<b><i>Commentary:</b></i> As 2013 Approaches, Artist Termination Right Faces Record Labels' Work-For-Hire Argument

The issue is rather simple. If a post-1978 sound recording is a work for hire, then a recording artist will have no termination right. Record labels will own the sound recording for the full term of copyright. However, if a post-1978 sound recording is not a work for hire, then a recording artist will have the right to terminate and recapture the sound-recording copyright 35 years after the initial grant to the record label.

The record labels and recording artists have staked out their conflicting positions. The problem is that no one knows what Congress or the courts will do. Work for hire has turned into the 800-pound gorilla in the room. Other than the pitched battle fought in Congress in 1999 over the unsuccessful attempt by the Recording Industry Association of America (RIAA) to add 'sound recording' to the Copyright Act as a clearly enumerated category qualifying for 'work-made-for-hire' authorial status, the issue has been studiously avoided by both labels and recording artists. Everyone wanted to deal with the problem later.

But now that the issue is here, artist representatives should pay close attention to the procedural requirements necessary to perfect the termination right permitted by Sec. 203 of the Copyright Act. The procedures and requirements are set forth in published Copyright Office regulations. If not done in accordance with these rules, the termination notice could be legally ineffective.

Some artist representatives will no doubt use the termination notice as a pretext to renegotiate a record deal on behalf of the artist. In some instances, a record label will try to have the artist waive the right of termination in exchange for an advance or an increased royalty. Legally, this will not work. A recording artist will have to terminate the prior grant and then exercise another grant. In other words, they would have to re-assign their rights to the record label. This gives leverage to recording artists, especially 'legacy' artists, in any re-negotiation.

For record labels, an adverse resolution in the courts or in Congress would immediately devalue the companies' already devalued assets. In the age of media consolidation and label instability, the 'book value' of a company is crucial. Arguably, this may have been one of the reasons the RIAA pushed for the 1999 amendment. At that time, Universal was on the selling block.

The record labels also need to maintain label assets as the music industry transitions into the digital age. The costs of this transition, and the uncertainty and pain in developing new business models in the face of rampant piracy, which has already cost the labels and artists dearly, necessitates holding on to as many assets as possible.

For recording artists, an adverse resolution to the termination issue would mean the 'second bite of the apple' will never arrive. There would be no termination and reversion of the sound-recording copyright to the recording artist 35 years after the initial grant. This would be very damaging to artists no longer signed to record labels or damaging to the artists' heirs. The business of the 'legacy' artist will be made that much tougher.

Despite the many arguments made by record labels to the contrary, almost all sound recordings made by recording artists, especially featured recording artists, will not be found to be works for hire. Over the record labels' objections, copyright law indeed appears to provide the vast majority of featured recording artists with a termination right.

Courts or Legislation?

The road to termination will not be easy. The first hurdle is whether or not to resolve the problem by means of a legislative or litigation fix. A legislative strategy seeking clarity in the law would offer the most comprehensive solution because it would apply nationally and retroactively. But the overwhelming financial resources of the record labels ' applied with sometimes ruthless effectiveness by the RIAA ' should make any artists' collective group think twice. There is also the
unfortunate truth of politics in Washington, DC. It is much easier to kill a bill or an amendment than it is to pass one. In the age of legislative gridlock, a legislative approach, without more, could be a frustrating experience.

A litigation fix also poses problems. First, an artist willing to test the waters would have to convince a court that a declaratory judgment action is timely. While 2013 is the first year of vesting, with termination notices able to be sent as early as 2003, the Copyright Office has already accepted notice filings. There is also precedent for declaratory judgment actions resolving issues of contested future property interests. So a federal declaratory judgment action would most likely be viable, even if filed before the termination-vesting date.

But that is just the preliminary issue. A recording artist would also have to overcome possible procedural roadblocks. For example, in the U.S. Court of Appeals for the Second Circuit, the general rule is that a claim to authorship, e.g., a declaratory-judgment action, must be brought within three years after the claim accrues. Arguably, a claim accrues when an artist knows or has reason to know that he or she has been deprived of authorial rights. Cases in the Second Circuit have held that an individual author is first deprived of authorial rights in a copyrighted work when a copyright registration filed with the Copyright Office fails to list the individual as an author. Without doubt, almost all copyright registrations filed by record labels name the record label as the original work for hire author and owner.

Copyright-registration issues have always hovered around the edges of the work-for-hire-problem. But in this context, a statute of limitations of three years, triggered by a copyright registration or the use of a copyright registration in a copyright-infringement action, could possibly prevent a recording artist from exercising the termination right. Notwithstanding, I do not believe Congress ever intended to allow a procedural federal-court rule to defeat the purpose of the termination right. And if a federal court is presented with this issue, it would most likely rule that the termination right trumps the statute of limitations. Furthermore, there may be other procedural means to overcome these types of procedural roadblocks used by the record labels.

But even if the procedural problems are overcome, there are still the many substantive issues raised by the record labels. For example, record labels have consistently argued that sound recordings, even by featured artists, qualify as works made for hire. The 1976 Copyright Act allows a record company to claim work-for-hire authorship and ownership in two ways. The first is if the recording artist is a full-time employee of the record label. The second is if the performance of the recording artist falls under one of the nine categories in Sec. 101 of the Copyright Act for works for hire created by independent contractors. A sound recording is not one of the enumerated categories.

Performer Not Full-Time Employee

Most parties agree that a performer is rarely a full-time employee of a record label. Nevertheless, labels have argued the point and a recording artist would have to counter that the traditional factors don't exist for an employer/employee relationship. For example, a record label does not withhold taxes, may not control the means by which recordings are made and does not pay a recording artist on a regular basis. All in all, this is a specious argument for the vast majority of artists.

The only other alternative is for record labels to claim that the performer is an independent contractor and that the recording artist's performance is a contribution to a collective work, which is one of the categories enumerated in Sec. 101 work-for-hires covering independent contractors. But even this claim is weak. An album is generally considered to be one unitary creative work. And when applied to singles, which are becoming more of the norm, there is even a harder collective-work argument.

Another very complex issue needing clarification is the question of who can claim the right of termination. One could argue that any of the creative authors could claim the right. That would include not only the recording artist, but possibly the producer or a featured guest artist. This clearly feeds into the 'chaos' theory raised by record labels when debating the work-for-hire issue. They insist it is better to leave the right with the record labels, otherwise too many authors would make a copyright claim, leaving the work unexploitable. While the record labels position should be taken as a non-starter, the issue does raise a serious question about the scope of the right. Technically, while a featured artist may not qualify as a work-for-hire author, a producer or featured guest artist may qualify. This uncertainty does auger for a legislative, rather than a litigation fix.

All in all, there are many arguments raised by the labels in trying to somehow squeeze recording artists into one of the nine enumerated categories of independent-contractor work for hires. But these arguments all are, on a point-by-point basis, refutable. For further information, I have listed below a few law-review articles that address the points raised by record labels and refuted by artists' legal representatives.

Technically, no court has directly addressed the recording-artist work-for-hire issue. But some courts have addressed the issue tangentially and the results should give recording artists a good deal of comfort. For example, in UMG Recordings Inc. v. MP3.com Inc., 00 CIV. 472(JSR) (S.D.N.Y. 2000), Judge Jed Rakoff of the U.S. District Court for the Southern District of New York clearly stated, as part of informal deliberations in the damage phase of the copyright-infringement trial, that the record-label plaintiff would have a problem if the court were to require the labels to prove their work-for-hire authorship claim in over 4,000 copyright registrations the labels filed with the court. The defendant in that case asserted that the copyright registrations, used to determine as a matter of fact and law that record labels owned the sound-recording copyrights in question, were defective because they claimed ownership as works for hire. The MP3.com case was settled quickly thereafter. One can assume that the threat made by Judge Rakoff had something to do with the record labels' new-found desire to settle.

All artist attorneys recognize that the standard work-for-hire provision in a recording contract is highly suspect and open to attack. In its most basic form, the contracting parties are agreeing to an ambiguity ' to wit, the work is a work for hire, but if it is not a work for hire, then the master-recording copyright is assigned. Sometimes, these clauses are examined and adjudicated in ancillary proceedings in the artist's favor. For example, a recording artist ' in an unreported bankruptcy proceeding in Troy, NY ' supported by only submitted orders and motions papers, successfully challenged a work-for-hire clause. In re: The Dorian Group Ltd., 05-10056-1-rel (Bankr. Ct. N.D.N.Y.). The court declared that the copyrights in the relevant recordings belonged to the artist. Record labels may argue that this was an anomaly because the work-for-hire clause in that case did not also provide an assignment to the label.

Clearly, record labels are very hesitant to take on the work-for-hire issue in legislative matters. When sound-recording issues arise in the legislative process, such as in bills relating to errors in copyright registrations and orphan works, there is a clear tendency to steer clear of the work-for-hire issue. While artists may be wary of taking on the labels, the labels seem to be very wary of taking on artists and Congress, which has a tendency to side with the artists' position on work for hire.

Conclusion

So what is the answer? Should the recording artists look to Congress or to the courts for a solution? Taking all of the above into consideration, the only sensible answer is that artists should do both. The recording-artist community should commence a strong legislative initiative, and at the same time, a test case should be filed ' of course after vetting for the proper plaintiff, court and lawyer. Each initiative will feed on the other. While a test case may take years, the possibility of losing will push the record labels to deal sensibly with a legislative fix.

It is in the best interest of all recording artists to seek a solution that results in as seamless a transition as possible from record-label ownership to recording-artist ownership of sound recordings. Certainly, there may be glitches and it may even look at times like the 'chaos' predicted by the record labels could come true. But a little complexity is an acceptable price to pay for the end result: recording artists owning their own copyrights. Nothing could be better for the music business, and nothing would provide more incentive for recording artists to continue to create ' even in the age of seemingly endless piracy ' the sound recordings that form the core of our business and culture.

• Butler, Susan. 'The Label's Bankrupt: Here's the Good News,' Billboard, July 23, 2005.
• Dearth, Valerie, '1999 Amendment to Work Made for Hire Doctrine Comes Full Circle: Where It Came From, What Its Been Through, and Where it is Now,' 19 Cardozo Arts & Entertainment Law Journal, 2001.
• Frisch & Fortnow, 'Termination of Copyrights in Sound Recordings: Is There a Leak in the Record Company Vaults?,' 17 Colum.-VLA J. L. & Arts, 211 (1993).
• Nimmer & Menell, 'Sound Recordings, Works for Hire, and the Termination-of-Transfers Time Bomb,' 49 J. Copyright Soc'y 387 (2001).
• Nimmer, Menell, & McGimsey, 'Pre-existing Confusion in Copyright's Work-For-Hire Doctrine,' 50 J. Copyright Soc'y 399 (2003).
• Raforth, Ashley, 'Limitations of the 1999 Work-For-Hire Amendment: Courts Should Not Consider Sound Recordings to Be Works-For-Hire When Artists' Termination Rights Begin Vesting in Year 2013,' 53 Vand. L. Rev. 1021 (2000).
• Starshak, Kathryn, 'It's The End of the World as Musicians Know It, or Is It? Artists Battle the Record Industry and Congress to Restore Their Termination Rights in Sound Recordings,' 51 DePaul L.Rev. 71 (2001-2002).

It's time to start thinking about work for hire again. Technically, 2013 is the first year qualified recording artists may exercise the termination right that will result in reversion to them of the copyrights in their sound recordings from their record labels. The issue actually became timely 10 years earlier, in 2003. That was the first year a recording artist had the right to notify a record label of his or her intention to exercise the termination right.

Even the Copyright Office, sensing a new-found focus by recording artists on termination rights, recently called for public comment on proposed rule changes to the termination-right notification and filing process. There is no doubt about it: Whether referred to hyperbolically as a 'time bomb' or more benignly as a 'leak' in the record company's vaults, how the sound recording work-for-hire problem is resolved will have enormous financial and political impact on both record labels and recording artists.

Termination Right

The issue is rather simple. If a post-1978 sound recording is a work for hire, then a recording artist will have no termination right. Record labels will own the sound recording for the full term of copyright. However, if a post-1978 sound recording is not a work for hire, then a recording artist will have the right to terminate and recapture the sound-recording copyright 35 years after the initial grant to the record label.

The record labels and recording artists have staked out their conflicting positions. The problem is that no one knows what Congress or the courts will do. Work for hire has turned into the 800-pound gorilla in the room. Other than the pitched battle fought in Congress in 1999 over the unsuccessful attempt by the Recording Industry Association of America (RIAA) to add 'sound recording' to the Copyright Act as a clearly enumerated category qualifying for 'work-made-for-hire' authorial status, the issue has been studiously avoided by both labels and recording artists. Everyone wanted to deal with the problem later.

But now that the issue is here, artist representatives should pay close attention to the procedural requirements necessary to perfect the termination right permitted by Sec. 203 of the Copyright Act. The procedures and requirements are set forth in published Copyright Office regulations. If not done in accordance with these rules, the termination notice could be legally ineffective.

Some artist representatives will no doubt use the termination notice as a pretext to renegotiate a record deal on behalf of the artist. In some instances, a record label will try to have the artist waive the right of termination in exchange for an advance or an increased royalty. Legally, this will not work. A recording artist will have to terminate the prior grant and then exercise another grant. In other words, they would have to re-assign their rights to the record label. This gives leverage to recording artists, especially 'legacy' artists, in any re-negotiation.

For record labels, an adverse resolution in the courts or in Congress would immediately devalue the companies' already devalued assets. In the age of media consolidation and label instability, the 'book value' of a company is crucial. Arguably, this may have been one of the reasons the RIAA pushed for the 1999 amendment. At that time, Universal was on the selling block.

The record labels also need to maintain label assets as the music industry transitions into the digital age. The costs of this transition, and the uncertainty and pain in developing new business models in the face of rampant piracy, which has already cost the labels and artists dearly, necessitates holding on to as many assets as possible.

For recording artists, an adverse resolution to the termination issue would mean the 'second bite of the apple' will never arrive. There would be no termination and reversion of the sound-recording copyright to the recording artist 35 years after the initial grant. This would be very damaging to artists no longer signed to record labels or damaging to the artists' heirs. The business of the 'legacy' artist will be made that much tougher.

Despite the many arguments made by record labels to the contrary, almost all sound recordings made by recording artists, especially featured recording artists, will not be found to be works for hire. Over the record labels' objections, copyright law indeed appears to provide the vast majority of featured recording artists with a termination right.

Courts or Legislation?

The road to termination will not be easy. The first hurdle is whether or not to resolve the problem by means of a legislative or litigation fix. A legislative strategy seeking clarity in the law would offer the most comprehensive solution because it would apply nationally and retroactively. But the overwhelming financial resources of the record labels ' applied with sometimes ruthless effectiveness by the RIAA ' should make any artists' collective group think twice. There is also the
unfortunate truth of politics in Washington, DC. It is much easier to kill a bill or an amendment than it is to pass one. In the age of legislative gridlock, a legislative approach, without more, could be a frustrating experience.

A litigation fix also poses problems. First, an artist willing to test the waters would have to convince a court that a declaratory judgment action is timely. While 2013 is the first year of vesting, with termination notices able to be sent as early as 2003, the Copyright Office has already accepted notice filings. There is also precedent for declaratory judgment actions resolving issues of contested future property interests. So a federal declaratory judgment action would most likely be viable, even if filed before the termination-vesting date.

But that is just the preliminary issue. A recording artist would also have to overcome possible procedural roadblocks. For example, in the U.S. Court of Appeals for the Second Circuit, the general rule is that a claim to authorship, e.g., a declaratory-judgment action, must be brought within three years after the claim accrues. Arguably, a claim accrues when an artist knows or has reason to know that he or she has been deprived of authorial rights. Cases in the Second Circuit have held that an individual author is first deprived of authorial rights in a copyrighted work when a copyright registration filed with the Copyright Office fails to list the individual as an author. Without doubt, almost all copyright registrations filed by record labels name the record label as the original work for hire author and owner.

Copyright-registration issues have always hovered around the edges of the work-for-hire-problem. But in this context, a statute of limitations of three years, triggered by a copyright registration or the use of a copyright registration in a copyright-infringement action, could possibly prevent a recording artist from exercising the termination right. Notwithstanding, I do not believe Congress ever intended to allow a procedural federal-court rule to defeat the purpose of the termination right. And if a federal court is presented with this issue, it would most likely rule that the termination right trumps the statute of limitations. Furthermore, there may be other procedural means to overcome these types of procedural roadblocks used by the record labels.

But even if the procedural problems are overcome, there are still the many substantive issues raised by the record labels. For example, record labels have consistently argued that sound recordings, even by featured artists, qualify as works made for hire. The 1976 Copyright Act allows a record company to claim work-for-hire authorship and ownership in two ways. The first is if the recording artist is a full-time employee of the record label. The second is if the performance of the recording artist falls under one of the nine categories in Sec. 101 of the Copyright Act for works for hire created by independent contractors. A sound recording is not one of the enumerated categories.

Performer Not Full-Time Employee

Most parties agree that a performer is rarely a full-time employee of a record label. Nevertheless, labels have argued the point and a recording artist would have to counter that the traditional factors don't exist for an employer/employee relationship. For example, a record label does not withhold taxes, may not control the means by which recordings are made and does not pay a recording artist on a regular basis. All in all, this is a specious argument for the vast majority of artists.

The only other alternative is for record labels to claim that the performer is an independent contractor and that the recording artist's performance is a contribution to a collective work, which is one of the categories enumerated in Sec. 101 work-for-hires covering independent contractors. But even this claim is weak. An album is generally considered to be one unitary creative work. And when applied to singles, which are becoming more of the norm, there is even a harder collective-work argument.

Another very complex issue needing clarification is the question of who can claim the right of termination. One could argue that any of the creative authors could claim the right. That would include not only the recording artist, but possibly the producer or a featured guest artist. This clearly feeds into the 'chaos' theory raised by record labels when debating the work-for-hire issue. They insist it is better to leave the right with the record labels, otherwise too many authors would make a copyright claim, leaving the work unexploitable. While the record labels position should be taken as a non-starter, the issue does raise a serious question about the scope of the right. Technically, while a featured artist may not qualify as a work-for-hire author, a producer or featured guest artist may qualify. This uncertainty does auger for a legislative, rather than a litigation fix.

All in all, there are many arguments raised by the labels in trying to somehow squeeze recording artists into one of the nine enumerated categories of independent-contractor work for hires. But these arguments all are, on a point-by-point basis, refutable. For further information, I have listed below a few law-review articles that address the points raised by record labels and refuted by artists' legal representatives.

Technically, no court has directly addressed the recording-artist work-for-hire issue. But some courts have addressed the issue tangentially and the results should give recording artists a good deal of comfort. For example, in UMG Recordings Inc. v. MP3.com Inc., 00 CIV. 472(JSR) (S.D.N.Y. 2000), Judge Jed Rakoff of the U.S. District Court for the Southern District of New York clearly stated, as part of informal deliberations in the damage phase of the copyright-infringement trial, that the record-label plaintiff would have a problem if the court were to require the labels to prove their work-for-hire authorship claim in over 4,000 copyright registrations the labels filed with the court. The defendant in that case asserted that the copyright registrations, used to determine as a matter of fact and law that record labels owned the sound-recording copyrights in question, were defective because they claimed ownership as works for hire. The MP3.com case was settled quickly thereafter. One can assume that the threat made by Judge Rakoff had something to do with the record labels' new-found desire to settle.

All artist attorneys recognize that the standard work-for-hire provision in a recording contract is highly suspect and open to attack. In its most basic form, the contracting parties are agreeing to an ambiguity ' to wit, the work is a work for hire, but if it is not a work for hire, then the master-recording copyright is assigned. Sometimes, these clauses are examined and adjudicated in ancillary proceedings in the artist's favor. For example, a recording artist ' in an unreported bankruptcy proceeding in Troy, NY ' supported by only submitted orders and motions papers, successfully challenged a work-for-hire clause. In re: The Dorian Group Ltd., 05-10056-1-rel (Bankr. Ct. N.D.N.Y.). The court declared that the copyrights in the relevant recordings belonged to the artist. Record labels may argue that this was an anomaly because the work-for-hire clause in that case did not also provide an assignment to the label.

Clearly, record labels are very hesitant to take on the work-for-hire issue in legislative matters. When sound-recording issues arise in the legislative process, such as in bills relating to errors in copyright registrations and orphan works, there is a clear tendency to steer clear of the work-for-hire issue. While artists may be wary of taking on the labels, the labels seem to be very wary of taking on artists and Congress, which has a tendency to side with the artists' position on work for hire.

Conclusion

So what is the answer? Should the recording artists look to Congress or to the courts for a solution? Taking all of the above into consideration, the only sensible answer is that artists should do both. The recording-artist community should commence a strong legislative initiative, and at the same time, a test case should be filed ' of course after vetting for the proper plaintiff, court and lawyer. Each initiative will feed on the other. While a test case may take years, the possibility of losing will push the record labels to deal sensibly with a legislative fix.

It is in the best interest of all recording artists to seek a solution that results in as seamless a transition as possible from record-label ownership to recording-artist ownership of sound recordings. Certainly, there may be glitches and it may even look at times like the 'chaos' predicted by the record labels could come true. But a little complexity is an acceptable price to pay for the end result: recording artists owning their own copyrights. Nothing could be better for the music business, and nothing would provide more incentive for recording artists to continue to create ' even in the age of seemingly endless piracy ' the sound recordings that form the core of our business and culture.

• Butler, Susan. 'The Label's Bankrupt: Here's the Good News,' Billboard, July 23, 2005.
• Dearth, Valerie, '1999 Amendment to Work Made for Hire Doctrine Comes Full Circle: Where It Came From, What Its Been Through, and Where it is Now,' 19 Cardozo Arts & Entertainment Law Journal, 2001.
• Frisch & Fortnow, 'Termination of Copyrights in Sound Recordings: Is There a Leak in the Record Company Vaults?,' 17 Colum.-VLA J. L. & Arts, 211 (1993).
• Nimmer & Menell, 'Sound Recordings, Works for Hire, and the Termination-of-Transfers Time Bomb,' 49 J. Copyright Soc'y 387 (2001).
• Nimmer, Menell, & McGimsey, 'Pre-existing Confusion in Copyright's Work-For-Hire Doctrine,' 50 J. Copyright Soc'y 399 (2003).
• Raforth, Ashley, 'Limitations of the 1999 Work-For-Hire Amendment: Courts Should Not Consider Sound Recordings to Be Works-For-Hire When Artists' Termination Rights Begin Vesting in Year 2013,' 53 Vand. L. Rev. 1021 (2000).
• Starshak, Kathryn, 'It's The End of the World as Musicians Know It, or Is It? Artists Battle the Record Industry and Congress to Restore Their Termination Rights in Sound Recordings,' 51 DePaul L.Rev. 71 (2001-2002).