Interviewer: ‘What came first, the lyrics or the music?’
George Gershwin: ‘What came first was the contract.’Footnote 1
4.1 Intro
Artists who wish to sign over their rights, and who have a full understanding of the consequences of such a decision, must be free to do so. The relevant criterion is the musician’s objective: if their primary objective is to obtain financial gain and they are willing to relinquish control over the exploitation of their music to achieve this goal, the legal framework should not unduly hinder them. Even so, differences in bargaining power may lead to excessive transfers and unfair situations in practice, when the scope of the transfer is either unwittingly or purposely unclear and/or goes beyond what is necessary for exploitation purposes and/or leads to an undue transfer of economic value stemming from exploitation of protected content.Footnote 2 This rings especially true for early-career musicians, who often do not fully comprehend the scope of a full rights transfer and/or the consequences for their future career.
By way of illustration, while it has been argued that such practices occur less and less,Footnote 3 reference may be made to tying practices where musicians are offered contracts that require them to sign with both the record company and music publishing divisions of a major music company.Footnote 4 In addition, the much-used technique of recoupable advancesFootnote 5 may raise an eyebrow, as corporate partners (in the event of a transfer) still retain ownership after the advances have been recouped entirely. While mere licences have become much more prevalent, full buyouts still occur often, especially for session musicians.Footnote 6 Such practices may be questioned, especially for music that turns out to be a huge commercial success.
The rise of digital and streaming revenue has led to an additional concern as to contracts with so-called legacy artists. This term, used interchangeably with the term ‘heritage artists’, comes from the United States and refers to artists whose catalogue largely predates the introduction of copyright protection for phonograms in the United States in 1972. Many of these artists signed unfavourable record deals, leading to persisting unfair situations.Footnote 7 As to the grant of rights in particular, ‘digital sales’ and ‘streaming’ as forms of exploitation of music did not exist in the analogue age. Deals that predate the internet revolution do not mention these methods of exploitation – or the right to making available, since this had not yet been established then.Footnote 8 Some music companies argued that general transfers of copyright pertaining to the right of communication to the public that took place before the turning of the millennium also include these new forms of exploitation, thus allegedly releasing labels from the obligation to provide musicians with additional remuneration for digital exploitation.Footnote 9 Others have been known to hold out on offering music on streaming services until the artists conceded to low royalty rates.Footnote 10
This chapter analyses limitations to parties’ freedom of contract in the negotiation and formation stage of the contracts under review that are aimed at remedying situations such as those outlined above. These limitations seek to ensure that such contracts have a ‘fair scope’. As yet, awaiting potential EU harmonisation of authorship and initial ownership, there are no relevant harmonising rules at the EU level. Instead, focus lies with relevant restrictions under national law. First, objectionable precontractual behaviour may be sanctioned by precontractual liability, giving rise to damages (Section 4.2). Subsequently, the requirement of consent is subject to certain requirements (Section 4.3). Third, the law limits parties’ freedom as to the scope of rights that may be transferred or licenced and provides tools to determine this scope in practice (Section 4.4). Finally, this chapter turns to the negotiation and formation stage of secondary contractual relationships that may arise once the initial contract has been entered into (Section 4.5), and concludes with an overview of the main findings (Section 4.6).
4.2 Negotiation of the Contract: Precontractual Liability
Parties’ freedom of contract implies a liberty to enter into and conduct contractual negotiations at will. While restrictions to parties’ behaviour in a precontractual context are limited, they must abide by a duty of care, lest liability arise.Footnote 11 The scope of this duty of care is subject to national law. On the one hand, such liability may arise when parties unduly leave the negotiation table, resulting in a right to claim damages for the scorned party under certain circumstances.Footnote 12 On the other hand, parties may have an obligation to actively provide their (prospective) counterparty with certain information.Footnote 13
Negotiating parties are not obliged to tell each other everything and may use previously acquired knowledge to their advantage. A contrary solution would run counter to commercial practice and would significantly deter investment. However, providing incorrect or incomplete information may give rise to liability, either based on a general duty of care or because of a duty of information imposed by law in a specific context.Footnote 14 The scope of a negotiating party’s general duty to provide information is affected by, among other things, the applicable law – as, for example, UK law does not articulate a general pre-contractual duty to conduct negotiations in good faith and instead relies on a number of flexible contractual doctrines to regulate the negotiation contextFootnote 15 – as well as the reasonable expectations and information needs of the counterparty. These are, in turn, shaped by several factors, such as the relevance of the information in view of the contract and the experience of the counterparty. Translated to the streaming age, a corporate partner’s duty to inform will be more extensive if they are faced with a musician at the start of their career.Footnote 16 Conversely, parties may have a duty of research or control, in the sense that it is expected for them to have a certain degree of knowledge about the subject of the contract. Legally speaking, therefore, musicians should not simply accept all information and should conduct a certain amount of prior research.
In addition to these grounds for pre-contractual liability, non-harmonised national regimes concerning unfair trade practices in B2B situations may fulfil a complementary role.Footnote 17 Under these rules, aggressive or misleading behaviour that exploits the vulnerable position of the counterparty may be sanctioned.Footnote 18 Unfair trade practices are usually sanctioned by an injunction that puts an end to the behaviour.Footnote 19 In addition, damages may be claimed.Footnote 20 On a more conceptual level, a prohibition on misleading conduct may imply a specification of the duty to inform the other contracting party before contract conclusion.
Applicable duties of care and information are exceedingly fact- and country-specific and, thus, difficult to generalise. Considerations of distributive justice argue in favour of a duty for both contracting parties to provide certain information. Such a duty may help to counter the information asymmetry surrounding the contracts under review and may prevent parties from exploiting the advantage that flows from such an asymmetry to the detriment of their counterparty.Footnote 21 Indeed, the law should not ‘burden citizens with requirements of knowledge and foresight that they cannot normally meet’.Footnote 22 However, these restrictions on party behaviour are rather vague. This leads to questions of interpretation, the need for a case-by-case analysis and the importance of case law as a source of interpretation. Moreover, the breadth of the relevant concepts makes them susceptible to overreach. A careful and restrictive application is merited, in view of the freedom of contract and the duty of research that applies in B2B situations such as those in the contractual relationships under review.Footnote 23
It may also be questioned to what extent imposing liability on one of the contract partners really contributes to achieving a fair balance between stakeholders’ interests, given the limited impact of such liability on the actual substance of the contractual relationship.Footnote 24 Legal provisions that do have such an impact are discussed below.
4.3 Formation of the Contract: Requirement of Consent
This section focuses on substantive and formal aspects of the requirement of consent that have a particular bearing on the contracts under review, either for reasons of public policy or with a view to protecting one or more of the parties in a contractual context. The subsection on substantive requirements posits the principle of express consent as the rule. Exceptions to this rule that are relevant to this research mainly apply in the audio-visual sector and to music made in an employment context or on commission. Formally speaking, focus lies with applicable requirements of a written contract.
4.3.1 Material Requirements
The requirement of a consensus between parties for a contract to be concluded is one of the main building blocks – if not the foundation – of contract law. Without consent, there can be no contract. The principles regarding vitiated consent have a similar consequence: if a party’s consent is tainted with a defect, the entire contract could be declared non-binding.Footnote 25 For a detailed analysis of the substantive requirements of consent, the reader is referred to detailed legal doctrine on this topic.Footnote 26
Generally, parties’ consent to enter into a copyright exploitation contract must be express.Footnote 27 Express consent may be defined as an authorisation that is explicitly communicated by the consenting party before the exploitation, and is contrasted with presumptive consent, which refers to implicit authorisation deduced from certain strictly defined external factors.Footnote 28 In view of the principle of express consent, presumptive consent to transfer or grant a licence to certain rights to a corporate partner will not often be accepted.Footnote 29 Subsequent to the ECJ judgment in the Soulier case (concerning authors of literary works), presumptive consent is only accepted if (1) the author is actually informed of the intended use of their work and (2) they have been put in a position to prohibit the use if they so desire.Footnote 30 If no actual and individual information is proven, a mere lack of opposition on the part of the author does not equal the requisite consent.Footnote 31 Because of copyright’s no-formalities rule, authors must be able to stop unauthorised exploitation by a third party without having to go through cumbersome formalities.Footnote 32 This conclusion applies to composers. The same must be true for performers, in view of the identical formulation of the relevant provisionsFootnote 33 and the principled equal nature of the rights granted to composers and performers.Footnote 34
The requirement of express consent plays a key role in ensuring informed consent to the contracts under review and ensuing agency of all parties. Therefore, a generalised requirement of express consent in the music industry is merited, also in the streaming age. As to the concrete interpretation of the requirement of express material consent, inspiration may be drawn from the realm of consumer law. A separate, prior, clear and comprehensible expression of parties’ wills may be envisaged.Footnote 35 Musicians must be aware of both the legal and economic consequences of signing a contract with a corporate partner and have ample opportunities to discuss and set fair arrangements in terms of contract performance.Footnote 36 The grant of exploitation rights should not be hidden in the general terms and conditions that apply in a given contractual relationship.Footnote 37
Even so, presumptive consent often exists in an employment context. Regarding music created in (legally presumed or actual) employment situations, the scope of the substantive requirement of consent for the grant of rights differs.Footnote 38 Under Belgian,Footnote 39 FrenchFootnote 40 and GermanFootnote 41 law, in principle, the employee retains their rights unless contractually provided otherwise.Footnote 42 Regardless, case law has accepted that the existence of presumptive consent in case content is created in an employment context under certain circumstances. This is particularly true if the creation process falls within the scope of the performance of the employee’s duties as an employee and thus the object of the contract.Footnote 43
Under French law, presumptive consent may also apply to music commissioned for advertising purposes.Footnote 44 More specifically, the grant of exploitation rights to a corporate partner is (rebuttably) presumed if a certain duty to specify is fulfilled: if the contract specifies a distinct remuneration for each method of exploitation, geographical and temporal scope, the size of the tirageFootnote 45 and the nature of the medium/carrier.Footnote 46 Finally, Dutch law grants initial ownership in a work that has been created according to the design of another person and under the latter’s supervision to the commissioner that fulfils these criteria – a rule that has been held to have a limited scope of application in the past.Footnote 47
A final example of presumptive consent in the relationship between musicians and their corporate partners relates to contributions to audio-visual works. All three regulatory layers under review provide for such presumptive consent under certain circumstances, for both authors and performers.Footnote 48 The rebuttable presumption usually (except in Germany for copyright sensu strictoFootnote 49) gives rise to a statutory assignment of rights to the producer of the audio-visual work at issue and an unwaivable right to equitable remuneration on the part of the artist. Compositions specifically created for and used in a film are excluded from the scope of such presumptions of transfer.Footnote 50
Over the past decade, presumptive consent has led to several preliminary references to the ECJ. First, the Luksan caseFootnote 51 concerned a presumptive, rebuttable transfer under Austrian law of authors’ exploitation rights regarding audio-visual works to the film producer. The principal director of a documentary film sought to challenge this presumption. However, his efforts eventually proved to be fruitless. In its judgment, the ECJ primarily refers to the need to protect the significant and high-risk investments made by producers in the production of both films and phonograms.Footnote 52 According to the ECJ, adequate protection of film producers’ interests is required to secure their income and to allow them to recoup their investment.Footnote 53 Film producers must be able to exploit the films they produce.Footnote 54 They cannot be expected to acquire every contributor’s express agreement.Footnote 55 The presumption of transfer at issue is therefore accepted, not only for the rental right (where it is expressly provided for under EU lawFootnote 56), but also for the reproduction right and the right of communication to the public (where this is not the case).Footnote 57 Importantly, the presumption must be rebuttable.Footnote 58 Moreover, the author’s unwaivable right to equitable remuneration for private copying, the only remuneration right expressly at issue in this case, must be ensured.Footnote 59
A similar line of reasoning was applied in the Spedidam judgment, which concerned the rights of performers. This case concerned a rebuttable presumption of consent under French lawFootnote 60 and the consequences for the exclusive economic rights of a jazz drummer who was a performer in a series of audio-visual works spanning over almost two decades. The performer was considered to have authorised the fixation and exploitation of their performances for the mere fact of having been involved in the recording. The ECJ again held that this was allowable, provided that the presumption is rebuttable and appropriate remuneration is ensured.Footnote 61 The ECJ confirmed that consent may be presumed based on certain actions.Footnote 62
In other words, if the performer has the possibility of entering into contrary contractual arrangements and receives some form of payment for the exploitation, presumptive consent passes the ECJ’s test. This focus on remuneration may be welcomed, given the irrefutable importance of paying artists for their work, but only cautiously so. First, on a conceptual level, the apparent spillover between exclusive and remuneration rights on the part of the ECJ should not be downplayed. The Spedidam case relates to a performer’s exclusive rights of reproduction and making available, which depend on the rights owner’s consent, while the ECJ’s focus lies with remuneration. The mere fact that a performer receives remuneration in case of exploitation does not change the fact that such an exploitation connected with an exclusive right constitutes an infringement without the required consent.Footnote 63 The remuneration does not in itself justify a legal presumption of consent, especially if it is unfairly low in practice. A similar uneasiness may exist regarding the second safeguard – the rebuttable nature of the presumption – since the possibility of reaching contrary contractual arrangements risks remaining largely theoretical. The ECJ’s current, rather lax treatment of presumptive transfers in the audio-visual sector therefore deserves closer scrutiny.
The ECJ attaches importance to the specific nature of audio-visual works, the production of which requires considerable financial investment.Footnote 64 The presumptive transfer of rights is thus primarily a policy choice, the result of the balancing exercise that enables film producers to recoup their investment while safeguarding artists’ right to remuneration. The scope of this presumption should remain limited to what is necessary to achieve this policy objective. Otherwise, the presumption may constitute a disproportionate interference with exclusive artists’ rights.Footnote 65 It should therefore only apply to film producers, not to the benefit of third parties that seek to exploit audio-visual works without having (at least partially) funded their production.Footnote 66 The indiscriminate application of any legal presumption of consent, as seemingly accepted by the ECJ, given that the middleman in the Spedidam case was a public body and not a film producer, is difficult to justify.
Exceptions to the requirement of express consent such as those outlined above should be confined to a workable minimum, such as for certain audio-visual productions and music made in an employment context or for hire – albeit with a marked preference for express consent as regards the latter category. Various legislative solutions exist in this context, as exemplified by the Belgian, French and German legal frameworks. Instances of presumptive consent should moreover be limited to what is strictly necessary to allow the corporate partner to recoup their investment, and/or to an implied licence instead of a transfer in other cases where presumptive consent presents itself as desirable, such as for archiving or other cultural purposes.Footnote 67 Only by limiting presumptive consent to situations where the need arises may agency on the part of all contracting parties be secured.
4.3.2 Formal Requirements
Contracts generally arise solely when certain substantive conditions are fulfilled, without there being any need to fulfil specific formalities.Footnote 68 This is true for copyright exploitation contracts in Belgium, France and Germany. As a result, a written instrument is in principle not a requirement of validity and parties’ consent in principle suffices for a transfer and/or licence to exclusive exploitation rights in music to be valid in those countries.
The contrary is true in the Netherlands and the United Kingdom, save for non-exclusive licences. In those countries, the law requires (either full or partial) transfers and exclusive licences by either authors or performers to be by way of a signed document.Footnote 69 In the Netherlands, in the absence of such a document, the grant may be declared non-binding.Footnote 70 In the United Kingdom, while an oral assignment is ineffective at law, equitable ownership is likely to arise, provided that the necessary consideration is present.Footnote 71
Aside from the general rules of evidence, specific requirements apply pursuant to relevant provisions of copyright contract law. In France, the requirement of written evidence has been made explicit for contracts with both authorsFootnote 72 and performers.Footnote 73 Belgian law expressly requires written evidence vis-à-vis the artist in the context of all copyright exploitation contracts.Footnote 74 The artist, on the other hand, may prove both the existence and content of the agreement by any other means.Footnote 75 In addition, the duty to specify that exists under Belgian and French law indirectly results in a requirement of written form for all copyright exploitation contracts to which such a duty to specify applies.Footnote 76
In Germany, an express requirement of written form only exists if the exploitation contract pertaining to copyright sensu stricto relates to unspecified rights in future musicFootnote 77 and/or future methods of exploitation.Footnote 78 For other copyright exploitation contracts, no such requirement applies, and proof of consent may arise from circumstantial evidence.Footnote 79
A requirement of written proof of copyright exploitation contracts vis-à-vis artists helps enhance their position, without imposing excessive obligations on corporate partners. Conversely, the qualification of a written instrument as a validity requirement appears to be disproportionate.
Procedurally speaking, a written contract leads to increased transparency and legal certainty as to the scope and modalities of the contractual relationship.Footnote 80 This benefits all parties: it is not only the musician(s) that has an interest in securing clear, written contract terms; the corporate partner(s) may also invoke such written contract as a means of proof. This would not imply a move away from the reliance on consensus as a founding principle, since the contractual relationship itself still arises from a consensus between the parties. On a substantive level, the requirement of written proof seeks to ensure that the parties exchange all relevant information, thus contributing to parties’ informed consent.Footnote 81 A requirement of written form indirectly obliges the parties to sit down and negotiate the terms of the contract before its conclusion.Footnote 82 This may help counter the persisting information asymmetry between musicians and their corporate partners and may enhance musicians’ understanding of the contracts they enter into.Footnote 83 It may even have a positive substantive impact on contracts’ substance, as the requirement to put pen to paper directs a spotlight on potentially unfair aspects of the contractual relationship that may otherwise have been left unseen.Footnote 84 Written contract terms may also assist either party in a post-contractual setting, such as in building a case concerning the enforcement of the contract.Footnote 85
Finally, the mere requirement of (briefly) writing down the essence of a contractual relationship would not lead to excessive compliance costs. For contracts with large groups of musicians, the designation of certain representatives of such groups as having the power to grant express consent on behalf of their fellow musicians may act as a mitigating factor in terms of administrative costs. Moreover, the digitised, globalised context clearly points towards allowing purely digital communication and accepting emails and digital signatures, provided that express consent is safeguarded.Footnote 86
The perceived value of the requirement of a written (possibly digital) instrument for purposes of proof vis-à-vis musicians is only the first part of a large puzzle. The fairness of a contract largely depends on its actual content in terms of scope, performance and termination. While the substance and form of consent matter, the main focus is on the legal and factual consequences of such consent, both in theory and in practice. The next step is therefore to analyse the consequences of consent at the moment of contract formation. This brings us to the scope of the rights transferred or licensed as constrained by the legal framework.
4.4 Formation of the Contract: Substance of Rights Granted
4.4.1 Limitations in Theory
4.4.1.1 Prohibition of Transfer
In addition to the requirement of consent, the law sets forth several limitations to the scope of rights granted through copyright exploitation contracts. The four chosen EU jurisdictions include detailed restrictions on the scope of rights granted – and thus what is to be considered as ‘fair scope’. Following the analysis of the general prohibition on transfer of copyright sensu stricto under German law in this subsection, the next subsections focus on limitations as to specific categories of rights, namely as to future music and future methods of exploitation, and complementary limitations based on a reasonableness assessment.
At first sight, the most drastic restriction is the general prohibition on the transfer of copyright sensu stricto under German law, which does not apply to performersFootnote 87 and does not exist in the other jurisdictions under review.Footnote 88 This prohibition flows from the long tradition of German copyright law as a ‘monist’ system that considers exploitation rights and moral rights to be inextricably intertwined.Footnote 89 According to this theory, copyright protection is seen as a personality right and therefore unalienable.Footnote 90 This principle is foundational to German copyright law. Under German law, therefore, rights in compositions may only be subject to a licence,Footnote 91 on either an exclusive or non-exclusive basis.Footnote 92 Given that the economic effect attained through an exclusive licence is substantively similar to that of a transfer, this prohibition does not appear to substantively affect the position of the artist.Footnote 93 In view of this and in combination with the encroachment on freedom of contract that this would entail, there is no pressing need to extend the prohibition on the transfer of copyright sensu stricto to copyright systems with a ‘dualist’ theory, such as the other jurisdictions under review.Footnote 94
On a more general level, the transfer of rights is, in and of itself, largely unproblematic. The question is rather what the musician gets in return – whether agency is secured. Even if the grant of rights is limited to a licence, contract terms may disproportionately favour the corporate partner(s) in terms of scope, exploitation, remuneration and/or termination.Footnote 95 Provided that both (1) freedom of choice and informed consent at the outset and (2) fairness throughout the contract’s performance are secured, it makes commercial and legal sense to allow exploiters to obtain control over all relevant rights. Absent sufficient rights on the part of the corporate partner, exploitation may lead to infringement, which would be undesirable and thoroughly inefficient.Footnote 96 Transfers and licences are not contradictory, but rather complementary routes to exploit protected content, with distinctive characteristics in terms of, for example, risk allocation, and a specific role to play depending on the objectives of either party.Footnote 97
4.4.1.2 Limitations Regarding Future Music and/or Methods of Exploitation
The inclusion of future music in the scope of the rights granted is beneficial to the corporate partner and provides them with a clear incentive to invest in musicians.Footnote 98 This consideration applies to both compositions that have not yet been written and (fixations of) performances that have yet to take place. Granting rights in future music may provide musicians with some degree of career certainty. However, a musician whose output proves to be commercially successful may want to improve the conditions of their contractual relationship with a corporate partner, or even seek new horizons. Extending the scope of a contract to future music may, in such a case, lead to undue musician lock-in. In order to protect early-career musicians against such unfavourable contracts, some national legislators have established restrictions on the inclusion of future music in the scope of copyright exploitation contracts. These restrictions do not apply to the relationship between musicians and CMOs.Footnote 99
The possibility to transfer copyright in future music is not expressly limited under UK law.Footnote 100 However, specific provisions apply as to the prospective ownership of such music.Footnote 101
Conversely, under French law, the global grant of rights in future compositions is null and void.Footnote 102 Once the works have come into existence, the grant may be confirmed.Footnote 103 Apparently, this is done in practice, leading to periodic updates of the contract as time goes by.Footnote 104 No corresponding prohibition exists for performances.Footnote 105
The other chosen EU jurisdictions require the grant of certain rights in future music to be either in writing or sufficiently detailed – not only by way of the general contract law requirement of precision of the contract’s objectFootnote 106 but also through specific requirements. In addition, substantive limitations apply regarding the duration of the grant of rights in future music.
Under Belgian law, the period of exclusivity resulting from any grant of exploitation rights regarding future music must be limited, either in time or referring to a specific number of works and/or performances.Footnote 107 The actual resulting effective period of exclusivity is not subject to an express maximum. The assessment of the reasonableness thereof may depend per sector – for example allowing a longer duration for genres with a longer ‘shelf life’, such as classical music.Footnote 108 In any case, clauses referring to an exclusivity ‘for life’ are deemed unacceptable.Footnote 109 In addition to the limitation in time, the contract must specify the types and genres of works and/or performances to which the grant pertains in a sufficiently precise manner.Footnote 110 Non-respect of these conditions is sanctioned with relative nullity of the grant, meaning that the musician may invoke this.
In Germany, unspecified exploitation rights regarding future music must be granted in writing.Footnote 111 No additional duty to specify applies. Instead, German law grants either party the right to terminate a contract that grants the corporate partner rights relating to future music after a period of five years following its conclusion.Footnote 112 This right may not be waived in advance.Footnote 113 Music that is yet to be supplied upon termination of the contract falls outside the scope of the contractual relationship.Footnote 114 In this way, the German legislator sought to allow artists to mine future business opportunities.
Article 40a German Copyright Act also furthers this objective regarding authors in particular. This provision grants authors who have entered into an exclusive licence contract under a lump sum arrangement the right to grant another licence to another corporate partner after ten years following either the grant of the right or the delivery of the work at issue if this occurs later.Footnote 115 If the author invokes this right and grants an additional licence, the licence of the first corporate partner becomes non-exclusive for the remainder of its duration.Footnote 116 The author may waive this right to grant another licence (1) five years after having granted the rightFootnote 117 or (2) when their contribution is merely secondary.Footnote 118 Other contractual deviations to the detriment of the author are only allowed where these arise from collective bargaining. This right to grant another licence does not apply to performers.
Yet another approach is taken in the Netherlands, where the unwaivableFootnote 119 limiting rules only apply to transfers and exclusive licences – not to non-exclusive licences.Footnote 120 No requirement applies as to the specification of the type of future music involved. However, Dutch law limits the duration of any clause that grants exclusive exploitation rights concerning future music to what is reasonable.Footnote 121 Such a clause must moreover specify the intended duration of the grant of rights in a sufficiently specified manner.Footnote 122 In the absence of due specification, the clause at issue is sanctioned by relative nullity.Footnote 123
These protective provisions do not always apply to music made in an employment context or on commission. The relevant provisions of Belgian law expressly allow the grant of rights relating to future music in the context of employment situations and/or commissioned content.Footnote 124 The Dutch provisions of copyright contract law do not apply to employment situations relating to copyright sensu stricto.Footnote 125 As to performers, employers obtain rights in future music if this follows from the terms or nature of the employment contract, custom or considerations of reasonableness.Footnote 126 This reference to the terms or nature of the contractual relationship also returns under German law.Footnote 127 In France, finally, a pragmatic approach is adopted.Footnote 128 While the principled prohibition of the global grant of rights in future works has been held to apply to employment contracts, the automatic grant of rights to the employer upon the creation of original works as provided for by the contract has been held to be in line with French copyright contract law.Footnote 129
The scope of music contracts is usually limited to a certain amount of content (such as a number of albums/songs, or the content provided during a specific period in time), combined with a right of first refusal on the part of the corporate partner as to further content.Footnote 130 The use of options has a substantively similar economic effect to a grant of rights concerning future music, resulting in a risk of musician lock-in.Footnote 131 The substantive considerations that support restrictions to the grant of rights in future music thus also apply to option clauses.Footnote 132 In France, Germany and the Netherlands, option clauses have been found to fall within the scope of the abovementioned restrictions. First, the French regime applicable to publishing contracts expressly allows authors to include a right of first refusal as to future works in their contracts with publishers, provided that the genre(s) is(are) sufficiently specified, and limited to either five new works or a period of five years.Footnote 133 The express inclusion of this authorisation in the French IP Code implies that it is seen as an exception to the general prohibition on the global grant of rights in future works that applies under French law and that, therefore, the scope of this prohibition in principle extends to option contracts.Footnote 134 Further, authoritative legal doctrine from the Netherlands refers to the practice of granting option clauses as an apparent synonym of the grant of rights in future works.Footnote 135 It may therefore be argued that, under Dutch law, the grant of options is restricted.Footnote 136 The same conclusion is reached in legal doctrine pertaining to Article 40 German Copyright Act, the relevant provision under German law.Footnote 137 Conversely, legal scholars analysing the Belgian provisions have found that they do not have a bearing on option mechanisms.Footnote 138
In addition to limitations regarding future music, copyright contract law may also significantly restrict the scope of contracts insofar as they pertain to ‘future methods of exploitation’. These restrictions tie in with emerging opportunities for exploitation that arise as a result of technological progress and the accompanying switch from analogue to digital exploitation.Footnote 139 An extension of the scope of music industry contracts to methods of exploitation unknown or unknowable at the moment of contract formation (such as digital downloads and streaming in legacy contracts) would be favourable to corporate partners, whose exploitation rights would then increase over time.Footnote 140 However, this would lead to an undue transfer of economic value stemming from exploitation of protected content to corporate partners. Therefore, the legislators in the chosen jurisdictions seek to limit or even prevent contracts concerning exploitation activities that are still shrouded in uncertainty at the moment of contract formation.Footnote 141 Again, these restrictions do not apply to the relationship between musicians and CMOs.Footnote 142
The scope of these limitations hinges on the interpretation of the concept ‘method of exploitation’ as well as of the word ‘future’.
A ‘method of exploitation’ may be defined as a form of use of protected content that is concrete, specific and autonomous, as well as technically and – in principle – economically distinct.Footnote 143 The term ‘use’ refers to an application that falls within the scope of the exclusive rights of the rightsholder(s) and thus, in principle, requires their permission. As for the criteria of distinctiveness, it has been argued that, given that the economic consequences of a certain method of exploitation are impossible to predict, primary focus should lie with the technical aspect.Footnote 144
Applied to music, analogue and digital exploitation constitute separate methods of exploitation of exclusive rights in music. Also within those categories, there are several distinctions. As for the physical production of music, exploitation on cassettes, vinyl and CDs may definitely be distinguished. In the digital realm, a clear distinction may be made between digital downloads, streams and sync.Footnote 145 An additional distinction within music streaming may be made between ad-supported and subscription-based streams, given the different revenue source. In addition, in view of the different way in which listeners engage with interactive (on-demand) and non-interactive (through playlists) streaming, an argument is to be made in favour of distinguishing these two types of streaming as separate methods of exploitation.Footnote 146 A more recent addition to the streaming landscape is ‘lossless’ streaming, where the use of an uncompressed sound file leads to a higher sound quality.Footnote 147 This does not appear to be a new method of exploitation: while a technical distinction with ‘traditional’ music streaming may be made, it uses a technique that has already existed for analogue music for several decades. A mere technical improvement of an existing technique should not qualify as a distinct method of exploitation.Footnote 148 Moreover, more and more streaming services offer lossless streaming to their subscribers at no additional cost, thus excluding the possibility of an economic distinction.Footnote 149
Further, no real technical distinction may be made between the same method of exploitation in a different geographical setting. The grant of rights for a single method of exploitation may therefore encompass global rights for the corporate partner. The initial contract may grant global rights, even if only a limited geographical release is planned at the outset, to be (potentially) followed by global exploitation in case commercial success arises.
The next concept is ‘future’. Substantive considerations support a broad interpretation in order to safeguard the interests of the parties in the event unforeseen and unforeseeable circumstances arise.Footnote 150 Consequently, restrictions on the grant of rights relating to future methods of exploitation include techniques that do not yet exist at the time of contract formation as well as techniques that already exist, but are not yet commonly known or applied.Footnote 151 The required novelty of a future method of exploitation does not require this method to lead to a ‘new audience’.Footnote 152
Protective regimes as to future methods of exploitation range from a full ban on their inclusion in contracts to a set of conditions attached thereto. A full ban applies in Belgium for both composers and performers, sanctioned by relative nullity of the grant concerning the future method(s) of exploitation at issue.Footnote 153
In the other chosen continental EU jurisdictions, focus lies with ensuring due specification, a right to revocation and/or appropriate remuneration through specific conditions. In France, the grant of rights relating to future methods of exploitation must be express and subject to proportionate remuneration.Footnote 154 Under Dutch law, save in an employment situation,Footnote 155 the artist has an unwaivableFootnote 156 right to additional remuneration for revenues garnered through the exploitation of new methods of exploitation.Footnote 157 A combination of all three focal points exists under German law, albeit in a regime limited to copyright sensu stricto. In addition to a requirement of written form,Footnote 158 Article 31a German Copyright Act links the inclusion of future methods of exploitation in an exploitation contract with a right of revocation on the part of the author.Footnote 159 A corporate partner who wishes to start exploiting a work using a new method must inform the author without delay.Footnote 160 The author then has three months to revoke the grant for this new method of exploitation.Footnote 161 Alternatively, the author may invoke a right to additional remuneration for the new method, as provided by Article 32c German Copyright Act.Footnote 162 If the parties have agreed on such a separate remuneration or if a joint remuneration agreementFootnote 163 applies, recourse to the revocation right mentioned above is no longer possible.Footnote 164 Authors’ right to claim either revocation or additional remuneration for future methods of exploitation may not be waived in advance.Footnote 165 In addition, again, reference may be made to the right granted to certain authors under German copyright law to grant a licence to another corporate partner after ten years.Footnote 166 Performers have no equivalent right of revocation, nor can they invoke the right to other exploitation after ten years in case of flat-rate remuneration. However, they may claim additional remuneration in case the corporate partner starts using a method of exploitation that was not known at the time of contract formation.Footnote 167 This distinct regime for authors and performers is based on practical considerations connected with multi-performer projects, but has been the subject of criticism.Footnote 168
Theoretical limitations on the scope of rights granted seek to prevent artists in general and musicians in particular from signing away rights the economic value of which is not (yet) clear.Footnote 169 This objective circles back to the general aim of securing well-informed consent. On the one hand, this enhances musician agency. Instead of relinquishing control, musicians may choose other exploitation routes for emerging (digital) possibilities. If they choose the same partner, an opportunity may arise to secure better conditions.Footnote 170 However, a musician whose work has little commercial success may have a considerably weaker bargaining position at the renegotiation table.Footnote 171 Musicians favouring long-term security over favourable contract terms may conceivably wish to grant future rights to their corporate partners. Therefore, as is the case for the choice between a transfer and a licence, fully excluding the transfer of future rights and/or methods of exploitation appears excessive.
Interestingly, theoretical limitations on the grant of rights in future methods of exploitation appear to have had limited effects in practice when it comes to the internet revolution. Understandably, legacy contracts did not expressly include the grant of exploitation rights regarding digital use. Parties that wished to include such rights in their contractual relationship had to renegotiate.Footnote 172 However, many musicians, faced with the choice to either not ‘go digital’ and face musical obscurity, or to accept contract terms similar to those relating to physical sales and be able to offer their music on digital platforms, chose the latter.Footnote 173 Thus, the renegotiation process often did not have a favourable outcome for musicians.
For methods of exploitation emerging subsequent to the digital transition and the accompanying rise of digital downloads and streaming, the application of the protective framework is even more difficult. Indeed, the first round of contract renegotiations, at the turn of the millennium, led to the inclusion of ‘digital’ methods of exploitation – a broad concept the confines of which are not clear-cut. Corporate partners may argue that the word ‘digital’ encompasses all digital ‘methods of exploitation’, even though the mere inclusion of ‘digital’ does not do justice to the available and emerging digital methods of exploitation.Footnote 174 Musicians risk not pushing back on such a broad interpretation.Footnote 175 Furthermore, if we argue that each new method of digital exploitation requires a renegotiation to bring it within a contract’s scope, every music industry contract risks becoming obsolete in the (possibly very) short term, given the fast pace of evolution in the digital music market.Footnote 176 The inevitable increase in transaction costs that this would entail leads to questions of efficiency and cost allocation.Footnote 177 In addition, legal uncertainty arises, as does the risk of unreasonable contractual outcomes. This leads to a chasm between theory and practice. While the restrictions on future methods of exploitation therefore serve a commendable purpose, it may be questioned whether they are actually futureproof.Footnote 178
Additionally, limitations relating to future methods of exploitation – and maybe even relating to future music – lose some (if not all) of their appeal if fair exploitation and remuneration, sanctioned by rights reversion, are secured in the performance stage of the contract.Footnote 179 As noted above, German law allows authors to grant another licence to their work after a decade if a lump sum remuneration arrangement applies. This measure enhances musician agency. Then again, economics scholars have argued that this may actually harm authors in the long run, as the risk of increased future competition may negatively affect publishers’ willingness to invest, or induce them to internalise this risk by offering lower remuneration in the initial contract.Footnote 180 Moreover, the grant of a right to additional remuneration in relation to future methods of exploitation may render the restrictions discussed here obsolete.Footnote 181
4.4.1.3 Complementary Limitations
Provisions of the law of unfair B2B contract terms and trade practices may further restrict the scope of rights granted. The law varies widely across the chosen jurisdictions. The spectrum of potential sanctions ranges from a right to claim an injunction and/or damages, over the moderation of contract terms labelled as problematic to what is deemed reasonable, to an impact on the validity of the term(s) at issue or even the entire contract – the latter in case the unfair term(s) cannot be severed from the contract or in case of a contravention of norms of public order and/or good morals.Footnote 182
Both Belgian and French law contain general restrictions on the inclusion of contract clauses that create a manifest imbalance between the rights and obligations of the parties that apply to all B2B contracts.Footnote 183 Belgian law first sets a list of per se prohibited clauses.Footnote 184 Second, it includes a list of clauses that are presumed to be illicit unless the contrary is proven.Footnote 185 Third, it labels as unlawful contract clauses that create a manifest imbalance between the rights and obligations of the parties, either by themselves or in conjunction with one or more other terms.Footnote 186 Core, characterising clauses of the contracts at issue that are drafted clearly and comprehensibly fall outside the scope of this prohibition.Footnote 187 This exclusion also applies to the issue of equivalence between the remuneration and the ‘products’ to be delivered, subject to the requirement of clarity and intelligibility.Footnote 188 Thus, transparency plays a key role in the legal assessment of the (un)fair character of B2B contract terms under Belgian law.
The equivalent provision of the French Commercial Code prohibits contract parties from obtaining, or attempting to obtain, a benefit that corresponds to no consideration or that is manifestly disproportionate to the consideration provided.Footnote 189 There is no exclusion relating to core clauses. A more generic prohibition applies to situations where a significant imbalance between the rights and obligations of the parties is created.Footnote 190 Finally, a specific reasonableness test applies to contracts of adhesion. This concept refers to contracts singularly drafted by one of the potential contracting parties, where the other party does not have any margin for negotiation concerning the terms of the contract.Footnote 191 Such a non-negotiable clause is unenforceable under French law if it creates a significant imbalance between the rights and obligations of the parties, save when that clause relates to the principal subject matter of the contract or when the adequacy of the remuneration is concerned.Footnote 192
In the Netherlands, finally, a supplementary limitation specific to copyright exploitation contracts results from Article 25f(2) Dutch Copyright Act.Footnote 193 This provision subjects the grant of exclusive exploitation rights to an unwaivableFootnote 194 reasonableness test. It provides that all clauses included in a transfer contract or an exclusive licence contract that are unreasonably burdensome to the artist are to be sanctioned by relative nullity.Footnote 195 Relevant considerations include the nature and content of the agreement, how it came into existence and the (knowable) interests of the contracting parties.Footnote 196 General restrictions may provide fruitful ground for musicians to resist the inclusion of excessive option clauses.Footnote 197 An analogue argument may be envisaged for other terms that may be considered unreasonable, such as obligations to sign a contract with both the recorded music and publishing divisions of an integrated music company.Footnote 198 Circumstances that arise subsequent to contract formation may not be taken into account, as the Dutch Supreme Court found in its judgment in the dispute between Martin Garrix and corporate partner Spinnin Records.Footnote 199 The Court of Appeal Arnhem-Leeuwarden had ruled that the option for the latter to extend a contract for two years on the same terms was unreasonable in view of the commercial success of Garrix’s music and the disproportionality in terms of revenue distribution that this entailed.Footnote 200 The appeal by Spinnin Records on this aspect was successful. The Dutch Supreme Court considered that the alleged unreasonableness of a clause should be judged at the time of contract formation and not on the basis of circumstances that may or may not arise at a later stage, including the performance of the agreement and the commercial success of the music.Footnote 201 This decision restricts the potential effect of Article 25f(2).
The Belgian and French ‘manifest imbalance’ test appears to be more restrictive than the Dutch ‘unreasonably burdensome’ test. Consequently, the added value of these complementary regimes is difficult to assess. Moreover, in interpreting the appropriate scope of the complementary limitations reviewed in this section, the overarching influence of the freedom of contract should be borne in mind. Caution is therefore advised against an expansive interpretation of the relevant concepts, particularly for contracts subject to individual negotiations.
In terms of appropriate sanctions, corporate partners may argue that the moderation of a clause deemed unlawful to what is considered reasonable is preferable to declaring the clause (and sometimes even the entire contract) non-binding. However, such a solution is suboptimal. As argued by Lobel in the context of non-compete clauses, ‘if businesses know that an unreasonable control provision will be modified to its reasonable limit by the court, then there would be practically no cost of overreaching – they would always attempt to define restrictions on human capital as broadly as possible’.Footnote 202 Thus, an impact on the validity of the contract appears merited in order to sufficiently deter unreasonable clauses stemming from overreach by corporate partners.Footnote 203
Finally, the principles of general contract law apply as the ultimate lex generalis, bringing the doctrines of good faith, abuse of law, public policy, good morals and undue influence into the equation.Footnote 204 On the basis of these provisions, exceptionally unreasonable situations may be remedied and truly disadvantageous contractual bargains set aside. The potential application of general contract law also came to the fore in the Garrix case. In particular, the Court of Appeal had neglected to analyse the contested clauses on the basis of the general principles of reasonableness, which Garrix had invoked in a subsidiary manner. The Dutch Supreme Court considered that the Court of Appeal was wrong to not have expressly analysed whether the clauses at issue fulfilled the general standard of reasonableness, which is to be assessed taking account of all relevant circumstances (including from an ex post perspective).Footnote 205 Regardless, if a certain situation is deemed acceptable under the applicable leges speciales, it seems unlikely that the application of general contract law principles would bring a judge to a different conclusion in practice.
In sum, a complementary reasonableness test and the relevant principles of general contract law provide fallback mechanisms to curb instances of unfairness that do not fall within the scope of the restrictions pertaining to either future music or methods of exploitation.Footnote 206 However, their scope in practice appears to be limited.
4.4.2 Determination in Practice
The above overview focused on theoretical limitations to rights granted. The next step is to establish how the substantive scope of such rights is actually determined. A certain degree of specification in the contract is required. Musicians must know what they are signing up for and be conscious of the contract’s scope.Footnote 207 Not only does such transparency further procedural fairness; it also substantively mitigates the consequences of the structural information asymmetry between musicians and their corporate partners, and aids them in proving their claims in either a judicial or extra-judicial setting.Footnote 208 The scope of rights granted should not go beyond what is necessary for the exploitation.Footnote 209 This not only has the benefit of efficiency, but also ensures that musicians can exploit the remaining rights themselves or choose another corporate partner that might be a better fit.Footnote 210
There are several regulatory approaches to this issue. Belgian and French law require copyright exploitation contracts to specify their scope in detail. Under German and Dutch law, the principle of purpose-limitation applies, limiting ambiguous rights granted to what is necessary to fulfil the contract’s purpose. UK law does not provide specific rules on the appropriate interpretation of copyright exploitation contracts. Instead, the general rules on contract interpretation apply.Footnote 211 Such principles of (B2B) contract interpretation may also influence the balance in the music contracts under review at the formation stage in other jurisdictions, as leges generales.Footnote 212 While the primary objective of finding the parties’ common intention applies in all five chosen jurisdictions, the intricacies of the applicable legal regimes pertaining to contract interpretation differ, with a more pronounced focus on either the subjective will of the parties or a more objective perspective infused with considerations of reasonableness.Footnote 213 The objective of all regimes pertaining to contract interpretation is to achieve a balance between party autonomy and legal certainty – between the subjective intention of the parties as reflected in the contract and the more objective perspective of a (hypothetical) reasonable person wishing to avoid instances of unfairness.Footnote 214
The formalistic duty to specify under Belgian and French law implies that copyright exploitation contracts must specify the rights granted to the corporate partner, including the type of exclusive right(s) and the methods of exploitation covered.Footnote 215 The relevant provisions of French law also refer to the need to specify the intended public.Footnote 216 The duty to specify applies to both composing and performing musicians.Footnote 217 Under Belgian law, the duty to specify does not apply to either commissioned music or music made by employees, in which case the express grant of rights is deemed to suffice.Footnote 218 In both Belgium and France, the requirement of specification extends to the geographical scope and duration of the grant. Moreover, if the corporate partner wishes to obtain an option, this must be specified in the contract.Footnote 219 As to the substance of the rights granted, it is insufficient for the contract to merely refer to the grant of rights relating to the right of reproduction or the right of communication to the public.Footnote 220 Exactly how specific the enumeration of relevant methods of exploitation must be is fuel for debate.Footnote 221 Pragmatism argues against an unduly strict interpretation. In any case, it is difficult to fulfil the duty to specify without a written contract.Footnote 222 Thus, even though this is not a validity requirement under either Belgian or French law, a written instrument is likely to arise.Footnote 223 In case the duty to specify applies and no adequate specification is included in the contract, the sanction is relative nullity of the unspecified grant, to be invoked by the musician.Footnote 224
As non-specified methods of exploitation remain in the hands of the artist(s), the associated objective of this requirement is to allow artist(s) to retain control over the exploitation of ‘their’ content.Footnote 225 However, the duty to specify appears to miss its mark in practice. The result of this duty is often a long, very detailed list of potentially relevant methods of exploitation and a resulting risk that the rights granted exceed what is necessary for exploitation of the content.Footnote 226 Musicians’ weaker bargaining power may force them to accept such long lists.Footnote 227 The law does not offer much protection in such a case: provided that the substantive, geographical and temporal scope of the rights granted is sufficiently detailed in the contract, these rights may pertain to all exclusive rights for the entire term of protection, on a global level – subject to the limitations analysed in Section 4.4.1 above.Footnote 228 In addition to this risk of overreach, an overly detailed list of methods of exploitation leads to increased complexity and administrative costs associated with contract formation.Footnote 229 This risks negatively affecting musicians. First, if the corporate partner(s) cannot transfer increased transaction costs to users, these costs are likely to be passed on to musicians with weak(er) bargaining power.Footnote 230 Second, unwarranted complexity endangers the achievement of the main objective of the duty to specify, namely ensuring informed consent.Footnote 231 Finally, undue complexity has spillover effects on contract performance: the more specific the list of methods of exploitation, the more opaque the operationalisation of remuneration arrangements risks becoming.Footnote 232 A sustained focus on the requirement of clarity, as it applies to B2B contracts under Belgian law, may have a positive impact.
In case the scope of rights granted is unclear, the principle of restrictive interpretation comes into play.Footnote 233 An exclusive right or method of exploitation that is not clearly specified in the contract is presumed to fall outside the scope of the contract.Footnote 234 For example, an exploitation contract pertaining to certain music does not imply the right to release a compilation album of a selection of songs if the contract does not expressly grant permission to do so.Footnote 235
This rule appears to be favourable to the interests of musicians. However, its scope is not that broad. If the contract contains general, vague terms that are open to interpretation, it may offer a fruitful avenue. However, there is no restrictive interpretation if the rights transfer is clear.Footnote 236 This rule arguably does not amount to a generalised principle of interpretation in favour of the artist. Instead, its application is limited to the determination of the scope of rights granted.Footnote 237
An alternative to the duty to specify combined with the principle of restrictive interpretation is to limit the scope of rights granted to what is reasonably necessary to fulfil the contract’s objective. This approach has been adopted in Germany and the Netherlands, for both authors and performers.
Under German law, the parties may specify the methods of exploitation to which the grant at issue pertains. Such specification is usually done in practice.Footnote 238 The relevant methods of exploitation must be sufficiently clearly definable within the contract, as well as technically and economically independent.Footnote 239 In the absence of due specification, the scope of the rights granted is determined on the basis of the contract’s purpose.Footnote 240 This restriction has a bearing on both the exclusive or non-exclusive nature of the licence granted and the methods of exploitation that fall within the contract’s scope.Footnote 241 Methods of exploitation that the parties did not envisage at the time of contract formation fall outside the contract’s scope.Footnote 242 Similar rules of interpretation apply in other cases, such as where there is doubt as to whether the scope of rights granted includes the right to consent to adaptations.Footnote 243 In view of these rules, it makes commercial sense for corporate partners to insist upon a detailed formulation of the scope of rights granted in the contract, as is often done.Footnote 244
In the Netherlands, for transfer contracts as well as exclusive licences, the scope of rights granted is limited to what is expressly mentioned in the written contract or what necessarily follows from the nature and scope of the grant.Footnote 245 For non-exclusive licences, a similar result may follow from the application of general contract law rules on the interpretation of contracts.Footnote 246
Thus, as is the case for the duty to specify, the purpose-limitation rule does not protect musicians against clear, extensive lists of methods of exploitation. It only comes into play in case the scope of rights granted is ambiguous. Consequently, the substantive impact of both types of regimes on the position of the weaker party to the contract appears to be limited. Procedurally speaking, while something is definitely to be said for the elegance of the purpose-limitation principle, the duty to specify appears to provide the more transparent solution.Footnote 247 Moreover, as the substantive and geographical scope of rights granted, as well as the duration and the applicable remuneration arrangements, are determined in advance, legal certainty may be said to benefit from a duty to specify.Footnote 248 Coupled with a requirement of clarity and intelligibility, purpose-limitation as a sanction and acknowledging the limited effect of this rule on the actual scope of rights granted in practice, it may yet provide us with the ‘best of both worlds’ in terms of determination of the scope of rights granted in the context of primary music industry relationships.Footnote 249
A final observation as to the determination of the substance of rights granted in practice brings us back to the impact of digitisation. Consequent to the applicable rules on the temporal application of the substantive legal framework, these theoretical limitations do not apply to certain legacy contracts. As to contracts that postdate the internet revolution, digital rights may be granted in fairly broad terms, such as ‘downloading’ and/or ‘streaming’, without any further specification.Footnote 250 This engenders questions as to the scope of the duty to specify and the purpose-limitation principle. First, it may be argued that methods of exploitation that were unknown or unknowable at the time of contract formation cannot have been duly specified at that moment in time, thus excluding those methods from the scope of the grant – provided that a duty to specify applied in the jurisdiction at issue at that time. Conversely, the potential applicability of the principle of purpose-limitation in such a case will depend on (the temporal application of this rule and) the nature and scope of the contract. If the purpose is defined broadly as maximising revenues through exploitation, emerging uses may yet be covered by the grant, while a strict view that limits exploitation to the methods available at the time of contract formation on the basis of considerations of reasonablenessFootnote 251 could lead to an outcome that is more favourable to the musician. This ambiguity is not conducive to legal certainty. Moreover, imbalances in relative bargaining power have ‘resolved’ this ambiguity by either express extensions of the rights granted to digital exploitation or by the simple commencement of digital exploitation by corporate partners, trusting musicians not to take legal action.Footnote 252 Also on a substantive level, questions may be raised regarding the effects of legal provisions determining the ‘fair scope’ of a contract, despite the incremental establishment of restrictions on the scope of rights granted.
4.5 Formation of the Contract: Secondary Relationships
Subsequent to the initial grant of rights, further transfers of or sub-licences to exclusive rights occur frequently – either as a standalone transaction or in the context of a larger deal, such as through mergers and acquisitions, or in case of insolvency of a corporate partner.Footnote 253 Such further transactions have a significant impact on the exploitation of protected music and the ensuing remuneration.Footnote 254 This implies a further relinquishing of control that may lead to unfair situations in practice, especially when the third parties are deemed ill-suited for the exploitation of the music.Footnote 255 A salient example is the 2019 takeover by US entrepreneur Scott ‘Scooter’ Braun’s Ithaca Holdings of Big Machine Label Group.Footnote 256 This transaction included the transfer of the rights to a number of albums by Taylor Swift. The latter, citing a long-running feud with Mr Braun and her own wish to own the rights in these albums, sought to resist the transfer.Footnote 257 In autumn 2020, the rights were transferred further to Shamrock Capital, yet another company, leaving Ms Swift to ponder the merits of rerecording the compositions on the albums at issue, a feat that she has since successfully accomplished.Footnote 258 Regardless of this success, this saga leads to the following observation: if even global superstars do not succeed in exerting control over further transfers of their music, all musicians could find themselves in a similar position.
The conclusion of secondary contracts by primary corporate partners is subject to certain limitations, to avoid a disproportionate loss of control and agency on the part of musicians. Not only must musicians be aware of who holds what rights to their music, they should also have the opportunity to object in good faith prior to the conclusion of the contract, at least when the circumstances so allow.
The first, overarching limitation to the further transfer of rights stems from the foundational principle of contract law that prevents parties from transferring more rights than they have obtained. Consequently, the further transfer of rights is limited to those that have been transferred to the corporate partner in the primary contract, to the exclusion of those to which the corporate partner merely received a licence. Moreover, this implies that the limitations set as to the substance of exclusive exploitation rights granted, such as for future music and/or methods of exploitation,Footnote 259 also restrict the scope of possible secondary relationships.Footnote 260 Finally, this scope is also affected by remuneration rights of musicians, as well as their moral rights, which cannot be fully waived and may merely be modulated as to their enforcement in practice. These restrictions apply to both composers and performers.
Other restrictions to the formation of secondary contractual relationships arise from the applicable provisions of (copyright) contract law, both as to further transfers thereof and/or sub-licences thereto. When entering into a primary contractual relationship, both musicians and their corporate partners do so with the specific characteristics of their contracting party in mind. It therefore makes sense to subject changes in the (economic) identity of one of the parties to the express consent of the other party.Footnote 261 Regulatory responses range from a requirement of consent – mandatory in some cases and subject to contractual deviation in others – to the attachment of the grant of further rights to certain modalities, such as a requirement to notify the parties involved and/or the emergence of joint and several liability on the part of the corporate partner and the third party.
Belgium and France have set particular conditions for the formation of secondary relationships in a publishing context in particular. Under Belgian law, the requirement of author consent in such a case is mandatory.Footnote 262 In the absence of consent, the author may invoke the relative nullity of the grant to the third party.Footnote 263 This requirement of consent does not apply if the grant to the third party is accompanied by a partial or complete transfer of the publisher’s business.Footnote 264 The relevant provision of French law concerning publishing contracts also expressly requires the consent of the author in case of a secondary grant of rights to a third party, unless a transfer of the publisher’s business occurs.Footnote 265 However, this rule is accompanied by a safeguard for the author: if this secondary grant severely undermines the author’s interests, the author may terminate the contract.Footnote 266 The French provision concerning audio-visual production contracts requires any transfer of such a contract to be preceded by a prior notification by the transferor to their co-author(s), at least one month prior to the effective date of the transfer.Footnote 267 This requirement of consent furthers stakeholder agency.Footnote 268
German copyright contract law foresees a detailed, balanced regime that distinguishes the further transfer of rights from the grant of sub-licences.Footnote 269 It applies to both composing and performing musicians. On the one hand, German law in principle requires artist consent to further transfer(s).Footnote 270 In the absence of the required consent, no transfer can take place.Footnote 271 Consent may only be refused in good faith.Footnote 272 No consent is required if the transfer is accompanied by a full or partial sale of the corporate partner’s business. In such a case, the artist may revoke the initial grant if exploitation of the protected content by the transferee cannot be reasonably demanded of the musician.Footnote 273 Moreover, the transferor and the transferee become jointly and severally liable for the obligations towards the musician(s) under the initial contract.Footnote 274 Neither the right of revocation nor the right to invoke the transferee’s liability may be waived in advance.Footnote 275 On the other hand, the grant of a sub-licence is subject to less stringent rules. While German law posits the need for consent, such consent may only be refused in good faith, and no consent is required if the sub-licence is granted solely to serve the interests of the musician(s).Footnote 276 Regrettably, the relevant provisions do not expressly qualify the rights of musicians as to the grant of sub-licences as unwaivable.Footnote 277 For the remainder, however, the German regime may be considered as a balanced solution that takes due account of the interests of all stakeholders.Footnote 278
Finally, neither Dutch nor UK law contain any specific restrictions on the further grant of rights to third parties in a copyright contract context. However, many copyright exploitation contracts may be said to have a strictly personal nature.Footnote 279 This may prevent the further transfer of exclusive exploitation rights and/or the grant of sub-licences thereto by the corporate partner without the artist’s clear and undisputable – although potentially oral – consent.Footnote 280
In determining the appropriate form of regulation, heed must be paid to both the interests of musicians in maintaining a degree of control regarding the identity of the third party/parties involved, and those of corporate partners in securing efficient, revenue-maximising exploitation of the protected content. The regime foreseen in Articles 34 and 35 German Copyright Act appears to be the most fairly balanced of the analysed provisions.Footnote 281 These provisions are quite comprehensive and very detailed.Footnote 282 Moreover, they make a distinction between further transfers and sub-licences.Footnote 283 Consequently, transparency and legal certainty benefit. Moreover, these regimes take due account of the interests of all stakeholders and do not appear to lead to a disproportionate encroachment upon parties’ freedom of contract. Informed consent – and thus agency – appears to be safeguarded. In view of this, a move towards the German rules on further transfers and sub-licences is to be supported and, moreover, qualified as mandatory law.Footnote 284
The provision pertaining to the further transfer of rights may moreover be of particular help in the context of insolvency of the corporate partner(s). Indeed, both composing and performing musicians who have transferred their rights or have granted an exclusive licence thereto should in such a situation be able to terminate the grant under certain circumstances, allowing them to reclaim their rights and seek other avenues for the exploitation of their music.Footnote 285 A less intrusive, but arguably also effective and fair alternative would be to grant musicians the right to revoke the exclusivity of licences granted when the corporate partner becomes insolvent.
4.6 Outro
This chapter has analysed the legal framework as applicable to the formation stage of the contracts under review, seeking to ascertain what exactly qualifies as ‘fair scope’ and what the impact of the legal framework is. First, a brief precontractual perspective was taken, focusing on the applicable duties of care and information, as well as potentially relevant provisions on unfair B2B trade practices.
A significantly more extensive section was devoted to the substantive and formal aspects of the requirement of consent. In this regard, the principled need for express consent was highlighted, with certain exceptional instances of presumptive consent. On a formal level, the requirement of a written document that applies in some of the chosen jurisdictions was explored further.
Subsequently, the substance of rights granted through the contracts under review was analysed. Focus first lay on theoretical limitations to the scope of such rights and then shifted to practical considerations that determine the scope of rights granted. As to the former, following a brief highlight of the prohibition of transfer of copyright sensu stricto under German law, limitations set as to future music and future methods of exploitation were analysed, in addition to a number of complementary limitations based on requirements of reasonableness. These limitations are sanctioned by relative nullity, to be invoked by the musician. As to the determination of the scope of rights granted, the duty to specify under Belgian and French law was contrasted with the principle of purpose-limitation under Dutch and German law. The effect of both rules in practice is the interpretation of the scope of rights granted in favour of the musician(s) if the contract is ambiguous.
Finally, a section was devoted to the rules that govern the further transfer or sub-licence of exclusive exploitation rights to secondary contract partners. While the applicable legal regimes posit the need for consent on the part of musicians as a general principle, contractual deviations remain possible in many cases.
Regulatory choices differ significantly. To date, legislators’ freedom in this context is not curtailed through harmonisation at either the EU or the international level.Footnote 286 Given the lack of harmonisation on the issue of initial ownership, EU harmonisation is, as yet, unlikely. Regulatory convergence at a global level appears to be an even more distant dream. Regardless, this chapter made several regulatory recommendations. An important common thread is the aim of securing informed consent and ensuing agency on the part of all contracting parties, through measures that seek to alleviate existing structural information asymmetries. The measures reviewed in this chapter are primarily of a negative nature, providing restrictions on the scope of rights granted. These measures are important, as they define the boundaries of the contractual relationship at the time of contract formation. However, in view of the temporal application of the incremental amendments of the legal framework, these measures do not appear to have had a profound impact on the scope of legacy contracts. This illustrates the difficulties of righting past wrongs in the music industry. Further, as to ‘modern’ music industry contracts, information asymmetries persist, as do detailed lists of methods of exploitation included in clauses pertaining to the grant of rights. Therefore, the risks of unfairness associated with the excessive transfer of rights remain. Moreover, these measures do not provide any positive obligations regarding the effective exploitation of music and/or the ensuing remuneration. We must therefore look beyond the scope of the rights granted and adopt a dynamic perspective that takes account of the performance of the contract over time.Footnote 287 This is done in the next chapter, which focuses on the performance stage of music contracts in the streaming age.
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