Source: https://mcphersonrane.com/articles/f-b-t-v-aftermath-eminem-raps-the-record-industry/
Timestamp: 2019-04-21 20:47:02+00:00

Document:
In typical modern recording agreements, an artist receives anywhere from 15 to 20 percent of the “Published Price to Dealers” (“PPD”) for physical recordings (primarily compact discs) that are sold through “normal retail channels.”1 Previously, artist royalties were based on the “Suggested Retail List Price” (“SRLP”), with many deductions. However, with respect to music that is “licensed” to third parties, the artist typically has always received 50 percent of the net income that the label receives for that licensed music. There has been very little variance of these principles from recording agreement to recording agreement, or even from record label to record label.
For many years, these provisions remained virtually unchanged and unchallenged, and the labels paid the artists accordingly (though typically insufficiently). Since the advent of downloadable music, however, these provisions have been illuminated and have given music lawyers everywhere fodder for intense discussion. The main issue has been how to treat digital downloads; essentially, are they recordings sold through “normal retail channels” or are they licenses? The difference could be in excess of $2.00 per album. Quite obviously, for an A-list artist, the difference could be worth millions of dollars.
During the litigation, all parties agreed that, traditionally, the only transactions that had triggered the Masters Licensed provision were with third parties that were using Eminem master recordings in those third parties’ products; in other words, Eminem masters that were used in a third party’s soundtrack or on a compilation album that included other artists’ master recordings.19 However, F.B.T. insisted that the provision was not limited to these pre-download uses.
The court noted that the parties’ use of the word “notwithstanding” after the Records Sold provision “plainly indicates that even if a transaction arguably falls within the scope of the Records Sold provision, F.B.T. is to receive a 50 percent royalty if Aftermath licenses an Eminem master to a third party for ‘any’ use.” The court then stated that, although the Masters Licensed provision is broad (because it applies to masters that are licensed to third parties for the manufacture of records “or for any other uses”), its breadth does not make it unclear or ambiguous.
The next step for the court in determining whether the Masters Licensed provision applied was to determine whether Aftermath licensed Eminem masters to third parties. Aftermath argued that the word “licensed” was never used “in a technical sense,” and that, therefore, the ordinary sense of the word must control, which, according to Webster’s, is simply “permission to act.” The court ruled that, because Aftermath entered into agreements that permitted iTunes and others to “use its sound recordings to produce and sell permanent downloads and mastertones,” the agreements therefore qualified as licenses.
Aftermath has filed a Petition for Certiorari with the U.S. Supreme Court. It is difficult to predict whether the Supreme Court will grant the petition. Aftermath will have to argue that the case is of first impression and that the decision will affect other parties. At the same time, it (and other labels) will necessarily argue that this decision only applies to this particular case and these particular recording agreements.
However, this decision does not simply apply to these parties and to these agreements because many agreements by many artists with many labels have very similar if not identical language. The decision potentially applies to just about every label and just about every artist who has not let the statute of limitations run or who does not have an incontestability issue (unless, of course, he or she has already negotiated a side deal with his or her label for how to treat permanent downloads). Although this decision will not affect every artist, it is certainly much more far-reaching than just Eminem.
1. Interview with Peter Paterno, Partner, King, Holmes, Paterno & Berliner.
2. 621 F.3d 958 (9th Cir. 2010). The full name of the case is F.B.T. Productions, LLC; Em2M, LLC v. Aftermath Records, dba Aftermath Entertainment; Interscope Records; UMG Recording, Inc.; Ary, Inc. Aftermath Records is a joint venture co-owned by UMG Recordings, Inc., Interscope Records, and ARY, Inc. (which is owned by Andre Young p/k/a Dr. Dre). UMG is an indirect subsidiary of Vivendi S.A., which is a publicly traded corporation. Interscope Records is an unincorporated division of UMG. Em2M, LLC is a limited liability corporation owned by Joel Martin.
3. Answering Brief at 16, F.B.T. Prods. v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010) (Nos. 09-55817, 09-56069).
4. Opening Brief at 8, F.B.T. Prods. v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010) (Nos. 09-55817, 09-56069).
5. Answering Brief, supra note 3, at 16.
6. Opening Brief, supra note 4, at 10. According to F.B.T., the form agreement used had only “very slight (and not pertinent) modifications from standard recording agreements used throughout the industry,” and the distinction between Records Sold and Masters Licensed, along with the absence of any provision expressly dealing with digital downloads, were “common to recording agreements at the time.” Id. at 11, n.5.
7. Answering Brief, supra note 3, at 18.
8. F.B.T. Prods. v. Aftermath Records, 621 F.3d 958, 961 (9th Cir. 2010).
9. Answering Brief, supra note 3, at 17.
10. F.B.T. Prods., 621 F.3d at 961–62.
11. Answering Brief, supra note 3, at 17.
12. Opening Brief, supra note 4, at 11.
13. F.B.T. Prods., 621 F.3d at 962.
14. Opening Brief, supra note 4, at 15.
15. Answering Brief, supra note 3, at 18.
16. Opening Brief, supra note 4, at 11.
17. F.B.T. Prods., 621 F.3d at 962.
19. Answering Brief, supra note 3, at 4.
20. F.B.T. Prods., 621 F.3d at 962.
22. Opening Brief, supra note 4, at 18.
24. F.B.T. Prods., 621 F.3d at 962.
25. Opening Brief, supra note 4.
26. F.B.T. Prods., 621 F.3d at 962. Aftermath’s primary focus on appeal was a procedural issue, which was ultimately rejected by the court. Aftermath argued that, because F.B.T. did not, as Aftermath did, make a motion for judgment as a matter of law (“JMOL”) at the conclusion of the evidence, F.B.T. could not then argue that the jury’s verdict should be disregarded and all evidence reviewed de novo. F.B.T. argued, and the court was persuaded, that because the issue was a pure legal one, and never should have gone to the jury, the court could review the case de novo. In fact, F.B.T.’s appellate counsel argued that F.B.T. was essentially appealing the denial of its summary judgment motion, which is always reviewed de novo. F.B.T. did file a Rule 59 motion for new trial, on the ground that the jury’s decision was against the weight of the evidence. However, that motion was denied by the district court, and, in order to overturn that decision, F.B.T. would have to have demonstrated that there is an “absolute absence of evidence” to support the jury’s verdict. Answering Brief, supra note 3, at 5 (citing Merrick v. Paul Revere Ins. Co., 500 F.3d 1007, 1013 (9th Cir. 2007)).
27. F.B.T. Prods., 621 F.3d at 963 (citing Cal. Civ. Code § 1638).
29. Id. at 965 (citing Wall Data v. Los Angeles County Sheriff’s Dep’t, 447 F.3d 769, 785 (9th Cir. 2006); MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); United States v. Wise, 550 F.2d 1180, 1190–91 (9th Cir. 1977); Hampton v. Paramount Pictures Corp., 279 F.2d 100, 103 (9th Cir. 1960)).

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