The copyright controversy over 2 Live Crew's parody (or alleged parody to some) of "Pretty Woman," reached the Supreme Court where in front of the Court, Luther Campbell pulled up in a Rolls Royce, complete with entourage, and held a pre-oral argument press conference of sorts. It was good theater, and I enjoyed it. One wonders what happened to Luther afterwards. Some inkling may be gathered from a opinion issued by the Eleventh Circuit on Monday February 5th, Thompkins v. Lil' Joe Records, Inc., 2007 WL 316302. The case well illustrates the potentially toxic intersection of copyright and bankruptcy law for recording artists.
Plaintiff is Jeffrey Thompkins, who along with Patrick Watler, formed the group "Poison Clan." In 1989 Thompkins signed with a Effects Records, a division of Campbell's Skywalker Records, which in turn became Luke Records. The 1989 agreement transferred to Luke Records copyright in sound recordings created by Poison Clan. The transfer of rights in the sound recordings carried a continuing royalty obligation. (The status of rights, if any, transferred in the underlying musical compositions, was subject to disagreement).
In 1995, Luke Records, and Campbell personally filed for bankruptcy. Thompkins filed a proof of claim in the Luke Records bankruptcy as an unsecured creditor. Eventually, a joint reorganization plan was agreed to. In that agreement, rights in the sound recording copyrights owned by Luke Records, including those of Poison Clan, were to be transferred by operation of law to Lil' Joe Records. Pursuant to 11 U.S.C. sec. 365, certain executory contracts, including specifically those of Poison Clan were "rejected" by Luke Records at Lil' Joe's insistence. "Rejection" of an executory contract is a term of art in bankruptcy law. Thompkins did not file a pre-petition claim for damages resulting from the breach caused by the rejection.
Here's what all this means. By Luke Records' rejection of the contract with Thompkins, Luke Records was relieved of any obligation to pay royalties to Thompkins, even though the contract that imposed those obligations is the one that transferred the rights to Luke Records in the first place, and even though the transfer of the rights was not affected by the rejection. (That's why I said "rejecting" a contract is a term of art in bankruptcy law). Thompkins' sole remedy was to file a separate claim in the bankruptcy proceeding, as an unsecured creditor, for damages for the breach of the contractual obligation to pay royalties. But since Thompkins had failed to file such a pre-petition seeking damages, he waived his claim.
Lil' Joe was free and clear of any obligation: it owned 100% of the copyright in the sound recordings, yet did not have to pay anyone any royalties, nor was it liable for any contractual breach; it had no contract with Thompkins. Recording artists beware, to say the least!