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. Letter from Recording Industry Association of America (RIAA) to NCCUSL Objecting to UCC 2B

 

TO: National Conference of Commissioners on Uniform State Laws
Carlyle Ring, Jr., esq., Chair, UCC 2B Drafting Committee
Professor Geoffrey C. Hazard, Jr., Director, ALI

FROM:

Recording Industry Association of America

DATe
 

October 9, 1998
 

               Proposed UCC 2B is an ambitious attempt to craft commercial contracting rules for software contracts and virtually all "licenses of information." These rules would cover a broad range of industries outside the software industry, including the recording industry, each of which has well­established contracting practices not governed by the UCC. Although portions of the entertainment, publishing, software and other industries are converging at various points, which may seem to those outside these industries to validate the goal of a single framework for contracting in and among all of the "information" industries, each has developed over time its own unique contracting practices. Because these industries, including the recording industry, contribute so greatly to our national economy and indeed the global economy, each deserves and requires a contractual framework which yields outcomes which are both certain and consistent with established commercial practices in its own industry. Unfortunately, if enacted as presently drafted, UCC 2B would leave the recording industry, as well as other segments of the entertainment industries, with fundamental uncertainties as to the short term and long range effects of UCC 2B on its contracting practices, which uncertainties threaten the continuing economic vitality of our industry (and, we understand, the others).

               In the introduction to the current draft of UCC 2B, the NCCUSL Reporter states that "The measure of the project lies in its ability to accommodate diverse practices in a new information era." Unfortunately, the recording industry has concluded, with some reluctance and after many months of attempting to parse an often­changing and extremely intricate text and to foresee the possible impacts of this extremely broad article on the entire range of transactions in our industry, that the "one­size­fits­all" approach of UCC 2B does not fit the recording industry. The recording industry is simply not ready or willing, at this time, to trade in a comfortable, reliable and customized set of contract rules and practices for an off­the­rack, uniform set of rules.

               Our unwillingness to accept UCC 2B as presently drafted should not be misinterpreted as mere aversion to change. The recording industry has every desire to have a reliable and sensible framework for electronic commerce. The recording industry has continually benefited from advances in technology. Indeed, the recording industry was the first major entertainment industry to exploit digital technology with a consumer product -- the CD in 1982. Today there are over 80,000 websites dealing with music. The recording industry foresees the convergence in the near future of personal computers, consumer electronics hardware and our products, and we look forward to both the challenges and the opportunities of that convergence. But we cannot allow ourselves to enter that new world with a map that is indecipherable.

               The domestic market for recorded music sales in 1997 totaled over 1 billion units shipped, having a cumulative dollar value, calculated at suggested list price, of over $12 billion. Nearly all of such sales occurred through traditional, physical channels of distribution, such as record stores (51.8%), other stores (31.9%), tape/record clubs (11.6%), and mail order (2.7%). Only three-tenths of one percent (0.3%) of such sales were made via the Internet, and nearly all of those Internet-related transactions were sales involving the delivery of physical copies. What these statistics tell us is that while the recording industry is a very substantial part of our U.S. Economy, electronic commerce presently accounts for only a small, statistically insignificant portion of the current market for recorded music. The point of citing these statistics is not to deny that electronic commerce has the potential to become a very substantial portion of the overall market for recorded music, but rather to show that, due to its present lack of impact on the current financial performance of record companies, as well as technological and legal concerns about the protection of copyrights in recorded music delivered electronically over the Internet or otherwise, the marketplace has not yet had an adequate opportunity to develop workable customs and practices for the electronic distribution of recorded music. To date, very few record companies have licensed any of their recorded music for electronic distribution. Similarly, when our companies acquire rights to sound recordings, electronic distribution rights have rarely been a material issue in the negotiations. It is therefore difficult for the recording industry to interpret and understand the impact of a completely new set of contract rules which will govern commerce in a marketplace the shape and dynamics of which are still largely a matter of speculation.

               In our attempt to comprehend the intricate set of rules comprising UCC 2B and to grasp its often non-apparent implications, we have consulted closely with the Motion Picture Association of America (MPAA). We have great appreciation for the massive effort they have undertaken to come to grips with UCC 2B and to lead the quest to ensure that the practices, concerns and unique contributions of the entertainment industries would not be overlooked or underappreciated in the process of crafting UCC 2B. We have carefully studied their analyses of UCC 2B, which we have found to be most insightful. They have illuminated many specific instances of real perils lurking beneath seemingly innocuous provisions and validated our own general sense of uneasiness about the overbreadth of this article. We believe that in their memoranda to NCCUSL dated July 16 and 17, 1998 (the "MPAA Memoranda") they have established an overwhelming case that UCC 2B, as drafted, does not work for their industry. For many of the reasons cited by the MPAA, the present draft does not work for the recording industry either.

                Rather than reiterating the many specific, detail-oriented problems highlighted by the MPAA in their memoranda, we wish to focus primarily on the issues of scope and to explain how proposed Article 2B creates such pervasive uncertainties that we cannot support its application to our industry.

                Scope

                Our difficulties with UCC 2B as drafted begin with uncertainty about the most fundamental aspect of UCC 2B, namely its scope. Whether, and, if so, to what extent, some of our most common, and most important, types of contracts are covered by UCC 2B remains uncertain even at this late date.

                In order to explain this, we will defer until later in this paper consideration of the bracketed subsection 2B-104 (8), which would exclude from the scope of the Article any "license of a linear motion picture or sound recording or of information to be included therein, except in connection with providing access to such motion picture or sound recording under an access contract covered by this Article." This provision was introduced in March, 1998, without recommendation from either the MPAA or the RIAA. Indeed it was introduced shortly after our outside counsel submitted on our behalf numerous comments and questions about UCC 2B to the Reporter. No direct response to these comments and questions was ever made, and the introduction of the bracketed Section 104(8) only added to the uncertainty. To begin, then, our analysis will assume that subsection 104(8) is not part of the draft.

                The most fundamental and important type of contract utilized in the recording industry, according to our member companies, is the recording contract. It is the most prevalent contract by which our member companies acquire the rights to exploit sound recordings created by recording artists, which exploitation is accomplished not only through the primary channel of retail sale of the artist's records, but also through many ancillary channels, such as licenses for use in motion pictures, television programs, video games, soundtrack and other compilation albums, commercials and background music services. As the gateway to all such channels of exploitation, the recording contract is simply the life's blood of our business. Under a typical recording contract the artist agrees to render the artist's services, individually or as part of a group, exclusively to the record company during the term of the contract for the purpose of making sound recordings (or "master recordings" in record company parlance). The recording contract grants to the record company the exclusive ownership of those sound recordings and the exclusive rights to exploit them by all means possible, subject to any agreed upon restrictions or limitations on use.

                each major record company has developed its own basic form of recording contract, customized to its own unique set of business practices which have been developed over the years. Each company has a very strong interest in having contracts which yield predictable outcomes, and all of them are comfortable with the outcomes achieved under currently applicable law, namely common law. None of them sees any need to be filled or advantage to be gained from having their recording contracts (or, indeed, any of the types of licenses described above or any of the other common types of contracts discussed below) be governed by a new set of contract rules, such as UCC 2B. Quite naturally then, all of them were very concerned to understand how UCC 2B would affect their recording contracts.

                By examining how recording contracts fit within UCC 2B we can illustrate our industry's extreme discomfort with the Article. In order for a recording contract to be subject to Article 2B pursuant to Section 103(a), it would have to be either a "software contract", "access contract", or "license" as defined in Section 102. If a recording contract is any of these, it is most likely a "license," although it is possible (as will be shown below) to come to the conclusion that a recording contract may also be a "software contract" or an "access contract," which further illustrates the problematic nature of the drafting of the Article, particularly its definitions. A "license" is defined, in relevant part, to be "a contract that authorizes access to or use of information or of informational rights and expressly limits the contractual rights or permissions granted, expressly prohibits, limits or controls uses, or expressly grants less than all informational rights in the information." A recording contract unquestionably authorizes use of the subject sound recordings. However, it is not certain that every recording contract meets the second test. Although many terms are negotiated in the typical recording contract negotiation, the typical first draft recording contract form grants all informational rights in the sound recordings to the record company and does not limit the record company's rights therein or the uses which may be made thereof. Accordingly, it is possible that some contracts, e.g. with a new artist whose services are not being sought by more than the one record company, may give the record company an unfettered hand in exploiting the artist's recordings. If so, then such a recording contract would seem not to be within the definition of a license.

                It was suggested by the Reporter in a meeting earlier this year attended by one of our representatives that all recording contracts would be licenses because they require the record company to account for and pay royalties. However, the typical recording contract does not make the grant of rights subject to or conditioned upon the record company's compliance with its obligations to account and pay royalties. We are not sure why a recording contract should be governed by UCC 2B if the artist is granted rights of approval over certain types of uses, but not be governed by UCC 2B if it does not. Moreover, it is possible that in the same recording contract, the question of whether the record company's rights are limited or unlimited may be answered differently with respect to different subsets of rights which are granted, e.g. rights to audio-only recordings, rights to audiovisual recordings, rights to album artwork and rights to exploit name and likeness. This could result in certain parts of the contract being covered by UCC 2B while others are not, resulting in confusion and uncertainty, as will be discussed further below.

                Section 104(5) excludes from coverage any transaction that is "a contract for personal or entertainment services by an individual or group of individuals, other than a contract with an independent contractor to develop, support, modify or maintain software." Leaving aside the possible interpretation that a recording contract could be considered to be a contract with an independent contractor to develop software for the reasons discussed in Footnote 2 below, a recording contract certainly appears to be a contract for personal or entertainment services, albeit that "entertainment services" is not defined. However, this does not result in total exclusion of recording contracts. Instead, Section 103(b) provides that Article  2B applies to the information, informational rights, copies that contain the information, its packaging and its documentation, and that "other contract law" governs as to other parts of the transaction. In the case of recording contracts, common law, therefore would govern as to the services aspects. The problems inherent in the creation of such "mixed transactions" will be discussed below.

                Section 103(3) provides that Article  2B's rules on contract formation apply to the entire transaction if "the transaction involves services. . . and the information or services that are within the scope of this article are the predominant purpose of the transaction [emphasis added]." As discussed in detail in the MPAA Memoranda, UCC 2B abandons the common law "mirror image" rule in favor of allowing more flexibility in the formation of contracts, with the result that in many factual scenarios UCC 2B would find a contract to have been formed whereas common law would not. 1 / This would make the determination of "predominant purpose" under Section 103(3) the critical issue in determining whether or not, under circumstances routinely occurring in contract negotiations in our industry, a contract had been formed. Although a strong argument could be made that the grant of rights to exploit the sound recordings is the predominant purpose of a recording contract, nonetheless an argument could be made that but for the services, which the typical recording contract acknowledges to be unique, the rights would have no value and therefore it is the services of the particular artist which are either predominant or at least of equal importance. The outcome, if such issue were litigated, would be uncertain, and record companies do not wish for such questions to become the subject of litigation.

                Moreover, section 103(3) must be contrasted with 104(1) which provides that Article  2B does not apply to the extent that a transaction is a license or software contract that, as between the licensor and licensee, is only an incident of subject matter not governed by this Article. If the grant of rights with respect to the sound recordings were held to be only an incident of the services which resulted in those sound recordings, then the recording contract would appear to be entirely excluded. The Reporter's notes on the meaning of an "incident" of excluded subject matter have changed from time to time and remain less than entirely clear. Although the present draft of the notes states that the Article does not apply if the information is a "mere" incident of excluded subject matter, which suggests that the information plays a role of lesser importance in the transaction, the text of 104(1) does not use the word "mere." Moreover, one of our representatives recalls the Reporter having suggested in one of the meetings held with private organizations to discuss the Article that the grant of rights in a recording contract was a "mere incident" of excluded services and that, therefore, recording contracts would be excluded by virtue of this section. This degree of uncertainty on such fundamental questions is unacceptable. Our member companies do not wish to have such questions be left open for resolution by the courts.

                These fundamental uncertainties exist not merely with respect to recording contracts, but also with respect to a number of other common and important types of contracts in the recording industry. For example, the notes to subsection 104(5) seem clearly to provide that to the extent that a direct personal or entertainment services contract is excluded, an indirect, so-called "loan out" contract whereby the artist is hired through a nominal legal entity is also excluded. However, that does not address the very common structure whereby the artist's services, or perhaps more accurately, the results and proceeds thereof, are furnished to the record company through a so-called record production company which is not owned or controlled by the artist. In such contracts, the artist is not a party to the principal contract, which is between the record company and the record production company, but is tied to the record company through a so-called "inducement letter" or "inducement agreement", whereby the artist agrees that if the artist's own recording agreement with the record production company should be cancelled or terminated or become unenforceable for any reason, the artist will perform directly for the record company. In many instances the principal of the record production company is a talented producer, songwriter or talent finder in his own right, and whether the services of the production company principal or the grant of rights with respect to the results and proceeds of the principal's services and the artist's services are the predominant purpose will undoubtedly be arguable and the outcome of any such argument will be uncertain.

                Another very common type of contract is the so-called pressing and distribution (p&d) agreement, whereby a major record label or its affiliated record distributor will be granted exclusive distribution rights with respect to the products of that smaller label and will agree to perform customary sales and distribution services and perhaps marketing and promotion services as well. This type of contract illustrates another problem with the predominant purpose test of Section 103(b)(3). The predominant purpose of such a transaction will clearly be different depending on whether it is viewed from the perspective of the licensee or the licensor. From the perspective of the licensee, i.e., the major record company distributor, the license of rights is predominant, whereas from the perspective of the licensor, i.e., the distributed label, the services to be provided by the distributor are the predominant purpose of the transaction.

                Mixed Transactions.

                As mentioned above, for all purposes other than determining whether or not a contract has been formed, in a "mixed transaction" UCC 2B will apply to the information, informational rights, copies and packaging, whereas "other contract law" will presumably govern the rest. Trying to apply Section 103(b) in practice may prove extremely difficult and unpredictable. For example, if a recording artist breaches the covenant to provide the artist's services exclusively to the record company by performing on a recording for another record company, is that a breach of the services part of the transaction or the license part, and therefore do the UCC 2B remedies or common law remedies apply? If the artist records an unauthorized "sample" in the sound recording he delivers to the record company, resulting in a claim of copyright infringement made by a third party, are the record company's remedies governed by common law as a breach of warranty regarding services, or do 2B's provisions regarding warranties and remedies for the breach thereof apply?

                Another extremely important type of contract is what is known as a joint venture or record label agreement whereby a major record company or other larger record company agrees to provide funding and the services of its staff in areas such as marketing, promotion, administrative and other back room functions in exchange for the rights to sell and exploit recordings by artists under contract to or discovered by the smaller record company. In many instances the services of the principals of the smaller company as talent finders are extremely important and may be more the focus of the negotiations than either the artists, who may not yet have been discovered, or the recordings, which will often not yet be in existence. The outcome to this question simply cannot be predicted. Moreover, which set of contract rules would govern questions regarding performance of the major record company's obligations to provide funding? Also, if a question arises as to whether the major record company has complied with its obligations to perform services with respect to the marketing and promotion of the subject record label's products, is that governed by 2B-306(b) which provides that a licensee that is the exclusive distributor must use good faith efforts to promote the information commercially, or are those services governed by other contract law, e.g. common law? As the MPAA points out in its Memoranda, Section 306(b) would impose a greater duty on record companies to market and promote sound recordings and audiovisual recordings licensed to them by third parties than exists under common law or in industry practice. This would have disastrous consequences for the record industry, which operates on its own unique business paradigm, one which is quite different from that applicable to other types of exclusive distributorships. It is just one example of how all "information" industries may not operate comfortably under the same set of rules.

                Likewise, if a dispute arises under a recording agreement or record production agreement as to the amount of royalties payable by the record company to the artist or record production company, or as to the amount of royalties or profits payable to the subject record label under a joint venture/record label type contract, are the questions of whether there has been a breach of contract and, if so, what are the remedies, determined by UCC 2B or by common law? There does not appear to be a clear answer.

                Are Our New Products Software?

                Another fundamental area of uncertainty for our industry is whether the sale of certain of our newer products constitute sales of software which are subject to Article  2B by reason of the definition of "software contract", which includes a sale of a copy of software, and Section 103(a), which provides that the Article applies to any transaction that creates a software contract. The Reporter's notes state that Article  2B does not cover sales of books, newspapers or magazines, and the Reporter has stated in meetings discussing UCC 2B that it likewise does not cover sales of traditional record industry products such as CDs and cassettes, nor traditional audio-visual products, such as "live", in-concert videos and video clip compilations sold on video cassette or video disk. However, neither the Article itself nor the notes establish any guidelines for distinguishing between traditional recorded music products and software. 2 / Over the past several years record companies have been selling enhanced CD's, sometimes referred to as CD Plus, which, when played through a CD-ROM drive, are able to display printed lyrics, graphics, and music videos. More recently, record companies have been selling enhanced CD's which contain computer programs bundled thereon. For example, one of the major record companies, through an agreement with an Internet service provider, has bundled into many of its CDs a program allowing Internet access through that provider. Other companies have released CDs containing programs which allow the user to connect easily with a specific website or chat room devoted to the artist whose music is contained on the CD. Others contain programs which allow the user to play an instrument along with the music on the CD. We expect these and other new approaches to marketing our music products will continue to proliferate. It is important to our industry to know, with as much certainty as possible, when and how our products become subject to Article  2B and to clearly understand the consequences of that coverage. For example, to the extent that UCC 2B would impose greater liabilities or stricter limits on record companies in consumer transactions pertaining to software than they would face when selling traditional CDs and cassettes, record companies would take that into account in their decisions whether it was feasible to market a certain type of product, and how to price it. These decisions require clear statutory guidance, which, as presently drafted, proposed Article  2B does not contain.

                The "Carve Up" Problem

                The MPAA Memoranda have presented compelling practical examples of how UCC 2B would "carve up" a single transaction or group of related transactions and subject them to different regimes of contract law, with possibly different results. This same problem exists for the recording industry as well. We have discussed above the problem of differentiating in a particular contract those obligations which are to be considered part of the license of information, and therefore subject to UCC 2B, and those which are to be considered part of subject matter, such as services, governed by other contract law. In addition there are certain transactions where one or more subsets of the rights licensed would come within UCC 2B and one or more subsets would be excluded. For example, in certain types of contracts discussed above, the grant of rights will typically include exclusive public performance rights in addition to the right to sell records and other reproductions by all possible means. Since this grant would include the rights to publicly perform those recordings by "regularly scheduled audio or video programming by broadcast or cable," that portion of the contract would appear to be excluded from coverage by UCC 2B, whereas the similarly included license to publicly perform those same recordings by webcasting over the Internet would seem to be included. 3 /

                Likewise, the record company's license to MTV, VH1 or other video outlets of rights to publicly perform videos through their basic cable operations would presumably be excluded, whereas the portion of the same license granting those outlets the rights to webcast the same videos over the Internet would presumably be included under UCC 2B. There undoubtedly could be other examples of mixed transactions. Any such carve-up of a single transaction into multiple transactions governed by different sets of laws undermines the goals of uniformity and predictability of outcomes and is undesirable.

                The Section 104(8) Carve-Out

                This brings us back to section 104(8), which purports to exclude all licenses of sound recordings except in connection with providing access thereto under an access contract. For the purposes of this section of the analysis, we will assume that this section is not bracketed but rather is part of the proposed text. As stated above, this carve out was not added to the Article at the request of the recording industry or motion picture industry nor was our or their input sought in drafting the proposed carve out language. The goal of the attempted carve out seems to have been to leave "traditional" methods of licensing in the motion picture and recording industries outside the scope of 2B, while encompassing new, online transactions. However, it is not clear that the proposed language accomplishes this goal or that this goal is the best, or even a feasible, way to avoid disruption of existing contractual practices while providing predictable and sensible results for new types of transactions.

                We are concerned that the definition of an access contract may be so broad as to swallow up and eliminate the proposed exclusion. 4 / For example, if the right or obligation of an artist or other licensor to deliver a sound recording to the record company licensee by electronic means makes the license of that sound recording an access contract, then all or nearly all of the traditional transactions intended to be excluded would be swept right back within the coverage of UCC 2B. Similarly, the definition of an information processing system is so broad that the mere contract to sell a copy of a CD could itself constitute an access contract, notwithstanding the apparent intent that the outright sale of a CD or music video not be subject to Article 2B.

                Furthermore, since physical distribution of recordings will not be replaced by electronic distribution overnight, but will most likely continue to co-exist as electronic distribution develops, for the foreseeable future, most licenses of distribution rights will likely be mixed transactions, involving traditional rights of physical distribution as well as rights to distribute or transmit recordings electronically. The present approach of treating all such mixed transactions under different contract regimes, with the likelihood of inconsistent outcomes, is simply unworkable.

                Moreover, digital transmission of sound recordings and digital phonorecord deliveries are, for the vast majority of our industry, only in the study phase. The types of alliances which will need to be made to effectively market, promote and sell our industry's products via these new methods have yet to be determined. The uncertainties which the recording industry already faces as it contemplates the transition from a distribution model consisting entirely of physical distribution of its products primarily through retail stores to a scenario in which electronic distribution of non-physical copies will co-exist with and perhaps eventually overtake physical distribution are already great enough without the added uncertainty of changes in contract law.

                While we understand that to stimulate the growth of electronic commerce, it is desirable to have a consistent, understandable and predictable set of contract rules, particularly with respect to mass market transactions, it is our firm belief that our many forms of business to business transactions are best served by the existing contract law regime. We see no advantages to changing the current rules, particularly to a statutory scheme which will in so many instances leave us caught in the uncomfortable position of straddling both contract regimes.

                If more time had been available to us, or if the present timetable were extended to allow for further study and discussion, and if we were given the opportunity to have a meaningful, extended dialog between our representatives and the drafting committee, we could perhaps have found or yet find a different approach whereby we could support a limited inclusion of transactions within the recording industry, e.g. perhaps a limitation to mass market transactions only. However, under the present timetable and with the present draft, the only responsible position we can take on behalf of our members is to decline to support the Article.

                The Perlman Amendment.

                Given our conclusion that, as presently drafted, we cannot support UCC 2B, we do not think it is necessary or appropriate to do a detailed section-by-section analysis of the Article. Since we are not prepared to support the Article even if a high percentage of the specific suggestions we might make would be acceptable to the drafting committee, it would give a false impression of our position to suggest such specific "fixes". However, we feel we would be remiss if we did not take this opportunity to formally note our strong opposition to the proposed Perlman Amendment and any attempt to incorporate its principles into UCC 2B or any other uniform state law which would govern, in whole or in part, our industry. The bracketed section 105(b), which provides that "a contract term that violates a fundamental public policy is unenforceable to the extent that the term is invalid under the policy," may at first blush appear to be innocuous and non-controversial. However, we strongly believe that this is a slippery slope which will invite and encourage the creation and assertion of alleged fundamental public policies of 50 states and countless local jurisdictions. The potential exposure to the assertion of an unlimited range of supposedly fundamental public policies of multiple jurisdictions will completely undermine the fundamental goals of uniform state laws, namely uniformity, certainty and predictability of outcome and commercially reasonable results. Moreover, we believe that the enforcement of state and local public policies relating to innovation, competition and free expression will inevitably be either superfluous to or inconsistent with federal policy on such matters and ultimately be subject to federal pre-emption. In the interim, however, much litigation is certain to be instituted, leaving the copyright industries in turmoil for years until all such issues are resolved at the federal level. As representatives of a significant segment of the copyright industries, we must strenuously object to any attempt to take issues of public policy relating to the exploitation of copyrights out of the exclusive domain of federal law and place them under the concurrent jurisdiction of state law.

                For the reasons discussed above, we have concluded that the current draft of Article 2B is not acceptable to our industry. Moreover, given the collective significance of the organizations which joined in signing the September 10, 1998 letter of opposition to UCC 2B, namely the National Association of Broadcasters, the National Cable Television Association, the Newspaper Association of America and the Magazine Publishers of America, as well as the MPAA and ourselves, we respectfully submit that at this time NCCUSL lacks the requisite broad consensus to recommend such a far-reaching and significant piece of legislation as UCC 2B, as presently constructed, for adoption. Once again, we respectfully urge NCCUSL and ALI to table the UCC 2B project.

Sincerely,

 

/s/ Cary H. Sherman

Cary H. Sherman,
Senior executive Vice President
and General Counsel
Recording Industry Association of America

___________________________
           1 / Although this paper is focused on fundamental issues such as scope, our record company representatives specifically requested us to note their especially strong opposition to Section 201(d), which would find that a contract had been formed as a result of a party's failure to object within 10 days after receipt of a purported confirmation containing varying material terms. This is at odds with commercial practice and understanding and would be especially troublesome in the many forms of licenses whereby sound recordings are exploited in ancillary markets, as discussed above. A separate license is customarily issued for each individual master recording, which results in a tremendous volume of licenses. Often these ancillary projects are developed in a very short time frame in order to capitalize upon the current popularity of the music, which can be very short-lived. Since the primary form of compensation in many of these licenses is royalties, i.e., contingent compensation, the amount at issue is not certain to be significant, but could become quite significant. Moreover, the royalties provisions and rights provisions are intricate and require careful review. For all these reasons, licenses tend to be done in deal memo form and often are not signed until well after the given record, motion picture, or other ancillary work is released. Accordingly, any rule which would force the record company to react within a short period of time or be deemed to have formed a contract or assented to additional or varying terms without its affirmative acceptance is simply not workable or acceptable and will undoubtedly lead to unnecessary litigation.

           2 / A "software contract" is defined as "a sale or contract to sell a copy of software, a license of software, or a transfer of ownership of informational rights in software, whether the software exists or is to be developed pursuant to the contract." "Software" is defined to mean "a computer program, any informational content included in the program, and any supporting information provided by a licensor as part of an agreement." A "computer program" is defined to mean "a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result." A "computer" is defined to mean "an electronic device that can perform substantial computations, including numerous arithmetic operations or logic operations without intervention during the computational operation."

           It could be argued that a CD, for example, contains a set of statements or instructions which allow the music to be reproduced when played either in a computer's CD-ROM drive or a typical CD player, which could therefore result in the interpretation that the CD contains, or is a copy of, a computer program. Because "software" is defined to mean a computer program and any informational content included in the program, it is possible to conclude that the sale of any CD may be the sale of a "copy of software," which then would make the sale of that CD a "software contract." Clearly this conclusion becomes more likely, and perhaps inescapable, in the case of an enhanced CD which contains thereon something which is clearly a computer program, e.g., a program which allows Internet access.

           Similarly, because a recording contract grants the record company the right to sell copies of sound recordings, and indeed to sell any and all other reproductions derived from the sound recordings, one could conclude that a recording contract constitutes a "sale or contract to sell a copy of software." Alternatively, since a recording contract grants the record company the right to develop derivative works based on the sound recording and grants the record company the ownership of those derivative works, arguably the recording contract constitutes a transfer of ownership of informational rights in software, such as the new types of enhanced CD's, to be developed pursuant to the contract. For these reasons, as suggested above, although it would seem not to fit within the common sense meaning of a "software contract", it is quite possible that a recording contract would be held to be a "software contract", with all the consequences, presently known or unknown, attendant thereto.

           3 / As the MPAA has pointed out, however, what is meant by regularly scheduled audio or video programming is somewhat unclear. For example, if a video programmer, such as MTV in its earlier years, broadcasts music videos without pre-announcing a scheduled time for the broadcast of the particular videos, is that regularly scheduled programming? If that is not, does it become so by broadcasting a "top 20" program featuring a particular artist or style of music, etc.? Would a satellite programming service be a "similar regularly scheduled programming service" if it pre-announced the types of programs described in the prior sentence? If the record company were to license a webcaster to webcast a live concert performance by the record company's artist, which, being a live event, would be scheduled at a specific time, would that constitute a "similar regularly scheduled programming service" so as to be excluded from coverage?

           4 / An access contract is defined to mean "a contract to electronically obtain access to, or information in electronic form from, an information processing system." An "information processing system" is defined to mean "an electronic system or facility for generating, sending, receiving, storing, displaying or processing electronic information." The definition of an information processing system is so broad that it could include the electronic system by which the recording artist delivers the artist's recordings to the record company in electronic form. The consequence of such an interpretation would be to undo the carve out attempted by Section 104(8).


UCITA Pages On
James S. Huggins' Refrigerator Door

UCITA: Uniform Computer Information Transactions Act 
(This is the primary UCITA page.)
 
Home Box Office
Memo Spring 1998 (?)
 
45 Professors of Contracts and Commercial Law Letter 16.Jul.1999
 
Motion Picture Association of America Letter 10.Sep.1998
 
50 Intellectual Property Law Professors Letter 17.Nov.1998
 
Motion Picture Association of America Letter 09.Nov.1998
 
American Bar Association Letter 10.Jun.1999 
 
Motion Picture Association of America Letter 07.Dec.1998
 
American Committee on Interoperable Systems Letter 13.Jul.1998
 
Motion Picture Association of America Letter 10.May.1999
 
American Committee on Interoperable Systems Letter 07.Oct.1998
 
Movie, Publishing and Broadcasting Industry Letter 10.Sep.1999
 
American Committee on Interoperable Systems Letter 21.Jun.1999
 
National Music Publishers Association Letter 21.Jan.1999
 
American Committee on Interoperable Systems email 15.Jul.1999
 

Opposition Summary 
 
American Law Institute Letter 26.Mar.1999
 
 
Pamela Samuelson Letter 09.Jul.1999
 
Association of the Bar of the City of New York Report 21.Jun.1999
 
Principal Financial - Introduction to UCITA
 
 
Attorneys General Letter 23.Jul.1999
 
Principal Financial - Summary of UCITA
 
 
Attorneys General Letter 28.Jul.1999
 
Recording Industry Association of America Letter 09.Oct.1998
 

Attorneys General Letter 23.Jul.1999 
 
 
Sample Letter 


Caterpillar Statement 1999
 
 
Security Mutual Insurance Letter 26.May.1999
 

Consumer Groups Letter 10.Nov.1998 
 
Society for Information Management Letter 23.Mar.1998
 
 
Consumers Union Letter 08.Oct.1998
 
 
Society for Information Management Letter 08.Oct.1998
 
 
Consumers Union Letter 21.Jun.1999
 
Software engineering Institute Letter 01.Jun.1999
 
Digital Future Coalition Letter 23.Jun.1999
 
 
swtest-discuss Letter 20.Nov.1998
 

Digital Future Coalition Page Fall 1999
 


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