I’m Rick James, Bitch!

The estate of Rick James has filed a class action lawsuit against Universal Music Group (“UMG”) alleging underpayment of royalties due for digital downloads.  The suit relies on the recent 9th Circuit decision in Eminem’s dispute with UMG sublabel Aftermath Records.  F.B.T. Productions, Inc. v. Aftermath Records, 621 F.3d 16 958 (9th Cir. Sept. 3,2010), cert. denied, 79 U.S.L.W. 3370 (March 21, 2011).  In that case, the 9th Circuit found that under Eminem’s recording contract with Aftermath digital downloads should be accounted for as “licensing” income rather than the sale of physical product like CDs.  James’ estate argues that his contract contains similar language, thus requiring UMG to pay at the higher license rate.

The Super Freak case (as I’m sure it will become known) seeks to establish a class pursuant to Federal Rules of Civil Procedure 23(a) and 23(b) comprising “All persons and entities … who entered into UMG production or recording agreements from January 1, 1965 to April 30, 2004 and who … received royalties on … income received by UMG from Music Download Services and Mastertone Providers (hereinafter, the “Class”) at a rate less than the rate provided for licensing income in their contract with UMG.”

The case comes on the heels of a pending settlement in the long-running dispute between the Allman Brothers and Sony in which the Allman Brothers raised similar claims and sought to establish its own class. (See Greg Allman v. Sony BMG Music Entertainment, 06-cv-3252-GBD (SDNY)).  In that case, the Allman Brothers argued that the difference in accounting had the following implications:

CURRENT METHOD
1000 Units Downloaded 1000
Less Net Sales Deduction (15%) (150)
Units Downloaded Credited to Plaintiffs 850
Alleged Total Wholesale Revenue per unit $0.70
Less Mechanical Royalty Payments to publishers per unit ($0.069)
(approx. $0.069 per unit)!
Alleged Wholesale Download Price per unit $0.631
Total Alleged Wholesale Download Price (850 units x .631 per unit) $536.50
Less Container Charge (20%) ($107.50)
Less Audiophile Deduction (50%) ($268.75)
Royalty Base Price $160.25
Royalty Rate (30%)2 x .30
Royalty Owed $45.05
CORRECT METHOD
1000 Actual Units Downloaded 1000
Net Receipts to Sony Music for 1000 units sold at $0.70 per unit $700.00
Less Mechanical Royalty Payments to publishers (approx. $0.069 per unit) ($ 69.00)
$631.00
Royalty Rate (at 50% of net leasing receipts) x .50
Royalty Owed $315.50
1 This factors in a 3/4 statutory mechanical royalty rate of 6.83 cents per unit instead of a full statutory mechanical royalty rate of 9.1 cents per unit, as the former rate is more prevalently used.
2 Note that this Royalty Rate is for The Allman Brothers Band. Specific royalty rates for other Class Members will vary.

The Super Freak Complaint is below:
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