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TMCNet: Court rules to boost musicians' royalties for downloads

[September 03, 2010]

Court rules to boost musicians' royalties for downloads

DETROIT, Sep 03, 2010 (Detroit Free Press - McClatchy-Tribune News Service via COMTEX) -- Eminem probably thought he'd be waking up Friday morning to focus entirely on his ongoing concert tour.

Instead he got a bit of unexpected news from a federal appeals court in California: Some major money could be headed his way.

The decision, which one Eminem attorney calls an "earthquake" for the music industry, could transform the online song business and boost the fortunes of untold numbers of artists.

Reversing a lower-court jury decision from last year, the court ruled that Eminem and his production company are entitled to nearly triple the royalties they've been receiving for track sales and ringtones on online services such as iTunes.


For Eminem, who has sold more than 6 million downloads this year alone, that could mean tens of millions of dollars in new income.

Universal Music Group, the defendant in the case, said Friday afternoon it will petition for a rehearing.

The suit was filed by Ferndale's FBT Productions, which administered Eminem's record deal with Universal.

Friday's ruling could have fallout in the evolving world of digital music, experts said, pushing other artists to negotiate with their labels for higher online royalty rates. It could even pave the way for some holdouts to finally offer their songs online.

The U.S. 9th Circuit Court of Appeals unanimously reversed a 2009 federal jury decision in a lawsuit filed by FBT Productions, Eminem's former production company, against his label, Aftermath Records. The jury had ruled in favor of Aftermath and its parent company, Universal Music Group.

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's 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 suit sought damages for songs and ringtones sold via iTunes and other online services, claiming that Universal had applied an improper royalties scheme. Eminem is one of the era's top-selling digital artists. Song download sales from this year's "Recovery" album top 6.3 million, according to Nielsen Soundscan.

Universal argued that Eminem should be paid a standard 18 percent royalty rate for those sales, as he is for physical copies. FBT contended that providing a song to iTunes was actually a third-party licensing situation, similar to film and television deals, which calls for a 50 percent royalty rate.

The appeals court has agreed with FBT, reversing the jury's decision and sending the case back to the lower court for a damages trial.

It also vacated the lower court's order that FBT pay $2.4 million in attorneys' fees to Aftermath.

Universal said it will petition for a rehearing.

"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," Universal spokesman Peter Lofrumento wrote in a statement.

But Gary Stiffelman, a Los Angeles attorney who has represented Michael Jackson, Eminem and other acts, said the ruling could nevertheless have practical consequences.

"If downloads are the way of the future, this is going to have massive implications," said Stiffelman. "It changes the playing field." Though the suit centered on details in Eminem's contract, the basic principles involved could be relevant for other acts, especially those with deals made prior to the advent of digital downloading. Stiffelman and other experts said most newer artists have contracts that specify compensation for downloads.

The central question: When a label provides a track to an online distributor such as iTunes, is it licensing the song rather than selling retail copies? In Eminem's case, the appeals court wrote in its ruling that yes, "the transaction is a license," a conclusion it said is supported by federal copyright law.

While iTunes and other online services have grabbed a greater share of the music market, some high-profile artists have declined to jump aboard.

Among them is Detroit rocker Bob Seger. His manager, Punch Andrews, said the ruling "absolutely" clears the way for Seger's songs to be sold online.

Andrews, who called the decision "staggering," said that "every musician should read these 10 pages. It affects everyone." (EDITORS: STORY CAN END HERE) The Motown Alumni Association, whose membership includes Martha Reeves and the Four Tops, had filed an amicus brief on FBT's behalf.

"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," said Martin.

Older acts are most poised to be helped by the ruling, said Daniel Hoops, a Walsh College law instructor who has represented Detroit musicians such as Derrick May.

For emerging artists, the online music world "isn't as much the Wild West that it was a few years ago," said Hoops. "It's going to be the legacy artists who find holes in their agreement who could benefit from this." ___ (c) 2010, Detroit Free Press.

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