Universal Music Settles Key Fight Over Eminem Royalties… With Secret Agreement

from the of-course dept

For years, we’ve been covering a key legal fight in the music business, involving Eminem’s producers, FBT, and Universal Music, over how much was owed on iTunes sales. The key issue: is an iTunes purchase a “sale” or a “license.” Older music contracts that predated the internet era tended to focus on sales, in which artists tend to get about 15% royalties. “Licenses,” on the other hand, tended to be for things like commercials or movies, but commanded around 50% royalties. But when you talk about iTunes songs, you can make somewhat compelling cases that it’s either a sale or a license, depending on which details you focus on. Universal Music, of course, insisted that it was just like a CD sale. FBT argued it was just like a license. There are a ton of other similar lawsuits ongoing, but after losing at the district court level, FBT won on appeal. That resulted in a somewhat insane and contentious fight over how much Universal would have to pay up, with a judge slamming Universal for hiding revenue with tricky funny money accounting, and even trying to expense the cost of this very lawsuit back against what they owed.

However, the damages phase of the case was set to go to trial in the spring, and it would have (1) revealed an awful lot about the blackbox of Universal Music’s accounting practices and (2) given a roadmap for the many other similar lawsuits against Universal Music (and the other major labels). Given that, it should come as no surprise that Universal Music scrambled to come up with a way to get FBT to settle… with the terms of the settlement being secret. This almost certainly means that UMG paid through the nose, with the hope that it makes it more difficult for other artists to get similar rewards, and while allowing Universal to keep its secrets secret… for now.

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Companies: fbt, universal music

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Comments on “Universal Music Settles Key Fight Over Eminem Royalties… With Secret Agreement”

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Karl (profile) says:

Re: Re:

Explain to me how it’s more of a license than a sale. Go ahead.

Mike focused on first sale rights, and that’s fine, but it’s also decisive given the business relationship between Apple and the labels.

Traditionally, a “sale” occurs when a vendor buys individual copies of a product for a one-time fee, then has the freedom to dispose of them however they like. A record store buys X number of copies of a CD, paying a wholesale rate on those copies. But once those copies are gone, the record store is sold out.

That’s not what’s happening with iTunes. Apple didn’t buy X number of MP3’s, and sell only those copies at retail. They don’t have a warehouse full of MP3’s sitting around somewhere.

What iTunes is doing is reproducing and distributing those MP3’s. Reproduction and distribution have always been covered by licenses, not sales. The copyright holder grants a license to some other entity to reproduce and/or distribute the works, almost always in exchange for royalty payments on the copies. This is true whether it’s a label licensing reproduction/distribution rights to iTunes, or an artist licensing reproduction/distribution rights to the label they sign with.

In fact, there is no reason at all to call it a sale rather than a license. The court in this case (and others) made the right call.

Richard (profile) says:

Re: Re:

Can you prove it’s the exact one you purchased and not a copy?


That is not the requirement – the requirement is that you delete all the other copies. (As in selling your s/w second hand – where they expect that you wil have an installation on your hard drive and a backup.

BTW, when a CD is purchased, the conditions that exist with regard to the IP contained on them are the same as when you buy a song from iTunes.

Actually no you are wrong again. Apple’s Ts & Cs contain the following:

“You agree that the iTunes Service and certain iTunes Products include security technology that limits your use of iTunes Products and that, whether or not iTunes Products are limited by security technology, you shall use iTunes Products in compliance with the applicable usage rules established by Apple and its licensors (?Usage Rules?), and that any other use of the iTunes Products may constitute a copyright infringement. “

There are several other relevant paragraphs – however the upshot is that iTunes purchases are governed by Apple’s rules – not simply by copyright law as with CDs. Sometimes the Apple rules are actually more generous than copyright law – in other places they are stricter. What is certain is that THEY ARE NOT THE SAME!

Anonymous Coward says:

Licence vs Sale

For all those claiming its a Sale and this is a ridiculous law suit, please keep this in mind:
Universal (and the other majors) say it’s a Sale when thay are paying Artists (giving them the 10%), but still say its a License when the idea of selling your iTunes collection (or part-there-of) comes up. So when the majors make two contradictory arguments in the hope of maximising their profit they deserve to get burnt in a case like this.

T (profile) says:

Ain't Nobody Got Time For That

Am I the only one who thinks that the music companies should have to pick: It’s either a SALE or a LICENSE, but can’t be both, depending on what side of it they are on.

Why should they be allowed to argue that it is “just” a sale (and subject to smaller royalty fees payable to the artist) and then sue someone for making a copy of a CD off of iTunes because it is really a “license”?


MIlton Freewater says:

Re: Licence vs Sale


When you purchase a CD you are still bound by certain terms; the same as those as when you purchase an MP3. Same terms.”

You’re not responding to what T said, so I don’t know what the “no” is about.

In any case, you are not bound by ANY terms simply because you purchase something. The seller is free to claim otherwise, of course, but the onus is on them to make that claim stick in court, and the odds are not in their favor.

The case against unauthorized uses of music and movies has nothing to do with terms.

That One Guy (profile) says:

Re: Licence vs Sale

Thank you for completely missing the point.

Let me make this simple: the only way a seller gets to dictate what you can and cannot do with what you just purchased is if said purchase is not a sale, but merely a licensing agreement between seller and buyer.

With a sale, the seller loses all control of the product as soon as the buyer receives it, and can, at most, declare that they are in no way responsible for any harm that might occur due to miss-use of their product

Now that we’ve gotten the terms listed, the problem here is that the *AA’s are trying to have it both ways. They are trying to treat a purchase of a CD or .mp3 as a sale when it comes to determining what percentage of the purchase price that the artist gets paid, but a license when it comes to being able to determine what the purchaser can and cannot do with the CD/mp3 they just paid for.

It. Can. Not. Be. Both.

This is not a difficult concept. If they want it treated as a sale, with the drastically smaller cut going to the artist, then they lose any control over the product as soon as it’s purchased.

If, on the other hand, they want it treated as a license, with the drastically larger cut going to the artist, then, and only then, do they get to have any say in what the customer can do with their purchase once it’s been paid for.

Mike Masnick (profile) says:


Ridiculous lawsuit. Explain to me how it’s more of a license than a sale. Go ahead. The same limitations that govern a sale covered the sale of these MP3s.

Not true. There is no resale right, for example.

This suit got settled because there’s no way the higher court was going to side with the moronic court that called it a license.

Nice try, but, no. The question of license or sale was already settled: a license. The case had moved onto the damages phase.

Also, this is hardly the only such case, and Sony Music already agreed to pay up to a bunch of its artists who made the same claims. If it was such a slamdunk the other way, why would that have happened?

The issue is a legitimate one. You can make a reasonable case in either direction, because a digital file purchase is partially like a CD sale and partially like a license — but not really like either. The real problem is that it doesn’t actually fit into either bucket. The courts then need to decide which is closer — and in this case it decided it’s closer to a license.

That makes a fair amount of sense. After all, part of the reason why the royalties are so low on a “sale” is because of all of the costs associated with physical: manufacturing, packaging, distribution, shipment, inventory, returns, breakage etc. None of that exists with digital. Like a license, digital is just really granting a third party to use the distribute the song in a certain manner. So I think that argument is valid, contrary to your insistence that it’s impossible.

The Infamous Joe (profile) says:

It's a trap!

This almost certainly means that UMG paid through the nose, with the hope that it makes it more difficult for other artists to get similar rewards, and while allowing Universal to keep its secrets secret… for now.

Can’t any other artist now sue UMG for the same thing, forcing UMG to make the same decision: Pay out big or let the world see their books? It seems like either way UMG loses.

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