Thursday, June 16, 2011
The Rick James Lawsuit
I have been following with interest the recently filed case Rick James v. UMG Recordings, Inc. in which attorneys for a trust established by the late James A. Johnson, Jr. have sued Universal Music Group over the same contractual royalty clause successfully litigated by the plaintiffs in F.B. T. Productions v.Aftermath Recordings, a case tacitly upheld by the United States Supreme Court.
The well-known clause found in numerous pre- digital recording agreements provides “ with respect to records sold by (Motown’s) licensees…Motown will pay…a royalty equal to fifty percent (50%) of Motown’s net receipts based on actual sales…” The plaintiff’s argument is that this clause applies to income from digital downloads and ringtones etc. Universal has blatantly argues that such sales are not third party licenses but are something called “resale agreements”. This defense ignores the plain language of these agreements and the 9th Circuit said as much. The labels simply did not anticipate that this type of income would exist when they drafted these contracts but they still need to honor their contractual commitments if they choose to exploit the source of the income.
The most interesting thing about the Rick James case is the plaintiff’s attempt to have the case certified as a class action lawsuit. The potential damages could be astronomical—just think of the potentially affected artists on Motown’s roster.
Of course the operative words are “could be”. The big question in my mind is how many artists and how many contracts does this apply to? How many successful recording artists from the pre-compact disc era are still operating under their original (non-renegotiated) contracts and if so, how many labels are still treating legitimate third party license income as something else entirely? I am not really sure how many artists this affects. However, the 9th Circuit case apparently had some effect on another class action case originally filed by the Allman Brothers against Sony/BMG. This case had been dismissed once before and apparently has been reinstated. Both of these cases and the cases that are sure to follow in the wake of the F.B. T. Productions case are significant and well worth watching.