TECHLAW BRIEFLY Issue 48 March 2003

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Escrow - what is it?

The process of escrow means placing something in the custody of an independent person, with agreed directions provided to that person on the conditions for its release to a specified party on the happening of certain events.

It is commonplace for source code and other software to be put in escrow. All but the largest software developers, licensees, and in some cases distributors, have come to expect source code to be placed into escrow as a form of assurance against the owner/developer being unable or unwilling to support it.

There are a number of reliable commercial organisations providing escrow facilities, and they usually have their own form of agreement. Although agreements have become largely standardised, care is needed with them. In this climate of ready acceptance, there are some practical and legal considerations that should not be overlooked.

Clearly there are two diametrically opposed views – that of the owner/licensor versus that of the licensee. At the most general level, source code in escrow is a form of protection sought by licensees, which potentially represents a major incursion into the rights of the owner/licensor. Just how much protection is afforded, and how deeply the rights of the licensor are affected, might in reality be quite different to the expectations of the parties.

By taking a pragmatic view of what each party seeks to achieve, and understanding how this can be done, the needs of the parties can be fairly satisfied.

For further information about issues covered in this article, please contact Guy Betar on +61 2 9023 0118 or e-mail gbetar@normans.com.au.gbetar@normans.com.au.

MUSIC AND COPYRIGHT

There are few areas of copyright that cause more confusion and misunderstanding for clients than the application of the Copyright Act to musical works.

In an attempt to clarify this area of law we have set out in this article some of the features of the Act applicable to musical works and some references to helpful materials.

What is a Musical Work?: A musical work is commonly thought of as comprising, music and lyrics, but there are two separate and distinct forms of subject matter. Who is the Author?; The author of a musical work is the person (or persons) who creates the music.; The author of lyrics is the person (or persons) who creates the lyrics.; Of course, more than one person may be involved in creating a musical work in which case, if their contributions are inseparable they are joint authors of the same work. The same is true where two or more people write lyrics.; Where two people collaborate, with one of them creating the music and the other the lyrics, each is an author of a separate work: one is author of the music and the other is the author of the lyrics. They are not joint authors for the purposes of the Copyright Act.; Sometimes collaborators will enter into an agreement with each other varying the above outcome. For example, a musical composer and a lyricist could agree that they will jointly own copyright in both the music and lyrics of works resulting from their collaboration, even though only one of them will write the music and the other the lyrics. They will then be joint authors of two separate and distinct "works", the music (a musical work) and the lyrics (a literary work).
Who Owns Copyright?: The rules of copyright ownership are set out in section 35 of the Copyright Act. It is important to remember that these rules can be altered by agreement (see section 35 (3)).; The principal "rule" is that it is the author of a work who is the first owner of copyright in the work (section 35 (2)). The main exception to this rule is where a person is employed to produce works in which copyright will subsist and the work is produced in the course of that person’s employment. In that situation the employer will be the first owner of copyright (section 35 (6)).; Very few people, however, are employed for the purpose of writing music or lyrics and it is more common for composers to be engaged, not as employees, but as contractors. In those situations, unless there is an agreement to the contrary, the composer will be both the author and the first owner of copyright. The person who commissions the work from the composer will most likely have an implied licence (presuming they have not prepared a licence agreement) to use the work for the purposes for which it was commissioned. This is not the case where musical works are commissioned by the "Crown", that is, the Commonwealth Government or a State or Territory Government. The Crown is the owner of copyright in an original literary, dramatic, musical or artistic work made under the direction or control of the Crown (section 176 (2)).
Rights in Music and Lyrics: Copyright in music or lyrics is the exclusive right to do the following acts:
to reproduce the work;
to publish the work;
to perform the work in public
to communicate the work to the public
to make an adaptation of the work
(Section 31(1)(a)).
The music industry commonly refers to rights which are in fact sub-sets of the rights described above. Rights such as:
(a) "mechanical rights" which are the right to make a sound recording. The royalty paid to the owner of copyright in a musical work for a licence to include the musical work on a record is known as "mechanical royalties". The term "mechanical" originated from a time before records when musical works were commonly reproduced by mechanical devices such as music boxes and piano-rolls;
(b) "synchronisation rights" – the right to use the music for a film.

Duration of Rights
Generally copyright in music lasts for 50 years after the end of the year in which the author dies.
The same duration applies to lyrics.
Assignments and licences
The owner of copyright can deal with the copyright by assignment or licence.
An assignment is a transfer of ownership.
The Copyright Act states that copyright is personal property (section 196 (1)). It is, however, intangible property and comprises the exclusive rights referred to above.
To be effective in law an assignment must be in writing signed by or on behalf of the owner of copyright (section 196 (3)). An assignment however, may be limited in any way, including so as to apply to one or more classes of acts referred to above, or a sub-set of one of those classes, or to apply for a limited period or a limited part of Australia (sec. 196 (2)).
It is even possible to assign future copyright so that when the work is created copyright will vest at that time in the person to whom future copyright has been assigned.
The assignment of copyright may involve stamp duty and capital gains tax considerations.
A licence does not transfer ownership of copyright. A licence is a permission to do acts which would otherwise be unlawful.
A licence can be limited in many ways. It can be limited in time and in the geographic area to which it applies. It can also limit the acts which are permitted.
A licence may also be exclusive or non-exclusive. The Copyright Act, however, requires exclusive licences to be in writing signed by the licensor (ie the person granting the licence).
As an example, a composer may grant a non-exclusive licence to reproduce a particular musical work for inclusion in a sound recording in Australia. Because it is non-exclusive, the composer may in future grant further licences for the same rights. If however, the composer grants an exclusive licence of the same rights say for 10 years, then not only is the composer unable to grant further Australian licences for those rights during that term, the composer cannot exercise those rights personally in Australia during that term.
Sound Recordings
Sound recordings are the subject matter of a separate copyright.
Copyright in a sound recording is the exclusive right:
to make a copy of the recording;
to cause the recording to be heard in public;
to enter a commercial rental agreement in respect of the recording;
(section 85 (1)).
The copyright in a sound recording continues until the end of 50 years from the end of the year in which the recording is first published (section 93).
The general rule is that the maker of a sound recording is the first owner of copyright in the sound recording. If however, the sound recording is commissioned then the party commissioning the work will be the first owner.
The creation of a sound recording often involves the reproduction of musical works and lyrics. The right to reproduce is, as already noted, one of the exclusive rights of the owner of copyright in the music. The person making the recording will therefore need to obtain the permission (a licence) to use the music (and lyrics) in the recording or otherwise risk infringing copyright.
Industry Participants
Most of what has been described so far is relatively straight forward. It is the manner in which the music industry has organised itself which is a common cause of confusion. We will look at three industry participants – publishers, record companies and collecting societies.
(a) Publishers:
Publishers promote and sell music. One of their major functions is to persuade recording artists and record companies to record the musical works the publisher controls. Publishers also promote these works to film and television producers.
Commonly a publisher will seek from the composer an assignment of all copyright in the compositions (music and lyrics) for a specified term, for example three years.
Often this assignment will need to recognise that a partial assignment may already have been made to APRA (see below).
Publishing agreements of the composer often have a "retention period" which continues after the term of the agreement. For example, if at the end of the term a composer had produced 100 compositions the publisher will own copyright in those compositions. After the term the composer is free to offer future compositions to a new publisher. The old publisher may have a retention period of say 7 years during which it can continue to exploit the 100 compositions composed during the term. At the end of the retention period there should be a reassignment of copyright back to the composer.
(b) Record Companies:
Record companies enter into recording contracts with artists but they also enter agreements with publishers to obtain the "mechanical rights" for compositions controlled by the publisher.
(If the songwriter does not have a publisher the record company will deal directly with the songwriter.)
(c) The Australasian Performing Right Association (APRA)
APRA is a non-profit association whose members comprise songwriters and publishers. Members assign to APRA their performing rights, that is, not only the right to perform the work in public but also the right to communicate the work to the public (principally by broadcast).
APRA collects fees for performance and broadcasting and distributes those fees to members. If a publisher controls work then at least half the royalties due must go to the songwriter/composer.
APRA grants "blanket" licences and not licences for individual compositions or songs.
A licence is required whenever there is a public performance of a musical work.
"Public performance" includes such activities as a live performance of music in a public hall, playing music from the radio (or CDs) by the proprietor of a shop and even music played on hold over the telephone.
(Section 31(1)(a)).: The music industry commonly refers to rights which are in fact sub-sets of the rights described above. Rights such as:
(a) "mechanical rights" which are the right to make a sound recording. The royalty paid to the owner of copyright in a musical work for a licence to include the musical work on a record is known as "mechanical royalties". The term "mechanical" originated from a time before records when musical works were commonly reproduced by mechanical devices such as music boxes and piano-rolls;
(b) "synchronisation rights" – the right to use the music for a film.
Duration of Rights: Generally copyright in music lasts for 50 years after the end of the year in which the author dies.; The same duration applies to lyrics.
Assignments and licences: The owner of copyright can deal with the copyright by assignment or licence.; An assignment is a transfer of ownership.; The Copyright Act states that copyright is personal property (section 196 (1)). It is, however, intangible property and comprises the exclusive rights referred to above.; To be effective in law an assignment must be in writing signed by or on behalf of the owner of copyright (section 196 (3)). An assignment however, may be limited in any way, including so as to apply to one or more classes of acts referred to above, or a sub-set of one of those classes, or to apply for a limited period or a limited part of Australia (sec. 196 (2)).; It is even possible to assign future copyright so that when the work is created copyright will vest at that time in the person to whom future copyright has been assigned.; The assignment of copyright may involve stamp duty and capital gains tax considerations.; A licence does not transfer ownership of copyright. A licence is a permission to do acts which would otherwise be unlawful.; A licence can be limited in many ways. It can be limited in time and in the geographic area to which it applies. It can also limit the acts which are permitted.; A licence may also be exclusive or non-exclusive. The Copyright Act, however, requires exclusive licences to be in writing signed by the licensor (ie the person granting the licence).; As an example, a composer may grant a non-exclusive licence to reproduce a particular musical work for inclusion in a sound recording in Australia. Because it is non-exclusive, the composer may in future grant further licences for the same rights. If however, the composer grants an exclusive licence of the same rights say for 10 years, then not only is the composer unable to grant further Australian licences for those rights during that term, the composer cannot exercise those rights personally in Australia during that term.
Sound Recordings: Sound recordings are the subject matter of a separate copyright.; Copyright in a sound recording is the exclusive right:
to make a copy of the recording;
to cause the recording to be heard in public;
to enter a commercial rental agreement in respect of the recording;
(section 85 (1)).
The copyright in a sound recording continues until the end of 50 years from the end of the year in which the recording is first published (section 93).
The general rule is that the maker of a sound recording is the first owner of copyright in the sound recording. If however, the sound recording is commissioned then the party commissioning the work will be the first owner.
The creation of a sound recording often involves the reproduction of musical works and lyrics. The right to reproduce is, as already noted, one of the exclusive rights of the owner of copyright in the music. The person making the recording will therefore need to obtain the permission (a licence) to use the music (and lyrics) in the recording or otherwise risk infringing copyright.
Industry Participants
Most of what has been described so far is relatively straight forward. It is the manner in which the music industry has organised itself which is a common cause of confusion. We will look at three industry participants – publishers, record companies and collecting societies.
(a) Publishers:
Publishers promote and sell music. One of their major functions is to persuade recording artists and record companies to record the musical works the publisher controls. Publishers also promote these works to film and television producers.
Commonly a publisher will seek from the composer an assignment of all copyright in the compositions (music and lyrics) for a specified term, for example three years.
Often this assignment will need to recognise that a partial assignment may already have been made to APRA (see below).
Publishing agreements of the composer often have a "retention period" which continues after the term of the agreement. For example, if at the end of the term a composer had produced 100 compositions the publisher will own copyright in those compositions. After the term the composer is free to offer future compositions to a new publisher. The old publisher may have a retention period of say 7 years during which it can continue to exploit the 100 compositions composed during the term. At the end of the retention period there should be a reassignment of copyright back to the composer.
(b) Record Companies:
Record companies enter into recording contracts with artists but they also enter agreements with publishers to obtain the "mechanical rights" for compositions controlled by the publisher.
(If the songwriter does not have a publisher the record company will deal directly with the songwriter.)
(c) The Australasian Performing Right Association (APRA)
APRA is a non-profit association whose members comprise songwriters and publishers. Members assign to APRA their performing rights, that is, not only the right to perform the work in public but also the right to communicate the work to the public (principally by broadcast).
APRA collects fees for performance and broadcasting and distributes those fees to members. If a publisher controls work then at least half the royalties due must go to the songwriter/composer.
APRA grants "blanket" licences and not licences for individual compositions or songs.
A licence is required whenever there is a public performance of a musical work.
"Public performance" includes such activities as a live performance of music in a public hall, playing music from the radio (or CDs) by the proprietor of a shop and even music played on hold over the telephone.
(section 85 (1)).: The copyright in a sound recording continues until the end of 50 years from the end of the year in which the recording is first published (section 93).; The general rule is that the maker of a sound recording is the first owner of copyright in the sound recording. If however, the sound recording is commissioned then the party commissioning the work will be the first owner.; The creation of a sound recording often involves the reproduction of musical works and lyrics. The right to reproduce is, as already noted, one of the exclusive rights of the owner of copyright in the music. The person making the recording will therefore need to obtain the permission (a licence) to use the music (and lyrics) in the recording or otherwise risk infringing copyright.
Industry Participants: Most of what has been described so far is relatively straight forward. It is the manner in which the music industry has organised itself which is a common cause of confusion. We will look at three industry participants – publishers, record companies and collecting societies.
(a) Publishers:: Publishers promote and sell music. One of their major functions is to persuade recording artists and record companies to record the musical works the publisher controls. Publishers also promote these works to film and television producers.; Commonly a publisher will seek from the composer an assignment of all copyright in the compositions (music and lyrics) for a specified term, for example three years.; Often this assignment will need to recognise that a partial assignment may already have been made to APRA (see below).; Publishing agreements of the composer often have a "retention period" which continues after the term of the agreement. For example, if at the end of the term a composer had produced 100 compositions the publisher will own copyright in those compositions. After the term the composer is free to offer future compositions to a new publisher. The old publisher may have a retention period of say 7 years during which it can continue to exploit the 100 compositions composed during the term. At the end of the retention period there should be a reassignment of copyright back to the composer.
(b) Record Companies:: Record companies enter into recording contracts with artists but they also enter agreements with publishers to obtain the "mechanical rights" for compositions controlled by the publisher.; (If the songwriter does not have a publisher the record company will deal directly with the songwriter.)
(c) The Australasian Performing Right Association (APRA): APRA is a non-profit association whose members comprise songwriters and publishers. Members assign to APRA their performing rights, that is, not only the right to perform the work in public but also the right to communicate the work to the public (principally by broadcast).; APRA collects fees for performance and broadcasting and distributes those fees to members. If a publisher controls work then at least half the royalties due must go to the songwriter/composer.; APRA grants "blanket" licences and not licences for individual compositions or songs.; A licence is required whenever there is a public performance of a musical work.; "Public performance" includes such activities as a live performance of music in a public hall, playing music from the radio (or CDs) by the proprietor of a shop and even music played on hold over the telephone.

For further information about issues covered in this article, please contact Bill Morrow + 61 8 8210 1212 or E-mail bmorrow@normans.com.au.

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