Tuesday, January 31, 2012

Music Business/Law Tips - "Breaking A Record Contract" (Part 7)

Since recording agreements first came into existence, an oft heard clarion call by an artist is that the contract is patently unfair. A record contract that is one-sided and skewed heavily in favor of the record company could be argued to be a contract of adhesion. A contract of adhesion is a standardized contract which, if imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. Generally, a contract of adhesion would be valid unless it is ambiguous, or it is "unduly oppressive or unconscionable under applicable standards of equity." In conjunction with this scenario, an artist who was not represented by an attorney before signing the adhesion contract could also argue that he/she was too unsophisticated to understand what he/she was signing.

In a pertinent dispute, singer George Michael filed a suit in England to get out of his long-term recording agreement with Sony. His argument was that certain practices in the music industry were so obnoxious that they amounted to a restraint of trade. These practices included tying up an artist for a long period of time at the company's option, and computing royalties in ways that pay the artist far less than the royalty rate implies. The court held that the terms of his deal were reasonable, and thus there was no restraint of trade. Apparently, the court agreed with the argument set forth by the label that current deals are for a term of six to eight albums at the company's sole option because a label cannot afford to promote new artists unless they are assured the benefit of the artist's success in later years. The foregoing court's rationale in the Michael's matter is evidence that unfairness alone may not be enough to allow an artist to jettison a contract.

[part 8 next time]

Ben McLane, Esq

Sunday, January 22, 2012

Music Business/Law Tips - "Breaking A Record Contract" (Part 6)

Another situation akin to breach that frequently arises in an artist deal (and which somewhat relates to the Seven Year Statute) involves a dispute over the expiration date of the agreement. As mentioned, many recording agreements provide for a minimum term of minimum one year, with separate options of minimum one year each, sometimes tied to the delivery of product. The record company generally has the privilege of either exercising the right to continue the contract, or to let it lapse. Most contracts have a specific provision for the exercise or non-exercise of options. If the exercise provision is not properly complied with by the label (e.g., the label fails to give written notice of its intent to pick up an option), the artist can argue that it is free to sign a new contract.

Similarly, an artist could also allege that it has fulfilled its recording commitment to the label. Every artist agreement bestows on an artist the duty to record and deliver a specified number of masters to the record company during the term. Unless the contract provides for a detailed schedule of how many records to deliver in any given period, if the artist is signed, for example, to a five album deal, the artist could theoretically deliver the five albums at any time and fulfill the delivery requirement. Legend has it that Frank Zappa once pulled this stunt when he delivered multiple albums at one time so that he could claim he fulfilled his obligations. Apparently, the record company had not safeguarded against this occurrence. On the flip side, when an artist is trying to fulfill the delivery commitment, and the label is not reciprocating, the artist could argue that the label is refusing to let the artist record and wrongfully attempting to suspend the artist for non-delivery of product. If there is no possible basis for failure to accept the recording, this could be a breach of a good faith duty or obligation by the label.

It is important to note that buried within most record contracts is a notice provision whereby any claim of breach by the artist must be submitted in writing to the label with the label having an opportunity to cure the alleged breach. If a notice is not timely and properly served on the label by the artist, the artist may have failed to fulfill a condition precedent to support a legal action for breach of contract.

Obviously, a breach of a recording contract can be argued under a myriad of instances, so the underlying contract should be closely scrutinized for potential cracks.

[part 7 next time]

Ben McLane Esq

Wednesday, January 11, 2012

Music Business/Law Tips - "Breaking a Record Contract" (Part 5)

The charge that the label committed a material breach of contract can also be a successful mechanism for an artist to utilize in a bid to leave a record company. A material breach can be alleged in many different forms, but the most common is the lack of proper payment of royalties by the label.

Just such a breach was highlighted in the court decision involving the band the Kingsmen who had a big hit with the song "Louie Louie" in the 1960s. The Kingsmen won a five year court battle in November 1998 when the U.S. Supreme Court upheld a Ninth Circuit Court ruling that cancelled the record company's contract with the group because the company neglected to pay royalties. The suit was based in part on the law of rescission which states that a party may unilaterally rescind a contract if there have been "breaches of the contract so material and substantial in nature that they affect the very essence of the contract and serve to defeat the object of the parties." This was a most egregious case because the record label - G.M.L./Gusto - had apparently never paid any royalties under the contract, even though the band's recorded version of "Louie Louie" had generated considerable sums over the years through usages in compilations, movies, and TV. In particular, the ruling called for the return to the band the ownership in the master tape of "Louie Louie" and other recordings.

In a similar 1996 dispute, the multimillion selling group the Offspring attempted to exit its contract with Epitaph Records, an independent label. The group fired the first salvo by initially declaring in no particular detail that Epitaph breached its contract. Although the matter was settled, the pressure move worked because the band later signed a lucrative deal with the major label Columbia Records.

A breach argument might also exist if there is a provision in the record contract whereby the label guarantees that a minimum amount of recorded product will be commercially released by the record company. If the company does not fulfill its commitment to release, the company may not be able to pick up the next option. However, unless there is a specific definition of "release" included in the contract, this would not be a definitive escape route.

[part 6 next time]

Ben McLane Esq

Tuesday, January 3, 2012

Music Business/Law Tips - "Breaking A Record Contract" (Part 4)

Being a minor under contract also provides a loophole for dissatisfied artists. In the current marketplace, there is a high consumer demand for teen idols (e.g., Justin Bieber, Cody Simpson). As a result, many minors are signing recording agreements. The major risk in entering a contract with a minor is that generally under California Family Code Section 6751 [and similar laws in other states] the contract is voidable at the option of the minor either "during the minority of the person entering the contract, or at any time thereafter....". In California, the age of majority has been 18 since 1971. Hence, once success is achieved, an artist could use to his/her advantage the fact that the contract was signed during minority, thereby opting to disaffirm the contract.

David Cassidy, the 1970s pop star, used this exact scenario to his advantage. As a teenage unknown, he signed a production contract to act on the TV show The Partridge Family, and to record on Partridge Family records. The contract granted the producers of the show and the recordings the right to use Cassidy's name, image and likeness. Partly as a result of Cassidy's teen idol good looks, the show and records became a runaway success and the producers cashed in by selling millions of dollars worth of recordings and merchandise. In order to force the producers to renegotiate his deal, Cassidy notified them that since he had signed the contract as a minor (21 was still the age of majority when he executed his agreement in 1970), he was disaffirming the contract and thus the producers would have to remove his name, image and voice from everything manufactured up to that point. Not having a legal leg to stand on, the producers renegotiated his deal, making Cassidy the highest paid young performer at that time.

In order to avoid a situation like the above, recording agreements in which a minor "is employed...to render artistic or creative services" (e.g., singer or performer) can be approved by the superior court, as allowed for by Section 6751, which prevents the minor from disaffirming the contract. (i.e., as if the minor had signed the contract as an adult). Approval of the court may be given on petition of either party to the contract and after a hearing and/or simply a court review of the paperwork. Although court approval of a minor contract is routinely done in the entertainment industry, not all record companies make the effort (or are too cheap or lazy) to protect their investment, and thus the artist can use this failure to the artist's advantage.

[part 5 next time]

Ben McLane Esq