Face the Music Promptly or Lose Your Rights to It

New York’s top appellate court recently affirmed a lower court ruling against the estate of Duke Ellington in a claim brought against the jazz legend’s record company, EMI. The plaintiff, Ellington’s grandson, filed suit to recover royalties claimed to be due the estate under a U.S copyright renewal agreement from 1961 that covered certain relevant musical compositions. 

The Ellington family’s dispute with the record company centered around a so-called ”net receipts” provision in an agreement, requiring a group of music publishers, including Mills Music, Inc. (now EMI), to pay Ellington and family half the net revenue “actually received” by the publishers from foreign publication of the music. The “actually received” language anticipates deductions from the royalties generated by foreign publication to pay foreign sub-publishers’ fees. Moreover, definition of the publishers receiving the revenue included certain specified entities “and any other affiliate of Mills Music, Inc.”

At some point during an audit of EMI, Ellington’s grandson discovered that EMI had begun using affiliated foreign sub-publishers, who retained half the royalties generated from foreign sales of the relevant musical compositions. The plaintiff eventually sued EMI for breach of contract and fraudulent concealment. By using affiliated foreign sub-publishers, the plaintiff contended, EMI was double-dipping into the entire revenue pool from foreign sales of the compositions. The plaintiff argued that revenue received by the affiliated sub-publishers was revenue “actually received by EMI” and should be included in the amount split 50-50 under the agreement.   

The court sided with EMI, holding that the phrase “and any other affiliate of Mills Music, Inc.” only referred to affiliates (and affiliations) then in existence when the contract was formed. In 1961 when the agreement with Ellington was signed, it was rare for foreign sub-publishers to be affiliated with domestic music publishers. Over time, however, many domestic publishers, such as EMI, began affiliating with foreign sub-publishers. Ellington’s family claimed this arrangement diluted their share of royalties. In its ruling, the court acknowledged that “the globalization of the music industry … rendered this ‘net receipts’ arrangement much more favorable to music publishers than to artists”, but the court was compelled to carry out the parties’ intentions based on “the plain language within the four corners of the Agreement.”

Although the result appears harsh, a few aspects of the proceedings appear to shed light on why the court ruled as it did. First, the court found that the plaintiff’s theory of an EMI breach of the covenant of fair dealing implied in all contracts was an issue that had not been preserved for appeal. That is, the plaintiff raised the issue too late in the earlier proceedings. Furthermore, the estate, together with Ellington’s grandson, had received royalty statements for many years prior to the lawsuit, showing the payments to and arrangements with the foreign sub-publishers. Thus, the court was likely influenced by the parties’ practical understanding of the terms of the agreement (as suggested in a concurring opinion written by another judge), and the plaintiff could be seen as having slept on its rights. 

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