Favored Nations – Entertainment Law Asked & Answered

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Blog Reader “Bob” wrote in with the question about what sometimes referred to as a favored nations cause.

I'm Gordon Firemark, and this is Asked and Answered. My answer is just a minute away.

 

 

Blog Reader “Bob” wrote in with this question:

“If a theatre is seeking grand rights to use a song in an original musical, and the publisher quotes a royalty of X% of weekly gross pro-rated among all copyright protected songs in the musical, does that mean one would divide the %weekly gross by the number of copyrighted songs in the production and pay them that, or is there a different legal meaning to the phrase that was used?”

Your interpretation is *mostly* correct.

Technically, I'd say that songs need not be “copyrighted” in order to be counted as the denominator in the equation to determine the pro-rate proportion for each song. After all, all songs in the show contribute equally to the impact the show makes, so why should the fact that one's covered by copyright and one's not make a difference.

So, if you've got 10 songs (copyright protected or not), each song would get 10% of the overall royalty rate (assuming all songs are on a “most favored nations basis”.)

When you see that a deal point is treated on a Most Favored Nations basis, it means that No other deal (of its kind) will contain more favorable terms than the one in question, and if any other deal DOES include more favorable terms, then all such deals will be “upgraded” to those better terms. Essentially, parties are hedging their bets that someone else could negotiate a better deal, and everybody would benefit. This kind of provision is almost universal in Grand Rights license deals.

“Most Favored Nations” is a shorthand way of expressing this, and the phrase originates in the field of international trade… In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country.

But savvy publishers might recognize that some songs are not copyright protected, or non-royalty bearing, and ask that they be excluded from the calculation. In such a case, the non-copyright protected works would NOT be receiving Favored Nations Treatment, so I'd resist this if possible.

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