Bankruptcy and restructuring attracts one who yearns to be a "Renaissance Man" because business failure is everywhere and does not discriminate among industries…including, for example, the rap industry.  Indeed, only bankruptcy can prompt one to ask:  "Why were the prices for rap/hip-hop slashed [in Tower Records’ bankruptcy sale] vastly more than those of every other genre of music?"

Rap stars, of course, are no strangers to bankruptcy, though generally you won’t find their case without knowing "what their mommas named them."  Perhaps the most famous rapper to have gone bankrupt is MC Hammer (a/k/a Stan Burrell), who filed for bankruptcy in 1996 with debts of $14 million, and whose song copyrights were recently sold for $2.7 million.  [Hammer is now a blogger, minister, and proud father!]

Not surprisingly, rappers’ bankruptcies are highly contentious, as demonstrated by the long rap sheets (i.e., bankruptcy dockets) in Hammer’s never-ending case, and–more recently–in the bankruptcy cases of the legendary Death Row Records and its founder Marion "Suge" Knight, Jr.

But, "what goes around, comes around," as the not-so-old saying goes, even (or especially) in the rap business.  In 1998, Death Row filed a complaint for nondischargeability against Hammer, and obtained a $1.7 million nondischargeabilty judgment against him.  Now, Nathaniel Hale (not the famous spy, but Snoop Dogg’s less-but-still famous cousin Nate Dogg), just filed his own multimillion nondischargeability complaint against Death Row’s founder, who has clearly seen better days.

This long-winded introduction, however, is just by way of background to the real point of this blog post, which is to recap the 11th circuit’s decision this week in Thompkins v. Lil’ Joe Records, Inc., 2007 WL 316302 (11th Cir. 2/5/07) (pdf), which can be boiled down to simply this:

A once successful rap recording company (2 Live Crew Luther Campbell’s acclaimed Luke Records) enters into a contract with a future rap star (Jeff Thompkins, a/k/a JT Money of Poison Clan) in which JT unconditionally transfers all right, title, and interest in his sound recording copyrights to Luke Records in exchange for a "guaranteed" royalty stream.  Six years later, in 1995, Luke Records is tied up in chapter 11, where it eventually rejects JT’s contract and transfers the copyrighted sound recordings to Lil’ Joe Records in a "free and clear" bankruptcy sale.

JT subsequently sues Lil’ Joe Records for copyright infringement, claiming that rejection of his executory agreement also rescinded Luke Records’ ownership of the copyrights.  The 11th Circuit, however, disagreed and held that ownership rights in the copyrighted song recordings did not revert back to JT upon rejection of the executory portions of the transfer agreement.  The 11th Circuit wrote:

[T]he bankruptcy court’s Confirmation Order did not effectively rescind the 1989 Agreement and reverse the executed transfer of the Poison Clan Song copyrights to Luke Records.  The rejection had no effect on Luke Records’ ownership of the copyrights, and they passed from the estate to Lil’ Joe under the terms of the Joint Plan and Confirmation Order….  Accordingly, [JT] cannot support a claim of copyright infringement against Lil’ Joe as to the Poison Clan Songs, and we affirm the grant of summary judgment on that claim in favor of Lil’ Joe.

In other words, to quote the rap group Souls of Mischief, "You got f**ked in the industry!"

2/8/07 UpdateBe sure to check out Bob Eisenbach’s follow up to this post where he analyzes how novice IP holders can avoid getting f**ked in the industry as poor JT Money just did.

2/22/07 UpdateFor those more interested in IP issues in bankruptcy, here are two presentations I’m delivering at this scheduled event of the Licensing Executive Society Winter 2007 Meeting in San Francisco:

  • IP Licensing & BankruptcyAn Issue Spotting Checklist for Analyzing Questions Regarding Assumption, Rejection, and/or Assignment of IP Licenses in Bankruptcy

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© Steve Jakubowski 2007