ICYDK: Music NFTs also generate royalties – copyright

The latest case against American DJ 3LAU is very timely, with “music NFTs” becoming a growing trend in the music industry.

“Music NFTs” and Copyright Law. As a refresher, an NFT is a unique cryptographic or blockchain-based asset linked to another asset or content such as digital art, a ticket or a musical album. To give an analogy, buying a so-called “music NFT” is like buying a physical CD from a music store (although artists usually offer NFT holders additional benefits or benefits, such as early access to music releases and VIP concert tickets) . This comparison is particularly important as more songwriters, artists, publishers and record labels choose to release music through NFTs. Under copyright law, the author of a particular work has the exclusive right to reproduce that work. Accordingly, when a composition or master is streamed, downloaded, stored on a vinyl record or even printed as sheet music, it implies reproduction rights that the author exclusively controls. In a music production agreement, it is common for authors or owners of a song to agree to share the net revenue from reproductions of the song (a “royalty”) in recognition of their respective ownership in the underlying work. Because of this, the sale of an NFT, when linked to an mp3 or other digital version of a song, will also generate royalties.

The Music Royal Landscape. In the US, there are several types of music royalty, which depend on whether the ownership rights are in the composition or the master. Use of a composition may be subject to performance royalties (applicable to public performances such as live performances and AM/FM radio), mechanical royalties (applicable to digital or physical reproductions including via digital music services such as Spotify and YouTube), synchronization royalties (applicable to synchronization in television, film, social media apps, etc.), or printing fees (applies to reproductions such as sheet music). Use of a master may be subject to performance fees (applies to digital or satellite radio, but not including AM/FM radio), reproduction fees (applies to sales of physical or digital reproductions), or synchronization fees (applies to synchronization in TV, film, social media apps etc.). In particular, use on one platform may imply several types of royalties.

Luna Aura v. 3LAU Entertainment. On November 9, Angela Anne Flores known professionally by her stage name, “Luna Aura”, sued 3LAU for breach of contract and unjust enrichment. 3LAU engaged Flores in 2017 to write and record the song called “Walk Away”. Under the agreement, 3LAU was required to give Flores an appropriate writer credit and featured artist credit; 50% of the net royalty payable to 3LAU on any “sale by the Master”, paid “in the same manner…and at the same time” as 3LAU’s royalty; and a proportionate share of any income 3LAU receives in respect of mechanical reproductions of the composition.

The song “Walk Away” was first released as a single in late 2017, then as a track on Ultraviolet album in early 2018. Flores had been credited as a co-writer and featured artist on the 2017 single and 2018 album. When 3LAU reissued
Ultraviolet album, including the individual tracks, as a series of NFTs earlier this year, 3LAU allegedly did so without notifying or obtaining Flores’ permission or license. 3LAU reportedly generated more than $11mm in revenue from the NFT auction. However, Flores claims that she did not receive any royalties in connection with the NFT auction and to add insult to injury, 3LAU offered her $25,000 after the fact, as compensation for said auction. Hence the reason for the lawsuit. Flores is demanding damages and an accounting of the amount of royalties she is owed.

The main point of this complaint is that “music NFTs” can be considered reproductions and have the potential to create additional revenue streams. Songwriters, artists, publishers and labels alike should review any agreements they may have entered into regarding the exploitation of a song so that they know their rights and obligations with respect to any royalties.

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