Universal Music's Victory in Eminem Royalties Case Overturned On Appeal

Universal Music Group, a Vivendi unit, lost a federal appeals court ruling over royalties from Apple Inc. iTunes downloads and mobile-phone ringtones in a lawsuit brought by the Detroit producers who helped launch rapper Eminem’s career.

The ruling today by the U.S. Court of Appeals in San Francisco sends back to a lower court the 2009 verdict rejecting arguments by FBT Productions LLC that Eminem is entitled to half the net receipts the record company gets for the downloads, rather than his standard royalties from record sales.

Universal Music’s lawyers had argued to jurors that iTunes downloads were no different from retail sales of compact discs under the contract’s “records sold” royalties provisions. FBT Productions claimed that downloads fall under a “masters licensed” clause governing the label’s licensing of the recordings to third parties, for which the artist gets a 50 percent royalty.

FBT Productions asked the lower court for a pretrial ruling that the “masters licensed” provision clearly applied to downloads. According to the appeals court today, the lower court rejected the request while ruling in favor of Universal’s Aftermath Records unit.

“The agreements unambiguously provide that notwithstanding the records sold provision, Aftermath owed FBT a 50 percent royalty under the masters licensed provision,” the three-judge panel said in its ruling. “Because the agreements were unambiguous and were not reasonably susceptible to Aftermath’s interpretation, the district court erred in denying FBT” its pretrial ruling.

Rehearing Request

Peter Lofrumento, a Universal Music Group spokesman, said in an e-mailed statement that the company will ask the appeals court for a rehearing.

“In the meantime, it should be noted that this ruling sets no legal precedent as it only concerns the language of one specific recording agreement,” Lofrumento said.

Eminem, whose real name is Marshall B. Mathers III, wasn’t a party in the case.

FBT Productions, owned by brothers Jeff and Mark Bass, signed Eminem to an exclusive recording deal in 1995. In 1998, they made a deal with rapper Dr. Dre’s Aftermath Records, which released Eminem’s breakthrough album, “The Slim Shady LP.”

The case is FBT Productions v. Aftermath Records, 09-55817, 9th U.S. Circuit Court of Appeals (San Francisco). The lower court case is FBT Productions v. Aftermath Records, 07-3314, U.S. District Court, Central District of California (Los Angeles).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net.

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