SONGWRITERS AND MUSIC PUBLISHERS: PARTNERS IN RHYME?
First published in the Beverly Hills Bar Association Journal, Fall 1988. This article does not reflect any legal developments since first publication.
I. Introduction
Songwriters create songs and music publishers promote 1 them. Earnings are almost always split 50-50 2. While this may seem like a partnership or joint venture, American courts have never so held it. Songwriters are treated as independent contractors 3 , and cannot expect from publishers the degree of fiduciary duty they might expect from a partner, trustee or agent.
As is so often the case, however, the story is not so simple. There are instances in which publishers are held to be trustees for songwriters or other interested parties. And at least one entertainment text described the songwriter-publisher relationship as “quasi-fiduciary” 4 . This alone justifies closer scrutiny of the writer-publisher relationship. Moreover, recent cases in England have altered the songwriter-publisher relationship there in ways that American songwriters might well envy.
This paper, then, will examine American law to more clearly define the relationship between songwriters and music publishers. Against this background, it will then review the recent developments in England. It will show how the new British rules differ from the American rules. Finally, it will outline a number of ways in which American publishers, courts or legislatures could act to create a relationship that, while not creating a true partnership, at least ensures the fairest possible treatment for all concerned.
II. American Law
When a songwriter signs a publishing contract, he or she is assigning to the publisher both the musical composition and the copyrights therein 5 . The contract on its face does not look at all like a partnership or joint venture agreement. To ask, then, whether songwriters and music publishers are partners is to inquire into their mutual rights and duties. May they exercise the “morals of the marketplace”, or are they bound to the higher standards imposed upon partners, joint venturers, agents or trustees? More particularly, it is to inquire into the publisher’s rights and duties, since it is the publisher who holds legal title to the copyright, issues licenses, charges and collects royalties, and pays the writer out of the collections.
A. Partnership
It has never been seriously argued that songwriters and publishers are partners in a legal sense 6 . Both songwriters and publishers have referred to their relationship as a partnership 7 , but mainly for descriptive purposes, and not as an analysis of their actual legal rights and duties. Indeed, some publishing contracts explicitly state that the contract does not create a joint venture or partnership. Nor are there any reported cases in which a writer asserted that th e publisher was his partner and ought to be held accountable as such. Thus the talk of writers and publishers being partners, while descriptive and perhaps useful in promoting better relations, is not a legal analysis of the relationship and was never intended to be. If a publisher has fiduciary duties towards its writers, they must arise from some other source.
B. Trust Relationship
While no one argues that writer and publisher are partners, Congress and the courts have recognized that for certain purposes the publisher is a trustee and the writer a beneficiary. The publisher, after all, holds legal title to the copyright, while the writer is to benefit by receiving a share of royalties. While a trustee owes many duties to a beneficiary, chief among them, and those most relevant to the present discussion, are the duty to preserve trust property 8 , to account to the beneficiary 9 , to deal fairly with the beneficiary 10 , and to make the trust property productive 11 . It will be seen that while the publisher has certain duties in all these areas, the burdens are not as heavy as those falling on typical trustees.
1. Duty to Preserve Trust Property
To the extent that a writer and publisher are in a trust relationship, the “trust property” is the copyright. Preserving a copyright often takes the form of prosecuting those who infringe upon it. 12 As holder of legal title to the copyright, the publisher plainly has standing to sue an infringer. It has long been held, however, that the songwriter also has standing on the theory that he or she is the beneficial owner of the copyright legally owned by the publisher. While this doctrine was developed in the case law 13 under the 1909 Copyright Act, it has been codified 14 in the 1976 Act in section 501(b). 15
That trusts law was the source of the doctrine was made clear in a recent federal case:
When a composer assigns a copyright title to a publisher in exchange for the payment of royalties, an equitable trust relationship is established between the two parties which gives the composer standing to sue for infringement of that copyright. (citations omitted). Otherwise the beneficial owner’s interests in the copyright could be diluted or lessened by a wrongdoer’s infringement . . . 16
As against a copyright infringer, therefore, songwriter and publisher have a trust relationship that permits the writer as beneficial owner to sue an infringer in the event the publisher fails or refuses to do so. This is simply a restatement, in a particular factual context, of the general rule that a trustee has a duty to protect the trust property.
Apparently in accord is Broadcast Music, Inc. v. Taylor 17 , where the publisher, in consideration of a large advance, switched from ASCAP to BMI 18 without the consent of its writers, effectively cutting the writers off from their ASCAP performing right royalties. The court held that the publisher had breached both contract 19 and trust, and granted the writers recession 20 of their contracts with the publisher.
The court described ASCAP as a joint venture devoted to licensing, into which writers placed their compositions and publishers placed their copyrights. As a licensing agent, ASCAP’s activities included bringing infringement lawsuits against those who publicly performed works without a license. The court then said:
The fact that the publisher held title to the copyrights . . . was altogether subordinate to the joint venture. He held that title only to the end that the exploitation of the songs might be more advantageously achieved. He was in this respect merely a trustee for ASCAP and its members . . . 21
The publisher here held title to the copyrights, while the writers were the beneficiaries of ASCAP’s royalty collections. But because ASCAP’s duties also included licensing and bringing suit against copyright infringers, a trust relationship was held to exist. BMI is therefore another example of the rule that a trustee, holding title to a copyright, has a duty to protect the trust property, in this case from infringement.
What about cases where the threat to the copyright is not infringement by a third party, but the publisher granting a license for use of the song in a way that the writer feels is offensive, degrading, humiliating or otherwise harmful to its value? In a typical trust situation, where a trustee causes or allows harm to the trust property, the beneficiary can bring an action against him in order to prevent further abuse and to recover damages for injuries sustained.
In music publishing, this is not the case at all. Unless the publishing contract provides otherwise, publishers are presumed to have complete discretion in licensing, with the writer having no rights of approval. 22 One form of contract providing for such approval is that promulgated by the Songwriters Guild of America. 23 Negotiated agreements by successful writers may also include licensing approval provisions. But for the vast majority of songwriters there is no recourse where the publisher licenses an unpleasant or harmful use. 24
In conclusion, the publisher, like a trustee, is bound to protect the copyright from infringement from third parties. If it fails or refuses to do so, the writer, like a beneficiary, has standing to bring the appropriate action. However, where the writer feels the publisher has issued a license harmful to the copyright, the writer has no recourse absent a specific contractual agreement to the contrary.
2. Duty to Account
The duty of the publisher to account to the writer for royalties earned is probably one of the publisher’s highest duties. It has been recognized that the payment of royalties is an essential objective of the publishing contract, the failure of which may justify recession of the entire agreement. 25 Analysis of the cases shows, however, that the duty to pay is not as high for a publisher as it would be for a typical trustee.
Recession of the contracts was granted in Broadcast Music, Inc. v. Taylor, supra 26 , where the ASCAP writers were cut off completely from receiving performing right royalties when their publisher moved to BMI. The court said:
One who undertakes to work property, such as a copyright on a royalty basis, becomes obligated to work it in good faith and for the benefit of the recipient of the royalties, as well as for his own avail. If he fails to do so, and thereby destroys the essential object of the royalty agreement, recession thereof may be decreed. 27
In In re Waterson, Berlin & Snyder Co. Fain et al. v. Irving Trust Co. 28 , the trustee of a bankrupt music publisher sought to sell its copyrights free from the obligation to pay songwriters their royalties. The writers sued for recession of the contracts and return of their copyrights. The court denied recession, but did not allow the sale as the trustee intended. Instead the court imposed an equitable lien on the copyrights in favor of the writers, in effect making the sale subject to the obligation to pay royalties. In doing so, the court recognized that the payment of royalties is one of the main reasons writers enter into publishing agreements, and one of the most important duties publishers owe their writers. 29
While these two cases show that payment of royalties is an essential object of the publishing contact, the following case indicates that the writer can be out to a great deal of trouble in trying to collect his royalties, and that even with an egregious failure to pay the publisher will not lose his right to keep the copyright.
In Nolan v. Sam Fox Publishing Company, Inc. 30 , the publisher paid just 26% 31 of the royalties due to the writer over the applicable six-year period. 32 The writer sued for recession of the contract but the court denied it, stating that the breach was not so severe as to defeat the object of the parties in making the contract. The court distinguished the case from BMI, supra, where recession was granted when the writers were cut off from all performing right royalties. Because Nolan did receive some royalties, recession was not justified. 33
What these cases show, therefore, is that while royalties are a basic object of the parties in making their agreement, only a total failure to pay will justify recession of the contract. In other cases the writer must resort to his or her remedies at law. It is hard to imagine how a trustee would keep his job after failing through oversight and negligence to pay his beneficiary 74% of the amounts due. The publisher, therefore, while having a duty to pay royalties, is under much less a burden than a typical trustee. 34
3. Duty to Deal Fairly
F air dealing, of course, is almost synonymous with fiduciary duty. Moreover, nearly all jurisdictions hold that implicit in every contract is a duty to deal fairly and in good faith. 35 In this regard a publishing contract is no different than any other. 36
A case where the publisher did breach its implicit duty to act in good faith is Nelson v. Mills Music 37 , where the writers had composed a work entitled “Red Roses for My Blue Baby” and assigned it to the publisher. The publishing contract did not oblige the publisher to promote their song. Four years later, with this song having achieved no success, the publisher published a song entitled “Red Roses for My Blue Lady”, which did succeed. The writers alleged that the publisher not only failed to promote their song, but infringed on their work. They sued, not for copyright infringement, but for breach of contract or trust, seeking an injunction and accounting. Appellate Division held for the writers and remanded the case for assessment of damages, but refused to grant an injunction.
The court said that because the same publisher had published both songs, the case was not simply one of similar songs, but of the breach of an obligation to act in good faith:
Defendant was not a stranger to plaintiffs and the case cannot be viewed simply on the basis of one composer writing something similar to another composer. While defendant was not obligated to promote the sale of plaintiffs’ song, it was certainly obligated to exercise good faith towards plaintiffs’ composition for the purpose of fashioning a competing song to be sold in place of plaintiff’s song. We find a breach of contract or trust in the circumstances. 38
Nelson holds that it is a breach of the implicit covenant of fair dealing for a publisher to issue a work similar to and in competition with the authors’. But this rule was not followed in the leading case on the question of whether writer and publisher have a fiduciary relationship, Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publishing Company, Inc. 39 The original author brought suit to enjoin distribution and sale of the second series and for an accounting of profits. The trial court, finding that a fiduciary relationship existed as between author and publisher, and the publisher had failed to act in good faith, granted a permanent injunction and ordered the destruction of the second series and an accounting. The Appellate Division, whose decision was affirmed by the Court of Appeals, reversed the order imposing the injunction and th e destruction of the second series, but remanded for assessment of damages. Both courts rejected the trial court’s conclusion that a fiduciary relationship existed between publisher and author. Both held that the publisher had violated the “best efforts” clause of the contract, but not the implied obligation of good faith and fair dealing.
The Court of Appeals agreed that all contracts contain an implied covenant of good faith and fair dealing, and noted the presence of the “best efforts” clause. It then said:
Such a contract does not close off the right of a publisher to issue books on the same subject, to negotiate with and pay authors to write such books and to promote them fully according to the publisher’s economic interests, even though those later publications adversely affect the contracting author’s sales. 40
The court, then recognized a publisher’s general freedom to publish, even where later publications may compete with earlier publications and adversely affect the interests of earlier authors. Nothing in the implicit covenant of good faith and fair dealing interferes with this freedom to publish competing works. The court also acknowledge that there may come a point where the publisher’s activities are so harmful to the author as would justify a finding of breach of the promise to use best efforts. 41
In comparing Nelson with Van Valkenburgh, it appears that different results were reached although the facts appear very similar. How does one reconcile the two? The answer seems to be in the factual distinction that in Nelson the first song was never released, while in Van Valkenburgh the first series of books sold well both before and after release of the second. There was total failure to promote the song in Nelson, while in Van Valkenburgh the author’s books were promoted for a while at least, and in one way or another became quite successful. Since in Nelson the song was never released at all, the harm was severe, and it might be said that no efforts were made at all. Nelson does follow the rule of Van Valkenburgh. 42
Fair dealing issues do not only arise concerning a publisher’s actions with the writer’s works. A writer may contest the validity of a publishing contract on grounds of unconscionability and breach of fiduciary duty. 43 One such case was Croce v. Kurnit 44 , an action by the widow of songwriters Jim Croce against three individuals who owned the publishing, recording and management companies to which Croce had been signed. The court first distinguished between owner Kurnit, an attorney, 45 and the other owners. 46 The court found that these others had a fiduciary duty to the Croces because the Croces had placed their trust in them. 47
The court found that while the two publishers had been in a fiduciary relationship with Croce, there had been no breach of fiduciary duty because the publishing contracts at issue, while favoring the companies, were not significantly different from the industry norm nor unfair to the Croces, who had profited significantly from them. In making its determination the court used the test of unconscionability, 48 a difficult test to meet.
To conclude on the issue of fair dealing, a publisher has the right to issue works that compete with prior work, regardless of adverse effect on the prior author. But the publisher has gone too far if the new work has “misappropriated” the first work, and if the publisher fails to honor its promise to use best efforts to promote the first work. In relation to the relative rights of trustee and beneficiaries, these rules seem inapposite and no sensible comparison can be made.
Useful comparison can be made, however, in the situation where a publisher is found to be in a fiduciary relationship with its writer. There, the rule of Croce is that the contract will not be held to be unfair unless it meets the test of unconscionability. This is a far less rigid test than that applied when trustee and beneficiary do business between themselves. The fairness of such transactions are subject to the very highest scrutiny, if not banned outright. 49
4. Duty to Make Property Productive
Where appropriate, a trustee is under a duty to make trust property productive, such as by renting land or investing money. Similarly, it has at times been held that a music publisher is under a duty to exploit the copyright so that royalties may be generated. Two such cases are In re Waterson, supra 50 , and Schisgall, supra 51 . While such a duty does exist, the level of performance expected is very low:
[M]usic publishing contracts usually contain clauses embodying variations on the theme that earnings from compositions are inherently speculative, that the publisher does not guarantee any particular level of success, and, incidentally, that the publisher is not really obligated to do anything except the customary housekeeping details (registration of copyright, setting up song files, and so forth), and accounting and payment for royalties if compositions are exploited. 52
Aside from “housekeeping”, then, publishers have no real obligation to exploit the compositions assigned to them by writers. Of course, it is in their financial interests to try, since they will share in any royalties generated. But unless the publishing contract provides otherwise, the writer has no recourse where the publisher fails to exploit the song. 53 The writer cannot force the publisher to exploit, nor has he any legal grounds for the recapture of the copyright. This compares unfavorable with the situation of beneficiaries, who do have recourse if the trustee fails to render the trust property productive when it is reasonably possible to do so.
C. Conclusions
Songwriters and music publishers are not partners, and despite some well-meaning propaganda to the contrary 54 it has never been argued seriously that they are. Their relationship is best described as commercial, or perhaps “quasi-fiduciary” as one text has put it. 55
In situations where copyright is infringed or threatened with infringement, the relationship does look fiduciary because while legal title is in the publisher, the songwriter is considered a beneficiary and can maintain a direct action against the infringer. Absent contractual provisions to the contrary, however, the songwriter has no recourse where it is the publisher that harms the copyright by licensing a use that the writer considers offensive, degrading or humiliating. 56
The obligation of the publisher to pay the writer royalties is regarded as being of the essence and the main object of the publishing contract. Nevertheless, even a publisher that through oversight and negligence pays just 26% of the royalties due can defeat a writer’s action for recession and hold on to the copyright. 57
The publishing contract, like all contracts, contains an implied covenant of good faith and fair dealing. But this does not mean a writer can prevent the publisher from issuing very similar works that directly compete with his own. The publisher must be careful, however, not to violate a contractual promise to use best efforts in exploiting the work of the first writer. 58
In challenging a publishing contract on the grounds that it is unfair, the writer must meet the difficult tests of unconscionability, even where the publisher is found to be in a fiduciary relationship with the writer. 59
Finally, absent contractual reversion or best efforts clauses, the publisher is not bound to do anything with a work other than “housekeeping” functions. 60
Given this background, we turn to the recent cases in England that have altered these traditional patterns of the music publishing business.
III. The British Cases
A. Macaulay
In the leading case of A. Schroeder Music Publishing Co. Ltd. v. Macaulay 61 , the songwriter had entered into a five-year 62 exclusive 63 publishing contract with the publisher. The contract was the publisher’s standard form, similar to those used both in Britain and in the U.S. 64 While the writer had wished to use a different form, he ultimately signed the standard form with minor alterations. 65
The writer sued claiming that the contract was an unreasonable restraint of trade and therefore void as against public policy. The House of Lords agreed, affirming decisions for plaintiff at the trial and appellate levels that held the agreement void so far as unperformed. The judgment permitted the publisher to retain its interest in those compositions already assigned to it, but provided that future compositions did not have to be assigned by the writer to the publisher.
The l aw of restraint of trade in England is very similar to the law in the U.S. In both countries it is the public policy to allow individuals maximum freedom to earn a living and practice their craft, while giving the public maximum access to a variety of goods and services. 66
Much as an American court might do, the court in Macaulay asked whether the restrictions on the writer were justifiable in light of what was reasonably necessary for the publisher to protect its legitimate interests. The conclusion was that “there was no evidence as to why so long a period was necessary to protect” 67 the publisher’s interests.
The court first said that “[f]ive thousand pounds in five years appears to represent a very modest success” and that the writer would likely be “tied to the agreement for ten years.” 68 The court noted that the publisher was under no affirmative obligation to publish any of the writer’s songs. 69 It agreed with the publisher that it would be unreasonable to expect it to undertake such an obligation with a new and unknown writer. Nevertheless, the court held that the contract unreasonably restrained the writer and had to be held void so far as unperformed.
The court said that even if the contract had contained a “best efforts” clause, “that would probably have to be in such general terms as to be of little use to the composer.” 70 Significantly, the court did suggest that the contract would not have been objectionable had it contained a reversion or recapture clause. 71
In addition to the restraining affect of the contract on the writer, the court considered the fact that the contract was of a standard form. The publisher had argued that standard forms benefit from a presumption of fairness. The court replied that this presumption applies only to contracts that are the result of negotiation between parties of equivalent bargaining strength and sophistication. In this case, on the other hand, the contract was found to have been offered on a take-it-or-leave-it basis. 72 This not only rebutted any presumption of fairness, but justified the court’s scrutiny of the fairness of the bargain in light of restraint of trade. 73
In Macaulay, then, on the grounds of unreasonable restraint of trade, the court released a songwriter from future obligations under a long-term exclusive songwriting contract which contained no obligation on the part of the publisher to exploit or endeavor to exploit his works; which lacked reversion or recapture clauses; which the publisher could terminate or assign at any time, and; which was the publisher’s standard form, signed on a take-it-or-leave-it basis, and without benefit of counsel.
B. Davis
Decided just a week after Macaulay, Clifford Davis Management Ltd. v. WEA Records Ltd. 74 involved Christine McVie and Robert Welch, both associated with the successful group, Fleetwood Mac. Davis had been manager of the group, during which tenure he had the writers sign separate music publishing contracts naming his management company as publisher. The contracts were similar to the one in Macaulay, although there were some relevant differences. 75
After Fleetwood Mac split with Davis, they recorded an album of new songs. The record company, WEA Records, wished to release it in England. Davis sued to enjoin the release, claiming that his company was owner of the copyrights. Davis obtained an interim injunction, and the writers appealed. Their argument was that the publishing contracts and copyright assignments upon which Davis relied were invalid. Since relief from an interim injunction is an interlocutory matter, the writers could prevail merely by making out a prima facie case.
The writers won their appeal and the injunction was discharged. The court, in part echoing Macaulay, cited four factors indicating that there was inequality of bargaining power between the parties sufficient to justify refusing to enforce the publishing contract and copyright assignments:
The writers were bound for ten years, with no advances, while the publisher’s only obligation was to use best efforts, a promise “of little use” to the writers. Copyrights were to be assign for one shilling each, a consideration called “grossly inadequate”. The bargaining power of the writers was severely reduced because of the position they were in vis-y«-vis their manager/publisher. They depended on him to get their works published and performed. They also depended on him to manage their business affairs. “In negotiation they could not hold their own.” “Undue influences . . . were brought to bear on the composers by and for the benefit of the manager.” The contracts were long and technical. They were standard forms and had not been subject to negotiation. The writers signed without the advice of counsel. The manager did not suggest that they seek counsel. 76
For these reasons, the court found that the composers had made out a prima facie case on grounds of undue influence and restraint of trade against enforcing the contracts and copyright assignments. 77
Unlike Macaulay, the Davis cases rests heavily on the theory of undue influence. This is no doubt due to the fact that the publisher was also the manager. Personal managers clearly have fiduciary duties toward their clients. 78 The manager’s first duty is to find the best deals for his client, and conflict of interest issues arise when a manager makes himself publisher. 79
C. O’Sullivan
While undue influence was found to exist in Davis, it was presumed to exist in O’Sullivan v. Management Agency and Music Ltd. 80 due to the close relationship between the writer, Gilbert O’Sullivan, and the principals in the affiliated management, publishing and record companies (collectively known as MAM) to which he was signed. 81 Unlike Macaulay or the Fleetwood Mac writers, O’Sullivan had believed that he was to be a co-publisher 82 of his works, but the contract did not so provide. 83 The issue was a sore point throughout this relationship with the MAM group, and although he had been promised such an arrangement, it was never achieved.
After several years of deteriorating relations and waning success, O’Sullivan sued to have the contracts declared void on the grounds of undue influence and unreasonable restraint of trade. The trial court held that the contracts were in restraint of trade, on the basis of Macaulay, and had been obtained by undue influence. While O’Sullivan testified that there had been no actual pressure exerted on him to sign the agreements, the court held that undue influence was to be presumed because of the special relationship between O’Sullivan and the defendants. The defendants did not dispute that Mills had been in a confidential and fiduciary relationship with O’Sullivan. 84 The courts declared all the agreements void ab initio and unenforceable. The court ordered reconveyance to O’Sullivan of the copyrights, delivery up of the master tapes, an accounting of profits, and costs. 85
In O’Sullivan, the contracts were declared void ab initio, while in Macaulay the contracts were declared void only so far as unperformed. O’Sullivan recovered all his copyrights and master tapes, while Macaulay recovered only those songs that had not already been published. The reason for this significant difference in remedies is, in short, that contracts entered into due to undue influence are void, not voidable. 86
British writers are lucky that Macaulay preceded Davis and O’Sullivan. In Macaulay the relationship was simply between writer and publisher, while the relationships were more involved in Davis and O’Sullivan. Managers have responsibilities and duties that publishers do not have. Had Davis or O’Sullivan come first, the publisher Schroeder could have argued that the rules of those cases do not apply to is since it is not also a manager, with a manager’s fiduciary duties. Schroeder might well have prevailed. But because the first case involved a straight writer-publisher relationship, that persuasive distinction is denied to future publishers.
D. Elton John
The last pronouncement of the British courts on these issues came in Elton John v. Dick James 87 , representing both an advance and perhaps a retreat from prior cases. John and his lyricist, Bernie Taupin, entered into publishing agreements in 1967 and 1968 with companies controlled by Dick James, widely known as the Beatles’ first publisher. The writers were both in their teens and had no legal counsel, although their parents had been required to sign letters of inducement. The contracts were six year exclusive contracts, on standard forms, very similar to those in the other cases. The court found that the writers had relied on James as a man of stature in the industry to treat them fairly.
The collaboration, of course, was enormously successful, and John later testified that he was always pleased to be with the James companies. Following the Macaulay decision, however, John’s managers began to question the level of his royalties, and various audits were undertaken. Finally in 1982 the writers brought suit to rescind the contracts on the basis of undue influence, and to recover royalties based on alleged breaches of fiduciary duty or implied warranty as to certain international accounting methods. The court refused to rescind the contracts, but granted relief on the accounting issue.
The court denied rescission of the contracts for five main reasons:
Nearly 15 years had elapsed between the signing of the contracts and the bringing of the lawsuit. The publishing and record companies had spent time and effort in exploiting the songs and records: “It behooves the party who wishes to claim the return of such property to act promptly . . . ” The writers never complained about the publisher’s work. The publisher supported the writers completely and made significant contributions to their success. ” . . . the joint venture has . . . been outstandingly successful.” John admitted that he had in the past made conscious decisions to stay with James even though he knew his contracts might be void.
On all these grounds the court rejected the undue influence claim for recession of the contracts. 88 Even so, the court did criticize aspects it found unfair: 1) there was no provision for escalation of royalty rates in the event the compositions proved successful; and 2) there was no provision for reversion of the copyrights in the event the publisher failed to exploit them.
The court granted relief on the grounds of breach of fiduciary duty or implied warranty. The claims centered on the calculation of foreign royalties from James’ sub-publishers. 89 In arm’s-length transactions the sub-publisher usually retains from 10% to 25%. 90 In Elton John, James’ American subsidiary retained 35% of earnings, and other sub-publishers retained similar amounts. The writers therefore had been receiving not 50% of earnings, but 50% of the 65% that was remitted by the sub-publisher. The writers charged that by these arrangements the publisher breached his fiduciary duty as well as an implied warranty not to “unfairly, artificially or unjustifiably reduce” the receipts upon which the writer royalties were payable.
The court found that the 35% rate for the U.S. subsidiary was justified because it was a real office with an operating staff. As to the other subsidiaries, however, the court found that there were no offices or staff, that paid administrators carried on the business, and that the sub-publishers retained for themselves a percentage much larger than the percentage paid to the administrators. Moreover, the court found that there had been deliberate concealment of this arrangement from John and his agents. As to the other sub-publishers, the court awarded an adjustment for the royalties retained in excess of the actual costs of administration.
Elton John appears to be the first post-Macaulay case in which British courts refused to rescind a Macaulay-like contract. even though there had been undue influence, the court refused because of the long delay in bringing the suit, the great benefits received by the writer, and the writer’s overall happiness with the relationship. On this score the case could be seen as a retreat from the steady progression of prior cases. But perhaps the better view is that the case represents simple fairness to a hard-working, successful and much-appreciated publisher.
If the case does not represent “progress” on the issue of undue influence, it does on the issue of accounting. The court enforced the “implied warranty” not to artificially or unfairly reduce the receipts upon which royalties are payable. Since sub-publishing is a common practice among music publishers, this case may have far-reaching effects, much in the way Macaulay “encouraged” publishers to add reversion clauses to their standard contracts.
Conclusions
The British courts have established the possibility that long-term exclusive songwriting contracts lacking reversion clauses may be rescinded on grounds of restraint of trade, undue influence and unequal bargaining power. In three cases, fiduciary relationships were found where the publisher also acted in other capacities such as manager or record producer. O’Sullivan was the most explicit, presuming the fiduciary relationship and undue influence, 91 although the other cases appear to follow the rule as well. But because of Macaulay , the court can find a fiduciary relationship even where the publisher is simply a publisher and nothing more. 92
As Elton John shows, the mere existence of a fiduciary relationship does not guarantee recession of the contract. Elton John refused recession in part because the contract had not operated so as to work unjustly against the writer; there the writer had received enormous benefits. 93 But the writers in the other cases had also received benefits and their contracts were rescinded. The significant distinctions seem to be the great delay in Elton John in bringing the case, the publisher’s expenses in time and effort on behalf of the writer, and the writer’s overall satisfaction with the relationship. 94
All the cases agree on what was objectionable about the publishing contracts: the impossibility of obliging the publisher to exploit; the lack of reversion provisions; the failure to provide for increased royalties in the event of success. As noted, in response to Macaulay many British publishers have added reversion clauses to their contracts. 95
Lasting impact may also result from the holding in Elton John that it is a breach of fiduciary duty or an implied warranty to deduct as sub-publisher costs amounts in excess of the actual amounts paid for sub-publishing administration. 96 It is still too early to judge the lasting impact from this ruling. If any publishers have changed their practices in this regard, it has not yet been reported or uncovered.
IV. Conclusions
The section on American law focused on four duties that trustees owe to beneficiaries, generally concluding that while publishers have obligations in these areas their duties do not rise to the level of that of trustees. 97 How would the British cases and the rules the represent impact on these four obligations of American music publishers?
There would be no impact whatever on one of the four obligations, the Duty to Preserve Trust Property, 98 because the British cases did not deal with the issue.
The second obligation, the Duty to Account, 99 could be affected by the Elton John case, which invalidated the Dick James sub-publishing arrangement. There appears not to be an American “implied warranty” not to “unfairly, artificially or unjustifiably reduce” receipts upon which royalties are payable. 100 American writers who fear such arrangements are best advised to put “at the source” provisions in their contracts, for the courts will not invalidate such arrangements as was done in Elton John.
As to the problem in Nolan, 101 where the publisher paid just 26% of royalties due but the contract was not rescinded, the British cases are inapplicable.
Finally, it should be noted that Elton John agreed with the American courts that publisher and writer are debtor and creditor, and that royalties received by a publisher are “not impressed with a trust in favor of the writers.”
Regarding the third obligation, the Duty to Deal Fairly, 102 the British cases appear to conform to the American rules as seen in Croce. 103 The reasons for this have been noted previously. 104 The British cases did not deal with other issues covered in this section. 105 .
Finally, as to the Duty to Make Property Productive, 106 the British cases would have an impact on American practices much as they have had in England, where publishers have added reversion clauses to their contracts. Publishers here could no longer satisfy their obligations simply by performing “housekeeping” functions, but would have to publish the work or give it back. Notably, the British courts rejected the usefulness of “best efforts” clauses, which in American courts still have much vitality.
In addition to issues of trust, the British cases were grounded on restraint of trade, an issue not normally associated in America with exclusive songwriting contracts. Indeed, the most recent case on the New York books in which the court voided an exclusive songwriting contract on that basis is from 1914. 107 This makes it hard to see how the recent British cases could have an appreciable impact on current law on the subject.
One American commentator has written that in these cases “the British courts have asserted a policy of fairness to the creator which has not yet been articulated by any American court or legislative body.” 108At the moment, unconscionability is the only doctrine available to writers who feel their bargains are unfair. That burden is heavy for any writer, and as Croce illustrates, nearly impossible for a successful writer.
It may be widely felt that a successful writer who has reaped substantial rewards from his publishing contract, however unfair, is not entitled to have the contract rescinded on the grounds of unconscionability. Yet what about the new or unsuccessful writer who, with high hopes, assigns a song to a publisher and waits for the recording that never comes? Absent a reversion clause or extraordinary good will on the part of the publisher, the writer can never recover the song and may never be able to render it productive. 109 If the writer does manage to obtain a recording through his own efforts, the publisher will still be entitled to the contractual 50% share of royalties.
While many American publishers use contracts with reversion clauses, they “are not routinely agreed to.” 110 To songwriters, the danger of losing a song is too great to rely on the good will of a publisher. All publishing contracts should contain a reversion clause of reasonable length. 111 The prospects for such an alteration of relative rights appear dim. 112
While reversionary rights would probably place first on a songwriter’s wish list, the Nolan 113 decision suggests another area in which there is room for improvement. That was the case where the court declined to rescind the contract even though the publisher negligently failed to pay 74% of royalties due. The rule that only total failure will justify recession seems harsh and designed to encourage a lazy attitude on the part of publishers. The Songwriters Guild contract has a default clause to inspire efficiency in this regard. But as with reversionary rights, the new writer is at the mercy of the good will of the publisher to agree to such a contract. And as to the courts and Congress, the same inhibitions apply. 114
One promising trend is the growth of co-publishing, mentioned earlier. 115 Today’s writers are very aware of the value of their copyrights and try to hold on to as much as possible. Publishers are willing to part with a portion of their rights where the writer is sufficiently successful or promising. 116 While the issue does not appear to have been adjudicated, it seems that where the writer is also a co-publisher, he or she ought to benefit from the rights that co-publishers have vis-‡-vis each other as tenants-in-common. These would include the right to share in all profits. Yet while co-publishing may provide additional rights for the writers involved, the majority of songwriters are unable to secure co-publishing deals.
Conclusion Despite some talk about the partnership between songwriters and their music publishers, the term does not describe their relationship. Rather the relationship is strictly a commercial one between creditor and debtor. A trust relationship does exist for the sole purpose of allowing the songwriter standing to directly sue copyright infringers. In all other situations the relationship is simply that between contracting parties. 117 Recent cases in Britain have increased the rights of songwriters there, particularly in the area of the publisher’s obligation to exploit, and the obligation not to artificially reduce the receipts on which royalties are payable. It does not appear likely that American songwriters will gain parity with their distant cousins anytime soon.
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