by Susan Wang (J.D. 2014), Emma Tennant (J.D. 2014)
Our first semester at Harvard Law School was about more than briefing cases and reading Supreme Court opinions: through the Recording Artist’s Project we learned about clients. That lawyers work for the best interest of their clients is not always obvious from reading court opinions, but in only one semester our team realized that furthering a client’s interests means finding out about business practices in the industry, and learning about what is negotiable from our bargaining position. One such business practice that we became very familiar with was the distinction between net and gross profits. It’s also a distinction of extreme importance to our client ($$$).
This semester we dealt primarily with a licensing and distribution agreement and an administration agreement (an agreement that grants the publisher the right to administer a particular composition or a catalog of compositions for a limited period, RAP Student Advocate Manual p.42). In one contract the company specified that our client would receive a certain percent of the net sales of physical and digital copies. The split was generously in our client’s favor, but the contract did not specify which expenses would precede calculation of the net sales. In another contract, the company failed to specify at all whether the payment would be in gross or net.
In understanding how these contractual terms or non-terms would affect our client we took several steps. First, we googled the difference between net and gross profits. Gross includes everything that you earn. Net includes only what you have left after covering expenses. Second, we spoke with RAP Supervising Professor Brian Price. He informed us that, under rules of contract construction, in instances of ambiguity, the contract that failed to specify would be interpreted in the non-drafter’s favor — our client’s favor–so he would receive gross income. Third, we thought about what, if anything we could do to change the terms of the contract. Were the terms of these contracts not in our client’s favor, it still might not be in their interest for us to try to negotiate them. This stems from the reality of the music business. Given the relative bargaining power of our client in comparison to the other party’s, we have to consider whether any term at all should be renegotiated. The other party may simply walk away if the legal process for achieving a mutual goal between our client, an unknown in the music industry, and another party, is too onerous. This would leave our client in a position that is worse off. In the end our team accepted the net/gross delineations in these contracts as acceptable for our client, and chose to focus on at most one or two issues per contract. We also determined not to take a hard line.
