UMG Reaches $11.5M Class Action Settlement Over Digital Music Royalties

An $11.5 million class action settlement was reached between UMG Recordings Inc. and a group of recording artists who claim that the label intentionally did not pay them the correct royalty payments by misclassifying the payments.

In addition, under the terms of the class action settlement, UMG will also make permanent increases to the royalty payments for class members.

This royalty fee class action lawsuit was filed in April 2011 by the estate of Rick James over allegedly deceitful royalty payment calculations. A similar class action lawsuit was filed in May 2011  by Rob Zombie, White Zombie, Whitesnake and Dave Mason. Some of the music royalty class action lawsuits were initially filed against Capitol Records, LLC, but “an indirect parent company UMGR acquired the recorded music interests of Capitol.”

“Plaintiffs allege that defendants have systematically breached these contracts by underpaying the royalties owed to the artists when their music is disseminated in the form of permanent downloads and ‘mastertones,’ commonly known as ringtones for cellular phones,” the motion for preliminary approval of the class action settlement filed Tuesday explains.

The artists alleged that the recording companies “improperly treated artists downloads/mastertones revenues as ‘sales’ instead of ‘licenses,’ and thereby paid artists royalties based upon the much lower sales royalty rate than the licensing royalty rate,” the motion adds.

The class action lawsuits came after a decision by Ninth Circuit Court of Appeals in 2010, in which it ruled that songs that are licensed to online retailers such as iTunes and AT&T Inc. are no different from licenses to a song or television show.

The recording company argued that agreements it made with the digital retailers should be considered resale agreements similar to those it would have with brick-and-mortor music stores, not licenses.

The motion for preliminary approval of the class action settlement comes while the parties are still awaiting a decision on a motion for summary judgement.

Even though UMG has agreed to the terms of the class action settlement, the recording company released a statement saying that it does not agree with the allegations by the plaintiffs.

“Although we are confident we appropriately paid royalties on digital downloads and adhered to the terms of contracts, we are pleased to amicably resolve this matter and avoid continued legal costs,” UMG said in a statement.

Attorney Leonard B. Simon said that “this settlement is a fair resolution of this controversy over how to compensate artists for their valuable work in a new medium which we believe was not contemplated by their contracts, many drafted in the 1970s or 1980s, and it compensates these artists now, rather than after additional years of litigation and uncertainty.”

This class action settlement is for any party who has “a contract with a UMGR or Capitol U.S. Label dated between Jan. 1, 1065 and April 30, 2004, which contained ‘records sold’ and ‘masters licensed’ royalty rate provisions or were the subject of a gratis program offered by Capitol to certain artists known as the ‘Legendary Artists Program.'”

The plaintiffs are represented by and David M. Given, Nicholas A. Carlin and Alexander H. Tuzin of Phillips Erlewine & Given LLP, Michael W. Sobol of Lieff Cabraser Heimann & Bernstein, Michael P. Lehmann, Michael D. Hausfeld, James J. Pizzirusso and Arthur N. Bailey Jr. of Hausfeld LLP, Bruce L. Simon, Aaron M. Sheanin, Clifford H. Pearson, Daniel W. Warshaw and William J. Newsom of Pearson Simon Warshaw & Penny LLP, Edgar D. Gankendorff and Christophe Bela Szapary of Provosty & Gankendorff LLC, Neville L. Johnson of Johnson & Johnson LLP, Jeffrey A. Konicus of Kiesel Law LLP, Thomas S. McNamara of Indik & McNamara PC and Leonard B. Simon.

UMG is represented by Jeffrey D. Goldman, Brian Meredith Yates and Ryan Scott Mauck ofJeffer Mangels Butler & Mitchell LLP.

The Digital Music Royalty Payment Class Action Lawsuit is Rick James et al. v. UMG Recordings Inc., Case No. 3:11-cv-0613, in the U.S. District Court for the Northern District of California.