Malmsteen v. Universal Music Group, Inc.

In 1985, Yngwie Malmsteen (plaintiff) signed a recording contract with the predecessor-in-interest to UMG Recordings, Inc. (UMG) (defendant), a subsidiary of Universal Music Group, Inc. (defendant). The agreement gave UMG the exclusive right to record master recordings by Malmsteen during the term of the agreement and to reproduce and sell those recordings. The term expired in the early 1990s, but UMG had a continuing right to sell music recorded during the term and a corresponding obligation to pay Malmsteen royalties on such sales. A dispute later arose concerning the royalty rate for digital downloads sold through third-party retailers, such as Apple’s iTunes store. Because digital downloads did not exist when the agreement was signed, it did not expressly provide for them. UMG argued that a provision covering the sale of records through normal retail channels governed the downloads. Records were defined as “[a]ny device now or hereafter known, on or by which sound may be recorded and reproduced, which is manufactured or distributed primarily for home and/or consumer and/or juke box use . . . .” The agreement defined normal retail channels as “[n]ormal retail distribution channels.” These were distinguished from sales under a different provision that covered sales via other specific methods, including direct mail, mail order, and marketing through various media channels. The royalty rate applicable to sales through normal retail channels ranged from 8 to 15 percent. The royalty rate for sales outside normal retail channels was 50 percent. The parties filed cross-motions for summary judgment, with Malmsteen arguing that third-party sales of digital downloads were outside normal retail channels as defined in the agreement.