The Demo Memo: Early Recordings Can Be a Gold Mine or Legal Landmine
William Hochberg

Many a superstar has left a twisted trail of ex-lovers, rehab clinic bills, and dusty demo recordings from the early days. The first two may be of little concern to the artist or record label, but the latter may be a worry, because when a garage band graduates to the platinum parking lot, old demos suddenly shine like diamonds -- and someone is going to try to cash in. For example, it might be a clever ex-member, producer or manager, who will time a demo release to ride on the coattails of a major-label release in order to grab some precious national retail shelf space. Major labels will usually fire a cease-and-desist letter across the indie's bow, and possibly follow up with a complaint. But sometimes, Demo David will topple Label Goliath with the slingshot of a non-exclusive license. Such a license could be embodied in a written agreement or even just testimony of an oral understanding that the band consented to distribution of the early demo.

From Jim Morrison to Van Morrison; from Ronnie Van Zant to Townes Van Zandt ; from the Beach Boys to the Beastie Boys, and from Axl Rose to Rosa Parks to Van Dyke Parks, the use of early recordings and name, likeness or images in a later record release or a television biopic is a very common occurrence, but raises red flags.

Last summer (2004), a decision came out of federal court in the Central District of California favoring the distributors of early demos of the garage group which would rise to become Guns N' Roses.

In Cleopatra Records v. William Bruce Bailey, a/k/a Axl Rose, the owner and distributor of early demos defeated threats from Rose and others to shut them down. It's an unpublished decision, but instructive nonetheless in telling which way the judicial wind is blowing. In the mid-1980s, Axl Rose and Izzy Stradlin formed a band called Hollywood Rose and kicked around clubs and bars in Los Angeles for nine months before landing a record deal. Fast forward two decades to where Guns N' Roses, having jettisoned their early name and a few band members, has sold tens of millions of albums and has released a greatest hits collection. One of the early band's discarded guitarists, Chris Weber, who had talked his parents into investing in some recording sessions, owned a five-song demo of Hollywood Rose. Watching from the sidelines as his ex-bandmates rose to the top of the rock heap, Weber decided to cash in on those early recordings, selling them to Cleopatra Records, a label which once specialized in re-issuing quantities of esoteric hardcore gothic/industrial acts with names like Electric Hellfire Club and Christian Death, but which later branched out to a more general audience. Weber also included some promotional materials (band photos, flyers and the like) as part of the deal.

In 2004, Cleopatra attempted to release an album entitled Hollywood Rose: The Roots of Guns N' Roses, which included the original five tracks funded by Weber's parents, together with two remixes of each of those same recordings, presumably paid for by Cleopatra. All in all, the package promised a bonanza for Cleopatra, perhaps their biggest selling item ever. All seemed well, until Axl Rose and company got wind of it and fired off a cease-and-desist letter, claiming that Cleopatra did not have the right to market the early recordings. Rose's attorneys argued that the album infringed the trademark on Guns N' Roses, in that it should only have been advertised as a Hollywood Rose album and should not have traded on the famous name that followed. Rose also claimed pictures of him were protected by his "right of publicity" under state law in California.

Cleopatra felt they had every right to release Weber's recordings and hired a lawyer to fire off a pre-emptive strike: a motion for declaratory relief. In essence, Cleopatra asked the court to confirm the label's rights to do what they were doing. The court agreed with Cleopatra. In a well-reasoned and easy-reading opinion, Judge Gary Feess found Cleopatra had every right to put out the album and use the promotional material, and also found that Cleopatra could trade on the name Guns N' Roses without fear of reprisal from Rose and others.

While the Hollywood Rose case comforts the would-be demo distributor, it causes worry for the label wishing to control the market for a band during its most profitable album cycles. Moreover, the band is at risk of breaching its contract because most recording agreements are exclusive and guarantee the label that no one else will be selling the band's music during the term without the label's approval. Depending on an act's political clout with its label and whether the band is friends with whomever is distributing its early demos, the label may tolerate the contract breach and hope the goodwill might help with label-artist relations when renegotiation time comes around.

So what are the rules that keep a would-be demo distributor from becoming a demo defendant? There are really only two rules: one, have a written or oral license establishing at least a non-exclusive right to distribute (an oral license can be shown by conduct in many cases); and two, stay within the scope of the license and the First Amendment. But whether you're a garage-tape entrepreneur trying to market demos under an implied nonexclusive license or you're trying to shut down someone who is, don't try this at home without consulting an attorney familiar with the key cases and who knows the difference between a gold mine and legal land mine.

In reviewing the legal issues, the first thing to notice is that judges are glorified traffic cops -- and both are to be avoided. But if that's not possible, the two rules stated above need to be examined more closely in relation to the facts of your situation.

1. May I See Your License, Please?

The first question, then, is what kind of license might exist? A fully binding and enforceable license may be engraved in a stone tablet (such as God's exclusive deal with Moses), written on a cocktail napkin (in any color lipstick), shouted or whispered in any language (as long as it's a tongue spoken and understood by at least one other human), or inferred from conduct (which may include wandering in the Sinai Desert for 40 years). In other words, there are three ways to obtain a non-exclusive license: It may be demonstrated by a written agreement, an oral agreement, or even sometimes the conduct and course of dealing between the parties. Of course a written agreement is ideal, as it will often forestall a dispute as to the existence, let alone the terms, of a license. As the Ninth Circuit put it in Effects Assocs., Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990), "It doesn't have to be the Magna Charta." But be careful not to sell specificity short. A writing may get you to the front of the line, but clear and defined terms get you past the velvet rope every time.

The difficulty with oral agreements and course of dealing agreements is proving that a license actually exists, often leading to a he-said, they-said parade of conflicting testimony. The Fourth Circuit, in Nelson-Salabes, Inc. v. Morningside Dev., LLC, 284 F.3d 505, 516 (4th Cir. 2002) listed three key factors in finding the existence of an implied license:

(1) whether the parties were engaged in a short-term discrete transaction as opposed to an ongoing relationship; (2) whether the creator utilized written contracts providing that copyrighted materials could only be used with the creator's future involvement or express permission; and (3) whether the creator's conduct during the creation or delivery of the copyrighted material indicated that use of the material without the creator's involvement or consent was permissible.

A manager or producer fronting the recording costs with the loose understanding that he or she will shop the tapes around to willing ears might satisfy the first and third prongs. A studio engineer working the board between smoking breaks, on the other hand, probably would not. As for the second prong of the test, few bands in their infancy are savvy enough to prevent early recordings from leaving the inner sanctum unguarded. In fact it's common for superstar groups to suffer leakage of early mixes of upcoming material to the Internet.

The second factor (above) suggests that if a band has a procedure in place -- like having producers and engineers agree in an email that they will keep the masters confidential and won't do anything with them without the band's approval in writing -- there will probably be no implied contract and if the producer or manager later tries to distribute without authority, they may face the wrath of Moses or at least a menacing attorney who knows some Yiddish curses.

Another consideration is the Statute of Frauds. This concept, dating back to 1677 under English law, and adopted in the U.S. and Canada, says that a contract that cannot be performed within one year is not valid unless it is in writing. So, if a would-be distributor says he has an oral agreement with the band, but there's nothing in writing, the contract is void, unless there is some sort of documentation, such as a letter or a memo or an invoice that might be used to prove the contract existed. The most common evidence of this sort is a check paid by the would-be distributor to the band, with a memo identifying it as a royalty advance.

A further hurdle to consider with unwritten contracts is revocability. A non-exclusive oral license is freely revocable by the grantor absent consideration. Here's an example. Let's say we have a "spec producer," meaning a producer who takes on the job with no upfront payment, but who hopefully will get paid later on when the band strikes pay dirt. Spec producer takes the masters out of the studio under an oral non-exclusive agreement but doesn't pay the band anything, and sets out to distribute or shop the masters. Soon after, an A&R guy from Big Advance Records shows up at a gig with an open checkbook and wants to own those early masters exclusively as part of the deal. The band can terminate the oral non-exclusive license to Spec Producer with a "Dear John" letter. The letter ought to be certified or hand delivered by a messenger with a receipt, because if Spec Producer is crafty and shrewd, he will deliver a check to the band, in a modest amount, before receiving the termination letter, which is a chess-like move that will frustrate Big Advance Records' approach and may well make the non-exclusive deal non-revocable.

Sometimes, Spec Producer will argue that he "paid" the band by giving his time in the studio and shopping the demos. This is a potentially winning argument, but the safer route for Spec Producer is also to pay royalties or an advance to the band. Of course, the band can reject the payment, and then we get into a somersaulting dance, in which Spec Producer takes a wad of bills and attempts to shove it up the lead singer's nose, wherein the guitarist pulls the money out and places it forcefully into another orifice of Spec Producer, along with a termination letter, and so on. But we're straying out of the scope of music law and into the realm of criminal law (although some say they're the same thing).

2. Can You Walk That Straight Line?

If Spec Producer got over the first hurdle and demonstrated a license, a label or artist could still throw up a brick wall by demonstrating that the scope of the license was exceeded. So Spec Producer needs to walk the line and not venture out of bounds. If, for example, the band states that Spec Producer can distribute in Japan only, evidence of sales in the U.S. will be a breach, obviously. In the Axl Rose case (discussed above), the band said Cleopatra Records had no right to use the name Guns N' Roses in promoting the album. The judge disagreed and said that the First Amendment allows one to state what one is selling with reasonable clarity. But there is a line not to be crossed. For example, if all of the type face on the album cover and in advertising is 8 point font, except the name Guns N' Roses, which appears in 36 point font, then the judge would probably have ruled the other way. Cases have established a test that essentially says "chill out" on the splashy advertising, unless you have an express license to do so. But if you are cool about it, you should have no problem.

The test often cited in these kinds of "wild demo" cases is New Kids On The Block v. New America Publishing, Inc., 971 F.2d 302 (9th Cir. 1992), in which the famous boy band wished to prevent a newspaper chain from conducting a cheesy promotion in which fans paid a small fee to the newspapers in order to call in and vote for their favorite New Kid. Of course the New Kids, who were not paid a farthing, felt a moral (or at least financial) indignation and sued. And they lost.

The New Kids Court (that's not the name of a boy band, but a panel of appellate justices who at times may wish they were a boy band) found that the newspapers' use was "nominative", and to help us understand what they meant, they gave us a three-part test that is used quite a bit nowadays:

First, the product or service in question must be one not readily identifiable without use of the trademark; second, only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and third, the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.

Looking at the first factor, the demo distributor must use the name of the band only when there's no other practical way to describe what is on the album. This was the case, the judge decided, in the Hollywood Rose case, discussed above. It was also true in a case involving the 1981 Playboy Playmate of the Year, Terri Welles, who almost completely defeated Playboy in its attempt to shut down her website which prominently featured the Playboy trademarks. Although this case, Playboy Enterprises, Inc. v. Welles, 279 F.3d 796 (9th Cir. 2002), runs askew of our topic, it's frequently cited by analogy in recording cases and it involves, as the judge noted, a "nude model selected by Mr. Hefner's magazine as its number-one prototypical woman for the year 1981," making it a better read for some than, say, Erie Railroad Co. v. Tomkins.

Said the Hon. Thomas G. Nelson, speaking for the appellate court, in that case:

There is no other way that Ms. Welles can identify or describe herself and her services without venturing into absurd descriptive phrases. To describe herself as the "nude model selected by Mr. Hefner's magazine as its number-one prototypical woman for the year 1981" would be impractical as well as ineffectual in identifying Terri Welles to the public.

The Court found in Ms. Welles' favor on almost all counts, except they found that her use of a playboy trademark as "wallpaper" on part of her website went over the line and she had to stop doing that. So, the First Amendment allows use of descriptive language even if it's a trademark, but you have to be cool about it or you might wipe out.

That's what happened to former Beach Boy Al Jardine. After he and the other Beach Boys failed to agree on a license for him to use the name, he proceeded to tour based on what he thought was an oral agreement and his rights under the First Amendment. Jardine and his band played dates using names that included "The Beach Boys" trademark. The gigs were promoted under names like: Al Jardine of the Beach Boys and Family & Friends; The Beach Boys "Family and Friends"; Beach Boys Family & Friends; The Beach Boys, Family & Friends; Beach Boys and Family; as well as, simply, The Beach Boys. Jardine's band played in locations and on dates close to Mike Love's "The Beach Boys" shows, which were fully licensed by the other members. With two bands touring as The Beach Boys or as a similar-sounding combination, show organizers were confused about what exactly they were getting when they booked Jardine's band. A number of promoters booked Jardine's band thinking they would get The Beach Boys along with special added guests, and then had to cancel when they discovered that Jardine's band was not what they thought it was. Attendees at one of Jardine's shows said that they had been confused about who was performing. During this time period, the other Beach Boys sent Jardine cease-and-desist letters objecting to Jardine's use of the Beach Boys trademark, but he didn't stop until the court slapped an injunction on him.

The Court, referring to the New Kids and Playboy cases discussed above, said:

Here, as in Playboy and New Kids, Jardine does not use the trademark in any primary, descriptive sense. That is, Jardine does not use "The Beach Boys" trademark to denote its primary, descriptive meaning of "boys who frequent a stretch of sand beside the sea." Instead, Jardine uses "The Beach Boys" trademark in its secondary, trademark sense, which denotes the music band -- and its members -- that popularized California surfing culture. This is true regardless of whether Jardine's use of the mark refers to Jardine himself or to the band. Because Jardine does not use the mark in its primary, descriptive sense, the classic fair use defense does not apply.

Some may scratch their heads as to why Jardine's use of the Beach Boys trademark is any more egregious than Welles' use of the Playboy trademark on her website. If Welles can say "1981 Playmate of the Year" instead of "nude model selected by Mr. Hefner's magazine as its number-one prototypical woman for the year 1981". Why can't Jardine use "Beach Boys" to describe his band instead of ""boys who frequent a stretch of sand beside the sea"? The deciding factor was that more people were confused and injured financially by Jardine (the promoters and the fans thought this was the Beach Boys, not just Jardine's band) than the people who went to Welles' website.

The same three-part test that applies to websites (Welles), promotions (New Kids) and touring (Jardine) also applies to demo distribution disputes. To recap the New Kids test in the context of demo distribution, if the right to market early recordings is in dispute, a plaintiff needs to show that (1) the musical product was "readily identifiable without use of the trademark" or superstar's name; (2) more of the name or trademark than absolutely necessary was used; and (3) the user suggested sponsorship or endorsement, when none existed. On the first item, it is almost never the case that early demos featuring a superstar can be identified without any reference to the superstar, so this is almost always a factor leaning toward the demo distributor. Regarding the second item, things like the size of type and featured photography come into play. If, for example, Norah Jones was a for-hire background singer on a demo by Kid Nobody and the Unknown-a-tones, it would be a bad move to promote the album with Norah Jones' name in larger print than the obscure band. On the final item, if album liner notes wrongly imply that that Jimi Hendrix' heirs support the marketing of a bootleg recording of "Crosstown Traffic" from an early gig at New York's Café Wha, then the bootlegger may find tire tracks right across his back in a hurry. Each situation will live or die by its own facts.

The New Kids Court's complex little three-part ditty soon became an instant hit and was immediately covered by such superstar judicial groups as the Beach Boys Court, the Axl Rose Court and others. What the test says is that someone can use a trademark without a written license to promote something only when: (1) no descriptive substitute exists; (2) no more of the trademark is used than necessary; and (3) nothing is done to suggest sponsorship or endorsement. So using these factors, Al Jardine may have promoted himself as "Al Jardine, former member of the Beach Boys, and friends" without courting trouble (First factor). On the other hand, had Cleopatra Records printed out "Guns N' Roses" on its product in a font larger than "Hollywood Rose" they might have been welcomed to the jungle of injunction (Second factor). Finally, Hef might have spanked Terri Welles in court had she used "Playboy presents Terri Welles" on her website instead of the low key description she chose (Third factor).

If you've run your scenario through both of the three-part tests and you are convinced that the Garage Tapes are cleared for takeoff, or if you want to keep the doors to the garage locked down tight, its always a better idea to try to work out a reasonable agreement among the parties, and put it in writing, rather than take your chances of having a court decide in your favor.