Category: Uncategorized

Does “Publicly Available” AI Scraping Mean They Take Everything or Just Anything That’s Not Nailed Down?

Let’s be clear: It is not artificial intelligence as a technology that’s the existential threat. It’s the people who make the decisions about how to train and use artificial intelligence that are the existential threat. Just like nuclear power is not an existential threat, it’s the Czar Bomba that measured 50 megatons on the bangometer that’s the existential threat.

If you think that the tech bros can be trusted not to use your data scraped from their various consumer products for their own training purposes, please point to the five things they’ve done in the last 20 years that give you that confidence? Or point to even one thing.

Here’s an example. Back in the day when we were trying to build a library of audio fingerprints, we first had to rip millions of tracks in order to create the fingerprints. One employee who came to us from a company with a free email service said that there were millions of emails with audio file attachments just sitting there in users’ sent mail folders. Maybe we could just grab those audio files? Obviously that would be off limits for a host of reasons, but he didn’t see it. It’s not that he is an immoral person–immoral people recognize that there are some rules and they just want to break them. He was amoral–he didn’t see the rules and he didn’t think anything was wrong with his suggestion.

But the moral of the story–so to speak–is that I fully believe every consumer product is being scraped. That means that there’s a fairly good chance that Google, Microsoft, Meta/Facebook and probably other Big Tech players are using all of their consumer products to train AI. I would not bet against it.

If you think that’s crazy, I would suggest you think again. While these companies keep that kind of thing fairly quiet, it’s not the first time that the issue has come up–Big Tech telling you one thing, but using you to gain a benefit for something entirely different that you probably would never have agreed to had you known.

Take the Google Books saga. The whole point of Google’s effort at digitizing all the world’s books wasn’t because of some do-gooder desire to create the digital library of Alexandria or even the snippets that were the heart of the case. No–it was the “nondisplay uses” like training Google’s translation engine using “corpus machine translation”. The “corpus” of all the digitized books was the real value and of course was the main thing that Google wouldn’t share with the authors and didn’t want to discuss in the case.

Another random example would be “GOOG-411”. We can thank Marissa Meyer for spilling the beans on that one.

According to PC World back in 2010:

Google will close down 1-800-GOOG-411 next month, saying the free directory assistance service has served its purpose in helping the company develop other, more sophisticated voice-powered technologies.

GOOG-411, which will be unplugged on Nov. 12, was the search company’s first speech recognition service and led to the development of mobile services like Voice Search, Voice Input and Voice Actions.

Google, which recorded calls made to GOOG-411, has been candid all along about the motivations behind running the service, which provides phone numbers for businesses in the U.S. and Canada.

In 2007, Google Vice President of Search Products & User Experience Marissa Mayer said she was skeptical that free directory assistance could be viable business, but that she had no doubt that GOOG-411 was key to the company’s efforts to build speech-to-text services.

GOOG 411 is a prime example of how Big Tech plays the thimblerig, especially the “has been candid all along about the motivations behind running the service.” Doesn’t that phrase just ooze corporate flak? That, as we say in the trade, is a freaking lie.

None of the GOOG-411 collateral ever said, “Hey idiot, come help us get even richer by using our dumbass “free” directory assistance “service”.” Just like they’re not saying, “Hey idiot, use our “free” products so we can train our AI to take your job.” That’s the thimblerig, but played at our expense.

This subterfuge has big consequences for people like lawyers. As I wrote in my 2014 piece in Texas Lawyer:

“A lawyer’s duty to maintain the confidentiality of privileged communications is axiomatic. Given Google’s scanning and data mining capabilities, can lawyers using Gmail comply with that duty without their clients’ informed consent? In addition to scanning the text, senders and recipients, Google’s patents for its Gmail applications claim very broad functionality to scan file attachments. (The main patent is available on Google’s site. A good discussion of these patents is in Jeff Gould’s article, “The Natural History of Gmail Data Mining”, available on Medium.)”

Google has made a science of enticing users into giving up free data for Google to evolve even more products that may or may not be useful beyond the “free” part. Does the world really need another free email program? Maybe not, but Google does need a way to snarf down data for its artificial intelligence platforms–deceptively.

Fast forward ten years or so and here we are with the same problem–except it’s entirely possible that all of the Big Tech AI platforms are using their consumer products to train AI. Nothing has changed for lawyers, and some version of these rules would be prudent to follow for anyone with a duty of confidentiality like a doctor, accountant, stock broker or any of the many licensed professions. Not to mention social workers, priests, and the list goes on. If you call Big Tech on the deception and they will all say that they operate within their privacy policies, “de-identify” user data, only use “public” information, or other excuses.

I think the point of all this is that the platforms have far too many opportunities to cross-collateralize our data for the law to permit any confusion about what data they scrape.

What We Think We Know

Microsoft’s AI Training Practices

Microsoft has publicly stated that it does not use data from its Microsoft 365 products (e.g., Word, Excel, Outlook) to train its AI models. The company wants us to believe they rely on “de-identified” data from sources such as Bing searches, Copilot interactions, and “publicly available” information, whatever that means. Microsoft emphasizes its commitment to responsible AI practices, including removing metadata and anonymizing data to protect user privacy. See what I mean? Given Microsoft takes these precautions, that makes it all fine.

However, professionals using Microsoft’s tools must remain vigilant. While Microsoft claims not to use customer data from enterprise accounts for AI training, any inadvertent sharing of sensitive information through other Microsoft services (e.g., Bing or Copilot) could pose risks for users, particularly people with a duty of confidentiality like lawyers and doctors. And we haven’t even discussed child users yet.

Google’s AI Training Practices

For decades, Google has faced scrutiny for its data practices, particularly with products like Gmail, Google Docs, and Google Drive. Google’s updated privacy policy explicitly allows the use of “publicly available” information and user data for training its AI models, including Bard and Gemini. While Google claims to anonymize and de-identify data, concerns remain about the potential for sensitive information to be inadvertently included in training datasets.

For licensed professionals, these practices raise significant red flags. Google advises users not to input confidential or sensitive information into its AI-powered tools–typically Googlely. The risk of human reviewers accessing “de-identified” data can happen to anyone, but why in the world would you ever trust Google?

Does “Publicly Available” Mean Everything or Does it Mean Anything That’s Not Nailed Down?

These companies speak of “publicly available” data as if data that is publicly available is free to scrape and use for training. So what does that mean?

Based on the context and some poking around, it appears that there is no legally recognizable definition of what “publicly available” actually means. If you were going to draw a line between “publicly available” and the opposite, where would you draw it? You won’t be surprised to know that Big Tech will probably draw the line in an entirely different place than a normal person.

As far as I can tell, “publicly available” data would include data or content that is accessible by a data scraping crawler or by the general public without a subscription, payment, or special access permissions. This likely includes web pages, posts on social media like baby pictures on Facebook or Instagram, or other platforms that do not restrict access to their content through paywalls, registration requirements, or other barriers like terms of service prohibiting data scraping, API or a robots.txt file (which like a lot of other people including Ed Newton-Rex, I’m skeptical of even working).

While discussions of terms of service, notices prohibiting scraping and automated directions to crawlers sound good, in reality there’s no way to stop a determined crawler. The vulpine lust for data and cold hard cash by Big Tech is not realistically possible to stop at this point. Stopping the existential onslaught explains why the world needs to escalate punishment for these violations to a new level that may seem extreme at this point or at least unusually harsh.

Yet the massive and intentional copyright infringement, privacy violations, and who knows what else are so vast they are beyond civil penalties particularly for a defendant that seemingly prints money.



If You Don’t Vote…

WILLIE
If you don’t vote, you don’t matter…you don’t matter…you don’t matter. And then you’s just as ignorant as them in the city say you is while they stealing the food off your table and every last nickel out your pocket saying thank you please. ‘Cuz then you are just a bunch of ignorant hicks who got nothing because you deserve nothing.

All the King’s Men, Screenplay by Steven Zaillian, based on the novel by Robert Penn Warren (2006 version) with one of the best James Horner scores by that fellow Bruin.

Chronology: The Week in Review: Could Spotify Extend Stream Discrimination to Songs, the No AI Fraud Act, Chairman Issa Has Questions on MLC Investment Policy

Spotify has announced they are “Modernizing Our Royalty System.” Beware of geeks bearing “modernization”–that almost always means they get what they want to your disadvantage. Also sounds like yet another safe harbor. At a minimum, they are demonstrating the usual lack of understanding of the delicate balance of the music business they now control. But if they can convince you not to object, then they get away with it.

Don’t let them.

An Attack on Property Rights

There’s some serious questions about whether Spotify has the right to unilaterally change the way it counts royalty-bearing streams and to encroach on the private property rights of artists. 

Here’s their plan: Evidently the plan is to only pay on streams over 1,000 per song accruing during the previous 12 months. I seriously doubt that they can engage in this terribly modern “stream discrimination” in a way that doesn’t breach any negotiated direct license with a minimum guarantee (if not others). 

That doubt also leads me to think that Spotify’s unilateral change in “royalty policy” (whatever that is) is unlikely to affect everyone the same. Taking a page from 1984 newspeakers, Spotify calls this discrimination policy “Track Monetization Eligibility”. It’s not discrimination, you see, it’s “eligibility”, a whole new thing. Kind of like war is peace, right? Or bouillabaisse.

According to Spotify’s own announcement this proposed change is not an increase in the total royalty pool that Spotify pays out (God forbid the famous “pie” should actually grow): ”There is no change to the size of the music royalty pool being paid out to rights holders from Spotify; we will simply use the tens of millions of dollars annually [of your money] to increase the payments to all eligible tracks, rather than spreading it out into $0.03 payments [that we currently owe you].” 

Yep, you won’t even miss it, and you should sacrifice for all those deserving artists who are more eligible than you. They are not growing the pie, they are shifting money around–rearranging the deck chairs.

Spotify’s Need for Living Space

So why is Spotify doing this to you? The simple answer is the same reason monopolists always use: they need living space for Greater Spotify. Or more simply, because they can, or they can try. They’ll tell you it’s to address “streaming fraud” but there are a lot more direct ways to address streaming fraud such as establishing a simple “know your vendor” policy, or a simple pruning policy similar to that established by record companies to cut out low-sellers (excluding classical and instrumental jazz). But that would require Spotify to get real about their growth rates and be honest with their shareholders and partners. Based on the way Spotify treated the country of Uruguay, they are more interested in espoliating a country’s cultural resources than they are in fairly compensating musicians.

Of course, they won’t tell you that side of the story. They won’t even tell you if certain genres or languages will be more impacted than others (like the way labels protected classical and instrumental jazz from getting cut out measured by pop standards). Here’s their explanation:

It’s more impactful [says who?] for these tens of millions of dollars per year to increase payments to those most dependent on streaming revenue — rather than being spread out in tiny payments that typically don’t even reach an artist (as they do not surpass distributors’ minimum payout thresholds). 99.5% of all streams are of tracks that have at least 1,000 annual streams, and each of those tracks will earn more under this policy.

This reference to “minimum payout thresholds” is a very Spotifyesque twisting of a generalization wrapped in cross reference inside of spin. Because of the tiny sums Spotify pays artists due to the insane “big pool” or “market centric” royalty model that made Spotify rich, extremely low royalties make payment a challenge. 

Plus, if they want to make allegations about third party distributors, they should say which distributors they are speaking of and cite directly to specific terms and conditions of those services. We can’t ask these anonymous distributors about their policies if we don’t know who they are. 

What’s more likely is that tech platforms like PayPal stack up transaction fees to make the payment cost more than the royalty paid. Of course, you could probably say that about all streaming if you calculate the cost of accounting on a per stream basis, but that’s a different conversation.

So Spotify wants you to ignore the fact that they impose this “market centric” royalty rate that pays you bupkis in the first place. Since your distributor holds the tiny slivers of money anyway, Spotify just won’t pay you at all. It’s all the same to you, right? You weren’t getting paid anyway, so Spotify will just give your money to these other artists who didn’t ask for it and probably wouldn’t want it if you asked them.

There is a narrative going around that somehow the major labels are behind this. I seriously doubt it–if they ever got caught with their fingers in the cookie jar on this scam, would it be worth the pittance that they will end up getting in pocket after all mouths are fed? The scam is also 180 out from Lucian Grange’s call for artist centric royalty rates, so as a matter of policy it’s inconsistent with at least Universal’s stated goals. So I’d be careful about buying into that theory without some proof.

What About Mechanical Royalties?

What’s interesting about this scam is that switching to Spotify’s obligations on the song side, the accounting rules for mechanical royalties say (37 CFR § 210.6(g)(6) for those reading along at home) seem to contradict the very suckers deal that Spotify is cramming down on the recording side:

Royalties under 17 U.S.C. 115 shall not be considered payable, and no Monthly Statement of Account shall be required, until the compulsory licensee’s [i.e., Spotify’s] cumulative unpaid royalties for the copyright owner equal at least one cent. Moreover, in any case in which the cumulative unpaid royalties under 17 U.S.C. 115 that would otherwise be payable by the compulsory licensee to the copyright owner are less than $5, and the copyright owner has not notified the compulsory licensee in writing that it wishes to receive Monthly Statements of Account reflecting payments of less than $5, the compulsory licensee may choose to defer the payment date for such royalties and provide no Monthly Statements of Account until the earlier of the time for rendering the Monthly Statement of Account for the month in which the compulsory licensee’s cumulative unpaid royalties under section 17 U.S.C. 115 for the copyright owner exceed $5 or the time for rendering the Annual Statement of Account, at which time the compulsory licensee may provide one statement and payment covering the entire period for which royalty payments were deferred.

Much has been made of the fact that Spotify may think it can unilaterally change its obligations to pay sound recording royalties, but they still have to pay mechanicals because of the statute. And when they pay mechanicals, the accounting rules have some pretty low thresholds that require them to pay small amounts. This seems to be the very issue they are criticizing with their proposed change in “royalty policy.”

But remember that the only reason that Spotify has to pay mechanical royalties on the stream discrimination is because they haven’t managed to get that free ride inserted into the mechanical royalty rates alongside all the other safe harbors and goodies they seem to have bought for their payment of historical black box.

So I would expect that Spotify will show up at the Copyright Royalty Board for Phonorecords V and insist on a safe harbor to enshrine stream discrimination into the Rube Goldberg streaming mechanical royalty rates. After all, controlled compositions are only paid on royalty bearing sales, right? And since it seems like they get everything else they want, everyone will roll over and give this to them, too. Then the statutory mechanical will give them protection.

To Each According to Their Needs

Personally, I have an issue with any exception that results in any artist being forced to accept a royalty free deal. Plus, it seems like what should be happening here is that underperforming tracks get dropped, but that doesn’t support the narrative that all the world’s music is on offer. Just not paid for.

Is it a lot of money to any one person? Not really, but it’s obviously enough money to make the exercise worthwhile to Spotify. And notice that they haven’t really told you how much money is involved. It may be that Spotify isn’t holding back any small payments from distributors if all payments are aggregated. But either way it does seem like this new new thing should start with a clean slate–and all accrued royalties should be paid.

This idea that you should be forced to give up any income at all for the greater good of someone else is kind of an odd way of thinking. Or as they say back in the home country, from each according to their ability and to each according to their needs. And you don’t really need the money, do you?

By the way, can you break a $20?

The NO AI Fraud Act

Thanks to U.S. Representatives Salazar and Dean, there’s an effort underway to limit Big Tech’s AI rampage just in time for Davos. (Remember, the AI bubble got started at last year’s World Economic Forum Winter Games in Davos, Switzerland).

Chairman Issa Questions MLC’s Secretive Investment Policy for Hundreds of Millions in Black Box

As we’ve noted a few times, the MLC has a nontransparent–some might say “secretive”–investment policy that has the effect of a government rule. This has caught the attention of Chairman Darrell Issa and Rep. Ben Cline at a recent House oversight hearing. Chairman Issa asked for more information about the investment policy in follow-up “questions for the record” directed to MLC CEO Kris Ahrend. It’s worth getting smart about what the MLC is up to in advance of the upcoming “redesignation” proceeding at the Copyright Office. We all know the decision is cooked and scammed already as part of the Harry Fox Preservation Act (AKA Title I of the MMA), but it will be interesting to see if anyone actually cares and the investment policy is a perfect example. It will also be interesting to see which Copyright Office examiner goes to work for one of the DiMA companies after the redesignation as is their tradition.

Silicon Valley Bank Shuts Down–Crash or Comeuppance?

“It’s the economy as a whole,” Ashley Tyrner said. “It’s not just that they made investments that went the wrong way. It’s also that VCs are not writing checks to startups and deposits are not coming into the bank. So that’s the bigger piece here than just that they made a bad investment. They’re not getting deposits because venture capital is not funding startups like they were two years ago.”

The first time I ran across Silicon Valley Bank I thought it was a little too good to be true. When I met executives from SVB it was very much like the Harvard MBAs in the mail room at one of the big Hollywood talent agencies. A little too well groomed, a little too nice a car, a little too networked. And making deals that really made no sense other than keeping Sandhill Road happy.

Startups would end up with a perk-filled banking relationship and a multimillion dollar credit line with no top line revenue. And the so-called CFOs would promptly draw down that credit line (a secured credit line by the way) with no idea how it would ever be repaid. Even if the startup IPOd it probably would just rolled over into an even bigger credit line.

I don’t know if she realized what she was saying, but Ashley Tyrner described it perfectly. The VCs are cutting back on startup investing and “deposits are not coming into the bank”–to pay for those multimillion credit lines and the bridges to nowhere. No new money coming in to pay off the old commitments…sound familiar Mr. Madoff?

The reality is when the “risk free” interest rate on government bonds is approaching 5% with all signs pointing to a significant recession in our future, investors are not clamoring for a return as they were even a year ago, certainly two years ago.

So that’s just about right–the smart money starting pulling back right about two years ago. Remember, the venture funds are limited partnerships. When you hear that a venture fund has “raised” X billion, that means that they have funding commitments for X billion. They actually get that money through “capital calls” when their limiteds have to actually pony up. And sometimes–like in the Dot Bomb meltdown–limiteds tell them to F right the F off because their kids are going to college thank you very much. They won’t burn any more money on the Silicon Valley feeding frenzy.

The next Elizabeth Holmes is not going to get billions thrown at her. And that means that for some institutions in Silicon Valley, the music just stopped.

Scoop Would Find a Way

Kira Rudik is a member of the Ukrainian Parliament and a leader of one their political parties. Today she made a speech to the Henry Jackson Society in the UK asking for a no-fly zone over her country. Not the blood of our treasures on the ground, just a little American air power. And I promise you that if anyone asked for volunteers to step across a line in the sand, you’d have enough pilots to blanket the airspace from the Ukraine to the UK.

If you recall Churchill’s asks of Franklin Roosevelt before Pearl Harbor, Kira Rudik’s ask should sound familiar. That’s how we got lend/lease before America entered WWII: Roosevelt found a way to do the right thing, and his December 29, 1940 fireside chat is where we got the phrase “arsenal of democracy.” And this passage:

The Nazi masters of Germany have made it clear that they intend not only to dominate all life and thought in their own country, but also to enslave the whole of Europe, and then to use the resources of Europe to dominate the rest of the world.

But what may not be obvious to a contemporary audience is that the venue where Kira Rudik spoke is the Henry Jackson Society, named after the great American Congressman Henry “Scoop” Jackson. Scoop was a major influence in building Congressional support for the Polish Solidarity movement and a host of other freedom fighters in the Cold War.

I knew Scoop, and I can also promise you that if he were with us today there would already be a no-fly zone over Ukraine or he’d know the reason why.

Pandemic: The Local Culture Card Solution Lets Public and Private Sectors Cooperate to Save Our Local Musicians and Retailers

The Local Culture Card would be a limited purpose debit card that permits the cardholder to purchase goods or services from a designated group of “local arts vendors” who would be artists, retailers or nonprofit arts organizations operating in the locality of the user.  It would be like a targeted gift card sponsored by state or local government, local corporations, radio or television stations.

Local culture cards would be distributed free of charge to local residents charged up with a minimum payment that must be spent within 30 days of activation.  Once funds are used, the issuer or sponsor could elect to replenish the funds on the same 30 day basis.

Alternatively, the local culture card could be sold like a gift card on the same terms.

The purpose of the Local Culture Card would be to empower consumers with purchasing power to directly inject cash into a local artist community—and quickly.  This would help everyone in the supply chain from vinyl manufacturers to one-stops to local record stores to the artists themselves and their songwriters.

Those local arts vendors would sign up to accept the Local Culture Card as payment for goods or services.  The Local Culture Card could not be used at Amazon, Spotify,  Target, Best Buy, Apple or other big box retailers because the benefit would be too diffused and would not retain local funds in local communities.  The card could instead be used for purchases at a local brick and mortar store’s online operation or to make a Venmo contribution for a live stream performance for a local artist (or purchase directly from the artist’s Bandcamp account).

The Local Culture Card would initially be charged with a minimum amount of credit or could be purchased like a gift card.  It could be branded by locality, state or region and could also be branded as a sponsored card by either state or local government or other private sector sponsor.  It could be included or branded as Record Store Day collateral or similar commercial efforts as it will be effective in both commercial and noncommercial applications.

For example, an Austin Culture Card could be sponsored by the Austin Music Office or the City of Austin Economic Development Department.   City funds would be used to charge up the card with a minimum amount of spending power, say $50.

Artists like Guy Forsyth or Dave Madden could sign up to accept payment through a webpage for their direct online sales or contributions through Venmo or Paypal for live streaming events.  Local retailers like Waterloo Records could sign up to accept the Austin Culture Card for purchases at their online store of recordings by any artist.  Ballet Austin could sign up so that patrons could use the Austin Culture Card to donate to that organization.  Alternatively, Austin Creative Alliance could sign up to accept donations for any of its member organizations.

The same process could be repeated by the Texas Music Office for artists statewide through the TMO’s “Music Friendly City” operation, or by the Small Business Administration for regional or national artists, retailers or organizations.

Alternatively Local Culture Cards could be sponsored by corporations and distributed to their customers or radio stations and distributed to their listeners.  Indie labels could sponsor cards as a tie in with local record stores that carry the label’s recordings.

The only other requirement for using the Local Culture Card would be that the money had to be spent within 30 days of issuance or it would expire.   Ideally a bank issuer would agree to provide the card as either a physical or virtual credit card for a zero transaction fee.  Remember–the Local Culture Card is not scrip, it’s cold cash placed directly into the hands of artists, retailers and arts organizations  by their fans.

While the examples I’ve given are from Austin, there is nothing unique about Austin.  The Local Culture Card would be relevant for any city with a cultural community from New York to New Orleans–that the fans want to retain during and after the pandemic.

 

Pandemic: Force Majeure Contracts and Insurance in the Music Business

After the cancellation of SXSW, we need to think about those “force majeure” clauses that everyone skips over in contractual boilerplate.  “Force majeure” or the less secular “Act of God” clause is a species of the “impossibility of performance” defense to a breach of contract claim that excuses the liability of a nonperforming party.  Earthquakes, floods, severe weather or other natural disasters are what the parties are typically thinking with force majeure, some act that is beyond their control.

These clauses sometimes are risk shifting, meaning that party A and party B may agree that one of them will bear the economic damages of the disaster, or permit rescheduling or other delay until the force majeure event has passed in a reasonable period of time.  Force majeure clauses typically break between suspending performance for a period of time and allowing the parties to terminate the contract, with little or no penalty.  It’s well to think of force majeure as a species of the impossibility defense to a breach of contract that has been available in the law since 1863.  A successful impossibility defense may be thought of as an exoneration of the breach, so excuses nonperformance before the breach actually arises.

This post is much longer than we usually ask you to read, but I think it’s a very important topic and I hope you find it useful.

Examples of Force Majeure Clauses

Distribution Agreement

Contract 1

Force Majeure. If because of: act of God, inevitable accident, fire, lockout, strike or other labor dispute, riot or civil commotion, act of public enemy, enactment, rule, order or act of any government or governmental instrumentality (whether federal, state, local or foreign), failure of technical facilities, failure or delay of transportation facilities, shortage of raw materials, or other cause of a similar or different nature not reasonably within Distributor’s or Company’s control, as applicable (a “Force Majeure Event”), either party hereto is materially hampered in the performance of its obligations under this agreement or its normal business operations are delayed or become impossible or commercially impracticable; then, without limiting such party’s rights, the party affected by such Force Majeure Event shall have the option, by giving the other party notice, to suspend its obligations hereunder for the duration of any such contingency (other than the obligation to account or pay hereunder or permit audits hereunder, except to the extent either party’s ability to do so is impaired by virtue of such Force Majeure Event). Any such suspension shall be limited to a period of the duration of such Force Majeure Event, but in no event longer than six (6) months, after which, unless such suspension shall be lifted, the party not suspending its obligations hereunder may, during the pendency of such suspension, terminate this agreement by notice in writing to the other party. Should Distributor suspend the manufacture or distribution of Products pursuant to this Paragraph, Company shall have the right to manufacture and/or distribute (as applicable) Products itself or through third parties during the pendency of such suspension.

Contract 2

Neither party shall be deemed in default of this Agreement if either party’s obligations are delayed or become impossible or impractical by reason of an act of God, war, fire, earthquake, strike, sickness, accident, civil commotion, epidemic, act of government or governmental instrumentality, failure of technical facilities, failure or delay of transportation facilities, shortage of raw materials, or any other cause of a similar or different nature beyond Distributor’s or Owner’s control (“Force Majeure Event”). Upon the happening of any Force Majeure Event, Distributor may suspend the Term for the duration of the Force Majeure Event by written notice to Owner. Owner shall have the right to terminate this Agreement upon sixty (60) days written notice to Distributor if the Force Majeure Event affecting Distributor is not prevalent throughout the recording industry in the United States and continues for one hundred and eighty (180) days. Distributor shall have the right to terminate this Agreement upon sixty (60) days notice to Owner if the Force Majeure Event affecting Owner is not prevalent throughout the recording industry in the United States and continues for one hundred and eighty (180) days.

Digital Distribution

Contract 1

For the purposes of this Agreement, “Force Majeure” shall mean any event which a Party hereto could not reasonably prevent or predict, such as fire, flood, acts of God or public enemy or terrorist, Internet failures or “hacking”, earthquakes, governmental or court order, national emergency, strikes or labor disputes, the effect of which it could not reasonably prevent or predict and which renders impossible or impractical the performance of contractual obligations either totally or in part.  The Party invoking a Force Majeure shall inform the other Party (either by notice, email, or telephonically) within five (5) business days of its occurrence by accurately describing all the circumstances of the situation involved and its effect upon the performance of its contractual obligations.  The taking place of a Force Majeure shall have the effect of suspending the obligations of the Party which has invoked the provisions of this Section to the extent such obligations are affected by the Force Majeure.  Contractual dates shall be extended for a period equal to the duration of a Force Majeure.  The cessation of a Force Majeure (in the judgment of the Party that invoked it) shall be communicated by the Party that invoked it to the other Party (either by notice, email, or telephonically) within five (5) business days of such cessation.

Contract 2

Force Majeure Event:  any act or event, whether foreseen or unforeseen, that meets all three of the following tests:  (i) the act or event prevents or delays a Party (the “Nonperforming Party”), in whole or in part, from (A) performing its obligations under this Agreement; or (B) satisfying any conditions to the other party’s (“Performing Party”) obligations under this Agreement; (ii) the act or event is beyond the reasonable control of and not the fault of the Nonperforming Party, and (iii) the act could not have been prevented by reasonable precautions and cannot reasonably be circumvented by the Nonperforming Party through the use of alternate sources, work‑around plans or other means.   Without limiting the generality of the foregoing, each of the following acts and events is deemed to meet the requirements of clauses (i) through (iii) and to be a Force Majeure Event: war, flood, lightning, drought, earthquake, fire, volcanic eruption, landslide, hurricane, cyclone, typhoon, tornado, explosion, civil disturbance, act of God or the public enemy, terrorist act, military action, epidemic, famine or plague, shipwreck, or strike, work-to-rule action, go-slow or similar labor difficulty or other similar or dissimilar causes.

Recording Agreement

If because of:  act of God; inevitable accident [an old common-law version of an unavoidable accident, like an accident caused by a deer jumping in front of a car]; fire; lockout, strike or other labor dispute; riot or civil commotion; act of public enemy; enactment, rule, order or act of any government or governmental instrumentality (whether federal, state, local or foreign); failure of technical facilities; failure or delay of transportation facilities; illness or incapacity of any performer or producer; or other cause of a similar or different nature not within Company’s control; Company is materially hampered in the recording, manufacture, distribution or sale of Records, then, without limiting Company’s rights, Company shall have the option by giving you notice to suspend Company’s obligations under this agreement for the duration of any such contingency.  If any suspension imposed under this paragraph by reason of an event affecting no Record manufacturer or distributor except Company continues for more than six (6) months, you may request Company, by notice, to terminate the suspension by notice to you within thirty (30) days after Company’s receipt of your notice.  If Company does not do so, this agreement shall terminate at the end of that thirty‑day (30) period (or at such earlier time which Company may designate by notice to you), and you shall be deemed to have fulfilled all of your obligations under this agreement except those obligations which survive the termination of this agreement (such as warranties, re‑recording restrictions and obligation to pay royalties.

Show Agreements

Contract 1

Each party’s obligations to perform hereunder will be excused in the case of a Force Majeure Event.  A “Force Majeure Event” is defined as acts, omissions, accidents and events which are beyond the reasonable control of the party claiming Force Majeure and which prohibit that party’s performance of its obligations under this Agreement including, without limitation, (i) acts of God, (ii) strikes or labor disruptions in the metropolitan area where the Event is scheduled to be held, (iii) civil riots or disturbances in the metropolitan area where the Event is scheduled to be held, (iv) weather events in the metropolitan area where the Event is scheduled to be held, (v) acts of terrorism in the metropolitan area where the Event is scheduled to be held, (vi) medical conditions, which result in quarantine or similar limitations or restrictions on travel or congregation in the metropolitan area where the Event is scheduled to be held, (vii) damage to the venue where the Event is scheduled to be held rendering it unsafe or unsuitable for giving of live entertainment performances.   In the case of Artist, a Force Majeure Event includes, without limitation, death, serious illness or incapacity of Artist which renders it impossible or not reasonably practical for Artist to attend the performance.  If the Event is cancelled due to a Force Majeure Event, the parties will use commercially reasonable efforts to schedule the Event on an alternate date.  

 Contract 2

In the event Show cannot reasonably be put on because of unpredictable occurrences such as an act of nature, government, or illness/disability of Band, the 50% deposit of Fee is non-refundable, but no other portion of Fee is due, and the parties may negotiate a substitute Show on the same terms as this Agreement save for the time of Show, with no further deposit of Fee due, in which case a new Agreement reflecting this will be signed by the parties. No further damages may be sought for failure to perform because of force majeure.

Hosting Agreement

Except as otherwise provided, if performance hereunder (other than payment) is interfered with by any condition beyond a party’s reasonable control, the affected party, upon giving prompt notice to the other party, shall be excused from such performance to the extent of such condition.  However, if a force majeure detrimentally affects a party’s performance of a material covenant hereunder for fourteen (14) days or more, the other party can terminate this Agreement.  Each party acknowledges that website operations may be affected by numerous factors outside of a party’s control.

Termination for Impossibility Force Majeure

As you can see from the examples given, contracts vary widely on what constitutes a force majeure event outside of a few core events.  They also vary on what action the parties are to take, tending toward short term suspensions with a right of termination.  Only two examples I could find actually mention “epidemic” while another refers to “quarantine” but it is fairly common to refer to what are essentially government orders which may include “state of emergency” type declarations such as that by the City of Austin that essentially caused the cancellation of SXSW.

Almost all refer to the contract law doctrine of “impossibility.”  What is that?  For example, A and B may contract for A to promote concerts at B’s venue on a “four wall” basis, but before the concerts can be performed, B’s venue burns to the ground.  Even if the contract between A and B is silent on force majeure, or refers obliquely to “acts of God,”  the continued existence of the venue is an implied term of the agreement.  In our example, as long as neither A nor B is an arsonist, a court might well find that both are released from their obligations under the agreement because performance is now literally impossible.  B may also be excused from paying A’s losses for promoting the event, or guarantees to performing artists.  The same could be true of heirs not being liable for a personal obligation to perform by a party who dies before the date that performance is due.

Less final intervening events may give rise to a suspension of performance for a period of time with performance subsequently rescheduled.  If the intervening event continues past a certain time period that would be long enough to make the performance stale or undesirable, then some force majeure clauses allow for termination.  It’s common to see this period be designated as six months in the entertainment industries which is usually designed to address labor strikes for companies that are signatories to collective bargaining agreements.

It is important to note that the clean hands–so to speak–of both parties is significant in these cases.  That determination may be proved to a court or jury in evidence by the party not affected by the force majeure event, or made by local police or other governmental authorities investigating the force majeure event.  Delays may result during the pendency of the investigation.

A force majeure event is generally thought to be an intervening event of a great magnitude outside the control of the parties.  The event may make performance impossible, as in the case of the venue that burns, or so difficult it will be deemed to be impossible if the parties bargained for that relief, such as if the venue were flooded due to a hurricane or condemned  due to an earthquake.

A fire that destroys a venue seems like the simple case compared to the coronavirus.  What about an epidemic?  How do you know that there is an “epidemic” in the first place?  One way might be to refer to a declaration of a government body, such as the World Health Organization.  That’s not always helpful.  For example, WHO declared on January 31, 2020 that the coronavirus constitutes a “public health emergency of international concern.”  Is that the same as an “epidemic”?

As we saw with the cancellation of SXSW, economic harm can occur even If there are no cases of coronavirus in your city, state or region, so is what WHO says even relevant in the force majeure analysis for you?  When the Mayor of Austin announced a “local state of disaster” and cancelled the event as a matter of social isolation, it was not because of something that had happened at that time, but rather because of something that might happen and a potential contagion which was anticipated to have dire consequences.  Including political consequences which should not be overlooked.

At the same time as the Mayor cancelled SXSW, the head of the Austin Health Authority acknowledged there was no clear scientific consensus on the effectiveness of cancelling mass gatherings.  While the Mayor’s action clearly affected interstate (and international) commerce and the lack of scientific consensus may seem arbitrary, no Constitutional challenges have yet been mounted (such as the Commerce Clause as well as substantive and procedural due process challenges to geographical quarantines, travel restrictions or “voluntary” social isolation).

In the case of Austin in particular, the city has long branded itself as the “Live Music Capitol of the World”.  The harm of the City’s decision to shut down SXSW could be extensive and long lasting and may result in a political reordering of the city if social isolation becomes the rule.

The question then becomes what is the force majeure event that produces the economic harm?  Is it the presence of the virus somewhere in the world?  The country?  The state?  The county?  The city?  The venue?  Or is the event actually the action of a government authority that may turn out to be an overreaction?  This may be important for analyzing the force majeure clause in a contract, and ultimately for interpreting an insurance policy.

It is well to consider the larger impact on the wider music business if venues start getting shut down, tours cancelled and festivals sidelined.  Record deals are made in anticipation of artists promoting their records, publishing deals may be contingent on record deals being in place, sponsorships may require live appearances at events and so on.  If the touring business is essentially shut down, the ripple effect could be substantial.  Social media alone will not replace touring.

It also must be said that Big Tech has tried for years to get us to believe that digital piracy actually helps artists and songwriters because it drives fans to shows.  Digital music services would have us believe that the artist data they can generate helps with routing tours and that benefit makes up for low royalties.  However stinky that assertion is, if there’s no touring or touring is severely cut back, then piracy and streaming income becomes even more important.

We will review various typical categories of insurance policies and then consider a few actions government could take to offset decisions to foreclose opportunities to work by local musicians and also to essentially shut down local venues.  Since insurance is likely to be unavailing, we will emphasize the importance of working with local musicians and venues to preserve the creative class in cities like Austin.  Because the City of Austin took the action to cancel SXSW, this role falls on government agencies devoted to the commercial music business, such as the Austin Music Office, but also other boards and commissions such as the Austin Music Commission.

I understand that the Mayor believed himself to be acting prudently in cancelling SXSW, and I neither commend nor criticize his decision.  Yet there are consequences from his decision that he has set in motion, and the Mayor needs to deal with those consequences, too.

Insurance

A typical way to address impossibility or force majeure is through insurance of various types.  Unfortunately, in the overwhelming majority of cases, diseases (and therefore epidemics) are excluded unless you have taken specific steps to include an endorsement for that purpose—assuming an endorsement is even available or available at a realistic price.  According to press reports, even SXSW did not have epidemic insurance endorsements to their wide ranging risk coverage.

Let’s consider different types of common insurance policies, but let’s also remember the cynic’s guiding principle of insurance—insurance companies exist to charge you a premium so they can deny coverage.  Almost every case will require policy interpretation and probably litigation.  My bet is there’s going to be lots and lots of litigation due to insurance claims being denied regarding the coronavirus.

Homeowners and Umbrella Personal Liability Coverage:  In a standard “HO3” homeowners policy, transmission of a communicable disease causing bodily injury or property damages is probably excluded (check the “Liability Coverages” paragraph).  Umbrella policies may cover communicable disease other than STDs, so it’s worth checking that coverage.  Travel insurance may cover cancellation due to emergency medical treatment for the traveler but you need to read that policy closely because coverage will turn on definitions as epidemics are probably excluded.

Cancellation Or Non-Appearance Coverage:  Traditional event cancellation or non-appearance insurance is offered by companies like Beazley or K&K/Aon and covers expenses and/or profits from a wide variety of events and perils.  (AEG famously insured its costs for Michael Jackson’s non appearance at 50 shows for the O2 Arena in London.)  These are often big-ticket policies which typically cover power failure, damage to leased or rented venues,  lack of access to the venue, failure of public transport facilities or denial of access (such as a terrorist attack or explosion), earthquakes, labor strikes, inability to erect facilities or staging at the venue, failure of broadcasts, and other previously unforeseen cause that is not the subject of an exclusion.   The policy also can cover both cancellation and non-appearance of key personnel for reasons of death or illness, as well as disease outbreak if not excluded, or just nonappearance. Larger policies are usually written through Lloyds of London or use Lloyds as a “reinsurance” guarantor.  It is almost certain that coronavirus will be excluded for policies written after January 2020, and of course these policies will have force majeure clauses.  Because these insurance contracts are essentially bespoke risk coverage for particular events, they will usually be very clear about what the carrier does and doesn’t cover.

Civil Authority Coverage:  If a shutdown of operations occurs due to a government order, civil authority coverage may be extended to include a disease outbreak.  This coverage was sold during the 2014 Ebola outbreak to cover losses from a government ordered shutdown of your business, a supply chain disruption, or a government ordered shutdown of common carriers such as airlines, ferries, trains and the like.  Those Ebola-related coverages were typically sold as an endorsement to a commercial property program.  If the harm can be shown to be the result of government action, it’s possible that civil authority coverage may offer some relief.

Commercial General Liability:  CGL policies may include “disease” in the definition of “bodily injury.”  Unless otherwise excluded, a venue with CGL might be covered if it did not take adequate precautions that helped spread the coronavirus.  Exclusions could be direct exclusion of communicable diseases, excluding pollution, or other exclusions.

Commercial Property Coverage:  Probably not covered unless a specific endorsement.

Business Interruption Coverage:  If your business closes because your employees are ill due to a disease outbreak, economic losses are probably not covered.  But—if the presence of disease on your business property constitutes “pollution”, you may have coverage for physical property damage due to the disease.

Contingent Business Interruption Coverage:  Usually coverage for you if your customer or vendor fails, but again if that loss is due to a disease outbreak, you are probably not covered absent a specific endorsement.

Environmental Insurance:  These policies may cover losses for bodily injury, clean up and property damage caused by “pollution” which may include viruses and bacteria.  However, it’s common to specify particular bacteria such as Legionella bacteria.

Supply Chain Insurance:  We are beginning to understand the strategic impact of locating so many elements of the U.S. supply chain in China.  Supply chain risk coverage typically would not require losses to physical property, just economic loss due to a supplier’s shut down or other disconnect.

Sovereign Disaster Risk:  Just for reference, the World Bank issues a parametric catastrophe bond that covers pandemic risks as part of its Pandemic Emergency Financing Facility.  The World Bank also sells pandemic risk swaps.  The International Bank for Reconstruction and Development also issues “capital at risk notes” designed to transfer the pandemic risks of low income countries to the global capital markets.  If this has a “Big Short” feel to it, let’s hope not.

Economic Development Action

It is unlikely that insurance is going to help solve the economic loss from cancellation of major tours, concerts and festivals.  Therefore when a government takes action that creates a sudden economic contraction, government should also be prepared to take ameliorative action that helps support local businesses.  In the case of SXSW, there are many downtown businesses that make their year during SXSW, or a good portion of their annual revenues.

If those businesses, especially venues, cannot make payroll or rent, they will close.  As we saw from the Austin Music Census, landlords already are trying to raise rents beyond what venues can reasonably pay, so we have to assume that they will be more than happy to let venues out of their leases—never to return.  If enough venues close—already an endangered species in Austin—then there will be less and less reason to brand Austin as the “Live Music Capitol of the World” and the entire character of the city may change.

Economic Stimulus:  “Affected Venues” and “Affected Musicians” should be criteria based categories of individuals who would be eligible for relief.  State and local governments have some economic levers available to them such as utilities and tax relief.  The Mayor of Austin and mayors of other affected cities should take steps to obtain any federal disaster relief funding available for Affected Venues and Affected Musicians relating to coronavirus (perhaps as part of the federal coronavirus funding).

Tax Relief:  Restaurants large and small, hotels, and others in the hospitality industry as well as supermarkets have no doubt stored large stockpiles of perishable foods in anticipation of SXSW visitors.  There are a lot of hungry people in Central Texas–just ask the Central Texas Food Bank.  Austin has more nonprofits per person than any other city in the country.  These restaurants know where to take their unused food, but give them extraordinary and immediate tax reduction for giving away this food.

Revision of Quarantine Laws:  If decisions are taken by state and local authorities to exercise state police powers to give effect to quarantines or quarantine zones, it is likely that their will be a wave of new legislation to target those powers as most existing quarantine laws have been on the books over 50 years due to the decline in infectious disease.  (A review of quarantine authority was listed as a priority for state governments in the President’s 2002 National Strategy for Homeland Security, but it’s doubtful much was done.)

I will return to this topic in coming weeks and months, but I think a few conclusions are obvious:  First, there may well be a cascading effect of a wide variety of entities reviewing and potentially exercising any force majeure rights they have in existing agreements.  Force majeure clauses will be closely scrutinized in future agreements.  Like force majeure rights in contracts, insurance policies will be closely scrutinized and coverage will likely be litigated.

But the most obvious conclusion is that state and local governments wishing to preserve the cultural and economic base of their cities and regions once this contagion passes must be proactive with alternatives if they are going to order an entire industry to shut down.

 

 

 

Copyright Office Unclaimed Royalties Study Meeting 12/6/19

 

One of the loose ends from Title I of the Music Modernization Act is how the Congress is going to permit the Mechanical Licensing Collective and the Digital Licensee Coordinator to process the “black box” or unclaimed royalties.   It’s common to hear people using the experience with various private settlements as a guide for how to handle the MLC’s black box.  It is said that a small percentage of the black box was actually claimed, so it’s the fault of those who failed to make their claim that they missed out.

There may be a kernel of truth in that, but the real question is why was there such a small percentage claimed in the first place?  Wouldn’t the administration of settlements with poor claiming history be an example of what not to do in the future?  Certainly with a government mandate forcing the issue?

Congress clearly recognized their oversight role on the black box by mandating the Copyright Office conduct an unclaimed royalties study to develop best practices:

Not later than 2 years after the date on which the Register of Copyrights initially designates the mechanical licensing collective…the Register,in consultation with the Comptroller General of the UnitedStates, and after soliciting and reviewing comments and relevant information from music industry participants and other interested parties, shall submit to the Committee on theJudiciary of the Senate and the Committee on the Judiciary of the House of Representatives a report that recommends best practices that the collective may implement in order to—

(A) identify and locate musical work copyrightowners with unclaimed accrued royalties held by thecollective;

(B) encourage musical work copyright owners to claimthe royalties of those owners; and

(C) reduce the incidence of unclaimed royalties.

The Copyright Office held the first public consultation on the study last December, and posted a video of the meeting that is well worth watching.  As I noted in an MTP post last year:

There are two currently existing standards that the Copyright Office can reference for examples of industry best practices-the SoundExchange unclaimed royalty search for new members and the Lowery-Ferrick Spotify class action Songclaims portal powered by Crunch Digital.  It seems inescapable that these claiming standards should be guideposts for both the Copyright Office and the Copyright Royalty Judges.

Having such clear cut standards–already operational so not theoretical–is fortunate because it seems obvious that the Congress is both concerned with the black box distributions not being gamed and also intends to exercise its statutory authority to retain oversight over the Mechanical Licensing Collective’s operations.  In fact, Senator Grassley specifically stated in his questions for the record following the Copyright Office oversight hearing that:

“The success of the Music Modernization Act (MMA) will depend, to a large extent, on the effective and efficient operation of the Mechanical Licensing Collective (MLC). The MMA included provisions to ensure that there was robust ongoing oversight of the MLC by both the Copyright Office and Congress, and that the new MLC would be accountable to the stakeholders.”

@SenThomTillis and Other Members of Congress Question ContentID–Again

ContentID has a lot of potential and in many respects is similar to the SNOCAP audio fingerprinting application from 2005–very similar.  Quite similar.  Although if the SNOCAP team got back together using current technology, that tool could be much more broadly applied including to search.  Which makes me ask why Google isn’t doing the same with their endless resources.

Here’s an excerpt from the Member’s letter about Content ID:

Tillis Letter

Read the letter here

Save the Date: User Centric: Streaming Gentrification or Fairness at SXSW

I’m pleased to be moderating a panel on user-centric streaming royalties with some of the smartest people in the music business at SXSW on Thursday, March 19 at 3:30.  Helienne Lindvall from Ivors Academy, David Lowery of Cracker and Camper Van Beethoven and Portia Sabin from the Music Business Association will join me in a discussion of this important topic that seems to pick up support daily.

Please put us on your calendar if you’re coming to Austin for the conference!  We really want this one to be collaborative with the audience.  Watch this space for further updates.  If you are new to the topic, a good place to start is the “ethical pool” post from last year.

SXSW User Centric
https://schedule.sxsw.com/2020/events/PP103941