Eminem Lawsuit Could Change How Digital Revenues Get Shared With Artists

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Credit: Sean Loyless

Now that the U.S. Supreme Court has declined to take the case, it looks like an appeals court win for rapper Eminem is going to stand. The court in this case said that downloads, such as those from iTunes, are music “licenses,” not sales. That made a big difference to Eminem because his 1995 contract entitles him to a full 50% of license revenue, but only 12% to 20% of sales; and many other artists signed before the year 2000 are in the same boat, the NYT reports. It’s an interesting case in part because it shows that the fast-evolving law around digital downloads has caught the music industry asking for different treatment in different situations.

The legal distinction between whether digital content is a “sale” or a “license” is hard to understate. Last year, in Vernor v. Autodesk, the same appeals court that considered the Eminem case found that software sales weren’t really sales at all; they were actually a license.

The entertainment industry cheered that ruling. Digital content means that essentially everything is being turned into “software,” so the ruling makes it much more likely that copyright owners will be able to maintain control of digital content even after they sell it. That would allow them to prevent re-sale and impose other restrictions on how the content is used-restrictions that they would almost certainly not be allowed to impose on physical objects.

UMG likes the idea of “licensing” its music so much that it even tried to have a court rule that physical promo CD’s were being “licensed” rather than given away. (It lost that case in January.)

But any profound legal change is bound to have unintended consequences, and this scuffle over Eminem’s contract is surely a vivid example of one. While “licensing” may work great for record labels’ model in many circumstances, Eminem’s production company told the NYT it expects to collect as much as $50 million in additional royalties over the next decade because of this case.

When the record companies cut these pre-digital-era deals, they offered artists a big cut of “licensing” revenue because they expected all the real money would be in sales. Turned out the industry hasn’t developed that way, however; courts are now deciding that lots of digital-era commerce actually involves licenses, not sales. As Jason Schultz, a law professor who represents a group of older Motown artists in the case, noted: “When the digital revolution came around, those contracts ended up favoring artists. The record companies guessed wrong.”

Even though Universal emphasized this is a narrow ruling that only applies to Eminem’s contract, other artists may well have similarly-constructed deals, and will be probably be lawyering up to see if they might have a similarly lucrative claim.

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Jon Massey

Why has this issue surrounding digital content only started to come up now? Surely CDs are a digital medium? How does the transmission medium of a digital file alter how it is licensed/sold/whatever?

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