Record label Warner Music Group Corp. has production and recording agreements with its music artists, producers, mixers, and engineers. The agreements usually require Warner to pay royalties for records it sells and master recordings it licenses to third parties. Royalties for sales are generally 5 percent to 30 percent and have deductions for container charges and audiophile quality. License royalties, on the other hand, are usually about 25 percent to 50 percent and don’t include deductions because Warner is acting as a conduit between the artist and the third party and doesn’t incur costs for physical materials, distribution, and promotion.
Contracts signed before 2002 did not specify which category digital downloads would fall under. Warner has contracts with several download providers, and sales from downloaded music constitute about 50 percent of its income. The company receives about 70 percent for every music download and 50 percent for every ringtone download.
Warner paid its artists sales royalties from digital downloads, including the deductions, rather than pay them the licensing royalty. Other record labels did the same, but in 2010, the Ninth Circuit Court of Appeals held, in a case that did not involve Warner, that digital downloads and ringtones are licenses because the labels do not convey the songs’ titles or copyrights, as required to be classified as a sale. (F.B.T. Prods., LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010).)
Several artists filed class actions against Warner, alleging breach of contract and the implied covenant of good faith and fair dealing, and violations of New York and California unfair competition laws. The suits were consolidated.
Warner agreed to an $11.5 million settlement, to be apportioned based on each class member’s total revenue from downloads and ringtones sold between Jan. 1, 2009, and Dec. 31, 2012, compared to the total class revenue during that time. Class members will also receive a 5 percent increase to the sales royalty rate, with 10 percent as the minimum rate and 14 percent as the maximum.
The court has granted preliminary approval.
Citation: In re: Warner Music Group Corp. Digital Downloads Litig., No. 3:12-cv-00559 (N.D. Cal. Jan. 23, 2014).
Plaintiff counsel: AAJ members Daniel L. Warshaw and Clifford H. Pearson, both of Sherman Oaks, Calif.; David M. Given, Aaron M. Sheanin, William J. Newsom, Michael P. Lehmann, Bruce J. Wecker, Arthur N. Bailey Jr., Michael W. Sobol, and Alexander H. Tuzin, and AAJ members Bruce L. Simon and Nicholas A. Carlin, all of San Francisco; Michael D. Hausfeld, Nathaniel D. Giddings, and AAJ member James J. Pizzirusso, all of Washington, D.C.; and AAJ members Paul R. Kiesel and Jeffrey A. Koncius, both of Beverly Hills, Calif.