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    Music Industry Contracts: the importance of being legitimate

    In 1994, the music industry waited with eager anticipation for the decision in the High Court involving recording artist, George Michael. He alleged, inter alia, that the exclusive constitution of his recording contract with Sony Music was tantamount to an unreasonable restraint of trade which impacted on his ability to earn a living.

    The case, which attracted exceptional publicity, would have profound implications if successful; potentially similar agreements would be void. As a consequence, not only would the way European record companies conducted their business in the future have to be re-evaluated, but widespread re-negotiations between major recording artists and their record companies would be induced.

    In essence, the argument was based upon the exclusive nature of such agreements which prevented an artist, who was signed to one record label, from recording and releasing material with an alternative company. Clearly a record company would have legitimate commercial interests to protect which would justify the sentiment that binding “exclusivity” of some duration was reasonable. This is not only an element central to the contract but is crucial to agreements of this type. No enterprise could be reasonably expected to make substantial investments in the marketing and promotion of an artist, if other companies could exploit recordings of his performances.

    However, the difficulties lie within the mutual obligations, as a whole, of the parties to such an agreement. The basic elements of a recording contract require an artist to be initially bound to a company for a certain duration with options, in favour of the company, to continue the contract for a further term. However, there is no obligation on the part of the company to exploit the composed material of the artist. This is the fundamental link which manifests a restraint of trade argument.

    As a company has no obligation to release material to the general public, the ability of an artist to earn a living is potentially limited; he is paid via royalties from sales.

    It may seem perplexing that having signed an artist, a company would not wish to release their material. However, the company may take the view that subsequent to contract, the material produced is not to the standard expected, has changed in its style (a pop artist impetuously writes an opera) or had not previously “sold” as anticipated etc.

    These factors must advance the notion that an artist’s capacity to trade is fettered, in as much as the success or failure of an artist is totally in the hands of the company.

    Counsel for George Michael raised all the restraint of trade arguments and, on the face of it, should have succeeded. However, his position and status as a successful artist ensures that he had the resources and inclination to instruct best legal counsel to undertake negotiations on his behalf. Consequently, the restraint of trade arguments were therefore disposed of on public policy considerations.

    The decision, in the interests of commercialism, had to be right. Many of the major acts, Dire Straits for example, were waiting for the outcome in anticipation of negotiating more favourable terms with their own record companies.

    Nevertheless, the doctrine of restraint of trade is applicable, perhaps married with a degree of undue influence, to the careers of “new” artists yet to set the world alight. Consequently, if record companies sign new bands on unreasonably restrictive terms, they run the risk that those contracts will be deemed void at a later date. If the artist is unsuccessful, then the record company will not be concerned. However, with the huge financial rewards that accompany success and favour, record companies will be at risk of losing considerable sums if the contract initially made is not reasonable. The difficulty for the company is predicting what artists will be successful and what artists are signed merely for tax purposes.

    Kerrie Cox (South Western Chambers, Taunton) November 2001