Nov 21, 2023 2 min read

New York judge dismisses Black Sheep lawsuit on Universal's Spotify equity

A New York court has dismissed a lawsuit filed by rap duo Black Sheep which accused Universal Music of agreeing to take a lower royalty rate from Spotify in return for getting equity in the streaming firm - and in doing so reducing the royalties received by artists

New York judge dismisses Black Sheep lawsuit on Universal's Spotify equity

A New York judge yesterday dismissed a lawsuit filed by rap duo Black Sheep against Universal Music over the first deal the major label did with Spotify back in 2008. The rappers argued that Universal got Spotify equity in that deal in return for accepting a lower royalty rate, despite knowing that that would disadvantage its artists.

Judge Jennifer L Rochon said that Black Sheep members Andres 'Dres' Titus and William 'Mista Lawnge' McLean were far too late in filing their legal action against the record company because of an obligation in their record contract to file any litigation relating to royalty disputes within two years from when the disputed royalties were paid.

Black Sheep only filed their lawsuit in January this year, long after the 2008 Spotify deal they were taking issue with. And even if they restricted their claim to royalties that were due in the two years prior to filing, their legal arguments still fail, the judge concluded.

That’s because the wording of their record contract basically says that Universal can structure licensing deals around Black Sheep's recordings in any way it sees fit, providing it pays a royalty on income directly attributable to their music.

Black Sheep's lawsuit claimed that Universal Music agreed a deal with Spotify in which it accepted a lower ongoing royalty rate in return for receiving equity in the streaming business, knowing that the ongoing royalty payments would have to be shared with its artists.

“Universal is withholding hundreds of millions of dollars in royalties from artists", the lawsuit stated, "through a previously undisclosed arrangement whereby Universal licensed artists’ recordings to the Spotify music streaming service in exchange for Spotify stock and lower royalty payments”.

All the majors and indie label repping Merlin took equity in Spotify as part of their original licensing deals with the streaming company. They then had the option to sell that equity for profit when Spotify listed on the New York Stock Exchange in 2018.

However, the labels would almost certainly argue that the equity part of the deal didn't have any significant impact on the core revenue share part of the deal. Plus, ultimately, the labels committed to share the profits of the sale of the Spotify stock with their artists, even though arguably they were not contractually obliged to do so.

Rochon dismissed Black Sheep's case with prejudice, meaning they will not be able to file new proceedings on this dispute.

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