ICYDK: Music NFTs Also Generate Royalties – Copyright

The newest 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
piece of content such as digital artwork, a ticket, or a musical
album. To give an analogy, purchasing a so-called “music
NFT” is like purchasing a physical CD from a music store
(though artists typically offer NFT holders additional benefits or
utility, such as early access to music releases and VIP concert
tickets). This comparison is especially important as more
songwriters, artists, publishers, and record labels choose to
release music through NFTs. Under copyright law, typically the
author of a particular work has the exclusive right to reproduce
that work. Accordingly, whenever a composition or master is
streamed, downloaded, stored on a vinyl record, or even printed as
sheet music, it implicates 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 split the net revenues
from reproductions of the song (a “royalty”) as
recognition for 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, would also generate royalties.

The Music Royalty Landscape. In the
U.S., there are several kinds of music royalties, which depend on
whether the ownership rights are in the composition or 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
print royalties (applicable to reproductions as sheet music). Use
of a master may be subject to performance royalties (applicable to
digital or satellite radio but not including AM/FM radio),
reproduction royalties (applicable to sales of physical or digital
reproductions), or synchronization royalties (applicable to
synchronization in television, film, social media apps, etc.).
Notably, use on one platform can implicate multiple types of
royalties.

Luna Aura v. 3LAU
Entertainment. On November
9th, Angela Anne Flores professionally known 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”. Per the agreement, 3LAU was
required to give Flores an appropriate writer credit and featured
artist credit; 50% of the net royalties payable to 3LAU on any
“sales of the master”, paid “in the same
manner…and at the same times” as 3LAU’s royalties; and a
pro-rated share of any income 3LAU receives with respect to
mechanical reproductions of the composition.

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

The major takeaway from 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 look back on any agreements
they may have entered regarding the exploitation of a song so they
know their rights and obligations with respect to any
royalties.

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