On June 18, 2024, the United States Court of Appeals For the First Circuit rendered its decision on Rafael Ithier; EGC Corp., a/k/a El Gran Combo, v. Carlos Juan Aponte-Cruz, a/k/a Charlie Aponte, ("Aponte"). The appeal to the First Circuit arose from contention surrounding the statutory language of 17 U.S.C. § 114(g), specifically, what, or who, is meant by, "recording artist . . . featured on [the] sound recording[s]." § 114(g)(2)(D)
For the greater part of the 21st century, royalties for sound recordings have been distributed and allocated according to the Small Webcaster Settlement Act of 2002 ("SWSA"), Pub. L. No. 107-321, 116 Stat. 2780, which amended § 114(g)(2). See Ithier v. Aponte-Cruz, No. 22-1859, 2024 WL 3040921, at *2-3 (1st Cir. June 18, 2024). This amendment served to establish "[a]n agent designated to distribute receipts from the licensing of transmissions." § 5(c). SoundExchange, Inc. ("SoundExchange"), a nonprofit performance rights organization became the statutorily designated, nonprofit, to distribute receipts from the licensing of transmissions. According to the statute, SoundExchange was to distribute 50% of the receipts to the copyright owner, § 114(g)(2)(A), 2.5% to nonfeatured musicians (whether or not members of the American Federation of Musicians) who have performed on sound recordings, § 114(g)(2)(B), 2.5% to nonfeatured vocalists (whether or not members of the American Federation of Musicians) who have performed on sound recordings, § 114(g)(2)(C), and 45% to the "recording artist or artists featured on such sound recording (or the persons conveying rights in the artists' performance in the sound recordings)." § 114(g)(2)(D).
Traditionally, SoundExchange had been dispensing all El Gran Combo statutory royalties to EGC Corp., even though the company never distributed any of those royalties to the members of El Gran Combo. See Ithier v. Aponte-Cruz, No. 22-1859, 2024 WL 3040921, at *2-3 (1st Cir. June 18, 2024). This changed in 2017, when Aponte, who had left El Gran Combo, formally requested to SoundExchange the royalties he claimed he was entitled to under § 114(g)(2)(D), for sound recordings of El Gran Combo which he had been the lead vocalist for. Aponte's request for entitlement stemmed from his belief that he was a "recording artist . . . featured on [the] sound recordings." Id. Subsequently, SoundExchange froze all payments under § 114(g)(2)(D) that were related to Aponte's request, which led to the lawsuit filed by Ithier and EGC Corp.
In their claim, Ithier and EGC Corp., argued that "Ithier is the sole owner for the right to collect royalties as Artist from SoundExchange as a featured artist," and that during Aponte's time in El Gran Combo, he was an employee for hire for El Gan Combo. See Ithier v. Aponte-Cruz, No. 22-1859, 2024 WL 3040921, at *3 (1st Cir. June 18, 2024). The District Court, after referring the matter to a Magistrate for a Report and Recommendation, granted summary judgment in favor of Ithier, stating,
(i)El Gran Combo, a distinct legal entity organized as a corporation, is the group most prominently featured on the sound recordings and, thus, is entitled to collect the royalties as the featured artist; and (ii) Rafael Ithier, as the sole owner of El Gran Combo, is entitled to collect the featured artist royalties due to the corporation.
Ithier v. Aponte-Cruz, No. 22-1859, 2024 WL 3040921, at *3 (1st Cir. June 18, 2024). Aponte timely appealed the District Court's decision and SoundExchange, along with the American Federation of Musicians of the United States and Canada, and the Screen Actors Guild — American Federation of Television and Radio Artists filed an amicus brief in support of Aponte. Ithier v. Aponte-Cruz, No. 22-1859, 2024 WL 3040921, at *3 (1st Cir. June 18, 2024).
On appeal, the First Circuit Court of Appeals reversed the District Court's decision. In doing so, it held that, "'the recording artist or artists featured on such sound recordings' would be natural persons," and thus Aponte should be considered a "recording artist . . . featured," regarding distribution of royalties of El Gran Combo recordings in which he participated as a lead vocalist. See Ithier v. Aponte-Cruz, No. 22-1859, 2024 WL 3040921, at *8 (1st Cir. June 18, 2024). In its reasoning, the court relied on its interpretation of the statutory language "artist" to refer to one "who performs" and thus one who "recite[s], render[s], play[s], dance[s], or act[s]," id. §§ 101, 114(g)(1)(A). This reasoning was supported by legislative history that purports a recording artist to be natural persons and not entities.
The Court of Appeals concluded that Aponte is the recording artist featured and is therefore entitled to his statutorily assigned royalties.
Appellate Court Hands Musicians a Big Win for Music Royalties
This decision has several far-reaching repercussions beyond the royalties stemming from the passive streaming of El Gran Combo recordings. Although the decision furthers representation for individual artists, in an industry which has become label and corporate dominated over the years, it opens up potential issues for the courts. As the decision notes, many famous bands, which have produced millions in streaming revenue, have consisted of rotating band members. This trend has recently increased in popularity; as evidenced by productions from 88rising, BTS, NCT, and Golden Child: groups which routinely rotate the featured artists on their recordings while releasing music under one band name.
The first potential issue stemming from the decision will be retroactive requests for distributions. Since it will no longer be the band as an entity who are the featured artists, this may prompt individuals to come and similarly demand royalties for recordings in which they believe they were featured artists. This retroactivity can disrupt long-standing agreements which may cause significant legal and financial stress for both bands and their corporate entities. This may open up further debates for the courts as to who is or is not a featured artist, and perhaps if one artist is more prominently featured than another.
It is also commonly held that Bands, as entities, hold legal rights and can typically enter into contracts independently of their individual members. With bands no longer being recognized as featured artists, complications may arise pertaining to their contractual obligations and legal standing. Examples of this may include marketing and sales agreements which are typically done under the band as a singular entity.
Furthermore, statutory language designating royalty allocations could potentially pose challenges for work-for-hire contracts. Often, contracts between record labels and performing artists designate an upfront principal payment for the artist's work with a designation for specific royalty payments that come later. If these contracts are viewed to go against the statutory 45%, mandated to featured artists, it could potentially cause a slew of circuit splits and potentially require the Supreme Court to grant Certiorari.
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