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. Disputes over copyrights and trademarks as well as money could be avoided with a properly drafted "pre-nup" for the band.

     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 a new member, the provision may provide that the 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 diner 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 songwriter and recording artist for Epic Records before attending Fordham Law School. Tel:(212) 661-3656 / wallacecollins@gmail.com / www.wallacecollins.com 

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

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 guarantee. 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 is signed. The child, as a minor, can legally walk away from the contractual arrangement. However, if the parent has signed some document or guarantee provision in an agreement that states that the parent is liable for costs, expenses and damages if the minor disavows the contract, that may give rise to a prospective cause of action enforceable against the parent, and the parent could possibly be on the hook for much more than originally anticipated. A Court may refuse to enforce such a parental guarantee arrangement as a matter of public policy since there is an applicable procedure in place for the company to have protected itself under the law but the company elected to circumvent it. However, it might be best not to test such a scenario. 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

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.