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

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