# Are exclusive agreements enforcable when there's no guarantee of revenue?



## rgames (Aug 18, 2021)

Came up in a conversation yesterday: are exclusive agreements enforcable when there's no guarantee of revenue?

Here's why I ask: non-compete agreements are well-known outside the music biz. Companies (try to) use them to keep people from Facebook, for example, going to Google for some number of years after they leave. It's usually reserved for VP-level people or others with very high status so companies can keep their top performers.

But they're almost never legally enforceable *unless* they're associated with some kind of compensation (e.g. a bonus). Even then, they're often not enforceable under "right to work" principles. 

So, an exclusive agreement between a composer and a library/production/whoever where there's no up-front payment and no guarantee of a placement that will generate revenues is, essentially, a non-compete agreement where there is no guarantee of compensation. So, it seems the legal precedent would be that they are not enforceable.

As a practical matter, of course, if the licensee finds out you gave him a track that's not actually exclusive then he's probably going to quit working with you. But I don't think the exclusivty agreement is enforceable if you never got paid, so you'd be safe on the legal side but you probably burned a bridge.

So, is anyone aware of a case where someone was held liable for breach of contract under an exclusivity clause where there was no up-front payment or guarantee of revenue?

rgames


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## JohnG (Aug 18, 2021)

An intriguing question. Non-compete agreements are more enforceable in some jurisdictions than others, but still, you make some good points.

Another question is -- so what if they are? What are the damages? Besides, how much time / money does it cost the person who allegedly is aggrieved to collect?

I don't think that means it's ok to disregard an undertaking of exclusivity; I wouldn't. 

Moreover, not all our work fits into the "nothing paid" scenario (which I realise is important to your premise so not dismissing it). In some cases, a production company pays an orchestra to record and an engineer to mix music we write. In that circumstance, obviously the damages could be calculated, not counting any penalty.


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## rgames (Aug 18, 2021)

JohnG said:


> Moreover, not all our work fits into the "nothing paid" scenario (which I realise is important to your premise so not dismissing it). In some cases, a production company pays an orchestra to record and an engineer to mix music we write. In that circumstance, obviously the damages could be calculated, not counting any penalty.


Yeah that's a different scenario than what I had in mind. In that case the production has legal claim to the "product", so you can't give it to someone else without their consent.

But if you do all the writing, recording, mixing, mastering, etc. then you're the only one with a legal claim to the product. In that case I think an exclusivity clause might not be enforceable.

And yes, agreed you don't want to ignore exclusivity clauses. But that's from a business relationship standpoint, I'm just curious if there's precedent for any legal consequences.

rgames


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## JJP (Aug 18, 2021)

We may also be crossing non-compete agreements in employment contracts which have severe labor law limitations in certain US states with exclusivity arrangements between two business entities. In the latter case, it's really a question about the willingness of one party to enforce the contract.

For example, if a library takes a track and agrees to represent it for licensing, a composer may agree to exclusively grant them the right to do so on the assumption of some sort of deferred payment. That's a business transaction over a commodity and very different from an employer trying to prevent a worker from working for a competitor. Different laws would apply.


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## gamma-ut (Aug 18, 2021)

This is in the UK and not media specifically, but the law was changed a few years ago to outlaw exclusivity agreements in zero-hours contracts - ie contracts where there was no guarantee of work: https://www.ashfords.co.uk/news-and-media/general/zero-hours-contracts-ban-on-exclusivity-clauses

Apparently, the contracts were enforceable before that point. However, I would assume that any contract of that type would have a termination clause that can be triggered by either party. If you're not getting paid and there's no prospect of doing billable work, there's no reason not to terminate if other work turns up.


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## rgames (Aug 18, 2021)

JJP said:


> a composer may agree to exclusively grant them the right to do so on the assumption of some sort of deferred payment. That's a business transaction


Yeah I get what you're saying, but if there's no payment within some reasonable amount of time then is there really a transaction?

rgames


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## JohnG (Aug 18, 2021)

gamma-ut said:


> I would assume that any contract of that type would have a termination clause that can be triggered by either party


sometimes yes, sometimes no. Probably a good idea to require a built-in out so that, if no $$ / ££ changes hands after, say, one year, the contract is over.

I think @rgames is focused on an interesting, narrow question -- if there is no money exchanged ever, is there an enforceable agreement?

I was told that as little as a dollar / a pound was sufficient to make a contract binding. All the ones I've signed say something like, "for good and valuable consideration, receipt of which is hereby acknowledged" or words to that effect. Those are not "just lawyer stuff" but arguably a lynchpin of any contract.

*Performance*

Maybe you could argue, in Richard's example, that the effort to market your tracks was insufficient in comparison to the promise made, so you would argue there's a "performance" out -- that because the other party didn't do what he promised, you are not bound either. In general, if one party to a contract simply fails to do what the contract says he will, the other party can argue for relief. Still might lead to a dispute.

A fun thought-puzzle but thats' why we should read the agreement carefully, and make sure that, if no money comes in after some period of time, the full ownership reverts to the composer (pertinent to the point @gamma-ut made).


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## JJP (Aug 18, 2021)

rgames said:


> eah I get what you're saying, but if there's no payment within some reasonable amount of time then is there really a transaction?


Perhaps not, but there is still an agreement between the parties. Just because a business doesn't make money doesn't mean the agreement between the partners is invalid. That's different from an employment transaction in which the employer receives the benefit of the employee's work in exchange for wages.

I'll stop there because we're hitting the limits of my knowledge of business law.


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## JohnG (Aug 18, 2021)

JJP said:


> Just because a business doesn't make money doesn't mean the agreement between the partners is invalid.


Sometimes it can, arguably, because of the "performance" argument, or the lack of "good and valuable consideration."

But it's still an argument and it's ideal not to have to argue your position, because -- it's expensive to argue things like that. A clear "no money after one year" termination clause is a good plan.

A counter-example: If the producer invests $10,000 in your track, that's another matter. A contract governing circumstances like that is not going to feature an 'out' for lack of money coming in.


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## gamma-ut (Aug 18, 2021)

The trouble with looking at a contract from an enforceability PoV is that you can still wind up paying for lawyer time just to demonstrate its unenforceability. It still comes down to "do I feel lucky?"

Also, the practical enforceability will depend on the specific of the contract. Is the exclusivity over tracks supplied to a library? Or over doing any work that does not wind up in the library? The former is reasonable, if irritating if the library just eats the material and does nothing with it with no practical way to recover the material in that event. The latter is unreasonable and should be unenforceable on that point, but I have no idea how US courts look at unreasonableness in the context of business contracts. I believe consumer contracts have been thrown out on the basis of being unreasonable but I'm not sure courts take the same attitude with those made by businesses and that may well extend to the idea that money has to change hands to be enforceable.

In any case, I think I'd be taking a long hard look at any lawyer that advised "this looks OK" to a contract without some termination clause or failing that, a (lack of) performance clause.


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## rgames (Aug 19, 2021)

gamma-ut said:


> The trouble with looking at a contract from an enforceability PoV is that you can still wind up paying for lawyer time just to demonstrate its unenforceability. It still comes down to "do I feel lucky?"


That's true. The flip side is that the production/library/whoever faces the same dilemma: is it worth it to pay a lawyer to go after you for breach of contract, especially when the legal grounds are murky and the returns on the lawsuit are likely to be much less than the legal fees?

The "performance" argument that @JohnG mentions is, I think, a pretty strong one. If you sue me for breach of contract then I throw it back at you for not doing your part to generate any revenues, and you're in breach of contract also. I think at that point both parties would agree a lawsuit is not worthwhile for anyone.

rgames


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## gamma-ut (Aug 19, 2021)

rgames said:


> That's true. The flip side is that the production/library/whoever faces the same dilemma: is it worth it to pay a lawyer to go after you for breach of contract, especially when the legal grounds are murky and the returns on the lawsuit are likely to be much less than the legal fees?
> 
> The "performance" argument that @JohnG mentions is, I think, a pretty strong one. If you sue me for breach of contract then I throw it back at you for not doing your part to generate any revenues, and you're in breach of contract also. I think at that point both parties would agree a lawsuit is not worthwhile for anyone.
> 
> rgames


I did a bit of reading around, the requirement for enforceability appears to be the existence of a _quid pro quo_, which need not be necessarily financial compensation. If a library put one or more tracks in its library and offered them for sale, I think it might be very hard to argue successfully in front of a judge that the library has not performed and that the necessary _quid_ has not been delivered: "It's not our fault the defendant's brand of electronic metalspeedpolka is not currently fashionable."

You may also be underestimating the willingness of a company keen to keep out competition to fight on a principle such as exclusiveness or just from sheer belief among management that it's important. Some companies are more litigious than others and I'd bet that one with one-sided contracts is perfectly willing to deploy the lawyers even if it's expensive. Let's face it, a former president finds it more expedient to pay for lawyering than pay creditors: either because he likes stiffing his suppliers or because he winds up pocketing more cash that way.

Again, I'm curious about the lack of a termination clause in this hypothetical contract.


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## JohnG (Aug 19, 2021)

The legal side depends meaningfully on where you are and what jurisdiction the contract cites. In the USA, many contracts specify that they will be governed by New York law because there's lots of case law, well-known statutes and, hence, one hopes, greater clarity. 

"Reading around" is not really sufficient if it covers only the law as written. In addition to the statute, there's case law; you would need to scour both to have confidence in giving (or taking) advice. And, again, it depends on where the case is argued.

As ever, if it's debatable, it's very expensive to have that debate if it's in any legal forum.

*Termination*



gamma-ut said:


> Again, I'm curious about the lack of a termination clause in this hypothetical contract.


None of mine have a termination if the pieces were recorded by an orchestra paid for by the producer (which, again, is not what Richard posited in the original post, so that's a divergence).

The ones that I signed that _do_ have termination are typically sub-publishing, which grants the publisher control for a period of time, often self-renewing unless terminated. But in those cases I am bringing a finished, recorded, mixed track, not something for which the publisher is paying anything up front.


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## rgames (Aug 19, 2021)

gamma-ut said:


> I did a bit of reading around, the requirement for enforceability appears to be the existence of a _quid pro quo_, which need not be necessarily financial compensation. If a library put one or more tracks in its library and offered them for sale, I think it might be very hard to argue successfully in front of a judge that the library has not performed and that the necessary _quid_ has not been delivered: "It's not our fault the defendant's brand of electronic metalspeedpolka is not currently fashionable."
> 
> You may also be underestimating the willingness of a company keen to keep out competition to fight on a principle such as exclusiveness or just from sheer belief among management that it's important. Some companies are more litigious than others and I'd bet that one with one-sided contracts is perfectly willing to deploy the lawyers even if it's expensive. Let's face it, a former president finds it more expedient to pay for lawyering than pay creditors: either because he likes stiffing his suppliers or because he winds up pocketing more cash that way.
> 
> Again, I'm curious about the lack of a termination clause in this hypothetical contract.


Yeah I don't know. I guess I'm back to the question in my original post: is there any precedent in the form of an actual lawsuit?

rgames


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## gamma-ut (Aug 19, 2021)

JohnG said:


> As ever, if it's debatable, it's very expensive to have that debate if it's in any legal forum.


That is largely my point. I'm not trying to give advice here. However, the idea that a financial transaction has to take place to make a contract enforceable strikes me as being on shaky ground. That's all I'm trying to get across.

I was assuming the situation that the tracks would be delivered as is. The mechanical recording made by a producer would naturally be held by whoever made it. However, would that agreement cover the original music in notation or demo form in perpetuity or would that also be expected to revert if the project never completes?


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## JohnG (Aug 19, 2021)

gamma-ut said:


> the idea that a financial transaction has to take place to make a contract enforceable strikes me as being on shaky ground.


It's not shaky ground. That's the reason they all say, "for good and valuable consideration..." 

Exchange of something "valuable" is fundamental for many contracts, although of course you can argue about all the facts and circumstances. No doubt the library argument is that putting it up on a list somewhere means they've fulfilled their end of the bargain, and it's possible they could be quite aggressive about it, if their business model is more or less to maintain a fancy list and attack anyone who challenges them.

You're speculating, which is fair enough, but it is still speculating.


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## davidanthony (Aug 19, 2021)

rgames said:


> So, an exclusive agreement between a composer and a library/production/whoever where there's no up-front payment and no guarantee of a placement that will generate revenues is, essentially, a non-compete agreement where there is no guarantee of compensation. So, it seems the legal precedent would be that they are not enforceable.


At a very high level, the reason a lot of non-compete agreements are deemed unenforceable is because it's considered undesirable when individuals are rendered unable to work and contribute to their livelihoods. Voiding NCAs is one of few "exceptions" to the principle idea that if parties validly agree to do something, those agreements are binding.

I'd be wary about drawing any parallels from the legal treatment of NCAs to a situation where someone licenses music to a library on an exclusive basis, because having the ability not to use individual tracks, while annoying, does not typically leave someone substantially unable to work in their field of expertise (you can just write other tracks).

One level up from that is a situation where someone licenses _all_ their output to an organization, and even then it's quite difficult to get out (see the Kesha/SONY record deal).

Basically, provided the agreement is otherwise valid (low bar), it takes more than just a bad deal (which is what I'd call agreeing to give away your music exclusively without any guarantees of income) to let you walk away from an agreement.


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## Daryl (Aug 20, 2021)

The only way to get out of a exclusive deal is to show that the library is not making reasonable efforts to "exploit" your music. Best just to move on, and write something else.


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## GtrString (Aug 20, 2021)

It's a good thought, as there in many cases are no real/ actual exchange of value. Composers hand over their rights, without any compensation. (stop doing that, it's economic suicide!)

I can see that might constitute a valid case in a European court to dismiss the contract (in the EU, the "1 dollar" compensation contracts regarding work-for-hire would also be an issue). I don't have time to research actual evidence, though.

But dunno about the US, apart from NY law, legal practice seems to be all over the place..


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## rgames (Aug 20, 2021)

davidanthony said:


> having the ability not to use individual tracks, while annoying, does not typically leave someone substantially unable to work in their field of expertise (you can just write other tracks).


True, but the legal precedent seems to think otherwise. You can make the same argument about the Facebook vs. Google example: just because you can't work at Google doesn't mean you can't work anywhere.

And the precedent there is that limiting the right to work at Google is not enforceable. So the fact that you have other ways to make a living doesn't seem to hold any legal weight (I don't think - again, maybe there are cases out there that say otherwise, but I can't find them, again back to the original question).

I understand what you're saying: limiting the right to use a few tracks is not really the same as limiting an entire career. But still, there are some parallels to be drawn and the logical extension of the existing precedent would be to say you can't limit those few tracks, either.

For example, what if you gave your entire creative output to one production that never did anything with it? In that case, it is the entirery of your professional output and limiting its distribution is, in fact, limiting your career. That situation would have to be governed by the existing precedent that is based on "right to work" principles and the exclusivity agreement would be found unenforceable. So then the question becomes what percentage of your professional capacity *can* be restricted via a non-compete clause? That gets really hard to define and I suspect a court would say "none." In which case the exclusive agreements wouldn't be enforceable under any circumstances where you never received any compensation. And even if you did receive compensation there's still a gray area based on existing precedent.

rgames


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## Daryl (Aug 20, 2021)

GtrString said:


> It's a good thought, as there in many cases are no real/ actual exchange of value. Composers hand over their rights, without any compensation. (stop doing that, it's economic suicide!)


Why is it "economic suicide"? How much do you have to earn from those tracks before you consider it not to be? Or were you only talking about unsuccessful composers?


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## davidanthony (Aug 20, 2021)

rgames said:


> precedent


I don't think you fully understand how precedent in the US legal system works (not a knock on you, this isn't something most non-attorneys understand). Basically each jurisdiction has a series of rules that it applies when interpreting specific situations. So you can't really reference or apply "precedent" without specifying the relevant jurisdiction and a specific set of facts.

For example, CA approaches the balance between restraint of work and freedom to contract differently than NY. In CA, it's codified in the professional code: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16600.

Which would make any restraint appear to be per se illegal, but a court very recently held (and note how they distinguish from employment -- separate principles):



> that a rule of reason analysis applies in determining whether a business contract implicates Section 16600. In so holding, the court rejected an argument that any agreement that restrains trade is per se illegal under Section 16600. Instead, where an agreement, outside the employment context, limits other business transactions, the agreement is unlawful when the “agreement harms competition more than it helps” after considering various factors.


So if you want to answer your question with specificity you need to pick a jurisdiction and then lay out a very specific fact pattern. Otherwise you need to draw conclusions based on the high level principles and arguments I mentioned above (which are universal across the US) -- a desire to balance freedom to contract even if it means making a bad deal vs. restraint of ability to work.

You cannot make blanket assertions like this:



rgames said:


> That situation would have to be governed by the existing precedent that is based on "right to work" principles and the exclusivity agreement would be found unenforceable.


The outcome would depend on the jurisdiction, and the specific set of facts (including the actual words in the contract, how the contract was negotiated, industry standard contracts for the same service), and you'd likely get a different outcome in NY than you would in CA (different interpretations of those principles).


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## rgames (Aug 20, 2021)

davidanthony said:


> So if you want to answer your question with specificity you need to pick a jurisdiction and then lay out a very specific fact pattern.


Ok - then my question is:

"Has anyone been found liable for breach of contract under a music exclusivity agreement where he was not paid, ANYWHERE and UNDER ANY CIRCUMSTANCES"



I get what you're saying. But still, I'm curious to know if this kind of thing has ever been enforced (anywhere and under any circumstances). 

If so, where and under what circumstances?

I'm looking for some kind of ... ummm ... example. I'll refrain from saying "precedent".

rgames


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## davidanthony (Aug 20, 2021)

rgames said:


> "Has anyone been found liable for breach of contract under a music exclusivity agreement where he was not paid, ANYWHERE and UNDER ANY CIRCUMSTANCES"


The lack of payment is unlikely to have any legal relevance (unless it's a specific condition of the agreement that relates to termination/revocation or speaks to the validity of the agreement). Outside of that, the law has little sympathy and doesn't care if you got paid $0 or $1m. (This is why any agreement you sign should include conditions of revocation/release that address precisely this scenario!).

You can try searching WestLaw or Lexis Nexis (I think they have free trials) to find caselaw matching your facts, but I wouldn't hold my breath because litigation is quite expensive, and if the library didn't/wasn't able to monetize the song, then chances are either the material isn't great or the library isn't that good at their job (or both), which usually means there isn't enough $ generated for things to be worth the expense of suing someone. Much more likely for these types of scenarios to result in a settlement of some kind, if anything.

Where this often comes up is when artists sign a record label deal, the label stops promoting the artist to the artist's satisfaction but refuses to release them from the deal, the artist goes rogue and self-releases new/old material, the material does well, and the label suddenly goes after the artist for breach. Absent some facts to the contrary (invalid agreement, statutory expiration, etc.) the artist often loses in these cases.


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## Nick Batzdorf (Aug 20, 2021)

My wife used to write and produce promos for (among many other shows) Judge Wapner's show - which is my excuse for even knowing who he was. 

Weird guy, but I remember him saying one thing that stood out: a contract has to have a "meeting of the minds" to be valid.

Is that true? I have no idea, but it would seem to void a lot of gotchas hidden in contracts.


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## JohnG (Aug 20, 2021)

davidanthony said:


> The outcome would depend on the jurisdiction, and the specific set of facts (including the actual words in the contract, how the contract was negotiated, industry standard contracts for the same service), and you'd likely get a different outcome in NY than you would in CA (different interpretations of those principles).


Certainly -- nice to have an attorney involved in the discussion. Thanks



davidanthony said:


> Where this often comes up is when artists sign a record label deal, the label stops promoting the artist to the artist's satisfaction but refuses to release them from the deal, the artist goes rogue and self-releases new/old material, the material does well, and the label suddenly goes after the artist for breach. Absent some facts to the contrary (invalid agreement, statutory expiration, etc.) the artist often loses in these cases.


All fair, David. I think what we're talking about is peanuts compared with the "rogue artist" scenario you mentioned. Or maybe peanut shells? Something of vanishingly small value and vanishingly small resulting damages.

But the main thing is that the damages are more often less than $1k, often a lot less than that. There is the exceptional library track that makes a fortune -- more than $100k-- so that of course would be different.

Thanks for chiming in.


davidanthony said:


> which usually means there isn't enough $ generated for things to be worth the expense of suing someone. Much more likely for these types of scenarios to result in a settlement of some kind, if anything.


I guess you actually said all that better.


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## davidanthony (Aug 20, 2021)

JohnG said:


> Certainly -- nice to have an attorney involved in the discussion. Thanks


My pleasure!

Now that I've been formally "outed" I'll give the standard disclaimer that while I am an attorney I do not represent anyone on VI-Control and nothing I say here is legal advice, please consult your own attorneys for that  

If anyone can't afford one, one thing I recommend is searching for local law schools and seeing if they have a program that allows their students to work with artists, e.g. https://clinics.law.harvard.edu/tlc/for-clients/recording-artists-project/



Nick Batzdorf said:


> Weird guy, but I remember him saying one thing that stood out: a contract has to have a "meeting of the minds" to be valid.
> 
> Is that true? I have no idea, but it would seem to void a lot of gotchas hidden in contracts.


It can be! But the jurisdictions that consider this apply it as more of a high level barrier, as in "Did both of these parties mean to enter into a contract with each other for X?" Common scenarios where it could potentially invalidate an agreement are where one party thought the contract was for X while the other thought it was for Y, one party didn't realize/intend to sign a contract at all, etc. More "obvious" errors. 

Individual "gotcha" clauses don't usually factor into the equation, unless they're so extreme as to be considered https://en.wikipedia.org/wiki/Uncon...nconscionable,are contrary to good conscience


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