When considering whether to file for bankruptcy, most people worry about losing their home, their car, or other familiar assets. Creative works, such as music, films, and literary works are also considered assets, in the category of intellectual property. This type of asset may be especially common in cities with a strong entertainment industry, such as New York and Los Angeles. Bankruptcy law treats music and similar creative works subject to copyright protection as assets, although not all copyrights have value that would be of interest to a trustee liquidating a bankruptcy estate. The laws governing intellectual property are about as complicated as the laws of bankruptcy. A Chapter 7 bankruptcy may, on occasion, result in the debtor’s loss of rights to their music, when those rights include the right to royalty payments.
Copyright law protects the rights of authors to their own creative works, such as music, art, photographs, literary works, films and videos, and software code. Copyrights should not be confused with trademarks, which generally apply to brand names and logos, or patents, which protect inventions. An author of a creative work can register the work with the U.S. Copyright Office, but they may also have common law copyright protection. Copyright law protects the right of the copyright owner to reproduce, exhibit, or display their work; to create derivative works based on the original work; and, perhaps most importantly, to exploit and otherwise profit from the work.
Since music is an art form that is heard rather than seen, many of the rights to a musical work relate to the right to physically record and reproduce the music. The owner of a copyright may therefore grant various licenses, such as a mechanical license to record music onto a CD, a digital license to sell or transmit recordings online, and a license that allows a consumer’s personal use of a recording. In exchange, the copyright owner receives royalty payments. A musical copyright is an asset in the context of a bankruptcy case, and royalties are income. Most of the world’s songs achieve little to no fame, but those that do have the potential to generate significant royalty income. This gives the copyrights themselves considerable value, especially in a bankruptcy liquidation.
A recent case of an artist who lost rights to their songs in bankruptcy involved the R&B singer Toni Braxton, who filed for Chapter 7 bankruptcy in California in 2010. The trustee put the rights to twenty-seven of her songs up for auction in July 2013. In re Braxton, No. 2:10-bk-51909, notice of sale (Bankr. C.D. Cal., Jul. 2, 2013). Braxton was reportedly authorized by the bankruptcy court to bid $20,000 in an attempt to reacquire the rights, but someone else outbid her and purchased the rights. That person now has the right to receive royalty payments for any existing licenses, and to make further use of the songs.
Los Angeles bankruptcy attorney Devin Sawdayi has helped clients in the Los Angeles area rebuild their finances and their lives through the Chapter 7 and Chapter 13 processes since 1997. Bankruptcy protection offers relief to people who cannot keep up with their debts on their current income, allowing them to restructure their bills, or even discharge some debts in their entirety. To schedule a free and confidential consultation, contact us today online or at (310) 475-9399.
In re Braxton (PACER registration required), No. 2:10-bk-51909, U.S. Bankruptcy Court, Central District of California
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