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English court prevents Duran Duran from re-acquiring US rights in their songs

Still lonely in their copyright nightmare

27 April 2017

In the Duran Duran case, the ability of an author to invoke the more protective author-friendly provisions of US law allowing artists to terminate grants of rights was held to be overridden by the provisions of an English law governed contract. We look first at the landscape in which the recorded music industry operates, to give context to the later discussion on the Duran Duran case. We then consider the potential impact of the transparency and dispute resolution measures in the proposed Digital Single Market copyright directive.

Industry landscape

Record companies face significant risks when selecting up and coming artists.  There is no certainty that an artist will deliver a commercially successful product and no real contractual (or other) mechanism to compel delivery of recordings if the relationship sours.  Recording contracts are personal service contracts, so the record company relies on the continuing goodwill on the part of both parties to make them work.  It cannot compel a performer to deliver recordings to order, when a relationship has broken down. Given the investment typically required to launch a musician's career, record companies look to recoup their initial investment (the advance payable to the performer, recording and promotional costs) by contracting to obtain outright, worldwide ownership of the copyright in all recordings made by the artist.  This is subject to the artist in some circumstances being able to exert a degree of artistic control over exploitation, depending on his or her repute / star power.    

The recording obligations of an artist will be shorter term in nature, structured as an initial period for delivery of the first album, followed by a series of options which the record company can exercise for subsequent albums. This approach reflects the line of English case law, where several major performing artists challenged English law contracts that tied them to one company for long periods. A number of these contracts were held unenforceable for being unreasonably restrictive so far as the parties and the public interest was concerned.

For example, in Schroeder Music Publishing [Schroeder Music Publishing v Macauley [1974]] , the judges invoked public policy reasoning, ruling that the contract was an unreasonable restraint of trade. This was largely due to the inequality of the parties' respective bargaining positions and the disconnect between the scope of the obligations imposed on the songwriter and those imposed on the music publisher.  In particular, whilst the songwriter was required to assign his rights to the music publisher for a period (which grant could be automatically extended in certain circumstances), there was no requirement for the music publisher to publish the works. This could have meant the songwriter earning nothing from his efforts if the works went unpublished.  

Similarly, in the recorded music context, the singer Holly Johnson (of Frankie Goes to Hollywood) was able to resist an injunction preventing him from starting a solo career with another record company.   The Court of Appeal upheld the finding that the recording contract and musical publishing contracts entered into by the group were unenforceable for restraint of trade.  The provisions as to duration of the recording agreement were 'grossly one-sided', as the agreement could have potentially lasted 8 or 9 years, during which time, the group could only record for the record company, but the record company could terminate the agreement at any time by not exercising an option, were free in its discretion not to release any records made by the group and could prevent the group performing their own compositions without record company consent.  

As a result, in the recorded music context, record deals have tended to be for a lower number of albums, although the record company's rights in the recordings themselves are typically for the duration of those rights (i.e. the copyright term).  The shorter recording term gives artists the freedom to move to another record label as their career progresses and the initial recording contract comes to an end.  However, it does not afford an artist any ownership of copyright in recordings made during the initial contract.  An artist may therefore be saddled with relatively low royalty rates for earlier successful recordings and be left with no real ability to control the future exploitation of his back catalogue.  The rights in the recordings will remain for the entire term of the rights with the original record company.  Young artists signing an initial deal with a record company may lack bargaining power / experience to insist on a different model of control of recordings (such as a licensing arrangement).  

The Duran Duran case

In the recent Duran Duran case , the artists had entered into recording agreements in 1980 which contained a worldwide assignment to the record company of copyright in works written or composed by the band members during the recording term.  The works created in this period included some of Duran Duran's best-known songs (such as 'Girls on Film', 'Rio' and 'Hungry Like the Wolf'). At the time, the band members were all in their late teens or early twenties and likely had not considered (or been advised of) the implications of assigning their copyright works in their entirety to the record label.   

The musicians sought to exercise a right provided for in the more artist favourable regime in the United States (in particular, section 203 of the United States Copyright Act 1976). This provision allows an author to terminate a transfer or licence of copyright after a period starting 35 years after the date of the initial grant. The legislation provides that the ability to terminate a transfer or licence can be exercised whether or not there is any agreement to the contrary.  When this right is exercised, all rights in the remaining copyright term of the work revert to the artist.  The musicians issued notices of termination in respect of their US copyright works, but their ability to do so was challenged by their record label (formerly part of EMI, now part of Sony), who sought an injunction preventing them from doing so. 

The judge therefore had to assess whether, given: (i) the outright assignment of rights made to the record label in the 1980 contract; and (ii) the absence of a right to terminate the grant under English law, the right under US law to terminate a grant of rights was ousted by the terms of the English law governed contract. 

Neither party chose to put expert evidence on the US law of copyright (and the termination right) before the court.  The judge acknowledged that the purpose of the US legislation is to protect authors from the consequences of transactions which involve assignments of copyright works for the full terms of those copyright works.  However, the judge dismissed the argument that a term of a contract prohibiting an artist from exercising the section 203 termination right should be unenforceable as a matter of English public policy.  The judge applied English law contractual interpretation rules, to ascertain the meaning the document would convey to a reasonable person having all the background knowledge which would have been available to parties at the time of entry into the contract.  He concluded that the language in the contract vesting the copyrights in the record company was wide and general and would have conveyed to a reasonable person (with the relevant background information) that the intention was for the entire copyrights to vest in the record company for their full term.  This therefore prevented the artists exercising their rights under section 203 of the US Act.  It is possible that had the US policy underlying the legislation been fully tested and expert evidence been put before the court, that the judge might have taken a different view.    

Had the band been successful in their attempt to exercise their section 203 rights, they would only have re-acquired the rights to their works in the US.  However, as there are significant differences in the regimes protecting authors' rights, with some jurisdictions such as Germany offering a 'look back' right (entitling an author to revoke a grant of rights in respect of a means of exploitation of rights unknown as at the date the contract was entered into) or similar models of reversion of rights (such as Slovenia), it remains an open question whether this case could herald a shift to get questions of non-English law put before the courts and properly addressed with the help of expert evidence.

The Digital Single Market Directive; proposed transparency obligations

This decision also needs to be considered in light of the proposed Digital Single Market directive , published in September 2016, which introduces new transparency obligations, requiring member states to ensure authors and performers receive sufficient information about revenue deriving from the exploitation of their works. It also provides that performers and authors must also be afforded the opportunity to request additional appropriate remuneration from the exploitation, in circumstances where 'the remuneration originally agreed is disproportionately low compared to the subsequent relevant revenues and benefits derived from the exploitation of the works or performances' (Articles 14-16). It also mandates the introduction by member states of a voluntary alternative dispute resolution mechanism for disputes relating to the adjustment of remuneration due under a contract. The Commission explained the rationale for the introduction of this transparency right in the recitals to the proposed directive, expressly recognising: (i) the unequal bargaining position of the parties at the time the transfer or licence of rights is granted; (ii) the need for information from the counterparty to enable the transferor/licensor to assess the continued economic value of their rights; and (iii) the fact that contracts for exploitation of rights tend to be long term in nature, with few possibilities for authors or performers to renegotiate the terms (Recitals 40-43).  Whilst this mechanism would not afford Duran Duran the ability to obtain full artistic control of their earliest recordings, it is a sign that (if the directive is implemented into English law) the English Courts may not in future be able to treat the contractual provisions themselves as the last word on the deal struck between the parties many years before.   

Update [Feb 2017]

Duran Duran subsequently sought leave to appeal this decision, and on 3 February 2017, Arnold J granted the band leave to appeal to the English Court of Appeal. No date has yet been set for the appeal hearing.  This development is against the backdrop of Paul McCartney launching proceedings in January 2017 in the US Courts against Sony/ATV, requiring them to confirm that they will transfer the US copyrights in certain musical compositions to him on the date the US termination dates are reached (from 2018 onwards)