At Eminem’s Trial: How Is an Online Music Sale Different?

The legal battle between Universal Music Group (UMG) and Eminem’s publishing company continued Thursday, as the music company tried to prove in a downtown Los Angeles courtroom that a record sale is the same in both the physical and online world.

Last Updated: March 3, 2009 @ 11:23 PM

The legal battle between Universal Music Group (UMG) and Eminem’s publishing company continued Thursday, as the music company tried to prove in a downtown Los Angeles courtroom that a music sale is the same in the physical world and online.

UMG considers online stores like iTunes to be music retailers just like Best Buy or Walmart. F.B.T.  is trying to emphasize that a digital download is different from a record purchased at a physical store because a legal download is licensed; a digital download cannot be given to someone else as a gift, for example.

At issue is a lawsuit filed two years ago by F.B.T., which claims that the world’s largest music company owes Eminem more money for the music it sells via third-party distributors like Apple’s iTunes or phone companies who offer musical ringtones.

During a tedious portion of the questioning, the lead attorney for UMG, Glenn Pomerantz, painstakingly questioned Joel Martin, the owner of the rapper’s publishing company 8 Mile Style and a close friend of the Bass Brothers, about the distinctions between the same album produced in different formats.

Pomerantz presented Martin with a CD, cassette and vinyl version of the “Marshall Mathers EP,” making a chart that indicated that the artist, music, art, record company and royalty rate were the same on all three formats. He later produced a compilation CD and an iPod with a logo of the CD on its screen to ask the same questions.

When Eminem and F.B.T Productions signed the contract with UMG, Pomerantz said, Martin “knew that technology had changed over the years – undoubtedly new ways to deliver music to the consumer would emerge.”

“Even though it costs more to manufacture vinyl than a CD, you get the same royalty rate,” the lawyer added. It was a line of questioning seemingly meant to further the argument that UMG does incur a number of costs for a digital music sale, including what the company says was millions of dollars devoted to building the technology to send digital files to online retailers.

Also in the third day of the trial, Rand Hoffman, SVP of Business Affairs at UMG and head of Business and Legal Affairs at Interscope Geffen A&M Records, was questioned aggressively over the intricacies of the contract between F.B.T. and UMG.

At one point, F.B.T.’s lead attorney, Richard S. Busch, asked Hoffman about a change to the digital download royalty structure meant to be implemented into artists’ contracts in 2002. He repeatedly tried to get Hoffman to admit that UMG would only include the new clause when artist contracts were drafted from scratch – not for artists with pre-existing contracts, like Eminem.

“How much money has Universal made off of Eminem albums? Is it a large sum?” Busch said.

“Of course, a lot of money,” Hoffman said.

“50 million? 100 million?” Busch continued, at which point he was reprimanded by the judge.

At the trial on Wednesday, UMG executives came under fire on the witness stand over whether they still have significant costs related to selling music in digital form, now that many of the expenses of distributing the music that existed a decade ago have evaporated. Universal executives, meanwhile, maintained that regardless of whether music is in a digital or physical format, it is still a product that they own.

Under Eminem’s current arrangement, the rapper may only be receiving around 20 cents for every iTunes purchase of his music. If his lawsuit is successful, that sum could be upped to around 35 cents per purchase.