Principles of Contracts: You CAN Fight City Hall

Because this one deals a lot with the law again, the usual disclaimers apply: I am not a lawyer. This is not legal advice. This is one man’s opinion on how business is done. Always consult a qualified legal professional when seeking legal advice.

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Previous chapter: Embrace Your Inner 2 Year-old
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It’s come to my attention that in some of my business posts I’ve inadvertently fed an unspoken, and erroneous, business assumption shared by many people in the arts (and, frankly, most people in society at large). It goes something like this:

“Corporations are all-powerful. They have bigger lawyers than you do. You’ll never find a lawyer to take your case if one rips you off, so you’re just going to have to roll with it if your record label cooks the books, your movie studio subjects you to creative bookkeeping, or your publishing house pads their returns. You’re only the talent–you should expect to be the victim. The talent always loses.”

In other words, you can’t fight City Hall.

Not to put too fine a point on it, but this is a con. You CAN fight City Hall. And you can win. But you have to be savvy.

First Things First

When I say things like “You don’t want to be a test case,” as I did in my chapter on the Peggy Lee decision and its implications for artist contracts everywhere, it’s easy to hear that as reinforcing the erroneous idea I’ve delineated above–an impression for which I owe some of you an apology. It’s true that in untested areas of law, a dispute on a point that’s not entirely clear is a test case, by definition, and that these kinds of cases are a pain in the ass. It’s also true that these kinds of cases are, by their nature, uncertain in their outcome. However, by stating that being a test case is a pain, I don’t mean to advocate fear of lawsuits, or a strategy of folding before parties who have bigger lawyers than you do. Not at all.

What I meant to advocate, and what that chapter will more clearly advocate when these chapters are edited and collected in a book, is a basic principle which I’ll call “Defensive Business.”

“Defensive Business” has its analog in “Defensive Driving” rather than in “paranoia” or “social defensiveness.” You don’t have to be paranoid or live in fear to practice defensive business–in fact, paranoia will usually lead you to rash behavior that can get you into trouble.


Let’s face it, in any business, there are good folks and sharks–if you’re going to be in business, you must assume the risk of swimming with sharks whether you want to or not. This is a mindset thing, and it’s the hardest thing for most decent people to get their heads around. You don’t have to be paranoid, you just need to bring a good harpoon gun and a shark-proof suit. Even though this series has concentrated disproportionately on the arts, these practices are important for any business.

The shark-proof suit is your defensive business practices, and there are a few basic ones that can really save your bacon (not to mix metaphors):

1) Learn Your Area of Law

No matter what business you’re in, there’s laws that cover you. Some of it can be arcane, but there are often excellent references (such as those provided by the folks at Nolo Press) that will get you up to speed quickly. Not learning the law in your field of business is a bit like sitting down at a poker table without knowing what a royal flush is. These are the rules of the road in your industry–failure to learn them will eventually result in your losing a lot of money, finding yourself the subject of a criminal prosecution, or the object of regulatory scrutiny, or all three.

If you’re in the arts businesses, this means copyright law and contracts first and foremost (Nolo Press has great books on both). If you have employees, it means labor law as well as the law for your industry (tenant’s law for landlords, food service regs. for restaurants). And for everyone, it means tax law. All these things have an effect on your position when negotiating a contract.

The investment of time and money is minimal compared to the potential cost of neglecting this. You don’t have to become a lawyer–you just need to learn enough that you’ll know when to get a lawyer and when to deal on your own. Learn the law and operate within it. If you don’t like the law, join a lobbying organization that works to change them. But don’t break them.

2) Put Your Paperwork in Order

If you’re a landlord, don’t go renting out a house you don’t have clear title to. If you’re a software developer or a writer or or other artist, get on a schedule registering your copyrights (being on a schedule makes it easy to remember. Also, remember that registering a copyright doesn’t create the copyright. You own the copyright to anything you create. But registering does make life easier for you, and makes you eligible for higher awards, should disputes arise or should you land in court). If you’re in food service, keep records of stock rotation schedules and suchlike.

You get the idea–apply what you learned about the law governing your business, and get the relevant permits, licenses, copyright registrations, insurances, and other basic protections that form the groundwork of responsible business in your field.

3) Negotiate Your Contracts

As I’ve talked about throughout this series, everything is negotiable. Don’t sign a contract unless you’re satisfied that you can live with it. If there’s something you don’t like, negotiate it. If the wording is unclear, work to clarify it. Contracts should be mutually advantageous, not vehicles of exploitation. Failure to negotiate or to say no are the most common reasons that exploitation occurs (ignorance of law and business is the other big one).

4) Know What You’re Signing

This sounds obvious, but as we’ve seen in this series (and as The Passive Guy regularly demonstrates far better than I ever could on his excellent blog), there are a lot of clauses and wording that can sound like common-sense goodness that can actually work against you if a dispute arises. If you’re new at this, and not sophisticated in the law in your area of business, consult an experienced friend–or, better yet, a lawyer. It’ll cost you between $100 and $1500 for a consultation in most cases (depending on the length of the contract and the area of law you’re operating in). For anything with a potential paycheck (or potential loss) totaling more than four figures, this initial consult can save you a lot of grief.

5) Get It In Writing

Verbal negotiations are an important part of doing business, but if you’re in negotiations, get as much of the conversation as possible in writing. In the unfortunate event that a dispute arises, these conversations can come in very handy. To quote Londo Molari:

“I have gotten into the habit of recording important conversations. One can never tell when an inconvenient truth might slip through the cracks and disappear.”

But if you’re recording your conversations, make sure you do it in accordance with the wiretapping laws that are in effect in your jurisdiction. And be aware that different states have different laws in these matters–when doing business across state or national lines, be sure you’re in compliance with laws in all relevant jurisdictions.

6) Keep Records

Keep records of all correspondence involving negotiations, all drafts of contracts, all pre-deal discussions, all dispute-related correspondence, minutes of all formal meetings, and all relevant conversations between yourself and your lawyer, your agent, and your partners. Should a dispute ever arise, you want to be able to reference these conversations regarding intent, horse-trading, compromises, and settlements.

Sun Tzu said that the battle is won or lost before the armies ever take the field. If you have records that prove your contentions, you’ve won the battle–the fight is a mere formality. But keeping your records, and referencing them when the need arises, can actually keep you out of a fight, and can keep your disputes that do arise from escalating into a court battle.

These are the basics of defensive business. If you’re in business long enough, any business, you’re going to learn them one way or another–better to learn them the easy way (i.e. from the mistakes of others, rather than your own mistakes).

When You Get Screwed

When something untoward happens, and you think (or feel like) you’ve been screwed, your records are your goldmine.

The first thing you have to do is make sure you’re in the right. Read through your contract. Check your records. Make sure your memory is in accord with the facts. Have a savvy friend or mentor go over them too. Consult a lawyer. Discovering that the misunderstanding is the result of YOUR mistake (and desisting) will save you a lot of grief and help foster a good reputation.

I once bought a car on a bad financing contract, and didn’t catch on until I’d owned the thing for a few months. A friend of mine who’d worked in the auto industry in years past expressed doubt about the legality of the terms, and that was all I needed to get very, very angry, so I consulted another friend whose business was auto finance. Upon looking it over he said “Yup, you got screwed, and it’s your fault. This contract is legal,” and he gave me the relevant sections of law to look up. Turns out he was right–I’d signed a crappy contract because I didn’t know how to read it right. I was pissed–but knowing it was my fault saved me a lot of grief and time.

If you are in the right, though, you have to weigh your options. One option is to let it slide–some things truly aren’t worth the trouble if you do a dispassionate cost/benefit analysis. Spending thousands of dollars to recoup hundreds, for example, is probably not worth the expense or the time.

If you decide to let it slide, take responsibility for the decision: swallow your pride and don’t bitch about it. Learn from the experience, and practice defensive business better next time. Notice signs that could have tipped you off sooner that something untoward was going on. Do better next time.

Believe it or not, this part is really important. If you cultivate a victim’s mindset, you’re more likely to get screwed. You’re more likely to make bad business decisions, either through taking bad risks or through failing to take good risks. Thinking like a victim screws up your judgment. Being afraid of failure and the humiliation that comes with it curtails your ability to function both as a business person and as a person. The costs of being a victim are much higher than the costs of being victimized. I’ve seen this over and over both working with crime victims (as a psych student), social victims (as a mentor and occasional activist), and business victims (as a small businessman). Anyone can get victimized, regardless of intelligence, sex, class, or mindset–how you deal with it sets the tone for your life, and those consequences reach farther than any single bad business deal, mugging, humiliation, or molestation. The comforting attention of sympathy might feel good, but it doesn’t make up for the loss of self-respect that you incur when you identify yourself as a victim.

But let’s say you’ve decided not to let it slide. The benefits of defending yourself–even if you lose–outweigh the expense and grief you’ll incur doing it. In this case, you need to know your options. Every situation is different. Sometimes, you’ll need to send a Cease and Desist letter. Sometimes, you’ll need a lawyer to send one. Sometimes, it’s appropriate to press charges. But sometimes–more often than you think–a polite letter or phone call can clear the matter up. So long as you practice defensive business and don’t say or write anything that can give away the store, you can avoid a lot of grief by direct communication in most minor disputes.

However, do be sure not to give away the store. Don’t offer a settlement you’re unwilling to live with, ever. Once you’ve won the fight, you can afford to be magnanimous, if it suits you–until you’ve won the fight, be polite, but firm. Again, these are points on which you may need to consult a lawyer, and every situation is different.

If you work in the arts and, after doing your due diligence (i.e. re-checking your contracts and records) you conclude that you have been screwed, you should consider consulting your local chapter of Volunteer Lawyers for the Arts. They may be able to help, or at least to point you in the right direction. And if you do get help from them, consider making a donation out of the settlement you receive.

Pursuing action against someone who’s stolen from or defrauded you is a complex matter, and it can involve going to court. That can be expensive, both in court costs and in fees for legal representation. If the matter is under $5,000, small claims court is the de facto course (in many jurisdictions, the only course), and even that is time consuming. But it can be well worth it. If the matter is over $5,000, you’ll need to go to Superior Court in most jurisdictions. The matter may never go to trial, but it still plays out in that jurisdiction.

Lawsuits are complicated, and when possible, you really want a lawyer to represent you. However, you may find yourself unable to afford one, and unable to find one willing to take it on contingency (lawyers taking cases on contingency are taking a risk, and they generally want a sure thing with a big payoff). But if you can’t find a lawyer, you’re not out of options. You CAN fight City Hall and win, even without a lawyer.

Self-Education

When all else fails, you can sue on your own. To do this, you’re going to spend a lot of time. A lawsuit only goes to trial after everything else fails–everything else includes (but isn’t limited to) filing complaints and evidence, responding to responses, filing demurrals when appropriate, setting demands, etc. It’s a very, very complicated process–but you don’t have to be a lawyer to engage in it.

You’re going to have to educate yourself, not just in the law, but in procedure. You will have to follow procedure to the letter and be prepared to jump on your adversary’s failure to follow procedure. Most lawsuits never go to trial–they’re often settled out of court, once the defendant decides that the plaintiff has both the case and the wherewithal to win at trial. Often times these settlements include a non-disclosure agreement, which is why you don’t usually hear about them. But a NDA is an agreement, and all agreements are subject to the written consent of both parties. Sometimes, if a plaintiff has gonads of steel and a lot of staying power, they can get the defendant to forgo an NDA. When that happens, the whole suit is a matter of public record, which is why I can tell you about a prime example of someone who fought a major corporation and won.

In the early 1990s, Gibson Guitar was in the business of acquiring and killing competing companies, and as part of this process they would foist an addendum upon the employees of the newly acquired company that, much like some of the contract addenda Kristine Kathryn Rusch details here, signed ownership of any intellectual property over to Gibson.

Caught in the middle of this bit of pre dot-com corporate warfare was an independent contractor named D.N. Crowe who was writing real-time embedded software for one of the companies targeted by Gibson. This company was, itself, having problems with shaky contracts, so he was working under a “deal to make a deal” style oral contract until the boss presented him with a written contract that matched the promises he’d been made when he was hired.

In other words, he was practicing defensive business from the get-go.

When warfare erupted between this company and Gibson over their joint venture, G-Whiz Labs, Crowe refused to sign away his IP unless and until the original terms he was promised were met. Gibson attempted to deal with this problem through intimidation, the “my lawyers are bigger than yours” strategy. They sued in Federal court, and backed the suit up with very deep pockets.

Crowe did not have deep pockets. He could not afford a lawyer. He was unable to find a lawyer willing to take the case on contingency in time to respond to the filing. But he had practiced defensive business: He had kept all his records. He had not signed a bad contract. And he was not going to fold. Rather than turning tail and accepting the theft, Crowe–with the help of a friend who’d been through IP disputes before–fought back. On their own. It was a six year battle, it cost them a lot in terms of time, money, and lost opportunities to exploit that intellectual property. They fought the suit to a standstill and eventually won a summary judgment awarding them the repayment of their court costs, a letter of apology from Gibson, and clear title to all the disputed intellectual property. Because it was a summary judgment in Federal court, there was no NDA.

The case is now a matter of public record, and you can read the actual documents (and a summary written by one of his close friends) here.

Street Cred

Standing up for yourself wins you something beyond the immediate fight: if you win, you have an excellent bargaining chip in future disputes. When you’ve demonstrated the will to stick up for yourself, people are far less likely to screw with you. Schoolyard rules, right? Being able to say, with a straight face, “I’ve fought, and beaten, people with deeper pockets than you, such as [relevant case]. Ask your lawyer if I’m right on the law, then decide whether you actually want this dispute to escalate into a lawsuit.”

It’s a good hole card to have–and if you’re smart about practicing defensive business, you’ll only need it a few times in your life, at most. But those few times, it will save you immeasurable time and trouble.

Social Costs

In some businesses, standing up for yourself when things get legal is expected and respected. If you’re in one of these industries, you can stop reading now. I hope you find the tools above useful as you hack your way through the business jungle.

If you’re in the arts, though, keep reading. Because in the arts, standing up for yourself in legal matters is sometimes frowned upon. The culture that’s grown up around the arts is often suspicious of money and lawyers, and artists often come from a cultural background that’s laced with contempt for “the system.” Artists who stand up for themselves against the large corporations that sign their checks often (though not always) get accused by their fellows of poisoning the well, of being unpleasant, or paranoid, or greedy, or ungrateful.

Why? In The Devil’s Guide to Hollywood Joe Eszterhas addressed the subject obliquely, but intelligently. Artists have long been, as Michael Stackpole puts it, the “house slaves” of money and industry. From the patronage system in the middle ages to the various publishing industries (movies, music, and books), artists have supplied the raw product on which financial empires are built. We thus tend to appear to the money people as relatively disposable and interchangeable. The thinking goes something like this:

One artist will do as good as another at generating a fortune–so why tolerate someone who’s “a problem?”

So, by long cultural tradition, artists have bent over for this kind of treatment, in hopes of being one of the favored few. And, of course, this psychology has a flip-side. Artists who “make it” are as often looked upon their fellows as “selling out” as they are admired. Professional jealousy over the money, the notoriety, and the freedom that comes from a successful career can get downright nasty. Don’t believe me? Think about the flak that U2 got for its ZooTV tour–then the most successful concert tour in history–or think about the way James Patterson’s early books were praised, but his current books are derided. Or any other ordinary artist who suddenly (it seems to their peers) becomes a superstar. You don’t have to like a successful artist’s work–you can even hate it–to see this dynamic at work. There will never be a shortage of people willing to take potshots at the fastest gun in the west (hell, I’ve been guilty of it from time to time–nobody’s immune).

This is all feudal thinking. It’s a slave’s mindset. It’s been out of date for at least two centuries, and now that artists have direct access to the market at close to zero cost (through ebook publishing, online stock photography libraries, video distribution platforms, CD Baby, iTunes, I could go on forever) it’s no longer just out of date, it’s positively paleolithic. We do not need kings or aristocrats or large corporations to find enough customers to make a living. This should make us bolder, not more timid.

The problem is, there is security in being a pet artist. Having someone else handle the business end of things seems like freedom–freedom from worry, for example, from the pesky details that can screw up the creative flow. But a slave is also free in that same fashion–free to till the land and get food, with infinite job security.

Does this newfound freedom mean that we should eschew the money offered to us if someone is willing to pay to distribute our work? Of course not. What it does mean is that when New York, or LA, or Hollywood, or London comes knocking, you should stand up for yourself. Deal with them as equals, don’t fall over yourself with gratitude and lose your head. Business is built on mutual advantage–if you get taken advantage of, you’ve got no one to blame but yourself.

Success is not a zero-sum game. There’s not a limited amount of it to go around. It takes a ridiculously small number of devoted fans to make a modest living, though it can take time to find them. But the success of your friends, or your idols, doesn’t mean there’s somehow less success available for you. It may be natural to think in zero-sum terms, but it’s simply not in accord with reality. The entire world is a profoundly non-zero place.

What does this mean for you if you’re an artist? First, it means you don’t have to be a slave to the old way of thinking. That in itself can be profoundly liberating. Second, the fact that we do not live in a feudal or patronage system means that you–and you alone–are responsible for your business.

And, most importantly it measns that, if the need arises, you CAN fight City Hall. You CAN fight multinational corporations. And you can win.

If, and only if, you take responsibility for your business.

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Next chapter: Material Interest”.

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