Wallace Collins (NYLJ/Rick Kopstein)
Music business headlines have confirmed that superstar artist Prince has returned to Warner Brothers Records, a relationship which ended acrimoniously 18 years ago, with a deal that will see Prince regain ownership of his back catalog of recordings. This deal marks a new era as the ability to terminate master recording copyrights after 35 years was granted in the Copyright Revision Act of 1976 and became effective in 1978, the year that Prince’s debut album came out.
Just as the record business has been staggering back to its feet after the digital assault started by Napster over a decade ago, another hard blow to the record industry business model is starting to have ripple effects. Recording artists and songwriters whose music was recorded after 1978 are now entitled to start terminating their contractual transfers and demanding back their copyrights. The 1976 Copyright Act, in a provision that was generally overlooked until now, provides for the termination of copyright transfers.
Even if an artist or songwriter signed a contract with a record company or music publisher that purports to transfer all rights in a work in perpetuity, the Copyright Act provides that the author can terminate that grant and demand that the rights revert to the author in a shorter period of time. This is a great opportunity for artists and songwriters to get a second bite at the apple, so to speak, and get a better share of the income earned from their creative works.
Right of Termination
Generally speaking, for copyright grants made on or after Jan. 1, 1978 (the effective date of the 1976 Copyright Act) the termination period is 35 years under Section 203 of the Copyright Act. For pre-1978 works the termination period is 56 years after copyright was originally secured under Section 304. For grants on or after 1978, termination may be exercised anytime during a five-year period beginning at the end of 35 years from the execution of the grant or, if the grant concerns the right of publication of the work, then the period begins on the sooner of 35 years after publication or 40 years after execution of the grant. Although there are certain formalities that must be complied with to effectuate transfer, this essentially means that recording artists and songwriters can start exercising their right of termination as soon as 2013—which may effectively decimate many record company and music publishing catalogs.
Back when the 1976 Copyright Act was drafted few could envision a world where the artists might not need the record companies to finance, manufacture, promote, store and distribute their records. Back then the expectation was that, although any particular artist could exercise the termination right, what would effectively happen is that the label and artist would simply be forced to renegotiate a deal to continue working together. Now in the digital age, however, this is no longer true. Any artist can demand back their masters and then simply offer them on their own website or license the rights to an online aggregator with little or no expense. This is particularly true in the case of catalog recordings since the artist would not even need the record company to finance the recording costs.
The more digital the music business becomes, the more obsolete the large record labels become for established artists. High-profile artists with already established fan bases and large catalogs such as Blondie, the Cars, Bruce Springsteen and others probably have no need for much in the way of advertising and marketing of their recordings, and certainly no need for manufacturing, distributing or warehousing of the product. Simple ownership and possession of the digitized masters would be sufficient.
‘Work for Hire’
There is one scenario that does bode well for record companies in that it may steer even established artists to follow the renegotiation route as Prince has done. Those familiar with record contracts know that, unlike song publishing contracts which generally provide for the assignment and transfer of a song copyright to the publisher, most record contracts provide that the sound recording is created as a “work for hire” for the record label. Under the 1976 Copyright Act the termination provision is not applicable to a genuine work for hire grant. However, this does not preclude recording artists from exercising their right of termination.
In Ballas v. Tedesco, 41 F.Supp.2d 531 (D. N.J. 1999), in which the author represented defendant, a New Jersey district court, as part of its decision, addressed the work-for-hire issue and determined that a sound recording did not qualify as a work for hire under the Copyright Act. Without getting into all the applicable legal employer/employee issues involved, there is a great deal of case law which addresses the subject of “work for hire” and holds that whether a work created by an employee is a work for hire or not depends on various factors other than just the language of the contract. This area of law is ripe for litigation by recording artists who want to exercise their termination rights where the facts suggest that no genuine work for hire relationship ever existed. Although the landmark case has yet to be fought, from what I have seen it appears that in most cases the artist would prevail over the record company on this point. However, artists like Prince as well as label executives have also realized that the wiser course may be to negotiate the reversions and retain control of the issuing artists’ catalog eligible for copyright terminations. Also, under current case law, any grants or licenses by the record company made prior to the termination would remain in effect (e.g., a license for the use of a song in a movie soundtrack or on a compilation record), and this also weighs in favor of the artist striking a deal with the record company.
The termination rights of an artist or songwriter are generally subject to a five-year window. Termination must be made effective within the termination window or the right to terminate the grant is forfeited. To be effective, the artist or songwriter must serve a written notice of termination on the original record company or publisher (or its successor) no more than 10 and no less than two years prior to the effective date stated in the notice. The notice of termination must state the effective date of termination. Perfection of the termination requires that a copy of the written notice also be filed with the U.S. Copyright Office prior to the effective date of termination
Although not all artists from the 1970s would fit this scenario, in the case of a superstar like Prince, circumstances and timing augured in favor of the deal. Prince is still making new records and needs someone to market and promote. Warner Brothers owns most of Prince’s back catalog including many masters that might not revert to Prince for years to come.
The logical resolution was for the two parties to resolve their differences and come to an agreement whereby the artist would have ownership of the masters on paper in exchange for which Warner Brothers would have a long time period to exclusively exploit them. In the case of lesser artists and artists that are no longer actively recording, such a deal might be less likely to occur since there is less to gain on each side of the table.
Although the termination rights of an artist under the 1976 Copyright Act would only be effective for the U.S. territory, the size of the U.S. consumer market for recorded music still makes this a valuable right to reclaim. However, what is good for the artist might further erode the influence of the major record labels and prove detrimental to the industry in the future, so labels would be well advised to start planning for the onslaught and try to forge deals like Prince has done with Warner Brothers.
Wallace Collins is a New York lawyer.