The Tennessee State Legislator is currently considering a bill that would require police intervention for copyright owners or their authorized representatives to request purveyors of counterfeit copies of their works to voluntarily surrender the illegal copies. Such counterfeited works, which are better known in the music industry as either pirated or bootleg copies, are often sold at flea markets or in local independent record stores.
If the Bill aims to strike a balance between protecting the rights of copyright owners and the rights of legitimate vendors--all of which are laudable public policy goals--it is seriously off the mark. It is already a crime in Tennessee to illegally take someone's property. That is not what rights holders do when they approach a vendor selling a bootleg. The bootleg is not the vendor's property in the first place. The criminal code already protects legitimate vendors. This Bill simply removes the self-help solution available to rights owners. Which would be fine, if the State of Tennessee was willing to fund a statewide taskforce to police such piracy.
For background, there was an excellent article in the Nashville based Tennessean newspaper today that highlights the competing interests involved. (That article can be found by clicking here.) Also the Recording Industry Association of America (RIAA) has an excellent website highlighting the economic and social impact caused by physical piracy.
The interesting issue here is that copyright holders, like those represented by the RIAA and similar organizations, have a legitimate interest in both protecting their copyrights and assisting legitimate vendors who often must compete with pirates who have an unfair competitive advantage. The involvement and education of local law enforcement in this effort should be encouraged by our laws. Also, a funded law enforcement taskforce would legitimize efforts of rights holders who do attempt to confiscate counterfeit copies of their works. Such official procedures could make the process more effective. Having a local uniformed police officer busting a bootlegger at the flea market would have a clear deterrent affect.
The law fails, however, to provide local law enforcement with the resources necessary to meet a mandate such as that found in the Tennessee Bill and does not add any protection to legitimate vendors. It simply protects pirates. If your local police force does not have the proper resources, this Bill will simply tip the balance in favor of the pirates. That possible unintended consequence should be seriously considered before such a bill is made law.
Tuesday, March 31, 2009
Monday, March 23, 2009
Music Access
I just finished reading the Digital Music Report 2009 authored by the International Federation of the Phonographic Industry (IFPI). The IFPI is the organization that represents the interests of the recording industry worldwide and has 1400 members including the Recording Industry Association of America.
The report goes into great detail describing the shifting business model from a sales and distribution based model to one that monetizes access to music. According to Nielsen SoundScan single track downloads in the U.S. crossed the one billion mark in 2008. That represents a 27 % increase in one year.
Considering the recent defeat of former Eminem producers F.B.T. Productions, this new business model could be the savior of the record labels. But is it unfair to the musicians? Let me know what you think by answering my latest poll.
The report goes into great detail describing the shifting business model from a sales and distribution based model to one that monetizes access to music. According to Nielsen SoundScan single track downloads in the U.S. crossed the one billion mark in 2008. That represents a 27 % increase in one year.
Considering the recent defeat of former Eminem producers F.B.T. Productions, this new business model could be the savior of the record labels. But is it unfair to the musicians? Let me know what you think by answering my latest poll.
Thursday, March 19, 2009
Choice Overload and Radio
I just finished reading an excellent interview by Kyle Bylin, Associate Editor of Hyperbot.com. Bylin interviewed Barry Schwartz, who is the Dorwin Cartwright Professor of Social Theory and Social Action at Swarthmore College and author of the book The Paradox of Choice: Why More Is Less. In this interview, Bylin probes into the impact of the paradox of choice on the music industry. Professor Schwartz explains in the interview that when people are given overwhelming options (i.e., choice overload), such as in today's music culture, if they do make a decision they tend to take one of two courses of action: (1) they rely on habit to make decisions or (2) they rely on filters to tell them what to choose.
The second course of action is very interesting to me in light of our previous discussions of the most recent version of the Performance Rights Act. Let's take my prior argument as true, that Radio hinders the sale of music overall (again, I'm not saying radio hinders individual albums, artists, or songs; I'm saying all music). Could radio still be benefiting the labels and some artists, by acting as a filter in our choice overloaded society?
From an economic standpoint this could make sense. For years (I'm talking 50 or more) record labels have operated a generally static business model. They payout advances to bands, the bands record an album, the album is shipped out into the world and marketed, the band goes on tour to further market the album, singles are released into the world via radio, and 90% fail. Yes, that's right, 90% fail to ever make a profit. The other 10% make the labels back their money and a profit. Consider the failures to be R&D. The problem in the last 8 or 9 years is that the other 10% are not selling that many albums either because of the file-sharing problem ushered in by digital technology.
It has been clear for years that record labels have to change their business model. First, they need to find other streams of revenue to stay viable--hence the Performance Rights Act and the push for 360 deals. Second, they need to increase the number of acts that actually turn a profit. Gone are the days when 10% can sell enough units to carry the other 90% and generate a healthy profit for the label.
Could the power of Radio be harnessed by the labels, in this choice overloaded society, to improve their current 10% success rate? In other words could the labels use radio as a filter to improve their sales of individually selected acts? Some say that is what radio has been doing all along, and manipulation of that system (ever heard of payola?) also has a longstanding tradition. But that still only resulted in a 10 or 20% success rate at best.
I'm talking about a more efficient business model. One that takes into account the current realities of of exceedingly large numbers of individual songs on the Internet. One that abandons payola and where labels no longer package 8 bad songs with 2 good ones so that they can charge $15 per album to turn a profit. I don't know what this business model would look like yet, but it is an interesting thought.
One last thought: if they could harness the power of radio in such a way, would that violate antitrust law?
The second course of action is very interesting to me in light of our previous discussions of the most recent version of the Performance Rights Act. Let's take my prior argument as true, that Radio hinders the sale of music overall (again, I'm not saying radio hinders individual albums, artists, or songs; I'm saying all music). Could radio still be benefiting the labels and some artists, by acting as a filter in our choice overloaded society?
From an economic standpoint this could make sense. For years (I'm talking 50 or more) record labels have operated a generally static business model. They payout advances to bands, the bands record an album, the album is shipped out into the world and marketed, the band goes on tour to further market the album, singles are released into the world via radio, and 90% fail. Yes, that's right, 90% fail to ever make a profit. The other 10% make the labels back their money and a profit. Consider the failures to be R&D. The problem in the last 8 or 9 years is that the other 10% are not selling that many albums either because of the file-sharing problem ushered in by digital technology.
It has been clear for years that record labels have to change their business model. First, they need to find other streams of revenue to stay viable--hence the Performance Rights Act and the push for 360 deals. Second, they need to increase the number of acts that actually turn a profit. Gone are the days when 10% can sell enough units to carry the other 90% and generate a healthy profit for the label.
Could the power of Radio be harnessed by the labels, in this choice overloaded society, to improve their current 10% success rate? In other words could the labels use radio as a filter to improve their sales of individually selected acts? Some say that is what radio has been doing all along, and manipulation of that system (ever heard of payola?) also has a longstanding tradition. But that still only resulted in a 10 or 20% success rate at best.
I'm talking about a more efficient business model. One that takes into account the current realities of of exceedingly large numbers of individual songs on the Internet. One that abandons payola and where labels no longer package 8 bad songs with 2 good ones so that they can charge $15 per album to turn a profit. I don't know what this business model would look like yet, but it is an interesting thought.
One last thought: if they could harness the power of radio in such a way, would that violate antitrust law?
Wednesday, March 18, 2009
Focus? What does that have to do with Copyright and Music Law?
Check out the slide show in the post below. It is interesting, funny, and helpful. But you might ask yourself what it has to do with copyright and music law?
The slide show's topic is how to keep focused. At the beginning there is a slide that talks about knowledge work, and that got me thinking about my previous blogs. People who create intellectual property (yes I'm talking about copyrights and music) are the quintessential knowledge workers. They don't crank out widgets for a living; they create. With all the talk in the music industry focused on developing new streams of revenue (see my posts below on monetizing radio airplay), our artists, songwriters, and even us attorneys may lose sight of our main focus of our knowledge work, whether that be creating music or writing contracts.
To make money creating (i.e., as a knowledge worker) you must gain a competitive advantage over others who are in your field. One competitive advantage is to do the same thing as your competition, but do it more efficiently, which is known as a cost advantage. The other way is to do it better than your competition, which is known as a differentiation advantage.
So if you are a creator and you want to make money from your creative efforts, you need to focus your creative energy in a productive way. The following slide show will help with that, I promise.
The slide show's topic is how to keep focused. At the beginning there is a slide that talks about knowledge work, and that got me thinking about my previous blogs. People who create intellectual property (yes I'm talking about copyrights and music) are the quintessential knowledge workers. They don't crank out widgets for a living; they create. With all the talk in the music industry focused on developing new streams of revenue (see my posts below on monetizing radio airplay), our artists, songwriters, and even us attorneys may lose sight of our main focus of our knowledge work, whether that be creating music or writing contracts.
To make money creating (i.e., as a knowledge worker) you must gain a competitive advantage over others who are in your field. One competitive advantage is to do the same thing as your competition, but do it more efficiently, which is known as a cost advantage. The other way is to do it better than your competition, which is known as a differentiation advantage.
So if you are a creator and you want to make money from your creative efforts, you need to focus your creative energy in a productive way. The following slide show will help with that, I promise.
Monday, March 16, 2009
How do you compete with free?
To continue on with my last two posts, I have a question for you: How do you compete with free? That is a common question posed by many in the recording industry. The question is usually given in the context of the ravages of digital technology on music sales. While I think this is an overly simplistic question, I am posing it regarding radio.
That's right, over-the-air terrestrial radio. Our prized AM/FM radio. I'm currently reviewing some of the testimony given to congress recently. Professor Ashbel Smith from the University of Texas at Dallas makes some very good points in his statement before the Committee on the Judiciary regarding the Performance Rights Act.
One such result of his research is that if people are listening to free music on the radio, they are not listening to prerecorded music ... seems like a no-brainer. I'd like to say he has a wonderful grasp of the obvious, but it is gospel in the music industry that radio airplay drives music sales. So if that is the longstanding industry belief, that radio airplay drives sales, why do we believe this? I'll admit that radio air play can drive up the sales of a single song or album, but does it actually increase overall record sales? That is the important question, the question that Professor Smith addresses in his statement.
It is an interesting idea that radio airplay actually hinders the sale of prerecorded music instead of promoting it. What do you think? Answer the survey at the right to weigh in on the debate.
That's right, over-the-air terrestrial radio. Our prized AM/FM radio. I'm currently reviewing some of the testimony given to congress recently. Professor Ashbel Smith from the University of Texas at Dallas makes some very good points in his statement before the Committee on the Judiciary regarding the Performance Rights Act.
One such result of his research is that if people are listening to free music on the radio, they are not listening to prerecorded music ... seems like a no-brainer. I'd like to say he has a wonderful grasp of the obvious, but it is gospel in the music industry that radio airplay drives music sales. So if that is the longstanding industry belief, that radio airplay drives sales, why do we believe this? I'll admit that radio air play can drive up the sales of a single song or album, but does it actually increase overall record sales? That is the important question, the question that Professor Smith addresses in his statement.
It is an interesting idea that radio airplay actually hinders the sale of prerecorded music instead of promoting it. What do you think? Answer the survey at the right to weigh in on the debate.
Thursday, March 12, 2009
Performance Rights Act, Part II
So, where do I stand? To follow up on last week’s post, I support the act. Why? Well, at the outset let me say that it is not simply because I work in the Music Business. As I tried to point out in my previous post, the battle lines over this legislation have been drawn through the middle of the music industry. I have close friends and business associates on either side of this issue.
The reason I support this legislation is that it serves the greatest good—sounds Utopian, I know, but please let me explain before you write me off as a hopeless socialist.
I am a constitutionalist. My view of copyright legislation is seen through the lens of Article I, Section 8, Clause 8 of the U.S. Constitution, which states that “Congress shall have power…To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their Writings and Discoveries.” The specific words “To promote the Progress of Science and useful Arts” establish a utilitarian policy that guides Congress when enacting such laws.
It stands to reason that the grant of a copyright—which is nothing more than a monopoly (albeit a limited one)—must benefit more than the individual holder of that right. Indeed, very few monopolies are tolerated in the U.S. market without a utilitarian justification. Otherwise you simply have an unfair restraint of trade benefiting the few at the expense of the many.
Some argue that the utilitarian policy underlying copyright is contrary to the American ideals of self reliance and property rights. Yet, if authors are not given protectable property rights in their creations, some of them will stop creating for want of economic incentives. In other words, if you can’t make a living doing something, you are likely to abandon the endeavor and pursue a more lucrative path—that sounds very American to me.
As the U.S. Supreme Court stated in MGM Studios Inc, v. Grokster, Ltd. “… the administration of copyright law is an exercise in managing the trade-off” 125 S. Ct. 2764, 2775 (2005). While the court was speaking specifically of the tradeoff between technological innovation and artistic creation, it was also speaking more broadly to the tradeoff in all copyrights cases of balancing of the greatest good.
In applying this doctrine to the Performance Rights Act we can look to the vast majority of developed nations that have long ago mandated the payment of such royalties without a devastating impact to their over-the-air broadcast media. When compared to the devastating impact digital technology has had on the music industry, it is clear to me that the greatest good will be served with the passing of this act.
Without an objective economic impact analysis concluding, with some degree of certainty, that the trade off is a greater risk (i.e., that terrestrial radio in the U.S. will be driven out of business if forced to pay such royalties), the Performance Rights Act should be passed and signed into law.
The reason I support this legislation is that it serves the greatest good—sounds Utopian, I know, but please let me explain before you write me off as a hopeless socialist.
I am a constitutionalist. My view of copyright legislation is seen through the lens of Article I, Section 8, Clause 8 of the U.S. Constitution, which states that “Congress shall have power…To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their Writings and Discoveries.” The specific words “To promote the Progress of Science and useful Arts” establish a utilitarian policy that guides Congress when enacting such laws.
It stands to reason that the grant of a copyright—which is nothing more than a monopoly (albeit a limited one)—must benefit more than the individual holder of that right. Indeed, very few monopolies are tolerated in the U.S. market without a utilitarian justification. Otherwise you simply have an unfair restraint of trade benefiting the few at the expense of the many.
Some argue that the utilitarian policy underlying copyright is contrary to the American ideals of self reliance and property rights. Yet, if authors are not given protectable property rights in their creations, some of them will stop creating for want of economic incentives. In other words, if you can’t make a living doing something, you are likely to abandon the endeavor and pursue a more lucrative path—that sounds very American to me.
As the U.S. Supreme Court stated in MGM Studios Inc, v. Grokster, Ltd. “… the administration of copyright law is an exercise in managing the trade-off” 125 S. Ct. 2764, 2775 (2005). While the court was speaking specifically of the tradeoff between technological innovation and artistic creation, it was also speaking more broadly to the tradeoff in all copyrights cases of balancing of the greatest good.
In applying this doctrine to the Performance Rights Act we can look to the vast majority of developed nations that have long ago mandated the payment of such royalties without a devastating impact to their over-the-air broadcast media. When compared to the devastating impact digital technology has had on the music industry, it is clear to me that the greatest good will be served with the passing of this act.
Without an objective economic impact analysis concluding, with some degree of certainty, that the trade off is a greater risk (i.e., that terrestrial radio in the U.S. will be driven out of business if forced to pay such royalties), the Performance Rights Act should be passed and signed into law.
Thursday, March 5, 2009
The Performance Rights Act, H. R. 848, S. 379
Many people like to blame Shawn Fanning. While Mr. Fanning’s creation of the specific computer code that became commercially known as Napster was not inevitable, digital file sharing was. As equally inevitable are our current struggles regarding how to adapt—both socially and economically—to digital technology.
One attempt at adaptation is the most recent version of the Performance Rights Act currently before both houses of Congress. To me, one of the most interesting aspects of the legislative process is the demarcation of battle lines within an industry impacted by a specific piece of legislation. The many versions of The Performance Rights Act has created its share of feuds within the music industry.
The purpose of the bill is simple: require standard AM and FM radio stations (technically known as “terrestrial radio” to distinguish them from Internet and satellite radio) to pay performers royalties for the broadcast of their recorded music. Up until now, terrestrial radio stations paid only the songwriter a royalty.
The airplay of songs, so the theory goes, promotes album sales and that is how the artist and their label receive compensation for their creative efforts. Indeed that theory worked well into the late 1990’s. As we all know, the advent of digital technology made that theory about as useful as the one about the earth being flat.
Of course you can easily see the conflict this legislation created. Artists and their record labels (e.g., Warner Bros. Music, Sony/BMG, Universal Music, EMI, etc.) are supportive of monetizing the airplay of their music. But terrestrial radio is, of course, opposed to paying royalties on music they have been using free for years. To complicate matters, every business in the nation is reassessing and cutting back on advertising.
Yet, there was, at the beginning of the drafting stages of this bill, another not-so-obvious conflict that arose. The songwriting community joined terrestrial radio in opposition to the performance royalty. Songwriters and their music publishers were concerned that a performance royalty could cause a reduction in their royalty payments from terrestrial radio.
To address the concerns of the songwriting community, the drafters of the Performance Rights Act inserted Section 5 into the Act. Section 5 mandates that the songwriters’ royalties “shall not be reduced or adversely affected in any respect” by the implementation of the performance royalty. Thus the drafters limited the opposition to the bill.
Considering that the two major streams of revenue for a songwriter and their music publisher are the sale of music (which we all know is shrinking daily) and radio royalties, the insertion of Section 5 into the bill was critical.
So, where do you stand? Let me know by answering the survey on the right. I will let you know where I stand on the bill next week.
One attempt at adaptation is the most recent version of the Performance Rights Act currently before both houses of Congress. To me, one of the most interesting aspects of the legislative process is the demarcation of battle lines within an industry impacted by a specific piece of legislation. The many versions of The Performance Rights Act has created its share of feuds within the music industry.
The purpose of the bill is simple: require standard AM and FM radio stations (technically known as “terrestrial radio” to distinguish them from Internet and satellite radio) to pay performers royalties for the broadcast of their recorded music. Up until now, terrestrial radio stations paid only the songwriter a royalty.
The airplay of songs, so the theory goes, promotes album sales and that is how the artist and their label receive compensation for their creative efforts. Indeed that theory worked well into the late 1990’s. As we all know, the advent of digital technology made that theory about as useful as the one about the earth being flat.
Of course you can easily see the conflict this legislation created. Artists and their record labels (e.g., Warner Bros. Music, Sony/BMG, Universal Music, EMI, etc.) are supportive of monetizing the airplay of their music. But terrestrial radio is, of course, opposed to paying royalties on music they have been using free for years. To complicate matters, every business in the nation is reassessing and cutting back on advertising.
Yet, there was, at the beginning of the drafting stages of this bill, another not-so-obvious conflict that arose. The songwriting community joined terrestrial radio in opposition to the performance royalty. Songwriters and their music publishers were concerned that a performance royalty could cause a reduction in their royalty payments from terrestrial radio.
To address the concerns of the songwriting community, the drafters of the Performance Rights Act inserted Section 5 into the Act. Section 5 mandates that the songwriters’ royalties “shall not be reduced or adversely affected in any respect” by the implementation of the performance royalty. Thus the drafters limited the opposition to the bill.
Considering that the two major streams of revenue for a songwriter and their music publisher are the sale of music (which we all know is shrinking daily) and radio royalties, the insertion of Section 5 into the bill was critical.
So, where do you stand? Let me know by answering the survey on the right. I will let you know where I stand on the bill next week.
Thursday, February 26, 2009
Statutory Warranty of Title and Copyright Grants
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.”
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.”
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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