Eminem's Former Production Company Loses Lawsuit Over Digital Royalties

The former production company for Eminem recently lost a jury verdict in United States District Court for the Central District of California over claims that it was owed $1.47 million in additional royalties for the sale of the artist’s music via iTunes and ringtone purchases.

In F.B.T. Productions, LLC v. Aftermath Records, et al., (view the plaintiff's memo in support of motion for summary judgment) the issue concerned a pair of royalty provisions contained in a 1998 agreement between the two parties under which F.B.T. would furnish Eminem’s recordings to Aftermath, the record label founded by Dr. Dre. The first royalty provision promised F.B.T. between 12- 20% for “full-price records sold in the United States”, while the second provision required Aftermath to pay a royalty of 50% on proceeds emanating from “master recordings licensed to others for their manufacture and sale of records or for any other uses.” At issue was whether the first or second royalty provision was triggered by the sale of Eminem’s master recording rights to Apple iTunes and cellular telephone network carriers.

In the breach of contract suit, F.B.T. alleged that Aftermath had incorrectly relied upon the first royalty provision in determining the royalties due to F.B.T. for the use of Eminem’s master recordings for downloading purposes. F.B.T. claimed that Aftermath’s transfer of master recording rights to Apple iTunes and cellular carriers for downloading purposes clearly constituted a licensing agreement pursuant to the second royalty provision.

Conversely, Aftermath argued that the parties never intended for the term “license” to assume a strict copyright law definition; rather, they intended for the second royalty provision to apply to “ancillary uses” of the master recordings, such as the licensing of an Eminem song for use in a movie or for inclusion in a compilation album. According to the defendants, there is no difference between a digital album sale and a physical album under the royalty provisions.

Ultimately, the jury sided with the defendants in a case that could have opened the door for artists to claim increased royalties from the downloading of their recordings on iTunes or through cellular carriers. However, the jury did award F.B.T. $159,000 on a separate claim for misallocation of royalties by the defendants to F.B.T. and Eminem. Attorneys for F.B.T. say they will likely appeal on the breach of contract claim.

The verdict most significantly affects artists who are currently bound by royalty provisions drafted prior to the explosion in popularity of legal downloading earlier this decade. At a time when digital downloads account for 33 percent of all music purchases made in the U.S., these outdated agreements are preventing some artists from collecting royalties commensurate to their popularity among consumers.

- Brian Welch

(Photo by Andrew Medichini/Associated Press)