Structure of an Exclusive Management Agreement for a K-Pop Artist (Standard Form Contract)

Posted by Joseph Hwang Joseph Hwang 8/02/2024

Structure of an Exclusive Management Agreement for a K-Pop Artist (Standard Form Contract) - Part 11.

Joseph Hwang

* Attention: This article is based on the latest version of the "Standard Form of Exclusive Contract for Musicians (hereinafter referred to as "SFEC", Notice No. 2024-0021, Ministry of Culture, Sports and Tourism of the Republic of Korea, amended on June 3, 2024)."

** Contract parties: Artist (hereinafter referred to as "Artist"), and artist management company (hereinafter referred to as "Company")

***

Article 10 (Copyright Attribution, etc.)

① The copyright of the Content developed and produced by the Company in relation to the Artist during the Contract Period (in this Agreement, “Content” refers to the results developed and produced through the medium of Article 4, Paragraph 2 in relation to the Artist's popular culture art service) shall be vested in accordance with the Copyright Act.

② If sales are generated pursuant to Paragraph ① after the termination of the Contract, the Company shall pay the Artist _____% of the revenues to the Artist in increments of ( ) months (e.g., [ ] years after the termination of the Contract). However, if the Artist has any money owed to the Company, it can be deducted first from the above settlement amount, and the Company shall provide the settlement data to the Artist at the same time as the settlement payment upon the request of the Artist.

③ The Artist shall not directly or through third parties produce, use, or sell anything identical or substantially similar to the work created by the Company through the Artist as the material of the Content (e.g., recordings of the same song re-recorded by the Artist, digital files, etc.) for three (3) years from the date of termination of the Agreement.

④ The Company and the Artist shall actively cooperate to create various values and expand revenues by appropriately utilizing the copyrights and other rights (such as copyright neighboring rights) under the Copyright Act held by both parties.

***

There are two main types of copyrights. One is "property rights" and the other is "moral rights". Property rights are exclusive rights to obtain economic benefits, while moral rights are rights to protect the personality and honor of the creator. Therefore, moral rights are inalienable rights that cannot be transferred by the right holder to others, while property rights are rights that can be transferred by contract.

There are also two ways to exercise property rights in copyright. One is to transfer the right to another person or company, and the other is to license it. The option to exercise the right can be attached to the contract, for example, for a period of time, region, medium, or return after transfer - also known as a conditional transfer or trust.

Copyright is an exclusive right that accrues to composers, lyricists, and arrangers who create musical works. For performers, including singers, it is necessary to protect their performance rights because they express the musical work and allow the public to enjoy the music. Therefore, the Copyright Act defines the rights of performers as “neighboring rights” and recognizes them as exclusive rights that are protected in proportion to copyright.

Therefore, in order for a company to attribute an artist's performance to the company and exploit the musical performance, the company must be transferred or licensed the artist's copyright (property rights including moral rights) and neighboring rights from the artist. This creates a very complicated issue because copyright (including neighboring rights) is managed and exercised by the artist through the copyright organizations, not an artist management company. Copyright Act provides that the broadcasting or performance rights of the property rights are subject to royalty collection under a blanket license. Almost all countries require that licenses for broadcasting and performances, which are areas where the use of musical works is broad, be negotiated collectively between broadcasters and concert promoters through a collective organization of copyright holders. Otherwise, the market for copyright licenses would be severely disrupted due to the scramble of negotiating and administering entities.

For this reason, almost all artists choose to place their copyrights or neighboring rights in trust with a government-appointed collecting organization to exercise their rights. Therefore, management companies have always been confused and burdened by the complexity of these copyright management systems in artist management contracts. In addition, the exercise of copyrights is a very sensitive and important issue as it relates to the artist's economic income.

The SFEC has regulated this in accordance with the Copyright Act, as the artist's copyright must be exclusively utilized by the artist management company or permanently transferred to the company for the content produced by the company, even if only for a contract period. Most artist management companies enter into contracts with artists through the SFEC by attaching the supplemental agreement within the method of using works prescribed by the Copyright Act, i.e., transfer or license. Articles 45 and 46 of the Korean Copyright Act stipulate the rules for transferring copyrights and licensing works, as follows.

"Article 45 (Transfer of Author’s Economic Rights)

(1) Author’s economic rights may be transferred by assignment in whole or in part.

(2) Where author's economic rights are transferred by assignment in whole, the right of the production and use of a derivative work under Article 22 shall be presumed not to be included in the transfer, unless otherwise stipulated: Provided, That in cases of a program, the right of production of a derivative work shall be presumed to have been transferred together unless otherwise stipulated. <Amended on Apr. 22, 2009; Aug. 8, 2023>

Article 46 (Authorization to Use Works)

(1) The holder of author’s economic rights may grant another person authorization to use the work.

(2) The person who obtained such authorization pursuant to paragraph (1) shall be entitled to exploit the work in such a manner and within the limit of such conditions so authorized.

(3) The right of exploitation as authorized under paragraph (1) may not be transferred by assignment to the third party without the consent of the holder of author’s economic rights."

The “secondary use of the work” is always a problem. Under the Korean Copyright Act, it is likely to be illegal for a company to create secondary works of a musical work once licensed unless the property rights are transferred or the company and the artist have a special agreement. Therefore, this is an area that is likely to cause problems after the termination or cancellation of the contract, so it is important to get the terms right at the beginning. Even if the company has obtained the rights to create a derivative work from the artist, the method of creation must not violate the moral rights of the original artist. There are potential criminal penalties for violating an artist's moral rights, so companies need to manage derivative works carefully.

Another important copyright consideration is the “Holdback Period” after the termination or cancellation of the contract between the company and the artist. This is because of the company's investment in its costs and expenses in producing the artist's content before it can recoup those costs and expenses to break even, and the artist's subsequent release of competing content against the artist's former company that is the same or substantially similar to the former company's content can cause economic damages to the former company. The holdback period is defined by the SFEC as three (3) years. After this period, the artist can create and release a remake of the same or similar content. Of course, if the artist has a contract with a newly signed artist management company, this is something to discuss with them.

* Standard contract analysis continues in the series.

** References and quotations:

https://www.mcst.go.kr/kor/s_data/ordinance/instruction/instructionView.jsp?pSeq=2413

Series Articles

Overview

https://www.musicbusiness.co.kr/2024/05/structure-of-exclusive-management.html

Part 1.

https://www.musicbusiness.co.kr/2024/05/structure-of-exclusive-management_26.html

Part 2.

https://www.musicbusiness.co.kr/2024/06/structure-of-exclusive-management.html

Part 3.

https://www.musicbusiness.co.kr/2024/06/structure-of-exclusive-management_16.html