The buyer purchased copyrights to albums that were previously subject to an oral deal with a record company, only to discover that buyer only purchased 50% of the copyright rights to the recordings
M&A Stories
August 23, 2021
Introduction:
Acquiring a business with intellectual property involves unique legal risks compared to purchasing physical assets like machinery. One must be cautious when dealing with copyrights and other intangible assets.
The Deal:
In a recent case, a buyer purchased copyrights to albums previously subject to an oral deal with a record company. However, it was later discovered that the buyer only acquired 50% of the copyright rights to the recordings.
Background:
The seller, a popular musical group’s principal, had albums produced by a record label through an oral exclusive recording agreement. The agreement spanned five years and required the seller to provide exclusive services as a recording artist. The record label would select musical compositions, produce performances, and manage the recording and filming of audiovisual performances. The seller agreed to follow the label’s artistic direction and grant the label the non-exclusive right to use the seller’s likeness and the group’s name.
The Rights Transfer:
The seller agreed that the record label would own all rights, including copyrights, to the tangible masters of the albums and the musical performances recorded within them. The buyer later acquired the rights to the recordings through a written agreement.
The Lawsuit:
A legal dispute ensued in a California federal district court between the record label and the buyer. The buyer argued that the oral deal did not grant the record label rights to the recordings. The court agreed with the buyer, stating that the oral agreement was insufficient to establish rights. However, since the record label had provided services and contributed to the albums’ originality, it was considered a co-author and co-owner of the copyrights under the Copyright Act.
The Verdict:
As co-owners, the buyer must share 50% of its profits with the record label. The court’s ruling highlights the importance of putting deals with artists in writing to avoid such disputes.
This case is referred to as Yellowcake, Inc. v. Hyphy Music, Inc., Case No. 1:20-CV-0988 AWI BAM, United States District Court, E.D. California, (July 20, 2021).
Conclusion:
Acquiring businesses with intellectual property involves complexities, especially regarding rights to intangible assets like copyrights. Seeking advice from intellectual property lawyers can help manage the legal risks associated with such acquisitions.
By John McCauley: I help people manage M&A legal risks.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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