Royalty Reduction for English-Titled Songs Is Ruled Contract Breach

The U.S. District Court for the Southern District of New York decided that, in paying reduced royalties for English-titled instrumental versions of songs, Universal breached subpublishing agreements that Brazilian songwriters Antonio Jobim and Vinicius de Moraes entered into with Universal's predecessors-in-interest. Jobim v. Songs of Universal Inc., 05 Civ. 3527(PAC).

Jobim and de Moraes originally signed subpublishing agreements between 1962 and 1973 with Leeds Music Corp., Duchess Music Corp. and MCA Music Holland. (Both Jobim and de Moraes are now deceased.) The subpublishing agreements covered songs that Jobim and de Moraes wrote individually, as well as collaborations like “The Girl from Ipanema” and “How Insensitive.” The agreements gave the music publishers the right to create English-language versions of the compositions. Thus, Norman Gimbel was retained in 1963 to write English lyrics for four of the songs (including “Ipanema” and “Insensitive”) in exchange for a right to song royalties. To resolve subsequent royalty disputes, Gimbel entered into additional agreements with Universal in 1995 and 1999.

As a result of Gimbel's right to royalties, Universal reduced the mechanical and synchronization royalties it paid to Jobim's and de Moraes' heirs from 50% to 40%, for both English-lyric and English-titled song versions. (The Jobim and de Moraes interests had agreed to a reduction to 40% for English-lyrics versions.) Universal claimed it reduced the royalties in the same percentage because it couldn't distinguish between the two types of English language uses for royalty-accounting purposes.

But Southern District Judge Paul A. Crotty noted: “From 1995-1999, Universal distinguished between English Title Instrumental Versions and English Lyric Versions to satisfy the 1995 Gimbel Agreement, which provided that Gimbel was entitled to 33 1/3% royalties for English Title Instrumental Versions, but 50% for English Lyric Versions. Further, for a brief period in 1998-1999, Universal configured its accounting system to distinguish between English Title Instrumental Versions and English Lyric Versions. Universal stopped making this distinction only after it entered into the 1999 Gimbel Amendment, under which Gimbel received the same rate (41.66%) for both English Title Instrumental Versions and English Lyric Versions.”

Judge Crotty did rule, however, that the subpublishing agreements entitled the Jobim and de Moraes heirs only to a percentage of the lower “net receipts” income that Universal received, rather than higher “at source” revenues earned before Universal deducted foreign affiliate fees (e.g., taxes incurred in the foreign territory). The court then went on to find, among other things, that Universal exceeded its authority under the subpublishing agreements when it granted reversionary rights to Norman Gimbel in not only the copyrights to the English lyrics, but also the underlying music. “Universal was only a licensee ' not a copyright owner,” the district judge observed.

The U.S. District Court for the Southern District of New York decided that, in paying reduced royalties for English-titled instrumental versions of songs, Universal breached subpublishing agreements that Brazilian songwriters Antonio Jobim and Vinicius de Moraes entered into with Universal's predecessors-in-interest. Jobim v. Songs of Universal Inc., 05 Civ. 3527(PAC).

Jobim and de Moraes originally signed subpublishing agreements between 1962 and 1973 with Leeds Music Corp., Duchess Music Corp. and MCA Music Holland. (Both Jobim and de Moraes are now deceased.) The subpublishing agreements covered songs that Jobim and de Moraes wrote individually, as well as collaborations like “The Girl from Ipanema” and “How Insensitive.” The agreements gave the music publishers the right to create English-language versions of the compositions. Thus, Norman Gimbel was retained in 1963 to write English lyrics for four of the songs (including “Ipanema” and “Insensitive”) in exchange for a right to song royalties. To resolve subsequent royalty disputes, Gimbel entered into additional agreements with Universal in 1995 and 1999.

As a result of Gimbel's right to royalties, Universal reduced the mechanical and synchronization royalties it paid to Jobim's and de Moraes' heirs from 50% to 40%, for both English-lyric and English-titled song versions. (The Jobim and de Moraes interests had agreed to a reduction to 40% for English-lyrics versions.) Universal claimed it reduced the royalties in the same percentage because it couldn't distinguish between the two types of English language uses for royalty-accounting purposes.

But Southern District Judge Paul A. Crotty noted: “From 1995-1999, Universal distinguished between English Title Instrumental Versions and English Lyric Versions to satisfy the 1995 Gimbel Agreement, which provided that Gimbel was entitled to 33 1/3% royalties for English Title Instrumental Versions, but 50% for English Lyric Versions. Further, for a brief period in 1998-1999, Universal configured its accounting system to distinguish between English Title Instrumental Versions and English Lyric Versions. Universal stopped making this distinction only after it entered into the 1999 Gimbel Amendment, under which Gimbel received the same rate (41.66%) for both English Title Instrumental Versions and English Lyric Versions.”

Judge Crotty did rule, however, that the subpublishing agreements entitled the Jobim and de Moraes heirs only to a percentage of the lower “net receipts” income that Universal received, rather than higher “at source” revenues earned before Universal deducted foreign affiliate fees (e.g., taxes incurred in the foreign territory). The court then went on to find, among other things, that Universal exceeded its authority under the subpublishing agreements when it granted reversionary rights to Norman Gimbel in not only the copyrights to the English lyrics, but also the underlying music. “Universal was only a licensee ' not a copyright owner,” the district judge observed.