Digital Music Downloads: Sale or license?

Intellectual Property LawThis week artist Kenny Rogers sued Capitol Records, a subsidiary of EMI, for 50% of net royalties from digital downloads and ringtones of his copyright music. Rogers v. Capitol Records, LLC, 12-cv-00180 (M.D.T.N., filed February 12, 2012).

The gist of the Complaint is that the record label contracts that artists like Rogers have provide a 50% royalty fee on music copyright licenses and a 10-20% royalty fee on music sales. Rogers is arguing that digital music downloads (e.g., via iTunes) are more akin to licenses since they do not require packaging, shipping or other “cost of goods sold” investment from the record company.

The Hollywood Reporter notes that other artists have brought several lawsuits against their labels on substantially the same grounds:

Universal Music Group is facing a class action from artists including Chuck D, Rob Zombie, and Rick James. Warner Music is confronting the same in a recently-filed class action by Sister Sledge and other musicians. Sony Music is no stranger to this type of litigation either, facing off against the Allman Brothers and Cheap Trick over online revenues.

Last year artist Eminem won an identical suit against Universal Music Group, with the District and Circuit Courts both holding that digital downloads are copyright licenses (granting Eminem the 50% royalty). The US Supreme Court denied cert. for appeal, so the Circuits remain split on this huge money-making copyright issue.

It will be interesting to see how Tennessee, an historically artist-friendly jurisdiction, rules in the Rogers case. In the iTunes context, especially, where iTunes specifically encodes music files to prevent customers sharing amongst each other (in contrast with customers being able to share and re-sell CD copies of music), it is easy to see how digital downloads can be construed as limited licenses.


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