Beats, Dre & Iovine May Owe Royalties For More Than First Model Headphone; Question for Jury

Jibe Audio v. Beats Elec., No, B267633 (Cal. App. - 2nd Dist. Sep. 19, 2016).

A California appellate court holds that the headphone company Beats, Dr. Dre and Jimmy Iovine may owe the plaintiff royalties for more than the first headphone model, the Studio model, because the contract at issue (a settlement agreement) was ambiguous and disputes of material fact existed.  Accordingly, summary judgment in favor of the defendants was reversed so that a jury could decide the case.

The case was a question of contract interpretation under California law, and the Court considered extrinsic evidence outside of the 4 corners of the contract.  "The Beats parties and Brunner contend that the Royalty Agreement was only intended to cover one product: the Studio headphone. They argue that the agreement was not intended to cover sales of the entire line of Beats headphones. Lamar, on the other hand, argues that the Royalty Agreement requires Beats to pay a royalty on the sale of every headphone whose design embodies or is a minor or cosmetic modification to the original headphones design."

We find that the contract is ambiguous as to whether it contemplated royalties only for the Studio headphone model or for other headphones that embody the headphones design depicted in Schedule I to the Royalty Agreement. The extrinsic evidence thus must be admitted to assist in the second step of contract interpretation. The factual conflict in the evidence regarding the meaning of the contract must be resolved by a jury. 

Cars' Audio Technology May Require Royalty Payment

Alliance of Artists &Rec. Cos. v. Gen. Motors Co. et al., No. 14-1271 (D.D.C. Feb. 19, 2016).

Audio technology that has been installed in a number of car models since 2008 may require payment of royalties under the Audio Home Recording Act of 1992 (17 USC 1001 et seq.), holds the court in denying the defendant car manufacturer's motion to dismiss.  The Audio Home Recording Act of 1992 requires manufacturers, importers, and distributoers of "digital audio recording devices" to incorporate copying control technolgy into their devices and pay a set royalty amount for each device.  The statute has been referred to as a "compromise" and at the time of its adoption then-current technology was much different than it is today (DAT tapes were the issue then).  On defendants' Rule 12 motions to dismiss, the Court undertook an extensive and detailed analaysis of the statutory text and agreed with Defendants' asserting that a "digital audio recording device" must be capable of producing "digital audio copied recordings;" that these recordings are a type of "digital music recording;" and that the device's output must therefore comport with the definition of a digital music recording that is establisehd at 17 USC 1001(5).  However, the Court also concluded that the plaintiff's complaint sufficiently alleged facts that, if true, could plausible demonstrate that Defendants' devices are in violation of the statute.