No slim pickings for Slim Shady: is music sold or licensed to iTunes?

A Californian court has awarded rapper Eminem a greater share of the money made from selling downloads of his songs on the iTunes store.  The court ruled that the songs were “licensed”, not “sold” to Apple, which runs the iTunes store.

Under the contract between the production company affiliated with Eminem and his record company, Eminem receives a greater share of the price paid for songs that are “licensed” than he does for songs that are “sold”.  Traditionally, a licence to use a recording is given when the song is to be used in a movie soundtrack or a TV show.  Under the contract, the artist receives a 50% share of the associated licence fees on recordings “licensed … to others for their manufacture and sale of records or for any other uses”.  However, under his contract Eminem receives the lower rate of 12-20% of the value of any “full price records sold in the United States”.

Therefore, the pivotal question was whether Eminem’s songs were licensed or sold to Apple.  The Court of Appeals for the Ninth Circuit looked at the terms of the contract and applied the meaning of both “sale” and “license” under US copyright law.  

The court found that there was no sale here.  This was because the record company did not transfer title of an individual copy of a work, as it does when it sells CDs, and did not sell all exclusive intellectual property rights in a work. 

As to why the relationship was akin to a licence arrangement, iTunes received copies of the songs, was limited in how it could use the songs, and made regular payments to the record company based on sales of the songs. 

It means Eminem can now enjoy an increased share of the money made from selling downloads (depending on whether the decision is appealed).

Interestingly, the contract at issue, between Eminem’s production company and the record company, was signed in 1998, well before the dawn of the iTunes juggernaut (Apple’s iTunes software was launched in 2001, and the iTunes store in 2003).  Trying to figure out how the contract applies to a method of sale that had not been invented at the date of the contract highlights some of the difficulties in applying traditional legal concepts to new technologies.  Most recording contracts made post-2003 avoid this problem by including provisions dealing directly with revenue from digital sales.

This case revolved around the interpretation of a specific contract, so it is unclear whether it provides a broader precedent for other contracts that do not explicitly consider digital sales.  However, the case does provide a good discussion of the difference between sales and licences in relation to intellectual property such as music recordings.

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