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Archive for the ‘Music Law’ Category

The U. S. District Court for the Southern District of New York ruled against LimeWire and its parent company, Lime Group, finding them liable for inducement of copyright infringement based on the use of their service by subscribers. 

U.S. District Judge Kimba Wood issued the 59-page decision Wednesday, siding with the 13 record companies that sued Lime Wire LLC and founder and Chairman Mark Gorton through the RIAA claiming copyright infringement and unfair competition.lime_220x147

In finding the company liable, Wood opined that LimeWire had optimized its application to "ensure that users can download digital recordings, the majority of which are protected by copyright," and that the company actively "assists users in committing infringement."  Wood also found that the defendants knew their technology was being used to download copyrighted tunes and took no "meaningful steps" to prevent the infringement. In addition, Lime Wire marketed its software to people "predisposed to committing infringement" and assisted those people, the judge ruled.

Major labels, as represented by the RIAA, were predictably thrilled with the outcome.  "This definitive ruling is an extraordinary victory for the entire creative community.  The court made clear that LimeWire was liable for inducing widespread copyright theft," RIAA chairman and CEO Mitch Bainwol relayed.

Lime Wire Chief Executive George Searle issued a statement saying the company "strongly opposed the court’s recent decision."  The statement continued:

"Lime Wire remains committed to developing innovative products and services for the end-user and to working with the entire music industry, including the major labels, to achieve this mission," Searle said.

Searle did not say whether Limewire would appeal the ruling.

The Recording Industry Association of America proclaimed the decision was "an important milestone" in the battle against online copyright infringement, because Gorton was found personally liable, in addition to the company of which mitch-bainwol-riaa he was the chairman.  Personal liability against a corporate director is rare.

"The court has sent a clear signal to those who think they can devise and profit from a piracy scheme that will escape accountability," Mitch Bainwol, chairman and chief executive of the RIAA, said in a statement.

LimeWire, launched in 2000, is one of the largest remaining commercial peer-to-peer services left on the Web. The company claims to have more than 50 million monthly users.  The company has managed to defend itself against major label legal action for years.  

In issuing her opinion, Wood relied heavily on the 2005 Grokster ruling, in which the Supreme Court said that a file-sharing service was liable when customers were induced to use it for swapping songs and movies illegally.  The test established by the Supreme Court in MGM v. Grokster for provider liability is whether the company actively induced users to commit infringing activities.  While LimeWire argued that it did not, Judge Wood noted that the company actively  “markets LimeWire to users predisposed to committing infringement.”

The record companies that sued Lime Wire included Arista, Atlantic, BMG Music, Capital, Elektra, Interscope, LaFace, Motown, Priority, Sony BMG, UMG, Virgin and Warner Brothers.

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By all accounts, EMI’s Grammy party at the Hollywood “W” Hotel was impressive.  But one there was one significant absentee from the celebration:  Guy Hands, Chief Executive of Terra Firma, the inhands vestment that purchased EMI in 2007.

EMI is a British company with a 113 year history of making music.  Globally, EMI is home to such well-known acts as Coldplay, Norah Jones, Snoop Dog, The Spice Girls, and even, yes, the Beatles.  EMI’s Nashville-based labels are home to, among others, the Nashville’s successful talent, such as Lady Antebellum, Darius Rucker, and Keith Urban, not to mention old faithfuls such as singer-songwriter, Guy Clark, while the Nashville-based publishing arm of EMI is home to Tom Shapiro, John Paul White and Steve McEwan, to name a few.  And then, there is the Nashville-based Christian side of the business, EMI’s Christian Music Group.   Despite these success stories, in the days following the extravagant Grammy celebration, events transpired which called into question the financial stability, nay, even the very future, of those organizations as separate entities.

The winds of change started blowing way back in 2007, when the struggling entertainment empire was purchased by Hands and his citi1 venture capital firm, Terra Firma, for somewhere around 6.5 billion U.S. dollars.   The VC firm had a reputation for turning around troubled companies, including a roadside gas station company, an aircraft-leasing business, Australian cattle ranches, and a natural-gas network.

Some of the $6.5 billion purchase price was funded by the investment group, but the remaining balance, somewhere in the range of 4 billion, was financed by Citigroup.  Citigroup’s agreement to lend out that much money was contingent upon performance level targets.  The current consensus is that, despite over 13 million in sales of the old Beatles catalog, EMI has failed, and will continue to fail, to meet the performance targets, unless Terra Firma comes up with additional $200 million in capital contributions by the end of the summer.  If that doesn’t happen, Citigroup, itself struggling from the weight of bad debt and government scrutiny, could take the keys to the company and then, likely flip it into the waiting arms of Warner Music CEO, Edgar Bronfman, who has long wanted the EMI proGUY-HANDS perties, changing the landscape of the music industry.

It is rumored that when Hands first met the EMI executive team, he told them if he didn’t make the deal work, he would lose over $310 million.  So, for obvious reasons, Guy Hands didn’t attend the recent EMI soirée, choosing instead, I imagine, to remain in his lavish estate on the Isle of Guernsey in the English Channel, where taxes are almost non-existence, making it a popular financial center for British venture capitalists.  Regardless of where Hands is now,  however, this entire power struggle will likely play out by the end of the summer. 

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A little history:

February 22, 1990: Pop sensations Fabrice Morvan and Rob Pilatus, a/k/a Milli Vanilli, who achieved international acclaim as a result of their Arista release, Girl You Know It’s True,  win the Grammy for “Best New Artist.”    Soon, the rumors began to swirl that Morvan and Pilatus were not actually singing on the records as had beeimage n reported in the press.  So intense were these rumors that on November 12 of that same year, Frank Farian, creator and producer of the Milli Vanilli project, confessed that Morvan and Pilatus did not actually sing on the records.  Four days later, Milli Vanilli’s Grammy was “withdrawn,” and Arista dropped them.  After the details emerged, the controversy spurned over 26 different lawsuits across the country under various consumer protection laws.

Early 1992: New Kids on the Block’s song If You Go Away peaks at #16 on Billboard as an associate producer on one of their earlier albums allege that the band lip-syncs to performances by Maurice Star, and that Star actually sang many of the parts on their albums.   As the story develops, the band cuts short a tour to appear on The Arsenio Hall Show to perform a medley of their hits.  During the subsequent interview, the band admits to using Star’s vocals as a backup track during their live performances, and admit that Star sang harmonies on some of their background vocals.   The band never recovered from the backlash, and their record sales steadily declined from that moment.

November 6, 2009: Hundreds of angry fans in Perth, Australia, walk out of Brittany Spears’ Circus concert when it becomes apparent that she is lip-syncing to her songs.

Fast forward to:

January 31, 2010: Taylor Swift wins four Grammys: Album of the Year and Best Country Album for Fearless, Best Female Country Vocal Performance and Best Country Song for White Horse.  Swift, who is by all accounts an extremely talented songwriter, gave a stunningly weak vocal performance during her duet with Steve Nick’s that drew starkly negatives reviews from professionals and amateur press/bloggers alike.  For example, Bob Lefsetz described her image performance as “dreadful” and opined that she may have single-handedly imperiled her career with this one performance.  The general consensus is that her Grammy performance is not an isolated incident.  Truth is, most professionals in Music City are aware of Swift’s inferior vocal talents – almost every conversation about Swift in this city includes one or more references to “auto-tune” technology.

The query then is this: is there a significant difference between a digitally-created rendition of a vocal performance and using a superior vocal performance from an singer who is not marketable to front a more attractive and marketable duo, a/k/a Milli Vanilli or to using a backup track (even of your own vocal as in Spears’ case) to enhance your live performance.  Isn’t the former example simply a modern, technological replacement for the latter?  If so, then the question becomes why is today’s society not as outraged at Taylor Swift as past society was at Milli Vanilli, New Kids and Spears?

In his response to criticism of the Grammy performance, Scott Borchetta, president and CEO of Swift’s record label Big Machine Records, offers this explanation for this discrepancy:

Maybe she’s not the best technical singer, but she is the best emotional singer. Everybody gets up there and is technically perfect people don’t seem to want more of it. There’s not an artist in any other format that people want more of than they want of Taylor. I think (the critics) are missing the whole voice of a generation that is happening right in front of them. Maybe they are jealous or can’t understand that. . . .   No one is perfect on any given day. Maybe in that moment we didn’t have the best night, but in the same breath, maybe we did.

Borcetta gets no argument from almost anyone I know in the industry that perhaps Swift is not the best technical singer.  But I’m not sure the explanation that Swift is the “voice of a generation” does much to address the underlying issue: The Grammy for Best Female Country Vocal Performance went to singer who, even her label head admits, is not the best technical singer!  Swift’s Fearless live performance tour is sold-out!  In her defense, Borchetta goes on to say “If you haven’t seen her live performance, you’re welcome to come out as my guest to a Taylor Swift show and experience the whole thing, because it’s amazing.”  But if the show’s audio is auto-tuned, how does this amazing experience differ from a Brittany Spears’ lip-synced performance, if at all?  Let’s not forget, in their days, the fans also “wanted more” of Milli Vanilli, New Kids on the Block and Brittany Spears.

Someone else once phrased it this way:

“It’s not about being authentic anymore, it’s about being entertaining.” 

Interestingly, this was a quote from Morvan of Milli Vanilli in a USA Today article in 2010.   Morvan goes on to say

“Twenty years later, what we were crucified for you see everywhere.”

He right, is he not?  Let’s be honest.  In America, at least, pop music has almost always produced a certain amount of, shall we call it, “manufactured product” – performers who were either assembled, created or otherwise the entertainment value.  My first disillusionment with this came in the form of The Monkees when I discovered that they were a band “assembled” by Bob Rafelson and Bert Schneider as an American “Beatles” alternative, i.e., as a means of capitalizing on the success of the Beatles.  As technologies become more and more sophisticated, this trend toward entertainment value over authenticity is naturally going to increase.  It used to be a little more difficult to go back and “overdub” a particular performance which was out of tune or offbeat, because the engineer had to physically rewind the tape, record the alternative part on a separate recording track, and then sync the new part into the old one.  A bit more time consuming.  Now, we have software which can independently correct not just the pitch, but an isolated note out of a chord which may be out of tune for one reason or another.  It’s a matter of moving the mouse over the note, highlighting it, and correcting it.  Wow!

I suppose the real question, then, is what do we want from our performing artists, whether it be a live performance or a recorded one?  For me, I think I prefer simple honesty.  Or, as Milli Vanilli ironically put it, “authenticity.”  I like to hear performers with technically superior skills performing the music they created.  I do agree with Borchetta that everyone is not perfect, and that many people prefer a live performance that has the feel of being non-technical.  After all, who can forget that off key guitar note at the end of the Allman Brother’s recording of Statesboro Blues (a note which they DO NOT replicate in a live performance), or some of John Bonham’s almost syncopated rhythms on Black Dog?   Those are authentic performances by persons with superior, technical skills. And this is precisely where I think where I differ from Borchetta:  I personally think most people do expect their celebrities to be technically superior, at least with regard to their perceived talents. 

Judging from prior examples such as Milli Vanilli and Brittany Spears, and the audiences’ reaction to those performers, people have an expectation that an artist will be able to actually perform the music that was marketed to them through the media.  In other words, most people expect their performers to be authentic.  Now, maybe Borchetta is correct, that Swift is, in fact, an authentic person who can communicate well through her gift of songwriting – again that’s not the real issue.  The real issue is that Swift is portrayed as more than a songwriter, she is portrayed as the performer with the “Best Female Country Vocal Performance.”   The fact is, Duane Allman, although he might hit an off key note once and awhile, was a technically superior guitarist.  John Bonham, even though that one performance might fade slightly off the beat for a brief moment, was a technically superior drummer.  However, no matter how many tours she sells out and no matter how many millions of CDs she sells, Taylor Swift, while an amazingly-talented songwriter,  will never be a technically superior vocalist.   Not to worry, though, she will most certainly always be the slightly off-key voice of a younger generation of admirers.  Or will she.  Time will tell I suppose.  But lest we put too much stock in past success as an indicator of future fan support, don’t forget, Milli Vanilli’s record was also multi-platinum.

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Starting in June, the author of this blog, Music Row Law  – 20-year entertainment attorney veteran Barry Neil Shrum – will be taking the show on the road!  On June 5, 2009, Mr. Shrum will conduct the first of a series of national seminars called MBA, Music Business Academy. 

Mr. Shrum initiated this series of seminars to address a perceived need in the industry: that a growing number of artists, entertainers and songwriters who might benefit from the expertise of an entertainment attorney, could not afford to retain an attorney and get the help they need due to upfront fees and retainers.  To this end, the mission statement for MBA is “music business education for the do-it-yourself generation!”  This unique series of one-day sessions will provide the upcoming and established mid-tier artist, musician, MBA Logo 48ox25o songwriter and other music industry professionals with a cost-effective method of obtaining an essential legal foundation for day-to-day music industry survival. 

The goal of the seminar is to create a sense of being in the client chair, Mr. Shrum will unravel the essential provisions of various industry-specific agreements  – bringing clarity to the legalese and identifying red flags in the “small print.”  Some specific agreements covered in the MBA session are:

*    the exclusive recording agreement (and the new 360 deal)
*    the exclusive songwriting agreement
*    the personal management agreement

For the do-it-yourself generation, Mr. Shrum will also explain the details and implications of guerilla marketing on the web.  He will explore the typical iTunes deal as well as other online distribution issues relevant to today’s guerilla marketers.

When asked about the seminar, Riq Lazarus, of Lazarus Management Group, said:

"Barry Shrum gets it!  The music business is undergoing radical change.  It is absolutely essential that today’s artists have an understanding of the legal issues facing them in this new era of "do-it-yourself" broadcasting.  And because he has the heart of a teacher, Barry’s immense knowledge and experience enables him to empower you with the understanding you need to protect your creations."

It is Mr. Shrum’s goal that attendees walk away from the seminar with a functional understanding of basic copyright, trademark and contract law — a virtual “MBA” in the music business!  Attendees will also receive specialized written materials as a continuing reference and valuable resource and are given the opportunity to purchase reduced rate legal services from Mr. Shrum.

The date of June 5, 2009 has been set for Chattanooga – the day before the Riverbend Festival – and plans are in the works for seminars in Denver, Colorado and Charlotte, West Virginia.   Other cities under consideration are Austin, Texas, Baltimore, Maryland, Boston, Massachusetts, Atlanta, Georgia, Philadelphia, Pennsylvania.  To see if your city is being considered, or to vote for your city, take the online poll.

General information about the seminars can be found here.  A detailed agenda of the Chattanooga seminar can be found at the event website:  www.musicbusinessacademy.info

 

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By guest author, Cory Greenwell, Esquire*

“The customer is always right” has long been a mantra of the business world. Over the last ten years, consumers within the entertainment and software industries have begun to demand instant access to products off all types. Products such as the Apple iPod®, Sony PSP® and the Amazon Kindle® among countless similar products have created an ever-increasing demand for instant access to media content. As a result, the increase of digital distribution of media content has grown, with iTunes alone accounting for more than $5 billion dollars in the US and the industry continues to grow. As a direct result of the increase in volume of the digital distribution of media content, the distribution of physical media, such as compact discs that are customarily subject to sales tax fell sharply in 2007. The paradigm shift has resulted in a major sector of the entertainment industry acquiring virtually tax-freConstitution2e status or consumers.

In the 1992 landmark decision in Quill v. North Dakota, 504 U.S. 298 (1992), the court found that states cannot require out-of-state retailers to collect taxes from customers who live in states where the retailer does not have a related physical presence or “substantial nexus”. The basis for the decision was to give a “safe harbor” for businesses wishing to avoid the burdens of complying with the numerous state tax laws by transacting business online.

Seventeen states, including Tennessee, have updated their tax code and now impose a tax on digital downloads. The legality regarding the taxation of digital media appears to have been resolved in favor of taxation. After Quill, the responsibility rests on the individual consumer to report the transaction on their annual tax return and pay the appropriate amount of sales tax. Some reports indicate that nationwide state and local governments will have lost more than $500,000,000 in uncollected taxes by 2011.

The court in Quill recognized the importance of the emerging e-commerce sector and declared that alternative means to require retailers to collect sales tax, namely that 1) Congress may require retailers to collect sales tax or 2) States may require retailers to collect taxes provided that Congress has provided a mechanism by which to reduce the burden of retailers to comply with the tax laws of the several states.

Since the Quill decision, twenty-two states including Tennessee have joined together under the “Streamlined Sales Tax Agreement” to create a uniform tax code to reduce the burden of complying with the law of the several states. Among other things, the SSTA have created uniform rules regarding digital media. The National Conference of State Legislatures has called for Congress in its next session to review the Sales Tax Fairness and Simplification Act (H.R. 3396) which gives those states that have complied with the Streamlined Sales Tax Agreement the authority to require out-of-state retailers to collect sales tax for online purchases.

Rather than waiting on Congressional action, New York has attempted to circumvent the requirement of a physical location within the state by interpreting their law to include any “affiliate”. In the case of Amazon, affiliates include anyone who advertises on the website. This interpretation, if adopted by the several states, would negate the benefit of the safe harbor by exposing the online retailer to liability throughout the nation.

In conclusion, as the law presently stands, states may tax digital media, however it cannot require out of state retailers to collect taxes. If Congress adopts the legislation proposed by the members of the Streamlined Sales Tax Agreement as anticipated, the Quill case no longer prevents states from requiring retailers to collect sales tax.

Cory Greenwell *Jonathan “Cory” Greenwell is an intellectual property lawyer who practices in Louisville, Kentucky at the firm of Greenebaum Doll & McDonald.  Cory is the co-founder of the website Backseat SandBar and was featured on the WFPK 91.9 feature, “Off the Record.”

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Link to Politico Interview

As a follow up to my previous post on the subject, the radio widget above should play Politico’s interview with Smashing Pumpkin’s founder and frontman Billy Corgan following his testimony in front of the House Judiciary Committee in support of HR 848, the Performance Rights Act.

Corgan testified on Capitol Hill on behalf of the musicFIRST Coalition yesterday.  Corgan testified that the current sytems is “hurting the music business” because of radio stations’ failure to compensate musicians for performing their music.

My readers know my thoughts on this subject.  While I agree with Corgan’s overall sentiment, I stand by my emphasis yesterday that the legislation as it is written may be drafted in favor of the record labels more so than the performing artists. 

HR 848 should have a provision that provides for direct payment of royalties to the artists who performed on the sound recording and which specifically does NOT rely on the record labels to distribute these royalties “in accordance with the terms of the artist’s contract.”  (See my previous post).  This kind of language contained in the House version of the legislation at Section 6 only assures that the record labels would receive all the performance royalties and that performing artists would have to overcome numerous obstacles to ever see any of the additional income, inevitably leading to more disputes with the record label.   The current artists agreements with record labels simply do not contain provisions addressing payment of these types of royalties and, even if they did, the artists who have unrecouped balances on their ledger sheets would never see a dime. 

My proposal is that the current system for collection and distribution of performance royalties for musical compositions be utilized.  Specifically, why not allow BMI, SESAC and ASCAP to collect and distribute the performance royalties for sound recording copyrights on behalf of member artists, allowing these organizations to pay 50% of the income directly to the artists (the original owners of the sound recordings) and 50% to the record labels (the assignee owners of the sound recordings).  This structure is identical to the distribution of performance royalties for owners of the musical composition copyright.  It’s a systems that has functioned well since the turn of the 20th century and it is a systems that, overall, works fairly well. 

In general, members of the performance rights organizations have fewer royalty disputes with these entities over  than artists do with record labels, since these entities, for the most part, do not function as profit generators.  There is no doubt that this idea has some flaws as well, but in comparing the alternative, it seems to me that this would benefit the artists and musicians much more than giving the money to the record labels.

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The House Judiciary Committee will hold hearings on H.R. 848 (this year’s version of HR 4789) tomorrow morning at 10:00 a.m.  Although the Committee’s website does not identify any witnesses at this time, I am informed by musicFIRST that Smashing Pumpkins’ founder Billy Corgan and Mitch Bainwol, chairman and CEO of the RIAA will be speaking on their behalf at the hearing.

Billy Corgan H.R. 848 was introduced to the 111th Congress by Rep. John Conyers on February 4, 2009 then referred to committee on the same day.  It was co-sponsored by Tennessee representative, Marsha Blackburn.  If passed, HR 848 would amend The Copyright Act (specifically Title 17) to provide “parity in radio performance rights” under the Copyright Act.  In other words, the Bill would grant a performance rights in sound recordings performed over terrestrial broadcasts (i.e., traditional radio broadcasts, not satellite).   S. 379 is the Senate’s complimentary bill, introduced by Senator Patrick Leahy.

The act has certain provisions to accommodate concerns by the broadcast industry, such as the provision which establishes a flat annual fee in lieu of payment of royalties for individual terrestrial broadcast stations with gross revenues of less than $1.25 million and for non-commercial, public broadcast stations; the provision which grants an exemption from royalty payments for broadcasts of religious services and for incidental uses of musical sound recordings; and the provision which grants terrestrial broadcast stations that make limited feature uses of sound recordings the option to obtain per program licenses. 

The Act specifically states that it will not adversely affect the public performance rights or royalties payable to songwriters or copyright owners of musical works.   In particular, the Act prohibits taking into account the rates established by the Copyright Royalty Judges in any proceeding to reduce or adversely affect the license fees payable for public performances by terrestrial broadcast stations. Requires that such license fees for the public performance of musical works be independent of license fees paid for the public performance of sound recordings.

The full text of the bill can be found at govtrack.us.

One provision I found interesting was Section 6, (1)(A), regarding payment of certain royalties, that states, in full:

A featured recording artist who performs on a sound recording that has been licensed for public performance by means of a digital audio transmission shall be entitled to receive payments from the copyright owner of the sound recording in accordance with the terms of the artist’s contract.

Emphasis added.  This last clause intrigues me.  What I find interesting about it is that under the current structure, the record labels own most, if not all, of the commercial sound recording masters, i.e., they are the “copyright owner of the sound recording.”  This clause entitles the “featured recording artist,” e.g., Madonna, Michael Jackson, etc., to receive payments from the owner “in accordance with the terms of the artist’s contract.” 

In most artists’ contracts, payments are based on a percentage of the gross revenues from sales of physical units – current artist contracts do not have provision for payment of performance royalties on the sound recording.  It would seem that under the Act as written, there is silence as to what happens in this instance where these specific payments of performance royalties are not addressed in the artist’s contract.  One possible remedy would be for the legislators to draft language that would apply, such as what they have done with regard to the “non-featured artists in subsection (B) of the same Section 6.   This Section 6 is not found in the Senate’s version of the legislation.

All of this makes me curious about what will happen to performance royalties that are paid under this Act to the owners of the sound recording copyrights, i.e. the record labels if there is no language in the artists’ recording agreements to specify as to what percentage the artist is entitled?  One thing is certain:  an artist who is not recouped under his artist recording agreement will never see any of these performance royalties under such time as his balance is recouped.

One proposal you might suggest to your representatives is that they consider a payment structure similar to that of the current performance rights organizations that collect and pay performance royalties for musical compositions, wherein one half of the royalties go directly to the songwriter and the other half directly to the publisher.  If this were the case under the new Act, half of the royalty payments would filter directly to the artist and the other half would go to the record labels.  If there truly is a concern about the recording artists not getting paid for his or her performances, this is the only method that would assure this happens.

If you are a recording artist whose performances are being playing on local FM and AM radios, you should investigate the impact this legislation will have on you.  Call you Senators and Representatives and ask them to keep you updated.

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