The case Four Tet v Domino is the UK’s most recent example of music labels and recording artists battling it out, during the renegotiation of their respective share, on music streams’ royalties, away from sales, and as licenses. Why did Four Tet have to file his claims in court? What was the outcome? Was such strategy to escalate this royalties negotiation into full-blown litigation the smartest thing to do, for Domino, and for Four Tet?
In two of my previous articles, I posited that the next war, in the music streaming space, would be between performers and record labels, battling it out in court over whether a music stream is a sale, a license or a rental.
Indeed, in ‟Modern methods of monetisation for independent and major record labels: 360 and beyond”, published in February 2016, I set out that ‟as digital income is the fastest and exponentially growing area in music revenues, it is likely that more and more acts will be drawn to the net profit deal option, which ensures a 50-50 split on streaming and download revenues, rather than the traditional record deal option”. ‟Recording artists, such as Eminem and ‟Weird Al” Yankovic, as well as managers, such as 19 Entertainment founded by music mogul Simon Fuller, have swiftly brought this issue relating to the split of earnings on digital revenues to the attention of the general public, by filing high-profile lawsuits against the three music majors. The defendants later settled these lawsuits out-of-court, consenting – under confidential terms – to hike up artists’ share of earnings on digital revenues, but their reputation got tarnished in the process”.
More recently, in ‟Reforming UK music law: making the music streaming market economically viable for all stakeholders”, I highlighted that the debate, raised by the United Kingdom (‟UK”) House of Commons Digital, Culture, Media and Sport Committee (the ‟Committee”), during its 2020 investigation, as to whether a music stream was a sale, a license or a rental, is considered by American commentators, such as Susan Butler of ‟Music Confidential”, as a means of manipulating record labels to split 50 percent of streaming royalties under existing recording deals, made with recording artists long ago. These old recording contracts stipulate that artists’ royalties are calculated as a percentage of sales but, for licensing, a 50 percent share of licensing fees is collected by music performers. If a stream is classified not as a sale, but as a license, records labels would have to share 50 percent of their streaming revenue with artists, even under old agreements.
Labels and recording artists were, and still are, therefore fighting hard to establish whether music streaming is replacing radio or sales (i.e. sales of CDs, cassettes, vinyls). In the early days of the streaming era, and before that, labels typically paid artists on the basis of a stream (or digital download) being a sale. Why are labels most commonly treating streaming as sales (which is rather counterintuitive since streaming is all about ‟access”, rather than ‟ownership”)? Because the percentage that labels would have to pay artists on music streams is much lower, often in the 10 to 15 percent range if the artists is signed on a traditional or 360 record deal (and therefore classifies streams as sales), rather than around 50 percent for a license.
Well, my attendance to Justice Richard Arnold’s Westminster Law School annual lecture 2022, in February 2022, brought to my attention a new court case, managed and judged by the Intellectual Property Enterprise Court (‟IPEC”), which relates exactly to this ongoing, and raging, debate between music labels and recording artists.
Except that, unlike the above-mentioned legal cases which were all settled out-of-court and in a confidential manner, this new UK court case, entitled Kieran Hebden v Domino Recording Co Limited [2022] EWHC 74 (IPEC), took place very much in the public eye.
1. What are the facts?
Kieran Hebden is a British musical performing and recording artist who performs and records under the name ‟Four Tet” (the ‟Claimant”).
On 28 February 2001, the Claimant and Domino Recording Company Limited, a UK independent record label (the ‟Defendant”), entered into an exclusive recording agreement (the ‟Agreement”).
Under the Agreement, the Claimant:
- undertook to provide certain sound recordings, exclusively to the Defendant, within a specified period, under the name ‟Four Tet” (the ‟Masters”), and
- assigned the copyright in the Masters to the Defendant.
Under the Agreement, the Defendant undertook to:
- release the Masters, and
- account for, and pay the Claimant, royalties in respect of the Masters.
The exclusive recording provisions of the Agreement terminated in November 2005.
Between February 2001 and November 2005, I understand that the Masters provided by the Claimant to the Defendant, and released in the public domain by the Defendant, were: Pause (2001), Rounds (2003) and Everything Ecstatic (2005).
2. What are the case’s procedural proceedings?
Probably after some failed out-of-court attempts to settle with the Defendant, the Claimant issued some particulars of claim against the Defendant, in IPEC, on 16 December 2020 (the ‟Particulars of claim”).
In the Particulars of claim, the Claimant contended that the Defendant had breached their contractual obligations under the Agreement, in particular by failing to account properly for royalties in respect of streaming and digital downloads. The Claimant sought a declaration as to the true construction of the Agreement and monetary relief capped at GBP70,000.
In other words, the Claimant was asking, in the Particulars of claim, that the Defendant pay him 50 percent on the royalties in respect of the Masters, deriving from streaming and digital downloads, thereby categorising such music streams and downloads as licenses under the Agreement (despite the fact that the Agreement is no doubt a traditional record deal contract).
The Defendant filed and served their defence on 21 February 2021, resisting the claim in its entirety (the ‟Defence”). They argued – as they probably did argue, before the Claimant filed the Particulars of claim with IPEC – that digital downloads, including streams, were considered a new technology format, and that the Claimant was only entitled to the 13.5 percent royalty rate on such streams and downloads, like any other sales under the Agreement.
Also, in the Defence, the Defendant filed an application for strike out and/or summary judgment because the Defendant’s solicitors sent an open letter to the Claimant, on 16 November 2021 (the ‟Letter”), setting out that:
- the Defendant made an open offer to pay sums corresponding to the damages sought under the Particulars of claim, and costs;
- the Defendant informed the Claimant that they had instructed all digital service providers (‟DSPs”), such as Spotify, to withdraw the Masters, and undertook not to exploit the Masters digitally in future without first agreeing terms in writing with the Claimant (which, in any case, would not be the 50 percent rate claimed by the Claimant for exploitation), and
- in light of the Defendant’s above-mentioned offer, and their unilateral conduct/undertakings, the court proceedings should be stayed or, should the Claimant disagree to a stay, apply for dismissal of these proceedings.
The receipt of the Letter, and the serving of the Defence, prompted the Claimant to make an application for permission to amend the Particulars of claim, since he considered the Defendant’s conduct in withdrawing the Masters from the DSPs, and in stating that they would not exploit such Masters digitally in future, to be a breach of the Agreement.
The Defendant denied breach and issued an application for summary judgment on 25 November 2021.
The Claimant applied for permission to amend the Particulars of claim to include claims relating to the Defendant’s recent conduct, on 6 December 2021.
The Defendant wrote to the Claimant, on 14 December 2021, explaining that they did not consent to the proposed amendments to the Particulars of claim.
A hearing was held at IPEC on 16 December 2021, to deal with the competing applications.
Justice Pat Treacy issued her judgment on 19 January 2022 (the ‟Judgment”).
3. Four Tet v Domino: so what’s the lowdown?
3.1. Four Tet & Domino settled via a Part 36 offer & Domino will pay 50 percent on music stream royalties to Four Tet going forward
The most important takeaway, from this case, is that the Claimant announced, via a tweet sent on 20 June 2022, that him and the Defendant were in the process of settling the court proceedings via a part 36 offer to settle.
In this part 36 offer, which the Claimant made available to public view via yet another tweet dated 20 June 2022, it is set out that the Defendant made this offer to settle the whole claim, if accepted by the Claimant within 21 days of service of the part 36 offer, as follows:
- in respect of all historical streaming and download income from the accounting period starting on 1 July 2017 (i.e. the accounting period which includes the date 3 years prior to the date on which the claim was issued), the Defendant will pay the Claimant the sum of GBP56,921.08, calculated to be the difference between royalties which would have been payable to the Claimant at the 50 percent rate the Claimant claims, and what has been paid at the 18 percent rate to date;
- the Defendant will pay simple interest on the historical sum calculated to be due at a rate of 5 percent per annum;
- going forward, the Defendant will pay a royalty rate of 50 percent for all streaming and download income in respect of which the Defendant has not yet accounted to the Claimant, and
- this part 36 offer is made in full and final settlement of all claims in the proceedings (including, for the avoidance of doubt, all of the claims pleaded in the amended version of the Particulars of claim).
Another tweet from the Claimant shows the notice of acceptance of the part 36 offer to settle, signed by him as of 5 May 2022.
Case closed.
3.2. The label’s ongoing obligation to exploit the Masters in the public domain may survive the termination of any exclusive recording provisions of the Agreement
In the Judgment, Justice Treacy agreed that the Defendant may have an ongoing express or implied duty to exploit, as well as duty of good faith, with respect to the release and exploitation of the Masters, even after the exclusive recording provisions of the Agreement terminated in 2005.
Therefore, if this issue became relevant at trial (for example in the context of a dispute as to whether the Defendant’s actions in requiring the DSPs to cease digital delivery of the Masters were made in good faith), then the Claimant’s request to amend the Particulars of claim with respect to the Defendant’s express or implied duty to exploit, as well as duty of good faith, was reasonable.
The message is clear.
Record labels beware: don’t try to put pressure on your acts, by threatening, or even worse acting on such threats, to withdraw all your artist’s sound recordings from DSPs, to shut them up when they are asking you to account for music streams and downloads as licenses, and to pay them a 50 percent royalties’ rate on them.
Removing songs from DSPs may breach music labels’ express or implied duty to exploit, as well as to act in good faith, as the Judgment confirms.
This view, set out in the Judgment, goes in the direction expressed by the Committee in their Committee’s report and Bill, and before that by the European commission and parliament, in their European Union directive on copyright in the Digital Single Market 2019/790 (the ‟DSM directive”), that:
- the so-called appropriate and proportionate remuneration principle should apply, based on fair remuneration principles, within the contractual relationships between music labels and their acts;
- a contract adjustment mechanism should be put in place, so that music recording and performing artists may seek additional, appropriate and fair remuneration where the original remuneration is disproportionately low compared to the relevant revenues derived from the subsequent exploitation, and
- a revocation right should exist, and could be used when a copyright work licensed exclusively is not being exploited by the licensee (i.e. record labels).
Indeed, while the Claimant asked for permission to amend the Particulars of claim, in order to submit that the copyright in the Masters should revert to the Claimant, since the Defendant had failed to exploit such Masters on an ongoing basis by withdrawing them from the DSPs, the Judgment confirms that the Particulars of claim may be amended in such respect.
Why Domino refused to negotiate with Four Tet, pre-litigation, quietly and away from the public eye, in view of the above-mentioned recent legal evolutions triggered by the DSM directive, the Committee’s report and the Bill, is beyond my understanding: not only did they tarnish their reputation, by coming across as an out-of-touch, greedy and monolithic independent music label, but they failed to contain such PR public disaster, by letting Four Tet make the details of their settlement offer public via social media.
This is really a perfect example of what not to do, as a music label, when your talent asks for the renegotiation of their royalties’ share on music streams and downloads.
As far as Four Tet is concerned, he played his cards with considerable skill, business acumen and chuztpah, while managing his own legal case very closely and frugally (conducting litigation on his own behalf). While he would have liked to obtain from Domino that they return the Masters to him, as part of the settlement offer finally reached by the parties in May-June 2022, Four Tet was smart enough to accept the part 36 offer to settle, which granted him most of his demands and wishes anyway, while erasing the risk to be held liable in court to pay for all of Domino’s costs (in the scenario in which he would have rejected such part 36 offer, and in case the judgment obtained thereafter would have been no more advantageous than Domino’s part 36 offer).
As a music performer and recording artist, you need to be extremely well-prepared, poised and ready for battle, if and when you want to renegotiate the split on streams’ royalties with your music label, and Four Tet’s strategy is a great example to follow.
Since, Four Tet has moved on, by signing an exclusive and global publishing deal with Universal Music Publishing, and by setting up his own label, Text Records, via his own company Four Tet Limited.
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