Tuesday, June 3, 2014

PREDICTIONS FROM 1993 BILLBOARD ARTICLE

Ramifications of New Technology [*ORIGINALLY PUBLISHED BILLBOARD 1993]
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. 

Monday, May 5, 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



Monday, April 21, 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