After signing Eminem in 1995, FBT Productions transferred his recording services to Aftermath (a Universal record label). Under their agreement, Aftermath pays FBT a 12–20% royalty on ‘records sold’ and 50% for ‘masters licensed … to others for their manufacture and sale of records or for any other uses’. A few years later Aftermath concluded a deal with iTunes and began paying FBT the Records Sold royalty on iTunes sales. FBT sued, moving for summary judgment that the Master Licensed provision should apply. The district court refused summary judgment, saying the agreement was ambiguous. A jury then decided that the lower royalty should apply – Aftermath was awarded more than $2.4 million. On appeal, the Ninth Circuit has held that the district court was wrong not to give summary judgment: the agreement was unambiguous and the higher royalty should apply.Although the Ninth Circuit must be technically right to say that Aftermath had given iTunes a copyright licence, it would also have been true to say Aftermath gives its factory a copyright licence to print CDs and its CD distributors a copyright licence to sell records. That would not have resulted in the licensing royalty being applied. Copyright licences, after all, underly many distribution agreements. What arguably swings it here is that a digital file sent to iTunes fulfils the definition of a ‘master’ in a way that physical CD stock wouldn’t. However, the commercial role played by iTunes in this supply chain does seem much closer to distributor than licensee.
Totally unambiguous?
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The word 'ambiguous' turns up in another US case in a similar context - here a claim by reggae artist Bob Marley's family to regain control of Marley's sound recording copyrights from Universal (successors in title to Island Records) and a second claim that they were being underpaid digital royalties. The copyright claim failed, with District Judge Denise Cote holding that the recordings were made as 'works for hire' and UMG were the statutory owner and author of such. But she left the matter of the royalties [ubnder]paid open. Although denying the plaintiffs summary judgment, Judge Cote accepted that "Thus, it is ambiguous whether royalties for digital downloads are governed by Paragraph 2(c) of the 1992 Royalties Agreement or by Paragraph 11 of the Royalty Schedule" - on as the licebcfe of masters - one as th e sale of records - in an echo of the 'Eminen' case.
I also noted that Random House have agreed unilaterally agreed a higher digital royalty rate with its authors for sales as e-books (albeit it the face of a dispute with some of its writers). See the Guardian, Monday 13th September, Media Section, page 1.
http://www.scribd.com/doc/37357484/Bob-Marley-Fifty-Six-Hope-Road-Music-v-UMG-Recordings-S-D-N-Y-Sept-10-2010
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