COPYRIGHT DEVELOPMENTS

"Perfect Storm" for Recording Industry

As if the assault of technology on the recording industry wasn't enough, there is now a "perfect storm" brewing that could very well be the death knell for what we now think of as a "record company".

Larry Rohter of The New Tork Times has published a series of reports on developments within the recording industry.  Initially he reported on the controversy over the royalty rate to apply to downloads of songs1 - if it is considered a "sale", the royalty is 12%; if it is considered a "license", the royalty jumps to 50%.  Litigation is already underway to force a ruling. A determination that a download is considered a "license" would force the record companies to pay millions of dollars to their artists.  If a court should rule that it is a license, I would not be surprised to see the major record companies file for reorganization (bankruptcy).

On top of that, now comes the possibility that ALL copyright holders, INCLUDING musicians, will be able to reclaim their copyrights in their original creations. Under Section 203 of the Copyright Act, an author can terminate the grant of his copyright to a third-party once thirty-five (35) years have passed from the date of the transfer.  Section 203 went into effect on Jan. 1, 1978. Consequently, the first year that copyrights will be able to be terminated is Jan. 1, 2013.  The author must give notice of his intent to terminate the copyright grant two (2) years prior to the first date that the copyright can be terminated.  Thus, the wave of notices being served on record companies.

For the recording industry, it  means that recording artists can reclaim the ownership of the original masters of their albums.  Larry Rohter, in his article reporting on the possible effect on record companies2,  gives some examples of artists that can reclaim their works: (i) CARS - The Cars; (ii) DARKNESS ON THE EDGE OF TOWN - Bruce Springsteen; (iii)  THE WALL - Pink Floyd; (iv) OFF THE WALL and THRILLER - Michael Jackson; and (v) PURPLE RAIN - Prince.  Doesn't take a genius to see the value in those recordings!

Litigation has begun - Victor Wilis of the Village People has brought suit to terminate the copyright grant on, among things, "YMCA".3.  The record company is arguing that the recordings are "works made for hire", which are specifically exempted from Section 203.  "Work for hire" means that the author did the creative work at the direction and pay of another.  The record companies will have to show that, among other things, the musicians worked hours that were set by the record company, paid paychecks, took out taxes, and in general, were employees.  Anyone who has dealt with musicians knows that none of the above applies.

Legislative action is also being considered.  Mr. Rohter reports on efforts by Rep. John Conyers of Michigan, to reform the law to remove the ambiguity regarding the "work for hire" exception.4.  The litigation and possible legislation will have many ramifications, within and without the entertainment industry.  I will certainly give updates on this situation.

1. "Suit Hints at a Bigger Payday for Older Artists", Sisario, Ben, NY Times, 3/28/2011, Pg. B-1).

2. "Record Industry Braces for Artists' Battles Over Song Rights", Rohter, Larry, NY Times, 8/16/2011, Pg. C-1).;

3. "A Village Person Tests the Copyright Law", Rohter, Larry, NY Times, 8/17/2011, Pg. C-1).

4. "Legislator Calls Fro Clarifying Copyright Law", Rohter, Larry, NY Times, 8/29/2011, Pg. C-1).

snebgen@azentertainmentlaw.com

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