Publishing and Digital and Electronic Rights - Part II: Written By New York Entertainment Attorney And Publishing Lawyer John J. Tormey III, Esq.

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Publishing and Digital and Electronic Rights - Part II: Written By New York Entertainment Attorney And Publishing Lawyer John J. Tormey III, Esq.

© John J. Tormey III, PLLC. All Rights Reserved.

This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in 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.

Part I of this article discussed how phrases like the “digital right” or “electronic right” should not be assumed to be self-defining, even by and between publishing lawyers and entertainment attorneys, and how it is incumbent upon authors to reserve needed rights like the digital right or the electronic right to themselves in the context of a publishing deal. Next up, this Part II examines concepts such as the digital right or electronic right from the perspective of the publishing lawyer and entertainment attorney, and the standpoint of fairness - who between author and publisher should in fact hold on to the digital right and electronic right, once and assuming that they are first properly defined?

3. Yes, Digital Right And Electronic Right Uses Do Compete With Traditional Book Publishing Uses.

A publishing lawyer or entertainment attorney may be called upon to handle an author-side deal. A publishing lawyer or entertainment attorney may also be called upon to handle, under different factual circumstances, a publisher-side deal. So, now, a few words in defense of publishers, I suppose.

There is a perception in the author and Internet communities that publishers should not be taking broad grants of the digital right or electronic right from authors, since “digital rights and electronic rights do not compete or interfere with traditional book publishing and other media rights”.

Not true. Not anymore. For proof of that fact, ask a few veteran news desk editors whether or not they followed, or were otherwise concerned about, what appeared on the Drudge Report during the Clinton administration. Ask the CFO’s or in-house publishing lawyers of a few traditional encyclopedia companies how they feel about Wikipedia.

Incidentally, although as a publishing lawyer and entertainment attorney and unlike some others, I tend to use the phrase “electronic right” or even “digital right” in the singular number, there probably tends to be no single consensus as to what constitutes and collectively comprises the singular “electronic right” or “digital right”. There has not been sufficient time for the publishing, media, or entertainment industries to fully crystallize accurate and complete definitions of phrases like “electronic publishing”, “web publishing”, “electronic right[s]”, “e-rights”, “digital right[s]”, or “first electronic rights”.

Nevertheless, electronic media and specifically the digital right and electronic right, have already changed our history. You can be sure that they will have some effect, at a minimum, on most author’s individual publishing deals henceforth, and will be the fodder of publishing lawyer and entertainment attorney discussion for years to come. The fact is, electronic uses inherent in the digital right and the electronic right already do compete with older, more traditional uses - particularly because digital and electronic uses are cheaper and faster to deploy, and can potentially reach millions of users in less than, as Jackson Browne might say, the blink of an eye.

Commerce is increasingly relying upon the Internet and other electronic phenomena, and the linchpin of this reliance is the digital right and electronic right. After all, you are reading this article, and ostensibly gleaning some information or material from it. The Web, for example, has already put a sizable dent in dictionary and encyclopedia sales, and anyone who tells you otherwise is probably an employee in a dictionary or encyclopedia publishing company or publishing lawyer in-houser in denial of the digital and electronic right, trying to protect his/her stock options. As the recent and well-known Stephen King pilot program will attest, fiction is the next subject matter area to be affected. Many of us book lovers including publishing lawyers and entertainment attorneys don’t like to think about it, but bound hard-copy books may soon become the sole province of book collectors and publishing lawyer vanity bookcases alone. The vast majority of book readers, however, may so wholly embrace the digital right and electronic right that they soon even lose the patience to wait for their “amazon.com” mailed shipment.

Very few people who work in the publishing, media, and entertainment industries, including as amongst fair-minded publishing lawyers and entertainment attorneys, should dispute that electronic uses inherent in the digital right and electronic right can easily cannibalize the older and more traditional forms and formats. This cannibalization will only increase, not decrease, as time goes on. Again, the author should put himself/herself in the mind-set of the publisher or its in-house publishing lawyer, when having this digital right/electronic right argument with the publisher or publishing lawyer. The publisher otherwise may want to invest marketing and personnel support in the author’s work, and perhaps even pay the author an advance for the writing. In their view, though, the publisher’s publishing lawyer or entertainment attorney argues, why should they do so, and not also capture the author’s digital right or electronic right?

The last thing that the publisher or its publishing lawyer or entertainment attorney wants to do is to pay the author - and then discover that the author has “scooped” the publication with the author-reserved digital right or electronic right, stolen the publisher’s proverbial fire, and undermined the publisher’s investment in the author and the writing. The concern of the publisher and the book company’s in-house publishing lawyer or outside entertainment attorney is rational and valid. If the publisher allows the author to potentially undercut the book by exploiting author’s reserved digital right or electronic right, then the publisher is threatening the publisher’s own investment in the author and in the written work. (And on some subliminal level at least, the company’s in-house publishing lawyer also knows that this could come out of his or her future comp).

Compromises are available. One traditional compromise effected between publishing lawyers or entertainment attorneys is a so-called “hold-back” on the digital right or electronic right, whereby the author promises not to use or license-out any author-reserved digital right or electronic right for a certain period of time following publication. The author will need some leverage to get a publisher to agree to such a compromise, though. And a publishing lawyer or entertainment attorney should draft the clause - the author’s publishing lawyer or entertainment attorney, not the publisher’s counsel!

An author may think that small “portfolio” uses (e.g., tucked inside greeting cards, on an author’s personal web site, etc.) are so minor, that they will never compete with publishing rights granted for the same work, and may tell the publisher or the company’s publishing lawyer or entertainment attorney as much. The greeting card example does seem innocuous enough, but the publisher and its entertainment or publishing lawyer will likely not agree with the author regarding the author’s personal web site. It is the electronic right or the digital right that really scares publishers and their publishing lawyers and entertainment attorneys, and is perceived as threatening to their long-term investment in the author and his or her work.

The distinction to be made here is between hard-copy portfolio uses, and digital right or electronic right “portfolio uses”. The fact is that computer-uploaded text is so easy and quick to transmit, receive, and read. The posted content’s popularity could also spread like digital wildfire, so quickly - for example, if a company hyper-links to the author’s site, or if “Yahoo” bumps the author’s site up in their search-engine pecking-order. Many successes have already been made by virtue of digital right and electronic right self-publishing, and more will follow. Traditional (book) publishers and their publishing lawyers and entertainment attorneys already realize this fact. Accordingly, traditional book publishers and their counsel also realize that once they acknowledge an author’s reservation of a “self-promotion” digital right or electronic right, they risk losing control of a potential wildfire dissemination method. Again, this would put the publisher’s investment at risk - but smart business people and companies and the publishing lawyers and entertainment attorneys that represent them, don’t put their own investments at risk.

4. The Party To The Contract That Has The Better And More Immediate Means and Resources To Exploit The Electronic Rights, Should Be The One Who Takes The Electronic Rights.

Here is the final point. If a contracting party has no means and resources to exploit a digital right or electronic right or a given bundle of them, then that same party has no business taking (or reserving to themselves) those same digital or electronic rights by contract or even negotiating such a position by and between publishing lawyers or entertainment attorneys. To analogize, if I am a screenwriter who options or sells my script to the Acme Production Company, LLC, through an entertainment lawyer, how should I react if Acme asks me to specifically and contractually grant them “theme park rights” in my literary property in the negotiation between the entertainment attorneys? (Don’t laugh - this practice is now very prevalent in film and entertainment deals).

Well, if Acme doesn’t have its own theme park, I (or my entertainment attorney) now have a powerful argument for reserving the theme park rights to myself instead. “Hey, Acme”, I (or my entertainment attorney) say, “... how do you have the unmitigated gall to ask me for my theme park rights, when you don’t even have the ability to exploit or use them yourself? You don’t even have a theme park!” I (or my entertainment attorney) then make it clear to Acme that I don’t intend to be giving them any trophies that they can put on a shelf to collect proverbial dust.

The same argument can work in the publishing context, particularly as argued between publishing lawyers and entertainment attorneys, regarding the digital right or the electronic right. The author can proverbially cross-examine the publisher (or try to cross-examine the company’s publishing lawyer or entertainment attorney) as to what successful past uses they have made of other author’s digital rights or electronic rights across multiple books. The company President may fudge the answer, but the publishing lawyer or entertainment attorney representing the publisher must answer truthfully. (One good reason to negotiate through counsel).

If the true answer to the question is “none”, then the author can use the “trophy” argument stated above. If the true answer is, alternatively, “some”, then the author has a negotiating opportunity to compel the publisher and its publishing lawyer and entertainment attorney to contractually commit to digitally and electronically publish the author’s work, too. The author can argue: “I won’t grant you the digital right or electronic right unless you, publisher, contractually commit in advance as to how specifically you will exploit them, and how much money you will spend in their development and marketing”. The author or the author’s publishing lawyer or entertainment attorney can then carve those electronic right and digital right commitments right directly into the contract, if the author has the leverage to do so. Again, one should not try this at home - but instead use a publishing lawyer or entertainment attorney.

Needless to say, once the author makes the publisher commit, presumably through publishing lawyer or entertainment attorney counsel, to a development budget or other marketing or “release” commitment for the digital right or the electronic right, then both the author and the publisher might thereby also have some basis for numerical valuation of the rights themselves. And, it is an entirely reasonable argument for an author or author’s publishing lawyer or entertainment attorney to say to a publisher that: “I will license/sell you the following listed digital right[s] or electronic right[s] if you pay me the following additional amounts for them:_____________________. And in the blank space, the rights can be listed like menu options as they have been broken out in Item #1 above, each to which separate dollar values – that is, price-tags - are now assigned.

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My media law practice as a publishing lawyer and entertainment attorney includes the drafting, editing, negotiation, and closure of agreements including digital and electronic rights matters as they may arise therein, as well as in the fields of film, music, television, Internet, and other media and art forms. If you have questions about legal issues which affect your career, and require representation, please contact me:

Law Office of John J. Tormey III, Esq.

John J. Tormey III, PLLC

1324 Lexington Avenue, PMB 188

New York, NY  10128  USA

(212) 410-4142 (phone)

(212) 410-2380 (fax)

brightline@att.net

http://www.tormey.org/

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Publishing and Digital and Electronic Rights - Part II

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Publishing And Digital And Electronic Rights - Part I: Written By New York Entertainment Attorney And Publishing Lawyer John J. Tormey III, Esq.

http://www.tormey.org/publishing1.htm

Law Office of John J. Tormey III, Esq. – Entertainment Lawyer, Entertainment Attorney

John J. Tormey III, PLLC

1324 Lexington Avenue, PMB 188

New York, NY  10128  USA

(212) 410-4142 (phone)

(212) 410-2380 (fax)

brightline@att.net

http://www.tormey.org/

Publishing And Digital And Electronic Rights - Part I: Written By New York Entertainment Attorney And Publishing Lawyer John J. Tormey III, Esq.

© John J. Tormey III, PLLC. All Rights Reserved.

This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in 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.

The following publishing industry article addresses some of the legal issues arising for publishing lawyers, entertainment attorneys, authors, and others as a result of the prevalence of e-mail, the Internet, and so-called “digital” and “electronic publishing”. As usual, publishing law generally and the law of the digital right and electronic right specifically, governing these commercial activities, has been slow to catch up to the activity itself. Yet most of the publishing industry “gray areas” can be resolved by imposing old common-sense interpretations upon new publishing lawyer and entertainment lawyer industry constructs, including the digital right and electronic right, and others. And if after reviewing this article you believe you have a non-jargonized handle on the distinction between “digital right” and “electronic right” in the publishing context, then I look forward to hearing from you and reading your article, too.

1. “Electronic Right[s]” And “Digital Right[s]” Are Not Self-Defining.

All publishing lawyers, entertainment attorneys, authors, and others must be very careful about the use of jargon - publishing industry jargon, or otherwise. Electronic and digital publishing is a recent phenomenon. Although as a publishing lawyer and entertainment attorney and unlike some others, I tend to use the phrase “electronic right” or even “digital right” in the singular number, there probably tends to be no single consensus as to what constitutes and collectively comprises the singular “electronic right” or “digital right”. There has not been sufficient time for the publishing, media, or entertainment industries to fully crystallize accurate and complete definitions of phrases like “electronic publishing”, “web publishing”, “electronic right[s]”, “e-rights”, “digital rights”, or “first electronic rights”.

These phrases are therefore usually just assumed or, worse yet, just plain fudged. Anyone who suggests that these phrases alone are already self-defining, would be wrong.

Accordingly, anyone, including a publishing lawyer or paralegal representing a book publisher or entertainment lawyer representing a studio or producer, who says that an author should do - or not do – something in the realm of the “electronic right” or “digital right” because it is “industry-standard”, should automatically be treated with suspicion and skepticism.

The fact of the matter is, this is a great era for authors as well as author-side publishing lawyers and entertainment attorneys, and they should seize the moment. The fact that “industry-standard” definitions of the electronic right and digital right have yet to fully crystallize, (if indeed they ever do), means that authors and author-side publishing lawyers and entertainment attorneys can take advantage of this moment in history.

Of course, authors can also be taken advantage of, too – particularly those not represented by a publishing lawyer or entertainment attorney. There is a long and unfortunate history of that happening, well prior to the advent of the electronic right and digital right. It has probably happened since the days of the Gutenberg Press.

Every author should be represented by a publishing lawyer, entertainment attorney, or other counsel before signing any publishing or other agreement, provided that their own economic resources will allow it. (But I am admittedly biased in that regard). Part of the publishing lawyer and entertainment attorney’s function in representing the author, is to tease apart the different strands that collectively comprise the electronic right or digital right. This must be done with updated reference to current technology. If your advisor on this point is instead a family member with a Smith-Corona cartridge typewriter or a Commodore PET, rather than an entertainment attorney or publishing lawyer, then it may be time to seek a new advisor.

Even authors who cannot afford publishing lawyer or entertainment attorney counsel, however, should avoid agreeing in writing to give broad contractual grants to publishers of “electronic publishing” - or the “electronic right”, or “electronic rights” or “digital rights”, or the “digital right”. Rather, in the words of “Tears For Fears”, the author and author counsel had “better break it down again”. Before agreeing to grant anyone the author’s “digital right: or “electronic right”, or any elements thereof, the author and his or her publishing lawyer and entertainment attorney need to make a list of all the possible and manifold electronic ways that the written work could be disseminated, exploited, or digitally or electronically otherwise used. Notice that the author’s list will likely vary, month to month, given the fast pace of technological advancements. For example, these kinds of questions can be considered by the author and publishing lawyer and entertainment attorney alike:

Electronic Digital Right Question #1, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: Can the work be published in whole or in part on the Internet? In the context of an “e-zine”? Otherwise? If so, how? For what purpose? Free to the reader? For a charge to the reader?

Electronic Digital Right Question #2, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: Can the work be disseminated through private e-mail lists or “listservs”? Free to the reader? For a charge to the reader?

Electronic Digital Right Question #3, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: Can the work be distributed on CD-Rom? By whom? In what manner and context?

Electronic Digital Right Question #4, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: To what extent does the author, himself or herself, wish to self-publish this work, either before or after granting any electronic right or any individual “electronic publishing” rights therein to someone else? Will such self-publication occur on or through the author’s website? Otherwise?

Electronic Digital Right Question #5, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: Even if the author does not self-publish, to what extent does the author wish to be able to use and disseminate this writing for his or her own portfolio, publicity, or self-marketing purposes, and perhaps disseminate that same writing (or excerpts thereof) electronically? Should that be deemed invasive of, or competitive with, the electronic right as otherwise contractually and collectively constituted?

The above list is illustrative but not exhaustive. Any author and any publishing lawyer and entertainment attorney will likely think of other elements of the electronic and digital right and other uses as well. The number of possible uses and complexities of the electronic right[s] and digital right[s] definitions will increase as technology advances. In addition, different authors will have different responses to the publishing lawyer and entertainment attorney, to each of the carefully-itemized questions. Moreover, the same author may be concerned with the electronic right in the context of one of his/her works, but may not care so much in the context of a second and different work not as susceptible to digital right exploitation. Therefore, the author must self-examine on these types of electronic and digital right questions before responding to the author’s publishing lawyer or entertainment attorney and then entering into each individual deal. Only by doing so can the author avoid the pitfalls and perils of relying upon lingo, and relying upon someone else to dictate to them what is the electronic right or digital right “industry standard”. As the publishing lawyer and entertainment attorney should opine, “There is no such thing as ‘industry standard’ in the context of a bilaterally-negotiated contract. The only standard that you the author should be worried about is the motivational ‘standard’ known as: ‘if you don’t ask, you don’t get’”.

Finally, the author should be aware that while the electronic right, digital right, and components thereof can be expressly granted, they can also be expressly reserved to the author, by a mere stroke of the pen or keystroke made by the publishing lawyer or entertainment attorney. For example, if an author wants to expressly reserve the “portfolio uses” mentioned in Electronic Digital Right Question #5 above, then the author should ask his or her publishing lawyer or entertainment attorney to clearly recite this reservation of the author portfolio electronic/digital right in the contract, and leave nothing to chance. In addition, if the author has some negotiating leverage, the author, through the publishing lawyer or entertainment attorney, may be able to negotiate the “safety net” of a “savings clause” which provides words to the effect that: “all rights not expressly granted to publisher, be it an electronic right or digital right or otherwise, are specifically reserved to author for his/her sole use and benefit”. That way, the “default provision” of the contract may automatically capture un-granted rights including any electronic or digital right for the author’s later use. This publishing lawyer and entertainment attorney drafting technique has likely saved empires in the past.

2. Publishers and Entertainment Companies Are Revising Their Boilerplate Agreements, As We Speak, In An Effort To Secure The Electronic Right[s].

It is well-known and should come as no surprise that right now, as we speak, publishers and their in-house and outside counsel publishing lawyers and entertainment attorneys are furiously re-drafting their boilerplate contracts to more thoroughly capture the digital and electronic right – that is, all of an author’s digital and electronic rights. The typical publishing agreement drafted by a company-side publishing lawyer or entertainment attorney will recite a broad grant of rights, then followed by a whole laundry-list of “including but not limited to” examples. If the author receives such an onerous-looking rights passage from a publisher or the publisher’s publishing lawyer or entertainment attorney, the author should not be intimidated. Rather, the author should look at it as an opportunity to make some money and have some fun. The author can first compare the list suggested in Electronic Digital Right Questions #1 through #5 above, to the publisher’s own laundry-list and the author’s own imagination. Then, the author can decide which if any of the separate digital or electronic rights the author wants to fight to keep for himself or herself.

If the publisher tells the author to blindly subscribe to their entire digital or electronic right[s] clause (or clauses), then the author still has the ultimate leverage, which is to walk away from the proposed deal prior to signature. Of course, this strategic approach wouldn’t be advisable in most cases - unless perhaps if the author has other written offers from other publishers already on the table. However, an author shouldn’t be forced by any publisher or any company-side publishing lawyer or entertainment attorney to sign away the electronic right, digital right, or any other rights that the author would rather keep - particularly rights which the author never specifically intended to shop to the publisher in the first instance.

The author should keep in mind the psychology and motivations of the publishers and their publishing lawyer and entertainment attorney counsel when doing all of this. A Vice-President (or above) at the publishing company probably woke up one recent morning, and realized that his/her company lost a great deal of money on a particular project by not taking a prospective license or assignment of an electronic right or digital right from another author. The VP probably then blamed the company’s in-house legal department publishing lawyers or entertainment attorneys, who in turn started frantically re-drafting the company boilerplate to assuage the angry publishing executive and thereby keep their jobs. When in-house publishing lawyers, entertainment attorneys, or others engage in this type of practice (some may call it “drafting from fear”), they tend to go overboard.

Accordingly, what you will probably see is a proverbial “kitchen sink” electronic right clause which has been newly-drafted and perhaps even insufficiently reviewed by the company-side publishing lawyers and entertainment attorneys, internally and themselves - wherein the publisher will ask the author for every possible electronic and digital right and every other thing, including (without limitation) the kitchen sink. The only response to such a broad-band electronic right or digital right clause is a careful, deliberate, and methodical reply.

Using the approach outlined in Section #1 above, the author and the author’s publishing lawyer or entertainment attorney counsel must separately tease apart each use and component of the electronic right and digital right that the publisher’s broad-band clause might otherwise capture, and then opine to the publisher a “yes” or a “no” on each line-item. In other words, the author, through his or her publishing lawyer or entertainment attorney, should exercise his or her line-item veto. It’s the author’s writing that we are talking about, after all. The author should be the one to convert the singular “electronic right” or “digital right” into the laundry-list of electronic rights. That’s why I use the singular number when referring to “electronic right” or “digital right” – I like to let the technologically-advanced author have all the fun making the list. That way, too, the author can tell me what he or she thinks the phrases actually mean, and what the difference between the two meanings really is, if anything.

The next installment of this article, Part II, will - believe it or not - have a few words in defense of the publishers and the publishing lawyers that work for them!

Click the “Articles” button at:

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My law practice as a publishing lawyer and entertainment attorney includes the drafting, editing, negotiation, and closure of agreements including digital and electronic rights matters as they may arise therein, as well as in the fields of music, film, television, Internet, and other media and art forms. If you have questions about legal issues which affect your career, and require representation, please contact me:

Law Office of John J. Tormey III, Esq.

John J. Tormey III, PLLC

1324 Lexington Avenue, PMB 188

New York, NY  10128  USA

(212) 410-4142 (phone)

(212) 410-2380 (fax)

brightline@att.net

http://www.tormey.org/

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Publishing and Electronic Rights - Part I

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Trickle-Down: Written By New York Music And Entertainment Lawyer And Film Attorney John J. Tormey III, Esq.

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Law Office of John J. Tormey III, Esq. – Entertainment Lawyer, Entertainment Attorney

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Trickle-Down: Written By New York Music And Entertainment Lawyer And Film Attorney John J. Tormey III, Esq.

© John J. Tormey III, PLLC. All Rights Reserved.

This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in 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.

Reports in the press of contract disputes of years past - one favorite of this music, film and entertainment lawyer which is entitled “Dixie Chicks Sue Sony” - discussed another installment in the seemingly-perennial process of music recording artists suing the record labels with which they previously signed contracts. According to “Dixie Chicks Sue Sony”, the Dixie Chicks claimed that they were due at least US$4.1 million in royalties under their contract, from their music label. See, e.g.:

http://news.bbc.co.uk/2/hi/entertainment/1514747.stm

There is a commonality between this type of music dispute, and a “net profits” or “points” dispute in the context of film or television.

This music, film, and entertainment lawyer article, on the other hand, can offer no opinion on the merits of the Dixie Chicks litigation or contract, or opine with regard to the oft-wondered question in litigations of “which side is in the right?”. The statistical odds in any music, film, or other contract litigation about royalties, net profits, or “points”, are that the case will settle pursuant to a stipulation of confidentiality. Even if we learn of the details of the Dixie Chicks contract or the case’s resolution, we’ll therefore never really know for sure about how other similar music royalty or other contract disputes may have been reconciled. But notwithstanding the sizable amounts of money at stake, the Dixie Chicks-Sony case will likely be governed by certain principles common to all music and film industry contract disputes of its kind, as any entertainment lawyer like myself will tell you.

It really boils down to the timing of when a music artist, film talent, or other artist for that matter, is or should be paid under the contract. Though this may sound pedestrian, the equation is simple. The music and entertainment lawyer opines that, “Agreeing in a contract to be paid the bulk of one’s compensation later rather than sooner, increases the odds that one will be unhappy with the dollar amount of the royalty, “back end”, “net profits”, or “points” payment(s) at that later date”. Would the Dixie Chicks-Sony music contract litigation have never occurred, if the band’s paid-up-front recording advances had been larger? No one – not music and entertainment lawyer, and perhaps not even the parties to the lawsuit themselves - will ever really know that answer for sure, either.

But one cannot argue with the equation. As argued and hammered-out between music or other entertainment lawyer counsel in the contract negotiation, a larger up-front advance to the artist or group at least reduces the magnitude of later artist dissatisfaction with the “net profits”, “points”, or royalty stream of payments that follow. Arguably the Dixie Chicks would be in a better economic position, if suing under the contract for “only” US$1.1 million rather than US$4.1 million. The general form of equation holds up across film, television, publishing, and all other entertainment, media, and related realms. You are better off the earlier you are paid.

Holding aside the Dixie Chicks contract dispute example for a moment, the practical reality for other artists in the music industry is that they often sign record contracts - or now, 360 deals - without the help of a music and entertainment lawyer, before they become commercially successful. Every successful recording artist in the music industry has historically had a “breakthrough” album. What looks like a huge advance in a contract to a starving music artist in the context of an earlier record deal, may later look like a per diem to that same artist several years later after she or he has “made it”. And indeed, the record label’s frugality is understandable. Few if any economically-rational record labels are willing to plunk down a huge contractual advance for an artist who has yet to “make it” commercially, even if they have already retained the services of the best of music and entertainment lawyers. The music and entertainment lawyer can protect the artist. But under most all circumstances (apart from one great band and keyboard player that I know in Pittsburgh), the music and entertainment lawyer is not the one also making the music.

Again, these artist-payment contract disputes, in the music industry, film industry, and otherwise, are a function of time and timing. In this light, the Dixie Chicks are essentially fighting the economic identities that elements within the music industry unilaterally assigned to them several years ago, before they were hugely famous and successful. I do not know at what point in the timeline the Dixie Chicks may have retained high-powered music and entertainment lawyer counsel. But if the band was comparably famous and successful several years ago when they signed their deal, they would have likely commanded much more by way of sizable contractual advances, and would presumably thereby have been better secured against the risk of (alleged) back-end royalty payment deprivation by the record label.

It is ironic that within the past several months prior to the suit, the Dixie Chicks were the subject of a TV news magazine show, in which at least two relevant things were said: (1) one band member suggested that the ladies in the band might soon want to leave the music and entertainment business; and (2) one band member boasted on-camera about having procured the “best [recording contract] deal in Nashville”, or words to that effect. As far as the viewer of the TV program could see, no music or entertainment lawyer was physically present on-camera along with the ladies when these statements were made.

The thrust of the news magazine program was that even with “the best deal in Nashville”, (and presumably able music and entertainment lawyer counsel), an internationally-famous musical recording act had to endure a contractual situation wherein their label was accused of holding most of the money. According to press reports, the Dixie Chicks albums “Ready to Run” and “Wide Open Spaces” sold more than 19 million units, resulting in more than US$175 million in revenue. That approaches a quarter of a billion dollars, and would normally seem to justify the retention of music and entertainment lawyer counsel, at least for future deals. And yet the band’s lead singer dolefully attested on camera that she didn’t “even” have US$1 million in the bank herself at the time of the interview. She jokingly added that her label must have remodeled its Nashville offices based upon the success of her band’s music.

“Where is all of this money going?”, asks the artist-side music and entertainment lawyer, particularly. Well, we know or suspect where it is going. It is true that launching and promoting albums, and developing artists, requires major expenditures by the record label, likely in the millions of dollars. The label has to spend money to make money. The label has to spend money on its own music and entertainment lawyers to draft and negotiate the contracts, for that matter. The film studio or television production company will deploy similar rationales when defending “net profit”, “points”, or other back-end payment arrangements. But in the case of a successful recording and touring act, at least some of the incremental money above expenditures is going towards someone’s profit. It is reasonable to assume that the Dixie Chicks sued because they didn’t think they were receiving their fair share of same under the signed contract, and then convinced one or more music and entertainment lawyer litigators to same effect.

What logical deductions can we make from this case study, that apply to other individual musicians and bands – and perhaps to other media and art forms like film, television, and publishing in the context of royalties, “net profits”, and “points”? First, we need to back up, and keep in mind the first thing that music and other entertainment lawyers learn in practice. There are two principal ways for an artist to get paid for services under a contract: (1) “fixed compensation”, and (2) “contingent compensation”. Royalties are “contingent compensation”, and in the traditional but now fast-evaporating record contract model usually contingent upon either the manufacture or the sale of (non-returned) units. Strictly defined, “contingent” also means that it is possible they will never get paid. In film, television, and other realms, “points”, “back-end”, and “net profits” are all terms suggestive of forms of contingent compensation in a contract. One of my law professors back in the 1980’s was a well-known practicing entertainment lawyer with a music, film, and television practice, and much of our classroom workshops were comprised of haggling over proposed net profit definitions in draft contracts. The song remains the same today, in large part.

Music royalty calculations and film and TV “net profit” or back-end “points” definitions often take many pages of contract text to define - as a music, film, or entertainment lawyer will tell you. In defense of the companies, this verbosity is not always simply a product of the labels and studios and their entertainment lawyers so conspiring. Rather, the income streams in the music and film and TV businesses are truly hydra-headed and fairly sophisticated, and take some care and patience to define. As an entertainment lawyer I realize that this is all scant consolation to a screenwriter working through a studio’s or network’s 50-page written contract definition of “net profits” - or, in the music context, a recording artist immersed in arcane label record contract text purporting to delineate methods of royalty computation. Yet the complexity of calculating contingent compensation is a reality of the industry to which the film net profit or music royalty definition relates.

However, make no mistake about it. Accepting any form of contingent compensation, be it net profits, “points”, music royalties or otherwise, is tantamount to accepting someone else’s “trickle-down”, as any artist-side music and entertainment lawyer will argue. That is, the artist deputizes the company to collect the artist’s money, hold it (presumably) in trust, and then remit it in installments to the artist over time on a deferred basis. Do most people even do that with their own family members? As the music and entertainment lawyer will attest from observing others, and human nature and greed being powerful motivators that they are - the company will often thereupon pay the musical or other artist when it feels like it, and how much it feels like it, sometimes no matter what the contract says. And company “deductions” from the gross payment stream to arrive at “net” or “royalties”, can become extremely creative to say the least. Music and other entertainment industry audit contract disputes often revolve around the acceptability and fairness of such “deductions” from “net profits” or “points”, as fought and argued between entertainment lawyers on either side.

There are contractual ways for musical and other artists to even the proverbial scales of justice regarding their royalties, “net profits”, “points”, or other form of contingent compensation - typically best deployed through the artist’s entertainment lawyer. The most familiar method is the deployment of contractual “accounting” and “audit” clauses or provisions. The music or other artist can endeavor to contractually require the company to remit detailed written accountings of all revenues collected, and (carefully-circumscribed) deductions taken therefrom, on a regular basis. The clauses can be drafted by the artist’s entertainment lawyer. Accordingly, the music artist can also endeavor to reserve the contractual right to audit the books and records of the record company to ensure correct remittance of royalties. In the professional entertainment industry context, audits like this take place all the time, thus ensuring a livelihood for many entertainment industry accountants, entertainment lawyers, and others. It has been reported that wholly two-thirds of all entertainment industry audits result in findings of underpayments. Usually thereafter, the parties reach an economic settlement and move on with their lives. Sometimes, they don’t, and they litigate using music or entertainment lawyers instead. And as indicated above, the majority of litigations themselves settle before going to trial.

And there is hope. Industry custom, and film, music, and entertainment lawyer practice, does often contemplate that recording and other artists may also be paid on a “fixed” as well as on a “contingent” basis. In theory, the contractually-specified recording “advance” represents a fixed up-front payment to the music artist. But many - uh - “creative” record label forms transform the advance into a contingent payment as well, at least in part - this is sometimes referred to as the “recording fund” concept. Film producer compensation may be manipulated by the studio in similar fashion, by payment into a budget as opposed to payment directly to a producer’s bank account. For example, if the musical artist receives a US$300,000 “advance” under the contract, but must himself or herself direct-pay for the first album’s recording expenses out of his or her “own” pocket, then it would behoove the artist not to blow all US$300,000 on one weekend at Monte Carlo. In other words, the bulk of that US$300,000 may not in fact be a fixed payment to the artist, but instead may need to be applied to things like studio time and fees for session musicians. There are many artists out there who briefly thought they were rich for this reason, until the record contract was actually read and reviewed with their music and entertainment lawyer. Similarly, maybe the film producer should not write a check for that Lamborghini just yet, either.

What independent and unsigned artists will discover with or without a music or entertainment lawyer, particularly those music artists with talent, is that there may be plenty of folks along the road who will be willing to bargain for their exclusive recording services, promising no money in advance, but some fuzzy and inchoate “points” later on – with or without waving a proposed contract in front of the artist. This phenomenon is usually exactly what it sounds like - Wimpy’s “I will gladly pay you Tuesday for a hamburger today”. Would-be entertainment company impresarios try to play actors and writers like this, all the time, too.

Sure, the music company and its entertainment lawyer may have a valid point that the artist should be required to share in some of the down-side risk that the recorded finished product will not sell. But by that analysis, the artist-side entertainment lawyer must also conclude that the musical artist should be paid some fixed compensation or “earnest money” up-front, and then some additional contingent compensation later should the project succeed. Otherwise, what assurance does the artist have that this company is truly serious, committed to the music project, and acting in good faith? And arguably, the up-front fixed payment to the artist should be at least sufficient to enable the artist to retain music and entertainment lawyer counsel to draft and negotiate an agreement clearly specifying how the back-end contingent compensation should be paid, and what the artist’s accounting and audit rights should be. The same rationale applies for back-end “net profits” or “points” deals in the film and television realms. The up-front payment at minimum should be the glue that cements the contract.

It is astounding, however, how many artists, typically without music or entertainment lawyer counsel, will agree to be paid for their hard work and their music or other work-product by “points” or “net profits” or other “back-end” alone, perhaps commemorated with writing on the back of a cocktail napkin, or even (gasp) on a handshake alone. Why are these artists selling themselves so short? Perhaps because they are dying for their first big break, and perhaps because they do not have sufficient confidence in their abilities such that they believe that another valuable opportunity will come along. So they don’t enlist the help of a music or entertainment lawyer, and often sign bad contracts or otherwise agree to bad deals.

But the point is, there should be some minimum standard of decency, perhaps along the lines of a well-known California case on point, Foxx v. Williams, and a California statute on point, Civil Code Section 3423:

http://codes.lp.findlaw.com/cacode/CIV/5/d4/1/3/3/s3423

http://scholar.google.com/scholar_case?case=7532225346992492111&hl=en&as_sdt=2&as_vis=1&oi=scholarr

Some deals are simply not worth an artist’s making. Some contracts are not worth signing, and perhaps shouldn’t even be allowed to be signed. Even a Santa Monica tenant desperate for a beachfront apartment should not move into a condemned premises where the floor is in danger of collapsing. And in that real estate situation, the local government - through the building code or equivalent - serves as “watchdog”, and prevents those tenants from striking those bad lease deals even if the tenant otherwise wants to do so. However, there is typically no governmental or other “watchdog” that prevents a music artist from entering into a bad recording contract, only perhaps case law and statutes that can be invoked only if the question is ever later litigated – and additionally perhaps, only an artist-side music and entertainment lawyer, if ever enlisted for the situation. Rather, as a practical matter, in the recording agreement context, the “watchdog” needs to be prospective and internalized. So too must the watchdog be internalized in every artist, in the film, television, and other industries and art forms. The music or other artist can only look to his or her common sense, and hopefully in some cases the artist’s music or entertainment lawyer’s experience and judgment - and this assessment must be made before signature of any contract.

In any case, the following is for certain. If a proposed music recording agreement with royalty covenants as exchanged between the music and entertainment lawyers does not contain these 3 components:

(A) an up-front advance “fixed compensation” payment to the music artist, (if only to show the company’s good faith, but sufficient enough that the artist will have been happy to have done the deal even if no back-end compensation is ever later collected by the artist); and

(B) an accounting clause; and

(C) an audit clause with teeth;

then, serious doubts should be raised as to whether the music artist should indeed look elsewhere for other career opportunities. At minimum, the proposed deal, as the Dixie Chicks might say, needs fixin’.

And the music artist should take heart, I suppose. Getting the “back-end payment”, “net profits”, or “points” bum’s contract rush from a company happens to music artists and other types of artists in all media and sectors, at all calibers and levels of experience and success, whether or not they are represented at the time by a music or entertainment lawyer. No matter how commercially-successful a musician becomes, there may always be doubts as to whether he or she is being royaltied or otherwise paid correctly – and sometimes it takes the music and entertainment lawyer litigators and the court system to scrutinize the contract to find out.

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My music and film law practice as an entertainment lawyer includes the drafting, editing, negotiation, and closure of all contractual matters relating to film, music, television, publishing, Internet, and all other media and art forms. If you have questions about legal issues which affect your career, and require representation, please contact me:

Law Office of John J. Tormey III, Esq.

John J. Tormey III, PLLC

1324 Lexington Avenue, PMB 188

New York, NY  10128  USA

(212) 410-4142 (phone)

(212) 410-2380 (fax)

brightline@att.net

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