Class-action suit could have wide-ranging impact for catalog artists

In the wake of a September decision mandating higher digital royalties on Eminem’s early recordings, a federal class action suit has been filed by Rick James’ estate against Universal Music Group.

The suit, filed Friday in U.S. District Court in the Northern District of California, seeks higher payouts for James and other heritage performers who may join the case, and could have a wide-ranging financial and legal impact.

The new action was prompted by a Sept. 3 decision by the Ninth Circuit Court of Appeals in Pasadena, which overturned a jury verdict in a case brought against UMG and others by two firms active in rap star Eminem’s early career.

The appeals panel ruled that digital downloads constituted licenses and not sales and were subject to a higher royalty rate for third-party licenses (Variety, Sept. 7). Last month, the U.S. Supreme Court declined to hear the case; a damages phase in the trial is now pending.

A March 27 story in the New York Times said that “some of the biggest beneficiaries of the case may be thousands of older artists who have not released an album in decades.”

While many artists renegotiated their contracts in the digital era, others whose deep catalog resides at the major labels have never had their agreements — some signed decades ago — revised. One such performer is James, the late Motown Records funk star who died in 2004.

James signed contracts with Motown, now part of UMG, in 1977 and 1979. Most of the music in the suit is governed by the ’79 agreement under which James was awarded a 50% royalty on net receipts for recording licenses. The suit claims that similar provisions can be found in Motown and UMG agreements until April 2004.

The suit alleges that in the case of James and others with similar contracts, “UMG takes unjustifiable deductions and applies an incorrect formula for calculating royalties,” with the plaintiff and others “receiving a fraction of the licensing income to which they are contractually entitled.”

Underpayment “may amount on a class-wide basis to tens of millions of dollars or more each year,” according to the filing.

UMG maintains the appellate decision in the Eminem case established no legal precedent.

A UMG spokesman responded to the class action with a statement: “The complaint filed by the estate of Rick James suffers from many infirmities, not the least of which is that the claims asserted are not appropriate for class treatment. We intend to vigorously defend against it.”

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