Within the next 60 days a lawsuit that has been circulating for a few years will finally draw to a close, but only after the Supreme Court refused to hear an appeal. The dispute at the center is based on the rate of royalties Marshall Mathers (Eminem) and his producers are entitled to for the sale of online music. The original producers who discovered Eminem (F.B.T. Productions) sued Universal Music Group (UMG) after an audit of accounting records that FBT and Eminem conducted back in 2005. The question at the center of the debate – is a song sold online considered a sale or a license?
Sale or License? Is it really such a big deal? You bet it is – for contracts that predated the digital era; they spelled out smaller royalty payments for music sold in physical form than music licensed. Eminem’s contract for example stipulates that he receive 50% of the royalties for a license, but only 12% for a sale. A federal jury originally ruled in favor of Universal in 2009, but that decision was overturned by the 9th Circuit Court of Appeals in San Francisco last year. Refusal to be heard by the Supreme Court means the decision by the Appeals court stands. In the lawsuit FBT argued that a record companies’ arrangement with digital retailers resembled much more of a license than it did a sale. The appeals court agreed and ruled that downloads from iTunes weren’t purchased, but rather ‘licensed’ to the buyer, stating that, “iTunes downloads (even the DRM-free variety) are encumbered by enough restrictions that they can’t be considered sales at all”.
So what does this mean for the industry? Currently not much. UMG issued a statement in regards to the matter. “The case has always been about one agreement with very unique language. As it has been made clear during this case, the ruling has no bearing on any other recording agreement and does not create any legal precedent”. While that might be true, record labels might find themselves having a harder time tying to renegotiate older contracts, as artists will demand higher royalties or might find themselves fighting similar cases in court. Industry observer’s think that as many as 90% of all contracts signed before 2000 predated the digital era and therefore didn’t incorporate digital downloads as ‘sales’. Only time will tell if this case will have a dramatic impact on the industry. In the meantime, both parties are due back in court within 60 days to discuss damages.
It’s important to note that Eminem himself wasn’t a party to the suit, but the way his contract with FBT was written he stands to earn millions from it.
For those of you interested in reading the original court opinion from the 9th Circuit Court of Appeals you can do so here.
References
Federal Court Sides With Eminem in Royalty Dispute; Record Business Does Not Impode
Eminem Lawsuit May Raise Pay for Older Artists
U.S. Supreme Court Denies Appeal on Eminem’s Music Royalty Dispute
Eminem’s Court Case May Set Music Standard
