We are fortunate to represent some of the most talented people and innovative business in the world and are extremely grateful for the relationships with each of you.

As we begin 2012, our firm name is changing to include Natalya Rose and Page Kelley.

Natalya and Page have not only contributed greatly to our intellectual property capabilities, they are also trusted colleagues and friends.

We are pleased to recognize them in this way as we continue our commitment to provide unparalleled legal services to our clients.

In the wake of the recent accidents and stage collapses at various fairs, festivals and live events, many artists and their management teams are assessing what steps can be taken to manage the risks associated with outdoor performances.   There are four primary areas of focus for managing such risks: (1) the contract for the event; (2) insurance coverage; (3) standing policies and procedures regarding weather; and (4) furnishing services through appropriate corporate entities.  Accidents are inevitable and are a part of the live event business.  The purpose of this article is to analyze how such risks can be managed and allocated among the potentially responsible parties.

The contract is the first line of defense in managing risk at live events.  The promoter and the artist can agree in the contract which party is responsible for the proper installation of staging and compliance with applicable building codes, safety codes and fire codes.  If the contract is properly drafted, it can effectively allocate the risks of stage collapses, fires, security issues and other potentially dangerous conditions.  Artists should pay particular attention to the indemnification provisions in the contract.  The party offering indemnification in the contract is the party that agrees to insure the other party against specific types of loss or damage or the party that agrees to repay the other party for such loss or damage.  If certain risks are clearly allocated between the parties in the contract and if the indemnification provisions of the contract are properly drafted, the risk of significant legal liability as a result of stage collapses, fires and other events can be allocated in the contract.  Performance contracts often have an additional layer of complication in that most of these agreements have numerous riders attached.  A rider is an addition or amendment to a document or agreement.  In a typical performance contract, there are often riders from the promoter, riders from the artist, riders from the agency, hospitality riders and sound and lights riders.  Care must be taken when attaching riders or making changes to the contract to ensure that it is clear which documents control to the extent certain provisions of the contract and/or riders conflict with other provisions of the additional riders.

The second line of defense in risk management for live events is insurance coverage.  The performance contract should require that the artist be named as “an additional named insured” on the promoter’s insurance policies.  It is important to have insurance certificates in hand confirming the types and levels of coverage being furnished by the promoter in advance of the event.  When playing events presented by governmental bodies (i.e., state or county events), artists need to be conscious of the fact that many governmental bodies are self-insured (which means that they may not carry any third party insurance) and they are often further protected by statute from tort liability above a certain amount (i.e., many states have a cap on liability for governmental bodies).  In addition to being named as an additional insured on the promoter’s policy, the artist should carry his or her own insurance policies.  General liability policies, workers comp policies and umbrella policies are commonly carried by most touring artists.  When purchasing insurance, artists need to consider which of their assets they are insuring including buses, personal instruments, band instruments, lighting, staging, video components and merchandise inventory.  In order to get insurance in place, it is important to have accurate equipment manifests and replacement values that are documented before the event.  Establishing which party’s insurance is primary and which party’s insurance is secondary is an important detail that should be addressed in the contract for the event.

The third area of focus is having policies and procedures in place to address inclement weather and staging construction.  For example, many artists (or their agents) now require promoters to furnish proof that any temporary staging structures being erected for the performance have been permitted, inspected and engineered in compliance with any applicable codes and regulations.  Some artists also require engineering drawings of temporary staging to be submitted prior to the event along with engineering stamps and approvals.  Artists and promoters are also often agreeing in advance on objective weather thresholds at which the show is cancelled.  For example, if the wind is blowing or gusting up to 60 miles per hour within five miles of the venue within an hour of the show or if there are a certain number of lightning strikes hitting the ground, the event is cancelled.   Recent advances in technology make it possible to monitor weather conditions and radar images on a real time basis from a mobile phone at the venue.

The last area of focus for artists in managing live event risk is to furnish their services through a properly formed and maintained corporate entity.  Most artists elect to furnish their live touring services through a corporation or limited liability company to further assist in risk management.  By rendering services through a corporate entity, the liability for such services is generally contained within the corporate entity.  If the entity is properly formed, the performance contract is with the entity, the artist, band and crew are employed by the entity and if the corporate entity is properly maintained (i.e., separate bank accounts, proper minutes, insurance, payroll taxes etc.), the corporate entity can be an effective shield against many types of liabilities associated with live performances.

By properly addressing performance contracts, carrying appropriate insurance coverage, establishing adequate policies and procedures and utilizing corporate entities, artists can take a variety of steps that can be effective in managing certain of the risks of outdoor performances.  While no approach will eliminate all possible risks, a risk management strategy for addressing the risks of outdoor performances is a wise use of resources for any artist touring and performing at outdoor events.

First published in MusicRow Magazine, Nov.-Dec. 2011

After more than a quarter of a century in publication, Best Lawyers is designating “Lawyers of the Year” in high-profile legal specialties in large legal communities. Only a single lawyer in each specialty in each community is being honored as the “Lawyer of the Year.”

Best Lawyers compiles its lists of outstanding attorneys by conducting exhaustive peer-review surveys in which thousands of leading lawyers confidentially evaluate their professional peers. The current, 18th edition of The Best Lawyers in America (2012) is based on more than 3.9 million detailed evaluations of lawyers by other lawyers.

The lawyers being honored as “Lawyers of the Year” have received particularly high ratings in our surveys by earning a high level of respect among their peers for their abilities, professionalism, and integrity.

Steven Naifeh, President of Best Lawyers, says, “We continue to believe – as we have believed for more than 25 years – that recognition by one’s peers is the most meaningful form of praise in the legal profession. We would like to congratulate W. Michael Milom on being selected as the ‘Nashville Best Lawyers Copyright Law Lawyer of the Year’ for 2012.”

MJHC is very pleased to have received these 2011-2012 “Best Law Firms” rankings:

Tier 1

Nashville
Copyright Law
Entertainment Law – Motion Pictures & Television
Entertainment Law – Music
Trademark Law

Tier 2

Nashville
Litigation – Intellectual Property

For more information on U.S. News – Best Lawyers “Best Law Firms” rankings and methodology for the 2011-2012 edition, please visit bestlawfirms.usnews.com and bestlawfirms.usnews.com/methodology.aspx.

THE FIRM This firm is highly regarded for its representation of artists, songwriters and producers, and has a niche specialty in online contests.

Chambers USA rankings at http://www.chambersandpartners.com/USA/Firms/155973-36934.

You will not find them in MusicRow’s “Internet Chart.”  You may never have a chance to know their real names.  But, just like many artists this time of year, they are fine-tuning their costumes and they are getting ready to go out on the road.  They may be your biggest “fans,” especially if you play arenas and stadiums.

They are the itinerant salesmen, the ever-faithful caravan of bootleg merch peddlers.  And they are coming to a city near you, carrying and wearing their wares.

The issue of contraband of any kind is certainly not new.  Everyone knows about the copyright piracy—occurring everywhere, and the artists typically get a chance to come face-to-face with the piracy on their name and likeness as their chart rankings and their Twitter “Followers”-ships rise.  Even without Twitter, artists have long been and continue to be “followed” by bootleg merchants, who travel from California to Tennessee, and from Kentucky to New York.  Such company means not only lost sales of authorized merchandise by the artist and tarnishment of the artist’s brand, but also unpaid local tax obligations and a most certain public safety hazard.

One way to combat this force is to play only at venues where a local anti-counterfeiting ordinance is in place and is regularly and actively enforced.  The next best option is to receive help from a federal district court in the form of an order enjoining the sale and distribution of the bootleg merch and allowing its seizure by local law enforcement officials.

The Trademark Counterfeiting Act of 1984 amended the Trademark Act of 1946, which is also often referred to as the “Lanham Act,” by outlawing the distribution, sale and trafficking of goods or services using a counterfeit mark, and prescribing related criminal and civil penalties.

In a civil action, the owner of a federal trademark registration, or a properly authorized party acting on the owner’s behalf, may apply to a federal district court for a seizure order ex parte—without notice to the adverse party.  In fact, the Act requires that such an application be without prior notice to any party except the United States attorney for the judicial district where the application is filed and prohibits making such application publicly known.

Additionally, a court cannot grant the application and issue the order unless (A) the petitioner is prepared to post a bond in the amount to be set by the court, and (B) the court may find from the facts in the record that:

• an order other than an ex parte seizure order is not adequate to achieve the purposes of the Act;
• the petitioner has not publicized the requested seizure;
• the petitioner is likely to succeed in showing that the persons against whom seizure would be ordered did actually use a counterfeit mark in connection with the sale, offering for sale, or distribution of merchandise;
• an immediate and irreparable injury will occur if such seizure is not ordered;
• the matter to be seized will be located at the place identified in by the petitioner in the application for the order;
• if the application were to be denied, the harm to the petitioner would outweigh the harm to the interests of the person against whom seizure would be ordered; and
• if the petitioner were to proceed on notice to such person, that person would destroy, move, hide or otherwise make the merchandise inaccessible to the court.

Together with the application for an order of seizure of counterfeit merch, the petitioner would be required to submit a verified complaint or a declaration, and also to comply with all national and local requirements under the federal court practice.  The petitioner would also, likely, elect to ask the court for an order of injunction against sale of counterfeit merchandise for the duration of the artist’s tour.

Upon conclusion of the tour, the petitioner could apply for a permanent injunction against the bootleg salesmen who have been identified on the tour, and for an order allowing destruction of all seized items.  With this help from the court, the next tour will be more likely to be followed by only the real fans.

Published in MusicRow Magazine (www.musicrow.com), June/July 2011

Early this fall, a decision by the Ninth Circuit Court of Appeals made the front page of The Tennessean, was featured on CNN’s lead webpage, and raised collective blood pressure levels at a number of record labels.  In FBC Productions, LCC  et. al v. Aftermath Records , a challenge by Eminen’s production company to royalty accountings provided to him by Aftermath Records, the Court agreed with Eminem that the royalty payable to him with respect to digital sales of his recordings, under the “unambiguous” terms of his recording agreement, should be 50% of Aftermath’s net receipts derived from such sales.  Aftermath had argued that the royalty payable should instead be between 12% and 20% of the adjusted retail price of such records, the rate it had actually been paying Eminem for years on digital sales, and the same rate payable on Eminem’s CD sales.

The decision was a welcome one for Eminem and his attorneys.  The difference in the two calculations is quite considerable, perhaps $1.00 to $2.00 per digital album sold, an enormous amount for an artist of Eminem’s stature.  But does the decision have broader implications?  Should we now expect a wave of artists challenging the way that they’re being accounted to for digital sales?  Unfortunately for the large majority of signed artists, and fortunately for their record labels, it appears not.  The Eminem decision hinged on the Court’s interpretation of the particular language of his 1995 recording agreement.  Very different language – clearly defining how royalties on digital sales should be calculated – appears in virtually all recording agreements drafted in the last decade.

Recording agreements typically provide that labels pay a per-unit wholesale or retail-based royalty on sales of records.  In support of such sales, labels incur substantial costs for production, manufacturing, marketing and promotion.   In addition, recording contracts typically provide for a royalty of “50% of net receipts” on a label’s licenses of individual tracks for films, television or similar uses.  That different royalty calculation has been widely accepted by labels because the licensee and not the label bears all costs with respect to the end product, and because the label often receives a “flat fee” for such licenses which is not tied to a retail or wholesale price.  The question in the Eminem case turned on which of these royalty calculation methods was appropriate for digital sales of records through a licensee such as iTunes.

Eminem’s recording agreement provided that he would receive a royalty of between 12% and 20% of the adjusted retail price on “full price records sold in the United States through normal retail channels”.  However, it went on to state that, “[n]otwithstanding the foregoing,” he was to receive a royalty of 50% of Aftermath’s net receipts “[o]n masters licensed by [Aftermath] … to others for their manufacture and sale of records or for any other uses.”  Importantly, the recording agreement did not address whether digital sales should be treated as sales through “normal retail channels” or whether income derived from sales through a licensee such as iTunes should be treated the same as income derived from other track licenses.

Therefore, once the Court determined that Aftermath had  licensed to its digital distributors the right to distribute Eminem’s records, it found that the “unambiguous language” of the contract required that the “net receipts” royalty provisions should apply to the calculation of royalties paid on resulting income.  Although in making its decision, the court took note of prevailing industry custom, of the parties’ assumptions and presumed intent, and of the language of the Copyright Act with respect to “licenses” and “sales”, the decision itself was based purely on the contractual language.  Presumably, if “normal retail channels” had been defined to include digital channels, or if the word “licensed” had been defined to exclude licenses with respect to the digital distribution and sale of multiple copies of records, a different decision could have been reached.

Virtually all recording agreements drafted in the last decade either explicitly provide for how royalties with respect to digital sales are to be calculated, or more generally provide that digital sales will be treated as sales through normal retail channels, and royalties calculated accordingly.  The Eminem decision aside, does it make sense to calculate digital royalties differently than royalties on physical sales?  The answer to that question depends on whom you ask.

Artists and their attorneys make the argument that per-unit royalties paid on digital sales should be higher than royalties paid on physical sales because the label’s manufacturing and distribution costs are so much less for digital sales, or in effect that “there are zero manufacturing costs for digital sales and the only distribution cost to the label is in providing a single copy of its master recording to iTunes”.  Therefore, a higher royalty, preferably calculated based on a substantial share of the label’s net receipts derived from digital sales, is justified.

Labels and their attorneys point out that this sort of reasoning ignores the big picture, in that manufacturing costs, as a percentage of a label’s overall costs to produce and market its recordings, are relatively small.  They argue that with any release, the label will incur substantial recording and production costs, and even more substantial marketing and promotion costs, all of which should logically be allocated to both physical and digital recordings.  Therefore, it makes sense to apply similar calculations in calculating royalties payable for physical and digital sales, which have a comparable cost per unit, other than the cost of physical manufacturing.

This dispute will certainly continue, especially as digital sales continue to represent a larger percentage of overall sales of records.  Whatever the parties decide, their contract needs to clearly reflect that determination.  Ultimately, the Eminem decision underscores how difficult it is to devise and describe compensation structures with respect to licenses and sales of music that anticipate changes in technology.   The message of the Eminem decision is that attorneys and their clients must make sure that their contracts clearly address both current and potential product markets, or at the very least stand ready to immediately update their contracts to address changes as they occur.

First published in December 2010/January 2011 Issue of Music Row Magazine, www.musicrow.com.

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