The impact of the Freedom of Creation Act dated July 7, 2016 on the obligations of producers and distributors
The Freedom of Creation, Architecture and Heritage Act, sometimes described as a “catch-all” Act, contains new measures relating to the theatrical and television industry. Transparency for production and exploitation accountings, obligation to ensure a continuing exploitation and prior notice for the assignment of writer, director and composer agreements, are ones among the many changes which modify the current legal scheme and which we have summarized below. This summary is only a glimpse of the numerous measures adopted.
Production and exploitation accountings must be transparent: The Parliament decided to increase transparency in the motion picture and television sectors, following the implementation in 2010 and 2011, of regulations to harmonize and define the motion picture production cost and the recoupment of said production costs vis a vis directors, writers and composers (collectively “authors”). This reinforced obligation has been extended to apply to producers responsible for the completion and delivery of the applicable work (“producteurs délégués”) as well as distributors, and applies both upstream on the production accountings and downstream on the exploitation accountings. Authors are no longer the sole beneficiaries of such transparency and the list of the works concerned has also been expanded as these obligations apply to motion pictures and certain television works (including live action and animation) which are eligible for production subsidies from the CNC. In order to ensure compliance with these new obligations, administrative sanctions were established, such as financial penalties based on the turnover, or a reduction or reimbursement in the financial subsidies initially awarded.
A decree should be issued within the next few months to set forth the specific terms and conditions of these transparency rules, thereby delaying the effective implementation thereof.
With respect to the production accountings: this is new to the industry – in essence, the law now requires that producers must prepare and complete production accountings (comprising all expenses incurred for the preparation, production and postproduction of the work) within a specific timeframe, and must provide such accountings to coproducers and any third parties contractually entitled to a share of receipts after recoupment of the production costs (including the authors).
The Act provides that the definition of the type of accounting, the different categories of expenses and the nature of the financing sources should be determined by sectorial collective bargaining agreement which agreement may be extended to bind all players in the audiovisual industry. However, in order to encourage collective discussion (which better reflects the interests of the different stakeholders involved) and ensure the rapid implementation of the law, definitions of the foregoing will determined by decree over the next few months.
The foregoing obligation must be included in all agreements which producer enters into with concerned parties, although it appears that the Act does not provide for any administrative sanction if the producer fails to include such language.
With respect to exploitation accountings: the Act requires that distributors and licensees complete and provide the “producteur délégué” with the exploitation accountings within specific deadlines in order for the latter to be able to provide such accountings to, inter alia, the authors and other co-producers of the work. Such rule is consistent with the objective of harmonization by introducing common rules, such as the indication, on accounting statements, of the minimum guarantee recoupment status and the allocation of receipts between the media and territories.
Once again, in order to better assess and take into account the different interests at stake, the law provides that certain elements (including the type of accounting, the definition of gross receipts, distribution costs, etc.) shall be determined by sectorial collective bargaining agreement, which may also be extended to bind all players of the industry. The Conseil d’Etat will establish such definitions by decree in the absence of an industry-wide binding collective bargaining agreement within one year from this Act.
Distribution and licence agreements must include the aforementioned obligation to provide exploitation accountings, but it appears that no administrative sanction applies in the event of the parties fail to include such language.
Despite the negative impact on contractual negotiation, this transparency goal has at least the advantage of harmonizing the various elements used to prepare accounting statements, thereby facilitating and accelerating the calculation of sums due.
Producers shall ensure a continuing exploitation of their works in compliance with industry practice: Until July 2016, producers were required to ensure “an exploitation (of the work) in compliance with industry practice”. However, the law did not define what was encompassed by “industry practice”, making it difficult for concerned parties to avail themselves of such legislation.
The new Act reinforces this obligation by adding the term “continuing”, that is, producers must now ensure a continuing exploitation of their works. The scope and conditions for implementing such obligation are to be defined by sectorial collective bargaining agreement, which may be extended by decree to bind all relevant players of the industry and become industry-wide.
As a result, a sectorial collective bargaining agreement has been concluded on October 3, 2016, and extended by decree dated October 7, 2016 to bind all motion picture and television production companies, distributors and licensees.
These texts govern certain French theatrical and television works for which an author agreement is governed by French law, and apply as of October 7, 2016, although an adjustment period has been provided for with respect to the pre-existing works (i.e. those exploited before October 7, 2016).
The obligation for producers to ensure a continuing exploitation of their works is solely a means-driven obligation and not a result-driven obligation. Accordingly, the producers are solely required to undertake their best efforts to allow the work to be exploited in France and/or abroad, either by exploiting said work themselves, or through distributors or licensees. This obligation affects distributors as well, as the law consequently requires them to make their best efforts to enable producers to fulfill their obligations in respect of a work’s continuing exploitation.
Upon written request of the author or its authorized representative, producers are required to provide information relating to efforts undertaken and possible reasons that prevent producer from fulfilling this obligation. Producer may request the distributors and licensees to furnish information with respect to any exploitation that they have acquired the right to do.
These provisions are obligatory for producers and are particularly favorable to authors, although the industry-wide binding collective bargaining agreement has established compliance presumptions for the producers. For instance, the obligation is presumed to be satisfied when the work is subject to one or more license granting rights for no less than two among five forms of exploitation specifically laid out by the collective bargaining agreement. However, one form of exploitation in France only will suffice for television works, as well as theatrical works which are older than 8 years.
Grounds for exemption have also been provided under certain conditions, including in the event that producer faces an impossibility to renegotiate any exploitation rights constituting a legal obstacle to comply with this obligation.
Such system can be compared to the legal scheme applicable to publishers of literary works which are required to ensure permanent and continuing exploitation of said works, otherwise their assignment of rights can be terminated. However, although the binding collective bargaining agreement strongly encourages recourse to mediation, sanctions applicable to the motion picture and television industry for failure to comply with the continuing exploitation obligation have not been clearly defined.
It should be noted that this industry-wide binding collective bargaining agreement also establishes other obligations and undertakings applicable, inter alia, to producers, authors, distributors and licensees, including a measure which we find particularly promising and which compels authors and producers to negotiate in good faith in order to “encourage the renewal and/or renegotiation of agreements entered into for a limited duration, under conditions preventing the split of authors’ rights and neighboring rights in respect of a work for speculative purposes”.
Notification is now required prior to assigning of author agreements: In the event of an assignment by a producer of an author agreement to a third party, the Act now requires prior notice to co-authors, which notice shall take place no later than one month before the effective date of the assignment. Accordingly, author agreements must include appropriate language regarding the right of prior notice.
Certain conditions (such as form of the prior notice and scope of the assignment) in respect of this new measure are not very precise, and compliance with this obligation will undoubtedly be challenged in the short term given that assignments of contracts and catalogues occur every day in this industry. It would appear that any failure to so notify will affect the validity of the assignment. Corporate transactions, legal due diligence and assignment of catalogues are significantly affected by this new measure and particular attention must be paid to any future developments which will certainly help refine the conditions of this new obligation.
The Act contains many other terms and provisions, including in respect of assignment of authors’ rights agreements, agreements entered into between performers and phonogram producers, music mediator, publishing agreements, private copying, etc.
In view of the wide and important changes resulting from this Act, it is strongly encouraged to update all relevant agreements and/or seek specific advice.
 Act n°2016-925 dated July 7, 2016 regarding Freedom of Creation, Architecture and Heritage
 For audiovisual works, it seems that one or more sectorial collective bargaining agreements could establish such definitions, including the details for recoupment of production cost.
 It should be noted that a sectorial collective bargaining agreement has been entered into on February 16, 2016 between certain producers, distributors and broadcasters re: transparency in production accountings in the audiovisual industry, but such agreement has not been extended yet.
 It should be noted that specific provisions apply when the « producteur délégué » directly exploits the work.
 For audiovisual works, it seems that one or more sectorial collective bargaining agreement(s) could establish such definitions.
 Agreement entered into between a mojority of producers and publishers organizations, certain television channels and certain authors organization (including SACD and SCAM) for a tacitly renewable three-year period
 Arrêté dated October 7, 2016 pursuant to Article L. 132-27 of the French Intellectual Property Code and extending the Accord dated October 3, 2016 re: the continuing exploitation obligation for theatrical and television works