Rulings in Artist, Producer Digital Royalties Cases

The federal jury verdict for Universal Music defendants, in a suit over digital royalties brought by a production company entitled to a share of rapper Eminem's royalties, was a loss for artists and producers seeking 50% of a label's net revenues from digital download and ringtone sales of the artist sound recordings.

Last year, the U.S. District Court for the Southern District of New York dismissed a class-action, breach-of-contract complaint by the Allman Brothers Band and Cheap Trick. Allman v. Sony BMG Music Entertainment, 06 CV 3252(GBD) (S.D.N.Y. 2008). The Southern District found that sales of Sony Music artist sound masters through digital licensees for “recordings that are distributed to consumers via transmission of digital music files” were through “normal retail channels,” which would relegate the artists to the lower royalty rate for those types of sales, rather than 50% of record-label net revenues from third-party licenses. (The Allman Brothers Band have also sued Universal Music in Manhattan federal district court seeking 50% from digital exploitations of the band's Capricorn Records catalog.)

Prior to the jury verdict against F.B.T. Productions in its suit against Universal Music over Eminem royalties from Aftermath Records, the Central District of California ruled earlier in 2009, in sending the case to trial: “The Eminem Agreements do not expressly state whether royalties on permanent downloads and mastertones are to be calculated under the Records Sold provision [a royalty starting at 12%] or the Masters Licensed Provision. ' [N]either party has conclusively established that 'custom and practice' mandates a particular interpretation of the Masters Licensed provision.” The district court added: “Indeed, it is undisputed that parties did not discuss the treatment of downloads and mastertones while negotiating the most recent version of the contract. Based on the conflicting extrinsic evidence before the Court, the contracts are reasonably susceptible to more than one interpretation. Therefore, Plaintiffs' and Defendants' reasonable expectations regarding royalties due on permanent downloads and mastertones when they entered into the Eminem Agreements remain triable issues of material fact.” F.B.T. Productions L.L.C. v. Aftermath Records, CV 07-3314 PSG (MANx).

The Central District jury then decided that digital exploitations were more like traditional sales of physical products directly released by record companies, rather than akin to third-party licenses.

A few days after the F.B.T. Productions jury ruled, the Southern District of New York accepted the Allman Brothers Band's amendment of the group's complaint to replace “license” with “lease” ' the latter term being the one used in their contract clause for 50% of label income from third-party exploitations of the artists' master recordings. The Southern District also accepted an amended complaint in a companion class action for BMG artists. The BMG artists' complaint now specifies their claim for 50% of digital license income from the label's flat-fee or cent-rate basis contracts with third parties. The Youngbloods v. BMG Music, 07 CV 2394(GBD).

The federal jury verdict for Universal Music defendants, in a suit over digital royalties brought by a production company entitled to a share of rapper Eminem's royalties, was a loss for artists and producers seeking 50% of a label's net revenues from digital download and ringtone sales of the artist sound recordings.

Last year, the U.S. District Court for the Southern District of New York dismissed a class-action, breach-of-contract complaint by the Allman Brothers Band and Cheap Trick. Allman v. Sony BMG Music Entertainment, 06 CV 3252(GBD) (S.D.N.Y. 2008). The Southern District found that sales of Sony Music artist sound masters through digital licensees for “recordings that are distributed to consumers via transmission of digital music files” were through “normal retail channels,” which would relegate the artists to the lower royalty rate for those types of sales, rather than 50% of record-label net revenues from third-party licenses. (The Allman Brothers Band have also sued Universal Music in Manhattan federal district court seeking 50% from digital exploitations of the band's Capricorn Records catalog.)

Prior to the jury verdict against F.B.T. Productions in its suit against Universal Music over Eminem royalties from Aftermath Records, the Central District of California ruled earlier in 2009, in sending the case to trial: “The Eminem Agreements do not expressly state whether royalties on permanent downloads and mastertones are to be calculated under the Records Sold provision [a royalty starting at 12%] or the Masters Licensed Provision. ' [N]either party has conclusively established that 'custom and practice' mandates a particular interpretation of the Masters Licensed provision.” The district court added: “Indeed, it is undisputed that parties did not discuss the treatment of downloads and mastertones while negotiating the most recent version of the contract. Based on the conflicting extrinsic evidence before the Court, the contracts are reasonably susceptible to more than one interpretation. Therefore, Plaintiffs' and Defendants' reasonable expectations regarding royalties due on permanent downloads and mastertones when they entered into the Eminem Agreements remain triable issues of material fact.” F.B.T. Productions L.L.C. v. Aftermath Records, CV 07-3314 PSG (MANx).

The Central District jury then decided that digital exploitations were more like traditional sales of physical products directly released by record companies, rather than akin to third-party licenses.

A few days after the F.B.T. Productions jury ruled, the Southern District of New York accepted the Allman Brothers Band's amendment of the group's complaint to replace “license” with “lease” ' the latter term being the one used in their contract clause for 50% of label income from third-party exploitations of the artists' master recordings. The Southern District also accepted an amended complaint in a companion class action for BMG artists. The BMG artists' complaint now specifies their claim for 50% of digital license income from the label's flat-fee or cent-rate basis contracts with third parties. The Youngbloods v. BMG Music, 07 CV 2394(GBD).