The label had calculated the royalties for digital downloads in the same fashion it does on sales of CDs. The producers, however, claimed that the proper treatment for calculating royalties for digital downloads was to treat them as licensed music. Typically, artist receive royalties between 10% and 20% on CD sales, but royalties on music licensed for other uses, such in a television commercial, are much higher, generally 50%.
The San Francisco-based Ninth Circuit federal appeals court in 2010 reversed a jury verdict in favor of the defendant record label. The appellate court ordered the label to pay royalties on downloads and ringtones using the rate for music licensing, not album or CD sales. For over a year since then, the parties have been litigating the proper amount of damages the producers had suffered. The recent announcement a settlement had been reached drew intense interest from the industry, but thus far neither side has divulged the settlement terms.
The F.B. T. lawsuit decision helped launch many lawsuits by various artists over the past two years. For example, James Taylor sued Warner Bros., his former label, claiming it had underpaid his royalties for digital downloads by at least $2 million. Other artists filing similar lawsuits include Motowns stylish Temptations, British rockers The Knack, classic rocker Peter Frampton, country crooner Kenny Rogers, parodist Weird Al Yankovic, and shock rocker Rob Zombie. The estate of funkster Rick James also went to court seeking underpaid digital royalties.
Like Eminems producers, even though they signed contracts well before the appearance of digital music downloads, they want them treated as a licensed copy of a master recording, not like the sale of a physical product like an LP or CD. Earlier this year, Sony paid $8 million to artists who had brought a class-action on the same theory.
The Universal Music Group had maintained the courts decision against it did not amount to legal precedent. Nevertheless, lawyers representing artists with digital download claims view the new settlement as likely open the door to further settlements bringing back payments at higher rates.
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