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. 

Santa Clause Is Comin To Town Reverts To Author's Heirs In 2016

Baldwin v. EMI Feist Catalog, 14-182-cv (2d Cir. Oct. 8, 2015).

The Second Circuit held that EMI publishing owned rights to the song "Santa Clause Is Comin' To Town" under a 1981 grant, not a 1951 grant, and accordingly that a 2007 termination notice terminates EMI's interest in 2016, reversing the lower court's entry of summary judgment for EMI.  The case details the complex statutory scheme under the 1976 Copyright Act which gave authors and their statutory heirs the right to terminate previously made grants of copyright under certain circumstances, and thereby to recapture some of the value associated with the works.  17 USC 203 and 304(c)-(d).  Plaintiff sought a declaration that either a notice of termination served on the publisher in 2007 or another served in 2012, will, upon becoming effective, terminate EMI's rights to the song.  The Second Circuit concluded that EMI owned rights to the song not under a 1951 agreement but instead under a subsequent 1981 contract, and that that the 2007 termination notice will terminate the 1981 agreement in 2016.  Accordingly, plaintiff (the author's heirs) were entitled to a declaratory judgment.

The Court detailed the various rights of reversion under the Copyright Act, which permits the author of certain earlier works to terminate a grant of copyright (e.g., to a publisher, like EMI's predecessor).  It then found that a 1981 Agreement not only granted EMI the future interest scheduled to revert to the author upon termination, it also replaced an earlier 1951 agreement as to the source of EMI's existing rights to the song.  Applying New York common law, the Court held that the parties intended for the new contract to substitute for the old one.  "Section 1 of the contract shows that they chose not only to have EMI receive the future interest that vested in [the author] upon service of the termination notice, but also to replace the 1951 Agreement as the source of EMI's existing rights in the Song."  Thus, the failure to record a 1981 termination notice under the 1951 agreement was irrelevant to the question whether EMI presently owned the copyright in the Song under either agreement.  Its rights to the renewal term were traceable to the 1981 agreement.  Thus, that was all that matters for decided plaintiffs' termination notices pursuant to section 203.

The Court concluded that Plaintiff could terminate the 1981 agreement under section 203 (section 304 did not control), and that the 2007 termination notice terminated the 1981 agreement.  Publication is a one time event that occurred in the 1930s.  Because the 1981 grant was executed by the author and does not cover the right of publication, it was terminable under section 203 starting on December 15, 2016, which is the effective date of termination stated in the 2007 notice.

"Whomp! (There It Is)" $2 Million Jury Award Affirmed

In re: Isbell Records, Inc. (Isbell v. DM Records), No. 13-40878 (5th Cir. Dec. 18, 2014).

The Fifth Circuit affirmed a finding that plaintiff owned the copyright in the composition of the song "Whomp! (There It Is)", that defendant was liable for infringement based on its exploitation of the song for year, and the jury's award of over $2 million in damages.  The primary issue was whether a 50% interest in the song had originally been assigned to the plaintiff or the defendant's predecessor-in-interest (the other 50% remained with the writers/producers of the song).  The 5th Circuit held that California contract interpretation law applied, and that the lower court correctly found that the contract granted the 50% interest in the song to the plaintiff.

On appeal of defendant's trial motion under Fed. R. Civ. P. 50 for judgment as a matter of law, the defendant raised two issues regarding the district court's interpretation of the recording agreement as assigning a single 50% interest to plaintiff.  First, the Court rejected defendant's argument that the lower court erred in interpreting the agreement without asking the jury to make any findings on extrinsic evidence.  Second, the Court rejected defendant's argument that the agreement also assigned a second 50% interest in the composition copyright because the argument had not previously pursued that theory and had disclaimed the theory at an earlier hearing.  In short, the defendant could not raise its "two assignments theory" after not previously asserting it at trial or in its earlier Rule 50 motion.

On appeal of defendant's motion under Fed. R. Civ. P. 60(b) for relief from judgment based on fraud and lack of standing, the Court rejected defendant's argument that it was prevented from presenting the defense of plaintiff's lack of standing.  Even if the plaintiff had improperly withheld a certain document, it would not have affected plaintiff's standing and thus would not have affected defendant's defense.

With respect to the jury's damage award of over $2 million, the Court rejected defendant's argument that plaintiff should have only been awarded 1/2 of that amount as 50% owner of the copyright.  First, defendant did not object to the jury charge during trial.  And under the plain-error standard of review, the district court did not err.  Notably, the 5th Circuit found that Edward B. Marks Music Corp. v. Jerry Vogel Music Co., 140 F.2d 268 (2d Cir. 1944), was inapplicable to the issue of first impression whether a partial owner of a copyright can ever be awarded infringement damages for his co-owner's share.  Specifically, the jury could have found that plaintiff was entitled to 100% of the royalties in the first instance as administrator/publisher of the song.  In other words, because plaintiff was obligated to account to the other 50% owners (the producers/writers), plaintiff could recover 100% damages and any issue as to distributions would be a separate case between the co-owners not involving the defendant.

Lastly, in affirming denial of defendant's Fed. R. Civ. P. 59 motion for a new trial, the Court found that plaintiff's closing statement -- referring to defendant as a "thief -- was not abusive and improper.  Defendant did not object to the closing statement at trial and thus the standard of review was plain error.  Evidence was presented at trial form which the jury could find that defendant's conduct was willful and that defendant stole the copyrights from plaintiff.  Further, any prejudice was minimized by the judge's instructions and the statements concerned damages rather than liability.  Further, plaintiff ultimateley elected actual damages which were higher than statutory damages, and willfulness is not an element of actual damages calculation.

Publisher Not Double Dipping Foreign Royalties Under Terms Of 1961 Agreement With Duke Ellington

Ellington v. EMI Music et al., 2014 NY Slip Op 07197, NYLJ 1202674400667 (N.Y. Court of Appeals Oct. 23, 2014).

New York's highest court affirmed dismissal of a breach of contract claim brought by Duke Ellington's heir, against Ellington's publisher (EMI), seeking unpaid royalties under a 1961 agreement.  The majority of the Court of Appeals held that, under the contract's clear and unambiguous terms, Ellington was entitled to 50% "net receipts" from foreign publishers, even if those foreign publishers were now-affiliated with the US publisher.

Plaintiff had claimed that by using affiliated foreign subpublishers, EMI was double-dipping into the entire pot of revenue generated from the foreign sale of the relevant musical compositions.  Essentially, plaintiff claimed that the amount retained by the affiliated foreign subpublishers prior to remittal of the remainder to EMI was an amount received by EMI, and therefore, when using affiliated foreign subpublishers, EMI should remit to the First Parties half of the entire amount generated from the foreign sale of the relevant musical compositions.  The trial court disagreed and dismissed the complaint; the appellate division affirmed; and the Court of Appeals affirmed.

First, as to "net revenue actually received," the Court of Appeals found that the royalty provision makes no distinction between affiliated and unaffiliated foreign subpublishers.  Therefore,  the courts below properly declined to read such a distinction into the contract as it does not appear to have been the intent of the parties that such a distinction be included, primarily because they were understandably unaware that such a change in the industry would occur.

Second, as to "any other affiliate," the Court of Appeals found that "[a]bsent explicit language demonstrating the parties' intent to bind future affiliates of the contracting parties, the term 'affiliate' includes only those affiliates in existence at the time that the contract was executed."  In other words, the publisher was not double dipping because its later-foreign-affiliates were not "affiliates" of the publisher under the contract.

There were two dissents.  In sum, the dissents found it "wrong... that, when a contract is written to bind 'any . . . affiliate' of a party, its effect should be limited to affiliates in existence at the time of contracting."  In other words, the dissent would have held that the term "affiliate" as used in the Agreement may be interpreted as appellant suggests to include EMI's foreign affiliated entities.

Toto Loses Breach Of Contract Claim Against Label For Digital Download Royalties

Toto, Inc. v. Sony Music Entertainment, No. 1:12-cv-01434-RJS (S.D.N.Y. filed Oct. 8, 2014) [Doc. 117].

In this breach of contract action concerning royalties for digital downloads (and master and ringtones) payable by the record label to the 80's band "Toto", the Court granted the record label summary judgment finding that the proper royalty rate had been paid.  The Court applied New York law to interpret the relevant recording agreements, and found that one provision (the "Audiophile Provision" in 1986 and 2002 amendments) supplied the applicable royalty rate for the sale of downloads through digital retailers, regardless of whether the downloads were sold by the record company or unaffiliated third-party licensees.  The dispute turned on the meaning of the terms "Licensee" and "lease", which had different royalty rates.  Toto argued the term "lease" referred to a license to any party, regardless of whether that party is affiliated with the record company; the record company argued that the term "lease" referred to a special license whereby a third party incorporates the recordings into its own product, such as a compilation record.  The Court found that the inclusion of the record company's affiliates in the contractual definition of "licensee" did not limit the scope of that term; the definition included the term "without limitation".  Accordingly, digital retailers were licensees, and industry custom defined the term "lease" as a limited license to a third party to incorporate recording into their own unique product.  However, the Court found that the record company did not have a declaratory judgment claim because the dispute was "far more hypothetical than real."  The declaratory judgment dispute arose from Toto's threat to sue the label for breach of the implied covenant of good faith and fair dealing if the label ceased distributing Toto's records through certain retailers.

ASCAP Required To License ALL Songs In Its Repertory To Pandora

In re Petition of Pandora Media, Inc., No. 1:12-cv-08035-DLC (S.D.N.Y. Opinion & Order filed 09/17/13) [Doc. 70], related to U.S. v. ASCAP, No. 41 Civ. 1395.

ASCAP must license all songs in its repertory to Pandora, even though certain music publishers have purported to withdraw from ASCAP the right to license their compositions to “New Media” services such as Pandora, holds the ASCAP rate court in interpreting the consent decree under which ASCAP operates.  "Because the language of the consent decree unambiguously requires ASCAP to provide Pandora with a license to perform all of the works in its repertory, and because ASCAP retains the works of 'withdrawing' publishers in its repertory even if it purports to lack the right to license them to a subclass of New Media entities, Pandora’s motion for summary judgment is granted."

In April 2011, ASCAP began to allow members to withdraw from ASCAP its rights to license their music to New Media outlets, while allowing ASCAP to retain the right to license those works to other outlets.  Subsequently, several music publishers withdrew their New Media licensing rights from ASCAP, and Pandora then engaged in license negotiations directly with those publishers.  On July 1, 2013, Pandora filed a motion for summary judgment, seeking a determination that “ASCAP publisher ‘withdrawals’ [of New Media rights] during the term of Pandora’s consent decree license do not affect the scope of the ASCAP
repertory subject to that license."  ASCAP argued that “’ASCAP repertory’ refers only to the rights in musical works that ASCAP has been granted by its members as of a particular moment in time.” Pandora argued that ASCAP repertory” is a “defined term[] articulated in terms of ‘works’ or ‘compositions,’ as opposed to in terms of a gerrymandered parcel of ‘rights.’” The Court found that Pandora was correct.  “ASCAP repertory” is defined in the consent decree in terms of “works” and not “individual rights” in works with respect to classes of potential licensees.  The Court also held that Pandora's subsequent negotiations with the publishers did not alter interpretation of the consent decree because Pandora is not a party to the consent decree.

Dismissal of Duke Ellington Royalty Suit Affirmed

Ellington v. EMI Music, No. 651558/10, NYLJ 1202598616249 (1st Dep't May 2, 2013)

The First Department affirmed dismissal of Duke Ellington heirs' breach of contract action against a group of music publishers.  The dispute was based on a 1961 songwriter agreement, and called for an interpretation of paragraph 3(a) of the agreement which, where relevant, required payment to Ellington of "a sum equal to fifty (50 percent) percent of the net revenue actually received by the Second Party from…foreign publication" of Ellington's compositions.  This is known in the music publishing industry as a "net receipts" arrangement by which a composer, such as Ellington, would collect royalties based on income received by a publisher after the deduction of fees charged by foreign subpublishers.

Fees that previously had been charged by independent foreign subpublishers under the instant net receipts agreement were now being charged by subpublishers owned by Defendant.  Plaintiff asserted that Defendant had enabled itself to skim his claimed share of royalties from the Duke Ellington compositions by paying commissions to its affiliated foreign subpublishers before remitting the bargained-for royalty payments to Duke Ellington's heirs.  In dismissing the complaint, the motion court declined to read into the royalty payment terms any distinction between affiliated and unaffiliated foreign subpublishers inasmuch as the contracting parties themselves chose not to make such a distinction.  The First Department affirmed.

The Court found no ambiguity in the agreement which, by its terms, required EMI to pay Ellington's heirs 50 percent of the net revenue actually received from foreign publication of Ellington's compositions. "'Foreign publication' has one unmistakable meaning regardless of whether it is performed by independent or affiliated subpublishers. Given the plain meaning of the agreement's language, plaintiff's argument that foreign subpublishers were generally unaffiliated in 1961, when the agreement was executed, is immaterial."

Duke Ellington's Foreign Royalties Claim Dismissed Under Plain Language Of 1961 Contract

Ellington v. EMI Music Inc., 651558/2010, NYLJ 1202519466664 (printed Oct. 21, 2011), at *1 (Sup. Ct., N.Y. Co. decided Oct. 2011).

This is action for breach of a songwriter royalty agreement, fraud, and a declaratory judgment. Defendant EMI moved to dismiss the complaint.

Plaintiff Paul M. Ellington, the heir and grandson of the legendary jazz composer and performer Edward Kennedy "Duke" Ellington, sought to recover foreign music publication royalties allegedly owed to him by defendants pursuant to contract dated December 17, 1961 (the 1961 contract). Ellington also sought to commence a class action against defendants on behalf of a putative class consisting of all persons to whom defendants have failed to pay their full contractual share of foreign publication royalties.

Pursuant to the 1961 contract, the First Parties transferred to the Second Party the copyrights to numerous identified musical compositions written by Duke Ellington between 1927 and the contract date, in exchange for, inter alia, payments of cash and royalties, calculated as a percentage of various sources of income, including income generated from sales outside the United States. The 1961 contract superceded a series of similar agreements between Duke Ellington and Mills Music or certain of its affiliates.

There was no real dispute that the 1961 contract is a "net receipts" songwriter royalty agreement. A "net receipts" agreement, common in the music industry prior to the early 1980s, provides for the payment of royalties to the songwriter on a net receipts basis, or, payment based on the net income received by the United States publisher from foreign subpublishers, who retain a percentage of the foreign income as a fee in payment for their services in exploiting and administering publication of the songs outside the United States.

The Court held that the 1961 Contract was clear and unambiguous. ""The royalty payment provision terms demonstrate that the 1961 contract is a net receipts royalty agreement that requires Mills Music, now EMI Mills, to pay Duke Ellington, now Ellington, one half of the 'net revenue actually received by the Second Party' from the 'foreign publication' of the songs falling within the scope of the contract." The Court rejected plaintiff's argument that the 1961 contract was a "at source" agreement, i.e., an agreement for payment of royalties earned worldwide calculated on the amount of income earned in the foreign territories at their source, rather than on the portion of that income received by the United States publisher. In sum, the 1961 contract permited defendants to employ the very method of royalty calculation of which Ellington now complains. Motion to dismiss granted.

Royalties for "Sold" CDs

U.S. Philips Corp. v. EMI Music, Inc., __AD3d__; 883 NYS2d 584; 2009 NY Slip Op 06135; NYLJ, 08/10/09, p. 31, col. 2 (2nd Dep't 2009), affirming order which granted plaintiff's motion for summary judgment on the issue of liability with respect to claim seeking payment of royalties for compact discs that were sold but later returned by defendant's customers.

"Contrary to the defendants' contention, the Supreme Court properly found that the language of the parties' license agreement was clear and unambiguous as to the payment by the defendants of certain royalties for compact discs that were "sold," even if the compact discs were later returned by the defendants' customers. In this regard, the subject agreement provided that the defendants would be responsible for paying royalties to the plaintiff for compact discs 'made, used, sold or otherwise disposed of" by the defendants. The agreement further provided that a product "shall be considered sold when invoiced, or if not invoiced, when delivered to a party other than the manufacturer.'"

Cancelled Festival - Artist Damages?

News that this year’s Langerado Festival in Miami, Florida, was canceled due to "sluggish ticket sales" got OTCS thinking...when an artist agrees to perform at a festival, and the festival is thereafter cancelled, is the artist entitled to any damages? What are the terms of the performance agreement? Does it include a liquidated damages clause?

Last year OTCS contemplated that the over-saturation of festivals might lead to the inclusion of "exclusivity" clauses in festival agreements; in this year's economy, might an artist now demand a liquidated damages clause?

Suit Against Singer's Heirs Advances Over Royalties

Artists Rights Enforcement Corp. v. Haskins, No. 105227/04, 2008 NY Slip Op 33357(U), 1/2/09 N.Y.L.J. "Decision of Interest" (N.Y. Sup. Ct., N.Y. Co., Dec. 16, 2008)

Plaintiff corporation specializes in assisting artists, songwriters and music publishers with the recovery of royalties and other fees due from their artistic material and/or performances. Plaintiff now asserts causes of action for breach of contract, tortious interference with contractual relations and tortious interference with prospective economic advantage against the heir of John Kendricks, a singer and composer, whose work includes "The Twist." The action is based on a 1984 agreement between plaintiff and the singer/composer. For many years, until the mid-1980s, the singer/composer was not receiving royalties. In an effort to collect the royalties, he entered into a written letter agreement with plaintiff in 1984. It was undisputed that the singer/composer signed the 1984 agreement, under which plaintiff was entitled to receive 50% of all amounts realized as a "proximate result" of plaintiff's activities in recovering royalties due to the singer/composer. The court denied plaintiff's summary judgment motion.

Van Halen 1982 Tour Rider: the Infamous Brown M&M

Van Halen's Legendary M&M's Rider

Ramones & Digital Exploitation

Reinhardt (p/k/a Richie Ramone and Richie Beau) v. Wal-Mart stores, Inc. et al, No. 07 Civ. 8233, 2008 WL 1781232, (S.D.N.Y. April 18, 2008) (Scheindlin, J.).

Court interprets recording contract relating to exploitation "by any method now or hereafter known" -- license reaches digital media and distribution. [Patry].