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US appeals court declines to make Warner streaming royalties dispute a class action

By Chris Cooke | Published on Tuesday 18 May 2021

The Ninth Circuit appeals court in the US has upheld a lower court ruling that declined to make a classic royalties lawsuit being pursed against Warner Music by singer Lenny Williams a class action.

Williams, who fronted R&B group Tower Of Power, sued Warner in 2018 over a common royalty gripe among artists, which is what happens to streaming income as it passes through a major’s international subsidiaries.

He claims that Warner allows its different divisions around the world to deduct fees from his streaming income before passing the money to the label to which he is directly signed in the US.

His percentage royalty share is then calculated based on what the US label receives, but – he argues – the maths should be done on the at-source income, ie what the streaming service paid into whatever Warner subsidiary took payment.

Williams sought to make his lawsuit a class action so that a positive outcome could benefit any artists signed to Warner. However, the major argued that there were some specifics about Williams’ record contract that meant it wasn’t representative of the majority of the deals it signs with artists, making this dispute inappropriate for a class action.

In Williams’ original lawsuit he identified three groups of artists who should be part of the class. The first group would have more modern contracts with Warner that mention streaming. The second group would have pre-digital contracts that don’t mention streaming, but which do talk about ‘licensing income’ (which, artists would argue, should apply to streams). And the third group are artists with record contracts that don’t mention streams or licensing.

However, Williams himself falls into the latter group, which – Warner argued in court – makes his claim more complicated. The judge overseeing the case in the lower court concurred with the music company. Unlike potential class members in the first two groups, Williams would need to prove that he is due any streaming royalties at all, which is to say that – in the absence of any talk about streaming in his record contract – a royalty right over digital income was nevertheless implied.

And the Ninth Circuit agrees. In a new ruling it states: “In order to determine whether the artists in [group three] were entitled to streaming royalties, the district court would have needed to determine whether an implied contract to pay such royalties existed between all the members of that subclass and Warner. The district court reasonably concluded that the more challenging question of implied contract, applicable only to contracts for [group three], would overwhelm the straightforward interpretive questions applicable to the contracts for [groups one and two]”.

The appeals court also notes that, even if Williams was paid the higher streaming royalty rate, he’s unlikely to ever recoup on his old record contract, ie pay off past advances and costs that are recoupable out of his royalties. Which means, in tangible terms, he hasn’t suffered any harm as a result of Warner’s policies on streaming payments.

The ruling states that Williams and his production company “would not have been eligible to receive any royalty payments of any kind because of the considerable unrecouped balance on their Warner Bros account. Furthermore, it was very unlikely that plaintiffs would recoup that outstanding balance and become eligible to receive royalties before the copyright protection for their musical compositions expired”.

“Unlike other putative class members whose accounts were recouped or who would likely become recouped before the expiration of their intellectual property rights”, it adds, “plaintiffs have little prospect of any direct harm”.

Neither Williams nor Warner have as yet commented on the latest decision in this case.