Delta, one of the world's top independent music and video companies, had filed a lawsuit in 2001 (Delta Entertainment Corporation v. The Harry Fox Agency, CV-01-07376 TJH) seeking legal protection from what it says are "illegal business practices" of the Harry Fox Agency (HFA). HFA controls the issuance of all mechanical licenses for the reproduction of musical compositions and collects and distributes royalties to songwriters from record companies.
"Publishing companies hire HFA to handle the collection of their songwriters' royalties and HFA takes a percentage of what it collects as payment," says Cappello. "HFA has a monopoly on this area of the music business. Because it has no competitors, HFA is known within the industry as ruthless."
Delta and HFA have been doing business for more than 12 years. According to Delta, mechanical licenses were issued by HFA to Delta on a routine basis. On February 27, 1996, HFA notified Delta that it would be performing an audit of its books for the period July 1, 1991 through June 30, 1997 (later extended to December 31, 1997). The audit took four years. At the conclusion of the audit, HFA announced that Delta owed HFA more than $15 million in unpaid royalties. The claim was comprised of $2 million in "findings," $1.88 million for "excess" reserves, $6.1 million in "extrapolated" amounts and $5.5 million in interest. "HFA's $15 million royalties claim is a classic case of creative accounting," notes Cappello. Delta conducted its own investigation and found that it had overpaid HFA $1.182 million during the audit period.
Delta says that while the parties were attempting to work out the disparity in payments owed, HFA put a hold on all mechanical license requests from Delta. "This, in effect, stopped Delta's business cold," explains Cappello. "Without the licenses, Delta could not produce records. Since HFA has a monopoly on music industry mechanical licenses, Delta could not go elsewhere to obtain the licenses. It was HFA's attempt to strong-arm Delta into an unfavorable settlement on its audit claims, knowing Delta had no other licensing agency to turn to."
Delta's suit also seeks damages for HFA's alleged unfair business practices and violations of Section 17200 of California's Business and Professions Code pertaining to federal antitrust laws. "If successful, the lawsuit will have a significant impact on the music publishing industry," says Cappello. "The Harry Fox Agency has had a stronghold on the industry for years. Record companies live in fear of the agency. This case will hopefully put a stop to its bullying and intimidation tactics and open the licensing process to fair market competition."
Delta Entertainment releases recordings under the Life Music, Reader's Digest Music, Yamaha, Capriccio, Delta and Legend labels with an audio catalog including classical, pop, jazz, blues, rap, metal, nature, meditation and new-age.