Serena Nath is an IPilogue Writer and a 2L JD candidate at Osgoode Hall Law School.
In a recent installment in the series of intellectual property disputes in the music industry, electronic artist Four Tet, also known as Kieran Hebden, has won a royalty lawsuit against his independent British record label, Domino Record Label, over how much he is paid every time one of his songs is downloaded or streamed. Four Tet had signed with Domino in 2001; a time where CDs were still popular and long before the invention and popularization of music streaming. In this contract, it was stipulated that for licences, he would be paid a royalty rate of approximately 50%, but for a sale, such as the sale of a CD, he would be paid a royalty rate of 18%.
Sales vs Licences
When Four Tet’s contract was signed in 2001, these standard licensing terms were different for the music industry. For music sales, such as selling music via CDs, vinyl, and cassettes, overhead costs for record labels were much higher due to manufacturing and distribution expenses. Thus, in order to cover the overhead costs, record labels would pay their artists a lower royalty rate compared to the royalty rate for licences. For licences, it was understood that the third party licensing the music, such as for a movie, television show, or advertisement, would take on the extra costs, allowing for an artist to receive a higher royalty rate from the record label.
However, with advancements in technology leading to the domination of streaming and downloading for music consumption, the landscape of the music industry changed. Record labels no longer had high overhead expenses due to no longer having to manufacture and distribute CDs, vinyl or cassettes. Yet record labels continue to argue that music downloads and streams should be considered as sales as this is a new technology format. Artists have typically disagreed with this and insist that this type of royalty model is unfair. For example, in 2011, Eminem’s producers won a lawsuit against Eminem’s record company, Universal Music Group for unpaid royalties, due to the producers arguing that streamed and downloaded music should be considered akin to licencing of music and not sales.
The Case at Hand
In 2020, Four Tet sought up to £70,000 of damages against Domino for unpaid royalties. Similar to the Eminem case, Four Tet argued that he should be paid a “reasonable” royalty rate of 50% for streams and downloads of his music, not the 18% that the record label had been paying him. Four Tet reasoned that streams and downloads of music are like licences; not sales. In response to the lawsuit, Domino removed three of Four Tet’s four albums produced with the record label, without Four Tet’s consent, from all streaming services and online stores in November, 2021, which “shocked” Four Tet. Four Tet responded by adding a claim for breach of contract, resulting in Domino threatening to take the case to the High Court.
The case, which took place in the Intellectual Property and Enterprise Court, ultimately was settled out of court and Domino agreed to pay the requested royalty rate of 50% on streams and downloads as they are now considered to be licences. Domino also paid Four Tet £56,921.08 to account for the difference in income owed as a result of the difference between the royalty rates of 18% and 50% and simple interest calculated at a rate of 5% per year during the accounting period commencing July 1, 2017.
Future Impacts
The settlement may significantly impact the way the music industry values streaming and downloading and thus may impact royalty rates. This is particularly important as the music industry seems to be undergoing a reform regarding royalty payments. Just last year, a committee of UK MPs published a report advocating for a 50/50 royalty split between the record label and the artist. Similarly, the US Copyright Royalty Board has maintained its decision to increase streaming royalty rates to 15.1% for songwriters/publishers. These decisions, including Four Tet’s successful settlement, indicate that the music industry is changing and artists will start gaining fairer deals when it comes to royalties from streaming and downloading.