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The Hollywood Reporter Covers Johnson & Johnson's Digital Downloads Class Action Against Universal Music (Mar. 15, 2012)

Posted by Johnson & Johnson, LLP | Mar 15, 2012 | 0 Comments

The Temptations Join Chorus of Lawsuits Over iTunes Royalties

In what might be the biggest legal action on this front yet — 13 plaintiffs' lawyers! — Universal Music is being sued for allegedly cheating musicians out of income generated from iTunes and elsewhere.

The Hollywood Reporter

March 15, 2012

By Eriq Gardner

Another major class-action lawsuit has just been filed on the digital royalties front.

The Temptations, the pioneering male vocal group from the 1960s, is suing Universal Music in federal court in California, seeking millions of dollars after allegedly being cheated out of revenue from digital downloads and ringtones.

Otis Williams, one of the original members of The Temptations, and Ron Tyson, one of the later members, are the latest to join a growing chorus of musicians who are going to court with allegations that record labels have stiffed musicians by accounting for downloads off of iTunes as “sales” rather than “licenses.”

There are more than a dozen of these types of lawsuits pending in courts, including eight that were filed in the past 12 months. The latest challenge, similar to what has come already, seeks to punish UMG for attempting to get away with paying pennies on the dollar when artists believe they should be making dimes on the dollar. The cases are potentially worth hundreds of millions of dollars to the music industry. UMG is about to go to trial with F.B.T. Productions, producers for Eminem.

The new lawsuit from The Temptations, which covers other artists similarly situated, cites the F.B.T. case. According to the complaint:

“UMG's Standard Recording Agreements are, in every material way, the same as those at issue in F.B.T. Prods. Accordingly, Plaintiffs here allege that the digital download income received by UMG from Digital Content Providers are based on ‘licenses' and not ‘sales,' as those terms are defined in UMG's Standard Recording Agreements with these Providers. Just as in F.B.T. Prods., UMG has not properly accounted for the appropriate amount of royalties owed to Plaintiffs and Class members.”

The complaint, filed Thursday and obtained by The Hollywood Reporter, goes so far as to list out all of UMG's recording artists, including such superstars as James Brown, Eric Clapton, Guns N' Roses, Kiss, Nirvana, The Police and The Who.

The lawsuit also provides stats like Apple's iTunes store generating $1.4 billion in revenue in second-quarter 2011, up from $1.1 billion the previous year. The class action also goes after revenue from other digital download providers as well, including, Napster, Rhapsody, Zune and eMusic as well as ringtone providers by such wireless companies as AT&T, Verizon, Sprint and T-Mobile.

Like some of the other lawsuits, this one also quotes the late Steve Jobs, who once published a piece titled “Thoughts on Music,” which included the line, “[S]ince Apple does not own or control any music itself, it must license the rights to distribute music from others, primarily the ‘big four' music companies: Universal, Sony BMG, Warner, and EMI.”

UMG, though, the largest of the record labels, is said to be responsible for 80 percent of downloads in the U.S.

As for The Temptations, the complaint asserts that their relationship with UMG is guided by a 1993 agreement that provides 14 to 16 percent of revenue from “sales” after packaging deductions, compared with 50 percent from licensing income. That's a big difference.

The group, represented by a whopping 13 attorneys at five law firms, is bringing causes of action that include breach of contract and unfair competition and seeking a declaratory judgment, an injunction and damages to be proved at trial.

Universal has been contacted for comment, and if we hear any response, we'll update.

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