Some Legal Aspects of Artistic Representation Contracts

Some Legal Aspects of Artistic Representation Contracts

Representation or agency agreements are found in numerous transactions from traditional business dealings such as real estate sales to artistic endeavors. This comment notes a few, of many, potential questions to consider from the artist’s point of view and makes a few random and incomplete educational legal comments concerning artistic representation. Consider, among many issues, the term of the agreement, the financial aspects of the agreement, the ownership of the many forms of property that may be produced, and the practical remedies if the agreement is broken. Of course, many other issues are left undiscussed. Both parties want to maximize their advantage in an arm's-length-transaction so it is essential for a party to have experienced legal and financial counsel.

It is always important to have a good working knowledge of customary practices and vocabulary in each unique field. One is well advised to obtain a mentor or follow a blogger who knows the “tricks-of-the-trade” and traps to avoid. Such customary information and vocabulary is not utilized in this brief comment.

Beware of so-called "standard form" contracts that are presented in a "take-it-or-leave-it" manner. Do not allow yourself to be rushed to make a decision. Negotiation is expected. Does this document state that it is the “entire agreement?” How is it amended? Are there verbal promises and understandings that are unwritten? Best to have everything in writing.

Carefully compare drafts of agreements to the language in the agreement that you are signing. With paper documents a lightbox allows two paper pages to be overlaid and quickly compared. In an electronic environment carefully use electronic editing and document tracking software that will preserve and highlight all changes. All parties may initial individual pages to maintain authenticity. Attempt to bind individuals as well as corporations to the agreement. Get as many responsible parties or co-signers as possible. Retain an original signed by all parties.

Understand that changing consumer expectations, new technologies, and changing business models, such as “freemium,” are upending traditional business approaches. What appears unimportant today may become very important in the future. For example, few had the insight to realize the role that the then developing Internet technologies would play in contemporary music. This means that the artist should be cautious when granting a transfer of “all rights” or “all methods of reproduction and transmission,” etc. Perhaps it is best to specify in an agreement that “only” the following listed items are being transferred or are included in the agreement in question. Include a reservation to the artist of all remaining property or rights. Consult an experienced attorney.

Term

The shorter the duration, the greater the opportunity for renegotiation. Are there options to extend the term and are they based upon meeting precisely specified performance goals? Be cautious, for example, if a distribution agreement with a third party entered into by a representative will extend the representation contract. Extensions could bind an artist indefinitely to a specific contract.

What powers are granted to one party and what powers are shared? One should seek approval or veto rights over decisions made by a representative. As a matter of general practice, granting a power of attorney to a party to act on your behalf is not desirable as it may create conflicts of interest and be abused. Be cautious if an agent is granted the authority to name sub-agents. Is there a non-competition term at the end of the representation?

What events, applicable to all parties, such as bankruptcy or substance abuse, will suspend or terminate the agreement? What specific marketing or merchandising endeavors are to be undertaken over what period of time? Words such as “reasonable” or “best efforts” often end in litigation. Be specific concerning duties.

Trade customs and trade jargon may need to be defined in the agreement. This may be especially important in litigation involving layperson juries, for example.

Finances

Money, greed, and a desire for power are powerful temptations if one big idea or hit promises financial security or acclaim. “Rip-offs” are legendary. You must anticipate and address these issues.

If you have creativity but limited finances and are being financially backed or promoted by someone with great wealth, an inherent inequality exists. This inequality might result in overreaching and unfairness in the future. Be cautious. Sometimes, a wealthy person takes a “so-sue-me” attitude to contract violations, knowing that the less wealthy partner can’t afford the expense and delay produced by litigation.

Precisely what expenses are reimbursed and how are these expenses calculated and documented? One cannot be too careful or precise as “expenses” may cause an apparently financially successful project to produce a financial loss. As one example, be cautious if granting blanket approval to a party to be reimbursed for expenses attending meetings concerning potential opportunities. You don't want to fund what is essentially a vacation to Tahiti while your representative explores opportunities in the South Pacific.

Do you receive money up-front? Is there a “kill fee” if a project is cancelled? How is an “exit transaction” buyout amount calculated? Are fees or royalties calculated before (“gross earnings”) or after (“net earnings”) expenses are deducted? Are royalties granted perpetually or for a limited duration? A “sunset clause” scales down royalties to zero over a specified period of years. “Carve-outs” may exclude certain forms of income from royalties. This is essential if the artist has multiple unrelated sources of income.

If there are multiple projects, do allowable expenses and royalties vary according to the financial success of the prior projects? Who collects and distributes money and does this person receive a commission? Are you paying both a “middleman” deal-maker as well as the person undertaking and executing the project? An artist may find herself or himself at the end of a very long series of revenue takers. What party is responsible for licenses, regulatory fees, and taxes?

Is a CPA or accounting firm of your selection auditing financial records? Will this individual have full and unlimited, in time and detail, access to all financial documents? How will you know that you have complete and correct information? Who pays this expense and what happens if improper financial transactions occur? Will those handling finances be bonded or otherwise secured if fraud occurs? You must consider how in practice (beyond a lawsuit) you can obtain financial reimbursement if embezzlement occurs. Is bonding possible? Consult experienced financial and legal professionals.

Ownership

What party owns what property or products, including derivatives, that are generated? An artist should typically make every effort to retain ownership of her or his intellectual property. While a copyright may be owned without registration, it is highly desirable to promptly register copyrights with the United States Copyright Office for a variety of legal reasons. In an incomplete overview, registration documents the date of creation, allows statutory damages, and provides international protections.

Intellectual property has many forms and variations. For example, in music you need awareness of the role of performing rights organizations, forms of licensing and compulsory licensing, and statutory rates.

In a general intellectual property situation, “work for hire” language transfers intellectual property ownership while “license” language allows usage but retains ownership. However, there are some unique legal issues related to music as well as non-employee artists generally so seek experienced legal counsel. In brief summary, “work for hire” involves employees and certain forms of contractually commissioned works. It is unclear if a creative artistic endeavor fits under these categories. Again, comprehensive precision is essential that requires experienced legal counsel.

There may well be more intellectual property than one might suppose. Anything “distinctive” should be protected, such as artistic designs, slogans or phrases, music, costumes and make-up. Who owns master recordings, outtakes, or the original artistic work? What happens if derivative works are created by the artist or a third party? Will the original artist receive recognition and a credit line for the original creation in all circumstances? This could help develop one's professional reputation.

Are there some usages of the creation that the artist wants to restrict, such as, for example, certain product commercials? Are trade secrets or unique techniques involved and how will they be protected?

Emerging forms of electronic property are frequently a point of contention. Consider publicity rights, digital transmission and distribution, and the many forms of new media, for example. Who controls Websites and their advertising opportunities and revenues?

Assume nothing. In all aspects of any agreement be very clear and precise, utilizing specific language that creates rights and duties.

Due Diligence

One cannot be too careful in checking the credentials, background, and references of potential representatives. What is your intuition telling you? Does it all seem grandiose or too secret and vague? “Exclusive” representation agreements may bind you to one person and force you to cut ties with others. What successful projects has the potential agent completed? What do former and present clients have to say? Are these persons truly objective and independent or part of a scheme? Have there been agency name changes and location changes? Will this person be appropriately bonded against financial or other misconduct? Today, the artist has every right to expect a presentation that goes far beyond the “I’m going to make you a star” vague hype. Exercise caution.

Having settled upon a representative, be careful that this individual or entity cannot transfer, assign, or delegate rights and duties or this contract without your consent. What happens if companies are sold, merge, become bankrupt, or are liquidated?

Remedies if an Agreement is Broken

Some opportunities are best walked-away from. Will this project in fact advance your career, provide appropriate compensation for your efforts, or be a source of enjoyment and fulfillment? Does it involve a tremendous amount of extended work, a high risk or failure, or a high risk of protracted disputes? What will a successful project look like?

What practical recourse will the artist have if an agreement is broken? The character of the person you are dealing with is certainly as important as the contractual language. Contracts are promises and promises are broken though mishap or malicious intent. How expensive and time and emotionally consuming will obtaining legal remedies be and can actual financial compensation for an injury be obtained? A judgment at the end of a lawsuit does not collect itself. The judge or jury will not write you a check.

An all too frequent scenario involves a creative individual investing time and emotional energy into a project only to be confronted with a “so sue me” refusal by a party to perform contractual obligations or an “I’ll file for bankruptcy if you win a lawsuit” situation. This individual knows your attorney may well tell you that you can win a lawsuit after perhaps five years of litigation and significant out-of-pocket expenses. Then you will have to attempt to collect a judgment. Can you sustain such litigation and are you suing individuals or corporate entities? How might you prepare in advance for a breach of contract? Consult experienced legal and financial professionals.

Are disputes to be resolved by litigation or arbitration and in what geographic location? How are arbitrators selected and do the arbitrators have direct or indirect conflicts of interest? Are arbitrators beholden to major corporate interests for their selection and future opportunities? What are the power dynamics and potential industry blackballing potential of your being labeled a “troublemaker?” Discuss the many practical implementation and recourse issues with experienced industry mentors, and legal and financial counsel.

Do not think that obtaining appropriate professional advice in advance is too expensive or time consuming. You want to be able to focus on your creative endeavors without the emotionally draining and much more expensive interruption of a dispute.

The comment provides a very brief and incomplete educational overview of a complex topic and is not intended to provide legal advice. Always consult experienced legal and financial professionals in specific situations.

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