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Deal memo is not a contract

There was no legally recognisable custom within the music industry that the term “subject to contract” as it was used in a music business contract did not bear the meaning it had in ordinary legal usage.

Mr Justice Lewison so held in the Chancery Division is dismissing the action of the claimants, Confetti Records, a firm, Fundamental Management Ltd and Andrew Alcee, against the defendant, Warner Music UK Ltd, trading as East West Records, for infringement of copyright ownership in the track Burnin’.

It was common ground that it was standard practice in the music business for a licensor and a licensee to enter into a “deal memo” which would then be followed by a more formal long form contract.

The first claimant had entered into a signed deal memo with the defendant which was headed “subject to contract”, the terms of the memo specifying that the track Burnin’ would be licensed on a non-exclusive basis for inclusion on an album released by the defendant.

Later, the first claimant sent the defendant the track together with an accompanying invoice. Later still, the first claimant emailed the defendant saying it wanted the track to be pulled from the album.

The defendant accepted that one of the claimants was the owner of the copyright in Burnin’. It said that it had been licensed to reproduce Burnin’ by the deal memo. It submitted that the deal memo amounted to a binding contract.

Alternatively, the defendant submitted that the sending of the track and its accompanying invoice constituted an offer which the defendant accepted by its conduct in making use of the track.

The third claimant advanced a separate claim on the ground that the defendant’s treatment of the track constituted “derogatory treatment” under section 80 of the Copyright, Designs and Patents Act 1988.

Mr Graham Shipley for the claimants; Mr Robert Howe for the defendant.

Mr Justice Lewison said that on the question of whether a binding contract had been agreed as a result of the deal memo, the first question to consider was whether, if the phrase “subject to contract” bore its ordinary meaning, the circumstances of the case displaced that meaning.

The second question was whether the phrase bore a special meaning in the music business.

Although the settled meaning of “subject to contract” could in theory be displaced in an exceptional case, there were very few cases in which the circumstances had been strong enough.

On the present facts, his Lordship held that the circumstances were not so exceptional as to displace the conventional meaning.

On the question of whether the phrase bore a special meaning in the music business, his Lordship said that the burden of proving that was firmly on the defendant who had failed to discharge that burden.

However, his Lordship said that the subsequent sending of the invoice together with the track constituted an offer and that the offer was accepted by the defendant’s conduct, occurring as it did before the first claimant’s attempt to revoke the offer, in preparing the track for release.

Hence, a contract had come into existence and, as a result, there had been no copyright infringement.

On whether the track had been subjected to derogatory treatment contrary to section 80 of the 1988 Act, his Lordship said, adopting the analysis of Judge Overed in Pasterfield v Denham ([1999] FSR 168), that the mere fact that a work had been distorted or mutilated gave rise to no claim unless the distortion process prejudiced the author’s honour of reputation.

The nub of the original complaint advanced on behalf of the third claimant was that the words of the rap which had been added to the original by the defendant prior to release contained references to violence and drugs.

His Lordship said that that had led to the faintly surreal experience of three gentlemen in horsehair wigs examining the meaning of such phrases as “mish mish man” and “shizzle my nizzle”.

The defendant had been correct in his submission that the words of the rap, although in a form of English, were for practical purposes a foreign language. The defendant was therefore right to submit that evidence of the witnesses in the case, not being experts, was inadmissible.

His Lordship added that the occasions on which an expert drug dealer might be called to give evidence in the Chancery Division were likely to be rare. On the facts, there had been no section 80 infringement.

“The Times” 12th June 2003