F.B.T. Productions, LLC v. Aftermath Records
Ninth Circuit ruled downloads were licenses, not sales.
In *F.B.T. Productions, LLC v. Aftermath Records*, the Ninth Circuit addressed how federal copyright law applies to contracts for music downloads and similar digital goods. The court found that a licensing clause in the agreement between F.B.T. Productions and Aftermath Records clearly covered permanent downloads and mastertones sold through third parties. After examining the First Sale Doctrine and how Aftermath structured its deals with distributors, the court determined that these downloads were licenses of copyrights, not sales, which meant Aftermath owed F.B.T. higher royalties under their contract.
F.B.T. Productions, which represented rapper Eminem, signed a recording contract with him in 1995. Later agreements in 1998 and 2000 with Aftermath Records—a subsidiary of Interscope, UMG, and ARY—gave Aftermath the right to distribute Eminem’s recordings and eventually transferred all exclusive rights to them. In return, Aftermath agreed to pay F.B.T. royalties of 12% to 20% of the retail price for copies sold (the “Records Sold” clause) and 50% of net revenue from licensing Eminem’s master recordings (the “Masters Licensed” clause). Starting in 2001, Aftermath licensed third parties like iTunes, Sprint, Nextel, Cingular, and T-Mobile to distribute Eminem’s music as downloads and ringtones. In 2005, F.B.T.’s auditors found that Aftermath was paying royalties under the lower “Records Sold” rate. F.B.T. sued in 2007 and 2008 for breach of contract, arguing that downloads and ringtones should fall under the higher “Masters Licensed” rate.
The district court denied F.B.T.’s motion for summary judgment, ruling the contract was too ambiguous on how to calculate royalties for downloads and ringtones. It noted that the third-party agreements didn’t clearly classify downloads as licenses, and neither side showed an industry standard. The court also pointed to a clause giving Aftermath the right to sell recordings “in any or all forms of media now known and hereinafter developed,” and the fact that F.B.T. hadn’t objected to the lower rate until after the audit. This suggested both parties originally expected downloads to be treated as sales. The case went to trial, and a jury ruled for Aftermath, with the court awarding Aftermath over $2.4 million in attorneys’ fees.
On appeal, the Ninth Circuit reversed.
- Case citation
- 621 F.3d 958
- Court
- United States Court of Appeals for the Ninth Circuit
- Plaintiff
- F.B.T. Productions, LLC and Marshall Bruce Mathers III (Eminem)
- Defendant
- Aftermath Records, Interscope Records, UMG Recordings, Inc., and ARY, Inc.
- Key issue
- Whether music downloads and ringtones were sales or licenses under contract
- Outcome
- Judgment reversed in favor of plaintiffs; case remanded
Lore & Background
In 1995 Plaintiff F.B.T. Productions, LLC signed fellow Plaintiff, rap artist Marshall Bruce Mathers III (stage name Eminem), to a recording contract. Subsequent contract agreements in 1998 and 2000 between Plaintiffs and Defendant Aftermath Records allowed Aftermath the right to distribute recordings of Eminem, and then ultimately transferred all exclusive rights of Eminem's recordings to Aftermath. In exchange for these rights, the agreements provided that Aftermath pay FBT royalties between 12% - 20% of the retail price of copies of Eminem's records sold ("Records Sold" provision), and that FBT receive 50% of the net revenue Aftermath obtained by licensing out the use of Eminem's master recordings ("Masters Licensed" provision).
Beginning in 2001, Defendants licensed various third parties the right to distribute over the Internet recordings of Eminem in the form of music downloads and ringtones. In 2005 auditors hired by Plaintiffs allegedly found that Defendants were remitting to Plaintiffs royalties for music downloads and ringtones under the lower percentage "Records Sold" provision. Plaintiffs filed complaints in 2007 and 2008, alleging breach of contract. The district court denied Plaintiffs' motion for summary judgment, finding the contract ambiguous, and a jury returned a verdict in favor of Aftermath, awarding Aftermath attorneys' fees of over $2.4 million.
Reader's Guide
The Ninth Circuit's reversal in this case established a significant precedent for how digital music downloads and ringtones are classified under copyright licensing agreements. By interpreting the contractual language—particularly the word "notwithstanding"—as unambiguous, the court held that the "Masters Licensed" provision applied, entitling F.B.T. to 50% royalties rather than the lower 12-20% rate. The court further distinguished between a sale and a license under the Copyright Act, noting that Aftermath's transfers to third parties did not include ownership title and that Aftermath reserved the right to reclaim the material. This decision potentially affected billions of dollars in royalty payments for older artists, as it clarified that digital distributions could be treated as licenses rather than sales. The Supreme Court denied certiorari in March 2011, leaving the Ninth Circuit's ruling intact. The case remains a key reference in disputes over digital music royalties and the interpretation of recording contracts.
Did You Know?
- The case involved rapper Eminem, whose stage name is Marshall Bruce Mathers III.
- The Ninth Circuit relied on the First Sale Doctrine and sections 17 U.S.C. § 109, § 114, and § 115 of the Copyright Act.
- The district court had awarded Aftermath over $2.4 million in attorneys' fees, which the Ninth Circuit vacated.
- The Supreme Court denied the defendants' petition for writ of certiorari in March 2011.
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