Eminem, through his publishing company F.B.T. Productions, is suing Universal Music Group (UMG) over digital downloads of his songs that he claims he is not getting paid for. He is suing over the use of his music to distributers like iTunes as well as cell phone providers who use his music as ringtones. As in many court cases, the real issue is over terminology. There are two ways in which artists get paid royalties: licensing and distribution. In licensing agreements, the artist gets a 50-50 split with their record company, which could add up to 35 cents per download. Under distribution agreements, that number goes down to 20 cents. Whether digital downloads are under licensing or distribution agreements is what will be determined in this case. If Eminem gets his way, that means he could see up to $1.3 million.

Eminem has sued Universal over how much he is entitled to when UMG sells his music to third-party distributors — including Apple’s iTunes and phone companies like Sprint and Nextel, which offer the music for ringtones.

At stake is potentially hundreds of millions of dollars for recording artists whose songs have gained unprecedented levels of distribution through digital downloads.

While digital royalties have become a growing source of conflict between artists and record companies in recent years as downloads have gained in popularity, the trial in U.S. District Court for the Central District of California represents the first legal test of the competing issues.

UMG represents a virtual who’s who of recording artists, including Akon, U2, Jay-Z and Kanye West. Aftermath was created by the rapper Dr. Dre, who brought Eminem into the fold more than 10 years ago.

“This is very significant case,” said Jay Cooper, an entertainment lawyer with vast experience in the music industry. “A lot of people are going to be watching very closely because there’s a lot of money involved.”

The key question for the court, Cooper said, is whether the jury will determine that the use of an artist’s music in a download deal is a licensing agreement or a distribution deal.

The difference in monetary gain for artists is potentially huge. Under traditional licensing agreements, which cover records and CDs, the artist splits royalties 50-50,with the record company. Extended to include digital downloads, that could mean as much as 35 cents for the artist for every iTunes purchase. Under a distribution arrangement, the artist might see less than 20 cents.

Cooper declined to speculate how much money may ultimately be up for grabs because contract language varies, artist to artist. Further, performers and record companies might have entirely different interpretation of the same words, which appears to be the case involving Eminem’s company….

The sums in this specific case are not huge. F.B.T. is accusing Aftermath of withholding about $1.3 million in royalties under what it claims is a cynical interpretation of contracts with UMG, starting in 1998, that established royalties from the sale of Eminem’s music at 50 percent of net receipts. Lawyers for the rapper argue that making the work available for digital downloading is simply an extension of the original contracts.

In court papers, Aftermath disputes allegations that the company withheld royalties or that the company is misinterpreting contract language that F.T.B. says equates digital downloads to the sale of music in other forms.

[from The Wrap

UMG also claims that there is language in a contract with Eminem that says that downloads are sold, not distributed – meaning that the music in this case is distributed, not licensed. If this language is clear, this may be the death of Eminem’s case.

The lawsuit is over two years old, and is just finally going to court. It will be interesting to see how the judge rules, because if Eminem wins, you’ll be sure to see more lawsuits just like this in the future. Digital downloading is tough issue. With it so easy to download music for free, record companies have to scramble in order to keep their revenue up. Although iTunes is wildly successful, there are just as many people downloading those songs for free.

And is downloading for free really “stealing”? Here’s how I once heard a professor describe it: Stealing would be if you walked up to some guy holding a sandwich and took it from him. He now does not have a sandwich. However, digital downloading is like if you walked up to the guy with the sandwich, and made a replica of it, and then walked away. He still has his sandwich – you just now have one too. That doesn’t mean that it’s necessarily right, just that it’s more complicated than the word “stealing” implies.

I’m still not sure how I stand on the whole issue – and I certainly don’t know how I feel about the actual court case. There’s a lot at stake.

Eminem is shown on the BET show 106 and Park with 50 Cent on 12/4/06. Credit: WENN