Sony Pays $8 Million to Settle Digital Music Class Action Lawsuit

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Gregg Allman of the Allman Brothers Band

The list of musicians suing major record labels over digital music revenue has grown during the past few months. At issue in these cases is what musicians should get when a customer on a digital outlet like iTunes buys a song or album. Soon, in a breakthrough case involving Eminem's producers, a trial will be held to determine what damages look like when a court has determined that digital downloads should be treated as a "license" instead of a "sale," as many musicians argue is proper.

In the meantime, one case has just settled. It's actually one of the oldest cases on this front, a five-year battle between Sony BMG and musicians including The Allman Brothers, Cheap Trick, and The Youngbloods. Here's the details on Sony's deal.

The attorney for the class of musicians revealed the settlement in a filing Wednesday. According to the plaintiffs' motion for preliminary approval of the settlement -- necessary and by no means guaranteed -- Sony will pay its recording artists (and the lawyers) a total $7.95 million to resolve outstanding claims in the case. The deal also provides for a 3 percent bump in artists' royalty rates with respect to digital income.

A substantial portion of the pot, if approved, will go to artists who had at least 28,500 total downloads off of Apple's iTunes. The lawyers will take home more than $2.5 million of the settlement money. A small fraction has been set aside for artists whose download levels weren't very significant.

Perhaps most crucial is who will be eligible to make a claim on the money. Class members include many older musicians whose contracts were signed between 1976 and 2001, include clauses where 50 percent of net revenue is shared from licensed music, don't cap net receipts paid, don't include express rates for digital exploitation and were not later modified to entail digital exploitation.

Is it a fair deal? Hard to say, but the plaintiffs in the case originally requested at least $25 million in damages and pointed out that artists such as The Youngbloods were getting 4.7 cents for a 99 cent download when the plaintiffs believed it should be in excess of 30 cents. The types of artists eligible to make claims and the 3 percent royalty bump for the bigger artists also will guide the fairness calculus.

If the judge approves the deal, it will be legally binding on Sony BMG musicians who qualify as class members unless they expressly opt out. That's important because there are many other lawsuits pending over the issue of digital music exploitation, including a recent one against Sony by Toto. More lawsuits are expected to be filed, too. By making the deal, Sony could escape the future legal wrath of many musicians. The original suit estimated that more than 100 class members were involved, but during the litigation, several thousand smaller musicians also spoke up about their own potential claims.

The deal comes after the plaintiffs' lawyer reports two years of "extensive, intense settlement negotiations," with assistance from a mediator and the named plaintiffs.

"We believe that the settlement is in the best interest of the class," says Brian Caplan at Caplan & Ross, who represented the plaintiffs.

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