Musicians: Double Your Royalty Income

By Cheryl L. Hodgson”

ROYALTIES:  usage-based payments made by one party (the “licensee”) to another (the “licensor”) for the right to ongoing use of an asset, sometimes an intellectual property (IP).

Authors routinely transfer ownership of the copyright in creative works to music publishers, record companies, book publishers, and other distributors of copyrighted works.  

Recapture of valuable income producing copyrights will often double income from future U.S exploitation.

Artists say “Give us back our songs and masters!”

Here are three possible ways to recapture rights:

• Statutory- “It’s been nice, pay me what’s fair or I’m out of here.”
• Judicial- “You forgot to pay me so I’m taking my work and going home.”
• Contractual- “I had a great lawyer the first time around”

In this article, we explore the statutory, copyright termination right, found in the U.S. Copyright Act.  (Our next article explores the judicial and contractual means of recapture, in which we examine the precedent setting case of the “Louie Louie” master in which our firm recaptured rights to the Kingsmen masters, and a more recent jury verdict involving Hamilton Joe Frank and Reynolds. Read the judge’s decision in that Hodgson Legal precedent-setting case.

STATUTORY

“Who wouldn’t want a second bite of the apple?”
Under U.S. Copyright Law, copyrights transferred to third parties and exploited in the United States are subject to statutory termination.  U.S. and foreign Copyright owners are entitled to a “second bite of the apple.”   This means foreign artists and copyright owners can recapture U.S. rights, a key issue for many U.K. artists with success in the States. 

Valuable classic copyrighted songs, sound recordings, books and works of visual art can be reclaimed by the author 35 years following publication for transfers made after 1976.  The time between notice and the effective date of termination allows the parties to “re-negotiate” better terms now, or simply wait and take back U.S. rights on the effective date.

“Legacy artists” (the modern day record company term coined to distance aging rockers and deceased recording artists from the current generation of artists), have long been relegated to earning a living from live touring in the case of the former, and licensing deals in the case of the latter.  Except in the case of the largest of the largest artists, record royalties were never to be counted on, and when paid were usually the subject of amazing feats of cooking the books. Music industry attorneys, artist managers, and representatives of estates are hearts a flutter.  If not, they should be. 

The vast majority of recording artists have seen little or no record royalties from sales of their albums, even with those with hits.  Most signed ridiculous 50 page, “take it or leave it” recording agreements that even half the attorneys representing them can’t explain how much their clients were entitled to be paid. This is a real opportunity not to be missed by artists, songwriters, their heirs, and the professionals who represent them.  However, unless strict deadlines and procedures for filing and serving notice on the proper parties, the rights can be waived and substantial future income lost.

Background
In 1976, the U.S. amended its copyright law and abolished the “two terms of copyright,” instead adopting the “life of the author plus” term of copyright that already existed in much of the rest of the world. Under the reciprocal rights provisions of copyright treaties, foreign authors are entitled to the same protection as U.S. authors with respect to copyrights.  Based upon the reverse of this principle, U.S. courts have already held that termination by U.S. authors is effective to recapture only U.S. rights. Recapture of foreign transfers would violate the laws of the territories in which no termination right exists. 

What copyrights can be terminated and recaptured?
Sound Recordings created after 1976 are subject to notice beginning in 2011 Musical Compositions created after 1976 are also subject to recapture 35 years from the date of first publication, or 40 years from the date of the contract, whichever is later. 

Problems and Pitfalls

• Notice
  Strict deadlines exist for filing Notices of Termination and serving the proper notice upon the correct parties.  Notice must be filed not more than 10 and not less than two years prior to the effective date.

• Proper Parties to file
  In the case of deceased authors, identifying the parties who are entitled to file and serve the notice can be an issue.  If notice has been given, the author can designate by will who will inherit the copyrights.

• Windows for Notice
  Calculation of time periods for works created prior to 1978 can be complicated and must be carefully followed so that deadlines are not missed.  During the time between notice and the effective date, the author cannot sell the rights to a new party, but can use the window to renegotiate with the existing proprietor.

• Works for Hire
  Any copyrighted work created as a “work for hire” is not subject to recapture.  Works created by full time employees and those falling into specific categories identify in 17 USC Section 102 are works for hire.

• Derivative Works
  Derivative works created during the term of the grant are not subject to recapture.

• Sound Recordings
  Special issues arise with respect to sound recordings which will likely give rise to litigation as notices are filed.   Issues include:

Is a sound recording a work for hire as the labels claim?
The prevailing view among most experts is that they are not.  However, labels have routinely included such provisions in U.S. recording agreements, and will argue sound recordings are a “collective work” or a “compilation.

Who is the author of a sound recording?  
Legislative history indicates that producers have authorship rights in sound recordings they produced.  What about side musicians and band members?

Who gets what percentage?
Assuming both a producer and artist exercise termination rights, who gets what percentage?  Or if the artist terminates, but not the producer, does the label retain some rights?   Hodgson Legal will post updates as news emerges on specific cases pending in the courts.