Taking Care Of The Music Industry's Needs

Monday, January 31, 2011 - 01:00

Editor: Chuck, you have represented many notable entertainment companies such as Sony, Arista and Bertelsmann A.G. as well as The Recording Academy, which presents the Grammy Awards. You have also represented an impressive constellation of stars from U2 to Lady Gaga. Please describe your practice area. What are your key areas of representation?

Ortner: We represent the entertainment industry in virtually every area with a focus on the music industry primarily. Much of what our group does deals with litigation (or dispute-resolution-) -oriented matters and, where possible, litigation avoidance. However, we also devote considerable time to significant transactions, some of which arise out of disputes. Our goal is to provide the broadest possible range of representation to the entire industry.

One of the many benefits of being at Proskauer is the firm's tremendous depth in areas outside the litigation arena. We work with colleagues who have great experience in dealing with mergers and acquisitions, tax, and other disciplines in the entertainment and sports industries. For example, we recently handled the sale of one of our client's music publishing businesses. The success of that deal depended on the skills and experience of our corporate, tax and executive compensation partners. Several years ago, we represented The Recording Academy in its negotiations with Anschutz Entertainment Group, which led to the establishment of the Grammy Museum in Los Angeles. Our real estate, corporate and tax partners played a key role in that transaction. Sometimes, we call upon our immigration lawyers who handle adoption issues for celebrities who want to adopt a child outside the U.S.

Editor: Please describe the copyright case Humphrey v. Def Jam and CBS Records, in which you represented the defendants .

Ortner: Lawrence Humphrey was an 18-year-old who alleged that he wrote and recorded all of the songs that appeared in an album recorded by rap artist LL Cool J. He claimed that he went down into LL's grandmother's basement, where he recorded an album with LL on two tape recorders, and that he gave one of the tape recordings to LL. A few months later, Humphrey heard the album on the radio, so he hired two law firms to represent him in bringing a copyright infringement action.

In defending our clients at trial, we proved that the alleged original recording was actually a copy of the client's album. We accomplished this by showing that the so-called original (Humphrey) tape had not been manufactured until four months after the commercial release of the recording by CBS Records, the distributor. Thus, the LL Cool J album was not a copy of Humphrey's so-called original album; it was a copy of the album that he purchased at a record store. Through the testimony of the tape manufacturer, TDK, our team was able to trace back the actual date of manufacture, the factory in Yamaguchi, Japan and its manufacturing line and shift through code numbers. Obviously, our client's album could not have been a copy of the plaintiff's work. The judge in that case imposed financial sanctions on the lawyers to pay for the cost of the defense of the case.

Editor: Sandra, you also have represented a distinguished array of clients - Madonna, Britney Spears, Sting - along with many record companies and music publishers including Sony Music Entertainment, BMG Music Publishing, plus many others. Do you also counsel clients in many other areas besides litigation?

Crawshaw-Sparks: In addition to handling music industry-related litigation over the last 20 years or so, I have acted as sort of an outside general counsel for our client's in-house business and legal affairs departments. Many of our clients call me just to bounce ideas off me or to talk to me about the wide array of legal issues that come up on a day-to-day basis. For example, I have been asked about how to improve a client's recording and publishing contracts, employment-related issues, or issues related to the rules governing "abandoned" royalty accounts, and the like. It is a fascinating part of my job and one that makes every day interesting.

Editor: How has the area of privacy rights for entertainers changed over the past decade? What kinds of challenges have social media platforms such as Twitter and YouTube presented?

Crawshaw-Sparks: Most of the time when privacy issues come up for our clients, it's because there is an unauthorized book or article being written about them that is unfavorable, or there are photographs of our clients that were intended always to be private that somehow made their way into the media. Ten years ago, if we got a call from a client whose private wedding ceremony was surreptitiously photographed, we would, typically, also have some notice or idea as to where those photographs might first surface, and we could prevent their publication. Today, most typically, we are not contacted by our clients until the private material is literally all over the Web. It is less a matter of trying to stop the publication of this private material than it is a matter of trying to have it removed, and sometimes - if you can prove damages - seek redress. We keep in mind, however, that sometimes when you take steps to remove content from the Web, it stirs up more interest in the material than anybody really has in the content because all of the social media platforms have desensitized the public to private information.

Editor: Have you noticed an uptick in cases involving new media?

Crawshaw-Sparks: With the advent of new technologies, the kinds of litigations that we address are different. We see less enforcement of personal services contracts, such as recording contracts, and more copyright infringement litigation involving the Digital Millennium Copyright Act, such as the current cases against YouTube. Also, the record companies are reluctant to get involved in big-ticket litigation against each other because they are collectively fighting piracy and unlawful downloading battles and don't necessarily have a lot of interest in suing each other or trying to woo away artists from their competitors, as in former times.

Ortner: The new technologies raise some interesting issues, some of which have turned into litigation and some of which have resulted in negotiation. One major issue we've counseled clients about for a number of years relates to whether the sale to a consumer of a digital download is a sale of a recording or is a license for purposes of calculating the artist's and songwriter's royalties. How it is legally characterized affects the royalty rates to the artist. For example, a contract might provide that an artist may get a 20 percent royalty rate on the sale of a record, whereas the standard form contract that was adopted by the industry long before anybody thought about anything like iPods and downloads provided that when recordings are licensed by the record company, the artist gets 50 percent of the record company's proceeds.

Crawshaw-Sparks: In addition, the 20 percent royalty rate applies to an album, so if only one song is downloaded from an album with 10 songs, the artist gets only one-tenth of 20 percent, or two percent.

Ortner: Those contracts were written that way because there was only a limited amount of licensing activity - it was ancillary to the core of the typical recording contract, and one dealt with numbers in the range of $10,000 to $100,000 for a license to use a recording in a commercial or for a motion picture. In the new world of iPods and the like, if the agreements between the record companies and digital distributors of recordings, like Apple, are interpreted as being licenses, then all the downloads and all the revenues thus generated would require the record companies to split 50-50 with the recording artist. This would be an enormous burden - a vast difference from the two percent they might pay as a royalty. This is currently the issue in FBT Production v. Universal Music Group . Another change in the relationship between artists and record companies results from the revenues artists make on tours and from sales of merchandise. Today, record companies make deals with new artists allowing the companies to share in those revenues because the amount of revenue that is generated from the sale of records has diminished dramatically. This is because of the massive amount of copyright infringement due to illegal downloading of recordings and the fact that consumers no longer have to buy the entire album but can choose one song if they wish.

Editor: What do you consider to be some of the more important rulings and/or developments in 2010? Are there cases you are closely following?

Crawshaw-Sparks: In addition to FBT Productions v. Universal Music Group, another group of cases are those pending against YouTube in the Second Circuit - one filed by Viacom and the other on behalf of a proposed class of independent music publishers and other content owners. That case is very important to all Internet-affected industries - the music industry, software companies, media companies, artists, publishers and the like. The ultimate decision in those cases will affect how, and the extent to which, websites can benefit from infringing content on their sites that exists with their knowledge and is subject to their control. While knowingly and deliberately seeking to benefit from the presence of infringing content on its site, YouTube argues that it is entitled to the protection of the Digital Millennium Copyright Act Safe Harbor provision, which essentially provides that a site is only responsible for removing content about which it has specific knowledge through take-down notices issued by the content owner, and that its other knowledge of infringement, its right and ability to control content on its site, and its actual intent to induce infringement on its site are irrelevant. The Southern District of New York agreed with YouTube, which means, basically, that an inducer of copyright infringement with full knowledge and control of the unauthorized content on its site can exploit the commercial benefit of that content and only needs to remove it if and when it receives a take-down notice. The plaintiffs argue that the district court misapplied the DMCA - that the act is not intended to immunize a willful inducer of infringement, but rather the safe harbor provision was to give a qualified immunity to a passive, innocent, Internet intermediary, not a party that actually benefits from the presence of infringing content on its site with knowledge of that illegal content. So, both cases are now on appeal to the Second Circuit, paving the way for a landmark ruling in the safe harbor area. The decision should come sometime after this spring.

Editor: What is the most challenging matter that you have encountered in recent years?

Crawshaw-Sparks: One such area is management disputes between artists and their managers who have a falling out. There are always thorny issues relating to proof because of the close relationship between the artist and the manager and the manner in which they communicate with each other. Very little of their interaction is in writing, and even when it is, it is typically in shorthand that only the parties really understand. There is also, typically, a very high level of emotion over the split, which is really like a divorce, so getting people to think rationally about resolving those kinds of disputes is always a big challenge. When the relationship is irretrievably broken, it needs to end. It is rare that you wind up in a courtroom and achieve a result that you couldn't have achieved sitting across the table from one another. But it is a challenge to get both sides to the table.

Editor: Do you take such disputes to arbitration or mediation?

Crawshaw-Sparks: It would be great if more management agreements had arbitration or mediation clauses because this type of dispute is really a private process relating to the personal relationship between the artist and the manager.

Ortner: Last year, we handled a major dispute for several iconic songwriters who are also recording artists against their publishing company. It was a very complicated case and could have been very costly for our clients if the dispute had gone to trial. By having the right mediator, we achieved a sensational result for our clients, and, in the process, re-established a good relationship between the parties.

Please email the interviewees at cortner@proskauer.com or scrawshaw@proskauer.com with questions about this interview.