EMI Wins Dispute Over Duke Ellington 'Net Revenue'

The decision is a defeat for Paul Ellington, the grandson of the great jazz pianist, who sued EMI for hundreds of thousands of dollars. He alleged that EMI had breached a 1961 songwriter royalty agreement with Ellington by deducting fees for foreign affiliates before accounting to Ellington's 50 percent share of net revenue.

In 2011, EMI prevailed at a New York State court by arguing that it was allowed to do so by the terms of the 1961 contract. On Thursday, an appellate division in New York agreed with the assessment that the contract is not ambiguous.

During his lifetime, Duke Ellington composed dozens of famous tunes including "It Don't Mean a Thing (If It Ain't Got That Swing)" and "Mood Indigo."

In the mid-20th century, when Ellington was creating his hit songs, the music industry was quite different. Unlike today, there were quite a few big song publishers out there. His publishing deal was with a company owned by Irving Mills.

Slowly, the music publishing industry consolidated. EMI acquired Mills Music to its stable.

The issue in this case was what to do about the foreign music publishers. When Ellington signed his deal in 1961, the foreign publishers connected to his music handed over money to Mills, which then split the money with the jazz legend. At that time, these foreign publishers were unaffiliated with Mills, but over time, EMI began purchasing stakes in those foreign companies too.

After seeing a royalty statement where certain divisions of EMI were essentially deducting money from another division, Ellington's heir sued.

But just because the music industry has changed doesn't mean that the contract will be read in a different light.

"We find no ambiguity in the agreement which, by its terms, requires EMI Mills to pay Ellington's heirs 50% of the net revenue actually received from foreign publication of Ellington's compositions," writes the appeals court in the ruling. " 'Foreign publication' has one unmistakable meaning regardless of whether it is performed by independent or affiliated subpublishers. Given the plain meaning of the agreement's language, plaintiff's argument that foreign subpublishers were generally unaffiliated in 1961, when the agreement was executed, is immaterial."

Here is the full ruling.

Foreign receipts has been at issue in many other accounting battles in the entertainment industry.

Donald Zakarin, a partner at Pryor Cashman who represented EMI, believes the decision will set precedent that under net receipts agreements, affiliated foreign publishers are entitled to deduct fees and be compensated like unaffiliated publishers. He says, "We believe that this decision will provide support across a broad spectrum of businesses in which royalties are payable based on 'net receipts' contracts, including record companies and traditional publishers."

E-mail: eriq.gardner@thr.com; Twitter: @eriqgardner

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