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The Carpenters sue Universal over unpaid royalties, including sales-v-licence

By | Published on Thursday 12 January 2017

Richard Carpenter is suing Universal Music in a wide-ranging royalties dispute which also reignites the classic sales-v-licence debate.

One half of The Carpenters alongside his late sister Karen, Carpenter claims that when he had his accountants do one of those always fun audits of his label’s books, the bean counters found multiple errors in the way the duo’s royalties had been calculated.

Among the complaints in Carpenters’ lawsuit are that Universal and its A&M Records label – to which the duo were signed – under-reported the number of downloads of his music and applied an incorrect base rate to the sale of CDs of Carpenters’ records. But, perhaps more importantly, the litigation also again questions how labels classify downloads.

As much previously reported, this has been a bone of contention between artists and record companies ever since iTunes first gained momentum. Artist record contracts traditionally made a distinction between sales income and licence income, with a much smaller royalty paid on the former than the latter.

Major label contracts commonly paid up to a 15% royalty on sales, but might offer a 50/50 split on licensing revenue. That was mainly because sales – which originally meant physical recordings sold in shops – accounted for the vast majority of income overall.

With iTunes, the labels no longer sold physical product to retailers, but instead gave Apple a licence to digitally distribute their music. This resulted in many managers and lawyers arguing that iTunes money was therefore licence income, and the higher artist royalty should be paid.

Labels generally disagreed with this, arguing that downloads were a digital version of the traditional sale. Some artists then went legal, with the landmark case remaining that pursued against Universal by FBT Productions, producers on the early Eminem recordings who earned royalties from those records.

FBT won, but Universal and its rivals insisted that the case didn’t set a precedent to be applied across all pre-digital record contracts. However, behind the scenes, a number of big name heritage acts negotiated secret deals that got them much better rates on download income.

Though when other American artists went legal, resulting in a number of class actions, in the main the labels managed to negotiate out-of-court settlements that offered only nominal increases on download royalties for artists (no more than a few per cent). Most record companies, meanwhile, argued that if they were forced to pay a 50% artist royalty on downloads across the board they’d go out of business.

Although the big sales-v-licence cases were generally settled in a cost effective way for the labels, the issue now commonly pops up whenever veteran acts have a general royalty squabble with a major. The biggest ongoing litigation that includes this issue is the dispute between Sony Music and 19 Entertainment, which reps various former ‘American Idol’ finalists. That lawsuit is particularly interesting because it also questions the royalty rate the major pays on streams, where the case for ‘licence’ over ‘sale’ is even stronger.

Back to Carpenter and his filing yesterday with the LA Superior Court. Citing the FBT Productions case, his lawsuit says Universal “improperly classified” download revenue which, combined with the alleged under-reporting, means he and the estate of his late sister received a “minuscule fraction” of the digital royalties they are owed.

Alleging that the major knocked back his claim for unpaid royalties following his audit, Carpenter wants the courts to force the major to hand over that money and other damages. He said in a statement: “I regret that I have been unable to amicably resolve this serious royalty dispute with Universal and A&M”.

He went on: “The Carpenters recordings are among the best sellers in the history of popular music and after 48 years continue to contribute a substantial amount to UMG/A&M’s annual bottom line. It seems only fair that these companies account fairly to my sister’s estate and to me. I look forward to proving the allegations in court”.