Pink Floyd have taken the crown in their recent royalty dispute with record company EMI.
Between 1967 and 1992, the parties had entered into various agreements relating to overseas and UK sales of five named albums. All of these agreements were terminated and replaced by a "Master Licence Agreement (MLA)" in 1999 in which Pink Floyd granted to EMI the right to exploit their albums in return for an agreed percentage of EMI's sales receipts. By 2005, four further albums were subject to the same MLA.
In 2007, Pink Floyd appointed Prager & Fenton to carry out an audit of the royalty statements provided to them by EMI. The audit report alleged that EMI had under accounted for over 10 million worth of royalties to Pink Floyd. The main source of the under-accounting was from digital sales of the Pink Floyd albums. The agreement between the parties provided that EMI was to pay Pink Floyd a royalty based on a percentage share of EMI's sales receipts. EMI's receipts were to be calculated at the "source" so that they incorporated the receipts from EMI's licenses, sub-licensees, affiliates and any third parties obtaining rights to exploit Pink Floyd's copyrights whether directly or indirectly from EMI.
Pink Floyd alleged that internet music providers, for example iTunes, were sub-licensees, affiliates or third parties of EMI in terms of the provisions of the MLA, but that EMI had failed to account to Pink Floyd for the income received from such digital music providers, hence the under accounting of the royalties.
EMI on the other hand argued that under the MLA, royalties were payable to Pink Floyd only in respect of the receipts of any person to whom EMI had exclusively licensed its rights. EMI sought to rely on the fact that, when the MLA was drafted in 1999, the concept of digital exploitation or online distribution of music was in its infancy. Accordingly, it could not have been in the contemplation of the parties to include royalties for digital exploitation when drafting the MLA.
The court ultimately found in favour of Pink Floyd. It found that the purpose of the MLA was to preserve the integrity of the albums, a purpose which was as relevant to online distribution as to the sale of a physical product. So distributors beware – new distributions channels created by technological advancement may be within the scope of your agreements!