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A US federal appeals court has sided with FBT Productions, the production team who helped launch Eminem’s career, in a dispute with Aftermath and its parent company, the Universal Music Group over digital music royalties. The U.S. Ninth Circuit Court of Appeals in San Francisco overturned a decision in the lower court, and has ruled  that the record label had to pay the producers FBT Production, a bigger cut for music sold online through downloads and mobile-phone ring tones than for the same music sold in stores. FBT had argued they had a right to a 50/50 split of profits with Universal on sales of digital music and ring tones through online retailers such as iTunes and Sprint as these ‘Master Licensing’ deals attracting the higher royalty. The contract did not specifically mention income from download stores like iTunes, or what share the artist (and therefore FBT) should get from such sales but Universal have been treating download sales as being equivalent to CD sales paying a lower rate of 12-20%% as if these were physical sales. FBT sued, moved for summary judgment, arguing that the Master Licensing provision should apply. The district court refused summary judgment, saying the agreement was ambiguous and a jury then decided that the lower royalty rate (18%) should apply.FBT was ordered to pay Aftermath and Universal more than $2.4 million in costs. The Ninth Circuit has now held that the district court was wrong not to give summary judgment: the agreement wasunambiguous and thus the higher royalty should apply.
Universal Music Group said in a brief statement that it plans to fight the appeals court ruling, and it dismisses the notion that the case will have any precedent-setting impact saying “We will be filing a petition for a rehearing” with spokesman Peter Lofrumento saying “ In the meantime, it should be noted that this ruling sets no legal precedent as it only concerns the language of one specific recording agreement. Any assertion to the contrary is simply not true.”

Eminem was not a direct party in the suit, but he benefits through FBT, which shares his contract with Universal. “This potentially readjusts the economics between the artist and the record company, and that’s been long overdue,” said FBT manager Joel Martin. “It puts Eminem in a position he should (have) been in to begin with, which is to receive a larger portion of the download royalties”. The Motown Alumni Association, whose membership includes Martha Reeves and the Four Tops, had filed an amicus brief on FBT’s behalf and Martin added “All the Motown artists who now receive a penny (per download) may be in a position to negotiate a new royalty because of this decision” with other US lawyers commenting that the decision had major ramifications for record labels. Tom Frederikse at Clintons adds

This case addresses one of the biggest unanswered questions of the last decade for artists and the Court gave a remarkably strong answer. Though this case will inevitably be appealed by Aftermath/UMG to the US Supreme Court and deals with US rather than UK law, it is clear that (at least under some older artist recording contracts) iTunes and other permanent download royalties may have to be paid, not under the old standard “records sold” basis but rather, on the “third party licence” basis – which, conventionally, is an equal profit share with the label.

Interestingly in separate news, it appears that book publisher Random House has unilaterally upped its digital royalty rate for authors for e-books from 25% (standard print book) to 40% after a row with some of its writers.

http://www.thestar.com/entertainment/music/article/857664–court-ruling-in-eminem-case-may-raise-pay-for-digital-downloads
http://the1709blog.blogspot.com/2010/09/eminem-on-itunes-distribution-agreement.html
http://www.tennessean.com/article/20100904/BUSINESS01/9040348/2047/NEWS01
http://www.clintons.co.uk/?news_id=53