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American Bar Association

ABA Section of Business Law

Business Law Today

On the record
How music connects with law
By John M. Rolfe Jr. and John E. Murdock III
Let's set the scene. Close your eyes. It is a sunny Friday afternoon and you are driving to the country for a long weekend. Your convertible hums along the road, escaping the week's labors, and you turn on the radio. Your favorite song joins the wind, and alone on the road in the middle of nowhere you sing away at the top of your lungs. Paradise.

Have you ever stopped to think about exactly what you were hearing, where the music came from, and how it got there?

Business and art combine through the fabric of law to bring you a song.

It truly does "take a village" to make a successful record. When a performer has a No. 1 hit, it is customary to have a party. At this party, the people and companies involved with the record are thanked. It is a vast crowd: songwriters, song publishers, performing artists, producers, promoters, record companies, bankers, business managers and others. All of these people come together through an intricate matrix of legal relationships to make a single record.

Even if a lawyer is not on the stage at a "No. 1" party (they sometimes are), his or her participation is still essential to fashion the legal rights and duties of so many different interests. This article introduces you to the rights and duties of the primary parties who must cooperate to deliver a record.

Some general industry background and nomenclature may be helpful. There are two primary creative aspects to a record: the song itself and its performance. Songs are written by "songwriters" or just "writers." Some songwriters write both music and lyrics, but others write only one and collaborate for the other. When a song is performed, it is sung by a "performing artist" or "artist."

So even though songwriting is undoubtedly an art, a reference to an "artist" means someone who performs a song. Some very talented people can both write and perform, acting as both songwriters and artists. The legal schematic of the music industry is framed around the respective intellectual property rights of writers (as to songs) and artists (as to performances of songs).

The music industry lives by the old adage that "it all begins with a song." And so it does, often with a song first scribbled on a napkin or notebook paper or played to a tape recorder. From the moment a songwriter fixes lyrics or music in any medium, however informal, a copyright arises. 17 U.S.C. § 102. This copyright is the very foundation of the music industry.

The owner of a copyright in a song, with limited exceptions, has certain exclusive rights, including:

  • The right to reproduce the song;
  • The right to alter or prepare other versions of the song;
  • The right to distribute the song; and
  • The right to publicly perform or present the song to others. 17 U.S.C. § 106.
Although a copyright arises automatically when a work is created, copyright owners achieve added protection under federal law by registering their copyrights with the U.S. Copyright Office in Washington. 17 U.S.C. §§ 504, 505. Through registration, a copyright owner (a) establishes prima facie evidence of a valid copyright, (b) puts the public on notice of the copyright's exact date of creation, and (c) acquires access to federal courts, where the owner can recover statutory damages and attorneys' fees from infringers.

The owner of a copyright in a song has the right to control the first "release" of a performance of the song. Thereafter, anyone has the right to record the song, as long as they pay royalties to the copyright owner. 17 U.S.C. § 115.

Even a song protected by a valid registered copyright is worth nothing unless someone performs it. Thus, songs must be marketed to performing artists. Most songwriters do not promote their songs by themselves. Instead, they assign their copyrights to music publishing companies in exchange for a "writer's share" (usually 50 percent) of the royalties earned from use of the copyright.

The music publisher will make a song demonstration recording or "demo." Once created, the publishing company "pitches" or presents the demo songs to various artists or record labels in hopes that one will "cut" or record the song for their next album. When an artist records the song, the songwriter and the publishing company finally have the opportunity to make money.

A successful recording produces revenue for the songwriter and publishing company through many different distribution channels.

U.S. copyright laws entitle the owner of a copyright of a song to a "mechanical royalty" each time a "copy" of the song is sold. The sale may consist of a piece of sheet music or of a performance recorded on tape, CD or any other tangible medium. The rate of royalty may be determined by negotiation. Absent an agreement, the U.S. Copyright Office has set a "statutory" rate for mechanical royalties.

For example, on the sale of a single CD, the owner of the copyright for one song on the CD currently receives 9.1 cents unless a lower rate has been negotiated. Most mechanical royalties for songs are collected and distributed through The Harry Fox Agency.

U.S. copyright laws also entitle the owner of a copyright of a song to a "performance royalty" whenever a song is "performed," whether the performance is live or pre-recorded. Thus, when a song plays on the radio, or when a band plays a song in your local bar, the songwriter earns a royalty. These performance royalties are collected and administered by one of three "performing rights organizations" (ASCAP, BMI and SESAC, collectively called PROs). Each song in a music publisher's repertoire is designated for collection in the United States through one of these PROs.

The PROs collect royalties on actual performances where they can be tracked (such as on radio). Where performances cannot feasibly be tracked (such as at your local bar), the PROs issue "blanket licenses" to the locations and allocate the revenues among songs likely to have been performed by using statistical methods.

The more popular a song becomes, the greater chance that other financial opportunities may arise beyond the usual mechanical and performance royalties. These other opportunities include the use of songs in other mediums such as motion pictures, TV shows, TV commercials, plays, books, DVDs, the Internet and ringtones.

Publishing companies may grant "synchronization licenses" (licenses to synchronize music with visual content) for use of a song in motion pictures and television programs. The license fee for such use is a negotiated amount that depends on a number of factors, including (a) how the song is used by the movie studio or TV network (from background music to specifically featured music), (b) whether the song is being used as the title of a film or television program (think "Pretty Woman") or over the opening or closing credits, and (c) the popularity of the song.

A market that has grown over the past several years is the use of songs in TV commercials. Ad agencies pay considerable amounts of money for the right to use songs that become synonymous with their products (such as, the use of the song "Like a Rock" for Chevrolet trucks).

With the use of the Internet and technology changing every day, the digital distribution of songs increasingly provides significant revenue opportunities. Songs can be distributed digitally not only as downloads for general use, but for use as ringtones for cell phones and for other digital devices. Some of these uses lend themselves to the unauthorized use or "piracy" of songs.

Despite the music industry's recent crackdown on unauthorized file sharing (think Napster and Grokster), traditional record sales continue to slump. The entertainment industry is working hard to minimize piracy through law changes, law enforcement, and the establishment of "legitimate" revenue-producing digital distribution systems.

In addition to collecting revenue in the United States, music publishing companies maintain relationships with foreign organizations to collect royalties in other territories. Many foreign countries are party to the Berne Convention, a treaty that affords some reciprocity in copyright matters. Most developed countries have some means by which a publishing company can collect royalty income from the sales and performances of their songs. In China and many less-developed countries, while potential markets are large, the governments provide no discipline for the collection of royalties on songs; piracy and counterfeiting are rampant.

Lawyers often deal with song "catalogs" (collection of songs) when copyright owners want to sell or encumber their interests in copyrights. In either of these settings, the lawyer's primary tasks are to confirm the title to the copyright assets and determine their legal sufficiency.

Diligence on a song catalog first takes the lawyer to the U.S. Copyright Office. As explained above, music publishing companies register their copyrights with that office. The lawyer can do a rudimentary search of the official copyright records through the Internet, but a more detailed search requires the engagement of a search firm. This search will show the chain of title to copyrights and can be evaluated much like real estate titles are examined.

One shortcoming of the copyright records search is that there is a grace period within which filed conveyances may have retroactive effect (up to two months before filing). Therefore, the public records can never be presumed to be totally current, and there is some measure of trust (backed by contractual warranties) that one receiving a transfer of copyrights must place in the grantor.

Although the records of the U.S. Copyright Office will disclose titled ownership and liens, it is also prudent to perform a search for UCC financing statements. A security interest in a registered U.S. copyright can be perfected only by a filing in the U.S. Copyright Office, and a financing statement is ineffective to perfect. See UCC § 9-311; National Peregrine, Inc. v. Capitol Federal Savings & Loan Ass'n (In re Peregrine Entertainment, Ltd.), 116 B.R. 194 (C.D.Cal. 1990).

The sale or encumbrance of a registered copyright may involve ancillary rights beyond the copyright itself, however. These other rights could be subject to a security interest perfected by a financing statement. A UCC search will also avoid disputes with lenders who may not have understood the filing requirements but who claim an interest in the copyrights.

Even if the transferor has good title to a copyright, the lawyer must consider whether the copyright itself is subject to other limitations. For example, when the writer assigns his or her rights to a publishing company, the writer retains a financial interest. Although this interest is usually 50 percent, it could be more, and this interest encumbers the publishing company's right to royalty revenues. It is also possible for a writer's contract to include reversionary rights or other impairments of title in the hands of the publishing company.

Through due diligence, one must also carefully examine the "life" of copyrights. Copyright owners of a song enjoy a limited period of time when they can control the exploitation of such songs. Once the copyright for a song expires, the song goes into the "public domain." Anyone can then use the song without getting permission and without paying a royalty. Depending on when a copyright was actually created or first published, the life of a copyright varies and can be difficult to calculate. The U.S. Copyright Act treats songs that were written before 1978 differently from songs written after 1978.

The Copyright Act also provides limited opportunities for original creators of songs to reclaim their copyrights. This right to "terminate" a prior grant by the writer is absolute as long as specific procedures are followed and regardless of any contract language to the contrary. Many years ago, struggling songwriters often gave away or transferred all rights in their songs for little or no compensation and entered into long term, unfavorable publishing contracts with music publishers. The "termination" provisions of the Copyright Act allow for the original creators to undo some of these bad deals and control the exploitation of the copyrights for the remainder of the copyright term.

The grantor of an interest in a copyright should warrant that the copyright is valid and does not infringe on any other copyright. All asserted claims to the contrary, however informally made, should be disclosed and investigated. Even with this diligence, however, it may not be possible to assure totally that a copyright is valid.

Remember that song you imagined playing on the radio in your convertible on the way to the country? The "performance" of the song by an artist generates its own set of royalties separate from the royalties due for the use of the words and music.

An artist who records a song has a copyright in the performance or "sound recording," just as a writer has a copyright in the words and music of a song. 17 U.S.C. § 114. But artists almost never work alone in performing a song; the producer, drummer, guitar player and every musician involved can lay a claim to some element of the performance. Also, it takes financial resources to engage the musicians, obtain the use of a recording studio, and promote a record once it is cut. These complexities are why most records are created by artists who are under contract with record companies or "labels."

Through various agreements, the artists and the others involved in the creation of a record assign their copyrights or other interests to record companies, just as songwriters assign their copyrights to publishing companies. However, deal points between record companies and artists vary much more widely than terms between songwriters and publishing companies. For example, a very popular artist may receive multi-million dollar advances as an inducement to sign with a given record label and will negotiate hard for a high percentage of revenues.

The digital or analog recording that is the tangible embodiment of a musical performance is referred to as a "master recording," or just "master." Because of the assignments described above from all performing parties, the master recordings are usually owned or controlled by the record labels (or in some cases producers). Most record companies register their copyrights in the master recordings with the U.S. Copyright Office, just as publishers do for their words and music.

Record companies sign artists to their labels in hopes that the artist becomes the "next big thing" and earns the label millions of dollars. This "dream" is seldom realized. Often overlooked is the enormous amount of money that flows out of record labels, never to come pouring back in. In fact, nearly 80 percent of all records released by record labels fail to earn enough money to cover the label's investment. The successful 20 percent must pay for the remaining failures.

Of the thousands of new albums released in the United States every year (including major record labels and independents), only a handful achieve "platinum" (selling more than 1 million units) or "gold" (selling 500,000 units) status. Although some of the remaining albums surely break even or make some profit, the vast majority are economic failures.

Record companies receive royalties from sales of their recordings and share their negotiated portions (usually a percentage of the wholesale or retail price of the recordings after costs) with the performing artists. Advances paid to artists when they sign their recording contracts are usually recouped by the record company before the artists receive royalty checks.

In most countries outside the United States, the owners of master recordings receive "performance royalties" for traditional radio play just as writers do. In the United States, however, other than for the distribution of "digital" sound recordings (see the Digital Performance Right in Sound Recordings Act of 1995), the Copyright Act does not provide for the owners of master recordings to receive performance royalties for such traditional airplay. In other words, when a record is played on a traditional radio station in the United States, the only benefit to the record companies and their artists is the popularization of their music to support record sales and concerts.

Performing artists do have other significant opportunities for income beyond their recording contract royalties. The two primary additional revenue sources are touring and merchandising revenue. A successful artist tour generates substantial income through concert ticket sales and the sale of merchandise (shirts, hats, mugs, photos, etc.) at the concert. With the popularity of the Internet, merchandise sales also occur through fan clubs and artist Web sites. Although alternate income streams can be lucrative, income generated through these ventures is usually divided among an artist's "entourage" (business manager, personal manager, publicist, assistants, etc.).

Lawyers whose clients are acquiring interests in master recordings should perform the same basic title diligence as described above for copyrights of words and music.

In addition to ordinary title diligence, the lawyer should be aware that the validity of the record company's copyright to a master rests on the paperwork done when the song was recorded. The primary artist(s) on a record will have economic rights and on occasion control rights, and their contracts must be reviewed. For example, a master recording sale could be negated if it is discovered that the main artist had reserved the absolute right to control the sale of the master. Even the lesser performers on a record may have copyright claims to the performance if they did not sign appropriate "work-for-hire" documents.

Thus, at a minimum, the grantor will provide warranties and representations as to the validity of the copyright in the master recording. Unless the grantor is a substantial and financially stable recording company, the lawyer might also want to inquire as to the company's documentation practices or, for a valuable song, review the actual underlying documents signed at the recording studio.

All of the above complexities and more come together to bring you a song. So when you next have a "moment" with your favorite tune, give a brief thought to the legions of players and the mountains of statutes, case law and contracts that made it possible. But after the passing thought, just relax and enjoy the music. After all, the point of both the business and law of music is to allow you to have fun.

How long does a copyright last?

  • For songs created after Jan. 1, 1978, the term of the copyright extends for a period of time equal to the life of the last surviving author plus 70 years. For "anonymous" or "pseudonymous" songs or "works made for hire," the copyright in such songs lasts 95 years from the year the song was first published or 120 years from the year the song was created, whichever ends first.
  • For songs that were written but not published before Jan. 1, 1978, the term of the copyright extends for a period of time equal to the life of the last surviving author plus 70 years, but the term will not expire earlier than Dec. 31, 2002. If a song was published between Jan. 1, 1978 and Dec. 31, 2002, the copyright in such song will not expire before Dec. 31, 2047.
  • For songs created and published before Jan. 1, 1978, the term of the copyright extends for a period of 95 years from the date the copyright was originally secured.
Rolfe is of counsel and Murdock is a member at Boult, Cummings, Conners and Berry, PLC, in Nashville, Tenn. Rolfe's e-mail is jrolfe@boultcummings.com and Murdock's is jmurdock@boultcummings.com.

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