Did Universal Music Try To Expense The Costs Of Eminem's Producers Suing Over Unpaid Royalties... Back To Eminem's Producers?

from the and-again-and-again dept

Fri, Feb 24th 2012 8:49am — Mike Masnick

We were just discussing some of the details from Kenny Rogers' lawsuit against EMI/Capitol Records which showed the many, many ways in which record labels avoided paying artists what they were owed... and now some more details have leaked in the very similar (but further along) case concerning Eminem's royalties. You may recall that, back in 2010, Eminem's producers, FBT Productions, won its case against Universal Music, for the first time establishing that iTunes sales should be counted as licenses rather than sales. This was important, because sales get a royalty rate that's usually around 15%... but licenses get a royalty rate around 50%.

While Universal Music insisted that its deal with Eminem was unique and such a ruling wouldn't apply to most other artists, plenty of other artists have been suing their labels (like Kenny Rogers above), and estimates of upwards of $2 billion in back royalties that the labels may have to pay out.

The Eminem case is back at the district court as they try to sort out just how much FBT is owed, and Eriq Gardner, over at THResq, got his hands on one of the audit reports put together by an expert for FBT. It only shows a limited range of years (July 2005 to December 31, 2009), but also shows (similar to the Rogers lawsuit) how the report turns up all sorts of other areas where Universal likely underpaid FBT.

As you can see, the audit shows $3.8 million owed for the missing royalties from iTunes downloads. But also of interest? FBT claims that it never received a cut of the YouTube settlement money -- which many people had been wondering if it was ever going to go to the artists. Apparently not.

However, the most insane thing here may be the line at the bottom, in which it appears that Universal held back $2 million in a "legal hold." Gardner notes that this is money held back to pay for this very lawsuit. This is classic record label economics. Everything that you do that costs money, they charge against the artists' royalties. Order pizza at the recording studio? They charge that against your (small) cut of the royalties. Want to do extra promotions? Charge it against the royalties.

And... apparently, sue Universal music for withholding millions in royalties? It looks like they'll charge that against your royalties too...

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Filed Under: eminem, licenses, royalties, sales
Companies: fbt productions, universal music

53 Comments

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Skeptical Cynic (profile), 24 Feb 2012 @ 8:01am

All I can say is...
This should be a wake up call to artists. Find alternatives.
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Anonymous Coward, 24 Feb 2012 @ 8:57am

So...
All the stronger copyright laws are really protecting the lawyers, not the artists.
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The eejit (profile), 24 Feb 2012 @ 8:58am

Re: All I can say is...
OR go the Viking route: kill them and take their stuff.

I wonder if UMG's offices in Hollywood can be foreclosed upon for pailure to pay?
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Anonymous Poster, 24 Feb 2012 @ 9:07am

The RIAA: We Care About Artists(' Money)
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Anonymous Coward, 24 Feb 2012 @ 9:12am

What's the problem with charging the artist for legal fees you incur defending against lawsuits filed by the artist for not paying the artist?

Lets compare this to a similar situation, to show Universal Music's point.

-Universal Music hires you as an employee paid at the end of each month, with a $120,000 dollars a year salary.

-At the end of the month Universal Music pays you only $4,000 before taxes, not the $10,000 you were expecting, so you sue Universal Music.

-As the lawsuit continues you continue working for Universal music for an entire year, getting paid $4,000 dollars each month

-You win an expensive lawsuit against Universal Music, so Universal Music gives you an accounting statement saying you're owed $72,000 in back salary. But Universal's statement also says it cost them $60,000 to defend against your lawsuit (and that's not counting the $20,000 you spent on your own lawyer in that lawsuit), so Universal writes you a check for $12,000 and calls it even.

You see, perfectly reasonable of Universal Music! It's also a darn convenient way to get around pesky minimum wage laws, thanks to a little bit of creativity. Creativity is good! If we punish Universal Music for their creativity then the artists Universal Music represents won't be motivated to create new music!
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:Lobo Santo (profile), 24 Feb 2012 @ 9:13am

Re: So...
Pretty much everything which occurs in the way of laws/treaties/etc is specifically engineered to directly or indirectly benefit the lawyers and bankers, at the expense of everybody.
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Ninja (profile), 24 Feb 2012 @ 9:14am

Mike, if you aren't for copyright you are obviously a pedophile. Your misinformation won't stick, it's obvious that Universal is protecting the artists except that now they are protecting Eminem from himself. I'll explain, chubby: by suing Universal and challenging the sacred laws of copyright Eminem could have turned into some filthy pirate. Universal is obviously protecting him, chubby.
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Anonymous Coward, 24 Feb 2012 @ 9:15am

Re: So...
From the Statute of Anne 300 years ago to SOPA last month, copyright has always been about protecting those seeking to profit from the creative works of others (publishers, record labels, etc) and not those actually creating the works.

Anyone claiming differently is trying to sell you something.
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Ninja (profile), 24 Feb 2012 @ 9:17am

Re:
Just in case, this was some trolling on purpose with boosted nonsensical content.

>.>
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The eejit (profile), 24 Feb 2012 @ 9:17am

Re:
8/10.

good use of strawmen, actually sounding logical and completely serving the interests of the wrongdoer.
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Ninja (profile), 24 Feb 2012 @ 9:19am

Re:
I almost thought you were serious. The last paragraph revealed your true intentions you little devil. I see what you did there ;DD
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Matthew (profile), 24 Feb 2012 @ 9:21am

Balls of solid brass.
Stay classy UMG!

When life gives you lemons, charge life a handling fee for those lemons, write them off as a lemonade-making business expense, claim an organic food producers' tax credit, and then sell the lemonade. Don't forget to charge for the cup, a modest pouring fee, and a bathroom access fee. You'll need that money to pay lobbyists to get laws passed outlawing those cute little kids on the corner of the next block.

Note that you'll probably lose money on this whole venture, but hey - write-off, plus it's more evidence of the economic harm those kids are causing you. Win-win.
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Anonymous Coward, 24 Feb 2012 @ 9:22am

like the numerous independent reports that debunk the entertainment industries losses, usually blamed on 'piracy', those in power will completely ignore this and any similar information. they refuse to believe that there are greater wrong-doings by those industries to the very artists they keep insisting they are trying to protect, than to those industries. they refuse to see what is right in front of them simply because they dont want to. what a shame that there isn't reporting of this kind of thing to the same extent as when the entertainment industries are complaining about their 'sorry state of affairs' or 'blowing their own trumpets'!
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That Anonymous Coward (profile), 24 Feb 2012 @ 9:28am

Re:
o_O
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Franklin G Ryzzo (profile), 24 Feb 2012 @ 9:32am

Re:
6/10

Got the ad hom, false dichotomy, and not one, but two chubby's!

I had to subtract 2 points for explaining it was trolling, and you could have shot for the moon if you'd have blamed it on Google, emphasized some words with /derp/, or insulted the overall techdirt community.

Also, needs more cowbell :P
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Anonymous Coward, 24 Feb 2012 @ 9:39am

If the contract says that they can pass all legal costs, including contractual disagreements on to the artists, then they are within their rights.

It's not nice, but it's in the contract and legal.

Sucks, but that is life.
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fb39ca4, 24 Feb 2012 @ 9:44am

Let's just pirate the music and then give money directly to the artists, who actually deserve it.
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:Lobo Santo (profile), 24 Feb 2012 @ 9:44am

Re: Riposte!
Signing & enforcing a contract with illegal clauses does not magically make them legal.

Although technically, the MAFIAA's brand of white-collar theft/fraud isn't illegal (yet), just immoral.
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TDR, 24 Feb 2012 @ 9:46am

Here's a bit about lawyers, from Dr. Niles Crane on Frasier:

"They're great patients. They have excellent health insurance and they never get better."
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Another AC, 24 Feb 2012 @ 9:54am

Re:
I can see your point, it really just adds to the fact that they keep saying they are trying to protect the artists and things like this show that "Protecting the Artists" really has nothing to do with anything except trying to justify lobbying the government and writing bills to pass laws to restrict our rights.
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mikey4001, 24 Feb 2012 @ 10:01am

Re: Re: So...
Anyone claiming differently is trying to sell you something.

Do you mean something like a record or a book or an indie game?
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Designerfx (profile), 24 Feb 2012 @ 10:01am

Re:
sadly, lots and lots of corporations do function like this. While I recognize the joke it's a safe bet that if it's not a startup and is a large company it's pretty common this will happen.

then we have: corporation friendly laws
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Lesath (profile), 24 Feb 2012 @ 10:06am

The cynic in me says of course they did.
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Anonymous Coward, 24 Feb 2012 @ 10:16am

Re: Re: Riposte!
The issue is that the clauses are not illegal. They are legal. Like it or not, a contract that basically says "all legal expenses regarding this contract, it's terms, or any legal action as a result of this contract are considered "expenses" as defined in section 1" is entirely enforceable.

Is it nice? no. Is it a good idea? Probably not, but I don't think either party considered the type of legal action that happened here, not the scale of it.
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Anonymous Coward, 24 Feb 2012 @ 10:18am

Re: Re:
Well, here's the thing though: if the artist was getting sued as a result of the contract, but didn't have funds to hire a lawyer, the label could pay for the lawyers and take it off the royalties, as an example. I can understand how this sort of clause exists.

I don't think either side really considered this type of long running lawsuit, nor considered the full implications.
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MrWilson, 24 Feb 2012 @ 10:21am

"I understand this concern on behalf of the tax payers. People want value for money. That's why we always insist on the principle of Information Retrieval charges. It's absolutely right and fair that those found guilty should pay for their periods of detention and for the Information Retrieval Procedures used in their interrogation."

- Brazil
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Murray (profile), 24 Feb 2012 @ 10:24am

Deduct this
Next audit will show the payment of royalties as a deduction against the royalties.
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Anonymous Coward, 24 Feb 2012 @ 10:36am

Re: Re: Re: Riposte!
a court found that UMG did not hold up their end of the contract

how is anything in it (ie. the parts that benefit UMG) still enforcable?

is the contract not voided by this? and now through some clever accounting UMG doesn't have to pay for breach of contract?
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Despair 1, 24 Feb 2012 @ 10:38am

Despair the assholes
Somehow, , the reality of the music publishing business needs to be blown wide open mainstream so everyone can see .
Who needs to look very closely indeed are the law makers and their door busting cops running around like puppy dogs for the freakin music industry of all people. I dare say the movie business is not much better or are these guys as pure as snow ?
If was not so sick it would be so funny ,law enforcement taking sides with these assholes. I despair.
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Kaden (profile), 24 Feb 2012 @ 10:47am

Re:
You forgot to make a reasonable assumption. Good chubbywork though, and your spittle fleck pacing was top notch.
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Anonymous Coward, 24 Feb 2012 @ 11:02am

As a business if I am out expenses because I am working for somwone else I am allowed to charge them for those expenses. When I am away on a business trip I expense my transportation, my lodging, my meals, and any supplies that may be required.
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Baldaur Regis (profile), 24 Feb 2012 @ 11:03am

Re:
In addition to previous revues -

use of first name to imply peerage: check
pedo reference: check
use of 'filthy pirate': check

This would be a 9/10 except for the lack of (and I cannot stress this enough) capitalizing Important Ideas (extra points for random cap). And, this is a small quibble, but your spelling and syntax corresponds too closely to the output of a rational mind.
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Hephaestus (profile), 24 Feb 2012 @ 11:07am

What I do not get is why the IRS hasn't come down on the record labels.
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Edward Teach, 24 Feb 2012 @ 11:16am

Belay that assumption, mate!
Just a cotton pickin' minute, here. "If the contract says..." means that you don't know exactly what Eminem's contract says.

So, why, a mere one sentence later, do you say "it's in the contract"? Are you privy to some sort of inside information? Is so, why stay anonymous? Why not come out authoritatively and squelch any dissent? If not, I call BS on you.

A third option is that you've read all the trial's affidavits etc, and you do know what the contract says. Why not just refer to that document? Anybody really really interested can pay for a copy from the court. Why not be a good internet citizen?
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Baldaur Regis (profile), 24 Feb 2012 @ 11:32am

Re:
You just gotta believe that somewhere in the 71,500+ pages of the US tax code there's a little lovin' for the poor old labels...
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DannyB (profile), 24 Feb 2012 @ 11:35am

If they LOSE and have to pay a judgement . . .
If Universal Music loses the lawsuit and has to pay a judgement to you, can they charge both their legal costs and the amount of the judgement back against you as expenses?
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Anonymous Coward, 24 Feb 2012 @ 12:33pm

Re: Re: Re: So...
No like a license for a record book or game.
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jupiterkansas (profile), 24 Feb 2012 @ 12:40pm

Re: Despair the assholes
It will never happen. They're all paid to look away. It's a racket.
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Anonymous Coward, 24 Feb 2012 @ 12:43pm

Re:
You don't even have to be a cynic. You just need to be awake.
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Anonymous Coward, 24 Feb 2012 @ 1:06pm

It's always funny to me when people say Eminem suing for this and that. In truth Eminem doesn't control any aspect of his career and had no part in any of it.

Eminem doesn't get one dime of the money because his manager, who's does side business with Interscope and essentially owns a huge portion of Eminem's masters (rather than Eminem owning them) refused to cooperate with FBT. Even at one point trying to get FBT to drop the lawsuit and settle.
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Richard (profile), 24 Feb 2012 @ 2:30pm

Re: Re: Re: Riposte!
The issue is that the clauses are not illegal. They are legal. Like it or not, a contract that basically says "all legal expenses regarding this contract, it's terms, or any legal action as a result of this contract are considered "expenses" as defined in section 1" is entirely enforceable.

If that were true then the contract would have zero value to the artist - since Universal could perpetrate ANY wrongdoing they liked with impunity. No court would accept that.
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Richard (profile), 24 Feb 2012 @ 2:32pm

Re: Re: Re:
I think the contract would apply in cases where the artist was involved against a third party. It cannot be enforced when the litigation is between parties to the contract.
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Al Bert (profile), 24 Feb 2012 @ 8:40pm

the artists
When the entertainment industry ever mentions support of "artists", just keep in mind that it's the con artists they're talking about.
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Anonymous Coward, 24 Feb 2012 @ 9:35pm

Re: Re: Re: Re:
I must admit to not knowing what the law actually says about this... but it is morally indefensible to charge someone for your defense against their lawsuit. If Universal eventually wins the lawsuit, then it's up to the judge to grant lawyer fees or not. IF the judge does grant the fees, THEN it would be appropriate to do this withholding. But not before then.

Imagine all employers doing this. Oh, you sued because you're being paid less than minimum wage? Here, we'll just deduct the costs of the lawsuit from your paycheck. Not our fault you didn't read that 8 page employment contract, right?

Of course, in a sane universe, nobody would ever enter a contract with such a company ever again. We apparently do not live in a sane universe.
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Chargone (profile), 24 Feb 2012 @ 10:20pm

Re: Re: All I can say is...
Yay Vikings!
With Battleships!

woo!

Battle-air-ships even?

hehe.
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Prophecy3, 24 Feb 2012 @ 10:33pm

sooo about megabox..
Isn't this the sort of thing megabox was going to address ??
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Anonymous Coward, 25 Feb 2012 @ 9:05am

Re: So...
They are protecting the music/movie studios. The lawyers will always profit. At least as long as the rabid right wingers don't get their way. This is because there will always be some sort of business for them.
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Anonymous Coward, 25 Feb 2012 @ 11:12pm

Re:
well played sir!
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crazylilting (profile), 27 Feb 2012 @ 7:49am

Re:
lol...

If Universal looses, they have to pay the legal fee's for both sides of the case as far as i'm aware.
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hegemon13, 27 Feb 2012 @ 8:11am

Re: Re: Re: Riposte!
Yes, but given that they did not pay the artist what he is owed, the producers have already breached and invalidated the contract.
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hegemon13, 27 Feb 2012 @ 8:20am

Re: Re: Re: Re: Re:
It's not a matter of the sanity of the universe, but of those signing the contracts. And, to be honest, those signing the contracts are understandably not in a sane state of mind. They are in a state of euphoria. For most artists, being recognized and being able to make a professional income from their work is such a powerful dream, that such a contract becomes a sublime fulfillment that disables rational thought.

I know the feeling. I had one short story published UNPAID in an anthology, and I was walking on clouds for days. I almost accepted ridiculous and destructive edits just to see it published. Fortunately, I had enough peers to look at the edits, slap me upside the head, and say, "No, those do not improve the story. The editor is trying to be the author of the anthology, and a full rewrite and re-imagining of your story does not qualify as an edit." Still, it took all I had to write back and state that I could not accept the edits. (Unlike the story, there was a happy ending, and they published in original form.)

Back to the point, you are correct. Such contracts are not sane. But these are corporations who know how to exploit the starry-eyed dreams of artists, drown them in flattery, and strangle them at their weakest moment.
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snog, 27 Feb 2012 @ 6:01pm

most record contracts allow artist to request an accounting...which of course is at artist's cost...and
requires advance notice to label...who of course grants full access/disclosure...seriously...
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Big Swifty, 7 Mar 2012 @ 11:39am

Pure genius
Just jealous
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