Royalty Disputes — Sources and Routes to Resolution
A royalty dispute always depends on the source from which the money flows: where the royalty runs directly between the commissioning party and the author, the dispute is governed by Articles 43 and 44 of the Law on Copyright and Neighbouring Rights — the rules of the commissioning contract and the obligation to compensate damage; and where the sum moves through a collective-management organization, the dispute is resolved under the collection and distribution rules of Article 66-2. This page explains both circuits.
The Commissioning Contract and the Royalty — Article 43
Under a work-creation contract the author undertakes to create a work according to the terms of the contract and to transfer it to the commissioning party, while the latter undertakes to accept the work and pay the author a royalty. The author must create the work personally unless the contract provides otherwise; the involvement of another person is admissible only with the commissioning party's consent. The commissioning party must examine the work as soon as the contractual term arrives and notify the author in writing of acceptance, rejection or the need for corrections — and if no written notice is sent within the term, the work is deemed accepted.
Additional royalty-related rules matter as well: the procedure, term and amount of the advance are defined by the contract. Void is any contract clause restricting the author's right to create, in the future, a work on a defined topic or in a defined field, and the subject of the contract cannot be the transfer of rights in a work to be created in the future. The economic rights in a work created on commission belong to the commissioning party unless the contract provides otherwise — the terms of the royalty and the fate of the rights are thus decided by a single document, and it is exactly this document that must be drafted precisely.
The Price of Breach — Article 44
Where a party failed to perform or improperly performed an obligation under a contract of transfer of economic rights, creation of a work or a licence, it must compensate the other party for the damage caused, including lost income. This norm is the central instrument of the royalty dispute: an unpaid royalty is treated as damage, and the claim against it is built on exactly this basis.
The Collective-Management Circuit — Article 66-2
Where the royalty moves through a collective-management organization, the rules of the dispute are set by Article 66-2. The organization distributes the entire income received from its activity to the holders of the rights it manages regularly, diligently and with maximum accuracy; it must keep separate accounts for the royalty from rights management, for income from its own property or other lawful activity, and for the royalty that could not be distributed.
The principles of distribution are defined by the organization's charter so as to ensure a proportional, non-discriminatory, appropriate and fair distribution. The deadlines are strict: the collected royalty must be paid to the right holders no later than 9 months from the end of the financial year in which it was collected — objective reasons aside. Undistributed sums are kept in a separate account, the organization takes all necessary measures to identify holders, and no later than 3 months from expiry of the term it publishes on its website information about the works whose holders could not be identified. A royalty that could not be distributed within 3 years from the end of the financial year of collection acquires the status of undistributed royalty: its use is decided by the general meeting of members, sums may be transferred to purpose-specific funds — with transparent information and annual publication. Together with payment, the organization must also render accounts to the right holders.
The collective-management organization also operates under precise deadlines: the collected remuneration must be paid to right holders no later than 9 months after the end of the financial year in which it was collected; where holders cannot be identified, the amount is kept in a separate account, and within 3 months of the deadline the organization publishes information about the work on its website. Distribution must be proportional, non-discriminatory and fair, with separate accounts for the remuneration and own income.
Frequently Asked Questions
Below we answer the questions most frequently raised about royalty disputes.
What happens if the commissioning party does not respond to the work?
If no written notice is sent to the author within the contractual term, the work is deemed accepted — and the obligation to pay the royalty arises.
How do I claim an unpaid royalty?
On the basis of Article 44 — as damage from improper performance of a contractual obligation, including lost income.
How quickly must the collective organization pay?
No later than 9 months from the end of the financial year; the distribution must be proportional and non-discriminatory, and undistributed sums are kept in a separate account.
Can my future creativity be restricted by contract?
No — a clause restricting the author's right to create future works on a defined topic or in a defined field is void.
How We Help on Legal.ge
Victory in a royalty dispute rests on documents: the terms of the contract, the chronology of acceptance, the reporting and the computation of damage. The specialists at Legal.ge will explain the operation of Articles 43, 44 and 66-2, assess your contract or collective-management relationship, and prepare the demand or the statement of claim. Contact us through the Legal.ge form.