Court Rules Against Universal Music In Lawsuit That Could Pay Artists Millions. Chuck D Joins Fight.

Welcome to every major label's worst nightmare. Universal Music Group (UMG) is now facing the real possibility of mulitple class action lawsuits alleging they short-changed artists of royalties owed for digital downloads and ringtones. This week, the combined force of Rob Zombie and the estate of Rick James cleared a legal hurdle for their class action suit filed in April, and Chuck D introduced a fresh lawsuit making similar claims. UMG hopes to have both suits treated as breach-of-contract disputes since, if allowed to move forward as class actions, they can conceivably include all UMG artists.

Public Enemy – Welcome[s UMG] to the Terrordome (Fear 2011)

Both lawsuits are based on similar claims: are digital downloads and ringtones are not sold, ar as the labels have claimed, licensed? The latter pays artists 10 – 20%, as opposed to sales which contractually returns as much as 50% to them.

As noted in The Hollywood Reporter, an earlier suit brought by Eminem established a legal precedent for the artists claims. On Tuesday, UMG faced a setback to their request that the suit brought by Rob Zombie and the estate of Rick James be treated as breach-of-contact disputes and dismissed in order to avoid the broader implications of a successful class action suit. However, a federal judge in California said that the case should continue with further fact-finding and could go before a jury.

According to The Wrap, Chuck D's freshly filed class action suit not only addresses the 50/50 split but also claims that UMG has made deductions for such non-existent expenses as containers and packaging. Chuck D is pushing for a jury trial and, given the damaged brand of major labels, jury selection would be quite an intense process.

Huge amounts of money are involved:

"According to Ridenhour's claim, under UMG's current method of accounting, artists and producers receive $80.33 for every 1,000 downloads, when the correct amount should be $315.85 per 1,000. On the ringtone side of things…The suit claims that UMG's current accounting method yields $49.89 per thousand downloads, as opposed to the $660 per 1,000 that the suit claims is actually owed."

But this is not just a problem for UMG, given the similar approach taken by other labels. Dave Kusek did some "quick and dirty math" back in March when Eminem's lawsuit was moving forward and estimated that money owed to artists for iTunes sales alone could amount to $2.5 billion dollars.

If these class action suits are successful, the financial implications to record labels are potentially ruinous, especially for deals signed prior to the early 2000's, as noted by Dave Kusek.

Hypebot contributor Clyde Smith maintains his freelance writing hub at Flux Research and blogs at All World Dance and This Business of Blogging. To suggest topics for Hypebot, contact: clyde(at)fluxresearch(dot)com.