An appeals court has ruled against Eminem's label, ordering Universal Music to pay royalties to the rapper's former production company. In a precedent that could be worth billions of pounds to the recording industry, the US 9th circuit court of appeals declared FBT Productions was entitled to 50% of Universal's revenue from digital sales.
FBT Productions signed Eminem to an exclusive record deal in 1995, before he was famous; when Eminem went to Universal, FBT was entitled to a 12% royalty on "records sold". But in the pre-iTunes era, the digital royalty rate wasn't made clear. FBT argued digital sales are not "records sold" but constitute a licensing of master recordings – entitling them to 50% of net receipts. A court rejected this argument in March 2009, but this decision has now been overruled. According to the appeals court, the contracts were "unambiguous". The case has now been sent back to the lower court for further proceedings.
FBT's case against Universal is worth several million pounds in royalties and damages, but the impact could be even larger. Twenty years ago, lawyers could not have imagined innovations such as the iTunes Music Store, and in certain contracts, it's unclear which royalty rates apply. While Universal Music insists the FBT case "sets no legal precedent" and concerns "the language of one specific recording agreement", these sorts of ambiguities could be present in thousands of legacy contracts. If the courts interpret this language in certain ways, the costs could add up quickly.