As part of Eminems recording arrangements a contract was entered into between Aftermath (a record label) and FBT Productions. That agreement stated that Aftermath would pay FBT a 12-20% royalty on “records sold” and 50% for “masters licensed …. to others for their manufacture and sale of records or for any other uses”. Aftermath then did a deal with iTunes but only paid FBT at the lower rate on the basis of “records sold”. FBT sued seeking an order that the arrangement with iTunes was a master licence for “other uses”. At first hearing the court decided that the lower royalty level was due saying the agreement was “ambiguous”. On appeal the court has said that the agreement was “unambiguous” and the higher royalty should apply. The sums involved could be substantial.
The question is “Is that the right interpretation?” On the face of it an iTunes download is not a “record sold” and Aftermath would have had to licence iTunes a “master” to reproduce the original song(s). But they would have also had to supply a “master” and licence their CD manufacturer to create the CD’s. Is the role played by iTunes any different from that played by the CD manufacturer in these circumstances?
The underlying issue is that many manufacturing and distribution agreements do not take full account of the ownership and licensing of intellectual property, (whether that be in songs or widgets) nor do many of them address the issue of technical developments and future technology. I am sure that Eminem can afford very high quality legal advice but that has not helped his production company here as they have ended up embroiled in lengthy and costly litigation on the back of a poorly worded agreement. It may seem tedious and costly to settle a legal document before any monies have been paid in royalties but the risk of losing your potential income from an invention, design or song copyright is worth the effort.