UMG motion to dismiss Allman Brothers case rejected

By Eriq Gardner

A New York federal judge has agreed to send to trial a major case concerning the royalties that record companies should paid musicians on sales of digital downloads.

Members of the Allman Brothers Band have filed multiple lawsuits on this front against two major labels, Universal Music Group and Sony. Until now, the band was having a tough time getting a claim heard — a district judge had previously dismissed the lawsuit for failing to state a proper claim — but earlier this week, Judge Kevin Castel denied a motion to dismiss by UMG and ordered discovery to proceed. The case is now scheduled to go to trial in 2010.

At issue is whether online sales in arenas like iTunes constitute "distribution" or "licensing" arrangements. If the former, a digital sale will be treated much like the sale of a CD, and UMG would only have to fork over a few cents to the band per transaction. The band argues that because UMG doesn't have to pay physical packaging costs and didn't even "spend a dime marketing them or promoting the band," a digital sale is more like a license. As such, UMG would be required to make a much higher 50% royalty payment.

Earlier this year, producers of some early Eminem works challenged and lost on this same issue. A different jurisdiction offers the potential for a new outcome, however.

Interestingly, Judge Castel's ruling comes the same week that music publishers are arguing they deserve more compensation from digital downloads. Publishers already get statutory rates on sales of downloads, but are now arguing that ASCAP and BMI should be able to collect performance rights fees as well. In other words, hardly anything has been settled about how to slice that digital sales pie.