In my last two blogs I discussed contractual copyright warranties and their impact on everything from posting photos on Facebook to a singer/songwriter’s contract with their label and publisher. Contracts, however, are not the only place to find such dangerous warranty language regarding copyrights.
Article 2, § 312 of the Uniform Commercial Code (UCC), entitled “Warranty of Title and Against Infringement; Buyer’s Obligation Against Infringement”, creates a statutory warranty that “the title conveyed [in copyrighted works] shall be good, and its transfer rightful; and the [copyright] shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.” The legislature of every state has passed a version of this provision. In Tennessee it can be found at T.C.A. § 47-2-312.
My first inclination upon reading this statute was to think that it was preempted by the Federal Copyright Act. But, upon further research I found several cases that state that neither the copyright act nor any other of the federal intellectual property laws preempts such application of state law to the grant of a copyright. See Pure Country Weavers, Inc. v. Bristar, Inc., 410 F.Supp.2d 439 (W.D.N.C.2006). Therefore, even if you are successful in eliminating such contractual language from an agreement, you may still face a state claim for breach of warranty.
Since all such exclusive grants of copyright must be in writing, the way to protect yourself or your clients from such a claim of breach of warranty based on § 312, is to include language in the written instrument that excludes such warranties. Article 2, §312(2) of the UCC allows for such warranties to be “excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.”
Thursday, February 26, 2009
Monday, February 23, 2009
Warranties and Indemnification Language in Entertainment and Intellectual Property Agreements
To build on my previous post, I thought I would write about warranties and indemnity language in entertainment and intellectual property agreements. Many of my clients do not understand the significance of the warranty and indemnity language that is inevitably placed in recording artist contracts, exclusive songwriter agreements, and the myriad of other intellectual property and entertainment agreements. Many more don't know that indemnity clauses creates a duty to pay any losses or damages of the other party based on the warranty language.
I always advise my clients and teach my students that such language is an effective means of risk management. Smart people and well run business entities enter contractual relationships with slight trepidation. They conduct risk assessments and balance those risks against the possible rewards of the relationship. As we have all heard before, such a balancing of risk and reward requires us to ask ourselves: does the reward outweigh the risk? This question, however, is too vague to be of any real use. As any attorney has experienced, the masterful debater can always convince themselves of the answer they emotionally want to reach.
The better question to ask oneself is: Am I able and willing to absorb the loss? You must look to both your emotional position and your resources. That is why your investment adviser makes you plan your retirement strategy by deciding your (emotional) willingness and (financial) ability to tolerate market fluctuations.
So what does this have to do with warranty and indemnification language? Warranty and indemnification language directly impacts each contracting parties’ answer to the question “am I able and willing to absorb the loss” of this transaction.
Let’s look at this from a record label’s point of view. If a record label is going to invest in a band, provide them with A&R services, pay them an advance, spend money producing and shipping their albums, they want to limit the level of risk in all the areas they have control. Since they can’t control with any degree of certainty what the consumers will purchase, they will focus on all the variables of risk they can control. Warranty language allows the record label to allocate the risk to the band for such things as copyright and trademark infringements.
From the Band’s perspective this can be uncharted water. Let’s say that you are a member (say the drummer) in the band. Your band is about to sign a recording artist contract with a major record label. You want to record some of the songs your lead singer brought with him from his previous band. The label is insisting that you provide them with a license to these songs and warrant that such songs are free and clear of any copyright claims. The label also wants language in the contract that if they get sued for infringement on these songs, the band will be required to pay the label’s attorney fees and pay any judgment.
If your lead singer co-wrote the songs with another person and then granted the copyright to those songs to a music publisher in an exclusive songwriter agreement, you and your band mates had no right to give the label a license to property to which none of you, not even your lead singer, properly owns. You could be on the hook for any possible copyright infringement claims brought by the music publisher against the label. Indeed, you could be liable even if you did not have knowledge of who owned the copyright to the songs.
Can you see now how your answer to the question “am I able and willing to absorb the loss” of entering into a contract is impacted by the warranty and indemnity language?
The trepidation I spoke of before should lead you to ask questions of your lead singer before agreeing to any such contractual language. I would also ask to see the copyright registration or look it up myself on the U.S. Copyright Office’s website. If you don’t do your research, you are answering the question “am I able and willing to absorb the loss” of this transaction without the necessary information. Without the proper information, you might as well not even ask yourself the question in the first place.
I always advise my clients and teach my students that such language is an effective means of risk management. Smart people and well run business entities enter contractual relationships with slight trepidation. They conduct risk assessments and balance those risks against the possible rewards of the relationship. As we have all heard before, such a balancing of risk and reward requires us to ask ourselves: does the reward outweigh the risk? This question, however, is too vague to be of any real use. As any attorney has experienced, the masterful debater can always convince themselves of the answer they emotionally want to reach.
The better question to ask oneself is: Am I able and willing to absorb the loss? You must look to both your emotional position and your resources. That is why your investment adviser makes you plan your retirement strategy by deciding your (emotional) willingness and (financial) ability to tolerate market fluctuations.
So what does this have to do with warranty and indemnification language? Warranty and indemnification language directly impacts each contracting parties’ answer to the question “am I able and willing to absorb the loss” of this transaction.
Let’s look at this from a record label’s point of view. If a record label is going to invest in a band, provide them with A&R services, pay them an advance, spend money producing and shipping their albums, they want to limit the level of risk in all the areas they have control. Since they can’t control with any degree of certainty what the consumers will purchase, they will focus on all the variables of risk they can control. Warranty language allows the record label to allocate the risk to the band for such things as copyright and trademark infringements.
From the Band’s perspective this can be uncharted water. Let’s say that you are a member (say the drummer) in the band. Your band is about to sign a recording artist contract with a major record label. You want to record some of the songs your lead singer brought with him from his previous band. The label is insisting that you provide them with a license to these songs and warrant that such songs are free and clear of any copyright claims. The label also wants language in the contract that if they get sued for infringement on these songs, the band will be required to pay the label’s attorney fees and pay any judgment.
If your lead singer co-wrote the songs with another person and then granted the copyright to those songs to a music publisher in an exclusive songwriter agreement, you and your band mates had no right to give the label a license to property to which none of you, not even your lead singer, properly owns. You could be on the hook for any possible copyright infringement claims brought by the music publisher against the label. Indeed, you could be liable even if you did not have knowledge of who owned the copyright to the songs.
Can you see now how your answer to the question “am I able and willing to absorb the loss” of entering into a contract is impacted by the warranty and indemnity language?
The trepidation I spoke of before should lead you to ask questions of your lead singer before agreeing to any such contractual language. I would also ask to see the copyright registration or look it up myself on the U.S. Copyright Office’s website. If you don’t do your research, you are answering the question “am I able and willing to absorb the loss” of this transaction without the necessary information. Without the proper information, you might as well not even ask yourself the question in the first place.
Wednesday, February 18, 2009
Facebook Terms of Use
Welcome to my inaugural post. I hope you find my blog entertaining, informative, and interactive. My desire is not just to send my thoughts out into the world. I look forward to many engaging exchanges with those of you who are similarly interested in copyright and the music industry. As a practicing lawyer and professor of music business and law, I do not intend this blog to be geared exclusively toward lawyers or those with legal problems. I hope to draw many of my non-attorney colleagues from academia, the music industry, as well as all the other persons who own or use copyrights. That last group, as I will point out often, includes almost everyone--whether they know it or not.
This week I was drawn into a very interesting new event: a mass uprising of the Facebook nation. I have found Facebook users to be an extremely devoted (read obsessed) group. I was entertained to read and hear about how many of them became incensed at Facebook’s decision to take away their right to revoke the dangerously broad license they willingly granted Facebook to their photos,text posts, and even music. Facebook, being the responsive company that it is, immediately relented and reinstated such revocation rights.
To give you some contextual background, let me briefly explain. Prior to the change in its terms of use, Facebook members could revoke the license they granted to Facebook simply by removing the content from the member's Facebook page. That system, however, created a major problem for Facebook. You see, when a member removes their content from their Facebook page, the content very often remains as postings on other members' Facebook pages. The removal of such content by the member, while terminating the license, does not remove the content from the entire Facebook system. This creates unlicensed displays and reproductions of copyrighted material, both of which constitute possible copyright infringement.
Yet, what intrigued me most in the surge of dissent that followed this change was that the very same members seem to be perfectly happy to continue to grant a license that is overly broad and exposes them to possible copyright infringement suits. This is, in my opinion, just further proof of the obvious: people don’t read terms of use on the internet—even when they are protesting such terms. Considering the stakes of defending a copyright infringement suit (if you are unaware of such stakes Google “Capitol Records v. Jammie Thomas”) you ignore such legal agreements at your own peril.
My biggest issue with Facebook has always been that the terms of use are both too narrow and too broad to meet their expressed needs. The narrowness issue can now easily be seen in the current problem Facebook was attempting to address by taking away members’ rights to revoke the license. The problem of the content's license being revoked even when the content still exists on other members' Facebook pages clearly demonstrates the inadequacies of the Facebook terms of use.
What I have been waiting for, however, is the protest to extend to the breadth of the license and the warranty language. For example, many aspiring recording artists (both bands and solo artists) are now marketing their music on Facebook by posting their recorded songs. If such artist is also a songwriter who happens to have an exclusive songwriter agreement with a publisher, they do not own the copyright to the musical compositions they just licensed to Facebook. If you have done this, you have breached your contract with your publisher and your contract with Facebook
A more common example of this problem I have seen on many of my friends Facebook pages is when they post their wedding, graduation, and other event photos. Many of these photos were taken by professional photographers who retain their copyrights to the photos. Many of these photographers grant a license to post such photos on the Internet. But that is it--such licenses only allow the person to post the photographs for personal use on the Internet. Those licenses are very narrow. I have reviewed and drafted several such licenses and never have I seen or included the right to create derivative works or use such works for third-party advertising purposes.
Facebook, however, has always reserved the rights "to use, copy, publicly perform, publicly display, reformat, translate, excerpt (in whole or in part) and distribute such User Content for any purpose, commercial, advertising, or otherwise, on or in connection with the Site or the promotion thereof, to prepare derivative works of, or incorporate into other works, such User Content, and to grant and authorize sublicenses of the foregoing."
Facebook also requires members to warrant that they, the member, have the right to grant such broad rights to Facebook--and of course, often they do not. This creates potentially disastrous exposure to substantial liability for members. In the two examples above those members could face multiple copyright infringement and breach of contract suits from both their music publisher or photographer and also Facebook. All simply to market their music or share their wedding photos with some friends. Facebook needs to narrow their licensing language to meet the needs of the business's purpose.
Considering that the Copyright Act allows a plaintiff to recover statutory damages of $150,000.00 plus attorney's fees for willful infringement of a copyright, members should insist on a more tailored licensing regime.
This week I was drawn into a very interesting new event: a mass uprising of the Facebook nation. I have found Facebook users to be an extremely devoted (read obsessed) group. I was entertained to read and hear about how many of them became incensed at Facebook’s decision to take away their right to revoke the dangerously broad license they willingly granted Facebook to their photos,text posts, and even music. Facebook, being the responsive company that it is, immediately relented and reinstated such revocation rights.
To give you some contextual background, let me briefly explain. Prior to the change in its terms of use, Facebook members could revoke the license they granted to Facebook simply by removing the content from the member's Facebook page. That system, however, created a major problem for Facebook. You see, when a member removes their content from their Facebook page, the content very often remains as postings on other members' Facebook pages. The removal of such content by the member, while terminating the license, does not remove the content from the entire Facebook system. This creates unlicensed displays and reproductions of copyrighted material, both of which constitute possible copyright infringement.
Yet, what intrigued me most in the surge of dissent that followed this change was that the very same members seem to be perfectly happy to continue to grant a license that is overly broad and exposes them to possible copyright infringement suits. This is, in my opinion, just further proof of the obvious: people don’t read terms of use on the internet—even when they are protesting such terms. Considering the stakes of defending a copyright infringement suit (if you are unaware of such stakes Google “Capitol Records v. Jammie Thomas”) you ignore such legal agreements at your own peril.
My biggest issue with Facebook has always been that the terms of use are both too narrow and too broad to meet their expressed needs. The narrowness issue can now easily be seen in the current problem Facebook was attempting to address by taking away members’ rights to revoke the license. The problem of the content's license being revoked even when the content still exists on other members' Facebook pages clearly demonstrates the inadequacies of the Facebook terms of use.
What I have been waiting for, however, is the protest to extend to the breadth of the license and the warranty language. For example, many aspiring recording artists (both bands and solo artists) are now marketing their music on Facebook by posting their recorded songs. If such artist is also a songwriter who happens to have an exclusive songwriter agreement with a publisher, they do not own the copyright to the musical compositions they just licensed to Facebook. If you have done this, you have breached your contract with your publisher and your contract with Facebook
A more common example of this problem I have seen on many of my friends Facebook pages is when they post their wedding, graduation, and other event photos. Many of these photos were taken by professional photographers who retain their copyrights to the photos. Many of these photographers grant a license to post such photos on the Internet. But that is it--such licenses only allow the person to post the photographs for personal use on the Internet. Those licenses are very narrow. I have reviewed and drafted several such licenses and never have I seen or included the right to create derivative works or use such works for third-party advertising purposes.
Facebook, however, has always reserved the rights "to use, copy, publicly perform, publicly display, reformat, translate, excerpt (in whole or in part) and distribute such User Content for any purpose, commercial, advertising, or otherwise, on or in connection with the Site or the promotion thereof, to prepare derivative works of, or incorporate into other works, such User Content, and to grant and authorize sublicenses of the foregoing."
Facebook also requires members to warrant that they, the member, have the right to grant such broad rights to Facebook--and of course, often they do not. This creates potentially disastrous exposure to substantial liability for members. In the two examples above those members could face multiple copyright infringement and breach of contract suits from both their music publisher or photographer and also Facebook. All simply to market their music or share their wedding photos with some friends. Facebook needs to narrow their licensing language to meet the needs of the business's purpose.
Considering that the Copyright Act allows a plaintiff to recover statutory damages of $150,000.00 plus attorney's fees for willful infringement of a copyright, members should insist on a more tailored licensing regime.
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