This article is featured in Billboard and is reprinted with permission. Rick James Estate's Class-Action Suit Against Universal: An Entertainment Attorney Weighs In
The Rick James estate filed a class action lawsuit against Universal Music Group and it's raising expectations that more artists may enter the license-vs.-sale battle over digital downloads.
But the clock could be ticking for heritage artists interested in pursuing action against their former record labels.
In its suit against UMG, the James estate is seeking damages for what it alleges are unpaid royalties for the sale of music through digital downloads and ringtones. The filing came just days after the U.S. Supreme Court declined to review an appellate court decision granting F.B.T. Productions a greater share of royalties from UMG's sale of Eminem's music through digital downloads and ringtones.
The Allman Brothers Band recently settled a proposed class action case against Sony Music Entertainment on the same issue: Is a digital download a license or a sale? In accordance with the Eminem decision in the Ninth Circuit Court of Appeals, a digital download is a license, and an artist is typically entitled to 50% of what the record label was paid for the license, versus a lesser percentage that would be due for the sale of a record.
With record labels using standard agreements from the mid-'60s to the mid-2000s, the James estate is banking on having its case certified as a class action and bringing aboard thousands of plaintiffs who had record or production deals with UMG or affiliated record labels from Jan. 1, 1965, to April 30, 2004.
What the James estate may not be counting on is another fairly standard provision in these recording contracts: the "incontestability provision." Most artist contracts signed during the proposed class window include language such as this: "All royalty statements rendered by the label to the artist shall be binding upon the artist and not subject to any objection by the artist for any reason unless specific objection in writing, stating the basis thereof, is given to the label within one year from the date the statement is rendered."
A similar incontestability provision was included in the 1985 Allman Brothers recording agreement (originally signed with PolyGram Records) that's part of the band's current litigation against UMG pending in federal district court in New York. The court held in 2008 that the clause was valid and enforceable and denied the challenge to certain royalty statements because there wasn't a timely objection to the statements in accordance with the contract.
Whether there is a one-, two-, three- or even a four-year window of time to object to a royalty statement, heritage artists who intend to challenge the royalty rate they've been paid for digital downloads may be barred from collecting years of unpaid revenue unless they act immediately.
Joining the James estate's class action may sound appealing, but waiting for the case to be certified as a class action might be too late for some heritage acts. Even though there are common questions of law and fact among the proposed class members, the court may deny a class certification. Keep in mind that the Allmans' case against Sony settled almost five years after being filed, but before the class was ever certified.
Heritage artists should review closely their agreements to determine if they have to take any additional action to preserve their rights. Launching a full-blown audit may not be financially viable for many heritage artists, but at a minimum they should immediately begin objecting in writing to the royalty rate paid for digital downloads. For those who have the financial resources, artists should comply with the contract objection provision, send notice of an audit and perhaps even send a tolling agreement to the label to freeze the contract-imposed limitations period. The Allman Brothers tried the tolling provision route first with UMG, but the major refused to freeze the limitations period, prompting the band to file suit.
Although UMG has repeatedly discounted the Eminem decision as only applying to the particular facts of that case, it's anticipated that the Ninth Circuit decision will spur many heritage artists to start the litigation process to preserve their rights. Tactically speaking, individual suits may be more effective than a class action because the labels' efforts will be divided in defending the suits. Artists might want to investigate filing suit in the Northern District of California, where the James estate filed its case.
If the rules of civil procedure are met, the court may consider a "joinder" of cases in lieu of a class action, potentially giving named plaintiffs more control over the terms of a settlement than under a class action. In the event of a joinder, only plaintiffs named in the lawsuit may recover damages.
Either way, time is of the essence. Heritage artists interested in pursuing a higher royalty rate on digital downloads should act quickly as windows of opportunity are closing each year.
Tamera H. Bennett is an entertainment and intellectual property attorney based in Lewisville, Texas.