Unplugged: The Music Industry's Approach to Rolling Contracts on Music CDs

Abstract

The recording industry has begun a shift in its distribution model of music media, transitioning from sales to licensing. Many CDs now come with digital rights management (DRM) in the form of software that, once installed on the end user's computer, enables the user to copy the music to their hard-drive while regulating its use. Recording companies are distributing these CDs with licenses. In order to enact such licensing contracts with end users, record companies started using End User License Agreements (EULA) similar to those used in the software industry, placed on the CD in the form of a rolling contract. The licensing contracts purport not only to control rights to the software on the disc, but they also affect the user's rights to the music itself. Upon accepting the terms of the EULA, the user, who may have enjoyed the music for years prior to discovering the license agreement, apparently loses rights to their use of the CD upon accepting the terms of the EULA. This article provides a three-step analysis of the legal enforceability of music CD licensing contracts: analysis of the legal enforceability of rolling contracts; analysis of the distribution models in the music industry; and an analysis of the merger of the two. The first portion follows the developmental cases in rolling contract theory and discusses the proposed provisions in UCITA for such contracts. The second portion traces the history of legal rights in the music industry including the exclusive rights, the First Sale Doctrine, and the Fair Use Defense. In the third portion, the author suggests that such licensing contracts are legally unenforceable for either want of consideration or failure to provide meaningful opportunity to assent. The article culminates with a recommendation for legislators to enact certain, relevant portions of UCITA and recommendations for the music industry about how to bring their licensing scheme within the aims and legality of contract law.