Eminem's Victory Over Label Could Have Far-Reaching Effects

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Eminem quietly scored a major victory in a case involving download royalties this week. The U.S. Supreme Court threw out an appeal filed by Universal Music Group, the world's largest music empire, against Eminem's former production company F.B.T. Productions.

Eminem is signed to Interscope Records via Aftermath Entertainment, which is distributed by UMG. Universal was seeking an appeal in a dispute over payments made for downloaded tracks and ringtones. In a rare move, the Supreme Court upheld an appeals court's ruling on the case.

"For us, this is probably a $40 million to $50 million issue," Joel Martin of F.B.T. told the Detroit Free Press. "Every artist who has this sort of language in their contract is now going to go back to their record company and say, 'OK, so what do you want to do about (download royalties)?'"

To be clear, the payout itself is not necessarily worth $40 million or $50 million, as Martin would have you believe. Those figures represent an estimate. Also, Eminem's share of the damages is unknown.

At the center of the dispute was the royalty rate for tracks distributed via online services like iTunes and Amazon. F.B.T., led by brothers Jeff and Mark Bass, administered Eminem's deal with Universal in 1998, just as the online music revolution was gestating.

Universal offered F.B.T. the same online royalty rate it pays for physical copies, a figure that's been reported as anywhere between 12 and 18 percent.

Long story short: Universal wanted to pay less than they owed. Eminem's team pushed back on the grounds that the online agreements are licensing situations, not unit sales. Each time you download a song you're downloading it under the licensing agreement, as opposed to the sales units that apply to CDs.

F.B.T. argued that the licensing agreement called for a 50-50 split. The 9th Circuit Court of Appeals cosigned their position last September. The Supreme Court upheld the lower court's ruling (albeit through inaction) and sent the case back to a trial court to determine F.B.T.'s payout.

What does this mean for other artists getting screwed by major labels? A spokesperson for Universal tried to downplay the significance of the ruling:

"The case has always been about one agreement with very unique language. As it has been made clear during this case, the ruling has no bearing on any other recording agreement and does not create any legal precedent."

That's not entirely correct. Every case creates legal precedent to some degree. And while this ruling won't exactly send shivers down the music industry, it's bound to have some ramifications in the long run.

To what extent and in what capacity remain unknown, but it will certainly trigger a chain reaction in an industry that has been on its knees for the past five years.

The good news for some labels, though, is that most artists already have download-rights royalties spelled out in their contracts. Look for more to follow. Artists with older deals, meanwhile, will have their lawyers poring over every page and amending their contracts to include digital-rights language.

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