Entertainment law expert Paul Sanderson on contracts, trademarks and trends

Paul Sanderson, founder of Sanderson Entertainment Law in Toronto, has been providing legal services to arts and entertainment clients since 1983, including major music publishers, large independent record companies and gold and platinum recording artists in all aspects of the music business. He spoke to me about his work, the legal problems artists often encounter, offered advice on contracts and trademark, and talked about recent industry trends.

Sam Arraj: How did you get into entertainment law?

Paul Sanderson: After high school, I seriously tried to make a living as a guitar player, but I didn’t having any success. Reluctantly, I came up with Plan B, which was to go to law school, although I continue to play guitar to this day. In fact, I play in Blue Room, an original blues band, and we’ve released four CDs independently. I had a number of odd jobs before going to undergrad. One of them happened to be as a messenger for a law firm. That’s where I got the idea to marry the two disciplines of music and law. Musicians didn’t get a lot of respect in those days, but lawyers did. As an undergrad, I spent many nights in the library. There was no way I was going to fail. Plan B had to work after Pan A failed. I was fortunate to complete one of the first entertainment-law programs, a joint Osgoode/U. of T. law school seminar. I met a few key people there who proved to be influential in my career.

I worked from home in the 1980s, trying to build my practice, when I got a large contract from the Government of Ontario. I sought help, so I called Clark Miller, who also took the entertainment law course. In 1985, he made me an offer to join him. I bought him out after five years, while he went on to help set out EMI Music Publishing in Canada. I learned a lot from Clark. I learned even more after he left, because then I really had to do it on my own.

Sam: So who are your clients now?

Paul: I like to put it this way: anyone with my area of expertise that comes in with a retainer where there is no conflict (of interest). Of course, there are more artists than anyone else. I deal with artists, producers, managers, labels, production companies and anyone in the industry.

Sam: Exactly what kind of work are you doing?

Paul: Mostly contracts. I’d say 90% of it is contracts. I also have a background in corporate work. Things like incorporations and name registrations. Also, I’ve been a trademark agent since 1986.

Sam: How do you get a trademark? I know a lot of people get confused. They get a business license or a business name, and they think they own the trademark.

Paul: It’s about to change under the current law, but one currently acquires exclusive rights by using a trademark in the marketplace in the ordinary course of business. You can register a trademark if you choose, and there are some really good reasons why you should, or you can leave it unregistered. You have a common law trademark if you don’t register, and can still have exclusive rights to it, but only in the geographic territory it is used and where it is known. That’s a problem, because with an unregistered trademark it is very difficult to gain national recognition in Canada. On the other hand, you can get exclusive national rights if you register your trademark. It becomes a more tangible asset of your business when a trademark is registered.

Sam: So if I own a domain name, it doesn’t give me the right to use it as a trademark?

Paul: No. I like to use a card analogy. Trademarks give you exclusive rights. They trump domain names and business names.

Sam: Have you seen it get ugly?

Paul: Yes, we’ve been in opposition. The longest opposition proceeding I have been involved in took five years to resolve. It can get very expensive.

Sam: I guess registering is the key if you want protection?

Paul: Look at a registration as analogous to an insurance policy. It’s a fairly economical form [of protection]. Registration ensures your rights and gives you advantages. It sounds like a lot of money to pay $1,500 (Canadian) to register a trademark or any variations of it; each one is a new registration. If you want worldwide protection, you have to register in every country of the world. It’s costly, but you need it to have the best rights in the marketplace, and enforcing those rights is much more expensive. The really costly part is enforcing the trademark rights.

Sam: What are the first things you help artists with?

Paul: Think of it as a reverse pyramid. Clients come in with a specific issue, they need trademark or copyright registration, for instance. More commonly, they have questions about agreements. Then you work backward and ask what type of agreement. Typically, it may be a management and production deal, or perhaps a license. Then one will also require structuring and choosing a business entity, a partnership agreement or incorporation, for example.

Sam: Obviously, when an artist gets a deal with a label or maybe a management deal, it’s always prudent to come to you (before signing)?

Paul: If you can afford the legal advice.

Sam: What can go wrong in a management deal?

Paul: Management agreements are based on trust. Trust is a fundamental component prior to proceeding. There are a few key negotiable things to look at. First, It’s a given that you will look at how long the deal is going to last. Second, you’d also want to look at to what extent the manager can bind you to third-party obligations, under a power of attorney. It should be fair and reasonable, preferably restricted to short-term live performance licenses and maybe synchronization licenses, for example. Third, you can get into real trouble with expenses. It’s important for artists to have written approval over what the manager can spend on their behalf. You don’t want to walk away with being liable for tens of thousands of dollars of costs, if things don’t work out. Fourthly, you would want to build in a performance obligation within a specified and reasonable time frame. Typically, it’s the manager obtaining a record deal for a new artist, but it could be any combination of a record deal, a major touring spot or a certain dollar amount of gross income. Finally, there typically should be a sunset clause determining post-term commissions.

Sam: On the legal side, are you seeing a lot of artists struggling? Has it become nearly impossible to make a living from music?

Paul: It depends on where you are and how focused you are on the market you want to service. Yes, I have seen more situations become litigious [with people] arguing over rights. It’s harder to make a go of it, for sure. I look at it as a [profession] where many are called and few are chosen. Who are going to be the chosen ones? I don’t know. Artists have to be very focused and driven. Many don’t realize how hard it really is. In the past, artists didn’t have to deal with social media. Now you can spend all day on the internet, not writing any songs. You still need to be a great artist, a great performer, make great records. Otherwise, no amount of social media is going to help.

Sam: We talked about some of the problems that artists can get into with management deals. Where else can it get tricky?

Paul: Well, every deal should be looked at seriously. You really don’t know whether you’re dealing with a snake or a ladder, right? That’s the game we’re playing. It’s snakes and ladders. Maybe it starts as a ladder, but it could turn into a snake so you would want out. In this day and age, small production companies often want to manage and own all the artist’s rights, or at least participate in many sources of the artist’s revenue. If you sign with the so-called “middleman”, who is also the production company, he’s the one you want to shake when a larger company and opportunity comes knocking. The problem is that you might give away maybe half of your income to the middleman.

Sam: Is there any way to cut the middleman out?

Paul: Yes, but there are two key reasons why he is still important: promotional relationships and money for actual recordings. The middleman has the relationships and ability to promote seriously. Look at a band like Arcade Fire. They are a good example of utilizing alternative independent distribution and achieving success, but they still have partners. That level of success is hard to achieve without a team and without skilled people.

Sam: Back in the day, they would maybe give you a hundred-thousand dollar advance and a 50/50 deal. What are the deals looking like now?

Paul: A 50/50 is still pretty much the norm for independents. Independents still likely want some portion of the publishing, and at least some participation of either gross or net live income and a percentage of merchandising income. Majors aren’t that different, although they don’t do 50/50. For new artist signings, they’re still offering a record royalty and will want a portion of merchandise, publishing and live income. The more successful you are as an artist, the more bargaining power you have.

Sam: Are they still giving advances, or has it dried up and they’re offering the services?

Paul: They are going to pay advances but they’re going to be smaller. Artists still need money to live, and they will need advances to record and tour support

Sam: What size advance are we talking about? Three thousand or more?

Paul: You have to look at each artist and each label separately. A good advance for an independent might include FACTOR money. Most independent labels can do $35,000/$60,000 (Canadian) for a record that’s within FACTOR guidelines. They may or may not give an advance for publishing, and ideally, they put some money up for tour support, too. You’re looking at bigger numbers on major labels.

Sam: With regard to record-label services, have you seen those agreements where they’re charging the artist to manage them rather than do anything?

Paul: That’s not really the norm, although it is not uncommon. As I mentioned, the production company may also be the manager in the independent sector. You have to be careful with that, because it raises legal issues of conflict-of-interest. Majors don’t tend to manage artists, and they don’t mix management with other rights and revenue sources. They’d rather have someone else managing the act, since management can become like babysitting.

Sam: Where do you see the industry going with online streaming? Isn’t it killing some of the digital download sales?

Paul: Yes, it is. Although, interestingly enough, I’ve read reports in the Billboard Biz Bulletin that 24% of Sony’s income is coming from streaming online. Warner’s is like 28%. So it’s growing, even though it pay micro pennies per stream. We just recently saw a change in sales charts, the addition of streaming counts that for an album sale. Fifteen hundred streams equal an album sale.

Sam: That’s not a bad idea, fifteen hundred streams.

Paul: Although I was reading a commentary on it that said if a hundred people go into a bookstore and skim the book, does that count for a sale? It still didn’t get sold. There are some problems. We’re assuming it results in sales, but it doesn’t always.

Sam: I think the agreement here is that you assume you will be earning potential income in time.

Paul: Agreed. For the first time ever, catalog sales outsold new releases. That’s not a good sign. Sure, catalogs gives labels the financial basis to invest in new artists, but new releases can't be declining that badly and at that ratio. It’s not a good sign.

Sam: I’m personally using Deezer streaming right now, because I think it pays better. I’m going back and listening to stuff I listened to as a child.

Paul: That’s good, but the long-tail theory didn’t really work out from what I’m seeing. It’s like the old 80/20 rule, only it’s probably more like 90 to 95. The hits are what people want. We have kind of a tribal mentality. We want to be with what’s going on, otherwise why else would you still have blockbuster movies like Star Wars, artists like Adele, Justin Bieber and Taylor Swift, for example?

Sam: Are you also helping out independent labels?

Paul: Yes. I think they’re important for funding recordings, important for promotion and important for good fostering relationships for artists who don’t have [a label]. According to a survey taken at SXSW recently, 70% of artists still wanted to be signed to a record contract. It figures. I mean, if you’re doing everything yourself – being your own booking agent, manager, social media promoter and publicist, and by the way, you have to be an artist too, writing, recording, performing, touring – what time is left?

Sam: What about a label without money?

Paul: Well, often they have other things like a marketing assistant or a studio that they’re bartering or offering at reduced rates.

Sam: You get to see a lot of artists. What are the successful ones doing that the others aren’t?

Paul: Selling records, touring, making money. It goes with what I was saying earlier about the chosen ones. They are the stars. There are a lot of great musicians out there, but they aren’t stars. The stars are going to have the biggest careers. They have a certain charisma that others don’t have.

Sam: There are people on YouTube and Instagram who are becoming successful and making crazy amounts of money.

Paul: Right, I just read an article about that before I came down here today. Some YouTube stars are making up to seven figures. The good news about the internet is that it never sleeps. If you have something that can sell around the clock, there’s millions of people out there. Now you’re thinking I should make a career move. I teach, too.

Sam: Where are you teaching?

Paul: MetalWorks Institute. I’ve been there since it started a little over ten years ago.

Sam: What are you teaching?

Paul: Intellectual property and contracts for the music industry.

Sam: You wrote a book that’s on Kindle right?

Paul: No, it’s a very interesting issue. It came up when I negotiated my contract and asked my publisher if they would do an E-book. They said we’ll revisit that issue in two years. Their two years is probably up by the end of the year. The book industry is a lot like the CD record industry. They want the hard copy, because they make more money. There’s no way they’re going to charge $160 for an E-book, so they’re not going to give up that business model willingly.

Sam: Can’t you create a book for the more casual reader?

Paul: I have two handbooks out, Music Law Handbook for Canada Vol I and II. One came out in 2014, the same year as the fourth edition of my book called “Musicians and the Law in Canada”. Volume Two of the handbook series came out in December 2015. It sells for $12 retail. And when I speak or teach one of my classes, I sell them for $10 each or two for $20.

Sam: How come you haven’t done E-books?

Paul: I’ve thought about it. It’s kind of like putting a song on ITunes and expecting it to sell without promoting it. It’s not going to happen.

Sam: I think you should do it. You’ve created a name for yourself. I went and searched for your book to see if I could download it.

Paul: Well, the publisher that also sells my handbooks wants to sell hard copies. They make more money, that’s the bottom line. It makes sense – and I get better royalties, too.