THE STORY BEHIND THE MP3.COM JUDGMENT

By MARCI HAMILTON

Thursday, Nov. 23, 2000

Universal and MP3.com have settled their differences, and the court entered it as a judgment — with MP3.com agreeing to pay Universal $ 54 million for its role in the copyright infringement of thousands of sound recordings.

One might assume the settlement was simply a smart deal by businesspeople: MP3.com realized the copyright law consequences of its sharing system were unavoidable; Universal was pleased to receive a substantial sum that would probably deter not only MP3.com, but also every other music website, from illegally using copyrighted content.

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But there is also a story behind the story, which provides a window into the way artists, even featured artists, have been treated since the 1976 Copyright Act, an important statute overhauling federal copyright law, went into effect in 1978.

What Triggered the Settlement

The final move that brought Universal and MP3.com to the negotiating table was arcane, but decisive. Universal proposed to introduce, at the portion of the trial dedicated to proving damages, thousands of copyright registrations to prove ownership of the recordings at issue. This would have been an unremarkable move, except that all of these registrations were filed under the theory that Universal — not the artist who had made the recording — was the legal author of each work. Universal claimed authorship by invoking the "work-made-for-hire" statute, which has the effect of shifting authorship from artists to their employers.

Featured artists like Don Henley, Sheryl Crow, and others immediately organized and complained, through the Recording Artists Coalition. They rightly argued that Universal, along with most other recording companies, was claiming more than the work-made-for-hire statute permits.

The Expansion of Work-Made-For-Hire Status

In order to understand why the artists had a strong argument, it is necessary to understand the work-made-for-hire provisions of the copyright law. Historically, work-made-for-hire was a doctrine that permitted employers to claim authorship in their employees’ work, for all legal purposes, when they had been the primary cause of its creation — providing the "instance and expense" of the work. After negotiations among artists and media industries resulted in a deal on work-made-for-hire, to which Congress deferred, a modified and expanded form of the doctrine was codified in the 1976 Copyright Act, which took effect in 1978.

Not only did this expansion go far beyond traditional work-made-for-hire doctrine, it was also constitutionally suspect. Under the Constitution’s Copyright Clause, Congress has the power to vest copyright only in "Authors," meaning the creators of expressive works. However, neither the Copyright Clause nor the First Amendment played much of a role in the negotiations over revision of the statute — which is scandalous, but typical on Capitol Hill.

The Recording Industry’s Adoption of Work-Made-For-Hire Status

During negotiations over the 1976 Act, authors and artists thought they would be able to control the industries’ ability to claim commissioned works as work-made-for-hire by simply requiring a written agreement between the parties. But in retrospect, they were foolish, for the industry attitude toward work-for-hire became rapacious after the 1976 Act went into effect in 1978.

Industries began to churn out standardized work-for-hire contracts for every conceivable scenario. (Freelance photographers, for example, suddenly found they could not get work without agreeing to designate the work as a work-for-hire, which often meant that after one use by the commissioner, their work would be storehoused and might never again see the light of day.)

And strikingly, the sound recording industry joined the work-made-for-hire bandwagon even though sound recordings were not listed among, or included within, the statute’s categories. (Only just recently, in November 1999, did the recording industry sneak into the Copyright Act an amendment to this effect, but that bit of chicanery was repealed this fall.) Not just backup singers or minor contributors but, most gallingly, featured artists — who bear the full expense of, and are the sole cause of, their creations — were required by the industry to accept contracts that purported to transform their commissioned works into works-made-for-hire.

Indeed, work-made-for-hire contracts became a "take it or leave it" proposition in the business — as several witnesses in last May’s hearing on work-made-for-hire status for sounds recordings testified. Over the years, the recording industry has filed thousands of copyright registrations designating their ownership interest as "work-made-for-hire."

These standard contracts used a "belt and suspenders" approach, which included a work-made-for-hire provision and a provision requiring the artist to assign away all copyright in the album or cut. Why have both? Because the work-made-for-hire provision was better for the industry, but the industry presumably knew its work-for-hire claims were arguable and therefore included the assignment provision as well.

The reason the work-made-for-hire provision was superior from the industry’s viewpoint is that unlike the assignment provision, it cut off the author’s termination right — his previously-inalienable power to recapture the copyright 35 years after the original agreement. (The right exists to enable an author or artist who has made enduring contributions to the public storehouse of creative works to renegotiate the royalty deal, or transfer the copyright to a publisher or recording studio that will make better and more profitable use of the work, after the 35 years have passed.)

In summary, the sound recording industry has been overreaching for decades, hoping against hope that it could become the legal author of millions of sound recordings, and therefore never have to renegotiate royalties on those remarkable, valuable works that were still successful even 35 years after the copyright grant.

That brings us back to Universal and its battle with MP3.com. The vast majority of Universal’s copyright filings for the sound recordings in its case against MP3.com designated the work at issue as a "commissioned work-for-hire." But those registrations were legally invalid, because most commissioned sound recordings (except for those created from November 1999 to October 2000) are not, and have never been, work-made-for-hire.

Artists had been planning for years to challenge the work-made-for-hire status once their 35-year termination right ripened, beginning in 2013 for those deals cut in 1978. Here was Universal, though, asking for a huge judgment against MP3.com and simultaneously attempting to obtain the court’s imprimatur on Universal’s claim that the recordings at issue were works-for-hire.

Such a ruling might have hurt the artists’ later challenges, where Universal would be able to point to the MP3.com decision as a strong indication of the registration's validity. On the other hand, a ruling that the copyright registrations were ineffective, would have meant that the court lacked jurisdiction over Universal's claims. Universal had two choices: amend thousands of registrations or settle.

After the Recording Artists Coalition, which I advised, explained all of this in a last-minute amicus brief to the court, Universal and MP3.com quickly settled, reserving a portion of their settlement for the artists, and preempting any judgment by the court on the validity of Universal’s copyrights. The settlement was wise: MP3.com knew it was in trouble under the copyright law, while Universal either needed to re-file those thousands of erroneous registrations or cease insisting on its rights in the works as works-made-for-hire, in order to stay in federal court.

For artists, this was wonderful news, because Universal was blocked from a pre-determination of the validity of termination rights the artists were likely to invoke in 2013 and afterwards. Their ability to challenge such registrations and to recapture their rights remained strong. In the end, then, the story of the Universal/MP3.com settlement is a story about the artists who created the works at issue, not the two corporations fighting over the rights to use the artists’ work. And that is just as it should be.

Marci A. Hamilton, a FindLaw columnist, is Visiting Professor of Law at New York University School of Law. She can be reached at hamilton02@aol.com. In an earlier article for FindLaw, Professor Hamilton provided an in-depth analysis of the recent enactment and repeal of provisions including commissioned sound recordings in the work-made-for-hire category.

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