Eminem on iTunes – distribution agreement or licence?

After signing Eminem in 1995, FBT Productions transferred his recording services to Aftermath (a Universal record label). Under their agreement, Aftermath pays FBT a 12–20% royalty on ‘records sold’ and 50% for ‘masters licensed … to others for their manufacture and sale of records or for any other uses’. A few years later Aftermath concluded a deal with iTunes and began paying FBT the Records Sold royalty on iTunes sales. FBT sued, moving for summary judgment that the Master Licensed provision should apply. The district court refused summary judgment, saying the agreement was ambiguous. A jury then decided that the lower royalty should apply – Aftermath was awarded more than $2.4 million. On appeal, the Ninth Circuit has held that the district court was wrong not to give summary judgment: the agreement was unambiguous and the higher royalty should apply.

Although the Ninth Circuit must be technically right to say that Aftermath had given iTunes a copyright licence, it would also have been true to say Aftermath gives its factory a copyright licence to print CDs and its CD distributors a copyright licence to sell records. That would not have resulted in the licensing royalty being applied. Copyright licences, after all, underly many distribution agreements. What arguably swings it here is that a digital file sent to iTunes fulfils the definition of a ‘master’ in a way that physical CD stock wouldn’t. However, the commercial role played by iTunes in this supply chain does seem much closer to distributor than licensee.

Totally unambiguous?