Musicians: UMG Ignores Court, Cheat Artists

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In defiance of the 9th Circuit, UMG Recordings continues to cheat musical artists of "tens of millions of dollars" a year in licenses for digital downloads and ringtones, the estate of Rick James says in a federal class action in San Francisco.

"This class action is predicated on UMG's failure to properly account for and pay its artists and producers for income it has received, and continues to receive, from the licenses of its recorded music catalog for the sale of digital downloads and ringtones (or 'mastertones')" the complaint states.

"UMG and one of its owned and distributed record labels, Aftermath Records, spent millions of dollars contesting this precise issue in protracted litigation. But the 9th Circuit Court of Appeals found that UMG failed as a matter of law to properly account for and pay such income to the royalty participants in that case, a decision that the U.S. Supreme Court recently declined to review. See F.B.T. Productions, Inc. v. Aftermath Records, 621 F.3d 958 (9th Cir. Cert. 3, 2010), cert. denied, 79 U.S.L.W. 3370 (March 21, 2011)."

The 9th Circuit found "that digital download and ringtone income received by UMG derives from a license," the complaint states, and "compelled UMG to treat the income derived from those agreements as licensing income and to account to and pay the royalty participants in that case accordingly."

But the class claims that UMG continues to violate its agreements with artists and producers - and to blow off the 9th Circuit - by paying its artists somewhere from one-half to one-third, or less, than they deserve.

The class claims that UMG tries to justify its underpayment with the "pretext" that its ringtone and download agreements are not license agreements, but are "resale agreements ... indistinguishable from those UMG has with brick-and-mortar stores that sell its CDs and other physical product[s]."

Those deals give UMG bigger slices from each sale.

The class claims that the 9th Circuit "rejected the foregoing pretext as a matter of law in the F.B.T. case. Nonetheless, UMG has already publicly announced, most recently in an article appearing on March 28, 2011 in the New York Times, that the decision by the 9th Circuit in the F.B.T. case 'sets no legal precedent' - and that, in substance, it does not intend to alter any of its current policies or practices as they relate to the accounting for an payment of royalties on such income, or to acknowledge past due amounts to their royalty participants for this income. In other words, the rule of law does not apply to UMG."

Artists and producers typically split income from digital downloads and ringtones 50-50 with UMG, according to the complaint.

But in the real world, the class claims, "A decent rule of thumb is that for every dollar UMG actually accounts for and pays or credits these artists and producers for digital download and mastertone income, it should be accounting for and paying or crediting anywhere between two and three (or more) dollars. Based upon public reports, plaintiff estimates that this difference may amount on a class-wide basis to tens of millions of dollars or more each year." (Parentheses in complaint.)

The class claims that UMG "has systematically violated its contractual obligations to plaintiff and other members of the class". It claims that UMG decided to do this "at its highest corporate levels".

It claims that UMG on its own and/or with the industry's principal trade organization "analyzed internally the financial consequences of its misconduct and cast it in terms of the additional profit to be made by UMG by avoiding its contractual obligations; that it formulated an opaque and artificial method for accounting for any paying its royalty participants for income derived from such licenses; that it engaged in a sustained public relations effort designed to convince the public that it had employed 'groundbreaking' and 'enlightened' accounting practices that actually benefited (rather that cheated) the class;" and that it did some of this though commissioning "so-called 'white papers' on the issue (occasionally carrying the imprimatur of attorney-client communications)," (parentheses in complaint).

The class seeks certification, accounting, an injunction, and damages for breach of contract and unfair competition.

Lead plaintiff Rick James and The James Ambrose Johnson Jr. 1999 Trust is represented by lead counsel David Given, with Phillips Erlewine & Given.

From Courthouse News