A Q&A guide to media law in Hungary.
The country-specific Q&A looks at the following sectors:
In each section, the Q&A guide considers a number of issues, such as a sector overview (including major companies, recent trends, and main trade bodies/associations, regulation and classification, legal protection and contractual structures, and areas of litigation).
To compare answers across multiple jurisdictions, visit the Media Country Q&A tool.
This Q&A guide is part of the PLC and DLA Piper multi-jurisdictional guide to media law. For a full list of jurisdictional Q&As visit www.practicallaw.com/media-mjg.
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Major companies.
Recent trends.
Main trade bodies/associations.
Major companies within the Hungarian film industry consist of:
Hungarian film production companies.
Foreign film producers who come to Hungary to produce their films.
Brokerage entities assisting in procuring Hungarian corporate entity tax sponsors to provide the indirect state subsidy for film productions (see Question 2).
Film production costs in Hungary over the last three years ranged between:
HUF45,805 billion in 2008.
HUF48,455 billion in 2009.
HUF45,177 billion in 2010.
(As at 1 July 2011, US$1 was about HUF178.)
During the 2008 to 2010 period, the participation of Hungarian film productions in these figures decreased from 42.7% to 16.2%, indicating increasing foreign participation.
Hungarian audiences are more interested in international film productions (whether produced in Hungary or abroad) than national film productions. In 2010, Hungarian films (with no foreign producers) took less than 2.5% of the total Hungarian box office revenues, whereas the total box office in Hungary increased by 12.5%.
The National Film Office Directorate of the Ministry of Cultural Heritage (National Film Office) is the main regulatory body. Its duties include:
Film classification (see Question 4).
Classifying whether films are entitled to the direct or indirect film subsidy (see Question 2).
Statistical and administrative responsibilities.
The Hungarian Film Fund (Magyar Mozgókép Közalapítvány) (MMK) was in charge of providing direct state subsidies for film productions and managing state-owned film assets. Because of huge losses in the last couple of years, the government established the position of Film Industry Governor to take over the MMK's role (including providing the direct state subsidy). Andrew Vajna was appointed as the Film Industry Governor in January 2011. The government has decided to immediately terminate the MMK without a legal successor, and investigate its financial management.
The new plans provide for the establishment of the Hungarian National Film Fund corporation (Magyar Nemzeti Filmalap Zrt) (MNF), which will receive central government funds to support Hungarian film production. This year, only HUF1,625 billion will be given to the MNF, which will also cover its operating costs. It is uncertain how much of this money can be used to produce films. Andrew Vajna has stated that the MNF will participate in the production of two to three carefully selected films as a real co-producer by controlling the process of production and the budget.
A direct state subsidy is available for Hungarian films (that is, Hungarian films which have no foreign participation), at the discretion of the MNF and the Film Industry Governor (see Question 1, Main trade bodies/associations). As it is only available for purely Hungarian productions, this chapter does not consider the direct subsidy further.
Foreign producers can benefit from an indirect state subsidy if they produce films through Hungarian film-producing entities. The indirect state subsidy takes the form of a tax rebate; it was introduced by the Act on Motion Picture 2004 (Act No. II of 2004) (Motion Picture Act).
A film production in Hungary, subject to certain criteria (for example, meeting a cultural test), is entitled to an indirect state subsidy (a film tax rebate), amounting to 20% of the direct film production costs incurred in (and partly outside) of Hungary in respect of pre-production, production and post-production work (section 22(1)(3) and Annex 3/B(15), Corporate Tax Act).
The following procedure must be followed:
A Hungarian film production company registers the production as a Hungarian film produced on order (work for hire) or not on order (co-production, Hungarian production) (see Question 6, Production structures).
The Hungarian producer must file the records of the audited costs of production with the National Film Office.
The National Film Office establishes the direct film production costs (the qualifying costs) and the applicable amount of the tax refund.
A Hungarian corporate entity as supporter and the Hungarian producer enter into a "support agreement", which is then filed with the National Film Office.
On the basis of this agreement, the National Film Office issues Sponsorship Certificates in the name of the supporter.
The supporter pays the amount of the support indicated in the Sponsorship Certificates (in the amount of 20% of the qualifying costs of production) to the Hungarian producer, and on the basis of those Certificates the supporter reduces its corporate tax payable and its corporate tax base by the amount of the support paid.
Supporting a film production can result in considerable tax saving for the supporting entity. For example, in a hypothetical case, there are two companies, both of which generate HUF1,000 million profit before taxation:
In the first case, the company provides HUF100 million support for film production, which benefits from the tax rebate. The tax base, therefore, is now HUF1,000 million minus HUF100 million, or HUF900 million. In 2011, the corporate tax rate in Hungary is 19% (on profit above HUF500 million a year). This means that the tax payable is 19% of HUF900 million, or HUF171 million, less the HUF100 million tax support (HUF71 million). The amount paid for tax purposes, including the HUF100 million support, is HUF171 million.
In the second case, the company does not benefit from the rebate, and full tax on the HUF1,000 million, or HUF190 million, is payable.
The amount of the tax rebate (that is, the amount of the Sponsorship Certificates issued by the National Film Office) was:
HUF3.8 billion in 2008.
HUF6.8 billion in 2009.
HUF7.3 billion 2010.
The 20% tax rebate attracts major foreign producers including Hollywood studios to come to Hungary to produce part or all of their films (for example, Warner Bros recently shot The Rite in Hungary with Sir Anthony Hopkins in the main role, and Universal Studios is currently shooting The 47 Ronin with Keanu Reeves).
The EU has revised the tax relief system, and as a result certain changes (such as the application of a cultural test) were introduced in 2008, although the main elements remain unchanged.
The main legislation regulating the film industry in your jurisdiction.
Film co-production treaties between your jurisdiction and other jurisdictions.
National regulatory authorities.
The main legislation is the:
Motion Picture Act.
Joint Decree no. 12/2008 (III. 29.) of OKM-PM on the Detailed Rules of the Organisation, Operation and Procedure of the National Film Office, issued by the Ministry of Education and Cultural Heritage and the Ministry of Finance.
Hungary has entered into film co-production treaties with the following jurisdictions:
France (under Law Decree No. 33 of 1970).
Germany (under Government Decree No. 186 of 2008).
Italy (under Government Decree No. 3 of 2008).
Canada (under Government Decree No. 294 of 2009).
In addition, Hungary (along with many other European countries) has entered into the European Convention on Cinematographic Co-Production 1994 (ratified in Hungary by Government Decree No. 7 of 1998).
See Question 1, Main trade bodies/associations.
Films for theatrical release are normally classified by a rating committee of the National Film Office, consisting of seven members qualified in the field of education, psychology and the film industry and film distribution sector.
When classifying films, the committee considers the following (Motion Pictures Act):
Whether the films are capable of unfavourably influencing the physical, intellectual or moral development of children. In particular, they consider whether there are elements:
directly or indirectly alluding to violence or sexuality;
offering a direct and natural depiction of violence or sexuality or pornography.
The context, tone and impact of a work and the release format.
The National Film Office uses the following categories:
Category I: Films that can be viewed without age restrictions.
Category II: Films that can be viewed under the age of 12 with parental guidance.
Category III: Films that are not suitable for viewers below the age of 16.
Category IV: Films that are not suitable for viewers below the age of 18.
Category V: Films that are recommended for adults only.
Films are creative works that are entitled to copyright protection (section 1(2)(g), Act No. 76 of 1999 on Copyright) (Copyright Act). To be eligible for copyright, a creative work must have unique, original characteristics created by the intellectual activity of the author(s) (section 1(3), Copyright Act). The length of the film, whether the film includes the "End" at its conclusion or whether it provides end credits of staff are not decisive as to whether the film is entitled to copyright protection (SzJSzT-23/03 (Copyrights Professional Board decision)).
The authors of the film are (section 64(2), Copyright Act):
The authors of the literary and musical works to be filmed.
The director of the film.
All others who have provided creative performance to the film's production.
Authorship status entitles the author to moral rights, such as the right to release the work to the public, the right to indicate the author's name, and the right to protect the unity of the work (that is, to authorise changes or deletions). Author status depends on the substance rather than the form of the activity, and the original and creative activity of the relevant person. Therefore, it will depend on the film's artistic form and individual characteristics as to which activities have a decisive role in establishing author status. Persons providing pure technical or organisational services and background (such as a line manager) do not qualify as authors.
The producer is the person (natural or legal) who initiates the film in its own name and organises the film's production by taking care of the financial conditions (section 64 (3), Copyright Act). Where a contract is concluded for the production of a film the author (except for composers of musical works with or without lyrics) transfers to the producer the exploitation rights of the film and the right to license the exploitation, unless there are contractual provisions to the contrary.
The producer can qualify as an author if its activity is creative and original (see above, Author). In addition, the producer (even if it does not qualify as an author) also has neighbouring rights, which require the producer's approval for the motion picture to be (Article 82, Copyright Act):
Reproduced.
Distributed, including lending to the public.
Made available to the public by cable or any other means or in any other manner so that members of the public can access the motion picture from a place and at a time they have individually chosen.
The production of a film in Hungary can qualify for Hungarian tax relief if produced with the involvement of a Hungarian film-producing entity as Hungarian producer (see Question 2).
This can occur in the following structures:
Production on order/work for hire structure. A Hungarian producer provides certain production services under a Production Services Agreement. However, all creative work protected by copyright is directly created by the foreign producer.
Co-production with a Hungarian producer's participation. The parties enter into a bipartite or multipartite co-production agreement, including the participation of a Hungarian producer. The co-production structure can qualify for a Hungarian tax rebate, even if there is no co-production treaty with the foreign producer's country of origin.
Sale of copyright structure. The Hungarian producer produces the whole or certain scenes of the film, and assigns and licenses the produced scenes to the foreign producer.
The producer usually seeks to conclude distribution agreements during pre-production. These are commonly known as "pre-sales" although the rights in the film are usually licensed, rather than sold, to distributors. Typically:
A distributor will acquire rights in one or more territories (although certain studios may acquire worldwide rights).
The distributor must usually pay to the producer a specified advance or minimum guarantee on the delivery of the film.
In relation to the gross receipts the distributor receives from the exploitation of the film:
The distributor is entitled to a percentage commission.
The sales agent (if one has been appointed) receives a percentage commission on the balance.
The remaining money goes to the producer.
Generally, foreign producers finance their films in Hungary through equity finance, pre-sales, and loan finance. The Hungarian producer will almost always be a special purpose vehicle (SPV) set up specifically to produce the film in question.
The lender will require security for the loan, for example:
A fixed and floating charge over the producer's tangible assets.
A pledge and security assignment of rights and receivables.
A pledge over production accounts.
The assignment of receivables from film tax support (that is, an agreement signed between the Hungarian film producer and a corporate entity, providing film support with the aim of realising tax benefits) (see Question 2), and value added tax (VAT) reclaim.
A pledge over the shares of the Hungarian producer.
A pledgeholder agreement with Hungarian laboratories holding the finished film.
After the financial crisis affected Hungary at the end of 2009, bank financing ceased to become available in Hungary to finance film productions.
To make use of the Hungarian tax rebate the Hungarian producer must sign a tax support agreement with one or more Hungarian corporate entities acting as tax sponsors (see Question 2). If a Hungarian producer cannot contract directly with a Hungarian tax sponsor, it can use a brokerage company that contracts to procure tax sponsors for the film production for an agreed fee.
During pre-production the producer also usually:
Secures contracts with the lead cast and crew (department heads).
Finalises the production schedule and budget.
Obtains insurance and a completion guarantee, if required.
Hungarian copyright provisions are quite conservative and make it difficult for the producer to acquire a full and unlimited set of copyrights, particularly since authorship rights cannot be transferred, sold or waived (see Question 5, Author). There are, however, very few copyright disputes in Hungary concerning authorship of film productions.
Part of the financial benefits from the tax rebate are realised after the actual production is closed (see Question 2). Therefore, there are occasionally settlement disputes between the Hungarian producer and the foreign producer, which can lead to litigation.
The National Film Office occasionally starts investigations on whether the costs legally complied with the tax rebate rules. The Hungarian tax and custom authority will conduct these investigations, which usually only deal with the most significant criminal cases of tax fraud and misuse of state subsidy.
As the contractual web of foreign language production agreements is particularly complex and is mostly governed by foreign law, the parties often choose foreign arbitral proceedings or courts in which to litigate.
Major companies.
Recent trends.
Main trade bodies/associations.
Major companies include:
Broadcasters. The primary broadcasters in Hungary are the:
two major commercial channels: RTL Klub (Magyar RTL Televízió Zrt) and TV2 (MTM-SBS Televízió Zrt). These channels are broadcast on the analogue free to air terrestrial and free to air digital terrestrial platforms (see below);
public service channels: m1, m2, and Duna TV.
Platform operators. Antenna Hungária successfully won a tender to operate five terrestrial digital television networks and one terrestrial radio broadcasting network for a period of 12 years from 2008. The other major players in wired and wireless broadcasting services are UPC, DIGI and T-HOME.
Producers. RTL Klub and TV2 have major in-house production capabilities but there is also a well-established independent production sector. The leaders in this field include IKO Műsorgyártó Kft. (part of IKO Media Group) and Interaktív Kft.
Hungary is moving towards completing digital switchover. The plan is that by 31 December 2012:
All analogue television broadcasting will finish.
At least 94% of the population will have access to the public media service through the digital television broadcasting transmission service.
A device suitable for accessing the digital media service will be fully distributed.
If this deadline is not met, the deadline will be extended until the conditions are met, with a final cut-off date of 31 December 2014.
The prominent associations in the broadcasting market are the:
Hungarian Cable Communications Association, the largest trade association of Hungarian cable television service provider companies.
Hungarian Cable Television and Telecommunications Association.
Association of Hungarian Electronic Broadcasters.
The film tax rebate applies to television films (see Question 2).
There are no other specific tax reliefs available for TV programme making. Public service broadcasting is funded through the Broadcast Support and Asset Management Fund, under policy established by the Media Council of the National Media and Communications Authority (NMCA) (see Question 10, National regulatory authorities).
The main legislation regulating the broadcast and internet TV sectors in your jurisdiction.
TV co-production treaties between your jurisdiction and other jurisdictions.
National regulatory authorities.
The main legislation is the:
Act No. 185 of 2010 on Media Services and Mass Media (Media Act). This gave effect to Directive 2007/65/EC amending Directive 89/552/EEC on the co-ordination of certain provisions laid down by law, regulation or administrative action in member states concerning the pursuit of television broadcasting activities (Audio-Visual Media Services Directive).
Act No. 104 of 2010 on the Freedom of the Press and on the Fundamental Rules on Media Content (Press and Media Act).
Act No. 74 of 2007 on the Rules of Broadcasting and Digital Switchover.
Act No. 100 of 2003 on Electronic Communications.
The Media Act and the Press and Media Act entered into force on 1 January 2011.
Collectively, these acts establish the national broadcasting regulatory framework, including the:
Constitution, powers, duties and rules of the NMCA (see below, National regulatory authorities).
Basis on which media service providers can provide media services in Hungary.
Rules on preventing the creations of dominant positions on the media market which would lead to restrictions on pluralism.
Regulations concerning the content of the media services.
Rules on self-regulatory mechanisms.
Rules on public service broadcasting.
See Question 3, Film co-production treaties.
The NMCA is the broadcastings and telecommunications regulator. It is an independent authority, with a number of decision-making organs: the President of the NMCA, the Media Council and the Office of the NMCA.
The Media and Communications Ombudsman works in combination with the NMCA; it can act in consumer protection cases where the NMCA does not have the authority to proceed.
There are detailed rules in the Media Act concerning TV programme classification for the protection of children and minors. A media service provider providing linear media must assign a rating to each programme before broadcasting (with a number of exceptions, such as news programmes, sports programmes and public service announcements). The ratings are:
Category I: programmes which can be viewed or listened to by persons of any age.
Category II: programmes that are not recommended for audiences under the age of six.
Category III: programmes not recommended for audiences under the age of 12.
Category IV: programmes not recommended for audiences under the age of 16 (due to references to violence or sexuality or because they are dominated by conflict situations resolved by violence).
Category V: programmes not recommended for audiences under the age of 18 (because they are dominated by graphic scenes of violence and sexual content).
Category VI: programmes that are restricted in viewing because they may seriously impair the physical, mental or moral development of minors because they involve pornography or extreme and/or unnecessary scenes of violence.
The Media Act also provides at what time of day the categories of programmes can be aired.
Radio and television organisations are protected under the neighbouring right provisions of the Copyright Act (see Question 5). Unless the Copyright Act provides otherwise, the radio or television organisation's authorisation is required for its programmes to be (section 80, Copyright Act):
Broadcast or transmitted to the public by:
other radio or television organisations;
carriers that transmit to the public by cable.
Recorded.
Reproduced after recording if, among other circumstances, the recording was made without its authorisation.
Made available to the public, by wire or wireless means, in such a way that members of the public can access the programmes from a place and at a time that they have individually chosen.
Unless the law provides otherwise, the radio or television organisation must be paid for use of its programmes.
Broadcasters usually enter into contracts for work with producers (the content of these contracts will differ, depending on the type of work). Producers enter into contracts with subcontractors, which differ depending on whether the subcontractor is a company or a private individual. Private individuals usually provide their services to producers on the basis of a simplified contribution to public revenues (EKHO) contract, which uses a special simplified tax regime that applies to special professions (typically in the cultural sector). This simplified way of paying social security fees and personal income tax is open to employees and self-employed people, including pensioners. Producers usually try to obtain as many rights from performers as is possible under Hungarian copyright law (see Question 12).
Main legal issues arising in TV programme production transactions?
Main areas of litigation?
Depending on the nature of the programme, the following legal issues may arise:
Chain of title issues to underlying rights (for example, over the screenplay).
Use of commercial music.
Format rights (concerning the overall content and branding of a television programme). Hungary does not recognise a format itself as protectable under copyright law, but there can often be disputes concerning:
people claiming that their idea has been used;
broadcasters disputing whether a programme has a format element or not.
Litigation over programmes is rare and there are only a few published court decisions in this respect, mainly concerning copyright issues (for example, the unauthorised use of music in a television programme).
Major companies.
Recent trends.
Main trade bodies/associations.
Book publishing. The book publishing sector comprises:
Stable large-scale printing companies.
Smaller companies providing high-quality services (however, the demand for the work of those companies is limited and this sector is facing financial difficulties).
Small publishing companies, which usually have their own printing company and publish poor-quality books.
Newspapers. Newspaper publishing is responsible for the greatest volume of publishing activity. In Hungary there are more than 30 daily newspapers and this number is continuously increasing.
Magazine publishing. This sector is increasing due to the importance of the information it provides, and more and more periodicals are appearing in the Hungarian market.
In total, there are more than 1,000 market players in the publishing industry, including:
A limited number of major players, which dominate the market (the concentration of publishing companies is continuously strengthening).
A large number of smaller players.
The main publishing companies are active in all three sectors (book, newspaper and magazine publishing). Some of the biggest publishing companies include:
Publishers that are primarily known for publishing newspapers, magazines, or periodicals:
Sanoma Budapest Zrt (owned by Sanoma Magazines International BV);
Ringier Kiadó Kft (owned by Ringier AG);
Axel Springer Magyarország Kft (owned by Axel-Springer Verlag AG);
Lapcom Kft (belonging to the UK Daily Mail group);
Pannon Lapok Társasága Kiadói Kft (owned by K&K Medien und Handels GmbH).
Publishers that are primarily known for book publishing:
Reader's Digest Kiadó Kft (owned by The Reader);
Complex Kiadó Kft (owned by Wolters Kluwer International Holding BV);
Nemzeti Tankönyvkiadó Kft (owned by a Hungarian company whose main shareholder is SW Invest BV);
Mester Kiadó Kft (owned by international Masters Publishers AB);
HVG Kiadó Zrt (owned by Ost Holding GmbH).
Publishing activity is primarily based on the Hungarian market (printing companies mostly fulfil Hungarian orders, and most printing companies are in Hungarian ownership). Hungarian publishers in foreign ownership received less than 25% of the total market share in revenue in 2010.
"Loud books", in which famous actors read or interpret literary works on a CD or DVD are popular, although demand for loud books decreased in 2010.
The digital book market is becoming increasingly important; in 2010 there was an increase of 14.32% in the digital books sold.
Book publishers. The most significant association is the Association of Hungarian Book Publishers and Book Distributors (Magyar Könyvkiadók és Könyvterjesztők Egyesülete). This is a voluntary association of both book publishers and traders, which covers about 92% of the Hungarian book market (in income). It has its own ethical and competition rules and its committee acts where its members breach those rules. The association currently has 130 members.
Newspaper publishers. The main trade association is the Association of the Hungarian Newspaper Publishers (Magyar Lapkiadók Egyesülete) (MLE). MLE's aim is to promote the business interest of newspaper publishers and its role includes professional training. The membership fee is calculated depending on the income of its members.
There are eight collective rights management associations for different kinds of copyright works, four of which are active in the publishing sector:
Society Artisjus Hungarian Bureau for the Protection of Authors' rights (Artisjus). This association deals with musical and literary copyrights.
Reprographic Association of Hungarian Professional and Literary Writers and Publishers.
Hungarian Association of Reprographic. This association collects royalties for copying (or other forms of reprographic treatment) of works.
Reprogress Reprographic Association of Hungarian Newspaper Publishers. This has responsibility for the copying of periodicals.
The collecting societies are responsible for collecting and distributing royalties, and representing the interests of the authors.
The main legislation regulating the publishing industry in your jurisdiction.
National regulatory authorities.
The following laws apply:
The Media Act.
The Copyright Act.
The Press and Media Act.
Decree of the Ministry of Public Administration and Justice No. 26/2010 (XII.28.): this provides rules concerning voluntary registration of works.
Decree of the Ministry of Public Administration and Justice No. 24/2010 (XII.28.): this provides rules concerning registration of collective rights management bodies.
Government Decree No. 60/1998 (III.27.) on provision and use of required copies of published works to be deposited: this provides rules concerning the requirement to deposit copies of published works with designated deposited libraries.
The Hungarian Intellectual Property Office (HIPO) (Szellemi Tulajdon Nemzeti Hivatala) is a governmental office. Its tasks and responsibilities include information and documentation activities in the IP field.
The NMCA is an independent administrative agency (see Question 10, National regulatory authorities). It registers and supervises newspapers, periodicals and internet-based newspapers and news-portals. The Media Council of the NMCA has responsibility for, among others:
Supervising and enforcing freedom of the press.
Regulating newspapers/periodicals and internet-based news portals.
Under the use contract the authors grant licences to use their works in return for the payment of remuneration.
A use contract can expressly grant exclusive rights, under which only the licensee can use the work. In that case, the author cannot grant additional use rights to third parties and can only retain the right to use his own work if the contract expressly provides for this. A use contract can also limit the licence to use the work to a specific area, duration, manner of use, and extent of use. In the absence of other provisions to the contrary, the licence will apply to the territory of the Republic of Hungary and for a duration which is standard under similar contracts.
If the work is commissioned, the contract will usually provide a deadline under which the publisher can accept or decline the work and can request correction.
The licence to reproduce a work permits the user to record the work on a computer or onto electronic media only if this is expressly provided for in the contract. The user cannot amend the work unless this is unavoidable to reproduce the work, and can only amend to the extent that it does not affect the substance of the work.
The use contract must be concluded in writing, unless it concerns the publication of the work in a daily newspaper or periodical. Users can only transfer a licence or grant a further licence to third parties to use a work with the author's express authorisation.
Publication contracts are special types of use contracts (see above, Use contracts). Under a publication contract, an author must make his work available to a publisher and the publisher is entitled to publish and market it. The publisher must pay appropriate remuneration to the author. If not expressly stated, the right of publication relates to the publication of the work in the Hungarian language.
In a publication contract the contracting parties usually agree on the:
Number of copies of the book.
Period available for publication.
Language and territory of publication.
Amount of royalty payable.
Rules of royalty payment.
The contractual right of publication is exclusive, except for works made for collections, daily newspapers and periodicals.
Main legal issues arising in print and electronic publishing?
Main areas of litigation?
Publishing-related litigation is generally limited in Hungary. There are some reported cases on a number of issues, including:
Copyright in the book or newspaper publishing areas.
The liability of the newspaper's publisher.
Whether a translation of a work is an independent intellectual creation for copyright purposes.
Due to the widespread use of computers, the availability of works on the internet has become a key issue. The author has the exclusive right to approve the use of the author's work on the internet (Copyright Act).
There are several competition law cases with the Hungarian Competition Authority regarding control of concentration of publishing companies and publishing practices that mislead consumers. Finally, there are criminal law cases concerning copyright infringement and certain copyright-related rights.
Major companies.
Recent trends.
Main trade bodies/associations.
Major companies include Hungarian developers, such as:
Digital Reality, which developed, among others, Imperium Galactica, Haegemonia, War Front: Turning Point and Sine Mora, which is to be published in 2011.
Black Hole Entertainment, which developed Might & Magics: Heroes VI, Warhammer: Mark of Chaos and Warhammer: Battle March.
Neocore, which developed King Arthur.
Nemesys Games, which developed Fortix II.
Stormregion, which developed Rush for Berlin, Codename: Panzers and S.W.I.N.E, closed operations in 2008.
Typically, the games developed by Hungarian developers are published by large foreign publishers, such as Electronic Arts or Ubisoft. Recently, however, Digital Reality announced the launch of its online publishing line and will release the game Dead Block this summer.
Traditionally, the demand in Hungary is significant while the supply is limited and expensive. Therefore, online purchases are very popular.
Despite the fact the more and more software for video game console devices is being legally distributed (as "grey import" was prominent in the 1990s), PC gaming is still dominant in the Hungarian video game market. The sales charts are led by massively multiplayer online role playing games, even though pirating is still quite usual. This dominance might be reduced by Microsoft as the IT giant has launched the official Hungarian version of Xbox Live, an online marketplace for selling software, digital downloadable content, and offering a subscription-based online gaming service. This step might raise Hungarian legal issues, including electronic commerce regulations.
The Hungarian Electronic Game Association (Elektronikus Játékkultúra Magyar Egyesülete) was established in 2005 by a group of game developers, distributors and media professionals with the aim of representing the Hungarian computer and video games field. Their main project was to implement the Pan European Game Information system (PEGI) rating system in Hungary (see Question 22).
In 2011 the major players in the Hungarian market, including Hungarian and international game software companies, established the Association for Game and Education Software (Játék és Oktatási Szoftver Szövetség). The Association aims at promoting game and education software in Hungary, countering misconceptions concerning game software and preventing market obstacles affecting software distribution.
The following tax reliefs are available for making video games (Corporate Tax Act):
A tax allowance of 10% of the wage costs paid in relation to the employment of a software developer.
For small and medium-sized enterprises, an additional tax allowance of 15% of the wage costs paid in relation to the employment of a software developer.
PEGI is a European system for rating the content of video games which was established to help European parents make informed decisions on buying computer games. It was launched in spring 2003 and replaced a number of national age rating systems with a single system now used throughout most of Europe. The Interactive Software Federation of Europe (ISFE) developed the age rating system. The game developer can elect whether to participate or not.
There are two parts to the classification of software under PEGI:
A suggested minimum age.
Up to seven descriptions of content, such as the use of violence, strong language and gambling, and so on.
The Hungarian market participants adopted a self-regulatory document in 2005, requiring them to use PEGI ratings for any newly marketed game software. PEGI online is also used in Hungary, and is intended to protect young people against unsuitable online content.
Hungary uses PEGI (see Question 22). It does not, however, have special rules relating to video games, which are covered by the Copyright Act's general provisions on software. The Copyright Act protects computer programs and related documents (software) as literary, academic, scientific or artistic works, whether they are recorded as source code, object code, or in any other form (including user programs and operating systems).
Copyright protection cannot cover the idea, principle, concept, procedure, method of operation or mathematical operation on which the software or the software interface is based, as it protects the expression and not the idea. The right to be identified as author, however, applies.
Moral rights relating to software are not transferable. Economic rights relating to software, such as the right to permit the use of the software, are transferable. This can take place through use contracts or through automatic assignment to the employer if the work was created in the scope of employment (see Question 24, In-house developers).
The name of the game as well as its characters are granted trade mark protection. The owner of the trade mark is the person or entity that registered the trade mark.
Commonly, developers enter into use agreements with a larger publisher on the basis of remuneration for the transfer of their copyright. Remuneration takes the form of a proportionate share of the income from use. Usually the developer is reliant on the publisher and the publisher obtains a wide grant of rights, while the developer's rights are more limited.
Alternatively, publishers use in-house developers. Unless agreed otherwise, where a work was prepared within the scope of employment or other similar legal relationship, the employer will automatically obtain economic rights over the software once it is handed over. Authors are entitled to appropriate remuneration if the employer authorises a third party to use the work or assigns the economic rights in connection with the work to a third party. Tax reliefs are available for this structure (see Question 21).
Main legal issues arising in video game development and production transactions?
Main areas of litigation?
The main legal issues concern ownership of copyright and trade marks. Further, issues relating to remuneration are frequent between the developers and the publishers.
The main areas of litigation, therefore, concern infringement of copyright or trade marks, and claims for compensation.
Major companies.
Recent trends.
Main trade bodies/associations.
Aside from the musicians themselves, the music industry is dominated by the companies who create and sell recorded music:
Record labels. Labels commonly manage brands and co-ordinate the production, marketing and enforcement of rights to the music. Artists are increasingly reliant on record labels. Record labels can be split into two main groups:
those that are part of an international media group (such as EMI, Warner Music Group, Sony, Universal Music Group);
independent Hungarian labels (for example, Hungaroton, Tom-Tom Records, and Rózsa Records).
Music publishers. Music publishers (or publishing companies) ensure that songwriters and composers receive payment when their music is used. Frequently, the artist, his manager or his producer owns the publishing. Increasingly music publishers are losing their independence, and becoming the publishing departments of record labels.
Income generated from recorded music, including sales of CDs, vinyl, cassettes and digital downloads, is in decline. Although action has been taken against illegal online file sharing (considered to be the main reason for the fall in revenue), this has failed to stop the decline. Recording artists now rely on their live performances and merchandise for most of their income.
The main trade organisation for record labels is the Association of Hungarian Record Companies (Magyar Hanglemezkiadók Szövetsége) (MAHASZ). The Association of Hungarian Light Music Composers and Lyricists represents composers.
The main collecting societies are:
The Society Artisjus Hungarian Bureau for the Protection of Authors' Rights (Artisjus) which administers, for example, authorisation for:
the public performance of previously published musical works;
the broadcasting of previously published musical works;
mechanical reproduction (that is, reproduction and distribution of rights of copies of previously published non-theatrical compositions).
MAHASZ, which administers, for example:
private copying of fixed performances;
broadcasting a phonogram (sound recording) (or a copy) that has been released for commercial purposes, or communicating the phonogram (or a copy) to the public in any other manner.
The Association of the Arts Unions Bureau for the Protection of Performers' Rights (Előadóművészi jogok iroda) (EJI), which administers the following rights, among others:
broadcasting and other communication to the public of performances fixed in sound recordings;
private copying and simultaneous retransmission of fixed performances;
making available fixed performances;
repeat broadcast of performances fixed by broadcasting organisations.
As of 2011, the operation of collecting societies is supervised by the Copyright Department of the Hungarian Intellectual Property Office (the former Hungarian Patent Office).
Subject to certain conditions, sponsors of performing arts organisations, including symphonic orchestras, chamber orchestras and choirs, can reduce their corporation tax liability by up to 70% for the:
Tax year in which sponsorship was provided.
Following three tax years.
Depending on which category they fall into, orchestras and choirs may be eligible for state funding or may have to apply to obtain funds from the central budget. As regards pop and rock musicians, the Programme of National Contemporary Music Culture (Program a Nemzeti Kortárs Könnyűzenei Kultúráért) (PANKKK), launched in 2005, is currently on hold and may be replaced by a new funding programme in the near future.
Music and sounds recordings are protected under the Copyright Act, including:
Copyright over the underlying lyrics and music of the song.
Neighbouring rights of the performer and the producers of phonograms, for example:
Performer's authorisation. Unless otherwise provided by law, this is required for:
fixing the performer's unfixed performance;
broadcasting the performer's unfixed performance or communicating it in some other manner to the public;
reproducing the performer's fixed performance;
distributing the performer's fixed performance;
making the performer's fixed performance available to the public by cable or any other device or in any other manner so that members of the public may access these works from a place and at a time that they have individually chosen.
Producer's authorisation. Unless otherwise provided by law, this is required for the phonogram to be:
reproduced;
distributed; or
made available to the public by cable or any other means or in any other manner so that members of the public may access it from a place and at a time that they have individually chosen.
Musical compositions are typically licensed to music publishers under:
Publishing contracts. These specify the business relationship between the copyright owner (the composer/writer) and the publisher. The publisher collects fees from the collecting societies for the use of the composition. A proportion of these royalties is then paid to the copyright owner.
Recording contracts. These specify the business relationship between the record label and a recording artist. In a traditional contract, the label provides an advance to the artist who agrees to record music that will be owned by the label. The label will pay the artist a proportion of the income from the sale of recordings. This "mechanical royalty" is distinct from the publishing royalty.
Distribution agreements govern the relationship between the record company and the music distributor (who is responsible for delivering physical media, such as CDs, from the manufacturer to the retailer).
Main legal issues arising in the contracts for the exploitation of rights in musical compositions and recorded music?
Main areas of litigation?
There are no published court decisions concerning lawsuits between musicians, composers and record labels or music publishers, and litigation is not common in this area. Frequently, however, collecting societies bring claims for royalties against persons using artistic works without paying royalties to the collecting societies.
Main sporting bodies.
Recent trends.
Main trade bodies/associations.
Sporting bodies broadly fall into the following categories:
The national governing sport associations, which administer each sport, both professional and amateur, in sports that are either:
acknowledged by the International Olympic Committee (IOC); or
members of the General Association of International Sports Federations (AGFIS).
The governing sport associations, which do not qualify for the national governing sport associations, but that:
are members of an international governing sport association:
in which at least 15 member states from three continents participate;
which has been organising World or European championships for more than five years in the given sport.
have at least ten sport clubs as members with more than 100 competitors on a regular basis;
have organised national championships for more than three years.
Mass sport governing associations (these associations' goals are to organise sport activities for ordinary people to keep in good health and increase quality of life through exercise (for example, jogging, cycling or walking clubs)).
Handicapped sport governing associations.
University, high school and college sport governing associations.
Members of these governing sport associations can operate in the following forms:
Sport associations, that is, civil law associations registered by the civil courts for providing sport activity, which:
can establish departments for the different sports and authorise these departments with legal personality;
operate according to the general rules applicable for civil law associations.
Sport undertakings, that is, companies registered by the Hungarian company court in the form of a limited liability company or a company limited by shares with the main activity of "sport" or "sport organisation". They can operate in the form of non-profit companies to organise mass sport and handicapped sport activities.
The term club or sports club can refer either to a sport association or a sport undertaking.
Governing sport associations have their own constitution (deed of foundation) and regulatory framework (bye-laws and policies), which govern their operation and the legal relationship between the governing body and its members (clubs) and prescribe the basic rules of competitions.
Sport has been centrally financed, typically from the state budget (bureaucratic model). This means that administrative bodies have had a decisive role in sport financing. However, the funds that are available from the state budget are now more limited than in the past, creating a dilemma in how to find additional or alternative resources for sport financing.
Currently, central state funding draws on the following resources:
12% of the game tax on lottery games.
50% of the game tax on betting revenues from bookmakers and sport gambling.
A new law on sport funding has been introduced recently (Act No. 82 of 2011), which has introduced a tax rebate very similar to that of the Hungarian film tax relief system (that is, under certain conditions the amounts paid by corporate tax payers acting as tax sponsors to fund sport clubs or governing sport associations will be deductible from the corporate tax base and corporate tax payable) (see Question 2). Five visual team sports (football, basketball, handball, water polo and ice hockey) will be entitled to the tax relief. The sport tax relief is generally available to non-professional teams to finance the procurement of sporting assets, development of sport investments, education of junior players and professional development of trainers. The personal costs of professional teams playing in professional leagues cannot be supported (but support can be used to finance part of the costs of professional clubs' investments and refurbishments of facilities, and of supporting the education of juniors).
The law has been approved by the EU, but is still under review in respect of professional teams, and subject to modifications. The approved part of it came into force in July 2011. The use of the tax rebate is subject to the sports clubs and governing sports organisations filing their strategic plans in September 2011 for the approval of the national governing sport associations. Both the National Sport Institute (Nemzeti Sport Intézet) and the National Tax and Customs Authority (Nemezeti Adó- és Vámhivatal) have certain duties to control the use of the tax rebate. The first supports can be provided for the period starting on 1 July 2011. Supporting entities will be able to pay the support at or after the end of October 2011.
The main legislation regulating the sports sector in your jurisdiction.
National regulatory authorities.
The following legislation is relevant in the sports sector:
Sport Act No. 1 of 2004 (Sport Act) (the main statute for sport).
Media Act, which includes certain rules for broadcasting linear sport programmes.
Municipality Act No. 65 of 1990, which governs certain sport-related responsibilities of the municipalities.
Public Education Act No. 79 of 1993, which contains rules for public educational institutions (relating to sports education).
The sport budget forms part of the central state budget.
The tax acts contain certain sport-related tax rules.
Among other things, Act No. 83 of 2010 will include new rules for a sporting tax rebate, and enable professional players to pay simplified taxes (Egyszerűsített Közteherviselési Hozzájárulás) (EKHO), which will assist Hungarian sport clubs in attracting foreign players or international-standard Hungarian players. The Act is scheduled to come into force in summer 2011 (see Question 30).
The following national regulatory authorities exist:
The National Anti-Doping Organisation (NADO), which is responsible for implementing and managing Hungary's anti-doping policy in accordance with the World Anti-Doping Code.
The Anti Doping Co-ordination Body, which organises the co-operation of national sport and health bodies in the anti-doping area.
The National Sport Governing Association (NSSZ), which:
represents sporting interests;
intends to create a united sport lobby;
co-ordinates the activity of more than 36 Olympic national sport governing associations and more than 40 other non-Olympic sport governing associations.
The Permanent Court of Arbitration for Sport, organised by the National Sport Governing Association, which arbitrates certain sporting disputes (see Question 36, Main areas of litigation).
The key agreement in the contractual structure for media exploitation is the host broadcaster agreement. This is the arrangement under which, typically, a single broadcaster obtains access to a sporting venue to create the main live coverage which is exploited via various platforms throughout the world.
The Sport Act provides regulations on the disposal of broadcasting rights of sport events. The Media Act provides certain rules concerning media exploitation of sporting events. In particular, exclusive broadcasting rights concerning events with a particularly high public interest cannot be exercised in a way that excludes (Media Act):
More than 20% of Hungarian spectators from viewing the broadcasting.
The majority of the audience in one or more EU member states.
In those cases, the broadcaster with the exclusive broadcasting right must license (or sub-license) another media provider or broadcaster at market value.
Organisers also attempt to generate broadcast sponsorship revenue with advertisers, and these rights must be considered when entering into agreements with broadcasters. Rules for sponsoring contracts and PR contracts are contained in the Sport Act and the Civil Code, and related regulations in the Commercial Advertising Act No. 48 of 2008.
Sport events do not have copyright under the Copyright Act, as the event is not considered to be a creation that can be protected by copyright and a sports player is not considered to be a performer. Professional players, however, have a "playing right" under the Sport Act (see below).
Under the Sport Act, a professional player is engaged by a sport association or sport club under an employment contract. Under the contract, the player provides an exclusive licence to the association or club to use his or her playing right for the employment term in return for remuneration. On the termination of the employment contract, the playing right automatically returns to the player for no additional compensation. The playing right cannot otherwise be transferred or encumbered.
The employing club can further assign or sub-license the licence to the playing right with the player's approval by transferring the player to another sport club. The sport club can request appropriate compensation for transferring the player and licensing the playing right. The parties must agree on the transfer of the player licence of the playing right and transfer fee in a written contract, which must be filed with the governing sport association. 1% of the transfer fee must be paid to the governing sport association and 4% to fund the development of junior players.
Professional players also have the right to license television, radio or other electronic-digital broadcasting of their performance under the Sport Act. These rights, however, are transferred to the sport association or sport club of which the player is a member or employee.
How the broadcasting rights are disposed of depends on whether the sport is organised through a governing sport association:
Through a governing sport association. The association is entitled to dispose of the broadcasting rights of certain championships that it organises. The governing sport association will enter into a broadcasting agreement for those events with a broadcaster (see Question 34, Host broadcaster agreement). The governing sport associations must compensate the clubs by paying the market price of the broadcasting rights back to the clubs, retaining only a management and organising fee. Players of team sports are not usually compensated, although players of individual sports (especially in championships where participation is made by invitation) may receive individual compensation from the price of the broadcasting right.
The market price of the broadcasting right is established by reference to the:
number of broadcastings;
number of spectators;
sport results achieved by the sport club or player;
solidarity principle (for example, providing funds to develop junior players).
In the case of football, the European Football Federation (UEFA) centrally sells the broadcasting rights of the qualifying rounds for the football (soccer) World Cup and European Championship which belong to the national governing associations. Under this system, the Hungarian Football Governing Association (Magyar Labdarúgó-szövetség) (MLSZ) receives much greater income than it would through selling the same broadcasting rights by itself.
Not through a governing sport association. The organiser can, if it chooses, retain all pecuniary rights (including the broadcasting rights) of the event for itself.
The sport governing association or other organiser derives value by:
Taking exclusive control over access to the venue where the event is taking place. It can then exploit the scarcity of access to the stadium by selling:
tickets to spectators;
access to hospitality providers, advertisers, photographers and broadcasters.
The sale of marketing rights. In the absence of other proprietary rights, the organiser creates its own rights to sell. Essentially, these marketing rights are the right to associate a brand, product or service with the event. Typically the organiser will:
offer advertisers access to a clean stadium with all other advertising removed to allow advertisers, for example, to erect pitch side hoardings;
create logos and mascots representing the event and exploit its proprietary rights in those logos and mascots.
As part of this exploitation of marketing rights, the organiser often enters into commercial licence contracts with sponsors to become "official sponsors" or "official suppliers" to the event (see Question 34, Advertising agreements).
Main legal issues arising from the acquisition and ownership of rights in sporting events?
Main areas of litigation?
The Civil Code mainly governs commercial issues such as the acquisition and ownership of rights (although the Sport Act also provides some specific regulations). In the absence of specific statutory regulations it is advisable, in the acquisition and licence agreements, to:
Enter into detailed terms for acquiring and licensing rights in sporting events.
Create an effective rights protection programme to legally enforce the rights acquired.
An important issue for the rights holder is how best to promote and sell its offering. For example, the MLSZ is happy with the current system of UEFA centrally selling the broadcasting rights of the qualifying rounds for the football World and European championships (see Question 35, Broadcasting rights).
Many sport disputes are settled by the Permanent Court of Arbitration for Sport (see Question 33, National regulatory authorities). The disputing parties must accept its jurisdiction (which is often the case where the parties are players, clubs, or governing sport associations).
Some national governing sport associations (such as MLSZ, on the basis of FIFA rules) provide that the Permanent Court of Arbitration for Sport must be used as the forum for their members' disputes. The Permanent Court's decisions are not publicly available. It is not clear whether the Permanent Court's procedure is faster or more professional than the ordinary courts, and there is a risk that arbitrators may not be as independent from the parties as judges.
The Permanent Court of Arbitration for Sport cannot rule on disputes between third party investors, broadcasters, sponsors, and so on, and sport organisations. These disputes are handled by ordinary Hungarian courts. Although the available court decisions are very limited (particularly as in international contracts the parties often submit the disputes to international arbitration) it seems that the majority of court disputes concern payment disputes brought by or against investors or broadcasters or other third parties.
T +36 1 510 1110
F +36 1 510 1101
E monika.horvath@dlapiper.com
W www.dlapiper.com/hungary
Qualified. Hungary, 1992
Areas of practice. IP; film production; commercial; e-commerce.
Recent transactions
T +36 1 510 1113
F +36 1 510 1101
E zoltan.kozma@dlapiper.com
W www.dlapiper.com/hungary
Qualified. Hungary, 2005
Areas of practice. IP law (patent, copyright and trade mark law); data protection; labour law; general commercial law and administrative law; trade mark infringement; anti-counterfeiting; copyright and unfair competition (consumer protection) cases.
Recent transactions
T +36 1 510 1100
F +36 1 510 1101
E eniko.schvartz@dlapiper.com
W www.dlapiper.com/hungary
Qualified. Hungary, 2010
Areas of practice. General corporate issues; corporate housekeeping; share transfer transactions; transformations; due diligence; issues of foundations.
Recent transactions
