Background to Dispute
In 2012, a music company, VMG Salsoul LLC sued Pettibone and Warner for copyright infringement, arguing that Pettibone had copied a portion of the song "Love Break" and used it without permission in "Vogue". Warner and Pettibone were successful in defeating this claim. However, Warner withheld over $500,000 in royalties due to Pettibone to offset the legal fees in defending the claim.
In April 2017, Pettibone brought a claim against WB Music Corp and Warner Music Group publishing division 'Warner / Chappell', claiming that the label and publisher had unfairly withheld his royalty payments.
Pettibone's complaint was dismissed, with the court finding that the agreement with Warner provided that Pettibone's royalty payments should be used to pay Warner's attorney fees. A New York appeals court held on 17th April 2019 that Pettibone was not responsible for paying Warner's legal fees in the copyright infringement case.
Contract with Warner
The section of the agreement dealing with the indemnity stated as follows;
"Each party will indemnify the other against any loss or damage (including court costs and reasonable attorneys' fees) due to a breach of this agreement by that party which results in a judgment against the other party or which is settled with the other party's prior written consent (not to be unreasonably withheld). In addition, [Pettibone's] indemnity shall extend to the "deductible" under [Warner's] errors-and-omissions policy without regard to judgment or settlement. Each party is entitled to be notified of any action against the other brought with respect to [the song "Vogue"], and to participate in the defense thereof by counsel of its choice, at its sole cost and expense"
Decision on Appeal
The appeals court found that under New York law, which governs the agreement, an indemnification provision cannot be enforced unless the intention to impose such an obligation is "unambiguous".
The court held that the agreement was "pock-marked with ambiguity" and that on reading It appeared that the agreement provided that each party will pay their own costs and fees. The withheld royalties are estimated to be almost $1 million.
Advice for businesses
This case clearly illustrates that any legal agreement with a third party whether that be a supplier, customer or consultant should be as clear as possible to give effect to the aims of the business and legally enforceable. Without clarity in legal agreements (or poorly drafted indemnity provisions such as this), businesses can find themselves in similar positions– having to pay out large sums of money for issues that could have been avoided with careful legal drafting.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.