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.

Toto's Royalty Suit Against Sony Limited By Magistrate

Toto, Inc. v. Sony Music Entertainment, No. 12-cv-1434-LAK-AJP (SDNY report and recommendation Dec. 11, 2012).

Plaintiff Toto brought the action against Sony Music based on a dispute over the amount of royalties owed under the parties' recording contract.  Sony moved to dismiss, and the motion was granted in part and denied in part. The primary issue in the case ise the royalty rate for music distributed through download and mastertone providers (e.g., iTunes, eMusic, Amazon.com and Verizon Wireless).

The magistrate judge found that Toto's first claim based on royalty accountings for the audit period should be dismissed as contractually time barred.  The parties agreement had a 3 year limitation period (i.e., claims had to be brought within 3 years from the royalty report).  Toto's argument that August 2010 and December 2011 documentation restarted the time limitation was unavailing.  However, the magistrate judge found that the portion of Toto's first claim based on royalty accountings for the post-audit period should not be dismissed with respect to the digital download issue.  In other words, Toto stated a claim for breach of the recording contract for the period within the contractually agreed to 3 year limitation period.

The magistrate judge also found that Toto failed to plead the elements of equitable estoppel.  The Court held that purposefully delaying an audit was not a ground for invoking equitable estoppel.  Also, participation in settlement negotiations was not a ground for invoking equitable estoppel.

The magistrate judge also found that Toto's claim for breach of the implied covenant of good faith and fair dealing should be dismissed.  The claim did not state a distinct cause of action based on a separate set of facts and was not independent of the breach of contract claim.  The good faith and fair dealing claim was duplicative of the breach of contract claim.