Digital duel over royalties opens Pandora's box

14 Apr Digital duel over royalties opens Pandora's box

By Christopher Morris
Fri., Apr. 13, 2012, 12:00pm PT

In the turbulent waters of digital music royalties, there’s uncertainty … and there’s opportunity.

With artists, labels and new platforms fighting to establish a broad precedent for what rights-holders should be paid for their tunes in the burgeoning realm of downloads and ringtones, it’s the lawyers, not surprisingly, who are at the forefront.

Most pressingly, an ever-growing roster of legacy artists have filed a variety of similar lawsuits against the major label groups, alleging massive underpayment of digital royalties.

“We’re being contacted on a weekly if not daily basis by artists who have an interest in determining whether they have a similar claim,” says Nashville-based attorney Richard Busch, who repped FBT Prods. in the September 2010 decision that paved the way for the current wave of litigation.

Jeff Jampol, whose L.A.-based firm manages the musical legacy of Rick James and other heritage acts, says he weighed a lawsuit against Universal Music Group over the late funk performer’s digital royalties for four or five years.

“We’re tied into these deals which in some cases are decades old,” says Jampol. “I think some of the deals are a little bit egregious in nature.”

The James estate’s class action against UMG a year ago represented the opening shot in a fusillade of litigation against the major labels.

More than a dozen suits have been lodged over the issue to date. The plaintiffs, some with careers stretching back to the ’60s and ’70s, include Motown vocal group the Temptations, country star Kenny Rogers, rocker Rob Zombie, rapper Chuck D and musical parodist “Weird Al” Yankovic, to name a few.

The flow of litigation is unlikely to end soon.

Busch’s firm represented FBT Prods. in the case that launched the surge of suits. In September 2010, the 9th Circuit Court of Appeals overturned a jury verdict that favored the label in a suit brought by FBT, which handled rapper Eminem in the early days of his career; the company had alleged it was shortchanged on digital royalties by UMG imprint Aftermath.

The appellate court ruled that royalties for downloads and ringtones should be computed at the higher rate granted for licenses, and not as sales. The U.S. Supreme Court declined to review the decision.

Contractually, the discrepancy between money paid for licenses and sales is vast. Santa Monica-based music attorney Jay Cooper notes that a license is typically worth “at least three times (more than a sale), but that would depend on the definition of each contract.”

Heritage artists are now seeking what they believe they’re due based on the so-called “Eminem case.”

San Francisco-based attorney David Given, co-counsel in the actions brought by the James estate and Zombie, says, “The fundamental finding … that we’re going to rely upon in a large part is the finding that UMG’s dealings with third-party Internet music providers were licenses.”

Cooper notes, “One case will not apply to all contracts … (but) a lot of contracts that I’ve seen over the years have had language that was in the Eminem case.”

Litigators have taken two different tacks in dealing with the issue. Some of the suits have been filed as class actions, which allow like-situated artists to join.

Given’s co-counsel, class action lawyer Michael Sobol, says, “We certainly think it should proceed as a class case. The issues are uniform enough among different artists. Some of the contract language differs here and there, but fundamentally, in the important respects, for purposes of this claim, they’re pretty much the same.”

A class action against Sony Music Entertainment over digital royalties, filed by the Allman Brothers, Cheap Trick and others years before the FBT appellate decision, was settled for $8 million in March. “I would venture to guess that the FBT case loomed fairly large in the briefing (in that case),” Given says.

Busch, who has filed individual suits for five acts — including actions against Sony by Yankovic and the group Toto — has an opposite opinion about how to proceed.

“My personal view is that the individual cases are better for the artists, because they don’t have to worry about other claims diminishing their claims,” he says. “They’re in control of the litigation completely, and their contract stands on its own.”

The major labels — Sony, Warner Music Group and EMI Music — have remained largely mute on the matter, consistently declining to comment. UMG, defendant in the James class action and four others, has said the claims are not appropriate for class treatment, and that the FBT case did not establish a legal precedent.

For now, the issue of precedence remains untried in court. But one moment of truth is swiftly approaching. The long-delayed damages phase of the FBT trial — which will decide the presumably large monetary awards due the plaintiffs in that key case — is set to begin April 24.

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