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Two federal courts have differently interpreted royalty clauses related to the digital sales of sound recordings. In a suit by F.B.T. Productions ' to which rapper Eminem signed in the 1990s ' the U.S. Court of Appeals for the Ninth Circuit decided that the production company had the unambiguous right, under F.B.T.'s 1998 and 2004 agreements with Aftermath Records, to 50% of the net income received from third-party exploitations of permanent downloads and mastertones. F.B.T. Productions LLC v. Aftermath Records, 09-55817. Aftermath argued that the lower contract rate of 12% to 20% applied instead, for Eminem records sold by Aftermath through “normal retail channels.” But the appeals court noted of the F.B.T./Aftermath agreements that, “'notwithstanding' the Records Sold provision, F.B.T. is to receive a 50% royalty on 'masters licensed by [Aftermath] ' to others for their manufacture and sale of records or for any other uses.' ' Aftermath did not dispute that it entered into agreements that permitted iTunes, cellular phone carriers, and other third parties to use its sound recordings to produce and sell permanent downloads and mastertones. Those agreements therefore qualify as licenses under Aftermath's own proposed construction of the term.”

The appeals further explained: “Under our case law interpreting and applying the Copyright Act, too, it is well settled that where a copyright owner transfers a copy of copyrighted material, retains title, limits the uses to which the material may be put, and is compensated periodically based on the transferee's exploitation of the material, the transaction is a license.”

The U.S. District Court for the Southern District of New York decided, however, that a 1992 contract negotiated with Island Records regarding Bob Marley sound recordings was ambiguous as to which clause in the agreement applied to the calculation of digital-download royalties that may be owed to Marley's heirs. Fifty-Six Hope Road Music Ltd. v. UMG Recordings Inc., 08 CIV. 6143(DLC). The plaintiff heirs rely on the clause that states: “In the event that Island sells or licenses third parties to exploit Masters via telephone satellite cable or other direct transmission to the consumer over wire or through the air, Island will credit to your royalty account sixty percent (60%) of its receipts therefrom attributable to the Masters or any of them.” But defendant record label UMG argues the relevant contract clause is the one that states: “[T]he royalty rates and methods of royalty calculations for records released in formats newly developed as a result of advanced technology (including, without limitation, digital compact cassette), same shall be determined on the average, from time to time, as utilized in computing royalties for the format concerned with respect to the then top ten (10) selling 'popular' recording artists whose vocal performances are in the English language and whose agreement in respect of their recording services is with [UMG's predecessor Island].” Denying the Marley heirs' bid for summary judgment, U.S. District Judge Denise Cote found: “UMG has shown that the pertinent language in the 1992 Royalties Agreement is susceptible of at least two fairly reasonable meanings.” Cote added: “Even if the extrinsic evidence offered by the Plaintiffs of the parties' intent is considered, it does not resolve this ambiguity.” (See Bit Parts for the Southern District's ruling on the copyright renewal rights in Marley's recordings.)

Two federal courts have differently interpreted royalty clauses related to the digital sales of sound recordings. In a suit by F.B.T. Productions ' to which rapper Eminem signed in the 1990s ' the U.S. Court of Appeals for the Ninth Circuit decided that the production company had the unambiguous right, under F.B.T.'s 1998 and 2004 agreements with Aftermath Records, to 50% of the net income received from third-party exploitations of permanent downloads and mastertones. F.B.T. Productions LLC v. Aftermath Records, 09-55817. Aftermath argued that the lower contract rate of 12% to 20% applied instead, for Eminem records sold by Aftermath through “normal retail channels.” But the appeals court noted of the F.B.T./Aftermath agreements that, “'notwithstanding' the Records Sold provision, F.B.T. is to receive a 50% royalty on 'masters licensed by [Aftermath] ' to others for their manufacture and sale of records or for any other uses.' ' Aftermath did not dispute that it entered into agreements that permitted iTunes, cellular phone carriers, and other third parties to use its sound recordings to produce and sell permanent downloads and mastertones. Those agreements therefore qualify as licenses under Aftermath's own proposed construction of the term.”

The appeals further explained: “Under our case law interpreting and applying the Copyright Act, too, it is well settled that where a copyright owner transfers a copy of copyrighted material, retains title, limits the uses to which the material may be put, and is compensated periodically based on the transferee's exploitation of the material, the transaction is a license.”

The U.S. District Court for the Southern District of New York decided, however, that a 1992 contract negotiated with Island Records regarding Bob Marley sound recordings was ambiguous as to which clause in the agreement applied to the calculation of digital-download royalties that may be owed to Marley's heirs. Fifty-Six Hope Road Music Ltd. v. UMG Recordings Inc., 08 CIV. 6143(DLC). The plaintiff heirs rely on the clause that states: “In the event that Island sells or licenses third parties to exploit Masters via telephone satellite cable or other direct transmission to the consumer over wire or through the air, Island will credit to your royalty account sixty percent (60%) of its receipts therefrom attributable to the Masters or any of them.” But defendant record label UMG argues the relevant contract clause is the one that states: “[T]he royalty rates and methods of royalty calculations for records released in formats newly developed as a result of advanced technology (including, without limitation, digital compact cassette), same shall be determined on the average, from time to time, as utilized in computing royalties for the format concerned with respect to the then top ten (10) selling 'popular' recording artists whose vocal performances are in the English language and whose agreement in respect of their recording services is with [UMG's predecessor Island].” Denying the Marley heirs' bid for summary judgment, U.S. District Judge Denise Cote found: “UMG has shown that the pertinent language in the 1992 Royalties Agreement is susceptible of at least two fairly reasonable meanings.” Cote added: “Even if the extrinsic evidence offered by the Plaintiffs of the parties' intent is considered, it does not resolve this ambiguity.” (See Bit Parts for the Southern District's ruling on the copyright renewal rights in Marley's recordings.)