Can Ever Contracts Be “Fair”?Intellectual Property and Copyright ManagementWissal BenryaneW16129773‘Like most musicians into their thing, I’ll just fucking sign anywhere like a moron. I don’t think sincere Rock ‘n’ Rollers are business oriented’Steve Jones (The Sex Pistols), 1993. IntroductionAccording to the American Law Institute, a contract consists in a set of future performance promises agreed upon by two parties that become binding duties in the eyes of the law on the condition that they abide to it.
A contract also serves as a warranty for both parties should the established promises not be carried out, by penalising the faulty party for its breach or offering compensation to the other (Beatson, 1998).In the UK, there are 4 requirements for a contract to become valid:Offer. This consists in a clear and concise proposition put forth by one party for the other to accept or reject.
Acceptance. The second party will have to agree to the terms or negociate to the best of their ability and then communicate their acceptance,Consideration. This requirement ensures that the first party and offerer also have a set of obligations offering the second party valuable compensation for their performanceIntent. Both parties have to enter this agreement with the intent of creating a valid deal.The notion of Freedom of Contract also requires that both party enter the contract by choice, which in turn allows the agreement to become binding.
That being said, the law will only deem a contract binding if all of its terms abide to it. In that sense, any agreement including a clause asking parties to perform an illegal act immediately becomes unenforceable. However, that only becomes relevant in a court of law, as the inclusion of unlawful terms does not automatically make the contract. It just becomes voidable should it be contested by one of the parties in front of a Judge.
An explicit breach of law in a contract is not the only thing that makes a contract voidable. Indeed, contracts are often contested by parties who feel the terms “unfair”. In the Music Industry, these disputes are generally settled before they reach the judge, as parties often prefer to protect their information and their image. If parties fail to reach an agreement or choose to skip that step altogether, the case is then taken to court. The law does not define the concept of “fairness”. Traditionally the Law finds it hard to regulate and prosecute cases on that basis due to the preconceived idea that contracts should be judge on the basis of the parties’ intentions which makes them by nature exploitative. Contract law in the UK only implicitly regulates fairness by examining evidence presented to them, leaving it up to the Judge to make an informed ruling based on precedent (Dorfman, 2015). However, the past few decades have shown a shift of focus in regulating music industry contracts, the courts treating each case as unique and paying closer attention of the circumstances in which the contract has been signed (Boon, Greenfield, Osborn.
1996). This paper will aim to explore the idea of fairness in music industry contracts in two parts. A first section will focus on presenting two examples of contracts that currently exist in the industry using past cases that have put in question their fairness. The second part will then explore the negotiation process of music contracts to determine their equitability. Music ContractsManagement Contracts A management contract serves to provide a legally binding document listing an artist and his manager’s rights and considerations as well as to provide a pre-approved agreement on what will happen should the two parties decide to part ways. It does not really inform what kind of working relationship the two will have (Harrison, 2000, 2003, 2005, 2008, 2011, 2014, 2017).
That is due to the fact that this association is based and heavily dependent on trust, the legal term for it being Fiduciary Duty. Should that trust be broken at any time, it will often lead to one party pushing for termination of contract. More often than not, a management contract dispute will be settled in private, the contract already providing a separation guide. If the parties fail to reach a settle, the case will be taken to court. The artist and the manager will then have to provide strong evidence to back up their positions and defend their interests. A judge will consider them and then present a ruling informed by his music industry knowledge as well as precedents set by past cases (ibid). A famous example of a management contract being taking to court is the Joan Armatrading case.
The british musician sought to void her agreement with her manager stating that the terms of contract were unreasonable and that she was manipulated into signing it. In legal terms, the first is referred to as Restraint of Trade where clauses were to restrictive and hampered the artist’s ability to earn a living or trade, and the latter as Undue influence, where the artists was coerced one way or another into accepting a deal. During the proceedings it was discovered that Armatrading’s lawyer who reviewed the terms of contract on her behalf was hired by her manager, as evidenced by the lawyer billing the manager directly. The manager stated in court that the lawyer was hired to represent both their interest equally, but when the latter was questioned he admitted that he was under the impression that he was acting solely as the manager’s lawyer. That proved the existence of a conflict of interest and put into question the extent to which Armatrading’s own interests were considered as opposed to the other party. By studying the terms of the contract it rapidly becomes evident that most clauses were in the manager’s favour.
They included a 5 year exclusive contract, 25% commision on record and publishing deal, a 20% commision on all tours regardless of their profitability and open-ended rights to commissions. Taking into consideration all these facts the court ruled in favour of Armatrading, as the judge estimated that the manager’s failure to carry out his fiduciary duty and that the terms were unreasonable. Recording ContractsRecording contracts are signed between a recording company offering financing recoupable through record sales and royalties as well as an array of promotional services, and an artist who assigns his or her recording copyrights (for an average period of 15 years) as well as performance rights, and fulfills an established minimum requirement for every set term. This already shows a clear imbalance of control over the terms of contract. The industry justifies that disproportion by stating that these companies invest huge sums of money in artists for their recordings, manufacturing and distribution costs, promotion, and touring. As previously mentioned, these costs are recoupable but they still run the risk of losing it should the artist fail to sell records or decide to walk out of the contract before the entire sum has been recouped. While that could arguably be deemed “fair”, there still remains the issue of Record companies keeping recording copyrights even after having recouped their investments.
Labels answer to that reproach by explaining that catalogues are the only steady source of income they have access to. Indeed, 95% of signed artist fail to reach profitability, so it is what allows them to finance the risk they take investing developing up and coming artists. Adding to that most recording contracts include a clause that reverts recording rights back to the author. Labels can also offer authors extension deals, prolonging their ownership period in exchange for an advance (that they calculate by looking at royalty revenues for the past couple of years). In deciding whether or not Armatrading’s management contract was voidable, the judge paid close attention to the manager’s fiduciary duty and conflicts of interest. When it comes to record contracts however, more emphasis is put on the balance of bargaining power of the artist and the company, the artist understanding of the industry and Restraint of Trade.
While the latter determines the extent to which a clause can unreasonably restrict an artists ability to trade, certain restrictive clauses such as exclusivity will not be ruled as “unfair” should the judge find them “reasonably necessary to protect the business interests of the person imposing the restrictions”. The prime example of a record contract being taking to court for restrain of trade is the George Michael Case (Panayiotou v. Sony Music Entertainment (UK) limited  EMLR 229). George Michael first entered the music industry in 1982 as one half of the pop duo Wham!. The group signed an exclusive 10 album deal with Innervision, who outsourced some of its operations to Sony. After only one year, their relationship with the label broke, leading them to sue the company in an effort to get out of the contract. The issue was settled out of court with the help of experienced lawyers, Wham! signing a new exclusive contract with Epic Records (Sony label). After the group parted ways in 1986, George Michael started what will become a very successful solo career.
The release of his first solo Faith album was an immense success selling over 10 million copies and allowing him to renegotiate his contract. The new terms included a minimum requirement of 3 albums (including Faith) with options for 5 more albums, in exchange for a large amount of money. After the release of his first 2 albums, Michael expressed his intentions of exploring a new more serious style of music. Sony, who had included an artistic and commercial standard clause in the contract refused the idea, restricting him with an international exclusivity clause and preventing him from recording. As a resulting George Michael once again found himself sueing his record company for restraint of trade. This time no settlement was reached and the case was sent to court in 1994. The Judge ruled that he could not review the terms renegotiation deal without first considering the terms of the initial deal.
However, that deal was finalised by a settlement agreed upon by both parties with the support of experienced lawyers, meaning it was not within his power to reopen it. Putting that aside he did state that there were various other factors that did not support the doctrine of Restraint of Trade. Indeed, there is the fact that he felt Sony was well within their right to set standards as part of their terms of contract in order to protect their business, and also the fact that there was no unbalance of bargaining power between the two parties, as at the time of renegociation, George Michael had reached a level of fame that would allow him to negotiate terms, adding to that the fact the he had also received experienced legal advice. George Michael decided to appeal the court’s decision, but before that was heard, the two parties reached a settlement.Publishing contractsPublishing contracts assign publishers the right to administer the rights to their clients’ musical and literary copyright. Publisher’s role consist in issuing licenses for the use of their signed artist’s music, finding their clients synchronisation deals and collecting royalties (with the help of collection societies such as PRS for Music in the UK).More recently, publishers have started to take on a more promotional role offering their clients services similar to what record labels’ such as recording demos, putting out limited edition records and allocating advances recoupable from the songwriter’s publishing revenues. In an exclusive publishing contract, a songwriter signs over the right to all compositions created throughout the term of their contract as well as all existing songs that are not assigned to another publisher.
In exchange, publishers are expected to exploit all output presented to them. When trying to evaluate whether or not this type of publishing deal is fair, one must look out for restraint of trade. Indeed, an exclusivity clause in any music contract will always raise questions as whether or not it might be to restricting. It is therefore it is important to add clause that ensures that should publishers fail to carry through their obligations, copyrights will be reassignment to their original owner. The Armatrading and George Michael cases are great examples of music contracts being brought to court for being unfair. On the on hand we saw the court ruling in favour of the artist and on the other ruling in favor of the company. The answer to the question “can contracts ever be fair?” will be further explored in the following study of the impact that initial contract negotiation has on the perception of a contract’s fairness.
Judicial approach to the negotiation of contractsReasonableness of terms of contract v. Inequality of bargain power The George Michael played an instrumental role in the the way the law approaches cases. Indeed, it was a case invoking the doctrine of Restraint of Trade where the court decided to go above only evaluating the restrictive extent of the terms of contract but also put paid great attention bargaining process that led to their inclusion. It put emphasis on the existence of a relationship between the process and the terms. The consideration of bargaining power inequality prior to that case was minimal and was only ever mentioned in detail.
Courts always prioritised the reasonableness of terms as the main decision swaying factor in restraint of trade disputes (Boon et Al. 1996). That is due to the fact that it is normal in the music industry to have a party take leverage any bargaining advantage at their disposition during the negotiation process. That makes it difficult to then define what bargaining power “inequality” is. Much like most moral issues, an precise and objective definition is hard to find, but “ignorance, vulnerability to persuasion, desperate need, lack of bargaining skill or simple lack of influence in the marketplace” (Beale, 1986.
Cited in, Boon et Al. 1996) are often listed as examples of it. Adding to that a lack of experienced legal representation, as seen in the Armatrading case, it should provide sufficient grounds on which a judge can make a decision, granting more importance to the bargaining process as opposed to its outcome. The judge president over the George Michael case made a comment that further corroborates the importance of bargaining power. He stated that the consideration of the reasonableness of terms only becomes relevant if there was proof of an initial inequality of bargaining power between the parties during the negotiation process. Traditionally judges would only consider the balance of bargaining power after having established that the terms of contract were unreasonable, therefore putting more emphasis on the outcome than the process (Thal, 1988, Cited in Boon et Al.
1996). In reality however, it is the process that informs the outcome and not the other way around. Popular Music industryThe music industry today is dominated by a handful of huge music corporations and Large IT corporation (Boon et Al. 1996). That lead to a transformation of the role that musicians and their output play in the industry. Indeed, the latter is now often referred to as a “product”, making of the first a sort of production line (ibid). That change allowed the industry to justify its use of restrictive clauses to protect their investments and business, which as seen in the above example of record label contracts was legitimised by the courts. That created a new paradigm in which the question of fairness must be revisited.
The relationship between both parties involved in a music industry contract shifted from company and client to company and asset. As a result, recording companies alongside their experienced legal advisors started developing standardised contracts often including clauses that heavily weighed in their favor. As previously established new artists have very limited knowledge and experience in the industry at first and therefore lack the bargaining power to negotiate the terms included in these contracts. This lead to development of the “take it or leave it” practice making most industry contracts unfair and unreasonable to begin with. It was also responsible for the popularisation of renegotiation of contracts after an artists has gain more success, further proving the point that the balance of bargaining power significantly informs the terms of contracts. (ibid)For those reasons, the use of standardised contracts is inappropriate in an industry deals in the commercialisation of individual creativity.
Effectiveness of Legal AdviceAn artist’s low bargaining power can almost always be attributed to their limited knowledge of the environment they are trading in. When entering the business, they are handed 70 pages long contracts. These documents filled with terms and concepts they are unfamiliar with and find difficult to understand, are often hastily signed as they are mostly preoccupied with getting an opportunity to create and monetise their art. To remedy that, the industry and the Law strongly recommend that they seek experienced legal support.
Aside from the expenses it can incur, the accessibility to such a services is not to hard. There is a high availability for music industry lawyers in the UK with high levels of expertise and experience. Indeed, some even claim that it stains the legitimity of the bargaining weakness of artists, since advice is easily accessible (Beale 1986; Thal 1989). However it would seem that the industry highly overestimates the extent of protection that advice can reach. Indeed, while lawyers have the necessary knowledge to understand terms included in contract, their ability to protect their clients from poor deals is limited. As previously demonstrated, the use of standardised contracts in the industry leaves the lawyer and the client the start of a recording contract negotiation in a disadvantaged position.
It is the lawyers responsibility to conduct an accurate assessment of the marketability of the artist, to figure out how interested the label they are currently negotiating with is in his client, to be aware of other record companies that might be interested too, to identify artists in the industry that might in a similar situation as his client as well as have a general understanding of the state of the industry. As a consequence, lawyers are all to aware of the fact that his client currently stands at the bottom of music industry food chain, and the company could very easily lose interest. Artists will almost always chose a to sign a deal with restricting clause over signing no deal at all. The company needs the artist less than the artist needs the recording contract, adding to the list of factors that further strips away their ability to negotiate fairly.
As a result, more often than not lawyers find their role reduced to only being able to protect their clients from the more flagrantly exploiting terms (Boon et Al. 1996)ConclusionThe music industry acting as a meeting place of the clashing concepts of creativity and commerce is bound to generate tension between parties that defend to separate interest.Through the study of different types music contracts and relevant examples of their application, this paper was able to draw present some interesting findings. Indeed the exploration of management contracts using the example of the Armatrading case evidenced the importance of upholding fiduciary duties and avoiding conflicts of interests to make contracts fair. The analysis of recording deals and the review of the George Michael case introduced the concepts of restraint of trade and bargain power ad exhibited how the can lead to inequitable and unenforceable terms.
These examples served to show what these contracts cover and in what way they can deemed unfairIt is only in the second part that this paper explains why: First by showing how the industry’s traditional judicial approach prioritising the inequality of terms of contract over the balance of bargain power in the negotiation process which informs it validates and legitimises unfair contracts; then by revealing that the industry’s commoditization of artistic output and alienation of the artists lead to the creation of standardised contracts further tipping the balance of bargaining power in companies’ favor; And finally by questioning the effectiveness of legal support that is so readily recommended as a remedy to unequal bargaining powers. It seems as though the realities of the industry and shortcomings of the judiciary system do indicate that music contracts are inherently unfair. However, to answer the question of there being a possibility of having an actual fair contract, the answer is yes in theory, as long as both parties have equal bargaining power, but unfortunately no in practice as the industry and regulations have yet to create an environment that would permit it.