Recently, a Danish pop band from the 1980s gave Sony BMG an uncomfortable reminder that business officers who neglect to review their contracts in light of changes in technology and commercial objectives may find themselves having to play a costly game of catch-up when the terms of those contracts no longer reflect the current state-of-the-art technology.
Dodo and the Dodos apparently are one of Denmark’s all-time best-selling pop bands, famous (in certain regions along the eastern shore of the Atlantic Ocean, anyway) for several hits, including their biggest, “Vågner i natten’ (‘Waking in the Night’).” More than five years ago, Sony BMG sent out notices to approximately 400 composers of songs for which the company held distribution rights, including the Dodos, informing them that their compositions were slated to begin distribution via Internet download. The Dodos were the only recipients to object to and challenge their notice, based both on their belief that their current royalty deal was inadequate to fully compensate them for Internet distribution as well as, more importantly, on the fact that their existing contract with Sony did not explicitly allow for that method of distribution. Apparently, when the Sony-Dodos deal was inked, there was no reason to mention music downloads, as they were not then a technologically viable option for distribution.
After losing the case against it at the trial level, Sony appealed the decision to the Eastern High Court of Denmark, which upheld the trial court’s decision in a ruling issued on August 9. The case is believed to be the first of its kind involving electronic distribution of copyrighted content under dated distribution agreements. While the final decision is not necessarily controlling on courts in other jurisdictions, it is likely that it will be important ammunition for other similarly situated copyright owners who want to challenge Internet distribution of their works under terms of aging contracts that they may believe fail to provide adequate compensation.
As important as the case may prove to be for the music industry and other businesses handling electronic distribution of copyrighted materials, it serves as an important lesson for any company that enters into contracts affected by technological issues. Contract drafters sometimes make the mistake of failing to write agreements that are flexible enough to adapt to changes in technology over the life of those agreements. In other situations, contract managers fail to regularly review the terms of existing contracts to determine whether technological changes and advances have occurred since execution that will impact the interpretation of those contracts. Being behind the ball with respect to either consideration can prove to be an expensive mistake.
You can read a brief, English-language description of the case at The Copenhagen Post here.