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LA court dismisses foreign royalties lawsuit filed against Universal by former Beach Boy

By | Published on Friday 8 April 2022

Universal Music

An LA court has dismissed a lawsuit filed by a former member of the Beach Boys which took issue with the way Universal Music accounts and reports artist royalties for streams in markets other than the US.

David Marks was originally a member of the Beach Boys in 1962 and 1963, and rejoined the band for a couple of other short stints in the 1990s and 2010s. Universal Music, meanwhile, acquired the band’s 1960s catalogue when it bought EMI and its Capitol Records label back in 2012.

The lawsuit filed by Marks centred on a common gripe among many heritage artists over the deductions that are made by local subsidiaries of the major labels when music is streamed in countries other than the one in which those artists were signed. The question is, is the artist royalty – a percentage of income, of course – calculated before or after the local subsidiary’s deduction?

In the physical era, international deductions were commonly applied before the artist royalty was calculated, but many artists argue that – while that may have been justifiable in the physical era, where the local subsidiary had to do some heavy lifting to get discs to market – it’s not acceptable in the digital age, where the home market label uploads the music to the streaming service.

And that’s especially so with catalogue music, where the local subsidiary isn’t even doing any proactive marketing to justify taking a cut of the money.

With new record deals, an artist’s royalty on streaming income is usually calculated based on ‘at source’ income, thus ensuring any international deductions don’t affect what the artist earns (although the actual royalty might be slightly lower in some markets). However, with heritage artists whose record contracts only talk about physical income, there is often a lack of transparency about what deductions are being made as money flows through the system.

Marks’ lawsuit accused Universal of wrong-doing in this domain, with the musician specifically suing for fraud and breach of contract. His lawsuit also sought class action status so that – if successful – other artists with similar record deals with the major could claim allegedly unpaid royalties.

The legal filing, submitted with the courts last year, stated: “Defendants failed to disclose and omitted material facts regarding the total foreign streaming revenues collected by its foreign affiliates as detailed herein and instead only disclosed amounts remaining after imposing an intercompany charge between defendants and their foreign affiliates”.

“Further”, it went on, “defendants failed to indicate the true royalty rate being paid to plaintiff and class members. Defendants’ omissions of material fact were intentional and made with knowledge as to the total foreign streaming revenues generated by their foreign affiliates. Defendants’ omissions were material because class members are unable to determine the total foreign streaming revenues generated abroad absent undertaking a lengthy and expensive audit”.

It then reaffirmed: “Defendants actively concealed the total foreign streaming revenues generated by its foreign affiliates from plaintiff and class members”.

The court dealing with the dispute previously dismissed Marks’ lawsuit, stating: “Plaintiff included no particularised facts that would allow the court to determine what fraud occurred, when, and through what instrument”. And, regarding the breach of contract allegation: “Plaintiff failed to identify a bargained-for provision requiring UMG to pay plaintiff his claimed royalties”.

However Marks and his team were given the option to file an amended lawsuit, which they did. But, the judge ruled this week, the issues he previously raised with the litigation have not been addressed in the amended complaint.

In the latest ruling, which also quoted his earlier decision, the judge wrote: “Plaintiff once again ‘includes no particularised facts that would allow the court to determine what fraud occurred, when, and through what instrument’ … Plaintiff attaches no contract or fraudulent royalty statement to the [amended lawsuit], and once again plaintiff makes no effort to narrow his serious fraud accusations to a reasonably discrete period or individual such that UMG can meaningfully respond”.

And the issues with the breach of contract claim weren’t addressed either. “Plaintiff still has not pleaded a bargained-for agreement that defendants breached”, the judge wrote. “Plaintiff does not present the material terms and conditions of the contract in writing or in substance. Plaintiff only presents excerpts of past contracts that do not mention digital streaming. The breach of contract claim fails for this reason”.

Neither Universal nor Marks have as yet commented on the decision.