Eight Mile Style, LLC et al v. Apple Computer, Incorporated

Filing 117

TRANSCRIPT of Motions held on December 4th, 2008. (Court Reporter/Transcriber: Joan L. Morgan) (Number of Pages: 60) Redaction Request due 1/30/2009. Redacted Transcript Deadline set for 2/9/2009. Release of Transcript Restriction set for 4/9/2009. Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date, the transcript is publicly available. (Morgan, J)

Eight Mile Style, LLC et al v. Apple Computer, Incorporated

Doc. 117

1 UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION EIGHT MILE STYLE, LLC and MARTIN AFFILIATED, LLC, Plaintiffs, -VAPPLE COMPUTER, INC., and AFTERMATH RECORDS d/b/a AFTERMATH ENTERTAINMENT, Defendants, _____________________________/ Case Number: 07-13164

MOTIONS BEFORE THE HONORABLE ANNA DIGGS TAYLOR UNITED STATES DISTRICT JUDGE U. S. Courthouse & Federal Building 231 West Lafayette Boulevard West Detroit, Michigan 48226 THURSDAY, DECEMBER 4TH, 2008 APPEARANCES: For the Plaintiffs: For the Defendants: Court Reporter: Richard S. Busch, Esq. Kelly M. Klaus, Esq. Daniel D. Quick, Esq. Joan L. Morgan, CSR Official Court Reporter

Proceedings recorded by mechanical stenography. Transcript produced by computer-assisted transcription.

Dockets.Justia.com

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it. Detroit, Michigan Thursday, December 4th, 2008 -- --- -THE CLERK: Eight Mile Style, LLC, et. al, versus Apple Computer, Inc, et al., case number 07-13164. THE COURT: The first will be defendants' motion for summary judgment. MR. KLAUS: Good morning, your Honor. THE COURT: Good morning. MR. KLAUS: My name is Kelly Klaus. I represent

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the defendants along with Mr. Quick in the matter. And I think it's important the Court knows there are three motions that are on the calendar for today. is our defendants' motion for -THE COURT: For summary judgment which we're hearing now. MR. KLAUS: And the motion has three components to One is that the uses of the compositions in question One

have been expressly authorized through control -- what are called controlled composition clauses in two artist recording agreements -THE COURT: Wait a minute. Tell them to move down the hall. MR. KLAUS: Thank you, your Honor. The first argument is that the uses in question JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 have been authorized through what are called controlled

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composition clauses in artist recording agreements relating to Mr. Mathers who is professionally known as "Eminem." The second argument is that even if the uses were not expressly licensed they've been impliedly licensed as a matter of law by virtue of the fact that the objective manifestation of the defendants in the case, people with the authority to grant licenses have been to grant them. As evidenced most notably by their continuing up through the pendency of this lawsuit as recently as several months ago acceptance and retention of money for the very uses that they challenge. The third argument is an express licence argument that is based on a set of other agreements, other agreements involving Mr. Mathers, involving other coauthors, involving various publishing entities. That third argument is the only one of the three arguments that is effected by the other two motions that are on the calendar today, plaintiffs' motion to exclude and our motion to strike the declarations that have been filed by Mr. Sullivan. Let me start with the express license argument. Your Honor, if I may, I have a -- I know there's been a lot of paper on these motions. I prepared a set of binders --

THE COURT: Well, I can't -- this is a motion for JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 summary judgment. We cannot work with a set of binders.

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Just make the argument, please. MR. KLAUS: Okay. The binders only contain

evidence that's already been submitted in the record, but if I can go through the individual pieces of evidence. The first one, your Honor, Exhibit 9a which is the 1998 artist record agreement involving Eminem. this agreement in paragraph 6, and there's also a comparable provision in the 2003 agreement which was also filed as part of the motion for summary judgment states, "All controlled compositions, i.e., songs written or controlled directly or indirectly in whole or in part by F.B.T. artist, any affiliated company of F.B.T. artist, any producer or any affiliated company of any producer will be licensed to Aftermath and its distributors/licensees at a rate equal to," and then it lists the control break, and the balance of the provision deals with a complicated formula that's not relevant to this case about how the royalty rate is to be calculated. The entire argument of the plaintiffs in this case, the entire argument, is that the language that says "will be licensed" can be construed to mean will not be licensed because that is the position unequivocally that's been taken by the plaintiffs in this case in response to this motion is that they have the right not to license for JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489 And

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 digital uses. It is our position, your Honor, that is not -- the contract is not in any sense reasonably susceptible to that interpretation. There is no amount of

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extrinsic evidence and the plaintiffs have cited a lot of extrinsic evidence, testimony of people, exchanges of license agreements, but there is no extrinsic evidence by which the phrase "will be licensed" can be construed to mean exactly the opposite, will not be licensed, can't be done. Under California law which applies to these agreements pursuant to paragraph 21, the law says, if extrinsic evidence is contrary to the plain language, it can't be admitted, the plain language has to govern. That's BMW v New Motor Vehicle Board case which we cite in our papers. So either -- it says either defendant Aftermath has a license for the challenged use or they have to give us a license, but what they can't do is not give us a license. There's no circumstance under which that is a

reasonable construction of the phrase "will be licensed." Now, plaintiffs advance in opposition to this argument, four arguments. I want to turn to each one.

The first one is that they say this provision, the controlled composition clause, does not apply to digital uses. That is a not a determination of the

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 contract or a reading of that that is reasonably -- to which it is reasonably susceptible.

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The same agreement has

an ownership provision which is paragraph 8 which deals with the ownership and exploitation of the sound recordings that embody the compositions that are delivered pursuant to the agreement. That section says, Aftermath has the exclusive right to exploit and license or assign exploitations to masters or any derivatives of the masters. Aftermath can

exploit them in any manner in records, or any other media or use, and can add to, edit, alter or delete from or remix the masters at our sole election. Aftermath and its

distributors/licensees shall have the exclusive right to exploit such masters, and this is the key language, your Honor, "in any and all forms of media now known and hereinafter developed," meaning that the agreement was not frozen in time as to the technology that existed in 1998. Finally, it says that exploitation can take place in any form. This is a question that can be answered in terms of whether this contract and this language is reasonably susceptible to construction whereby the compositions -- the controlled composition clauses can modify the digital uses, can and should be answered as a matter of law. The only federal court that has addressed this JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 issue has agreed that language like this is not reasonably

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susceptible. The case I would direct your Honor's attention to is the Reinhardt v Wal-Mart case, 547 F. Supp. 2d 346. It's included in what is Exhibit F to plaintiffs' opposition. There is a copy of the Reinhardt case that is printed out from Lexus. In that case like this one, you

have plaintiff who claimed to own the composition right who says that the record company which was called Ramone's Production, something called Taco Tunes which is the name of the entity that did the distributions for it. Said that company had exceeded the scope of the license which the plaintiff had granted by allowing Apple, which is the defendant in this case to do exactly what it's doing with the recordings that embody the Eminem compositions, namely, to distribute them in the form of permanent download. In that case the language which is cited at page 354 of the Court's opinion says that there is authorization to the record production company to manufacture, advertise, sell, distribute or dispose of the masters and phono records in any and all fields of use by any method now or hereafter known. The same language you find in paragraph 8

of the Eminem agreements. In that case what the district court said is, and this is on page 355 of the opinion, "it is not reasonable to construe the phrase all forms now or hereafter known to JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

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exclude defendant's alleged digital download form which now constitutes a form of reproduction." The unambiguous

language forecloses other interpretations and the need to consider extrinsic evidence." The second argument that the plaintiffs make in terms of why the controlled composition clause does not apply allows them to say "will be licensed" can mean will not be licensed is that they say there is a requirement of law that a licensed authorizing what's called a digital phono record delivery or a DPD which you've seen a reference to in the papers, they say there is a requirement that be in a separate license, that because the language of paragraph 6 is captioned "mechanical royalty" you need a separate license that is labeled DPD, digital phono record delivery. The problem with that, your Honor, is there's no requirement, there's no such requirement. The statute which deals with compulsory licensing and which creates the term digital phono record delivery is Section 115 of the Copyright Act, Section 115D, Title 17, doesn't say that a DPD license has to be a separate license. The implementing

regulations which we've also cited which are Section 201.18(a)(6) say explicitly DPDs for purposes of that section are treated as a type of phono record configuration. It's just another form in which the

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 reproduction is made of a recording that embodies a composition. They say that there is an industry practice that

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somehow says that always is the case that a DPD license has to be separate and apart from the mechanical license. First of all, the extrinsic evidence that they try to say is industry practice could not vary the language of the agreement which is in paragraph 8 which is exactly what the court in Reinhardt says, you don't look to the extrinsic evidence because there's no circumstances for which it's reasonably susceptible to say that this agreement doesn't cover digital uses. But the more important -- the only thing that they say is evidence of industry practice is a particular license form that's used by one particular publishing agency which is called The Harry Fox Agency. case, the Rodgers v Hammerstein They cite a

case referred to in their

papers as the "Farm Club" case because that was the name of the digital service. And they say that case, Rodgers &

Hammerstein holds the DPD license has to be a separate license. Nothing in the case says that, your Honor. The

cases concern exclusively with construing the particular language that was used by The Harry Box Agency. The third argument is they say that Congress had made a judgment that controlled composition clauses JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 can't --such as you find in the Eminem's recording agreements, can't apply to digital phono record delivery. That's just wrong. case that says it. says it. What they say instead is they cite an embedded The statue doesn't say it.

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There's no

There's no legislative history that

provision of Section 115 which is admittedly a complicated and dense statute but which says that with respect to digital phono record delivery in the case where they are covered by a controlled composition -- it says where you have a controlled composition clause -- remember one of the things I said earlier was that part of what the -- what the controlled composition clause does is, it says "will be licensed" and then it goes on to provide a lengthy formula about the rate. And what the controlled composition clause

has done in addition to granting the right to use the composition that's on the sound recording that the record company is paying is they say there is a rate that is fixed by statute for composition. This is the so-called It's established

compulsory or the mechanical rate.

through a whole proceeding in Washington with the Copyright Royalty Board that comes up with the rate. What controlled composition clauses do is they say for purposes of our agreement we'll get the right to use them and we'll pay you at some percentage that is less JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 than the statutory rate. That's where most of the

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negotiation is in the text cited in record industries how far off that's going to be. And what Congress said in Section 115(c)(3)(E)(I) was that with respect to agreements that have controlled composition clauses the rates that were fixed, so-called statutory rates, would be applied, and the key language is "in lieu of" the rates that are found in those provisions. It doesn't say those provisions are ineffective. It doesn't say the rights granted pursuant to those provisions can't apply to digital phono record deliveries. It says that the rate that is fixed which is called the statutory rate will be applied in lieu of that. the legislative history says that they cite. That's all

And there is

no case that ever held and there would be an unreasonable construction of the statue to say that it wipes away controlled composition clauses in the case of digital phono record delivery. The very fact that Congress said we recognize that there will be controlled composition clauses that apply to digital phono record deliveries indicates that Congress did not intend to create those clauses. Four, the final argument as to why the controlled composition provision doesn't apply. If they say that the

language which is Aftermath and its distributors/licensees, JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 they say that distributors/licensees have to mean the distributor/licensee is affiliated. And the problem is

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there's nothing in the contract, there's nothing in any practice, there's nothing in any statute, there's nothing in any case that says this language has to be read to mean that the distributor or licensee has to be affiliated. What they've done is they've said in their papers that Universal witnesses, Universal is the principal owner of the Aftermath Record Company. What they said is that

Universal witnesses conceded at their depositions that when a distributor or a licensee is unaffiliated with the company they have to go and get their own license and the mechanical. That's not what the witnesses said.

What the witnesses said is that in one circumstance which is where the record company takes one song that it has and said to somebody else we're going to give you what's a license for a compilation album meaning we are Universal, we have this collection of recordings. You overhear, let's say, you don't own these recordings but what you would like to do if you would like to put out an album that is not an album, an Eminem album, but let's say the greatest hip hop hits of the year 2002, and you want to borrow one from me, and you want to borrow one from somebody else, you want to borrow one from somebody, and it's going to be your album and you're going to put it out. JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

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In that case of the compilation licensee, it is indeed the practice that the compilation licensee is required to clear mechanical, is required to pay the publishers for the right to use the composition. It's their product. There's very good reason for that.

It's the other record company's

product and the one record company doesn't want to deal with having to find the publishers and pay them. That

doesn't mean that -- it doesn't mean that the language could be construed to say that all cases if the distributor/licensee is not affiliated or owned by you, there's requirement that they have to go out and deal with the owner of the composition rights exclusively. No case says that. Nothing.

Indeed, the Reinhardt case stands for

exactly the opposite proposition. In sum, your Honor, we think that it is clear that the language of the implied license -- the language of the controlled composition clauses clears an express license. There's nothing -- the contract is not reasonably And we think that

susceptible for contrary interpretation.

covers -- that should entitle the defendants to summary judgment on the entire case. The second argument -- unless the Court has any questions on the controlled composition clause. THE COURT: Go ahead. MR. KLAUS: Second argument which is the implied JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

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license argument which is -- the cases are clear that even if a license has not been created by a writing, a license can be created by conduct. It can be created by a work

being turned over to the defendant with the intent that the defendant distributed it, and some objective manifestation of that. And what the cases -- and there are several cases There's the Effects There's the I.A.E.

which we've cited in our papers.

Associates case from the Ninth Circuit. case from the Seventh Circuit. case from the Sixth Circuit.

There's the Johnson v Jones

What those cases say is that the number one factor in terms of determining whether or not the plaintiff implied a license, is not when the plaintiff comes into court and says I never intended for that to be done, I never wanted them to do that because that sort of subjective manifestation is always subject to after the fact revision. What the cases say is the single most

important factor is the objective manifestation by taking money and by keeping it. And here, there is no doubt

that's exactly what's happened with respect to all the challenged uses. As of the end of the fourth quarter of 2007 as is set forth in the Linda LeMoine declaration filed with the motion, we know that more $640,000 has been paid to the plaintiffs for the digital uses. JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 We now have what we've resubmitted as Exhibit P of Ms. LeMoine's declaration in the replied brief in support of the motion.

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The most recent royalty check that

they have covering exactly the uses that they didn't intend to cover. That check is dated August 6ht, 2008. The only response that they have on the implied license argument, your Honor, is it was too difficult for us to understand or read the royalty statement to know what was being covered, and it was too difficult for us to go and figure out what money we should have had to give back to you. But the reality is, your Honor, they've never once

said including as recently as August of this year, they've never once said that what you should do is -- they never said, we don't approve of the digital uses, we know you're making them, cut us a new check, leave those out. never said it. They've

They took the money and under the case law,

your Honor, we think that clearly creates a license. Third argument, your Honor, which is the other agreements that are in the case. briefly. I will touch on those

They are summarized in a chart that we have That is Exhibit 22H to

submitted along with our motions.

the reply brief that was filed on October 15, Ms. LeMoine's declaration. It goes through one by one, composition by composition. I point the Court to what agreements, perhaps

the license of the 1998, the 2003, the sound track JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 agreement for the movie "Eight Mile" which covers the

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compositions, an agreement between a company that's called Shade Records which is owned by Mr. Mathers and his lawyer Mr. Rosenberg, and that distributes his work through Interscope Records and Aftermath also related to the defendants. It also points where the mechanical licenses are. Then the chart was updated, your Honor -- the chart was updated on the mechanical licenses to make clear that there are -- there are mechanical licenses that covered some of these compositions that have been granted by a company called Ensign or Famous Music which we found out had the right to do that when the plaintiffs produced to us on August 28th, a copy of an agreement which showed that they had what's called a co-publishing agreement with Ensign and therefore the mechanical licenses that we have from Ensign were covered. I don't want to go through that. The only point

that I will make about the -- something I want to make about these agreements, two-fold. One is there is no

dispute that the language of the -- a number of these have their own controlled composition clauses. The plaintiffs

do not have the argument that they try to make with respect to the Eminem agreements of 1998 and 2003 that talk about the language which said "will be licensed." And so "will

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

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be licensed" means there has to be a license in the future. What they say is they are hereby licenced. that argument, number one. Number two, they say that the other authors have no right to distribute -- the other authors have no right to grant any of these licenses because they're subject to their own publishing agreements which create restrictions. But there are two problems with that. First of They don't have

all, there is no evidence of what those other agreements are with respect to the other co-authors. What you have instead is Mr. Martin who is the principal of Martin Affiliated, and he's the manager of Eight Mile Style, the main representative of the plaintiffs in this case, says in paragraph 15 of his declaration in opposition to the summary judgment motion, your Honor, he says, "I am familiar with the fact that states that these co-authors have agreements with other companies, but I'm confident that those agreements contain restrictions." Doesn't say that he knows, doesn't say that they've seen any of those agreements with the other publishers. no evidence that they do. But the second and more important point, your Honor, is that there's no evidence that the defendant, Aftermath Records, which obtained the licenses from these other co-authors, had any notice that there was a JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489 There's

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 restriction on the part of any of these other entities to grant the licenses.

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The law is clear, we've got the citations in our brief, and without the notice they're like any other party that can rely on somebody who said -- as Eminem in the 1998 agreement and the 2003, that he has the right to grant the licenses. Those are the -- I believe those are the points with respect to the three arguments that are in the motion, your Honor. paper. have. THE COURT: What about all the other claims in the complaint, tortious interference? MR. KLAUS: Oh, I'm sorry. The -I'm happy to -- I understand there's a lot of

I'm happy to address any questions that you may

THE COURT: Consumer Protection Act, all of that. MR. KLAUS: I think our papers were not clear on that, and I apologize, your Honor. We filed a stipulation

I believe in April or May where plaintiffs dismissed the other claims. wasn't clear. So they're not in -- there's -- I'm sorry it There's only the --

THE COURT: The only claim is copyright infringement. MR. KLAUS: That's correct, your Honor. THE COURT: Okay. JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

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MR. KLAUS: It made -- striking those other claims out it made writing the motion somewhat easier. THE COURT: Good. You'll have rebuttal. MR. KLAUS: Thank you, very much, your Honor. MR. BUSCH: Good morning, your Honor. Richard Busch, on behalf of the plaintiffs. Your Honor, Mr. Klaus' argument arises from one very flawed premise, and the flawed premise from which it arises is that Aftermath and Apple had a license by virtue of the mechanical royalties section in the 1998 and 2003 agreement. That is the premise upon which his argument is based, and that premise because of its flaw destroys his entire argument. I just want to briefly address the point -- or some of the points that Mr. Klaus made and then I will respond to the other points in the summary judgment motion. First, Mr. Klaus begins by saying that this agreement in 1998 and 2003 between F.B.T. which is an owner of the master recordings and Aftermath which has in it what he calls a controlled composition clause but which in effect the mechanical royalties section states all controlled compositions will be licensed to Aftermath and its distributors like these at a certain rate. license by its own terms. It is not a

It simply provides for a reduced

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 rate when eventually a license may be signed. But for

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purposes of copyright infringement one has to remember this: You have to have the license from a publisher in order to reproduce a musical composition. Mr. Klaus says that we are reading that language to say just the contrary, that we will not license the composition. That is absolutely false and a

misrepresentation of our argument in this case. With respect to physical products, we have always negotiated the terms of separate licenses with Aftermath and entered into those agreements. agreements. They are separate

You cannot, you cannot simply say, well, we

think you have an obligation to enter into a license so we're going to commit copyright infringement. You can't do it. You have to have the license, and we always enter into

a license when negotiated with respect to the compositions that are at issue in this case. But Mr. Klaus said something else in his argument on his express license point, he says either Aftermath has the license or -- this is a quote, "they have a right to a license." But even if Aftermath believed they had a right

to a license with respect to composition, that does not transform itself into a license that gives them a right to exploit musical composition. It just doesn't do it, and

that's a fundamental flaw in his argument. JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 He also says that the -- and this is every

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important -- he also says the agreement -- now remember the agreement that he's referencing, the 1998 and the 2003 agreement, is between -- and this is very important, it's not between the plaintiffs in this case and Aftermath, it is between separate parties. It's between a company called

F.B.T. Productions that own the master recordings and Eminem and Aftermath. There are two separate rights in copyright. is very important. This

There is a right to master recordings,

there's a copyright to master recordings, and there is a separate copyright in a musical composition. The second point on the exploitation or this supposed express license that they claim the 1998 and 2003 agreement gives them is the language about the right to exploit master recordings. master recordings. Those are not compositions,

He says, well, under the agreement

F.B.T. gave them the right to exploit master recordings in all forms of media now known hereinafter created. correct. We're not disputing that. That's

But you know what the

problem is, and the problem with his entire argument is he's trying to take a contract that was drafted in a way that does not provide them the right they're claiming herein and they are trying to say, well, we didn't draft it right, we don't have the right but we're going to try to JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 fanagle them and put a square peg into a round hole. If you look at the mechanical royalties section which is the right -- which is the section that we're

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talking about here, there is no reference to record -- the right to exploit records or master recordings, the compositions in records or master recordings as that term is defined in the master recordings section. words, there's no tying the two together. In other

So you have to

have the right to exploit the master recordings, but when you go back to the mechanical royalty section and you look at what it says, there's -- they could have said, you hereby license to us the musical compositions to exploit in records as that term is defined later. said that. In fact, in the other, quote, unquote, third-part agreement that they entered into and they submitted to this Court, they did that. They know how to draft a contract They just didn't do it They could have

that does what they want it to do. here.

And they have to live with the contract as it's

drafted here. The other point -- well, that's -- well, the other point that he made -- well, those are two points on the direct license. So I want to go back now for a second

and I want to go through -- and rather than continue to address his points, I want to go back to points that I now JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 want to make with respect to the first issue in the case

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which is: Does the 1998 or 2003 agreement that's referenced in this case, does that grant an express license? Before I do, your Honor, I think it's important to say what this case is about. The plaintiffs in this They are

case are Eight Mile Style and Martin Affiliated.

Detroit publishers and they are responsible for accounting to their writers, Eminem, Marshall Mathers, Louie Resto, and the Bass Brothers, Mark and Jeff Bass. They have a

duty, they have an obligation to writers to ensure they are being accounted to accurately from third parties, and that there's transparency in the accounting. That is what this

case is all about, your Honor, that's what this case is all about. A few fundamentals along those lines. The Copyright Act gives a music publisher the exclusive right to license his compositions for the manufacture and distribution of records. They have the exclusive right to do so. A party reproducing product, that's Apple. Aftermath A party

Remember, Apple's the defendant in this case. intervened.

Apple was the party that was sued.

reproducing product must have a valid license from a music publisher in order to lawfully reproduce a musical composition. They have to have it. If they don't have

that license or it's not valid, they are liable for JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 copyright infringement. Because it's the party reproducing and manufacturing composition, that maintained the sale

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records, Apple, I-Tunes, the biggest reproducer of musical compositions today, in the world, by virtue of their I-Tune store, they keep all accounting records. sales. They know the

And then it's the same way, for example, with the That's why we get

parties who are releasing records.

licenses for the party that's reproducing records, the party that's reproducing because they are the ones that are the keeping the accounting records and in order to know whether their accounting records are accurate, you have to have a direct relationship with them, and that's why in the industry you enter into those licenses directly with those parties. So the only way a music publisher can have transparency in accounting and an account -- and fulfills its duty to its writers is to have a direct license with the party reproducing the compositions which would give them audit and accounting rights. This is what Eight Mile was entitled to and is seeking in this action. There is no -- and you can't, you

cannot say or Aftermath cannot say that they could take some language from an agreement that's not a license and somehow extrapolate that it is. You can't do it. And

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

25

because Apple -- they don't have a license, Apple is liable for infringement, and if they want to cure it, they need to get a license from Eight Mile. Okay, your Honor, some points on the express license as a matter of the law on this issue. This

contract was governed by California law, the 1998 and 2003 agreement. And what the law in California says is that a

trial court must provisionally receive any proper extrinsic evidence which is relevant to show whether the contract is reasonably susceptible of a particular meaning. It's

reversible error to refuse to do so based on the court's conclusion that the language in the contract is clear and unambiguous on its face. That's Morrey v Vannucci, 64 Cal.

App.4th 904. In determining what the meaning of the language is the court is look at the subsequent conduct of the parties. First of all, in our view directly contrary to Mr. Klaus' view, the language of the agreement is, in fact, clear. There is no license. You cannot read language to

say that F.B.T. and its affiliated real license to Aftermath and its distributors/licensees as a license itself. All they're saying is that we will license to

Aftermath and its distributors/licensees at a certain rate, at a reduced rate. I'm going to get to that in a minute

when I get to the point about why it doesn't apply to JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 digital downloads, and we'll get to that in a minute.

26 But

you cannot take that language and say that's a license, it's just not. It doesn't have any of the indicia of a

license, it doesn't say it's a license, it doesn't have any audit rights, it doesn't have any accounting rights, it doesn't have any payment terms, it has nothing that you would find in a license. So we believe it's clear that it's not a license. That's point number one. It doesn't have ­-

It's not self-effectuating.

Mr. Klaus points out they submitted to this Court after discovery closed thousands of pages of agreements, recording agreements. Those recording agreements say in

what they would call controlled composition clause that the compositions are quote, unquote, hereby licensed. many cases say for digital. They know how to draft it right. They didn't draft it right here such as they want and they have to live with their contract that they drafted. As I said, it omits material terms in a license, audit rights, accounting rights, things of that nature, and they contemplate the parties will thereafter do something, but it's not a license. Now, even though we think it's clear that it's not a license the extrinsic evidence is overwhelming in this case that the parties both understood that you had to JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489 And in

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 negotiate a separate license for digital downloads.

27 And it

may be putting the cart before the horse, your Honor, but I do want to say one thing. Mr. Klaus, again, misrepresents our argument when it comes to digital downloads, okay. When it comes to

digital downloads, what the law says is you cannot have reduced rates, you cannot have caps. The caps are what

record companies will do is say you might release 12 songs on an album, we're only to pay for nine or ten, okay, that's what a cap is. And the Copyright Act says you can't

have reduced rates and you can't have caps. Why do we say it doesn't apply to digital downloads to this contract, this contract report, because it's not a license ­- because it's not a license by its own terms and because the only purpose of it to do two things: reduce the rate and put on caps. Since you can't have That mechanical

reduced rates and caps, it's toothless.

royalties section is absolutely toothless and cannot apply to permanent downloads, period. It would be ­- it's a

educational exercise perhaps to say what if it did this, and what if it did that, and what if the language was different were to apply to digital downloads, but guess what, it doesn't. And you have to live with the contract

you have, and so this mechanical royalties section is absolutely ineffective as it applies to permanent JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 downloads.

28

But ­- let's talk about the extrinsic evidence to make it clear that even Aftermath knows that to be the case. First, in 2001, Aftermath sent a letter to Eight

Mile ­- or Universal does to Eight Mile and to others saying they're going to start making songs available for digital downloads and they quote, unquote, hope that Eight Mile will sign a license. There would be no need for a

hope of them signing a license if, in fact, the permanent downloads were covered by the mechanical royalties section. Secondly, and perhaps even more importantly, is what happened in 2002. Eminem's biggest songs. "Eight Mile" movie. The song, "Lose Yourself" is one of It was featured prominently in the

The defendants contacted Mr. Martin

and asked to enter into a permanent download license for the song "Lose Yourself." Now, if they had the right, if they had the right under the mechanical royalties section to make it available without a license, why would they have contacted Mr. Martin to do so? But even more importantly, the two sides One of the terms was a two-year term.

negotiated terms.

If you had a right to enter into a ­- make "Lose Yourself" available for permanent downloads under this mechanical royalties section, why would you enter into a digital download license with a two-year term? It makes no sense.

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 There were many other terms that were negotiated. There

29

was no reason to do so if, in fact, you had that right. Thereafter ­- and let me back up one second. Martin agreed to the "Lose Yourself" license. Mr.

It was never

returned executed by the defendants, but Mr. Martin agreed to the terms. terms. He thought there was an agreement on the

He thought there was an agreement on the terms, and

believed he was being paid for "Lose Yourself" thereafter. So ­- and in this case by the way, Universal to the every end of discovery never admitted there was an agreement, but ultimately at the end of discovery claims that there was. Thereafter, Universal sent multiple requests for digital download licenses with the same terms that had been negotiated on "Lose Yourself" license for digital downloads, Mr. Martin said, no, I'm not doing it, "Lose Yourself" was a one-time thing we negotiated. We

specifically said it would be a trial because digital downloads were new, he didn't know about accounting, he didn't know whether it would satisfy the need for transparency, he didn't know any of those things we negotiated. The "Lose Yourself" license was very early in

the permanent download process, and the people from Universal who were involved in those negotiations all said they understood that this was a trial or at least Patricia JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Blair said ­- who was the person who negotiated it, she remembered that there was a discussion, it was a trial matter, and everyone said, Tim Hernandez submitted an affidavit. He was in the department at the time. Chad

30

Gary, still in the department.

Pat Blair was deposed.

They all said that they knew that Mr. Martin back then objected to any of these compositions being exploited for permanent downloads. objections. They were all aware of his

It was only "Lose Yourself" that was

negotiated on a trial basis and everyone back then knew of the objections. objection. This was not a concocted after the fact

All the way back in 2002-2003 -- we submitted Tim Hernandez was in the

Tim Hernandez's declaration.

legal ­- the business and legal affairs department at Universal at the time. We submitted his declaration in

this case that everyone in the department was aware of those objections. Ms. Blair testified that people were So this is not a concocted

aware of the objections, okay. after the fact thing.

These objections were well known and

Mr. Martin testified on making the objections over and over and over again. Next point, two people have testified in this case about this. Universal has a practice where they have

a mechanical royalty or controlled composition clause in their contract. If it's ambiguous and they don't think

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that it might give rights that -­ if they're not sure whether rights are granted or not they will send out requests for licenses. If they feel confident that a

31

controlled composition or mechanical rights clause gives them certain rights, they will send out an advice letter. Mr. Leo Ferrante testified to that in his deposition that he understood that to the be practice. Universal's copyright department. He was with

And between the time of

our summary judgment filing and today, Peter Paterno who was their expert, testified that he understood that to be the practice, too. Well, guess what? We never once got an

advice letter from Universal.

They sent requests for

licenses because they know that the mechanical royalties section is not a self-effectuated controlled composition clause for either physical or for digital. Next point on this extrinsic evidence, Universal sent licenses to -­ license requests to Eight Mile and Mr. Martin for both physical and digital requests. in our papers. We put this

They would not have done so had they

thought that even for physical that the mechanical royalties section would self-effectuate. back his own licenses only for physical. reference to digital every single time. Mr. Martin sent He took out the Again, consistent

with all of his objections he had been making since 2002, about not making these songs available for digital JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 download. Lastly on extrinsic evidence, and I think most damning to Universal, so "Lose Yourself" -- and the one negotiated digital download with respect to "Lose Yourself."

32

Universal never returned it, never executed it In this litigation we asked them did you

and returned it.

approve this, was this approved back in 2002, was this a license for digital download that had been agreed to by Universal? We got ­- we couldn't get a straight answer. At the very end of discovery ­- it might have been after discovery closed, I finally got a letter from Mr. Klaus saying Universal will stipulate that they did negotiate and agreed to the terms for "Lose Yourself" license back in 2002. What did we do? We ­- because it was a two-year

term, with a right to terminate, the plaintiffs terminated the license, terminated it for "Lose Yourself." What did Universal do in response? Did they say,

well, you know what, we don't need a license we have the mechanical royalties section. No. They sent out, and this

is in our papers, they sent out a notice of compulsory licensing meaning that they were going to exercise from the Copyright Act imposing the right to enter into a compulsory license for "Lose Yourself." Now, we don't need to get into it right now JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

33

whether that compulsory license is or was not effected, but it certainly is an admission by Universal that they know that they can't rely on the mechanical royalties section and that they would have to have a separate license since they terminated the "Lose Yourself" license once they admitted that it was effective. The fact that they went

ahead and issued compulsory licenses certainly is an admission that they know that mechanical royalties section does them no good, no good. So, your Honor, this is a summary judgment and there only has to be a genuine issue of material fact for the Court to deny summary judgment. The language of the

agreement we think actually favors us, but even if it's ambiguous all of the extrinsic evidence in the case supports the notion that everyone understood that that mechanical royalties section is not an express license. Now, I want to address one other thing in that regard before I get to the next point that's important which is this notion of the language of Aftermath and its distributors/licensees that F.B.T. and its affiliates will license to Aftermath and its distributors/licensees, and I'll get to that issue in a second. Mr. Klaus interprets it one way. He says -But

first of all, he misinterprets it to be a license.

there is a very interesting way one can interpret that JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 also. The interesting way one can interpret it is to say

34

that under that agreement that the parties recognize that F.B.T.'s affiliates have the right to enter into a license later with Aftermath's licensee. And since Apple is

Aftermath's licensee, purported licensee, we should have the right to enter into a license separately with Apple. So that's a separate issue but it's certainly another way that one can interpret that language. The next point which I've covered -- oh, I want to also address the Reinhardt case since Mr. Klaus mentioned that case. The Reinhardt case is completely

distinguishable and not on point because, again, you have to live with the contract we have in this case. And in the

Reinhardt case the songwriter authorized his publisher to license a song to issue and the publisher granted a license to the defendants for "to electronically distribute and duplicate non-physical digital copies." That was

specifically the grant of right in that contract. Here, when it comes to a composition, there is no similar language as it relates to musical compositions. I wanted to make that point as well. Okay, with regard to the mechanical royalties provision not applying to digitals which Mr. Klaus -- this is our next point. I believe I addressed that a few

moments ago by saying that our point there -- our primary JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

35

point there is that because this language in this contract says that we will license for a reduced rate and for certain caps, and because as a matter of law you can't do that for digital, there's no application for digital in this contract. It would be as I said an academic exercise

to go through and say well what if this, and what if the language said this, and what if the language said that. just doesn't say it here. And we do submit the custom and practice in the industry through Mr. Sullivan that all these record labels in fact do license compositions for digital downloads separately. Okay, let's see here. Let's go to the implied It

license, I think that's the next argument that Mr. Klaus raised. The Sixth Circuit has made it very clear that

there are several elements to find an implied license. There must be a request for the creation, a creation and delivery and an intent that the license be copied and distributed in the manner in which it was distributed. The

Sixth Circuit has said and this is from the Johnson v Jones case, the most important element of an implied license is a finding that the "copyright owners intended that their copyrighted works be used in the manner in which they were eventually used. Without intent, there can be no license."

Well, here, your Honor, as I said all of the JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 makes.

36

evidence -- there is uncontradicted evidence in this record that Joel Martin for Eight Mile objected and objected and objected and objected and that from 2002 onward he made it very clear he did not want his composition licensed for digital download because there was no transparency in the accounting, because he couldn't be sure that -- using the account directly and he wanted a direct relationship with Apple. And, in fact, the party from Universal said that the one license, "Lose Yourself" license that was entered into, this lawyer said she remembered there was something about it being a trial license to see how things went. So

there were objections and Mr. Martin has testified to the objections, people from staff who have dealings with Universal testified in this case about the objections, and Tim Hernandez said it was well known so there was no consent to any of this. Now, let's get to the main point that Mr. Klaus The main point that Mr. Klaus makes in connection

with this argument is that Eight Mile cashed checks, okay. True, Eight Mile did cash checks. important but -- several things. check as part of its accounting. But -- and this is the One, Universal sends one It contains 95 percent if

not more of physical product sales, 95 percent if not more. Secondly, remember what -- I mentioned this, JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 there was a digital agreement entered into for Master Tones, which is when your phone rings and it might play a song or something, or two seconds of a song. In 2004, I

37

believe there was an agreement entered into between Eight Mile and Universal for Master Tones. And then there was

the "Lose Yourself" license that Eight Mile expected to be receiving money for. So when Eight Mile gets these Doesn't

statements all it says is "other," list "other."

break it out by phone and Universal -- as far as Eight Mile is concerned they believe that what they're getting is money for the physical product as well as for the "Lose Yourself," as well as for the Master Tone. There is no

knowing acceptance of money with respect to these other compositions and Universal lists on their accounting sheet "other," and "digital." So the digital could be for the

Master Tones, could be songs for license for Master Tones. It doesn't break it down by permanent download. say -- it certainly doesn't say Apple. permanent download. It doesn't

It doesn't say

It says "other" and it says "digital."

And because Universal and Eight Mile entered into an agreement, entered into it again for Master Tones, the digital would fall under Master Tones, and 95 percent of it was physical. And so the point is this: Knowing the objections

of Eight Mile, knowing they objected to their songs being JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 licensed for permanent download, knowing they wanted a direct relationship with Apple, an unscrupulous defendant who knew that they would be perhaps guilty of copyright

38

infringement could not -- I'm not suggesting that Universal is unscrupulous in this regard, but if they wanted to simply camlouflage money with other money, send one check to a publisher who has the duty to account to his writers and pay writers who are hungry, who need money, who expect to get paid, and say, oh, you cashed that check. We didn't

tell you that there were permanent download sales for this song or that song or this song, we just put it as "other"

or "digital" so you didn't know, but now you've ended up with an implied license. fact on this issue. Okay, the "Farm Club" case I think, your Honor, is particularly instructive in this case because the relevance to the "Farm Club" case is that Universal tried to do the same thing they're trying to do here. They're There certainly is a question of

trying to take a license that doesn't provide certain rights. In the "Farm Club" case, they tried to take a

license that didn't provide certain rights and use it for digital and the court said, no, you've got -- licenses are narrowly construed and you've got to live with what the language says. Here, there's not even a license. There's not

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 even a license, but the same theory applies.

39 They have to

live with the language in the agreement that they drafted, and as the drafter all inferences are against them. I'd like to talk I guess lastly about the plaintiffs' motion to -- well, it's not our motion to exclude late-produced documents, it's the late-produced documents, the third-party agreements that Mr. Klaus made reference to in the last part of his argument. He made reference to a chart they supplied. First of all, it's really -- it's unbelievable quite frankly. Mr. Klaus says we have these third-party

recording agreements, these third-party documents, and while plaintiffs say that these artists might not have had the rights to grant licenses, there's no evidence of it. And he says well they might, Universal might not have -they might have known -- he said they might have known, or they should have known that these artists didn't have any right, there's no evidence of it. Every one of these documents were produced after the close of discovery, every one of them. And so -- and

many of them, many of them produced with their summary judgment motion for the first time. So certainly

plaintiffs should not be prejudiced by the fact that documents just produced, there's no evidence to rebut -- or to discuss whether, in fact, these artists did or did not JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

40

have certain rights, or what Universal's knowledge was, we would need to take the depositions of all those people. would need document requests. We would need their We would need to They say, well, It We

agreements with their administrators.

depose different people from Universal.

you could have just asked for a Universal deposition. wouldn't have been just one person.

We would have had to We would need

depose individuals, their administrators. documents.

There would be no way to address that point.

But even with all that said, the agreements themselves as set forth in our chart that we submited show that with respect to many of the songs there's no license for digital. So we have in Exhibit 2, the Patrick Sullivan's

declaration, we have broken down by sections the different documents that were produced. The first section is

purported license agreements that make no mention of DPDs. And licenses are narrowly construed that if there's no mention of a DPD as an exploitation they don't have digital download license. Section 2 of Exhibit 2 has certain documents from the Harry Fox Agency, certain licenses, certain percentages. And then we have a -THE COURT: I have Exhibit 2. MR. BUSCH: Okay. have it there. Anyway, the document -- you

Those are -- well, that that's argument.

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 be brief. First, I want to start with the implied license argument that -- Mr. Busch said we get one check, how are we to know if there's income that there's for permanent downloads that are being made other than for "Lose Yourself." I think that's all that I have, your Honor, unless your Honor has any questions. THE COURT: No questions. Rebuttal? MR. KLAUS: Thank you, your Honor. I will try to

41

Well, that argument is based on statements that It doesn't explain why a year

were said in 2002, 2003.

after filing the lawsuit, they're still getting the check that includes the money for it and they're still cashing it. And, again, it's not that they're saying -- it's not

that they're saying it's a hassle to go through for them and say, well, I figured it out that this particular line doesn't count for it so I'm going to have to cut a check and send it back to you. They could say, send me a check I don't want to take your What the

that doesn't include those uses.

money for it, and they've never asked for it.

evidence shows is that they continued to deposit the check. I would also like to point out, Mr. Busch said how are we to know, how are we to know because it said "other"? Well, the statements that were said in 2002 and

JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2003 did say "other."

42

The more recent statements over the

last couple of years as indicated in the exhibit to Ms. LeMoine's declaration, first of all, there's no mistake whether it's "Lose Yourself" or some other composition, they list all the compositions, they break them out individually, and they say in "sales type" they don't say "other" they say DNLD, download. And at the same time

by -- I would also point out there's an exhibit that was submitted by Mr. Busch on behalf of the same plaintiffs in the F.B.T. and Em2M capacity which shows artist royalty statements, the payments for the sound recording as oppose to the composition, sent to exactly the same person, Mr. Martin, at exactly the same address, for exactly the same compositions that say permanent download. It's just not

plausible for them to say they didn't know they weren't getting them. And the bottom line is it doesn't matter

because they've been on notice of this at least since they've filed their lawsuit, and they still cashed the check. And what was important in the Johnson v Jones case, your Honor, was there was no payment of money. Didn't take any money, didn't deposit it in the bank. And the other case, Effects Associates, what it stands for is the proposition that the best evidence of the objective intent is if somebody takes the money and cashes JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it at the bank. Let me respond to a couple of other points. Busch said I mischaracterized his argument in terms of saying will, will not.

43

Mr.

What he said is they came to us and

we always agreed to give them something that was physical. What I said was his argument is "will" can mean will not in the case of digital and he didn't deny that, he didn't deny that. That is the essence of their argument. All the

extrinsic evidence about agreements that are being sent to Mr. Martin and licenses, their argument depends on the fact that it is within their right under the contract not to grant a license, that "will" can mean we will not for those uses. There was a reference to -- there was a reference by Mr. Busch, the statement that the 1998 agreement involved a different company, F.B.T. doesn't bind Eight Mile. its affiliates. I think the suggestion was that That's not true. It's F.B.T. or

In fact, Mr. Martin at his deposition,

this was Exhibit 8(b), pages 320 to 322, even said, I understand this has to apply to us because of the -- it applies to us because of the affiliated language. And what

he said was I always -- and he says it again in his declaration in this case, the last paragraph of his declaration, he said at least with respect to physical, I always understood that this imposed an obligation to us to JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 agree to agree. Mr. Busch said this case is about transparency,

44

and that we want better -- we want better audit rights, we want a greater visibility into what Apple did. If that's

the case, and "will be licensed" means that there has to be a license in the future, he could have asked for it because he said these additional terms that I want. What he's not

free to say is I'm not going to grant the license for that kind of use. Now, he then says that the -- he says that I misrepresented the Reinhardt case. This is the case from

the Southern District of New York because in this case the provision that I cited about now known or known technology that -- the distribution know known or hereafter known applies only to the sound recording rights. And he says it

doesn't apply to composition rights and, therefore, we've got you, you should have made it clear, you should have made it clear. Well, in fact, your Honor, the language that was discussed in the Reinhardt case with respect to now or hereafter known and I'm looking at page 354 of the Court's opinion, the language about now known or hereafter known in that case dealt with records, phonograph records for master recordings. It was the same type of provision that you

have at issue here. JOAN L. MORGAN, OFFICIAL COURT REPORTER 313 964-5489

MOTIONS THURSDAY, DECEMBER 4TH, 2008 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

45

He also, by the way, said that there's a critical difference in the Reinhardt case because he said that the publisher -- what he's trying to say is the person who stands in the position of Mr. Martin and the Eight Mile Style plaintiffs that person has granted the license for digital uses, or that the license said that it was -- it was electronically distributed duplicated non-physical digital copies. He said that wasn't here, you should have He's wrong. That

had it in the 1998 and 2003 agreement. is not the language.

The party that was the analogous to

Mr. Martin was the plaintiff, Mr. Reinhardt who had the composition right. What he says -- and there's a very good reason why his agreement didn't say anything about digital copies because the band he was engaged with, the Ramones, they made music in the early `80s. distribution. That was before we even had

It's not covered there.

The language that he was quoting is the language that is from the record companies -- the record companies' agreements with the digital provider. applicable. Most of Mr. Busch's argument in terms of the law and contract interpretation is you've got to look at the -the Court has to receive extrinsic evidence. The question It's just not

isn't whether the