Why Pandora’s Batting 500 with BMI’s Recent Rate Court Win

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On May 18, BMI’s “Rate Court” judge, Louis L. Stanton of the Southern District of New York, ruled in BMI’s favor in its rate dispute with Pandora. However, it wasn’t until May 28 that Judge Stanton’s 60-page opinion was made public. As my former colleague, BMI’s CEO, Mike O’Neill, reminded me at the BMI Student Composer Awards on May 18, Rate Court opinions are not made public for several days until confidential information is redacted. Mike was fairly giddy that evening given that Judge Stanton gave BMI a slam dunk in finding that the rate BMI sought, 2.5% of Pandora’s revenue, was reasonable. This was particularly good news for songwriters and music publishers as well since Pandora was the clear winner in its prior Rate Court dispute with ASCAP.

BMI and ASCAP are music performing rights organizations (PROs) and both operate under decades-old Consent Decrees which are currently being reviewed by the Justice Department. Both decrees contain a provision that if either ASCAP or BMI and a licensee can’t agree upon a rate, either party can submit the dispute to their respective “Rate Court” for a determination of a “reasonable” rate, in each case a district judge in the Southern District of New York. BMI’s Rate Court Judge is Judge Stanton and ASCAP’s is Denise Cote.

Because BMI and ASCAP are heavily regulated, a Rate Court’s determination of a “reasonable” rate under the relevant Consent Decree (i.e., what a willing seller and buyer would negotiate in an arm’s length transaction) usually requires referring to one or more “benchmarks,” which as Judge Stanton explained, are “the rates set in (or adjusted from) contemporaneous similar transactions.” BMI and Pandora bitterly argued over what the appropriate benchmark(s) should be for Pandora’s internet streaming service.

The PROs’ publisher members, particularly the majors (Universal, Warner-Chappell and Sony/ATV (which now controls the EMI catalog)), felt they could negotiate better deals for digital (Internet) rights themselves than through ASCAP and BMI because of the Consent Decree restrictions. So the majors undertook a “partial withdrawal” of their grant to ASCAP and BMI to license public performances of their music to Internet streaming services, allowing the PROs to continue licensing the publishers’ works for all other purposes.

This partial withdrawal was itself the subject of Rate Court litigation, with both Judge Stanton and Judge Cote eventually ruling, albeit with slightly different rationales, that publishers could not partially withdraw their grants to ASCAP and BMI, respectively. In other words, they were either “all in” or “all out” at ASCAP and BMI and the partial withdrawals were invalid.

However, between March 2012 and December 2013 (before the Rate Courts said such deals were verboten), the major publishers entered into a series of separate deals with Pandora, with rates ranging from 2.25% to 5.85% of Pandora’s revenue. BMI also submitted as benchmarks, agreements with Pandora’s competitors, entered into between 2010 and 2013, with rates ranging between 2.5% and 4.6% of the service’s revenue. Pandora disputed not only the validity of the interregnum partial withdrawal agreements but also the agreements of its “competitors” as appropriate benchmarks.

As for the agreements made during the period of partial withdrawals, Pandora claimed they were not, in fact, arms-length negotiations, but rates that the PROs extracted under threat of infringement litigation. As for the other agreements, Pandora claimed its service was different from its competitors, and more like traditional over-the-air radio, which has a rate of 1.75% of revenues, which was also the rate for Pandora’s prior BMI license. The foregoing is very much an over-simplified distillation of more the more than 30 pages of factual background in the Court’s opinion.

After the lengthy recitation, including quoting various email exchanges, the Court began its discussion with a concise statement of its conclusion:

The evidence presented at trial shows that BMI’s proposed license fee of 2.5% of Pandora’s gross revenue is reasonable, and indeed at the low end of the range of recent licenses. The direct licenses between Pandora and Sony and UMPG [Universal] for the 2014 calendar year are the best benchmarks because they are the most recent indices of competitive market rates.

Shortly after this, Judge Stanton quotes verbatim an email chain which consists of several single-spaced pages of internal discussion among Pandora’s executives (leaving one to wonder what was actually redacted from the Court’s public opinion), in support of its conclusion that Pandora’s deals with the publishers were, in fact, market rate negotiations: “Once the rate negotiations were freed from the overhanging control of the rate courts, the free-market licenses reflect sharply increased rates.”

The Court then went on to distinguish how Pandora is not just different from traditional radio, but also from other online streaming services: “

The fact (not unusual when traditional business models are evolving and shifting) is that Pandora cannot be accurately characterized as in any specific category for which rates have been established. It has aspects of several, but it is not confined to any one in particular.

As for radio, even considering Pandora’s purchase of a traditional radio station, Judge Stanton concluded:

Pandora is not similarly situated to any RMLC [Radio Music Licensing Committee] licensee, including iHeartMedia. The rate for the ten thousand terrestrial broadcasting members of the RMLC is not a useful benchmark for Pandora.

Both ASCAP and BMI, in their respective Rate Court cases, relied upon the testimony of Peter Brodsky, Sony’s EVP and in-house counsel, to demonstrate the arm-length nature of the negotiations he had with Pandora’s attorney, Robert Rosenblum, during the “partial withdrawal” period. Judge Cote specifically found that Brodsky‘s testimony wasn’t credible. Judge Stanton took great pains set forth the specifics of these negotiations in his concluding that “I do not find Brodsky’s credibility impaired.”

Similarly, in rejecting Judge Cote’s conclusion in the ASCAP proceeding that the rates produced in the Pandora-publisher negotiations were not proper benchmarks because of the fear of “crippling copyright infringement liability, Judge Stanton stated that the record before him, many months after the closing of the record in the ASCAP case, “is far more extensive that what Judge Cote had before her.”

As with Judge Cote’s decision, Judge Stanton’s decision will likely be appealed. If, as with Judge Cote’s ASCAP decision, Judge Stanton’s BMI decision is affirmed, it will be a significant victory for the publishers of the songs streamed on Pandora, although the publishers still get a fraction of what the labels, who are not subject to Consent Decrees, get paid by streaming services. And Pandora can still take solace in its ASCAP win.

The conflicting decisions reached by the ASCAP and BMI Rate Courts regarding Pandora are another example of why the Copyright Office, in its Music Licensing Report, recommended that rate-setting for PROs and their licensees should be removed from a single life-tenured federal district judge and instead be given to the Copyright Royalty Board, with its panel of specialized judges who each serve for a limited term. While that won’t eliminate results that some may not like, at least there will be consistency in the decision-making.

Why The Copyright Office’s New Fair Use Index Rates Only Fair At Best

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The Copyright Office recently issued several well-considered studies and recommendations, like the music licensing report. And Register Pallante has been bold in her call to Congress for increased independence and resources so as to best serve all copyright constituents in the digital age. So I take no pleasure in crying foul over the Copyright Office’s recently-released Fair Use Index. However well-intentioned, this searchable database of mere case summaries is only likely to create more confusion among non-lawyer creators and users in an already murky, misunderstood and evolving area of the law.

To be fair, the Copyright Office’s news release for the database emphasizes its limited scope:

Although not a substitute for legal advice, the Index is searchable by court and subject matter and provides a helpful starting point for those wishing to better understand how the federal courts have applied the fair use doctrine to particular categories of works or types of use, for example, music, internet/digitization, or parody.

The database’s home page contains similar disclaimers: “[a]lthough the Fair Use Index should prove helpful in understanding what courts have to date considered to be fair or not fair, it is not a substitute for legal advice.” Click on the link, More Information on Fair Use, and you’ll get a one-page summary of the four factor test of Section 107 of the Copyright Act, the broad guidelines for determining fair use. However, the most important point is buried at the bottom of the page:

Courts evaluate fair use claims on a case-by-case basis, and the outcome of any given case depends on a fact-specific inquiry. This means that there is no formula to ensure that a predetermined percentage or amount of a work—or specific number of words, lines, pages, copies—may be used without permission.

The above quote should be in bold, blinking print at the top of the search page, not buried at the bottom of a link for “more information.” That’s because what most people think they know about fair use is wrong.

So what do you get if you search the database? First, you can select whether you want to search cases in the Supreme Court and/or those within any or all of the thirteen federal circuits, including the district courts  – but without any explanation of the federal court system such as what a “circuit” is.  You can also search within these courts under any or all of sixteen subject matter topics, such as computer program, music, internet/digitization, and parody/satire.

Let’s search “music” in all courts. The result is a list of seventeen cases in reverse chronological order.  But there’s no hierarchy to them so the first case is from the Central District of California and the lone Supreme Court case, Campbell v. Acuff-Rose Music, Inc., appears near the bottom. The list is in columns, stating the case name (including the citation), the year, the court, the jurisdiction (i.e., circuit), category (e.g., parody/satire) and the outcome (i.e., stating whether fair use was or was not found). Since there’s no explanation of court precedents, a non-lawyer wouldn’t necessarily know that a California district court decision isn’t binding in the Second Circuit, even if it’s more recent.

Now let’s look at the Campbell case summary. In one page we get the year, the court, key facts, the issue, the holding, tags (e.g., parody/satire) and the outcome, in this case a “[p]reliminary ruling, mixed result or remand.” Here’s the holding:

The Court reversed the Sixth Circuit, finding that it had erred in giving dispositive weight to the commercial nature of 2 Live Crew’s parody and in applying an evidentiary presumption that the commercial nature of the parody rendered it unfair. The Court held that the commercial or nonprofit educational purpose of a work is only one element of its purpose and character. Like other uses, parody “has to work its way through the relevant factors, and be judged case by case, in light of the ends of the copyright law.” The Court commented that it is essential for someone doing a parody to be able to quote from existing material and use some of the elements of a prior work to create a new one that comments on the original. The case was remanded for further proceedings.

How is this helpful to a songwriter trying to determine if her parody of a song is a fair use or not? The summaries read like the canned Casenotes briefs one used in law school (here’s an example) only not as good and without the casebook or instruction from a professor for context.

The home page does explain up front that “[the summary] does not include the court opinions themselves” and that “[w]e have provided the full legal citation, however, allowing those who wish to read the actual decisions to access them through free online resources….” But there’s no explanation for the lay person as to what these citations, e.g., 510 U.S. 569 (1994), mean. And how many users will read the cases without hot links to them? Moreover, the database provides no guidance where cases may have contrary holdings on similar facts – as fair use cases often do. Nor can a relatively small number of cases adequately track recent trends in fair use decisions.

How could the database be improved? A few more signposts such as such I’ve suggested would help. The Copyright Office might also produce a circular (brochure) on fair use, stating some broad guidelines to provide context for the case summaries. The Code of Best Practices in Fair Use for the Visual Arts, recently issued by the College Art Association, although not without its critics, is a good example.

The database won’t be helpful to lawyers who have access to services like Westlaw and Lexis because there are so few cases currently on the site and the commercial services are updated continuously.  But because the Index is produced with the authority of the Copyright Office, non-lawyers are likely to rely on the summaries rather than reading the actual cases or consulting a lawyer – despite the disclaimers.  Since “a little learning is a dangerous thing,” creators and users may then find themselves in litigation land, leading to greater legal fees than if they’d talked to their attorney in the first place. So while I’d rate the Copyright Office’s effort as “excellent,” the utility of the Fair Use Index is only “fair” at best.

A Declaration of Independence for the Copyright Office

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On April 29, the head of the Copyright Office, Register Maria A. Pallante, was the sole witness before the House Judiciary Committee at a hearing entitled The Register’s Perspective on Copyright Review. Both her oral and written statements — the latter consisting of a 32-page memorandum with copious footnotes and an appendix of proposed technical amendments to the Copyright Act — contained an even more urgent call for an independent Copyright Office than was stated in her lengthy March 23 letter to Rep. Conyers, which I discussed here.

The hearing, which was interrupted by the Japanese Prime Minister’s address to Congress, was largely a love fest for the Register, with most of the Committee members effusively praising her work. The only slightly sour note was sounded by Rep. Issa (R-CA), who felt that the Copyright Office was spending too much time on studies without making specific recommendations. But anyone who’s read recent studies from the Copyright Office, such as the music licensing study and the IT report, knows that they contain very specific recommendations, several of which were reiterated in the Register’s testimony.

The big takeaway is that the majority of the Committee seemed sympathetic to the Register’s recommendation that the Copyright Office cease to be a mere department of the Library of Congress and instead, become an independent agency, whose head would be appointed by the President and confirmed by the Senate. So as to retain agency independence and continuing to serve both the Executive and Legislative branches, the agency’s head would serve for a specified term set by Congress and not merely at the pleasure of the President.

The Register’s written statement opens with a statement of six themes, culminating in her declaration for independence:

(6) To properly administer the copyright laws in the digital era, facilitate the marketplace, and serve the Nation, the United States Copyright Office must be positioned for success. As stated by one Member of this Committee, “it is time to enact a restructured, empowered and more autonomous Copyright Office that’s genuinely capable of allowing America to compete and protect our citizen’s property in the global marketplace.”

To support her petition, Register Pallante, in her written statement, singled out IT issues, citing the GAO’s scathing report, detailing myriad IT deficiencies at the Library of Congress but recommending consolidation of IT resources. The Register obviously opposes a single IT team:

The Office’s current organizational structure is under strain because the copyright system has evolved and because digital advancements have changed the expectations of the public….The mission of the Copyright Office is fundamentally different from the mission of the Library, and I believe that the Copyright Office must have its own CIO, technology staff, and management authority, including the ability to implement IT investment and planning practices that focus not on agency-wide goals but on its own specific mission. As noted in my prior testimony, the Copyright Office sits at the center of a dynamic marketplace in which creative content drives a sophisticated chain of business in the information and entertainment sectors. A faster and more nimble Copyright Office must be a priority.

Although the discussion largely centered on the potential independence of the Copyright Office, many of the questions in the latter part of the hearing focused on topics discussed in the Copyright Office’s music licensing study, including pending legislation. With respect to the Fair Play Fair Pay Act, the Register voice her support and was particularly blunt in her view of the current state of the law where labels and artists do not get paid performance royalties on radio, stating the status quo was “indefensible as a matter of law and embarrassing as a matter of policy” as well as being “out of step with the rest of the world.” Take that, NAB!

With respect to the Songwriter Equity Act, the Register stated her support for Congressional action. When asked by Rep. Collins (R-GA), who sponsored the bill, what would happen if Congress doesn’t act, the Register replied in part that the existing legal regime is already “torturing” the music community.

The Register was also asked about the “anticircumvention” provisions of Section 1201 of the Copyright, enacted as part of the DMCA. She stated that as drafted, the fair use defense codified in Section 107 of the Act is not applicable to Section 1201. When questioned about potential problems with Section 1201 and cybersecurity issues, the Register wryly noted that having a potential cybersecurity exemption subject to a three-year Copyright Office review process was not in the best in the best interests of national security.

Given the importance of copyright to the economy, and the reactions sentiments of the Committee members, it’s possible that Congress may actually address copyright issues sometime soon.

 

 

 

 

Why the Register of Copyrights Wants to Turn In Her Library Card

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Those who don’t practice copyright law might be surprised that the Copyright Office is neither an independent agency nor part of the Commerce Department, the home of the U.S. Patent & Trademark Office. Instead, as the Register of Copyrights, Maria A. Pallante, reminded us in a lengthy letter to the House Judiciary Committee, the Copyright Office is, for historical reasons, essentially a captive division of the Library of Congress (LOC).

Register Pallante wrote her March 23 letter to supplement the Judiciary Committee’s February 26 hearing: The U.S. Copyright Office: Its Functions and Resources. As Register Pallante points out, she and her “subordinate officers” are appointed by the Librarian of Congress. The Librarian is a Presidential appointee subject to Senate confirmation under the “appointments” clause of the Constitution. Curiously, this makes the LOC, at least in the view of the Justice Department, part of the Executive branch of the government.

As part of the LOC, the Copyright Office lacks independent budget authority and it’s dependent upon the LOC for much of its resources, including IT. Moreover, the Copyright Office’s regulatory authority basically extends only to rules regarding registration and recordation – and even those are subject to approval by the Librarian. As a result, highly technical provisions that are regulatory in nature have to be included in the copyright statute and passed by Congress. This means they’re usually outdated before they’re even enacted. Moreover, policies that are in the LOC’s best interests don’t always align with overall copyright policy or the interests of other stakeholders in such policy debates.

Not surprisingly, the Register has called for the creation of an independent copyright agency. It would have autonomy over its own budget and the authority to issue substantive regulations. This agency would expand upon the current Copyright Office’s role as an independent adviser to Congress and other departments (e.g., Justice, State, Commerce) on domestic and foreign copyright policy, including advising on and interpreting legislation, litigation and trade agreements. An independent copyright agency would still be able to supply the LOC with whatever it selected from copyright registration deposit copies to add to its collection.

Register Pallante recommended against keeping the Copyright Office as a “sub-agency” within the Library of Congress as doing so would not grant it sufficient policy and regulatory autonomy. She also cautioned against moving the Copyright Office to the Commerce Department citing her predecessor in arguing that copyright law and policy go beyond merely promoting commerce and have a “unique influence on culture, education and the dissemination of knowledge.” The Register’s recommendation to move the Copyright Office out of the LOC is hardly new but, as we’ll see, it does have some urgency.

Among the things the Register requested was a Congressional mandate that the new agency’s leaders “present short-term and long-term priorities and investment justifications, including … urgent IT expenditures. “ This is particularly apt in light of two recent reports: the February 18 report of the Copyright Office’s Technical Upgrades Special Project Team (SPT), presented by the Copyright Office’s Chief Information Officer and the March 31 report from the Government Accountability Office (GAO), aptly entitled Library of Congress: Strong Leadership Needed to Address Serious Information Technology Management Issues. The lengthy and technical SPT and GAO reports fortunately include summary findings for non-geeks.

The SPT report focuses on the Copyright Office’s IT issues, with a particular emphasis on improvements to online services for the copyright community and general public. The SPT received comments from the usual suspects of stakeholders, including organizations representing music, film, publishing, photography, graphic artists and IP lawyers. Suggested improvements to the current online copyright registration system (eCO) included the ability to preview, print and share registration application data as well as improvements to submitting deposit copies that accompany a copyright registration. Other suggestions were the ability to make mass or high-volume online registrations and to file and search for assignments, transfers and terminations – none of which currently can be filed online. Still others related being able to search pre-1978 records online as well as being able to find assignments, terminations and other transfers associated with a particular registered work.

But the SPT report noted upfront:

All administrative control over the infrastructure, operating systems, database systems, storage systems, telecommunications systems, legacy systems, and other common IT resources are controlled by the Library of Congress. This arrangement is not optimal given the general IT challenges at the agency level, and perhaps difficult to rationalize given the specific importance of the Copyright Office to the overall national copyright system and global digital economy. Additionally, in some cases, the Library’s needs in relation to copyrighted works – which revolve around acquisition, preservation, and access – may compete with those of copyright owners, who are most concerned with legal protection and security.

With that in mind, let’s see what the GAO report had to say about how the LOC is handling its IT issues. Here’s a few of the highlights from the 133-page report:

– The Library does not have an IT strategic plan that is aligned with the overall agency strategic plan …. This leaves the Library without a clear direction for its use of IT.

– [T]he Library … is not effectively managing its [IT] investments.

– The Library’s implementation of key security and privacy management controls was uneven …. putting the Library’s systems and information at risk of compromise.

– The Library does not have the leadership needed to address these IT management weaknesses. For example, the agency’s chief information officer (CIO) position does not have adequate authority over or oversight of the Library’s IT. Additionally, the Library has not had a permanent CIO since 2012 and has had five temporary CIOs in the interim.

In its coverage of the GAO report, The Washington Post even more directly dumped the blame for the Library’s IT deficiencies on the Librarian’s desk:

Its leader [James H. Billington] is a Russia scholar appointed by Ronald Reagan who doesn’t use e-mail and rarely a cellphone, and who critics say has done nothing to fix the library’s ongoing problems. At 85, Billington is the oldest of the 13 executives who have led the agency since its founding in 1800.

Based upon the findings of the GAO report, it’s doubtful that the Copyright Office, given that its funding and IT support is totally tied to the LOC, will be able to implement the badly needed changes outlined in the SPT.

A 2013 report from the International Intellectual Property Alliance estimates that core copyright industries (computer software, videogames, books, journals, newspapers, periodicals, motion pictures, music and radio and television programming) contributed approximately $ 1 trillion, or 6.5% of the total GDP in 2012.These industries are not just vital to the US economy, but to our culture and to our stature in the world.

Yet we currently have a “system” where it takes months from the filing an online application just to get a registration certificate, where crucial deposit copies aren’t maintained and critical records can’t be accessed or even searched online.  While appointments to an independent copyright agency could become as politicized as we’ve seen with others, perhaps it’s finally time for the administration of our copyright laws to reflect 21st century realities with an independent, properly funded Copyright Office with robust IT.

The Broad Comedy and Broader Parody of Three’s Company

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What’s worse than sitting through seven episodes of Three’s Company? Reading a federal district judge’s summaries of them. And yet that CliffsNotes analysis, including delving into the cultural significance of the fluffy sitcom, takes up much of the 56-page opinion recently issued by Loretta Preska, Chief Judge of the Southern District of New York. In Adjmi v. DLT Entertainment, Ltd., the court held that plaintiff’s Off-Broadway play, 3C, is a fair use parody of the entire TV series.

Although styled as a Rule 12(c) motion for judgment on the pleadings, the voluminous exhibits to those pleadings included DVDs of all 9 seasons of the series (owned by DLT) as well as Adjmi’s script to 3C, curiously referred to as the “screenplay” throughout the opinion. Judge Preska is no stranger to parody cases, having written the opinion that was affirmed by the Second Circuit in Liebovitz v. Paramount Pictures, which held that a photo of a seemingly pregnant Leslie Nielson of The Naked Gun fame was a fair use parody of the famous Vanity Fair cover of a nude and pregnant Demi Moore.

For you younger readers, Three’s Company, which aired from 1977-1984, focused on Jack Tripper (John Ritter), who pretends to be gay so he can share an apartment with sensible brunette, Janet Wood (Joyce DeWitt) and ditzy blonde, Chrissy Snow (Suzanne Somers, the current TV twirler and former Mistress of the Thighmaster). Rounding out the cast were the nosy neighbor landlords, Mr. and Mrs. Roper.

The Court began its discussion, stating: “[t]he parties agree that 3C copies the plot, premise, characters, sets and certain scenes from Three’s Company.” The parties also agreed that, as in the TV series, the male lead in 3C is an aspiring chef, the blonde is the daughter of a minister and the brunette is a florist. At least the characters’ names are different in plaintiff’s play, although the Court sometimes mistakenly refers to the names of Three’s Company characters in its discussion of 3C. So, there’s undoubtedly access and an awful lot of substantial similarity, the basic elements of a copyright infringement action.

In ruling on the Rule 12(c) motions (plaintiff’s for declaratory judgment and DLT’s on its counterclaim for infringement), the Court stated that discovery, which had been stayed, would not be necessary. Indeed, the decision reads like one for summary judgment as Judge Preska took pains to point out that her opinion is based not so much on the pleadings themselves but on the “raw materials” of the Three’s Company DVDs and the 3C script.

As with any parody case, the Court’s analysis started with the seminal 1994 Supreme Court case, Campbell v. Acuff Rose, which held that 2 Live Crew’s use of a portion of the Roy Orbison hit, Oh, Pretty Woman in the band’s similarly titled song, Pretty Woman, constituted a fair use parody of the work as it only used so much of the original work as was necessary to comment on it. Following Campbell, the Court here went through a fairly rote review of the four fair use factors of Section 107:

1. the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
2. the nature of the copyrighted work;
3. the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
4. the effect of the use upon the potential market for or value of the copyrighted work.

And as in Campbell, the Court focused most on the first factor and whether or not Adjmi’s use of the sitcom’s material was “transformative,” citing Judge Leval’s influential 1990 Harvard Law Review Article. As the Supreme Court stated, a use is transformative when “it adds something new, with a further purpose or different character, altering the first with new expression, meaning or message.”

However, as I’ve written, the Seventh Circuit recently rejected the “transformative” analysis in fair use cases. In that case, Judge Easterbrook noted that any transformative use would constitute a derivative work, the authorization of which is the right of the copyright owner under Section 106(2) and that it’s best to stick with the four statutory factors.

So, how, exactly is 3C a transformative protected parody of Three’s Company? The main distinction is that in 3C, Brad, the male roommate, is really gay. He’s a gay man pretending to be a straight man who’s pretending to be gay. Got that? Moreover, the Court distinguishes 3C from Three’s Company by focusing on the play’s “heavy” tone, which features drug abuse and Mamet-like use of expletives, including gay-bashing slurs:

There is ample evidence to discern the tone of Three’s Company. It can be described as a happy, light-hearted, run-of-the-mill, sometimes almost slapstick situation comedy…. As demonstrated by select quotations…, 3C proceeds in a frenetic, disjointed and sometimes philosophical tone. It is often difficult to follow and unrelentingly vulgar. The same cannot be said of any episode of Three’s Company.

In other words, 3C is as dreary as Three’s Company is cheery. The Court concludes that “[t]he play is a highly transformative parody of the television series that, although it appropriates a substantial amount of Three’s Company, is a drastic departure from the original that poses little risk to the market for the original.” Fair enough. And having recently failed to sit through a single episode of Three’s Company, even one featuring Loni Anderson, it’s clear to me the show deserves to be parodied.

However, in reaching its conclusion, the Court seems to allow 3C to incorporate far more of Three’s Company than is needed to conjure up the original. In particular, the Court’s view of unprotectable elements like “stock characters” such as a ditzy blonde to include the character’s specific biography — as well as entire scenes lifted from several episodes of the series —  seems unnecessarily broad. The Court also closed with some seemingly “copy-leftist” dicta: “The law is agnostic between creators and infringers, favoring only creativity and the harvest of knowledge.” Say what? The Copyright Act imposes pretty stiff penalties against infringers.

Under this analysis, anything short of pure plagiaristic pilfering of prose would appear to be protected parody so long as the new work somehow “commented” on the prior one. This could have broad implications for other valuable series and their characters, from feature films to fan fiction. Think about applying this standard to the Star Wars franchise, although The Phantom Menace is its own parody.

The Art of the Bankruptcy Bluff

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Bankruptcy. A word that provokes more fear, loathing and foreboding failure than “world premiere” does to certain silver-haired symphony subscribers hoping to snooze again to Brahms. And no wonder when even venerable performing arts companies from the Philadelphia Orchestra to New York City Opera have gone through the reorganization wringer – and not always successfully.

But if you’re a financially troubled arts organization, one way to keep the wolves at bay may be bankruptcy — or at least playing poker with your creditors over possibly filing. To help me explain the potential benefits of pre-bankruptcy negotiations, I had my brother, New York bankruptcy Super Lawyer, Alec P. Ostrow, change from his cape and tights to a suit and tie and run his red pencil through my draft discourse on red ink.

Let’s say you’re the CEO of Washegon Opera and your company is nearly washed up and gone because attendance, fundraising and grant revenues are way down. And let’s say you think you can turn things around but you’re bleeding red ink and the sharks are circling. The time to talk about bankruptcy is well before Snidely Whiplash comes to padlock the door and cart away your costumes. But a Classic Comics digression into the bankruptcy process, with its own federal code and courts, is needed to understand why the “B” word bluff may be a helpful negotiating tactic.

Bankruptcy Basics

Washegon Opera’s pre-bankruptcy tango will revolve around the prospect of filing for reorganization under Chapter 11 of the Bankruptcy Code (as opposed to a Chapter 7 liquidation case where everything is sold off and the business is shuttered). Reorganization is premised on an entity, whether a for-profit or not-for-profit business, having at least a chance of being viable once the bankruptcy case is closed.

And post-bankruptcy viability is tested throughout the bankruptcy process, from the filing of the case and continuing after the approval of a plan of reorganization. This plan is essentially a very detailed post-bankruptcy business plan that once submitted, is then negotiated with (and sometimes challenged by) the creditors and is ultimately approved by the court.

If the bankruptcy debtor successfully emerges from this process like a phoenix from the ashes of its pre-bankruptcy pyre, the bankruptcy judge will give his blessing to the now-reorganized red inkster by granting a discharge of its debts in accordance with the reorganization plan. A typical plan is one where creditors get pennies on the dollar for their pre-bankruptcy claims – and sometimes nothing at all. Moreover, claims are often paid over a much longer period time and at a lower interest rate than had been previously agreed to. This is pretty powerful stuff for a creditor to swallow.

But there’s more. In order for all similarly situated creditors (e.g., secured creditors like lenders as one group, and trade creditors like vendors of costumes and office supplies as another) to get a fair deal from a clean deck, there are provisions in the Bankruptcy Code that are designed to give the reorganizing debtor breathing room to deal with them evenhandedly. Other Code sections prevent some creditors from having an unfair advantage over others. Let’s look at a few.

Bankruptcy Benefits – Four Examples

First, let’s assume you commence Washegon Opera’s case by filing a Chapter 11 petition in the local bankruptcy court. As soon the petition is filed, an automatic stay kicks in. Think of it as the big, clear dome from the TV series, Under the Dome dropping down on your business and preventing any creditors from clawing at you. This means that absent the court’s permission, a lender can’t foreclose on a loan, a landlord can’t commence or proceed with an eviction and trade creditors can’t repossess equipment or pursue a lawsuit or a lien against you. But, like the denizens of the dome, a bankruptcy debtor is under glass: it pays a price for the stay’s protection as its actions are closely scrutinized by the court and creditors – and sometimes subject to their approval – through intrusive mandatory disclosures and other provisions of the Bankruptcy Code.

Second, the Bankruptcy Code allows a debtor to reject a burdensome executory contract which is an agreement where there are continuing obligations by both parties. Some examples are rent under a lease, payments under office equipment leases and salaries under an employment contract – even if it’s a collective bargaining agreement. Where an executory contract is rejected by the debtor, the rejected party is relegated to a pre-bankruptcy claim for damages. This means that the creditor under a rejected contract will probably be paid peanuts for what it’s owed, just like the others.

Of course, Washegon Opera can’t continue to reap the benefits of any contract it rejects. For example, if these contracts were rejected, Snidely Whiplash could padlock the door, you’d have to scratch the diva’s guest performance and the copiers and computers could be carted away under a canceled contract. For any agreements that are “assumed” and not rejected, Washegon would not only pony up past-due obligations but also pay these creditors full freight on a going-forward basis.

Moreover, most executory contracts are assignable, even those that have anti-assignment clauses, which are generally unenforceable. (Boilerplate provisions in contracts voiding the agreement or imposing other nasty consequences if you file for bankruptcy are also unenforceable). Contracts that aren’t assignable typically include personal services contracts and copyright licenses, both of which would require consent of the affected assignee.

Third, the Bankruptcy Code provides the debtor with the ability to prosecute “clawback” actions against certain pre-bankruptcy payments or other transfer of assets to creditors. There are two main types. A preference action is a lawsuit in the bankruptcy court where the debtor had paid some creditors prior to bankruptcy, but not others who are similarly situated. The ones who got paid, the “preferred” creditors, are required to give back the payments so that all similarly situated creditors get their proportionate share of the pot.

A fraudulent transfer is one where a financially strapped debtor makes a deal to transfer property with the intention of keeping those assets from creditors’ clutches. Regardless of intent, the debtor can reclaim these transferred assets (or the cash value of them) where the presumably insolvent debtor didn’t receive equivalent value in the exchange (e.g., a sweetheart deal like selling your Steinway to your sister for sixty bucks).

Fourth, a Chapter 11 debtor is often able to have better access to credit by offering lenders a statutory “superpriority” which means that the lender would be repaid first from estate assets that aren’t already collateral for secured loans. Moreover, they may also be able under certain circumstances to offer a lender a first priority or “priming” lien on collateral, thereby demoting the priority of an existing secured creditor’s lien. So, it’s possible that Washegon Opera may have better luck getting a loan against anticipated ticket sales to finance that new production of Aida after filing for bankruptcy.

This all sounds good for a debtor but there are many safeguards in the Bankruptcy Code to protect creditors and prevent abuse. For example, a company’s management can be kicked out and a bankruptcy trustee can be installed to manage the company in the best interests of the creditors.

And bankruptcy, like any legal proceedings, especially ones that may include side litigations like preference and fraudulent transfer actions, can be lengthy and expensive. Larger creditors will obtain their own counsel and various creditors may participate in unsecured creditors’ committees as part of the process. And the debtor’s lawyers and any court-appointed trustee get paid prior to the creditors.

All the Fun without the Fuss

Because of the extensive protections a bankruptcy proceeding provides debtors, hiring a bankruptcy lawyer to work out deals with creditors can be an expedient and cost-effective way to get the breathing room needed to survive. You could wind up with better terms with lenders, vendors, contractors, employees and other creditors. From their viewpoint, why go through the aggravation of a lengthy and costly reorganization where you’ll only wind up in the same place – or worse – than through a pre-bankruptcy settlement?

And these principles are applicable to any individual or entity, including arts-related ones like labels, recording artists and songwriters as well as dancers, painters, poets and photographers. But this post only scratches the surface. For example, the interplay between bankruptcy and the status of various copyright and other IP assignments, royalty streams and licenses can get pretty thorny. And my Super Lawyer sibling reminds me that some of the bankruptcy principles were simplified for illustrative purposes.

Bankruptcy counseling, like a symphonic world premiere, may be new and unfamiliar but need not be feared. But a pre-bankruptcy workout isn’t for everyone. If there’s no realistic prospect of a viable business or your idea of fundraising is a bake sale, it likely makes more sense just to fold your cards and walk away from the table. To paraphrase Jackie Mason, you probably can’t afford to go bankrupt. Or your creditors may call your bluff and force you into bankruptcy proceedings. But your attorney should be able to tell if potentially playing the bankruptcy card is for you.

Five Things Composers Should Ask About Working With a Publisher

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In December, I was invited by Jennifer Higdon to speak about various aspects of the music business to the Curtis Institute’s Composers’ Forum. I was peppered with some very pointed questions about the music publishing prospects for emerging composers. The students were justifiably skeptical because a publishing deal isn’t for everyone. But there are also alternatives besides signing your works away to a publisher or doing everything yourself.

Here are five questions a composer should ask to determine whether a publishing deal makes sense:

1. What exposure do you already have? Just as a record label won’t sign a band that doesn’t already have a following and a self-produced album, publishers need to see that you are worth the investment of their resources. So, if you already have a resume that includes performances, awards, commissions and residencies (not all boxes need be checked) that’s a foundation a publisher can build upon. It also shows that you’re serious about your career and are willing to work at it.

2. What kind of works do you mostly write? Publishers are best when dealing with large-scale works such as orchestral works or operas. And even if a composer submits a Sibelius or Finale “manuscript” it’s still very costly and time-consuming to produce performance materials acceptable to professional orchestras and opera companies. Because they are voluminous and expensive to produce, performance materials for symphonic and operatic works are rented rather than sold. Publishers make the most money, both for themselves and the composers they represent, from the rental and performing rights income.

Works for smaller ensembles, such as string quartets, works for solo piano, piano and voice and other ensembles of say, eight players or fewer, are mostly sold rather than rented. After deducting print costs, publishers make much less money off of these works. Public performance income is also typically much lower than a larger-scale work of comparable length. Similarly, works for concert band or chorus are also sold rather than rented. These will be “new issued” like books and will generate sales in the first year or two. After that, unless the composer continues to supply new product, i.e., new band or choral pieces, a single work will likely languish – as far too many composers have found out the hard way.

3. Who’s performing your music? If you’re a member of an ensemble and you write for that group there’s no need for a publisher intermediary. You also have to ask yourself if you really want other groups to perform your music. And even if you do, if your ensemble has unique instrumentation it’s less likely that other groups will program your works.

4. Will a publisher promote my music? Publishers have long-established relationships with artistic administrators at orchestras, opera and ballet companies, as well as domestic and international music festivals, individual conductors and soloists. However, all publishers have an existing roster of composers that need care and feeding. For example, at Boosey & Hawkes, where I used to work, not only do they have living composers like Adams, Reich and Rouse, but the heirs of Bernstein, Carter, Copland, Stravinsky and many others still want these composers’ works programmed as much as possible. Classical publishers haven’t been immune from the ills that have plagued the music industry for more than a decade. And everyone’s promotion staff is stretched thin. That said, some publishers do a better job than others. Ask around.

5. Do I really want to handle the business of being a composer? This includes photocopying and shipping scores and parts, negotiating commissions and license agreements, managing expenses and being your own publicist. Some composers are good at this and enjoy it. Others, not so much.

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In short, if you are a composer that writes mostly smaller-scale works, particularly if it’s for your own ensemble, you may well be better off selling downloads from your own web site.

However, if you:

– want to write large-scale works
– have an existing catalog that’s generating some income
– are getting commissions and performances
– have gotten some awards and/or a residency or two

Then, a publishing deal may be something to consider.

However, publishers sign very few composers. Boosey, Schirmer, Presser, Peer, Peters, Schott, Subito and any others will sign only about a handful of composers a year combined – not each. That’s less than a composer per publisher per year. Why? Because it’s a very expensive, long-term commitment and each of these publishers has continuing obligations to its existing composer roster.

Bonus Question: What should I ask if a publisher’s interested in me?

Here are five basic questions to ask:

– Will they pay an acquisition fee for my “back catalog” of pre-existing works?

– Will they pay an advance on royalties for works written during the term of the contract?

– Will I retain ownership of any portion of the copyrights to my works or will the publisher own them outright? In other words, am I being offered a publishing, co-publishing, administration or distribution deal – or some combination of them?

– What are the royalty splits for various income types (print, rental, grand rights, synch, etc.)?

– How will they promote my works, including increasing my income and getting commissions for me?

Those are just the preliminaries. A typical publishing contract has many other terms that need to be understood and often negotiated. Entering into a publishing agreement can be the most important career decision a composer can make. Any composer contemplating signing up with a publisher should consult with a knowledgeable attorney. And a good lawyer can also suggest and negotiate possible alternatives to a pure publishing or pure DIY relationship, such as hiring a publicist, administrator or music distributor.

Fat Chance for Skinny Puppy’s Guantanamo Claim

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Yesterday, my astrologer friend, Elisabeth Grace, asked me to make a prediction of my own. She forwarded this article in The Guardian and inquired as to whether I thought the band Skinny Puppy has a case. As the article points out, the band’s music apparently was used as part of the “enhanced interrogation techniques” on “detainees” at the Guantanamo Bay facility operated by the US government on the grounds of the naval base there. The band is now demanding payment from the US Department of Defense in the amount of $666,000 for the unauthorized use of their music in this manner. Although I’m sympathetic to Skinny Puppy’s plight, I’m skeptical as to whether they have a cognizable claim.

Let’s assume that one of the guards got his hands on a Skinny Puppy CD and that he and his buddies thought it would be “persuasive” to blast the music at high volume on the prison grounds. Could Skinny Puppy have objected to this usage and can they now demand payment from the US government? Although Gitmo is on the island of Cuba, it is United States territory, so presumably, US law applies. The US Copyright Act grants copyright owners the exclusive right of public performance in Section 106.

However, this right does not apply to the public performance of a sound recording, such as a CD, LP or download when played over loudspeakers or broadcast by radio or TV. There is only a public performing right in a sound recording when it’s performed by means of a digital transmission, such as by streaming over the Internet. The US is one of less than a handful of countries (including North Korea and Iran) that does not have a broader public performing right in sound recordings.  So, neither the band nor its label can sue for the unauthorized blasting of the Skinny Puppy tracks over loudspeakers at Gitmo.

And that’s even assuming that such a broadcast constitutes a “public” performance under the US Copyright Act. Although there is no public performance right in a sound recording, there has long been such a right in the underlying musical compositions. It is this right that performing rights organizations (PROs) like ASCAP, BMI and SESAC have been licensing for decades. The songwriters and music publishers of the songs embodied in recordings that are played over loudspeakers at stadiums and nightclubs and other public venues are paid for this use by the PROs that license these facilities.

Section 101 of the Copyright Act defines a public performance as  a performance that is “at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.” I’ve not researched this issue, but performance at a federal detention center or any other prison probably isn’t a “public” performance. For example, ASCAP and BMI license local – but not federal – governments and prisons don’t seem to be covered by these licenses.

To further illustrate the distinction between a public performance, over which the songwriters of the Skinny Puppy works could have a claim and a private one where they would not, consider this example: If I were to blast a Skinny Puppy CD in my apartment, that’s a private performance and neither the band, the label, the songwriters, SoundExchange, nor ASCAP or BMI could come after me. However, my neighbors could call the cops for creating a nuisance – but that’s not a copyright claim or one that the band would have standing to bring.

And while there isn’t a blanket government use exemption, the feds would likely argue, somewhat ironically no doubt, that even assuming there is a “public” performance of the Skinny Puppy songs at the prison, the use by the government was “fair use” as it was in the course of lawful governmental activity (at least according to Justice Department memos) and not for commercial gain. If the government can claim “fair use”, it’s as if they had permission. For example, if a local fast food joint had ASCAP and BMI licenses and used certain music to deter teen loitering, the songwriters would have no say as to this particular use or the volume of the playing,  although the neighbors — but not the songwriters or the recording artist —  might object as a nuisance.

Any other claims the band might have may well be pre-empted under the Copyright Act. But as quoted in The Guardian article, the band’s keyboardist acknowledges that their point isn’t financial gain. It’s just one more more in a litany of public  moral outrages associated with Guantanamo. Unfortunately for Skinny Puppy, they can’t sue based on any such moral rights.

 

Stax of Songs in Competing Claims to Produce a Jukebox Musical

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Some of the most successful recent Broadway shows have been “jukebox” musicals. You know, shows that consist of taking a well-known recording artist’s hits and then staging them with a strung-together story. Think Jersey Boys, Motown: The Musical and Beatiful:The Carole King Musical. Shows like these are popular with producers because of the perceived minimized risk in promoting known musical quantities with a built-in audience.

However, producing such shows are not without risk, particularly when it appears that somebody may have either forgotten or conveniently ignored the distinction between copyright in a sound recording and copyright in the underlying song that’s embodied in the sound recording. I’ve previously written about these two separate copyrights in the synch licensing context:

To use pre-recorded music in an audio-visual work, whether it’s a feature film, TV show, video game or a video on a web site, like YouTube, you need the permission of both the copyright owner of the recording (typically a record label) and the permission of the copyright owner(s) of the underlying song that’s embodied in the recording (typically one or more music publishers).  Why? Because the Copyright Act says so.  The permission that you need is called a “synchronization” license – as you’re synchronizing music to picture – or a synch, for short.

So, for example, if you wanted to put the classic Otis Redding recording of (Sittin’ on the) Dock of the Bay in your next feature film, you’d need to get the permission both from the copyright owner of the song (Irving Music) and the permission of the record label (Stax). However, if you simply want to cover the song (as many artists, such as Sara Bareilles, have done), either live or on a recording, you only need the permission of the publisher, here obtained through BMI for a live gig or through Harry Fox to release a cover record.

This brings us to Evergreen Media Holdings, LLC v. Wood Creek Capital Management, LLC, a lawsuit that was recently filed in federal district court in Connecticut. This action involves competing plans to create a jukebox musical from megahits recorded on the legendary Stax label, such as songs written and recorded by Otis Redding and Isaac Hayes. The plaintiffs allege that they have obtained exclusive rights to create a stage show of songs recorded on Stax from the music publisher, Rondor Music, which controls the copyrights to the songs.

Defendants are alleged to have made a deal for both a live stage show and a film musical with Concord, which apparently owns the rights to many of the master recordings originally released on Stax – but not with Rondor. Defendants issued a press release touting their upcoming project and plaintiffs were naturally none too pleased by this.

Although the right to use copyrighted works are at the core of the dispute, the lawsuit is not a copyright infringement action as no theatrical production has yet been created or produced. Rather, the complaint alleges tortious interference by defendants, violations of the Connecticut Unfair Trade Practices Act and seeks a declaratory judgment that plaintffs have the sole right to create a Stax musical .

Taking the complaint at face value, it appears that with respect to the creation and performance of a live show, plaintiffs have obtained the rights to the songs (but not to any recordings of the songs) while defendants have permission to use the recordings but not the songs embodied in them. The creation of a book musical requires that the producers obtain so called “grand” or dramatic public performing rights to the songs. Such dramatic rights are controlled and licensed directly by the copyright owners of the songs (music publishers) and not through ASCAP, BMI or SESAC, which license only “small” or non-dramatic public performing rights. Small rights licensing by performing rights organizations include performing songs in concert or by way of broadcast or internet transmission. No permission from the record label is needed.

So, it would appear that plaintiffs have a pretty strong case as it looks like they have the necessary rights to put on a show and defendants don’t. However, defendants would not be without their own bargaining chips. Concord may well control the right to use the Stax name and logo and plaintiffs would be hard-pressed to market their musical without reference to the label. It’ll be interesting see if these parties can ultimately reach a harmonious accord.

The Biggest Mistake Composers Make About The Music Business

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I hear it all the time.  Composers think that if they just sign up with a performing rights organization (PRO) like ASCAP or BMI that’s all they need to do to protect themselves.

Don’t get me wrong – every composer should belong to a PRO. But there are at least seven ways a composer can make money from the use of his music and the PROs only handle one.

Most composers are never taught anything about the music business. They’ll sign up with a publisher and leave everything to them. But it’s harder than ever to get a publishing deal and publishers typically want to own the copyrights to your music and take 50% of the royalty income – and a lot more for sheet music. So either by choice or necessity, most composers are self-published. But do you really know what’s involved in being self-published?

There’s much more to it – and more money to be made – than just selling downloads and collecting PRO royalties.

Here’s how composers make money from their compositions:

Licensing of Non-Dramatic Public Performing Rights: Your PRO licenses performances of your works in live venues, in radio and TV broadcasts and over the internet. And your PRO will pay you directly. However, this is the only income stream your PRO represents. They don’t handle any of the others!

Licensing Works in Audio-Only Sound Recordings: Record labels get a mechanical license when a composition is recorded and distributed in LPs, CDs MP3s and other audio-only formats, whether in physical copies or in downloads.  Once a work has been commercially recorded, anyone can “cover” the work, provided the label pays applicable mechanical royalty, either directly to a musical publisher or through a mechanical rights clearing house, such as The Harry Fox Agency, Inc.

Licensing Music in Audiovisual Works:  When someone wants to use a composition in an audiovisual work, as in films TV shows and video games, they need to get a “synchronization” or “synch” license.  There is no set rate for synch licenses and fees vary greatly from a few hundred to hundreds of thousands of dollars depending upon the value of the work, the nature of the project (blockbuster movie or student film), the usage (title credits or underscore), the territory (worldwide, US only) and the duration of the license (perpetuity or one year).  If someone wants to use pre-recorded music in a project, they need two licenses: the “synch” license for the use of the underlying musical work and a “master use” license from the owner of the particular recording of the work, usually a record label.

Sales of Printed Materials for Smaller Works:  Smaller works, like SATB chorals, chamber ensembles (like string quartets), solo piano pieces and even jazz and wind ensemble works are usually sold, not rented. They may be sold directly to the public online in PDFs or in printed editions through distributors such as Hal Leonard and Alfred Music.

Rental of Performance Materials: Because they are both voluminous and expensive to produce, performance materials for larger-scale pieces such as works for full orchestra, operas and musicals are typically handled on a rental basis. That means the rental agent rents out the score and parts for a fee to the performing organization or presenter who then sends them back.  Rental fees are based upon a variety of factors, including the duration and instrumentation of the work and the level of the performing group and may run several hundred dollars per performance.

Licensing of “Grand Rights” or Dramatic Performances: PROs in the United States only license non-dramatic (sometimes called “small rights”) public performances of your work. If you write an opera, musical, ballet or other dramatic or choreographic work, your PRO will not license performances of these works and you won’t get paid performance royalties from them. That means if you don’t have a publisher that means you’ve got to do this yourself.  Grand rights license fees are typically based upon a percentage of “the house” or ticket sales, determined by the average ticket price and the capacity of the venue.

Reprints of Excerpts, Sampling, Arrangements and Other Permissions:  If someone wants to use an excerpt of your work in an article or text, wants to create an arrangement or wants to reprint lyrics in liner notes, or wants to quote or “sample” your composition in a new work, they will need permission from the owner of that work. Similarly, composers will also need to obtain permission if they quote or sample someone else’s work or set copyrighted text to music. There is no set rate and permission may be denied for any reason.

So now you know there’s a lot more to music publishing than just belonging to ASCAP or BMI.  Do you think you can do all this by yourself? Do you know what the appropriate deal points and fees are?  Do you want to spend your time photocopying and shipping performance materials?

Talk to other composers about their experiences with music publishers and with self-publishing. These days, it doesn’t have to be an either/or proposition. There are ways composers can control some aspects of their business themselves while having publishers and other professionals handle others. And if you do work with a publisher, publicist or other professional, make sure you also talk to a lawyer before signing the contract.

 

This article is adapted and abridged from a more detailed article on music publishing available to American Composers Forum members on the ACF web site.