Courtney Love Seeks to Rock Record Labels’ Contract Policy

Just as actress Olivia de Havilland brought down the Hollywood studio system in the 1950s and outfielder Curt Flood fought for free agency in baseball in the 1970s, rock star Courtney Love is determined to radically redefine the nature of the music recording business for the next century.

Love is seeking to break her contract with Vivendi Universal, the world’s largest record conglomerate, and expose what she calls the “unconscionable and unlawful” business tactics of the major record labels.

The case threatens to throw back the curtain on what Love and others allege are the industry’s corrupt accounting practices, designed to hide profits and cheat artists out of royalty payments.

Vivendi Universal officials declined to speak about the suit but in their legal papers dismissed Love’s suit as a “meritless, inflammatory diatribe” designed to “attract media attention.” Universal has sued Love seeking damages for five undelivered albums. The company describe the contract as a “fair, industry-standard agreement” that she “willingly” signed.

Universal and other labels contend that they invest a lot in developing and marketing artists, and that long-term contracts are the only means they have of recouping those expenses.

Should Love prevail in court, the case could rewrite the economics of the recorded music industry and lead to a wholesale exodus of recording acts from their labels--breaking the major music companies’ decades-long lock on talent.

“If Courtney Love prevails, this case will nail the lid shut on the coffin of the standard long-term recording contract. It could change the business,” said attorney Don Engel, who has represented such acts as Donna Summer and Don Henley in past contract disputes.

“It is difficult to challenge a giant music company and go up against traditional industry practices, but there is no reason why Courtney can’t win this case,” said attorney Yale Lewis, who successfully represented the father of Jimi Hendrix in a case to reclaim the rock star’s catalog from MCA Records. “If this goes to trial, it will be a jury that decides the facts. Not the industry.”

Long-Term Contracts Are Focus of Lawsuit

At its core, the suit is about the recording industry’s tradition of long-term contracts that keep artists tied up for years longer than is legal in other industries, including television, film and sports. And it seeks to end the practice that allows companies to buy and sell artists’ contracts, often against their will.

Officials with the Recording Industry Assn. of America declined to be interviewed.

Love and Universal are to appear in Los Angeles County Superior Court today for a status hearing on the suit.

The singer-songwriter might be the first artist to challenge the industry’s standard contract who actually has the financial muscle to withstand a lengthy court battle.

Love is not only a successful music star, but she also has established a second career as a film actress, starring in “The People vs. Larry Flynt” and working with such acclaimed directors as Milos Forman and Martin Scorsese. In addition, she controls the estate and catalog of her late husband, Nirvana star Kurt Cobain, whose music generates millions of dollars annually.

“I could end up being the music industry’s worst nightmare: a smart gal with a fat bank account who is unafraid to go down in flames fighting for a principle,” Love said.

“Look, you show a music industry contract to any attorney in any other business, and their jaw just hits the floor. Somebody has to put a stop to this crap,” she said. “I’ve been evangelized. I’m ready to take this thing all the way to the Supreme Court.”

Peter Paterno, attorney for such acts as Metallica and Dr. Dre, says standard contracts keep artists tied up throughout their career with terms that are dictated by the industry.

“Record labels operate on the premise that because they take such a large financial risk and have such a low rate of success that they have the right to maximize their return when they do score a hit. So the terms are stacked against the artist,” Paterno said.

“As an artist’s representative, you wish there was something you could do to change that, but you can’t. In this market, there are only five companies, and they all behave exactly the same.”

Breaking with tradition, Love stepped outside of the industry to enlist a legal team to challenge the contract. She fired her former music attorney in December after his firm balked at trying the case and attempted to convince her to accept a settlement offer.

Love then hired A. Barry Cappello, a hard-nosed trial lawyer with no Hollywood ties who has won massive verdicts against such financial monoliths as Bank of America. She also recruited prominent private detective Jack Palladino, who helped former Brown & Williamson executive Jeffrey Wigand win his battle against the tobacco industry.

Love is seeking to terminate her contract on a variety of grounds. She says she was coerced into signing away all of her rights, including ownership of her music, to the company under a boilerplate industry agreement. Because every label uses the same contract, Love had no choice, the suit says, but to submit to the “oppressive” terms outlined in her long-term deal.

Among the 15 causes of action listed in her suit, Love is challenging the legality of her contract’s assignment clause, a provision that allowed the company that owned her contract to sell it without her consent. The suit contends that the recent trend of mega-mergers and consolidation has harmed the industry’s artists--and rendered their contracts invalid.

As a result of that consolidation, Geffen Records, the label at which Love originally signed her agreement, no longer exists. The suit says Love and her band, Hole, initially passed up offers from a number of competitors to join Geffen, a boutique label launched during the 1980s by entertainment impresario David Geffen. The suit says Love signed with Geffen in 1992 specifically because the label had success developing the careers of rock acts such as Sonic Youth and Nirvana and promised to take a similar approach with Hole.

By the time Love landed at the label, Geffen had already sold his company to MCA, which in turn was scooped up by Tokyo-based Matsushita Electric Industrial Inc. Shortly after Hole released its first album, Matsushita sold MCA to Canadian liquor giant Seagram Co. Seagram then devoured Dutch music behemoth PolyGram and folded Geffen into its Interscope division. Last year, the liquor giant was gobbled up by Vivendi, a French utilities and waste corporation.

“I’ve sunk from being marketed by an American label that understood how to sell my music to a huge Canadian corporation that knows nothing but how to sell booze and finally slid down into the sewers of Paris,” Love said. “Why? All because I, like every other recording artist I know, had the misfortune of being forced to sign an illegal contract.”

Or, as attorney Engel put it, “The fact is if you’re a new artist, they just shove the thing down your throat. You have no choice but to sign it.”

In her suit, Love contends that she can’t work for Vivendi because it has a completely different agenda from the rock-oriented boutique label to which she committed. Love’s music is now marketed and promoted by Interscope Records, a hit-driven label whose contract offer she rejected in 1992 before signing with Geffen.

Love’s suit is also based in part on California Section 2855, a law instituted 50 years ago following a legal battle by film star Olivia de Havilland to free actors from long-term studio deals. So far, the law is untested in the music business.

Under the so-called seven-year statute, entertainers cannot be tied to any company for more than seven years. To avoid testing the law, record companies have usually rewritten the contracts of disgruntled stars, offering concessions in exchange for additional albums. Earlier possible showdowns over the statute, including cases by Beck, Don Henley and Luther Vandross, were averted when industry attorneys convinced the artists to settle out of court for multimillion-dollar advances.

Love rejected a settlement offer after notifying Universal’s Interscope arm Dec. 19, 1999, that she would no longer record for the company.

Universal responded to the legal challenge by filing a lawsuit against Love on Jan. 19, 2000. Universal, which has since been acquired by Vivendi, is taking the position that the seven-year statute does not apply to recording artists. Sources say Love could owe the conglomerate as much as $100 million for undelivered albums.

Love to Challenge State Law Protecting Labels

The California Legislature enacted an amendment to the statute in 1987 at the urging of the major labels, which granted them the right to recover damages from any artist who attempts to break his or her contract. Love intends to challenge that amendment, alleging in her suit that record company lobbyists and executives duped legislators with false testimony to get it passed.

Attorney Engel, who testified against the measure before the California Senate, agrees.

“The record companies testified that they needed this exemption in order to make money because they make such a big investment, but that is simply not true,” Engel said.

According to her suit, the labels falsely told lawmakers that their development costs were so prohibitive that the industry did not begin to make money until an artist had been signed for seven years. The labels also misled legislators, the suit says, by implying that artists signed to standard seven-album deals can deliver one album a year if they choose.

Love’s suit maintains that it is impossible for any artist to fulfill the terms dictated in the standard recording agreement. The reason: Record companies typically insist on a two-year gap between album releases. During that period, the company usually embarks on a marketing campaign that includes a series of single and video releases plus extensive touring by the act. As a result, the standard deal usually chains an artist to a label for at least 14 years--the span of most music careers.

However, Universal and other labels contend that without low-paying, long-term contracts, they would have no incentive to underwrite the enormous costs of developing an unknown artist’s career. At the same time, they say, they pay fair royalties based on time-honored accounting practices.

Love and her band have sold about 4 million albums in the U.S. since 1994, generating an estimated $50 million at music retail outlets. Universal collected the lion’s share of that money, about $40 million in wholesale billing. Love says the company paid about $2 million in royalties and advances to her and her band--after deducting costs for studio recordings, video productions, radio promotions and tour campaigns during the course of the contract.

Love says the primary reason the Big Five record conglomerates have been able to call the shots for so long is that they control nearly 90% of the music sold throughout the world. They operate the label system under which most music is recorded, manufactured, marketed, promoted and distributed to radio, MTV and retail outlets.

The reason artists have no clout, Love says, is the major labels work together as an unlawful trust restraining trade and competition. That’s why, the suit says, labels continue to rake in such huge profits on hit CDs while forcing artists to pay for their own recordings, videos, retail placement and tour support. It’s also why artists are required to stay tied to one label their entire career while companies remain free to boot bands any time they please, the suit says.

Because artists have little negotiating leverage, the suit says, labels are allowed to deduct exorbitant fees for packaging, product breakage and promotional giveaways and to pay lower royalty rates for albums sold overseas and on record-club sales. Companies are also able to freeze payment of artist royalties to account for returns of unsold product, the suit says.

In the end, Love says artists have no idea how many records they actually sell unless they call for an audit--at their own expense. And even then, the audit is based solely on financial records provided by the company, none of which can be independently verified. In Love’s case, Universal has repeatedly refused to turn over documents requested by her attorneys.