If you are buying some hit songs, it is a question – rather like when hitching an intergalactic ride – of knowing where your towel is.1

A recent case, Crosstown v Rive Droite,2 upheld a reversion of copyright to songwriters – widely regarded as a bad move if you are a publisher.

This was despite the fact that the copyright in the songs concerned had already been assigned by the writers' publisher, Rive Droite, to a third party, Crosstown. Further, the writers did not serve the notices of breach that ultimately triggered the reversion until some ten months after the assignment.

The case has been causing quite a stir in music publishing circles. But, for publishers and purchasers of song catalogues, this is a case that should have "DON'T PANIC" written in large, friendly letters on the cover.

The facts of the case were highly unusual for a music publishing transaction. To put this case into context, it is worth looking at the relevant terms of the songwriter agreements.

Reversion for breach

The writers, Mark Taylor and Paul Barry, signed exclusive songwriter agreements (ESAs) with Rive Droite in the 1990s. Under each ESA, in the event of the publisher's material breach of contract (if unremedied within a 45-day cure period), all rights assigned to the publisher under the ESA would "forthwith revert" to the writer.

For a publisher, this particular cup of tea is almost, but not quite, entirely unlike tea. Under most standard-form ESAs, the effect of a publisher's material breach is to entitle the writer to serve notice terminating the "term" (i.e. the writer's songwriting term) – it would not result in the termination of the "retention period" (i.e. the exploitation period continuing after the term), let alone in a right for the writer to call for re-assignment of copyright, and still less in an automatic reversion of copyright.

Indeed, it is common to state explicitly that termination of the term does not affect the publisher's rights in the songs to which the publisher was entitled at the date of termination.

In contrast, the judge had no hesitation in finding that the clause concerned gave rise to an automatic reversion for unremedied breach. On the facts of the case, the publisher was in breach (for non-payment of royalties) and failed to remedy the breach within the cure period, so the copyrights reverted without further formality.

Counsel for Crosstown raised a number of subtle arguments to try to convince the judge otherwise. These were rejected roundly. In particular, the judge found that the clause could not be interpreted as an "agreement to re-assign"; nor was either writer required by his ESA to serve a cure notice within a reasonable time of becoming aware of the breach of contract, and (even if that were the case) the writers did not unreasonably delay.

The judge allowed only one issue of substance: whether or not there had been an automatic reversion of the non-UK copyrights. The judge would not, however, allow the point on procedural grounds: it had been raised very late in the case, and the court had been invited by both parties (in the claim and counterclaim respectively) to make a declaration about whether or not the copyrights had reverted – without distinguishing between UK and foreign copyrights for these purposes.

Reversion for liquidation

It is worth noting that each ESA also contained a provision that, in the event of the publisher's liquidation (other than for the purposes of reorganisation), all rights assigned to the publisher under the ESA would, to the extent permissible under law, revert to the writer on the day immediately preceding such event.

The judge commented that "it is questionable as to the extent to which insolvency principles would permit that clause to have effect". He did not expand on this, but such an arrangement may well be void as a matter of public policy (i.e. unenforceable as being contrary to the policy of the insolvency legislation).

The moral to draw from this story

In the absence of an automatic reverter of the kind at issue in this case, a publisher will not lose copyrights simply because it is in material or persistent breach of contract (or going bust).

The effectiveness of such a clause – as underlined by this case – does raise practical questions for publishers and catalogue purchasers alike, but not requiring Deep Thought. The answer here is not "42", but:

  • For publishers: robust rights acquisition. A publisher's standard ESA should ring-fence the retention period, even if the songwriting term can be brought to an end for publisher default. The case illustrates the risks inherent in agreeing to concede any form of automatic reversion (even where subject to cure). This is not say that the ESA should not contain a so-called Schroeder v Macaulay clause – i.e. where a publisher's failure to exploit a song at all within a defined period (e.g. the term plus two years) entitles the writer to call for a re-assignment of copyright in that song (subject to a cure period). From a legal perspective, such a clause is required to avoid issues of restraint of trade. From a commercial perspective, a song that is not worth exploiting is a song that a publisher can probably afford to lose. This is harmless (or mostly harmless).
  • For purchasers: due diligence. When acquiring a catalogue of songs, the purchaser (and any financier involved) needs suitable assurance that the catalogue is not vulnerable to reversion for any reason, whether contractual or statutory. To find an automatic reverter of any sort would be extremely rare and cause considerable concern. It should certainly be highlighted in any due diligence report. It should also be dealt with as a condition precedent to a sale and purchase agreement (for instance, by the prior execution of a confirmatory assignment).

In the words of the stewardess in an airliner with only one wing and an engine on fire: "please relax ... you are perfectly safe".

Footnotes

1 With apologies to Douglas Adams here and throughout.

2 Case: Crosstown Music Company 1, LLC v Rive Droite Music Limited & ors [2009] EWHC 600.

Article written for Entertainment Law Review.

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