Warner Music to Pay $11.5M Class Action Settlement for Digital Royalties

Warner Music Group Corp. has agreed to an $11.5 million class action settlement resolving allegations that the music label paid insufficient royalties for digital downloads, including MP3 downloads and ringtones.

The plaintiffs in the class action lawsuit included recording artists and music producers who entered into contracts with Warner to receive royalties for the use of their music. The plaintiffs alleged that Warner systematically breached the contracts by shortchanging the artists royalties for the digital downloads.

The plaintiffs argued that Warner inaccurately classified the digital downloads as “sales” when they should have listed them as “licenses.” They claimed that this misclassification reduced the amount of royalties they received from the company, causing plaintiffs and Class Members to experience millions of dollars in damages.

The Warner Music digital download royalties class action lawsuit asserted causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, declaratory judgment and violation of New York’s and California’s unfair competition laws.

Warner denies the allegations but agreed to settle the class action lawsuit to avoid the uncertainty and the expense of lengthy litigation. The digital download royalties class action settlement was reached after nearly a year of negotiations between the parties. “In reality, should this matter not be settled at this juncture, the only certainty is years of litigation,” the plaintiffs said in their motion for preliminary approval of the class action settlement. They also indicated concern that Warner would appeal a judgment, further prolonging the litigation process.

The plaintiffs seek certification of a Settlement Class on behalf of “all persons and entities (and their successors-in-interest, assigns, and heirs) that are parties to a Royalty Rate Contract dated on or prior to Dec. 31, 2001, with a WMG U.S. Label.”

Under the terms of the proposed class action settlement, Warner agreed to create an $11.5 million fund to be distributed to Class Members and to increase their royalty rates in perpetuity. Warner agreed to a 5 percent increase in the basic U.S. royalty rate, up to a royalty cap of 14 percent. Warner also agreed to pay the administration fees and costs of notifying potential class members about the class action settlement. Specifically, Warner agreed to issue notice of the settlement in Billboard, Rolling Stone, the Chicago Tribune, Los Angeles Times, New York Times and the Nashville Tennessean, as well as issuing a press release to all major media outlets.

U.S. District Judge Richard Seeborg will hold a hearing to determine whether to grant preliminary approval to the class action settlement. The hearing has been tentatively scheduled for Feb. 6, 2014.

The plaintiffs are represented by Lieff Cabraser Heimann & Bernstein LLP, Pearson Simon & Warshaw LLP, Phillips Erlewine & Given LLP, Kiesel Law LLP and Hausfield LLP.

The Warner Music Digital Download Royalties Class Action Lawsuit is In re: Warner Music Group Corp. Digital Downloads Litigation, Case No. 3:12-cv-00559, in the U.S. District Court for the Northern District of California.

UPDATE: Details on how to file a claim for the Warner Music class action settlement are available here.