Tuesday, November 18, 2014

SiriusXM Suffers Another Loss When New York Judge Rules in Turtles Lawsuit

In the most recent defeat for Sirius XM in its battle to broadcast pre-1972 recordings without authorization and compensation, New York federal judge Colleen McMahon denied SiriusXM's motion for summary judgment in a second lawsuit brought by Flo & Eddie (see my prior blog for information on the other Turtles/SiriusXM action in California).

Judge McMahon refused to accept SiriusXM's argument that no public performance rights exist simplly because New York case law contains no discussion of it. She acknowledges the "accepted fact of life in the broadcast industry for the last century" is that nobody was paying royalties for public performance. Then she adds: "But acquiescence by participants in the recording industry in a status quo where recording artists and producers were not paid royalties while songwriters were does not show that they lacked an enforceable right under the common law — only that they failed to act on it."

According to Judge McMahon, there is a stronger argument that the years of judicial silence "implies exactly the opposite of what Sirius contends — not that common law copyright in sound recordings carries no right of public performance, but rather that common law copyright in sound recordings comes with the entire bundle of rights that holders of copyright in other works enjoy." She then confirms it does, and maybe goes even further than either of the California judges did in the other cases concerning pre-1972 sound recordings and finds that SiriusXM reproduced Turtles recordings in all sorts of ways, through databases, play-out servers and buffer copies, though she hedges by saying that some of these copes might not qualify as infringing reproductions. However, she then goes on to rule out the "fair use" defense and holds that SiriusXM has engaged in unfair competition and rejects a defense built upon the interstate commerce clause.

It is expected that SiriusXM will attempt an immediate appeal on this ruling. However, in the meantime, various other music users from terrestrial radio operators to digital streamers are going to be faced with some big decisions about whether or not to continue playing pre-72 music without a license from the owners of sound recordings.'

Hopefully, the tide is finally turning and this is one more small step in favor of artists and other rightsholders and the value of their sound recordings in the landscape of the future.



Wallace Collins is an entertainment and intellectual property lawyer with more than 30 years of experience based in New York. He was a recording artist for Epic Records before receiving his law degree from Fordham Law School. Tel: (212) 661-3656; www.wallacecollins.com 

Monday, October 13, 2014

What Is A Music Publishing Deal? - and Do I Really Need One?

    The term "publishing", most simply, means the business of song copyrights.  A songwriter owns 100% of his song copyright and all the related publishing rights until the writer signs those rights away. Under the law, copyright (literally, the right to make and sell copies) automatically vests in the author or creator the moment the expression of an idea is "fixed in a tangible medium." (i.e., the moment it is written down or recorded on tape.)  With respect to recorded music, there are really two copyrights: a copyright in the musical composition owned by the songwriter and a copyright in the sound of the recording owned by the recording artist (but usually transferred to the record company when a record deal is signed).

     A writer owns the copyright in his work the moment he writes it down or records it, and by law can only transfer those rights by signing a written agreement to transfer them. Therefore, a songwriter must be wary of any agreement he or she is asked to sign. Although it is not necessary, it is advisable to place a notice of copyright on all copies of the work. This consists of the symbol "c" or the word "copyright", the author's name, and the year in which the work was created, for example: " (c) John Doe 2014."

     The filing of a copyright registration form in Washington D.C. gives additional protection in so far as it establishes a record of the existence of such copyright and gives the creator the presumption of validity in the event of a lawsuit. Registration also allows for lawsuits to be commenced in Federal court and, under Federal law, allows an award of attorneys fees to the prevailing party.  To order forms and for additional information on copyright registration call (202) 707-9100 or go to www.loc.gov\copyrights. These days a songwriter can even register on line.

     As defined by the copyright law, the word "publish" most simply means "distribution of copies of a work to the public by sale or other transfer of ownership, or by rental lease, or lending". As a practical matter, music publishing consists primarily of all administrative duties, exploitation of copyrights, and collection of monies generated from the exploitation of those copyrights. If a writer makes a publishing deal and a publisher takes on these responsibilities then it "administers" the compositions. Administrative duties range from filing all the necessary registrations (i.e., copyright forms) to answering inquiries regarding the musical compositions.

     One important function of a music publisher is exploitation of a composition or "plugging" a song. Exploitation simply means seeking out different uses for musical compositions. Sometimes a music publisher will have professional quality demos prepared and send them to artists and producers to try to secure recordings. They also use these tapes to secure usage in the television, film and advertising industries.

     Equally important as exploitation is the collection of monies earned by these musical usages. Particularly in in the digital age, when transactions amount to billions and payments to fractions of pennies, the administration of song copyrights and the collection of revenues can be a complicated and massive undertaking. There are two primary sources of income for a music publisher: earnings that come from record sales (i.e., mechanical royalties from both physical and digital copies) and revenues that come from broadcast performances (i.e., performance royalties).  Mechanical royalties are collected directly from the record companies and paid to the publisher. Performance royalties are collected by performing rights organizations (e.g., ASCAP, BMI, and SESAC in the United States and different entities in each other country) and then distributed proportionably to the publisher and to the songwriter. In addition to plugging and administrative functions, it is also important to know that there is a creative side to music publishing. Since producing hit songs is in the best interest of both the writer and the publisher, good music publishers have whole departments devoted to helping writers grow and develop. The creative staff finds and signs new writers, works with them to improve their songs, pairs them up creatively with co-writers and hopes the outcome will be hit records.

     A publishing deal concerns rights and revenues. If a writer decides to do a publishing deal then the main issue for negotiation is going to be the language pertaining to the calculation and division of the rights in the copyright and division of the monies earned. In the old days, most deals were 100% copyright to the publisher and 50/50 share of the revenues because there was a concept that the "writer's share" was 50% and the "publisher's share" was 50%. This, of course, was an invention of the publishers. Legally, these terms have no such inherent meaning but their calculation is defined in each individual agreement. Most modern publishing deals, however, are referred to as "co-publishing" deals where the copyrights are co-owned 50/50 and the monies are usually calculated at around 75/25 meaning the writer gets 100% of the 50% writer's share and 50% of the publisher's 50% share for a total of 75%. It is best for the writer to insist that all calculations be made "at source" so that there are not too many charges and fees deducted off-the-top before the 75% calculation is made. Keep in mind, however, that the advance paid to the writer by the publisher is later recouped by the publisher out of the writer's share of income from the song. So, the net business effect is that the publisher pays the writer with the writer's own money to buy a share of the copyright (and the right to future income) from the writer.

     Although a writer can be his own publisher and retain 100% of the money, the larger publishers in the music business usually pay substantial advance payments to writers in order to induce them to sign a portion of their publishing rights to the publisher - and this can be a good thing for the writer. Although a deal for a single song may be done with little or no advance payment (provided there is a reversion of the song to the writer if no recording is released within a year or two), there should be a substantial advance paid ($5,000-$100,000+) to a writer for any publishing deal with a longer term (e.g., 3-5 years or more). Moreover, sometimes the length of an agreement is more than just a function of time, it might also be determined based on the number of songs delivered by the writer or, even more difficult to calculate, based on the number of songs that get recorded and released on a major label (something neither the writer nor the publisher may have any control over). 

     Publishing deals have to do with more than just the money though. Since every music publisher is different, it is important for the songwriter to assess both the business and the creative sides of a music publisher before signing any deal. Ultimately, the songwriter is trading a share of something the writer already owns 100% of (the copyright) so it is important to be mindful of what it is exchanged for by way of services and money.


Wallace Collins is an entertainment and intellectual property lawyer with more than 30 years of experience based in New York. He was a recording artist for Epic Records before receiving his law degree from Fordham Law School. Tel: (212) 661-3656; www.wallacecollins.com 

Wednesday, September 24, 2014

The Larger Ramifications of the SiriusXM Defeat in Court

Score one for the musicians: a California Federal Court Judge delivered a legal decision that could have sweeping consequences for the music industry by declaring that Flo & Eddie (of the Turtles) prevail on the issue of the public performance of their pre-1972 sound recordings in their legal action against SiriusXM.  The ongoing lawsuit seeks $100 million in damages but the money is hardly the only consequence of this ruling that could eventually disrupt the operations of the satellite radio giant as well as other services like Pandora.

           The lawsuit addressed the issue of music created before sound recordings began falling under Federal copyright protection. Sirius had taken the position that because Congress did not expressly include pre-1972 recordings when it established the performance right for sound recordings in 1995, Sirius did not have to pay royalties on pre-1972 recordings it used on its service. This is a position held by Pandora and the Digital Media Association (which includes Google among its membership) and is sometimes referred to as the “Pandora Loophole.” Since Flo & Eddie managed to get back ownership of their masters years ago, they were able to bring the case themselves without any major record company involvement (which certainly streamlined the process). SiriusXM did not seek authorization from plaintiffs nor were they paying royalties on hit songs like "Happy Together," "It Ain't Me Babe" and "She'd Rather Be With Me."  Although SiriusXM argued that interpreting California State law to cover public performance "would radically overturn decades of settled practice", the Judge granted summary judgment to the plaintiffs on the issue of whether SiriusXM violates public performance rights.

           In reaching his conclusion, Judge Gutierrez examined a California law that was enacted in 1982 and meant to address pre-1972 recordings. The statute was silent on whether “exclusive ownership” of pre-1972 sound recordings carries within it the exclusive right to publicly perform the recording. As such, the Judge had to determine whether California's law was inclusive or exclusive, and the Judge's reading of the law is that other than the exception for cover songs, there's nothing exclusive about it. The Judge held that copyright ownership of a sound recording under § 980(a)(2) of the California copyright statute includes the exclusive right to publicly perform that recording. In the ruling the Judge "infers that the legislature did not intend to further limit ownership rights, otherwise it would have indicated that intent explicitly."

           SiriusXM failed to persuade the Judge that California's law was ambiguous in the wake of the passage of new Federal copyright law, and also struck out in its contention that decades of television and radio broadcasters, restaurant and bar owners, website operators and others exploiting pre-1972 sound recordings supported its interpretation of the law. The plaintiffs relied on two prior cases (including one ruling that dealt with a website that sold songs from The Beatles for 25 cents) for the proposition that precedent supported their cause. The Judge stated that "although the breadth and specificity of cases acknowledging that exclusive ownership of a sound recording includes the right to publicly perform the recording are slight, Defendant has not directed the Court to a single case cutting against the right to public performance, even implicitly or in dicta."

           There is more to come in this case, but so far this is a huge victory whose consequences almost impossible to overstate. It definitely may be the beginning of the end of the “Pandora Loophole” and it affects many artists from Miles Davis and Duke Ellington to Bob Dylan and Neil Young, and many other great recording artists who are responsible for putting American music on the map.

           Of course, the ruling will likely be appealed as the plaintiffs eye a trial that will determine the awarding of damages. Meanwhile, the ruling could motivate SiriusXM, Pandora and many in the tech industry to start paying fairly for the use of the recordings or, more likely, it will motivate them to lobby Congress for new copyright laws that cover pre-1972 recordings. Those that are the creators and owners of pre-1972 sound recordings will need to stay vigilant. The ruling should also be read closely by other businesses including terrestrial radio operators and bars that publicly perform older music. SiriusXM is facing another lawsuit from the RIAA in California as well as more lawsuits from Flo & Eddie in other states. Pandora is also facing a lawsuit by record labels in New York. And the ruling potentially opens the floodgates to more litigation on the issue of pre-1972 music. Finally, as Wall Street begins to understand the level of liability that many of these companies have taken on the reaction will be interesting.

           Ultimately, for all pre-1972 sound recordings to be properly protected under copyright, it is the U.S. copyright law that needs to be amended and updated. Federal law preempts State law, so all sound recordings would be equally protected regardless of the language of any particular State's law. However, getting such legislation through Congress, as necessary as it is to protect the interests of the artists and labels who created and own those pre-1972 sound recordings, is bound to be a long, uphill battle.


Wallace E.J. Collins III is an entertainment and intellectual property lawyer with more than 30 years of experience based in New York. He was a recording artist for Epic Records before receiving his law degree from Fordham Law School. Tel: (212) 661-3656; www.wallacecollins.com 

Monday, September 22, 2014

PREDICTIONS FROM 1993 BILLBOARD ARTICLE: "WARNING SIGNS ON THE SUPERHIGHWAY"

Ramifications of New Technology 
[*ORIGINALLY PUBLISHED IN BILLBOARD 1993 AS
 "WARNING SIGNS ON THE SUPERHIGHWAY"]
The future in home entertainment technology is ever more rapidly approaching as headlines herald "mega-mergers" between and among cable, computer, electronics, telecommunications and entertainment conglomerates. The rapid development of interactive computer technology and the imminent availability of an infinite number of cable channels means that the electronic information superhighway is just over the horizon. The entertainment marketplace of the future could consist solely of a wall of interactive computer catalogues; consumers will go shopping with a compact disc and a credit card. With the addition of computer modems and/or fiber optic cable hook-ups, the consumer would not even have to leave home to choose music, video games, and movies stored in a central databank, and with the "virtual reality" apparatus, viewers may be able to experience the sensation of actually being in a film and partaking in a gunfight with Clint Eastwood or experience the sensation of sex with Marilyn Monroe. The ramifications of this global computerized information network, and other related technological developments, will be enormous for the entertainment industry, the legal community, and the world.
Telephone software already exists which will allow a consumer to listen to 90-second samples of a favorite recording artist's new album, and then, by touch-tone selection, order it shipped to him and have it charged to his telephone bill. Not only does this software facilitate sale of product, it compiles a consumer profile on the purchaser which can then be provided to record label marketing departments. This software has the capability, once appropriate fiber optic cable is in place, to transmit the product directly to the consumer at the push of a button.
For better or for worse, the arrival of computer driven consumption is eventually going to reshape the way business is conducted, from the way product is packaged, shipped and marketed to the way radio is programmed. Businessmen and lawyers in the entertainment industry will be confronted by new concepts in copyright and contract law not currently addressed in existing contracts. These delivery systems also raise new concerns regarding privacy and free speech.
Entertainment companies will soon be able to transmit their wares digitally instead of trucking them, dealing in the transfer of information rather than the shipment of product. Given the entertainment industry's investments in pressing plants, warehouse facilities, and distribution networks, this transition may not be an easy one. However, such a system will ultimately economize on packaging and transportation expenses. It will also eliminate the ecological issues surrounding the wasted plastic and paper used to package CDs and videocassettes.
With the advent of electronic distribution of music, the most basic concepts that govern contractual relationships will be effected. Fundamental movie and record contract issues could be completely eliminated from recording contracts.
With the coming of the one-world, global marketplace, transfer could be instantaneous and worldwide, and the issue of reduced "foreign" royalty rates payable to actors, artists and performers could be abolished. Sales figures for product could be compiled with absolute accuracy, and sales charts released on a daily rather than a weekly basis. Whether retail record stores and video outlets will disappear completely or continue to survive (the way radio continued to endure despite the advent of television, or people continue to go to the movies even after the arrival of home video) remains to be seen.
A particularly troublesome issue with respect to direct computer driven consumption is how to prevent the consumer from copying the transmission and circulating it (the way some computer software programs are currently copied from PC to PC in any given business office). An anti-copying code still needs to be developed and programmed into each album or movie transmission.
As we move into the future, barriers will continue to come down between telephone companies, cable TV, and video programming companies. The development of digital fiber optic networks will provide consumers with more choices and easier access to hundreds of channels as well as electronic home delivery of audio and video programs. Most troublesome is the fact that digital technology will make it possible for the consumer to make a virtually identical copy of any audio transmission royalty-free. Record companies and artists will increasingly find their products being transmitted and sold by way of cable networks or via computer modems and, yet, be precluded from collecting any revenue because such transmissions will arguably be deemed to be "broadcasts". As previously mentioned, even though these new broadcast and cable companies transmit record company product to consumers for their own commercial gain, they have no clear obligation either to secure record company permission or to compensate the label or the artist for the commercial use they make of the copyrighted works.
One apparent way to circumvent this problem would be for each major record label and movie company to develop its own cable TV channel which would allow viewers to order movies, albums and other related merchandise directly. Then, for example, the record label or movie company could charge the consumer a retail price equivalent for the transmission of a particular album.
Although such a solution has its obvious benefits, there is a downside. Operation of such a venture could prove to be costly and burdensome, specifically for a record label. In addition, there would still be nothing preventing a cable operator unaffiliated with a particular artist's label from establishing its own competing home-shopping music cable network, and then undercutting the prices offered by the artist's source label. In fact, it would be fairly easy for such an unaffiliated competitor to offer the transmission of a particular artist's album at a lower price because it does not have to bear the record company's financial investment in recording costs. Since the competitor would argue that it is merely broadcasting the product, not selling copies, the artist and its label could be without legal recourse. The competitor would only be liable for performance royalties which, at this point in time, are not payable on the sound recording.
Electronic distribution also has certain disturbing ramifications of the "Big Brother" variety. Popular culture has always thrived on decentralization - on garage bands, basement tapes, and independent film releases. If the larger entertainment conglomerates control the central databanks, what would the consequences be for independent releases and street music? Government intervention analogous to FCC regulation may be necessary to insure fair access to the databanks. New technology raises other questions: - What effect will credit card ordering directly through computer or cable hook-ups have on rights of privacy?; Would the databank also compile a wealth of personal information on each consumer?; If so, who will have access to this information?; Will centralized distribution make suppression of disturbing or "obscene" work much easier?; Will works be automatically transmitted in edited form? If so, who will decide what is suppressed and how a work is edited?
With respect to interactive technology, myriad intellectual property and related legal issues will be raised. If the consumer is enabled to manipulate the characters, the story line, and the action in a movie, movie companies need to consider how all of the alternative versions would be copyrighted. Since, in effect, the viewer would now be the creator of some essential portion of the work, the viewer might have an argument that certain derivative rights vest in him by virtue of his contribution to the work.
Interactive technology pundits predict that, with the advent of "virtual reality" apparatus, viewers will be able to truly experience a film by inserting themselves into the action and manipulating it such that the viewer could partake in a gunfight with Clint Eastwood, a prize fight with Sylvester Stallone, or experience the sensation of sex with Marilyn Monroe. As a preliminary matter, the manufacturers of the applicable interactive software would need to get appropriate clearance from the movie companies before altering the copyrighted works. However, with the proliferation of multi-national, vertically-integrated entertainment conglomerates, the company doing the altering might already be the owner of the copyright in the film (as was the case with "colorization" where Ted Turner had purchased certain films and later had them colorized). Nevertheless, supplemental legal issues would still be raised: If the viewer were to knockout Stallone, would this in some way subject the viewer to legal action by Stallone for disparagement of the actor? In the case of the Marilyn Monroe scenario, could intercourse with her image be said to violate certain privacy rights in some way, and who would assert those rights?
The ramifications of the new computer and communications technologies are simultaneously exciting and frightening. The next wave of technological developments is almost upon us and it is best that the entertainment industry and the legal profession confront the pertinent issues, review the relevant revenue streams, and resolve the outstanding legal issues now in order to capitalize on the coming changes as expeditiously as possible.
Wallace Collins is an entertainment lawyer. Tel: (212) 661-3656; www.wallacecollins.com. He was a recording artist for Epic Records before attending Fordham Law School. 

Wednesday, September 3, 2014

Judicial Approval of Contracts With Minors

As a recent Wall Street Journal cover story pointed out, technology start-ups and other computer software companies like Apple and Google often compete to employ young teenage whiz kids to write code or create new apps. With media giants like Disney and Viacom creating shows featuring younger and younger performers, and YouTube, Spotify and other online companies hosting content by eager young creators, content from minors is in ever-increasing demand by corporations. All of this raises the predicament of employing or dealing with contracts with minors (or contracts which involve a contracting party under the age of 18). I have handled many court proceedings concerning contracts with minors so the following might be of interest to my colleagues in legal departments of tech firms.

A minor may disaffirm a contract at any time during minority or upon reaching majority. Without a valid written agreement the employment is "at will" under the law of most states which means the minor can depart at any time. Copyright law, which is applicable to computer code, requires a signed writing to transfer copyrights and applies to authors of all ages, so without a valid written agreement the content created by the minor may not be validly transferred from its author to the employer. The dilemma created by a minor's ability to disaffirm a contract is that it may seriously jeopardize the employer's financial investment in the services of the minor.

The mere exercise of having the parent or guardian of the minor co-sign, approve or "guarantee" the contract does not resolve the problem. The minor may still repudiate the contract on the ground of infancy, asserting that the parent or guardian lacked authority to make the contract. In some jurisdictions, courts deem it against public policy to even enforce such guarantee language against the parent or guardian since it would subvert the purpose of the laws concerning the judicial approval of contracts with minors. So-called "working papers" under state law might work for purposes of a fast food chain or similar hourly wage employment but probably are insufficient for a tech company's purposes.

Although many tech companies may rely on the fact that they believe the minor is an employee creating intellectual property for the company, this may not be sufficient to transfer rights to the company in the computer code written by the teenage whiz kid as, for example, "work made for hire" under U.S. copyright law. It is beyond the scope of this article to address all of the factors courts consider when determining the issue of work for hire and the ramifications of the various outcomes of the cases concerning employers and computer programmers. Suffice to say that relying on the work for hire doctrine is an uncertain path for a tech company (all the more so when dealing with a minor).

State Laws

Several states, including New York and California, have laws specifically concerning judicial approval of contracts with minors. New York's Arts and Cultural Affairs Law §35.03 provides for judicial approval of certain contracts for services of "minors" under the age of 18. The procedure involved can be somewhat arduous to navigate, and may prove to be a difficult gauntlet to run for a lawyer inexperienced in this area. However, tech and media companies employing minors or contracting with minors should investigate the efficacy of pursuing court approval to protect their investment.

Once the court judicially approves the contract, the minor is held to a standard of adult responsibility for its contractual obligations assuring the employer company that it will get what it bargained for and that the contract is legally valid.

As a practical matter, a proceeding for judicial approval of a minor's contract in New York is commenced by the filing of a verified petition. It can be filed by a parent, the guardian, a relative of the minor or any interested person or entity such as the employer. The petition must contain a statement of the length of the employment term, compensation, and all other relevant, material terms of the agreement. A complete copy of the proposed contract must be annexed to the petition together with affidavits from the parents and/or guardians which consent to the petition and support the facts.
In addition to identifying the details of the nature of the minor's employment and the compensation to be paid, the petition must also contain a statement of who, other than the minor, is entitled to the minor's earnings and facts regarding the property and financial circumstances of the parent or parents so entitled. The petition may nominate a person to be appointed as limited guardian solely for purposes of establishing a trust account for the proceeding and should set forth the reasons why the person nominated would be proper and suitable.

Although a lawyer is usually appointed, a parent or other petitioner is not precluded from being appointed as limited guardian by reason of his or her interest in any part of the minor's earnings or in the contract provided such interest is disclosed. The court will designate how much is to be set aside and saved for the minor under guardianship until the minor becomes 18 years old. The court also has the option to appoint a special guardian to represent the interests of the minor at any time after the petition is filed.

As directed by the court, before the time at which the petition is noticed to be heard certain persons (other than the petitioner and anyone who has joined in the petition) must be served with an order to show cause why the petition should not be granted: (1) the minor; (2) the parents of the minor; (3) the minor's guardian(s); (4) each party to the contract; (5) any person having the care and custody of the minor; (6) the person with whom the minor resides; and, (7) the minor's spouse.

An order granting judicial approval of a contract for the services of a minor will rarely be granted on the papers alone. Usually a brief hearing is held at which the minor, the parent(s) and the various other interested parties may be questioned by the judge regarding the contract. Courts may require provisions in the court's order concerning how many hours the minor can work and may require that the employer provide tutors if regular schooling will be disrupted by the employment. Most terms and conditions of each arrangement will be affirmed as long as they are found by the court to be reasonable and not contrary to the best interests of the minor. Once the court does grant approval, an order will be issued which will, in effect, declare the minor an adult for purposes of fulfilling his or her contractual obligations.

California law concerning the judicial approval of minors' contract for artistic or creative services (Ca. Family Code §6750, et seq.), although similar, differs in certain respects. For instance, under California law there is no limitation on the length of the term of a minor's contract whereas in New York the limit is seven years. A hearing is usually required in California as in New York but under California law a maximum of only 50 percent of net earnings will be set aside until the minor becomes 18 years old whereas New York has no limit on what portion the court can direct to be set aside.

Once the court does grant approval, an order will be issued which will, in effect, declare the minor an adult for purposes of fulfilling his or her contractual obligations. Then all the results of the minor's services, including any copyrights in code or apps created by a minor during employment by the start-up or tech company, will be properly transferred as bargained for by the employer.
  


Wallace E.J. Collins III is an entertainment and intellectual property lawyer with more than 30 years of experience based in New York. He was a recording artist for Epic Records before receiving his law degree from Fordham Law School. Tel: (212) 661-3656; www.wallacecollins.com 

*reprinted with permission of The New York Law Journal 2014

Wednesday, August 20, 2014

THE IMPORTANCE OF CREATING AN INTERNAL BAND CONTRACT

     Over the years there have been many lawsuits between and among the members of various musical bands. These lawsuits have concerned everything from disputes over the distribution of money to the right of departing members to use (or not to use) the band name in connection with ongoing endeavors. In most cases, it would have been better to be safe than sorry, and get the understandings of the band members in writing when everyone was in agreement just so all the parties remember what they agreed to at the start.

     The internal group member contract between the members of a band is fundamentally important, but many musical groups ignore this crucial early step. When two or more people associate for the purpose doing business they create a partnership in the eyes of the law. General partnership law applies to the association unless a written agreement states otherwise. General partnership law provides, among other things, that all partners equally own partnership property and share in profits and losses, that any partner can contractually bind the partnership and that each partner is fully liable for the debts of the partnership. In the case of most musical groups, a written agreement setting forth the arrangement between and among the group members as partners is preferable to general partnership law.

     A band agreement can address issues such as who owns the group name (and whether and in what capacity a leaving member can use the group name), who owns what property (including not only sound equipment but intangible property such as recording agreements and intellectual property such as the songs and the recordings created by the group), and how profits and losses are divided. Since it almost goes without saying that members of a band inevitably leave and groups inevitably disband, it is important to structure an inter-band agreement in the early stages of a career. It will function in a sense like a prenuptial agreement when matters start to disintegrate, and it can make the break-up process less painful.

     Some bands may deal with this agreement among themselves and some bands may have a lawyer prepare a basic inter-band agreement. If it is a fairly equal partnership where all members are writing and performing and sharing equally, it is a fairly simple process. However, where some members are songwriters and others are not and/or where one member claims ownership in the name or another makes significantly larger financial contributions than the others, it can become a complicated process. If the band cannot work it out among themselves, they can either sign a conflict waiver permitting the one attorney to act solely as scribe (and not as advisor) on behalf of the group, or each member of the group may need to get his or her own lawyer to protect each respective member's interests. Like it or not, as artistic and creative as forming a band can be, this is a business and it is wise to recognize that and deal with it. These inter-band issues are better dealt with at the beginning when everyone is optimistic and excited rather than later when tempers flare and bitterness pervades as egos clash.

     A typical band contract will address certain fundamental group issues. One important issue is who owns the group name if one member leaves or if a group dissolves which group of members are entitled to use the name. Under partnership law the partners would be the joint owners of the name and any member would probably be permitted to use the name (or maybe no members would be allowed to use the name once the partnership is deemed dissolved). Trademark rights are determined based on the "use" of a mark (not on who thought of the name) so each of the members of the group would be an equal co-owner of the group name under trademark law. The end result under either partnership law or trademark law might be impractical.

     In most cases, the band agreement will state that if a particular founding member was the creator of the group name then only a group comprised of that member and at least one other member can use the name. This will apply whether one other member leaves or if the group disbands and only the founding member and one other reform the group. There are as many different ways this provision can be drafted as there are different group names.  When a group member leaves, the remaining members are going to want to keep the group name and are not going to want the leaving member to dilute its value or confuse the public by using it in any way. The band agreement provision may say that a leaving member cannot use the name at all or that the leaving member can only mention that he was "formerly" a member of the group (provided that such credit is printed smaller than the member's name or his new group's name, etc.).
         
     Rights in the group name may also concern revenues generated in addition to rights, specifically as they concern the sale of merchandise (e.g., hats, t-shirts, calendars and other products and paraphernalia). The band agreement should have a "Buy-Out/Pay Out" provision which would deal with this financial aspect of the group name.

     The band agreement will need to contain provisions regarding the sharing of profits and losses. One provision may pertain to revenues earned during the term while each member is in the group and another may pertain after the departure of a member or the demise of the group. In most cases, a group just starting out will have a provision that all profits from the group are shared equally between all members with an exclusion for songwriting monies (which each of the respective songwriter members would keep for themselves). Where an established group adds new members the provision may provide that a new member gets a smaller percentage than the founding members.

     However, in most cases, during the term there is not a problem determining appropriate revenue shares. The more complicated problem of revenue division arises after a member departs. The agreement may provide that the leaving member is entitled to his full partnership share of profits earned during his tenure but a reduced percentage (or no percentage) of profits derived from activities after his departure - or the agreement may provide for a reduced percentage for a short period of time after departure (e.g., 90 days) and then nothing thereafter. This is an easier issue to remedy as it relates to live performances and sales of merchandise during those performances than it is as it relates to record royalties. The group needs to determine what happens, for example, when a group member performs on 3 albums but leaves before the fourth album is recorded. Although it might be acceptable to refuse to pay the leaving member any royalties on the fourth and future albums recorded by the group under the record contract the leaving member signed as part of the group, it might not be fair to refuse to pay that leaving member his share of royalties from the 3 albums that he did record with the band. Of course, this might vary in the agreement depending on whether the leaving member quit or was fired.  

     Another important financial issue is the question of the leaving member's share of partnership property such as band recording equipment or a group sound system. Again, the agreement might specify a monetary payout to the leaving member if he is terminated but forfeiture if the leaving member quits. If merchandise with the leaving members name and likeness still in inventory is sold after the member leaves, a decision will have to be made about whether and how much the departed member might receive for the use of his name and likeness.

     The issue of control is also very important to deal with in inter-band contract. In most cases, each member will have an equal vote and a majority will rule. However, there are as many variations as there are bands. For example, some acts might require unanimous agreement or an important member may have two (2) votes and/or the band’s manager may have a tie-breaking vote. The agreement may also provide that certain matters such as requiring financial contributions from group members or incurring debts on behalf of the band require a unanimous vote. Again, there are endless variations including situations where a particular member makes all of the decisions or where new members do not have a vote on band business. One interesting inter-band arrangement was that of The Beatles.  In answer to that age-old question, "no", Ringo did not get less. In fact, my understanding of their arrangement was that it was what might be called a reverse democracy: each member had one vote but if any member voted against doing something then the band would not do it. In other words, their arrangement required unanimous consent to proceed with an activity.

     Another issue of control that must be decided for the band agreement concerns the hiring and firing of band members: how votes are calculated (e.g., will each member get one vote or will a particular member's vote count double) and how many votes are needed (e.g., a majority or a unanimous vote) to fire a group member and/or hire a new member. In most cases, a new member voted into the group will then be required to sign on to the internal group contract. It must also be decided how to vote on any amendments to the band agreement since this may materially effect the relationship between the members after the group has started. In most cases, a majority vote will be deemed determinative but some members may prefer a unanimous vote on such things as amending the agreement (as well as hiring or firing). This will have to be decided between and among the members of the group.

     Finally, the group’s internal agreement should contain a comprehensive Buy-out/Pay-out provision that deals with departing members. In most cases, whether the leaving member quits or is fired the agreement will provide that the leaving member waives all rights in the intangible assets of the partnership (e.g., the group name, the group contracts, etc.). If the member quits, he might waive any right to and benefit derived from the hard assets such as band sound equipment. If the leaving member is fired, the agreement might provide that he or she is entitled to the pro rata percentage of the current value of the hard assets. With respect to this payout, the band agreement may provide that if the valuation exceeds a certain amount (e.g., $25,000.00) or would put the band partnership in financial distress, the payout would be in a certain number of equal monthly installments (e.g., over 12 months).

     Again, this Buy-out/Pay-out provision can be as simple or as complicated as the band members deem necessary. There are as many variations in this as there are differences in personalities between the members of a group. Each member and each group must find its own balance.

     Inter-band issues and disputes are many and varied. Recently, a member of the Eagles sued the remaining members saying he was forced out of the Eagles’ corporation by the other shareholders (and invoked provisions of the California corporate law pertaining to minority shareholders in close corporations). Years ago an ex-member of The Black Crowes sued his former band mates claiming that he was entitled to an equal share of all the money they made after they threw him out of the band. His contract claim was based on nothing more than a pie chart drawn on a napkin. Legend has it that, years before while eating at a dinner after a band rehearsal, each member had signed his name on his slice of the "pie" drawn on the napkin allegedly agreeing that they would stay together and share all of the money equally come what may. Of course, when circumstances changed the fired member used that napkin to assert his rights.

     It is difficult to form a good band and to achieve a successful career in the music business. Any group of two or more musicians working together would be well-advised to create and sign a good Internal Band Contract so that the band does not later self-destruct over money and ego issues and forfeit its hard-earned career success. In a perfect world, each member could afford its own lawyer to quickly and inexpensively prepare and sign such an agreement. In the real world, that may not be the case. In any event, some kind of basic band agreement is a good starting point for any new band.

Wallace Collins is a New York lawyer specializing in entertainment, copyright, trademark and internet law. He was a recording artist for Epic Records before attending Fordham Law School. Tel:(212) 661-3656 / www.wallacecollins.com 




Friday, August 8, 2014

JAY Z's LAWSUIT SUFFERS SETBACK DUE TO SUPREME COURT's RAGING BULL CASE

According to Billboard, history might record Jay Z as being one of the first victims of the U.S. Supreme Court’s decision last May to allow Paula Petrella to sue MGM and 20th Century Fox over the Martin Scorsese film, Raging Bull. In a copyright dispute over the movie "Raging Bull", the U.S. Supreme Court held that the case could continue despite the substantial passage of time, or what is legally referred to as the “laches” defense. In a 6-3 decision the Court held that plaintiff Paula Petrella, daughter of the late screenwriter Frank Petrella, did not wait too long to file her lawsuit against MGM claiming an interest in the film. Now, based on the Supreme Court’s decision, the Judge in Jay Z’s case has reversed an earlier ruling limiting the scope of the lawsuit and opened the door to the plaintiff recovering profits from the exploitation of Jay Z’s recording of “Big Pimpin.”


In the “Raging Bull” case, the plaintiff's father had collaborated with the legendary boxer Jake LaMotta on a book and several screenplays which were the basis for the Oscar-winning movie. When the plaintiff's father died in 1981 the copyrights were inherited by his daughter. His daughter sued MGM in 2009 seeking royalties from continuing commercial use of the film. First, a Federal judge had held that she had waited too long because she had been aware of the potential to file a lawsuit as early as 1991. Then, the 9th U.S. Circuit Court of Appeals agreed, relying on the studio's argument that the plaintiff's delay of nearly two decades in bringing the case was unreasonable. Now, however, the Supreme Court has reversed and is providing plaintiff with the opportunity to continue her copyright infringement lawsuit. 

Jay Z has been involved in a complicated, long-running lawsuit over his sampling of “Khosara, Khosara,” from the 1960 Egyptian film Fata Ahlami, used in his 2000 mega-hit song, “Big Pimpin.” The plaintiff in the case is the nephew of late Egyptian composer Baligh Hamdi who alleges that Jay Z mutilated the original song. Although Judge Snyder in Jay Z’s case had previously limited the scope of the lawsuit based on laches, due to the Supreme Court’s “Raging Bull” decision she recently altered her order. The Judge stated that the Supreme Court’s decision “represents a substantial change in the law governing laches,” and applying it to the lawsuit over “Big Pimpin,” opens the door to the plaintiff recovering profits from the recent exploitation of “Big Pimpin.” The Judge vacated her prior holding that laches bars plaintiff’s claims. The Supreme Court held that in “extraor­dinary circumstances,” laches could still bar a copyright plaintiff from obtaining certain types of relief, but Judge Snyder rejected Jay Z’s arguments that the death of a key witness and the substantial investment in “Big Pimpin” rises to that level. The Judge in Jay Z’s case refused to bar the plaintiff from pursu­ing profits at this stage, but did not rule it out at a later stage after further investigation in the case.

For a long time, film and television studios and major record companies have relied on the legal doctrine of unreasonable delay to prevent relatives, estates, and other claimants from bringing copyright claims years or even decades after the products had been released. The statute of limitations under US copyright law requires that lawsuits must be commenced within three years of an infringing act and every new release of a product and the ongoing exploitation of a copyright essentially resets the three year clock for copyright purposes. In other words, if a plaintiff sued, even after decades, they would only be entitled to damages going back three years (although they could possibly secure a share of income going forward into the future). However, many cases were dismissed under other legal arguments, such as laches, which would permit a Court to dismiss a case brought too many years after the original infringing act (which, in effect, would nullify the three year rolling statute of limitations).

What the case law recognizes now is that those who, for whatever reason, might have been unable (or unaware of their right) to commence a lawsuit for their share of copyright income now have a foot in the door. The rolling three-year copyright protection is fair to artists, authors and other creators of copyrights, and gives them incentive to create their works and the right to fight for a fair share of the income derived from the use and exploitation thereof.

Wallace Collins is a New York lawyer specializing in entertainment, copyright, trademark and internet law. He was a recording artist for Epic Records before attending Fordham Law School.     T:(212)661-3656 / www.wallacecollins.com

Tuesday, August 5, 2014

PRINCE’s DEAL WITH WARNER BROTHERS THE START OF THE RIPPLE EFFECT OF THE ISSUE OF COPYRIGHT TERMINATIONS UNDER U.S. COPYRIGHT LAW.

Just a few  year ago the headlines in the music business trades were touting the story that Prince had returned to Warner Brothers Records after 18 years with a revolutionary new deal that would see him regain ownership of his back catalog of recordings. As with all things Prince, it was cutting edge. This Prince/Warner Brothers deal marked a new era as the ability to terminate master recording copyright after 35 years was granted in the Copyright Revision Act of 1976 and became effective in 1978, the year that Prince's debut album came out. 

Just as the record business has been staggering back to its feet after the digital assault started by Napster over a decade ago, another hard blow to the record industry business model is starting to have ripple effects. Recording artists and songwriters from 1978 and after are now entitled to start terminating their contractual transfers and demanding back their copyrights. The 1976 Copyright Act, in a provision that has generally been overlooked until now, provides for the termination of copyright transfers. Even if an artist or songwriter signed a contract with a record company or music publisher that purports to transfer all rights in a work in perpetuity, the Copyright Act provides that the author can terminate that grant and demand that the rights revert to the author in a shorter period of time. This is a great opportunity for artists and songwriters to get a second bite at the apple, so to speak, and get a better share of the income earned from their creative works. 

Prince was apparently right on the cutting edge of this copyright termination issue. Generally speaking, for copyright grants made on or after January 1, 1978 (the effective date of the 1976 Copyright Act) the termination period is 35 years under Section 203 of the Copyright Act. For pre-1978 works the termination period is 56 years after copyright was originally secured under Section 304. For grants on or after 1978, termination may be exercised anytime during a 5 year period beginning at the end of 35 years from the execution of the grant or, if the grant concerns the right of publication of the work, then the period begins on the sooner of 35 years after publication or 40 years after execution of the grant. Although there are certain formalities which must be complied with to effectuate transfer, this essentially means that recording artists and songwriters can start exercising their right of termination as soon as 2013 – which may effectively decimate many record company and music publishing catalogs.  

Back when the 1976 Copyright Act was drafted few could envision a world where the artists might not need the record companies to finance, manufacture, promote, store and distribute their records. Back then the expectation was that, although any particular artist could exercise the termination right, what would effectively happen is that the label and artist would simply be forced to renegotiate a deal to continue working together. Now in the digital age, however, this is no longer true. Any artist can demand back their masters and then simply offer them on their own website or license the rights to an online aggregator with little or no expense. This is particularly true in the case of catalog recordings since the artist would not even need the record company to finance the recording costs. The more digital the music business becomes the more obsolete the large record labels become for established artists. High profile artists with already established fan bases and large catalogs such as Blondie, the Cars, Bruce Springsteen and others probably have no need for much in the way of advertising and marketing of their recordings, and certainly no need for manufacturing, distributing or warehousing of the product. Simple ownership and possession of the digitized masters would be sufficient.

There is one scenario that does bode well for record companies in that it may steer even established artists to follow the renegotiation route as Prince has done. Those familiar with record contracts know that, unlike song publishing contracts which generally provide for the assignment and transfer of a song copyright to the publisher, most record contracts provide that the sound recording is created as a “work for hire” for the record label. Under the 1976 Copyright Act the termination provision is not applicable to a genuine work for hire grant. However, this does not preclude recording artists from exercising their right of termination. Just a few years ago I litigated a case where the Court held that a sound recording does not qualify as a work for hire. Without getting into all the applicable legal employer/employee issues involved, there is a great deal of case law which addresses the subject of “work for hire” and holds that whether a work created by an employee is a work for hire or not depends on various factors other than just the language of the contract. This area of law is ripe for litigation by recording artists who want to exercise their termination rights where the facts suggest that no genuine work for hire relationship ever existed. Although the landmark case has yet to be fought, from what I have seen it appears that in most cases the artist would prevail over the record company on this point. However, artist like Prince as well as label executives have also realized that the wiser course may be to negotiate the reversions and retain control of issuing artists' catalog eligible for copyright terminations.

The termination rights of an artist or songwriter are generally subject to a 5 year window. Termination must be made effective within the termination window or the right to terminate the grant is forfeited. To be effective, the artist or songwriter must serve a written notice of termination on the original record company or publisher (or its successor) no more than 10 and no less than 2 years prior to the effective date stated in the notice. The notice of termination must state the effective date of termination. Perfection of the termination requires that a copy of the written notice also be filed with the U.S. Copyright Office prior to the effective date of termination

Although the termination rights of an artist under the 1976 Copyright Act would only be effective for the U.S. territory, the size of the U.S. consumer market for recorded music still makes this a valuable right to reclaim. However, what is good for the artist might further erode the influence of the major record labels and prove detrimental to the industry in the future, so labels would be well advised to start planning for the onslaught and try to forge deals like Prince has done with Warner Brothers.    


Wallace Collins is a New York lawyer specializing in entertainment, copyright, trademark and internet law. He was a recording artist for Epic Records before attending Fordham LawSchool. T:(212) 661-3656 / www.wallacecollins.com

Wednesday, July 23, 2014

American Idol Lawsuit Against Sony Sheds Light On Some Controversial Accounting Practices At Major Labels

19 Entertainment, the record company founded by “American Idol” creator Simon Fuller, has sued Sony Music Entertainment for allegedly cheating artists such as Carrie Underwood and Kelly Clarkson out of monies due to them. The lawsuit sheds light on some controversial accounting practices at the major labels and explores the minefield that is the various incomes streams that now comprise the modern music business. Issues raised include how a major label accounts for revenue generated from platforms like Spotify and iTunes, how advertising expenditures are treated, and whether Sony is required to share proceeds from battles on the copyright litigation front.

Copyright Litigation: Sony says its contracts with 19 concerning certain American Idol alumni provides for 19 to share in excess recoveries only from legal proceedings that Sony institutes in the name of 19 or a particular artist. Sony argues that this provision does not apply to proceedings that are brought in Sony’s name, including those aimed at stopping the broad-based copyright infringement of Sony’s catalog such as the action brought against the file-sharing website Limewire which settled for $105 million. 19’s position is that the contract gives Sony the right to sue in the artists' names and compel cooperation from them which logically necessitates that artists be compensated from the proceeds of such copyright infringement lawsuits. 19 maintains that Sony has many ways to bring a  lawsuit and that the manner in which Sony starts a litigation is of no consequence to 19’s right to receive a portion of any money which is attributable to the infringement of a particular 19 artist’s record.

Streaming Platforms: 19 claims that Sony underpays artists by paying the lower of two royalty rates on streaming income. Specifically, Sony treats music exploited on services like Spotify as "sales" or "distributions" rather than "broadcasts" or "transmissions." The effect of doing this according to 19 is to account for such deliveries as no different than downloads purchased. Sony says artist royalties are contractually tied to the language used in the major label's licensing deals with third party services. If that was not so, Sony argues, there would be no purpose in setting up a contract with two different royalty rates as Sony simply would be obligated to pay the higher rate. Sony argues that the language would be meaningless if it never had the possibility of treating streaming income as distributions. In opposition, 19 alleges that Sony is acting in bad faith by mischaracterizing what is happening in streaming which “robs 19 of the fruits of the Recording Agreements by purposefully avoiding using the correct operative words when Sony knew a 'broadcast' or 'transmission' was precisely what was occurring."

Royalty Escalators: The lawsuit also addresses what happens when consumers go to iTunes and buy individual tracks off an album. Though many of the songs were not released as "singles" per se, Sony treats them as singles to allegedly avoid having them count towards album sales that would trigger royalty escalators for the recording artists. Again, Sony points to the "unambiguous language" of the agreements: "If the parties intended multiple separate sales of Records that are not Albums to count as an Album, they would have said so" states Sony.  Sony says the interpretation that multiple individual tracks sold should be grouped as partial album sales "leads to absurd results," calculating the economic consequences being at most just "two dollars and change" even if millions of records were sold. 19 argues that its audit calculated an underpayment of $960,000 thanks to this practice, and further states: "It's easy to see that the labels can come out 20 percent to 40 percent (or even more) ahead if they sell 11 to 13 tracks individually to the same or multiple buyers, rather than the entire album in a single transaction to a single buyer."

Simon Fuller’s company 19 is alternatively looking to bring a claim against Sony for breaching its duty of good faith and fair dealing by allowing iTunes and other download providers to permit the "disaggregation of the Album format," allowing individual tracks to be sold for the alleged benefit of Sony and to the detriment of 19 and its artists. But according to Sony, "19’s assertion that the Agreements did not contemplate the changes to the music industry caused by the rise of individual track downloads is refuted by the fact...that all of the Agreements were executed after individual track downloads became a fixture in the music industry."

This lawsuit is still in its early stages but, whatever the outcome, it is sure to have important ramifications for the music business.



WALLACE COLLINS is a New York lawyer specializing in entertainment and intellectual property law.  He was a recording artist for Epic Records before attending Fordham Law School. T: (212) 661-3656.  www.wallacecollins.com

Wednesday, June 18, 2014

What YouTube's Ultimatum Means for Content Providers

YouTube announced that in a matter of days it may begin blocking the videos of some independent record label artists who have refused to sign licensing terms for the platform’s new service. Moreover, indie labels and other content creators who do not sign up to the paid tier will be kicked out of YouTube's ad-supported monetization scheme. In other words, YouTube will no longer pay unless you accept their new payment terms. The move by YouTube will not only affect small, unknown artists but popular musicians such as Adele and the Arctic Monkeys who could have thousands of videos on YouTube blocked if a deal is not reached. The new service, which is expected to launch later this summer, would allow users to watch videos or listen to music without advertisements on any device – even when it’s not connected to the internet – for a fee. Another downside of the new policy is that YouTube will not use its copyright algorithms to blacklist infringing content leaving content creators to hunt through the massive site and issue takedown requests on their own. Finally, it seems YouTube is offering unfavorable and non-negotiable terms which undercut the fees paid by Spotify, Rdio and other streaming services as well as being less generous than the money paid to the major labels Sony, Universal and Warners. Seems like another David v. Goliath battle facing the artists in the entertainment community.

Richard Bengloff, the president of the American Association of Independent Music (A2IM), has stated that “the music licensing system is broken” and he illustrates by invoking none other than Justin Bieber: “Who said that if Koko Taylor, who is an eight-time nominated Grammy artist, and Justin Bieber release a song, that they should get paid differently?” A2IM, he says, is in favor of a compulsory statutory license that treats every copyright the same, not a free market solution as was often mentioned in recent congressional hearing. So far 2014 has been the year that licensing became a hot topic on Capitol Hill. The House Judiciary Committee held hearings, the Copyright Office is considering consent decrees and the FTC is fielding complaints from independents on how YouTube is allegedly treating them inequitably. “We filed our paper with the copyright office two weeks ago and we got a lot of reactions from that. I filed papers against YouTube with the FTC a week ago” says Bengloff.

Many artists, songwriters and other content creators would most likely agree that the monetary rewards for use and exploitation of their music have greatly diminished over the past decade while the actual access and use of music by the public has become more expansive and pervasive. Certainly, the compensation to creators has not kept pace with the extent of digital exploitation by services like YouTube, Spotify and others. This is particularly true in the streaming arena where these companies depend entirely on the music content (not unlike music and terrestrial radio from decades past, and still now into the present).

YouTube executives say that nearly 90% of the music industry, including large record labels such as Universal Music Group, Sony Music Entertainment and Warner Music, have signed the new service terms. YouTube has not revealed the specifics of the new licensing agreements. However, as part of their business model the major labels tend to endeavor to make the per-stream rate as low as possible so they can give the artist as little money as possible. It has also been alleged that there is something called a “listener hour guarantee” provision in these deals which the major labels know is going to up their compensation by about 40% because it is calculated per listener hour, not per track. Since it is not attributable to a specific track the artist will not be accounted to for any royalty for those uses. Finally, these major label deals often have a minimum annual guarantee or “advance” built in to them. This way, if the majors expect that a particular service might not reach a level of business sufficient to recoup, the labels will still benefit financially. This is known as “digital breakage” and the majors also do not share any of that money with their artists.

The most serious problem facing the artist community is that, at some point, it becomes economically unfeasible to pursue a career as an artist, songwriter or musician. Of course, as has been the case for many decades, most musicians barely survived without the dreaded day job. However, this extreme downward pressure on the creators of original audio and audio/visual content may force matters to a breaking point the likes of which the creative community has never seen.


One of the most valuable assets in the US economy is the intellectual property rights created by its citizens whether they work alone or as part of big companies. It is only fair that the laws respect the creative works of singers, songwriters and musicians as much as the laws protect the intellectual property rights of the computer giants, communications conglomerates and other tech companies.  The bottom line is that artists, songwriters and other music content creators are getting a smaller and smaller slice of the monetary pie even as it appears that music is becoming more and more accessible and available and going into more and more devices for public consumption. The artist community needs to stand together and make sure that whatever deal is ultimately struck between the relevant parties it is sufficient to sustain artists and other content creators alongside the communications and tech giants that have built their business models on the backs of the artists.
          
WALLACE COLLINS is a New York lawyer specializing in entertainment and intellectual property law.  He was a recording artist for Epic Records before attending Fordham Law School. T: (212) 661 3656;   www.wallacecollins.com

Thursday, June 5, 2014

Contracts With Minors: Protecting Your Child's Talent Assets

If your son or daughter is an aspiring entertainer, computer code writer, app designer or video game whiz kid, this article might be of interest. With media giants like Disney and Viacom/Nickelodeon creating shows featuring younger and younger performers for the adolescent and ‘tween demographic, and YouTube, Spotify and other online companies hosting content by eager young creators, child stars and teenage creators are in ever-increasing demand. Moreover, technology companies often employ young teenage whiz kids to write code and develop video games and mobile apps. All of this raises the predicament of dealing with a contract which involves a contracting party under the age of eighteen.

The dilemma for these companies is that a minor may disaffirm a contract at any time during minority or upon reaching contractual majority (at the age of 18). The mere exercise of having the parent of the minor co-sign, approve or “guarantee” the contract does not resolve the problem. The minor may still repudiate the contract on the ground of infancy, asserting that the parent or guardian lacked authority to make the contract. Although many tech companies may rely on the fact that they believe the minor is an employee creating intellectual property for the company, this may not be sufficient to transfer rights to the company as a “work made for hire” under U.S. Copyright law, or otherwise.

For this reason, the people and companies that your children deal with may seek court approval of the employment arrangement. States such as California, New York and Tennessee have laws which establish procedures regarding the judicial approval of contracts with minors. Companies working with minors will probably seek to employ this process at some point because once the Court judicially approves the contract the minor will be held to a standard of adult responsibility for its contractual obligations – and this procedure assures the company that it will get what it bargained for.

The legal procedure is nothing to be afraid of for parents although in most cases you will want to retain a lawyer to guide you through the process – probably the same lawyer that you use to negotiate the contract itself. A proceeding for judicial approval of a minor's contract is usually commenced by the company or employer filing a petition with the Court. Along with the petition there will be affidavits or statements from the parents of the minor consenting to the arrangement.

An order granting judicial approval of a contract for the services of a minor will not usually be granted on the papers alone. A hearing will be commenced in which the minor, the parents and the various other interested parties may appear before the assigned Judge. In the course of the proceeding, the court will decide what portion of the net earnings of the minor, if any, are to be set aside in a trust. In fixing the amount to be set aside, the court will take into consideration the financial circumstances of the parents entitled to the minor's earnings, the needs of the parents' other children and the needs of the minor's spouse, if married. Such amounts as are set aside are to be saved for the minor under guardianship until the minor becomes 18 years old.

Once the court does grant approval, an order will be issued which will, in effect, declare the minor an adult for purposes of fulfilling his or her contractual obligations. This will assure that the company gets what it bargained for and that your child is adequately and fairly compensated for his work.

One final warning: some companies try to avoid the cost of the court proceeding and, instead, seek to have the parent or guardian of the child sign a guaranty. Parents are well-advised to be very careful about what they sign. As mentioned earlier, the parent cannot bind the child to the contract no matter what they sign. The child, as a minor, can legally walk away from the contractual arrangement. However, if the parent has signed some document that states that the parent is liable for amounts due to the company from the child or for damages if they child disavows the contract, that contract may be enforceable against the parent and the parent could be on the hook for much more than they anticipated. A parent can sign something that consents to the child working with the company but should be wary of signing any document that goes any further.
    
         
WALLACE E.J. COLLINS III, ESQ. is a leading industry authority on contracts with minors practicing primarily in the areas of entertainment, technology and intellectual property law. www.wallacecollins.com; Direct Tel: 212-661-3656

Monday, May 19, 2014

In "Raging Bull" Case US Supreme Court Opens The Door To Even Long-delayed Copyright Infringement Lawsuits

     In a copyright dispute over the movie "Raging Bull", the U.S. Supreme Court held that the case can continue despite the substantial passage of time. In a 6-3 decision the Court held that plaintiff Paula Petrella, daughter of the late screenwriter Frank Petrella, did not wait too long to file her lawsuit against MGM claiming an interest in the film.

     The plaintiff's father had collaborated with the legendary boxer Jake LaMotta on a book and several screenplays which were the basis for the Oscar-winning movie. When the plaintiff's father died in 1981 the copyrights were inherited by his daughter. His daughter sued MGM in 2009 seeking royalties from continuing commercial use of the film. First, a Federal judge had held that she had waited too long because she had been aware of the potential to file a lawsuit as early as 1991. Then,the 9th U.S. Circuit Court of Appeals agreed, relying on the studio's argument that the plaintiff's delay of nearly two decades in bringing the case was unreasonable. Now, however, the Supreme Court has reversed and is providing plaintiff with the opportunity to continue her copyright infringement lawsuit. 

    For a long time, film and television studios and major record companies have relied on the legal doctrine of unreasonable delay to prevent relatives, estates, and other claimants from bringing copyright claims years or even decades after the products had been released. The statute of limitations under US copyright law requires that lawsuits must be commenced within three years of an infringing act and every new release of a product and the ongoing exploitation of a copyright essentially resets the three year clock for copyright purposes. In other words, if a plaintiff sued, even after decades, they would only be entitled to damages going back three years (although they could possibly secure a share of income going forward into the future). However, many cases were dismissed under other legal arguments, such as laches, which would permit a Court to dismiss a case brought too many years after the original infringing act (which, in effect, would nullify the three year rolling statute of limitations).

    Without getting into all of the nitty gritty details of the decision, what matters is that those who, for whatever reason, might have been unable (or unaware of their right) to commence a claim for their share of copyright income now have a foot in the door. The rolling three-year copyright protection is fair to artists, authors and other creators of copyrights, and gives them incentive to create their works and the right to fight for a fair share of the income derived from the use and exploitation thereof.

Tuesday, April 22, 2014

PRINCE’s NEW DEAL WITH WARNER BROTHERS RECORDS IS A PART OF THE RIPPLE EFFECT OF THE ISSUE OF COPYRIGHT TERMINATIONS UNDER U.S. COPYRIGHT LAW.

The music business headlines are touting the story that Prince has returned to Warner Brothers Records after 18 years with a deal that will see him regain ownership of his back catalog of recordings. This deal marks a new era as the ability to terminate master recording copyright after 35 years was granted in the Copyright Revision Act of 1976 and became effective in 1978, the year that Prince's debut album came out. 

Just as the record business has been staggering back to its feet after the digital assault started by Napster over a decade ago, another hard blow to the record industry business model is starting to have ripple effects. Recording artists and songwriters from 1978 and after are now entitled to start terminating their contractual transfers and demanding back their copyrights. The 1976 Copyright Act, in a provision that has generally been overlooked until now, provides for the termination of copyright transfers. Even if an artist or songwriter signed a contract with a record company or music publisher that purports to transfer all rights in a work in perpetuity, the Copyright Act provides that the author can terminate that grant and demand that the rights revert to the author in a shorter period of time. This is a great opportunity for artists and songwriters to get a second bite at the apple, so to speak, and get a better share of the income earned from their creative works.  

Generally speaking, for copyright grants made on or after January 1, 1978 (the effective date of the 1976 Copyright Act) the termination period is 35 years under Section 203 of the Copyright Act. For pre-1978 works the termination period is 56 years after copyright was originally secured under Section 304. For grants on or after 1978, termination may be exercised anytime during a 5 year period beginning at the end of 35 years from the execution of the grant or, if the grant concerns the right of publication of the work, then the period begins on the sooner of 35 years after publication or 40 years after execution of the grant. Although there are certain formalities which must be complied with to effectuate transfer, this essentially means that recording artists and songwriters can start exercising their right of termination as soon as 2013 – which may effectively decimate many record company and music publishing catalogs.  

Back when the 1976 Copyright Act was drafted few could envision a world where the artists might not need the record companies to finance, manufacture, promote, store and distribute their records. Back then the expectation was that, although any particular artist could exercise the termination right, what would effectively happen is that the label and artist would simply be forced to renegotiate a deal to continue working together. Now in the digital age, however, this is no longer true. Any artist can demand back their masters and then simply offer them on their own website or license the rights to an online aggregator with little or no expense. This is particularly true in the case of catalog recordings since the artist would not even need the record company to finance the recording costs. The more digital the music business becomes the more obsolete the large record labels become for established artists. High profile artists with already established fan bases and large catalogs such as Blondie, the Cars, Bruce Springsteen and others probably have no need for much in the way of advertising and marketing of their recordings, and certainly no need for manufacturing, distributing or warehousing of the product. Simple ownership and possession of the digitized masters would be sufficient.

There is one scenario that does bode well for record companies in that it may steer even established artists to follow the renegotiation route as Prince has done. Those familiar with record contracts know that, unlike song publishing contracts which generally provide for the assignment and transfer of a song copyright to the publisher, most record contracts provide that the sound recording is created as a “work for hire” for the record label. Under the 1976 Copyright Act the termination provision is not applicable to a genuine work for hire grant. However, this does not preclude recording artists from exercising their right of termination. Just a few years ago I litigated a case where the Court held that a sound recording does not qualify as a work for hire. Without getting into all the applicable legal employer/employee issues involved, there is a great deal of case law which addresses the subject of “work for hire” and holds that whether a work created by an employee is a work for hire or not depends on various factors other than just the language of the contract. This area of law is ripe for litigation by recording artists who want to exercise their termination rights where the facts suggest that no genuine work for hire relationship ever existed. Although the landmark case has yet to be fought, from what I have seen it appears that in most cases the artist would prevail over the record company on this point. However, artist like Prince as well as label executives have also realized that the wiser course may be to negotiate the reversions and retain control of issuing artists' catalog eligible for copyright terminations.

The termination rights of an artist or songwriter are generally subject to a 5 year window. Termination must be made effective within the termination window or the right to terminate the grant is forfeited. To be effective, the artist or songwriter must serve a written notice of termination on the original record company or publisher (or its successor) no more than 10 and no less than 2 years prior to the effective date stated in the notice. The notice of termination must state the effective date of termination. Perfection of the termination requires that a copy of the written notice also be filed with the U.S. Copyright Office prior to the effective date of termination

Although the termination rights of an artist under the 1976 Copyright Act would only be effective for the U.S. territory, the size of the U.S. consumer market for recorded music still makes this a valuable right to reclaim. However, what is good for the artist might further erode the influence of the major record labels and prove detrimental to the industry in the future, so labels would be well advised to start planning for the onslaught and try to forge deals like Prince has done with Warner Brothers.    

Wallace Collins is a New York lawyer specializing in entertainment, copyright, trademark and internet law. He was a recording artist for Epic Records before attending Fordham Law School. T:(212) 661-3656 / www.wallacecollins.com