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Too much ambiguity in Sony’s streaming deals for summary judgement on 19’s sales v licence litigation, says judge

By | Published on Friday 30 September 2016

Sony Music

The long running sales v licence debate will continue in the US after a judge this week refused (in the main) to provide a summary judgement in either side’s favour in the ongoing dispute between 19 Entertainment and Sony Music.

As previously reported, 19, which reps various ‘American Idol’ winners whose music was subsequently distributed by Sony, sued the major with various gripes about the way it was paying and reporting royalties. One of those gripes was the way Sony pays royalties on digital income, and how pre-streaming contracts are interpreted when it comes to sharing monies paid over by Spotify et al.

The way digital royalties are paid on pre-digital record contracts has been a long-running bugbear of the artist community that originally went legal as iTunes revenues started to boom ten years ago. Record contracts often pay different royalties to artists on different revenue streams, a common distinction being between sales income and licensing income, the latter often getting artists a 50% royalty, while on the former the label will pay out much less, often 15% on later pre-digital contracts, and even less on older deals.

Most labels treated downloads as sales, even though the record industry’s contracts with the download stores were clearly licensing deals. Some labels argued that downloads were simply a digital replacement of physical discs, and should be treated as such in royalty terms, whatever the semantics of legacy deals may be. Others insisted that their arrangements with the likes of iTunes were distribution deals, or some other agreement that didn’t use the word ‘licence’. But, generally unconvinced by all that, a plethora of heritage artists – mainly in the US – sued for a licence royalty to be paid on downloads.

The landmark case in this domain was between Universal Music and early Eminem collaborators FBT Productions, in which the latter basically won the argument. A number of class actions against the majors followed, though these were in the main settled, with most artists accepting just nominal increases in the royalties they received on downloads, a long way off the 50% that would be paid on a true licence.

The fact that so many heritage acts seemingly accepted those slight increases arguably demonstrates a common problem for the wider artist community, which is that big rights owners will always be better equipped and better resourced to fight long and tedious legal battles, making lacklustre but quick-win settlements attractive on the artist side. Meanwhile, the assumption is that big name artists with the resources to go to court are usually offered more preferential deals behind closed doors that are then NDA-ed to the sky.

But that was downloads, what about streams? Isn’t the argument that streams should be treated as a licence rather than a sale even stronger? Well, that’s what 19 reckons, hence it included the sales v licence debate in its wider dispute with Sony Music.

This litigation has been working its way through the courts for a couple of years now. The judge overseeing the case said that 19’s argument that the higher royalty should be paid on streams depended entirely on the wording of those secret agreements struck between Sony and the various streaming companies. To that end Sony was told to share those agreements with 19’s lawyers.

At first 19 argued that the paperwork provided by the major was so heavily redacted, the matter couldn’t be resolved. But after getting a second round of documents, 19 returned to court with refined arguments as to why a higher royalty should be paid on streams, while Sony again argued that streams are clearly a sale. Both sides then wanted a summary judgement in its favour based on those arguments.

Judge Ronnie Abrams denied those requests, in the main, in a ruling this week, concluding that most of Sony’s streaming deals were sufficiently ambiguous in their wording that this dispute requires more court time. Which could, in theory, result in the specifics of 19’s deals with Sony and, more importantly, Sony’s deals with various streaming services being analysed in public at trial.

In this specific case the exact terminology under the spotlight isn’t sales v licence. The question is whether or not Sony’s streaming deals are about the sale or distribution of music – which would result in the artist getting the lower royalty – or the transmission or broadcast of music – which would result in the higher royalty.

The ambiguities often come from the fact that both sets of terms are used in the streaming deals. Sony argues that its deals only need to be in part about the sale or distribution of music for the lower artist royalty to be paid. Though there is then a debate over whether the word ‘distribution’ has been used in streaming deals in a specific copyright sense, or in a more general sense, especially if it mainly appears in section headers rather than specific contract terms. Basically, it’s all a bit complicated, hence Abrams’ reluctance to reach a summary judgement based on the submissions made by both parties to date.

There is seemingly less ambiguity in a small number of the stack of streaming contracts that have been reviewed by 19 and the judge, resulting in a few summary judgements being granted, some in Sony’s favour and some to the advantage of 19. The latter includes one of Sony’s deals with Apple, though it’s unclear what that relates to – it could be the old iTunes Radio service rather than Apple Music.

Either way, it will be interesting to see how the core elements of this case now proceed. Whether or not any precedent can be set here that could apply to other artists will depend on whether there are any peculiarities in the wording of the deals between Sony and 19. Though if the dispute ever properly gets to court, just as interesting would be whether or not we would learn anything about the labels’ streaming deals, so much of which has been hidden from the artists who are key beneficiaries of the agreements.