What the courts of equity have to say about Taylor Swift’s contract dispute with Big Machine Records
Welcome to Nashville
Taylor Swift is one of the most powerful musicians in the world. In 2019, Forbes estimated the country starlet turned popstar boasted a net worth of approximately $360 million. On social media, Taylor holds an impressive 123 million followers on Instagram. Yet, a decade and a half ago, in stark contrast to the immense power she now wields due to her massive following and enormous fortune, Taylor had anything but.
At fifteen years old, she was an aspiring singer and songwriter from small town middle-class Pennsylvania looking for the right platform and infrastructure to help market and distribute her music. In 2005, Taylor eventually signed with Big Machine Records (BMG). Scott Borchetta, then president and CEO of BMG, agreed to provide upfront financing for the production and publishing of her recordings — whether by studio access, marketing, or distribution — in exchange for ownership over all of her master work. The contract between Taylor and BMG was to extend over the span of six albums or, as now evident, twelve years’ worth of content. For context, the owner of a master recording retains any and all rights to exploit the material, whether through pure sales, licensing costs, or, in a more contemporary fashion, online streams. Although Taylor would receive royalties (a percentage of the revenue made from the recordings), once associated costs are fulfilled, the vast majority of her work’s value would go towards BMG.
This may appear on the surface to be a fair exchange, but upon closer examination, serious questions are raised as to whether they would survive legal scrutiny. In a first-year contracts course at any law school in the common law world, students are taught the basic elements required for a valid contract: offer, acceptance, sufficient certainty of terms, common intention, consideration, and conscionability. Where any single element is absent, the contract is generally, subject to certain exceptions, considered void. A recording contract is no different.
However, as I will illustrate, Taylor’s contract with BMG, and the many other contracts signed by young artists with big record companies, are often made under unconscionable circumstances with unconscionable terms and conditions.
Dear Macaulay
The House of Lords’ landmark decision in Macaulay v Schroeder Publishing Co Ltd provides an illustration of how exactly record companies steer into unconscionable territory when constructing their contracts. In Macaulay, a relatively unknown 21-year-old songwriter entered into a contract with a music publishing company, agreeing to provide copyrights to all of his works — made during the term of the agreement — to the firm, in exchange for royalties. Other elements, such as a unilateral right of the publishing company to assign and terminate the contract, were also included. Lord Diplock, in a unanimous court, held that such a contract was contrary to public policy, arguing that the character of the agreement restrained the Plaintiff’s ability to market his services.
Although the Court based their conclusion on a restraint of trade argument, it provided a clear picture of how a recording contract could be rendered unconscionable. Lord Diplock held that the point of emphasis in any inquiry into unconscionability is the relative bargaining power between the publisher and artist at the time the contract was made. The unconscionability question is answered by analyzing the form of the contract and its substance.
Fairless
Like many recording contracts involving young artists with middling means, Taylor’s contract followed a standard form: the terms were dictated by one party and other party had to take-it-or-leave-it. These are often described as boilerplate contracts and, as Lord Diplock explained in Macaulay, come in two forms. First, a standard form can be a mercantile transaction of common occurrence, where the terms and conditions are settled by representatives of the commercial interests involved (negotiated). These are presumed fair and reasonable. The second, considered unique transactions in oligopolies, are not subject to negotiation by representatives or the parties themselves.
Taylor, at the time of forming her contract, was faced with an agreement that was not negotiated upon by representatives of her commercial interests, and did so in an oligopoly, where a few record companies controlled the market. This type of agreement is presumed unfair or unreasonable if it provides the stronger party the ability to drive oppressive terms.
This brings us to the substance of Taylor’s contract. The unqualified ownership of Taylor’s master recordings, with no option to purchase them back and no expiry to the licensing rights, is precisely the type of oppressive term driven by a boilerplate contract. She did not, for reasons of financial need, have nearly the quality nor depth of legal advice provided to Mr. Borchetta. Taylor’s dependence on Big Machine to jumpstart her career was far greater than Scott’s dependence on Ms. Swift to anchor his business. Given the faulty form, oppressive terms, and asymmetries characterizing Taylor’s contract with BMG, it would be unlikely that this agreement, all things being equal, would survive legal scrutiny. Yet, despite these concerns of equity, the Courts have and continue to enforce these contracts. One naturally has to wonder what role commercial efficiency, freedom of contract, and judicial reluctance at voiding agreements for public policy reasons, plays in this pattern.
Nevertheless, what is known all too well, is that the blank space in contract law is ready to be filled, and it is the courts who must give daylight to the industry politics and practices that give rise to these mean agreements.