## Facts

- F.B.T. Productions, LLC and Em2M, LLC (F.B.T.) initially secured exclusive recording rights to Marshall B. Mathers III (Eminem).
- In 1998, F.B.T. transferred Eminem’s exclusive recording services to Aftermath under an agreement with two royalty structures:
  - “Records Sold”: 12%–20% of adjusted retail price for “full price records sold in the United States . . . through normal retail channels.”
  - “Masters Licensed”: “Notwithstanding the foregoing,” 50% of Aftermath’s net receipts on “masters licensed by us . . . to others for their manufacture and sale of records or for any other uses.”
- The agreement defined “master” as a sound recording, with or without visual images, used in producing or manufacturing records.
- Beginning in the early 2000s, Aftermath entered agreements with digital distributors (e.g., iTunes and wireless carriers) allowing distribution of Eminem recordings as permanent downloads and mastertones (ringtones), with Aftermath paid via per-download or revenue-share terms.
- Aftermath accounted for these digital uses under the “Records Sold” provision rather than the “Masters Licensed” provision.
- Following an audit, F.B.T. claimed the digital distributor deals were licenses of masters and demanded royalties at the 50% net receipts rate.
- In the district court, summary judgment for F.B.T. was denied on ambiguity grounds; a jury found for Aftermath, and the court awarded Aftermath attorneys’ fees.

## Issues

1. Whether permanent downloads and mastertones fall under the agreement’s “Records Sold” royalty provision or its “Masters Licensed” royalty provision.
2. Whether Aftermath’s agreements with digital distributors are properly characterized as sales through “normal retail channels” or licenses of masters “to others” for distribution “or for any other uses.”
3. Whether the contract was unambiguous such that the royalty issue was a question of law requiring summary judgment rather than submission to a jury.

## Decision

- The Ninth Circuit reversed the judgment for Aftermath.
- The court held the contract was unambiguous and the “Masters Licensed” provision applied to permanent downloads and mastertones distributed by third parties.
- The court concluded the digital distributor arrangements were licenses, not “records sold . . . through normal retail channels” by Aftermath.
- The court ruled the district court should have granted summary judgment to F.B.T.
- The court vacated the attorneys’ fees award to Aftermath and remanded for further proceedings consistent with its interpretation.

## Legal Principles

- Where a contract is unambiguous, interpretation is a question of law for the court, not the jury.
- “Notwithstanding the foregoing” signals that the later clause operates as an exception that controls when its conditions are met.
- A royalty clause covering “masters licensed . . . to others . . . for any other uses” can encompass digital distribution arrangements that grant third parties rights to reproduce and distribute recordings as downloads or ringtones.
- Agreements that grant distributors limited rights to exploit recordings while the licensor retains ownership in the masters are properly treated as licenses rather than wholesale sales of records.
- Contract text controls over asserted industry practice when the language provides a single reasonable meaning.

## Conclusion

The Ninth Circuit held that third-party digital distribution of recordings as permanent downloads and mastertones triggered the agreement’s “Masters Licensed” royalty rate (50% of net receipts), reversed the defense verdict, and vacated the related attorneys’ fees award.


F.B.T. Prods., LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010)