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The areas of law governing professionals and businesses in the entertainment industry, particularly contracts and Intellectual Property; more particularly, certain legal traditions and aspects of these areas of law that are unique to the entertainment industry.
The entertainment industry includes the fields of theater, film, fine art, dance, opera, music, literary publishing, television, and radio. These fields share a common mission of selling or otherwise profiting from creative works or services provided by writers, songwriters, musicians, and other artists.
The entertainment industry exists in a state of economic uncertainty. Entertainment companies continually form, merge, re-form, and dissolve. Furthermore, consumer tastes in artistic products can change quickly, thrusting certain artists or artistic movements to the heights of popularity and reducing others to obscurity. Because of this instability, the entertainment industry relies on complex contracts, which usually are drafted to protect entertainment companies against economic risk.
Personal Service Agreements The Personal Service agreement is a primary legal instrument in the entertainment industry. It is negotiated between an artist and a company that manufactures, promotes, and distributes the artist's goods or services. The agreement often binds the artist to produce for one company for a certain period of time. Personal service agreements are often governed by statutes and are often the subject of litigation because they restrict the rights of artists to perform or create for any entity except for the company with whom they have contracted.
Artists generally do not have the resources necessary to manufacture, market, and distribute their goods or services. Instead, they must find an appropriate entertainment company to do so. Entertainment producers (e.g., book publishers, record companies, movie studios, and theaters) often invest large amounts of time and money in promoting and selling artists' talents or products to consumers. Most artists will fail to earn a profit for their producer. A few, however, will earn enormous sums. To ensure that artists who generate a profit will remain with the company, producers use personal service agreements to bind artists for a certain time, during which the producers attempt to recover their investment in the artist, make a profit, and cover losses from less successful artists.
In some entertainment industries, personal service agreements are structured using options. Options give a producer the right to extend an agreement for several time periods. For example, a record company may contract with a musician to provide one album during the first year of the agreement, with an option to extend the contract. After one year, if the record company feels that it would be economically wise to release a second album by the musician, the record company may exercise its option and require the musician to provide the second album. Under option contracts such as this, producers can keep artists on their roster for many years, or as long as the artists remain profitable.
The Fiduciary Duty of Entertainment Attorneys: Joel v. Grubman
An attorney has a duty to act solely in the client's best interests, to disclose any potential conflict of interest, and to withdraw if a conflict would impair the attorney's ability to represent the client. In 1992 pop singer Billy Joel sued his former attorney Allen J. Grubman and Grubman's law firm for $90 million, claiming that Grubman had committed Fraud and breach of contract. The suit alleged that while representing Joel throughout the 1980s, Grubman had defrauded the singer out of millions of dollars by negotiating secret deals with Joel's manager, Francis Weber, and by allowing Weber to control the law firm's representation, often in direct conflict with Joel's best interests. Joel claimed that if the firm had notified him of Weber's actions, Joel could have prevented millions of dollars in losses to his manager. The singer claimed that the law firm was concerned primarily with enhancing its own reputation by keeping him on its client roster, and did not want to risk losing Joel as a client by angering Weber.
Joel also alleged that Grubman failed to disclose that the law firm represented Joel's label, Sony Music, and that such representation was an inherent conflict of interest that biased Grubman's judgment during contract negotiations.
The law firm claimed that it had done nothing illegal or unethical in its representation of Joel, and stated that it was hired by Joel only to negotiate contracts, not to monitor the business ventures of Joel's manager. Furthermore, the firm claimed that Joel had earned millions of dollars as a result of his recording contract, proof that its advice to him during negotiations with the label were not affected by the firm's relationship with Sony.
The case sent shock waves through the entertainment industry, where it is not uncommon for attorneys to represent both sides of a contract negotiation, or at least have ongoing client relationships with both sides, and it is also not uncommon for an attorney to respect the decisions of an artist's manager even though the attorney's client is the artist. Joel and Grubman settled the case without disclosing the terms of settlement.
Some option contracts can be disastrous for the artist. For example, musicians sometimes sign an option agreement without a provision that they may break the agreement if the record company fails to release their works. Many recording artists have been held in professional limbo by record companies that refuse to release their music and also refuse to allow them to record for another company. This practice, known as shelving, is used by some record companies to prevent economically risky artists from becoming valuable assets to other record companies.
Other entertainment industries use short-term personal service agreements rather than option agreements. For example, film studios often contract with actors, directors, screenwriters, and other creative artists on a one-film basis. Short-term agreements allow studios to avoid paying guaranteed fees to artists whose market might dissipate overnight. In the early days of the film industry, studios bound stars to long-term agreements. That system changed in the 1940s, when certain stars demanded fees that were higher than studios were willing to pay. Those stars then demanded, and received, one-film contracts for their services, which became the standard. The television industry, on the other hand, still uses long-term agreements for its talent in many areas.
Litigation over personal service agreements is common in the entertainment industry. Often, an artist who is relatively unknown is willing to enter into an agreement that drastically favors the company with which he or she is signing. Once the artist achieves success and sees the profits that the company is making from his or her services, the artist may demand higher fees or royalties, or to be released from the contract. Conflicts such as this often end up in court, where companies often demand that the court order that the artist not perform for anyone else while the contract is in dispute. (This type of order is known as a negative injunction.) Whether the contract will be enforced and the artist required to perform under the agreement is usually determined by whether the contract meets certain legal requirements based on the state laws that govern it.
Contract for Rights Another primary type of contract in the entertainment industry is the contract for rights. This contract often involves a transfer of Copyright ownership or a license to use certain creative property (e.g., a song or photo).
Many times, a contract for rights is combined with a personal service agreement. The agreement often will state that any work created by the artist during the term of the agreement is considered a work for hire. The company with whom the artist has contracted often receives automatic ownership of the copyright to a work for hire. For a work for hire to exist, the artist must either be an employee of the company or create the work pursuant to a valid written agreement—and even then, the work must fall within a few specific categories defined by copyright law.
A license is a contract through which the artist or copyright holder grants certain rights to another party and promises not to sue them for certain activities. For instance, a novelist might grant a license to a film studio to create a screenplay based on a novel. A license specifies the fee or royalty to be paid to the artist, the exact scope of use of the copyrighted material, and the time period for which the company may use the material, as well as any other conditions that the parties agree to attach to the license.
Unique Aspects of Entertainment Industry Contracts
Complex Royalty and Payment Provisions Because entertainment companies often risk large losses, the contracts they use often contain clauses that artists may consider to be unnecessarily complex or one-sided. For example, film studios often base payments to talent in part on net profits. The calculations that are necessary to determine net profits, as defined in a typical contract, can be mystifying to those who represent the talent. A screenwriter or an actor who receives bonuses or royalties on net profits might be paid little or nothing on a film that has earned hundreds of millions of dollars but is still showing a loss according to the net-profits calculation. Net-profits clauses have resulted in several high-profile lawsuits, including Buchwald v. Paramount Pictures Corp. (13 U.S.P.Q.2d [BNA] 1497 [Cal. Super. Ct. 1990]), Garrison v. Warner Bros., Inc. (No. CV 95-8328 [C.D. Cal. filed Nov. 17, 1995]), and Batfilm Productions, Inc. v. Warner Bros. (Nos. B.C. 051653 & B.C 051654 [Cal. Super. Ct. Mar. 14, 1994]).
Record companies also use complex contractual formulas to determine royalty payments to their artists. Companies typically offer seemingly large royalty percentages to artists. Various clauses in the recording agreements then are used to reduce the royalty percentages, reduce the number of units on which royalties are paid, and delay payment for many months. Although a few small record companies have made some effort to simplify the structure of recording agreements, the major record companies and their smaller affiliates have fought to maintain the more complex, formula-based agreements.
Advances Many entertainment contracts are structured with advances. Advances are payments made to an artist before any actual income is received by the company that manufactures or delivers the artist's products or services. For example, an author might receive an advance of $50,000 when a manuscript is approved by the publisher. This advance is normally nonrefundable, even if the publisher never earns money from the publication of the author's work. However, the publisher will keep any royalties that would have been payable to the author, until the author's advance and other expenses have been recouped by the publisher.
Contracts with Minors Contract law in many states requires that specific steps be taken in, or clauses added to, a contract with a minor, to ensure that the contract is valid. Often, companies will require that the minor's parents execute a valid release, under which they guarantee the services of the child and agree to be held liable for damages if the child fails to perform under the terms of the contract.
Contracts with Intermediaries Successful artists are surrounded by many individuals who are responsible for enhancing and protecting their career. Unknown artists use the services of such intermediaries to help them become known to more powerful figures in the entertainment industry. Intermediaries have various names and functions, but all serve to promote an artist's visibility and success in the industry. For this service, they generally take a percentage of an artist's earnings or a portion of the artist's property rights in the artist's creations.
Agents Agents are individuals who procure employment and other opportunities for artists. In film production, agents find actors roles or pitch screenwriters' works to studios, producers, and actors. In music production, agents procure live engagements for musicians. In book publishing, agents attempt to secure publishing agreements for authors. For their services, agents often receive between five and 25 percent of an artist's revenues that are obtained through the agents' efforts. Agents nearly always require an artist to use only their services, while they usually serve many artists. Agents are strictly regulated in some states, especially states with large and successful entertainment enterprises. Agents have become powerful figures in the entertainment industry.
Personal Managers Personal managers are individuals who guide various aspects of an artist's career. In the early stages of an artist's career, the manager might act as agent, publicist, contract negotiator, and emotional counselor. As an artist gains in stature and income, the personal manager's primary tasks are to choose and to direct specialists to handle various aspects of the artist's career. For these services, personal managers often receive 10 to 20 percent of an artist's income from all sources.
Attorneys Attorneys in the entertainment industry perform many standard legal functions such as conducting litigation, giving business advice, protecting intellectual property, and negotiating contracts. Entertainment attorneys also serve as industry intermediaries, promoting their clients in order to procure contracts for the artists' products and services. For these services, entertainment attorneys are paid either an hourly fee or a percentage of an artist's income.
Entertainment attorneys often face difficult conflicts of interest. For example, an attorney who has represented a record company is often pursued by a recording artist to shop the artist's material to that company. The artist knows that the company will often trust the attorney's opinion of the artist's marketability, which gives the artist a better chance of obtaining a recording contract. The attorney, however, is often privy to confidential information about the record company, or still represents the company in related negotiations. Attorneys and artists have been involved in several high-profile disputes because of such conflicts of interest.
The entertainment industry's primary product is intellectual property, protected by copyrights, Trademarks, and the right of publicity. A majority of the terms in entertainment contracts concern the ownership and use of this property.
Songs, plays, films, works of fine art, books, and even some choreographed works are copyrightable. The contractual terms that define the ownership and use of these works are often negotiated for months, with both the artist and the entertainment company vying for as much control of the intellectual property as possible.
U.S. copyright law contains provisions that are specifically directed at the entertainment industry. For example, the songwriter—or the copyright holder, if the songwriter has transferred the song's copyright or created the song as a work for hire—decides who can first record a song for publication. However, once the song has been recorded and published, the copyright holder may no longer limit who may record the song. If a song's copyright owner has previously granted permission to someone to record a song, or if the songwriter has recorded and commercially released a recording of the song, the copyright holder is required by copyright law to grant a license to anyone else who wants to record that song. This is called a compulsory license. A licensee who records a song under a compulsory license is required to follow strict statutory guidelines for notification of its use and reporting sales and royalties to the copyright holder. The fee for a compulsory license is set by Congress at a few cents per recording manufactured and is adjusted for inflation every few years.
A separate copyright exists in each legally recorded version of a song. Therefore, when a musician records a song after receiving the appropriate license from the owner of the song's copyright, that musician owns a separate copyright in the recorded version of the song.
Copyright law also directly addresses the unique needs of dance, theater, and other performing arts. A creator of choreography may claim a copyright for that choreography once it has been fixed in a tangible form, such as on a video recording. The choreography then may be used only with the permission of the copyright holder.
One key aspect of copyright law as applied to the entertainment industry is that of derivative works. A copyright holder initially controls who may create a work based on the artist's original work. For instance, a film studio generally may create a screenplay based on a novel only with the novelist's, or other copyright holder's, written permission. This control is critical to authors and screenwriters, whose works can be adapted to several other media—films and sequels, television series and movies, audiotapes, toys, games, T-shirts, and other products derived from the work. An author can forgo millions of dollars of potential income simply by allowing a publisher to own and control the rights to create and license any such derivative works based on the author's work.
Entertainment company names, band names, performers' pseudonyms, and, more rarely, performers' legal names, can be protected under U.S. trademark laws. Like other businesses, entertainment entities have an interest in preventing others from using names that are so similar to theirs as to cause confusion among consumers as to exactly who is delivering certain products or services. Therefore, many entertainment entities register their names with the U.S. Patent and Trademark Office and claim the exclusive right to use their names. In most cases, such names will be registered as service marks, rather than as trademarks. For instance, bands who register their band name as a trademark typically will register for performance of entertainment services. Once an entity receives a registration from the U.S. Patent and Trademark Office, no other entity may use the name, or a confusingly similar name, to provide services similar to those provided by the registrant.
Use and ownership of trademarks by members of a band or other entertainment company can be a source of great controversy when the entity dissolves. If, prior to dissolution, the owners or members of the entity have not agreed as to who may use the trademark after dissolution, lengthy legal battles can result as different members or factions try to use, and prevent the other members from using, the trademark.
A new format known as MP3 (Motion Picture Experts Group-1 Audio Layer 3), which can compress and store high-quality, digital music in one-tenth of the space in which a CD can store it, has recently caused considerable legal ramifications in the entertainment industry. Access to this digitized music is widespread and growing rapidly. Electronic distribution and the digitization of music has the potential to radically reduce royalties to artists.
Napster In early 1999, Shawn Fanning, who was only 18 at the time, began to develop an idea as he talked with friends about the difficulties of finding the kind of MP3 files they were interested in. He thought that there should be a way to create a program that combined three key functions into one. These functions included a search engine, file sharing, (i.e., the ability to trade MP3 files directly, without having to use a centralized server for storage) and an Internet Relay Chat (IRC), which was a means to find and chat with other MP3 users while online. Fanning spent several months writing the code that would become the utility later known world-wide as Napster. Napster became a non-profit on-line music-trading program that became especially popular among college students, who typically had access to high-speed Internet connections.
In April 2000, the heavy metal rock group Metallica sued Napster for copyright infringement. Several universities were also named in this suit. Metallica claimed that these universities violated Metallica's music copyrights by permitting their students to access Napster and to illegally trade songs using university servers. A number of universities already had banned Napster prior to April 2000 because of concerns about potential copyright infringement and/or because traffic on the Internet was slowing university servers down. Yale University, which was named in the suit, immediately blocked student access to Napster.
Metallica argued that Napster facilitated illegal use of digital audio devices, which they alleged was a violation of the Racketeering Influenced and Corrupt Organizations (RICO) act. Napster responded that copying a song from a CD to a personal computer—when that CD was lawfully purchased—is a reasonable use of the copyrighted material according to the fair use doctrine. They argued further that if this file happens to be accessible on the Internet, then others can access or download it without being guilty of a crime, or civilly liable for copyright infringement. Napster further claimed that since it made no profit from the trades, it owed no money in royalties. Among other things, when courts determine whether fair use has occurred, they assess how much of the copyrighted material was used and the economic effect this use has on the copyright owner. The U.S. Court of Appeals for the Ninth Circuit held that Napster's operation constituted copyright infringement.
A successful artist's name and image can become valuable commodities. Use of the artist's name and likeness by another party can infringe on rights held by the artist. The legitimacy of such uses is often unclear and is based on several areas of law that overlap and sometimes contradict each other, such as right to privacy, right to publicity, Unfair Competition, Defamation, and First Amendment law.
Concerns about long-term contracts and record labels taking advantage of rock stars have caused major stars to lobby Congress. Don Henley, Sheryl Crow and Alanis Morissette have spoken before Congress on the need for rock stars to represent their own interests, without so much interference or control from record companies. Singer-songwriter Don Henley, co-founder of the Recording Artists Coalition, which represents dozens of stars, including Eric Clapton, Joni Mitchell, Q-Tip, and Peggy Lee, said of the movement, "Record companies have been screwing artists for ages. It's time we organize and fight back. We've got our own trade group now. We're going to Washington."
The Entertainment and Sports Lawyer (various issues).
Levitt, Carole, and Mark Rosch. 2003. "Finding Entertainment Law Online, from Scholarship to Scandals." Los Angeles Lawyer 26 (May).
Lisa Stansky. 2002. "Contracts, Rights, and Land Deals—That's Entertainment." Student Lawyer 31 (November).
Loyola of Los Angeles Entertainment Law Review (various issues).