4.0 The Legal Framework

4.1 Practicalities

Much of what happens in the music business cannot be understood without at least outline knowledge of certain legal issues. The most important of these, in the context of recording contracts, is the doctrine of restraint of trade. Put simply, the law provides that an agreement which unreasonably restricts a person’s ability to carry on his or her trade cannot be enforced. This only assumes immediate importance when there is a dispute between the parties to an agreement. When that happens, an artist may try to escape from his or her obligations under the agreement, by arguing that it is, and always has been, unreasonably in restraint of trade. No record company would make a substantial investment in an artist if it felt there is a real risk that the artist might at some stage avoid his or her obligations in this way. The issue of restraint of trade therefore has a significant impact on the obligations imposed by record companies on artists.

Many commercial agreements involve, to a greater or lesser degree, a restraint of trade. The courts will only enforce a particular agreement if persuaded that the restraints which it imposes are reasonable. A recording agreement is a restraint of trade because of the element of exclusivity. The agreement gives the record company the exclusive right to the artist’s services as a recording artist. The artist may not carry on his trade for any other person or company. Any recordings made by the artist during the agreement automatically belong exclusively to the record company.

The extent of the restraint differs from agreement to agreement and from company to company. In the case of an agreement with a major a typical deal will be worldwide, for perhaps four or five albums. During the term of the agreement (and it may take ten years or more to record and deliver all of the albums), the artist is prevented from recording for anyone else. There will be other restrictions; for example, for a period of time, perhaps five years, after the end of the deal, the artist will be prevented from recording for anybody else any of the songs which were recorded during the term of the recording agreement (this is known as a “rerecording restriction”).

If an artist claims in any legal proceedings against a record company that the agreement is in unreasonable restraint of trade, the court will take into account all the terms of the agreement. Restraint of trade cases involve an exhaustive consideration of evidence, as to what is, or is not, reasonable. Such cases may run for many weeks. It follows that they are expensive, which helps to explain their rarity. It is difficult to extract hard and fast rules from decided cases, because they depend so much on their particular facts. Except in extreme cases, lawyers find it difficult to give definitive advice as to whether or not a particular agreement might constitute an unreasonable restraint of trade and so be set aside. In 1990 the court set aside Holly Johnson’s recording agreement with ZTT on the grounds that it constituted an unreasonable restraint of trade. Similarly, (although the facts in each case were very different), in 1993 the court set aside the Stone Roses’ recording agreement with Silvertone for similar reasons. However, more recently, George Michael failed in his bid to set aside his agreement with Sony Music. The decision in George Michael’s case has caused some confusion because it is difficult to square this with the decisions in the Holly Johnson and Stone Roses cases.

4.2 Legal Advice

One factor which prejudiced George Michael’s position is that he had renegotiated his contract several times since first entering into a recording contract (as a member of Wham!) with Sony. On each occasion George Michael had been properly advised by experienced music industry lawyers. In any restraint of trade case the court will take into account not only all of the terms of the agreement but also the circumstances in which the agreement was entered into. It is for this reason that the adequacy of any legal advice is of crucial significance. It is obviously sensible for any artist to obtain proper legal advice for his or her own benefit but, moreover, it is equally vital from the record company’s perspective that the artist is seen to have been properly advised. A prudent record company will insist that there is clear evidence that the artist has been independently advised. For example, if the manager’s lawyer deals with the matter on behalf of the artist the record company may wish to be satisfied that whilst the lawyer concerned also acts for the manager nevertheless so far as his or her dealings in relation to the recording contract are concerned the lawyer has taken instructions from the artist direct, or has at least explained the nature and content of the contract direct to the artist. If the record company is particularly prudent then it will strive to ensure that there is a genuine negotiation. This need not mean that the record company has to make concessions that it is unwilling to give but it does mean that the record company should avoid the approach of refusing to negotiate and of merely adopting the “take it or leave it” approach. One particularly irritating habit on the part of record companies is to refuse even to attempt to justify a particular provision but simply insist upon its inclusion in the contract on the basis that this is “company policy”. The prudent record company will at least try to justify and explain why it insists upon a particular provision.

One practical ramification of all of this is that since it is quite as important for the record company as it is for the artist that the artist should be properly advised most record companies will agree to pay or at least make a contribution towards the artist’s legal fees (although usually on the basis that this is to be treated as a further advance against royalties).

4.3 Lessons

Record companies have learnt many lessons from the restraint of trade cases affecting the music industry. They try to make sure that their recording agreements are as safe as possible from attack. One of the major criticisms raised against recording contracts has been their excessive duration. Whereas the majors used to ask for a total of seven or eight albums (sometimes as many as nine or ten), after the decisions in the Holly Johnson and Stone Roses cases this crept down to five or six albums. This downward trend has continued so that a six album deal is now unusual. If a record company insists on a maximum of, say, six albums, this is probably because it has been advised that to ask for more carries an unacceptable risk. If the company were confident of justifying six or seven albums it would no doubt insist upon them.