Is it a lease? Is it a licence? In the world of digital royalties, Sony wants to know

Billboard reports that Sony BMG has asked a US court to dismiss the latest case filed against the label by 80s icons Toto, who are looking to challenge the basis of the way in which their digital download royalties are accounted for. With The Temptations having recently launched a new action against Universal, who have lost one case in the ‘Eminen’ action (actually brought by the rapper’s producers FBT), Sony BMG has now agreed to pay $7.95 million to settle a similar class action (with Cheap Trick and the Allman Brothers amongst others) but is separately defending the lawsuit brought by Toto, who recorded the hit song "Africa". The music company simply says the band is "dissatisfied with the bargain that it struck."

Billboard report that Sony have said that the argument that artistes should receive a share of ‘licence’ income from digital sales rather than a (much lower) per unit sales royalty is incorrect in this case because the "license" vs. "sale" dispute misses a third word -- "lease" -- which could play a role in determining whether musicians get roughly 50 percent of digital income or merely about 15 percent of the net sales price, as it seems that Sony Music's contracts with musicians appear to have "lease" provisions instead of "licensing" provisions. Is there a difference? Well, Sony says “yes” and Sony has now submitted a motion to dismiss Toto's lawsuit.

The attack on the claim is twofold. Firstly in a memorandum to the court, Sony claims that in 2002 the parties amended their agreement to set forth a new royalty rate specifically applicable to "all records made for digital playback."

If that’s not enough, Sony also challenges the ‘sale vs licence’ argument saying "In an attempt to sidestep this ['lease'] obstacle to its claim, plaintiff alleges that 'license' and 'lease' simply mean the same thing," adding "But plaintiff's allegations cannot alter the plain meaning of the contract. As a matter of both ordinary English and contractual usage, the terms 'license' and 'lease' are not synonymous" pointing to the Black's Law Dictionary, the Webster's Third New International Dictionary, and the Oxford English Dictionary to support the idea that "lease" and "license" are different. Sony also seem to be relying on the initial judgment in the Allman Brother (now settled) claim although I am not sure this is that wise, as a later judgment allowed the earlier class action to be amended to allege that Sony "leases" its catalogue to download providers like Apple's iTunes.

Like Billboard, I am not quite sure of what the ramifications are of separating "licensing" activity in media and entertainment from leasing activity, but as Billboard say “The semantic argument might seem trivial, but it's worth millions”.

http://www.hollywoodreporter.com/thr-esq/sony-bmg-asks-judge-dismiss-toto-africa-lawsuit-304172


Africa here

Sony and Cheap Trick agree settlement in digital royalty dispute

It seems that Sony and a group of artistes including Cheap Trick, the Allman Brothers and The Youngbloods have come to an agreed settlement in their dispute over the appropriate royalties Sony BMG should be paying the artistes – the label want to pay a ‘per unit’ royalty for each sale as they would with vinyl and CDs - with various deductions meaning the royalty is reduced to a faction of the sale price - with the artistes arguing that their proper share was one half of all digital licensing income, less only publishing royalties.

The settlement, proposed by the plaintiffs in a court filing, has yet to be approved by the court, but proposes that Sony will pay its recording artists a total of $7.95 million to resolve outstanding claims in the case. Lawyers’ fees alone will account for $2.5 million of this (the case has been running since 2006). The deal also provides for a 3 percent “bump” in artists' royalty rates with respect to digital income – seemingly acknowledging that digital royalties should be higher than those for physical product. My previous post on the recent Kenny Rogers claim over his royalties highlighted some of the more unsavoury activities of labels when it comes to reducing artiste royalties. A substantial portion of the pot, if approved, will go to artists who had at least 28,500 total downloads on Apple's iTunes: A much smaller share has been set aside for artists whose download levels weren't very significant.

More at Billboard

Right royalty row brings out a fighting Kenny

Legendary record label boss Morris Levy allegedly once told one of his acts “if you want royalties, go to Buckingham Palace” but it seems artistes are no longer prepared to accept this mantra and Toto and country & western star Kenny Rogers are the latest in a long line of heritage acts bringing claims against their record labels, challenging the way in which their royalties have been accounted for, and in some cases alleging appalling underpayment of royalties, often over many many years.

A number of claims, beginning with a law suit brought in 2006 by the Allman Brothers, Cheap Trick and others against Sony, revolved around the way in which record labels had calculated their digital royalties. In court papers filed in the United States District Court Southern District of New York a comparison of calculations was set out based on the sale of 1000 downloads at 0.70c per unit – giving a total income of $700: Sony BMG thought the appropriate payment would be a royalty payment on 85% of all downloads sold after deducting mechanical royalties to the songwriters, a container charge of 20% and an royalty reducer for new technology of a further 50%. This gave a total royalty payment of $45.05. The Allman brothers felt they should be paid one half of the income from 100% of all units sold, less just the mechanical royalty payable to songwriters. This gave a royalty due of by Sony BMG to the Allman Brothers of $315.50. Some difference! Other artistes including Chuck D, Sister Sledge, Whitesnake, the estate of Rick James and Rob Zombie have recently brought similar actions against major labels.

Whilst digital royalties have captured the headlines recently, numerous artistes have taken their record labels to court to get royalty payments. In 2002, a Los Angeles court approved a $4.75 million settlement in a class-action suit brought by the late singer Peggy Lee. Before her death, Peggy Lee led the suit against Decca Records, accusing the record label of using questionable accounting practices to cheat artists out of their royalties for more than four decades. Other members of the class, most of whom are now dead, include the estates Louis Armstrong, Billie Holiday, Patsy Cline, Ella Fitzgerald, Bill Haley, Mary Martin, and Pearl Bailey, in total more than 300 artists, all of whom recorded for Decca Records before January 1, 1962 and now Toto have now launched a new action against Sony.

Amongst the claims made against EMI's Capitol Records by Kenny Rogers in his 2012 lawsuit was that the label diverted substantial sums of his royalty income to a ‘suspense’ account, that he received no royalties on records sold through record clubs, that 100% of the costs of promotional videos were allocated against Roger’s videos (rather than the 50% agreed), that $50,000 was deducted as unexplained ‘expenses’, that whilst he suffered international tax deductions he never received the benefit of tax credits Capitol received on the same income, and that Rogers never received any share of performance royalties from his sound recordings (so called “PPL” income). Whilst public performance of sound recordings in the USA does not generate a royalty from terrestrial radio, satellite and internet radio does produce income and globally where radio plays do produce revenue, the income generated from Roger’s recordings must be enormous, Rogers also claims that the record label never accounted to him for one cent of the substantial damages won by the labels against services such as Kazaa, Napster. Audiogalaxy and Grokster.

Even the Beatles have had to take legal action to get paid, and in 1979 they also sued Capitol, charging breach of contract and fraud. The Beatles claimed they were not paid all the royalties due for records sold in the United States. The suit accused Capitol of a "pervasive practice of lining their own pockets at the expense of [the Beatles] through improper and fraudulent accounting practices" and subsequently, for withholding royalties on as many as nineteen million records. The case was dismissed, but the Beatles appealed, and the New York State Supreme Court upheld the appeal in 1988.

And it’s not just heritage acts: rapper Ras Kass (real name John Austin) filed a suit against Priority Records, Capitol Record and EMI Music claiming breach of contract, unfair competition, restraint of trade and other abuses, and Eminen's producers FBT Productions successfully won a case on appeal against Universal Music Group’s Aftermath Records, with FBT’s auditor saying the amount owed may run into millions of dollars (although one website suggested that UMG might charge their legal costs for their failed legal defence against FBT's account!).

The Future of Music Coalition estimates the majors may have to hand over $2 billion in extra royalties to heritage acts if they lose ongoing cases. The Dixie Chicks put it more simply in their claim against Sony– “systematic thievery”. If it were that, I doubt $2 billion would scratch the surface.

The results of FBT Productions’ audit in the ‘Eminen’ case can be found here http://www.hollywoodreporter.com/thr-esq/eminem-royalty-lawsuit-aftermath-records-fbt-productions-293881 and the case reference is F.B.T. Productions, LLC, et al. v. Aftermath Records, et al. 621 F.3d 958

And more on Kenny Roger’s claim against Capitol Records can be found here http://digitalmusicnews.com/permalink/2012/120219rogers and here http://digitalmusicnews.com/uploads/9e/10/9e10378440391c98359fa86752250637/kennyrogersvcapitolrecords.pdf: Kenneth Ray Rogers P/K.A Kenny Rogers v Capitol Records LLC f/k/a Capitol Records, Inc., a division of EMI Music North America LLC Case 3:12-cv-00180 filed on the 13th February 2012, US District Court Middle district of Tennessee, Nashville

And more on the claim brought by the Allman Brothers, Cheap Trick and others against Sony, including the very interesting comparison of royalty rates calculated by Sony and recalculated by the artistes here http://www.caplanross.com/sony_bmg_music.pdf?renderforprint=1 : Gregg Allman et all v Sony BMG Music Entertainment (2006) Case Civ No 1:06-cv-03252-GBD , US District Court Southern District of New York

And see Clover, C (2003) Accounting Accountability: Should Record Labels Have a Fiduciary Duty to Report Accurate Royalties to Recording Artists: Loyola Marymount University and Loyola Law School. Los Angeles).