Universal refused appeal in ‘Eminen’ royalty case

April 2011

Recorded music

The US Supreme Court has declined to hear an appeal by the Universal Music Group in relation to lawsuit pursued by early Eminem collaborators FBT Productions against the label for an increased royalty split for digital sales via services such as iTunes which FBT successful argued should be treated  as a licensing deal. These recording agreements followed industry-standard forms at the time, and provide for different royalties for “records sold” and “masters licensed.” The royalty for “masters licensed” is substantially higher than that for “records sold.” The label wanted to pay on a ‘per unit’ sale and treat any download revenue as record sales money rather that licensing income – meaning a smaller royalty share to artists (and in this case producers).

The Supreme Court has now refused to hear the appeal as it currently stands and in doing so, the Supreme Court let stand the Ninth Circuit’s 2010 unanimous decision that addressed royalties under a traditional music recording agreement for new methods of music distribution, such as iTunes and cellular phone ring tones. “By denying cert, the Supreme Court has finally answered the question about whether or not Eminem’s producers and other artists with similar recording agreements are entitled to higher royalties for music distributed through iTunes and other digital music services. The Ninth Circuit’s decision recognized the economic reality of the digital music landscape and held that Eminem and his producers were entitled to a much greater share of the pie now that labels are relying on licensing and avoiding the costs associated with physical distribution of records,” said Howard Rice’s Daniel Asimow, appellate counsel for F.B.T. Productions. “Needless to say, we are very pleased that the Supreme Court agreed with our position that the Ninth Circuit decision should stand”. Before the trial court, both sides moved for summary judgment on their respective interpretations of the contract. The trial court denied the motions and the case proceeded to trial in 2009. The jury found for Aftermath and Universal, and the judge thereafter awarded more than $2.4 million in attorneys’ fees against F.B.T. In its September 3, 2010 decision, the Ninth Circuit reversed and found that the F.B.T’s reading of the contract was correct as a matter of law. The case now returns to the district court for a determination of F.B.T.’s damages and an award of attorneys’ fees in favour of F.B.T.  Legal experts say that Universal could have one last go, by presenting an appeal case on different grounds, though it appears that the major is running out of options.

F.B.T. Productions, LLC, et al v. Aftermath Records  (2010)

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