Removing songs from Spotify could breach label’s duty to exploit: Four Tet v Domino

Artist Four Tet took to social media to announce that its record label, Domino, had requested his music be removed from streaming platforms, amidst a legal dispute over royalties. In the latest hearing between the parties, Four Tet applied to amend the particulars of the dispute to include Domino’s recent behaviour. Here’s what happened (spoiler alert: Four Tet prevailed on some, but failed in others)… 

Background

Mr Keiran Hebden, who goes by the artistic name of Four Tet, as a music artist, is suing his record label Domino Recording Company for breach of contract. His claim, issued in the Intellectual Property Enterprise Court on 16 December 2020, is that Domino failed to properly account for royalties in respect of streaming and digital downloads. He seeks a declaration as to the true construction of his contract and monetary relief, capped at £70,000.

The songs have since returned
to streaming platforms.. 
Image: Riana Harvey

On 16th November 2021, Domino's solicitors wrote to Mr Hebden making an offer to settle, which included paying the damages sought and costs. The letter also informed Mr Hebden that Domino had instructed digital service providers to remove the sound recordings of his songs from their services and undertook not to exploit them digitally in future without first agreeing terms in writing with Mr Hebden. 

Domino further indicated that it would not agree to the 50% rate claimed by Mr Hebden for future exploitation. Domino stated that, in the light of its offer and its unilateral conduct/undertakings, the proceedings should be stayed and that it intended to apply for dismissal of the proceedings, should Mr Hebden not consent to a stay.

Mr Hebden believed that by removing his songs from streaming services, such as Spotify, Domino was in fundamental breach of their contract. He applied to the court to amend his Particulars of Claim to include additional claims relating to Domino's recent conduct, based on breach of express or implied duty to exploit/duty of good faith. Permission was also sought to add an alternative claim relating to alleged restraint of trade and copyright infringement. At the same time, Domino made an application to strike out and/or summary judgment.

Express or implied duty to exploit/duty of good faith

Mr Hebden pleaded that, under the contract, there was "imposed on Domino a continuing obligation to use reasonable endeavours following release to exploit the Masters … by all then-industry-standard means, in the UK and in the Major Markets respectively." He further pleaded an implied obligation on Domino "to act in good faith in relation to the exploitation of the Masters under the 2001 Agreement." 

Whilst the exclusive recording elements of the contract came to an end in November 2005, the contractual obligations around payment of royalties and release commitments continue in force until terminated by repudiatory breach.

Mr Hebden argued that, by withdrawing the sound recordings from digital distribution, Domino acted in bad faith, in part to avoid adjudication by the Court of Mr Hebden's original claim. As a result, he argued that in the event of such a termination by fundamental and repudiatory breach, the copyright in the sound recordings reverted back to Mr Hebden. 

Arguments for and against an implied obligation to exploit

Domino sought to rely on three authorities to establish that it was beyond dispute that an assignment of copyright does not carry with it an implied obligation to exploit. The first two authorities, Nichols v Amalgamated Press (1908) Macg Cop Cas (1905-10) 2 166 and Schroeder Music Publishing v Macaulay [1974] 1 WLR 1308 (HL), involved music publishing contracts where the copyright assigned was in a musical composition, depriving the creator of the ability to benefit economically from their creation for the term of the copyright. Domino submitted that the principle that there is no implied obligation to exploit must apply at least as strongly to assignments where the copyright assigned is only in the sound recording. 

The third authority was John v James [1991] FSR 397. There the claimants, based on allegations of undue influence, sought rescission of publishing and recording agreements under which they had assigned the copyright in a large number of musical compositions and sound recordings. The defendants in that case had countered this by arguing that the agreements in question contained an implied term to use reasonable diligence to exploit the works, but the court disagreed. The judge held that, even if such a term were implied, any such obligation would have been necessarily so loose and imprecise that it would have afforded the claimants little protection. 

Mr Hebden, however, submitted that these cases related to very different agreements and factual circumstances (e.g. a bare assignment, with no obligation on the publisher) from those relevant to the copyright arrangement and requirement for 'genuine commercial release' under the 2001 Agreement, and therefore the jurisprudence did not apply to the current dispute. 

Assessment of implied obligation to exploit

The judge concluded that this was not a situation in which it would be appropriate to refuse Mr Hebden's request to amend his case: “I cannot conclude summarily that that draft pleading faces no real likelihood of succeeding. I have reached the same conclusion in respect of the proposed amendment in respect of an implied duty of good faith.” 

Thus, the court allowed Mr Hebden to plead that the contract should be construed as including an express continuing obligation to use reasonable endeavours to exploit the sound recordings by all then-industry-standard means. If not, and in the alternative, such an obligation should be implied. 

Restraint of trade/copyright infringement

Mr Hebden also sought permission to plead a restraint of trade, should his case that the contract imposed continuing obligations upon the Domino, fail. The consequences of success on the restraint of trade case would be either that: (i) the agreement was void as from its conclusion and/or it was unenforceable (meaning that the copyright in the sound recordings at all times remained with Mr Hebden); or (ii) the agreement was voidable and/or unenforceable (meaning that as from, at the latest, the date on which Domino had sight of the draft Amended Particulars of Claim, the copyright reverted to Mr Hebden.)

Either way, it was argued, Domino’s continued exploitation of the sound recordings would amount to copyright infringement and success on the restraint of trade case would result in the contract being void from its inception. This would mean that all of Domino's acts of exploitation to date and in the future would infringe Mr Hebden's rights in the sound recordings.

Assessment of restraint of trade/copyright infringement

The judge pointed to the significant legal and practical hurdles to be overcome by Mr Hebden in order to succeed on this pleading, relating to the substantive elements of the common law doctrine of restraint of trade and the utility of any such finding. Given this, the application for permission to introduce a new case on restraint of trade was refused on the basis of the legal difficulties in obtaining a useful remedy. As such, the Amendment Application was refused in respect of the pleadings related to restraint of trade but granted for the other grounds. 

Comment

This case could be significant: if Four Tet succeed it would establish an ongoing duty to exploit copyright beyond the express terms of a recording contract, meaning that record labels could not choose to stop exploiting an artists’ work. This would be good news for artists who are locked into contracts and find that their work is no longer being exploited by their label, but don’t own the rights to find alternative options themselves. In any event, it can already be stated that, believe it or not, removing artists’ works from streaming platforms will make matters worse amidst a royalty dispute…

Readers may be interested in reading the key provisions of the contract in question, below:

"2. Term

2.1 The expression "the Term" shall mean a period commencing on the date hereof and expiring upon your termination thereof in accordance with the provisions of sub-clause 2.2 below SAVE that if we call for all the Product Commitment hereunder then the Term shall expire six (6) months after the date of initial release in the UK of the last Album to be released hereunder in fulfilment of the Product Commitment

2.2 No sooner than one (1) year nor later than three (3) years after the date of initial release of a Commitment Album in the UK (other than the last such Album) you shall send us a cassette of bona fide demo recordings of a reasonable standard of songs that you intend shall comprise the next such Commitment Album ("Next Album Demos") under cover of a notice hereunder specifying such intention and in the event that we shall fail to give you notice calling for such next Commitment Album within two (2) months of the date of our receipt of such demo recordings then you shall be entitled to serve notice on us terminating the Term hereof For the avoidance of doubt we shall be entitled to give you notice calling for a Commitment Album at any time prior to the expiry of such two (2) month period following the release of the previous such Commitment Album

2.3 We shall be entitled to suspend the Term in respect of any period in which you fail or refuse to comply with the performance of your obligations hereunder SAVE that no single period of suspension shall exceed one (1) year

4. RELEASE COMMITMENT

4.1 We shall procure the release in the United Kingdom of each Commitment Album that we shall call for hereunder within one hundred and twenty (120) days following the Delivery of the same

4.2 We shall use our reasonable endeavours to procure the release in the Major Markets of a Commitment Album within one hundred and eighty (180) days following the release of the same in the United Kingdom

4.3 In the event that we shall not have released the relevant Commitment Album in accordance with the provisions of sub-clause 4.1 above you shall be entitled to give us written notice requiring us so to do and in the event that we shall not released the said Commitment Album within one hundred and sixty (60) [sic] days following our receipt of such written notice you shall be entitled to:

4.3.1 purchase from us the rights in the said Commitment Album upon reimbursement to us of any and all advances which we have paid in respect of such Commitment Album within sixty (60) days following the expiry of the sixty (60) period as aforesaid PROVIDED THAT you shall not have commenced making any subsequent Commitment Album and PROVIDED FURTHER THAT you shall secure a release for us of any of our obligations to make payment of monies to producers and/or any other third parties; and

4.3.2 terminate the Term of this Agreement forthwith by notice in writing PROVIDED THAT you shall not have commenced making any subsequent Commitment Album

4.4 In the event that we shall not have released the relevant Commitment Album in accordance with the provisions of sub-clause 4.2 above you shall be entitled to give us written notice requiring us so to do and in the event that we shall not have released the said Commitment Album within a period of ninety (90) days following our receipt of such written notice you shall be entitled to require us at any time thereafter to license such Commitment Album to any third party of your choice provided that the terms are reasonably satisfactory to us and provide for a royalty of not less than four per cent (4%) of the dealer price of any record embodying the Masters comprising such Commitment Album to us after payment of royalties to all other parties including you

4.5 Your entitlements under sub-clauses 4.3 and 4.4 above shall be your sole remedy in respect of any failure by us to procure a release under sub-clauses 4.1 and/or 4.2 as aforesaid"