The contract adjustment mechanism under the new EU Copyright Directive grants a strong right to video game authors and eSports creators to receive a fair remuneration to be reassessed over time.
Video game publishers’ bargains with authors are at risk
The scenario in the video gaming industry would be that
- There is a small studio that develops a video game, selling it at a low price since they need to become popular since they are a start-up; and
- The publisher purchases the video game, maybe with limited interest because the studio is not well-known, but then the video game turns out to be a massive success!
Under the regime in place before the new EU Copyright Directive, the publisher would be celebrating their great deal, while the authors would have limited rights. But apparently, this will no longer be the case.
The impact of the contract adjustment principle on the video gaming industry
Article 20 of the EU Copyright Directive introduced the so-called “contract adjustment mechanism” under which
authors and performers or their representatives are entitled to claim additional, appropriate and fair remuneration from the party with whom they entered into a contract for the exploitation of their rights [—] when the remuneration originally agreed turns out to be disproportionately low compared to all the subsequent relevant revenues derived from the exploitation of the works or performances.
Since the new regulatory framework on copyright is set up by a directive, EU Member States might implement the contract adjustment principle in different manners. But, based on a strict interpretation of the rule, this will require video game publishers
- to thoroughly describe in the agreement with authors all the elements that led to the calculation of the agreed remuneration since such features will be potentially taken into account by a court to assess whether the remuneration was fair;
- structure the remuneration clause in such agreements based on a mechanic that enables price adjustments according to criteria identified therein to avoid that the parties end up litigating on the remuneration adjustment mechanic;
- disclose to authors the information necessary to understand the level of revenues generated through the game, setting such disclosure to the very minimum required to comply with the regulatory obligation; and
- provide a reassessment of the fair remuneration over time since a video game initially unpopular might all of a sudden become very famous.
There is no doubt that this provision will have a substantial impact on the video game market. The industry should be ready for it and agree on standard terms to regulate the contract adjustment mechanism; otherwise, significant disputes might arise. This process will need a renegotiation of several agreements.
Indeed, the issue is whether the same principle will also apply to agreements entered before the effective date of the EU Copyright Directive, which might have a considerable impact even on the balance sheet of major publishers.
What is the impact on eSports?
In a previous article “eSports and copyright protection of choreography and UGC,” it was discussed as to whether eSports dance choreography can be copyright protected and the level of protection of user-generated content in videogames.
If copyright protection is extended to such components of the games, the video game and the eSports industries might be heavily impacted. The requirement to renegotiate agreements with authors would extend to the creators of such material. And, given the recent popularity of, for instance, the L dance, the issue relating to the fair remuneration of authors might lead to significant disputes.
You can find interesting the DLA Piper eSports law book to get insights on the hottest legal topics impacting the video game industry at the moment.