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Rock and Roll, Copyright Department:

On a friend's recommendation, I watched Peter Bogdanovich's wonderful documentary on the early years of Tom Petty & the Heartbreakers (called 'Runnin' Down the Dream') which just aired on the Sundance cable channel. [I'm a huge Petty fan, as it happens - a good deal of his stuff ranks up there with the truly great masterpieces of rock and roll, imho]. It turns out that Petty played a not-insignificant role in a rather important legal development in the mid 80s.

Petty, like a LOT of musicians, had been so happy to get any recording contract at all, when the band was just getting started, that he didn't think much about what it was that he was doing. He had signed a "publishing" contract — as Petty describes it in the film, he really didn't know, when he signed the contract, exactly what "publishing" meant, assuming that it had something to do with the distribution of sheet music; little did he know that the "publishing" contract he signed had basically transferred his future royalty payments for all public performance of his songs (include their "performance" on the radio, where the really big bucks are) forever.

It's an old story, of course, and we've all heard it a million times. But Petty fought back in an interesting, and somewhat novel (at the time) way: he declared bankruptcy. A bankrupt is allowed to void all "executory" contracts — contracts to be performed in the future — so as to allow the "fresh start" that bankruptcy is supposed to provide. Petty had to get the court to declare that his publishing contract was an executory contract. It's a nice little legal issue. If he had "transferred his copyright" to the publishers, then it's clearly not an "executory contract" that the court can declare void; if you sell you house in 2007 and declare bankruptcy in 2008, you don't get your house back. But if the contract is treated as an "assignment of his ongoing royalties" to the publisher, that's a different story — that's a contract to be performed in the future, and he can get out of that one.

Petty (and a number of other artists at around the same time) were successful in persuading the courts to void these publishing deals (allowing them, of course, to renegotiate them on far better terms).

What I find particularly interesting about the episode is the way Petty talks about it in the film - which he does, at length, and quite eloquently. To Petty, the significant thing about the fight was that he had signed the publishing contract "under duress" — forced to swallow outrageous and onerous terms by a greedy corporate monster — and he clearly feels vindicated by his victory in court. He may be right that he had been forced to swallow outrageous and onerous terms by a greedy corporate monster. But that's not why he won — it had nothing to do, in fact, with why he won. He won because the contracts were executory and therefore voidable — duress and the rest of it had nothing to do with that. Except, of course, that it was the "duress," and the perceived unfairness of it all, that helped strengthen his cojones to fight it in the first place.

Tony Tutins (mail):
Knowing how the recording companies treat their artists makes the RIAA less sympathetic as a copyright infringement plaintiff.
7.9.2008 10:42am
Wayne Jarvis:
It's about Tom Petty & The Heartbreaker, but the producers entitled the film with a Tom Petty solo project (off Full Moon Fever). Its similar to naming a doc about the Beatles "Imagine."

Can someone explain why things like this bother me? What is wrong with me?
7.9.2008 10:55am
martinned (mail) (www):
IMHO, a contract like this would be OK, as long as the record company makes sure that the artist understands what they're signing. Ordinarily, one wouldn't impute such an obligation to a contracting party, but in case of a disparity of knowledge and experience like this one, the outcome comes dangerously close to being an unconscionable bargain (no duress, of course).

If everybody understands what they're signing, it would likely still be a good deal for the artist, as long as the contract doesn't cover too many albums.
7.9.2008 11:02am
Benjamin Davis (mail):
There was no legal duress here - no improper threat, inducing him into the contract, with no reasonable alternative and certainly no gun to the head type duress that would vitiate his manifestation of assent.

There might be the more colloquial kind of duress - the duress from stress, but that is not going to be legally actionable. The bankruptcy gambit (wonder if it would work under the new more restrictive bankruptcy laws) was a brilliant choice by his lawyer to get Petty where he needed to go and more power to that lawyer. Sometimes it is great to not being willing to back down!

The revenue stream at the heart of the contract suggests more than what an executed contract could be said to do. Payment for future performances that have not been booked yet would appear to say the contract has not yet been fully performed and therefore must be executory.

Fun stuff! I am not freefalling!

Best,
Ben
7.9.2008 11:26am
Jim at FSU (mail):
I thought there was a carveout in bankruptcy law for executory contracts involving specific performers who can't be replaced. Didn't Tia Carerra try to get out of an acting contract by this route and got rebuffed. It was in my bankruptcy law class. Am I mistaken or does Tom Petty simply predate this caselaw?
7.9.2008 11:27am
PatHMV (mail) (www):
To be sure, the record companies are generally regarded as sleazeballs, but....

It's easy to be critical of such onerous contracts when looked at in isolation, but in reality the record companies have to sign an awful lot of contracts in order to stumble upon a few Tom Petty &the Heartbreakers. Like any venture capitalist, the record companies are advancing capital to undercapitalized businesses (in this case, a music act). The early investors who do that always get the right to a hefty cut of future profits, in return for the very substantial risks of loss they take, having to invest in a bunch of losers for every winner they find.

Also, this after-the-fact whining by people in Petty's position is unseemly at best. At the time he entered into the contract, he wanted THEIR money and support more than he wanted some hypothetical future profits from his performances. Yeah, artists are on the whole notoriously bad businessmen, but that's their problem. As long as the record company didn't hide anything, didn't lie, then as far as I'm concerned, Petty has nobody to blame for that contract other than himself.

Now, if the sophisicated record companies and their lawyers could get screwed because their high-priced lawyers writing the contracts and structuring the business deals overlooked what would happen in bankruptcy, well that may indeed be a bit of poetic justice.
7.9.2008 11:32am
DR in Houston:
If he hadn't signed it, he mighta' just been a nobody.
7.9.2008 11:32am
Fub:
David Post wrote July 9, 2008 at 9:36am:
Petty (and a number of other artists at around the same time) were successful in persuading the courts to void these publishing deals (allowing them, of course, to renegotiate them on far better terms).
Makes sense to me, except for the part about renegotiation with the same outfit that had previously screwed him. I'd find another publisher.

Fool me once, shame on you. Fool me twice, shame on me.
7.9.2008 11:34am
Tony Tutins (mail):
Unlike an acting contract, where the producers hired a particular star for her star qualities and her particular appeal to the public, "transferring his future royalty payments for all public performance of his songs" does not require any particular performance on Tom Petty's part. Taking it at face value, it does not require him to write even one more song.
7.9.2008 11:36am
Tony Tutins (mail):
The early investors ... get the right to a hefty cut of future profits, in return for the very substantial risks of loss they take, having to invest in a bunch of losers for every winner they find.

So the earnings of those with real talent are taken from them to make up for the weakness of the many talentless drones the recording companies were stupid enough to sign. Such redistribution of earned income sounds like socialism to me.
7.9.2008 11:39am
PatHMV (mail) (www):
Funny, Tony, it sounds like capitalism to me. The essence of capitalism is that capital is invested in many businesses, some of which will succeed and some of which will fail. There's no way of absolutely knowing, ahead of time, into which of those two categories any particular business will fall. You can't restrict the availability of capital to only those who are guaranteed to succeed. There's no such thing as a risk-free investment. The high levels of risk are repaid by similarly high levels of return on the successful investments.

From a capitalistic perspective, a band is just another business like a bakery or a retail store. It starts very modestly, with an idea and some capital. Most bands, like most new restaurants and businesses, fail. Others do ok, with modest growth and a life span of 5 or 10 or 20 years. A few succeed outrageously and become McDonalds or Walmart. The capitalist took a chance on the new businesses before anybody knew what the end result would be. It's the farthest POSSIBLE thing from socialism that they get a high return on their investment when the business succeeds.

Socialism would be begging for money when you don't have any, and then asking for the government to intervene to get you out of the obligations you agreed to when you got that money.
7.9.2008 11:55am
martinned (mail) (www):
Just wondering, does the doctrine of unconscionability actuall exist in US law? I know it exists in the UK, and in the continent, but it seems like the kind of thing US law wouldn't be very accomodating towards.
7.9.2008 12:25pm
Geest:
Petty never really made a distinction between his solo albums and his Heartbreaker albums. Each member of the Heartbreakers plays on at least one track of "Full Moon Fever," and Mike Campbell plays lead guitar on pretty much everything Petty has ever done.
7.9.2008 12:28pm
whit:

Petty never really made a distinction between his solo albums and his Heartbreaker albums. Each member of the Heartbreakers plays on at least one track of "Full Moon Fever," and Mike Campbell plays lead guitar on pretty much everything Petty has ever done


Generally true, but the documentary (I have it on DVR right now and will watch it again) showed that the members weren't exactly thrilled about FMF.

I like the story about (I think it was the drummer) who kept complaining about how dumb one of the songs was, and that he didn't want to play on it anyway. the song? Free Falling. lol

Disclaimer: I played in bands in high school and college. All singers are egotistical dorks and the true geniuses are the guitarists!! :)
7.9.2008 12:35pm
hattio1:
Jim at FSU,
I have to agree with Tony Tutins on your question as to why this isn't specific performance ala the actor's contract. Tom Petty has already "performed" this in the studio, and the contract would still actually apply (as I understand it) even if Tom Petty hadn't been the one to make the song famous, but rather it was covered by the Rolling Stones or whoever.
7.9.2008 12:46pm
hattio1:
Whit,
I KNEW there must be something explaining your moral bankruptcy besides just you being a cop. You're a guitarist!!! Everyone knows the true backbone of the band is the bassist and drummer. They are the clasped hands that boost the guitarist, lead singer, whoever, over the wall of being yet another mindlessly soloing egotistical freak and put everything in perspective.
7.9.2008 12:48pm
Pitman (mail) (www):
Bruce Springsteen was involved in a large lawsuit in the late 1970's with his manager Mike Appel over the rights to his music. In the early 70's, he signed away most of his rights as an artist while literally leaning on the hood of car in a parking lot. Eventually they settled, but not after a few years in which he was unable to record any music.
7.9.2008 12:52pm
Happyshooter:
I am not a bankruptcy attorney. Would filing a UCC-1 on the music allow the music company to avoid the contract being voided?
7.9.2008 1:07pm
Happyshooter:
Just wondering, does the doctrine of unconscionability actuall exist in US law? I know it exists in the UK, and in the continent, but it seems like the kind of thing US law wouldn't be very accomodating towards.

Michigan had the doctrine, but our State Supreme Court canceled it at the request of insurance companies.

In an unrelated fact, those same companies are major major donors to our state supreme court races.
7.9.2008 1:09pm
Dan Weber (www):
I see the similarities to VC, too. If you are willing to go hungry or have other income, you can keep your band/company independent until it's good/big/famous enough to negotiate a good deal. Otherwise you're up the creek.

Labels might even be better than VC, because at least you have multiple labels competing. VC's tend to move as a herd of sheep.
7.9.2008 1:10pm
martinned (mail) (www):
@Happyshooter: Why did insurance companies have a problem with the doctrine of unconscionable bargain? It doesn't seem like the kind of thing that would come up in their part of the law.

Wikipedia mention a Federal case:

"The leading case on unconscionability in the United States is Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). In this case, the plaintiff, a retail furniture store, sold multiple items to a single mother on a pro rata credit basis."

(That's the full extent of what they write about US law.)
7.9.2008 1:15pm
Ben P (mail):

Funny, Tony, it sounds like capitalism to me. The essence of capitalism is that capital is invested in many businesses, some of which will succeed and some of which will fail. There's no way of absolutely knowing, ahead of time, into which of those two categories any particular business will fall. You can't restrict the availability of capital to only those who are guaranteed to succeed. There's no such thing as a risk-free investment. The high levels of risk are repaid by similarly high levels of return on the successful investments.



The missing pat of this is that due to the specific nature of this business the Record Companies were able to pass "high levels" of return, and depending on who you talk to border on unconscionable ones. They were able to continually do this because they controlled the sole means of accessing the market among a small number of large record companies. (at least under the old model, the internet has substantially changed things)


Let's say a given business owner has two possible sources of revenue derived from a common source. Maybe one stream from selling products, and another from maintaining those products that have been sold.

An investor contacts this businessman and says he's willing to pay to build a factory and provide the businessman with 1 years worth of operating capital.

But in exchange he wants 100% of the profit from each unit sold until he's recouped his investment and 50% of each unit thereafter, and 100% of the profit from the service revenues into perpetuity. He also wants a guarantee that the factory will run for at least 8 years, and a clause fixing damages if the businessman stops prior to that date, but allows the investor to back out at any time.

What sane businessman would sign such a deal? Probably not one that has better options, but for a long time because the only way of "making it huge" was to go through these record companies.

that's why the internet has been a miraculous invention for the music industry, because it has substantially reduced the cost of entry into the business.
7.9.2008 1:15pm
KevinM:
Cosmetically, it couldn't have hurt that, in order to produce the economic value for the record company, Petty literally had to "perform," either live or on record.

Whit: as a guitarist, keyboard player and sometimes bassist, I can't resist an old joke.
Q: How do you get the lead guitarist to turn down the volume?
A: Put some sheet music in front of him.
7.9.2008 1:22pm
martinned (mail) (www):
@Ben P: There were clearly some antitrust issues. But what PatHMV was responding to was the suggestion that this might somehow be "socialism".
7.9.2008 1:25pm
Guest 202:
"But that's not why he won — it had nothing to do, in fact, with why he won. He won because the contracts were executory and therefore voidable — duress and the rest of it had nothing to do with that."

Oh, give me a break. It's the circumstances of 'duress' that led the bankruptcy court to hold that the law concerning executory contracts controlled a set of facts that only arguably fell under that rule. Saying the 'duress' had nothing to do with it is like saying [insert recent 5-4 SCOTUS decision here] came out the way it did because the majority's neutral application of the law, and not because of any personal feelings or political beliefs.
7.9.2008 1:26pm
PatHMV (mail) (www):
Ben... that's why I prefaced everything I said with the disclaimer that the record companies are generally widely regarded as sleazeballs. I think they were so wed to their old business models that they completely screwed up on internet music and they allowed a culture of vast illegal copying to spring up primarily because they wanted to remain utterly tight-fisted control freaks over access, rather than simply make all their catalogs easily available in a convenient format for a reasonable price. Fortunately, competition has brought that price down.

The difficulty, when you have an oligarchically-controlled industry like music has been, is when a court tries to come along after the fact and decide what a "fair" return on investment would be. It's probably less than that 100%/50% profit scenario you outline, but greater than a simple 10 or 20% profit, given the high level of risk in figuring out which acts are going to succeed and which won't.

Interesting that there was never sufficient competition, until the internet brought entry barrier costs down to almost zero, to give the bands much leverage. I suspect that's in part because the number of garage bands who THINK they can be the next Stones vastly outnumber the number of garage bands who can ACTUALLY be the next Stones.
7.9.2008 1:31pm
Happyshooter:
Happyshooter: Why did insurance companies have a problem with the doctrine of unconscionable bargain? It doesn't seem like the kind of thing that would come up in their part of the law.

Michigan has a three year statute for bringing personal injury actions. Guy got hurt in an accident, and his insurance compnay jerked him around for a year asking for more info but never quite being able to pay. He filed suit and the company claimed a one year contract limit.

The trial court said it was unfair because you must have auto insurance in Michigan to drive and all the companies had the same limit periods as a 'take it, or leave it and don't drive' rule.

The insurers didn't like the doctrine, so they had canceled for all contracts.

Rory, 473 Mich 457:

***In this case, the trial court refused to enforce the one-year contractual limitations period contained in the insurance policy issued to plaintiffs. The trial court did so because it concluded that the one-year limitations provision was "unfair," unreasonable, and an unenforceable adhesion clause.***
We hold, first, that insurance policies are subject to the same contract construction principles that apply to any other species of contract. Second, unless a contract provision violates law or one of the traditional defenses to the enforceability of a contract applies, a court must construe and apply unambiguous contract provisions as written. We reiterate that the judiciary is without authority to modify unambiguous contracts or rebalance the contractual equities struck by the contracting parties because fundamental principles of contract law preclude such subjective post hoc judicial determinations of "reasonableness" as a basis upon which courts may refuse to enforce unambiguous contractual provisions.***
7.9.2008 1:41pm
martinned (mail) (www):
@Happyshooter: Thanks.
7.9.2008 1:46pm
ramster (mail):
Wayne Jarvis:

Well it could be worse. You could be like that dude who wrote about 10 comments on whether Obama is a "professor". As far as what's wrong with you, a shrink would probably say it's some kind of borderline autistic spectrum disorder. I'm a bit like that too. My wife finds it endearing.
7.9.2008 1:49pm
Geest:

Q: How do you get the lead guitarist to turn down the volume?
A: Put some sheet music in front of him.

Q: How do you get him to stop playing entirely?
A: Put notes on the sheet.
7.9.2008 2:03pm
Fub:
PatHMV wrote at 7.9.2008 12:31pm:
Interesting that there was never sufficient competition, until the internet brought entry barrier costs down to almost zero, to give the bands much leverage. I suspect that's in part because the number of garage bands who THINK they can be the next Stones vastly outnumber the number of garage bands who can ACTUALLY be the next Stones.
I'm not so sure about that.

I know quite a few professional musicians who absolutely know they'll never be the next Stones. Some actually have contracts with producers and distributors (but not sleazeball RIAA majors). They would much rather perform in relative obscurity making modest money, and even keep day jobs, than sell their firstborn into chattel slavery for a big advance or potentially empty promises of ongoing promotion.

The gift that internet distribution and promotion gives is that they can get a much better return for about the same effort than they could previously. That's where the lower entry costs really count.

Typical comment I've heard: "I made dozens of dollars today".
7.9.2008 2:11pm
Dana:
The doctrine of unconscionability lives on in state laws. In California, look at Graham vs. Scissor-Tail, Inc. 28 Cal.3d 807 (1981) (available for free on Findlaw, which will also give you a list of cases citing the precedent). I glanced at the opinion, but have not checked to see if it's been overruled or limited in the recent past.
Hope that helps,
Dana
7.9.2008 2:29pm
Dana:
The doctrine of unconscionability lives on in state laws. In California, look at Graham vs. Scissor-Tail, Inc. 28 Cal.3d 807 (1981) (available for free on Findlaw, which will also give you a list of cases citing the precedent). I glanced at the opinion, but have not checked to see if it's been overruled or limited in the recent past.
Hope that helps,
Dana
7.9.2008 2:29pm
martinned (mail) (www):
@Dana: Thanks. You actually managed to make me feel guilty for my laziness, since I could have just as easily researched the question myself. So as a counteroffer, how about this: The doctrine of unconscionability has a whole section in the Restatement of Contracts, i.e. s. 208 Rest 2d. Contr. A cursory glance at the (40 pages of) caselaw discussed there indicates that most states have it in one form or another. For Michigan, they have a 1982 case, Lotoszinski v State Farm Mut. Auto Ins., 417 Mich 1, 331 N.W.2d 467, that applies the concept and a 2003 insurance case, Wilkie v. Auto-Owners Ins. Co. (469 Mich. 41, 664 N.W.2d 776) that seems to shoot it down. (Supreme Court of Michigan both times. They also have a 1982 Mich. CoA case that finds a contract unconscionable.)
7.9.2008 2:44pm
Lindsay (mail):
Record companies and music publishing companies are not the same thing.

Record companies do not get performance royalties because there are no performance royalties from sound recordings (except for very limited digital performance royalties from webcasting and satellite radio). When a song gets played on the radio or at a concert, only the writer and publisher get paid.

So for the commenters out there who are criticizing record companies, it's the music publishers who are to blame, at least with respect to the conduct described in David's post.
7.9.2008 2:57pm
Kirk:
What hattio1 said--especially about bassists.

Did you hear about the drummer who got locked in the bass player's car? He had to break the windows to get out!
7.9.2008 3:26pm
The Unbeliever:
Makes sense to me, except for the part about renegotiation with the same outfit that had previously screwed him. I'd find another publisher.

Fool me once, shame on you. Fool me twice, shame on me.
Well, he's dealing from a position of power now, instead of the weaker party who needed the company's cash. I suspect he'd get a great deal now that he has the petty cash (ha ha!... nevermind) to hire a lawyer to look out for his interests.
7.9.2008 3:50pm
hattio1:
Kirk,
I'm a bass player too.

BTW, what did the drummer get on his IQ test???

Drool.
7.9.2008 3:50pm
anonymous_lib (mail):
So, wait a minute. He signed a valid contract ("duress" my ass. He wanted a deal), and later used a legal loophole to get out of if. I have a feeling that if we were talking about someone buying a home, and they decided the payments were a bit too high, and they pulled a similar stunt to get out, that people here would be up in arms.

How about personal responsibility? How about honoring the contracts people sign? Why does Petty get a pass? Seems to me that he just had the money to hire a good enough lawyer to get him out of the contract.

Face it, if this was about some middle class schmuck stuck with a huge mortgage he couldn't afford, you'd all be lambasting him as living above his means, and telling us how much he should suffer so as to avoid moral hazard.
7.9.2008 4:00pm
Happyshooter:
martinned, Rory is the Michigan case I cited above, and it is a 2005 case.
7.9.2008 4:15pm
PatHMV (mail) (www):
Fub, I don't think our respective comments are incompatible. I absolutely agree with you that there's some great music out there by people not particularly aiming to be world famous. But I think there are also a very large number of bands who DO want to be world famous. I also think it's no accident that the people with reasonable desires and reasonable understandings of their own talent level and potential (potential for fame being somewhat independent of actual talent, of course) are the same people that have enough sense to avoid the soul-selling contracts from the RIAA people.

Without the internet, I doubt Kimya Dawson would have ever wound up being the featured soundtrack artist on Juno.
7.9.2008 4:32pm
Ken Arromdee:
So, wait a minute. He signed a valid contract ("duress" my ass. He wanted a deal), and later used a legal loophole to get out of if.

If you consider the existence of a "valid contract" to be of some import, then you must admit the legal loophole was also valid.
7.9.2008 6:20pm
LM (mail):
hattio1 and kirk,

Your anti-drummer bigotry is misguided. Drummers are almost indispensable to musicians.
7.9.2008 6:20pm
R Gould-Saltman (mail):
"Drummers are almost indispensable to musicians."

"Yes; they're extremely useful as ballast to balance and adjust the trim of small planes and boats, and equally useful as barriers to block the more annoying attentions of fans..."


rfgs wannabe/kibitzer percussionist
7.9.2008 6:27pm
LM (mail):
David Post,

He had signed a "publishing" contract — as Petty describes it in the film, he really didn't know, when he signed the contract, exactly what "publishing" meant, assuming that it had something to do with the distribution of sheet music; little did he know that the "publishing" contract he signed had basically transferred his future royalty payments for all public performance of his songs (include their "performance" on the radio, where the really big bucks are) forever.

That's misleading. Public performance royalties are divided equally between a so-called "publisher's share" and a so-called "songwriter's share," both of which initially belong to the songwriter. Under no circumstances would the contract have divested Petty of more than 100% of the publisher's share, i.e., 50% of the total. The songwriter's share is customarily exempt from even the most onerous contracts with the sleaziest publishers.
7.9.2008 6:30pm
hattio1:
LM,
Really, how many bluegrass bands have a drummer? And no, DGQ does not count.
7.9.2008 7:34pm
Fub:
atHMV wrote at 7.9.2008 3:32pm:
Fub, I don't think our respective comments are incompatible. I absolutely agree with you that there's some great music out there by people not particularly aiming to be world famous. But I think there are also a very large number of bands who DO want to be world famous.
Yeah, for the most part I only know musicians who aren't so interested in being the next Stones, so I've got my own sampling bias -- mostly folkie, C/W &bluegrass. They're more laid back than rockers.
7.9.2008 7:56pm
Not a hipster; can you tell?:
Without the internet, I doubt Kimya Dawson would have ever wound up being the featured soundtrack artist on Juno.


And I thought that there were no arguments against the existence of the Internet . . .
7.11.2008 10:50am