## Facts

- In 1985, a record company (then PolyGram, later UMG) entered a recording agreement with the artist’s production entity, granting exclusive rights to record and exploit master recordings and obligating payment of royalties.
- The agreement used forward-looking definitions (e.g., “now or hereafter known”) for “master recordings” and “records,” and set different royalties for (a) sales through “normal retail distribution channels” (8–15% of suggested retail list price) and (b) specified non-retail/special channels (50% of net receipts).
- The agreement permitted the label to recoup certain video production expenses from the artist’s audio royalties.
- In the 2000s, the label distributed the artist’s recordings as permanent digital downloads through third-party services (e.g., iTunes) and paid the lower “normal retail” sales royalties.
- The artist alleged breach based on: (1) applying sales royalties (rather than 50% net receipts) to digital downloads; (2) improper recoupment of video production costs from audio royalties for concert videos produced in the late 1980s/early 1990s; and (3) failure to account for/pay royalties on a concert DVD.
- The defendants moved for summary judgment; the artist cross-moved for summary judgment; and the parent company sought dismissal as a non-signatory.

## Issues

1. Whether permanent digital downloads sold via third-party services fell within “normal retail distribution channels” (sales royalties) or instead triggered the agreement’s 50% net-receipts provision.
2. Whether the label’s recoupment of video production costs from audio royalties breached the agreement, and whether any challenge was barred by the statute of limitations.
3. Whether the label breached by not paying/accounting for royalties on a concert DVD when the label received no revenue from that DVD.
4. Whether the non-signatory parent company could be liable for breach of the recording agreement.

## Decision

- The court granted defendants’ motion for summary judgment in full and denied the artist’s cross-motion.
- Digital downloads through third-party services were treated as sales through “normal retail distribution channels,” so the label did not breach by applying the 8–15% sales royalty rate.
- The label’s video-cost recoupment was contractually permitted (including recoupment of 50% of certain video-production expenses), and any miscalculation challenge brought decades later was time-barred.
- No breach was shown for the concert DVD because the royalty obligation was tied to monies received, and the label received none for the DVD at issue.
- The court dismissed the parent company because it was not a party to the agreement and no basis (e.g., veil piercing/assumption) was established to bind it.

## Legal Principles

- Under New York law, unambiguous contract language is enforced as written; forward-looking terms such as “now or hereafter known” can capture later-developed technologies within defined categories.
- Permanent digital downloads may be treated as “records” sold through ordinary retail channels when the agreement’s structure and definitions support that classification, even if the technology did not exist when the contract was executed.
- A label may recoup production costs from royalties when the agreement authorizes recoupment; contract claims challenging long-past accounting/recoupment decisions are subject to New York’s statute of limitations for breach of contract.
- Where royalties are calculated as a share of receipts or revenues, a duty to pay typically does not arise absent proof the payor received monies from the exploitation.
- A non-signatory parent corporation is not liable for breach of a subsidiary’s contract without a supported doctrine binding the parent (e.g., veil piercing, alter ego, or assumption of contractual duties).

## Conclusion

The court rejected the artist’s breach-of-contract theories, holding that third-party digital downloads were governed by the agreement’s retail-sales royalty provisions, challenges to historical video-cost recoupment were untimely (and recoupment was permitted as described), and DVD royalties were not owed without receipts; the non-signatory parent was dismissed.


Malmsteen v. Universal Music Group, Inc., 940 F. Supp. 2d 123 (S.D.N.Y. 2013)