California Federal Court Declines to Dismiss Producers’ and Artists’ Royalty Litigation Against Record Labels

The U.S. District Court for the Northern District of California declined to dismiss putative class actions by two groups of recording artists and music producers who claimed that UMG Recordings, Inc. , the recording industry’s largest group of record labels, failed properly to account for and pay them for income it received from licensees of its recorded music catalog for the sale of digital downloads and ringtones. James v. UMG Recordings, No. 11-civ-1613 (N.D. Cal. Nov. 1, 2011). ┬áThe plaintiffs alleged that UMG violated California’s Unfair Competition Law by improperly characterizing certain transactions as sales made under “resale” agreements, rather than as “licenses,” which would have netted the artists and producers higher revenues under their agreements with UMG. Among other things, the court rejected UMG’s contention that the plaintiffs’ claims alleged nothing more than a basic breach of contract claim rather than unfair competition. The court explained that,

The Court finds that plaintiffs have alleged more than just a breach of contract because the complaints allege that UMG engaged in a broad scheme to underpay numerous royalty participants, including formulating “an opaque and artificial method for accounting for and paying its royalty participants for income derived from such licenses,” and engaging in a “sustained public relations effort designed to convince the public that it had employed ‘groundbreaking’ and ‘enlightened’ accounting practices that actually benefited (rather than cheated) the Class.”

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