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Four Tet and Domino in court over sales v licence digital royalties dispute

By | Published on Monday 9 August 2021

Domino Records

With the debate around how digital income is split between artists and labels a key part of the recent report on the ‘economics of streaming’ from the UK Parliament’s culture select committee, it’s emerged that there is an ongoing legal dispute on that very topic currently working its way through the English courts involving Domino Records and Four Tet, real name Kieran Hebden .

There are actually three elements to this particular streaming debate – in that the specific issues are different for artists on new record deals, artists on old record deals, and session musicians.

The dispute between Domino and Four Tet relates to a 2001 record contract, which puts it in the middle category where the big question is this: how do you interpret a record contact that doesn’t mention streaming when it comes to sharing out streaming income?

This is a tricky question because record contacts traditionally pay artists different royalty rates on different revenue streams. A common distinction used to be made between sales income and licensing income, with a lower royalty on the former and a higher royalty on the latter.

There were a flurry of lawsuits on this issue in the 2000s – mainly involving major labels in the US – when the iTunes Store first started to boom. They related to contracts that didn’t mention any kind of digital income, but which did make the distinction between sales and licence.

Most labels were paying artists the same royalty on a download that they did on a CD, ie treating a download as a sale. But many artists argued that the deals negotiated between the labels and Apple were licensing deals, so the higher licensing royalty rate should be paid.

Many of those lawsuits were settled out of court with some artists doing secret deals that got them a much better payout on digital. Though some became class actions, resulting in public domain settlements. The latter arrangements did see labels commit to pay artists a slightly better royalty rate on digital compared to CDs, but certainly not a licensing rate, which would often be 50%.

Most of those lawsuits focused specifically on downloads, though some of the later ones also talked about streaming, where many artists – and their managers and lawyers – would say that there is an even stronger case for arguing that a licensing rather than sales royalty should be paid.

Four Tet’s lawsuit deals with both downloads and streams, citing both specific terms from in his 2001 record contract with Domino and the label’s then Standard Royalty Provisions.

He basically argues that terms covering licensing income in the contact and those provisions – both of which provided him with a 50% royalty – should have been applied to at least some and probably most of the digital revenue that has come from the albums he released with the label. Instead Domino has applied the sales royalty of 18% on both downloads and streams.

The licensing terms Four Tet hones in on relate to both international and ‘flat fee’ exploitation of his music. The record deal says that – with monies received from “our licensees outside the UK” – the label will pay Four Tet a 50% royalty. And if the label should “licence any recording hereunder for use on a flat fee basis – ie any basis other than one of a royalty per record based on the price of the recording – then [the] company shall account to [the] artist for 50% of the net proceeds received by it”.

These two terms combined, Four Tet argues, mean that a 50% rate should have been applied to most of his digital income – downloads and streams – rather than 18%. Or, alternatively, if it was to be decided that the contract didn’t actually set out any provision at all for the payment of royalties on digital, especially streams, then the label should have instead paid Four Tet a “reasonable market rate”.

And, the lawsuit adds, because labels have lower costs in the digital domain compared to when they were releasing physical products, “the royalty rate payable by labels to musical artists on streaming or download revenue is typically significantly higher than the rate payable on physical formats. Typical royalty rates payable by labels (comparable to Domino) to artists on streaming or download revenue are around 50% (or higher) of the label’s net receipts”.

Needless to say, Domino does not concur. In its response, it argues that the contract term regarding international income was meant to apply if the label allowed another record company to release a Four Tet album in another market under licence, because its own “international divisions were not fully established at the time of the 2001 agreement”. And that term should be interpreted in that specific way, rather than covering any licensing deal with a digital music service that is not based in the UK.

Meanwhile, it goes on, the 2001 Standard Royalty Provisions did cover downloads, which it said would be treated as a sale. The Four Tet side does acknowledge that fact, however argues that term only applies in the UK, because of the separate international income term.

But the label insists that is not so, while also adding that the principle set out in the Standard Royalty Provisions for downloads should also apply to streams. Because “a stream to a consumer involves the download by the consumer of data packets”, it’s just that “streaming differs from some other forms of downloading in that the record acquired by the consumer is not permanent but transient”.

As for the other argument about “reasonable market rates” – if the court were to conclude that the 2001 agreement doesn’t actually cover streams at all – Domino counters that “royalty rates agreed between record labels and artists for different forms of distribution are negotiated on a case-by-case basis and are influenced by a range of factors”.

“There is, and was in 2001, no ‘typical’ royalty rate for streaming or download revenue”, it goes on, “and the royalty rate for streaming or download revenue in any particular agreement may not exceed the rate for other forms of distribution notwithstanding that these may involve lower costs of product manufacture and distribution”.

So there you go, a very timely sales v licence legal battle, this time in the UK courts. These disputes are always interesting, not least because a ruling one way or the other might set a precedent that could then be applied to other similar record contracts of the same era. Although – if the litigation does go all the way through to a judgement in court – whichever side loses would almost certainly argue that the specifics of Four Tet’s 2001 contract limits the impact of any judgement on any other deals.

For a review of the big sales v licence lawsuits of the 2000s, check this Setlist special from 2018 here.