Posted: December 9th, 2011
By Rob Abb & Matthew McClellan *
As I discussed in a previous blog, there is a looming battle between the major recording companies and prominent performing artists regarding who will own the copyrights to some of the most valuable albums produced in the last 35 years. The issue will be whether the performing artists, including Bruce Springsteen, Michael Jackson, and Bob Segar, among others, may exercise their termination rights. Congress passed the Copyright Act in 1976 and granted authors a new property right – a right to recapture ownership and control of copyrights by terminating past assignments or licenses of those works following a set number of years. The right is granted to authors, including songwriters, poets, novelists, painters, etc., and ensures that grants of even the entire copyright can be terminated, regardless of consideration or what the contract specifies.
We expect that performing artists will begin exercising those rights as soon as the 35-year time limit is reached, beginning in 2013. However, in anticipation of many performing artists beginning to try and exercise their termination rights, the record companies, operating via their umbrella organization, the Recording industry of America (RIAA), have already started trying to prevent losing the rights to their most lucrative albums. To do this, the RIAA has argued that the performing artists’ works were actually “works for hire,” and created “not by independent performers but by musicians who are, in essence, employees of the labels.” Accordingly, artists who attempt to use their termination rights will have to argue that they were independent performers and do not fall within the “work for hire” exclusion.
In anticipation of this upcoming battle, the rest of this blog will set out the test for when a work is “for hire” and when a recording artist would be considered an employee. It will then offer arguments for and against finding that the performing artists’ work was “for hire.” Hopefully this discussion will demonstrate: (1) what a difficult question this is; and (2) the likelihood that courts may not be able to issue a blanket decision and instead may have to conduct a fact-specific analysis each time a record company challenges a performing artist’s attempt to exercises his or her termination rights.
To determine whether a performing artist’s album was a “work made for hire,” we must first look at 17 U.S.C. Section 101. Under the statute, a “work made for hire” is a work “prepared by an employee within the scope of his or her employment.” Accordingly then, we must turn to the federal common law of agency to determine whether the performing artists were employees of the record company. The Supreme Court enumerated several factors (the “Reid factors”) to consider in the analysis in Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989). The blog will now discuss each factor in turn and analyze whether a court would weigh that factor in favor of finding a performing artist to be an employee or an independent contractor.
The Hiring Party’s Right to Control the Manner and Means by Which the Product is Accomplished:
Both the artists and record companies should be able to make compelling arguments with respect to this factor. Largely, this factor may come down to the scope of the deal between the recording artist and the record company. More prominent and established artists are able to make the argument that they have more control in the recording and production process in terms of what producers to work with, where to record, and when the product will be completed, among other factors. For new artists or artists with less clout and bargaining power than more popular artists, record companies may substantially control the production process, deciding what producers and/or songwriters are tapped to work on the project, deadlines for completion, singles to release, and how the product is marketed and distributed.
The Skill Required:
Although cynical critics often enjoy attacking pop music, it is hard to imagine any court finding that it does not take some specialized skill to make music. This factor should weigh in favor of almost any recording artist. Nonetheless, record companies may be considered the “skilled” contributors in situations where an artist “merely” performs and records the works of in-house writers and producers on staff at record companies. Despite the recording artist’s performance talents, depending on the deciding court’s application of the Reid factors, record companies may be able to assert strong and winning arguments on this ground.
The Source of the Instrumentalities and Tools:
As a perfect example of how this analysis will vary depending on which performing artist is trying to exercise his or her rights, it is difficult to predict how a court will analyze this factor. For example, even though many recording artists likely own and use their own instruments to write, practice, and perform their songs, they will generally record the songs in a studio that is owned by the record company. As mentioned earlier, however, more established and prominent artists may be able to record independently of record companies, in their own homes, studios, or in the studios of independent producers not affiliated with the parent record company. This is a common situation in the context of distribution deals between a record company and recording artist.
The Location of the Work:
The analysis of this factor is analogous to the analysis described above for the sources of the instrumentalities and tools factor. It poses a larger question which the courts will be forced to address, and that is whether to focus on private work being done by the artists in writing and practicing their songs, or on the recording process itself. Depending on what courts choose, it will likely have a significant impact on the outcome.
The Duration of the Relationship Between the Parties:
Though some artists have long-term relationships with record companies, for better or for worse, oftentimes, most relationships come to an end for a myriad of reasons (inability to renegotiate favorable terms, creative differences, neglect and lack of support from executives, etc.). An artist may then go on and work for several different record companies throughout his career, depending on his relationship with the subsequent company. Analysis of this factor will be fact-specific to whichever artist is litigating.
Whether the Hiring Party Has the Right to Assign Additional Projects to the Hired Party:
The relationship and success of the artist will play an important role in determining which party is favored by this factor. Interestingly, the amount of control a record company has over an artist likely changes over time, meaning that this factor could weigh in favor of or against deeming the party an employee depending on which specific album is the subject of litigation, and could change in subsequent termination proceedings.
The Extent of the Hired Party’s Discussion Over When and How Long to Work:
Considerations of how long to work will also likely depend on whether the court focuses on the writing/rehearsing process, or on the recording. Most artists can probably control when they want to write songs and practice them, but the record companies who own the recording studios probably retain control over when artists use their facilities. Artist prominence is also an important factor to consider in this context. Artists that command critical acclaim, and/or commercial prowess, may be less bound to deadlines than a new artist or one struggling to find prominence or remain relevant.
The Method of Payment and Tax Treatment:
The method of payment will also be fact-specific to each situation, depending on how the artist negotiates to be paid in his or her contract. However, many artists receive a lump payment and/or royalty payments for their work, which is more akin to how an independent contractor is paid. That is, rather than receiving a set weekly/monthly salary (typical for most employees), many artists are paid per project, which is the way one would be paid as an independent contractor. Accordingly, though it would depend on what specific agreement the artist had with the record company, this factor would more often than not weigh in favor of deeming the artist an independent contractor.
The Hired Party’s Role in Hiring and Paying Assistants:
This factor is closely related to the control and manner of production factor. Often, the album production process involves several players, from the performing artists, songwriters and producers, to engineers, mixers, and even art directors and photographers. Again, where an artist is in his or her career may affect his or her role in who is hired to work on the project. In addition, the scope of the record deal may specify which party is responsible for paying the personnel, regardless of which party solicited the production staff. A recording project that utilizes an in-house production team shifts the balance of this factor in favor of the record company. Contrarily, a recording artist who assembles his or her own production crew, irrespective of who finances the production costs, may fair better in the court’s analysis and application of this factor.
Whether the Work is Part of the Regular Business of the Hiring Party:
This factor will almost always weigh in favor of the record companies, since their regular business is hiring artists and producing albums.
The Provision of Employee Benefits:
Although it would be possible for an artist to negotiate a contract that included benefits, traditionally, the record companies do not provide health insurance and other typical employee benefits to the artists. There are actually non-profit organizations that have taken up the cause of artists and musicians and seek to educate them about health issues while advocating on their behalf.
Ultimately, the party with the upper hand will likely come down to where the recording artist is in his or her career, the artist’s sustained prominence, or lack thereof, and the length of time the artist remained or has remained with the record company. In a termination proceeding regarding content produced during the early part of an artist’s career, the record company would likely be able to assert a strong argument that the work was made for hire, under the scope of the artist’s employment. In most recording deals, the record company has a significant amount of control in the development of new artists, or artists that have not been able to find success just yet. Such artists are more susceptible to the record company’s direction and branding. However, artists that have found success are better able to navigate and control their creative direction. Presumably, these are artists that have garnered a stable and loyal fan-base, after at least a few years of sustained prominence. Termination proceedings for these artists for works produced later in their careers strongly support status as independent contractors.
In any case, the Reid factors are not clear-cut, and as indicated in this blog, the majority of these factors can be argued favorably by either side. The evolution of the music industry will continue to complicate how courts apply this test and how the factors are weighed. The digital music era has ushered in nontraditional artists that gain much attention before being signed to major labels because of their ability to produce and release their music independently with ease via social media such as YouTube and Myspace. These artists come to record labels with pre-established fan bases, where record labels, in theory, provide more widespread distribution. Overlap of the old and new ways of doing things in the music industry further blurs the line between who may be an independent contractor versus an employee doing precisely what he or she was hired to do.
* Rob Abb is a third-year law student at Wake Forest University School of Law and is President of the International Law Society. He holds a Bachelor of Arts and Science in Political Science and Asian Studies from the University of Michigan. Upon graduation in 2012, Mr. Abb plans to practice international law.
* Matthew McClellan is a third-year law student at Wake Forest University. He is president of the Student Bar Association, as well as a member of the National Trial Team and Sports and Entertainment Law Society. He holds a Bachelor of Arts in Media Studies Communication from the College of Charleston. Upon graduation in May 2012, Mr. McClellan intends to enter a graduate journalism program, and eventually practice law in the media and entertainment industries.