Clause & Effect: <b>Examining Concerns In Sales of Rights In Compositions</b>

Songwriters often form their own music publishing companies. If the publishing company sells the songwriter's compositions, what rights will actually be conveyed in the sale?

For example, guitarist Vinnie Vincent served as a member of the rock group KISS from 1982 to 1984. During that time, he co-wrote three songs released on the band's “Creatures of the Night” album. Through his Street Beat Music, Vincent entered into a co-publishing agreement with KISS for a joint 50% ownership of the songs by both parties. The agreement stated that Vincent would receive half of the songwriter's royalties, and that half of the compositions' public performance royalties would be paid to Vincent's Street Beat.

After Vincent left KISS due to disagreements, KISS, Vincent and Street Beat negotiated a settlement agreement under which Polygram Records, KISS's label, was instructed to pay Street Beat a 50% publisher share, including songwriter royalties, for mechanical royalties from record sales, but not to pay Vincent directly.

Then in 1992, Street Beat sold rights in the “Creatures” compositions to Horipro Entertainment for $40,000. (The agreement cited Vincent as the songwriter and Street Beat as the seller.) The agreement stated that “Buyer wishes to purchase from Seller, and Seller wishes to sell to Buyer on the terms and conditions set forth below, all of Seller's right, title and interest of whatsoever nature in and to the ["Creatures" compositions] written or co-written by Vincent J. Cusano (aka Vinnie Vincent) (“Songwriter”).”

The specific rights language of the agreement of sale stated:

One hundred (100%) percent of Seller's right, title and interest of whatsoever nature in and to the ["Creatures" songs], including the title, words and music thereof, it being understood and agreed that a one hundred (100%) percent undivided interest in the Compositions and the copyrights therein, covering the use or any manner or type of use of the Compositions, are and shall be the sole and exclusive property of Buyer … Seller acknowledges that included within the rights and interests hereinabove referred to, but without limiting the generality of the foregoing, are the following rights to the extent that such have not been transferred from Seller to Buyer prior to the date hereof: (i) all worldwide copyrights in and to the Compositions, and renewals and extensions thereof, (ii) all rights and interests of every nature now or hereafter existing under and by virtue of any common law rights and any copyrights and renewals and extensions thereof in the Compositions, (iii) all rights and interests existing under all agreements and licenses relating to the Compositions and (iv) Seller's irrevocable grant to Buyer, and Buyer's successors, licensees, sub-licensees and assigns, of the sole and exclusive right, license and authority, throughout the world, as follows: (A) To manage and administer the Compositions, together with the right to receive all income derived from all sales, uses and/or exploitation of the Compositions, in any and all forms, including income heretofore uncollected, other than Songwriter's share of performance income, which shall be paid directly to Songwriter.

In 1994, Horipro sought direct payment of performance royalties to itself, rather than to Vincent or Street Beat, stating in a letter to the performing rights society Broadcast Music Inc. that “Streetbeat/Vincent had previously conveyed the same rights to The KISS Company, thus obviating the agreement with [Horipro] and, in the process, breaching every material representation and warranty contained in the agreement.”

Vincent's Complaint

By 1997, Vincent had sued Horipro, KISS and Polygram in federal court in California. The claims against Horipro alleged that Horipro, through its letter to BMI, had repudiated the 1992 agreement of sale or that the agreement hadn't given Horipro all the rights in the songs that it claimed. Per a forum selection clause in the agreement, the district court transferred Vincent's conversion, constructive trust, and fraud and deceit claims against Horipro to Manhattan federal court.

The Manhattan district court first noted that Vincent had abandoned his repudiation theory by failing to mention it in his brief opposing Horipro's motion for summary judgment. What Vincent had instead argued in his court brief was that summary judgment should be denied if Vincent and Street Beat were separate legal entities (because Street Beat couldn't then convey Vincent's songwriter share), and that there were disputed material facts regarding the agreement of sale due to ambiguous contract language. Granting summary judgment for Horipro, the district court nevertheless concluded, “Rather than signaling a repudiation of the Agreement of Sale, the BMI Letter signifies a clear intent by Horipro to enforce the Agreement of Sale.” Cusano v. Horipro Entertainment Group, 02-3002.

But based on his separate legal entity argument, Vincent insisted that Horipro had acted fraudulently and deceitfully in claiming his writer royalties. The Manhattan district court emphasized, however, that “the Agreement of Sale provided that Horipro was purchasing a 'one hundred (100%) percent undivided interest in the Compositions and the copyrights therein' except for the songwriter's share of performance income. There is no ambiguity in what Horipro acquired.”

The court continued that Vincent's “argument that Street Beat was able to convey only the publisher's share of the Creatures Compositions is defeated by the contract's discussion of the songwriter's share of performance royalties. This clause would be wholly unnecessary if Street Beat merely possessed the publisher's share of royalties. The inclusion of the carve-out in the contract for the songwriter's share of performance royalties necessarily indicates that absent that clause, Street Beat would have conveyed those rights to Horipro. The absence of any similar reservation of the songwriter's share of mechanical royalties indicates that Street Beat possessed those rights and conveyed them to Horipro in the Agreement of Sale.”

The court's conclusion was bolstered by a 1992 negotiation letter from Vincent's lawyer, Ronald Bienstock, to Horipro's counsel, Howard Siegel, that stated: “To confirm our conversation of today, conceptually the [Agreement of Sale] is a buy out of all rights and royalties specifically excluding [Vincent's] receipt of [Vincent's] writer's share of performance royalties.”

Vincent argued that he had told Bienstock to sell only the publisher's share. But in an important point about the attorney/client relationship, the Manhattan court noted that Vincent “provided no evidence at all to support this assertion. The Agreement of Sale is clear and unambiguous in its identification of the rights that Horipro acquired. … If [Vincent] truly intended a different result, he should have made certain that his attorney understood his intentions, and not have abided with the effects of the allegedly erroneous interpretation for many years and only then suddenly awaken to the contract ambiguity he now asserts.”

The Manhattan court then found that the unincorporated Street Beat was a fictitious business name that Vincent had filed in Los Angeles County and not a separate legal entity from the artist. In any case, the business name had expired when Vincent failed to renew it in 1990.

Thus, according to the Manhattan court's ruling, to eliminate questions in similar circumstances about what musical composition rights were conveyed in a sale, a songwriter should establish a separate ongoing publishing entity, make sure that he or she understands the implications of any carve-out provisions in any agreement of sale and raise in a reasonable time concerns about whether the songwriter's attorney has misunderstood client instructions.

Songwriters often form their own music publishing companies. If the publishing company sells the songwriter's compositions, what rights will actually be conveyed in the sale?

For example, guitarist Vinnie Vincent served as a member of the rock group KISS from 1982 to 1984. During that time, he co-wrote three songs released on the band's “Creatures of the Night” album. Through his Street Beat Music, Vincent entered into a co-publishing agreement with KISS for a joint 50% ownership of the songs by both parties. The agreement stated that Vincent would receive half of the songwriter's royalties, and that half of the compositions' public performance royalties would be paid to Vincent's Street Beat.

After Vincent left KISS due to disagreements, KISS, Vincent and Street Beat negotiated a settlement agreement under which Polygram Records, KISS's label, was instructed to pay Street Beat a 50% publisher share, including songwriter royalties, for mechanical royalties from record sales, but not to pay Vincent directly.

Then in 1992, Street Beat sold rights in the “Creatures” compositions to Horipro Entertainment for $40,000. (The agreement cited Vincent as the songwriter and Street Beat as the seller.) The agreement stated that “Buyer wishes to purchase from Seller, and Seller wishes to sell to Buyer on the terms and conditions set forth below, all of Seller's right, title and interest of whatsoever nature in and to the ["Creatures" compositions] written or co-written by Vincent J. Cusano (aka Vinnie Vincent) (“Songwriter”).”

The specific rights language of the agreement of sale stated:

One hundred (100%) percent of Seller's right, title and interest of whatsoever nature in and to the ["Creatures" songs], including the title, words and music thereof, it being understood and agreed that a one hundred (100%) percent undivided interest in the Compositions and the copyrights therein, covering the use or any manner or type of use of the Compositions, are and shall be the sole and exclusive property of Buyer … Seller acknowledges that included within the rights and interests hereinabove referred to, but without limiting the generality of the foregoing, are the following rights to the extent that such have not been transferred from Seller to Buyer prior to the date hereof: (i) all worldwide copyrights in and to the Compositions, and renewals and extensions thereof, (ii) all rights and interests of every nature now or hereafter existing under and by virtue of any common law rights and any copyrights and renewals and extensions thereof in the Compositions, (iii) all rights and interests existing under all agreements and licenses relating to the Compositions and (iv) Seller's irrevocable grant to Buyer, and Buyer's successors, licensees, sub-licensees and assigns, of the sole and exclusive right, license and authority, throughout the world, as follows: (A) To manage and administer the Compositions, together with the right to receive all income derived from all sales, uses and/or exploitation of the Compositions, in any and all forms, including income heretofore uncollected, other than Songwriter's share of performance income, which shall be paid directly to Songwriter.

In 1994, Horipro sought direct payment of performance royalties to itself, rather than to Vincent or Street Beat, stating in a letter to the performing rights society Broadcast Music Inc. that “Streetbeat/Vincent had previously conveyed the same rights to The KISS Company, thus obviating the agreement with [Horipro] and, in the process, breaching every material representation and warranty contained in the agreement.”

Vincent's Complaint

By 1997, Vincent had sued Horipro, KISS and Polygram in federal court in California. The claims against Horipro alleged that Horipro, through its letter to BMI, had repudiated the 1992 agreement of sale or that the agreement hadn't given Horipro all the rights in the songs that it claimed. Per a forum selection clause in the agreement, the district court transferred Vincent's conversion, constructive trust, and fraud and deceit claims against Horipro to Manhattan federal court.

The Manhattan district court first noted that Vincent had abandoned his repudiation theory by failing to mention it in his brief opposing Horipro's motion for summary judgment. What Vincent had instead argued in his court brief was that summary judgment should be denied if Vincent and Street Beat were separate legal entities (because Street Beat couldn't then convey Vincent's songwriter share), and that there were disputed material facts regarding the agreement of sale due to ambiguous contract language. Granting summary judgment for Horipro, the district court nevertheless concluded, “Rather than signaling a repudiation of the Agreement of Sale, the BMI Letter signifies a clear intent by Horipro to enforce the Agreement of Sale.” Cusano v. Horipro Entertainment Group, 02-3002.

But based on his separate legal entity argument, Vincent insisted that Horipro had acted fraudulently and deceitfully in claiming his writer royalties. The Manhattan district court emphasized, however, that “the Agreement of Sale provided that Horipro was purchasing a 'one hundred (100%) percent undivided interest in the Compositions and the copyrights therein' except for the songwriter's share of performance income. There is no ambiguity in what Horipro acquired.”

The court continued that Vincent's “argument that Street Beat was able to convey only the publisher's share of the Creatures Compositions is defeated by the contract's discussion of the songwriter's share of performance royalties. This clause would be wholly unnecessary if Street Beat merely possessed the publisher's share of royalties. The inclusion of the carve-out in the contract for the songwriter's share of performance royalties necessarily indicates that absent that clause, Street Beat would have conveyed those rights to Horipro. The absence of any similar reservation of the songwriter's share of mechanical royalties indicates that Street Beat possessed those rights and conveyed them to Horipro in the Agreement of Sale.”

The court's conclusion was bolstered by a 1992 negotiation letter from Vincent's lawyer, Ronald Bienstock, to Horipro's counsel, Howard Siegel, that stated: “To confirm our conversation of today, conceptually the [Agreement of Sale] is a buy out of all rights and royalties specifically excluding [Vincent's] receipt of [Vincent's] writer's share of performance royalties.”

Vincent argued that he had told Bienstock to sell only the publisher's share. But in an important point about the attorney/client relationship, the Manhattan court noted that Vincent “provided no evidence at all to support this assertion. The Agreement of Sale is clear and unambiguous in its identification of the rights that Horipro acquired. … If [Vincent] truly intended a different result, he should have made certain that his attorney understood his intentions, and not have abided with the effects of the allegedly erroneous interpretation for many years and only then suddenly awaken to the contract ambiguity he now asserts.”

The Manhattan court then found that the unincorporated Street Beat was a fictitious business name that Vincent had filed in Los Angeles County and not a separate legal entity from the artist. In any case, the business name had expired when Vincent failed to renew it in 1990.

Thus, according to the Manhattan court's ruling, to eliminate questions in similar circumstances about what musical composition rights were conveyed in a sale, a songwriter should establish a separate ongoing publishing entity, make sure that he or she understands the implications of any carve-out provisions in any agreement of sale and raise in a reasonable time concerns about whether the songwriter's attorney has misunderstood client instructions.