Overview of the case and of the ruling of the Court.

With a very interesting and innovative judgment issued on July 22nd, 2016, the Court of Milan took the chance to take a stand in the never-ending battle between authors and publishers with regard to their respective rights and obligations with respect to the exploitation of musical works, and - even more significantly – the Court did so in a dispute arisen in connection to the exploitation of the catalogue of one of the most famous Italian pop music composers and artists, the late Lucio Battisti.

The case was, in fact, brought by Mr Giulio Rapetti, co-author and lyricist of the most popular Battisti’s songs (also known as “Mogol”; hereinafter also, the “Author”), who decided to file a lawsuit against the company vested with the publishing rights of the works (Acqua Azzurra Srl; hereinafter, also the “Publisher”) and its current director Ms Veronese (who is, by the way, Battisti’s former wife and heir) because, according to his view, the company had been culpably indulging in a very poor (if not absent) management and exploitation of the Battisti catalogue, thus causing a significant prejudice to his own rights, interests and revenues as co-author of the works themselves.

In particular, the Author brought a contract claim against the Publisher accusing the latter to have failed to meet its obligations under the music publishing agreements stipulated with both Battisti and Rapetti, particularly because it had contravened to its own express duty to maximize the efforts to promote the commercialization and exploitation of the works, through all means and also to the benefit of the authors and their image. In fact, according to the Plaintiff, the Publisher had been mostly inactive, for over a decade, on that front, by refusing to provide consent to advertising campaigns, synchronization and licensing requests coming from all over the world, and, therefore was to be found in breach of the agreement.

Rather, according to the Author, the Publisher – acting in close cooperation with Ms Veronese, in her double capacity as both the company’s director and the holder of the moral rights upon the works - resulted to put in place a systematic refusal and stonewalling conduct with respect to any kind of third party’s offer and request for use and exploitation of the works. To such effect, both the Publisher and Ms Veronese had, inter alia, had also withdrawn the mandate originally conferred upon SIAE (i.e. the Italian Collecting Society) in relation to online exploitations over the internet.

In light of the above, the Author took the case before the Court of Milan in order to have both the Publisher (for breach under contract law) and Ms Veronese (for inducement to breach and tortious conduct) held liable for his loss of profit.

In particular, under contract law, the Author asked to have Acqua Azzurra held liable pursuant to articles 1455, 1375 and 1175 of the Italian Civil Code, basically claiming that it had breached the agreement through a performance in bad faith. Also, the Plaintiff claimed that Acqua Azzurra had failed to comply with the provision of article 126 of the Italian Copyright Act, which protects the author as the weaker party of a publishing contract providing for the publisher to abide to its own legal obligation to produce and commercialise the work “according to the rules of good publishing practice”, always paying the agreed remuneration to the author.

As with regards to Ms Veronese’s position, Mr Rapetti claimed that her repeated refusal of exploitation opportunities amounted to a tortious act per se, because it was made only for the purpose of harming the late Battisti’s co-author and, in any case, induced Acqua Azzurra to violate its obligations under the publishing contract.

 On appearance before the Court of Milan, the Defendants replied that:

  1.  Acqua Azzurra was not in breach of the contract nor performed the latter in bad faith because the music publisher always has the full right and faculty to refuse certain exploitations of the works; with such respect, the reference made by the Plaintiff to article 126 of the Italian Copyright law was to be retained as being inconsistent, considering that it regards publishing contracts for printing and not music publishing. Moreover, Acqua Azzurra did not have any right to contravene the will of the Battisti’s heirs all the times that they refused exploitations through the exercise of their moral rights in order to preserve the late Battisti’s artistic image and reputation.
  2. Ms Veronese had full right, in her capacity as Battisti’s heir, to object to exploitations capable of being prejudicial for the late Battisti’s artistic image and reputation.

At the end of the proceedings, the Court ruled in favour of the Author.

In particular, the Court upheld Mr. Rapetti’s contract liability claim against the Publisher, ruling that the repeated and systematic refusal of exploiting the Battisti’s repertoire through third-party licensing and/or for advertising purposes, coupled with the withdrawal of the SIAE’s mandate for online exploitations, had actually resulted in a culpable conduct that inherently enjoined the Author to extract any kind of substantial economic profitability from the works (and of the relevant recordings); therefore, since the refusals were not justified either by purely economic reasons, nor by Ms Veronese’s exercise of moral rights, they turned out to be acts of breach of the publishing contract.

For such reasons, the Court charged the Publisher with the payment of a damages award equal to more than 2.5 billions Euro.

On the other hand, the Court dismissed the Author’s claims brought directly under tort against Ms Veronese, holding that her conduct resulted to be unlawful only when it determined a subsequent refusal of exploitation on part of the Publisher, and – as such – it had to remain absorbed within the contract liability of the latter.

This said, notwithstanding the wide amount of legal issues that have been extensively treated by the Judgement, the present commentary will focus on the three legal issues which, in our view, appear to be the most significant for their potential impact upon the future developments of Italian copyright law in the music industry.

In particular, we see it worthwhile to focus on the following issues:

  1. whether and to what extent the exercise of moral rights can legitimate a publisher’s inaction in exploiting the works;
  2. whether and to what extent the withdrawal of the SIAE mandate in relation to internet exploitations may be construed as a failure to exploit the works in breach of the publishing contract.

1.1. The author’s moral rights vs. the publisher’s obligations.

With reference to this first issue, it has to be recalled, at first, that article 20 of the Italian Copyright Act provides that, notwithstanding the exclusive rights of exploitation of the work and even after the transfer of such rights, “the author shall retain the right to claim authorship of his work and to object to any distortion, mutilation or any other modification of, and other derogatory action in relation to, the work, which would be prejudicial to his honour or reputation”. Article 23 of the Act goes on to say that such moral rights – which, in short, the author is entitled to exercise also to block certain uses of his works – pass, after the death of the author, on to his spouse and children and, in the absence thereof, to his parents and other direct ascendants and descendants, and in the absence of such ascendants and descendants, to his brothers and sisters and their descendants. Therefore, the heirs of the author retain the right to object to any use or modification of the author’s work which would be prejudicial to the honour or reputation of the latter.

In the case at hand, as anticipated, the Defendants’ main answer to the Author’s claims and demands was based on their assumption under which the Publisher’s alleged inaction was mainly due to Battisti’s heirs legitimate exercise of their moral rights upon the Battisti’s works; such moral rights, according to their view, gave them the power to object to virtually any third party’s promotional and commercial offer or request, that they could judge as being prejudicial to the Battisti’s reputation and goodwill, at their own discretion and without any limitation.

In front of such moral imperative, the Publisher could not have done anything more than what it actually did, therefore its conduct was perfectly compliant with its obligations under the publishing contract.

As we have seen, the Court of Milan rejected this argument, pointing out, in particular, that articles 20 and 23 of the Italian Copyright Act must not be construed as granting the authors (or their estate) the right to object to any use of the works and bring the market for the works to the total paralysis.

Precisely, the Court highlighted that moral rights can be legitimately invoked only when:

  1. objectively, the prospected use/modification/exploitation of the work may result in an objective alteration of the purpose and artistic value of the work considered per se, and cannot be denied only by reason of the specific context/environment in which an unaltered work might be used/exploited;
  2. subjectively, the prejudice against the work’s integrity and/or the author’s reputation must be assessed against the sensibility and reason of a prudent man, and not on the (generally exasperated) sensibility of the author himself or of his heirs.

In light of the above, the Court ruled for the inconsistency of the arguments formulated by the Defendants on this point, affirming that, in the case at hand, the repeated and continuous refusal of any kind request of exploitation of the Battisti’s music repertoire cannot be justified by the provision of art. 20 of the Italian Copyright Act.

In other words, the Court established that moral rights could not, in the case at hand, be invoked systematically to preventively and permanently stop, in principle and without entering the merits of the artistic proposals, all requests of elaborations of the Battisti musical works, and primarily the creation of cover songs by even the most prominent Italian pop artists.

Significantly, the Court applied the same principles while examining the attitude that had been shown by the Publisher in relation to the synchronization requests that had been coming, over the years, from third parties.

As known, synchronization (or "sync") rights come into play when music is used in combination with visual images (e.g. the use of music in a film, on TV, through a video, webcast, advertising etc.). Sync rights are managed by the publisher, since they are typically transferred together with all other economic exploitation rights that are the subject matter of a publishing agreement.

With respect to this specific form of exploitation, the Court ruled that synchronization, also when it is used for the purpose of creation of a third-party web or TV commercial: (i) cannot be considered per se contrary to the moral right of the author of the musical work; (ii) cannot be considered per se harmful for the reputation and/or honour of the author, needing a concrete prejudice; (iii) the alleged prejudice shall be assessed against the actual artistic integrity of the specific work and not to the general personality of the author (i.e. the prejudice shall be objective).

In light of that, in the case at hand the Publisher was compelled to maximize its efforts to license elaboration and synchronization rights and could not simply adhere to the (unjustified) stonewall position of the Battisti’s heirs.

 1,2. On the withdrawal of the mandate conferred upon SIAE for the management of web exploitation rights.

 In the case at hand the Publisher’s conduct fell under the lens of the Judge not only with regard to the general “inactive” approach adopted with regard to exploitation requests, but also with regard to a few initiatives that it had actively undertaken and resulted in a further prejudice to the chances of increasing the commercial value of the works.

Among such initiatives, the most relevant of which Mr Rapetti complained about was the withdrawal of the mandate that Battisti and Rapetti (as co-authors) and Acqua Azzurra (as publisher) had originally conferred upon SIAE (Italian collecting society) for the management of all web exploitation rights.

With such respect, it has to be noted that, under Italian law, once a musical work is registered by its authors and/or publishers before SIAE, SIAE also earns a mandate, by the law, for the management of requests of the wide majority of the forms and means of use and exploitation of the works, including for all reproductions trough the internet (e.g. those accessible through download, streaming, etc.).

Upon this issue, it is interesting to note that, in the case at hand, the Court held that, although any author or publisher is fully entitled to revoke such mandate at any time in relation to internet uses, this should not justify a Publisher to decide not to exploit anymore the works on the digital platform or over the internet at all.

Nonetheless, this is exactly what had happened, according to the Court, under the facts of the case.

In particular, since 2007 both Acqua Azzurra and Battisti’s estate had revoked the mandate to SIAE and, after that, they had never given cause to any kind of further online exploitation of the Battisti’s repertoire, the ultimate effect of such move was detrimental to the Author, since it caused the loss of all the profits that may have potentially arisen from the digital exploitation of the works.

In other words, the natural consequence was the complete unproductiveness of the Battisti’s repertoire which was eventually totally excluded - in a music industry that has now turned almost fully digital – from any platforms such as, for example, Spotify and iTunes.

In this perspective, the Court found the attitude adopted by the Publisher non-compliant with its exploitation duties under the publishing agreement, having found no reasonable and profitable alternative to increase accessibility (and value) of the works over the internet after having revoked the SIAE’s legal mandate.

 Conclusive Remarks.

The judgement in comment has, for the first time, explored – through an in-depth legal analysis - the potential conflicts that may arise, during the course of execution of a publishing contract, between, on one side, the publishers and authors and, on the other side, between two co-authors.

The significance of the decision lies – has we have seen - especially in the way in which the Court addressed the legal issues related to the “use and abuse” of moral rights as a means of frustration of the ultimate scope and rationale of a publishing contract, especially in a case (which is not so rare in practice) where an author (or his heirs) are also vested with the control of the publishing company holding the rights upon the author’s repertoire.

In the case at hand, the Court ascertained that Ms Veronese – in her double role and capacity as heir and director of the publishing company – unreasonably objected, under the screen of an exaggerated notion of moral rights, to any kind of exploitation, promotion and synchronization activity offered or proposed by third parties, leading to a complete inaction in the field of rights management to the absolute detriment of Mr Rapetti and to the frustration of all commercial opportunities that may have been profitable for the latter (especially precluding the Battisti’s repertoire from being exploited on the internet, which has lately become the biggest market for music).

The Court also granted Mr Rapetti a considerable amount of damages, which was calculated based on the potential profit that the latter might have derived from the commercial opportunities that had been prospected by third parties to the Publisher and that the Publisher had never agreed to pursue.

Conclusively, it must be noted that – notwithstanding the relevance and significance of the judgment, as outlined above – it remains a first instance decision which is still subject to appeal. The Publisher’s counsel has already announced that an appeal will follow shortly and therefore it is likely that the principles upheld by the Court of Milan will be called into question in the near future.