F.B.T. Prods., LLC v. Aftermath Records - 621 F.3d 958 (9th Cir. 2010)

Rule:

Parol evidence is properly admitted to construe a contract only when its language is ambiguous. The decision whether to admit parol evidence involves a two-step process. First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine "ambiguity," i.e., whether the language is "reasonably susceptible" to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is "reasonably susceptible" to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step-- interpreting the contract. 

Facts:

This dispute concerns the percentage of royalties due to Plaintiffs F.B.T. Productions, LLC, and Em2M, LLC, under their contracts with Defendant Aftermath in connection with the recordings of Marshal B. Mathers, III, professionally known as the rap artist Eminem. Specifically, F.B.T. and Aftermath disagree on whether the contracts' "Records Sold" provision or "Masters Licensed" provision sets the royalty rate for sales of Eminem's records in the form of permanent downloads and mastertones. Before trial, F.B.T. moved for summary judgment that the Masters Licensed provision unambiguously applied to permanent downloads and mastertones. The district court denied the motion. At the close of evidence, F.B.T. did not move for judgment as a matter of law, and the jury returned a verdict in favor of Aftermath. On appeal, F.B.T. reasserts that the Masters Licensed provision unambiguously applies to permanent downloads and mastertones. 

Issue:

Did the district court err in determining that the contracts were ambiguous?

Answer:

Yes.

Conclusion:

The appellate court concluded the agreements unambiguously provided that "notwithstanding" the Records Sold provision, Aftermath owed plaintiffs a 50 percent royalty under the Masters Licensed provision for licensing the artist's masters to third parties for any use, rather than the 12 percent royalty under Records Sold provision. The Copyright Act, 17 U.S.C.S. §§ 109, 114(d)(2), and 115, supported the conclusion that Aftermath’s agreements permitting third parties to use its sound recordings to produce and sell permanent downloads and mastertones were licenses rather than sales because: (1) Aftermath owned the copyrights to the recordings and retained ownership; (2) Aftermath did not "sell" anything to the third parties; and (3) the third parties did not acquire title to the digital downloads.