ICYDK: Music NFTs Also Generate Royalties

• Published date: 28 November 2022
• Subject Matter: Intellectual Property, Media, Telecoms, IT, Entertainment, Copyright, Broadcasting: Film, TV & Radio, Music and the Arts
• Law Firm: Frankfurt Kurnit Klein & Selz
• Author: Ms Saphya Council

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...