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Thread: Music Business 101 - Licensing

  1. #1
    galacticboy is offline Registered Loser
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    Music Business 101 - Licensing

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    We discussed previously the exclusive rights a copyright owner gets in connection with her copyrighted work. To recap, a copyright owner has the exclusive right to:

    • Make copies of the work
    • Make derivative works based on the work (translations, remixes, etc)
    • Distribute the work to the public
    • Publicly perform the work (a big one for musicians)
    • Publicly display the work (more for painters and sculptors)

    Anyone can exercise these rights by himself, but it’s a lot of work – never mind getting your own CD’s printed up and selling them yourselves, could you imagine having to own your own radio station in order to promote your songs? Most musicians want to reap financial benefits from their work, and most are also happy to let someone else handle that part of the business. But aside from selling the copyright itself, how does one accomplish this?

    The answer is licensing.

    (I am not a lawyer, the following is based solely on my personal opinion and research, and nothing that follows should be construed as legal advice. The following should only be used for informational purposes. Anyone with specific questions should consult with their attorney.)

    What is Licensing
    Licensing is granting someone else the permission to exploit your own copyrighted work. You can license all of your rights to a third party, just one of the rights, or a combination of the rights. For example, you can grant someone a license only allowing them to distribute your work to the public. In effect, a license is saying that the licensor (you) won’t sue the licensee (the third party) for engaging in what would normally be considered copyright infringement.

    Along with what rights you are granting to a third party, a license typically includes limitations on the length of time the license is in force and the territory it covers. It may also include certain conditions that must be met for the license to remain effective – perhaps requiring the licensee to account for all profits made off your work, or not allowing the work to be used for certain purposes like selling toothpaste or appearing in pornos.

    Except for exclusive licenses, which must be in writing to be legit, licenses may be oral or even implied. If your buddy has connections in the industry, and you give him a copy of your song to shop around, you’ve more than likely also given him an implied license to reproduce and distribute your work for that purpose. Likewise, if you make a free download of your song available online, you are giving anyone who visits your site an implied license to download (reproduce) your song onto their computer.

    When licenses are in writing, they are usually included in a contract which can include additional conditions and agreements on payment in exchange for the license grant. Note: any recurring payment a licensee gives to a licensor in connection with the copyrighted work is customarily called a royalty.

    Although it may seem like legal nitpicking or semantics, license grants and contracts are two separate things. The importance of that distinction will be discussed in more depth below.

    While license agreements are usually entered into on a one-on-one basis, there are times when it makes more sense to have blanket licenses. Blanket licensing societies exist to administer licenses in those situations where it would be far too complicated and cumbersome for individual licensees and licensors. Playing music on radio stations is a prime example – imagine if every single songwriter had to enter into a license agreement with every single radio station (and vice versa) to give them permission to play a song.

    You’ve probably heard of many blanket licensing societies already – they include the Harry Fox Agency, SoundExchange, and the PRO’s: ASCAP, BMI, SOCAN, PRS, etc. I’ll explain PRO’s in more depth in a future article, but for now all you have to know is that these blanket licensing societies act as a go-between for the millions of content owners and millions of content users.

    101 Contracts For Free!!!
    Stay away from contracts you download off the internet, find in books, or otherwise come across from anywhere besides your own lawyer. You can find many people who say they work just fine, but ask them if they’ve ever had a dispute over one of those contracts that ended up in court. It’s kind of like saying a bag of spoons works just as well as a parachute as long as you never have to jump out of a plane.

    Except in very specific cases, oral contracts are just as enforceable as written contracts. Should a dispute arise over an oral contract, courts look at all the evidence available to determine the intention of both parties.

    But when you throw a form contract in the mix, the intentions of the parties may become obscured. While some judges may not give too much weight to a contract that was downloaded off the internet, others may – putting you in a worse situation then having no written contract at all. Thousands of cases have made it to court where the meaning of a contract hinges on a single word. Do you really want to take the risk that a judge will give weight to a written contract that you downloaded off the internet stating the opposite of what you intended?

    As mentioned above, a copyright license – while wrapped in a contract – is a separate entity from the contract. Now you’re dealing with two very complex areas of the law. Do you still want to put your faith in a document you picked out of a zipped file of contracts? Intellectual property licenses typically have to mirror the statutory language that governs the underlying intellectual property rights being granted – language that changes from time to time. How sure are you that the contract you downloaded from ********** is up to date?

    When it comes to licensing, you’re dealing with a tricky subject best left to trained professionals. Attorney Ken Adams, who literally wrote the book on drafting contracts, once asked why certain portions of intellectual property licenses couldn’t be phrased better. It was quickly pointed out that this would probably be a bad idea because of the nature of intellectual property licenses and how they differ from everyday contracts. This illustrates just how important it is to have a lawyer familiar with IP to draft your contracts. Even the most skilled lawyer may be unaware of some of the pitfalls of IP licensing if she is not familiar with that area of the law.

    Exclusive and Nonexclusive Leases
    I wanted to discuss a practice that has become commonplace among many independent hip-hop beat writers, particularly on the internet. This is the practice of selling beats either as “exclusive” or “nonexclusive” “leases.” The idea is that the beat writer can sell the beat to as many artists or rappers for a lower price (the “nonexclusive lease”), or to a single rapper for a higher price (“exclusive”).

    The practice certainly makes sense. My problem is in the terminology used. As mentioned above, intellectual property licenses should mirror the statutory language as closely as possible to avoid ambiguity or unenforceability.

    Intellectual property is licensed – not leased. While the two terms imply a similar grant of rights, there are differences. Leases typically involve tangible property, as opposed to intangible intellectual property – one rarely sees contracts drafted by lawyers familiar with intellectual property talking about leases.

    The biggest problem is that a “lease” also typically infers exclusivity. If a landlord leases you a storefront, the landlord gives up the right to enter the premises without your permission. I doubt many beat writers would want a judge to interpret a lease – especially a nonexclusive lease – as implying that they no longer can use their own beat.

    “Exclusive” and “nonexclusive” are accurate ways to describe the type of licenses a beat writer wishes to set up, but in the realm of copyright licenses, these terms have specific, statutory meanings. An exclusive license (which must be in writing) acts similar to a transfer or assignment of copyright. The original owner no longer can exercise the rights given by copyright during the term of the license. And yes, there have been cases where the original creator of a copyrighted work has granted an exclusive license to a third party and then was sued for copyright infringement when he made use of his own work. Again, I doubt that this is what a beat writer has in mind.

    Even rappers who get beats under these types of contracts are putting themselves at risk. An exclusive licensee can sue for copyright infringement as if he was the original creator of the work. If a beat writer has already licensed a nonexclusive beat to rapper A, and then licensed it exclusively to rapper B, rapper B can potentially sue rapper A if A is distributing the beat. Yikes.

    This is just my take on the subject, and because I have not found a case where interpretation of these types of contracts are at issue, I can’t say for sure how a judge would interpret the use of “nonexclusive” or “exclusive.” But I can say for sure that use of these terms raises huge risks. Any decent entertainment or intellectual property lawyer can draft up an agreement that does exactly what these types of contracts are supposed to do in a way that sidesteps this ticking time bomb.

    (One more reason to stay away from premade form contracts!)

    Creative Commons
    If you’ve spent any time on the internet, you’ve probably heard of Creative Commons by now. Since this is the internet, there is a lot of hyperbole thrown around between supporters and critics of Creative Commons. But with Creative Commons licenses already covering millions of works – among them the best-selling mp3 album of 2008 – artists and musicians are likely to want to know more about the what, how, and why of Creative Commons licenses. Hopefully I can sift through the hyperbole to help you understand Creative Commons a bit better.

    Creative Commons licenses are public licenses, much like the licenses that are used by open-source software (GNU, Mozilla, etc). But while those licenses govern programming code, the various Creative Commons licenses creative works – writing, photos, artwork, and music.

    Creative Commons licenses work similarly to end user license agreements (EULA’s), or “click-wrap” licenses that you see when you install a new piece of software. There is no “meeting of the minds” like you find in traditional contracts – you agree to be bound by the terms of the license agreement by using the work being licensed.

    All Creative Commons require attribution as a condition to reproduction and distribution of your copyrighted work – if someone wants to post your song on a blog, for example, they have to give you credit. From there, you have your choice of a variety of licenses and combinations of grants of rights. Creative Commons has licenses that limit the grant of rights to non-commercial uses, allow or don’t allow derivative works (new works based on or incorporating your work), etc.

    People use Creative Commons licenses for many reasons. Some use it because they subscribe to a philosophy of art that encourages sharing and giving back to the creative community. Others feel that freely sharing their work is a great promotional tool and like the added control of a Creative Commons license (see Jonathan Coulton). Jonathan Bailey points out several lesser-known benefits of using Creative Commons licenses – most importantly that they provide more clarity than implied licenses.

    Whatever the reasons for using one, the bottom line is that Creative Commons licenses act pretty much like any other copyright license. They grant third parties permission to participate in specific rights given to a copyright owner under certain conditions. Whether or not Creative Commons is right for an individual musician is a choice for that musician.

    More Resources

    Previous posts in this series

    See this post on GrindEFX
    , , and 1 others like this.

  2. #2
    G.N.O's Avatar
    G.N.O is offline Registered User
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    Mar 2009
    First to say THANKS!


  3. #3
    Code Black's Avatar
    Code Black is offline Call Da Bomb Squad!!!
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    Jul 2009
    Good info as always. i especially like the exclusive and non-exclusive leasing of beats section. it applies to so many people on this site

  4. #4
    TRACKSTARZMUSIC is offline
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    Aug 2009
    great thread! somebody sticky this in the beginners section

  5. #5
    iambase's Avatar
    iambase is offline @30thJune1986
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    Jan 2009
    That's one of the better post ! Thanks a whole lot !

  6. #6
    calmAss's Avatar
    calmAss is offline Registered User
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    South Africa
    Thanks for all that info.

  7. #7
    ice is offline Registered User
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    Nov 2003
    Great info!

  8. #8
    K-1ne's Avatar
    K-1ne is offline Real name: Guerilla Major
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    This should be a permanent sticky and is an essential read to every producer here.

    The wackest producer of all time.


  9. #9
    MustafaMusic is offline Registered User
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    Aug 2009
    Good read for these subjects and more, Donald S. Passman "All You Need to Know about the Music Business"

  10. #10
    Caesar Balance's Avatar
    Caesar Balance is offline Redefining Aristocracy
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    Johannesburg, RSA
    Great info. Particularly the non-exclusive and exclusive license agreements. Will have to rethink this whole debacle.

    Btw, it seems like a Creative Commons license might be the way to go for me, just publishing music on the internet and on CD mixtapes to get some exposure.

    So obviously I'll be looking into CC licenses with more depth, but just wondering whether one can make an income / or take in some kind of profit when distributing their music under a Creative Commons?

    Thanks again for the very helpful article.

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