LOS ANGELES (CN) — The Ninth Circuit gave a poor forecast Monday to a former member of the Beach Boys who claims that Universal Music has been shortchanging him on royalties from foreign streaming revenue.
"This is a really curious problem," Senior U.S. Circuit Judge Jay Bybee told an attorney for the now 74-year-old Marks, who claims that Universal committed to pay his client half of any streaming royalties, even without an explicit contractual agreement regarding them.
Along with U.S. Circuit Judge Morgan Christen, Bybee repeatedly asked Marks' lawyer Daniel Lifschitz to explain how and when Universal started to pay royalties for overseas streaming without any renegotiation of an existing 1972 contract that pertained only to vinyl album sales.
Lifschitz responded that the royalty statements that Marks has been receiving since an unspecified date, and which include the purported 50% rate for streaming, were the "objective manifestation" that the terms of the contract had been modified by the record company.
The lawyer argued that Universal and its Capitol Records subsidiary began paying streaming royalties because they didn't want so-called legacy artists to start rescinding their contracts with the advance of digital streaming that has all but replaced the sale of physical records and CDs in recent years.
"By adding a streaming royalty to save their legacy contracts from failure by the frustration of purpose, Respondents necessarily availed themselves of the principle of implied modification by conduct," Lifschitz wrote in an appeals brief.
Marks sued the top music label in 2021 for breach of contract and fraud, among other claims, alleging that Universal's overseas subsidiaries that collect the royalties from foreign streaming have been deducting their own "costs" for distributing the songs before they remit the royalties to the U.S., with the result that he only receives 37.5% of the total amount rather than the half to which he says he's entitled. As a teenager, Marks played guitar on early Beach Boys albums in the 1960s.
U.S. District Judge Mark Scarsi in Los Angeles dismissed the lawsuit last year for the second time, and this time without leave to amend. The judge emphasized that Marks' breach-of-contract allegation relied on excerpts of past contracts that didn't mention digital streaming.
"Plaintiff still has not pleaded a bargained-for agreement that Defendants breached," Scarsi wrote. "Even assuming Defendants are the proper parties to the alleged agreements to pay foreign streaming royalties without deduction, Plaintiff does not 'present the material terms and conditions of the contract in writing or in substance.'"
Universal Music's attorney Sean Commons told the panel at Monday's hearing that there was no binding contract for foreign royalties from streaming, and that the royalty statements Marks receives weren't contract modifications.
"It's goodwill," Commons said. "There's no contractual obligation."
The judges seemed somewhat more sympathetic to Marks' claim for declaratory relief, presumably in the form of a statement of his contractual rights and obligations, but didn't indicate how they would rule on his appeal.
Along with Bybee, a George W. Bush appointee, and Christen, a Barack Obama appointee, the third judge hearing Marks' appeal was Senior U.S. District Judge Sidney Fitzwater, a Ronald Reagan appointee, sitting by designation from the Northern District of Texas in Dallas.
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