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How One Direction And Other Bands Handle Leaving Members

This article is more than 8 years old.

By Oliver Herzfeld and Josh Warrum

Although it is not unique or even uncommon for music artists to separate from their bands, Zayn Malik’s announcement last week that he left One Direction was startling to many people including, but by no means limited to, a large number of tweenage and teenage girls worldwide. The news about Malik and One Direction provides a good opportunity to explore how bands and record labels prepare for and handle member departures.

Between Music Artists And Their Bands

Every band is, either by design or by default, a legal entity (e.g., partnership, limited liability company, etc.) that operates similarly in many ways to other businesses. As such, band members contribute their skills and other resources; purchase and own assets; incur expenses; receive revenues; and share profits. So when a member leaves a band, like other businesses, the parties must allocate and divide the assets, liabilities and future revenues. Many times, bands prepare for such an eventuality in advance and explicitly include provisions in their operative documents (e.g., partnership agreement, operating agreement, etc.) as to how the members agree to divide their assets, liabilities and future revenues in the event a member separates from the band. Otherwise, the parties will have to rely on default applicable laws and/or negotiate from square one and settle upon the terms of their separation at the time a member actually leaves the band (similar to getting divorced without a prenuptial agreement previously in place).

A band’s assets usually include equipment, cash, unsold merchandise and vehicles, the value of which, along with the band’s liabilities (e.g., outstanding loans, tax liabilities, etc.), are used as a basis to determine an appropriate purchase price for the leaving member’s ownership interest in the applicable entity. In addition to compensation for such ownership interest, leaving members are generally entitled to ongoing payments from certain revenue streams of the band including:

1. record royalties (e.g., the leaving member’s share of royalties from sales and licenses of master recordings embodying the leaving member’s performances);

2. publishing royalties (e.g., royalties earned from exploitations of compositions authored, in whole or in part, by the leaving member); and

3. merchandise income (e.g., income from products manufactured by the band or under license, which may or may not be limited to items featuring the name or likeness of the leaving member).

Another important issue in connection with a leaving member is determining who gets to use the band’s trademarks and goodwill. Often, the remaining members retain ownership of the band’s trademarks and the leaving member is permitted to state that she/he is a “former member of” the relevant band, but is prohibited from forming a new band with the same or a confusingly similar name, or otherwise using the band’s name, symbols, logos, slogans and related marks. This issue gets more complicated when multiple members of a band leave together, but we will leave that issue for another day.

Between Music Artists And Their Record Labels

Recording agreements generally grant the record label exclusive rights to the personal services of each member of a band as a recording artist. While a record label cannot force a leaving member to continue providing the label with such member’s personal services during the term of a recording agreement, the label does have the right to prevent such member from providing her/his services as a recording artist to any other record label during the term of the recording agreement. Of course, such an outcome could be really harmful to an artist without providing a commensurate benefit to the record label. Consequently, bands and record labels often agree to include a so-called “leaving member provision” in their recording agreements stating that the record label has an option for a certain period of time after the leaving member’s departure (e.g., 90 days) to sign such member individually to a new recording contract on the same or similar terms as the band’s recording agreement, but with reduced financial terms and percentages (e.g., 75% of the advances, recording funds and royalties contained in the band’s recording agreement). If the record label does not exercise its option within the stated period of time, the leaving member would be free to sign with and perform for anyone else. In such event, representations, warranties, grants (e.g., the label’s right to continue to use the leaving member’s name and likeness in connection with master recordings embodying the leaving member’s performances) and other survivable provisions in the band’s recording agreement remain in full force and effect and binding on both the record label and leaving member, but the leaving member no longer has any obligation to provide services to the record label.

We hope this summary of the key issues involved in a band member’s departure provides some “direction” on the process.

Oliver Herzfeld is the Chief Legal Officer at Beanstalk, a leading global brand extension agency and part of the Diversified Agency Services division of Omnicom Group.

Josh Warrum is the founder of Warrum Law, PLLC and Of Counsel to Roberts Leibowitz & Hafitz where he practices intellectual property law in connection with entertainment and technology transactions.