Eminem’s New Millions, Courtesy of Three Judges
posted by Lawrence Cunningham
Looking today at words written in 1998, do you think you could tell what the author meant to say about a product not invented until 2003? Three top federal judges in California think they can and their nine superiors on the high court in Washington decided last week not to second-guess them.
As a result, Eminem, my favorite rapper, will be a few million richer in coming days. That’s due to the three judges ruling in his favor in a fight about what his record contract means.
For selling records the old-fashioned way, the 1998 contract clearly calls for the record label, a Vivendi unit, to pay the star up to 20% of receipts as royalties, but not more. It also clearly gives the artist 50% as royalties on licenses of his music.
At issue was what rate applies to i-Tunes and ringtones, which did not exist in 1998 but have proliferated since 2003. The judges said the 50% rate clearly applies. This is a big win for Eminem—and a potential windfall for many artists with pre-download era contracts. It is also quite a show of self-confidence by the judges.
Eminem’s contract talks about sales and licenses and the terms are widely used in the recording industry and in business. For many years after the label started selling downloads of Eminem songs via Apple and ringtones via cell companies, it paid Eminem using the lower sales rate. When he and his producer discovered that in a routine audit of the books in 2006, they cried foul, asserting that the 50-50 license rate applied. Facing resistance, Eminem’s people took to court.
The trial judge looked at the contract and could not be sure from reading it what it meant, concerning I-tunes and ringtones. So, following standard practice, the judge heard evidence from both sides about why their interpretation made sense. The judge thought it was still a close call, that either could be right, so held a jury trial to decide. After an elaborate trial, the jury saw it the label’s way, deciding downloads and ringtones are like all other record sales, not like licenses at all.
On appeal, however, the three-judge panel in California federal court read the contract and thought its meaning plain as day, and that the jury got that meaning wrong. The contract had two distinct provisions, one for sales and one for licenses. The concepts have clear meanings, in business, law and life, the panel said. So it threw out the jury verdict and the lower court’s decision, replacing it with its own judgment.
The court reasoned that, when the label transfers an Eminem recording to Apple under the I-tunes program, it transfers but a single master recording, which is exactly what licensing arrangements involve. The company does not create and sell an individual recording cut in vinyl, recorded on tape, or etched in a disc.
It was thus obvious to the three that the contract had a plain meaning, concerning I-tunes and ringtones. So there was no call for asking the parties to offer their own evidence about what the language means or to have a jury resolve the fight. And that’s the end of the case, since the U.S. Supreme Court last week exercised its discretion, which is unbridled, not to have another look.
Now Vivendi will transfer millions to Eminem, the difference between 20% and 50% of the take on downloads and ringtones. The case does not directly apply to other recording contracts, but it will influence the negotiating position of parties to them when fighting over royalties. Newer contracts won’t be affected at all, because since I-tunes and ringtones proliferated early last decade, all recording contracts are explicit about what royalty rate applies to them.
The three judges made a Herculean leap in their ruling, but maybe correctly. On one hand, it is hard to imagine that a 1998 contract, formed before a pivotal technology existed, can be said to have a plain meaning about it. There was nothing to be clear about at the time. On the other, the court read the contract as appreciating that technology changes, even in surprising ways, and somehow anticipated this development, and made clear provision for it.
It is a vexing, and recurring, problem for courts in many settings. Still, a nagging sense persists that millions of dollars are about to change hands just because of the confidence of three federal judges in California. Glad I’m a big fan of Eminem. Maybe the three judges are too.
Citation: F.B.T. Productions, LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010), cert. denied, — S.Ct. —-, 2011 WL 940896 (March 21, 2011)
March 29, 2011 at 10:59 pm
Posted in: Contract Law & Beyond
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