Many intellectual property agreements include a clause which specifies certain consequences if material breaches are not remedied after a period of notice. More clarity on this issue has now come from the English High Court following a song copyright exploitation agreement dispute.
The result of the material breaches that were established in that case (Crosstown Music Company 1, Llc v Rive Droite Music Ltd & Ors) was that the songwriters got their copyrights back.
Taylor and Barry are songwriters who entered into several agreements with Rive Droite under which they assigned their copyrights in various compositions to Rive Droite in exchange for Rive Droite's promise to exploit them and pay royalties. Each of the relevant agreements contained a "revert back" clause (clause 18(a)) which specified that should Rive Droite be in "material breach" and should it not take "all reasonable action" to remedy the breach within a specified number of days following notice requiring it to do so, then the copyright in the relevant compositions should revert back to the songwriters "forthwith".
The songwriters were unhappy about how royalties had been accounted for and several other matters which they regarded as material breaches of the agreements and therefore several cure notices were served by them on Rive Droite.
Crosstown subsequently took an assignment of many copyrights owned by Rive Droite including some of those copyrights related to songs written by Taylor and Barry.
Crosstown sought a declaration that the copyrights had not reverted to the songwriters and that clause 18 only imposed a contractual obligation to reassign the copyrights to the authors in the event of a failure to remedy breaches. Crosstown argued that, as this was a contractual obligation, it did not bind them as they were not parties to the original agreements.
The judge held on the facts that material breaches had occurred, the cure notices were effective and "all reasonable action" had not been taken to remedy the breaches. In respect of the latter, Crosstown unsuccessfully argued that the legal proceeding it had taken against Rive Droite was "all reasonable action" (it appears that to be reasonable Crosstown would itself have had to account to the songwriters for the royalties owing).
Further it was not open to Crosstown to argue at a late stage (after close of evidence) that clause 18 (a) did not and could not result in all the copyrights being automatically assigned back to the songwriters because foreign copyrights were included amongst them. The judge however proceeded on the basis that the position under the relevant foreign laws was the same as under English law. Clause 18 (a) could effect a reversion back to the songwriters under English law even though the breaches were Rive Droite's.
The judge was able to reach this conclusion because despite Crosstown's arguments to the contrary, section 90(2)(b)of the Copyright Designs and Patents Act 1988 made specific provision for chronologically successive interests in copyrights. Further the judge held that this provision enabled the reversion of a copyright on a contingent basis as well as after a specified fixed term.
A key issue in this dispute was the meaning of "material breach"; a phrase used commonly in this type of agreement. The judge cited with approval the statements in Gallagher International Ltd v Tias Enterprises Ltd  EWHC 804 (Comm) that "Materiality had to be assessed in the context in which the question was asked [and]...In order for a breach to be material it does not have to be repudiatory". He added that it was not "necessary or appropriate to require that the breach be vested with the character of going to the root of the contract. It connotes the concept of significance, as opposed to triviality, and its materiality has to be measured in its total context."
He regarded as helpful and applied the checklist of considerations set out in the Gallagher case. The materiality of the breaches was to be assessed in the light of:
- the actual breaches;
- the consequence of the breaches to the innocent party;
- the guilty party's explanation for the breaches;
- the breaches in the context of the relevant agreement(s);
- the consequences of holding the relevant agreements determined (or as here effectively determined);
- the consequences of not doing so.
Those entering into such agreements should take note that "material" does not appear to be a very high standard to reach and therefore provisions such as clause 18(a) should not be treated lightly.