Wednesday, January 16, 2013

Interview With New York Entertainment Lawyer John J. Tormey III, Esq., By Stefan Sörin of HitQuarters

Below-printed is an interview with New York entertainment lawyer John J. Tormey III, Esq., by Stefan Sörin of HitQuarters and SongQuarters. The interview also appears, in three parts, at:

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Law Office of John J. Tormey III, Esq.
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY  10128  USA
1-212-410-4142 (phone)
1-212-410-2380 (fax)
[Attorney Advertisement]

Interview With New YorkEntertainment Lawyer John J. Tormey III, Esq., By Stefan Sörin of HitQuarters - July 25, 2003
http://www.songquarters.com/index.php3?page=intrview/2003/July25_2_36_37.html


PART I

“The dynamics of attorney-client relations can become severely disrupted if the
lawyer works on a material-placement project on a contingent-fee basis.”

John J. Tormey III, Esq. is a music and entertainment lawyer with his own practice in New York. In this three-part interview, he talks in great detail about the legal issues artists may encounter during their careers in the music industry. Part I deals with topics such as how to evaluate a prospective attorney, methods of payment, problems inherent to percentage deals, important issues concerning the contracts between clients and lawyers, and more.

DISCLAIMER: Neither this interview nor any part of it is intended to constitute legal advice with respect to any particular situation or fact pattern. Secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies to one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.

How did you start as a music business attorney and what route have you taken through the industry over the years?

I come from a theatrical and show business family. I worked as a musician with a number of bands, and played with some great people. My father is still an actor, working in film and television in New York. In retrospect, I don’t think I ever accepted the possibility that I might end up in any business other than the proverbial family business. So what did I do? I picked out the law school that had what I believed to be the best offerings in copyright and entertainment law; I went to Los Angeles for a spell, the one city with which I knew I needed to be familiar in order to maintain an entertainment law practice; and I studied with some brilliant professors (and fellow students).

One of those professors was an L.A. entertainment lawyer who, among others, was credited for handling the Michael Jackson/Paul McCartney song catalogue acquisition. This professor took me through my first critical analysis of a record contract, among many other practical drafting exercises that helped turn me into an entertainment lawyer. I owe him a huge debt of gratitude, as I do my other mentors along the way. To this day I thank my mentors every chance I get.

In my third and final year of law school, I searched the LEXIS database and figured out the identity of the New York law firm at which I most wanted to work. I was thrilled to get an offer from that firm. Among many other areas of renown, the firm handled the well-known George Harrison “My Sweet Lord/He’s So Fine” music copyright infringement litigation. This topic exactly tracked my academic interest, and obviously appealed to me as a (recently-retired) rock musician. Suddenly I was swept up in the New York court system and the intensity of the practice generally, making court appearances for firm clients on a regular basis.

In other words, I pursued a career as a litigator first, in the belief that this is what lawyers must do. I was right. To this day, I know that a background in litigation is essential to the careful and quality drafting of contractual and other documents. Litigation teaches you what happens to others when their badly-drafted documents end up under the hot lights of judicial scrutiny. Better yet, litigation teaches you how to keep your own documents out of court. Litigation teaches you how important it is to stay out of court - how important it is to avoid the oft-futile and always-expensive exercise of shooting reams of paper back and forth between you and the other side. A thoughtful and well-drafted document is your best shot at staying out of court on a business transaction.

Therefore, I evolved into a transactional lawyer. I took positions as Counsel to The Walt Disney Company, and then as Senior Counsel and Senior Litigation Counsel to Miramax Films. But I became most happy with my career path, when I started my own law practice. I now have a general practice, the majority of which consists of entertainment work. The majority of my entertainment work, this month anyway, is comprised of music work. The thing is, these ratios can change, depending upon forces of which I’m not necessarily in control - and I don’t need to be. At any given time I could be handling matters in music, film, TV, radio, publishing, interactive - and a whole host of other types of matters.

I love the variety. It keeps things interesting, it continually broadens experience and ability, and it gives me the opportunity to meet a heck of a lot more people than if I was stuck to an assembly-line-desk extruding the same cookie-cutter deals day-after-day. Unfortunately, many lawyers find themselves victim to the mind-numbing repetition of the latter scenario, which is one of the several reasons why many lawyers are unhappy with their practice and unfortunately with their lives. As for me, I love what I do, and wouldn’t have it any other way.

Do you value your experience as a musician?

Yes, I have been very lucky, but some of my former band-mates have been even luckier than me! Those of my band mates and other friends that succeeded in music, had more innate musical talent and more determination to make it as musicians. (I say “determination”, because most if not all sacrificed to get there).

As an actor’s son, on the other hand, by the time I was a young teenager, I was already concerned about how I would make a steady living. Those that have had artists as parents will probably understand. The economics of making a living from your art, the rejections at casting calls, the repetitive stress of touring... well, those types of experiences are a good deal less romantic than they might otherwise seem to non-artists. Because of my upbringing, I was realistic about the economics of art and I think that's what kept me from pursuing a career as a musician. But I applaud the courage of others who do.

I started playing guitar at about age 14 or 15, on an old Kay guitar that I am guessing my Dad probably used when imitating Elvis. I had a few fine guitar teachers. I progressed from a Guild S-60D, to a Dickey-Betts-red Les Paul. I went to a private school called Collegiate on the West Side of Manhattan. I played in a band there with a guy named John Hermann - now known as Jojo Hermann, keyboard player for Widespread Panic. John and I graduated and went on to different colleges.

I went to Harvard and played in a band there with an axe-man named Tom Morello:
http://www.nightwatchmanmusic.com/
formerly with Rage Against The Machine and with Audioslave. At college I also jammed with Alison Brown (of Compass Records and Grammy fame):
http://compassrecords.com/alison-brown
Don Braden:
http://www.donbraden.com/
and Avram Fefer (both jazz sax-men extraordinaire):
http://www.avramfefer.com/
and a legion of other talented musicians and good friends. I played in an alternative rock band in Manhattanin the early 1990's. I used to practice guitar anywhere from 6 to 12 hours a day. Needless to say, these days I don’t have that kind of time, because I’m practicing something else - entertainment law.

What particular experiences have contributed significantly to your understanding of the music business?

The most important? My answer to Question #1 above - seeing how much money people end up wasting, when litigating ill-conceived and badly drafted deals that really should have been papered correctly in the first instance.

More recently, a few other things.

First, hearing the complaints from A&R folk, as to how most people (artists and otherwise) mis-approach them with submission material. (Please see the answer to “Do you accept unsolicited material?” in the next part of this interview).

Second, perceiving the disturbing recent trend in the music business, wherein bluster and intimidation are thought to take precedence over quality and diplomacy. I’m an old-fashioned guy. I learn more about a person and their business interests by listening to them than by talking at them.

Third, a story I heard about, which initially had nothing to do with the music business. In the earlier days of the digital age (the 1990's), a screenwriter tried to e-mail himself his own script, from his L.A. office, to his NY office. The screenplay got picked off. Suddenly, his hot little script that he was ostensibly trying to option or sell on a “first-look” basis, was now posted on the Internet. Whatever “buzz” and economic momentum he had earlier created for this hot new yet-unseen piece, he now completely eviscerated by his own e-mistake.

I’ll leave it to your musician-readership to deduce how this story applies to the music business in 2003. To paraphrase Paul Simon, “I think they’ll know exactly what I am talking about”.

When did you start your practice, how many people work there and who are or have been your clients?

Though I have been practicing law since 1987, I started my own law practice in the late 1990's after my Disney and Miramax gigs. I started alone, and I still work alone. To paraphrase Audioslave, “alone” is the only way I want to work, and is the only way that I can work. It sure makes the law firm partnership meetings a lot easier!

My former employers are public record, although I don’t discuss the identities of my clients.

First, my belief is that the confidentiality of attorney-client communications (or, a bit more in the vernacular, “the privilege”), actually prevents a lawyer from disclosing the names of his or her transactional/advisory clients. That is why, when asked, I have always perceived the client-identity question as a trick question of sorts - whether the questioner knows it at the time or not. Would you want your lawyer to disclose something that you told him/her in confidence? Of course not. Besides, that would be prohibited by law, at least under my conservative interpretation and understanding of the relevant rules governing lawyer conduct.

Second, most of my work is transactional and advisory these days. When a lawyer handles a litigation for a client, the client’s name often becomes introduced into the court record and therefore usually becomes a matter of public record. There is nothing wrong with a Johnny Cochran identifying O.J. Simpson as one of his trial clients in the recent past. However, the matters which I typically handle now, are not in court, are not in the papers, and are not on TV. They are private economic transactions.

Even the fact that a client has come to me for advisory or transactional work, is something that should be presumed private. Sometimes, clients come to me with matters that would be embarrassing if known (e.g., a deal blown by a predecessor), or are otherwise sensitive. If one went to a doctor with a medical problem, one wouldn’t want to read about it in the papers or on the Internet. In this respect, lawyers are like doctors. They maintain client confidentiality. I sure do.

Third, remember that I’m constantly inundated with e-mails, faxes, and phone calls from artists seeking representation. Some are serious, some less so - and it’s often difficult to discern which is the case at the outset. For those in a position like mine, the “Who do you know?” game is one which is oft-abused, not to mention a big time-waster when played repetitively with different people day-after-day. Some others still play it.

For example, at one point, it seemed like there were 10 or 12 firms all claiming to be representing a major female pop star. In point of fact, it was very unlikely that all 10 or 12 firms were handling her work. But after all, what would a new prospective client contacting that firm then do, to verify the firm’s claim - call the pop star on her cell phone while she’s on the tour bus? (If the prospective client had that kind of access, he/she probably wouldn’t need the firm anyway!)

In short, I avoid the “Who do you know?” game. If a client hires me, I want that client-decision to be based upon my abilities, CV, years of practice, and professional reputation - and not upon the ether of primordial schmooze.

Fourth, I think it would be tacky and foolish to use my clients’ identities for my own personal economic gain. And, I don’t think my clients would like that too much, either. My loyalty is to my existing clients, period. It’s obviously more important for me to maintain my valuable relationships - and friendships - with my existing clients, rather than add a few more new clients at the margin.

If an artist wants to surf the client-rosters of music representatives, that artist would be better off talking to non-lawyer agents and non-lawyer managers, instead. Such agents and managers may be under no such similar code of professional conduct prohibiting the disclosure. What the artist should never forget is that all lawyers, including entertainment lawyers, are members of the Bar and officers of the Court, and are ethically bound and legally bound to do the right thing. Lawyers are easily locatable and publicly accountable servants.

Let’s assume that a lawyer is challenged by an artist to take an action prohibited by law or the Canons of Ethics - for example, “Will you include illegal material in a submission package to a label?”; or, “Will you tell me one of your client I.D.’s or client confidences, so I can decide whether or not to give you new work?”. Well, the artist should not be surprised when the lawyer rejects that kind of challenge out-of-hand.

And ironically, that’s exactly what the artist should want - a lawyer who is a lawyer first and an entertainment-type second - a lawyer who follows the rules, the law, and the Canons of Ethics. If the lawyer offers to do otherwise, then it’s time for the artist to find another lawyer.

What areas of entertainment law do you specialize in?

I think that the Bar tends to look askance at lawyers who tout themselves as having “specialties” or “expertise”. I know that I do.

Good lawyers always know that we are accountable to higher authorities, including the Bar, the judiciary, the law, the Disciplinary Rules, and the Canons of Ethics generally. After all, we call it “The Practice”, with an understanding that no individual is bigger than the law itself, and that there is always more to learn.

Yes, I have law practice areas in which I repeatedly dwell, such as music and the various other entertainment topics which I have mentioned in this interview. But a solo practitioner is often called upon to be a generalist - for example, if asked, to help a film director client with a will and estate matter; or, if asked, to help a composer client with a divorce matter. If that lawyer cannot bring at least some of the skills and experience of a generalist to his or her client base... well, that lawyer may not have a client-base remaining for very long.

Accordingly, lawyers who self-tout a “specialty” or “expertise” may end up profiling themselves in too limited a fashion. Remember, there is no separate Juris Doctor sheepskin reading “entertainment lawyer”. Rather, we are all lawyers. We are lawyers first. Most of us love variety in our work, and love to attack challenges. I do.

When I am asked what I do and what I have done, I usually point to my Law Practice Statement and CV at:
www.tormey.pro
I have a general commercial practice, wherein I handle transactions and business-formations, and advise clients. The subject matter areas which I handle include, but are not limited to, music, film, TV, theatre, publishing, interactive, Internet, corporations and LLC’s, and employment work.

What factors should an artist consider when deciding whether to work with an attorney or not?

Some of the factors that an artist should consider; besides, obviously, cost and affordability: First of all, G-d forbid, does the lawyer already represent the party(ies) on the other end of the same transaction? If so, it could likely be a conflict of interest, and the artist likely wants to cease disclosing any more about that prospective deal to that lawyer! (And remember that the entertainment community and entertainment bar comprise proverbial small worlds). A prospective client’s first question to a lawyer should always be “Do you represent the other party to my prospective deal?”.

Also - for how many years has the lawyer been practicing? Does the lawyer have any law firm experience? Does the lawyer have any litigation experience? (This next one is very important but oft-overlooked): Does the lawyer have any experience working within the inside of any entertainment companies, as in-house counsel or otherwise? And finally, is the lawyer presently available, and does the lawyer in fact have the time to devote to the matter in order to handle it properly?

Should certification for entertainment attorneys be introduced?

California has identified certain subject areas for certification, but I don’t recall seeing that entertainment per se has been added to that list. [Ed note: this interview was published in 2003]. I am admitted to practice law in New York (where I reside), California, and D.C.

My own feeling is that an “entertainment lawyer” certification is probably unnecessary, because most prospective clients are smart enough to ask the right questions of a lawyer in whom they are interested. Want to find out what the lawyer has done? Ask the lawyer for his/her résumé or CV. The prospective client can usually tell if the lawyer has relevant experience.

Beyond that, lawyers are ethically-bound and legally-bound to make honest disclosures and determinations, regarding what matters fall inside and outside their own practice areas. This is in the lawyer’s own interests, too. A lawyer knowing nothing about immigration law, for example, would likely be making a mistake taking on a fast-moving ICE proceeding mid-stream. I can’t say that this type of thing never happens - but it is unlikely to happen.

What resources might one use to find out more about a particular attorney in the U.S.?

There are two important ones that should always be used. These are the same steps that I take when checking out a lawyer whom I don’t already know.

First, make contact with the state bar or other relevant governmental authority wherein the attorney was admitted. Confirm, preferably on paper somehow, that the attorney is admitted to practice law, is in good standing, and has no record of public professional discipline. If looking up a Manhattan-based New Yorkattorney, for example, you could first phone the Office of Court Administration. Then, assuming that the attorney was admitted in the “1st Department” (many Manhattanlawyers were), you could phone the 1st Department and confirm that the lawyer has no record of public professional discipline. Any other jurisdiction or state should have a similar authority, which should be able to provide you this type of information (by phone or otherwise).

Second, access the Martindale-Hubbell lawyer directory:
 
When I myself research a lawyer, I will either phone Martindale-Hubbell (in extreme cases), or else simply access the company’s website:
http://www.martindale.com

There are also printed editions of the Martindale-Hubbell directory available in libraries and for purchase. Martindale-Hubbell is considered by the Bar to be the foremost authority on lawyer information. Martindale-Hubbell has a tiered rating system whereby lawyers are graded, on their abilities, and on their professional ethics. A peer rating system is used that is quite stringent. The "AV Preeminent®" rating is the prized highest rating, and it is the one that I am fortunate enough to have and maintain:
http://www.martindale.com/Products_and_Services/Peer_Review_Ratings.aspx

If someone asks me “Should I work with a lawyer who does not have an AV Preeminent® rating with Martindale-Hubbell?”, I am probably too biased under the circumstances to answer them. But suffice it to say that I believe in the Martindale-Hubbell rating system, and it is one upon which I and many others rely, when researching other lawyers.

If someone asks me (thankfully it's a rare question!) whether he or she should work with a lawyer who has a record of public professional discipline, it would be a situation that would need to be handled with sensitivity and care. I would generally suggest that the questioner carefully and fully investigates, as far as possible, what the actual facts of the disciplinary action were/are; consider (as always) other options for choice of counsel; and never work with any lawyer if they have any remaining doubts about the lawyer’s character once this investigative process concludes.

The whole essence of working with professionals, such as doctors, lawyers, and accountants, is that society has, in essence, pre-screened these people for you. Society has made them publicly-accountable. Their maintenance of their license to practice their craft indeed depends upon same. The whole essence of the societal distinction between professionals and others, is that you can look up a professional’s record. To fail to look up a professional’s record before working with him or her, would be a big mistake - and it is a mistake that people have paid for, dearly, in the past.

An artist pays an attorney either a flat rate, on a time basis, or through points on any deals derived from the attorney’s work. Which of these options do you prefer and why?

Essentially there are three bases upon which a lawyer can work:

(A) on a time-and-expense basis, at an hourly rate, out of an advance-paid retainer fee;

(B) on a flat-fee basis; or

(C) on a “contingency”, “contingent-fee”, “commission”, “percentage”, “equity”, “points”, or “back-end” basis.

There are also hybrid arrangements that incorporate some or all of the above, and those arrangements are as creative as the lawyers and clients who think them up. Some arrangements by definition don’t apply to some situations - as an example, a criminal defense lawyer couldn’t defend a criminal defendant on a contingent-fee basis, for obvious reasons.

In my entertainment and other matters, I only work on a time-and-expense basis, at an hourly rate, out of an advance-paid retainer fee. Being that much of my client roster consists of artists and other creative folk, I maintain flexibility on the numbers on a case-by-case basis. I make every effort to determine numbers that are affordable to a prospective client given their project budget, resources, and fact pattern. I don’t determine those numbers until I first hear what the requested task really is - in the context of a “live” situation in each case.

Flat-fee arrangements with clients, on the other hand, often end up with the lawyer getting burned. But in fairness, the lawyer should not be expected to absorb the risk, inherent in many transactions, that the deal becomes more complicated or takes unexpected turns through no fault of the lawyer’s own.

Contingent-fee arrangements raise far too many practical and ethical concerns. The road is littered with bad percentage deals. Why do they raise so many problems?

Well, first, let’s say a music client, a guy who is a lead singer and songwriter in a band, retains a lawyer to shop a CD, on a percentage basis. Let’s say he agrees to pay the lawyer 10% of earnings on some defined basis. That artist is actually betting against himself - betting against his own success. After all, the only situation in which that percentage deal would turn out to be a good one for the artist, is if the lawyer spent 50 hours of shopping time and came up empty - because in that case, the artist would be spared having to multiply 50 hours by the lawyer’s hourly rate and paying it.

On the other hand, consider how horrible a deal it would be for the artist if the lawyer were immediately successful, and on the first submission to a label, the label immediately signed the artist to a huge, long-term and lucrative multi-CD deal! In that latter case, the lawyer may have only spent a few minutes or a few hours of work, but would now be contractually entitled to 10% of this artist’s earnings, perhaps in perpetuity. So, the contingent-fee arrangement is great for the artist who ultimately loses, and likely horrible for the artist who ultimately wins. It’s obvious.

I’m therefore very skeptical about a prospective client who approaches me and is immediately willing to bet against himself/herself. And the converse is also true - this person is essentially asking me to bet on them, often without my knowing much about them, their music, or their history. But I’m not a betting man. I’ve seen enough sad faces driving out of Monticello and Monmouth Racetrack to know why. By definition and by training, I’m risk-averse - indeed, I’m paid by people to, among other things, advise them on how to eliminate or reduce risk. Why would I take an unnecessary risk myself?

I do realize that many artists do not have the economic means to retain counsel on a time-and-expense basis, and I sympathize with that. I grew up in an artist family, after all, and many of my friends still struggle economically to stay working in their respective art forms. But those artists who cannot afford to pay for legal services, should in my view instead concentrate their energies on finding non-lawyer agents or non-lawyer managers with whom to work. In a perfect world, every artist would be assigned a free lawyer, I suppose - but this isn’t a perfect world. One of the keys to success is working within yourself and staying within your own means.

Second, the dynamics of attorney-client relations can become severely disrupted if the lawyer works on a transaction or on a material-placement project, on a contingent-fee basis. A contingent-fee arrangement raises the “motivational curve” problem. Anyone who has ever commissioned material-placement work from a contingent-fee rep, probably already knows what I mean.

Let me give you the typical scenario, which I hear from artists disgruntled with the work of their former reps: “The guy sent out 5 CD’s to his buddies, in the first 2 weeks. Nothing happened. Then, I kept calling him and he’d never return my phone calls”. Well, guess what? There is probably a graph in an economics textbook which tells you exactly why that happened.

You see, the rep who works on the basis of a contingent-fee arrangement is banking on a quick score. Time is his resource, just like money is the client’s resource. The only way the deal works out well for the rep, is if the rep does a minimal amount of work at the front-end, and then gets a big (and arguably disproportionate!) pay-out as a result. If the demo CD is issued, and then the A&R folk don’t rave about them, well... the rep is probably inundated with inquiries from other eager artists. The rep figures that he might as well just jump to the next vine. The rep can send the next artist’s CD out, and hope for a quick score from the second CD... or the third... or the fourth.

In short, the motivational curve is steep - the honeymoon period with a contingent-fee rep is often far shorter than an artist would ever expect. If that contingent-fee rep also happens to be a lawyer, then that lawyer may well be facing some ethical issues for having failed to zealously represent the client under the Canons of Ethics - and suddenly the retainer agreement between lawyer and client, and the specific promises and disclaimers made therein, become very relevant and interesting. If a lawyer works on a time and expense basis, on the other hand, there is no motivational curve problem. It is “pay as you go”.

Third, a lawyer shopping a record deal on a contingent-fee basis may, at least subliminally, allow his/her desire for a sooner pay-out compromise his/her obligations to represent the client’s best interests. What do I mean? Well, take the hypothetical situation of a small-time and seemingly shady label offering the artist-client an actual but small advance amount in exchange for a 5-year recording and touring commitment. Assume that the artist at that point has no other pending bona fide offers.

One of the lawyer’s functions in that scenario, is to counsel the artist as to: (A) why 5 years is actually a heck of a long time relative to an artist’s expected career length; (B) why the lawyer believes the label to be shady; (C) why the label’s first-form boilerplate is oppressive and one-sided, skewed against the artist; and (D) why the advance is too small relative to other future alternatives that the artist might soon have.

But let’s also assume that the lawyer has already put 50 hours into this material-placement work for this artist, and is paying a ton of rent and overhead in his L.A.office. Do you seriously think for a minute that, human nature being what it is, the contingent-fee lawyer won’t at least on some subliminal level steer the artist towards taking the bird-in-hand and accepting the small label’s advance?

My point is, that lawyer’s “advice” will likely turn out contrary to what is actually in the artist’s best interests, under that fact pattern. A lawyer handling that same scenario on a time-and-expense basis will advise that client objectively and fairly, in a manner unaffected by the lawyer’s own personal or pecuniary interests. Whose advice would you believe to be more credible?

Fourth, taking on contingent-fee work raises practical and administrative problems for the lawyer. The lawyer has to then essentially follow the client around, tracking the success (vel non) of the entertainment project weekly or even daily, to ensure that payment for services is received. I myself am too busy working for other clients, to spend time and energy doing that. A contingent-fee arrangement increases the odds of a billing dispute, especially if the subject client project is successful.

The contingent-fee arrangement makes lawyer and client adversarial with respect to each other, from the get-go. Imagine a lawyer spending 2 or 3 hours negotiating audit rights with each client, at the front end of each and every retainer agreement, assuring that the lawyer can inspect and audit the client’s books and records so as to assure accurate payment for services. My point is that lawyer and client should not start as adversaries - rather, they should start together in a business relationship borne of respect, whose precepts are mandated by the Bar and the law. Nothing should compromise the lawyer’s objectivity and professionalism.

I could go on. Suffice it to say, that I think contingent-fee arrangements with lawyers are probably best relegated to plaintiff personal injury (“P.I.”) work alone, but are a bad idea and a recipe for disillusionment when applied to material-placement projects and other entertainment matters. I know that I don’t work that way. Even if J.D. Salinger asked me to work on contingency to market film rights to “Catcher In The Rye”, I would (respectfully) decline.

The only fair way to bill, that is fair to both parties, is on a pure time-and-expense basis, akin to a taxi meter or a utility such as gas or electric. Legal services are a resource, and a valuable one. Clients should pay to the extent that they draw upon that resource. And, under the law, clients can pull the proverbial plug at any time.

Is there a contract between the artist and the attorney? If so, what important points should this contract include? Time periods, for example?

Absolutely yes, there should be a contract between lawyer and client. Some states require them, and in my view, all states should require them. The document is typically referred to as a “retainer agreement”. No one should enter into any business arrangement without a prospective, bilaterally-signed written agreement. Contracting for legal services is no exception. In my view, if the prospective client finds a lawyer willing to work without such a writing - then the prospective client should find another lawyer! The writing protects both parties, including the client.

Keep in mind also, that there is a whole well-developed body of law that governs the relationship between attorney and client. The lawyer is not allowed to “contract around” most if not all of those principles. For example, a lawyer can’t make a client sign a retainer agreement promising not to sue the lawyer in the future for legal malpractice. The lawyer can’t make the client waive bar requirements and Ethical Canons - rather, they are absolute and apply to all the lawyer’s conduct, forever.

In New York, we have a mandatory disclosure known as the “Statement of Client’s Rights” - a copy is posted at
 
These rules and tenets are subsumed into every attorney-client arrangement by operation of New York law. All clients should know these principles, and in my view every state should require such a disclosure. And if one’s home state does not require same, it is theoretically possible to ask the attorney to sign onto such a “statement of client’s rights” as part of the retainer arrangement, as a pre-condition for the client’s decision to retain the lawyer.

In other words, even with the pre-existing client-protective default presumptions of attorney-client law, it is still important that the client be mindful of attorney-client issues prospectively from the get-go, and clarify them in writing whenever needed. (After all, the client is representing himself/herself until he/she retains the lawyer!)

As for time-periods, I suppose that they could appear in a retainer agreement, but typically that would be a red herring. First, the attorney is already professionally and legally obligated to act promptly when representing a client. Second, under the American system, the client has the absolute right to fire the lawyer at any time for any reason, or even for no reason at all. So, the client’s real remedy is not to impose written timetables on the lawyer, but simply fire the lawyer in the event of a defaulted or sluggish response. Naturally, any such termination should be done with a dated writing.

The most important issues in a retainer agreement, in addition to those alluded to above, would be hourly rate, description of initially-expected services, obligations of both parties, and billing procedure.

Answers (c) 2003 John J. Tormey III, Esq. All Rights Reserved.
Questions (c) 2003 HitQuarters. All Rights Reserved.

For contact details and related articles, please visit:

 
Interviewed by Stefan Sörin

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PART II

Interview With New YorkEntertainment Lawyer John J. Tormey III, Esq., By Stefan Sörin of HitQuarters - August 1, 2003
“All 'unsolicited' means is that the recipient has not agreed to receive the material.”

John J. Tormey III, Esq. is a music and entertainment lawyer with his own practice in New York. In this three-part interview, he talks in great detail about the legal issues many artists encounter during their careers in the music industry. Part 2 deals with a wide range of topics, including how music business attorneys can help artists, whether attorneys can act as managers, what a band member agreement ultimately boils down to, the process of registering a copyright in a work, and more.

DISCLAIMER: Neither this interview nor any part of it is intended to constitute legal advice with respect to any particular situation or fact pattern. Secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies to one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.

Other than reviewing record label contracts and shopping music, are there other areas in which an attorney might help an artist?

There are an abundance of things, and the list grows every week.

In terms of general philosophy, artists can contact a lawyer either: (A) before the fact; or (B) after the fact.

Contacting the lawyer before the fact is the “ounce of prevention”/“stitch in time” approach. I like that one.

Contacting the lawyer after the fact is what I refer to as “damage control”, or, in film fan parlance, from La Femme Nikita/Point of No Return, the Harvey Keitel/“Victor The Cleaner” solution. I get those, too.

As far as I'm concerned, although I’m obviously biased in this regard, the earlier the better. Perhaps the attorney’s most important function is to help artists avoid pitfalls. I make no claims to prescience or extra-sensory perception—but the fact is, I see things coming. I have worked with many clients, and I have worked through many fact patterns. The most rewarding thing I can do is help a client avoid a pitfall that I once saw someone else suffer.

Much of the advisory work that entertainment lawyers handle transcends material-placement projects and contractual work. One of our essential functions is to warn, as well as to guide. But how can we warn when it has already hit the fan?

The lawyer can be a real ally to the artist, especially in the area of developing a new business or a new property. Creating and filing a limited liability company or “LLC”, and searching and clearing a new business name trademark, for example, are tasks that should be done correctly, and only once.

A lawyer’s input might be valuable during the copyright registration procedure because, even though the U.S. Copyright Office:
http://www.copyright.gov/
has developed the registration system with the layperson in mind, I have seen numerous cases where those layperson-registrants make colossal mistakes, which are often difficult and expensive to rectify. Every working artist should have an entertainment attorney accessible to them, at the very least for intellectual property advice.

There is much more to transactional legal work than “reviewing” a contract. That word sells us short. In 99% of cases, a “review” alone would be insufficient. An artist should never go to an attorney if all the artist wants is a rubber stamp that says “yes, go ahead and sign” on a first-form document offered by a label or a publisher. After all, those forms are euphemistically referred to as “F.U. forms” for a reason. No right-minded attorney would put his or her license at risk by rubber-stamping such a form as “approved for signature”.

Contract work includes drafting, editing, red-lining, and negotiating, and often requires a duly diligent inquiry into the client’s business before any paper is signed. The art of red-lining, for example, is the art of showing the other side of the negotiation the editing changes that you have made to their last form. This is how real negotiations happen.

Your question also brings up another good point. As I indicated above, legal services are a resource, and should therefore be used economically. Many fail to deploy legal services in a timely way—that much is obvious. But there are cases in which the artist may also become overly dependent on the attorney for advice on issues that stretch the boundaries of legal work, perhaps because of an age difference, perhaps because of the attorney’s experience in the relevant field of entertainment, perhaps simply because the attorney is bright and has some interesting things to say.

Regardless of the reason for it, being too dependent on a lawyer is a bad thing. It makes the attorney nothing more than an expensive friend. The smartest thing that an artist can do is use an attorney wisely and prospectively for any matter which stands to have a significant impact on the artist’s business, career or legal rights.

Do you accept unsolicited material? If so, what factors do you consider when listening to submissions of this kind?

No, I do not accept material that is sent to me unsolicited. The same is true for many labels, publishers, studios, TV companies, and others.

However, all I require is that an artist who is interested in material-placement work first contacts me with a query (typically, an e-mail, in this day and age), and then receives, reads and responds to my Submission Guidelines. The Guidelines spell out in detail how submissions should be made to me. The rules are easy. For placement work, I always defer discussion until after the Guidelines are read, and after the submission is made. After all, there’s really nothing to talk about until I hear the music or otherwise review the material.

All “unsolicited” means is that the recipient has not (or has not yet) agreed to receive the material. Therefore, the simplest way to remove that “unsolicited” stigma is to ask the recipient if the recipient is willing to receive it.

What factors do I consider when listening to a demo CD? Well, a number of things, but the list includes:

(A) “How will an A&R executive react to this material?”

(B) “Can I imagine this music being played on the radio as it is recorded and, if so, on what radio station(s)?”

(C) “Do I think this music has a realistic chance of commercial success?”

(D) “Can I send this material out to an A&R executive that I know, under my signature?”

And, last but not least,

(E) “Is this artist someone with whom I can work, as a client?”

Do you offer shopping services? What is your experience of shopping material? Do A&R reps generally trust attorneys to come up with hot material?

Yes, I handle that kind of work. I typically refer to it as “project placement” work, rather than “shopping”, because I think the former is more accurate and sounds more dignified.

I’ll approach any person or entity that the client believes could further the client’s interest in placing material. Typically, a music client with material will want to approach record labels directly, whether they are majors, minors, independents, etc. There are cases in which a musician with material might want me to approach a music publisher, manager, producer, or even a famous artist - although labels are a more frequent target.

As I indicate in my Law Practice Statement and Submission Guidelines, the artist should be prepared for a speculative endeavor, wherein success or even satisfactory response to the material is by no means guaranteed, even if the queries and submissions are made through an entertainment lawyer. The main reason to submit material through an entertainment lawyer is because many labels, and other entertainment companies, require it. Period. Labels may well believe that artists who go to the trouble of seeking counsel for material placement, must by definition be more serious about their musical careers.

For example, I believe that most A&R reps with whom I communicate know that I only end up taking on a minority of the placement material initially forwarded to me. I believe that these A&R reps are glad to hear from me when I contact them with new material a second time or repeatedly, because that’s what they tell me. But I can’t speak as to what these A&R reps think about other lawyers, since I’ve never really asked. I only care about my own ability to get through the gate for the benefit of my clients.

Have some sympathy for those who work at entertainment companies; I do, because I did. These folks are absolutely inundated with queries and material. They accordingly set filters, much like e-mail spam filters, designed to filter out the worthless from the worthwhile. Admittedly, like e-mail spam filters, sometimes the A&R filters don’t work. There are “false positives” and there are “false negatives”. Sometimes, worthy inquiries are rejected. Sometimes, worthless submissions get through the gatekeeper, and sometimes even get signed!

It’s not fair, but it is what it is. Don’t fight it, and play by their rules unless you want to self-distribute. If one of the filters the label imposes is that all submissions should be made through an entertainment lawyer, then get one.

As for which individual to target with a query or submission, it depends on the artist, the material, the label, and other circumstances. Naturally, you try to seek out persons with whom you have had favorable results or contact in the past. But new labels develop constantly, and people in entertainment companies seem to change jobs constantly. The key is to update your research on the chain of command within the label, shortly before making the inquiry.

Often, shooting too high or too low leads to adverse results. Besides careful forethought, a certain degree of timing and luck is also involved.

Can an attorney act as an artist’s manager at the beginning? Is it advisable?

Yes, an attorney can; and no, in my view it is not advisable.

Remember that an attorney is always an attorney, no matter what other moniker the attorney might adopt. A lawyer might market himself to bands as an “impresario”, but that lawyer would still be governed by the rules of the Bar no matter what. To me, “attorney” or “lawyer” trumps all other titles. If a lawyer introduces himself as a “manager”, I would treat him as someone introducing himself to me under an alias. Thankfully, most lawyers realize the importance of identifying themselves as members of the Bar early in the discussion. After all, it is only fair to advise the other party of that fact as early as possible; otherwise, the lawyer would be maintaining a silent and unfair advantage.

Additional self-styled titles regardless, the attorney is still accountable to the Bar, the Canons of Ethics, and the laws governing attorney conduct. If the lawyer wants to keep his or her license, he or she must still abide by those rules, even when acting as a manager. I tend to prefer people who call themselves what they are.

“Manager” tends to imply that the representative is working on a contingent-fee basis. My previous answer above to the question “An artist pays an attorney…” (Part 1) spells out my concerns about these types of arrangements, and why I avoid them.

The more interesting distinction to me is between “agent” on the one hand, and “manager” on the other. Recently, this has been a burning issue in the area of author representation in California. In the music business specifically, the role of the manager can become quite extensive and important to an artist’s career. It really depends on who that manager is. There are some great (non-lawyer) managers out there, and you can usually tell who they are because their client rosters are already full!

At what stage should a band formally agree on how responsibilities and earnings should be divided? Are there standard contracts for this? What are some of the issues that should be dealt with in that agreement?

As early as possible! Please see my article, The Written Agreement Amongst Band Members (“AABM”). This article does underscore how important that proverbial “ounce of prevention” really is. Artists (and others!) are often all too willing to leave problems for a later day, in the hopes that the problems will go away. But this is totally contrary to my own personal philosophy. My own personal philosophy is “Confront problems now—solve them now”. A small bit of smart drafting can spare you a lifetime of litigation.

No, I would never concede that there is a “standard” contract for the AABM. Indeed, I don’t think there is a standard contract for virtually anything. When someone gives you a form and says it’s “standard”, they're telling you that they are trying to take advantage of you because they think you are a hayseed.

Every fact pattern is different, every band is different, and every deal is different. Basically, every band is a de facto partnership unless defined otherwise in writing by one or more band members. In this regard, the band is much like any other partnership or business organization. Anyone who reads Professor John C. Coffee Jr.’s book on business organizations (one of my favorites from law school) will tell you that most co-ventures boil down to 2 main issues: (A) ownership; and (B) control. “Who owns what?” “Who controls what?”

Clearly, who should pay certain expenses, and when, are big issues in any business start-up. And for the optimists (most bands are, as am I), the question of who receives what profits and when is also important. So is the band/name trademark. But this represents just a smattering of the issues that should be dealt with in any AABM. To show you in full detail, I’d have to first investigate your own band’s fact pattern and past documents, and then draft one for you.

Who owns the rights to a band’s name? Whoever came up with it? Whoever is exploiting it? At what point should one apply for federal trademark protection? What does it mean that the band name is automatically trademarked as soon as the band has made a public performance?

I think there are too many embedded assumptions in these particular questions—so please don’t rely upon those assumptions, particularly not the assumptions embedded in the last question. A band name is not necessarily “trademarked” as of the date of their first public performance. Furthermore, I wouldn’t even suggest using “trademark” as a verb, out of concern that this might confuse people.

Trademark law is complex and not easily explicable in the context of a short article or interview. Basically, in the U.S, there are two principal ways to establish a trademark and trademark protection. One is by “common law”, and the other is by state and/or federal registration. In recent years, the U.S Patent and Trademark Office (PTO) has allowed pre-use filing of a trademark under certain circumstances, the so-called intent-to-use or “ITU” filing:
http://www.uspto.gov/

Yes, trademark rights may be acquired by use alone, but (a) sometimes “use alone” is not enough, and (b) sometimes the user fails to properly document the use as part of an aggressive trademark protection plan. One can consider trademark registration if one knows that the intended name is clear or reasonably clear, but one needs to be careful. A professional trademark search for this purpose may be expensive, and a trademark contest before the PTO arising out of a trademark registration may be even more expensive.

Due to these perils and expenses alone, most bands skip the step of trademark registration. I’ve heard that over 80% of U.S. trademarks are not registered. In a perfect world, I suppose all valid trademarks would be registered, but this world isn’t perfect.

As for “who owns the band name?”, it depends upon the fact pattern and the text that is in the related documents. Even then, the answer might not be clear. Band members have litigated for years on end, running through millions of dollars in litigation fees, to try to find out.

My point is spend the money and time now and map it all out in a signed agreement like an AABM: http://www.tormey.com/written.htm
A signed agreement is your best shot at avoiding a dispute later on.

Why did the “poor man’s copyright” go out of practice, or has it? What does the fact that I automatically own the copyright to my work as soon as I have given it “a tangible medium of expression” actually mean? If I just record my song on CD at home and nobody knows anything about it, how can I ever prove anything, including the recording date?

People still mail their work to themselves, I suppose, but I don't think it's even worth the price of a stamp. For more on this topic, including the significance of “tangible medium of expression”, please see my article on copyright registration.

The fact is that, when executed properly, the U.S. Copyright Office registration procedure should give you as much U.S.-oriented protection as you will ever need:
http://www.tormey.com/copyright.htm
http://www.copyright.gov/
Of course, there are other important steps too, like maintaining an access log, and labeling work with proper copyright notices. Certain situations require more aggressive copyright protection measures, such as “cease and desist” demand letters, and litigation.

If the “poor man’s copyright” has fallen out of favor, it is probably because anyone with Internet access these days can surf the U.S. Copyright Office web site (and other sites), and thereby discover what a waste of time self-mailing really is, in relation to other strategic alternatives:
http://www.copyright.gov/

As for your last question about a home-recorded CD, I wonder, when a tree falls in the forest and there's no one around, is there is a crashing sound? Seriously, without generating a thoughtful and intelligent paper trail, it is hard to prove anything. Indeed, one of the lawyer’s functions is to help clients create a thoughtful and intelligent paper trail on any matter of significance to the client.

However, do not think for a minute that a home CD recorded on a computer, for example, fails to leave a trail. Most modern litigators will tell you that computers leave traces too, and that it is very hard to permanently erase data from computers (without melting them, I suppose). One computer-minded litigator with whom I attended a seminar once told me that an everyday interoffice e-mail at work could possibly end up leaving its trace in as many as sixteen or eighteen different e-locations.

Let’s say a U.S. Attorney had to prove or disprove one’s claimed creation date of a song, in a criminal copyright infringement matter, for example. I suppose that the U.S. Attorney would probably first find a way to confiscate the hard drive, and then find a way to print the creation date of the relevant music file on paper. But when submitting it into evidence before the court and the federal judge, the U.S.’s Exhibit “A” would probably still be in hard-paper format, at least now, in our generation.

That said, I try never to rely on a computer record alone, for anything. Even as a environmentalist who loves trees, I make a careful paper trail, and back things up. I help clients do this in a thoughtful and strategically advantageous manner as well. Part of a lawyer's skill is simply to constantly ask oneself whether something can be proved, on paper, in court, to the client’s advantage.

Is the best way to legally protect copyrighted works to register them with the U.S. Copyright Office? Is it the only way that will hold up legally?

For U.S.authors and U.S.works, yes, it is at least one of the best ways; but no, it isn’t the only way. Please see my answer above, and please also see my article on copyright registration:
 
Obviously, one of the best ways to protect a work is to consult with legal counsel before disseminating the work! The issues posed thereby, by the client, might transcend copyright registration practice alone, and might also cross international boundaries. After all, the U.S. is not the only country that has copyright law, and that of other countries, such as China, might surprise you.

Under U.S.law, a copyright in an original work exists as of the moment it is reduced to a tangible medium of expression. In that sense, the protection “holds legally” as of the item’s creation and reduction to tangible form:
http://www.law.cornell.edu/uscode/text/17/102

However, if you want to sue on a copyright in federal court, you need to first register the work with the U.S. Copyright Office, that is, not with the Writers Guild (WGA):
http://www.wga.org/
and not by mailing it to yourself. Copyright Office registration is not necessarily the only way to protect yourself, but it is one of the best ways. And as indicated above, there are likely to be other self-protective steps that artists can take along the way, which will help them to protect their rights and interests further.

One such additional step is to be wary of those with whom one conducts business, but that would probably take up a whole new interview!

Do you think that it would be desirable for recording artists to be in a similar position to that of actors, i.e. recording for different labels without being contractually bound to one? Do you think this would work?

In some form, maybe.

First, I would keep in mind that actors are not as “free” as you might think. My father is a working actor in New York, so this issue is something familiar to me.

In principle, while it is true that much of the old Hollywood studio system of autocracy may have now fallen by the wayside, actors can still find themselves bound by extrinsic forces from time to time. Sometimes diplomacy and politics require an actor to work with people whom the actor would otherwise avoid. Sometimes, the fact that there are only so many houses in town limits the number of the actor’s viable options in terms of people and companies with whom he or she might work.

Actors are bound to their unions and union rules, including payment of dues and stringent Rule 1 enforcement:
http://www.sagaftra.org/contracts/gr1-no-contract-no-work
Actors can still sign multi-picture deals with studios or production companies, but G-d help them if they do so without counsel. Actors can set up production deals and their own production company on the studio lot, often in exchange for their own acting output, and that can become a case of proverbial golden handcuffs.

In addition, actors may sign with agents and managers, and then perhaps find themselves unable to break those contractual commitments, even if they believe that the agent or manager isn’t doing his or her job.

Second, I would keep in mind that it is entirely possible, legally, for an artist to contract with a label for a single record alone. I have done exactly that for clients, and I have seen others do it, too. Not all record deals are multi-album deals. Even if the system tends to bind artists to long-term commitments and multi-year deals, in most cases nobody holds a gun to the artist’s head forcing him or her to sign that multi-CD deal. However, I suppose a few things even crazier than that have happened recently in the music world.

The point is that it is all a matter of leverage and negotiation. There are several external limits on the duration of an artist’s personal services contract, and limits as to the one-sidedness of its provisions—California’s seven-year rule for personal service contracts is one example:
http://law.onecle.com/california/labor/2855.html
http://www.hollywoodreporter.com/thr-esq/modern-family-sues-20th-contract-negotiations-353575
There is also legislation currently under discussion that will further codify the expected principles of fairness in artist agreements.

But the best way to change what remains of the system is to first buck the system. And if enough artists, be they acting in concert or otherwise, start refusing to sign oppressive recording contracts, then and only then do they stand a chance of changing the system. The problem is that most new artists are fairly desperate to get signed, so you would always have the proverbial “free-rider” problem. There would always be some young talented kid signing the five-year deal without counsel, anyway, which in turn would undermine the cause that the other artists sought to support.

It’s essentially the trade union paradigm all over again. Perhaps the more interesting question is why the musicians' union has never set minimum standards for its members' recording agreements with labels. After all, the Writers Guild of America (WGA):
http://www.wga.org
requires guild minimums to be paid by signatory studios to its members under most circumstances, as does the Screen Actors Guild (SAG):
http://www.sagaftra.org/contracts/gr1-no-contract-no-work
Why has no AFofM equivalent evolved:
http://www.afm.org/
which, through a collective bargaining agreement (CBA), limits the term of its members' contracts to three or even two years, or limits the output for contracts to one, two or three albums only?

There are many counterarguments to consider, though. Most labels won’t want to invest in a band, new or otherwise, unless they can reap the yield from the seeds they sow. If every band signed a one-CD deal with each label, why would any label have the economic motivation to give the band any post-CD-release tour support, particularly for the latter legs of the tour?

Moreover, most artists don’t see any real revenues from their record deals until the second or third CD, if at all. Some of the reasons for this are delays in collection and accounting, and just general bureaucratic molasses. A band must also achieve a certain amount of momentum to be economically successful. Conversely, there are many one-hit wonders out there who are still living on subsistence income.

In short, while I love the idea of one-CD deals from the artist’s perspective, I have trouble imagining the economic model that would make it work. The labels would fight it kicking and screaming.

One model I can imagine, however, is artist and band self-distribution, which simply cuts out the middleman. Although it seemed like a pie-in-the-sky notion ten years ago, it is actually starting to happen in limited ways at least, today and as we speak. And how can a label kick and scream, if it doesn’t exist? After all, does a tree falling in an empty forest make a crashing noise?

Is there a particular type of contract that is generally tougher to negotiate than others?

Tougher? I don’t think so. Thankfully, there is precedent for virtually all these types of deals. And lawyers are creatures of precedent, after all. We collect precedents, for fun. And sometimes, we are lucky enough to set precedents.

As a general rule, I think negotiating with a non-lawyer on the other side of a deal is actually tougher than negotiating with a good lawyer. A negotiation through counsel is, in theory, less likely to become acrimonious, which is a good thing.

I suppose it could be said that the early Internet-related contracts were tougher to negotiate, in the sense that there was, at the time, a vacuum of rules, customs, practices and laws governing them. But that void has, by now, started to close, and the fact is that most lawyers like myself who like variety in their practice actually enjoy that type of challenge.

Answers (c) 2003 John J. Tormey III, Esq. All Rights Reserved.
Questions (c) 2003 HitQuarters. All Rights Reserved.

For contact details and related articles, please visit:
 
Interviewed by Stefan Sörin

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Interview with New Yorkentertainment lawyer John J. Tormey III, Esq., by Stefan Sörin of HitQuarters - August 12, 2003
PART III

“Many artists never even focus on what constitutes a deductible cost, until it's too late.”

John J. Tormey III, Esq. is a music and entertainment lawyer with his own practice in New York. In this three-part interview, he talks in great detail about the legal issues many artists encounter during their careers in the music industry. Part 3 deals with issues related to record label contracts, such as the controlled composition clause, ownership of the masters, and the one condition that is usually necessary for artists to get market value for their work product.

DISCLAIMER: Neither this interview nor any part of it is intended to constitute legal advice with respect to any particular situation or fact pattern. Secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies to one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.

Can the existence of the "controlled composition" clause in artist contracts be justified, or is it just a way for labels to get a larger slice of the cake? How often does it show up in record label contracts, and what leverage does an artist need to have to prevent it being included? What do you think of the clause?

A great lawyer-mentor I once had advised me to fight like a wild dog on this clause—if representing an artist, and not a label. That’s my opinion of the clause, although my opinion of it might mellow in cases where I’m representing a label instead! There are two sides to the story.

A mechanical royalty is a so-called “music publishing” royalty payable to the owner of a song for the use of the song on a CD. Think of it as a “per-pressing” payment, or a “per-imprint” payment. Eight separate songs pressed onto one CD still means eight separate mechanical royalties, unless the songwriter-artist signs a document that provides for less. The word “mechanical” is a historical artifact from player-piano rolls and old copyright law.

Mechanical royalties can be either: (A) statutory; or (B) negotiated. Unfortunately for the songwriter-artist, when negotiated, they are often negotiated downwards and not upwards.

A statutory mechanical royalty is prescribed by statute, the U.S. Copyright Act:
http://www.copyright.gov/carp/m200a.html
http://www.harryfox.com/public/RoyaltyRateCalculator.jsp
Licensees proceed under the “compulsory licensing” provisions of the Act, in cases where the song has already been licensed (at least once) and publicly distributed:
http://www.law.cornell.edu/uscode/text/17/115

That new second-comer licensee effectively “compels” the copyright owner to license the song that second time, at a per-pressing rate set by the Act. The current statutory rate is a certain number of cents per pressing for songs of five minutes or less (the formula escalates for longer songs).

Let’s assume that we’re talking about a three-minute pop song included on a songwriter-artist’s CD to be distributed by a label. Start with the assumption that the label should pay the artist-songwriter something for the use of the song (something, fortunately for the artist, additional to his/her royalty on CD sale receipts) or otherwise, the label would be infringing the songwriter’s copyright.

How do label and artist pick a number? Well, the songwriter and label may agree to the “reference point” 9.1-cents-per-pressing statutory rate, without invoking compulsory license procedures, as indeed, those procedures might not even be available because the song has just been written. And if the songwriter has even less leverage than that “reference point” would suggest, the songwriter might be “asked” (I use the word euphemistically) by the label to agree to a rate that is less than the 9.1-cent rate.

Essentially, “controlled composition” is short for “artist-controlled composition”. A controlled composition is a song owned or controlled by the recording artist directly or indirectly. Labels often “request” a reduced mechanical royalty (again, as distinguished from record royalty) for controlled compositions. In other words, as above, the record company wants to pay the artist less than the “full” mechanical rate.

The validity of the label's argument probably corresponds in some way to the number of tracks on the CD that are actually written by the artist. If every one of fifteen three-minute tracks on a CD are written by the artist, then a label might feel that multiplying the current eight-cent mechanical rate by the fifteen tracks, for each CD, would be a daunting and financially prohibitive experience. The label might also be concerned about the interplay of mechanicals and Canadian royalties, and the interplay of mechanicals with record club records and promotional records not offered for sale.

These boil down to pure numerical exercises. Can the label justify the pay-limiting clause? The label may try to, just like any business owner may try to justify paying a vendor less in an effort to reduce the business owner’s fixed costs. Heck, I am always trying to find legitimate ways to reduce my own business’s fixed costs (and so should you). The clause naturally shows up in record-label “first forms” quite a lot, and ultimately ends up in many signed agreements.

What leverage does an artist need to eliminate it? A lot; for example, having a second record label-suitor and the resultant bidding war (of course, the controlled composition issue, like a “container charge”, becomes moot if the artist decides to self-distribute instead).

The point is that the artist’s counsel could probably brief twenty different reasons why the label’s controlled composition clause is unfair and oppressive as written. The label’s counsel could probably brief twenty different reasons why the label would probably go out of business if the clause did not appear in all of the label’s contracts. This is what good lawyers are paid to do under our adversarial American system of law, after all. But therein lies the rub.

The fact is, most record deal negotiations don’t catalyze a written twenty-principle brief on every point of the deal that is in play. In fact, the experience is usually the opposite—in the real world, for others, it’s usually short strokes, staccato conversations, notes on a golf score card, notes on a cocktail napkin. In my world, it’s usually sitting at my desk with my phone in my ear and my checklists, drafts, red-lines, and files in front of me. Decisions are often made at that precise moment, because time is money.

I had a karate instructor as a young teenager. He wisely told me that, yes, we were expected to spend hours and hours learning the discipline and style of the kicks, punches, blocks, and “kata” (or forms) in Tae Kwon Do, and that we would be tested on them. However, he said, the kicks and punches we might use in a real street fight would be, at best, severely abbreviated forms thereof, and would probably look nothing like their disciplined long-form counterparts to the outside observer. And he was right.

Does that mean that it was a worthless exercise to spend all that time on the disciplined kicks and blocks? No, because the discipline is in fact what made us better fighters, if ever needed. The same is true for negotiations at the major-league level, as well as court appearances. They always transpire far more quickly than you expect.

The other reality is economic: all clients, if asked, would prefer not to pay for their lawyer to over-brief and over-argue a point, especially if the end result is not likely to be positive. This is the practical counterweight to the lawyer’s undivided and inviolate responsibility to serve as the client’s zealous advocate—the lawyer cannot undertake a task that the client is unwilling to pay for.

So regarding controlled compositions, the artist attorney’s charge is probably to fight the point, but within the twin realms of client instruction and commercial reason, and mindful of the respective “leverages” of both parties to the proposed deal.

If artists share the costs of making the album (or even pay for them completely) since these are recoupable from their royalties, do you think they should also share ownership of the masters or even own them completely? What prevents artists from including a clause that states that the right to the masters are transferred to the artist once the costs have been recouped?

Shared ownership is tough to implement. Possession is nine-tenths the law, as the old adage goes, and I think with masters, the fraction is more like 999 over 1,000. I suppose the label owner and the artist could put the masters in a locked briefcase and then each handcuff themselves to the briefcase, but that would probably put a damper on their social lives.

Seriously, in theory nothing stops the artist from inserting or trying to insert that type of rights-transfer clause. I have obtained contractual “reversion of masters” clauses for my artist clients in the past. However, as with controlled compositions, the inertia of custom and practice is a powerful force. A body in motion tends to stay in motion. A body at rest tends to stay at rest. In a negotiation, a label might tell an artist that they have never before parted with possession of masters—and they might actually be telling the truth.

Even if a label does agree contractually, on paper, to a reversion of masters or reversion of rights clause, to take effect ten years hence, that doesn’t necessarily mean that the reclaiming of possession will be smooth and easy for the artist ten years from now. People, and companies, have been known to breach written agreements once in a while. And people sometimes forget (conveniently or otherwise), what they said or signed ten years ago.

Artists do not always pay for the costs, in whole or in part, of making the album. Yes, the prevalent model when I first learned record contracts allowed the artist to collect an advance that was the excess of a “recording fund” over and above the tangible costs of the album. This created a predictably brutal game between artist and label, whereby the label would try to attribute a mind-numbing assortment of “expenses” against an artist’s recording fund, often through “creative” accounting and/or a duplicate and discrepant set of corporate books.

Often, the artist would find himself/herself with no advance left, or even in debt to the record company after one or more successful albums - see my article entitled "Trickle Down":
http://www.tormey.net/trickle.htm

However, new models, new technologies, and new methods of distribution have emerged, which may continue to change the “recording fund” paradigm (or whatever name it may be given this particular selling season).

If the record label makes a significant investment in the artist, demo, career, marketing and tour support, and particularly in the recording of the album, then I understand the record label’s desire to hold on to the masters, at least for a spell.

First, the possession of the masters secures the record company’s investment in ways that a mortgage of copyright, a piece of paper, can’t really match. When Tom Scholz of Bostonsocked those tapes away in his refrigerator, he was chilling liquid gold. This stuff is valuable intrinsically, almost like currency.

Remember that a record company may obtain a negative injunction preventing an artist from recording for another label but cannot obtain an affirmative injunction forcing an artist to record and perform further, as that would violate the Thirteenth Amendment’s prohibition against slavery or involuntary servitude:
http://www.law.cornell.edu/constitution/amendmentxiii

So what security does a label usually want and need in order to militate against the artist flaking out on them? Or cutting a better deal across the street as soon as his or her stock rises? That security would be the masters, and possession thereof. People and companies like their security to be liquid.

Second, there are obvious practical concerns. If the record company and not the artist is the party responsible for mass-pressing and duplication, then the masters are needed until the last pressing is completed. Sometimes a record is re-released, even years after its initial release, particularly when a new media or technology is developed. Imagine if the masters to every LP now re-released on CD had been instead retained 100% of the time over the last 30 years by the artists, instead of their labels! Would society have even found most of those masters? I don't think so.

These days, I realize that duplicate digital masters have changed the analysis somewhat. But even so, it’s not a great idea for masters to be shuttled back and forth between owners, just like joint custody is less in a child’s interest than a single happy family. With masters being passed back and forth, there is, among other things, a risk of losing track of cumulative edits thereto, and a significant risk of loss and damage while in transit. The insurance carriers are not particularly fond of the latter idea.

Typically, labels move around less than artists do, and I know several artists who change addresses as often as a few times per year. You don’t want masters forgotten and left behind in cross-town taxicabs, as has been the fate of a few motion picture release prints in recent years. To avoid dead-weight economic loss, it's better that the masters stay in one place.

In short, the party who initially pays for the masters, who has the most immediate and continued need for using the masters, who can keep the masters the safest, who is expected to physically move the least, and who is most likely to stay solvent (see below) is probably at an advantage in any “Who should retain continued possession of masters?” debate.

Indeed, if the artist is going to take the masters home with him/her every night, why does he/she really even need the record company? The artist might as well self-distribute and hire an outside publicist. But most artists still need the labels, to put the CDs on the racks of the mass-market retailers, to put them in the CD-club catalogues, to pay for tour support, and otherwise.

An artist is unlikely to have the leverage to keep masters from inception, but could have the leverage to try to take a contractual reversion of them at a pre-specified but future time. Yes, that pre-specified time could, in theory, be “recoupment”, if “recoupment” is clearly defined contractually. However, the concept of “recoupment” is seldom if ever clearly defined by a label’s first (“F.U.”) form! (And, please, don’t expect labels to send you a priority e-mail once the magic moment of “recoupment” has actually occurred).

Finally, don’t forget the solvency issue. If your research indicates that a label might be about to go bankrupt, then the last thing you want is to give the label possession of the masters and find them swept up into a bankruptcy estate—believe me on this. In fact, if the label is in financial dire straits, you would probably want to rethink the whole deal before signing anyway. But you would be shocked as to how many people fail to check the solvency of the other contracting party before signing. And if you don’t believe that solvency is an issue, then I may have some airline stock stories to tell you about.

What other costs are often recoupable from the artist’s royalties, and to what extent? Are all advances always recoupable?

As with a number of the above points, it is all, or should be, a matter of negotiation.

While the label may indicate that their roster of deductible costs is “standard”, that statement may or may not be true. Many artists never even focus on what constitutes a deductible cost, until it's too late. I believe that the artist should prospectively consult, not only with an entertainment attorney on this issue, but also with an accountant who is familiar with the entertainment industry.

Preferably, the artist should consult with the accountant who is likely to conduct the artist’s royalty audit if and when requested. For more on the importance of the audit clause, please see my article entitled "Trickle Down":
http://www.tormey.org/trickle.htm

As for whether all advances are recoupable (read “deductible as against other artist monies”), the answer is not always. By analogy, in film deals, we ask whether it is “applicable against” or “not applicable against”. In music deals, the answer really depends upon how the remainder of the contract is drafted.

Remember that “Advance” is, after all, just a word, an empty compartment, a capitalized term, into which music industry contracts sometimes pour meaning. Remember that there are other words one can use to describe other types of payments, such as “guarantee”, “per diem”, “allowance”, “bonus”, “signing bonus”, “non-refundable, non-recoupable signing bonus”, and so forth. The number of different types of payment arrangements and schedules that one might insert into a contract are limited only by the imagination of the drafter.

That being said, I would consider this a “don’t try this at home” proposition. I think a non-lawyer artist would be making a mistake trying to draft around the concept of “recoupability”, just like I would be making a mistake if I picked up a guitar with a few of my clients and started soloing in front of their paying audience. In life, we all have our roles to play. An artist should know how to protect his/her own business interests, but also when to turn the task over to a professional.

Has the typical record contract changed in recent years? Have clauses been deleted or added to adapt to the current business environment? Have any of these changes occurred as a result of increased artist awareness of the business?

'Yes', 'yes', and 'no', respectively.

I think you can guess that the most important recent changes have been in the area of computer-assisted media, the Internet, and digital rights. By way of analogy to the publishing world, please see my article on Publishing and Electronic Rights:
http://www.tormey.com/publishing1.htm
http://www.tormey.org/publishing2.htm

Recently, changes in the accounting practices of certain labels have been reported, including some discussion of an “audit recovery clause”, which penalizes the label with the artist’s audit costs, if the audit finds a 5% or 10% shortfall in royalties. This makes me realize that there is nothing new under the sun: I was using and seeing a similar audit cost recovery clause in merchandising agreements back in the 1990's.

Sadly, I think that everyone reads their “force majeure” clauses a lot more carefully since 9/11, especially insurance companies. Lawyers need to make sure that terrorism is dealt with in those clauses, in one way or another. More entertainment companies are paying attention to immigration matters, in their contracts and otherwise, not just since 9/11 but even before then, when a few entertainment companies got nailed for having hired workers with no legal right to work in the United States.

And of course, lately there has been more of a concern whether any individual CD will be properly labeled with parental warnings, marketable by the major retailers, or playable on the air due to adult or otherwise graphic content. The last issue is quite difficult to paper around. No open-minded entertainment lawyer wants to be thought of as a “censor”, after all. But on the other hand, the marketability of the material to the public is a genuine business issue, about which a label is often legitimately concerned. By definition, it costs more to “bleep” out all the lyrics to a song and mix down a radio version.

The bottom line is that a good contract is a repository of bad experiences. I once knew of a company that, every time it got burned on a deal, would add a clause to its so-called standard form, drafting with a view to preventing occurrences of the same problem. The company was hardly ever burned twice on the same issue.

However, new issues always arise as technology changes, as people get older, and as the world keeps turning. For this reason, it is a good idea for artists and companies to still proactively review their own boilerplate periodically, even basic documents like invoices and form letters, and perhaps enlist an attorney’s assistance when doing so.

The CD format has been around for twenty years, but is still often defined as a new technology by record labels, which means that the artist’s royalty is cut by 25%. Should this be changed now that the CD is the dominating format?

As with our discussion of trademarks, I think that there are too many embedded assumptions in these particular questions, so please don’t rely on those assumptions. I see things a bit differently. For example, not all labels adopt the above ratio. There are many labels, large and small, and some are more technologically advanced than others. Some are also kinder than others.
 
For what it’s worth, I was still buying vinyl LP's 20 years ago in 1983. I started buying cassettes when I went to L.A. in 1984. I don’t think I started buying CDs until I bought a CD player at some point in the early 1990's. So, in fairness to labels, I think of CD technology as more like a ten-year-old phenomenon, rather than twenty. Maybe I was slower to embrace CD technology, because I love my LP's so much.

In any event, not all labels refer to CD's as new technology in this day and age. I have seen and written agreements that are more up to date than that. It is possible that a label will try to discount an otherwise-applicable royalty rate on a variety of bases, including foreign sales, sales in “alternate” configurations like CD's(!), "record club” sales, and so on.

But in theory, nothing prevents an artist from realigning the proverbial scales of justice. In theory, nothing prevents the artist from redrafting the label’s “discounted royalty rate” text as a visual graphic chart containing higher numbers. Depending on the circumstances, that might be one way to negotiate.

It’s the same with respect to “controlled compositions”. All we are talking about is a numerical exercise. People often underestimate their own power to say “no” to a number. And numbers are in play more often than you might think.

Does the artist have the leverage to ask for a higher (or at least “LP-compatible”) CD royalty rate? In part, that depends on who the artist is and what the artist has to sell. But the most important thing to keep in mind is that in a record deal or otherwise, you almost never get market value for your services or work product, until there are two or more competing suitors bidding for the same. If a label is the artist’s proverbial “only game in town”, meaning the artist’s only pending offer, then the label will almost invariably intuit it!

So, yes, the artist can ask for a higher or more realistic CD royalty rate, but whether or not the artist gets it from Label "X" may well end up depending upon whether the artist has already had a written offer from Label "Y". If the artist is fortunate enough to experience a bidding war, then that artist can probably afford legal counsel and should secure the services of an entertainment attorney at the earliest possible opportunity.

The attorney should be the one negotiating the higher royalty rate in this type of case. (And the label will have a hard time keeping a straight face telling an entertainment lawyer that a CD is “new technology”. An “Aw, c’mon!” response from the lawyer should be enough to sink that label's battleship).

When negotiating a record company deal (from the artist’s perspective), which clauses are the easiest to get better terms on and, conversely, which are the hardest?

A full and therefore accurate answer to that question would probably require a weekly seminar over at least three months.

But suffice it to say that if any musician wants me to show them, in the context of a live situation and label negotiation, I would be happy to represent them, assuming that I’m not already representing the label in the same deal!

What types of performance clauses should be avoided?

I would definitely suggest having a look at the articles on "Personal Service Contracts":
 
and "Performance Clauses":
 
on my web site. Basically, any clause that places a vague or indeterminate performance standard on one or both parties should be avoided. Obligations, such as the expected output, tasks, time frame, and others, should be clearly defined.

The bottom line: if you want something from a party in a contract, ask for it very, very specifically. Otherwise you will find that, in most cases, you will be unpleasantly surprised when the other party performs the absolute bare minimum under the contract. If you don’t ask, you don’t get. Don’t be afraid to be specific. Don’t be afraid to think carefully before writing. Don’t be afraid to think carefully before signing. Lawyers themselves follow these same rules.

What clauses in artist contracts with record companies would you like to see removed once and for all?

This isn’t really a problem specific to record company contracts, but I can’t stand contracts beginning with the recitation “WITNESSETH”. It sounds to me like an affected lisp! (And besides, who is “Seth”?)

Seriously, there are words that lawyers need to use, like “hereinabove”, and “thereby”. Then there are other words that are just knee-jerk legalese seemingly used solely for the sake of obfuscation. I like reading and writing plain English contracts that are meaningful, understandable, and fair to both parties, whenever possible. It is indeed these types of documents that stand the best chance of surviving judicial scrutiny, if they are ever put to that test in litigation. Overall, I’d like the next generation to have contracts that are in plain English and therefore shorter.

Also, I have a tough time conceptually and philosophically with anything resembling a “morals clause”. They usually sound foolish when read aloud (try it). If you can’t legislate morality, how can you adjudicate it? How can you enforce it contractually? Thankfully, a number of entertainment companies have seen the wisdom of abandoning the “morals clause” in recent years. Besides, parts of our society actually reward bad behavior these days, unfortunately. An artist’s felony conviction might have been grounds for a record contract’s termination by a label, back in the 1950's. These days, the label might look at the event as free publicity for the new CD.

Finally, to answer your question directly, I would knock out “artificial and arbitrary limitations on artist audit rights”. Any limitations on artist audit rights should be thoughtfully prepared and drafted, and customized to the situation at hand. They shouldn’t be merely and mindlessly lifted by a label from another label’s boilerplate!

What aspects of the music industry are in need of drastic change?

I would shut down artist-unauthorized music piracy in all its forms, including illegal downloads. To me it’s no different than taking money out of someone’s wallet when they are not looking, or worse yet, stealing someone’s family dog or their child.

I am encouraged that, as of the date of this interview, the Associated Press has reported that the music industry has just issued over 800 subpoenas in connection with the illegal sharing of computer music files. More proceedings are expected to follow. For the pirates, it appears that the feast is just about over.

My father is an artist. Many of my friends are artists, including several working musicians who believe that up to two-thirds of their total current music distribution is bootlegged illegally. Stealing is obviously wrong, and I could cite a Commandment, as well as many laws, on point:
http://www.law.cornell.edu/uscode/text/17/501
http://www.law.cornell.edu/uscode/text/17/504
http://www.law.cornell.edu/uscode/text/17/505
But beyond that, how can anyone rationalize stealing from an artist? Artists are the very last group of people that should be victimized in any respect!

Artists have it hard enough as it is, and the majority of them never find a way to persevere in their art while making ends meet. I don’t care how rich the artist may seem now. Whatever the case, that artist had to work and sacrifice to get there. Their work and sacrifice should be respected, as an absolute rule. They should not be made to suffer music piracy. Music piracy is not a victimless crime.

What has been the greatest moment of your music career?

As an entertainment lawyer, probably when I helped a friend, and he wrote me a note, which I saved, saying “Thanks John—You Rule!” I like when people appreciate what I do for them.

Meeting several of my music idols has also been a big thrill, such as Dickey Betts, Carly Simon, Jorma Kaukonen, Bruce Springsteen, Ornette Coleman, Tina Weymouth, Robben Ford, Ray Manzarek, Bobby Short, and Leonard Bernstein.

Some of the backstage exploits when my friends and former band mates tour through town are fun too; and thankfully, they almost always play New York. Because of the “Road Code”, I guess I can’t talk about these events too much.

As a musician, my greatest “moment” was probably my entire junior and senior years in college, the latter with Tom Morello and my other dear college friends Aaron, Bob, Nick and John. For the better part of those years, it seemed like we booked and played gigs virtually every weekend, and we rehearsed non-stop at the Cambridge Music Complex when we weren’t attending classes.

I remember the excitement of recording and distributing a demo, and landing gigs because of it. A musician lives to play, and loves to play out. That era was the second-best time in my life, apart from right now.

What do you see yourself doing in 5-10 years' time?

Exactly what I am doing now. I just hope and pray that this world is a safer place in which to do it. New York has been a tough place to live in recent years. Like many other folks, I lost friends in the Twin Towers, and things haven’t been the same since. Terrorism has had an effect on the music business, on entertainment generally, on the economy—and on our lives. Music and entertainment are vitally important, but there are things that are even more important.

Answers (c) 2003 John J. Tormey III, Esq. All Rights Reserved.
Questions (c) 2003 HitQuarters. All Rights Reserved.

John can be contacted at:
 
For full contact details and related articles, please visit:
 
Interviewed by Stefan Sörin

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