Archive for January, 2012

The Eminem case - are iTunes downloads “sales” or “licenses”?

Perhaps we can shed some light on the discussion over the Eminem case.  [F.B.T. Productions v Aftermath Records 2011]

The fact is that the case, as with all Court cases, is decided on its facts, and the applicable law.

The law (in this case, US) states that giving someone permission to do something with your master recording, whilst retaining the rights within it, for periodic payments - based on use - is a “licence”.

That is precisely what Aftermath did (Eminem’s label), when it LICENSED use of its master recordings (yes, it owns them, not Eminem) to iTunes.  It did not, in any way “sell” the master recordings to iTunes.

In Eminem’s case, “licence” royalties were paid by Aftermath at 50% (whereas sales were paid at 12%).   Thus the iTunes royalty should have been paid to F.B.T at 50%.  That is what this case was about.

It has, however, subsequently been argued that iTunes does not  SELL permanent downloads to consumers, but rather that the downloads are SALES of “licenses”.  Certainly, that is New Media Law’s view.  Either way, that element is between iTunes and the individual consumer and in the Eminem case neither Eminem nor Aftermath were  a party to that license or sale.  Thus they have no involvement with it, so it was not examined in the case.

It should be noted, however, that there is no “periodic” payment made to iTunes (by the consumer) based on use (which the Court included as evidence of what differentiates a “licence” from a “sale” in Eminem) - rather, each download was permanent, for a one time payment.  What is certain, from this case, is that iTunes used its LICENCE from Aftermath to create a copy of the master recording for the download consumer each time, and paid a royalty to Aftermath based on each download, but that is all.

As yet, based on its restricted view, this case has not brought about the radical rethink of the entire music business payment structure for digital products that some people have expected it to, but seems at present to be a restricted  decision based on the specific language of one contract (between F.B.T and Aftermath).

Of course, some artists (notably those who signed contracts prior to 2003, when iTunes launched) will have similar language in their contracts as that found in Eminem, and will likely be entitled to a much higher digital royalty as a result, but others may not yet be so lucky…..

That said, it is our view that iTunes is licensing music (by “selling” licenses to use the tracks to consumers), so anyone that has signed a record deal [especially prior to 2003, when iTunes started] that does not specifically deal with digital “sales” should examine the specifics of their royalty clauses ASAP.

For further information, or to set up an appointment for a consultation on this area, please contact Ian Penman:

ian.penman@newmedialaw.biz

+44 20 7291 1670

Full text of the F.B.T v Aftermath decision can be viewed here: http://www.ca9.uscourts.gov/datastore/opinions/2010/09/03/09-55817.pdf

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