, LexisNexis(R) Forms FORM 556-166-3
Summary
MASTER LICENSE AGREEMENT
LICENSE AGREEMENT dated as of (insert date), by and between The Compilation Record Company, Inc. (“Licensee”), Suite 1111, 36 West 44th Street, New York, New York 10036 and Master Owner Record Company, 6430 Sunset Boulevard, Hollywood, California 90028 (“Licensee”).
1. DEFINITIONS: As used herein:
(a) The “Master” means that certain master recording embodying the performance of “(insert name of composition)” (the “Composition”) by (insert name of Artist) (the “Artist”).
(b) The “Album” means that certain record album, tentatively entitled “(insert title of Album],” embodying the Master coupled with approximately (insert number) other master recordings, which is tentatively scheduled for initial U.S. release by Licensee during (insert intended month and year of release), [at a suggested retail list price of ($ ) in cassette configuration and ($ ) in compact disc configuration].
(c) Each other expression used herein, unless herein separately defined, shall have the meaning commonly understood in the recording industry.
2. GRANT OF RIGHTS: Licensor:
(a) Warrants and represents that it is the sole and exclusive owner of the Master and of the copyright therein, that it has the right to grant to Licensee the rights herein granted, and that neither such grant nor the exercise of such rights by Licensee shall infringe upon the rights of any person whatsoever;
1.(b) Licensor may wish to know the price line or price level Licensee intends to employ for the Album. In a “flat rate” license, such as this one where the royalty is stated in terms of a defined number of cents per copy sold, the suggested retail list price is not relevant to the calculation of royalties. If, however, Licensor requires that royalties be stated as a percentage of the retail price, it is customary to specify the retail price in the Agreement. See Clause 7 of FORM 159-1 and Clause 4 of FORM 166-2 (and the comments thereto) above, for a review of percentage royalty provisions in recording agreements and track licenses.
(b) Grants to Licensee, in the Territory during the Term (and thereafter as provided below in Clause 6):
(i) the right to include the Master in the Album and to manufacture, distribute, sell, and publicly perform Albums which embody the Master, without limitation except as expressly provided herein;
2.(b)(i) This Agreement has no limitations to the media or channels or trade in which Licensee may market the Album. This grant will thus include retail, club sales, direct response (by means of an 800 number or by mail order) or sales via the Internet.
(ii) the right to use Licensor’s name and the name, likeness, and facsimile signature of the Artist, and biographical material concerning the Artist, for purposes of advertising and trade, on and in connection with the Album; and
2.(b)(ii) Licensee must be granted the right to use the recording artist’s name and likeness in connection with the Album. It is customary for Licensor to furnish the Licensee with the wherewithal to do so in a form that Licensor has approved. Biographical material concerning the Artist is optional and most Licensor’s will not grant the right to use the Artist’s facsimile signature.
(iii) [outside the United States,] the right to assign any or all such rights to Licensee’s sublicensee(s);
(c) Will furnish to Licensee at no charge, promptly following the complete execution hereof, one (1) record in compact disc configuration which embodies the Master;
(d) Has furnished in the spaces provided therefor on Schedule A attached hereto, or will furnish to Licensee promptly following the complete execution hereof: (a) complete and correct publishing information with respect to the Composition, (b) the complete and correct copyright notice for the Master, and (c) the text of any courtesy credit required by Licensor; and
2.(b)(iii) If Licensee intends to sublicense distribution rights to a third party in a country of the Territory where Licensee is not physically present, this Clause should be modified to permit such a sub-license. If, for example, the Territory is the United States and Canada and Licensee is a US record company, it will need a grant of rights to sub-license to its Canadian affiliate. Most Licensors will not object.
(e) Reserves to itself or to its grantor(s), as the case may be, all rights whatsoever in and to the Master, other than those rights expressly granted Licensee herein, it being understood that the rights hereby granted shall be non-exclusive and shall not include the right to manufacture any records, other than the Album, that include the Master.
2.(e) As with the pro-licensor track license (FORM 166-2), the rights grant to Licensee are non-exclusive. In the rare instances where an exclusive grant is agreed to, care must be taken to define the extent of the exclusivity. The exclusive nature of the grant may encompass the entire Term, or only the first six months or first year of the Term. The exclusive grant may encompass one or two (or more) countries of, or the entire Territory. Exclusivity may extend to track license of a particular genre or to all third party licenses (excluding, of course, licenses involving the original record in which the track was first released). In any event, to the extent any segment or portion of the grant is exclusive, Clause 2(e) should clearly delineate the extent of the exclusivity.
3. ROYALTIES/ADVANCE: In full consideration for the rights herein granted:
(a) Licensee shall accrue to the credit of Licensor:
(i) With respect to net sales of the Album through normal retail channels in the United States, a royalty of cents ($. ) per unit in compact disc configuration, and cents ($. ) per unit in cassette configuration and any other configuration.
3.(a)(i) As with the pro-licensor form (FORM 166-2), the royalty here is expressed not in terms of a percentage of the wholesale or retail price, but as a so-called “penny rate.” The penny rate is a distillation of the more complex and traditional royalty formula used by all record companies involving a percentage royalty rate computed on a royalty base price of the retail or wholesale price of the record, less a container deduction (and perhaps numerous other deductions) and pro-rated by the number of tracks contained in the Album. Thus, if Licensor seeks a royalty of 13% of the retail price (and assuming retail is $16.98) and there are 14 tracks on the Album, the calculation would be 13% × $16.98 ×.75 (for the container deduction) ×.75 (or.8 for the digital record deduction) ÷ 14 (the number of tracks) or about 9¢. Since the agreement between Licensor and its recording artist will almost certainly contain a reduced royalty clause for this type of sale, a royalty of between 8¢ and 12¢ for a compact disc and between 5¢ and 8¢ for a cassette will provide Licensor with sufficient compensation, is usually acceptable to a Licensee and thus, are the generally accepted parameters for this kind of agreement.
If the parties agree that the royalty payable by Licensee will be expressed in the traditional format, see Clause 7 of FORM 159-1 and Clause 4 of FORM 166-2 (and the comments thereto) above, for a review of percentage royalty provisions in recording agreements and track licenses.
(ii) With respect to net sales of the Album through normal retail channels outside the United States, a royalty equal to one-half (½) the amounts specified in Clause 3(a)(i) above, except that if, with respect to particular net sales, Licensee is paid by any sublicensee on a royalty basis, then with respect to such particular net sales Licensor’s royalty shall instead be an amount per unit equal to (i) one-half (½) the unit royalty actually received by Licensee in the U.S., multiplied by (ii) a fraction whose numerator is one (1) and whose denominator is the number of master recordings embodied on the Album.
3.(a)(ii) In the event the Territory is limited to the United States, this clause should be deleted. In the event the Territory includes countries outside the United States, this clause provides that if Licensee, itself, markets the Album outside the United States, the royalty is 50% of the amount specified for a similar sale in the US. The parties may agree on a higher percentage for certain countries. Sales in Canada can generate a royalty as high as 85% of the US rate while major countries in Europe and Japan can command rates of up to 75% of the US rate. If the Licensee does not market the Album outside the US, a pro-rated share of 50% of the royalty received by Licensee is Licensor’s traditional compensation, but “splits” of sixty-seven and even seventy-five percent of the pro-rated royalty to Licensee are occasionally demanded.
(iii) With respect to net sales of the Album outside normal retail channels, a per-unit royalty equal to one-half (½) the applicable amount specified in Clause 3(a)(i) or (ii) above.
3.(a)(iii) Normal trade channels include retail sales. Sales via record clubs, club sales, direct response (by means of an 800 number or by mail order) or sales via the Internet, are not usually considered normal trade channels. Neither are sales at mid-price or budget. To avoid a dispute, a definition of what is and is not a normal trade channel sale may be advisable.
(b) Licensee agrees that the royalties payable hereunder shall be no less favorable to Licensor than the royalties payable to any other licensor of master recordings included in the Album.
3.(b) This clause if often called a “favored nations” provision. It ensures that Licensor will receive no less than any other licensor whose master recording is contained in the Album. Licensees will go to great lengths to avoid the insertion of such a clause and it should not be inserted in the first draft of a pro-licensee form. The danger to Licensee of such a clause is apparent. If another licensor secures a royalty of 10¢ per CD, but only 5¢ per cassette, the 10¢ CD royalty, but not the 5¢ cassette royalty, will apply. Another licensor may be offered some more favorable term in exchange for something of value, but perhaps only of value to the other licensor. Nonetheless, the more favorable provision is deemed inserted in this license. As a general rule, favored nations provisions are to be avoided by grantees and, if possible should always be secured by grantors.
(c) Promptly following the complete execution hereof, Licensee shall pay to Licensor a non-returnable advance of (Insert amount of advance) ($) Dollars, which shall be charged against and recoupable at any time from all royalties accruing to Licensor’s credit hereunder.
3.(c) For a discussion of advance and guarantees, see Clause 4(a) of FORM 166-2 below.
4. ROYALTY ACCOUNTINGS:
(a) Licensee will compute royalties accruing hereunder as of each (June 30 and December 31) for the prior six (6) months. On the next (September 30 or March 31), Licensee will send Licensor a statement covering such royalties and will pay Licensor the aggregate amount thereof, subject to recoupment of the advance as specified in Clause 3(c) above. Licensee shall have the right to maintain reasonable reserves against anticipated returns and credits. If Licensee makes any overpayment of royalties, Licensor will reimburse Licensee therefor; if Licensee pays any royalties hereunder on records which are subsequently returned, the same shall be considered overpayments. Sales [outside the United States] for which Licensee is paid on a royalty basis shall be deemed to have occurred during the semi-annual period in which Licensee receives the accounting and payment therefor from its sublicensee, and if the sublicensee deducts any taxes therefrom, Licensee may deduct a proportionate share of such taxes from royalties otherwise accruing hereunder.
4.(a) The same issues concerning reserves arise in a track license as arise in any recording agreement. Practitioners should review the comments to Clause 8 of FORM 159-1 below. Semi-annual accounting is customary, but Licensee may seek to have Licensor account on a quarterly basis.
(b) Each royalty statement rendered hereunder shall become binding upon Licensor and immune to objection unless specific objection is given to Licensee in writing within (two (2)) years after such statement is rendered. Licensee will maintain books and records reflecting the sale of Albums hereunder, and Licensor may, at its own expense, examine the same for the purpose of verifying the accuracy of Licensee’s accountings hereunder, but only upon reasonable advance written notice, during ordinary business hours, at the place where such books and records are regularly maintained, and only within the said (two (2)) year period and not more than once with respect to any one particular royalty statement.
4.(b) The period of time within which specific objection to royalty statements may be given is quite short, e.g., one year. Licensee wants as long a period as possible, equal at least to the term of the license. This enables Licensor, if necessary, to preserve its rights and audit Licensee only once for the entire term of the agreement.
5. THIRD-PARTY OBLIGATIONS:
(a) The royalty specified herein shall be comprehensive, and Licensor shall be responsible for any royalties or other sums which may become due and payable, as a result of Licensee’s exercise of its rights hereunder, to the Artist, to any producer(s) or other person(s) who rendered services in connection with the Master, and, except as provided in Clause 5(b) below, to any third parties whatsoever.
(b) Licensee shall be responsible for the payment of mechanical royalties with respect to the Composition as embodied on the Album, and for any amounts which may become due and payable to any union or union trust fund having rights in the premises.
(c) Except as provided in Clause 5(d) below: (i) the maximum mechanical royalty payable with respect to the Composition shall be (A) in the U.S., an amount equal to seventy-five (75%) percent of the minimum compulsory license rate (without regard to playing time) applicable on the date of this Agreement under the U.S. copyright law, and (B) in Canada, an amount equal to seventy-five (75%) percent of the lowest prevailing mechanical royalty rate prevailing in Canada on a general basis on the date of this Agreement; (ii) no mechanical royalty shall be payable with respect to the Composition except on net sales of Albums hereunder; and (iii) if Licensee is required to pay any mechanical royalty with respect to the Composition in excess of the foregoing, then such excess may be deducted from royalties otherwise accruing under Clause 3(a) above.
5.(c) This agreement, being pro-licensee, contains Controlled Composition provisions. For a detailed analysis of the Controlled Composition provisions in typical recording agreements, see Clause 11 of FORM 159-1, Clause 9 of FORM 165-1, Clause 6 of FORM 166-1, and Clause 6(b)(i) of FORM 166-2 above.
(d) Clause 5(c) above shall not apply if Licensor so indicates by initialing the line marked “Clause 5(d) is applicable to the Composition” on Schedule A attached hereto, in which case Licensor, by so indicating, warrants and represents that neither the Artist, nor Licensor, nor any affiliate of Licensor, is the author or co-author or publisher or co-publisher of the Composition, or the administrator or co-administrator of the copyright therein.
5.(d) Licensee may not know whether the musical composition performed in the Licensed Master is a Controlled Composition, whether because it was composed by the recording artist or the producer or is owned or controlled by Licensor’s music publishing affiliate. Unless Licensor initials the appropriate line on Schedule A, Licensor is warranting that the composition is a Controlled Compositions and the reduced rate and accounting provisions of Clause 5(c) will apply.
6. SELL-OFF PERIOD: For a period of six (6) months after the Term, Licensee shall have the right to continue to sell Albums manufactured during the Term, subject to its royalty obligations hereunder. Licensee shall not manufacture excessive quantities of Albums in anticipation of the expiration of the Term.
7. ADDITIONAL DEFINITIONS: As used herein:
(a) The “Territory” means the United States, its territories and possessions, including United States Armed Forces Post Exchanges (or insert Territory).
(b) The “Term” means a period of () years beginning upon the initial U.S. release of the Album.
(c) “Master recording” means any recording of sound, by any method and on any substance or material, whether now or hereafter known, which is used in the recording, production, and/or manufacture of records.
(d) “Record” means any form of reproduction, now or hereafter known, manufactured or distributed primarily for home use, school use, jukebox use, or use in means of transportation, embodying sound without visual images.
6.(a) Almost all track licenses contain a “Sell Off” provision whereby Licensee has a period after the Term to sell off its existing inventory of the Album. The Sell Off Period can be three, six or twelve months with six being the most frequently agreed. Occasionally the license will contain a provision that if the Term expires due to breach (rather than merely the passage of time), Licensee forfeits its Sell Off Period. Some licensors will seek to require Licensee to furnish an affidavit of destruction executed by an officer of Licensee. The last sentence of Clause 6(a) is not usually found in the first draft of the license.
(e) “Net sales” means one hundred (100%) percent of records shipped hereunder, paid for, and not returned or exchanged. For purposes of this Clause 7(e):
(i) If records are shipped subject to a discount or merchandise plan, the number of such records deemed to have been shipped shall be determined by reducing the number of records shipped by the percentage of discount granted.
(ii) If a discount is granted in the form of “free” or “bonus” records, such “free” or “bonus” records shall not be deemed included in net sales.
(iii) Net sales shall not include records distributed to any person primarily for purposes of promotion or critique.
(f) “Person” or “party” means any individual, partnership, corporation, association, or other organized group or combination of any or all of the foregoing and their legal successors, assignees, or representatives.
8. NOTICES: All notices, consents, approvals, demands, or other communications (“Communications”) to be given by one party hereto to the other party shall be sent to the other party at the address specified on the first page of this Agreement or to such other address as Licensor or Licensee, as applicable, may hereafter designate by notice in writing to the sending party. All Communications hereunder shall be hand delivered or sent by certified mail, return receipt requested. Any Communication shall be deemed complete when the same (containing whatever information may be required hereunder) is deposited in any mail box properly addressed and sent as aforesaid, except that (a) all Communications personally delivered shall be deemed served when actually received by the party to whom addressed, (b) Communications sent via air express shall be deemed served on the day of delivery to the air express company, (c) a Communication in the form of required notices, written confirmations and notices of change of address shall be effective only from the date of its receipt, and (d) payments and royalty statements may be sent by regular mail.
9. MISCELLANEOUS:
(a) This Agreement sets forth the entire understanding between the parties with respect to its subject matter, and no amendment, modification, waiver, or discharge shall be effective unless confirmed by a writing signed by an authorized signatory of the party to be charged therewith. All prior and contemporaneous conversations, negotiations, agreements and alleged agreements, representations, covenants and warranties concerning the subject matter of this Agreement are merged herein. This is a fully integrated agreement. No waiver of any provision hereof, or of any default hereunder, shall affect the right of the waiving party thereafter to enforce such provision or to exercise any right or remedy in the event of any other default, whether or not similar. All rights and remedies herein provided shall be cumulative.
(b) This Agreement has been entered into in the State of New York, and the validity, interpretation, and effect hereof shall be governed by the laws of New York State applicable to contracts to be performed wholly therein. The parties hereto agree that only the New York Courts, State and Federal, shall have jurisdiction over this Agreement and any controversies arising out of this Agreement shall be brought by the parties to the Supreme Court of the State of New York, County of New York, or to the United States District Court for the Southern District of New York. The parties to this Agreement hereby grant jurisdiction to such courts and to any appellate courts having jurisdiction over appeals from such courts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the date and year first written above.
SCHEDULE A
to the License Agreement dated as of (insert date), by and between The Compilation Record Company, Inc. and Master Owner Record Company
Per Clause 2(d)
Publishing Information:
Copyright Notice:
Courtesy Credit:
Per Clause 5(d)
Clause 5(d) is applicable to the Composition:
(please initial if applicable)
7.(e) This “basic” or “program” or “standard” discount is currently either 15% across the board for album length records or in some agreements, 15% for analog records and 20% for digital records (including compact discs) of album length. In addition to the “basic” or “program” or “standard” discount, virtually all record companies have also adopted the concept of “Special Free Goods” which refer to records shipped in connection with special sales incentive programs of limited duration (e.g., less than eight (8) weeks). For a discussion of free goods and discounts, see FORM 166-1 and Clause 4(c) of FORM 166-2 above. These Special Free Goods represent up to an additional 10% discount. If Licensor has the economic strength, while it should not seek a clause limiting the practice, it should be able to secure a clause of the type found in Clause 4(c) of FORM 166-2 above. Licensor may, however, be willing to agree that “free goods” in excess of 20% or even 25% of Albums shipped will be royalty-bearing.