While digital piracy continues, major record labels seem to have gotten a handle on making money from digital copies of songs from their music catalogs thanks in large part to the legitimacy conferred on digital music
sales distribution by Apple’s iTunes store. Now the labels are finding themselves tripped up by long existing contracts with their artists. Iconic Motown recording artists The Temptations are the latest in a string of artists to end up in court over the terms of their royalty contracts following a 2010 decision in favor of rapper Eminem in a similar case. The issue revolves around whether music distributed through sites like iTunes are considered music sales (in the old model of buying a CD at your local Tower Records) or a license. Before the digital age, artist’s contracts with their label routinely provided the artist with a considerably smaller royalty on music sales revenue as compared to license revenue, ostensibly to compensate the label for the marginal cost of producing another physical disc or tape.
Eminem’s label, Universal Music Group, counted songs distributed by iTunes as traditional sales and gave the artist something likely in the neighborhood of a 15% royalty. Eminem argued that he was due the 50% royalty rate owed him on license revenue according to his contract. The 9th Circuit Court of Appeals agreed with the rapper, finding that UMG’s arrangements with digital retailers resembled a license more than it did a sale of a CD or tape because, among other reasons, the labels furnished the seller with a single master recording that it then duplicated for customers. Now, The Temptations are looking for the same result, going so far to seek class action status for all of Universal Music Group’s recording artists. If certified the class could include names like James Brown, Eric Clapton, Guns N’ Roses, Kiss, Nirvana, The Police and The Who.
The case is captioned and Williams et al. (d/b/a The Temptations) v. UMG Recordings, Inc. (3:2012-cv-01289) in the U.S. District Court for the Northern District of California. A related case on behalf of Otis (Damon) Harris is captioned Harris v. UMG Recordings, Inc. (3:2012-cv-01305).