Tag Archives: royalties

Are You Sirius?

As readers of this blog will recall, aging rockers Flo & Eddie filed three separate lawsuits alleging that Sirius XM has infringed certain state- or common law copyrights of a class of owners of sound recordings fixed prior to 1972. Sirius XM has filed a motion to transfer the California case, which was transferred from state to federal court, and the Florida case to the Southern District of New York.  While this legal maneuver is relatively uninteresting, the motion does indicate at least one defense that is likely to feature prominently in this and the related case filed by the so-called “major” record companies, – titled Capitol Records, LLC et al. v. Sirius XM Radio Inc., No. BC520981 – in California state court raising similar issues: laches.

Laches, an equitable defense based on the doctrine of estoppel, is the unreasonable delay in pursuing a right or claim that prejudices the opposing party.  According to Sirius XM’s motion,

Plaintiff apparently has become aggrieved by the distinction drawn by Congress in withholding copyright protection from its Pre-1972 Recordings; thus now, after decades of inaction while a wide variety of music users, including radio and television broadcasters, bars, restaurants and website operators, exploited those Pre-1972 Recordings countless millions of times without paying fees, it asserts a purported right under the law of various states to be compensated by Sirius XM for comparable unlicensed uses. Plaintiff’s multiple court filings constitute a form of lawsuit lottery in search of an elusive new state-law right that would radically overturn decades of settled practice.

The laches defense raises a number of interesting issues.  For example, since at least the late 1980s, almost all terrestrial radio stations have used digital copies stored on servers to originate performances; i.e., the days of “disc jockeys” spinning vinyl have been gone for decades.  Presumably, under Flo & Eddie’s complaint, these terrestrial radio broadcasters needed a license to make copies of Pre-72 recordings and, potentially, to perform them.

Terrestrial radio stations have been simulcasting performances over the internet for nearly 20 years, presumably implicating the right of performance by digital audio transmission that Flo & Eddie allege exist under certain state laws for Pre-72 recordings.  Has SoundExchange, which collects and distributes royalties under certain statutory licenses for the public performance of sound recordings by digital audio transmission, been collecting royalties from these terrestrial radio broadcasters and remitting such payments to Pre-72 artists?  Because federal copyright doesn’t apply to Pre-72 recordings, if SoundExchange were collecting such royalties it would owe the terrestrial radio simulcasters a refund. If SoundExchange hasn’t, why hasn’t Flo & Eddie sued terrestrial radio?

Flo & Eddie will undoubtedly respond that they had no way of knowing that they weren’t getting paid by Sirius XM until the most recent Copyright Royalty Board proceeding, at this pre-72 recordings were a significant issue.

[The allegations raised by SoundExchange against Sirius XM that Sirius XM was inappropriately deducting revenue from its royalty calculation to account for Pre-72 recordings are inapplicable in the context of a per-song royalty, where each Pre-72 recording can be identified and appropriately excluded from royalty calculations.  Per-song royalties have existed since at least 2008.]

The motion is here.

Bamboozled! UMG’s Inter-Company Accounting At Issue

The legal battle between brothers Mark and Jeff Bass, the Detroit producers credited with grooming rapper Eminem in his early days, and Aftermath Entertainment, the American record label founded by Dr. Dre and distributed through Universal Music Group’s Interscope Records, has grown to include the inter-company accounting practices of large, multinational record labels.

History

A brief history is in order.  The Bass brothers, working under their nom de rap Funky Bass Team a.k.a. F.B.T. Productions, signed fellow Detroiter Marshall Mathers (a.k.a. Eminem), to a recording contract in 1995.  In 1998 and 2000, F.B.T. signed agreements with Aftermath to (first) distribute and (later) own all of Eminem’s sound recordings in exchange for between 12% – 20% of the retail price of copies of Eminem’s records sold (“Records Sold” provision) or 50% of the net revenue Aftermath obtained by licensing Eminem’s master recordings (“Masters Licensed” provision).

[Side Note: It is quite common in recording contracts for royalties paid on records sold to be lower than royalties paid of masters licensed; see, e.g., here.]

When an audit of Aftermath revealed that F.B.T. was receiving royalties for permanent downloads and ringtone sales under the Records Sold provision (and not the more lucrative Masters Licensed provision), F.B.T. filed suit in 2007.  After a jury found that Aftermath had been correctly accounting to F.B.T. (i.e., digital downloads were Records Sold), F.B.T. appealed.  The 9th Circuit reversed and held, as a matter of law, that digital downloads and ringtones were licensed to various third parties such as iTunes who, in turn, distributed over the Internet.

The agreements also provide 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.” The parties’ use of the word “notwithstanding” plainly indicates that even if a transaction arguably falls within the scope of the Records Sold provision, F.B.T. is to receive a 50% royalty if Aftermath licenses an Eminem master to a third party for “any” use. A contractual term is not ambiguous just because it is broad. Here, the Masters Licensed provision explicitly applies to (1) masters (2) that are licensed to third parties for the manufacture of records “or for any other uses,” (3) “notwithstanding” the Record Sold provision. This provision is admittedly broad, but it is not unclear or ambiguous.

The 9th Circuit remanded the case back the Central District of California for a trial on damages, which was supposed to begin in April, 2012.

[Another Side Note: If you wonder how Richard S. Busch, a commercial litigator from Tennessee, ends up representing the Bass brothers, I have a theory.  Busch represented Bridgeport Music, a publishing company that owns or controls much of the catalog of George Clinton, and Westbound Records, a record company that released several albums of Clinton’s famous funk band Funkadelic, in a series of cases in the Middle District of Tennessee over alleged unlicensed sampling.  In a controversial landmark decision, Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792 (6th Cir. 2005), the 6th Circuit held that the unlicensed use of a two-second guitar chord from Funkadelic’s song “Get Off Your Ass and Jam” in gangster rap group N.W.A.’s song “100 Miles and Runnin’” constituted copyright infringement.  In its decision, the 6th Circuit wrote: “Get a license or do not sample. We do not see this as stifling creativity in any significant way.”   It turns out that prior to working with Eminem, Mark and Jeff Bass worked as a production team for George Clinton and his label Westbound Records.]

Present Dispute

The present dispute involves whether F.B.T. can supplement the complaint they filed in 2007 on the eve of a second trial, which was to commence on April 24, 2012.  F.B.T. claims that Aftermath’s expert report, served on February 7, 2012, revealed for the first time that Aftermath was receiving only 29% of the revenue generated from foreign sales of downloads and ringtones under an inter-company agreement with its foreign affiliates.  Because under the 9th Circuit’s decision Aftermath is to pay F.B.T. 50% of revenue (under the Masters Licensed provision), it makes an enormous difference whether that calculation includes 100% of revenue generated by the foreign sales or just the 29% of revenue Aftermath recognizes on its books.

In opposing F.B.T.’s motion for leave to file a supplemental complaint under FRCP 15(d), Aftermath argued, in part, that a prior partial summary judgment ruling had already decided the issue of foreign revenue.  In rejecting Aftermath’s argument, Judge Gutierrez noted that

Defendants largely rely on a single sentence from their summary judgment brief for the proposition that the issue they wanted determined was clear: “In audits conducted post-dating the trial, F.B.T. has contended it is entitled to 50% of what is received by any company affiliated with Universal Music Group, anywhere – including 50% of the ‘receipts’ of foreign distribution companies.” Mem. ISO Defs. Mot. for Summ. J., 20:21-25. In light of Defendants’ current position on revenue sharing with foreign affiliates, the import of this sentence now seems clear. However, at the time, FBT did not seem to understand the reference. In opposition, FBT stated in a footnote that the “significance of this sentence is not clear.” Opp. to Defs. Mot. for Summ. J., Dkt. # 710, at 17:24-28 n.11.

Judge Gutierrez went on to complain

[The] Court is deeply troubled by Defendants’ argument. While it is hard to see what FBT could gain by feigning ignorance, it is now quite apparent what Defendants could hope to gain by bamboozling the Court and Plaintiffs on this issue. Defendants’ current stance makes it appear as though Defendants carefully inserted the issue into the motion for summary judgment before they had notified FBT or the Court of what percentage of the revenues from foreign sales of permanent downloads and mastertones would be paid to FBT. An attempt to dupe the Court into a premature ruling will not serve as the basis to deny FBT an opportunity to challenge Defendants’ accounting practices.

So, F.B.T. now has until July 6 to filed its amended complaint.  The parties will then get to conduct further discovery on the issue of inter-company accounting.  Looks like a trial won’t be happening until the end of this year or early next.

Judge Gutierrez’ opinion is below:
[scribd id=99206217 key=key-1lbo4w2u3s37vujrhdna mode=list]

What is Hip? Suing Your Record Label for 50% of Digital Download Revenue!

Oakland, California-based Tower of Power has filed a class action lawsuit against Warner Music Group claiming to represent a class of plaintiffs whose recording agreements entitled them to 50% of revenue for digital downloads.  According to the complaint, which is provided below,

The WMG Agreement provided a significantly higher percentage of royalties under the licensed equation than under the sold equation. In general, the sold equation provides for royalties often percent (10%) (depending on the popularity of the artist, album and price the record was sold at; i.e., the more popular the artist, or the more expensive the album, the higher the royalty rate) while the licensed equation provides for royalties of fifty percent (50%) of net receipts. As a result, a recording artist or producer is paid a significantly lower percentage of the total money received by Defendant for their commercial exploitation of the artist or producer’s master recordings under the sold equation than under the licensed equation.

While I understand the strategic play, class certification is always hard in these circumstances, as even small differences in contractual language may have important implications for the applicable royalty rate.

What is clear is that these suits are going to become more and more common.

Complaint:
[scribd id=87692961 key=key-1b5xh00oq6v6kc88eugu mode=list]

No, Seriously.

Alfred Matthew “Weird Al” Yankovic is suing Sony for $5mm.  In addition to several  audit-related claims regarding alledgedly unauthorized recoupments and/or deductions, Weird Al has joined the ranks of Eminem, the Allman Brothers, Rick James, and others in claiming that Sony should have paid 50% of revenue for digital download sales.  According to the complaint, which is provided below, Weird Al’s 2002 agreement with Sony specifies that “notwithstanding any other royalty provision …, Sony will credit [Weird Al’s] royalty account with an amount equal to fifty percent (50%) of the Net Receipts from any royalty, fee, or other payment received by [Sony] directly attributed to a Master licensed by us for use (A) in the manufacture and/or distribution of Phonograph Records.” (internal citations omitted).  According to the complaint, “Phonograph Records” is defined in his agreement with Sony as including permanent music downloads, mastertones and ringtones.

Like several other suits, this case is being brought by Richard Busch of Nashville’s King and Ballow, who has cut quite a lucrative niche for himself after winning the landmark Eminem case before the 9th Cir.

Stay tuned…

Complaint:
[scribd id=87688742 key=key-2e0vos93a8ti6meleirw mode=list]