Sony Faces Class Action Lawsuit for Not Properly Compensating Artists

A class action lawsuit has been filed against Sony over compensation. Specifically, it relates to streaming royalties.

When it comes to anti-piracy and copyright lobbying efforts, major record label CEO’s and record label organizations frequently tout how it’s all about ensuring artists get paid. For one major record label, if the allegations in a class action lawsuit hold out to be true, they might want to follow their own advice.

According to Billboard, the estate of Ricky Nelson is suing Sony over streaming royalties. The suit says that Sony is in breach of contractual obligations among other things. From the report:

The estate of rock and roll “teen idol” Ricky Nelson has filed a class action lawsuit against Sony Music Entertainment, alleging the label violates contractual agreements with its artists by assessing an intercompany charge on international streaming revenue that deprives artists of accurate royalties from foreign sales.

The lawsuit, which was filed Tuesday in the U.S. District Court for the Southern District of New York, plainly states that Sony underreports revenue generated by artists abroad by adding a charge on revenues collected by region-specific subsidiaries such as Sony Music UK and Sony Music Australia. The suit argues that since SME has “total control” over its regional affiliates, it should not be taking a percentage off the top.

“By assessing an intercompany charge for international sales, [Sony] impermissibly takes up to 68 percent off the top of the international revenue earned from streaming sales, and bases the artist’s royalty rate on the remainder, which methodology directly violates the terms of the [artists’ compensation agreements],” the Nelson estate alleges.

The Nelson estate said it was “impracticable” to determine how many class members there are in the lawsuit, but that it could number into the thousands given the vastness of Sony’s catalog. The estate put the total claims in the action in excess of $5 million.

“Each class member has been damaged and is entitled to recovery by reason of Sony Music’s improper practices,” the suit explains. “Class action treatment will allow those similarly situated persons to litigate their claims in the manner that is most efficient and economical for the parties and the judicial system. The injury suffered by each class member, while meaningful on an individual basis, is not of such magnitude as to make the prosecution of individual actions economically feasible.”

We aren’t aware of any response by Sony. In addition, it is worth pointing out that the allegations have not yet been proven in court.

Still, it is also worth pointing out that this is far from the first time Sony has found themselves in legal hot water over business practices. In 2008, Sony was sued and raided for software piracy in France. At the time, Sony was being accused of pirating software by PointDev in France. In 2009, Sony was accused of music piracy in Mexico. Again, assets were seized at the time. Going back further, Sony was sued in multiple countries back in 2006 over the SunnComm/MediaMax rootkit scandal. Finally, in 2011, Sony faced multiple class action lawsuits over the Playstation Network data breach which saw over 70 million customers put on fraud alert.

Obviously, this latest lawsuit is going to once again give negative publicity to Sony. In addition, it’s going to be much tougher to sell people on compensating artists on various anti-piracy and lobbying campaigns with this cloud hanging over its head. It’ll be interesting to see what impact this lawsuit has in the grand scheme of things.

Drew Wilson on Twitter: @icecube85 and Google+.

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