This article is was originally published in Billboard Magazine and has been reprinted with permission.
George Clinton v. Universal Music Group Highlights Time Limits On Royalty Claims, BILLBOARD, Sept. 29, 2011.
by Tamera H. Bennett
Judging from pioneering funk productions helmed by Parliament-Funkadelic mastermind George Clinton, the man knows the value of staying on the beat and keeping time.
But the apparent failure of Clinton to keep an eye on the clock could cost him dearly in terms of royalties he claims he’s still owed. The decision highlights one of the challenges facing heritage artists and their heirs in navigating claims for underpayment of digital downloads and possibly other new media uses of their copyrights. In addition to keeping track of royalties due to them (which can require costly audits), artists must also be aware of how long they have to raise objections to the size of the payments they receive.
In 1980, Clinton signed a production agreement with Casablanca Records, which is now owned by Universal Music Group. UMG claims that it couldn’t reach Clinton for years and that it was unable to send him royalty statements. Once Clinton re-surfaced in 2001, UMG sent back royalty statements and payments to Clinton for the years 1996 to 2000.
But Clinton sued UMG in 2007 for breach of contract, claiming that the label group didn’t pay him all the royalties he was due from 2000 to 2003. His production contract required Clinton to provide detailed and specific objections to his royalty statements and he complied — almost. Clinton outlined under-payments, non-payments and improper withholding of taxes. What Clinton never specified was that he had been underpaid for royalties stemming from digital downloads.
Then earlier this year, Clinton amended his lawsuit claiming for the first time that UMG had not paid him the correct royalty rate for digital downloads, citing a 2010 decision by the U.S. Court of Appeals for the Ninth Circuit in F.B.T. Productions, LLC v. Aftermath Records. In the F.B.T. case, the court held that in certain contractual situations digital downloads are a license and as such the record label must pay a higher royalty rate to the artist.
Clinton had the right under his production agreement to review and audit royalty statements to determine if UMG had properly paid him. Clinton also had the right to sue UMG if it failed to do so.
But both of these rights had a time limit — three years after the date a royalty statement was “rendered” to Clinton. It is very common in recording agreements for there to be a time limit on bringing a lawsuit, a period of time which is usually shorter than the statute of limitations stipulated in state or federal law.
Three years seems like a pretty easy way to calculate a deadline. Indeed, in 2003, Clinton and UMG agreed to a “tolling” agreement that effectively froze time so the three-year window within which Clinton had to file a lawsuit for the statements rendered in 2000 and later would not run out.
But on Aug. 9, U.S. District Court Judge Philip S. Gutierrez ruled that the clock had started running three years from the time Clinton should have received his royalty statement. If Clinton didn’t receive his royalty statement, his 1980 contract placed the responsibility on Clinton to tell UMG in writing that he never got his statement. Clinton’s four-year absence cost him the ability to sue UMG for potential accounting errors over multiple years.
In his ruling, Gutierrez made it clear that Clinton failed to specifically object to the underpayment of digital download royalties in a timely manner. Because Clinton didn’t comply with the requirements in his recording contract, he lost the opportunity to challenge UMG on years of royalty statements specifically related to digital downloads.
At the end of October, Gutierrez will determine whether Clinton v UMG will go to trial on the question of whether the tolling agreement was valid. The district judge ruled that it wasn’t valid, but an appeals court reviewed the decision and sent the question back to Gutierrez.
If the tolling agreement is valid — that is, if Clinton’s suit against UMG is deemed to have been filed within the required time frame, then Gutierrez will rule on Clinton’s claims that UMG failed to pay him royalties due to him, excluding those for digital downloads. This is a significant concern for any label or artist. Even though there is no binding court decision in Clinton v. UMG on this issue, it has become imperative to include language that references the freezing of all statutory limitations periods as well as contractual limitations periods.
The possibility that the tolling agreement could be declared invalid has prompted Clinton to sue his now-former lawyers for legal malpractice.
Tamera H. Bennett is an entertainment and intellectual property attorney based in Lewisville, Texas.