So You Think You Own This Copyright?

If you are a publisher, and a writer assigns one of their songs to you, you own it….or so you think. Unfortunately, the U.S. Copyright Law includes some language which may result in publishers discovering that they may not actually own the copyright after all.

A copyright normally becomes the property of the author immediately upon fixation of the song in any tangible form. Two exceptions are if the author has pre-assigned his new songs to a publisher “upon creation”, such as being under an exclusive songwriter agreement, or if the copyright is being created as a “work-for-hire”, at which point the employer owns the song. If there are multiple writers, each of the writers become equal co-owners of the copyright unless there is a written agreement to the contrary.

Once the copyright exists, the only ways it can be transferred to another owner is through a written transfer signed by the owner, or less often by “operation of law”, such as a will, or pass as personal property by applicable laws of intestate succession (which is upon death of the author where no will exists). Section 204(a) of the Copyright Law reads, “A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.” (Underlining is mine). So the bottom line is, if the author is living, an assignment must be made in writing. (There is actually a recent case, Vergara Hermosilla v. Coca Cola Company, where the 11^th Circuit Court found that an email exchange constituted an effective transfer of a copyright under Florida law, but the court did not actually address whether the email exchange constituted a “writing” as stated in Section 204 of the Copyright Act).

The Copyright Law later states that the written assignment “may be recorded in the Copyright Office” by following certain procedures. However, the recordation of the assignment is not mandatory, nor is it necessary for the validity of the agreement…..or is it?

In Section 205, the Act explains that if there are conflicting transfers of ownership, the earliest one does not necessarily prevail. Unless the first transfer was recorded in the Copyright Office within one month after its execution in the U.S., and in a manner required to give “constructive notice”, then a later assignment of that same copyright can override the earlier one. There are a lot of details involved in this, but it is quite possible that a writer can go around town and assign his song for monetary terms more than once, and the last publisher the song was assigned to could be found to be the ultimate owner if that last owner was the first one to properly record the transfer document with the Copyright Office.

So my question is, shouldn’t a private contract between two parties for the transfer of personal property be valid and undisputable without the need to publicly register the agreement with a government body? I don’t pretend to be an expert in the area of property transfers, but apparently we make similar private transactions all the time, which are valid without registering with the government, such as buying a car, purchasing an original painting, buying a smart phone, a computer, or a whole list of personal property items.

So what’s involved in properly registering an assignment? The cost of recording a document with the Copyright Office is currently $105.00 for the first song, and an additional $30.00 for each group of 10 songs also included on that initial document. And in order to qualify as “constructive notice”, the songs must also be separately registered as works in the Copyright Office, which is a fee of $35.00 to $65.00 per registration. And before anyone says you can save a lot of money by including multiple songs on each document, remember that a transfer is between one unique assignor party and one assignee. So a publisher receiving 10 songs from 10 different writers must make 10 unique assignments, and 10 unique copyright registrations. For those 10 songs, the total cost of all registrations is between $1,400.00 – $1,700.00 (depending on whether the copyright registrations are completed by paper or on line). And all of this has to be done within 30 days of the execution of the assignment in order to assure that the song cannot be “sold” again out from under you. (Which suggests it is not safe to collect a year’s worth of songs by one writer in order to register them all at once and save money).

Next, we wonder if others are doing this “by the book”. According to the “Annual Report of the Register of Copyrights” for the fiscal year ending September 30, 2010, the total number of copyright registration claims, or works registered, was 636,527. That would be at least one unique copyright per registration. So how many documents of transfers or other related documents were recorded during that same period? 8,985. That’s less than 1.5% of the number of new works registered that year. Now, granted, the documents in each category may contain multiple songs. But remember this; copyright registration claims are normally for new copyrights. A recordation of transfer document many times is for the sale of an existing group of copyrights to a new party many years after the copyrights had been originally registered. So of that number of 8,985 documents (which are not all documents of transfer), many of them will be for songs which existed years prior. In summation, it appears very few publishers actually “perfect” their copyright assignments under the definition of Section 205.

If a valid copyright is recognized, and protected, the moment the work is affixed in a tangible form, shouldn’t a written and executed assignment of ownership be recognized just as definitively? While I don’t disagree that there should be certain advantages in recording your transfer documents with the Copyright Office, I do disagree that the law allows a dishonest person to assign my copyright to another entity at a later date, and legally forfeit my rightful ownership in the work. The Copyright Law is a fluid set of regulations which is designed to serve the intellectual properties industry. I wonder if this is an instance where the current Copyright Law should be revisited, debated, and potentially updated to better support and reflect the common practices of the industry.

Do you agree? Am I missing something? I welcome your comments and opinions on this. Let’s kick this around a bit.

John Barker

ClearBox Rights, LLC

“One must not hold one’s self so divine as to be unwilling occasionally to make improvements in one’s creations.” – Ludwig van Beethoven

 © 2013 John Barker.  All rights reserved.  Information contained in this Blog is of a general nature and should not be considered or relied on as legal advice.  Any reader of this Blog who has legal matters related to information addressed in this Blog should consult with an experienced attorney. This Blog contains no warranties or representations that the information contained in it is true or accurate in all respects or that it is the most current or complete information on the subject matter covered. John Barker is President and CEO of ClearBox Rights, LLC.

What is the Fair Market Value of a Song?

As the housing market in the U.S. heats up, the fair market value of homes is on the rise. As the digital age in music has brought more music available to more people than ever before, is the fair market value of songs on the rise as well?

Many of us have bought and sold houses at least once in our lifetime. When you want to sell yours, the process goes something like this. You look around at the market and determine what you think the house is worth compared to others around you, and then you price it a little above that. That’s the “starting point”. Normally, someone will make an offer which is less than the starting point price, not really expecting the offer to be accepted, but anticipating a counter offer of somewhere between the two. After some more back and forth, the price normally ends up somewhere right around the center of the starting point and the counter offer. You feel pretty good because you negotiated a deal in the ball park of your starting point, which would be considered successful if you sell a $200,000.00 house for $195,000.00. But what if the house you just sold had a fair market value of $400,000.00?

The seller normally sets the starting point price. It may not always be a realistic value, but it is the sellers right to set it wherever he wants. And by doing so, he sets a sort of expectation, or paradigm of the value of the house. And most of the time, others accept that price as a ballpark true value. The negotiations generally begin based on that starting point, even if it is way off the mark.

Let’s relate that to the music industry and the value of a song. When the royalties for owners of song copyrights used in recordings was first defined in the 1909 Copyright Law, they were based on piano rolls and the early phonorecord discs and cylinders. There was a physical product associated, and necessary, in order to bring the music to the consumer. The product’s primary function was music delivery. The license rates for songs started around 10% of the retail price of the product. However, over the following decades, as product prices increased and the statutory license rate stayed at 2 cents, that percentage decreased to substantially less than 10%. When statutory rates began increasing in 1978, song owners saw their royalties once again get closer to the 10% ballpark value of the physical product.

During that time, song uses in media like television, motion pictures, television advertising, and even video games became more popular. When both the song and the original artist’s recording were used, the licenses were normally of an equal value for each. That is, if the master recording received $5,000.00, then the song owner would receive $5,000.00. The process soon moved to each of the rights holders making the deal to include a “most favored nations” term, meaning that the recording and the song copyright owners would each be guaranteed to receive an equal amount. This “equal value” practice was accepted for uses where there was no physical product used primarily for music delivery. If there was physical product involved, its core purpose was to deliver some other value, such as a movie, a show, or a game.

As an industry, we seemed to settle in to valuing a song compared to a recording around 10 to 90 for licenses for physical delivery products, and 50/50 for uses without physical products.

So my obvious question is this. Why do we use a ballpark 10% value as a “starting point” when negotiating rates with digital delivery entities, where no physical products are involved? Have we, as an industry, been lulled into accepting a 10 to 90 relationship with recordings when a more proper value is closer to 50%, as we have practiced in certain media? Should the creation of new words and music really be worth a tenth of the value of an artist’s interpretation and performance of that original work?

I applaud those who have been on the front line of negotiating new rates for songwriters and publishers. NMPA, NSAI, SGA, and others have continuously pushed for better and better rates for song copyrights. I believe the publisher and songwriter communities would be in a worse situation were it not for the efforts of these fine organizations and individuals. But I want to encourage all of us to pause a bit, look at the current valuation paradigm, and ask the question, “why not 50%”?

When we start with a ballpark 10% value, then we feel better when we negotiate a rate of 11.5% for certain rights. Sony ATV and EMI Publishing recently negotiated a direct performance license rate with Pandora which is estimated to be an increase of 25% from the prior rate. However, the old rate was 4.1% of Pandora’s revenue, compared to the almost 50% of revenue paid for the recordings. We started at less than a 10/90 ratio, and now applaud the fact that someone was able to nudge the rate up to about 10% of what recordings get.

Billboard recently published an interview with Marty Bandier, chairman/CEO of Sony ATV Publishing, who was asked about what Pandora thought when he asked for a higher rate for publishers and writers. Marty said, “When you compare it to the rate record companies are getting, it was really miniscule. How do you differentiate the song’s value from the artist performance? Are they that disparate to warrant that kind of spread?” Is Marty suggesting the “miniscule” rate for songs is way out of proportion?

Del Bryant, president/CEO of BMI, published an open letter to the industry just yesterday (2/12/13), regarding the withdrawal of catalogs from performing rights organizations by some music publishers for certain digital uses. In it, Del says, “While recent developments may have added complexity to an already complex rights landscape, we see opportunity. We see an opportunity to level the digital playing field and to allow the courts to consider all precedents across the digital spectrum. We see an opportunity to value performances of musical works fairly when compared to performances of sound recordings.” (Italics mine). Is Del saying he believes the values are unfair at the current levels?

I realize I will probably ruffle quite a few feathers in the industry with this view, especially record companies and artists. But I would call on all of us in the publishing industry to shift our paradigms on the value of songs. As in house selling, if we identify our “starting point” around a 10% or slightly higher value, we can only expect slight increases. But if we work to shift the industry’s thinking to something around a 50% value for the song, as we have already accepted in many areas of licensing, then perhaps we really can, in Del Bryant’s words, level the digital playing field and value music works more fairly when compared to recordings.

I am only one opinion. I welcome and encourage comments and discussion on this topic. Let’s kick this around a bit. What do you think? Feel free to comment below.

Why not 50%?

John Barker
ClearBox Rights, LLC

“We see the world, not as it is, but as we are – or, as we are conditioned to see it.” – Stephen Covey

© 2013 John Barker. All rights reserved. Information contained in this Blog is of a general nature and should not be considered or relied on as legal advice. Any reader of this Blog who has legal matters related to information addressed in this Blog should consult with an experienced attorney. This Blog contains no warranties or representations that the information contained in it is true or accurate in all respects or that it is the most current or complete information on the subject matter covered. John Barker is President and CEO of ClearBox Rights, LLC.

The Standard U.S. Mechanical License Ceiling Is No Longer 9.1 Cents

In fact, it never was. That is a truth that surprisingly few people understand, and even fewer practice.

The reality is, as a copyright owner, I can charge as much as I want for someone to make and distribute a recording of my song. Twenty cents? I can charge that. Now granted, the user may have an option to go and get a “compulsory license” to use my song and pay only 9.1 cents, as long as it is not a first use, and as long as they jump through certain legal hoops in order to qualify. But very rarely are compulsory licenses used, with the exception of some of the recent online digital providers. And here’s the kicker. If anyone who wants to use my song has already manufactured the product over 30 days prior, or distributed the recording before they acquired a license (which happens all the time), they are permanently barred from getting a compulsory license for that use. They no longer qualify. So their only option is a negotiated license with me. And I have no legal limits on what I can charge.

Here’s a little history. In the early 1900s, Congress was concerned that the right to make mechanical reproductions of songs might become a monopoly controlled by a single company, so they introduced what is known as the “compulsory license” in the 1909 Copyright Act. This allowed anyone to make a mechanical reproduction, or phonorecord, of a musical composition without the consent of the copyright owner, provided the person adhered to certain provisions of the license as defined in the Copyright Law. This compulsory license was an alternative to a negotiated license, but was only available after the song had already had an initial distribution to the public in the United States under the authority of the copyright owner.

At that time, Congress also set what is called the “statutory mechanical rate”, which is the rate to be paid under the compulsory license, at 2 cents. That rate has been increased over the years to its current rate of 9.1 cents (for a 5 minute or less song). In recent years, various industry groups have negotiated, and the Copyright Royalty Judges have approved, certain digital uses to fall under the definition of Section 115 of the Copyright Law (which defines compulsory licenses), and agreed to additional statutory rates to cover such newly defined uses. However, the practice throughout the years has been that most users of copyrights would negotiate a mechanical license, rather than jump through the numerous legal hoops defined in Section 115 necessary for such a compulsory license.

Here’s the part many people don’t realize. All of these rates we call “statutory” are only applicable to compulsory licenses. Nowhere does the Copyright Law state that these statutory rates are to be applied to negotiated licenses, or any other licenses outside of Section 115. Nowhere. “Statutory Rate” is not even a defined term in the Copyright Law. It is merely a rate established by a legislative body to be applied to a unique compulsory license.

In the 2009 update to the Code of Federal Regulations (CFR), which is where the more recent negotiated rates and terms for compulsory licenses for physical and digital phonorecords are published, it is clear in §385.1 to say the scope of these new rates and terms are for licenses in accordance with Section 115 (compulsory licenses), and further, in relationship to voluntary agreements, “…the rates and terms of any [negotiated] license agreements entered into by Copyright Owners and Licensees shall apply in lieu of the rates and terms of this [compulsory license] sub-part…”.

So why does the industry, as a practical matter, stick to a maximum mechanical rate of 9.1 cents in negotiated licenses? Because (I believe) most people assume it is the maximum defined by law. And that is clearly not true. Unfortunately, I have found various trustworthy sources who mention this rate in context as it is used as a ceiling. In the popular book, “This Business of Music”, under the section “Negotiated License”, a statement is made referring to the statutory rate that it “…is likely to serve as a ceiling on royalties in United States negotiated licenses..”.¹ An article by Jeff & Todd Brabec on 2010 Mechanical Royalty Rates says, “This statutory mechanical rate represents the songwriter/music publishing royalties payable for songs contained on all physical audio recordings which are made and distributed…”.² Even Marybeth Peters, the past Register of Copyrights, in a statement to the House Judiciary Committee, referred to the compulsory license rate set by Congress by saying it “acted as a ceiling for the rate in privately negotiated licenses.”³

But it doesn’t have to.

Just last week, I was challenged on this very issue by a person in business affairs at one of the major record labels. In a license we had offered to the label, I was not asking for more than a 9.1 cent rate, but I was simply adding some reasonable terms of my own. The person’s response was, “This is a Statutory Rate license. The statutory language should be correct in a license or not included.” (the person actually did capitalize the words as if it were a defined term). Sorry, but wrong on all counts. Our license is a negotiated license. There is no such thing as a Statutory Rate License. While there may be a Compulsory License which uses a statutory rate, what I offered was a negotiated license for a product that has already been released. We use my terms…. or don’t use the song.

Bottom line, those who control copyrights should understand that they can license normal uses, mechanical or others, on their terms, and not the terms of the users, whether major companies or non-commercial individuals. There is no such thing as a ceiling rate for a negotiated license. I am not calling for unfair rates or terms, but merely challenging us to better understand our rights as copyright owners, and stick to our guns with what we believe are good and fair business practices.

John Barker
ClearBox Rights, LLC

“Be sure to put your feet in the right place, then stand firm”. – Abraham Lincoln

¹ ^{“This Business of Music” – Krasilovsky/Shemel (Billboard Books) Chapter 21, “Negotiated Licenses”}

^{² “Music, Money & Success” Brabec/Brabec (Shirmer Trade Books) as quoted on taxi.com}

^{³ Statement before Subcommittee on Courts, The Internet and Intellectual Property of the House Committee on the Judiciary – March 11, 2004}

 
^{© 2013 John Barker. All rights reserved. Information contained in this Blog is of a general nature and should not be considered or relied on as legal advice. Any reader of this Blog who has legal matters related to information addressed in this Blog should consult with an experienced attorney. This Blog contains no warranties or representations that the information contained in it is true or accurate in all respects or that it is the most current or complete information on the subject matter covered. John Barker is President and CEO of ClearBox Rights, LLC.}