Music Law: Legal Issues for Bands

When I played in bands in high school and college, in addition to playing guitar and bass, I always seemed to end up as the "logistics" guy. 

This meant that I lined up equipment, planned video shoots and recording sessions and generally made sure business was taken care of.  I also registered the copyrights for our songs and recordings with the U.S. Copyright Office even though I had no clue what the legal significance of doing so was.  It just seemed like a good idea.

Years later, as an entertainment attorney representing several bands, it is my job to advise them on the various legal issues which may need to be addressed in connection with their business organization and intellectual property.

The following is an overview of some of the major legal issues that concern musical groups. These comments are general and each issue obviously would require a more detailed look based on a particular group’s situation.

Choice of Entity

The most basic form of business comprised of two or more persons is a general partnership. 

For that reason, virtually all bands start out as general partnerships.  The legal requirements for a general partnership are few.  For one thing, the partnership must file a fictitious business name ("DBA") certificate with the county clerk where the business is located.  In addition, a partnership usually must file an SS-4 with the IRS in order to receive a federal tax number.

However, even though it's not legally required, it is recommended that the partners enter into a written agreement dealing with issues such as:  sharing profits and losses, voting rights, new partners, departing partners, and ownership of intellectual property.

For a few reasons, including tax and exposure to liability, a corporation or a limited liability company (LLC) may be recommended.

A corporation may only be formed by executing and filing articles of incorporation in the office of the Secretary of State, usually in the state where the corporation has its "primary place of business."  An LLC may only formed by executing and filing articles of organization in the office of the Secretary of State, usually in the state where the LLC has its primary place of business.

Generally, a corporation is subject to tax on its earnings and profits.  The shareholders are taxed for dividends distributed by the corporation.  This is often referred to as "double taxation".  However, the Internal Revenue Code and many state tax codes provide that the shareholders may choose to be treated as a Subchapter S Corporation, subject to certain restrictions, which lessens the double taxation issue via "pass-through" of corporate income, deductions, losses and credits to the shareholders.  This is often called "pass-through taxation". 

An LLC, on the other hand, has many of the tax attributes of a partnership but less formality than a corporation would require.

For a start-up band, the major disincentive for forming a corporation or LLC is the cost--- filing fees and franchise tax fees can be several hundred dollars.  And the paperwork that must be kept up and submitted to various state and federal government offices on a regular basis can be a pain in the neck.

Copyright

Looking back at my band days, I am glad that I knew enough to submit those copyright applications.  Copyright registration is so easy to do and so important that it should be high on the to-do list for any band.  Copyright registration is available for the group’s musical compositions and for sound recordings.

First, it is important to understand the big picture.  Copyright is a form of protection provided by the laws of the United States (Title 17 of the U.S. Code) to the authors of “original, works of authorship” including literary, dramatic, musical, artistic, and certain other intellectual works. 

Copyright is secured automatically when the work is created, and a work is “created” when it is fixed in a copy.  “Copies” are material objects from which a work can be read or visually perceived either directly or with the aid of a machine or device, such as books, manuscripts, sheet music, film, videotape, microfilm, CDs or even MP3s.  If a work is prepared over a period of time, the part of the work that is fixed on a particular date constitutes the created work as of that date.

So, even though you get a copyright in your work automatically when you record it in a copy, it is still very important to register your copyright with the U.S. Copyright Office. 

In general, copyright registration is a legal formality intended to make a public record of the basic facts of a particular copyright. Even though registration is not a requirement for protection, the copyright law provides several incentives to encourage copyright owners to register.  Among these are:

1. Registration establishes a public record of the copyright claim
2. Registration is usually required before you can sue someone for infringement.
   
3. If you register within 3 months of publishing your work or prior to an infringement of your work (i.e., a "timely" registration), statutory damages and attorney’s fees will be available to you as the copyright owner in court actions. Otherwise, only an award of actual damages and profits is available to you.
   

And for clarity, actual damages refers to the damages a copyright owner sustains essentially per unlawful copy made of the work.  Statutory damages in Title 17 provide for damages per copyrighted work. 

This means that if you don't register your copyrights, you have to give evidence of each unlawful copy made (actual damages) to receive a damage award.  If you do register your copyrights and can prove infringement at trial, you don' t have to prove damages and you receive the statutory award provided for in Title 17 per work infringed.  And the losing side has to pay your attorneys fees.   

Here's a hypothetical.  Let’s say your song was used in a television or radio commercial without your permission.  Even if you can prove all the elements of copyright infringement, your case will be severely compromised if you do not have a timely registration. 

If the other party knows that you cannot recover your attorneys fees if you win, they may gamble that you will not be willing to incur significant legal fees in taking the case to trial.  At the very least, they may be able to leverage a “cheaper” settlement from you.  In addition, the lack of statutory damages puts the pressure on you to prove your actual damages.

Fortunately, registration is easy and inexpensive.  To register a work, an application form is sent to the Library of Congress, Copyright Office, together with a filing fee of $45 for each application and a deposit of the work being registered.  The deposit requirements vary in particular situations, and for specific information - go to www.copyright.gov

Trademark

Unlike copyright, registering your trademarks is more expensive and sometimes complicated.  But it is no less important.

Finding out that another band has the rights to your band name (or one that is likely to cause confusion with yours) can be devastating after you have built up an audience and spent money branding yourself on posters, websites and merch. 

Therefore, it is important to carefully choose and then protect your band name and sometimes even a band logo.  And remember - the standard for trademark infringement isn't simply that one person is using the exact same mark as another person.  The standard is whether the public/consumers will be confused.

This means that (a) you want to make sure that no one else is using the trademark (or one that is confusingly similar) already, and (b) you will want to register the mark with the United States Patent & Trademark Office.  (www.uspto.gov)

The main reason to obtain federal trademark registration is:  to provide notice to everyone of your exclusive right to use the mark, thus eliminating someone's ability to use a “good faith” defense against a claim of infringement.  The owner of a registered mark may also be able to get the court to order injunctive relief to stop third parties from using the mark or one that is confusingly similar.

It is smart to conduct a trademark search.  While a search is not a legal requirement, a decision to invest the money necessary in the search process up front may prevent spending money on trademark filing fees and legal costs down the road if someone else claims to have priority to your mark.

As a very rough starting point, you can do a quick Google search to see if there are any glaring uses of the mark you want to use.  Keep an eye out for uses "in commerce" and uses that are in the same general area as the goods and/or services you want to offer. 

Next, check out the USPTO website, where you can access and search the trademark database.  This search will only help you if your proposed trademark is spelled exactly the same as another registered mark. 

For example, if you were searching for a registration for the mark “Air” for your band, your search would not reveal a registration for the mark “Ayre”.  However, if these trademarks were both being used for bands, they would be deemed to be confusingly similar.

For that reason and many others, many people engage a professional search company which will search not only Federal and State files, but also conduct an extremely thorough internet search and a “common law” search. 

A common law search encompasses such records as state-level corporate name filings, trade directories and periodic archives, in an effort to uncover any enterprises that may be senior users of a mark even though they have not filed applications for registration of the mark.  Such common law searches may reveal that the proposed mark is already owned by another, or that you may not be able to obtain exclusive use of one or more of the marks.

Although the search can be expensive, it is a worthy investment.  Even if the trademark search does not score any direct hits respecting the desired mark, it can provide important insights as to other arguably similar marks in use by others.  This knowledge can be put to use by, e.g., adding additional design elements to your mark to differentiate it from a possibly similar mark of another party.

Assuming your trademark gets a clean bill of health via the search report, the next step is to file the application with the Patent & Trademark Office in Washington, D.C.  The application must set forth the date of first use in commerce and the goods or services in connection with which the mark has been used.  You will be asked to verify that, to the best of your knowledge, no other party has the right to use the mark, either in identical form or in such near resemblance as to be likely, when used in connection with the goods and services of the other, to cause confusion or mistake or to deceive.

In addition to the application, you will need to submit “specimens of use”. Depending on how you are using the mark (i.e., as a service mark for the provision of services or as a trademark for the sale of goods), you may have to provide different specimens.

For a trademark, the specimens might be samples of actual CD labels or packaging materials displaying the mark.  It can even be a screen shot of the part of your website where you sell CDs or MP3s (i.e., "use in commerce").  For a service mark, it is acceptable to submit advertisements since, obviously, one cannot affix a mark to intangible services.

Among the issues that typically require expert legal advice in a trademark application is the determination as to the appropriate “class” of goods or services for which registration is sought.  The United States has adopted the international classification of goods and services, a list which sets forth 42 categories of goods and services.  A separate filing fee and specimens must be submitted for each class in which registration is sought.  The current fee is $325.00, per class, for each registration.

Work-for-Hire

As creative as musicians are, it is often necessary to look outside the band for certain services.  An obvious example of this would be engaging a producer for a recording session.  And let’s not forget the friend of the drummer who designs posters, album covers and websites for the band.  The legal implications of these relationships are significant, although highly overlooked.

The use of employees, family, friends and freelancers to apply specialized artistic, musical, graphic, editorial and computer programming skills to the band’s projects may raise questions about the rightful ownership of the resulting intellectual property. 

The band should contractually retain all ownership of any work contributed by any third parties. It does not matter whether or not the band paid for the services. Failure to do “get it in writing” can, and all too often does, result in complex work-for-hire and other disputes that take much time and expense to resolve.

Appropriate agreements can range from a few lines to lengthy and complicated contracts depending on many factors.  The common theme of the document would deal with the ownership of intellectual property rights, but they might also include, for example, provisions dealing with confidentiality, dispute resolution and credit.

Website Issues

By the same token, while many new bands are able to design and maintain their own websites, other bands engage a web designer and or webmaster to handle those chores.  Again, the following issues may be relevant:

a)    All audio, video, text and still image content on the band’s website that is not owned by the band should be cleared in advance. This includes photographs of the band taken by third parties.

b)    The use of a web designer and/or webmaster to provide specialized graphic, editorial and computer programming skills to the your website may raise questions about the rightful ownership of the resulting intellectual property.  You should contractually retain all ownership of any work on the site contributed by such persons. 

c)    If the band will be selling its own products online, it should make sure its sales terms and conditions properly address issues raised by the worldwide nature of the Internet. Depending upon the types of merchandise sold on the website, these issues may include product liability, tax and related third-party claims.

d)    All agreements between the band and webmasters, advertisers, purchasers and/or users should clearly specify the law and jurisdiction that will apply to any action resulting from the site.

As a band becomes more successful, it will be faced with other legal issues.  These may include employment agreements with road managers and other permanent staff, insurance issues, agreements with managers and agents, recording agreements, publishing agreements, merchandising and personal appearance agreements.

Comments

[Jesse]

Great post, very informative. Two questions:
1) Are there tax advantages to an s-corp vs. a partnership? I've heard that s-corps don't have to pay employer tax.

2) What if people want to "invest" in the band? I understand that LLCs have a two-tiered set-up where some people can be investors and others can be managers, unlike an s-corp, which just has one class of shares. But would an s-corp simply be able to make a contract with investors specifying who the managers are and so on, or would an investment in an s-corp automatically imply an ownership and management interest in the company?

Thanks so much for this.

[Ruben Cardos]

Very informative and necessary to know.

Although that's one way to scare a beginner band out of shooting for the big time!

...just kidding!

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I searched for this theme! But would an s-corp simply be able to make a contract with investors specifying who the managers are and so on, or would an investment in an s-corp automatically imply an ownership and management interest in the company?

[BubbaGump]

What are the legal implications of posting your music to MySpace or another website that allows users to listen to it and you have not contracts with any one else for your music? I understand it should be copy righted first and I understand about someone maybe stealing it for a commercial or something. What I am not clear on is is ASCAAP or someone else considers it broadcasting and requires fees to be paid by the website hosting it?

[Rebecca Hall]

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