Among the most dominant trends in the music industry over the past decade has been the proliferation of investment in catalogs of musical compositions and sound recordings. While many investors’ theses focus solely on the evergreen value of royalties generated from these copyrights over the span of many years, some buyers have reportedly purchased the rights to recording artists’ names, images, and likenesses, with a specific focus on these artists’ digital replicas. Recent examples include Pophouse buying assets relating to the band KISS in April 2024 and Primary Wave acquiring a stake in rights belonging to the estate of the Notorious B.I.G. in March.
As of today, the virtual likeness rights involved in these sorts of transactions are governed by a patchwork of state right of publicity laws and, arguably, certain provisions of the Copyright Act and the Lanham Act. This legal landscape may change drastically in the near future as Congress considers following the recommendation of the US Copyright Office to adopt a federal right of publicity. The most advanced effort toward this goal is the NO FAKES Act, which was introduced in the House and Senate this April with broad support from stakeholders across affected industries.
The NO FAKES Act
In a nutshell, the NO FAKES Act creates a federally recognized property right in and to an individual’s “digital replica”. This digital replica right can be licensed by a living individual for up to ten years and can be assigned outright by the estate or heirs of a deceased individual, with the US Copyright Office authorized to maintain a registry of post-mortem licenses and assignments of digital replica rights. In a nifty hybrid of trademark and copyright law concepts, the post-mortem digital replica right will persist for the shorter of (i) the duration of its regular exploitation (with certain use requirements set out in the NO FAKES Act) or (ii) the date that is seventy years following the death of the individual.
While the NO FAKES Act is obviously not yet the law of the land and the current language of the bill is likely to be modified, counsel to both those recording artists (and their estates) who are interested in selling the digital replica right and the investors who are willing and prepared to purchase this right can and should already be taking into account certain considerations raised by the initial version of the Act when drafting relevant acquisition documents.
Considerations Respecting Deceased Individuals
- Include rights established under future legislation in the bundle of transferred assets. The current draft of the NO FAKES Act provides for the digital replica right to vest in assignees of individuals who have died before the Act becomes law, so a grant of rights that encompasses all rights under current and future laws or regulations will include the federal right of publicity.
- Include a definition of “Digital Replica”. The NO FAKES Act draft provides a detailed definition of the term “digital replica” that can be used in acquisition agreements, ideally with language that allows for the definition to be automatically conformed to the final language of the bill.
- Draft a short form assignment. Buyers should consider requiring sellers to execute a standalone short form assignment of the digital replica right, similar to the sort of short form assignment that is frequently executed with respect to assignments of copyright in connection with catalog acquisitions, so that buyers need not produce heavily redacted versions of longform purchase agreements for submission to the USCO (which will be tasked with keeping track of transfers of post-mortem digital replica rights) or other third parties.
Considerations Respecting Living Individuals
- Contemplate concurrent rights under state and federal law. The current draft of the NO FAKES Act arguably will not have retroactive effect for existing transfers of the digital replica rights, but numerous states (including California, New York, Tennessee, and Illinois) passed laws in 2024 creating digital replica rights and governing the enforceability of contracts relating thereto. Under the current draft language of the NO FAKES Act, these existing state laws will not be preempted.
- Use “life of rights” language rather than “perpetual” grants. The NO FAKES Act in its current form provides that living individuals cannot assign the digital replica right—at most, they can merely license the right for a limited period of ten years. To ensure that the grant of digital replica rights is enforceable, it should capture simply the life of the right and any renewals or extensions thereof under any applicable federal or state law.
- Be specific about the intended use of the digital replica. The current draft of the NO FAKES Act, as well as relevant law in California and New York, requires the grant of digital replica rights to include a “reasonably specific description of the intended use” of the digital replicas; agreements should be drafted accordingly.
Concluding Thoughts
In the end, it’s possible that the greatest impact on the market for digital replica rights will be not the fate of the NO FAKES Act but, rather, the success of the ambitious projects already being planned around the exploitation of these rights. Regardless, the development of the law in this emerging form of intellectual property is worth the ongoing attention of both buyers and sellers of music assets.
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