What is copyright infringement and how do the courts determine when infringement has taken place?

Copyright infringement occurs when one of a copyright owner’s exclusive rights is violated. A copyright is violated when someone copies, distributes, performs or displays all or part of a copyright work without the permission of the copyright owner. For instance, a copyright in a musical work may be infringed through the sale of “pirate” or bootleg recordings, by the use of digital “samples” without permission, or by the unpermissive use of a musical work in a video or motion picture. To establish copyright infringement in a court of law, a copyright owner must establish proof copyright ownership and proof of copying. Proof of copying may be established either by direct evidence of copying (i.e., an admission) or by indirect evidence showing 1) access to the original work; and 2) “substantial similarity” between the original and allegedly infringing work. 

Courts will not find copyright infringement if two people independently come up with the same or a “substantially similar” work. Also, the less original a copyrighted work is, the less protection it may be entitled to under copyright law. If two works are strikingly similar, some courts may even infer that a defendant had access to the copyrighted work. Whether a work infringes another usually turns on the issue of substantial similarity. In the case of music, courts have ruled that infringement may occur where the “whole meritorious part of the song” is incorporated into another song, without any substantial alteration.

Is current legislation equipped to handle such a change in the way music distribution occurs?

      Copyright law protects the music industry’s most important assets - musical compositions and sound recordings. The copyright owners in musical compositions, generally music publishers, cannot control the availability of their song catalog. Under copyright law, once compositions are publicly released in a phonorecord, composition copyright owners are required to grant licenses to those musical compositions for use in all other sound recordings. The First Sale Doctrine has traditionally been applied to the disposition of a material object containing copyrighted material thereon, such as a sound recording fixed onto a compact disc. As will be discussed below, in the online landscape lawful purchasers would not be transferring the material object. Rather, purchasers would be transferring music files (i.e., copyrighted material) from one material object to another. This ability to transfer arguably falls outside the scope of the policy against restraints on the alienation of tangible property, therefore eliminating any rationale for the application of a First Sale Doctrine to online transfers of lawfully purchased music files.

      Current online music distributors have empowered consumers with the ability to dispose of lawfully purchased online music files. The ability to dispose of, in the traditional sense, is significantly different than the ability to transfer the music format that is not fixed in a phonorecord. The online music distributors’ current models provide the consumer with a limited right to burn music files to compact discs. Once the music format is fixed in a phonorecord, the compact disc, the First Sale Doctrine permits the consumer to dispose of that particular phonorecord (which is not limited to a particular music player).

Because the First Sale Doctrine applies in the above example, online music distributors should preclude further access to the music format once it is burned onto a compact disc. But they continue to provide access to the copyrighted work, even after it is burned onto multiple compact discs and potentially sold to third parties. Additionally, they permit consumers to upload the music format on to a number of portable digital music players and still allow the consumer to retain a copy on the computer hard drive.

The rights granted by online music distributors are very consistent with the freedom consumers’ gain over store-purchased compact discs. The distribution models have evolved, but the means to dispose of copyrighted works has not. The current online models embrace the new technology of distributing a music format not fixed in a phonorecord, but refuse to grant consumers with an equal ability to transfer that music format from their computer hard drives to another consumer’s hard drive - facilitating a digital First Sale Doctrine.

This article suggests that a digital First Sale Doctrine not only promotes the underlying policy of copyright law to enrich public culture, but also aids marketing of the recording industry, which in turn, benefits its bottom line. The online music distributors, through their recording industry licensors, must realize that greater accessibility equals greater exposure and ultimately greater profit margins. To fully employ a digital First Sale Doctrine, however, sweeping measures are required.

What can be done to protect copyright owners?

      When an online music distributor distributes the music file to a consumer, it is only the format that is being distributed. The current First Sale Doctrine does not apply to formats. Congress should enact a digital First Sale Doctrine that accounts for the technological “maneuvering” that occurs when a music format is transferred from one hard drive to another. The legislation must make clear that transfer of the music format to a third party must not implicate the reproduction right. Based on the overreaching controls copyright owners exercise over copyrighted material, legislation alone cannot implement a First Sale Doctrine in the online setting. Sound recording copyright owners are not required to distribute their music online or license it out to online music distributors. Even if Congress did enact a digital First Sale Doctrine and an online music distributor created a model that enabled purchasers the ability to transfer a music format without being fixed in a phonorecord, the copyright owners would refuse to license their works to that particular distributor.

A compulsory license in sound recordings is necessary to ensure that investment will be made in developing newer models of online distribution. Without assurance that copyright owners must license their works to all lawful online distributors, investors have no incentive to aid in the development of First Sale Doctrine technology.

In 2001, Rep. Cannon proposed legislation mandating a compulsory license in sound recordings - the Music Online Competition Act [MOCA].  Like the compulsory license in musical compositions, MOCA required sound recording copyright owners to license their works to all similar distribution entities once an initial license was granted to an affiliated online distributor. An amended law should trigger the compulsory license once a license is granted to any online distributor. Not until Congress enacts laws creating a digital First Sale Doctrine and make the licensing of sound recordings to online distributors compulsory will an investment into developing the technology be undertaken.

      The current online music distribution models are not programmed to facilitate record or police the transfer of a digital format not fixed in a phonorecord. In order to ensure that the transfer does not implicate the reproduction right, distributors would have to either prevent burning and uploading onto portable music players or once the consumer chose to burn or upload the digital format, disengage the transfer option. This technology is feasible.

      Like all other new technologies, the purchasing public will quickly come to understand their property rights in online music. The legal groundwork must be laid before the technology is developed and operational. Technology alone, however, cannot ensure the free alienability of music in the same way a compact disc may be alienated.

      Each online music distributor represents a separate and isolated community. Users from one community can only communicate with other users in that community. If First Sale Doctrine technology existed, the users of a particular community would be limited in the genres of music they could trade or sell and the amount of people they could trade or sell to. No single online distributor offers every sound recording ever created. All music purchasers do not subscribe to the same online distributor. And, a music format purchased from one distributor might not be compatible with the media devices used by another distributor. It is not feasible to have every user register with each online distributor in order to effectuate the First Sale Doctrine.

      As online music distribution grows in popularity, specialty distributors will begin to emerge. These distributors will focus in a specific genre of music or a specific artist, offering tracks that larger distributors would not make available because of storage space and administrative costs. If a First Sale Doctrine in the online landscape is going to work, there must be broad-based community infrastructure that (1) allows users from one community the ability to transfer a music format to other users in different communities and (2) ensure that the music format is converted to make it compatible with another online distribution model.

      In the traditional distribution model, it would be unheard of to prevent a lawful purchaser from selling or trading a non-commercially released album from a local music store to a purchaser that shops at a commercial music outlet, but not the local store. Therefore, a super distributor linked to all online music distributors is needed. The super distributor would serve as a transfer and conversion system enabling users from one music distributor the ability to transfer a music format to the user of another online distribution.

      By using a super distributor, rather than requiring every distributor to create or use a universally compatible music format, the online distributors retain autonomy over their music catalogs and marketing strategy. In any case, the super distributor must be an organization operated with the participation of every online music distributor.

      Ultimately, the ability to initiate an operational digital First Sale Doctrine rests in Congress recognizing lawful purchasers’ right to transfer the music format via online distribution and forcing the sound recording copyright owners to license their works to online distributors. Future investors need assurance that the content will be available before they will invest in developing First Sale Doctrine technology. Surely the sound recording copyright owners will not invest the money to develop a second-hand online music market that arguably usurps what would be otherwise first sales. With the legal foundation laid, copyright owners will become nearly irrelevant.

      Even without legal foundation, however, copyright owners should develop and embrace First Sale Doctrine technology. Some commentators have argued that a second-hand market actually results in more first sales by allowing consumers to offset initial costs through a subsequent sale. This argument is equally applicable to the online landscape. Most important, the model proposed in this article opens up a market once dominated by the major record labels. And, it is to the benefit of the major record labels too.

      By empowering consumers, this proposed distribution model enables millions of music purchasers to teach others and learn about new forms of music. In turn, this equates into a larger percentage of the consuming public using online music distribution and ultimately, larger online music sales spread over a larger percentage of musicians. In the case of the independent labels, it allows them to reach users in other distribution models that do not license the independents’ catalogs.

      The major labels also benefit from the promotion garnered for less-marketed artists. The cost of initially releasing albums online is significantly less than a full marketing campaign and compact disc manufacturing. If this model is successful, the record labels need not necessarily continue searching for hit records, nor have to worry about large overhead costs for promoting new artists. Instead, they can place the artist in the online distribution stream and see how far word of mouth takes them (how up-and-coming musicians gain local and regional popularity through live performances). 

Where are we headed in the future of digital distribution and how can artist’s use the current copyright laws (or lack thereof) to their benefit?

          Artists continue to struggle to generate revenue even though they can easily establish a distribution network via iTunes, eMusic, Amazon, CDbaby.com, and so on.   Here lies the problem. Digital distribution is fragmented among only a few big players. Consumers continue to remain loyal to their chosen distribution networks whether it be iTunes or a bitorrent site like Mininova.  When a person hears a new band or song, it is almost instinctual that they Google the name and stumble onto either a MySpace page or an artist website.   Discovery is not the issue.  The issue arises when someone hopes to buy the music, but is forced to search through iTunes, see if the band is available on eMusic, or scour the web for torrent files.   From a user experience perspective, this deters a good amount of the target audience away from seeking out actual copies of the music in exchange for the ability to stream music.   

So what is the solution?  A few companies have been working to develop open Application Program Interfaces (API) music e-commerce stores which can be easily integrated on any web page.  Imagine visiting an artist’s website and being able to access an entire discography with the ability to stream and purchase songs, without ever leaving the page. SNOCAP has been at this for a while, creating an easy to integrate open API for an artist’s MySpace page.  The company has been relatively unsuccessful with the idea, mainly because of their exclusive partnership with MySpace. Musicians must realize that MySpace serves mainly as a portal for discovery not commerce. Music fans head to an artists MySpace page to stream tracks and get information rather than buy music. 

Already, a number of music service providers such as MOG have arranged deals with MediaNet Open to become their streaming music service.   The service may help decentralize digital distribution and allow artists e-commerce stores to become fabricated into the basic layout of their web page.  Another cool feature is that even music fans can embed the API on their site.  Imagine a fan blogging about their favorite artist while also helping them sell the music on their own site. While open API’s may not be the revolutionary technology necessary to immediately stimulate revenue from digital music, I believe that it may hold the key to democratizing music e-commerce.   While the web inches its way toward Web 3.0 capabilities, we will begin to see more open API’s integrated into websites.  We are already beginning to see the “life-stream” appear on many web pages via the Twitter open API. 

Conclusion

Online music distribution is far from implementing a digital First Sale Doctrine. It is not as simple as enacting legislation that grants music purchasers the ability to transfer a digital format not fixed in a phonorecord. A convergence of law, technology, Internet infrastructure and economic incentive must be present before a viable digital First Sale Doctrine can flourish in the online music distribution model.

Public access to creative works is the foundation on which copyright law was established in the United States. The ability to dispose of lawfully purchased property is equally important to the balance between copyright owners and consumers. If these policies underlying copyright law apply in the online landscape, then property ownership in a music format should be alienable like all other property.

Digital formats are not mediums containing information, but they certainly might fit within the broader definition of property. If market demand shapes the marketplace, as online music distribution gains in popularity, more challenges on the application of copyright law in the online setting should be expected.

1. Before the agreement
Most groups have probably been working together for a while before they actually sign an agreement. All financial records related to expenses and income should be kept from day one. They should also be made available to the groups’ accountant as soon as possible. The accountant can then establish the fact that the group has had trading years before they signed agreements which may be advantageous from a tax point of view, because it’s better if substantial advances do not come in the groups first year of trading. This should be discussed at an early stage with an accountant.

2. Duration of the agreement
Most agreements are presented as if they can only last for a maximum of five years but this is rarely the case. What is important is how many albums the record company is able to ask for. If they are able to ask for eight albums then the agreement will last as long as it takes for eight albums to be properly recorded, releases and promoted (probably about ten years f.e. Dire Straits have done four in about five years). However if a record company loses interest in an artist then the recording agreement may last twelve months or less.

3. What you will be paid
The record company will make two types of payments: advances and royalties. Advances are pretty straight forward but remember that the majority of them are only payable if the record company decides it wishes to continue with the agreement. Royalties are the payments that the recording artist is entitled to receive as recording artist (as opposed to songwriters) in respect of every record sold by the company and not returned to the company. The calculation of royalties is a complex subject involving a large number of factors.

Example:
Let’s say the royalty is 10% of the retail price payable in respect of 90% of sales:
1. the 90% means that the royalty will only be paid on 90% of sales, i.e. for 10% no royalty will be paid at all.
2. the retail price is calculated by a formula which is linked to the company’s dealer price and a market survey of retail prices.
3. from the retail price the company deducts packaging costs (could be 15% for an album) and VAT.
4. the record company then pays the artist 10% of that price and if a group the artist shares those payments among themselves and their management.

A. No royalties are paid until all advances and recording costs have first been recouped from royalties.
B. The record company will pay 1/2 rate royalties or no royalties in respect of the following sales:
1/2 rate:
budget records, TV advertised records (this is a very dangerous clause - you could sell 200,000 copies or more in respect of Album 1 and the record company could advertise the next album on TV from the beginning and pay you half rate royalties on all sales of such album. They can even put out an album, sell a lot of copies the advertise on TV and apply the half rate to previous sales), sales to armed forces, compilations, premium records, multiple record sets, 12″ singles, colored vinyl sales, picture discs, mail order sales and others.
No royalty:
deletions, cut outs, free goods, promotional copies.
C. The royalty quoted will almost always be inclusive of a producer’s royalty and so any payments to a producer will be deducted from royalties payable to the artist.
D. US royalties: industry practice in the USA means that your royalties will suffer very large reserves provisions in respect of sales in the US. American companies also operate a ‘free goods’ scheme to dealers which means that there are a very large number of records for which you are not paid. This can be as many as 50% of singles.

4. When you will be paid
If any royalties are due they are normally paid on March 31st and September 30th of each year sales outside the record company’s country and sales by third parties (f.e. K-Tel) may take as long as two years from the date of sale to the date of payment of royalties. If the company does not get paid you won’t get paid. In any event no royalties are paid until advances, recording costs, video cost and tour support are recouped. All of these are recouped out of your royalties after deduction of the producer’s royalties. I.e. the producer does not contribute to video or recordings costs or your advances or tour support.

Example:
if a group:
A. receives an advance of $50,000
B. spends $100,000 on recording costs
C. has three videos made at $15,000 each (assuming only 50% recoupable from record royalties)
D. receives $20,000 tour support
then it will need to sell about 450,000 albums to recoup such payments and by that time may well have received further advances, incurred further recording costs etc. Some of the recording costs e.g. remixing costs, cutting costs, producer advances etc. may well be outside of your control.

5. What you have to do
You must record a certain number of recordings for the record company. The producer, the title and the studio will be selected by the company. The contract will be an exclusive contract so you may not record for anybody else nor even do session work. You will almost always need the record company’s permission to do any instrumental only works (this can obviously be very important in the context of dance music especially).

6. What the record company does
In practice a great deal but as far as the recording agreement is concerned very little. It will agree to make recordings, pay advances and royalties, but will not often commit to releasing the recordings. This can be a real source of frustration if you and the company disagree over the quality of the product you record.

7. Who controls the recordings?
The record company takes the view that it pays for the costs of making the recordings, takes the risk and therefore will own and control the recordings. They will own them forever and will have complete marketing control so that they will decide if and when to release the recordings, how many singles will be taken from an album, what the artwork will be, how the records will be released and where they will be released.

To quote two extremes:
A. your recordings may never been released
B. they may be released in every country and every format including record clubs, readers digest packages, K-Tel compilations, Greatest Hits packages or in TV advertisements (Sting objected to ‘Don’t stand so close to me’ being used in a TV advert but could do nothing about it). You will have lost all control of the recordings but you will be paid royalties in respect of all such users. The company will also be able to use your photographs, biographies and likenesses in connection with all such uses. The record company will claim all rights in respect of every recording made during the term of the agreement even if they did not pay for them and even if they were not intended for release.

8. Your obligations
In practice, provided that you do your best to record in time to the best of you ability, any responsible record company will leave you alone but the recording agreement will list a number of obligations that you should consider very carefully. A few common ones are:
1. the songs you record must not be defamatory or obscene
2. you must be free of any other recording obligations
3. you must not record for anyone else
4. you must not re-record any of the recordings for anyone else
5. you must be prepared to make personal appearances in connection with the recordings
6. you must own the name that you use professionally.
It is very important to be aware that in the case of a group of artists (as opposed to a solo artist) the liability under the recording agreement is designed in such a way that all the members of the group are liable for a breach by anyone of them.

9. If you leave as a member of a group
The company will still have control over your exclusive recording surfaces under the terms specified in the agreement and the company will almost certainly be entitled to terminate the whole agreement if any one person leaves. In addition if you leave towards the end of an agreement it is very likely that you could be tight to the record company for longer then if you had stayed in the group. Remember also your joint as well as several tax liabilities. The record company also ends up controlling the group name so that leaving members could not use the name once they left even if they were the founder members. It is important that the only people who signed the agreement are those that everyone expects to stay in the band for the foreseeable future. If people leave who have signed it will cause expensive legal problems for all concerned.

10. The 75% mechanicals clause
Put simply in respect of the USA and Canada even though the respective governments have provided that a certain amount must be paid to songwriters in respect of every record sold, the record company will specify that they will only pay 75% of that amount and will pay 75% of the amount applicable at the date of recording (or when it should have been recorded if earlier) even if the rate goes up.

Cover recordings can actually eat into your recording advances and royalties. This is because normally the publishers of the cover songs will not accept the 75% clause and so the record company will have to pay 100%, but they will want to recover the extra that they pay from you recording and/or publishing income and if you end up doing a number of covers it can very seriously erode your income. If a producer or a friend or indeed anyone other then someone who has signed the record agreement write songs for you or you record songs they have previously written it is important that they accept this clause in writing. Your management should be told by you to contact them. An established songwriter may refuse to accept the clause but it’s always worth a try. An approach should be made to their publisher and it has to be made a long time before you record the song.

11. Prior recordings
You should draw up a list of all recordings (not just under a group name but as a session man, previous group, etc.) you have ever made listing the following:
A. demos and who owns them
B. all released Masters and who released and owns them
C. all unreleased Masters and who owns them.

12. The group relationship
When a number of people perform together as a group you have formed what in legal terms is described as a partnership. This is quite a complicated arrangement but most importantly you should be aware that you are all liable for the group debts. Equally important you must be aware that if one member of the group does not pay his/her tax the others can be liable for it even though they have paid their own tax. It’s important to have a good accountant and to ensure that he ensures that everyone pays their taxes. It’s not very fair for one member to pay his taxes and the other to spend his money on wine, women and song only to find the sensible one has to pay more to compensate for the other’s good time. Some accountants approach the inland revenue and agree with the revenue that the group is not a partnership but a collection of individuals and that there is no joint and several liability for the groups’ taxation. Each member would then only be liable for their share of tax on their share of profits only

Please note that this is only a general guideline and you should consult with an attorney prior to entering into any formal agreement.

Typically the Controlled Composition Clause, in its more benign form, provides for the recording artist to grant his record company a mechanical license for the recording artist’s own compositions at a reduced mechanical royalty rate then what currently is in effect. 

A hypothetical example of this latter type of Controlled Composition Clause reads as follows: 

“… Record Company is hereby granted a mechanical license for all Controlled Compositions, as defined below, embodied in the Masters at fifty (50%) percent of the minimum statutory mechanical copyright royalty rate in effect on the date of first release of Records containing such Controlled Compositions (the “Controlled Rate”). The term “Controlled Composition” means a Composition embodied in any Master delivered hereunder which is written or composed by Owner, alone or in collaboration with others, or is owned or controlled, in whole or in part, directly or indirectly, by Owner, or by any person, corporation, partnership, firm, or other entity in which Owner has a direct or indirect interest…” 

Basically, in this type of Controlled Composition Clause, the recording artist is effected in two ways. First, and foremost, the recording artist would only receive one-half (fifty (50%) percent) of the statutory mechanical royalty rate in effect. While seventy-five (75%) of the statutory mechanical royalty rate is more typical in this type of clause, fifty percent is not unheard of. Nevertheless, try and obtain as high a percentage as possible 

Secondly, the recording artist is also harmed in a less obvious manner. Because the mechanical royalty rate is pegged to the statutory mechanical royalty rate in effect at the time of “first release of Records” the artist will be harmed if the Record is sold many years after the contract is signed because the statutory mechanical royalty rate typically would be higher at that time. The statutory mechanical royalty rate is adjusted upwards every few years. Thus even if the recording artist cannot cause the record company to delete this type of “Controlled Composition Clause” the recording artist should, in any case, seek to have the mechanical royalty rate pegged to the rate in effect at the date of manufacture of Records rather than at the date of first release of Records. 

The more onerous type of Controlled Composition Clause places a monetary restriction, a cap, on the amount of mechanical royalties it will pay to the recording artist. And, should the record company be forced to pay more than its prescribed limit, the clause allows the record company to deduct such excess from the artist royalties (as opposed to mechanical royalties) it pays the recording artist. As mentioned above, this type of Controlled Composition Clause is being used by the major record labels more frequently today. 

A hypothetical example of this type of “capped” Controlled Composition Clause reads as follows: 

“… Recording Artist hereby grants and will cause all applicable publishers to grant to Record Company mechanical licenses in the USA at the rates set forth herein (”Controlled Composition Rate”) with respect to musical compositions written, owned or controlled in whole or in part by any member of Recording Artist or a producer or by a company affiliated with any member of Recording Artist or Producer (”Controlled Compositions”) and embodied on records distributed hereunder. In respect of Full Price records, the Controlled Composition Rate for all musical compositions regardless of length shall be seventy-five percent (75%) of the minimum USA statutory rate for selections whose timing is five (5) minutes or less; and with such Controlled Composition Rate being determined at the time of first release of records embodying the composition concerned, subject to the following configurational ceilings for all musical compositions, whether or not Controlled: Nine (9) times the Controlled Composition Rate on Compact Disc Albums. In the event the actual aggregate mechanical copyright royalty rate paid by Record Company exceeds the maximum configurational ceiling for any record hereunder, Record Company shall deduct from any monies payable to Recording Artist hereunder (whether in respect of Controlled Compositions or otherwise) an amount equal to such additional payments. …”

When an artist signs his/her first recording agreement, the record company will more than likely stipulate that the artist grants the company the rights to the sound recordings for a specified number of years. Similarly, a standard publishing agreement for a new songwriter will call for the assignment to the publisher of copyrights in the compositions themselves. Furthermore, a producer may ask for a percentage of ownership in an artist’s recordings and compositions, in which case a formal contract will need to be drafted and signed.

Whether one or all of the exclusive rights to an artist/songwriter’s works are assigned, or a specified percentage of works thereof, the transfer of copyright is not valid unless a formal agreement is written and signed by the copyright owner. Though not legally required, it is also advisable to record such an assignment of rights with the U.S. Copyright Office, as it may provide legal advantages and clarifications in the future. Once signed and agreed to, these transfers of ownership are legally binding and should thus not be carried out without legal consultation.

Many young artists, eager to ink a deal with a record/publishing company or producer will assign away all current and future rights to their recordings and songs for the chance at a lucrative deal. Copyright ownership in itself is a revenue stream and should not be given away blindly. Fortunately, the present law allows for termination of an assignment of rights after 35 years under certain conditions by serving written notice on the transferee within specified time limits. Thus, rights transferred from one person to another, while legal binding and in writing, can still revert back to the original owner after a period 35 years.

In November of 2007, Evel Knievel had settled a trademark infringement case with rapper Kanye West for a stunt he pulled in his 2006 “Touch the Sky” video. His video features Kanye as a daredevil named “Kanyevel,” who achieves an impressive stunt jump over the Grand Canyon which brings to mind Knievel’s unsuccessful jump in 1974 in Idaho over the Snake River Canyon. In the video, Kanye is wearing the trademark Knievel jumpsuit with “Evel Kanyevel” written across the back. Knievel views the video as ‘vulgar and offensive’ and accused the rapper of using his image to “promote filth to the world,” which damages his reputation and the value of this trademark.

This case goes even deeper because in the suit, Knievel sues AOL, labeling the internet provider as a defendant because the “use of AOL’s own search engine for a video of ‘Evel Knievel’ returned the infringing music video as the second ‘hit’ generated by the search.” After AOL received the suit, they removed the music video that they appeared to have hosted although it still comes up hosted other places in their web based search results.

Intellectual property is owned by its creator or a party that purchased its rights. Ownership of Intellectual property is similar to ownership of other forms of property, in which they have the right to exclude others from infringing or taking their property. IP owners can also license, sell or will the copyright or trademark, just like a homeowner can lease, sell or transfer the home through a will or deed.

A potential trademark infringer is any person that uses a trademark in any way that is “likely to cause confusion” or “dilute the marks meaning.” There are many factors the courts analyze in determining the likelihood of confusion, such as the (1)relatedness of the goods or services, (2)closeness of the appearance, meaning or sound of the conflicting marks, (3) the channels of commerce in which the marks are sold; and (4)the sophistication of the purchasers of the goods or services. If trademark infringement is found by the courts, the trademark owner can obtain a permanent injunction that prohibits the infringer from using the mark or any mark that is confusingly similar to the trademark owner’s mark. The trademark owner may also receive monetary damages for compensation, which can be increased up to three times if it is found the infringer was willful.

This new form of record deal is in many respects very similar to the classic deals of the 20th century (where the label gets the vast majority of the music sales profits), but this time around the labels want to also take a sizeable cut of the artist’s live performance, publishing and merchandising earnings.

So, what’s the benefit from the artist’s point of view? Well, to put it bluntly, none. In fact, the deal for the artist under this new regime is far worse than anything that had previously been available. For the majority of bands, even very well known ones, their main source of income is usually touring and merchandise - and the industry now wants a slice of this pie. To justify their cut, they say that their PR and promotional engine can help to break new bands, but this is what they had always been doing anyway. Rather than give up so much potential income, new bands would be far better off producing (and distributing) their own music and hiring a dedicated promotional agency to handle the marketing and business side of things.

Here’s a typical breakdown of the 360-Degree Record Deal for new bands:
Label gets approx. 90-95% of record sales
Label gets approx. 10% of touring income
Label gets approx. 10% of merchandise income
Label gets 9c publishing cut per song (or more, depending on media distribution)

Of these elements, the first one is the only clause consistent with previous practise in the industry. The labels have brought this model in as a response to the changing face of music distribution and consumption technologies, but the very prevalence and affordability of these technologies is the reason why no artist should commit to a 360 deal in the first place. If you have enough on the radar to attract the attention of a major, then you really don’t need them.

Even though these contracts will use units of years and months to stipulate the length of “periods” of time, it will invariably be connected to the artist’s delivery of product (masters, singles, etc.). Therefore, without delivery of product, the contractually stated amounts of time may come and pass, yet the period, or entire term itself, may be still be suspended. If this is to occur, many standard recording contracts could technically be extended forever.

In New York State and others, courts will generally grant relief to an artist wishing to terminate an agreement, after an extended period of time, even if they are in breach of contract. With no specific amount of time stated in the law, they must weigh the term of the agreement against the general public policy regarding harsh or unreasonable lengths of time. In Vanguard Recording Society v. Kweskin, a New York Federal Court refused to enjoin an artist from recording with another company where enforcement of a suspension clause for an indefinite period would make the contract “harsh and unreasonable”. Thus, the artist may have failed to perform his contractual duties or deliver the stated product, yet in regards to public policy, the unreasonable length of suspension rendered the contract void.

However, California State Labor Code has a “7 Year Rule” (as referred to in the music industry) stating that personal service contracts which last more than seven years cannot be specifically enforced. Many record companies may define the contract’s term as, say, a two-year initial period plus three one-year option periods to protect themselves against California’s seven-year rule. However, failures of artists to deliver products and failures of record companies to release and exploit products can lead to four or five-year terms carrying on past the seven-year limit. Artists wishing to terminate agreements have actually used these types of scenarios to their advantage in the past. This has protected countless artists and angered similar numbers of record executives since its inception in the earlier part of the 20th century. In another example, MCA Records v. Olivia Newton-John, a California Court of Appeals stated that an artist could not be prevented from performing from another record company for a period longer than the one in which her commitments to MCA could have been fully performed. MCA unsuccessfully argued that they should be allowed to extend the agreement past seven years by reason of contractual language that permitted suspension until delivery was completed.

While not all states have set a specific limit on the length of personal service contracts, when dealing with artists on a national level, this seven-year rule must be considered, for at some point in a growing artists’ career, their contracts and finances will pass through California (or more specifically, Los Angeles).

A record company obtains a mechanical license from a publisher to record and release the publisher’s artist’s compositions. A film producer will obtain a master- use license from a record company to use their recording (the master) in their film. This film producer would also have to obtain a synchronization license for the right to use pair, match, or synchronize the composition itself from the publisher, who administers or owns the copyright in the song itself. It is often a much easier and more streamlined process to obtain these licenses when an artist’s record company is also the artist’s publisher.

When issuing a synchronization license, the fees paid to you (or to your publisher/record label) are open to a number of negotiable variables. The territory can be the US, North America, or the world. The type of media is also negotiable as the use in a film may be reproduced as use in DVD’s, a TV series, a soundtrack, etc. The nature of the usage will also cause the fees to escalate, depending on whether the song is a featured element of the visual, background music, or a closing theme. Generally, the longer the use of the song, be it the intro or the whole thing, the higher the fee.

There is a trade-off that many young, fledgling artists must make when considering when and where to license their music, and under what terms. Many feel that licensing your music for free can still be beneficial as it can immediately increase your exposure. Competition for TV/Film placement is fierce and many managers tell a new artist to welcome the call alone. But it is important to limit the breadth of rights. One way to protect against a loss of future earnings is to negotiate a step-deal, in which very little money is paid up-front, but the producer is obligated to start compensating the artist at certain agreed-upon milestones.