Eminem firm loses iTunes royalty lawsuit against Universal

[AppleInsider]

Universal Music has prevailed in a case that would have otherwise given millions more to artists for the sale of their songs on digital download services such as Apple's industry-leading iTunes Store.

The Detroit production company involved in Eminem's early albums had previously filed suit against Universal Music, seeking more royalties on songs sold online versus traditional CD sales.

However, a Los Angeles jury late last week sided with Universal's arguments, agreeing that a song sold online is no different from a song bought in a store.

"We are pleased with the jury's verdict," said Universal spokesman Peter Lofrumento.

Bloomberg News reported FBT Productions, which signed Eminem before he came to prominence, was seeking $1.47 million in damages.

An FBT victory could have dramatically changed the pecking order for proceeds from digital downloads, such as Apple's dominant iTunes Store.

The jury's decision means record labels will continue to control most of the revenues from album sales. Artists and production companies have called for more proceeds from the online music marketplace as the record labels' overhead is much lower since companies like Apple are responsible for the marketing, management, delivery, and so on.

The production company had argued their contract entitles them to more proceeds for songs sold online. It reasoned that the tracks the label provides to services like iTunes and Amazon are music "masters", used for reproducing endless digital copies. FBT, owned by brothers Mark and Jeff Bass, said their contract entitles them to higher royalties on music "master" sales, but the jury did not agree.

Eminem was not a party to the suit, although he would have earned much more in unpaid royalties had the jury sided with FBT. Lawyers for FBT said they will appeal the jury's ruling.

The brother-owned company did prevail on a separate claim involving underpaid royalties, netting a minor victory. Universal was ordered to pay $159,000.

[solipsism]

$1.47M?! That seems like such a low amount to sue over these days. I guess I'm desensitized with all the talk of billions.

[Maestro64]

wow, that is not good, the court is saying that cost for online music is the same as making and distributing a CD.

Remember artists get a % of sale after costs, What Eminem was trying to show that cost for online music is far less so they should earn more royalties.

Cost for MP3 is far less then CD, you make one copy and down load it millions of times. CD you have to make millions of copies and hope someone buys them. Variable costs are so much less with MP3 and any CD. The artist should make more.

[troberts]

Once the contracts the artists have expire, the artists need to not re-sign, but form their own "label" so they have more control over their music and money. I highly doubt Apple cares which label music is released by since their model for distribution and payment is pretty straight forward. The only "problem" the artists will have is they will not have the money and expertise that the big labels have at their disposal, but if they have money for their clothes, mansions, cars, and "bling", then they should have money to at least fund their musical expenses that will in turn provide them with income.

[mknopp]

So, what does this mean for the record company's contention that songs bought online are simply licensed to the end user not sold, and thus the end user has no right to sell the song?

Is this not a complete double standard? How can they pay the artist less because it is a sale and not a license, but get around the Doctrine of First Sale by saying it is a license not a sale?

Can anyone explain this one legally?

[Kickaha]

Originally Posted by mknopp

Can anyone explain this one legally?

Yes, it's called being bastards.

[iVlad]

Agg do we also need to Bailout M&M?

[l008com]

It's good to see an Artist suing the real criminals, the record labels, instead of suing Apple or p2p users. Too bad he lost though. Apple should start their own record label.

[Lafe]

Originally Posted by AppleInsider

Eminem was not a party to the suit, although he would have earned much more in unpaid royalties had the jury sided with FBT. Lawyers for FBT said they will appeal the jury's ruling.

Eminem wasn't suing anyone. Some commenters seem to think that he was.

This suit seems to have been another case of big-huge-monster-company with
the higher-priced lawyers beating the little guy. Maybe it'll open the door to more
such cases, though, and the recording industry will start to remodel itself into
a more sensible format for modern times.

We are entering an age of pure content distribution, and there isn't as much
need for a big company to do the CD-pressing and marketing for an artist.
Artists are connecting with listeners and viewers in more organic ways,
and the old model for money-making won't work in this new environment.

Free the music!

[l008com]

Originally Posted by Lafe

Eminem wasn't suing anyone. Some commenters seem to think that he was.

You can thank AppleInsider and their misleading headlines for that one. I don't recall if it was this site or another site, but one Mac site went through a stretch where their headlines were horribly inaccurate.

[mariofreak85]

Originally Posted by l008com

It's good to see an Artist suing the real criminals, the record labels, instead of suing Apple or p2p users. Too bad he lost though. Apple should start their own record label.

I thought they couldn't do anything like that because of their lawsuit with Apple Records

[l008com]

Originally Posted by mariofreak85

I thought they couldn't do anything like that because of their lawsuit with Apple Records

Who knows what the details of that whole mess are.

[solipsism]

Originally Posted by mariofreak85

I thought they couldn't do anything like that because of their lawsuit with Apple Records

I thought that was settled. They issue was with brand confusion. Apple calls their music store iTunes Music Store, all they would have to do to start a record label would be to use iTunes Record Label, or even create a subsidiary company that would deal with it never once mentioning Apple, Inc. But there seems to be some other issues with Apple do such a thing.

[jlanganki]

Originally Posted by solipsism

I thought that was settled. They issue was with brand confusion. Apple calls their music store iTunes Music Store, all they would have to do to start a record label would be to use iTunes Record Label, or even create a subsidiary company that would deal with it never once mentioning Apple, Inc. But there seems to be some other issues with Apple do such a thing.

From what I remember, the result of the last lawsuit is that Apple Inc. essentially owns all the rights to the "Apple" name now, and "Apple Corps" is a licensee of "Apple Inc.". This means "Apple Inc" can now do whatever they want with the name, including opening their own music label.

[resipsa]

First, please note that Eminem was not trying to prove anything as he wasn't a party to the lawsuit. Second, this case was decided by a jury not the court, so no new law was made.

This suit seems to have been another case of big-huge-monster-company with
the higher-priced lawyers beating the little guy.

In this case, I disagree. This isn't the same thing as the RIAA's lawsuit frenzy primarily because it wasn't a copyright case. Rather, it was a contract dispute (and I doubt FBT's lawyers were cheap).

According to Bloomberg, FBT productions argued that the royalty provision in their contract with Universal only covers CD sales, not digital downloads. FBT's contention was that the "licensing provision" of the contract applies to online distribution and sales because digital downloads constitute sales of "the master" recording -- in which case, FBT would be entitled to 50% royalties.

So, this case was really just a question of contract interpretation, and it was decided by a jury. The fact that it was decided in Universal's favor may have something to do with having better lawyers than FBT. Then again, anything can happen in a jury trial.

Maybe it'll open the door to more such cases, though, and the recording industry will start to remodel itself into a more sensible format for modern times.

I doubt it. While a jury verdict in FBT's favor may have resulted in similar lawsuits against Universal, there's no guarantee that those cases, if brought before a jury, would have similar results. Also, while many of Universal's contracts with artists, production companies, etc. may have very similar language, they probably aren't exactly the same.

I agree that there needs to be a paradigm shift in the recording industry in order for it to survive; however, I don't think relatively minor contract disputes with small production companies are going to be much of a catalyst for change.

If anything, I think that the result of this case will be Universal yelling at their lawyers for drafting lousy contracts. (Even though Universal prevailed, it still had to pay to defend the case all the way to a jury trial.)

Finally, this is only a guess, but I imagine that many of the contracts that Universal has signed with new artists, or renewed with old ones, contain language that specifically provides for the percentage of royalties each to which each party is entitled from online sales.

[hillstones]

Originally Posted by Maestro64

wow, that is not good, the court is saying that cost for online music is the same as making and distributing a CD.

Remember artists get a % of sale after costs, What Eminem was trying to show that cost for online music is far less so they should earn more royalties.

Cost for MP3 is far less then CD, you make one copy and down load it millions of times. CD you have to make millions of copies and hope someone buys them. Variable costs are so much less with MP3 and any CD. The artist should make more.

Online music is the same as CD prices, if you know where to go. First of all, Eminem had nothing to do with this lawsuit. It was brought on by FBT Productions, who signed him before he became famous. So they used his name for publicity, and they are trying to collect more money simply because he is popular.

You need to get out and go shopping. The new U2 CD is a perfect example. iTunes sells the standard issue CD for $9.99 (not the "deluxe" version, which is way over-priced at $17.99). Target sells the CD for $9.98, and Wal-Mart sells the CD for $9.97. So I can get the actual CD for the same price as iTunes, and I get the actual CD with printed liner notes.

If the artist doesn't like the contract established with the record label, they should go independent. The artist should make the same amount whether it is digital or CD. It doesn't cost that much for mass duplicating a CD versus the server maintenance for storing and offering the digital download.

[lfmorrison]

Originally Posted by mknopp

So, what does this mean for the record company's contention that songs bought online are simply licensed to the end user not sold, and thus the end user has no right to sell the song?

Is this not a complete double standard?

You never "owned" the songs you bought from a brick and mortar record store either.

You owned the physical object (be it LP, tape, or CD) on which the song was recorded. The copyright holders retained ownership of the songs themselves.

Under the Doctrine of First Sale, you have the right to resell physical objects you own on which copyrighted material is recorded, provided you didn't produce or keep any additional copies of the material for yourself.

With a digital download, there was no physical object sold to you, thus no physical object to resell to someone else.

How can they pay the artist less because it is a sale and not a license, but get around the Doctrine of First Sale by saying it is a license not a sale?

The outcome of this court ruling was not that the labels could pay the artists less for digital downloads than they do for record sales - rather, it was that the labels should pay the artists exactly the same for digital downloads as they do for record sales. The artists (or rather, in this case the artists' agents) had argued unsuccessfully that digital downloads should yield more money to the artists than physical record sales.

[DimMok]

Some judges got PAID...big time for this one.....

[quinney]

Originally Posted by resipsa

Finally, this is only a guess, but I imagine that many of the contracts that Universal has signed with new artists, or renewed with old ones, contain language that specifically provides for the percentage of royalties each to which each party is entitled from online sales.

Precisely. In fact, I think the artists would demand this, since they feel like they are
being screwed.

[hillstones]

Originally Posted by l008com

It's good to see an Artist suing the real criminals, the record labels, instead of suing Apple or p2p users. Too bad he lost though. Apple should start their own record label.

Read the article. The artist did not sue the record label. The production company that signed him early in his career sued them demanding more money.

"Eminem was not a party to the suit, although he would have earned much more in unpaid royalties had the jury sided with FBT. Lawyers for FBT said they will appeal the jury's ruling."

[jragosta]

Originally Posted by mknopp

So, what does this mean for the record company's contention that songs bought online are simply licensed to the end user not sold, and thus the end user has no right to sell the song?

Is this not a complete double standard? How can they pay the artist less because it is a sale and not a license, but get around the Doctrine of First Sale by saying it is a license not a sale?

You seem to be misinterpreting the decision.

The reports are seeming to say that there is an agreement that the artist gets $x.xx per song sold/licensed/distributed/whatever. The decision says that the cost of distribution is irrelevant since it doesn't appear to be part of the contract (at least from all the reports I've read).

Assuming that's correct, then it's the right decision. If the artists signed a contract saying they get $x.xx per song, that's what they should get. They have no right to go back and demand more because the record company finds a lower cost way to distribute.

They are free, of course, to try to negotiate better terms the next time their contract comes up, but they have no right to demand retroactive changes.

Originally Posted by DimMok

Some judges got PAID...big time for this one.....

Funny, it was a jury decision, not a judicial one. Considering that juries typically side with the little guy, the evidence must be pretty good.

Originally Posted by Maestro64

wow, that is not good, the court is saying that cost for online music is the same as making and distributing a CD.

Remember artists get a % of sale after costs, What Eminem was trying to show that cost for online music is far less so they should earn more royalties.

Cost for MP3 is far less then CD, you make one copy and down load it millions of times. CD you have to make millions of copies and hope someone buys them. Variable costs are so much less with MP3 and any CD. The artist should make more.

That doesn't appear to be the issue in this case. There's absolutely nothing that implies that the artist was paid a percent of gross margin (or net margin or anything else). Every article I've seen on the case says that the artist gets a fixed payment PER SONG.

There's nothing that implies that the artist's share depends in any way on cost. If it did, it would have nothing to do with Apple since Apple has absolutely nothing to say about the cost of distribution via CD. If it were a matter of the artist getting an incorrect share of the profits, the suit would have been against the record labels, not against iTunes.

[solipsism]

Originally Posted by jragosta

That doesn't appear to be the issue in this case. There's absolutely nothing that implies that the artist was paid a percent of gross margin (or net margin or anything else). Every article I've seen on the case says that the artist gets a fixed payment PER SONG.

There's nothing that implies that the artist's share depends in any way on cost. If it did, it would have nothing to do with Apple since Apple has absolutely nothing to say about the cost of distribution via CD. If it were a matter of the artist getting an incorrect share of the profits, the suit would have been against the record labels, not against iTunes.

In fact, it's opposite of what Maestro64 is stating in that suit was trying to get more money by stating that digital copies are masters, yet Maestro64 is correctly stating that they cost less to distribute than CDs. So for statement to make sense the jury would have had to lessen the amount that they get paid per download.

[echosonic]

Originally Posted by resipsa

I agree that there needs to be a paradigm shift in the recording industry in order for it to survive; however, I don't think relatively minor contract disputes with small production companies are going to be much of a catalyst for change.

1. troberts was right, these artists need to make their own records and sell them on iTunes, DUH. No wonder they need labels if they cant figure out how to sell their own music.

2. It's always been all about distribution. The labels had the distribution chains in place, and that was their bank. Now Apple has it.

3. The paradigm shift has taken place. But the "industry" can not and should not survive it. The industry is bloated, corrupted, overwhelmed with its own hunger for power, and blind to evolving technology. This is an industry governed by raw, kindergarden-level capitalists, who are now at the mercy of a collegiate capitalist in Jobs, and he will eat them alive.



I will issue a formal prediciton that in less than ten years' time, the major artists will begin to forego their contract renewals, instead producing their own records and distributing them on iTunes, cutting out the labels, and retaining their fair 70% share. Established artists need nothing from labels. Only up-and-comers need a label for initial promotion anymore, and few even need that.

[echosonic]

Originally Posted by solipsism

In fact, it's opposite of what Maestro64 is stating in that suit was trying to get more money by stating that digital copies are masters, yet Maestro64 is correctly stating that they cost less to distribute than CDs. So for statement to make sense the jury would have had to lessen the amount that they get paid per download.

you know...it just occurred to me that the labels technically don't do anything at all. In very specific terms, they send just a single master track to Apple, and Apple copies/distributes it on an as-needed basis.

The label, in reality, has no reproduciton costs whatsoever, they can not even claim the tiny amount of electricity required to power the computer that duplicates the bits and bytes.

Perhaps their argument should not be that digital copies are masters or not, but that a single master is handed to Apple, who then copies and distributes it...? would that even make any difference in the argument?

[zoetmb]

As others have stated, this was nothing more than a contract dispute. I work in the area of rights management. Rights are defined as a media, within a territory, within a contract period for a certain percentage. If Eminem signed a contract which declared that he was entitled to X percent in all media, he (or his representatives) can't complain now that they want a higher percentage for online sales simply because the distribution costs are lower. That should have been negotiated at the time the contract was signed. He could have had one rate for traditional sales and a different rate for online sales, which is frequently the case.

What the dispute actually seems to be about though is that he is maintaining that online sales constitutes the licensing of a master for which he was entititled to a higher rate. I think that could be argued both ways. The jury disagreed though. Going forward what I think you'll find is that there will be a clearer definition in future contracts to indicate that online sales are not master license sales.

As for the record labels, while we all might hate them just on principle, the fact is that none of them are making any money. The annual decline in sales even including revenue from digital downloads is increasing at enormous rates which are completely unsustainable. So it's not like the labels are making a killing and screwing the artists (like they used to.) No one is making money. And IMO, the small labels haven't done any better job in nurturing artists or creating great music than the large labels.

[solipsism]

Originally Posted by echosonic

you know...it just occurred to me that the labels technically don't do anything at all.

On that front, no, but they do handle the promoting and front the bands money and setup gigs and all the other risks to find the artists that will turn them hefty profit.

But with so much advertising being pushed to social networking sites and other internet sites Apple does an opportunity to pay the artists more while making more money on iTunes. But then they'd have to deal with all the other stuff. Which they might not want to get involved with.

[Chris_CA]

Originally Posted by jragosta

If it were a matter of the artist getting an incorrect share of the profits, the suit would have been against the record labels, not against iTunes.

The suit WAS against the record label and NOT against iTunes.

[Cubert]

"However, a Los Angeles jury late last week sided with Universal's arguments, agreeing that a song sold online is no different from a song bought in a store."

So, are they going to reimburse me for upgrading my songs to DRM-free, which they would have been all along if Apple had its way?

[jittery jimmy]

Originally Posted by Maestro64

wow, that is not good, the court is saying that cost for online music is the same as making and distributing a CD.

No, that's not how I read the case and the decision. This is what I see:

This was a dispute between Universal and the production company of Eminem.

The production company's argument was that the fees that Universal pays to Apple to sell music should not be considered as a "cost" to Universal.

The argument: that Apple's fees to sell digital music are being used by Universal to hide a portion of Universal's profits. In a nutshell, a scenario goes that Universal would give Apple something like $100,000 for all the sales in the past week, and then Apple would give Universal $50,000 back to Universal.

The court found that the production company didn't show that Universal is hiding any profits using this strategy. The money Universal pays to Apple is fully an expense that Universal incurs, and therefore is a "cost" to Universal.

The court did not decide or comment on what the price differences of physical distribution versus electronic distribution should be, and that was not part of the case.

[hillstones]

Originally Posted by jittery jimmy

No, that's not how I read the case and the decision. This is what I see:

This was a dispute between Universal and the production company of Eminem.

The production company's argument was that the fees that Universal pays to Apple to sell music should not be considered as a "cost" to Universal.

The argument: that Apple's fees to sell digital music are being used by Universal to hide a portion of Universal's profits. In a nutshell, a scenario goes that Universal would give Apple something like $100,000 for all the sales in the past week, and then Apple would give Universal $50,000 back to Universal.

The court found that the production company didn't show that Universal is hiding any profits using this strategy. The money Universal pays to Apple is fully an expense that Universal incurs, and therefore is a "cost" to Universal.

The court did not decide or comment on what the price differences of physical distribution versus electronic distribution should be, and that was not part of the case.

This had nothing to do with Apple either. It referred to ANY online distribution. Just another bullshit headline from AppleInsider. The lawsuit had nothing to do with Eminem, nor did it have anything to do with Apple. It was a production company complaining about online distribution.

[SpamSandwich]

Originally Posted by Lafe

This suit seems to have been another case of big-huge-monster-company with the higher-priced lawyers beating the little guy.

Sometimes the little guy can be a jerk too, you know.

[DavidW]

Originally Posted by jlanganki

From what I remember, the result of the last lawsuit is that Apple Inc. essentially owns all the rights to the "Apple" name now, and "Apple Corps" is a licensee of "Apple Inc.". This means "Apple Inc" can now do whatever they want with the name, including opening their own music label.

Actually the last lawsuit was dropped by Apple Corp after Apple Inc. offered to pay Apple Corp, supposily around $100 million, for all rights to the "Apple" trademark. And a life time license back to Apple Corp for the use of the "Apple Corp" trademark. When Apple Corp cease to exist, Apple Inc will retain the rights to the Apple Corp trademark.

I'm sure there some stipulation in the license that states that Apple Corp can not enter the computer business.

[parky]

Originally Posted by hillstones

Online music is the same as CD prices, if you know where to go. First of all, Eminem had nothing to do with this lawsuit. It was brought on by FBT Productions, who signed him before he became famous. So they used his name for publicity, and they are trying to collect more money simply because he is popular.

You need to get out and go shopping. The new U2 CD is a perfect example. iTunes sells the standard issue CD for $9.99 (not the "deluxe" version, which is way over-priced at $17.99). Target sells the CD for $9.98, and Wal-Mart sells the CD for $9.97. So I can get the actual CD for the same price as iTunes, and I get the actual CD with printed liner notes.

If the artist doesn't like the contract established with the record label, they should go independent. The artist should make the same amount whether it is digital or CD. It doesn't cost that much for mass duplicating a CD versus the server maintenance for storing and offering the digital download.

The point is that the Music label are NOT providing the server maintenance or offering the digital download, Apple are providing those services. The record company have ZERO costs for downloads yet they take the same money as they do for CDs. Get your facts right!

[digitalclips]

Originally Posted by solipsism

On that front, no, but they do handle the promoting and front the bands money and setup gigs and all the other risks to find the artists that will turn them hefty profit.

But with so much advertising being pushed to social networking sites and other internet sites Apple does an opportunity to pay the artists more while making more money on iTunes. But then they'd have to deal with all the other stuff. Which they might not want to get involved with.

It seems then, a new type of management / marketing company opportunity. One that recognizes the reality of the current system and works with the artists and Apple (et al) in a way that's fair and profitable to all. I agree Apple would not want to get involved in any of this, so it will be interesting to see if any company steps up to fill the void. The current labels seem unable or unwilling to see the ground has shifted under their feet.

[solipsism]

Originally Posted by digitalclips

The current labels seem unable or unwilling to see the ground has shifted under their feet.

Yes, do seem to try to resist change on every front, then seem shocked when things change. I really don't get it.

I figure Apple probably ran scenarios many times after the Apple Corp suit to see if that business was viable for them.