November 09, 2011
Relational contracts and new business models
A few posts back, I referred to Apple's business model as incorporating relational contracting on a mass consumer scale which made me wonder whether relational contract theory is due for a revival (not that it ever went away). I didn’t attend the conference at Wisconsin honoring Stewart Macaulay although I wish I had. Relational contracting should be the subject of renewed interest given the new business models that incorporate goods, services, and information. On the radio yesterday morning, I heard someone talk about Google's business as being more than a series of searches - it was about services and relationships with its customers. (Okay, maybe those weren't the exact words, but they're close enough). A few weeks ago, a NYT article discussed new technology companies that are assisting musicians in managing their relationships with their fans. In order to survive, many businesses (especially those in the creative industries) will have to reboot for the evolving marketplace. Not all businesses (and by “businesses," I mean musicians, writers and artists who want to get paid and are not backed by large corporate conglomerates) are equipped to do this. Well, make way for companies like Topspin, Bandcamp, FanBridge and ReverbNation, to assist them. These companies help musicians run a band's online business which means they sell music, manage fan clubs and calculate royalty payments. They have found a way to bundle physical and digital goods. How much you want to bet that those digital goods are protected by contracts?
Which brings me to relational contract law. The purpose of these companies is to enable the musician to survive (and even thrive) without being backed by a record company. Now, the musician can directly manage the relationship with the fan. In the past, a fan joined a fan club, bought a ticket to a concert from one vendor, a record from a retailer, a tee shirt from another retailer - you get the picture. With the exception of the rules on the back of the concert ticket and the fan club membership rules, the other transactions were not governed by contract. The fan can now buy everything she or he wants that's band-related from that band's website, subject to the terms and conditions of the website and the licenses that accompany the digital products. Shouldn't the terms of those contracts be considered in light of the existing relationship between the musician and the fan? Wouldn't a relational contracts approach be helpful in analyzing the terms and how they should be interpreted and enforced?
Apple is relevant in this discussion for another reason. If it weren't for iTunes, it's likely that
none of these businesses would exist. (Fun note - the NYT article mentions that the chief executive of Topskin has a tattoo of the logo for NeXT Computer, which was Steve Job's old company).
October 10, 2011
Some Thoughts on Steve Jobs, Apple and Contracts
Steve Jobs made quite an impact on the world, rethinking the way people use technology and introducing beautifully designed, innovative products. Because this is a contracts blog, I want to discuss the interesting way his company, Apple, uses contracts in its business. Before iTunes, most music was sold to consumers on CDs. Apple is not the first or only company to license rather than sell digital music, but it is the most popular. Because of the enormous popularity of the iPod and iTunes, Apple made it acceptable to license rather than sell music - a concept that at one time seemed strange and somewhat outrageous. The way Apple uses contracts is closely tied to the nature of its innovative products and services (which meld the tangible and the digital), the way they are delivered to the customer, and Apple’s business model. Apple markets itself as more than a purveyor of technology products. Its customers don’t buy a product, they enter into a relationship. Apple reminds customers that they have a relationship, not a one time transaction, and they remind them via contracts. Apple has its customers click each time they purchase a song and each time they download an updated version of iTunes. It's mass consumer relational contracting. (Other companies may do this, too, but I can't think of one offhand that does it the way Apple does). Apple also closes the gap between offline and online contracting. When I bought my iPad not long ago, after I had paid for it, the salesperson (aka the “Genius”) had me click “I agree” to the terms of an agreement on my new iPad before he would hand it over. It made me wonder, will we see more rolling clickwraps? Will clickwraps replace paper contracts in the mass consumer setting? As products become more digital than tangible, will we see more licenses and fewer sales? (I think the answer is yes). As products incorporate more software than hardware, will they no longer be considered “goods”? What types of innovative contracting forms might we expect to confront in the future?
October 06, 2011
Freaks and Gleeks
Freakonomics blogger and Yale ContractsProf, Ian Ayres, has teamed up with his 14-year-old Gleek daughter to write a song, and now he's offering an iTunes gift card worth up to $500 to the winner of a contest to guess which lyrics are his.
It's really two contests in one. The first contest is to guess which of three songs peformed by his daughter Professor Ayres co-wrote and also to specify a line that he authored. That contest ends October 31st. The second contest is to predict the total number of views for the three songs. The deadline for that contest is October 10th. Winner of the first contest will get a gift card; winner of the second contest will get signed copies of two of Professor Ayres' books.
The details of the contest are here.
And as an additional incentive, Professor Ayres offers a special bonus: If the winning entry happens to come from a student or ContractsProf who use the Ayres & Speidel casebook, he and/or his daughter will perform a song of the winner's choosing in a "personal Skype concert." He did not specify that the song has to be one of the three relevant to the contest, so I recommend demanding a performance of Queen's "Bohemian Rhapsody."
May 30, 2011
Curb Records Sues Tim McGraw
Country singer Tim McGraw (right) has been sued by his record label, Curb Records, over an alleged breach of contract. Here is the complaint. According to the complaint, McGraw has been recording with Curb since 1997. The dispute relates to when McGraw recorded the master tracks for his new album. According to this report on Taste of Country, the contract states that the new music must be delivered to the label, “no earlier than 12 months and no later than 18 months" after his prior album. However, that timetable gets pushed back upon the release of a collection of McGraw's Greatest Hits. The purpose of these term was to make certain that the music on the new album is "topical and new." Curb Records claims that McGraw began recording the current album, Emotional Traffic, in 2008 but did not turn in the final cut of the album to the label until 2010. That early start date renders the music as old as dirt and as stale as the corn bread from last year's Fourth of July parade.
In addition, since Curb recently released a McGraw Greatest Hits album, not only are the masters too old, they are also delivered too early, rendering them both as old as dirt and as premature as a Spring pig born in February. Curb records alleges that McGraw is trying to fulfill his contractual obligations early and thus be free of them.
Curb seeks a judgment declaring McGraw to be in breach of his agreement with Curb, allowing it to enforce remedies provided in the agreement, and also in agreement of a 2001 settlement that reduced the number of albums McGraw was obligated to record with Curb from six to five. As a result, if Curb is successful in its suit, McGraw would be obligated to provide yet another album on the terms specified -- or he'd have to somehow buy his way out of that agreement. They are also seeking consequential damages and injunctive relief that would prevent McGraw from offering his services to anyone other than Curb records until he has completed the terms of his contract.
As Reuters reports, all of this makes McGraw madder than a wet hen. He has filed an Answer and Counterclaims against Curb. He is seeking a declaration that he has delivered all the recordings that he was contractually obligated to deliver to Curb and is now free of further contractual obligations. He also seeks advances, plus compensatory, consequential and special damages. The heart of the dispute seems to surround the timing and frequency of Greatest Hits albums that Curb has released. From McGraw's perspective, the releases prolong both the contract and the periods during which McGraw cannot release new material. To date Curb has only released on track off the new album, the single “Felt Good on My Lips,” which spent several weeks at the top of the country charts. If the album's release is delayed, fans will have to see McGraw perform them live, which he plans to do, claiming that the new material is "his best ever." The whole thing is more complicated than one of Thomas Jefferson's plans for crop rotation.
[JT and Jared Vasiliauskas]
April 26, 2011
The Truth Behind Van Halen's Famous M&M's Rider
This may not exactly be news, but if you haven't read David Lee Roth's autobiography, it is likely news to you. We got this contracts story when we downloaded the most recent podcast of This American Life called "Fine Print 2011." More posts may follow once we finish listening to the entire show. Actually, it's not news to our Meredith Miller, who blogged about the earlier version of This American Life's "Fine Print" show.
The basic story is as follows: rumor had it that Van Halen insisted on a bowl of M&Ms backstage whenever they performed and that -- this is the crucial part of the infamous rider -- all brown M&Ms be removed from the bowl. As This American Life's Ira Glass explains, this story has usually been read as epitomizing the extent to which our celebrities demand that we pamper them. But David Lee Roth (pictured to the right) provides a different explanation in his aforementioned autobiography, helpfully excerpted on Snopes.com here:
Van Halen was the first band to take huge productions into tertiary, third-level markets. We'd pull up with nine eighteen-wheeler trucks, full of gear, where the standard was three trucks, max. And there were many, many technical errors -- whether it was the girders couldn't support the weight, or the flooring would sin in, or the doors weren't big enough to move the gear through.
The contract rider read like a version of the Chinese Yellow Pages because there was so much equipment, and so many human beings to make it function. So just as a little test, in the technical aspect of the rider, it would say "Article 148: There will be fifteen amperage voltage sockets at twenty-foot spaces, evenly, providing nineteen amperes . . ." This kind of thing. And article number 126, in the middle of nowhere, was: "There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation.
So, when I would walk backstage, if I saw a brown M&M in that bowl, well, line-check the entire production. Guaranteed you're going to arrive at a technical error. They didn't read the contract. Guaranteed you'd run into a problem. Sometimes it would threaten to just destroy the whole show. Something like, literally, life-threatening.
It's a nice story, but I don't buy it. If you are concerned about girders not being able to support the weight of your show, check the girders, not the M&Ms. Moreover, Meredith's earlier post links to the relevant page of the rider from TheSmokingGun.com, and it does not threaten forfeiture or anything else.
Another nice excerpt from the autobiography:
I came backstage. I found some brown M&Ms, I went into full Shakespearean "What is this before me?" . . . you know, with the skull in one hand . . . and promptly trashed the dressing room. Dumped the buffet, kicked a hole in the door, twelve thousand dollars' worth of fun.
Two problems. First, the rider does not seem to permit twelve thousand dollars worth of fun. That's not covered under the term "forfeiture." Second, Hamlet doesn't say anything like "What is this before me" when he contemplates Yorick's skull. I think Roth is thinking of Macbeth's dagger monologue, which begins, "Is this a dagger which I see before me?" And then in some productions he dumps the buffet and kicks a hole in the door.
February 22, 2011
An Update on the No Doubt v. Activision Suit: The End of Guitar Hero?
We previously blogged about No Doubt's lawsuit against Activision. In a nutshell, the band admits that it granted Activision a license to use the names and likenesses of its members in one of the Guitar Hero games ("Band Hero"); however, the band claims that it never agreed that Activision could use avatars of the band members to perform songs by other artists and sing in voices of other artists (an example was Gwen Stefani, the lead singer of No Doubt, singing "Honky Tonk Woman"). (You may recall that Courtney Love was also peeved that the game allowed Kurt Cobain's avatar to sing the songs of other artists).
A California trial court had denied Activision's motion to dismiss the suit; last week, an appeals court affirmed. Here's an update on the lawsuit from the LA Times "Company Town" blog:
A three-judge panel on Tuesday rejected Activision Blizzard Inc.'s motion to throw out a lawsuit filed in 2009 by the rock band No Doubt, dealing a minor blow to the Santa Monica video game giant.
The ruling by the federal district court of appeals paves the way for No Doubt to proceed with its suit, which alleged Activision breached its contract with the group when it allowed players of Activision's video game Band Hero to use band members' avatars to perform songs they did not write.
The band, in its lawsuit, said the game's feature "transformed No Doubt band members into a virtual karaoke circus act."
Activision Blizzard filed a motion to have the lawsuit dismissed, saying it had the right of creative expression. The motion was rejected in April by Los Angeles County Superior Court Judge Kenji Machida. The appellate court Tuesday agreed with Machida, saying No Doubt can pursue its case against Activision.
While the decision is probably a mere prelude to further legal maneuvers by both sides, the Guitar Hero video game series itself, which had once generated more than $1 billion in revenue for Activision, was recently declared dead. Activision last week said it would shut down its Guitar Hero business, lay off 500 workers and cease development of a Guitar Hero title that was slated for release this year.
Here's a copy of the appellate court decision that allows No Doubt's lawsuit to continue.
[Meredith R. Miller]
March 11, 2010
Pink Floyd v. EMI -- Dark Side of the Recording Industry
The band Pink Floyd has taken its record label, EMI, to court, as reported here in the Financial Times. There are two aspects to the dispute. First, the band is challenging the way EMI calculates royalties from online sales. At the time the parties entered into their current agreement, online sales were not a major factor, but they now account for over 1/4 of all record company revenues, according to the Financial Times. In addition, the band objects to having its songs "unbundled"; that is, sold as single tracks rather than together in an album.
The latter is an interesting issue. Pink Floyd was one of my favorite bands when I was in high school, but I could not have told you the names of many of the songs on "Dark Side of the Moon," "Wish You Were Here," or "Animals." One always listened to their records -- there were records in those days -- track by track, and it would not have made sense to do anything else. Theirs were concept albums, and the songs flow into one another -- so much that one could not always say where one ended and the other began. Moreover, in the state most people were in when listening to Pink Floyd albums in the 70s, nobody would have wanted to take the initiative to get up from the couch, nor did they possess the fine motor skills it would have taken to move the needle to the desired track. But since all music is now digitized, listeners usually have the option of a "shuffle" feature that enables them to play the tracks in random order. In short, regardless of what Pink Floyd wants, listeners can conveniently opt to listen to the band's songs in any order or in random order. I'm not sure there is much a court can do to affect that.
UPDATE in the comments. Pink Floyd won its case, at least with respect to the bundling issue.
January 28, 2010
Breach of Contract Costs Kid a Chance to Be a Contender
According to this story in the Los Angeles Times (and about a zillion other websites), Michael Lynche has been cut from the top 24 contestants of this year's version of American Idol. The ground for his dismissal is breach of contract. The breach allegedly occurred when Lynche's soon-to-be-estranged father confirmed rumors that his son had made the semi-final round. This a breach of the contestants' agreement that they will not divulge their fates on the show.
"Aww, come on!" I hear you type into your favorite blog, "Michael Lynche is awesome!!!" That may well be. I wouldn't know, as I don't watch the show. But one aspect of the report strikes me as very interesting. According to this report, the non-disclosure agreement binds not only the contestants, but also their families. Now how does the network manage that? I mean, if I ever did anything of which my family could be proud, what could I do to prevent my mother from reporting on the nachas? "So, you said he was a nichtgutkeit," I can hear her crow, "But now whose son is idle -- eh? Eh?"