ENTERTAINMENT LAW
The areas of law governing professionals and businesses in the entertainment industry, particularly contracts and INTELLECTUAL PROPERTY; more particularly, certain legal traditions and aspects of these areas of law that are unique to the entertainment industry.
The entertainment industry includes the fields of theater, film, fine art, dance, opera, music, literary publishing, television, and radio. These fields share a common mission of selling or otherwise profiting from creative works or services provided by writers, songwriters, musicians, and other artists.
Contracts
The entertainment industry exists in a state
of economic uncertainty. Entertainment companies
continually form, merge, re-form, and
dissolve. Furthermore, consumer tastes in artistic
products can change quickly, thrusting certain
artists or artistic movements to the heights
of popularity and reducing others to obscurity.
Because of this instability, the entertainment
industry relies on complex contracts, which
usually are drafted to protect entertainment
companies against economic risk.
Personal Service Agreements The PERSONAL
SERVICE agreement is a primary legal
instrument in the entertainment industry. It is
negotiated between an artist and a company that
manufactures, promotes, and distributes the
artist’s goods or services. The agreement often
binds the artist to produce for one company for
a certain period of time. Personal service agreements
are often governed by statutes and are
often the subject of litigation because they
restrict the rights of artists to perform or create
for any entity except for the company with
whom they have contracted.
Artists generally do not have the resources
necessary to manufacture,market, and distribute
their goods or services. Instead, they must find
an appropriate entertainment company to do so.
Entertainment producers (e.g., book publishers, record companies, movie studios, and theaters)
often invest large amounts of time and money in
promoting and selling artists’ talents or products
to consumers. Most artists will fail to earn a
profit for their producer. A few, however, will
earn enormous sums. To ensure that artists who
generate a profit will remain with the company,
producers use personal service agreements to
bind artists for a certain time, during which the
producers attempt to recover their investment in
the artist, make a profit, and cover losses from
less successful artists.
In some entertainment industries, personal
service agreements are structured using options.
Options give a producer the right to extend an
agreement for several time periods. For example,
a record company may contract with a musician
to provide one album during the first year of the
agreement, with an option to extend the contract.
After one year, if the record company feels
that it would be economically wise to release a
second album by the musician, the record company
may exercise its option and require the
musician to provide the second album. Under
option contracts such as this, producers can keep
artists on their roster for many years, or as long
as the artists remain profitable.
Some option contracts can be disastrous for
the artist. For example, musicians sometimes
sign an option agreement without a provision
that they may break the agreement if the record
company fails to release their works. Many
recording artists have been held in professional
limbo by record companies that refuse to
release their music and also refuse to allow
them to record for another company. This practice,
known as shelving, is used by some record
companies to prevent economically risky artists from becoming valuable assets to other record
companies.
Other entertainment industries use shortterm
personal service agreements rather than
option agreements. For example, film studios
often contract with actors, directors, screenwriters,
and other creative artists on a one-film basis.
Short-term agreements allow studios to avoid
paying guaranteed fees to artists whose market
might dissipate overnight. In the early days of
the film industry, studios bound stars to longterm
agreements. That system changed in the
1940s, when certain stars demanded fees that
were higher than studios were willing to pay.
Those stars then demanded, and received, onefilm
contracts for their services, which became
the standard. The television industry, on the
other hand, still uses long-term agreements for
its talent in many areas.
Litigation over personal service agreements
is common in the entertainment industry.
Often, an artist who is relatively unknown is
willing to enter into an agreement that drastically
favors the company with which he or she is
signing. Once the artist achieves success and sees
the profits that the company is making from his
or her services, the artist may demand higher
fees or ROYALTIES, or to be released from the
contract. Conflicts such as this often end up in
court, where companies often demand that the
court order that the artist not perform for anyone
else while the contract is in dispute. (This
type of order is known as a negative injunction.)
Whether the contract will be enforced and the
artist required to perform under the agreement
is usually determined by whether the contract
meets certain legal requirements based on the
state laws that govern it.
Contract for Rights Another primary type
of contract in the entertainment industry is the
contract for rights. This contract often involves
a transfer of COPYRIGHT ownership or a license
to use certain creative property (e.g., a song or
photo).
Many times, a contract for rights is combined
with a personal service agreement. The
agreement often will state that any work created
by the artist during the term of the agreement is
considered a work for hire. The company with
whom the artist has contracted often receives
automatic ownership of the copyright to a work
for hire. For a work for hire to exist, the artist
must either be an employee of the company or
create the work pursuant to a valid written
agreement—and even then, the work must fall
within a few specific categories defined by copyright
law.
A license is a contract through which the
artist or copyright holder grants certain rights to
another party and promises not to sue them for
certain activities. For instance, a novelist might
grant a license to a film studio to create a screenplay
based on a novel. A license specifies the fee
or royalty to be paid to the artist, the exact scope
of use of the copyrighted material, and the time
period for which the company may use the
material, as well as any other conditions that the
parties agree to attach to the license.
Unique Aspects of Entertainment
Industry Contracts
Complex Royalty and Payment Provisions
Because entertainment companies often risk
large losses, the contracts they use often contain
clauses that artists may consider to be unnecessarily
complex or one-sided. For example, film
studios often base payments to talent in part on
net profits. The calculations that are necessary to
determine net profits, as defined in a typical
contract, can be mystifying to those who represent
the talent. A screenwriter or an actor who
receives bonuses or royalties on net profits
might be paid little or nothing on a film that has
earned hundreds of millions of dollars but is still
showing a loss according to the net-profits calculation.
Net-profits clauses have resulted in several
high-profile lawsuits, including Buchwald v. Paramount Pictures Corp. (13 U.S.P.Q.2d [BNA]
1497 [Cal. Super. Ct. 1990]), Garrison v.Warner
Bros., Inc. (No. CV 95-8328 [C.D. Cal. filed Nov.
17, 1995]), and Batfilm Productions, Inc. v.
Warner Bros. (Nos. B.C. 051653 & B.C 051654
[Cal. Super. Ct.Mar. 14, 1994]).
Record companies also use complex contractual
formulas to determine royalty payments
to their artists. Companies typically offer
seemingly large royalty percentages to artists.
Various clauses in the recording agreements
then are used to reduce the royalty percentages,
reduce the number of units on which royalties
are paid, and delay payment for many months.
Although a few small record companies have
made some effort to simplify the structure of
recording agreements, the major record companies
and their smaller affiliates have fought to
maintain the more complex, formula-based
agreements.
Advances Many entertainment contracts
are structured with advances. Advances are
payments made to an artist before any actual
income is received by the company that manufactures
or delivers the artist’s products or services.
For example, an author might receive an
advance of $50,000 when a manuscript is
approved by the publisher. This advance is
normally nonrefundable, even if the publisher
never earns money from the publication of
the author’s work. However, the publisher will
keep any royalties that would have been payable
to the author, until the author’s advance
and other expenses have been recouped by the
publisher.
Contracts with Minors Contract law in
many states requires that specific steps be taken
in, or clauses added to, a contract with a minor,
to ensure that the contract is valid. Often, companies
will require that the minor’s parents execute
a valid release, under which they guarantee
the services of the child and agree to be held
liable for damages if the child fails to perform
under the terms of the contract.
Contracts with Intermediaries Successful
artists are surrounded by many individuals who
are responsible for enhancing and protecting
their career. Unknown artists use the services of
such intermediaries to help them become
known to more powerful figures in the entertainment
industry. Intermediaries have various
names and functions, but all serve to promote
an artist’s visibility and success in the industry.
For this service, they generally take a percentage
of an artist’s earnings or a portion of the artist’s
property rights in the artist’s creations.
Agents Agents are individuals who procure
employment and other opportunities for artists.
In film production, agents find actors roles or
pitch screenwriters’ works to studios, producers,
and actors. In music production, agents procure
live engagements for musicians. In book publishing,
agents attempt to secure publishing
agreements for authors. For their services,
agents often receive between five and 25 percent
of an artist’s revenues that are obtained through
the agents’ efforts. Agents nearly always require
an artist to use only their services, while they
usually serve many artists. Agents are strictly
regulated in some states, especially states with
large and successful entertainment enterprises.
Agents have become powerful figures in the
entertainment industry.
Personal Managers Personal managers are
individuals who guide various aspects of an
artist’s career. In the early stages of an artist’s
career, the manager might act as agent, publicist,
contract negotiator, and emotional counselor.
As an artist gains in stature and income, the personal
manager’s primary tasks are to choose and
to direct specialists to handle various aspects of
the artist’s career. For these services, personal
managers often receive 10 to 20 percent of an
artist’s income from all sources.
Attorneys Attorneys in the entertainment
industry perform many standard legal functions
such as conducting litigation, giving business
advice, protecting intellectual property, and
negotiating contracts. Entertainment attorneys
also serve as industry intermediaries, promoting
their clients in order to procure contracts for the
artists’ products and services. For these services,
entertainment attorneys are paid either an
hourly fee or a percentage of an artist’s income.
Entertainment attorneys often face difficult
conflicts of interest. For example, an attorney
who has represented a record company is often
pursued by a recording artist to shop the artist’s
material to that company. The artist knows that
the company will often trust the attorney’s opinion
of the artist’s marketability, which gives the
artist a better chance of obtaining a recording
contract. The attorney, however, is often privy to
confidential information about the record company,
or still represents the company in related
negotiations. Attorneys and artists have been
involved in several high-profile disputes because
of such conflicts of interest.
Intellectual Property
The entertainment industry’s primary product
is intellectual property, protected by copyrights,
TRADEMARKS, and the right of publicity.
A majority of the terms in entertainment contracts
concern the ownership and use of this
property.
Songs, plays, films, works of fine art, books,
and even some choreographed works are copyrightable.
The contractual terms that define
the ownership and use of these works are often
negotiated for months, with both the artist
and the entertainment company vying for as
much control of the intellectual property as
possible.
U.S. copyright law contains provisions that
are specifically directed at the entertainment
industry. For example, the songwriter—or the
copyright holder, if the songwriter has transferred
the song’s copyright or created the song as
a work for hire—decides who can first record a
song for publication. However, once the song
has been recorded and published, the copyright
holder may no longer limit who may record the
song. If a song’s copyright owner has previously
granted permission to someone to record a
song, or if the songwriter has recorded and commercially
released a recording of the song, the
copyright holder is required by copyright law to
grant a license to anyone else who wants to
record that song. This is called a compulsory
license. A licensee who records a song under a
compulsory license is required to follow strict
statutory guidelines for notification of its use
and reporting sales and royalties to the copyright
holder. The fee for a compulsory license is
set by Congress at a few cents per recording
manufactured and is adjusted for inflation every
few years.
A separate copyright exists in each legally
recorded version of a song. Therefore, when a
musician records a song after receiving the
appropriate license from the owner of the song’s
copyright, that musician owns a separate copyright
in the recorded version of the song.
Copyright law also directly addresses the
unique needs of dance, theater, and other performing
arts. A creator of choreography may
claim a copyright for that choreography once it
has been fixed in a tangible form, such as on a
video recording. The choreography then may be
used only with the permission of the copyright
holder.
One key aspect of copyright law as applied to
the entertainment industry is that of derivative
works. A copyright holder initially controls who
may create a work based on the artist’s original
work. For instance, a film studio generally may
create a screenplay based on a novel only with
the novelist’s, or other copyright holder’s, written
permission. This control is critical to authors
and screenwriters, whose works can be adapted
to several other media—films and sequels, television
series and movies, audiotapes, toys,
games, T-shirts, and other products derived
from the work. An author can forgo millions of
dollars of potential income simply by allowing a
publisher to own and control the rights to create
and license any such derivative works based on
the author’s work.
Entertainment company names, band names,
performers’ pseudonyms, and, more rarely, performers’
legal names, can be protected under
U.S. TRADEMARK LAWS. Like other businesses,
entertainment entities have an interest in preventing
others from using names that are so
similar to theirs as to cause confusion among
consumers as to exactly who is delivering certain
products or services. Therefore, many entertainment
entities register their names with the U.S.
PATENT AND TRADEMARK OFFICE and claim the
exclusive right to use their names. In most cases,
such names will be registered as service marks,
rather than as trademarks. For instance, bands
who register their band name as a TRADEMARK
typically will register for performance of entertainment
services. Once an entity receives a registration
from the U.S. Patent and Trademark
Office, no other entity may use the name, or a
confusingly similar name, to provide services
similar to those provided by the registrant.
Use and ownership of trademarks by members
of a band or other entertainment company
can be a source of great controversy when
the entity dissolves. If, prior to dissolution, the
owners or members of the entity have not
agreed as to who may use the trademark after
dissolution, lengthy legal battles can result as
different members or factions try to use, and
prevent the other members from using, the
trademark.
Electronic Copyright
A new format known as MP3 (Motion Picture
Experts Group-1 Audio Layer 3), which can
compress and store high-quality, digital music in
one-tenth of the space in which a CD can store it, has recently caused considerable legal ramifications
in the entertainment industry. Access to
this digitized music is widespread and growing
rapidly. Electronic distribution and the digitization
of music has the potential to radically
reduce royalties to artists.
Napster In early 1999, Shawn Fanning, who
was only 18 at the time, began to develop an idea
as he talked with friends about the difficulties of
finding the kind of MP3 files they were interested
in. He thought that there should be a way
to create a program that combined three key
functions into one. These functions included a
search engine, file sharing, (i.e., the ability to
trade MP3 files directly, without having to use a
centralized server for storage) and an INTERNET
Relay Chat (IRC), which was a means to find
and chat with other MP3 users while online.
Fanning spent several months writing the code
that would become the utility later known
world-wide as Napster. Napster became a nonprofit
on-line music-trading program that
became especially popular among college students,
who typically had access to high-speed
Internet connections.
In April 2000, the heavy metal rock group
Metallica sued Napster for copyright infringement.
Several universities were also named in
this suit. Metallica claimed that these universities
violated Metallica’s music copyrights by permitting
their students to access Napster and to
illegally trade songs using university servers. A
number of universities already had banned Napster
prior to April 2000 because of concerns
about potential copyright infringement and/or
because traffic on the Internet was slowing university
servers down. Yale University, which was
named in the suit, immediately blocked student
access to Napster.
Metallica argued that Napster facilitated illegal
use of digital audio devices, which they
alleged was a violation of the RACKETEERING
Influenced and Corrupt Organizations (RICO)
act.Napster responded that copying a song from
a CD to a personal computer—when that CD
was lawfully purchased—is a reasonable use of
the copyrighted material according to the fair
use doctrine. They argued further that if this file
happens to be accessible on the Internet, then
others can access or download it without being
guilty of a crime, or civilly liable for copyright
infringement.Napster further claimed that since
it made no profit from the trades, it owed no
money in royalties. Among other things, when
courts determine whether fair use has occurred,
they assess how much of the copyrighted material
was used and the economic effect this use
has on the copyright owner. The U.S. Court of
Appeals for the Ninth Circuit held that Napster’s
operation constituted copyright infringement.
Personal Rights
A successful artist’s name and image can
become valuable commodities.Use of the artist’s
name and likeness by another party can infringe
on rights held by the artist. The legitimacy of
such uses is often unclear and is based on several
areas of law that overlap and sometimes contradict
each other, such as right to privacy, right to
publicity, UNFAIR COMPETITION, DEFAMATION,
and FIRST AMENDMENT law.
Concerns about long-term contracts and
record labels taking advantage of rock stars have
caused major stars to lobby Congress. Don Henley,
Sheryl Crow and Alanis Morissette have spoken
before Congress on the need for rock stars to
represent their own interests, without so much
interference or control from record companies.
Singer-songwriter Don Henley, co-founder of
the Recording Artists Coalition, which represents
dozens of stars, including Eric Clapton,
Joni Mitchell, Q-Tip, and Peggy Lee, said of the
movement, “Record companies have been
screwing artists for ages. It’s time we organize
and fight back. We’ve got our own trade group
now.We’re going to Washington.”
FURTHER READINGS
The Entertainment and Sports Lawyer (various issues).
Levitt, Carole, and Mark Rosch. 2003. “Finding Entertainment
Law Online, from Scholarship to Scandals.” Los
Angeles Lawyer 26 (May).
Lisa Stansky. 2002. “Contracts, Rights, and Land Deals—
That’s Entertainment.” Student Lawyer 31 (November).
Loyola of Los Angeles Entertainment Law Review (various
issues).
CROSS-REFERENCES
Art Law.
The Fiduciary Duty of Entertainment Attorneys: Joel v. Grubman
An attorney has a duty to act solely in the client’s
best interests, to disclose any potential conflict
of interest, and to withdraw if a conflict would impair
the attorney’s ability to represent the client. In 1992
pop singer Billy Joel sued his former attorney Allen J.
Grubman and Grubman’s law firm for $90 million,
claiming that Grubman had committed FRAUD and
breach of contract. The suit alleged that while representing
Joel throughout the 1980s, Grubman had
defrauded the singer out of millions of dollars by
negotiating secret deals with Joel’s manager, Francis
Weber, and by allowing Weber to control the law
firm’s representation, often in direct conflict with
Joel’s best interests. Joel claimed that if the firm had
notified him of Weber’s actions, Joel could have prevented
millions of dollars in losses to his manager.
The singer claimed that the law firm was concerned
primarily with enhancing its own reputation by keeping
him on its client roster, and did not want to risk
losing Joel as a client by angering Weber.
Joel also alleged that Grubman failed to disclose
that the law firm represented Joel’s label, Sony
Music, and that such representation was an inherent
conflict of interest that biased Grubman’s judgment
during contract negotiations.
The law firm claimed that it had done nothing illegal
or unethical in its representation of Joel, and
stated that it was hired by Joel only to negotiate contracts,
not to monitor the business ventures of Joel’s
manager. Furthermore, the firm claimed that Joel had
earned millions of dollars as a result of his recording
contract, proof that its advice to him during negotiations
with the label were not affected by the firm’s
relationship with Sony.
The case sent shock waves through the entertainment
industry, where it is not uncommon for
attorneys to represent both sides of a contract negotiation,
or at least have ongoing client relationships
with both sides, and it is also not uncommon for an
attorney to respect the decisions of an artist’s manager
even though the attorney’s client is the artist.
Joel and Grubman settled the case without disclosing
the terms of settlement.
CROSS-REFERENCES
Attorney Misconduct; Conflict of Interest.
