Music Publishing Archives

Thomas verdict vacated; new trial ordered

The trial in Capital v. Thomas was one of the first stories I began tracking over a year ago. See Jury Awards RIAA $222,000 against Thomas: My Thoughts on the Verdict and Jammie Thomas to appeal verdict in RIAA Litigation.

Now, in a decision issued on September 24, 2008 – only eight days shy of the one-year anniversary of the verdict – Judge Michael J. Davis of the United States District Court in Minnesota, who heard the case originally, vacated the $222,000 verdict against Jamie Thomas in Capital v. Thomas and ordered a new trial. Read the 44-page verdict.

Judge Davis found that he provided the jury with an erroneous instruction, Jury Instruction No. 15, which read:

The act of making copyrighted sound recordings available for electronic distribution on a peer-to-peer network, without license from the copyright owners, violates the copyright owners’ exclusive right of distribution, regardless of whether actual distribution has been shown.

A fter reviewing case law in other circuits, Judge Davis reached the opposite conclusion in this memorandum and order, i.e. that “Liability for violation of the exclusive distribution right found in § 106(3) requires actual dissemination” and, therefore, the contrary assertion in the instruction substantially prejudiced the jury against Thomas.

In his opinion generally, the Judge Davis examined the reproduction right, the effect of MediaSentry’s involvement in the distribution, the plain meaning of the term “distribution,” whether the term “distribution” is synonymous with the term “publication” under the Copyright Act, and whether a plaintiff has the exclusive right to authorize a distribution.

The Judge refutes the RIAA’s theory that making a copyright available for distribution violates Section 106(3) of the Copyright Act, which gives the owner the exclusive right “to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” Judge Davis examines the dictionary definition of the term “distribute,” other sections of the Copyright Act, and provisions of the analogous Patent Act, to arrive at the conclusion that “the term ‘distribution’ does not including making available and, instead, requires actual dissemination.” The Court noted that if it had intended to include “making available” as one of the means of distributing a copyright, Congress would have specifically added the language as it had done in the Patent Act when Congress amended it to forbade “offers to sell.”

Judge Davis also refuted the Plaintiff’s argument that the definitions of “publication” and “distribution” under the Copyright Act are synonymous as incorrect. His conclusion regarding this issue is worth quoting in its entirety:

The Court concludes that simply because all distributions within the meaning of §106(3) are publications does not mean that all publications within the meaning of § 101 are distributions. The statutory definition of publication is broader than the term distribution as used in § 106(3). A publication can occur by means of the “distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease or lending.” § 101. This portion of the definition of publication defines a distribution as set forth in § 106(3). However, a publication may also occur by “offering to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display.” § 101. While a publication effected by distributing copies or phonorecords of the work is a distribution, a publication effected by merely offering to distribute copies or phonorecords to the public is merely an offer of distribution, not an actual distribution.

Congress’s choice to use both terms within the Copyright Act demonstrates an intent that the terms have different meanings. “It is untenable that the definition of a different word in a different section of the statute was meant to expand the meaning of ‘distribution’ and liability under § 106(3) to include offers to distribute.” Atl. Recording Corp. v. Howell, 554 F. Supp. 2d 976,
985 (D. Ariz. 2008). The language of the Copyright Act definition of publication clearly includes distribution as part of its definition – so all distributions to the public are publications, but not all publications are distributions to the public.

Finally, in reaching its opinion that the jury verdict should be vacated because of the erroneous instruction, Judge Davis clearly states that it is not necessary to reach Thomas’ issue of whether the award was excessive (See page 40 of his opinion). Nonetheless, he did indicate his leanings on this issue in dicta as follows:

The Court would be remiss if it did not take this opportunity to implore Congress to amend the Copyright Act to address liability and damages in peer-to‐peer network cases such as the one currently before this Court. The Court
begins its analysis by recognizing the unique nature of this case. The defendant is an individual, a consumer. She is not a business. She sought no profit from her acts. The myriad of copyright cases cited by Plaintiffs and the Government, in which courts upheld large statutory damages awards far above the minimum, have limited relevance in this case. All of the cited cases involve corporate or business defendants and seek to deter future illegal commercial conduct. The parties point to no case in which large statutory damages were applied to a party who did not infringe in search of commercial gain.

The statutory damages awarded against Thomas are not a deterrent against those who pirate music in order to profit. Thomas’s conduct was motivated by her desire to obtain the copyrighted music for her own use. The Court does not condone Thomas’s actions, but it would be a farce to say that a single mother’s acts of using Kazaa are the equivalent, for example, to the acts of global financial firms illegally infringing on copyrights in order to profit in the securities market. Cf. Lowry’s Reports, Inc. v. Legg Mason, Inc., 271 F. Supp. 2d 42 737, 741‐42 (D. Md. 2003) (describing defendants as a “global financial‐services firm” and a corporation that brokers securities). While the Court does not discount Plaintiffs’ claim that, cumulatively, illegal downloading has far‐reaching effects on their businesses, the damages awarded in this case are wholly disproportionate to the damages suffered by Plaintiffs. Thomas allegedly infringed on the copyrights of 24 songs ‐ the equivalent of approximately three CDs, costing less than $54, and yet the total damages awarded is $222,000 – more than five hundred times the cost of buying 24 separate CDs and more than four thousand times the cost of three CDs. While the Copyright Act was intended to permit statutory damages that are larger than the simple cost of the infringed works in order to make infringing a far less attractive alternative than legitimately purchasing the songs, surely damages that are more than one hundred times the cost of the works would serve as a suffic
ient deterrent.

Thomas not only gained no profits from her alleged illegal activities, she sought no profits. Part of the justification for large statutory damages awards in copyright cases is to deter actors by ensuring that the possible penalty for infringing substantially outweighs the potential gain from infringing. In the case of commercial actors, the potential gain in revenues is enormous and enticing to potential infringers. In the case of individuals who infringe by using peer‐to‐peer networks, the potential gain from infringement is access to free music, not the possibility of hundreds of thousands – or even millions – of dollars in profits. This fact means that statutory damages awards of hundreds of thousands of dollars is certainly far greater than necessary to accomplish Congress’s goal of deterrence.

Unfortunately, by using Kazaa, Thomas acted like countless other Internet users. Her alleged acts were illegal, but common. Her status as a consumer who was not seeking to harm her competitors or make a profit does not excuse her behavior. But it does make the award of hundreds of thousands of dollars in damages unprecedented and oppressive.

One issue I note in this dicta by Judge Davis is that statutory damages, as provided in the Copyright Act, were not necessarily intended only as a deterrent, but also were established because it is sometimes difficult to determine the value of an intellectual property. This does not, however, negate his primary point that a factor of 100x the actual damages might have been a more reasonable award than 500x the actual damages.

Expect to hear more about this case as the new trial unfolds.

Technorati Tags: RIAA Litigation,Music Lawyer,Entertainment Lawyer,Digital Downloads,MP3,Digital Music

All that glitters is not gold – tips on analyzing a songwriting/band contest

When is the last time you heard of someone getting a really “big break” in the music industry through any contest, other than perhaps American Idol? That’s because most artists and songwriters are not discovered through contests, they are discovered through relationships in the industry.

Yet, there are literally hundreds of such contests out there promising thousands of dollars in prizes or a opening slot for a well-known band, or a recording label or songwriting deal — everything but the kitchen sink!

I don not, by any means, mean to say that all contests are rip-offs. There are, in fact, many legitimate contests in which songwriters and entertainers may participate. I do mean to recommend, however, that you do a bit of research and exercise some good judgment prior to sending your submission off into the digital divide.

First, there are some very simple questions to ask yourself initially as you examine these “one in a lifetime opportunities. Look at the source or sponsor of the contest. Often times, their reputation proceeds them. Have you ever personally heard of the contest sponsor? What are the credentials of the sponsoring entity? Have you read about them in any public forum such as a magazine, news article, or online resource? What successes have they achieved in songwriting and/or the music industry, if any? Who are the judges? What are their credentials. Are there any major advertising sponsorships associated with the contests? What are the prizes? Are they substantial? Answers to most, if not all, of these questions can be derived through a simple online search.

Let’s say you’ve done all of the above research and determined that the contest is sponsored by none other than MTV? To most songwriters and artists, there could be no greater sponsor than MTV, correct? But before acting too hastily, let’s move into the second phase of analysis, i.e., taking a look at the RULES.

Now, assume that you determined that since MTV was the sponsor, it must be a great opportunity, so you jump right in with both feet, or in this case, your best demo tape! A chance to open for a great headline act is waiting for the lucky winner! Unfortunately, if you did not read the fine print, you just agreed to the following:

release and hold harmless Sponsor Entities against any and all claims, injury or damage arising out of or relating to participation in this Contest and/or the use or misuse or redemption of a Grand Prize and for any claims based on publicity rights, defamation, invasion of privacy, copyright infringement, trademark infringement or any other intellectual property related cause of action. . . . (emphasis added)

This language comes straight from the rules and regulations in a ongoing “Rock the Revolution” contest sponsored by mtv2.com. See the Rules and Regulation page. This is typical hold harmless clause, which effectively negates any rights or claims you may have otherwise had to bring a civil action against MTV in the event that you are injured as a result of the contest.

In addition, MTV also states in their terms of agreement that:

The approximate retail value (the “ARV”) of the Grand Prize is $150.00. Any difference between the ARV and the actual value, if any, will not be rewarded. If, for any reason, the Grand Prize related event is delayed, cancelled or postponed, MTV reserves the right, but is not obligated, to cancel or modify the Contest in its discretion and may award a substitute prize of equal or greater value.

This effectively means that you could end up getting only $150 as the “grand prize winner” if the concert is canceled for any reason by the headlining act. A corollary effect net effect is that, at most, your damages in a civil lawsuit probably would be limited to $150, the agreed retail value (i.e., by agreeing to their terms, you and MTV agreed to this amount).

Finally, by simply clicking the “I Agree” button on your web browser without first reading the fine print, you also agreed to grant MTV a non-exclusive right, among other things, to record your submission by virtue of the fact that you are a finalist? See this clause from a real contest:

Finalists and Winner agree that by entering into this Contest they are granting MTVN. . . the non-exclusive, irrevocable right and license to exhibit, broadcast, copy, reproduce, encode, compress, encrypt, incorporate data into, edit, rebroadcast, transmit, record, publicly perform, create derivative works of, and distribute and synchronize in timed relation to visual elements, the Submission Materials and/or any portions or excerpts thereof, in any manner, an unlimited number of times, in any and all media, now known or hereafter devised, throughout the world, in perpetuity. . . .

While this is non-exclusive license, meaning that you can issue other non-exclusive licenses to third parties, it does give MTV pretty broad rights to use your submission in almost any form they want. This doesn’t necessarily mean that you shouldn’t participate in this contest, it is just something you should certainly understand and use in weighing your decision.

Believe it or not, this grant is pretty tame compared to the language of other contests I have reviewed for clients. I’ve seen situations where a contestant ostensibly assigns the copyright in a song submitted for a contest to the sponsor. So beware. Make sure there is something in the rules that indicates that you are not transferring any rights or licenses in the submission.

These are just few examples of some of the lawyerly devices that can be utilized in the rules and regulations of a contest, particularly an online contest which a “click agreement” in place. Before you submit your intellectual property, it is probably worth the money to pay a few hundred dollars to an entertainment attorney to advise you as to what the legal ramification are for you and/or your band.

Technorati Tags: Songwriting,Music Lawyer,Entertainment Lawyer,Entertainment Law,Bands,Songwriting Contests,Band Contests,Music Law,Copyright,Entertainment Contracts,Click Agreements

Why “Freeconomics” – and the Music Industry’s Five Point Plan – won’t work in the long term

There is a great deal of talk these days about the concept of “freeconomics,” spurned by the fact that most teenagers and college students are still ripping music and sharing it online. Most recently, the major record labels commissioned a study from two think tanks, The Leading Question and Music Ally, which resulted in a five recommendations for the music industry, including “bundling” of product. Another of the points was “Free doesn’t mean no money.” How original. And oh, by the way, IT DOES ACTUALLY MEAN THAT! You can read the full article about the study here.

Let me start out by observing an old adage, which still holds true in life, that you tend to “get what you pay for.” I’ve always believed in that adage. There is generally a direct correlation in the amount of sawbucks you shell out to the quality of the product you receive. When I cook, for example, I use the freshest ingredients. I spare little expense. Sure, I try to find bargains, but if you skimp on the quality of your ingredients, you always skimp on taste. I have always resisted the impulse to buy meat on clearance!

What about “free” goods? Just think about how many junk e-mails you receive every day offering you a “free” iPhone, or a “free” laptop, or a free whatever. . . the list goes on and on. Don’t you automatically just delete those? Of course you do — because everyone knows these types of things are given out for free: first, someone is actually paying for those goods; secondly, you have to subscribe to a certain number of paying offers in order to actually receive the “free” iPhone or laptop. There is another adage: nothing is life is free. Fact of the matter is, if I wanted an iPhone, I’d go out and buy it.

Now, let’s turn our attention to “freeconomics” and honestly call it what it really is: freakenomics! Again, nothing in life is free.

Nonetheless, we are lead by these researchers to examine Google and its model of giving out free software as an example of how the music industry can give away music and still achieve a profit. This analogy is wrong on so many levels, but I’ll just point out one basic incongruity: the software developers that are writing software for Google work for the conglomerate under a work for hire agreement – Google does not have to compensate multiple rights owners. It owns the entire product.

This is not so with a musical composition/sound recording combination. That is bundle that is not so readily united. The record label generally owns the sound recording of a musical composition, but does not always own the underlying music compositions. There may be multiple owners of the underlying compositions which have to be compensated – multiple songwriters and multiple publishers. The producer also must be compensated. The musicians who play on the record have to be compensated, not to mention their union fees and retirement fund. The engineers who work on the project are compensated. The artist has to be compensated for their performance. The people who master the product must be compensated.

What the simplistic – dare I say naive – five point plan laid out by the record “think tank” overlooks is that in order to accomplish the equivalent of something like a Google in the music industry, one has to completely rewrite the industry. While this is not a new idea, it is also not an idea that can be accomplished in today’s copyright structure nor within the current orientation of the music industry. Hundreds of years of practice have to be completed abolished for the Google model to work in the music industry.

Let’s look an entity that has actually tried to make such a paradigm shift: MySpace. It is most definitely the place where independent artists go to get their music heard. The music is generally free. How many artists have you listened to on MySpace in the last month? I’m in the industry, and I have listened to maybe two, but only because I received a specific request to do so.

How many artists on MySpace actually make a lucrative living doing what they are doing there? Again, the music is free isn’t it? Freecomonics will get us something akin to the quality of music that you find on MySpace in general. There is no realistic way to sift the wheat from the chaff.

The instant you stop rewarding the songwriters and artists that create the music — removing a real incentive for creating their art full time — the sooner you’ll find a void in the really high quality music. Yes, there are some who say that artists will produce art regardless of whether they receive compensation, because that is what they do. However, this is not historically accurate in music or any of the arts. If you find an artist who is thriving, you will generally find a source of money, whether it be selling the artwork to a famous benefactor or having financial muscle behind him or her.

In music, the major labels have historically been the finders and funders of the talent. They spend a lot of money discovering, developing and marketing the talent. For the most part, it is the major label product that gets traded on the P2P networks. That is one factor that is often overlooked. What the general public wants to hear, and shares on P2P, is generally the music that is marketed heavily – generally by the major labels. That will not change until someone constructs a better way to get music heard by the public in general.

So, I believe if you remove the economic component of music, you will ultimately eliminate the talent altogether. Otherwise, the talented will have to get day jobs to support their art and the art will most certainly diminish and/or suffer.

Let’s turn to some of the other suggestions made by The Leading Question and Music Ally:

(1) Music needs to be bundled with other products and entertainment packages. They conclude that “music needs to move away from per unit sales and become more of a service than a product.” Can we say YAWN class? The record labels cannot break themselves of the idea that people want a package deal. We don’t. We want ala carte! The sooner that the industry comes to this realization, the better off they will be. Isn’t this what the labels have been feeding us for years? This is but the “record album” in another iteration. Buy this collection of 10 songs, 2 of which are what you actually want and 8 of which bite! Come on guys, hasn’t the digital revolution taught you anything? Wake up and smell the single downloads. That IS what the consumer wants. Build a model that incorporates the single download. Don’t build a model that ignores it.

(2) Labels needs to experiment with new release schedules and formats. Seriously? Again, the think tanks suggest that “single . . . releases have run [their] course.” Ditto what I said above. Check out
the success of iTunes, emusic, Amazon, etc. etc. Check out what happens on P2P networks when a new digital single is released. The single is NOT a thing of the past. Now, granted, I agree that digital only releases and new pricing models are going to be part of the new model — couldn’t any fourth graders could tell you that? But again, people want their music ala carte. They want good music. They don’t want the bundles, the fillers, the parasitical crap that the industry wants to latch onto what they really want.

(3) Change the charts. Yes, people actually get paid to say this stuff! The conclusion is that the charts don’t make sense anymore because fewer people are buying music. In fairness, I understand this one to some degree. But, has anyone noticed that Billboard already tracks digital downloads? Has anyone noticed any of the other p2p tracking devices, such as Big Champagne, just to name one. Sure they have and so have the major labels. In fact, that is in part where many of the researchers get their data. No doubt, the tracking of general overall consumption should be an important factor in consideration. While we are at it, why not pay more attention to the portion of the market called baby boomers. The older generation that buys music, but rarely gets consulted when discussing these issues.

(4) Trust the DJ. Next to the CD format, the other big thing the record industry has a hard time letting go of is the radio format. The record industry likes to control the advise given about music so that they control what the listener “wants” to hear. The think tanks concludes that “the instant and massive availability of music on demand means you need a trusted guide like John Peel more than ever.” I disagree with this conclusion because I believe that this “advisor model” is antiquated. These days, most people rely more on social networking – either virtual or real — and trending algorythms to determine what music they enjoy. I don’t know of any teenager that listens to terrestrial radio any more. For them, a DJ is someone at a wedding reception and they are not likely to take advise from that person.

Yet, the file sharing continues and, more importantly, so does the need for change. Now that I have ranted a little about the suggestions made by these industry think tanks, let me say that I do, in fact, appreciate their efforts to come up with solutions to the declining music industry. I wholly agree with what the managing director of Music Ally, Paul Brindley says in the article, that the

“business models need to change radically if the music business is to stand any chance of halting the current decline in sales.” Without a doubt, something truly has to be done or the industry will fail.

As I heard one venture capitalist put it, for him to consider an investment in the music industry, it must be a paradigm shifting, industry changing business model. These suggestions by The Leading Question and Music Ally just don’t quite rise to that level, in my humble opinion. In my opinion, the ultimate solution will be a fair priced – but not free – digital download model. The most important component that is missing thus far, and that is critical, is a means of getting the music heard by the general population. We have many services which may be close, but as of yet, we are not quite there.

Technorati Tags: Music Industry,Digital Downloads,Music Publishing,Songwriting,Music Law,Internet Law,Record Labels,RIAA Litigation

Life on the Row, Music Publishing, Music Row News, Nashville

Music Row Magazine sold

Music Row magazine has been “Nashville’s Music Industry Publication” for 26 years. Yesterday, Music Row announced that it was being acquired by SouthComm Communications, Inc.

SouthComm is a Nashville-based media company founded in 2007 by Chris Ferrell and Nashville investment firm Solidus Co., led by Townes Duncan. Duncan is chairman of SouthComm and Ferrell is CEO. Their first acquisition was SouthComm Publishing Company, Inc. of Alphraetta, Georgia.

Ferrell was formerly a council person in Nashville and publishers of The Scene, an alternative weekly publication owned by New Times Media of New York.

SouthComm is a custom publishing company focusing on local and niche news, information markets, membership directories and city publications. Music Row joins SouthComm’s current stable of publications, which includes the print and digital publications Nashville Post and Business Tennessee.

“I’m a believer in niche publications. My belief about the future of print is that it needs to be very targeted.”

Ferrell said in an article for Nashville Business Journal in January of this year.

“The SouthComm collaboration is a great fit,” says David Ross, current publishers of Music Row magazine. He will remain CEO of the industry publication, but will given the position of Vice President for SouthComm and a seat on the Board of Directors.

“Joining a larger organization means Music Row [magazine] will benefit with added resources, efficiencies of scale and cross marketing opportunities. SouthComm also provides added conduits for music industry news to reach a wider network of Nashville business leaders and bolster the process of uniting Nashville’s music and business communities.”

Music Row‘s current staff will remain intact, including Ross’ wife and partner Susana and Robert K. Oermann, who has appeared in MusicRow for most of its existence.

Technorati Tags: Music Row,music industry,Nashville

Atlantic Records et al. v. Brennan: Federal Judge Denies Default Judgment for RIAA

U.S. District Judge for the District of Connecticut Justice Janet Bond Arterton, handed down a very pointed and decisive opinion hammering the R.I.A.A. for its boilerplate style of pleading in the nationwide wide campaign against illegal file sharing. Justice Arterton was appointed by President Clinton in 1995. The full decision is here: Decision. At several key junctures in the opinion, Justice Arterton based her opinion on the fact that the Plaintiff’s complaint was based on “information and belief” rather than direct evidence.

The two areas of concern in the opinion, one is whether to grant a default judgment under Federal Rule of Civil Procedure 55(b)(2) and the second is whether the complaint fails to state a claim for which relief can be granted under Rule 12(b).

Default Judgment Analysis under Rule 55(b)(2)

The granting of default judgment is generally almost a “rubber stamp” kind of process. If the defendant is properly served and fails to respond to the complaint, a default judgment is almost always automatic. If the complaint demands an exact amount as judgment, the default judgment can even be entered by the court’s clerk under Rule 55(b)(1). If not, then the court holds a hearing to determine the amount of damages under Rule 55(b)(2). In this instance, however, the court stepped in and took it upon herself to examine the validity of the claims.

Reasoning from a 2nd Circuit case, Au Bon Pain Corp.v. Artect, Inc., 653 F.2d 61 (2d Cir. 1981), the court found that the default judgment process is not, in fact, automatic, but that “a district court has discretion . . . to require proof of necessary facts and need not agree that the alleged facts constitute a valid cause of action.” Artect, at 65, citing Wright & Miller, a well known legal treatise on procedure.

Looking a another legal treatise, Moore’s Federal Practice, Justice Arterton reasoned that the analysis should combine elements from Rule 55(c), the rule allowing the setting aside of a default judgment, and Rule 60(b), a more generic rule allowing a court to set aside judgments. Finding support for this analysis in 2nd Circuit case law, the court held that three factors arose in determining whether to set aside a judgment under either of the two rules: (1) “the willfulness of default”; (2) “the existence of a meritorious defense”; and (3) “the possibility of prejudice to the plaintiffs should the default judgment be vacated.”

In weighing these factors, the judge determined that the latter two factors shifted in favor of the defendant, i.e., there were abundant meritorious defenses raised in similar cases filed by the RIAA across the country, and the Plaintiff would not be prejudiced by being required to produce more specific evidence. In both instances, the court again mentioned the language that the Plaintiff’s complaint was based on “information and belief.”

Failure to State a Claim Upon Which Relief Can be Granted under Rule 12(b)(6)

The more telling section of the opinion is the court’s ostensibly sua sponte (i.e., of its own accord) analysis of whether the Plaintiff’s complaint failed to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. This rule generally gives the defendant a right to raise this defense in a response to a complaint. Ostensibly, the court raised this issue in the context of possible meritorious defenses.

Justice Arterton cites the recent Supreme Court opinion that a complaint “does not need detailed factual allegations, [but] a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions.” Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964–65 (2007). She then observed that Plaintiff’s complaint in this case was almost identical to the one filed in Interscope Records v. Rodriguez, where the court held:

Plaintiff here must present at least some facts to show the plausibility of their allegations of copyright infringement against the Defendant. However, other than the bare conclusory statement that on “information and belief” Defendant has downloaded, distributed and/or made available for distribution to the public copyrighted works, Plaintiffs have presented no facts that would indicate that this allegation is anything more than speculation. The complaint is simply a boilerplate listing of the elements of copyright infringement without any facts pertaining specifically to the instant Defendant. The Court therefore finds that the complaint fails to sufficiently state a claim upon which relief can be granted and entry of default judgment is not warranted.

Rodriguez, No. 06-2485, 2007 WL 2408484, at *1 (S.D. Cal. Aug. 17, 2007). Citing the Second Circuit case Greyhound Exhibit Group, Inc. v. E.L.U.L. Realty
Corp., 973 F.2d 155, 158 (2d Cir. 1992), which held that the entry of default “constitute[s] a concession of all well pleaded allegations of liability,” Justice Arterton ruled that Plaintiff’s complaint was “speculative” and “inadequate.”

Eric Bangeman, of Ars Technica reports that the RIAA plans to file a brief, probably accompanying a motion for reconsideration, and possible an amended complaint, as they did in Interscope v. Rodriguez. The amended complaint provided additional details about dates, times, and IP addresses. Whether the additional details of that amendment will alter the application of Rule 12(b)(6) is still unknown, as the judge in that case has since retired.

Technorati Tags: RIAA Litigation,Digital Downloads,Copyright Infringement,File Sharing

Digital Downloads, Entertainment Industry News, Entertainment Law, Internet Law, Music Publishing

Copyright Royalty Board begins critical hearings

On Monday, January 28th, the Copyright Royalty Board (CRB) began what will be four weeks of hearings. The CRB will hear testimony from interested parties on both sides of issues which will ultimately determine the statutory mechanical rates for songwriters and music publishers. The CRB sets these rates periodically, but these particular hearings are more critical than usual because, in addition to setting rates for physical products, rates will be set for the first time ever for digital products such as digital downloads, subscription services and ringtones.

On one side of the issue is the Recording Industry Association of America (the “RIAA”), which represents the major record labels’ interest, is proposing that the current rate of 9.1 cents per mechanical copy produced be reduced to 6 cents! That reduction would roll back the rates to, well, let’s just say to well before the birth date of most of the college students the RIAA is prosecuting across the country for downloading. For digital reproductions, the RIAA is proposing an even lower rate of 5 to 5.5 cents per track.

On the other side of the issue, representing the publishers and songwriters, is the National Music Publishers Association, the NMPA. In contrast, the NMPA proposes increasing the statutory rate to 15 cents, and for digital reproductions, a rate of the greater of 12.5% of revenue, 27.5% of content costs, or a micro-penny calculation based on usage.

This are important issues, and I’ll try to keep you posted here on Law on the Row as developments happen.

Client Activity, Life on the Row, Music Publishing, Nashville

The Virtual CFO

Rarely do you get the opportunity to meet with some one who has the same “soul” that you have. I had an interesting meeting with Scot Justice over the h olidays. Scot is a fellow blogger who writes the Virtual CF blog over at Typepad. His article about out meeting can be found here. Scot and I share a mutual client who found us both through out blogs. After a good long conversation with Scot, I would recommend him for you small business accounting needs. Like me, Scot’s background is extremely diverse, ranging from small businesses to large corporations. His experience gives him a very broad base from which to offer counsel to small business clients. I like what Scot is doing. One article I found particularly helpful was the one dealing with CPA Mortgage Letters. Check out his blog!

Technorati Tags: Music royalties,accounting,audit

Entertainment Industry News, Music Law, Music Publishing

Don’t Mess around with Jim!

You don’t tug on Superman’s cape,

You don’t spit into the wind

You don’t pull the mask off the old Lone Ranger

And you don’t mess around with Jim

These lyrics from Jim Croce’s classic pop song You Don’t Mess Around with Jim have evolved into pop culture expressions used by people the world over. Before his life was tragically cut short in a plane crash in September 1974, Croce wrote many other memorable compositions, including Bad, Bad Leroy Brown, Operator (That’s Not The Way It Feels), I’ll Have To Say I Love You In A Song and my two personal favorites, I’ve got a Name and Time In A Bottle.

Just a few days prior to the holidays, EMI Music Publishing announced that it entered into an exclusive publishing agreement with Croce’s heirs, wife Ingrid and son A.J., for the songwriting catalog of Jim Croce. This important deal gives EMI the North American administration rights to the compositions of the late singer-songwriter.

A South Philadelphia native, Croce began his recording career in 1966 when he recorded his debut solo album, Facets in a Camden, New Jersey studio. He also recorded a 1969 duet album with his wife Ingrid, self-titled Jim & Ingrid Croce which was released on Capitol Records. His career did not really began to sky rocket, however, until he signed with ABC Records, and released You Don’t Mess Around with Jim and Life and Times, both of which featured many of the songs for which Croce is best known. His third solo album on ABC Records was I’ve Got a Name, which was released shortly after his death. ABC later distributed a greatest hits album entitled Photographs & Memories. Jim Croce was inducted into the Songwriter’s Hall of Fame in 1990.

In the announcement on EMI’s website, Ingrid Croce is quoted as saying that she and A.J. were “encouraged that EMI will help us reach a new and diversified audience for Jim’s music. . . .”

For his part, EMI Music Publishing chairman and CEO Roger Faxon is quoted as summarizing: “Jim Croce had that rare ability to write and perform both upbeat and heartfelt

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songs, and his music is still as engaging and memorable today as it was more than thirty years ago. We are very pleased to have the opportunity to work with Ingrid and AJ Croce to connect his timeless songs with the music users of today.”

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Music Publishing 101, Part 4: Show me the money!

Section 106 of the Copyright Act gives the owner of a copyright a bundle of rights which includes the rights to 1) reproduce the work, 2) prepare derivative works, 3) distribute copies of the works, 4) publicly perform the work and 5) publicly display the work. All of the music publisher’s income flows from this basic bundle of rights. It should be noted that the right to perform the work is sometimes segmented into two descriptions, one called the grand rights, or dramatic and theatrical performances of the work, and small rights, or all public performances other than theatrical, including live performances of the work and radio broadcasts. Here is New York attorney, Peter Shukat discussing grand rights:

To exercise control over these rights, a music publisher issues licenses to authorize various uses falling into this bundle of rights. For example, if a company wants to reproduce and distribute a copyright in a musical composition, the publisher will issue a mechanical license to a record label, for example. Mechanical royalties are a primary source of income for music publishers. In the United States, the U.S. Copyright Office sets the rate for mechanical royalties, which is currently 9.1 cents for songs that are 5 minutes or less, and 1.75 cents per minute for songs exceeding 5 minutes. The current mechanical royalty and historical rates can be found at the Harry Fox Agency’s website. The Harry Fox Agency administers licenses for, and collects and distributes royalties to its member of the National Music Publishers Association, although a music publisher can, and often does, perform this task on its own Since the rate is always subject to increase, a music publisher should also request language in the license that provides that payment is made at the rate in effect at the time the product is distributed.

Another major source of income for music publishers is public performance royalties. in the United States, these royalties are almost always collected by the three major performance rights organizations, ASCAP, BMI & SESAC. Outside the U.S., each country has its own performances rights organizations. See the “Resources” page on my blog for a list of and links to many of these. As discussed in Part 2 of this series, music publishers, as well as songwriters, affiliate with (i.e., enter into an agreement with) the performance rights organization to enable them to track airplay and live performances, and collect and distribute the royalties. Performance rights organizations issues “blanket” licenses to radio stations, television stations, large nightclubs, large restaurant chains, and retail source so that these entities can play the music of their affiliated songwriters and publishers. In exchange, these venues pay the performance rights organizations fees based on the anticipated usage. The societies then use varying formulas based on such factors as airplay and usage to issue payment to its affiliate songwriters and publishers.

The music publisher issues a synchronization license to the producers of television shows, movies and commercial advertisements for reproduction and distribution of the work. The “sync fee” is usually a one time payment, varying from the hundreds of dollars to hundreds of thousands, dependent upon numerous factors such as the length of the segment in which the song is used, the prominence of the song in the scene (whether it is prominently featured or in the background), and whether it is the primary focus of the scene (as, for example, BTO’s old song Takin’ Care of Business as used in the Office Depot commercials). The publisher typically splits this type of revenue equally with the songwriter.

A less generous source of income, but still significant nonetheless, is revenue generated by printing sheet music and lyrics. This is a type of public display, but can also fall into the category of reproduction and distribution. Print licenses are most commonly issued to publishers of individual sheet music (sometimes called “piano copies”) and so-called “folios” (a collection of sheet music by a particular artist) and sheet music collections. Income is also generated when lyrics to musical compositions are reprinted in a publication, such as, for example, when a book is printed in connection with a movie. How much of this income is given to the songwriter varies widely, as it is sometimes based on percentage basis, but also can be on a flat, cent rate, e.g, 15 cents per copy. When a percentage basis is used, it is sometime based on wholesale, sometimes retail. The general trend among publishers in past years, however, is to split everything equally on a 50/50 basis.

Of course, one rapidly growing area of revenue is in the arena of technology, i.e., computer software, multimedia products, singing greeting cards, DVD’s and particularly ringtones. Though these usages also involve the reproduction and distribution rights, they generally require specialized licenses and the rates a very market driven. Again, it is customary for a music publishers to split these fees equally with the songwriter.

Finally, a very significant source of income for a music publisher is foreign sub-publishing. Outside of the U.S., music publishers solicit foreign sub-publishers on a territory by territory basis. The arrangement is generally exclusive, meaning that the foreign publisher has the rights to exploit the music publisher’s entire catalogue of songs within that territory, including the entire bundle of rights, and issue mechanical, performance, synchronization and print licenses for the usage of the music. Typically, the U.S. publisher will receive 75% of the income generated by the foreign sub-publisher, while the sub-publisher retains 25%. The sub-publisher does not receive any ownership interest in the copyright and usually pays the U.S. publisher a significant advance on future royalties, dependent in large part on the amount of income the catalogue has generated in the U.S. Foreign income is often the subject of intense negotiation in writer deals, but very often a songwriter will receive half of everything the U.S. publisher receives, or 37.5 cents of the 75 cents received by the publisher.

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Music Publishing 101, Part 3: Pieces of the Publishing Pie

Once a music publisher begins to receive income from the exploitation of the copyrights it has acquired, it must begin to distribute the income to the appropriate writers. Understanding the basic principles of copyright ownership and royalty splits is fundamental to performing the task of distribution of income. One device that is often used to illustrate the concepts involved is a “pie” that represents the split of income as between the publisher and the songwriter (this diagram is borrowed from the Berklee School of Music). To fully understand this illustration, however, it is necessary to overlay the ownership of copyright which, in a typical arrangement, belongs 100% to the music publisher.

In simple terms, when a songwriter signs an exclusive songwriting agreement with a music publisher, the songwriter is agreeing to give up one hundred percent of the copyright (represented by the yellow circle in my illustration), for which the publisher agrees to pay the songwriter an equal share, usually 50%, of the royalty income stream (the dividing line in the illustration) for the duration of the copyright. So, for every dollar the publisher receives in net income from the exploitation of the copyright (the publisher will recoup certain expenses, such a demo costs, advances and administration fees — all of course subject to negotiation), it pays the songwriter fifty cents. The only exception to this concept is that performance royalties, paid by ASCAP, BMI & SESAC, are paid by these organizations directly to the songwriter and publisher respectively, so that this income stream does not get filtered through the publisher. The portion of the royalty stream paid to the songwriter is often referred to in the music industry as the writer’s share, while the portion the publisher keeps is called the publisher’s share.

If a songwriter has enough clout to negotiate a partial participation in the publisher’s share of income, he will attempt to negotiate what is called a “co-Publishing” deal. In this type of deal, the songwriter actually owns half of the copyright (half of the yellow circle in the above-illustration), and is entitled to received 50% of the publisher’s 50% share of the income, or an additional 25%. This equates to 75 cents for every dollar of publishing income received (the songwriter’s share of the royalty pie, plus half of the publisher’s half of the pie).

These principles begin to get even more convoluted when songs are co-written by myriads of songwriters, which happens all too often in Nashville. Take, for example, the song More than a Memory, recorded by Garth Brooks, currently climbing the Billboard Country charts. That particular song has three (3) co-writers and six (6) publishers listed in the credits (incidentally, if you want to gain a good understanding of music publishing, buy yourself a recent copy of Billboard magazine and study the “Singles & Tracks Song Index” that details the publisher information). So, assuming for illustration purposes that the three writers have participation deals with their publisher (this appears to be the case since there are six publishers), then each writer would own 16.666% of the copyright and would each be entitled to 25 cents of each dollar received. Three of the six publishing companies likely belong to the songwriters themselves (and one-third of the income just described would be paid by the entity through which they self-publish), and the remaining three publishers would split the remaining 25 cents, entitling them to about 8.5 cents each. To further complicate matters, any portion of the royalty stream can be sold and/or encumbered, as can the publishing interests.

In addition, both music publishers and songwriter are often the party to an administration deal in which an administrator issues licenses and collects royalties for the copyright owner in exchange for a percentage of the income, usually 10-15%. So, to continue using the example in the previous paragraph, if one of the co-writers of More than a Memory has an administration deal in which she pays 10%, then her share of the $1.00 would be 22.5 cents, because she paid her administrator 2.5 cents.

One thing is certain, the music publishing industry most often applies the converse of Occam’s Razor, i.e., the principle that, all things being equal, the simplest solution is best!

This article is not intended as legal advise. Should you require advise regarding an music publishing issue, you should consult with a competent entertainment attorney.

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