When the courts applied the doctrine o f unconscionability to exclusive agreements in the music industry, procedural unconscionability was interpreted as circumstances in which no genuine negotiation between the parties took place. For instance in the New York case regarding Jim Croce the court held that any claim that the contract lacked genuine negotiation would have required evidence that ‘haste and high pressure tactics’ had been exerted on the weaker party, and in this particular case did not present such evidence."^ Whilst in the California cases o î Buchwald and Graham, the respective courts interpreted procedural
business. See ibid. 506 "VA/Viat431.
Much of this rationale is equally applicable for receding contracts too.
In Croce {supra, n.256) the court held that the circumstance of ‘haste and high pressure’ tactics did not exist in that particular instance. I assume that ‘haste and high pressure tactics’ would exceed acceptable commercial pressures. However, it must be noted that duress is available as an independent contractual remedy for any artist. Therefore, one assumes that the determination of ‘haste and high pressure’ may be somewhere in between the concept of duress and acceptable commercial pressure.
unfairness as the lack o f a meaningful choice, which was considered in terms o f the absence o f a fair and reasonable alternative contract within the industry. Moreover, the lack o f genuine negotiation with regard to significant contract terms, particularly as a consequence o f standard industry negotiating practices, was a factor which was singled out for discussion in both Graham and Buchwald. The issue o f meaningful choice lies at the heart o f defining procedural fairness in both the New York and Cahfomia caselaw.
(a) Standard form contracts
The use o f ‘take it or leave’ standard form contracts is considered in the context o f the doctrine o f unconscionability. In these circumstances the problem is not merely the standard contract offered but rather that the contract has been offered on a take or leave it’ basis which leaves the weaker party with no other meaningful alternative choice. Moreover, there are two distinctive issues which standard contracts do raise: the non-negotiabihty o f the contract as a whole and the non-negotiability o f specific contractual terms. In particular, the non-negotiabihty o f important terms such as the royalty percentages or the number o f options
is common in recording and music publishing contracts; and such terms are often offered as the standard’ throughout the industry. Therefore, the lack o f a meaningful choice or alternative is difficult to determine because the available alternatives may be numerically adequate but may not provide a meaningful choice with regard to essential contractual terms. In such circumstances, the ‘industry standard’ in itself may prove substantively unfair as it did in the Buchwald case.
Common industry standards are primarily set by the practices and policies o f both the industry majors and the large independent companies and are often referred to as the ‘going rate’ by courts and industry c o m me nt a t o r s. T he r e is little evidence within the industry to
See respectively, supra, n. 281 and supra, n. 276. In the Buchwald case, the standard royalty terms were identical to those offered by the offeror’s rivals.
Independent companies are less likely to act in a ‘cartel’ type manner simply because they are too numerous and disparate to plan concerted contracting practices. Nevertheless, the music industry remains a ‘closed shop’, in which most businesses are highly likely to be aware of the terms offered by their rivals.
suggest that the ‘going rate’ is in fact considered as the substantively fair contractual standard.^^^ However the ‘going rate’ may be seen as the minimum industry standard from which record companies and music publishers negotiate their contracts.
Almost all exclusive recording contracts, which have been concluded with the record companies in the US require the approval o f the American Federation o f Musicians (AFM) but this process is seen as no more than a superficial and ineffective procedural safeguard and not as a general support o f the fairness o f non-negotiable industry standard terms by artists’ representative bodies. This is because the thirty-day period within which a contract must be rejected is often too short a time for the AFM to oversee the terms o f the contract without a thorough investigation.^*^*
The use o f standard terms and contracts set by artists’ representative bodies appears to offer some solution to the problem. Nevertheless, and to a certain extent, the use o f standard form contracts which have been drafted by the musician’s union or labour association for instance may be able to ensure fair terms for artists (particularly for the industry newcomers). However commentators suggest that in practice, major artist
representative organisations such as the American Federation o f Musicians appear to wield little power, particularly when individual recording artists are concemed.^^^ Nevertheless, it would not be uncommon for a songwriter in a strong bargaining power to opt to use the standard form contract recommended by his/her union or association both for convenience and to be able to protect his/her interests at minimum costs.
The determination o f the fairness o f all non-negotiable aspects o f the contract would
In the Buchwald case the court deemed the ‘going rate’ which was offered by the industry as unfair,
see Supra. n.281.
See supra, n.6 at 15. For example, the AFM recommendation that the duration of a contract ought not to exceed five years is not often enforced by them.
Almost every musician in the United States is a member of the AFM. The AFM has negotiated industry agreements in order to provide minimum standard conditions for its members, particularly with regard to session musicians. To this extent it has been successful. However, the influence of the AFM is generally limited to negotiating on matters of overall industry policy rather than those regarding individual contracts.
Songwriters with sufficient bargaining power are often able to utilise the standard form contract drafted by the Songwriter Guild of America (SGA). This contract provides a checklist of terms which ought to be considered during negotiations, rather than a wholesale attempt to standardise terms by means of collective bargaining. Therefore, the SGA advises its members that all terms in a songwriting
be ultimately judged on the overall fairness o f its substantive terms. Therefore, standard form contracts would have to reflect substantive fairness; and determining the latter remains a controversial issue.
(b) Renegotiations
Another aspect o f procedural fairness is the position o f the artist during ‘mid-term’ renegotiations o f the contract. It is arguable that the factors o f ‘haste and high pressure tactics’ and the lack o f ‘meaningful choice,’ which were specifically identified in caselaw with regard to procedural unfairness, could apply to circumstances in which mid-term renegotiations are concluded. ThcMetallica litigation suggests that artists claim to find the concept o f renegotiations during the operation o f a contract procedurally problematic.^^*
In the Metallica dispute, the band, Metallica, claimed that it was facing covert ‘pressure’ to agree to the new terms which were being proposed by its record company, Elektra.^^^ Metallica claimed that it depended on Elektra to amicably perform the existing contract, and it was in these circumstances that it (Metallica) was compelled to accept the terms o f the new contract. Metallica argued that the circumstance o f the pre-existing contract with Elektra placed the latter in a far superior bargaining position which it used during the renegotiations, in order to extract more favourable contractual terms^^^. This type o f argument has found support amongst legal commentators. For instance, the Los Angeles attorney Gary Greenberg suggest that;
‘Most artists are so anxious to embark on or continue their recording career that they are willing to accept almost any terms, which often result in an agreement that favors the
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company.
The Metallica dispute was settled out o f court and consequently the opportunity did not arise
a^eement are negotiable. Strictly speaking, the SGA is not a union but rather an association. ^ * No. 964007 (San Francisco County Super. Ct ). The case was settled.
372
Elektra is a leading record label belonging to Warner Records (USA).
This argument is not unlike that which George Michael used unsuccessfully against Sony. See Chapters.
374
for the court to consider whether there had actually been an abuse o f the ‘superior bargaining power’ by Elektra. The assessment o f an abuse o f a superior bargaining power would require an measurement o f the quality o f the contractual exchange, and it is unclear whether the court in Metallica would have determined substantive fairness on any standard other than a gross disparity in the contractual exchange. However, as I have already suggested the measurement o f substantive fairness remains a controversial point.
In the Melissa Manchester case the court held that as long as independent
consideration was offered, then a renegotiation or the ‘extension’ o f the contract terms would not in itself be considered unfair. The position o f the court suggests that it is unlikely that a mere disparity o f bargaining power between the parties is sufficient to cast doubt on the
fairness o f the contract. Nevertheless, it is worth noting that record companies such as Elektra are willing to settle the dispute rather than take the case to trial as the negative publicity which is often produced by such disputes would prove commercially detrimental to them.
Greenberg has argued for a reconsideration o f the court’s position in the Manchester
case. He observes, with some cynicism, that the contractual consideration which is offered in any renegotiation would eventually be funded from the artist’s share o f the royalties, by a process o f cross-collateralisation o f remuneration between the contracts.^^^ Indeed, Greenberg claims that:
‘Typically, when an artist asks his record company for money above what is guaranteed in the contract, the company will review the artist’s account to ascertain what royalties are in the “pipeline” (royalties earned but not yet paid) and agree to accommodate the artist based on those projected royalties. In this way, what appears to the artist to be a generous concession is actually a prepayment o f money that the artist has already earned.’^ *
Ibid.
An inquiry into the substantive exchange of the contract may have exposed an under-valuation, albeit not disproportionately so, of the band.
In the UK cross-collateralisation often referred to as cross-subsidisation. Don Passman, defines the concept thus: ‘advances under your current recording contract deal are cross-collateralised with royalties under past and future deals, and vice versa.’ Terms regarding cross-collateralisation with future agreements are ‘buried in the recoupment language’ of the initial contract. See supra.n.320 at
100.
Supra n.295 at 25. The problem of cross-collateralisation is not exclusive to renegotiated contracts. It may occur simultaneously within the advance and royalty terms of the one contract; as well as with royalty and advance terms in different types of contracts i.e. royalties from recordings which are used
Consequently, he suggests that an adequate inquiry into the substantive fairness o f the renegotiated contract ought to recognise this point^^^ and he claims that this practice o f
‘sequential’ cross-collateralisation is prevalent within the i n d u s t r y H e cautions against the ‘passing o f f o f cross-collateralised remuneration as new’ consideration.
The particular questions posed in any renegotiation are ultimately substantive in nature. The issue remains whether the renegotiated contract should reflect remuneration as merely adequate for an independent contract or a marked improvement from the old contract. The former type o f contract may not always prove fair, particularly when one considers the obviously improved bargaining position o f the successful artist and the non-negotiability o f important terms, such as royalty provisions. Indeed a renegotiation is only likely to occur if the artist is in fact successful and therefore offering him/her a renegotiated contract, which is substantively similar to the first contract, without the opportunity to negotiate crucial terms may not be substantively fair either.
(c) Independent legal advice
The Croce case suggests that the lack o f access to independent legal advice would not in itself imply negotiating circumstances o f ‘haste and high pressure tactics’, nor a ‘lack of meaningful choice’. Moreover, an important feature o f the case was that although an artist need not receive independent legal advice in order to enter a procedurally fair contract, he or she may still be entitled to a fiduciary duty from the lawyer acting for the record company or music pubhsher. The lawyer may then owe a duty as a member o f the legal profession, towards the musician if the latter is not otherwise legally represented or advised during the
to cross-collateralise advances for songwriting. Passman declares that cross-collateralisation is never beneficial for the artist. See Ibid. at 99.
Supra.n. 320 at 25.
Passman agrees and states that sequential cross-collateralisation is common in all sectors of the music industry. Whereas, cross-collateralisation between music publishing and recording contracts is not generally practised by the industry ‘majors’. See Supra, n. 320 at 99 and 100.
negotiation stage. These circumstances create both a fiduciary and a professional duty for the lawyer. This professional duty adds an important additional obhgation on the lawyer, and one which admittedly exceeds the procedural duties o f fairness normally imposed on a record company or music pubhsher.^*^
The presence o f an independent legal advisor concerns two aspects o f procedural fairness. First and foremost, when an artist acquires the services o f an independent legal specialist in the music industry, he/she gains the ability to improve his/her inherently weaker bargaining position; and secondly, the record company or music pubhsher is also able to avoid a situation in which the potential for a conflict o f interest may arise.
Surprisingly, Cahfomia attorney Edwin McPherson appears not to notice the essential confhct o f interest problems which could arise when there is essentially only the record company’s or music publisher’s lawyer present during the negotiation stage.^*^ For instance, McPherson asserts that the actual negotiations and ‘major deal points’ for a recording agreement are conducted by the artist’s manager and a high-ranking record company executive, whereas the record company lawyer merely deals with the routine ‘paperwork’. Consequently McPherson argues that since the lawyer only draws up the contract he is not the key representative o f the record company within the negotiation process. Moreover, he claims that with regard to the artist’s position, ‘... often times, a better deal can be negotiated because
o f the attorney’s [pre-existing] relationship with the [record] label...
McPherson’s argument encourages the reliance on the one lawyer within the negotiation process and indeed, he praises the cost benefits o f the concept o f hiring only one lawyer. Nevertheless, he does accept the radical nature o f his proposal and expressly limits its application to the entertainment industry because o f its highly ‘concentrated’ and ‘localised’ nature.
This was the decision in Crœe. See Supra, n.256.
‘Conflicts in the Entertainment Industry? ... Not!’ Entertainment and Sports Lawyer Vol. 10 Number 4 Winter 1993, 5.
Ibid. 7
Perhaps McPherson sees the role of the record company’s lawyer, during the negotiation stage, as an arbitrator rather than a partisan actor in an quasi adversarial process. This view does place an additional
It is not surprising that McPherson’s views have been heavily criticised. California entertainment attorneys Joseph Anderson and Darrell Miller have responded to his views by asserting that the potential for a conflict o f interest and the breach o f a professional duty are very important matters which McPherson’s argument conveniently ignores.^*^ They contend that the limited opportunities for artists in the industry offer very little bargaining leverage and consequently, the majority o f artists do in fact accept ‘one-sided contracts offered on a “take it or leave it” basis’. T h e y argue that without access to genuinely independent legal advice the artist would remain ignorant o f his/her contractual obligations, statutory rights and business interests.^*^ Consequently these circumstances tend to produce a vicious circle of ignorance and exploitation from which major record labels, for instance, continue to ‘dictate terms to all but the biggest artists and obtain far broader [copyright] ownership interests in the artists’ product than imaginable in any other industry.
The underlying point to the argument posed by Anderson and Miller is the problem o f adequate legal knowledge o f the industry with which an artist or his/her manager is best able to negotiate a contract. This concern is also emphasised by Don Passman who explains that it is only a relatively small group o f specialist lawyers who draft contracts within the industry. ‘This means that [the specialist industry] lawyers end up seeing more deals than anyone else and, thus, have more knowledge o f what’s “going down” around town.’ Consequently, a specialist lawyer is probably in the best position to offer usefiil ‘industry information’ to the artists.
Artists are, more often than not, required by the record company or music publisher
burden for non-partiality on the lawyer, in accordance with Croce {supra.n.256). Arguably, in placing this additional obligation on the lawyer, he/she may not perform his/her duties adequately towards his/her client, the record company.
‘Professional Responsibility 101, A response to “Conflicts in the Entertainment Industry? ... Not!”’
Entertainment and Sports Lawyer Vol. 11 Number 2 Summer 1993, 8. They consider McPherson’s views as those ‘destined for litigation’.
^ ^ /W .a t 8 .
Ibid. 8
Ibid. 11. Indeed, the artist’s manager may not always be well versed on the full legal implications of the contractual obligations imposed on the artist. Moreover, managers in the US sometimes negotiate for a ‘portfolio’ of clients. It is arguable that there may be a possible element o f ‘horse trading’ when negotiating contracts for a range of artists. The music industry is rife with the circumstances for