Inequality of bargaining power in the music industry - Essay Example

Inequality of bargaining power in the music industry Introduction: Contract law is based upon the laissez faire principle of freedom of will of the parties entering into a contract. The will theory of contract was founded upon the economic principle that the good of all exists in the pursuit of individual, selfish economic gain.1 The exchange between two parties is based upon the principle of “consideration” which Stone defines as “what one party to an agreement is giving, or promising in exchange for what is being given or promised from the other side.”2 But in truth, classical contract theory may not represent the true will of the parties, resulting in inequitable individual gains to one party3 and according to Baumann, “the role of the Courts is restricted to enforcing their [the parties] bargained for exchange.”4 As stated by Spencer Nathan Thal, “the freedom of contract doctrine sanctions every transaction, however unequal the starting points and however unequal the outcome.”5 Music Contracts: Where the issue of contracts in the music industry are concerned, the common terms covered are exclusivity of use of material, duration and territories covering use, ownership, copyrights and the right to exploitation of the material6. Exclusive performance over large geographical areas for long periods may render a contract unconscionable for an artist, because as pointed out by Vetrone, most artists never get a fair deal from music and recording companies7. However unknown, struggling artists may choose to accept such terms of their own free will in order to get their work out to the public and unless the contractual terms as laid out are unenforceable, such contracts will generally stand, irrespective of inequalities in bargaining position of the artist vis a vis recording or publishing companies. But in the words of Jacobs ACJ in Louth v Diprose8 “It is an oversimplification to say that because the respondent acted as he did with his eyes open, and with a full understanding of what he was doing, he was not in a position of disadvantage.” As P.S. Atiyah argues, even during the zenith of the will theory of contract, equality in bargaining power of the parties entering into a contract was nothing more than an elaborate fiction.9 Vertrone also points out how the proliferation of sites such as Napster and Kazaa which promote illegal downloading of music without payment of consideration only results in a further ripping-off of artists10. However, the mere existence of an inequality cannot be a basis to vitiate contracts, rather a contract may be set aside when one party has knowingly taken advantage of the other’s unequal/inferior bargaining position.11 In his discussion about the classical contract theory, von Mehren clarifies that the role of the Courts was to ensure the security of transactions and not to “deliver moral judgments” on the contents of the contract or assess “the relative bargaining power of each party.”12 Music itself was at first not protected by copyright in England and this became possible only seventy years after copyright was invention, mainly through litigation brought about by professional music composers against music publishers in the eighteenth century.13 In early England, most musicians relied upon wealthy patrons in order to survive.14 Later on, a musician’s employment contract with his publisher meant that he/she received a lump sum amount for publication of the composition after which the publisher effectively was the owner of the musical compositions for future use.15 Where the economics of music rights are concerned, it is generally the lead time that is a more important factor as opposed to the acquisition of exclusive rights16, so that in recognizing a new artist and backing him/her, the publishing company stands to gain or lose heavily depending upon how quickly it is able to get its product out to suit the market demands at the lowest price possible in order to maximize gains when the sales of the music is high due to current popularity. As also pointed out by Carse in his discussion of the development of music rights, success in the music publishing business is a function of the speed at which potentially good music is acquired to suit the market where customer tastes are constantly in a state of flux and where there is little regard for any claims emanating from either the artists or rival music publishers and recording companies – “if any law held good, it was the law of the jungle.”17 Hence there is no equality for the budding artist, who could be exploited by record and music companies to take advantage of market trends. An inequity in bargaining positions resulting in inequitable contracts may be actionable where a stronger party exploits a weaker party due to the combination of circumstances in which they find themselves.18 Lloyds Bank v Bundy: The most notable example of inequality in bargaining position is the case of Lloyds Bank v Bundy19 and this case is the starting point for a discussion of contractual inequalities due to differences in bargaining position20. As stated by Lord Denning, in such a case, one party is so strong and the other so weak that “as a matter of common fairness it is not right that the strong should be allowed to push the weak to the wall.”21 This therefore results in a position where one party is in a position to exert undue influence on the other party. Within the music industry, such a situation arises in the case of unknown artists who may enter into a restrictive covenant when initially in a position of poor bargaining power. However, another aspect that is relevant in the music industry is the question of restraint of trade, which constitutes the exceptions that have been developed by the Courts to protect the interests of artists in an unequal bargaining position. For example, an exclusive contract between two parties is exempted from interference and the grounds that it constitutes a restraint of trade may not be applied, however when the terms of a restrictive contract are such that they may not be strictly necessary or may be capable of being enforced in an oppressive manner, then there may be a cause for interference. In the case of National Westminster Bank plc v Morgan22 Lord Scarman questioned whether “inequality in bargaining power” even needed “any general principle affording relief”. As also clarified by Lord Reid in Esso Petroleum v Harper’s Garage23 the Courts do not generally interfere especially in contracts between music artists, publishers, record companies etc, unless “a contract is vitiated by fraud, duress or mistake” - a mere inequality in bargaining position does not serve as sufficient ground to vitiate a contract even when the terms are unreasonable - such inequality must yield contractual terms that make the contract unenforceable. In the case of Nordenfelt v Maxim Nordenfelt Guns and ammunition Co Ltd24 the Court analyzed the doctrine of restraint of trade as it applies within the music industry through a test, which stated that a restriction in a contract would be enforced by the courts only when it is a reasonable one and is not offensive to public policy. However, before a contract can be subjected to this test, the Court would first apply the following two questions that were set out in the case of Panayiotou v Sony Music25 to determine whether the restraint of trade can even be applicable grounds. These are (a) are the contractual restrictions offensive to public policy? (b) is there a reason why such restrictions should be condoned and the contract excluded from application of the restraint of trade? Once these issues are answered, the Nordenfelt test determines whether such a restriction is enforceable. In the case of Panayiotou, the contract between the artist and the music company was in the nature of a compromise agreement, therefore the doctrine did not apply. However in cases where the doctrine may be applicable, the party that seeks to enforce the contract will be required to demonstrate that the restraint is reasonable, against the natural presumption which will be that the restraint is an unreasonable one. In the case of Earl of Aylesford v Morris26 the question of bargaining position was deemed to be important in instances where an unconscientious result occurred and in such cases, the onus falls on the stronger party to demonstrate that the contract is “fair, just and reasonable.”27 The case of Esso refined the test further by questioning what are the interests of the party that seeks to enforce a contract and whether the existing contractual restrictions provide adequately for those interests. The issue of copyright: Where the music industry is concerned, one of the important issues that arises is the question of copyright in artistic works and assignments of copyrights could be deemed void where contracts are deemed to be unenforceable due to the inequity in bargaining position. One of the notable cases in this regard is that of Schroeder Music Publishing Company v Macaulay28 which was held by the Courts to be void due to the inequities generated through the terms of the contract. These terms were unconscionable to the young song writer, since royalties paid were very low, however the restrictive aspect was that the publisher had the option to terminate the automatically renewable contract while the same facility was not provided to the song writer. The copyright of the songs was vested in the publisher, however when the agreement was declared to be void, it became an unenforceable contract, therefore copyright assignments that had been made under the contract to the publisher were invalidated. A similar restraint of trade was exercised in the case of recording contracts as well, in the case of Zang Tumb Tuum Records Limited and Another –v- Holly Johnson29. In this case, the artist Holly Johnson’s leaving the musical group was questioned by the recording Company on the basis of the claim that she was bound to record songs only for their company. However, the contract was found to be unfair and one sided, such that it did not represent the artists’ interests and was therefore voided, with copyrights similarly voided. Subsequent to this case, recording companies are obliged to release records within two years, failing which the copyright reverts to the artist. Another case where a recording company entered into a similarly one side and unfair agreement with a new, unknown artist was the case of Silverstone records v Mountfield30. In this case, the contract was such that it allowed the record company sole use of the music for an indefinite period, therefore there was no obligation either on the part of the Company to release the records and on these grounds it was found to be a restraint of trade. A similar restraint of trade was also found in the case of Shaun Ryder v William Archibald Nicoll and Another.31 In the case of Hadley v Kemp32, the High Court declared that although only one of the members of the group was accorded copyright as the composer, joint ownership with others members of the group could be established by showing a “significant and original contribution to the creation of the musical work.” In the recent case of Morrisson Leahy Music Ltd v Lightbond and Others33 artist George Michael was able to establish that portions of his work had been used without his authorization. Therefore, all of these cases provide an indication that the element of inequity in contractual provisions of the music industry are being increasingly recognized by the Courts. Conclusions: On the basis of the above, it may therefore be concluded that many contracts in the music industry may be formulated from a position of inequality between the parties. However, this will not form grounds for voiding of a contract unless the terms are so unreasonable or so one sided that they are rendered unconscionable or repellant to public policy through a restraint on trade. In such cases, despite the fact that courts do not generally interfere in music contracts, the same may be voided or enforced by the Courts, depending on how the party which brings the suit is able to support its case. There is some indication that this position of inequality is being recognized by the Courts as evidenced by the reduced term of two years after which the copyright in a work reverts to the artist from a recording company, added to which is the fact that Courts appear to be more willing to interfere in contracts to redress imbalances and recognize the rights of artists to the benefits accruing to music and recording companies from performance of the work in public. Bibliography Books/Journal articles: * Arne v Roberts and Johnson, C/11/2260/7 London Public Record Office (1741) – the answer of Roberts and Johnson IN Rabin, Ronald J and Zohn, Steven, 1995. “Arne, Handel, Walsh and Music as intellectual property: Two eighteenth century lawsuits.” 120 Journal of the Royal Musical Association 112 at 140 * Atiyah, P.S., 2002. “An introduction to the Law of Contract” (5th edn) Oxford: Clarendon, pp 14 * Baumann, Richard W, 2002. “Ideology and Community in the First Wave of Critical Legal Studies” Toronto: University of Toronto Press, pp 84 * Carse, Adam, 1940. “The orchestrain in the VIIIth century, W.Heffer and Sons Ltd at pp 8-9 * Cartwright, L, 1991. “Unequal bargaining: A study of vitiating factors in the formation of contracts.” Oxford: Clarendon, pp 197 * http://www.musicforlondon.co.uk/MusicContractsSite/copyright_uk_first_part.htm * Mason, Sir Anthony, 1994. ‘The Place of Equity and Equitable Remedies in the Contemporary Common Law World’, 110 Law Quarterly Review 238, pp 248-249 * McKendrick, Ewan, 2000. “Contract law” (4th edn) Palgrave Law masters * Mehren, Von A, 1982. “Contractual justice” IN “A General View of Contract: International encyclopedia of Comparative law.” (Turbingen eds) Hague, pp 64 * Poole “Textbook on contract law” 7th edn: 30-31 * Rohr, Deborah, 2001. “The careers of British musicians: 1750-1850” A Profession of Artisans, 40-61 * Smith, Stephen A, 2004. “Contract Theory: Oxford: Oxford University Press, pp 3 * Stone, R. “Modern law of Contract”, 5th edn. Cavendish Publishing: 74. * Thal, S.A. 1988. “The inequality of bargaining power doctrine” The problem of defining contractual unfairness” Oxford Journal of Legal Studies, 17 * Vertrone, Amelia V, 203. “The legal and moral rights of all artists” Iuniverse Publishers Cases: * A. Schroeder Music Publishing Company v Macaulay(1974) 1 WLR * ACCC v CG Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 * ACCC v Samton Holdings Pty Ltd [2002] FCA 62. * Bach v Longman, 98 Eng. Rep 1274 (K.B 1777) * Commercial Bank of Australia Ltd v Amadio, (1983) 151 CLR 447 * CG Berbatis Holdings Pty Ltd v ACCC [2001] FCA 757 * Earl of Aylesford v Morris (1873) 8 Ch App 484 * Esso petroleum Co Ltd v Harpers Garage (Stourport) Ltd (1968) AC 269 * Hadley v Kemp (1999) EMLR (The Spandau ballet case) * Lloyds Bank v Bundy (1975) QB 326 * Louth v Diprose (1992) 175 CLR 621 * Morrisson Leahy Music Ltd v Lightbond and Others (1993) EMLR 144 * National Westminster Bank plc v Morgan (1985) AC 686 * Nordenfelt v Maxim Nordenfelt Guns and ammunition Co Ltd (1894) AC 535 * Panayiotou v Sony Music (1994) EMLR 229 * Silverstone records v Mountfield 91933) EMLR 152 * Zang Tumb Tuum Records Limited and Another –v- Holly Johnson * William Archibald Nicoll and Another v Shaun Ryder (2000) EMLR 632 Read More