Termination of Assignments in Sound Recordings, Works Made for Hire and The Need For Certainty

We are all looking for certainty in a world full of chaos.  One of the resources that I often turn to for reassurance is the 1976 Copyright Act, a roadmap to  a world where everything makes sense and if it doesn't make sense, at least it has a definition.  Except for Sections 203 and 302.

 

When the Copyright Act was amended in 1976, it provided for the first time for a termination provision which allowed authors to terminate earlier assignments of their works.  This right of termination is deemed inalienable (i.e. you can’t sign it away)  except in the case of a so-called "work made for hire," in which case the employer is deemed to be the author of the work for copyright purposes.  Like all important terms "work made for hire" is specifically defined by the Copyright Act: 

        (1) a work prepared by an employee within the scope of his or her employment; or

(2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation , as an instructional text , as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. For the purpose of the foregoing sentence, a “supplementary work” is a work prepared for publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting upon, or assisting in the use of the other work, such as forewords, afterwords, pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, answer material for tests, bibliographies, appendixes, and indexes, and an instructional text is a literary, pictorial, or graphic work prepared for publication and with the purpose of use in systematic instructional activities

Notice  that you don’t see the words “sound recordings”  in there. The big issue for years has been whether or not sound recordings can be deemed to be "works made for hire" and therefore, incapable of termination of assignment.  Every  recording agreement drafted after January 1, 1978 states that the sound recordings being assigned thereunder are, in fact, works made for hire.  But copyright practitioners have assumed that because the Copyright Act does not include sound recordings under the definition of works  made for hire, then they are no such animal.  The problem is that we have had no court decision on the issue-only anecdotal stories and rumors.  

That may be about to change. 

Recently, lawyers in New York have filed two class action lawsuits, one in which my friend, John Waite, is the lead plaintiff.  This is a suit against Universal Music Group.  There is a companion case filed against Sony which lists Southside Johnny as one of the lead plaintiffs.  In each case, the facts are similar.  The record artist sought to exercise their statutory termination rights only to be rebuffed by the record companies for a number of reasons.  

This caused the plaintiffs to seek declaratory relief from the court--  essentially asking the question "whether sound recordings can ever be considered 'works made for hire' as that term is defined by the Copyright Act because the definition set forth in Section 101 of the Copyright Act does not include sound recordings as being one of the types of works that can be a work made for hire."   and “whether the release of sound recordings that were created by a particular recording artist in "album" form, as is typical in the musical industry, constitutes a contribution to a collective work-or creates a "compilation" as that term is used in Section 101 of the Copyright Act, thereby transforming these sound recordings into "works make for hire".  

There are several important issues poised by these lawsuits but these are the most important.  I don't know the status of these cases but they appear to have major implications for the United States recording industry (it being understood that this is a function of U.S. Law and has no real application to the rest of the world).  I look forward to having a little more certainty and clarity on the issue regardless of the outcome.  

Prince

I am still thinking about the strange articles I read back in June and July concerning Universal Music Group seeking court approval to nullify a multi-million dollar deal it made with Prince's estate for the rights to release certain of the late great musician's recordings.  It turns out that Universal claims that the expiration dates of Prince's agreements with other entities were somehow misrepresented.  From what I have read, it seems that no one involved in the deal disputes this and rather than alleging malfeasance, it looks as if this was the end result of Prince's very confused estate.  The Probate Judge overseeing the case called it "personal and corporate mayhem" according to the New York Times.  You can read the pleadings in the case here: http://www.mncourts.gov/InReTheEstateofPrinceRogersNelson.aspx

One does not have to be a probate lawyer to figure out that a good chunk of the Estate is getting eaten up in legal fees.

As so many commentators have noted,  it is shocking (and frankly somewhat sad) that an artist who seemed to be so in control over every aspect of his career could have been so careless in dealing with his legacy.  No will, no trust, just a mythical vault full of unreleased material. 

The point for every artist and song writer is to first of all make sure you have a will in place that makes some reference to the disposition of your intellectual property and second, make sure you either have a family member or a close trusted advisor who can help navigate through the maze of record deals, publishing deals, licensing deals, performing rights organizations and the new nightmare that is digital rights. 

Problems will arise in the best scenarios, and it is not at all unusual for heirs and beneficiaries not to get along with executors and administrators but it's so must easier to deal with this situation when the deceased made his or her intentions clear. 

The Rick James Lawsuit

I have been following with interest the recently filed case Rick James v. UMG Recordings, Inc. in which attorneys for a trust established by the late James A. Johnson, Jr. have sued Universal Music Group over the same contractual royalty clause successfully litigated by the plaintiffs in F.B. T. Productions v.Aftermath Recordings, a case tacitly upheld by the United States Supreme Court.
The well-known clause found in numerous pre- digital recording agreements provides “ with respect to records sold by (Motown’s) licensees…Motown will pay…a royalty equal to fifty percent (50%) of Motown’s net receipts based on actual sales…” The plaintiff’s argument is that this clause applies to income from digital downloads and ringtones etc. Universal has blatantly argues that such sales are not third party licenses but are something called “resale agreements”. This defense ignores the plain language of these agreements and the 9th Circuit said as much. The labels simply did not anticipate that this type of income would exist when they drafted these contracts but they still need to honor their contractual commitments if they choose to exploit the source of the income.
The most interesting thing about the Rick James case is the plaintiff’s attempt to have the case certified as a class action lawsuit. The potential damages could be astronomical—just think of the potentially affected artists on Motown’s roster.
Of course the operative words are “could be”. The big question in my mind is how many artists and how many contracts does this apply to? How many successful recording artists from the pre-compact disc era are still operating under their original (non-renegotiated) contracts and if so, how many labels are still treating legitimate third party license income as something else entirely? I am not really sure how many artists this affects. However, the 9th Circuit case apparently had some effect on another class action case originally filed by the Allman Brothers against Sony/BMG. This case had been dismissed once before and apparently has been reinstated. Both of these cases and the cases that are sure to follow in the wake of the F.B. T. Productions case are significant and well worth watching.