Cardozo Law Review de•novo

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Student Note

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This Note examines the disparity in the courts’ rulings in the Malmsteen and F.B.T. cases, specifically the different ways in which each court interpreted the contractual language of the parties’ preInternet recording agreements, and their application of royalty rates. Part I of this Note provides an overview of the royalty structure used to compute royalty rates for compact discs (CDs). Part I discusses on the economic effects of switching to a digital distribution system, the sales versus license distinction, and the principles relied on by the courts to interpret pre-Internet contracts. Part II of this Note examines the courts’ rulings in Malmsteen and F.B.T. The Malmsteen court held that the “Records Sold” provision determined the artist’s royalty rate for a digital download. Contrarily, in F.B.T. the court concluded that the royalty rate for a digital download is based on the royalty structure for “Masters Licensed.” Part III explores the courts’ failure to acknowledge a digital first-sale doctrine, which consequently frustrates the justifications for classifying digital music transactions as sales. Part IV serves as an analogy—discussing other types of agreements that are categorized as licenses, even though they are not labeled as such. Part V proposes reasons courts should follow the F.B.T. court’s holding and apply the Masters Licensed provision for digital downloads. Specifically, labeling the transactions as licenses more accurately comports with the parties’ intention when negotiating the agreements.


Cardozo Law Review de·novo



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