Music Law

Defenses to Action

Fair Use -News reporting -Satire & Parody -Educational Broadcasting Prior Creation Not Subject to Copyright Protection -Work not an original or unique and not susceptible to copyright protection.

Generally speaking, a creation can be copyrighted even if it is not of sufficient materiality to constitute a work, as long as it is original. True or False?

False

Pursuant to the provisions of a typical major label recording agreement in the US, the artist royalty with respect ot record company activities in licensing master recordings to third parties

is an amount equal to 50% of the record company's net receipts form licenses in question

Expenses

-Employees may deduct biz expenses that would be deductible if paid by the employer, but for which the employer does not reimburse the employee -Deduct on form 2106 -Limit to the portion that exceeds 2% of employee's adjusted gross income -Self employed & Independent contractors are allowed to deduct most biz expenses that relate to producing income.

Income as an Employee

-Employer issues W-2 form at end of year -Employer pays all applicable payroll taxes (Social Security & Medicare & Federal & State Unemployment Taxes) -Comp premium -Employer withholds tax based on exemptions elected by employee; excess tax over amount withheld is then owed by employee to IRS -If expenses not reimbursed by employer, employee may deduct if more than 2% of adjusted gross income

How Returns are Selected for Audit

-No longer random -Certain types of activities, tax returns, deductions are more likely to be scrutinized more carefully (Professionals, businesses with cash sales, Red Flag return issues)

Income as Self-Employed Person or Independent Contractor

-Payor of compensation is to issue a 1009 form to payee -income reported on Schedule C, together with all applicable related business expenses to equal net income -must pay self-employment tax (equal to total of employer & employee contributions for SS & Medicare. Currently 15.3%)

Subchapter S Income

-Similar to partnership income in that an S corp. files its own return but net income flows to the shareholders -net income reported to stockholders on a K-1 form -Shareholder reports K-1 income on the shareholder's individual return

Purpose of Audits

-Verify that tax reported is correct -NOT an attempt to increase tax -Substantiation and documentation are the keys to surviving the audit

Partnership Income

-files a tax return but income flows through to the partners -must file a Form 1065 (informational return, includes income received, includes expenses) -each individuals share of net income is reported to the individual on a K-1 form -K-1 form is then used to report net income on the individuals tax return on Schedule E of Form 1040

Avoiding Being Treated as a Hobby

-must not generate a loss & is main source of income -profit motive: biz must make a profit in three out of five years

Under-reporting of Income

-penalties -if willful, possible criminal penalties

Consider the following: (1) performance rights in sound recording have been recognized in United States copyright law since first enactment of the 1976 Copyright Act (2) in the entertainment industry generally, the owner of the copyright in question is typically the person that created the work in question (3) performance rights in sound recordings have been recognized in United States copyright law since 1972 (4) the 1976 copyright act was the first united states copyright act to introduce protections for unpublished works

1 & 2 are false

Consider the following statements with respect to the concept of "public domain": 1. A work in the PD may generally be freely copied; 2. A work can enter the PD only after the term of copyright applicable to the work in question has expired; 3. A work published in 1898 in the U.S. will be in the public domain; 4. The examination is in the public domain.

1 and 3 are true

Consider the following statements with respect to the term of copyright in the U.S.: 1. The term of copyright applicable to compositions fixed in tangible form today is set forth in the Sonny Bono Copyright Term Extension Act; 2. The term of copyright applicable to compositions fixed in tangible form today is set forth in the 1976 Copyright Act; 3. The term of copyright applicable to compositions not worksfor-hire fixed in tangible form today is the life of the author plus 70 years. Which of the following best describes the truth of the foregoing?

1 and 4 are true

Consider the following: (1) predictability (2) efficiency (3) independence from social norms (4) comprehensibility. Which of the following best describes the accuracy of the foregoing as descriptions of the aims of a successful legal system?

1, 2 and 4 are accurate

Remedies for Copyright Infringement

1. Actual Damages: Injury to market value of plantiff's work 2. Statutory damages: Non-willful: 750 - 30,000. Willful: up to 150,000 3. Injunctive relief: Prevents further distribution and sale, recall orders

The "all-in" artist royalty on top-price CDs sold through normal retail channels in the US at a SRLP of 18.98, in pennies, for an artist with a basic royalty rate of 16% pursuant to a typical major label "SRLP" deal providing for a typical container charge, typical standard discounts, a typically worded limit of 5% on program free discounts, and no reduction for in the CD royalty rate, would most likely be, in a typical accounting period with normal sales activity and patterns: A. 1.50 B 2.85 C. 1.84 D. 1.94 E. 2.00

1.84

The applicable compulsory mechanical stat rate in the U.S. in 1956 was:

2 cents

The initial term of copyright for existing works under the Statute of Anne was:

21 years

Under the 1909 US Copyright legislation, the term of copyright was:

28 years with a renewal term of 28 years

Under the 1976 United States copyright act, the period of eyars before which a creator can exercise a right of termination, if any, is

35 years

Pursuant to the provision of California civil code section 3423, the statutorily specified minimum compensation for the first year of agreement entered into in 2004 that is subject to this section is

9000 dollars

Other Tax Considerations

Adequate Tax Withholding -If your employer doesn't withhold at least 90% of total tax due at end of year, IRS can assess a penalty on the taxpayer -You don't want to over-withhold, but make sure you aren't under-withheld by more than 10% Estimated Tax Payments -Based on a projection of annual income & must total at least 90% of what you owe for the given year.

Major label recording agreements typically provide that recording may not commence before the record company approves the budget; The budget typically is required to include all costs of recording, including sampling costs and per diems, if any; Budgets are typically submitted to a major label by the artist or by the producer on the artist's behalf: and The record company typically ahs the right to disapprove the proposed budget

All are true

Which of the following could possibly own the copyright in an otherwise protectable work? A. The creator B. Two creators, intending to work together to create a work C. The employer of a creator employed pursuant to a work for hire agreement D. All of the above E. None of the above

All of the above

Entertainment Audits

Auditor will likely solicit: -Copies of all contracts -Taxpayer's resume -Allocation of personal expense -Chronological background of the tax year -Dates worked, requirements of employment

Deductible Expenses

Auto Expense -If car only used for biz, individual may deduct entire cost of operation Equipment -Depreciate if useful life of more than one year Travel -May deduct travel expenses if individual has a permanent residence Food & Entertainment -50% may be deducted but purpose, names and place must be documented Home Office -must be used exclusively for biz and must not cause the biz to show a loss

Seven Year Claims

California Labor Code provides that a personal service contract may not extend past 7 years. If albums are not completed by then, record company can sue for damages. There is a window of time between the two contracts where the artist can negotiate between labels.

Injunction Issues

Cannot require specific performance of a personal service. Can move for an injunction to prevent a performer from working elsewhere. Contracts entered into before Dec 31, 1993: $6000/yr After: $9000 first year, $12,000 second year, $15,000 third year and through the seven years $15K extra during 4th & 5th and 30K extra during 6th & 7th

Types of Audits

Correspondence Audit -Written notice from IRS of proposed changes to return after IRS review -Majority of audits are resolved at this level Field Audit -IRS agent will come to residence or biz to verify the accuracy of taxpayer's return -Usually occurs if return is complicated Office Audit -IRS requires the taxpayer physically appear at an IRS faility with documentation -Taxpayers may make an audio recording of audit

Basic strategies for minimization of tax liability

Deferral: attempt to defer incidence of taxation until the artist's income is lower, so the tax rate is no longer as high Shifting: attempt to move income from higher tax rate to lower tax rates (corporations) Allocation: attempt to allocate costs/expenses to larger income streams Credits: are dollar for dollar reductions in the actual tax owed, computed after the tax owed has been computed Deductions: are reductions in the income upon which the tax is calculated, accordingly the value of the deduction depends on the tax rate, and will never be dollar for dollar. These require advice from tax professionals

Copying By Defendant

Elements of Proof: Access -Work publicly released/performed -Copies sent to defendant -Implied access AND Substantial Similarity -Compare % of similar portions of the work with non-similar portions -Subjective test -Use of experts to demonstrate similarity OR Striking similarity -Works are so similar as to preclude a possibility of independent creation. No access proof is required. Requires expert testimony.

Typical Statutes of Limitation

Employment taxes: 4 years after the later of the date the tax becomes due or the tax is paid -Assets: keep records relating to assets or property until the period of limitations expires for the year -Even if the reason to keep records for tax purposes no longer exists, keep the records for insurance & creditor concerns!!

Personal Manager Compensation

Exclude recording costs, producer payments, tour support, costs of collection, opening act payments. Post-compensation: most likely 3 years sliding scale

In a "retail based" major label recording agreement, the royalty actually received by the artist will vary depending on the price at which the retailer actually sells the record, rather than varying with respect to the price the retailer has paid the distributor. T/F?

False

Per cut based mechanical licenses are generally used throughout the world

False

Pursuant to the controlled composition clause in a major label recording agreement, the record company would never pay to a publisher more than the reduced rates specified in the controlled composition clause. T/F?

False

The U.S. Constitution specifies the essential details of copyright protection in the U.S. True or False?

False

The net artist royalty rate is never the same as the all-in royalty rate. T/F?

False

The only type of compulsory license applicable to musical compositions is the compulsory mechanical license. T/F?

False

The royalty rate payable for so-called "mid priced" product will be the same royalty rate as that payable for so-called budget product. True or False?

False

The so-called container charge for cassettes will be 30%.

False

The term "all in" when use in the phrase "all-in royalties" refers to the fact that all of the royalties are used to recoup all of the costs of all records made under the deal.

False

The text of the current copyright law of the US can be found in Article 1, Section 8, Clause 8 of the Constitution of the U.S.

False

The united states has typically been in the forefront of expansions of the rights of creators of intellectual property

False

Under California law, an exclusive personal services contract cannot be enforced beyond a five year term

False

Under U.S. copyright law, compulsory mechanical licenses are available with respect to any new recordings of compositions previously embodied on phonorecords released to the public.

False

Under the 1976 US Copyright Act, registration is required to have a copyright interest in an otherwise protectable work.

False

Under the current us copyright law, it is not necessary for a work to be in tangible form for copyright to vest. T/F?

False

typically, an artist who produces himself or herself is paid by a major label on the same basis as if he or she were true independent producer producing an artist other than himself or herself

False

Fair Use

First recognized with the 1976 Act. Four factors considered together, not individually: 1. Purpose and character of use, including whether such use is of a commercial nature or is for non-profit educational purposes. 2. The nature of the copyrighted work. 3. The effect of the use upon the potential market for or value of the copyrighted work. 4. The effect of the use upon the potential market for or value of the copyrighted work.

Penalties for Violation of DMCA Anti-Circumvention Statutes

For willful violation: penalties up to 500,000 and imprisonment for up to a year, for first offense. Penalties double after that

Concept of "Net Income"

Income - Business Deductions - Personal Deductions = Net Income

Limits on Manager Authority

Limit cash checks, negotiate contract, etc. Limit power of attorney to ONLY if artist is unavailable, verbally approved, relates to personal appearance within the next 3-4 weeks

Income Sources

Mechanical (35-45), Performance (35-45%), Sync (10-30%), Print (10-25%)

Regard to producer royalties for US producers producing artists making records for major record companies in the US.

Most producer royalties are credited to the producer's royalty account after recovery of all recording costs of the producer's project (sometimes including the producer advance, sometimes not) at the "net artist" rate.

Sampling

Rights involved: Master recording & Publishing. 5 Deals: Flat Fee Flat fee installments for cascading uses Roll-overs Royalties Ownership/co-ownership

Consider the following statement with respect to works-made-for-hire: 1 an employer-employee relationship between creator and hiring company is sufficient to mean that the work created will be a work made for hire (2) the actual creator retains protectable copyright interest of her own in the work-for-hire (3) sound recordings are currently included as one of the categories of commissioned works that may be deemed works for hire (4) the name of the actual creator of a work-for-hire must be listed on the registration form for the copyrighted work

None of 1, 2, 3, 4 is true

Consider the following concerning agreements in the US with independent producers to produce master recordings 1. generally all albums by any one artist produced by a particular producer are cross-collateralized for purposes of determining when and how much the producer is paid 2. generally, the producer's account is payable prospectively only on units sold after recoupment of recording costs of the masters in question 3. generally the rate of recoupment is the net artist rate 4. generally, all albums by any one artist produced by a particular producer are treated as separate accounting units for purposes of determining when and how much the producer is paid

None of the above

Which of the following provisions is generally a "negotiable point" in a major label recording agreement" A. a Change in the amount of the packaging deduction B. The percentage of standard free goods C. All of the above D. None of the above

None of the above

Musical Composition Claims

Once a musical composition has already been recorded and released to the public and is no longer a first-use composition, the comp is subject to a compulsory license. If it is utilized in a new musical composition or the character of the composition is altered in a new "version", the user is subject to a claim of infringement of the mechanical copyright.

Consider the following statements: 1. A contract is an agreement between two or more parties; 2. A court will generally award damages in enforcement of a valid contract as long as one of the aggrieved parties can establish that some non-speculative, demonstrable damages were incurred by that party as a result of a breach by one of the other parties; 3. A court will generally enforce a valid personal services contract by means of imposing specific performance; and 4. a contract is an agreement which will be enforced by a court of law.

Only 1, 2 and 4 are true

Consider the following statements with respect to "controlled composition clauses" in major label recording agreements entered into in the united states: 1. the controlled composition clause generally provides for more favorable mechanical royalty treatment for artist-writers than would be the case in the absence of the controlled composition clause 2. the controlled composition clause generally puts a "cap" on the number of compositions per album for which the record company will be responsible for payment without penalty to the artists 3. the controlled composition clause as proffered by the record company generally provides for a reduced mechanical license rate 4. the controlled composition clause generally does not affect the long song rate

Only 2 & 3 are true

Consider the following statements with respect to the royalty provisions in major label recording agreements with respect to midpriced records 1. The royalty rate is generally the same for midpriced records as for top-priced records 2. it is sometimes possible to negotiate a provision providing that if records are sold as midpriced records prior to a certain date, otherwise applicable royalty rate reductions will not be applied 3. the definition of a midpriced record can usually be negotiated 4. the royalty rate for midpriced records is usually one-half of the royalty rate for top-priced records

Only 2 is true

Once made, an offer may: 1. not be modified; 2. may be modified at any time prior to acceptance; 3. may be revoked at any time prior to acceptance; 4. be accepted only by a response, absolute on its face, conforming to the terms and conditions of the offer.

Only 2, 3 and 4 are true

Commercial impracticability Duress Fraud Unconscionability Which best describes the forgegoing excuses a party from performing, even though a contract exists?

Only Commercial impractiability

Talent Agency Act

Persons procuring employment must be licensed by the labor commissioner, but the negotiating agreements does not apply. Contract must be approved.

4 Phases of Publishing

Phase One: The Copyright Era: 1900 - 1970 -Sell Copyright but retain right to writer royalties (50%) -Still exists in Latin Music Phase Two: The Copublishing Era: 1970 - 1995 -75/25 split between writer and publisher Phase Three: The No Deal Era 1996 - 2004 -Sub pub only deal or administration deal Phase Four: Return to Co-publishing -Pubs have marketable function again

Mechanical copyright royalties are generally payable:

Quarterly

Reversion for Pub Deals

Revert 7-15 years after term if recouped Reversion if not exploited 2 years after term

Under a typical recording agreement between the artist or an entity furnishing the artist, on the one hand, and with amajor label, on the other hand, the contractual responsibility for delivering a finished, exploitable album or other recording project pursuant to the deal lies with

The artist or person or entity through which the artist is furnished to the record company

Under current California law, effective today, regardless of the audit term provided in a recording contract subject to California law, the period of time during which a statement can be examined is not less than what numbers of years from the date of the statement?

Three Years

A compulsory license would generally not be available for the use in a medley of a composition previously recorded on a record released to the general public. True or False?

True

Assuming that the actual pennies payable will be equal and everything else (including deductions) being equal, the royalty rate specified in a "wholesale" based recording agreement will be a higher number than the royalty rate specified in a "retail based" recording agreement

True

Even if the creator exercises her rights of termination, any licensee/grantee is permitted to continue to exploit any existing derivative works even after the termination is effective. T/F?

True

If an artist's royalty account is in a payable position, and the record company is required during such a payable period to pay a royalty to an individual producer of such artist, the royalty payment to the producer will typically not be deemed an additional advance against the artists' royalties. T/F?

True

In a typical major label recording contract, the record company will began paying royalties to the artist after recovering from the royalties otherwise payable to the artist all recording costs and other recoupable advances and charges against the artist's account. True or False?

True

In the typical major label recording agreement, the artist or entity furnishing the services of the artist) is generally responsible for engaging the individual producers for recording pursuant to the agreement

True

The actual creator of a permissible work made for hire does not have termination rights under current United States copyright law

True

The berne convention provides for automatic protection for the creator of a work in each signatory country so long as the creator's work was first published in a country signatory to the berne convention. True or False?

True

The royalty rate for foreign sales is likely to be smaller than the royalty rate for sales in the US

True

The so called packaging deduction if there is one in the agreement, for CDs will be 25%

True

Major label deals typically provide for record royalty accountings

Twice a year

The WIPO treaties

are supplements to the berne convention

Sampling Claims

occur when a master recording includes a portion of another master recording without authorization from the copyright owner of the original master recording. A common sample use is of a specific guitar lick, drum beat or vocalization.

Consider the following statements concerning "first sale" doctrine (1) the first sale doctrine modifies the operation of the exclusive right of distribution (2) the "first sale" doctrine allows the purchaser of a copy of protected work to make and sell copies of the work purchased; (3) the first sale doctrine allows the purchaser of a copy of a protected work deal in the purchased copy in any manner the purchaser wishes, subject to the provisions of the record rental act of 1984 and (4) the first sale doctrine, under current united states law, allows for rental of audiovisual works and of audio-only phonorecords. Which of the following best describes the truth of the foregoing?

only 1 and 3 are correct

As we discussed, the main purposes of the royal patent grants was (were) to (1) raise revenue for the government (2) protect the rights of creators (3) give government control over contents of publications (4) protect the populace from the spread of disease. Which best describes the truth of the foregoing?

only 1 and 3 are true

Overall Planning Taxation Concepts

substantial income is often concentrated in a short period of time, artists potential for large tax exposure if greater than the average person. Minimization of tax is perfectly acceptable- what is illegal is avoiding payment.

Under the current United States copyright law, the term of copyright with respect to pseudonymous works is:

the earlier of 95 years from publication or 120 years from creation