Restoring the Seven Year Rule in the Music Industry

Fordham Intellectual Property, Media and Entertainment Law Fordham Intellectual Property, Media and Entertainment Law

Journal Journal

Volume 26

Volume XXVI

Number 1

Volume XXVI Book 1

Article 6

2015

Restoring the Seven Year Rule in the Music Industry Restoring the Seven Year Rule in the Music Industry

Kathryn Rosenberg

Fordham Intellectual Property, Media & Entertainment Law Journal, Volume XXVI; Fordham University

School of Law

Follow this and additional works at: https://ir.lawnet.fordham.edu/iplj

Part of the Intellectual Property Law Commons

Recommended Citation Recommended Citation

Kathryn Rosenberg,

Restoring the Seven Year Rule in the Music Industry

, 26 Fordham Intell. Prop. Media &

Ent. L.J. 275 (2015).

Available at: https://ir.lawnet.fordham.edu/iplj/vol26/iss1/6

This Note is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and

History. It has been accepted for inclusion in Fordham Intellectual Property, Media and Entertainment Law Journal

by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information,

please contact tmelnick@law.fordham.edu.

Restoring the Seven Year Rule in the Music Industry Restoring the Seven Year Rule in the Music Industry

Cover Page Footnote Cover Page Footnote

I would like to thank Professor Aditi Bagchi for her guidance and feedback in developing this Note; the

IPLJ XXVI Editorial Board and Staff, especially Elizabeth Walker and Madhundra Sivakumar, for their hard

work throughout the editorial process; and most of all, my parents, Marie and Ben, and my sister,

Rebecca―for their constant love, support, and willingness to read anything I’ve ever written since

kindergarten.

This note is available in Fordham Intellectual Property, Media and Entertainment Law Journal:

https://ir.lawnet.fordham.edu/iplj/vol26/iss1/6

275

Restoring the Seven Year Rule in the

Music Industry

Kathryn Rosenberg*

INTRODUCTION ......................................................................... 276

I. PERSONAL SERVICE CONTRACTS IN

CALIFORNIA .............................................................. 280

A. History of Section 2855 ............................................. 280

1. Enactment and Early Amendments ................. 280

2. De Haviland v. Warner Brothers ....................... 281

3. The Music Industry Amendments ................... 282

B. Structure of Recording Contracts .............................. 284

1. Scope of Exclusivity ......................................... 286

2. Term Length; Number of Albums ................... 289

3. Advances Payable to Artist Per Album and

Recoupable Costs ............................................ 290

4. Artist Royalties and Royalty Costs for

Producer of Recordings ................................... 291

II. THE PROBLEM WITH SECTION 2855(b) ................. 292

A. Assessment of Damages ............................................ 293

B. The Reality of the Music Industry .............................. 295

C. The Seven Year Rule, De Haviland, and

Unconscionability ..................................................... 297

III.FIXING THE MUSICIAN EXEMPTION ...................... 299

A. Amend Section 2855(b)............................................. 299

Managing Editor, Fordham Intellectual Property, Media & Entertainment Law Journal,

Volume XXVI; J.D. Candidate, Fordham University School of Law, 2016; B.A., Political

Science and Sociology, University of Michigan-Ann Arbor, 2011. I would like to thank

Professor Aditi Bagchi for her guidance and feedback in developing this Note; the IPLJ

XXVI Editorial Board and Staff, especially Elizabeth Walker and Madhundra Sivakumar,

for their hard work throughout the editorial process; and most of all, my parents, Marie

and Ben, and my sister, Rebecca―for their constant love, support, and willingness to read

anything I’ve ever written since kindergarten.

276 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

1. Limitations at Contract Formation .................. 299

2. Define “Damages” .......................................... 301

B. Repeal Section 2855(b) ............................................. 303

CONCLUSION ............................................................................. 309

INTRODUCTION

The United States boasts a bigger entertainment industry than

any other country,

with Los Angeles regarded as the entertain-

ment capital of the world.

Accounts differ as to the explanation for

California’s rise to entertainment prominence. One version

attributes the flocking to the west coast as a product of Cecil B.

DeMille’s last-minute location change for The Squaw Man in 1914

to Los Angeles; but, by 1910, movies had already been filmed in the

area.

Another explanation focuses on Thomas Edison, who oper-

ated in New York and New Jersey, and exerted a significant

amount of control over the industry in its early days because he

held many patents on the technologies necessary to make movies.

Edison created the Motion Picture Patent Company (“MPPC”),

which essentially established a monopoly on all aspects of filmmak-

ing by limiting the sale of necessary items to its members.

Produc-

ers who did not join the MPPC and pay the associated fees in order

to use the technologies would likely be sued for using Edison’s

The Media & Entertainment Industry in the United States, SELECTUSA,

http://selectusa.commerce.gov/industry-snapshots/media-entertainment-industry-

united-states [http://perma.cc/DMZ9-6ZLE] (last visited Oct. 30, 2015) (noting that the

United States’ media and entertainment industry comprised of “businesses that produce

and distribute motion pictures, television programs and commercials, along with music

and audio recordings, radio, games, and publishing.”).

L.A. CTY. ECON. DEV. CORP., THE ENTERTAINMENT INDUSTRY AND THE LOS

ANGELES COUNTY ECONOMY 1 (Nov. 2012), http://laedc.org/wp-content/uploads/2012/

04/EntertainmentinLA.pdf [http://perma.cc/DL69-A87S].

See The History of the Hollywood Movie Industry, HISTORY COOPERATIVE (Nov. 12, 2014),

http://historycooperative.org/the-history-of-the-hollywood-movie-industry [http://perma.cc/

GS32-494H] [hereinafter History of Hollywood].

See Dan Lewis, Thomas Edison Drove the Film Industry to California, MENTAL FLOSS

(July 16, 2013, 5:00 PM), http://mentalfloss.com/article/51722/thomas-edison-drove-

film-industry-california [http://perma.cc/P58F-YES2].

See id.

2015] RESTORING THE SEVEN YEAR RULE 277

technologies.

Thus, many early filmmakers decided to leave the

east coast for California, where judges were less sympathetic to

Edison and the power of his patents.

Regardless of the historical

explanation, cinema in America took off in popularity, establishing

“Hollywood,” the neighborhood where movie studios had set up

shop, as synonymous with the industry itself.

Coincidentally, the birth of the music industry is also owed in

part to Edison; his discovery of the phonograph in late 1877 began

the cultural phenomenon of recorded music that continues today.

Unlike the film industry’s Hollywood, no single region became the

home of American music, as many major cities had at least one

phonograph company to make recordings and many nickelodeons,

establishments at which a person could listen to music for a nickel

per song.

Still, despite the prevalence of popular music genres in

many American cities,

the “Big Three,”—Sony Music Group

(“Sony”), Universal Music Group (“UMG”), and Warner Music

Group (“WMG”)—represent a large share of the music market;

many well-known, though seemingly smaller, regional record labels

actually fall under the corporate umbrella of one of these three

players.

Of these, UMG’s headquarters is located in California,

See id.

See History of Hollywood, supra note 3.

Thomas Edison and the First Phonograph, AMERICA’S LIBRARY,

http://www.americaslibrary.gov/jb/recon/jb_recon_phongrph_1.html

[http://perma.cc/AK2K-LZYR] (last visited Oct. 30, 2015).

See Alex Cosper, History of Record Labels and the Music Industry, PLAYLIST

RESEARCH, http://www.playlistresearch.com/recordindustry.htm [http://perma.cc/

F9Q4-YD53] (last visited Oct. 30, 2015).

For example, we often associate Nashville as the center of country music, Detroit as

the birthplace of Motown, and Seattle as the home to “grunge” rock, to name a few

American regions tied to popular music genres. See Richard Florida, The Geography of

America’s Music Scenes, C

ITYLAB (Aug. 6, 2012), http://www.citylab.com/design/2012/

08/geography-americas-music-scenes/2709 [http://perma.cc/6E7B-RWGW].

As of mid-2014, the Big Three controlled eighty-nine percent of global music sales.

See Matt Pollock, Three Huge Record Labels Are Preparing to Take a Lot of Money From

Their Artists, M

IC (July 17, 2014), http://mic.com/articles/93502/three-huge-record-

labels-are-preparing-to-take-a-lot-of-money-from-their-artists [http://perma.cc/CUK7-

AA92].

For a complete listing of each of these brands’ subsidiary labels, visit their websites:

Labels, S

ONY MUSIC GROUP, http://www.sonymusic.com/labels [http://perma.cc/

9UZF-ETZU] (last visited Oct. 30, 2015); Our Labels & Brands, UNIVERSAL MUSIC

278 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

and Sony and WMG are both headquartered in New York.

Thus,

most recording contracts by major labels are signed in, or otherwise

made subject to, the laws of California or New York.

This Note focuses on the effects of a provision in section 2855

of the California Labor Code. The history of this statute is impor-

tant to understand the impact the statute has had on the entertain-

ment industry, but more specifically, the music industry. Section

2855(a) limits the length of time personal service employment con-

tracts may be enforced to a period of seven years, which is why the

entire statute is often referred to as the “Seven Year Rule.”

states that a contract for personal service of a “special, unique, un-

usual, extraordinary, or intellectual character,” like those in the

entertainment industry, “cannot be enforced against the employee

beyond the term of seven years from the commencement of service

under it.”

Initially enacted in 1872 as section 1980 of the California Civil

Code, the law originally prohibited employers from enforcing con-

GROUP, http://www.universalmusic.com/labels [http://perma.cc/V4NV-NHPT] (last

visited Dec. 17, 2015); Services, W

ARNER MUSIC GROUP, http://www.wmg.com/

services#artists-services [http://perma.cc/HC9L-VT9U] (last visited Oct. 30, 2015).

Universal Music Group’s corporate headquarters is located in Santa Monica,

California. See Contact Us, U

NIVERSAL MUSIC GROUP, http://www.universalmusic.com/

contact-us [http://perma.cc/5XH2-FMES] (last visited Dec. 17, 2015).

Sony Music Group’s headquarters is located in New York, New York, see FAQ,

ONY MUSIC GROUP, http://www.sonymusic.com/faq/#seven [http://perma.cc/XJ3K-

8Z6L] (last visited Oct. 30, 2015), as is Warner Music Group’s, see Culture, WARNER

MUSIC GROUP, http://www.wmg.com/culture#contact [http://perma.cc/7ZMT-YTBX]

(last visited Oct. 30, 2015).

See M. WILLIAM KRASILOVSKY & SIDNEY SHEMEL, THE BUSINESS OF MUSIC: THE

DEFINITIVE GUIDE TO THE MUSIC INDUSTRY 5 (8th ed. 2000) (noting that even in the case

of New York music contracts, major record labels include a “duration provision” that is

the same in New York or California).

The statute is also referred to as the “De Haviland Law” after actress Olivia de

Havilland (those who refer to the law after Ms. de Havilland often spell her last name the

same way as it appears in the case citation: incorrectly), who brought a suit against

Warner Brothers to end her exclusive contract with the studio after seven years had

lapsed. See infra Part I.A.2.

CAL. LAB. CODE § 2855 (2014); see also De Haviland v. Warner Bros. Pictures, Inc.,

67 Cal. App. 2d 225, 229 (1944) (holding that section 2855’s “seven year” limitation on

personal service contracts must be measured in calendar years, not in terms of actual

service) (emphasis added).

2015] RESTORING THE SEVEN YEAR RULE 279

tracts of personal service after two years.

In 1931, the statute was

amended to increase the term to seven years.

Finally, six years lat-

er, section 1980 was repealed and section 2855 of the Labor Code

was enacted, which adopted and streamlined the language of the

old provision.

For fifty years, section 2855 did not change at all;

even now, nearly eighty years later, the Seven Year Rule is an “ac-

cepted tenet of entertainment law,” a “given” in contract negotia-

tions.

In 1987, however, the California legislature amended the sta-

tute to add an additional subsection, which will be the focus of this

Note. This music industry-specific amendment, section 2855(b),

represents a “carve out”

that essentially exempts musicians from

protection under the statute.

Part I of this Note will explain the

legislative history of section 2855 and related lawsuits in order to

contextualize the 1987 amendment within the entertainment indus-

try. It will also give a brief background on the nature of recording

contracts and explore the typical structure of a deal between musi-

cians and labels. Part II will examine the conflicts between different

areas of contract law that arise from the amendment, including the

freedom to contract, unconscionability, unjust enrichment, and

inequity in bargaining power between parties. Lastly, Part III will

outline potential solutions to resolve conflicts created by the law,

including two possible amendments to section 2855(b), and repeal-

ing section 2855(b) altogether. Ultimately, I argue that the best op-

GREGG B. RAMER, KATTEN MUCHIN ROSENMAN LLP, PERSONAL SERVICE WITH A

SMILE: A HISTORY OF CALIFORNIA’S “SEVEN-YEAR” RULE 1 (2013),

http://www.kattenlaw.com/files/48984_Spotlight_on_Entertainment_and_Media%20L

aw_Personal_Service_With_a%20Smile_A_History_of_Californias_Seven_Year_Rule.

pdf [http://perma.cc/SLZ5-LZT5]; see also L

AB. § 2855.

See RAMER, supra note 19, at 1.

Id. at 2.

See Matthew Belloni, De Havilland Lawsuit Resonates Through Hollywood, REUTERS

(Aug. 23, 2007, 11:10 PM), http://www.reuters.com/article/2007/08/24/industry-

lawsuit-dc-idUSN2329585820070824 [http://perma.cc/FD7Z-55KF].

See Sarah Brouillette, The False Freedom of Rock Stardom, REVIEWS IN CULTURAL

THEORY (Mar. 15, 2013), http://www.reviewsinculture.com/ [http://perma.cc/C3AL-

97AA] (reviewing M

ATT STAHL, UNFREE MASTERS: POPULAR MUSIC AND THE POLITICS

WORK (2012)).

See infra Part II.C.

280 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

tion for ensuring fair outcomes is repealing section 2855(b) through

collective action of recording artists.

I. PERSONAL SERVICE CONTRACTS IN CALIFORNIA

A. History of Section 2855

1. Enactment and Early Amendments

In 1872, the California legislature passed section 1980 of the

Civil Code, which stated,

A contract to render personal service, other than a

contract of apprenticeship . . . cannot be enforced

against the employee beyond the term of two years

from the commencement of service under it; but if

the employee voluntarily continues his service un-

der it beyond that time, the contract may be referred

to as affording a presumptive measure of the com-

pensation.

Of course, this early version of section 2855 predates what we

know now as Hollywood,

however, the desire to limit a term of

personal service is perhaps best contextualized in a post-Civil War

America.

Over the next several decades, the statute adapted to

match the burgeoning entertainment industry;

in 1931, the statute

was amended to include the phrase “special, unique, unusual, ex-

traordinary, or intellectual” in qualifying the kind of personal ser-

See RAMER, supra note 19, at 1.

See Lewis, supra note 4; see also History of Hollywood, supra note 3.

This point is, admittedly, only subtly alluded to in the introduction of Gregg

Ramer’s very helpful overview of the history of section 2855. See R

AMER, supra note 19,

at 1.

See History of Hollywood, supra note 3 (“The 1930’s was considered the Golden Age

of Hollywood. A new era in film history began in this decade with the introduction of

sound into film, creating new genres such as musicians, documentaries, social statement

films, comedies, westerns, and horror movies.”).

2015] RESTORING THE SEVEN YEAR RULE 281

vice contract under this law.

Six years later, the statute was reco-

dified and reworded

with text that has since been unchanged.

2. De Haviland v. Warner Brothers

The Seven Year Rule was perhaps most famously tested in

1944 in De Haviland v. Warner Bros. Pictures, Inc.

In 1936, right in

the middle of Hollywood’s “studio system” era,

a nineteen year-

old actress, Olivia de Havilland, signed a seven-year exclusive con-

tract with Warner Brothers Pictures.

During this time, studios

were highly vertically integrated, enjoyed control over production

and distribution, and relied on long-term star contracts to bolster

their popularity.

By 1943, after amassing critical acclaim and con-

siderable star-power, de Havilland refused a few roles she was of-

fered by Warner Brothers in order to best serve her reputation and

career aspirations.

For these refusals and other issues (including

illness) that arose throughout the course of her seven year contract,

she was placed on several suspensions that totaled twenty-five

weeks, which Warner Brothers attempted to tack onto the back end

of her contract.

De Havilland brought suit against the studio, arguing that her

contract could not be enforced past the seven-year mark, and the

California Court of Appeals agreed.

The court held that “the

substitution of years of service for calendar years would work a

drastic change of state policy with relation to contracts for personal

CAL. LAB. CODE § 2855 (2014).

See De Haviland v. Warner Bros. Pictures, Inc., 67 Cal. App. 2d 225, 230 (1944) (“It

is clear that section 2855 of the Labor Code is a restatement and continuation of former

Civil Code section 1980 and not a new enactment.”).

See LAB. § 2855.

67 Cal. App. 2d at 225.

See Hollywood Studio System Collection (1913-1948), MEDIA HISTORY DIGITAL

LIBRARY, http://mediahistoryproject.org/hollywood [http://perma.cc/2XWB-5G7U]

(last visited Oct. 30, 2015).

Matt Stahl, Employee in a Cage? Olivia de Havilland, Warner Bros. Pictures, and the

“Limit Case” of Star Employment, 12 WARWICK ENT. & SPORTS LAW J. ¶ 1 (2011),

http://www2.warwick.ac.uk/fac/soc/law/elj/eslj/issues/volume12/stahl/

[http://perma.cc/4UDY-KDU6].

See id. ¶ 6; Hollywood Studio System Collection (1913–1948), supra note 33.

See RAMER, supra note 19, at 2.

See De Haviland, 67 Cal. App. 2d at 228–29.

See id. at 232.

282 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

services,” and that the phrase “for a term not beyond a period of

seven years” does not carry a hidden meaning.

The De Haviland

suit was a “watershed” event in the history of the studio system

era, which “questioned the whole system of hiring stars on term

contracts” and led to “stars wrestling control of their careers from

the studios.”

3. The Music Industry Amendments

Following the De Haviland ruling, the Seven Year Rule applied

uniformly across the entertainment industry’s many subsets until

1987, when the Recording Industry Association of America

(“RIAA”) and major record labels successfully lobbied the Cali-

fornia legislature to amend section 2855.

Prior to the enactment

of section 2855(b), recording artists would threaten to invoke the

Seven Year Rule in their soon-to-expire record deals, whether or

not there remained unproduced records on the contract.

Record

labels often responded to these threats by renegotiating the existing

contract, rather than pursuing litigation, to keep the artist at the

label.

The RIAA and the labels claimed that recording contracts

are unlike other entertainment industry contracts of “unique and

special” nature, as they are not historically tied to a time frame so

much as to the production and delivery of records.

They also ar-

gued that record companies make large investments in artists who

are unfairly enriched by simply walking away from a contract with-

out producing the agreed-upon number of albums.

The California legislature responded with the introduction of

section 2855(b), which has three subsections.

Section 2855(b)(1)

establishes that the entire amendment pertains to “[a]ny employee

Id.

See Stahl, supra note 34, ¶ 44 (internal citations omitted).

See RAMER, supra note 19, at 2–3.

See Chuck Philips, Lawmakers Take Aim at Music Industry Contracts, L.A. TIMES (Aug.

8, 2001), http://articles.latimes.com/2001/aug/08/business/fi-31594 [http://perma.cc/

XGV8-UHJ2] [hereinafter Philips, Lawmakers].

See id.

RAMER, supra note 19, at 3.

Chuck Philips, Courtney Love Seeks To Rock Record Labels’ Contract Policy, L.A.

TIMES (Feb. 28, 2001), http://articles.latimes.com/2001/feb/28/news/mn-31219

[http://perma.cc/K7MT-5D9P] [hereinafter Philips, Courtney Love].

CAL. LAB. CODE § 2855(b) (2014).

2015] RESTORING THE SEVEN YEAR RULE 283

who is a party to a contract to render personal service in the pro-

duction of phonorecords,” and imposes a written notice require-

ment for these parties to seek nonenforcement pursuant to section

2855(a), the Seven Year Rule.

Section 2855(b)(2) permits the re-

covery of damages for a breach of contract that occurs during its

term, in an action commenced during or after its term.

Finally,

section 2855(b)(3) states that a if a party seeking nonenforcement

“is, or could contractually be, required to render personal service

in the production of a specified quantity of the phonorecords and

fails to render all of the required service” prior to giving notice, the

party “damaged by the failure” is permitted to recover damages

for each unproduced record.

With the enactment of the amendment, however, the labels

were given clear recourse for remuneration in the event an artist

sought to end a contract without producing the agreed-upon num-

ber of records.

Conversely, the amendment represented a “wa-

ter[ing] down” of musicians’ ability to invoke the Seven Year Rule,

with a “very onerous penalty for exercising rights granted to eve-

ryone else under a personal services employment agreement.”

Thus, over the past twenty-eight years, musicians and other activ-

ists have repeatedly asked the California state assembly to repeal

the 1987 amendment.

Id. § 2855(b)(1).

Id. § 2855(b)(2).

Id. § 2855(b)(3).

See id.

William I. Hochberg, A Guide To Understanding the “How’s” and “Why’s” of

Recording Agreements, in 8-159 ENTERTAINMENT INDUSTRY CONTRACTS ¶ 159.05[3]

(Donald C. Farber ed., LexisNexis 2015).

See, e.g., Corey Moss, Beck, Deftones, Others Rally For Bill That Could Change

Recording Contracts, MTV (Jan. 23, 2002), http://www.mtv.com/news/1451908/beck-

deftones-others-rally-for-bill-that-could-change-recording-contracts/

[http://perma.cc/4CU9-K4TQ]; Jennifer Toomey, California State Assembly Regarding

the 7-Year Statute, F

UTURE OF MUSIC COALITION, https://futureofmusic.org/filing/

california-state-assembly-regarding-7-year-statute [https://perma.cc/UEU7-TUDM]

(last visited Oct. 30, 2015); Teri Vanhorn, Courtney Love, Don Henley, LeAnn Rimes

Testify on Artists’ Rights, MTV (Sept. 6, 2001), http://www.mtv.com/news/1448678/

courtney-love-don-henley-leann-rimes-testify-on-artists-rights/ [http://perma.cc/CX8H-

5X23] (last visited Oct. 30, 2015) (“Courtney Love, Don Henley, and LeAnn Rimes went

to California’s State Capitol Building on Wednesday to complain about record-company

business practices and ask for legislation to free musicians from long-term contracts.”);

see also Hochberg, supra note 51, ¶ 159.05[3] (“California State Senator Kevin Murray

284 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

B. Structure of Recording Contracts

Because the music industry is the only subset of the entertain-

ment field that has a “carve out” exception in section 2855, it is

necessary to understand the difference between record deals and

other entertainment contracts. Often, actors and actresses work

with “soft deals,” yet, where a contract does exist, the majority

represent single picture agreements that do not run the risk of violat-

ing the Seven Year Rule.

In the television industry, the rule is

even less likely to cause a problem.

Television shows that run for

longer than seven years are typically very popular among viewers,

thus, these actors and actresses have considerable leverage with

which to negotiate contracts.

Finally, and very importantly,

across film and television deals, the relationship between the actors

and actresses and the studios or networks is overwhelmingly not an

exclusive one.

Thus, musicians’ employment contracts look very different

than those formed by their acting peers.

introduced into the California legislature SB 1249, the purpose of which was to appeal the

1987 amendment. The proposed state legislation was aggressively fought by the record

industry, whose efforts were coordinated by the [RIAA]. Although the legislation was

stalled, Senator Murray has promised to reintroduce it again and to expand his probe into

record industry practices, particularly focusing on royalty accounting and payment

practices.”).

Even in major franchises that require actors and actresses to appear in multiple films,

section 2855 is typically not implicated: either the films are made within the seven-year

timeframe, or the actors and actresses are able to secure highly lucrative compensation

that would prevent them from seeking nonenforcement of a contract.

See discussion infra note 189; see also Nellie Andreeva, The Price of Success: Hit Shows

Bracing For Cast Exits & Untimely Cancellations, D

EADLINE (Apr. 9, 2015, 2:09 PM),

http://deadline.com/2015/04/cast-members-leaving-shows-renewed-vampire-diaries-

1201405965 [http://perma.cc/WY75-EBRL] (“Cast contract negotiations are considered

a high-class problem as they are associated with hit series that have gone the distance.”).

See RAMER, supra note 19, at 4; see also Andreeva, supra note 54 (noting the

difficulties faced by shows that lose stars after their contracts have ended, and the

increased importance of retaining a star who plays a show’s title character).

See, e.g., Susan Murray, I Know What You Did Last Summer: Sarah Michelle Gellar

and Crossover Teen Stardom, in U

NDEAD TV: ESSAYS ON BUFFY THE VAMPIRE SLAYER 51–

52 (Elana Levine & Lisa Parks eds., 2007) (discussing the role of film projects in the

career of an actor or actress who has achieved fame in television, and noting that “forays

into film are particularly alluring to audiences during the summer, when network shows

are on hiatus”).

See RAMER, supra note 19, at 3.

2015] RESTORING THE SEVEN YEAR RULE 285

The fundamental legal principle in any agreement

between a recording artist and a record company is a

simple copyright transaction: the recording artist

who provides the talent and marketability, convey

his or her rights in the sound recording of his or her

performance to the record company, which provides

the production, distribution, and marketing re-

sources and expertise.

The copyright-owning label manufactures and sells the product

created by the artist, with whom it shares the revenue, as provided

by contract.

It is safe to say that movie studios, television networks, produc-

tion companies, and record labels all assume some financial risk for

their projects. Section 2855(b)(3)’s damages provision only applies

to the music industry, however, which seems to represent the Cali-

fornia legislature’s recognition that the industry’s unique structure

warranted greater protection for labels, as they “necessarily make

‘large investments in an artist’s career based primarily on the

promise that the act [will] deliver’ the contractually stipulated

number of albums.”

Thus, if the musician was permitted to walk

away from the deal without producing the agreed-upon number of

albums, the record company “would be damaged by not receiving

the full value of their ‘investment’ in the artist.”

This investment in the artist is reflected in the recording con-

tract. A record label does assume the financial risk in production,

distribution, and marketing,

but treats these expenditures as ad-

vances to the artist against future royalties.

If a record is eventual-

ly able to recoup those costs,

the artist will earn royalties, as sti-

pulated by the contract; if the record is unable to recoup those

COREY FIELD & BARRY I. SLOTNICK, ENTERTAINMENT LAW: FORMS & ANALYSIS

§ 4.12 (2014).

Id.

Note, California Labor Code Section 2855 and Recording Artists’ Contracts, 116 HARV.

L. REV. 2632, 2636 (2003) (quoting Philips, Lawmakers, supra note 42).

RAMER, supra note 19, at 3.

See FIELD & SLOTNICK, supra note 58, § 4.12.

Id.

The contract typically specifies the types and amounts of the record label’s

“recoupable” costs to be charged against the artist’s royalty account. Id.

286 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

costs, the artist does not have to repay those advances to the la-

bel.

Thus, unsuccessful records financially harm the labels more

than the artists who create them; however, the label also stands to

recoup their costs and profit immensely from successful records.

In addition to this basic, industry-wide structure of the record-

ing contract, other important issues include:

 “The scope of exclusive services the artist must

provide to the label;”

 “The number of projects or ‘albums’ that must

be delivered by the artist pursuant to ‘options’

held by the record company;”

 “The advances payable to the artist for each

album;” and

 The royalties the artist will receive and the

royalty costs for the producer of the

recordings.

These four major issues help to highlight the differences in the

interests of the record labels and the artists when disputes under

section 2855 arise.

1. Scope of Exclusivity

Recording contracts require that the artist produce recordings

exclusively for the label.

As discussed above in Part I.A.2, De Ha-

viland represented a victory for the artist and helped end the period

in Hollywood history marked by powerful studios and exclusive

actor contracts.

During the studio system era, the perception was

that the studio “created” the movie stars: “[they] were recruited

by the studio’s talent scouts, groomed by the studios, and signed to

seven-year contracts.”

These contracts required the actor- and

actress-employees to participate in social activities and open their

lives to the media.

After De Haviland, actors and actresses were

Id.

Id. (formatting altered).

Id. § 4.12[1][a]. Non-exclusive contracts are very unusual in the industry and would

require a different analysis of the fairness of section 2855(b)’s limitations on musicians.

See supra note 40.

DANIEL NIEMEYER, 1950S AMERICAN STYLE: A REFERENCE GUIDE 63 (2013).

See id.

2015] RESTORING THE SEVEN YEAR RULE 287

not bound to serve the studio for longer than the maximum term

length;

because they knew exactly when their contracts were end-

ing, they were able to shop around the industry for better scripts,

directors, and projects.

After De Haviland, a “free agency” structure began to replace

the studio system as actors and actresses gained more power in ne-

gotiating employment contracts based on their fair market value.

In a free agency market, actors and actresses are not bound to one

studio for an extended, long-term contract, but rather, are free to

create films with whomever they want.

Today, the benefit of this

system to the actors and actresses is clear, as they can embark on a

project with a clear understanding of its timeline and the prepara-

tion and skills required, as well as negotiate their salary or compen-

sation structure based on their market value. They are bound to

studios on a project-by-project basis, rather than for a set length of

time, and with less limited exclusivity provisions: actors and ac-

tresses are typically permitted to engage in other business dealings

with other production entities, even while working on another

project.

See De Haviland v. Warner Bros. Pictures, Inc., 67 Cal. App. 2d 225, 231–32 (1944).

WHEELER WINSTON DIXON, DEATH OF THE MOGULS: THE END OF CLASSICAL

HOLLYWOOD 20 (2012).

See A. Barry Cappello & Troy A. Thielemann, Challenging the Practices of the

Recording Industry, L.A. LAWYER, May 2002, at 14–19, http://www.lacba.org/Files/LAL/

Vol25No3/1127.pdf [http://perma.cc/Z2TJ-MPJJ].

DIXON, supra note 72, at 20.

Both film and television stars face less restrictive employment relationships with

their networks and studios than musicians and their labels. Still, when selecting additional

television projects, actors and actresses are often limited to appear only on shows on their

television show’s network or network’s affiliates. Compare Janet Kinosian, Academy

Awards: For J.K. Simmons of “Whiplash,” the Beat Never Slows, L.A.

TIMES (Feb. 5, 2015,

8:15 AM), http://www.latimes.com/entertainment/envelope/la-et-mn-en-jk-simmons-

academy-awards-20150205-story.html [http://perma.cc/8PJA-338L] (discussing actor

J.K. Simmons’s hectic 2015 award season, which included appearances at many award

shows, filming a movie, and hosting Saturday Night Live), with Dorothy Pomerantz, Joel

McHale Is a Very Busy Man, F

ORBES (May 18, 2011, 10:00 AM), http://www.forbes.com/

2011/05/17/celebrity-100-11-joel-mchale-community-soup-e-nbc-popularity.html

[http://perma.cc/EG3A-2BNG] (discussing actor Joel McHale’s starring roles in

Community and The Soup, television shows on NBC Universal networks NBC and E!,

respectively, while also appearing in three films and doing standup) and James Hibberd,

ABC Orders Prank Show Inspired by Ellen DeGeneres, E

NT. WEEKLY (Jan. 14, 2015, 12:15

PM), http://www.ew.com/article/2015/01/14/abc-ellen-degeneres-prank [http://perma.

288 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

On the opposite end of the spectrum, a “360 deal” is fully

broad in scope; it encompasses everything that an artist can hold

rights to and can earn revenue from—including music sales, tour-

ing, merchandising, fan-club fees, endorsements, licensing, appear-

ances, and often includes sharing with the artist the publishing

rights for compositions recorded under contract.

Unlike free

agency, where a person has the ability to negotiate with and enter

into contracts easily, a 360 deal represents a highly exclusive rela-

tionship between label and artist.

Music contracts are increasingly

closer to 360 deals because of the reduction in traditional album

sales from increased online streaming.

Because the Big Three labels have considerable institutional

power in the industry,

they are able to set standards for the way

music contracts are constructed.

Artists lack the ability to nego-

tiate a contract with a major record label from scratch and rather

simply agree to a variation of the standard contract.

This struc-

ture of exclusivity both prevents musicians from negotiating short-

cc/L2MA-3VLN] (discussing the launch of an ABC show, Repeat After Me, hosted by

actress Wendi McLendon-Covey, who appears on another ABC show, The Goldbergs).

Ian Brereton, Note and Recent Development, The Beginning of A New Age?: The

Unconscionability of the “360-Degree” Deal, 27 C

ARDOZO ARTS & ENT. L.J. 167, 193

(2009).

See id.

See Michael Arrington, “360” Music Deals Become Mandatory As Labels Prepare For

Free Music, TECHCRUNCH (Nov. 8, 2008), http://techcrunch.com/2008/11/08/360-

music-deals-become-mandatory-as-labels-prepare-for-free-music

[http://perma.cc/V5DJ-H8Y2].

See id. (discussing the evolution of 360 deals from “controversial” and

“experimental” to mandatory, as Warner Music Group adopted the model); see also

Brereton, supra note 76, at 178 (noting that even though the then-“Big Four” stronghold

on the music industry in the United States had declined, bands and artists were still more

likely to achieve commercial success by signing with a major label versus an independent

one); Pollock, supra note 12.

See Brereton, supra note 76, at 177–78 (“Even for artists who obtain an attorney, the

standard major label recording agreement can span one hundred pages, containing

legalese and hidden meanings that demand counsel specializing in music law. Such an

agreement is ‘virtually impossible’ for an unrepresented artist to comprehend.

Additionally, these contracts endeavor to protect the major labels at all costs.”).

Id. at 178, 182 (noting that “[m]any of the principal terms, through repeated usage,

have come to constitute non-negotiable industry standards or, at best, negotiable within

limits established by the labels over time,” and giving an example of a point that is

“negotiable within limits” as the exact royalty percentage the new artist receives as

typically between ten and twelve percent of the suggested retail list price).

2015] RESTORING THE SEVEN YEAR RULE 289

term contracts with labels based on the artist’s market value and

protects labels by allowing them to retain control over their artists

who are actually successful.

2. Term Length; Number of Albums

Another basic industry standard is the term of the agreement:

recording contracts contain an “initial contract period” in which

the artist must produce “one, or at most, two albums,” followed by

multiple, successive options for additional albums.

The initial

contract period allows the label to assess the commercial viability

of the artist, and reduces its financial risk by allowing the label not

to renew the contract for the option periods.

If the label exercises

its options, there is no way to determine how long the contract will

actually last, as these are measured in both time and product:

[After the initial contract period, t]he agreement

then provides the record company with multiple,

successive options that it can exercise in its discre-

tion to cause the artist to record additional product,

with each option calling for a limited amount of

product such as an additional phonograph record al-

bum for the option period so exercised. That prod-

uct then becomes the “minimum delivery require-

ment” for that particular option period. Each con-

tract period, whether the initial period or an option

period, is generally defined as a period of time con-

sisting of a number of months, usually between sev-

en and eighteen, that follows the delivery of the last

record required to be recorded in satisfaction of the

minimum delivery requirement for that particular

contract period. The actual term of the agreement is

defined as the period commencing from the initial

See Philips, Lawmakers, supra note 42.

Gary Stiffleman & Bonnie Greenberg, Exclusive Recording Agreements Between An

Artist and A Record Company, in 8-159 ENTERTAINMENT INDUSTRY CONTRACTS, supra

note

51, ¶ 159.03[1][a]; see also FIELD & SLOTNICK, supra note 58, § 4.12[1][c].

Stiffleman & Greenberg, supra note 83, ¶ 159.03[1][a].

Id.

290 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

period and continuing to the end of the last option

period.

Additionally, after the contract is drafted, the label unilaterally

has the power to decide whether to exercise any—or all—of these

options; the artist is bound to the option periods whether or not

doing so remains a beneficial career move.

Thus, the artist whose

label has exercised these options is obligated to produce the total

number of records designated by the initial contract period plus

those required by the option periods.

3. Advances Payable to Artist Per Album and Recoupable

Costs

At the start of the initial contract period and the option periods,

record labels pay their artists an advance, which provides both a

salary and upfront money for some production costs.

Section

3423 of the California Civil Code

mandates that labels must guar-

antee artists certain amounts of money each year under contract in

order to bring an action to enjoin the artist in a breach of contract

claim, thus, this money is usually incorporated into the advance.

Id.

Kaleena Scamman, ADR in the Music Industry: Tailoring Dispute Resolution to the

Different Stages of the Artist-Label Relationship, 10 CARDOZO J. CONFLICT RESOL. 269, 281

(2008).

Id.; see also FIELD & SLOTNICK, supra note 58, § 4.12. Note that the contract specifies

the option periods in terms of length of time and in delivery requirement. Thus, even if it

is not possible to determine exactly how long a contract will last when it is formed, it is

somewhat easy to determine if it will be able to be completed in seven years by adding the

length of the initial period to the option periods and accounting for industry standards for

the rate at which artists can produce albums. See Philips, Lawmakers, supra note 42; see

also infra Part II.

See FIELD & SLOTNICK, supra note 58, § 4.12[1][f]; Stiffleman & Greenberg, supra

note 83, ¶ 159.03[1][c]. This money is also referred to as a “recording fund.” Part of the

contract negotiations focus on which production costs are recoupable by the label. F

IELD

& SLOTNICK, supra note 58, § 4.12[1][f], [1][n] (noting that certain costs, like the creation

of music videos, may be covered up to an amount by the label, with the remainder

recoupable against the artist’s royalty account).

CAL. CIV. CODE § 3423 (2014).

Hochberg, supra note 51, ¶ 159.05[2][a][ii] (explaining section 3423, known as the

“$9,000 Plus Provision,” which contractually requires a label to guarantee the artist

$9,000 by the end of the first contract year, $12,000 by the end of the second contract

year, $15,000 by the end of contract years three through seven, in addition to additional

stipulated payments in years four through seven).

2015] RESTORING THE SEVEN YEAR RULE 291

The advances are usually six-figure sums; however, most of that

money is recoupable against the artist’s royalties in the future.

far as the artist can control the expenses of producing the album,

the artist is incentivized to be cost-efficient because he or she can

keep the remaining money as an advance against future royalties.

Therefore, after the artist is paid the advance, he or she does not

begin to earn royalties until the advance has been earned back.

Additionally, although the artist is not typically required to pay the

label any amount from the advance that is not earned back in reve-

nue from the album, unsuccessful records can drive artists’ royalty

accounts into deep deficits.

These advances may be used to re-

coup losses on a “cross-collateral” basis among all master record-

ings under the contract: the artist’s advance for one album may be

used to recoup other projects of the artist that were not success-

ful.

An artist whose record does not perform well—in terms of

sales, touring, licensing, etc.—may not profit at all from the crea-

tion of the record, and is either dropped from the label and or left

in debt to begin the next project.

In sum, each record must be

successful enough, at a bare minimum, to recoup the artists’ ad-

vances from the label in order for the artist to remain financially

viable.

4. Artist Royalties and Royalty Costs for Producer of

Recordings

Labels pay royalties to the artist based on record sales, calcu-

lated either by using the suggested retail list price (“SRLP”) of the

recordings, or on the net revenue that is actually received by the

label.

Royalty rates fluctuate throughout an artist’s career and

can range from 8% to 25% of retail prices.

Artists at the beginning

See ARTIFACT (Sisyphus Corporation 2012) (describing the process by which artists

are paid, including 30 Seconds To Mars’ $500,000 advances from EMI that were later

recovered against for costs incurred from album production); see also F

IELD & SLOTNICK,

supra note 58, § 4.12.

See FIELD & SLOTNICK, supra note 58, § 4.12.

Id.

FIELD & SLOTNICK, supra note 58, § 4.12[1][f].

See Stiffleman & Greenberg, supra note 83, ¶ 159.03[1][c].

See ARTIFACT, supra note 92.

See FIELD & SLOTNICK, supra note 58, § 4.12[1][i].

See Scamman, supra note 87, at 275.

292 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

of their careers may sign contracts for relatively low royalty percen-

tages of the SLRP, with the potential for small percentage “bump-

ups” for subsequent albums and special incentives for certain sales

performance.

100

The calculation of royalties and assessment of a

fair rate is further complicated by technological advancements and

new methods of music consumption: the popularization of stream-

ing music has ushered in new questions on how to effectively mo-

netize these channels at a good royalty rate.

101

II. THE PROBLEM WITH SECTION 2855(b)

Although section 2855(b) was enacted nearly thirty years ago,

there is very little case law to predict how California courts would

handle disputes between labels and their musicians, as they are of-

ten negotiated and not litigated.

102

Circularly, this lack of jurispru-

dence creates much uncertainty surrounding the potential outcome

of litigation, giving the parties, especially the labels, an even clearer

benefit to resolve the dispute out of court.

103

Currently, section

2855(b) is problematic for a few reasons: it grants labels the right to

recover damages for undelivered albums, but gives no further guid-

ance on how these damages should be calculated;

104

it was enacted

on the flawed premise that the music industry, as a whole, would

be harmed if labels were not expressly granted this right to recover

100

See FIELD & SLOTNICK, supra note 58, § 4.12[1][i].

101

See Glenn Peoples, Music Streaming Now Generates Trillions of Plays—But Are

Royalties Keeping Up?, B

ILLBOARD (Aug. 13, 2015, 2:39 PM), http://www.billboard.com/

articles/business/6663783/music-streaming-now-generates-trillions-of-plays-but-are-

royalties-keeping [http://perma.cc/EHZ6-VAMY].

102

See, e.g., RAMER, supra note 19, at 3 (noting that section 2855(b)(3) seems geared to

force settlement); Todd Martens, 30 Seconds to Mars and EMI Make Nice, New Album Due

This Fall, L.A.

TIMES BLOG (Apr. 28, 2009, 6:48 PM), http://latimesblogs.latimes.com/

music_blog/2009/04/30-seconds-to-mars-and-emi-make-nice-new-album-due-this-

fall.html [http://perma.cc/PK2S-YZPW] (“It certainly is not fun being in litigation. I

would avoid it at all costs.”); Philips, Courtney Love, supra note 45 (“Earlier possible

showdowns over the statute, including cases by Beck, Don Henley and Luther Vandross,

were averted when industry attorneys convinced the artists to settle out of court for

multimillion-dollar advances.”).

103

Tracy C. Gardner, Note, Expanding the Rights of Recording Artists: An Argument to

Repeal Section 2855(b) of the California Labor Code, 72 BROOK. L. REV. 721, 756 (2007)

(“Record companies with vast resources may continue to press for settlement in

important cases they fear they may lose to keep these issues safe from judicial review.”).

104

See infra Part II.A.

2015] RESTORING THE SEVEN YEAR RULE 293

damages;

105

and it unfairly exempts musicians from the long-

standing protection of the Seven Year Rule.

106

A. Assessment of Damages

Section 2855(b)(3) grants labels the right to recover damages

for each record that is not produced in the event that a recording

artist seeks to end his or her contract under the Seven Year Rule.

107

It states:

If a party to a contract described in paragraph (1) [an

artist] is, or could contractually be, required to

render personal service in the production of a speci-

fied quantity of the phonorecords and fails to render

all of the required service prior to the date specified

in the notice provided in paragraph (1), the party

damaged by the failure shall have the right to recover

damages for each phonorecord as to which that party has

failed to render service in an action that, notwith-

standing paragraph (2), shall be commenced within

45 days after the date specified in the notice.

108

Commentators agree that identifying the criteria to determine

damages in a breach of contract action under section 2855(b)(3) is

problematic:

[W]hat are the damages? The actual money that the

record company is out of pocket with respect to the

undelivered records? The record companies don’t

want that; they probably haven’t spent anything,

yet. Lost profits from the undelivered records? Lost

profits are notoriously hard to quantify. Obviously,

undelivered records by bona fide stars theoretically

could mean millions in lost profits.

109

These vague terms, like “actual money” spent or “lost prof-

its,” are inherently theoretical when determining the value of a

105

See infra Part II.B.

106

See infra Part II.C.

107

CAL. LAB. CODE § 2855(b)(3) (2014).

108

Id. (emphasis added).

109

RAMER, supra note 19, at 3.

294 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

record that has not yet been produced, marketed, distributed, and

sold.

110

Section 2855(b)(3) “seems uniquely geared to forcing set-

tlement,”

111

failing to specify any method or guidance for calculat-

ing these damages.

A 2008 dispute between 30 Seconds to Mars (“30STM”) and

their label, EMI,

112

highlights this problem.

113

Directed by the

band’s front man, film star Jared Leto, the 2014 documentary Arti-

fact chronicled the band’s production of their third album,

114

they grew more and more entrenched in legal battles with EMI that

appeared on-track to see the inside of a courtroom.

115

Unhappy

with EMI, the band had attempted to leave the label, based on their

belief that their 1999 contract was no longer enforceable as it was

beyond the seven-year threshold.

116

Although the band was alleged-

ly in “millions of dollars of debt” to the label, EMI sued 30STM

for thirty million dollars, pursuant to section 2855(b)(3), as the

band had three undelivered albums remaining on its contract.

117

Neither the band nor the label had the ability to review previous

decisions of California courts to predict the possible outcome of the

case, weigh the costs and benefits of litigation, or whether the label

even had standing to sue under section 2855(b)(3).

118

Further, the

band believed EMI was using the lawsuit as intimidation to keep

them tethered to their contract, claiming millions of dollars in

damages the label knew 30STM simply could not pay.

119

30STM eventually settled the matter with the label in an undis-

closed renegotiated agreement and released the album This Is War

110

See Philips, Courtney Love, supra note 45; see infra Part III.A.2.

111

See RAMER, supra note 19, at 3.

112

EMI is no longer an independent record label, and has since been acquired by Sony.

See Ben Sisario, Sony Closes Its Acquisition of EMI Music Publishing, N.Y. TIMES (June 29,

2012, 9:08 AM), http://mediadecoder.blogs.nytimes.com/2012/06/29/passing-final-

hurdle-sonys-deal-for-emi-publishing-is-approved-by-u-s [http://perma.cc/F3K8-M2K6].

113

Natalie Robehmed, Jared Leto Wages War On The Music Industry, FORBES (Dec. 4,

2013, 12:01 PM), http://www.forbes.com/sites/natalierobehmed/2013/12/04/jared-leto-

wages-war-on-the-music-industry [http://perma.cc/Y7WN-EQ65].

114

The album is appropriately titled This is War.

115

See ARTIFACT, supra note 92.

116

Id.

117

Id.

118

Id.; see also CAL. LAB. CODE § 2855(b)(3) (2014).

119

ARTIFACT, supra note 92.

2015] RESTORING THE SEVEN YEAR RULE 295

with EMI.

120

Still, in the final seconds of Artifact, the band states

they have “never been paid for the sales of any of their albums,”

but that the label continues to claim the band was in debt to

them.

121

Artifact illustrates the narrative of these contractual disputes:

the musician or band provides notice to the label as required by

section 2855(b)(1), then the label responds with a lawsuit claiming

millions of dollars for any unproduced records remaining on con-

tract, which, in turn, initiates negotiation of the parties to settle.

122

Labels have the statutory right to recover damages to limit financial

loss caused by unfulfilled, but promised, album delivery.

123

Howev-

er, with no further specification or statutory limitation on damages,

the labels can file multi-million dollar lawsuits against bands whose

finances they closely control.

B. The Reality of the Music Industry

124

In lobbying for the 1987 amendment, the RIAA argued that art-

ists would be unfairly enriched if they could simply walk away after

a time period without producing the agreed-upon number of al-

bums.

125

The labels claimed they bared the financial risk in signing,

promoting, and marketing their musicians, thus, they argued that

without protection against artists who wanted to jump ship without

fulfilling their contractual duties, they would be detrimentally

120

Id.; see also Martens, supra note 102.

121

See ARTIFACT, supra note 92.

122

See id.

123

See LAB. § 2855(b)(3); supra discussion Part I.B.

124

This Note focuses the discussion of the “reality” of the music industry on the

feasibility on completing a standard contract within a seven-year frame, in order to

concentrate analysis on the fairness of section 2855(b) and the Seven Year Rule. An

entirely separate Note could focus on the technological advances in music in the past

thirty years to further justify that section 2855(b) needs reform. For example, in 1987,

CDs were the new, popular method of music distribution, which made record companies

with existing libraries of songs very lucrative businesses. See Gardner, supra note 103, at

747. Although the process of creating an album, from start to finish, is very different in

2015 than it was thirty years ago, the industry’s business practices have been slow to

change: recording contracts are still structured as if the physical distribution of music,

through CDs or records, is the primary delivery method to consumers. See Stiffleman &

Greenberg, supra note 83, ¶ 159.03[2][d].

125

See Philips, Lawmakers, supra note 42.

296 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

harmed.

126

Finally, they argued that the Seven Year Rule, in the

context of the music industry, did not recognize that record com-

panies made “large investments in an artist’s career based primari-

ly on the promise that the act would deliver a certain number of

albums under the contract—typically seven recordings,” but that

the labels “don’t earn money on successful artists until after the

fourth album.”

127

In practice, however, it is very unlikely that a la-

bel would exercise its options on an artist who is not successful by

the second album.

128

Artists who seek nonenforcement of their contract deals under

section 2855(a) often note that it is not possible to produce the

number of albums designated by contract within seven years.

129

Given that an album “cycle,” the “overall period encompassing

the creation and release of an album, including the subsequent

touring and promotion,” generally takes two to three years, con-

tracts for five to seven albums can take well over a decade to com-

plete.

130

Even if an artist wanted to produce an album per year for

seven years in order to complete her contractual obligations within

seven years, the label is ultimately the decision-maker in scheduling

these releases.

131

Yet, there is no limit on the number of options a

label can include in a recording contract, thus, a label is free to in-

clude upwards of five option periods, fully knowing the contract

could never be completed within the seven year frame.

132

Although

artists are, of course, free to enter into recording contracts, labels

have much more industry-knowledge than new artists signing their

first-ever recording deal, who have very little experience and al-

126

See supra Part I.A.3; see also Philips, Courtney Love, supra note 45.

127

See Philips, Lawmakers, supra note 42.

128

Id.

129

See, e.g., Vanhorn, supra note 52 (quoting Courtney Love—“I don’t care what the

[industry] says to you today; they lied to you . . . I cannot make seven albums in seven

years. They will not let me.”—and LeAnn Rimes—“At 12, I was thrilled to sign my

contract with Curb Records . . . just turned 19 last month, and if I record at a rate of one

album every two years, which is the industry average, I will be 35 before the contract is

over.”).

130

FIELD & SLOTNICK, supra note 58, § 4.12[1][c].

131

Vanhorn, supra note 52.

132

See id.

2015] RESTORING THE SEVEN YEAR RULE 297

most no bargaining power or control over the working relation-

ship.

133

C. The Seven Year Rule, De Haviland, and Unconscionability

Before the amendment, California courts applied the Seven

Year Rule to personal service contracts in the music industry.

134

When artists neared the end of the seven years on their contracts,

they would threaten to leave the label; the labels, fearful of losing

successful artists, would renegotiate these contracts.

135

This imbal-

ance of power seemed to weigh entirely in favor of the artists; how-

ever, an artist who is still under contract near the end of the seven

years has almost certainly been a financial success for the label.

136

As the label alone decides whether to exercise the options after the

initial contract period, and often decides to drop artists who are

unsuccessful,

137

those who are able to exert leverage near the end of

a seven-year contract are comparatively few.

138

Labels have an in-

terest in keeping their successful artists under contract, just as

Warner Brothers had an interest in retaining rising star Olivia de

Havilland for another six months.

139

By holding that the Seven Year

Rule was unequivocally measured in calendar years and not actual

service, the court ensured that studios could not find ways around

section 2855.

140

133

According to Dexter Holland of the band The Offspring, recording artists sign these

contracts in good faith, fully intending to honor them. But the record companies know

from experience that it is highly unlikely artists will be able to fulfill their requirements

due to the demands they place on the artists, including touring, video shoots, and other

marketing chores. See Moss, supra note 52.

134

Id.

135

See Philips, Lawmakers, supra note 42.

136

Id. (“Although companies do spend vast sums of money signing and marketing

unknown acts, it’s the rare label that holds on to an act that isn’t successful by its second

album.”).

137

See Scamman, supra note 87, at 274.

138

Just as many more albums are released each year than are considered “successful,”

many more artists are signed to labels that never amass popular or critical acclaim. See,

e.g., Chuck Philips, Recording Stars Challenge Music Labels’ Business Practices, L.A.

TIMES (Mar.

29, 2001), http://articles.latimes.com/2001/mar/29/news/mn-44202 [http://perma.cc/

6NNG-Q25C] [hereinafter Philips, Recording Stars].

139

See generally De Haviland v. Warner Bros. Pictures, Inc., 67 Cal. App. 2d 225 (1944).

140

Id. at 231–34.

298 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

The “unjust enrichment” reasoning behind the 1987 amend-

ment is analogous to the argument that Warner Brothers “discov-

ered” Ms. de Havilland and produced movies that made her fam-

ous. They found her roles and financially backed her projects. They

were a pivotal player in her success. Still, the court found, they

were not entitled to bind her to service for an indefinite length of

time.

141

Even though the studio had made apparent investments,

financial and otherwise, in her career, that investment did not en-

title Warner Brothers to lengthen her seven-year contract.

142

The

California legislature originally enacted section 2855 (and earlier,

section 1980 of the Civil Code)

143

“to protect against involuntary

servitude in the form of unconscionable employment agree-

ments.”

144

Yet, the California legislature essentially sanctioned in-

voluntary servitude with the passage of section 2855(b): artists are

forced to continue working for their labels indefinitely,

145

because

any future profits made under a new label for the unproduced al-

bums on the original contract would be owed to the old label as

damages.

146

It is, of course, highly unlikely that a new label will sign

an artist whose profits are owed to a different label.

Musicians believe the amendment “plainly discriminates”

against artists in their industry, as “recording contracts” are the

only named exception in the statute.

147

In opposing the 1987

amendment, the “artistic community was extremely upset . . . as it

saw its rights under the seven year rule watered down” by such a

potentially large penalty.

148

Because the threat of monetary damag-

141

Id. at 233–34.

142

Id.

143

See supra Part I.

144

Gardner, supra note 103, at 727 (citing Revella Cook, The Impact of Digital

Distribution on the Duration of Recording Contracts, 6 VAND. J. ENT. L. & PRAC. 40, 42

(2003)); see also Omar Anorga, Note, Music Contracts Have Musicians Playing in the Key of

Unconscionability, 24 W

HITTIER L. REV. 739, 747 (2003).

145

The “indefiniteness” of this contract term relates to the length of time only, as the

contract would end definitely when the final album on the contract was delivered.

146

See Cappello & Thielemann, supra note 73, at 19.

147

See Toomey, supra note 52; see also CAL. LAB. CODE. § 2855(b) (2014).

148

Hochberg, supra note 51, ¶ 159.05[2][a][vii]; see also Philips, Lawmakers, supra note

42 (“‘It’s unfathomable to me how the record companies were able to secure an

exemption to single out one class of people, namely musical artists, to be unprotected by

California labor law,’ [singer Don] Henley said. ‘How can everybody else be protected

but us?’”).

2015] RESTORING THE SEVEN YEAR RULE 299

es is enough to keep an artist tethered to the contract, musicians

argue that the statute promotes unconscionable contracts that es-

sentially leave the artist no other option, financially, but to per-

form.

149

III. FIXING THE MUSICIAN EXEMPTION

Currently, the wording of section 2855(b) is vague and ambi-

guous. Without judicial review, there is little guidance for inter-

preting exactly how to calculate the damages it entitles labels to re-

ceive. Through reform, the California legislature could protect

both the record labels from unjust enrichment when lucrative art-

ists reap the benefits of label management, and allow musicians to

seek nonenforcement of a contract that has been unfairly con-

structed to keep them under the label’s control for longer than the

Seven Year Rule allows. However, it is worth noting that each of

these potential solutions is only possible through collective action

of artists and other music industry players. A push in 2001–2002

showed signs of momentum towards repealing section 2855(b) and

securing other improvements for musicians, including the explora-

tion of forming a labor union for recording artists,

150

however,

these efforts ultimately failed.

151

A. Amend Section 2855(b)

1. Limitations at Contract Formation

Without considering the feasibility for parties to fulfill contrac-

tual obligations within the seven-year timeframe, the California leg-

islature took away the protections of the Seven Year Rule for musi-

cians by inserting monetary penalties.

152

One potential amendment

149

See Cappello & Thielemann, supra note 73, at 16 (“Recording artists have alleged

that the industry’s position imposes involuntary servitude, which exists when the victim

has ‘no available choice but to work or be subject to legal sanction.’”) (quoting United

States v. Kozminski, 487 U.S. 931, 942–43 (1988)).

150

See Philips, Recording Stars, supra note 138.

151

Chuck Philips, Bill on Free Agency for Artists Dies, L.A. TIMES (Aug. 16, 2002),

http://articles.latimes.com/2002/aug/16/business/fi-7year16 [http://perma.cc/KGW2-

8MPV] [hereinafter Philips, Bill on Free Agency].

152

See Vanhorn, supra note 52.

300 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

to section 2855(b) could include a limit on the total number of al-

bums number or number of option terms permitted in a recording

contract. The current section 2855(b)(3) does not limit the number

of records the parties can contract for, however, it gives the labels

free range to collect damages for all records that are unproduced

when an artist seeks to end the relationship, even after the seven

year limit has lapsed.

153

One possible way to limit the length of the contract term during

contract formation would be to institute a “maximum album” pro-

vision, prohibiting contracting above a set number of albums within

the seven-year period that are simply not feasible to produce.

154

Imposing a limitation on the total number of albums required in a

contract to three or four total albums would “allow recording art-

ists’ contracts to operate better within the bounds of section

2855.”

155

A maximum number of contractually required albums

would address the music industry’s concerns in lobbying for

amendment in continuing to provide the opportunity to recover

damages for unproduced albums, however, it would also make the

“artist’s delivery of all the contractual albums a reasonable expec-

tation.”

156

Although the inclusion of an upper limit on the number of al-

bums would certainly lead to more realistic contracts, this solution

is not ideal. First, it is likely a shortsighted fix: there is no way to

predict that the future sale of music will be predicated on album

production, the way it is today. If the industry dictates a different

dominant method of music delivery (for example, perhaps only

with the creation and release of singles, rather than entire albums),

the law will be slow to adapt and will create additional contract

formation issues. Further, a limitation based on the industry right

now will fail to account for differences in production that occur in

the future; if artists and labels are able to produce albums more

quickly, or if the industry emphasis on touring continues to in-

153

See supra Part II.B.

154

See Note, supra note 60, at 2650–52 (suggesting a reduction in the number of

contractually required albums so the artist and label have a more realistic possibility of

performing the contract’s terms).

155

Id. at 2652.

156

Id.

2015] RESTORING THE SEVEN YEAR RULE 301

crease and lengthens the average time between albums, the provi-

sion would be of very little help. Additionally, the insertion of a

“maximum album” provision requires the legislature to play ex-

pert in a field in which it likely knows very little. It would likely be

very difficult for the legislature to decide the exact number for a

statutory limit simply by weighing competing testimony and infor-

mation, as mere trends in the industry are not inclusive of all musi-

cians and their labels’ agreements.

Another option is a limitation on the number of total option pe-

riods in a contract. If the legislature imposed a limit on these op-

tions to enable them to more reasonably be completed within seven

years, artists would be able to end their contractual obligations

sooner and reenter the market as free agents. Still, much like the

potential problems created by a “maximum album” provision, a

“maximum options” provision would likely be problematic. A leg-

islature-created statutory maximum could stifle the industry, lessen

the freedom of these parties to create contracts, and force legal so-

lutions to future problems based on current information.

2. Define “Damages”

As discussed above in Part II.A, section 2855(b) does not define

the “damages” it allows the label to recover for “each phonore-

cord” the artist under contract fails to deliver.

157

Given that this

number is incredibly speculative, labels are able to set the amount

of damages using whatever calculation is most advantageous. Thus,

labels often seek damages in the form of lost profits, based on the

“expected profits on the additional albums that artists have neither

delivered nor created,”

158

often a much higher number than the

actual loss incurred in financing the artist’s career.

159

Although la-

bels claim that the loss of profit is appropriate given the investment

in the artist and the financial necessity for the label to recover on

157

CAL. LAB. CODE § 2855(b)(3) (2014).

158

Cappello & Thielemann, supra note 73, at 17.

159

This is a logical conclusion based on the fact that the label would not wish to keep an

artist long-term if the artist was not profitable. Therefore, it is highly unlikely that the

label’s costs associated with that artist outweigh the potential revenue it seeks to generate

from that artist.

302 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

the potentially lucrative unproduced albums,

160

it is often impossi-

ble to calculate a justifiable figure upon which to base an estimate.

The following example of Alanis Morissette illustrates the difficul-

ty in predicting album sales for an artist:

[W]hat if [she] left her label after seven years and

still owed the company four albums? It’s unclear

whether the company would be allowed to base the

value of damages on her 30-million selling hit,

“Jagged Little Pill,” or her follow-up, “Supposed

Former Infatuation Junkie,” which sold just 2 mil-

lion copies.

161

Even if an artist has a sizeable sales track record from which to

base an estimate of future earnings, the growing popularity of

streaming services makes reasonable predictions of album sales in-

creasingly difficult.

162

California law requires that the process of

computing damages be “reasonable.” Without a justifiable way to

determine how to estimate the potential lost profit from unpro-

duced albums, “[t]he process of estimating lost profits would

therefore be unreasonably speculative.”

163

Although “lost profits” does not seem to yield a reasonable

calculation of damages, actual damages, or “actual artist invest-

ment,” which might include only the advances paid to the artist

and other recoupable expenditures incurred by the label,

164

is not

much better. If artists are liable for paying back the recoupable

costs of making their album, they will find themselves in the same

situation they are currently in: tethered to contracts because they

160

See Note, supra note 60, at 2646 (“A small number of successful albums fuel the

record industry, both making it profitable and allowing companies to invest in new

artists.”).

161

See Philips, Lawmakers, supra note 42.

162

Through streaming services and Internet radio, consumers are listening to music all

the time: in the first half of 2015, listeners streamed over 1.03 trillion songs. See Peoples,

supra note 101 (citing Data to Date: The Rapid Rise of Social and Streaming, N

EXT BIG

SOUND, https://www.nextbigsound.com/industryreport/2015summer [http://perma.cc/

M9EH-AZ39] (last visited Nov. 9, 2015)). The massive popularity of streaming services

highlights the need to monetize these streams at appropriate royalty rates, which is a

slowly-evolving process. See id.

163

See Note, supra note 60, at 2646.

164

Id. at 2647–48.

2015] RESTORING THE SEVEN YEAR RULE 303

are unable to crawl out of debt. The artist is in no better a position

to determine the potential success of an album than the label is;

artists do not often know they are creating and recording an album

that will not sell any more than a label knows it is marketing and

promoting a flop. As the parties embark on that risk together, it is

unfair to penalize the artist alone for an album that does not recoup

its production expenses, as these costs alone are typically prohibi-

tively high enough to keep the artist (whose album has not generat-

ed enough royalties to be profitable, given the artist’s position)

bound to the label.

A fair damage award would only allow the label to recover for

advances paid or costs incurred for an album that was never rec-

orded.

165

In this scenario, an artist would be responsible for repay-

ing money given to produce an album that was not delivered. Al-

though this option may also leave artists without recourse to leave

the label, depending on the artist’s finances, it produces a more

equitable outcome. Labels will be protected against spending mon-

ey on projects whose revenue they will lose, and artists will not be

able to keep money for a project they wish to take elsewhere.

166

limiting damages only to advances and costs for the undelivered al-

bums, the amendment would not likely retain its current power to

allow labels to threaten expensive, time consuming, and intimidat-

ing lawsuits.

167

Thus, the legislature must use language in section

2855(b)(3) to specify that “the party damaged by the failure shall

have the right to recover damages for each phonorecord as to

which that party has failed to render service” no greater than the

actual costs incurred in production of the undelivered phonorecords.

B. Repeal Section 2855(b)

Over the past twenty-five years, artists have unsuccessfully at-

tempted to lobby the California legislature to repeal section 2855(b)

165

See id. at 2847–48.

166

See id. Additionally, this limit will address the concerns of a spokesperson for the

RIAA, who stated in 2001, when the amendment was gaining significant challengers:

“There is not going to be sympathy for [artists] when they take multimillion-dollar

advances from the companies and then just walk away before they fulfill the obligations in

their contracts.” See Philips, Lawmakers, supra note 42.

167

See ARTIFACT, supra note 92.

304 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

to eliminate the music industry amendments.

168

The California leg-

islature held hearings in 2001 to reexamine the issue and drafted

Senate Bill 1246 to repeal the amendment, however, it was dropped

the following year at the request of the artists’ representatives and

would not likely have passed.

169

The legislature instructed the art-

ists’ representatives to reach a compromise on the bill with the ma-

jor record labels, but compromise was never reached and the Cali-

fornia legislature has not revisited the issue.

170

Observers of these movements have made convincing argu-

ments to repeal section 2855(b) in order to grant musicians the

same protection as other artists in the entertainment field:

Section 2855(b) permits record labels to take part in

practices that conflict with the doctrines of uncons-

cionability and involuntary servitude. By allowing

the labels to sue for breach of long-term recording

agreements, section 2855(b) assists in the creation

of unconscionable duration periods and helps force

the artist into involuntary servitude with the threat

of damages. Record companies with vast resources

may continue to press for settlement in important

cases they fear they may lose to keep these issues

safe from judicial review.

Of course, an artist should not be able to just walk away from a

contractual agreement—it would be disastrous for a company to

lose the millions it invested in a new artist . . . [but artists] are simp-

ly asking that they be treated like every other creative artist that is

subject to the Seven Year Statute.

171

Advocates of repeal argue that the elimination of section

2855(b) would reinstate a system of free agency in the music indus-

try.

172

Without a damages provision specifically targeting the music

168

See, e.g., Philips, Recording Stars, supra note 138 (describing a wave of activism by

recording artists in the early 2000s: exploring the possibility of a labor union, lobbying

Congress to look into business practices of major labels, and a Courtney Love lawsuit

seeking non-enforcement of her contract); Vanhorn, supra note 52.

169

See Philips, Bill on Free Agency, supra note 151.

170

Id.

171

See Gardner, supra note 103, at 756.

172

Id.

2015] RESTORING THE SEVEN YEAR RULE 305

industry, recording artists would “enjoy[] the same rights as all

other citizens,” and “there would be a reasonable opportunity for

them to receive fair-market compensation for their services.”

173

Further, others argue that repealing the amendment would en-

courage the industry to adapt its practices to reflect new trends and

technology: without the monetary leverage that section 2855(b)(3)

provides labels, “[t]he industry’s business model is going to have

to change . . . [the labels are] going to have to be more judicious in

signing new artists, cut down on the expensive videos and other

marketing costs, and they’re going to have to rethink signing way

too many megastars.”

174

Adherents to this argument believe that

labels will be forced to enter into contracts more carefully, poten-

tially reducing labels’ ability to take chances on the many unprofit-

able artists by relying on their superstars to make up the difference,

as currently only a very small number of a label’s acts are actually

profitable.

175

Although successful artists would likely view this

change as positive, label executives warn that it would decrease op-

portunities for new entrants and would harm the industry as a

whole: “companies would have no incentive to underwrite the

risky enterprise” in which only a small number of albums actually

turn a profit.

176

This argument seems outdated in a world where recording art-

ists have an opportunity to gain fans and popularity without the

assistance (both in expertise and money) of a major label. Although

173

Cappello & Thielemann, supra note 73, at 19.

174

Greg Kot, You Say You Want A Revolution, CHI. TRIB. (Feb. 24, 2002),

http://articles.chicagotribune.com/2002-02-24/news/0202240354_1_recording-artists-

coalition-recording-industry-universal-music-group [http://perma.cc/4XVS-T6M7] (quoting

Michael Nathanson, a music analyst).

175

See, e.g., Gardner, supra note 103, at 734 (“Because of the high failure rate of

released albums, record companies absorb great losses on most albums . . . .”) (citing

Hearings Before the Senate Select Committee on the Entertainment Industry, 2001 Leg., Reg.

Sess. (Cal. 2001) (testimony of Ann Chaitovitz, Director of Sound Recordings,

AFTRA)); Note, supra note 60, at 2645 (“[T]here is a greater than ninety-percent chance

that any given artist’s release will be unprofitable.”); Toomey, supra note 52 (“[T]he

music industry in America is fundamentally broken. In 1999, less than 1 percent of the

total number of albums released sold more than 10,000 copies.”) (citing David Segal,

They Sell Songs the Whole World Sings: Mass Merchants Offer Convenience, Less Choice,

ASH. POST (Feb. 21, 2001), http://www.highbeam.com/doc/1P2-419720.html

[http://perma.cc/7W8G-NLXU]).

176

See Philips, Recording Stars, supra note 138.

306 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

it may be true that labels in the past “ha[d] to invest $750,000 to

$1 million per act” before they knew if they would make a profit,

177

there exist other avenues and mediums now that may assist labels

in determining whether an act will be successful before he or she is

signed. As younger fan bases access music more and more easily

over the Internet, channels like YouTube have become more and

more important. Take, for example, pop star Justin Bieber: al-

though recent antics may make him easier to discount, he has sold

millions of records

178

and is the epitome of a new age star, backed

by social media and tech-savvy fans.

179

Yet, he didn’t go to open

mic nights or send tapes to labels, hoping to be found; at twelve,

Bieber began uploading videos of himself on YouTube, and as they

became more and more popular on the site, industry professionals

sought him out—not the other way around.

180

As hopeful produc-

ers engaged in a bidding war to win him to their labels,

181

Bieber’s

establishment on social media sites like YouTube gave him credi-

bility that made investing in him a less risky endeavor.

Additionally, artists have other opportunities today through al-

ternate career paths. Lennon and Maisy Stella, now sixteen and

twelve years old, respectively, are Canadian sisters who also gained

fame on YouTube.

182

After posting a cover of Robyn’s “Call Your

Girlfriend” in May 2012, the video “went viral,” and that fall, the

177

Id.

178

Glenn Peoples, Justin Bieber’s “Baby” With New Steaming Data Beats Out Elton

John For RIAA’s Top Platinum Single of All Time, B

ILLBOARD (May 17, 2013, 11:26 AM),

http://www.billboard.com/biz/articles/news/digital-and-mobile/1562681/justin-biebers-

baby-with-new-streaming-data-beats-out [http://perma.cc/84QC-CJXX].

179

As of October 2015, Justin Bieber has over 68 million followers on Twitter, see Justin

Bieber (@JustinBieber), T

WITTER, https://twitter.com/justinbieber [http://perma.cc/

NLP8-WRDS] (last visited Nov. 1, 2015), and over 40 million followers on Instagram, see

Justin Bieber (@JustinBieber), I

NSTAGRAM, https://instagram.com/justinbieber

[http://perma.cc/3KRQ-5ZCL] (last visited Nov. 1, 2015). His fans are called

“Beliebers” and often mobilize on social media cites, namely Twitter, to support and

promote him. See N

EVER SAY NEVER (Paramount Pictures 2011).

180

Desiree Adib, Pop Star Justin Bieber Is on the Brink of Superstardom, ABCNEWS

(Nov. 14, 2009), http://abcnews.go.com/GMA/Weekend/teen-pop-star-justin-bieber-

discovered-youtube/story?id=9068403 [http://perma.cc/8R9C-BTQ8].

181

Id.

182

See Lesley Goldberg, “Nashville” First Look: Meet the Stella Sisters (Exclusive Photos),

OLLYWOOD REP. (Sept. 12, 2011, 1:15 PM), http://www.hollywoodreporter.com/live-

feed/nashville-lennon-maisy-stella-connie-britton-369879 [http://perma.cc/X4SW-25TZ].

2015] RESTORING THE SEVEN YEAR RULE 307

girls began to appear on the ABC drama “Nashville.”

183

Although

it may be easy to assume the video landed the girls the role, they

were actually cast before the video was posted; because they are

Canadian, they needed to establish a portfolio for their visas, and

the millions of views on the video allowed them to earn these visas

more easily.

184

Despite their growing fan base, the girls are current-

ly unsigned by a label and are releasing music through the show’s

soundtracks.

185

The Stella sisters join a number of actors and actresses starring

in musical shows and movies, whose recording careers launch

through soundtrack and compilation records, rather than through

typical recording contracts.

186

Thus, with more extensive oppor-

tunities to predict the potential success of a musician’s career in a

digitally dominated marketplace with evidence of that performer’s

pre-label success on sites like YouTube, Vevo, SoundCloud, and

others, labels can continue to take “risks” on new artists, as these

risks can be more sophistically calculated.

187

Still, even if acquiring,

183

See Jaimie Etkin, Lennon And Maisy Stella Talk “Nashville,” Connie Britton, Sisterly

Bonding, Fashion And More, HUFFINGTON POST (Oct. 19, 2012, 9:15 AM),

http://www.huffingtonpost.com/2012/10/17/lennon-and-maisy-stella-

nashville_n_1975186.html [http://perma.cc/MW4N-4JCZ].

184

“Nashville” Duo Lennon & Maisy Talk TV Stardom, Writing New Music And Trying to

Make Friends At School, MUSIC TIMES (Dec. 5, 2014, 12:47 PM), http://www.musictimes.

com/articles/18253/20141205/nashville-duo-lennon-maisey-talk-tv-stardom-writing-

new-music-youtube-viral-call-your-girlfriend-christmas-coming-home.htm

[http://perma.cc/P5U3-5GYP].

185

See Nashville Soundtrack, BIG MACH. LABEL GRP., http://www.bigmachine

labelgroup.com/artist/nashville-soundtrack [http://perma.cc/J4ME-XL4C] (last visited

Oct. 30, 2015).

186

See, e.g., Keith Caulfield, Rewinding the Charts: In 2006, “High School Musical”

Started Something New, B

ILLBOARD (Mar. 11, 2015, 10:05 AM),

http://www.billboard.com/articles/columns/chart-beat/6494765/rewinding-the-charts-

in-2006-high-school-musical-started [http://perma.cc/32MB-3JBE] (discussing the

effect of 2006 Disney Channel movie High School Musical on the career of its star, and on

subsequent music-centric shows, like Disney’s Hannah Montana and Fox’s Glee); Ed

Masley, For “Glee” fans, the Journey is Worth it for Launch of Live Tour, USAT

ODAY

(May 17, 2010, 10:24 PM), http://usatoday30.usatoday.com/life/music/reviews/2010-

05-16-gleeonline17_N.htm [http://perma.cc/3SDM-LQ3E] (reviewing the launch of a

national concert tour of Glee, featuring the cast of the show).

187

Despite the problematic effects of streaming on album sales and royalty collection,

see supra note 162, the advent of streaming services, Internet radio, and social media has

created additional avenues through which an artist may reach consumers. See Data to

Date, supra note 162. Companies like Next Big Thing analyze “music analytics” by

308 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

marketing, producing, and promoting music of new talent remains

as difficult as it ever was, the law should not protect the label at the

expense of the artist. Labels have always employed strategies for

predicting a new artist’s potential success, and plenty of hopeful

musicians go unsigned each year. Therefore, the legislature should

not consider it a detriment that labels may take fewer risks on un-

known musicians, but rather, as a positive of repeal: if labels are not

guaranteed to keep their best-selling artists for an indefinite length

of time, they will be forced to scout new talent more wisely. As

Courtney Love pointed out in 2001: “How do the guys running

these labels get away with a 95% failure rate that would be totally

unacceptable in any other type of business?”

188

Although there may be an element of unjust enrichment for art-

ists who gain popularity and financial success with a label and then

leave it, no other industry’s employers are protected from this pos-

sibility. If they were, every employer that hires an entry-level em-

ployee who eventually achieves promotion within the company, as

a result of his or her job training and experience, could sue the em-

ployee for damages for the “investment” made in training, or “fu-

ture earnings” that employee might generate for the company.

189

tracking an artist’s popularity on social media sites, the number of times an artist’s song

or video is played on streaming services, and the number of views on an artist’s Wikipedia

page. Id. The availability of this data represents a major strategic benefit to “music

makers, labels and marketers looking for data and insights about artists and their fans.”

See About Next Big Sound, N

EXT BIG SOUND, https://www.nextbigsound.com/about

[http://perma.cc/7YQ6-VV5B] (last visited Nov. 9, 2015).

188

Philips, Recording Stars, supra note 138.

189

Consider an entertainment-industry specific example: take an actor or actress who

becomes famous by working on a television show. The contract might include option

periods that extend beyond the seven-year timeframe. If the producers of the show were

able, in the same way as labels in the music industry, to recover damages for any

“undelivered” seasons, these actors and actresses would likely be forced to continue to

appear on the show, lest they be sued for the predicted future losses sustained by the

producers by ending the performer’s contract. In this scenario, it would be incredibly

difficult to calculate the potential loss to the producers from the star’s absence. Would

the show decrease in popularity? Could they prove the show’s declining ratings are

attributable to the star’s absence? What if the show continues for many years, as the NBC

medical drama E.R. lasted fifteen seasons? See About ER & Cast Bios, NBC,

http://www.nbc.com/er/about [http://perma.cc/A3GR-ZC2X] (last visited Oct. 30,

2015). The television industry is an interesting comparison to the music industry, as the

artists in both enjoy starkly opposite levels of bargaining power. TV stars of popular

shows have considerable leverage, likely because they are not easily replaceable. In fact, the

2015] RESTORING THE SEVEN YEAR RULE 309

Rather, labels, like employers in other industries, would need to

focus on their relationships with their artist-employees to encour-

age them to continue the business relationship. Additionally, artists

would be free to renegotiate a new contract with their label as the

contract neared the end of the term, but the label would need to

pay according to their value in the market.

190

The production of

each album remains a financial risk, even for well-established musi-

cians,

191

and labels who develop positive and personal relationships

and seek to renegotiate their star musicians’ contracts would al-

most certainly have an advantage in the free market over other la-

bels.

Without section 2855(b), artists would be free to leave and

work with others after the term is over, and labels would be forced

to create contracts that can feasibly be produced in the time frame.

Further, even without section 2855(b), the law would continue to

protect the labels in the event an artist does not fulfill, or reasona-

bly attempt to fulfill, his or her obligations: if an artist is required to

deliver three albums on a schedule set by the contract, but fails to

do so within seven years at his or her own fault, the label retains the

ability to sue the artist on a bad faith breach of contract claim.

CONCLUSION

Repealing section 2855(b) is the most effective way to balance

in bargaining power in music industry contract negotiations, and to

restore the rights under section 2855(a), the Seven Year Rule, that

stars of the ABC comedy Modern Family had so much bargaining power, they incorrectly

claimed their contracts were illegal and void simply because their contracts contained

option periods that could have extended their terms beyond seven years. See R

AMER, supra

note 19, at 4. Still, perhaps seeking to avoid prolonged legal trouble, the network

renegotiated these contracts within days and the lawsuit was withdrawn. Id. Of course,

the fact that a contract could last beyond seven years does not make the contract illegal

and void; rather, after the seven years has ended, a party is permitted to seek non-

enforcement of it. See id. at 3–4; see also C

AL. LAB. CODE § 2855(a) (2014).

190

See Cappello & Thielemann, supra note 73, at 19. But see RAMER, supra note 19, at 4–

5 (noting that a renegotiation contract, beyond the seven year mark, should have a “lag”

day in which the artist is technically not under contract at all, as that day would restart the

seven year stopwatch and would allow the artist the freedom to sign elsewhere if he or she

so chooses).

191

See supra note 161 and accompanying example of Alanis Morissette’s album sales.

310 FORDHAM INTELL. PROP. MEDIA & ENT. L.J.[Vol. XXVI:275

musicians lost in 1987. It is unlikely, however, that artists will see

section 2855(b) repealed without strong collective action. Lobbying

the California legislature as a unit and testifying on exact contract

terms, compensation, and industry practices can present a convinc-

ing argument for repeal. Without unity, however, artists will see

these actions dismantled, as they did in 2002.

192

Thus, artists may

be better served by focusing efforts first on the establishment of a

union, guild, or other professional association, allowing artists to

bargain collectively and more effectively against unfair statutes that

enable unconscionable contract enforcement.

192

See supra text accompanying note 169.