration, account must be taken of all the specific circumstances of each individual case, such as the author’s contribution, the practices of the applicable industry, and whether the agreement was based on a collective agreement. The fact that remuneration was collectively negotiated is a factor that suggests it is not disproportionately low.

In contrast to the provision on fair remuneration, the provision on additional remuneration is aimed at circumstances that occur after the conclusion of the agreement. It applies when a work has become significantly more commercially successful than could be predicted at the time of the agreement.

The remuneration also relates to the period after the right to additional remuneration is invoked; that is, the time remaining before the agreement expires or the copyright protection ceases to apply. The intention is to give the author an opportunity to renegotiate the remuneration for the remaining contractual term – or the remainder of the copyright protection period – according to the same basis as if it were a new contract.

When must information be provided?
The new provisions are built on the premise of a high level of transparency. To ensure this, a mandatory transparency obligation is introduced to provide authors with information to assess their economic value and then exercise their right.

The obligation is applicable: (i) if the copyright acquirer has gained any income from the use of the work; or (ii) if the author’s compensation, in accordance with the agreement, depends on the extent to which the work is used.

Since the transparency obligation may be disproportionately burdensome in some situations, the new provisions introduce an exception to this obligation. The exception states that the obligation is not applicable when the contribution of the author is not significant with regard to the overall work, unless the author demonstrates that they require the information for the exercise of their rights to additional remuneration.

What information should be provided?
Authors should receive up-to-date, relevant and comprehensive information on the use of their work. The information should, in particular, cover all revenues generated and remuneration due. The information should be provided to the author in a way that is comprehensible to the author. What that means in practice might, of course, vary depending on the specific situation.

As a general rule, authors should receive this information at least once a year. However, the obligation should be proportionate and effective in ensuring a high level of transparency in every sector.

If, with regard to the income generated by the use of the work, the provision of such information were a disproportionate administrative burden, the obligation may, in duly justified cases, be limited to information that may reasonably be required by the author.

If the first contractual counterpart does not hold all the information required by the author, the author may request additional information from sub-licensees.

Recommended actions
We recommend that all life sciences companies do the following:

1. Consider what types of works you have in your business that may be affected. Examples of works that may typically be copyrighted are technical drawings, images, models or other visualizations, and all types of text and photos.
2. Determine whether these works are only used for internal purposes or whether the company licenses or transfers such works as a business activity.
3. If works are licensed or transferred, establish processes to:
   • determine whether different authors’ contributions are significant;
   • keep track of all licenses or transfers; and
   • know when and how the author should be provided with information.

We would be happy to provide further guidance should you need any assistance.