Tony Berman will be speaking on a panel at the 129th Audio Engineering Conference on Sunday, November 7th from 9:00am - 10:30am room 132 at Moscone Center, San Francisco. 

The panel will be discussing the current state of digital distribution of commercial audio recordings, and how the audio engineering community can get involved with digital distribution channels to create a new direction toward the goal of high resolution downloads.

Complete information can be found on the AES website:

http://www.aes.org/events/129/workshops/?ID=2497

by Mark A. Pearson, Esq.

The following is the third in a series of articles that will try and explain some of the pros and cons of entering into a licensing agreement in today’s entertainment industry. 

                Recently, we were approached here at BEAT-LAW by a client wondering if she could terminate a licensing agreement she’d entered into without any penalty (i.e. without getting involved in litigation).  My first reaction was to grab a copy of her license and look for the stated ‘term’, or duration of the license.  Unfortunately, the license was silent as to the term.  Why, you might ask, was there no stated duration? Well, the license was oral. It turns out the parties had been working on a hand-shake agreement for years.

                I suppose I should start by letting you know that you should always strive to get your agreement in writing, and in most cases there should be a stated duration.  Seems rather a basic idea, but often because of the nature of the parties involved and their relationships there is no written agreement. It happens.

                Here are two examples of a situation where you might find Intellectual property, namely copyright rights, being licensed without a written agreement.  Two friends, one a producer and the other a singer, get together in the studio to record a few songs.  The producer brings with him a bunch of pre-recorded tracks he had put together several years earlier.  The singer records some new vocals.  The producer mixes the vocals with the tracks, and we have ourselves a new master recording.  There was no written agreement between the parties, but rather a handshake agreement that the singer could ‘own’ the new master recording.  Thus, the producer has licensed his tracks to the singer under an oral agreement. I should also mention that all of this happened in California.

                The second example comes where two parties, a record label and a distributor, enter into discussions to release an album.  The parties, both based in Illinois, haven’t reached a formal agreement but decide to go ahead and get the album out in time for the Christmas season.  Subsequently, the parties never come to a formal agreement as there were ongoing disagreements on several terms.  However, the album was released under direction of both parties, and thus an agreement was formed.

                The first question is whether these agreements are, in fact, binding and legally enforceable. Under U.S. Copyright Law, "A transfer of copyright ownership, other than one by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent." 17 U.S.C. § 204(a).  This is the old Statute of Frauds concept, and seems to suggest the oral agreements in the examples, above, would be unenforceable.  However, almost across the board courts have ruled that oral or implied transfers of copyright ownership create a non-exclusive transfer of ownership. These non-exclusive transfers can be made without a written agreement and, most importantly, do not violate the Copyright Act.  Walthal v. Rusk, 172 F.3d 481, 1999 U.S. App. LEXIS 5455 (7th Cir. 1999), I.A.E., Inc. v. Shaver, 74 F.3d 768 (7th Cir. 1996).   

                Therefore, in both examples, above, the oral transfer of copyright rights created an implied non-exclusive license.  It’s important to note the nature of non-exclusive licenses by pointing out that the producer in the first example could go ahead and use the tracks (i.e. license them to third parties) without getting the singer’s permission. This non-exclusive license created by the oral and implied agreement opens up a huge can of worms, and is a glaring example of why you should always seek to “get it in writing”.

                Remember our client wanted to know if she could terminate her oral agreement without penalty.  The next question is: When can oral or implied licenses, or even ones that simply have no stated duration, be terminated?

                There are several possible ways to terminate an oral or implied license.  The parties can simply agree to terminate the license.  This can be done by agreeing to an end date during the negotiations stage: In the second example, above, let’s say the parties had agreed that the distribution license was to last for three years, and had email messages supporting this point. It would then be arguable that the agreement duration was agreed upon as being three years. Termination can also be accomplished by agreeing to modify the oral or implied license at a later time: The parties agree that their relationship is not fruitful after six months, and agree in both words and performance to terminate the agreement.

                Termination by agreement would also work where a written license states a termination date (i.e. language in the agreement stating, “This term of this agreement shall be perpetual” or “This agreement shall last for three (3) years from the date first stated above”, etc.), or the parties agree in writing at a future date to terminate earlier or later. Note that an oral agreement can amend a written agreement, thus it becomes important to always include a clause in your written agreements stating that the agreement cannot be modified except by an amendment executed by the parties.

                Sometimes, termination can be implied by the conduct of the parties involved.  The label never sends any materials to the distributor for use in manufacturing the album, and the distributor never raises an objection.

                What happens, though, if the license is silent as to the duration?  Most states have laws making any agreement that is silent as to duration terminable at-will whether written, oral or implied.  This is the case here in California, where absent language or a showing of an agreed upon duration, a contract can be terminated by either party.  Zimco Restaurants, Inc. v. Bartenders and Culinary Workers' Union, Local 340, 165 Cal. App. 2d 235, 331 P.2d 789, 792-92 (Cal. Ct. App. 1958). So, it appears that, in both examples, that the parties could just terminate the agreement by simply putting the other party on notice that they had elected to terminate. 

                Not so fast.

                In 1993, the Ninth Circuit in Rano v. Sipa ruled that under § 203 of the Copyright Act, non-exclusive licensing agreements silent as to duration are not terminable at-will from the moment of creation; instead, they are terminable at the will of the author only during a five year period beginning at the end of 35 years from the date of execution of the license (unless they explicitly specify an earlier termination date). 17 U.S.C.S. § 203(a).  Rano v. Sipa Press, 987 F.2d 580 (1993). For background purposes, under § 203 of the Copyright Act the copyright holder who has assigned or licensed their rights to a third party can reclaim their rights after 35 years as an operation of law.  § 203 applies to exclusive and non-exclusive transfers, and the only time it does not come into play is when the subject of the copyright was made as a Work For Hire.  You can learn more about Work For Hire agreements by checking out this MELON article. 

                The bottom line is that the Ninth Circuit’s ruling means that in California, any state law regarding at-will termination of agreements silent on duration is trumped by federal law where the subject of the license is copyright transfers.  Thus the parties in the first example would not be able to terminate the license unilaterally until 35 years after the agreement was created.  Let’s say the singer never really did much with the master recording, but Dr. Dre heard the track and wanted to license it from the producer.  Obviously, the good Dr. would want an exclusive license on the track, which wouldn’t be available since the singer has a valid, oral, non-exclusive license that the producer couldn’t cancel.  I’m guessing the singer is going to get paid to get those rights back.  I’m also guessing the producer now wishes he had a written agreement.

                Just so you are aware, there is plenty of debate on the Rano ruling.  Several jurisdictions have criticized Rano, and the Seventh Circuit rejected Rano; ruling that Illinois state laws allowing for at-will termination of non-durational copyright licenses are valid. Walthal v. Rusk, 172 F.3d 481 (1999).  In the second example, the record label, realizing their oral agreement with the distributor was not favorable and that the planned written agreement wasn’t going to happen, could simply terminate unilaterally by giving the distributor notice that the agreement was rescinded. Again, check your facts, because some jurisdictions hold that when an agreement does not contain an express statement as to duration, the court should determine the intent of the parties by examining the surrounding circumstances and by reasonably construing the agreement as a whole in determining the issue of duration. Sensormatic Sec. Corp. v. Sensormatic Elecs. Corp., 249 F. Supp. 2d 703, (D. Md. 2003).  It is also the case in California that the general rule increasingly has given way to courts' willingness to "gap fill" a reasonable duration. Foley v. Interactive Data Corp., 47 Cal. 3d 654, 765 P.2d 373, 385-86, 254 Cal. Rptr. 211 (Cal. 1988). The question in our second example then becomes whether the parties have acted in a way that would lead a court to determine a reasonable duration, or have inferred duration by some other means.

                A final way of allowing a party to unilaterally rescind a contract regardless of there being a stated, implied or written duration is when the other party materially breaches the contract.  Under well-settled copyright law, a party would be able to claim copyright infringement if the other party exceeded the scope of the licensing agreement, see, e.g., S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081 (1989), breached a covenant or condition, see, e.g., Fantastic Fakes, Inc. v. Pickwick International, Inc., 661 F.2d 479 (1981), or breached the agreement in such a substantial and material way as to justify rescission. See e.g., Affiliated Hosp. Prod. Inc. v. Merdel Game Mfg. Co., 513 F.2d 1183, 1186 (2d Cir. 1975).  Thus, if the distributor in the second example fails to pay the label, the label could terminate based on a material breach of the contract.

                At the end, or termination, of the day you always want to “get it in writing”, but if you don’t and you end up wanting to rescind (or wanting to stop the other party from rescinding), you need to be aware of the laws in your particular jurisdiction. It might not be as simple to terminate a licensing agreement as your standard, blanket, terminable at-will state law might lead you to believe. Oh yeah, it goes without saying, you might also want to avoid breaching your agreements, as a rule.

                Next Time: We keep the boilerplate turned on, and explore what happens to your license if there’s a bankruptcy

For questions or comments, please email Mark at: mark@beat-law.com

by Tony Berman with contributions by Simone Chen              

Scores of online websites breathed a sigh of relief over the recent landmark victory for Google in a billion dollar copyright infringement suit, brought by media giant Viacom in 2007. Judge Louis Stanton of the U.S. District Court for the Southern District of New York ruled that hosts of Internet sites, onto which users may upload content, such as YouTube and Facebook, are essentially protected from copyright infringement liability, so long as they comply with the “safe harbor provisions” of the Digital Millennium Copyright Act. The decision is an affirmation of the current federal laws protecting Internet service providers, but at the same time, serves a blow to copyright owners of creative content. (Read the text of the decision.)  

What is the Digital Millennium Copyright Act?

The DMCA, a U.S. copyright law enacted in 1998, was created to protect intellectual property on the Internet. The Act also created carve-out “safe harbor provisions” (as previously discussed in a post here) to protect service providers from infringing acts committed by its users. To qualify for such protection, providers must comply with certain regulations: they must promptly take down unauthorized materials from their site when notified by the true copyright owner. Furthermore, they must be able to show they did not actually know the material was infringing and still did nothing. In other words, they must not have deliberately turned a blind eye to the problem. In addition, even if providers did not have any such actual knowledge, they must not have been aware of any facts or circumstances that made the infringing activity apparent.

Why did Viacom sue Google’s YouTube?

Viacom, which owns the MTV, Comedy Central and Nickelodeon networks, claimed that Google allowed tens of thousands of Viacom’s copyrighted videos to be uploaded onto YouTube, without authorization, which resulted in hundreds of millions of views. (Google acquired YouTube in 2006 for nearly $1.7 billion.) Viacom argued that because Google and YouTube actually knew of and were aware of the infringing activity, they were not protected by the safe harbor provision, and therefore subject to liability. Viacom sued for $1 billion in damages.

Did Google know about the infringing material?

However, Google’s attorneys successfully argued that despite its general awareness of the unauthorized videos, Google did not actually know that they were copyrighted materials owned by Viacom. On user-generated content sites, it can be extremely difficult to distinguish between authorized and unauthorized material; the site-owners do not know who actually posts the clips.

Why did the court side with Google?

Since Viacom filed suit, YouTube implemented an automated filtering system in 2008 to detect and block infringing clips from being uploaded onto its site. It has also secured rights through various licensing deals to post hundreds of thousands of music videos, TV shows, and film clips.

Based on Judge Stanton’s ruling, these extra precautions do not appear to be necessary. Basically, so long as the provider complies with a takedown notice in a timely manner, and it does not actually know that certain unauthorized materials, belonging to specific copyright owners, are present on its site, then that is all that is necessary to be protected under federal law.

Why is this decision important? What does it mean for the future of information and media on the Internet?  

With the explosion in user-generated content on the Internet over the past few years, there has been a constant battle between the creative community (the owners and creators of the content) and the disseminators of the information. It essentially comes down to two viewpoints: those companies and users who see the Internet as a rich entertainment platform, with free flowing ideas and content, and those parties who value the creative product they have created as personal property.   

If the ruling survives Viacom’s anticipated appeal, it is an affirmation of the current statutory framework, and basically takes the burden off of user-generated service providers from having to monitor each and every piece of material that its users post to its site, as long as it plays by the rules. On a broader scale, the decision encourages users to freely share media through services such as YouTube and Facebook, thereby facilitating the growth of a rich online community of information, communication and entertainment. 

When: Friday June 25, 2010, 1:45pm - 3:00pm

Where: The Regatta Room @ The Waterfront Hotel, Jack London Square, Oakland, CA

 
SATURDAY'S PANEL: Swimming with the Sharks: Negotiating Strategies

Mark will discuss how lawyers use strategies to negotiate contracts on behalf of clients with studios, record companies, endorsers, as well as the impasse in union contract wars. Learn how entertainment attorneys can protect against copyright infringers, invasion of privacy, and help in making the appropriate contractual decisions to help further artists' careers.

When: Saturday June 26, 2010, 10:15am - 11:15am

Where: The Waterfront Hotel, Jack London Square, Oakland, CA

To register and for more information: www.soulmusicbythebay.com

by Mark A. Pearson, Esq.

The following is the second in a series of articles that will try and explain some of the pros and cons of entering into a licensing agreement in today’s entertainment industry. 

   There are any number of different types of licensing agreements that come across my desk in a typical work week.  Some are short-form agreements, and others spell out every detail of the parties’ intentions over 50 pages or more.  One thing they all have in common; boilerplate provisions.  You know; the stuff that gets jammed into the last few pages of the license under the heading Miscellaneous.  Well, I’m here to remind you that while they may not be the sexiest part of a license, boilerplate provisions can solidify a good license or create possible pitfalls in a bad one.

   This week we focus on an important boilerplate provision known as the Indemnity Clause. An Indemnity or indemnification Clause is a provision in which one or both parties to the license agree to hold harmless the indemnified party from liability to a third party for loss or damage resulting from such liability.

   As we discussed in Part 1, there is a trend in the entertainment industry toward licensing intellectual property rights.  Music and motion pictures licensed for distribution would be an example.  Inherent in the licensing of intellectual property is a fear on the part of the licensee that a third party’s rights may be violated by the licensor’s work.  For example: Two musicians write a composition together and record a master of the song.  Musician A, a rather shady character, licenses the exclusive right to distribute the master to Distributor.  Distributor distributes the master and pays royalties and advances to Musician A.  Meanwhile, Musician B, who owns all rights to the master, knows nothing about the agreement between Musician A and Distributor.  When Musician B finds out about the agreement she sues both the Distributor and Musician A jointly and severally for copyright infringement and to recover monies earned under the license.

   In the example, a solid indemnity clause in the agreement with Musician A would protect the Distributor from liability stemming from Musician B’s rights in the master.  Without an indemnification Clause, or with a poorly worded and thus unenforceable Clause, Distributor might be liable to Musician B for big bucks!

   A good Indemnification Clause starts with setting forth a clear intention to indemnify. You should start the clause by stating the intention of the parties to provide indemnity.  Next, set forth the indemnitor and indemnitee.  The indemnification may or may not be unilateral. If there is a third party involved in the indemnification (an insurance provider for instance), make sure they are included. The clause must state that the indemnitee need notify the indemnitor of a claim or lawsuit in a timely manner, and how long the indemnification will last.  Will indemnity survive the termination of the license and for how long?  Finally, always include a clear statement on the losses, damages and liabilities covered, including whether or not future losses are covered. 

   You cannot draft an Indemnification Clause without understanding what can and cannot be indemnified.   First and foremost, the indemnification must be as against liability to a third party.  Public policy dictates that an Indemnification Clause is not enforceable if it seeks to indemnify against illegal activity, wrongful acts or a breach of a fiduciary duty.  In the example listed above, you might make an argument that the Distributor was negligent in not discovering Musician B.  In some jurisdictions negligence might void the Indemnification Clause.  Other jurisdictions make a distinction between active and passive negligence, allowing for indemnification if the negligence was passive. Arguably, the Distributor not discovering Musician B is passive negligence, if negligence at all. The important thing to remember is; if the Indemnification Clause is clear and knowingly bargained for, it is more likely to be enforceable even if it covers negligent acts.  A simple way of making it apparent that the Indemnification Clause was knowingly bargained for is to put it under its own heading.  Get it out of the Miscellaneous bin.

   Once you’ve established a clear definition of whom and what is being indemnified, here are some other things to think about when drafting your clause.  It’s implied that the indemnification covers legal costs and attorney’s fees, but it never hurts to make sure you expressly set forth langue covering those costs and fees.

   A big issue revolves around the issue of consent to settle.  If you are an indemnitor you want to make sure you have approval over any settlement that the indemnitee enters into.  Going back to our example, imagine if Musician A had the legal right to enter into the agreement with the Distributor, but Musician B filed the lawsuit anyhow.  Distributor could simply settle with Musician B to avoid the hassle, and send the bill to Musician A.   Now, imagine if Musicians C, D, E & F also came forward and filed claims against the Distributor, who in turn settles with all of them.  Ouch!  On this same note, Indemnitors may also want to participate in the indemnitee’s defense, including selection or approval of the attorney.

   Finally, you’re going to want to think about how the Indemnitee is going to be paid in the event of a lawsuit or settlement.  Will the Indemnitee be able to withhold payment under the license in order to pay for the cost of defending? Back to the example; under their license, Distributor is paying a royalty to Musician A on the master Distributor is exploiting.  Musician B sues, and Distributor notifies Musician A that it is seeking indemnity under the agreement, and will be withholding payment of royalties to pay for its legal defense. Here at BEAT-LAW, we’ve seen instances where the indemnification clause called for a bond to be established upon commencement of a lawsuit, or where the indemnitee is able to call for advance payment from the indemnitor to cover all legal fees.  If you are the indemnitor, you’d prefer that no payment be made until after final adjudication of any claim or lawsuit. Whatever the parties agree upon, make sure your Indemnification Clause clearly covers this issue. Do not remain silent!

   Next Month: We keep the boilerplate turned on, and explore what happens to your license if there’s a bankruptcy

For questions or comments, please email Mark at: mark@beat-law.com

by Tony Berman

Imagine a music service that allowed you to search for and download nearly any song for free with no monthly limits or caps. You could burn the downloaded music to a CD, either creating mixes or burning complete albums. This service exists, but it isn’t called Napster, and this isn’t 1998. All-you-can-eat music download services are being utilized by various universities who pay a site license on behalf of their students. While the downloads aren’t exactly free if the students are paying for it in the form of tuition or a technology fee, most college students don’t feel like they’ve paid for anything when it’s wrapped up in their regular tuition bill. Why does this feel an awful lot like what Napster was proposing to the record labels 10 years ago? Because that’s exactly what it is.

Ten years after Napster tried to make a deal with the record labels to digitally distribute their content, the record labels have found themselves dragged kicking and screaming into the late 90s, offering exactly the same thing Napster proposed. DRM for music has come and gone, having shown that it created hassles and limitations for paying customers while remaining a triviality for infringers. The recording industry’s cry of “we can’t compete with free” has been proven false, with the iTunes Music Store selling billions of dollars of digital music. These sales all happened while P2P traffic remained significant, thereby discrediting the notion that file sharing and digital music purchases are a zero sum game; that an illegal download is a lost sale. In fact, several studies have shown that heavy P2P users are among the biggest music buyers. Consumers have proven that they pay money when there is a good value for their money, even if they have a free alternative.

In fairness to the record companies, it is true that digital download sales have not replaced lost CD sales. But it is unclear to what extent that this is related to piracy. Consumers, especially young ones, have many more forms of media—games, internet, DVDs----  jockeying for their attention than at any time before. Perhaps the era of the long form CD has simply run its course.

Much like a doomsday cult’s members have to figure out what to do when their prophecy fails to come true, we are left to envision the future of the music industry now that the bogeymen of technology have failed to materialize. The recording industry is free to innovate without the fears of the past impeding its imagination and vision. Novel distribution models such as blanket site licenses, new relationships between artists and labels such as three-sixty deals, new forms of product packaging such as the iTunes LP are all indications that the music industry has hope for the future.

What will that future look like? Technology has driven down the cost of recording and producing a professional-quality album or single, making the dream of creating music more accessible than ever before. The internet, with social networking, YouTube, and internet radio make marketing and distributing that music equally accessible to aspiring musicians. Without the need for their recording studios or distribution networks, what is the value proposition of the major labels? How will the labels take advantage of these new tools and incorporate them into their businesses?

by Mark A. Pearson, Esq.

The following is the first in a series of articles that will try and explain some of the pros and cons of entering into a licensing agreement in today’s entertainment industry.

As the various business models of the entertainment industry continue to reinvent themselves almost on a daily basis, one prevailing trend is the growing use of licensing.  More entertainment product is now self-produced by artists than ever before.  The “Studio System” and “Major Label” business models are quickly becoming obsolete.  It’s beyond the scope of this article to make any grand sweeping speculation as to why the industry models are changing.  Are these changes the result of the economy, backlash against the ‘old systems’, or technology changes?  The answer probably lies somewhere in the murky gray area known as “a combination of all of the above”.  The point is that change is here, and change means an influx in the use of licensing throughout the entrainment industry as the shift continues toward independent production.

Take the music industry, for example.  Under the old model, record labels hired talent evaluators to find artists, signed those artists to a recording contract, paid for the artist to record an album, created and distributed the album, and then profited off the sale of the album.  The label owned the copyright to master recordings that made up the album, and shared in the copyright of the song publishing with the songwriter.  The artist made money off of royalties paid by the label (including their advance) based on sales of the album, and on royalties paid to the songwriter by a performing rights organization (ASCAP/BMI) for use of the song.

Today, the notion of a record label signing an artist and developing that artist from scratch is virtually a foreign concept.  Instead, the trend is for artists to do all the legwork themselves and self-record their masters, or for the artist to work with small labels and split the costs associated with recording the masters. It’s easy enough for an artist to self-record an album these days, and there are plenty of articles here on M.E.L.O.N. with information on how to self-record, as well as answer why self-recording might be both creatively and financially advantageous for new and established acts (see Music Biz: Income Streams in the Recording Industry; Music Biz: Funding for Your Demo Deal).  Recording being the easy part, the tough job is getting the masters out to the public: Distribution.  This is where licensing comes into play.

The trend we see here at BEAT-LAW is for new artists to license their masters to a small independent record label, either after they’ve self-recorded or in connection with the independent label’s efforts to help them record. The independent label then sets up digital and physical distribution outlets, helps with marketing and promotion, and books gigs for the artist.  If the artist generates buzz, or the independent label has a strong niche, then perhaps the masters might be re-licensed to a major label at some point. 

How does the artist get paid? The artist gets paid a licensing fee by the label in exchange for the right to distribute the masters.  The licensing fee may include upfront money, royalties, advances, etc.  An artist has more control now, too.  Contrary to the old system, the artist now owns the copyright to the masters.  They can license the rights to their masters for less than, say, eternity.  The advantage is simple; the artist can renegotiate the licensing fee after a few years and isn’t locked into a long-term deal that is economically or creatively disadvantageous. The artist also controls the type of license being offered, exclusive or non-exclusive.  By example, the artist grants a license only for physical distribution to an independent label, while holding on to the rights to license the masters for use in movies, TV or commercials (synchronization rights), or for any other use or other form of distribution. (For more on the different types of licenses see the M.E.L.O.N. article: Music Law: Licenses vs. Assignments)

This pattern of licensing is not exclusive to the recording industry.  I’m reminded that one of BEAT-LAW’s clients is a film production company, which just finished negotiating an agreement to license the rights to their independent film to a direct-to-video distributor. This illustrates the trend in the motion picture industry to produce privately financed, independent films (generated without studio funding) specifically with licensing in mind.  These independent films are shopped at film festivals, or to direct to video distributors. Any number of reasons might lead a filmmaker down the independent path including creative control, money, and studio-system roadblocks, to name a few.  Ultimately, if the filmmaker finds an outlet, different licensing agreements would be generated to cover the rights a distributor wanted to exploit: theatrical release, DVD, internet distribution, film clips, etc.

This same independent-minded trend toward licensing can be found in book publishing, the internet, photography and all other areas of the entertainment industry.

Now that we’ve covered the basics on why licensing has become such an important part of the general landscape of today’s entertainment industry, our next challenge will be unlocking some of the secrets to understanding the fundamental terms of these types of agreements.  Over the next few months we’ll be getting technical, looking at the language used to craft licensing agreements, and explaining why certain clauses and provisions are important. See you next month.

Next month: Don’t Just Throw It On The Boilerplate: Indemnification Clauses.

by Michael Riskin

The Digital Millennium Copyright Act (DMCA) made a number of changes to copyright and how copyright enforcement works in the age of the internet. To say that the DMCA has a mixed reputation would be an understatement. One controversial provision prevents consumers of lawfully purchased music or movies from making legal copies because doing so would involve circumventing copy protection measures. An example of this would be the copying of a DVD to a portable device like an iPod. The provision that criminalizes the mere possession of circumvention tools such as DVD copying software is equally controversial.

Sometimes the controversy is caused by the misuse of the DMCA by companies inappropriately invoking its provisions to unfairly limit consumer choice. This was done by Lexmark, an inkjet and laser printer manufacturer who tried to use the DMCA to prevent third party ink makers from competing with Lexmark’s high priced refills. Their efforts failed in court.

The safe harbor provision only protects service providers if they play by particular rules. Before we get to the rules we first have to know what the game is. The game is the issuing of notice and takedown requests. These are the tools the DMCA gives to copyright owners to quickly remove infringing material from the internet. All a copyright owner needs to do to remove material it believes to be infringing is send a service provider a request to remove the material, and the service provider is obligated by the DMCA to remove the material. If the service provider fails to remove the material then it risks losing its safe harbor protection. So, what are service providers?

There are five types of service providers specifically mentioned in the DMCA section relating to limitations of liability. Transitory communications providers are network providers or other related services that provide a conduit for the transmission of data. System caching providers provide temporary storage for data moving through the internet as a way to shorten the wait for frequently accessed information. Providers who store information at the direction of a user are sites like YouTube, Flickr, web hosting services, blog services, and many other services that provide users a place to post information. Information location tools are search engines. The fifth class of service provider covers nonprofit educational institutions. Each category of service provider has to satisfy different requirements that correspond with the function of the service it is providing in order to qualify for immunity.

These are the players. Let’s see how to play the game.

How to Issue a Notice and Takedown Request

The DMCA has a straightforward checklist of requirements to include in a notice and takedown request. The copyright owner must provide the following information to the service provider:

(i) A physical or electronic signature of a person authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.

(ii) Identification of the copyrighted work claimed to have been infringed, or, if multiple copyrighted works at a single online site are covered by a single notification, a representative list of such works at that site.

(iii) Identification of the material that is claimed to be infringing or to be the subject of infringing activity and that is to be removed or access to which is to be disabled, and information reasonably sufficient to permit the service provider to locate the material.

(iv) Information reasonably sufficient to permit the service provider to contact the complaining party, such as an address, telephone number, and, if available, an electronic mail address at which the complaining party may be contacted.

(v) A statement that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.

(vi) A statement that the information in the notification is accurate, and under penalty of perjury, that the complaining party is authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.

How do you find out where to send the request once it has been drafted? Fortunately, the DMCA requires service providers, specifically providers who store information at the direction of users, to register with the Copyright Office a designated agent to receive your notice and takedown request. The service provider must include the name, address, phone number, and email address of the registered designated agent in the filing with the Copyright Office. They must also post it in a publically accessible area of the service provider’s website. If the service provider fails to do all of these things (designate the agent, register the agent with the Copyright Office, include the agent’s contact information, and post the agent’s contact information on the service provider’s website) then they will lose their safe harbor status. Service providers therefore have a strong incentive to comply, thus making it easier for copyright owners to send notice and takedown requests.

Once the request is received, the offending material will be taken down.

How to Respond to a Notice and Takedown Request

The notice and takedown provision of the DMCA isn’t all wine and roses for copyright owners. Users who have their content taken down by a service provider pursuant to a notice and takedown request have some remedies at their disposal courtesy of the DMCA. The DMCA giveth, and the DMCA taketh away.

Once a service provider has removed a user’s material at the request of a copyright owner the service provider must notify the user of the removal. The user must have an opportunity contest the removal by sending a counter notice to the service provider. A counter notice must be in writing and must be sent to the service provider’s registered agent, the same agent whose contact information is on file with the Copyright Office and posted on the service provider’s website. The counter notice must meet the following requirements:

(A) A physical or electronic signature of the user.

(B) Identification of the material that has been removed or to which access has been disabled and the location at which the material appeared before it was removed or access to it was disabled.

(C) A statement under penalty of perjury that the user has a good faith belief that the material was removed or disabled as a result of mistake or misidentification of the material to be removed or disabled.

(D) The user’s name, address, and telephone number, and a statement that the user consents to the jurisdiction of Federal District Court for the judicial district in which the address is located, or if the user’s address is outside of the United States, for any judicial district in which the service provider may be found, and that the user will accept service of process from the person who provided notification to the service provided.

Once the user provides a proper counter notice the service provider must then notify the copyright owner that the user is contesting the takedown. If the copyright owner doesn’t file a lawsuit against the objecting user within 14 days the service provider is obligated to reinstate the user’s materials.

There are two serious things to note here. First, if a user is going to file a counter notice he or she must be willing to make a statement under penalty of perjury that the material shouldn’t have been removed. Second, if a user files a counter notice he or she should be prepared to be served with a lawsuit. In other words, if you’re going to fight the takedown you should know what you’re getting yourself into and be sure you’re in a good position to fight.

In addition to having the power to contest the removal of their material, users also have a legal remedy against those who misuse the notice and takedown process. Those who misrepresent that material is infringing or use takedown notices to remove upsetting but non-infringing content such as criticism will be liable for damages. Just as users should be careful when filing counter notices, copyright owners filing notice and takedown requests should equally be sure to follow the law or face liability for misusing the tools the DMCA provides.

At the opposite end of the sampling spectrum are artists who approach the practice as a sort of musical collage, an established practice in the visual arts, where artists modify a sample, such as a change pitch or tempo, and combine it with a number of other samples to create a wholly unique sound or atmosphere. The Beastie Boys, Nine Inch Nails, and Beck often use samples in this way.

Permission to Sample

Because samples are pieces of recorded music, understanding the rules regarding sampling requires a quick discussion of how copyright law applies to sound recordings.

“Copyright” is a blanket term that covers a number of specific rights that apply to creative works. Among those rights is the right to make and sell additional copies of the work, the right to make other works derived from the original work, and the right to show or perform the work publicly.

Where Do You Go To Get a License?

In order to figure out who to talk to about getting a license, we have to talk more about copyright and how it applies to music.

Copyrights relating to music can be a bit tricky. There are two sides to the copyright coin with respect to music. On one side you have the song itself, which is comprised of the music, the arrangement, and the lyrics. For copyright purposes, this is called the “composition.” On the other side of the coin is the specific captured performance of the song as it is recorded onto some form of media. For copyright purposes, this is called the “sound recording.” Whenever a song is played on the radio we think of it as a single thing (the coin), but in reality it is really a fusion of the composition (the song as written by the songwriter) and the sound recording (the performance of that composition as captured by the musicians, producers, mixers, etc. in the recording studio).

The effect of this is that there are two copyrights that protect a sample. One copyright covers the composition, the musical notes or lyrics that comprise the sample. The other copyright covers the recording of someone playing the music in the recording studio.

Oftentimes the owners of the composition and of the sound recording are different entities. Tracking down the music publisher who owns the copyright to the composition and the owner of the sound recording from the studio isn’t always easy. There are companies that assist artists in obtaining clearances for their samples. Contacting the label to request a license provides an opportunity for the requesting artist to be put in touch with the owner of the composition. The performance rights associations, ASCAP, BMI, and SESAC, also have searchable lists of songs. Since many publishers work with these groups they are likely to have the contact information of the copyright owner.

In other words, there is no single clearinghouse to go to for a license for a sample. It requires a little searching, but it is a relatively straightforward process and is far from impossible. Remember, the copyright owners want artists to get a license before they sample, so they want to be found.

How Much Does the License Cost?

Licensing costs are variable and depend on several factors such as the popularity of the original recording or how recognizable the sample is, how much of a song is being sampled, who and how popular the requesting artist is, and so on. Some samples are licensed for a flat fee, others for a percentage of sales, and sometimes a combination of both. Unfortunately, the answer to the question of cost is, “it depends.”

However, despite the very real costs of licensing samples, they are almost always less than the cost of litigation, damages, and having your record pulled from distribution.

We get asked all the time about the copyright notices on CDs. There seems to be a lot of confusion about what is required and what exactly is meant by the “c in the circle” and the “p in the circle”. So let’s lift the veil on this issue.

There are two copyrights in music: the sound recording (which in general is owned by the record label) and the musical composition, including the lyrics (owned by the publishers). 

But there is also a separate copyright for the CD packaging and artwork.

The circle C refers to the packaging and artwork.  This notice should contain all of the following elements:

• The symbol ©, or the word “Copyright,” or “Copr.”
• The year of first publication
• The name of the owner of the copyright in the work

Example: © 1983 ABC Record Co.

(The owner of the packaging would normally be the record company that specially-commissioned or otherwise acquired the work through an assignment of rights.)

The circle P refers to the sound recording (i.e. phonorecord).  The notice for a sound recording should contain all of the following:

• The symbol (p)
• The year of first publication of the sound recording
• The name of the owner of the copyright in the sound recording

Example: (p) 1983 ABC Record Co.

(Again, the owner of the packaging would normally be the record company that specially-commissioned or otherwise acquired the work through an assignment of rights.)

What about the copyright in the underlying musical compositions?

There is no need to have a copyright notice for the compositions on the CD unless the lyrics are reprinted in the packaging. In that case, you would usually have a notice such as “Lyrics printed by permission © 2009 XYZ Publishing Co.”

Where should the copyright notices be positioned?

The notices should be affixed to copies of the CDs in a way that gives “reasonable notice of the claim of copyright.”  The three elements of the notices should appear together, as in the examples above, on the CDs or on the CD labels and inserts.

Are the notices really necessary?

The omission of notice does not affect copyright protection, and no corrective steps are required if the work was published on or after March 1, 1989.  For works published between January 1, 1978, but before March 1, 1989, no corrective steps are required if:

• The notice is omitted from no more than a relatively small number of copies or CDs distributed to the public OR
• The omission violated an express written requirement that the published copies or CDs bear the notice. 

This refers to the old copyright law requirement that a published copy bear the notice of copyright.  If it did not, the applicant had five years to cure the omission or error in notice before the work went into the public domain.  So, for works that are published between January 1, 1978 and March 1, 1989, no corrective steps are required if the omission violated an express written requirement that the published copies bear the notice (i.e., the old copyright law) because the work has already gone into the public domain.

In all other cases, for works published before March 1, 1989, to preserve copyright:

• The work must have been registered before it was published or before the omission occurred, or it must have been registered within five years after the date of publication without notice AND
• The copyright owner must have made a reasonable effort to add the notice to all copies or CDs that were distributed to the public in the United States after the omission was discovered.

If these steps were not taken, the work went into the public domain in the US five years after publication.  At that time all US copyright protection was lost and could not be restored.

Since prior law required the use of copyright notice, such use is still relevant to the copyright status of older works.  While the use of a copyright notice is no longer required under US law thanks to the Berne Convention, it is often beneficial.  Notice informs the public that the work is protected by copyright, identifies the copyright owner, and gives the year of first publication.  Further, if there is proper notice of copyright on the work, and the work is in fact infringed, it mitigates defendant’s claim of an innocent infringement defense.

The Grammy Foundation® and The Entertainment Law Initiative® present Digital Music Distribution - The Paradigm Shift on Wednesday, June 10, 2009, from 7PM to 9PM.

BEAT-Law's Tony Berman will be a featured panelist, along with Jonathan Earp, VP of Legal Affairs, IODA; Sean Leonard, Digital Strategist; and David Hirshland, President, Bug Music.  Tony will be speaking about the subscription services business model as well as the issues of “disintermediation,” as that term is commonly understood by the digital music industry.

The purpose of this legal seminar is to educate and update the emerging trends of music industry distribution through "brick and mortar" stores to online digital music distribution with digital downloading technology such as Emusic.com, Napster, iTunes, and IODA.

Topics will include use of widgets, iTunes, blogging, Facebook, MySpace, YouTube, and more.

Gary Culpepper, Esq., co-founder and former Executive Vice President, Business and Legal Affairs Emusic, will moderate the seminar, with opening remarks by Scott Goldman, Vice President, The GRAMMY Foundation. It will be held at The NEW offices of The Recording Academy, 3030 Olympic Blvd., Santa Monica, CA.

Today's podcast answers a question from Paul, a member of a tribute band whose theater-style shows involve numerous singers and musicians, as well as a great deal of interstate travel.  Paul asks how he can find out how income is taxed in various states?  Also, if he incorporates his band, will the band have to collect taxes from the performers as employees, or can they be hired as independent contractors?  Finally, is there an ultimate guidebook to bands navigating the music industry?

If you have a question you'd like Tony to answer on the M.E.L.O.N. podcast, please send it to melon@beat-law.com

Resources mentioned in the podcast:

Assembling an Entertainment Industry Team on MELON

Legal Issues for Bands on MELON

All You Need to Know About the Music Business by Don Passman

Today's podcast features BEAT-Law associate Mark A. Pearson answering a question from Robert, of Superstarz Ent.  Robert says, a record label wants to use some of his beats for a major recording artist.  What royalties is Robert entitled to?

If you have a question you'd like Mark or Tony to answer on the M.E.L.O.N. podcast, please send it to melon@beat-law.com

by Shana Dines

Despite much controversy, President Bush signed into law the Prioritizing Resources and Organization for Intellectual Property Act of 2008, affectionately known as the PRO-IP Act, on October 13, 2008. 

The usual suspects were characteristically divided over the PRO-IP Act.  Big content owners (RIAA, MPAA) in the entertainment industry enthusiastically pushed the bill, while public interest groups (EFF, Public Knowledge) fiercely argued to have some of the most extreme provisions of the bill pulled. 

Another supporter of the act was the U.S. Chamber of Commerce, which reported that 40% of the nation's economic growth, more than $5 trillion, comes from intellectual property.  This includes music, movies, pharmaceuticals, fashion, and software, which together represent more than half of U.S. exports. 

Particularly in light of the current economic crisis, Congress and the President seemed eager to protect such a large portion of the economy.

Neither side got everything they asked for, however, both were relatively successful in reaching a compromise. 

The most newsworthy part of the bill is the creation of the Intellectual Property Enforcement Coordinator (initially referred to as the IP Czar, but changed to sound less ominous).  This will be an executive level, president-appointed position to chair an interagency committee to combat piracy and counterfeiting.  The compromise here was the limitation on the IPEC's authority to create whole new bureaucracies for
intellectual property enforcement.  

President Obama has not yet appointed the first IPEC, though industry-watchers, such as CNET, speculate it will be a recording-industry-friendly pick.  Some possibilities include lobbyists from the American Federation of Musicians, the RIAA, and NBC Universal. 

A surprising opponent of the bill was the Department of Justice, which, under the original language of the bill, was going to be authorized to file civil lawsuits for copyright infringement on behalf of copyright holders.  The DoJ was appalled at the prospect of becoming "pro bono" lawyers for the entertainment industry.  With the help of Senator Wyden (D-OR), this provision was removed before the bill reached the president's desk.

The final version of the bill also relaxed an original provision to significantly raise damages for filesharing, which was seen largely as a hand-out to the RIAA in their litigation war.

Still controversial and remaining in the PRO-IP Act are the increased forfeiture provisions, which will increase the government's authority from current law.  Forfeiture allows the government to confiscate equipment used or intended to be used to commit or facilitate the commission of copyright infringement, trademark counterfeiting, boot-legging live music, and recording movies without authorization. 

Traditionally, forfeiture provisions were specifically geared at large scale counterfeiting operations.  The PRO-IP Act expands this to include any potential copyright infringement, including personal computer use.  It also relaxes the requirement that the equipment to be seized must belong to the accused infringer, broadening the potential for government abuse.  

It is yet to be seen how the PRO-IP Act will operate in practice and how it will affect average citizens, but be sure to check back with the M.E.L.O.N. blog for updates.

by Shana Dines

As many YouTube enthusiasts know, takedown notices have become a standard operating procedure for many creative, young internet-video clip-makers.  The most common and successful defense to these notices is a claim of fair use.

Recent litigation initiated by the Electronic Frontier Foundation, in support of Stephanie Lenz, has caused the courts to push back on the recording industry's aggressive tactics of what the EFF calls bad faith takedowns.

The video in question is Ms. Lenz's 29-second clip of her 18-month old son dancing with Prince's "Let's Go Crazy" playing in the background, which the EFF called "self-evident non-infringing fair use."

The US District Judge who heard the case insisted that the copyright owner must consider the fair use doctrine as part of its initial review, before sending out takedown notices.

As part of the Digital Millennium Copyright Act (DMCA), copyright owners are required to send takedown notices to suspected online copyright infringers before initiating legal action.  If an online service provider (OSP), like YouTube, receives such a notice, it must remove the content and inform the party who posted it of the notice.  Alleged infringers can then respond with counter-notices stating that they believe the use is not an infringement, after which the OSP can re-post the video.

After this procedure, if the copyright owner still feels its property is being infringed, it can file suit against the alleged infringer.

In the alternative, an alleged infringer who happens to live in San Francisco, the West Coast headquarters of the EFF, can enlist one of the most notoriously anti-recording industry public interest groups to turn their minor infringement into a major media display.

Universal Music Group, the owner of Prince's copyrights and the defendant in Ms. Lenz's case, moved to dismiss the lawsuit, arguing that there is no such thing as a "self-evident" fair use.  Fair use is a fact-specific doctrine that requires careful consideration and balancing of numerous factors.

One of the factors of fair use that Universal argued was that the video could potentially undermine the market for licenses to make similar videos, meaning that if this low-quality home video of a toddler dancing in a kitchen is considered fair use, than musical performers may believe they could also use the song without permission or liability. This argument clearly does not pass the laugh test.

This decision did not end this case, but rather breathed new life into it.  By refusing to dismiss the lawsuit, the EFF and Ms. Lenz now have time to obtain documents and interview witnesses to build their claim that Universal's takedown notice was done in bad faith.

While the success of the bad faith claim is uncertain, the San Francisco Judge's opinion took a small step towards enforcing greater accountability in recording industry takedown notices on YouTube and other OSPs.