Performer Payments for NFTs

Well, it’s happened again.  The Internet has spoken—all extra cash is going to be devoted to curing cancer, distributing COVID vaccinations, world peace, child health and…oh, no wait.  It’s going to be devoted to NFTs and getting rich on the latest bubble.  It’s bespoke, not woke.

You’ve all heard about them:  NFTs are going to save the music business or at least artists.  You do have to ask yourself how much would we have to pay them to leave us alone.  But NFTs are definitely all the rage, and we have to ask if NFTs are the new SPACs—meaning a heavily promoted financial instrument that is a function of too much money chasing too few scams.  

If the copyright being licensed happens to be a motion picture or television program or sound recording created by a union signatory under a collective bargaining agreement with the Screen Actors Guild-AFTRA Basic Agreement, it may–may–qualify as a “reuse” which requires direct negotiation with any performer whose performance appears in the material being licensed.  If it does and if you don’t clear the use, this is the kind of thing that can ruin your whole day.  (See SAG-AFTRA Basic Agreement paragraph 22.) Paragraph 22A of the 2014 Basic Agreement states:

No part of the photography or sound track of a performer shall be used other than in the picture for which he was employed, without separately bargaining with the performer and reaching an agreement regarding such use. The foregoing requirement of separate bargaining hereafter applies to reuse of photography or sound track in other pictures, television, theatrical or other, or the use in any other field or medium. Bargaining shall occur prior to the time such reuse is made, but performer may not agree to such reuse at the time of original employment. The foregoing shall apply only if the performer is recognizable and, as to stunts, only if the stunt is identifiable.

The higher the prices go in the NFT bubble, the more likely it is that someone will be in this situation and that a performer—or their estate—may well ask for the payment to which they are entitled under the union agreement.  But here’s the kicker—the union obligation applies to signatories to the collective bargaining agreement.  That’s likely to be the studio or record company, which is why those licenses almost always include language about the buyer’s (or licensee’s) responsibility to make all third party payments including union payments.

The more the NFT transaction trades on the name of the actors or musicians involved, the more convincing the case.  This is very fact specific, but it’s not all that fact specific.  It’s going to come up.  (But see Brown v. 20th Century Fox)  If you are hearing about reuse negotiations for the first time, don’t feel bad, it’s often overlooked even by the smart people.

Even so, I fully expect that we are going to suffer through another round of loophole seeking behavior regarding copyright that we saw in the 1990s and 2000s when there was just too much money to be made on the Internet (reminiscent of the “49ers” who came to California in the 1849 Gold Rush).  The greed factor of 99ers gave us very long and protracted excuses for theft such as the trilogy by the very well-funded Lessig as well as seemingly endless litigation that goes on to the present day over loophole seeking behavior that distorts the DMCA and fair use, as well as the controversial Section 230 of the Communications Decency Act.  There’s just too much money being made with NFTs, cryptocurrency and blockchain to think otherwise.

It must also be said that the same kind of willfully blind hucksters are at work in the NFT market that were and still are engaged in massive copyright infringement online.  NFT’s can easily be tokenized without the owner of the underlying copyright having any idea that their work is being infringed, much less consented. The same could be said of right of publicity claims, palming off, and trademark infringement.

The more that performers are excluded, the more likely it is there will be a reaction. So says Newton with that Third Law of Motion thingy, but what did he know?

Stay tuned, the 99ers are back in the Wild West this time with added Ether.

Must Read by @thatkatetaylor: Dishonest censorship scare may torpedo Bill C-10, a chance to update broadcasting laws for the modern era

[MTP readers may recall that I lived in Toronto and Montreal for many years and played with some of the Quebec and English Canadian artists as a member of Local 406. I try to keep an eye on what’s happening in the North. I can’t help noticing that Google lobbyists and fanboys are running the same old “but censorship!” play in Canada that they tried in Europe and the US. This is kind of ridiculous for the Kings of Algorithms at the Chocolate Factory. This post from Kate Taylor writing at the Globe and Mail sums it up nicely.]

If you believe my current Twitter feed, the Liberal government in Ottawa has misplaced its mind along with all democratic norms and is about to pass a law that will censor Canadians’ internet activity. Apparently, no funny cat video, let alone sneaky political GIF, will ever be safe again as Big Brother Justin rips page after page from China’s notoriously intrusive internet policies. One defiant wit, in the dying days of his free expression, recently posted an old socialist realist painting of Mao onto whose head he had cleverly morphed Justin Trudeau’s face. Meanwhile, in an opinion piece published in the National Post Saturday, Conservative Leader Erin O’Toole began quoting George Orwell, telling Canadians the Liberals might start monitoring their Facebook groups and their comments on news stories.

Well, the truth is that Trudeau and Mao share neither the same hairline nor the same politics. The alarm over supposed censorship is overblown and misplaced. It is fuelled by dishonest politicking from O’Toole and the Conservatives, and predictable paranoia from technological fundamentalists, those who believe the heaven-sent internet should not be subject to any human law – disinformation and election interference be damned.

Read the post on Apple News

Who Are These Law Clerks, Anyway?

If you’re not a lawyer, you may not be that familiar with law clerks. The title sounds very…well, clerical. But make no mistake, they are very powerful people who are largely unknown to clients but who are in the room with their judges, often every step of the way. As Wikipedia tells us:

law clerk or a judicial clerk is an individual—generally an attorney—who provides direct assistance and counsel to a judge in making legal determinations and in writing opinions by researching issues before the court. Judicial clerks often play significant roles in the formation of case law through their influence upon judges’ decisions.

Yet, we know virtually nothing about them from the outside. If your case is heard, wouldn’t you want to know about everyone who was influencing the outcome of your case?

There are ethical rules that cover judicial clerks, such as Maintaining the Public Trust: Ethics For Federal Judicial Law Clerks issued by the Judicial Conference Committee on Codes of Conduct which admonishes clerks that the rules apply to them, too:

During your clerkship, you will provide valuable assistance as your judge resolves disputes that are of great importance to the parties, and often to the public. The parties and the public accept judges’ rulings because they trust the system to be fair and impartial. Maintaining this trust is crucial to the continued success of our courts. That’s why, although you have many responsibilities that demand your attention, you must never lose sight of your ethical obligations.

While that all sounds good, how would anyone ever know exactly what the story is with the clerks who are writing opinions with their judge or justice that directly affect the outcome of your case. As the ethical rules clearly state:

Although many of your obligations are the same as those of other federal judicial employees, certain restrictions are more stringent because of your special position in relation to the judge. Some obligations continue after your service to the court concludes.

But again–how would you ever know? If you go to the bible of the revolving door, Open Secrets, you’ll notice someone is missing…the entire judicial branch of our government.

Let’s take the easy one: Conflicts of interest. When does a law clerk have a conflict of interest? The rulebook tells us:

Canon 3F(1) of the Code of Conduct advises judicial employees, including law clerks, to avoid conflicts of interest. Conflicts arise when you—or your spouse or other close relative—might be so personally or financially affected by a matter that a reasonable person would question your impartiality. 

Note the disjunct: “personally or financially affected.” Either can give rise to a conflict or a question as to the clerk’s impartiality.

Conflicts come in several flavors, but two biggies are actual conflicts and potential conflicts, very routine inquiries in any conflict check. The ethical rules for clerks give examples of each: For example, an actual conflict is “The firm where you plan to work after your clerkship serves as counsel in a matter before your judge”. “Firm” in this case presumably applies to the situation where a company where the clerk plans to work appears before the judge.

A potential conflict includes “An attorney you met and talked with at a social function appears to argue a motion before your judge.” It’s not a far reach to think that the example would include a former professor, amicus, or author of an amicus brief filed or to be filed in a case before your judge.

But the point is, how would the litigants ever know any of these situations were an issue. Who keeps track of who knows whom among the clerks cloistered away in the ivory tower?

Let’s take a concrete example from the Above the Law Supreme Court Watch blog which handicaps U.S. Supreme Court clerk hires:

Joshua Revesz (Yale 2017/Garland) will be clerking for Justice Kagan in OT 2020. If his distinctive surname rings a bell, perhaps you’ve heard of his famous father: Professor Richard “Ricky” Revesz, former Dean of NYU Law School, and a former Supreme Court clerk (OT 1984/Marshall).

Readers of ARW may also recognize the name from a different place: The deep and abiding controversy over the American Law Institute’s failing Restatement of Copyright project. Professor Revesz joined the ALI in 2014 right after the noted Lowery insulter, Spotify lawyer, Lessig mentee and all round anti-copyright advocate Christopher Jon Sprigman joined the NYU faculty in 2013, presumably under then-Dean Richard Revesz.

Somehow–we don’t know exactly how–of all the lawyers in all the world, how ALI Director Revesz chose Professor Sprigman to run the Restatement of Copyright project, an undertaking that by all reports is devoted to weakening copyright and expanding loopholes for Big Tech. How do we know this? Because Sprigman pitched Revesz on the idea very soon after Revesz took over at ALI.

 

And the rest is history with everyone from authors to the Congress criticizing the very idea of a Restatement of Copyright; indeed, Professor Peter Menell of the UC Berkeley law school and Professor Shyamkrishna Balganesh of Columbia law school wrote an extensive critique that “explains why perfunctory extension of the common law Restatement model to copyright law produces incoherent, misleading and seemingly biased results that risks undermining the legitimacy of the eventual product.”  (“The Curious Case of the Restatement of Copyright“).  In other words–it’s bad.

It will come as no surprise that I would go further–I think that is exactly the purpose of the Restatement (and Professor Samuelson’s Copyright Principles Project it descends from).

Hold on, you say–what does this have to do with Clerk Revesz and his judge, Supreme Court Justice Elena Kagan, the former Dean of Harvard Law School (whose remarks at the 10 year anniversary celebration of the Berkman Center are illuminating (home to both Lessig and poker aficionado and alleged counsel to copyright infringer Mr. Tennenbaum, Charles Nesson)).  Maybe nothing.

But isn’t it the kind of thing you might want to know about someone who was in close contact with someone who was deciding the outcome of your case?  Or was in close contact with other clerks who were deciding the outcome of your case?  How would you ever know what contacts the clerks had with anyone who might be influencing their case or who had donated money to an institution that benefited the family member of someone who had influence over your case?  Either directly, over cocktail party conversation or the dinner table?  I am not implying any skulduggery here, it could all have been very innocent or appear so as conflicts often do.  

Did it happen?  We don’t know, because when we go to Open Secrets there’s no judicial branch disclosure.  Now certainly judges have to file public financial disclosures.  (That’s how we knew about Judge Ware’s employment by Santa Clara Law School when he presided over the Google Buzz cy pres and ordered $500,000 be given to that university–“now-retired federal district judge James Ware rewrote the settlement to direct $500,000 to Santa Clara Law School, where he taught. The money went to fund a center for ethics.”)

While their judges are obligated to public financial disclosures, clerks do not have such obligations to litigants, much less to the public.  Disposition of conflicts disclosed by clerks seem to be handled in chambers without consulting the litigants.

Given the number of clerks in chambers across the country, the possibility for conflicts are significant.  When a lawyer has a conflict of interest that is waivable, she must give the client the option to waive the conflict with informed consent.  But if the conflict is not waivable or the client refuses to waive, the lawyer must decline the representation.  

Is there a corollary for law clerks?  There definitely are rules and there definitely are processes.  But are the litigants ever asked if they consent to a conflicted clerk working on their case?

I’ve never heard of it.  Maybe there should be such a process.

@drewjschwartz: The Way Streaming Services Pay Artists Is Broken. SoundCloud Is Trying to Fix It

[h/t to Jay Gilbert and Mike Etchart at Your Morning Coffee for tagging this explanation of SoundCloud’s “fan powered” royalties. My feeling about the SoundCloud version of user-centric is that it’s the beginning and not the end of the story. These things have a tendency to evolve over time, and SoundCloud may actually start negotiating instead of the usual “we’ll take it and you’ll leave it” attitude of Big Tech, particularly when it comes to independent artists. Remember when iTunes paid bigger labels at least 70¢ for downloads but indie labels and artists 65¢ for no good reason? That didn’t last. The most important part of this story is that it is happening at all and that suddenly a big music service has seen that being early on this trend is a competitive advantage. That may cause other services to react.

The next step will be when major artists get woke to the fact that if the dominant pro-rata model that user-centric rejects is unfair, they may be the beneficiaries of that unfairness. And then there’s the songwriters, who have a similar model applied to their share of the revenue. (And of course focusing on revenue alone completely ignores the valuation benefit that is easy to calculate for public companies like Spotify that has made CEO Daniel Ek a multibillionaire while paying scraps of scraps to artists.]

This week, SoundCloud announced it’s making a major change to the way artists on the platform get paid in an effort to help smaller acts make more money from their music. If you’re not someone who follows the jargony, complicated world of music streaming closely, the new system, which SoundCloud dubbed “fan-powered royalties,” might seem confusing. Allow us to break it down for you. 

When you pay for a subscription to a streaming service like Spotify, Apple Music, or SoundCloud, your money goes into a big pot, along with the money the streamer earns from every other subscriber and from advertising. A chunk of money from that pot goes to the company itself. Then, it divvies up the rest among artists, based on each artist’s share of total streams every month. The bigger slice of overall streams an artist gets, the more money they get from the pot.

All the major streaming services use that system, known as a “pro rata” royalty model—but there are problems with it, which musicians have been complaining about for years

Read the post on Vice

User Centric As Competitive Advantage: The Arc of the Moral Universe is Bending — Music Technology Policy

How long? Not long, because the arc of the moral universe is long, but it bends toward justice.

Reverend Dr. Martin Luther King, Jr., Our God Is Marching On!
March 25, 1965, Montgomery, Alabama

Everyone knows that streaming royalties are unsustainable. The question is what to do about it. The current system evolved from the early days of online music services and the advertising-driven madness of the Web 2.0 era. Over time, the interactive streaming revenue share model has been extended from advertising and applied to subscriptions. The terms have been tightened down again and again until it has become what it is today–the hyper-efficient market share distribution of revenue that completely ignores the vast wealth extracted from the public financial markets by companies like Spotify. It comes as a surprise to fans that when they think they are supporting the artists they love, the fan’s subscription revenues are being paid to artists that the fan never listens to. It also comes as a surprise to artists that their streaming royalty check is derived from their fellow artist’s work product. And this doesn’t address the session players and background vocalists.

It is this unsustainable model that has attracted great attention. Many alternatives have been proposed to connect fan listening to fan payments, often under the category of “user-centric” royalty methods. This was a topic at the recent hearings before the UK Parliament’s Digital, Culture, Media and Sport Committee where there was considerable testimony about user-centric in an effort to develop an equitable and fair model–the implication from the Members of Parliament being that if the industry didn’t fix the “market centric” structure, the government might fix it for them. 

etude-ecoute-en-continu-streaming-montants-spotify-apple-music-google

What was most interesting to me was that Amazon, Apple and Spotify were all essentially testifying that they knew the system was grotesquely unfair and seemed to accept that as a given. While Spotify’s representative put up the usual risible drivel about how poor Spotify cannot make a profit, he pretty much had to acknowledge that Spotify had to pay more (and do make direct payments to both featured and nonfeatured artists in a few countries like Spain). Which means that the pretense that streaming royalties would be adequate if it weren’t for the greedy labels had far less purchase with the Members than it did before. Which is what you would expect from any right thinking person who educated themselves about the situation on the ground. 

We’re a long way from here to there, but a journey of many miles starts with a single Parliamentary inquiry. I believe that the trick is going to be getting the market to drive adoption of a user centric model as a competitive advantage, and that brings us to the SoundCloud announcement about their new “fan powered” royalty offering

SC Fan Powered

The tone of SoundCloud’s announcement is definitely one of “look at me.” Although for once a streaming service is not saying look at me I have floors and floors of the most expensive office space on the planet while I pay artists a fraction of a penny, or look at me I’m a billionaire, or look at me I saved the music industry. Instead, and most remarkably, a streaming service is saying look at me, I’ve identified the problem of fans paying for music they don’t listen to and the embarrassingly low royalties for artists (and songwriters for that matter) and I’m doing something about it. As I read SoundCloud’s public messaging campaign, the company is putting it out there for a competitive reason–they want to attract artists because they are making an effort at treating people fairly.

In other words, SoundCloud is positioning user-centric as a competitive advantage to attract artists to opt in to the SoundCloud version of user centric. I think this is a very important development because it identifies the real choice for independent artists–to stream or not to stream. If you are driving your fans to a music service but the service pays you so little there may as well be no royalty at all, the question for you is not how many streaming services you can do free work for in fear of missing out. The question for you is whether any of it is worth it, particularly if you now have a better alternative. This may be a sign that the market is starting to drive the issue.

SoundCloud’s new program is also an indicator of another voice on the horizon–successful artists who get woke to the idea that this model causes them to take money away from the less fortunate artists. The day may easily arrive when an artist like Billie Eilish or Taylor Swift walk away from a service because she doesn’t want to be exploited in the “market centric” royalty model. When artists announce these decisions on the Grammy Awards. Now that would be quite a market force.

And if Daniel Ek doesn’t like windowing, just wait til he gets a load of what the arc of the moral universe has in store for him. It won’t be long.