By now, you've probably heard that termination rights" in older contracts may allow artists to regain control over their valuable masters. This would apply to works created over 35 years ago, though lots of fine print, legal battles, and application details apply. With that in mind, here's a complete overview of the legal issue in question, its current status, and specific steps that rights holders should take if they want to transfer ownership of these masters to themselves. It was written for Digital Music News by music industry attorney Steve Gordon, with assistance from Nari Roye, Esq.
Just remember: your label doesn't want you reading this!
'Legacy' recordings, or reissues from the vast catalogs of Sony, EMI, Warner and Universal and their associated labels such as Epic, Columbia, Capitol, and Atlantic, are still a huge business for major labels. As of the first half of 2011, sales of catalog music accounted for 47% of all album sales and 60% of track sales according to Billboard! Spotify's top 50 albums contain many compilations with older titles including TheEssential Michael Jackson, Fleetwood Mac's Rumours, 100 Hits of the '80s, and The Essential Journey. But most of the income from these sales accrues to the benefit of the record companies, rather than the artists or their estates, because the labels only have to pay royalties after fully recouping production and marketing costs, and recoupment occurs at the artist's royalty rate.
This means that the labels are making money even if the artist has not earned enough to repay the labels' expenses. Sales of legacy records is a huge factor in keeping the majors afloat as they continue to suffer from competition from free music made possible by illicit websites. The demographic for legacy recordings tends to consist of older fans who are not as adept at using the internet to collect free music downloads or are more apprehensive of the legal consequences than their children.
Meanwhile, income from recorded music has plunged to approximately $6 billion from more than $14 billion over the past decade, in large part because of unauthorized downloading. But this downloading is oftentimes skewed towards newer releases, leaving the record labels disproportionately dependent on sales of older recordings.
Artists' Right to Terminate
Now, here's something the majors really, really hate. Under the Copyright Act, classic albums by Bob Dylan, Billy Joel, Van Halen, Talking Heads, AC/DC, and many others will begin to be subject to 'termination.' This also applies to a vast number of less famous recordings, starting with those produced in 1978. This could have a significantly negative economic impact on the labels.
The 1976 Copyright Act includes a termination right," which cannot be contractually given up, which allows the original content creator to reclaim" the copyright on their works. Congress recognized the disparity in bargaining power between creators and assignees, usually corporations, and provided a practical compromise that would recognize the interests of both sides. In addition, the termination right acknowledges the impossibility of determining the value of a work until it has been exploited. Ideally, artists would have the opportunity to sign better deals after the value of their work is recognized. What This Means to You, the Artist or Songwriter
In regard to the music business, this means that songwriters and artists are entitled to recapture the rights in their songs and records even though they previously granted exclusive rights to music publishers and record labels.
Authors of songs and sound recordings produced after January 1, 1978 can terminate a transfer in two ways: (1) the sooner of 35 years after 'publication' (that is, commercial release) or (2) 40 years after the date of the contract (songs written prior to 1978 may also be subject to termination, but the rules pertaining to that are beyond scope of this article).
The reason this issue is important now is because the 35 year period will be coming to an end in 2013, and many artists/songwriters have already given notice of termination (the law requires, as discussed in the last section of this article, authors or their successors to provide at least 2 years notice prior to the year of termination, but not more than 10 years.) And, if recording artists or their successors can recapture rights in their records it is now easy to distribute those records at almost no cost through the internet. Now, the Hard Part Begins
Sounds like a massive opportunity, though this article focuses on the hurdles that recording artists, their successors or estates will have to jump through to take advantage of termination rights. And, how the record companies will try to prevent them from doing it.
There are two major obstacles confronting artists in terminating the transfer of rights in their records to the record companies:
(1) Termination rights only apply to records that were not created as 'works for hire,' and
(2) the artist may not have been the only author of the recording. Some Legal Nitty-Gritty: The Work for Hire Issue Standard recording contracts almost always state that any records made pursuant to the agreement are 'work for hire.' This would make the record company the 'author' of each record and the artist would have no right to terminate his grant of rights to the label. But under the law, these clauses may not be valid or enforceable.
So far, there are no cases on this point. Traditionally, the labels hedged their bets by inserting an additional clause that for any reason if the recordings were not deemed to be a work for hire by a court of competent jurisdiction, then the artist agrees to assign all his rights including the copyrights in the recordings. However, under the latter provision, the artists would have the right to terminate because an assignment is considered a 'transfer' under the Copyright Act, and the termination provision of The Act applies to transfers.
Section 101 of the Copyright Act defines a work for hire as follows:
(1) a work prepared by an employee within the scope of his or her employment; or
(2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.
In 1999, the recording industry, represented by the Recording Industry Association of America (RIAA) tried to insert sound recordings into subsection (2) by including the words 'as a sound recording' after the words 'audio visual work.' The RIAA actually did temporarily succeed in inserting this change in a 'technical amendment' to a bill called the 'Satellite Home Viewer Improvement Act of 1999,' thus conferring full authorship of those recordings on record companies rather than recording artists if the recording agreement stated that the artist's services were provided on a work for hire basis. The amendment had no connection to the subject matter of the bill which concerned statutory licenses applicable to retransmission of TV signals. It was not included in prior drafts of the bill, but rather crept in at the last moment. According to press reports, this amendment, which clearly served the interests of record companies, was drafted and shepherded through Congress by a particular legislative aide, who, shortly after its adoption, accepted a position as a lobbyist for the RIAA. With neither analysis nor debate, the amendment was accepted by both houses of Congress and signed into law by President Clinton.
Then, it gets interesting. When outraged musicians and scholars discovered that the substantive law of copyright had undergone this dramatic change, the reaction was swift, loud, and overwhelmingly disapproving. Reeling from the bad press, Congress held a brief hearing, in which Sheryl Crow and Don Henley testified, and retroactively repealed the amendment.
But notwithstanding Congress' repeal of sound recordings in subsection (2), it is likely that the record companies in a court battle would still contend that sound recordings are covered by subsection (2) because each recording an artist makes can be considered to be a 'contribution to a collective work' as a 'compilation,' that is, an album.
In fact, many recording agreements include language describing an artist's performance 'as a contribution to a collective work,' one of the listed categories. Record labels would argue that each individual sound recording of a musical composition is a contribution to the collective work or compilation, that is, the finished album and, thus, a work made for hire. Artists may contend that each individual sound recording stands by itself and is only incidentally compiled into a collective work as one of its uses. They would also argue that an album is no more of a compilation than a novel with multiple chapters.
Of course they could also argue that if Congress intended to include sound recording in subsection (2) they would have not have retroactively deleted sound recordings after inserting them in 1999. However, the RIAA was able to insert in the Copyright law that the fact of the repeal of sound recordings from subsection (2) would not establish that sound recordings were not works for wire.
Since the second part of the definition of work for hire may not include sound recordings, in order for record companies to deny artists their right to termination, they may also argue that artists were 'employees' rather than independent contracts. The determination of whether an individual is an employee for the purposes of the work made for hire doctrine is determined under the common law of agency, in which a court looks to a multitude of factors to determine whether an employer-employee relationship exists. In the Supreme Court case affirming that the common law of agency should be used to distinguish employers from independent contractors in the work for hire context, Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), the Court listed some of these factors:
In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party's right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when and how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.
Under these criteria most sound recordings would not seem to be 'works for hire' because most record companies generally do not 'control' artists when they are in the studio making a record, artists almost never receive employee benefits, they don't record on company premises, and record companies generally do not withhold payroll taxes from any advances or royalties. The labels, however, may argue that the artists were in fact employees because they usually have the right to approve the songs artists record, they control the studio time for the recording, have approval rights over what was recorded, and what studios they could record in. On the other hand, some experts contend that the labels may be reluctant to make this argument because if indeed artists were found to be employees, the labels may be responsible for paying back taxes. Indeed, most recording agreements specifically state that the artists are not employees.
Second Problem: The Artist May Not Be the Only Author
Even if the artist was not an employee and is entitled to terminate his grant of rights in his recordings to the label, there is another important issue that must be considered. Producers may be considered authors" too! This is because they don't necessarily act at the direction of the label or the artist although they usually enter into work for hire agreements too. They are often an integral part of the creative process, and may be deemed to be joint authors." So an artist who notifies his record company that he is terminating the transfer of rights in any recording to the company, may have to sort out a new deal with the producer prior to exploiting the re-captured recordings or risk a lawsuit by the producer. Or if an artist had to battle a record company in court, the artist may first have to seek the cooperation of the producer because one of the issues in such a court battle would be whether the artist was the sole author. It's also possible that audio engineers and session musicians may have a claim of authorship, but these would be harder cases to argue as they generally do work at the direction of others, taxes are usually withheld and they may well be considered to be employees.
(The RIAA warns in its website that if recordings are not considered to be works for hire all collaborators on a sound recording ... would be in competition with each other and commercial exploitation ... would be impossible without the agreement of all of the collaborators, to the detriment of both artists and consumers." As we discussed in the article, though, sound engineers and session musicians would probably not qualify as authors.) So What Happens Next?
Many experts think that there will be a lot of settlements with artists getting additional advances for legacy recordings by waiving their right to terminate and the record companies trying to avoid a court battle which could backfire if they lost the case. According to the New York Times ('Record Industry Braces for Artists' Battles Over Song Rights' by Larry Rohter, August 15th, 2011), Given the potentially huge amounts of money at stake and the delicacy of the issues, both record companies, and recording artists and their managers have been reticent in talking about termination rights."
The article goes on to quote a record company executive as stating that there are significant differences of opinion among the big four, which has prevented them from taking a unified position. Some of the major labels," he said, favor a court battle, no matter how long or costly it might be, while others worry that taking an unyielding position could backfire if the case is lost, since musicians and songwriters would be so deeply alienated that they would refuse to negotiate new deals and insist on total control of all their recordings."
In the absence of a definitive court ruling, some recording artists and their lawyers are talking about issuing termination notices rights, eventually distributing these recording themselves, while daring the record companies to stop them. Right now this is kind of like a game of chicken, but with a shot clock," the Times quoted Casey Rae-Hunter, deputy director of the Future of Music Coalition, which advocates for musicians and consumers. Everyone is adopting a wait-and-see posture. But that can only be maintained for so long, because the clock is ticking."
According to noted copyright scholar David Nimmer, a legislative solution would be best solution but until then the courts will decide on a case by case basis.
The Steps Artists Need to Take Right Now
Whatever the ultimate result, here are the actual steps that artists, their successors or estates need to take to initiate termination of his or her transfer of rights in records:
Who Can Terminate
If the artist is deceased his or her statutory successor" can terminate. The statutory successor is the surviving spouse, or surviving children or grandchildren. If none of them are alive, the author's executor, administrator, personal representative, or trustee can terminate. If the Artist is a band or group, termination requires a majority vote of the joint authors or their successors.
When Do They Have To Serve Notice
The artist or statutory successor may give notice of termination no less than two years and no more than ten years before the date that the transfer will terminate.
Content of Notice
The notice must be in writing signed by the owner(s) of the termination interests or by their duly authorized agents, and must state the effective date of the termination. The notice must also comply, in form, content, and manner of service, with requirements that the Register of Copyrights.
To Whom Should They Send Notice
The notice must be served upon the grantee (i.e., the label with whom the artist contracted) or the grantee's successor in title. A copy of the notice must also be recorded in the Copyright Office before the effective date of termination, as a condition to its taking effect.
This story appears courtesy of Digital Music News.
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